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‘485BPOS’ — Ms Institutional Liquidity Funds-485Bpos
The
Securities
and Exchange Commission (“SEC”) has not
approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio
iInvestment
Objective
i
The Prime Portfolio (the “Fund”) seeks preservation
of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Total
Annual Fund Operating Expenses1
i0.21%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Class with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Class
$i20
$i67
$i117
$i267
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
other factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
•
LIBOR
Discontinuance or Unavailability Risk. The London
InterBank Offered Rate (“LIBOR”) is intended to represent the rate at which
contributing banks may obtain short-term borrowings from each other in the London interbank market. The regulatory authority
that oversees financial services firms and financial markets in the U.K. has announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions for purposes of determining the LIBOR rate. However,
subsequent announcements by the Financial Conduct Authority, the LIBOR administrator and other regulators indicate
that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be provided on a representative basis
until mid-2023. However, in connection with supervisory guidance from regulators, some regulated entities will cease to enter
into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or on a later
date, if a particular LIBOR tenor is expected to continue beyond the end of 2021), LIBOR may no longer be available or no longer
deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes, derivatives
and other instruments or investments comprising some or all of the Fund’s portfolio.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio
iInvestment
Objective
i
The ESG Money Market Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Total
Annual Fund Operating Expenses1
i0.22%
Fee
Waiver and/or Expense Reimbursement1
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Class with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Class
$i20
$i69
$i122
$i278
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Adviser believes that environmental, social and governance
(“ESG”) factors have the ability to impact the fundamental credit risk of
an entity. The Fund’s investment process incorporates information about ESG issues via an integrated approach within the Adviser’s
fundamental investment analysis framework. The Adviser may engage with management of certain issuers regarding corporate
governance practices as well as what the Adviser deems to be materially important environmental and/or social issues facing a
company.
The Adviser has proprietary ESG-scoring methodologies
that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
During the security selection process, the Adviser employs
a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The Fund may invest in green commercial paper (a security
that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In analyzing whether an issuer meets any of the criteria
described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After applying the above exclusion screens, the Adviser
calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
From the final list of ESG-approved issuers, the Adviser
determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under normal circumstances, the Fund will invest 100%
of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
ESG
Investment Risk. The Fund’s adherence to
its ESG criteria and application of related analyses when selecting investments may affect
the Fund’s performance depending on whether such investments are in or out of favor and relative to similar funds that do not
adhere to such criteria or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices
or the Adviser’s assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs
and values of any particular investor. Additionally, the Fund’s adherence to its ESG criteria and application of related analyses
in connection with identifying and selecting investments in non-U.S. issuers often require subjective analysis and may be relatively
more difficult than applying the ESG criteria or related analyses to investments of U.S. issuers because data availability may
be more limited with respect to non-U.S. issuers. The exclusionary criteria related to the Fund’s ESG criteria may result in the
Fund forgoing opportunities to buy certain securities when it might otherwise be advantageous to do so, or selling securities for
ESG reasons when it might be otherwise disadvantageous for it to do so. The Fund’s investments in certain companies may be susceptible
to various factors that may impact their businesses or operations, including costs associated with government budgetary
constraints that impact publicly funded projects and clean energy initiatives, the effects of general economic conditions throughout
the world, increased competition from other providers of services, unfavorable tax laws or accounting policies and high
leverage.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the
minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Total
Annual Fund Operating Expenses1
i0.21%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Class with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Class
$i20
$i67
$i117
$i267
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio
iInvestment
Objective
i
The Government Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Total
Annual Fund Operating Expenses1
i0.22%
Fee
Waiver and/or Expense Reimbursement1
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Class with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Class
$i20
$i69
$i122
$i278
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest substantially
all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment. The U.S. government
securities that the Fund may purchase include those issued or guaranteed either by the U.S. Treasury or certain agencies, authorities
or instrumentalities of the U.S. Government. The Fund may also invest in repurchase agreements with the Federal Reserve
Bank of New York.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. government securities. This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio
iInvestment
Objective
i
The Treasury Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Total
Annual Fund Operating Expenses1
i0.21%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Class with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Class
$i20
$i67
$i117
$i267
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. Treasury obligations, which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio
iInvestment
Objective
i
The Treasury Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Total
Annual Fund Operating Expenses1
i0.21%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Class with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Class
$i20
$i67
$i117
$i267
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. A “government money market fund” is exempt from requirements that permit
money market funds to impose a “liquidity fee” and/or a “redemption gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain
the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that
the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. Treasury obligations, which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio
iInvestment
Objective
i
The Tax-Exempt Portfolio (the “Fund”) seeks
to maximize current income exempt from federal income tax to the extent consistent with
preservation of capital and maintenance of liquidity.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.19%
Total
Annual Fund Operating Expenses1
i0.34%
Fee
Waiver and/or Expense Reimbursement1
i0.14%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Class with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Class
$i20
$i95
$i177
$i417
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests at least 80% of its assets in high
quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. The Fund may also invest in variable and floating rate demand instruments, tender option bonds, custodial
receipts and investments in other investment companies, including money market funds.
The Fund may invest up to 20% of its assets in taxable
money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax; however, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax. In addition, the Fund may temporarily invest more than 20%
of its assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may invest in variable and floating rate loans
and other variable and floating rate securities. Although these instruments
are generally less sensitive to interest rate changes than fixed rate instruments, the value of variable and floating rate loans
and other securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates.
The Fund may face a heightened level of interest rate
risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve
Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks,
including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended
durations (i.e., extension risk). During periods when
interest rates are low or there are negative interest rates, the Fund’s yield
(and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain positive returns or minimize
the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of liquidity or credit
risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an
instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
Tax-Exempt
Variable Rate Demand Notes. Tax-exempt variable
rate demand notes are variable rate tax-exempt debt obligations that give
investors the right to demand principal repayment. Due to cyclical supply and demand considerations, at times the yields on these
obligations can exceed the yield on taxable money market obligations. The interest rate on these instruments may be reset daily,
weekly or on some other reset period and may have a floor or ceiling on interest rate changes. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank’s prime rate, and is reset whenever such rate is adjusted. The
interest rate on a variable rate demand note is reset at specified intervals at a market rate. The Fund’s ability to receive payments
of principal and interest and other amounts in connection with debt obligations held by it will depend primarily on the financial
condition of the issuer. The failure by the Fund to receive scheduled interest or principal payments on a debt obligation would
adversely affect the income of the Fund and would likely reduce the value of its assets, which would be reflected in a reduction
in the Fund’s NAV.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
Purchase
and Sale of Fund Shares
Institutional
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that are generally not subject to federal income tax; however the Fund may distribute taxable dividends,
including distributions of short-term capital gains, and long-term capital gains. In addition, interest on certain bonds may be
subject to the federal alternative minimum tax. To the extent that the Fund’s distributions are derived from interest on bonds
that are not exempt from applicable state and local
taxes, such distributions will be subject to such state and local taxes.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Prime
Portfolio
Investment
Objective
The
Prime Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S.
dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio
Investment
Objective
The
ESG Money Market Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser believes that ESG factors have the ability to impact the fundamental credit risk of an entity. The Fund’s investment process
incorporates information about ESG issues via an integrated approach within the Adviser’s fundamental investment analysis framework.
The Adviser may engage with management of certain issuers regarding corporate governance practices as well as what the Adviser
deems to be materially important environmental and/or social issues facing a company.
The
Adviser has proprietary ESG-scoring methodologies that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
During
the security selection process, the Adviser employs a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The
Fund may invest in green commercial paper (a security that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In
analyzing whether an issuer meets any of the criteria described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After
applying the above exclusion screens, the Adviser calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio (Con’t)
From
the final list of ESG-approved issuers, the Adviser determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under
normal circumstances, the Fund will invest 100% of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued
or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Securities Portfolio
Investment
Objective
The
Government Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest substantially all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The U.S. government securities that the Fund may purchase include those
issued or guaranteed either by the U.S. Treasury or certain agencies, authorities or instrumentalities of the U.S. Government. The
Fund may also invest in repurchase agreements with the Federal Reserve Bank of New York. The Fund may change its principal investment
strategies; however you would be notified of any changes.
Shareholders
should consult their individual tax adviser to determine whether the Fund’s distributions derived from interest on the Treasury
obligations and U.S. government securities referred to above are exempt from state taxation in their own state.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. government securities.
This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
The
Adviser will generally seek to place purchase orders for the Fund with broker-dealers that are owned by minorities, women, disabled
persons, veterans and members of other recognized diversity and inclusion groups and will place the majority of the aggregate
dollar volume of the Fund’s purchase orders for government agency securities obtained via auction or window through such broker-dealers,
subject in each case to the Adviser’s duty to seek best execution for the Fund’s orders.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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of the Funds
Treasury
Portfolio
Investment
Objective
The
Treasury Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Securities Portfolio
Investment
Objective
The
Treasury Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. In selecting investments, the Adviser seeks to maintain the Fund’s share price
at $1.00. The share price remaining stable at $1.00
means that the Fund would preserve the principal value of your investment. The Fund
may change its principal investment strategies; however you would be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Tax-Exempt
Portfolio
Investment
Objective
The
Tax-Exempt Portfolio seeks to maximize current income exempt from federal income tax to the extent consistent with preservation
of capital and maintenance of liquidity.
Approach
The
Fund invests at least 80% of its assets in high quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. Municipal obligations are securities issued by state and local governments and their agencies and typically
are either general obligation or revenue bonds, notes or commercial paper. General obligation securities are secured by the issuer’s
full faith and credit including its taxing power for payment of principal and interest. Revenue bonds, however, are generally payable
from a specific revenue source. They are issued for a wide variety of projects such as financing public utilities, hospitals, housing,
airports, highways and educational facilities. Included within the revenue bonds category are participations in lease obligations
and installment purchase contracts of municipalities. Additionally, the Fund’s investments may include variable and floating
rate demand instruments, tender option bonds, custodial receipts and investments in other investment companies, including money
market funds.
The
Fund may invest up to 20% of its assets in taxable money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax. However, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax.
While
at least 80% of the Fund’s assets typically will be invested in municipal obligations, the interest of which is exempt from
federal income taxes and is not subject to the federal
alternative minimum tax, the Fund may temporarily invest more than 20% of its
assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The
Fund operates as an “institutional money market fund” which is neither a “government money market fund” nor
“retail money market fund” as such terms
are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis, taking into consideration factors such as economic developments, budgetary trends, cash flow, debt service
coverage ratios and tax-law changes. Exposure to guarantors and liquidity providers is monitored separately. Weighted average maturity
is shifted in response to expectations as to the future course of money market interest rates, the shape of the money market yield
curve and the Fund’s recent cash flow experience.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
Certain
Funds may not be able to maintain a stable $1.00 share price at all times. If a Fund or another money market fund fails to maintain
a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), a Fund could be subject
to increased redemptions, which may adversely impact a Fund’s share price. In general, certain other money market funds have
in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption pressures will
not occur in the future. Neither a Fund’s sponsor nor any of its affiliates has a legal obligation to provide financial support
to a Fund, and you should not rely on or expect that
they or any person will provide any type of financial support to a Fund at any time to
help a Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making capital infusions into the
Fund, or taking other actions).
Floating
NAV Risk
Certain
Funds do not maintain a stable NAV per share. The value of a Fund’s shares will be calculated to four decimal places and will fluctuate
with changes in the values of a Fund’s portfolio securities. Investors should expect the value of their investment to vary and
reflect the current market value of a Fund’s
holdings. When you sell your shares, they may be worth more or less than what you originally
paid for them. This may result in a capital gain or loss.
Neither a Fund’s sponsor nor any of its affiliates has a legal obligation
to provide financial support to a Fund, and you should not rely on or expect that they or any person will provide any type of
financial support to a Fund at any time.
Bank
Obligations
Bank
obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time deposits
and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than
$1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, certain Funds may invest
in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the
time of purchase, U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such foreign banks and
foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S. government
regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks. Obligations of foreign banks, including Yankee obligations,
are subject to the same risks that pertain to domestic issuers, notably credit risk and market risk, but are also subject to certain
additional risks such as adverse foreign political and economic developments, the extent and quality of foreign government regulation
of the financial markets and institutions, foreign withholding taxes and other sovereign action such as nationalization or expropriation.
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
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Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. Certain Funds may invest in variable
and floating rate securities. Although these instruments are generally less sensitive to interest rate changes than fixed rate instruments,
the value of these securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates. A
low interest rate environment may prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A
Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or changes rates. During periods when interest rates are low or there are
negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or minimize the volatility of the Fund’s net asset value per share or maintain a stable net asset
value of $1.00 per share, as applicable. Credit ratings
may not be an accurate assessment of liquidity or credit risk. Although credit ratings
may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an instrument or an issuer can have
a rapid, adverse effect on the instrument’s liquidity and make it more difficult for a Fund to sell at an advantageous price or
time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that certain Funds may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, certain Funds may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are Ginnie Mae and the Federal Housing Administration. Also, certain Funds may purchase
securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Further,
certain Funds may purchase securities issued by agencies
and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality.
Among these agencies and instrumentalities is the Federal Farm Credit System. Because these securities are not backed
by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability of the issuers of some U.S. government securities held
by a Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. It is possible that
these issuers will not have the funds to meet their payment obligations in the future. The interest from U.S. government securities
generally is not subject to state and local taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
ESG
Investment Risk
A
Fund’s adherence to its ESG criteria and application of related analyses when selecting investments may affect a Fund’s
performance depending on whether such investments are
in or out of favor and relative to similar funds that do not adhere to such criteria
or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices or the Adviser’s
assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs and values of any
particular investor. Additionally, a Fund’s adherence to its ESG criteria and application of related analyses in connection with
identifying and selecting investments in non-U.S. issuers
often require subjective analysis and may be relatively more difficult than applying
the ESG criteria or related analyses to investments of U.S. issuers because data availability may be more limited with respect to
non-U.S. issuers. The exclusionary criteria related to a Fund’s ESG criteria may result in a Fund forgoing opportunities to buy
certain securities when it might otherwise be advantageous
to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous
for it to do so. A Fund’s investments in certain companies may be susceptible to various factors that may impact their
businesses or operations, including costs associated with government budgetary constraints that impact publicly funded projects and
clean energy initiatives, the effects of general economic conditions throughout the world, increased competition from other providers
of services, unfavorable tax laws or accounting policies and high leverage.
Foreign
Securities
Certain
Funds may invest in U.S. dollar-denominated securities issued by foreign governmental or corporate issuers, including Eurodollar
and Yankee obligations. Although the
Fund will invest in these securities only if the Adviser
determines they are of comparable quality to the Fund’s
U.S. investments, investing in securities of foreign issuers involves some additional risks. While these
securities are subject to the same type of risks that pertain to domestic issuers, namely credit risk and interest rate risk, they are
also subject to other additional risks. Foreign issuers
generally are subject to different accounting, auditing and financial reporting standards
than U.S. issuers. There may be less information available to the public about foreign issuers. Securities of foreign issuers can
be less liquid and experience greater price movements. In some foreign countries, there is also the risk of government expropriation,
excessive taxation, political or social instability, the imposition of currency controls or diplomatic developments that could
affect an investment. There also can be difficulty obtaining and enforcing judgments against issuers in foreign countries. Foreign
stock exchanges, broker-dealers and listed issuers may be subject to less government regulation and oversight. Governmental actions
can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the value and liquidity
of a Fund’s investments. Foreign investment in the securities markets of certain foreign countries is restricted or controlled
to varying degrees.
Economic
sanctions may be, and have been, imposed against certain countries, organizations, companies, entities and/or individuals. Economic
sanctions and other similar governmental actions could, among other things, effectively restrict or eliminate a Fund’s ability
to purchase or sell securities or groups of securities, and thus may make a Fund’s investments in such securities less liquid or
more difficult to value. In addition, as a result of
economic sanctions, the Fund may be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and increased transaction costs. These conditions may
be in place for a substantial period of time and enacted with limited advance notice to a Fund.
Foreign
Money Market Securities
Certain
Funds may invest in foreign money market securities. As described elsewhere herein, foreign investing may involve risks relating
to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. Investments
in foreign markets may also be adversely affected by less stringent investor protections and disclosure standards, and governmental
actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the
imposition of punitive taxes. In addition, there are differences between U.S. and foreign regulatory requirements and market practices
that may result in additional risk. Foreign money market securities also present credit and interest rate risks similar to those attendant
to an investment in domestic money market securities.
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
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Custodial
Receipts
Certain
Funds may invest in custodial receipts representing interests in U.S. government securities, municipal obligations or other debt
instruments held by a custodian or trustee. Custodial receipts evidence ownership of future interest payments, principal payments
or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. Government, its agencies, instrumentalities,
political subdivisions or authorities, by a state or local governmental body or authority, or by other types of issuers. For
certain securities law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition, if for tax
purposes a Fund is not considered to be the owner of
the underlying securities held in the custodial account, the Fund may suffer adverse
tax consequences. As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged to
the custodial account.
Tender
Option Bonds
A
tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction
with the agreement of a third-party, such as a bank, broker-dealer or other financial institution, pursuant to which the institution
grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing
the option, the financial institution receives periodic fees equal to the difference between the bond’s fixed coupon rate and the
rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par
on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the
event of certain defaults or significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be
taken into account in determining the maturity of the tender option bonds and average portfolio maturity. There is a risk that the Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such
interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of a credit
rating downgrade, a payment default or a disqualification from tax-exempt status. Additionally, the Dodd–Frank Wall Street Reform
and Consumer Protection Act,
including the Volcker Rule, among other regulatory changes,
may affect the ability of bank-sponsored tender option
bonds to continue to operate or remain cost-effective investments.
Corporate
Debt Obligations
Corporate
debt obligations are fixed-income securities issued by private corporations. The investment return of corporate debt obligations
reflects interest earnings and changes in the market value of the security. The market value of a corporate debt obligation may
be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or
principal payments at the time called for by an instrument. Debtholders, as creditors,
have a prior legal claim over common and preferred stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. Certain Funds will buy corporate debt obligations subject to any quality constraints set forth
under Rule 2a-7.
Revenue
Bonds
Revenue
bonds are municipal obligations that are secured by the revenue from a specific project. To the extent that such revenues do not
materialize, the revenue bonds may not be repaid. If a Fund invests in revenue bonds
that are issued by municipal issuers in the same
economic sector, a
Fund would be particularly susceptible to developments adversely affecting that sector. Revenue
bonds historically have been subject to a greater risk
of default than general obligation bonds because investors can look only to the revenue generated
by the project or other revenue source backing the project, rather than to the general taxing authority of the state or local government
issuer of the obligations. For example, investments in revenue bonds backed by receipts from hospitals are sensitive to hospital
bond ratings, which are often based on feasibility studies that contain projections of expenses, revenues and occupancy levels. Additional
factors which could affect a hospital’s gross receipts and net income available to service its debt are demand for hospital services,
the ability of the hospital to provide the services required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses, reputational issues, competition, availability and expenses
of malpractice insurance, Medicaid and Medicare funding and possible federal legislation regulating hospital charges.
LIBOR
Discontinuance or Unavailability Risk.
LIBOR
is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with supervisory guidance from regulators, some regulated
entities will cease to enter into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or
a later date, if a particular reference rate is expected to continue beyond 2021), LIBOR may no longer be available
or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives
and other instruments or investments comprising some or all of a Fund’s portfolio. In light of this eventuality, public and
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
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private
sector industry initiatives are currently underway to establish
new or alternative reference rates to be used in place of LIBOR. There
is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance
or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any
such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still
may be developing. There may also be challenges for a Fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a Fund’s performance
or net asset value.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a
Fund’s investments, which may change due to economic
and other events that affect markets generally, as well
as those that affect particular regions, countries, industries, companies or governments.
Price
movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Inflation
rates may change frequently and
significantly because of various factors, including unexpected shifts in the domestic or global economy and changes in monetary
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
or
economic policies (or expectations that these policies may change). Changes in expected inflation rates may adversely affect market and
economic conditions, a Fund’s investments and an investment in a Fund. Other
financial, economic and other global market and social
developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar events affecting
the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects (which
may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an attractive investment
opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought by a Fund. As
a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment at the time or
seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle. Any such event(s)
could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk that you may lose
money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations,
cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would
generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by certain Funds
may include U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and
preferred stock and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For example,
if the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the securities
has declined, the Funds may incur a loss upon disposition of them. The risk of such loss may be greater when utilizing
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
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collateral
other than U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right
to control the collateral could be affected and result in certain costs and delays. Additionally, if the proceeds from the liquidation
of such collateral after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
The
Government Securities Portfolio may enter into repurchase agreements with the Federal Reserve Bank of New York. Reduced participation
in the repurchase agreement market by the Federal Reserve Bank of New York may affect the Fund’s investment strategies,
operations and/or return potential.
Municipals
Certain
Funds may purchase municipal obligations subject to any restraints set forth under Rule 2a-7. Municipal obligations are securities
issued by state and local governments and their agencies. These securities typically are “general obligation” or “revenue”bonds, notes or commercial paper, including participations
in lease obligations and installment purchase contracts of municipalities. These
obligations may have fixed, variable or floating rates. To the extent a Fund invests in municipal obligations issued by state and local
governments and their agencies, the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of
these municipal obligations. Municipal obligations are also subject to credit risk and interest risk. In the case of revenue bonds, for
example, credit risk is the possibility that the user
fees from a project or other specified revenue sources are insufficient to meet interest
and/or principal payment obligations. The Fund is subject to added credit risk if it concentrates its investments in a single economic
sector, which could be effected by economic, business or political developments which might affect all municipal obligations
in that particular economic sector.
Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds (other than the Treasury Securities Portfolio) may invest in investment companies, including money market funds, and may
invest all or some of their short-term cash investments in any money market fund advised or managed by the Adviser or its affiliates
(an “affiliated money market fund”). An investment in an investment company is subject to the underlying risks of that investment
company’s portfolio securities. In addition to a Fund’s fees and expenses, the Fund generally would bear its share of the
investment company’s fees and expenses other
than advisory and administrative fees of affiliated money market funds.
Promissory
Notes
Promissory
notes are generally debt obligations of the issuing entity and are subject to the risks of investing in the banking industry. Certain
Funds may invest up to 5% of their net assets in illiquid securities, including unsecured bank promissory notes.
Tax-Exempt
Variable Rate Demand Notes
Tax-exempt
variable rate demand notes are variable rate tax-exempt debt obligations that give investors the right to demand principal repayment.
Due to cyclical supply and demand considerations, at times the yields on these obligations can exceed the yield on taxable money
market obligations. The interest rate on these instruments may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. The interest rate of a floating rate instrument may be based on a known lending rate, such
as a bank’s prime rate, and is reset whenever such rate is adjusted. The interest rate on a variable rate demand note is reset
at specified intervals at a market rate. The Fund’s
ability to receive payments of principal and interest and other amounts in connection with
loans held by it will depend primarily on the financial condition of the issuer. The failure by the Fund to receive scheduled interest
or principal payments on a loan would adversely affect the income of the Fund and would likely reduce the value of its assets, which
would be reflected in a reduction in the Fund’s NAV.
Floating
rate and variable rate demand notes and bonds may have a stated maturity in excess of one year, but may have features that permit
a holder to demand payment of principal plus accrued interest upon a specified number of days’ notice. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided by banks. If these obligations are not secured
by letters of credit or other credit support arrangements, the Fund’s right to demand payment will be dependent on the ability
of the issuer to pay principal and interest on demand. In addition, these obligations frequently are not rated by credit rating agencies
and may involve heightened risk of default by the issuer. The issuer of such obligations normally has a corresponding right, after
a given period, to prepay in its discretion the outstanding principal of the obligation plus accrued interest upon a specific number
of days’ notice to the holders. There is no assurance that the Fund will be able to reinvest the proceeds of any prepayment at
the same interest rate or on the same terms as those
of the original instrument.
In
the absence of an active secondary market for floating rate and variable rate demand notes, the Fund may find it difficult to dispose
of the instruments, and the Fund could suffer a loss if the issuer defaults or during periods in which the Fund is not entitled to
exercise its demand rights. If a reliable trading market for the floating rate and variable rate instruments held by the Fund does not
exist and the Fund may not demand payment of the principal
amount of such instruments within seven days, the instruments may be deemed
illiquid and therefore subject to the Fund’s limitation on investments in illiquid securities.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
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Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains, and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund (other than the Treasury Securities Portfolio)
may invest without limit in cash or cash equivalents and the Tax-Exempt Portfolio
may invest without limit in taxable money market securities. Also in such circumstances, the Treasury Securities Portfolio may
invest without limit in cash and repurchase agreements with the Federal Reserve Bank of New York collateralized by U.S. Treasury
obligations. If the Adviser incorrectly predicts the effects of these changes, such defensive investments may adversely affect a Fund’s
performance and the Fund may not achieve its investment objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, which
is the parent of the Distributor. Morgan Stanley is
a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment
banking, research and analysis, financing and financial advisory services. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees’
approval of the Trust’s Investment Advisory Agreement
is available in the Funds’ Annual Report to shareholders
for the fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021,
the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
Prime
Portfolio
0.07%
ESG
Money Market Portfolio
0.07%
Government
Portfolio
0.01%
Government
Securities Portfolio
0.01%
Treasury
Portfolio
0.02%
Treasury
Securities Portfolio
0.01%
Tax-Exempt
Portfolio
0.00%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse the Fund’s Institutional Class, if necessary, if such fees would cause the total annual operating expenses
of such Fund’s Institutional Class to exceed the percentage of daily net assets set forth in the table below. In determining the
actual amount of fee waiver and/or expense reimbursement
for each Fund, if any, the Adviser and Administrator exclude from total annual
operating expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes, interest and other
extraordinary expenses (including litigation). The fee waivers and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Trust’s Board of Trustees acts to discontinue all or a portion of such waivers and/or
reimbursements when it deems
such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap Institutional Class
Prime
Portfolio
0.20%
ESG
Money Market Portfolio
0.20%
Government
Portfolio
0.20%
Government
Securities Portfolio
0.20%
Treasury
Portfolio
0.20%
Treasury
Securities Portfolio
0.20%
Tax-Exempt
Portfolio
0.20%
The
Adviser and Administrator may also waive advisory fees, administration fees and/or reimburse expenses to enable a Fund to maintain
a minimum level of daily net investment income. The Adviser and Administrator may make additional voluntary fee waivers
and/or expense reimbursements. The Adviser and Administrator may discontinue these voluntary fee waivers and/or expense reimbursements
at any time in the future.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio and Government Securities Portfolio are intended
to qualify as eligible investments for federally chartered credit unions pursuant to the applicable provisions of the Federal Credit
Union Act and the National Credit Union Administration. Shares of the Government Portfolio and Government Securities Portfolio,
however, may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should
consult qualified legal counsel to determine whether these Funds are permissible investments under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers Institutional Class shares of each Fund. The Trust also offers other classes of shares through separate prospectuses.
Certain of these classes may be subject to different fees and expenses. For information regarding other share classes, contact
the Trust or your financial intermediary.
Minimum
Investment Amount
Institutional
Class shares are available to investors who at the time of initial purchase make a minimum investment of $10 million, or to
clients of Morgan Stanley & Co. LLC and its broker-dealer affiliates. The Adviser, in its sole discretion, may waive the minimum initial
investment amount in certain cases including, but not limited to, shares of the Fund purchased through a financial intermediary
or when the Adviser anticipates the combined value of a client’s investments will meet or exceed the minimum.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial intermediaries (also referred to as service organizations) who
may accept purchase and redemption orders for shares of each Fund on its behalf.
The
Adviser and/or the Distributor may pay additional compensation (out of their own funds and not as an expense of a Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with the sale, distribution, retention and/or servicing
of Fund shares. Such compensation may be significant in amount and the prospect of receiving any such additional compensation
may provide affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment
options. Any such payments will not change the NAV or the price of Fund shares. For more information, please see the Funds’
SAI.
Valuation
of Shares
Each
of the Prime Portfolio’s, ESG Money Market Portfolio’s and Tax-Exempt Portfolio’s investments will be valued using
market-based prices provided by an approved pricing
service/vendor and the share price of each rounded to a minimum of the fourth decimal place.
The price of each of Government Portfolio’s, Government Securities Portfolio’s, Treasury Portfolio’s and Treasury
Securities Portfolio’s shares is based on the
amortized cost of the Fund’s securities. The amortized cost valuation method involves valuing a debt obligation
in reference to its cost rather than market forces. If the Adviser determines that a valuation is not reflective of the security’s
market value, such security is valued at its fair value
as determined in good faith under procedures established by and under the general
supervision of the Board.
The
NAV of each Fund is determined once daily (except that the NAV of Prime Portfolio is determined three times daily), normally at
the times set forth below, on each day that the NYSE is open (the “Pricing Time”), except when the following federal holidays
are observed: Columbus Day and Veterans Day.
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
Government
Portfolio Treasury Portfolio
As
of 5:00 p.m. Eastern time
ESG
Money Market Portfolio Government Securities Portfolio Treasury
Securities Portfolio
As
of 3:00 p.m. Eastern time
Tax-Exempt
Portfolio
As
of 1:00 p.m. Eastern time
Prime
Portfolio
As
of 8:00 a.m., 12:00 p.m. and 3:00 p.m. Eastern time
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
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Pricing
of Fund Shares
Institutional
Class shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives your
order in good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal Reserve
Bank (“Federal Funds”) prior to the close
of the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same day
your Institutional Class shares are purchased provided the Fund receives your purchase amount in Federal Funds that day as set forth
above. Orders to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV next determined:
for the Government Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; for the Tax-Exempt Portfolio—1:00 p.m.
Eastern time; and for the Prime Portfolio—8:00 a.m., 12:00 p.m. or 3:00 p.m. Eastern time. On any business day that the NYSE
closes early, or when SIFMA recommends that the securities markets close early, a Fund may close early and purchase orders received
after such earlier closing times will be processed the following business day. If the NYSE is closed due to inclement weather, technology
problems or any other reason on a day it would normally be open for business, or the NYSE has an unscheduled early closing
on a day it has opened for business, a Fund reserves the right to treat such day as a business day and accept purchase and redemption
orders until, and calculate its NAV as of, the normally scheduled close of regular trading on the NYSE for that day, or such
time noted above, so long as the Adviser believes there generally remains an adequate market to obtain reliable and accurate market
quotations. A Fund may elect to remain open and
price its shares on days when the NYSE is closed or
closes early but on which SIFMA recommends that the
bond markets remain open for all or part of the day. Purchase orders received by the
Funds and not
funded by 6:45
p.m. Eastern time on the trade date may be subject to an overdraft charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
Institutional
Class shares of the Funds may be purchased directly from the Fund or through a financial intermediary.
Purchasing
Shares Through a Financial Intermediary You
may open a new account and purchase Fund shares through certain authorized third-parties, such as brokers, dealers or other financial
intermediaries that have entered into a selling agreement with the Distributor (each, a “Financial Intermediary”). Your
Financial Intermediary will assist you with the procedures
to invest in shares of the Fund. The Financial Intermediary will establish times
by which such purchase orders and payments from customers must be received by the Financial Intermediary. Financial Intermediaries
are responsible for transmitting purchase orders and payments to the Trust and the Trust’s Custodian in a timely fashion.
Purchase orders placed with a Financial Intermediary and transmitted through a trading platform utilized by the Financial Intermediary
may be transmitted by the trading platform after the deadlines established by the Trust for receipt of purchase orders, as set
forth below; in such case, the purchase orders will receive a trade date of the next business day.
Investors
purchasing Institutional Class shares through a Financial Intermediary may be charged a transaction-based or other fees by the
Financial Intermediary for its services. If you are purchasing Institutional Class shares through a Financial Intermediary, please consult
your intermediary for more information regarding any such fees and for purchase instructions.
With
respect to sales through Financial Intermediaries, no offers or sales of Fund shares may be made in any foreign jurisdiction, except
with the consent of the Distributor.
Purchasing
Shares Directly From the Funds
Initial
Purchase You
may open an account, subject to acceptance by the Fund, and purchase Institutional Class shares of a Fund by completing and signing
a New Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888) 378-1630
(which is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional Liquidity
Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804.
After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to the Custodian.
You should instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the following wire
instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028 DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name)
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
*
For international investments into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Automatic
Purchases Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has a positive balance as a result of credits incurred that day. If an account has a positive (credit) balance, shares of the respective
Fund will automatically be purchased. Any positive (credit) balance will be reduced by any debits to the account on that day
and shares of the Fund will automatically be sold.
Additional
Investments You may make additional investments
of Institutional Class shares at the NAV next determined after the request is received in good order
or by wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification of
receipt of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
How
To Redeem Shares
You
may process a redemption request by contacting your Financial Intermediary. Otherwise, you may redeem shares of a Fund by mail
or, if authorized, by telephone, at no charge other than as described below. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will be redeemed at the NAV next determined
after we receive your redemption request in good order.
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund
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by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Automatic
Redemptions Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has any debits that were incurred that day and shares of the Funds will automatically be redeemed to cover the debits if such debits
have not been reduced by any credits which may have accrued to the account on the same day.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the Prime Portfolio, ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio—1:00
p.m. Eastern time. On any business day that the NYSE closes early, the Fund may close early and redemption requests received after
such earlier closing times will be processed the following business day. The Fund may elect to remain open on days when the NYSE
is closed or closes early but on which SIFMA recommends that the bond markets remain open for all or part of the day. Generally,
payment for Fund shares sold will be made on the day on which the order is processed, but under certain circumstances may
not be made until the next business day. The Fund may postpone and/or suspend redemption and payment beyond one business
day only as follows: (a) for any period during which there is a non-routine closure of the Fedwire or applicable Federal Reserve
Banks; (b) for any period (i) during which the NYSE is closed other than customary weekend and holiday closings or (ii) during
which trading on the NYSE is restricted; (c) for any period during which an emergency exists as a result of which (i) disposal of
securities owned by the Fund is not reasonably practicable or (ii) it is not reasonably practicable for the Fund to fairly determine the
NAV of shares of the Fund; (d) for any period during which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted
or (ii) an emergency exists; (e) for any period that the SEC may by order permit; or (f) for any period during which the Fund
as part of a necessary liquidation of a Fund, has properly postponed and/or suspended redemption of shares and payment in accordance
with federal securities laws. In addition, when SIFMA recommends that the securities markets close early, payments with respect
to redemption requests received subsequent to the recommended close will be made the next business day (assuming that the Fund
in fact closes).
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by distributing
to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash.
In addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
Exchange
Privilege
You
may exchange a Fund’s Institutional Class shares for Institutional Class shares of other available Funds of the Trust based on
their respective NAVs, except that you may not exchange
Institutional Class shares from or into the Prime Portfolio, ESG Money Market
Portfolio or Tax-Exempt Portfolio. We charge no fee for exchanges. If you purchased Fund shares through a Financial Intermediary,
certain other Funds of the Trust may be unavailable for exchange. Contact your Financial Intermediary to determine which
Funds are available for exchange.
You
can process your exchange by contacting your Financial Intermediary or online through Morgan Stanley’s Treasury Investment Portal
service at www.morganstanley.com/liquidity provided you have a pre-established Internet trading account, as set forth above under
“How To Purchase Shares.” You may also send exchange requests to the Fund’s transfer agent, DST Asset Manager Solutions,
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Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Inc.
(“DST”), by mail to Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804 or by calling the Fund at
1-888-378-1630.
You
will be subject to the same minimum initial investment and account size as an initial purchase. The Fund, in its sole discretion, may
waive the minimum initial investment amounts in certain cases including, but not limited to, exchanges involving Fund shares purchased
through a Financial Intermediary or when the Adviser anticipates the combined value of a client’s investments will meet or exceed
the minimum. The Fund may terminate or revise the exchange privilege upon required notice or in certain cases without notice.
The Fund reserves the right to reject an exchange order for any reason.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing and by certain selected accounts utilizing the Funds as a sweep
vehicle. Therefore, reasonably frequent purchases and redemptions of Fund shares by Fund shareholders do not present risks for
other shareholders of a Fund, and the policies and procedures adopted by the Board of Trustees/Directors as applicable to other funds
in the Morgan Stanley family of funds are generally not applicable with respect to frequent purchases and redemptions of Fund shares.
However, frequent trading by shareholders can disrupt management of the Funds and raise their respective expenses. Therefore,
we may not accept any request for a purchase or exchange when we think it is being used as a tool for market-timing, and we
may bar a shareholder who trades excessively from making further purchases for an indefinite period.
Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by giving written notice to your
Financial Intermediary or by checking the appropriate box in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates—Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio Under
Rule 2a-7, the Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio will be permitted (or in some cases, may
be required) to impose a liquidity fee on redemptions (up to 2%) or temporarily restrict redemptions from the Fund for up to 10
business days during a 90 calendar day period (a “redemption gate”), in the event that the Fund’s weekly liquid assets
fall below the following thresholds:
•
30%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 30% of the Fund’s total assets, and the Board
of Trustees determines it is in the best interests of
the Fund, the Board of Trustees may impose a liquidity fee of no more than 2% of the
amount redeemed and/or a redemption gate that temporarily suspends the right of redemption. The liquidity fee or redemption
gate may be imposed at any point during the applicable business day, generally at the subsequent NAV calculation time
of the applicable Fund following the determination of the Board of Trustees.
•
10%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 10% of the Fund’s total assets as of the end of
a business day, the Fund must impose, at the beginning
of the next business day, a liquidity fee of 1% of the amount redeemed, unless
the Board of Trustees determines that imposing such a fee would not be in the best interests of the Fund or determines that a
lower or higher fee (not to exceed 2%) would be in the best interests of the Fund.
Liquidity
fees and redemptions gates may be terminated at any time in the discretion of the Board of Trustees. Liquidity fees and redemptions
gates will also terminate at the beginning of the next business day once the applicable Fund has invested 30% or more of
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its
total assets in weekly liquid assets as of the end of a business day. A Fund may only suspend redemptions for up to 10 business days
in any 90 calendar day period.
Weekly
liquid assets generally include: (a) cash; (b) direct obligations of the U.S. Government; (c) certain U.S. government agency discount
notes with remaining maturities of 60 days or less; (d) securities that will mature or are subject to a demand feature that is exercisable
and payable within five business days; or (e) amounts receivable and due unconditionally within five business days on pending
sales of portfolio securities.
If
a Fund imposes a redemption gate, the Fund and your Financial Intermediary will not accept redemption or exchange orders out of
the Fund until the Fund has notified shareholders that the redemption gate has been lifted. Any redemption or exchange orders out
of a Fund submitted while a redemption gate is in effect will be cancelled without further notice. If you still wish to redeem or exchange
shares out of a Fund once the redemption gate has been lifted, you will need to submit a new redemption or exchange request
to the Fund or your Financial Intermediary. Unprocessed purchase orders that a Fund received prior to notification of the imposition
of a liquidity fee or redemption gate will be cancelled unless re-confirmed. Under certain circumstances, a Fund may honor
redemption or exchange orders out of the Fund (or pay redemptions without adding a liquidity fee to the redemption amount) if
the Fund can verify that the redemption or exchange order out of the Fund was submitted to the Fund’s agent before the Fund imposed
liquidity fees or suspended redemptions. Once a liquidity fee or a redemption gate is in place, shareholders will not be permitted
to exchange into or out of the applicable Fund until the fee or gate is terminated.
The
Board of Trustees generally expects that a liquidity fee or redemption gate would be imposed, if at all, during periods of extraordinary
market stress. The Board of Trustees generally expects that a redemption gate would be imposed prior to notification to shareholders
and Financial Intermediaries that a gate would be imposed. While the Board of Trustees may, in its discretion, impose a liquidity
fee at any time after the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, the Board of Trustees
generally expects that a liquidity fee would be imposed
only after the Fund has notified Financial Intermediaries and shareholders that
a liquidity fee will be imposed. The Fund retains the liquidity fees for the benefit of remaining shareholders.
The
Board of Trustees may, in its discretion, permanently suspend redemptions and liquidate the Fund if, among other things, the Fund,
at the end of a business day, has less than 10% of its total assets invested in weekly liquid assets. In the event of liquidation,
shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders.
Announcements
regarding the imposition of liquidity fees or redemption gates, or the termination of liquidity fees or redemption gates,
will be filed with the SEC on Form N-CR and will be available on the website of the Fund (http://www.morganstanley.com/im).
In addition, the Fund will make such announcements through a supplement to its Prospectus and may make such announcements
through a press release or by other means.
Dividend
payments will not be subject to liquidity fees or redemption gates; however, in the event that a liquidity fee or redemption gate
is in place at the time that dividends are distributed, all distributions will be made in the form of cash.
Trade
corrections requested after a liquidity fee or redemption gate is imposed will be honored so long as the “as of” date of
the transaction to be processed is prior to the effective
time of the liquidity fee or redemption gate and a valid reason for the trade error is provided.
Financial
Intermediaries will be required to promptly take such actions reasonably requested by the Fund, the Transfer Agent or the Adviser
to implement, modify or remove, or to assist the Fund in implementing, modifying or removing, a liquidity fee or redemption
gate established by the Fund.
The
Government Portfolio, the Government Securities Portfolio, the Treasury Portfolio and the Treasury Securities Portfolio are exempt
from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption gate” that
temporarily restricts redemptions. The Board of Trustees
has opted not to subject the Government Portfolio, the Government Securities Portfolio,
the Treasury Portfolio and the Treasury Securities Portfolio to a “liquidity fee” and/or a “redemption gate”
but has reserved its right to change this determination
in the future after providing appropriate notice to shareholders.
Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any
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long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
With
respect to the Government Securities Portfolio, while the Fund intends to limit its investments to certain U.S. Treasury obligations
and U.S. government securities, the interest of which is generally exempt from state income taxation, you should consult your
own tax adviser to determine whether distributions from the Government Securities Portfolio are exempt from state taxation in your
own state.
With
respect to the Tax-Exempt Portfolio, your income dividend distributions are normally exempt from federal income tax to the extent
they are derived from municipal obligations. Income derived from other portfolio securities may be subject to federal, state and/or
local income taxes. The income derived from some municipal securities is subject to the federal “alternative minimum tax.”
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
each of Government Portfolio, Government Securities Portfolio, Treasury Portfolio and Treasury Securities Portfolio intends to
maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when they sell or exchange their shares in these Funds
because the amount realized will be the same as their tax basis in the shares. Because each of Prime Portfolio, ESG Money Market
Portfolio and Tax-Exempt Portfolio does not maintain a stable share price, a sale of these Funds’ shares may result in capital
gain or loss to you.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption.
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There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses
(collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel,
including personnel of the investment adviser, on one
side of an information barrier may have access to information
and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts of
interest in determining whether to engage in such wall crossings. Information obtained in connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries (which may include affiliates of the Adviser and Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and should review carefully any disclosures provided
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by
Financial Intermediaries as to their compensation. In addition, in certain circumstances, the Adviser restricts, limits or reduces the
amount of a Fund’s investment, or restricts the
type of governance or voting rights it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and
Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions.
Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments.
Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an acquisition.
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Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of the Institutional Class shares
of each Fund for the periods indicated. Certain information reflects financial results for a single Fund share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment of all
dividends and distributions).
The
ratios of expenses to average net assets listed in the tables below for each Fund are based on the average net assets of the Fund for
each of the periods listed in the tables. To the extent
that a Fund’s average net assets decrease over the Fund’s next fiscal year, such expense
ratios can be expected to increase, potentially significantly, because certain fixed costs will be spread over a smaller amount of assets.
Year
Ended October 31,
Net
Asset Value, Beginning of
Period
Net Investment Income
Net
Realized and Unrealized Gain
(Loss) on Investments
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
The
information below has been derived from the financial statements audited by Ernst & Young LLP, the Funds’ independent registered
public accounting firm. Ernst & Young LLP’s report, along with each Fund’s financial statements, are incorporated by
reference into the Funds’ SAI. The Annual Report
to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average Net
Assets Excluding Interest
Expenses
Ratio
of Expenses to Average Net
Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income
to Average Net Assets
Ratio
of Net Investment Income
(Loss) to Average Net
Assets (Before Waivers/ Reimbursement)
In
addition to this Prospectus, the Funds have an SAI dated February 28,
2022 (as may be supplemented from time to time), which
contains additional, more detailed information about
the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Annual
and Semi-Annual Reports (“Shareholder Reports”) that
contain additional information about the respective
Fund’s investments. In each Fund’s Annual Report to Shareholders, you will find a discussion of the market conditions and
the investment strategies that significantly affected such Fund’s performance during the last fiscal year. For additional Trust
information, including information regarding the investments
comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity. If you purchased shares through a Financial Intermediary, you may also obtain these
documents, without charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
The
Securities
and Exchange Commission (“SEC”) has not
approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio
iInvestment
Objective
i
The Prime Portfolio (the “Fund”) seeks preservation
of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Select Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Select Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.05%
Total
Annual Fund Operating Expenses2
i0.26%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.25%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Select Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Select Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Select Class
$i26
$i83
$i145
$i330
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Institutional Select Class
shares in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as
applicable), certain investment related expenses, taxes,
interest and other extraordinary expenses (including litigation), will not exceed 0.25%. The fee waivers
and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
LIBOR
Discontinuance or Unavailability Risk. The London
InterBank Offered Rate (“LIBOR”) is intended to represent the rate at which
contributing banks may obtain short-term borrowings from each other in the London interbank market. The regulatory authority
that oversees financial services firms and financial markets in the U.K. has announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions for purposes of determining the LIBOR rate. However,
subsequent announcements by the Financial Conduct Authority, the LIBOR administrator and other regulators indicate
that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be provided on a representative basis
until mid-2023. However, in connection with supervisory guidance from regulators, some regulated entities will cease to enter
into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or on a later
date, if a particular LIBOR tenor is expected to continue beyond the end of 2021), LIBOR may no longer be available or no longer
deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes, derivatives
and other instruments or investments comprising some or all of the Fund’s portfolio.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Select Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund
will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Select Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio
iInvestment
Objective
i
The ESG Money Market Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Select Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Select Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Shareholder
Administration Fee1
i0.05%
Total
Annual Fund Operating Expenses2
i0.27%
Fee
Waiver and/or Expense Reimbursement2
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.25%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Select Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Select Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Select Class
$i26
$i85
$i150
$i341
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Institutional Select Class
shares in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as
applicable), certain investment related expenses, taxes,
interest and other extraordinary expenses (including litigation), will not exceed 0.25%. The fee waivers
and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Adviser believes that environmental, social and governance
(“ESG”) factors have the ability to impact the fundamental credit risk of
an entity. The Fund’s investment process incorporates information about ESG issues via an integrated approach within the Adviser’s
fundamental investment analysis framework. The Adviser may engage with management of certain issuers regarding corporate
governance practices as well as what the Adviser deems to be materially important environmental and/or social issues facing a
company.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
The Adviser has proprietary ESG-scoring methodologies
that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
During the security selection process, the Adviser employs
a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The Fund may invest in green commercial paper (a security
that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In analyzing whether an issuer meets any of the criteria
described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After applying the above exclusion screens, the Adviser
calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
From the final list of ESG-approved issuers, the Adviser
determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under normal circumstances, the Fund will invest 100%
of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
ESG
Investment Risk. The Fund’s adherence to
its ESG criteria and application of related analyses when selecting investments may affect
the Fund’s performance depending on whether such investments are in or out of favor and relative to similar funds that do not
adhere to such criteria or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices
or the Adviser’s assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs
and values of any particular investor. Additionally, the Fund’s adherence to its ESG criteria and application of related analyses
in connection with identifying and selecting investments in non-U.S. issuers often require subjective analysis and may be relatively
more difficult than applying the ESG criteria or related analyses to investments of U.S. issuers because data availability may
be more limited with respect to non-U.S. issuers. The exclusionary criteria related to the Fund’s ESG criteria may result in the
Fund forgoing opportunities to buy certain securities when it might otherwise be advantageous to do so, or selling securities for
ESG reasons when it might be otherwise disadvantageous for it to do so. The Fund’s investments in certain companies may be susceptible
to various factors that may impact their businesses or operations, including costs associated with government budgetary
constraints that impact publicly funded projects and clean energy initiatives, the effects of general economic conditions
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
throughout
the world, increased competition from other providers of services, unfavorable tax laws or accounting policies and high
leverage.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Select Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund
will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Select Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the
minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Select Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Select Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.05%
Total
Annual Fund Operating Expenses2
i0.26%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.25%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Select Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Select Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Select Class
$i26
$i83
$i145
$i330
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Institutional Select Class
shares in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as
applicable), certain investment related expenses, taxes,
interest and other extraordinary expenses (including litigation), will not exceed 0.25%. The fee waivers
and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Select Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund
will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Select Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio
iInvestment
Objective
i
The Government Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Select Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Select Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Shareholder
Administration Fee1
i0.05%
Total
Annual Fund Operating Expenses2
i0.27%
Fee
Waiver and/or Expense Reimbursement2
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.25%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Select Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Select Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Select Class
$i26
$i85
$i150
$i341
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Institutional Select Class
shares in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as
applicable), certain investment related expenses, taxes,
interest and other extraordinary expenses (including litigation), will not exceed 0.25%. The fee waivers
and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest substantially
all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment. The U.S. government
securities that the Fund may purchase include those issued or guaranteed either by the U.S. Treasury or certain agencies, authorities
or instrumentalities of the U.S. Government. The Fund may also invest in repurchase agreements with the Federal Reserve
Bank of New York.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. government securities. This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Select Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund
will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Select Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio
iInvestment
Objective
i
The Treasury Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Select Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Select Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.05%
Total
Annual Fund Operating Expenses2
i0.26%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.25%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Select Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Select Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Select Class
$i26
$i83
$i145
$i330
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Institutional Select Class
shares in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as
applicable), certain investment related expenses, taxes,
interest and other extraordinary expenses (including litigation), will not exceed 0.25%. The fee waivers
and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. Treasury obligations, which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Select Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund
will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Select Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio
iInvestment
Objective
i
The Treasury Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Select Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Select Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.05%
Total
Annual Fund Operating Expenses2
i0.26%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.25%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Select Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Select Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Select Class
$i26
$i83
$i145
$i330
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Institutional Select Class
shares in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as
applicable), certain investment related expenses, taxes,
interest and other extraordinary expenses (including litigation), will not exceed 0.25%. The fee waivers
and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. A “government money market fund” is exempt from requirements that permit
money market funds to impose a “liquidity fee” and/or a “redemption gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain
the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that
the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in Treasury obligations, which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Select Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund
will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Select Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio
iInvestment
Objective
i
The Tax-Exempt Portfolio (the “Fund”) seeks
to maximize current income exempt from federal income tax to the extent consistent with
preservation of capital and maintenance of liquidity.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Institutional Select Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Institutional
Select Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.19%
Shareholder
Administration Fee1
i0.05%
Total
Annual Fund Operating Expenses2
i0.39%
Fee
Waiver and/or Expense Reimbursement2
i0.14%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.25%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Institutional Select Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Institutional Select Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Institutional
Select Class
$i26
$i111
$i205
$i479
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Institutional Select Class
shares in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Institutional Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as
applicable), certain investment related expenses, taxes,
interest and other extraordinary expenses (including litigation), will not exceed 0.25%. The fee waivers
and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests at least 80% of its assets in high
quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. The Fund may also invest in variable and floating rate demand instruments, tender option bonds, custodial
receipts and investments in other investment companies, including money market funds.
The Fund may invest up to 20% of its assets in taxable
money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax; however, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax. In addition, the Fund may temporarily invest more than 20%
of its assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may invest in variable and floating rate loans
and other variable and floating rate securities. Although these instruments
are generally less sensitive to interest rate changes than fixed rate instruments, the value of variable and floating rate loans
and other securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates.
The Fund may face a heightened level of interest rate
risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve
Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks,
including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended
durations (i.e., extension risk). During periods when
interest rates are low or there are negative interest rates, the Fund’s yield
(and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain positive returns or minimize
the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of liquidity or credit
risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an
instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
Tax-Exempt
Variable Rate Demand Notes. Tax-exempt variable
rate demand notes are variable rate tax-exempt debt obligations that give
investors the right to demand principal repayment. Due to cyclical supply and demand considerations, at times the yields on these
obligations can exceed the yield on taxable money market obligations. The interest rate on these instruments may be reset daily,
weekly or on some other reset period and may have a floor or ceiling on interest rate changes. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank’s prime rate, and is reset whenever such rate is adjusted. The
interest rate on a variable rate demand note is reset at specified intervals at a market rate. The Fund’s ability to receive payments
of principal and interest and other amounts in connection with debt obligations held by it will depend primarily on the financial
condition of the issuer. The failure by the Fund to receive scheduled interest or principal payments on a debt obligation would
adversely affect the income of the Fund and would likely reduce the value of its assets, which would be reflected in a reduction
in the Fund’s NAV.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
meet
redemptions. The risks associated with these developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Select Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund
will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Institutional
Select Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that are generally not subject to federal income tax; however the Fund may distribute taxable dividends,
including distributions of short-term capital gains, and long-term capital gains. In addition, interest on certain bonds may be
subject to the federal alternative minimum tax. To the extent that the Fund’s distributions are derived from interest on bonds
that are not exempt from applicable state and local
taxes, such distributions will be subject to such state and local taxes.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Prime
Portfolio
Investment
Objective
The
Prime Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S.
dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio
Investment
Objective
The
ESG Money Market Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser believes that ESG factors have the ability to impact the fundamental credit risk of an entity. The Fund’s investment process
incorporates information about ESG issues via an integrated approach within the Adviser’s fundamental investment analysis framework.
The Adviser may engage with management of certain issuers regarding corporate governance practices as well as what the Adviser
deems to be materially important environmental and/or social issues facing a company.
The
Adviser has proprietary ESG-scoring methodologies that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
During
the security selection process, the Adviser employs a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The
Fund may invest in green commercial paper (a security that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In
analyzing whether an issuer meets any of the criteria described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After
applying the above exclusion screens, the Adviser calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio (Cont’d)
From
the final list of ESG-approved issuers, the Adviser determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under
normal circumstances, the Fund will invest 100% of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued
or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Securities Portfolio
Investment
Objective
The
Government Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest substantially all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The U.S. government securities that the Fund may purchase include those
issued or guaranteed either by the U.S. Treasury or certain agencies, authorities or instrumentalities of the U.S. Government. The
Fund may also invest in repurchase agreements with the Federal Reserve Bank of New York. The Fund may change its principal investment
strategies; however you would be notified of any changes.
Shareholders
should consult their individual tax adviser to determine whether the Fund’s distributions derived from interest on the Treasury
obligations and U.S. government securities referred to above are exempt from state taxation in their own state.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. government securities.
This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
The
Adviser will generally seek to place purchase orders for the Fund with broker-dealers that are owned by minorities, women, disabled
persons, veterans and members of other recognized diversity and inclusion groups and will place the majority of the aggregate
dollar volume of the Fund’s purchase orders for government agency securities obtained via auction or window through such broker-dealers,
subject in each case to the Adviser’s duty to seek best execution for the Fund’s orders.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Portfolio
Investment
Objective
The
Treasury Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Securities Portfolio
Investment
Objective
The
Treasury Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. In selecting investments, the Adviser seeks to maintain the Fund’s share price
at $1.00. The share price remaining stable at $1.00
means that the Fund would preserve the principal value of your investment. The Fund
may change its principal investment strategies; however you would be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Tax-Exempt
Portfolio
Investment
Objective
The
Tax-Exempt Portfolio seeks to maximize current income exempt from federal income tax to the extent consistent with preservation
of capital and maintenance of liquidity.
Approach
The
Fund invests at least 80% of its assets in high quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. Municipal obligations are securities issued by state and local governments and their agencies and typically
are either general obligation or revenue bonds, notes or commercial paper. General obligation securities are secured by the issuer’s
full faith and credit including its taxing power for payment of principal and interest. Revenue bonds, however, are generally payable
from a specific revenue source. They are issued for a wide variety of projects such as financing public utilities, hospitals, housing,
airports, highways and educational facilities. Included within the revenue bonds category are participations in lease obligations
and installment purchase contracts of municipalities. Additionally, the Fund’s investments may include variable and floating
rate demand instruments, tender option bonds, custodial receipts and investments in other investment companies, including money
market funds.
The
Fund may invest up to 20% of its assets in taxable money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax. However, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax.
While
at least 80% of the Fund’s assets typically will be invested in municipal obligations, the interest of which is exempt from
federal income taxes and is not subject to the federal
alternative minimum tax, the Fund may temporarily invest more than 20% of its
assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The
Fund operates as an “institutional money market fund” which is neither a “government money market fund” nor
“retail money market fund” as such terms
are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis, taking into consideration factors such as economic developments, budgetary trends, cash flow, debt service
coverage ratios and tax-law changes. Exposure to guarantors and liquidity providers is monitored separately. Weighted average maturity
is shifted in response to expectations as to the future course of money market interest rates, the shape of the money market yield
curve and the Fund’s recent cash flow experience.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
Certain
Funds may not be able to maintain a stable $1.00 share price at all times. If a Fund or another money market fund fails to maintain
a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), a Fund could be subject
to increased redemptions, which may adversely impact a Fund’s share price. In general, certain other money market funds have
in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption pressures will
not occur in the future. Neither a Fund’s sponsor nor any of its affiliates has a legal obligation to provide financial support
to a Fund, and you should not rely on or expect that
they or any person will provide any type of financial support to a Fund at any time to
help a Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making capital infusions into the
Fund, or taking other actions).
Floating
NAV Risk
Certain
Funds do not maintain a stable NAV per share. The value of a Fund’s shares will be calculated to four decimal places and will fluctuate
with changes in the values of a Fund’s portfolio securities. Investors should expect the value of their investment to vary and
reflect the current market value of a Fund’s
holdings. When you sell your shares, they may be worth more or less than what you originally
paid for them. This may result in a capital gain or loss.
Neither a Fund’s sponsor nor any of its affiliates has a legal obligation
to provide financial support to a Fund, and you should not rely on or expect that they or any person will provide any type of
financial support to a Fund at any time.
Bank
Obligations
Bank
obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time deposits
and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than
$1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, certain Funds may invest
in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the
time of purchase, U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such foreign banks and
foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S. government
regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks. Obligations of foreign banks, including Yankee obligations,
are subject to the same risks that pertain to domestic issuers, notably credit risk and market risk, but are also subject to certain
additional risks such as adverse foreign political and economic developments, the extent and quality of foreign government regulation
of the financial markets and institutions, foreign withholding taxes and other sovereign action such as nationalization or expropriation.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. Certain Funds may invest in variable
and floating rate securities. Although these instruments are generally less sensitive to interest rate changes than fixed rate instruments,
the value of these securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates. A
low interest rate environment may prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A
Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or changes rates. During periods when interest rates are low or there are
negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or minimize the volatility of the Fund’s net asset value per share or maintain a stable net asset
value of $1.00 per share, as applicable. Credit ratings
may not be an accurate assessment of liquidity or credit risk. Although credit ratings
may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an instrument or an issuer can have
a rapid, adverse effect on the instrument’s liquidity and make it more difficult for a Fund to sell at an advantageous price or
time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that certain Funds may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, certain Funds may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are Ginnie Mae and the Federal Housing Administration. Also, certain Funds may purchase
securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Further,
certain Funds may purchase securities issued by agencies
and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality.
Among these agencies and instrumentalities is the Federal Farm Credit System. Because these securities are not backed
by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability of the issuers of some U.S. government securities held
by a Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. It is possible that
these issuers will not have the funds to meet their payment obligations in the future. The interest from U.S. government securities
generally is not subject to state and local taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
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Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
ESG
Investment Risk
A
Fund’s adherence to its ESG criteria and application of related analyses when selecting investments may affect a Fund’s
performance depending on whether such investments are
in or out of favor and relative to similar funds that do not adhere to such criteria
or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices or the Adviser’s
assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs and values of any
particular investor. Additionally, a Fund’s adherence to its ESG criteria and application of related analyses in connection with
identifying and selecting investments in non-U.S. issuers
often require subjective analysis and may be relatively more difficult than applying
the ESG criteria or related analyses to investments of U.S. issuers because data availability may be more limited with respect to
non-U.S. issuers. The exclusionary criteria related to a Fund’s ESG criteria may result in a Fund forgoing opportunities to buy
certain securities when it might otherwise be advantageous
to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous
for it to do so. A Fund’s investments in certain companies may be susceptible to various factors that may impact their
businesses or operations, including costs associated with government budgetary constraints that impact publicly funded projects and
clean energy initiatives, the effects of general economic conditions throughout the world, increased competition from other providers
of services, unfavorable tax laws or accounting policies and high leverage.
Foreign
Securities
Certain
Funds may invest in U.S. dollar-denominated securities issued by foreign governmental or corporate issuers, including Eurodollar
and Yankee obligations. Although the
Fund will invest in these securities only if the Adviser
determines they are of comparable quality to the Fund’s
U.S. investments, investing in securities of foreign issuers involves some additional risks. While these
securities are subject to the same type of risks that pertain to domestic issuers, namely credit risk and interest rate risk, they are
also subject to other additional risks. Foreign issuers
generally are subject to different accounting, auditing and financial reporting standards
than U.S. issuers. There may be less information available to the public about foreign issuers. Securities of foreign issuers can
be less liquid and experience greater price movements. In some foreign countries, there is also the risk of government expropriation,
excessive taxation, political or social instability, the imposition of currency controls or diplomatic developments that could
affect an investment. There also can be difficulty obtaining and enforcing judgments against issuers in foreign countries. Foreign
stock exchanges, broker-dealers and listed issuers may be subject to less government regulation and oversight. Governmental actions
can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the value and liquidity
of a Fund’s investments. Foreign investment in the securities markets of certain foreign countries is restricted or controlled
to varying degrees.
Economic
sanctions may be, and have been, imposed against certain countries, organizations, companies, entities and/or individuals. Economic
sanctions and other similar governmental actions could, among other things, effectively restrict or eliminate a Fund’s ability
to purchase or sell securities or groups of securities, and thus may make a Fund’s investments in such securities less liquid or
more difficult to value. In addition, as a result of
economic sanctions, the Fund may be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and increased transaction costs. These conditions may
be in place for a substantial period of time and enacted with limited advance notice to a Fund.
Foreign
Money Market Securities
Certain
Funds may invest in foreign money market securities. As described elsewhere herein, foreign investing may involve risks relating
to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. Investments
in foreign markets may also be adversely affected by less stringent investor protections and disclosure standards, and governmental
actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the
imposition of punitive taxes. In addition, there are differences between U.S. and foreign regulatory requirements and market practices
that may result in additional risk. Foreign money market securities also present credit and interest rate risks similar to those attendant
to an investment in domestic money market securities.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Custodial
Receipts
Certain
Funds may invest in custodial receipts representing interests in U.S. government securities, municipal obligations or other debt
instruments held by a custodian or trustee. Custodial receipts evidence ownership of future interest payments, principal payments
or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. Government, its agencies, instrumentalities,
political subdivisions or authorities, by a state or local governmental body or authority, or by other types of issuers. For
certain securities law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition, if for tax
purposes a Fund is not considered to be the owner of
the underlying securities held in the custodial account, the Fund may suffer adverse
tax consequences. As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged to
the custodial account.
Tender
Option Bonds
A
tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction
with the agreement of a third-party, such as a bank, broker-dealer or other financial institution, pursuant to which the institution
grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing
the option, the financial institution receives periodic fees equal to the difference between the bond’s fixed coupon rate and the
rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par
on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the
event of certain defaults or significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be
taken into account in determining the maturity of the tender option bonds and average portfolio maturity. There is a risk that the Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such
interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of a credit
rating downgrade, a payment default or a disqualification from tax-exempt status. Additionally, the Dodd–Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”), including the Volcker Rule, among other regulatory changes, may affect
the ability of bank-sponsored tender option bonds to continue to operate or remain cost-effective investments.
Corporate
Debt Obligations
Corporate
debt obligations are fixed-income securities issued by private corporations. The investment return of corporate debt obligations
reflects interest earnings and changes in the market value of the security. The market value of a corporate debt obligation may
be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or
principal payments at the time called for by an instrument. Debtholders, as creditors,
have a prior legal claim over common and preferred stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. Certain Funds will buy corporate debt obligations subject to any quality constraints set forth
under Rule 2a-7.
Revenue
Bonds
Revenue
bonds are municipal obligations that are secured by the revenue from a specific project. To the extent that such revenues do not
materialize, the revenue bonds may not be repaid. If a Fund invests in revenue bonds
that are issued by municipal issuers in the same
economic sector, a
Fund would be particularly susceptible to developments adversely affecting that sector. Revenue
bonds historically have been subject to a greater risk
of default than general obligation bonds because investors can look only to the revenue generated
by the project or other revenue source backing the project, rather than to the general taxing authority of the state or local government
issuer of the obligations. For example, investments in revenue bonds backed by receipts from hospitals are sensitive to hospital
bond ratings, which are often based on feasibility studies that contain projections of expenses, revenues and occupancy levels. Additional
factors which could affect a hospital’s gross receipts and net income available to service its debt are demand for hospital services,
the ability of the hospital to provide the services required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses, reputational issues, competition, availability and expenses
of malpractice insurance, Medicaid and Medicare funding and possible federal legislation regulating hospital charges.
LIBOR
Discontinuance or Unavailability Risk.
LIBOR
is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with supervisory guidance from regulators, some regulated
entities will cease to enter into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or
a later date, if a particular reference rate is expected to continue beyond 2021), LIBOR may no longer be available
or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives
and other instruments or investments comprising some or all of a Fund’s portfolio. In light of this eventuality, public and
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Stanley Institutional Liquidity Funds Prospectus | Additional
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private
sector industry initiatives are currently underway to establish
new or alternative reference rates to be used in place of LIBOR. There
is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance
or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any
such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still
may be developing. There may also be challenges for a Fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a Fund’s performance
or net asset value.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a
Fund’s investments, which may change due to economic
and other events that affect markets generally, as well
as those that affect particular regions, countries, industries, companies or governments.
Price
movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Inflation
rates may change frequently and
significantly because of various factors, including unexpected shifts in the domestic or global economy and changes in monetary
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
or
economic policies (or expectations that these policies may change). Changes in expected inflation rates may adversely affect market and
economic conditions, a Fund’s investments and an investment in a Fund. Other
financial, economic and other global market and social
developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar events affecting
the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects (which
may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an attractive investment
opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought by a Fund. As
a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment at the time or
seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle. Any such event(s)
could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk that you may lose
money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations,
cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would
generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by certain Funds
may include U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and
preferred stock and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For example,
if the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the securities
has declined, the Funds may incur a loss upon disposition of them. The risk of such loss may be greater when utilizing
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
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collateral
other than U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right
to control the collateral could be affected and result in certain costs and delays. Additionally, if the proceeds from the liquidation
of such collateral after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
The
Government Securities Portfolio may enter into repurchase agreements with the Federal Reserve Bank of New York. Reduced participation
in the repurchase agreement market by the Federal Reserve Bank of New York may affect the Fund’s investment strategies,
operations and/or return potential.
Municipals
Certain
Funds may purchase municipal obligations subject to any restraints set forth under Rule 2a-7. Municipal obligations are securities
issued by state and local governments and their agencies. These securities typically are “general obligation” or “revenue”bonds, notes or commercial paper, including participations
in lease obligations and installment purchase contracts of municipalities. These
obligations may have fixed, variable or floating rates. To the extent a Fund invests in municipal obligations issued by state and local
governments and their agencies, the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of
these municipal obligations. Municipal obligations are also subject to credit risk and interest risk. In the case of revenue bonds, for
example, credit risk is the possibility that the user
fees from a project or other specified revenue sources are insufficient to meet interest
and/or principal payment obligations. The Fund is subject to added credit risk if it concentrates its investments in a single economic
sector, which could be effected by economic, business or political developments which might affect all municipal obligations
in that particular economic sector.
Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds (other than the Treasury Securities Portfolio) may invest in investment companies, including money market funds, and may
invest all or some of their short-term cash investments in any money market fund advised or managed by the Adviser or its affiliates
(an “affiliated money market fund”). An investment in an investment company is subject to the underlying risks of that investment
company’s portfolio securities. In addition to a Fund’s fees and expenses, the Fund generally would bear its share of the
investment company’s fees and expenses other
than advisory and administrative fees of affiliated money market funds.
Promissory
Notes
Promissory
notes are generally debt obligations of the issuing entity and are subject to the risks of investing in the banking industry. Certain
Funds may invest up to 5% of their net assets in illiquid securities, including unsecured bank promissory notes.
Tax-Exempt
Variable Rate Demand Notes
Tax-exempt
variable rate demand notes are variable rate tax-exempt debt obligations that give investors the right to demand principal repayment.
Due to cyclical supply and demand considerations, at times the yields on these obligations can exceed the yield on taxable money
market obligations. The interest rate on these instruments may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. The interest rate of a floating rate instrument may be based on a known lending rate, such
as a bank’s prime rate, and is reset whenever such rate is adjusted. The interest rate on a variable rate demand note is reset
at specified intervals at a market rate. The Fund’s
ability to receive payments of principal and interest and other amounts in connection with
loans held by it will depend primarily on the financial condition of the issuer. The failure by the Fund to receive scheduled interest
or principal payments on a loan would adversely affect the income of the Fund and would likely reduce the value of its assets, which
would be reflected in a reduction in the Fund’s NAV.
Floating
rate and variable rate demand notes and bonds may have a stated maturity in excess of one year, but may have features that permit
a holder to demand payment of principal plus accrued interest upon a specified number of days’ notice. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided by banks. If these obligations are not secured
by letters of credit or other credit support arrangements, the Fund’s right to demand payment will be dependent on the ability
of the issuer to pay principal and interest on demand. In addition, these obligations frequently are not rated by credit rating agencies
and may involve heightened risk of default by the issuer. The issuer of such obligations normally has a corresponding right, after
a given period, to prepay in its discretion the outstanding principal of the obligation plus accrued interest upon a specific number
of days’ notice to the holders. There is no assurance that the Fund will be able to reinvest the proceeds of any prepayment at
the same interest rate or on the same terms as those
of the original instrument.
In
the absence of an active secondary market for floating rate and variable rate demand notes, the Fund may find it difficult to dispose
of the instruments, and the Fund could suffer a loss if the issuer defaults or during periods in which the Fund is not entitled to
exercise its demand rights. If a reliable trading market for the floating rate and variable rate instruments held by the Fund does not
exist and the Fund may not demand payment of the principal
amount of such instruments within seven days, the instruments may be deemed
illiquid and therefore subject to the Fund’s limitation on investments in illiquid securities.
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains, and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund (other than the Treasury Securities Portfolio)
may invest without limit in cash or cash equivalents and the Tax-Exempt Portfolio
may invest without limit in taxable money market securities. Also in such circumstances, the Treasury Securities Portfolio may
invest without limit in cash and repurchase agreements with the Federal Reserve Bank of New York collateralized by U.S. Treasury
obligations. If the Adviser incorrectly predicts the effects of these changes, such defensive investments may adversely affect a Fund’s
performance and the Fund may not achieve its investment objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, which
is the parent of the Distributor. Morgan Stanley is
a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment
banking, research and analysis, financing and financial advisory services. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees’
approval of the Trust’s Investment Advisory Agreement
is available in the Funds’ Annual Report to shareholders
for the fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021,
the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
Prime
Portfolio
0.07%
ESG
Money Market Portfolio
0.07%
Government
Portfolio
0.01%
Government
Securities Portfolio
0.01%
Treasury
Portfolio
0.02%
Treasury
Securities Portfolio
0.01%
Tax-Exempt
Portfolio
0.00%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse the Fund’s Institutional Select Class, if necessary, if such fees would cause the total annual operating
expenses of such Fund’s Institutional Select Class to exceed the percentage of daily net assets set forth in the table below. In
determining the actual amount of fee waiver and/or expense
reimbursement for each Fund, if any, the Adviser and Administrator exclude
from total annual operating expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes,
interest and other extraordinary expenses (including litigation). The fee waivers and/or expense reimbursements will continue for
at least one year from the date
of this Prospectus or until such time as the Trust’s
Board of Trustees acts to discontinue all or a portion
of such waivers and/or reimbursements when it deems
such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap Institutional Select Class
Prime
Portfolio
0.25%
ESG
Money Market Portfolio
0.25%
Government
Portfolio
0.25%
Government
Securities Portfolio
0.25%
Treasury
Portfolio
0.25%
Treasury
Securities Portfolio
0.25%
Tax-Exempt
Portfolio
0.25%
The
Distributor, Adviser and Administrator may also waive distribution fees, advisory fees, administration fees and/or reimburse expenses
to enable a Fund to maintain a minimum level of daily net investment income. The Adviser and Administrator may make additional
voluntary fee waivers and/or expense reimbursements. The Distributor, Adviser and Administrator may discontinue these voluntary
fee waivers and/or expense reimbursements at any time in the future.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio and Government Securities Portfolio are intended
to qualify as eligible investments for federally chartered credit unions pursuant to the applicable provisions of the Federal Credit
Union Act and the National Credit Union Administration. Shares of the Government Portfolio and Government Securities Portfolio,
however, may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should
consult qualified legal counsel to determine whether these Funds are permissible investments under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers Institutional Select Class shares of each Fund. The Trust also offers other classes of shares through separate prospectuses.
Certain of these classes may be subject to different fees and expenses. For information regarding other share classes, contact
the Trust or your financial intermediary.
Minimum
Investment Amount
Institutional
Select Class shares are available to clients of the Adviser with investments at the time of initial purchase of at least $10 million.
The Adviser, in its sole discretion, may waive the minimum initial investment amount in certain cases including, but not limited
to, shares of the Fund purchased through a financial intermediary or when the Adviser anticipates the combined value of a client’s
investments will meet or exceed the minimum.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial intermediaries (also referred to as service organizations) who
may accept purchase and redemption orders for shares of each Fund on its behalf.
The
Adviser and/or the Distributor may pay additional compensation (out of their own funds and not as an expense of a Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with the sale, distribution, retention and/or servicing
of Fund shares. Such compensation may be significant in amount and the prospect of receiving any such additional compensation
may provide affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment
options. Any such payments will not change the NAV or the price of Fund shares. For more information, please see the Funds’
SAI.
The
Trust has adopted an Administration Plan for each Fund’s Institutional Select Class shares (the “Plan”) to pay the
Distributor to compensate certain financial intermediaries
(also referred to as service organizations) who provide administrative services to shareholders.
Under the Plan, each Fund pays the Distributor a monthly administration fee at an annual rate of 0.05% of each Fund’s
average daily net assets of Institutional Select Class shares owned beneficially by the customers of such service organization during
such period. The Distributor may waive distribution fees to enable a Fund to maintain a minimum level of daily net investment
income. The Distributor may discontinue these voluntary fee waivers at any time in the future.
Because
the fees are paid out of a Fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Valuation
of Shares
Each
of the Prime Portfolio’s, ESG Money Market Portfolio’s and Tax-Exempt Portfolio’s investments will be valued using
market-based prices provided by an approved pricing
service/vendor and the share price of each rounded to a minimum of the fourth decimal place.
The price of each of Government Portfolio’s, Government Securities Portfolio’s, Treasury Portfolio’s and Treasury
Securities Portfolio’s shares is based on the
amortized cost of the Fund’s securities. The amortized cost valuation method involves valuing a debt obligation
in reference to its cost rather than market forces. If the Adviser determines that a valuation is not reflective of the security’s
market value, such security is valued at its fair value
as determined in good faith under procedures established by and under the general
supervision of the Board.
The
NAV of each Fund is determined once daily (except that the NAV of Prime Portfolio is determined three times daily), normally at
the times set forth below, on each day that the NYSE is open (the “Pricing Time”), except when the following federal holidays
are observed: Columbus Day and Veterans Day.
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
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Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Government
Portfolio Treasury Portfolio
As
of 5:00 p.m. Eastern time
ESG
Money Market Portfolio Government Securities Portfolio Treasury
Securities Portfolio
As
of 3:00 p.m. Eastern time
Tax-Exempt
Portfolio
As
of 1:00 p.m. Eastern time
Prime
Portfolio
As
of 8:00 a.m., 12:00 p.m. and 3:00 p.m. Eastern time
Pricing
of Fund Shares
Institutional
Select Class shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives
your order in good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal
Reserve Bank (“Federal Funds”) prior to
the close of the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same
day your Institutional Select Class shares are purchased provided the Fund receives your purchase amount in Federal Funds that day
as set forth above. Orders to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV
next determined: for the Government Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the ESG Money Market Portfolio,
Government Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; for the Tax-Exempt Portfolio—1:00
p.m. Eastern time; and for the Prime Portfolio—8:00 a.m., 12:00 p.m. or 3:00 p.m. Eastern time. On any business day
that the NYSE closes early, or when SIFMA recommends that the securities markets close early, a Fund may close early and purchase
orders received after such earlier closing times will be processed the following business day. If the NYSE is closed due to inclement
weather, technology problems or any other reason on a day it would normally be open for business, or the NYSE has an unscheduled
early closing on a day it has opened for business, a Fund reserves the right to treat such day as a business day and accept purchase
and redemption orders until, and calculate its NAV as of, the normally scheduled close of regular trading on the NYSE for that
day, or such time noted above, so long as the Adviser believes there generally remains an adequate market to obtain reliable and accurate
market quotations. A Fund may elect to remain open and
price its shares on days when the NYSE is closed or
closes early but on which SIFMA recommends that the
bond markets remain open for all or part of the day. Purchase orders received by the
Funds
and not funded by 6:45
p.m. Eastern time on the trade date may be subject to an overdraft charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
Institutional
Select Class shares of the Funds may be purchased directly from the Fund or through a financial intermediary.
Purchasing
Shares Through a Financial Intermediary You
may open a new account and purchase Fund shares through certain authorized third-parties, such as brokers, dealers or other financial
intermediaries that have entered into a selling agreement with the Distributor (each, a “Financial Intermediary”). Your
Financial Intermediary will assist you with the procedures
to invest in shares of the Fund. The Financial Intermediary will establish times
by which such purchase orders and payments from customers must be received by the Financial Intermediary. Financial Intermediaries
are responsible for transmitting purchase orders and payments to the Trust and the Trust’s Custodian in a timely fashion.
Purchase orders placed with a Financial Intermediary and transmitted through a trading platform utilized by the Financial Intermediary
may be transmitted by the trading platform after the deadlines established by the Trust for receipt of purchase orders, as set
forth below; in such case, the purchase orders will receive a trade date of the next business day.
Investors
purchasing Institutional Select Class shares through a Financial Intermediary may be charged a transaction-based or other fees
by the Financial Intermediary for its services. If you are purchasing Institutional Select Class shares through a Financial Intermediary,
please consult your intermediary for more information regarding any such fees and for purchase instructions.
With
respect to sales through Financial Intermediaries, no offers or sales of Fund shares may be made in any foreign jurisdiction, except
with the consent of the Distributor.
Purchasing
Shares Directly From the Funds
Initial
Purchase You
may open an account, subject to acceptance by the Fund, and purchase Institutional Select Class shares of a Fund by completing and
signing a New Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888)
378-1630 (which is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional
Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804.
After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to
the Custodian. You should instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the
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following
wire instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028 DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name) * For international investments
into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Automatic
Purchases Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has a positive balance as a result of credits incurred that day. If an account has a positive (credit) balance, shares of the respective
Fund will automatically be purchased. Any positive (credit) balance will be reduced by any debits to the account on that day
and shares of the Fund will automatically be sold.
Additional
Investments You may make additional investments
of Institutional Select Class shares at the NAV next determined after the request is received in good
order or by wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification
of receipt of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase
Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
How
To Redeem Shares
You
may process a redemption request by contacting your Financial Intermediary. Otherwise, you may redeem shares of a Fund by mail
or, if authorized, by telephone, at no charge other than as described below. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will be redeemed at the NAV next determined
after we receive your redemption request in good order.
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
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(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Automatic
Redemptions Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has any debits that were incurred that day and shares of the Funds will automatically be redeemed to cover the debits if such debits
have not been reduced by any credits which may have accrued to the account on the same day.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the Prime Portfolio, ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio—1:00
p.m. Eastern time. On any business day that the NYSE closes early, the Fund may close early and redemption requests received after
such earlier closing times will be processed the following business day. The Fund may elect to remain open on days when the NYSE
is closed or closes early but on which SIFMA recommends that the bond markets remain open for all or part of the day. Generally,
payment for Fund shares sold will be made on the day on which the order is processed, but under certain circumstances may
not be made until the next business day. The Fund may postpone and/or suspend redemption and payment beyond one business
day only as follows: (a) for any period during which there is a non-routine closure of the Fedwire or applicable Federal Reserve
Banks; (b) for any period (i) during which the NYSE is closed other than customary weekend and holiday closings or (ii) during
which trading on the NYSE is restricted; (c) for any period during which an emergency exists as a result of which (i) disposal of
securities owned by the Fund is not reasonably practicable or (ii) it is not reasonably practicable for the Fund to fairly determine the
NAV of shares of the Fund; (d) for any period during which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted
or (ii) an emergency exists; (e) for any period that the SEC may by order permit; or (f) for any period during which the Fund
as part of a necessary liquidation of a Fund, has properly postponed and/or suspended redemption of shares and payment in accordance
with federal securities laws. In addition, when SIFMA recommends that the securities markets close early, payments with respect
to redemption requests received subsequent to the recommended close will be made the next business day (assuming that the Fund
in fact closes).
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by distributing
to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash.
In addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
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Exchange
Privilege
You
may exchange a Fund’s Institutional Select Class shares for Institutional Select Class shares of other available Funds of the Trust
based on their respective NAVs, except that you may
not exchange Institutional Select Class shares from or into the Prime Portfolio, ESG
Money Market Portfolio or Tax-Exempt Portfolio. We charge no fee for exchanges. If you purchased Fund shares through a Financial
Intermediary, certain other Funds of the Trust may be unavailable for exchange. Contact your Financial Intermediary to determine
which Funds are available for exchange.
You
can process your exchange by contacting your Financial Intermediary or online through Morgan Stanley’s Treasury Investment Portal
service at www.morganstanley.com/liquidity provided you have a pre-established Internet trading account, as set forth above under
“How To Purchase Shares.” You may also send exchange requests to the Fund’s transfer agent, DST Asset Manager Solutions,
Inc. (“DST”), by mail to Morgan Stanley
Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, KansasCity, MO64121-9804 or by calling the Fund at 1-888-378-1630.
You
will be subject to the same minimum initial investment and account size as an initial purchase. The Fund, in its sole discretion, may
waive the minimum initial investment amounts in certain cases including, but not limited to, exchanges involving Fund shares purchased
through a Financial Intermediary or when the Adviser anticipates the combined value of a client’s investments will meet or exceed
the minimum. The Fund may terminate or revise the exchange privilege upon required notice or in certain cases without notice.
The Fund reserves the right to reject an exchange order for any reason.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing and by certain selected accounts utilizing the Funds as a sweep
vehicle. Therefore, reasonably frequent purchases and redemptions of Fund shares by Fund shareholders do not present risks for
other shareholders of a Fund, and the policies and procedures adopted by the Board of Trustees/Directors as applicable to other funds
in the Morgan Stanley family of funds are generally not applicable with respect to frequent purchases and redemptions of Fund shares.
However, frequent trading by shareholders can disrupt management of the Funds and raise their respective expenses. Therefore,
we may not accept any request for a purchase or exchange when we think it is being used as a tool for market-timing, and we
may bar a shareholder who trades excessively from making further purchases for an indefinite period.
Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by giving written notice to your
Financial Intermediary or by checking the appropriate box in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates—Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio Under
Rule 2a-7, the Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio will be permitted (or in some cases, may
be required) to impose a liquidity fee on redemptions (up to 2%) or temporarily restrict redemptions from the Fund for up to 10
business days during a 90 calendar day period (a “redemption gate”), in the event that the Fund’s weekly liquid assets
fall below the following thresholds:
•
30%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 30% of the Fund’s total assets, and the Board
of Trustees determines it is in the best interests of
the Fund, the Board of Trustees may impose a liquidity fee of no more than 2% of the
amount redeemed and/or a redemption gate that temporarily suspends the right of redemption. The liquidity fee or
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redemption
gate may be imposed at any point during the applicable business day, generally at the subsequent NAV calculation time
of the applicable Fund following the determination of the Board of Trustees.
•
10%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 10% of the Fund’s total assets as of the end of
a business day, the Fund must impose, at the beginning
of the next business day, a liquidity fee of 1% of the amount redeemed, unless
the Board of Trustees determines that imposing such a fee would not be in the best interests of the Fund or determines that a
lower or higher fee (not to exceed 2%) would be in the best interests of the Fund.
Liquidity
fees and redemptions gates may be terminated at any time in the discretion of the Board of Trustees. Liquidity fees and redemptions
gates will also terminate at the beginning of the next business day once the applicable Fund has invested 30% or more of its
total assets in weekly liquid assets as of the end of a business day. A Fund may only suspend redemptions for up to 10 business days
in any 90 calendar day period.
Weekly
liquid assets generally include: (a) cash; (b) direct obligations of the U.S. Government; (c) certain U.S. government agency discount
notes with remaining maturities of 60 days or less; (d) securities that will mature or are subject to a demand feature that is exercisable
and payable within five business days; or (e) amounts receivable and due unconditionally within five business days on pending
sales of portfolio securities.
If
a Fund imposes a redemption gate, the Fund and your Financial Intermediary will not accept redemption or exchange orders out of
the Fund until the Fund has notified shareholders that the redemption gate has been lifted. Any redemption or exchange orders out
of a Fund submitted while a redemption gate is in effect will be cancelled without further notice. If you still wish to redeem or exchange
shares out of a Fund once the redemption gate has been lifted, you will need to submit a new redemption or exchange request
to the Fund or your Financial Intermediary. Unprocessed purchase orders that a Fund received prior to notification of the imposition
of a liquidity fee or redemption gate will be cancelled unless re-confirmed. Under certain circumstances, a Fund may honor
redemption or exchange orders out of the Fund (or pay redemptions without adding a liquidity fee to the redemption amount) if
the Fund can verify that the redemption or exchange order out of the Fund was submitted to the Fund’s agent before the Fund imposed
liquidity fees or suspended redemptions. Once a liquidity fee or a redemption gate is in place, shareholders will not be permitted
to exchange into or out of the applicable Fund until the fee or gate is terminated.
The
Board of Trustees generally expects that a liquidity fee or redemption gate would be imposed, if at all, during periods of extraordinary
market stress. The Board of Trustees generally expects that a redemption gate would be imposed prior to notification to shareholders
and Financial Intermediaries that a gate would be imposed. While the Board of Trustees may, in its discretion, impose a liquidity
fee at any time after the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, the Board of Trustees
generally expects that a liquidity fee would be imposed
only after the Fund has notified Financial Intermediaries and shareholders that
a liquidity fee will be imposed. The Fund retains the liquidity fees for the benefit of remaining shareholders.
The
Board of Trustees may, in its discretion, permanently suspend redemptions and liquidate the Fund if, among other things, the Fund,
at the end of a business day, has less than 10% of its total assets invested in weekly liquid assets. In the event of liquidation,
shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders.
Announcements
regarding the imposition of liquidity fees or redemption gates, or the termination of liquidity fees or redemption gates,
will be filed with the SEC on Form N-CR and will be available on the website of the Fund (http://www.morganstanley.com/im).
In addition, the Fund will make such announcements through a supplement to its Prospectus and may make such announcements
through a press release or by other means.
Dividend
payments will not be subject to liquidity fees or redemption gates; however, in the event that a liquidity fee or redemption gate
is in place at the time that dividends are distributed, all distributions will be made in the form of cash.
Trade
corrections requested after a liquidity fee or redemption gate is imposed will be honored so long as the “as of” date of
the transaction to be processed is prior to the effective
time of the liquidity fee or redemption gate and a valid reason for the trade error is provided.
Financial
Intermediaries will be required to promptly take such actions reasonably requested by the Fund, the Transfer Agent or the Adviser
to implement, modify or remove, or to assist the Fund in implementing, modifying or removing, a liquidity fee or redemption
gate established by the Fund.
The
Government Portfolio, the Government Securities Portfolio, the Treasury Portfolio and the Treasury Securities Portfolio are exempt
from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption gate” that
temporarily restricts redemptions. The Board of Trustees
has opted not to subject the Government Portfolio, the Government Securities Portfolio,
the Treasury Portfolio and the Treasury Securities Portfolio to a “liquidity fee” and/or a “redemption gate”
but has reserved its right to change this determination
in the future after providing appropriate notice to shareholders.
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Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
With
respect to the Government Securities Portfolio, while the Fund intends to limit its investments to certain U.S. Treasury obligations
and U.S. government securities, the interest of which is generally exempt from state income taxation, you should consult your
own tax adviser to determine whether distributions from the Government Securities Portfolio are exempt from state taxation in your
own state.
With
respect to the Tax-Exempt Portfolio, your income dividend distributions are normally exempt from federal income tax to the extent
they are derived from municipal obligations. Income derived from other portfolio securities may be subject to federal, state and/or
local income taxes. The income derived from some municipal securities is subject to the federal “alternative minimum tax.”
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
each of Government Portfolio, Government Securities Portfolio, Treasury Portfolio and Treasury Securities Portfolio intends to
maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when they sell or exchange their shares in these Funds
because the amount realized will be the same as their tax basis in the shares. Because each of Prime Portfolio, ESG Money Market
Portfolio and Tax-Exempt Portfolio does not maintain a stable share price, a sale of these Funds’ shares may result in capital
gain or loss to you.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
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If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses
(collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel,
including personnel of the investment adviser, on one
side of an information barrier may have access to information
and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts of
interest in determining whether to engage in such wall crossings. Information obtained in connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries (which may include affiliates of the Adviser and
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Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain circumstances, the Adviser restricts, limits or reduces the
amount of a Fund’s investment, or restricts the
type of governance or voting rights it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and
Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions.
Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments.
Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an acquisition.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of the Institutional Select Class
shares of each Fund for the periods indicated. Certain information reflects financial results for a single Fund share. The total returns
in the tables represent the rate that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions).
The
ratios of expenses to average net assets listed in the tables below for each Fund are based on the average net assets of the Fund for
each of the periods listed in the tables. To the extent
that a Fund’s average net assets decrease over the Fund’s next fiscal year, such expense
ratios can be expected to increase, potentially significantly, because certain fixed costs will be spread over a smaller amount of assets.
Year
Ended October 31,
Net
Asset Value, Beginning of
Period
Net Investment Income
Net
Realized and Unrealized Gain
(Loss) on Investments
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
The
information below has been derived from the financial statements audited by Ernst & Young LLP, the Funds’ independent registered
public accounting firm. Ernst & Young LLP’s report, along with each Fund’s financial statements, are incorporated by
reference into the Funds’ SAI. The Annual Report
to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average Net
Assets Excluding Interest
Expenses
Ratio
of Expenses to Average Net
Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income
to Average Net Assets
Ratio
of Net Investment Income
(Loss) to Average Net
Assets (Before Waivers/ Reimbursement)
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Notes
to Financial Highlights
(1)
Per
share amount is based on average shares outstanding.
(2)
Amount
is less than $0.0005 per share.
(3)
Ratio
of Expenses to Average Net Assets before and after Maximum Expense Ratios may vary among share classes by more or less than the administration
plan, service and shareholder administration
plan, distribution plan and/or shareholder services plan (the “plans”) fees due to either (1) fluctuations in daily net
asset amounts, (2) changes in the
plans’ fees during the period for each share class, (3) changes in the Funds’ expense cap during the year, (4) waivers to
the plans’ fees for each
share class, or (5) a combination of the previous points.
In
addition to this Prospectus, the Funds have an SAI dated February 28,
2022 (as may be supplemented from time to time), which
contains additional, more detailed information about
the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Shareholder Reports that contain additional information about the respective Fund’s investments. In each Fund’s
Annual Report to Shareholders, you will find a discussion of the market conditions and the investment strategies that significantly
affected such Fund’s performance during the last fiscal year. For additional Trust information, including information regarding
the investments comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity. If you purchased shares through a Financial Intermediary, you may also obtain these
documents, without charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
The
Securities
and Exchange Commission (“SEC”) has not
approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio
iInvestment
Objective
i
The Prime Portfolio (the “Fund”) seeks preservation
of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Investor Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Investor
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.10%
Total
Annual Fund Operating Expenses2
i0.31%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.30%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Investor Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Investor Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Investor
Class
$i31
$i99
$i173
$i392
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Investor Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Investor Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.30%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
LIBOR
Discontinuance or Unavailability Risk. The London
InterBank Offered Rate (“LIBOR”) is intended to represent the rate at which
contributing banks may obtain short-term borrowings from each other in the London interbank market. The regulatory authority
that oversees financial services firms and financial markets in the U.K. has announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions for purposes of determining the LIBOR rate. However,
subsequent announcements by the Financial Conduct Authority, the LIBOR administrator and other regulators indicate
that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be provided on a representative basis
until mid-2023. However, in connection with supervisory guidance from regulators, some regulated entities will cease to enter
into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or on a later
date, if a particular LIBOR tenor is expected to continue beyond the end of 2021), LIBOR may no longer be available or no longer
deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes, derivatives
and other instruments or investments comprising some or all of the Fund’s portfolio.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Investor Class shares from year-to-year and by showing the average annual returns of the Fund’s Investor Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
The
Investor Class was fully redeemed during the month of October 2016 and did not have investors for subsequent periods. Accordingly, the
returns listed for each period in the bar chart and table
are calculated using returns of 0.00% for periods after October 2016. The average annual returns of the
Fund’s Institutional Class shares for the one, five and 10 year periods as of December 31, 2021
were 0.06%, 1.22% and 0.69%, respectively.
The Investor Class shares would have similar returns
because the shares are invested in the same portfolio and would differ only to the extent that the Classes
do not have the same expenses.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Investor
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio
iInvestment
Objective
i
The ESG Money Market Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Investor Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Investor
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Shareholder
Administration Fee1
i0.10%
Total
Annual Fund Operating Expenses2
i0.32%
Fee
Waiver and/or Expense Reimbursement2
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.30%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Investor Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Investor Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Investor
Class
$i31
$i101
$i178
$i404
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Investor Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Investor Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.30%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Adviser believes that environmental, social and governance
(“ESG”) factors have the ability to impact the fundamental credit risk of
an entity. The Fund’s investment process incorporates information about ESG issues via an integrated approach within the Adviser’s
fundamental investment analysis framework. The Adviser may engage with management of certain issuers regarding corporate
governance practices as well as what the Adviser deems to be materially important environmental and/or social issues facing a
company.
The Adviser has proprietary ESG-scoring methodologies
that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
During the security selection process, the Adviser employs
a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The Fund may invest in green commercial paper (a security
that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In analyzing whether an issuer meets any of the criteria
described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After applying the above exclusion screens, the Adviser
calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
From the final list of ESG-approved issuers, the Adviser
determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under normal circumstances, the Fund will invest 100%
of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
ESG
Investment Risk. The Fund’s adherence to
its ESG criteria and application of related analyses when selecting investments may affect
the Fund’s performance depending on whether such investments are in or out of favor and relative to similar funds that do not
adhere to such criteria or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices
or the Adviser’s assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs
and values of any particular investor. Additionally, the Fund’s adherence to its ESG criteria and application of related analyses
in connection with identifying and selecting investments in non-U.S. issuers often require subjective analysis and may be relatively
more difficult than applying the ESG criteria or related analyses to investments of U.S. issuers because data availability may
be more limited with respect to non-U.S. issuers. The exclusionary criteria related to the Fund’s ESG criteria may result in the
Fund forgoing opportunities to buy certain securities when it might otherwise be advantageous to do so, or selling securities for
ESG reasons when it might be otherwise disadvantageous for it to do so. The Fund’s investments in certain companies may be susceptible
to various factors that may impact their businesses or operations, including costs associated with government budgetary
constraints that impact publicly funded projects and clean energy initiatives, the effects of general economic conditions throughout
the world, increased competition from other providers of services, unfavorable tax laws or accounting policies and high
leverage.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Investor Class shares from year-to-year and by showing the average annual returns of the Fund’s Investor Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
*
The
Investor Class was fully redeemed during the month of October 2016 and did not have investors for subsequent periods. Accordingly, the
returns listed for each period in the bar chart and table
are calculated using returns of 0.00% for periods after October 2016. The average annual returns of the
Fund’s Institutional Class shares for the one, five and 10 year periods as of December 31, 2021
were 0.05%, 1.24% and 0.72%, respectively.
The Investor Class shares would have similar returns
because the shares are invested in the same portfolio and would differ only to the extent that the classes
do not have the same expenses.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Investor
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the
minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Investor Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Investor
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.10%
Total
Annual Fund Operating Expenses2
i0.31%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.30%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Investor Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Investor Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Investor
Class
$i31
$i99
$i173
$i392
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Investor Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Investor Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.30%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Investor Class shares from year-to-year and by showing the average annual returns of the Fund’s Investor Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Investor
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio
iInvestment
Objective
i
The Government Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Investor Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Investor
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Shareholder
Administration Fee1
i0.10%
Total
Annual Fund Operating Expenses2
i0.32%
Fee
Waiver and/or Expense Reimbursement2
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.30%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Investor Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Investor Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Investor
Class
$i31
$i101
$i178
$i404
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Investor Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Investor Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.30%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest substantially
all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment. The U.S. government
securities that the Fund may purchase include those issued or guaranteed either by the U.S. Treasury or certain agencies, authorities
or instrumentalities of the U.S. Government. The Fund may also invest in repurchase agreements with the Federal Reserve
Bank of New York.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. government securities. This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Investor Class shares from year-to-year and by showing the average annual returns of the Fund’s Investor Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Investor
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio
iInvestment
Objective
i
The Treasury Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Investor Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Investor
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.10%
Total
Annual Fund Operating Expenses2
i0.31%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.30%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Investor Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Investor Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Investor
Class
$i31
$i99
$i173
$i392
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Investor Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Investor Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.30%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. Treasury obligations, which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Investor Class shares from year-to-year and by showing the average annual returns of the Fund’s Investor Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Investor
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio
iInvestment
Objective
i
The Treasury Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Investor Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Investor
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.10%
Total
Annual Fund Operating Expenses2
i0.31%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.30%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Investor Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Investor Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Investor
Class
$i31
$i99
$i173
$i392
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Investor Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Investor Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.30%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. A “government money market fund” is exempt from requirements that permit
money market funds to impose a “liquidity fee” and/or a “redemption gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain
the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that
the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in Treasury obligations, which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Investor Class shares from year-to-year and by showing the average annual returns of the Fund’s Investor Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Investor
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio
iInvestment
Objective
i
The Tax-Exempt Portfolio (the “Fund”) seeks
to maximize current income exempt from federal income tax to the extent consistent with
preservation of capital and maintenance of liquidity.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Investor Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Investor
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.19%
Shareholder
Administration Fee1
i0.10%
Total
Annual Fund Operating Expenses2
i0.44%
Fee
Waiver and/or Expense Reimbursement2
i0.14%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.30%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Investor Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Investor Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Investor
Class
$i31
$i127
$i232
$i541
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Investor Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Investor Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.30%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests at least 80% of its assets in high
quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. The Fund may also invest in variable and floating rate demand instruments, tender option bonds, custodial
receipts and investments in other investment companies, including money market funds.
The Fund may invest up to 20% of its assets in taxable
money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax; however, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax. In addition, the Fund may temporarily invest more than 20%
of its assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may invest in variable and floating rate loans
and other variable and floating rate securities. Although these instruments
are generally less sensitive to interest rate changes than fixed rate instruments, the value of variable and floating rate loans
and other securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates.
The Fund may face a heightened level of interest rate
risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve
Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks,
including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended
durations (i.e., extension risk). During periods when
interest rates are low or there are negative interest rates, the Fund’s yield
(and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain positive returns or minimize
the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of liquidity or credit
risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an
instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
Tax-Exempt
Variable Rate Demand Notes. Tax-exempt variable
rate demand notes are variable rate tax-exempt debt obligations that give
investors the right to demand principal repayment. Due to cyclical supply and demand considerations, at times the yields on these
obligations can exceed the yield on taxable money market obligations. The interest rate on these instruments may be reset daily,
weekly or on some other reset period and may have a floor or ceiling on interest rate changes. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank’s prime rate, and is reset whenever such rate is adjusted. The
interest rate on a variable rate demand note is reset at specified intervals at a market rate. The Fund’s ability to receive payments
of principal and interest and other amounts in connection with debt obligations held by it will depend primarily on the financial
condition of the issuer. The failure by the Fund to receive scheduled interest or principal payments on a debt obligation would
adversely affect the income of the Fund and would likely reduce the value of its assets, which would be reflected in a reduction
in the Fund’s NAV.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
meet
redemptions. The risks associated with these developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Investor Class shares from year-to-year and by showing the average annual returns of the Fund’s Investor Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
The
Investor Class was fully redeemed during the month of October 2016 and did not have investors for subsequent periods. Accordingly, the
returns listed for each period in the bar chart and table
are calculated using returns of 0.00% for periods after October 2016. The average annual returns of the
Fund’s Institutional Class shares for the one, five and 10 year periods as of December 31, 2021
were 0.00%, 0.74% and 0.42%, respectively.
The Investor Class shares would have similar returns
because the shares are invested in the same portfolio and would differ only to the extent that the classes
do not have the same expenses.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Investor
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that are generally not subject to federal income tax; however the Fund may distribute taxable dividends,
including distributions of short-term capital gains, and long-term capital gains. In addition, interest on certain bonds may be
subject to the federal alternative minimum tax. To the extent that the Fund’s distributions are derived from interest on bonds
that are not exempt from applicable state and local
taxes, such distributions will be subject to such state and local taxes.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Prime
Portfolio
Investment
Objective
The
Prime Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S.
dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio
Investment
Objective
The
ESG Money Market Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser believes that ESG factors have the ability to impact the fundamental credit risk of an entity. The Fund’s investment process
incorporates information about ESG issues via an integrated approach within the Adviser’s fundamental investment analysis framework.
The Adviser may engage with management of certain issuers regarding corporate governance practices as well as what the Adviser
deems to be materially important environmental and/or social issues facing a company.
The
Adviser has proprietary ESG-scoring methodologies that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
During
the security selection process, the Adviser employs a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The
Fund may invest in green commercial paper (a security that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In
analyzing whether an issuer meets any of the criteria described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After
applying the above exclusion screens, the Adviser calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
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Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio (Cont’d)
From
the final list of ESG-approved issuers, the Adviser determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under
normal circumstances, the Fund will invest 100% of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
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Stanley Institutional Liquidity Funds | Details
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Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued
or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Securities Portfolio
Investment
Objective
The
Government Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest substantially all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The U.S. government securities that the Fund may purchase include those
issued or guaranteed either by the U.S. Treasury or certain agencies, authorities or instrumentalities of the U.S. Government. The
Fund may also invest in repurchase agreements with the Federal Reserve Bank of New York. The Fund may change its principal investment
strategies; however you would be notified of any changes.
Shareholders
should consult their individual tax adviser to determine whether the Fund’s distributions derived from interest on the Treasury
obligations and U.S. government securities referred to above are exempt from state taxation in their own state.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. government securities.
This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
The
Adviser will generally seek to place purchase orders for the Fund with broker-dealers that are owned by minorities, women, disabled
persons, veterans and members of other recognized diversity and inclusion groups and will place the majority of the aggregate
dollar volume of the Fund’s purchase orders for government agency securities obtained via auction or window through such broker-dealers,
subject in each case to the Adviser’s duty to seek best execution for the Fund’s orders.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Portfolio
Investment
Objective
The
Treasury Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Securities Portfolio
Investment
Objective
The
Treasury Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. In selecting investments, the Adviser seeks to maintain the Fund’s share price
at $1.00. The share price remaining stable at $1.00
means that the Fund would preserve the principal value of your investment. The Fund
may change its principal investment strategies; however you would be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
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Tax-Exempt
Portfolio
Investment
Objective
The
Tax-Exempt Portfolio seeks to maximize current income exempt from federal income tax to the extent consistent with preservation
of capital and maintenance of liquidity.
Approach
The
Fund invests at least 80% of its assets in high quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. Municipal obligations are securities issued by state and local governments and their agencies and typically
are either general obligation or revenue bonds, notes or commercial paper. General obligation securities are secured by the issuer’s
full faith and credit including its taxing power for payment of principal and interest. Revenue bonds, however, are generally payable
from a specific revenue source. They are issued for a wide variety of projects such as financing public utilities, hospitals, housing,
airports, highways and educational facilities. Included within the revenue bonds category are participations in lease obligations
and installment purchase contracts of municipalities. Additionally, the Fund’s investments may include variable and floating
rate demand instruments, tender option bonds, custodial receipts and investments in other investment companies, including money
market funds.
The
Fund may invest up to 20% of its assets in taxable money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax. However, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax.
While
at least 80% of the Fund’s assets typically will be invested in municipal obligations, the interest of which is exempt from
federal income taxes and is not subject to the federal
alternative minimum tax, the Fund may temporarily invest more than 20% of its
assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The
Fund operates as an “institutional money market fund” which is neither a “government money market fund” nor
“retail money market fund” as such terms
are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis, taking into consideration factors such as economic developments, budgetary trends, cash flow, debt service
coverage ratios and tax-law changes. Exposure to guarantors and liquidity providers is monitored separately. Weighted average maturity
is shifted in response to expectations as to the future course of money market interest rates, the shape of the money market yield
curve and the Fund’s recent cash flow experience.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
Certain
Funds may not be able to maintain a stable $1.00 share price at all times. If a Fund or another money market fund fails to maintain
a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), a Fund could be subject
to increased redemptions, which may adversely impact a Fund’s share price. In general, certain other money market funds have
in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption pressures will
not occur in the future. Neither a Fund’s sponsor nor any of its affiliates has a legal obligation to provide financial support
to a Fund, and you should not rely on or expect that
they or any person will provide any type of financial support to a Fund at any time to
help a Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making capital infusions into the
Fund, or taking other actions).
Floating
NAV Risk
Certain
Funds do not maintain a stable NAV per share. The value of a Fund’s shares will be calculated to four decimal places and will fluctuate
with changes in the values of a Fund’s portfolio securities. Investors should expect the value of their investment to vary and
reflect the current market value of a Fund’s
holdings. When you sell your shares, they may be worth more or less than what you originally
paid for them. This may result in a capital gain or loss.
Neither a Fund’s sponsor nor any of its affiliates has a legal obligation
to provide financial support to a Fund, and you should not rely on or expect that they or any person will provide any type of
financial support to a Fund at any time.
Bank
Obligations
Bank
obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time deposits
and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than
$1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, certain Funds may invest
in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the
time of purchase, U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such foreign banks and
foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S. government
regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks. Obligations of foreign banks, including Yankee obligations,
are subject to the same risks that pertain to domestic issuers, notably credit risk and market risk, but are also subject to certain
additional risks such as adverse foreign political and economic developments, the extent and quality of foreign government regulation
of the financial markets and institutions, foreign withholding taxes and other sovereign action such as nationalization or expropriation.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. Certain Funds may invest in variable
and floating rate securities. Although these instruments are generally less sensitive to interest rate changes than fixed rate instruments,
the value of these securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates. A
low interest rate environment may prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A
Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or changes rates. During periods when interest rates are low or there are
negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or minimize the volatility of the Fund’s net asset value per share or maintain a stable net asset
value of $1.00 per share, as applicable. Credit ratings
may not be an accurate assessment of liquidity or credit risk. Although credit ratings
may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an instrument or an issuer can have
a rapid, adverse effect on the instrument’s liquidity and make it more difficult for a Fund to sell at an advantageous price or
time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that certain Funds may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, certain Funds may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are Ginnie Mae and the Federal Housing Administration. Also, certain Funds may purchase
securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Further,
certain Funds may purchase securities issued by agencies
and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality.
Among these agencies and instrumentalities is the Federal Farm Credit System. Because these securities are not backed
by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability of the issuers of some U.S. government securities held
by a Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. It is possible that
these issuers will not have the funds to meet their payment obligations in the future. The interest from U.S. government securities
generally is not subject to state and local taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
ESG
Investment Risk
A
Fund’s adherence to its ESG criteria and application of related analyses when selecting investments may affect a Fund’s
performance depending on whether such investments are
in or out of favor and relative to similar funds that do not adhere to such criteria
or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices or the Adviser’s
assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs and values of any
particular investor. Additionally, a Fund’s adherence to its ESG criteria and application of related analyses in connection with
identifying and selecting investments in non-U.S. issuers
often require subjective analysis and may be relatively more difficult than applying
the ESG criteria or related analyses to investments of U.S. issuers because data availability may be more limited with respect to
non-U.S. issuers. The exclusionary criteria related to a Fund’s ESG criteria may result in a Fund forgoing opportunities to buy
certain securities when it might otherwise be advantageous
to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous
for it to do so. A Fund’s investments in certain companies may be susceptible to various factors that may impact their
businesses or operations, including costs associated with government budgetary constraints that impact publicly funded projects and
clean energy initiatives, the effects of general economic conditions throughout the world, increased competition from other providers
of services, unfavorable tax laws or accounting policies and high leverage.
Foreign
Securities
Certain
Funds may invest in U.S. dollar-denominated securities issued by foreign governmental or corporate issuers, including Eurodollar
and Yankee obligations. Although the
Fund will invest in these securities only if the Adviser
determines they are of comparable quality to the Fund’s
U.S. investments, investing in securities of foreign issuers involves some additional risks. While these
securities are subject to the same type of risks that pertain to domestic issuers, namely credit risk and interest rate risk, they are
also subject to other additional risks. Foreign issuers
generally are subject to different accounting, auditing and financial reporting standards
than U.S. issuers. There may be less information available to the public about foreign issuers. Securities of foreign issuers can
be less liquid and experience greater price movements. In some foreign countries, there is also the risk of government expropriation,
excessive taxation, political or social instability, the imposition of currency controls or diplomatic developments that could
affect an investment. There also can be difficulty obtaining and enforcing judgments against issuers in foreign countries. Foreign
stock exchanges, broker-dealers and listed issuers may be subject to less government regulation and oversight. Governmental actions
can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the value and liquidity
of a Fund’s investments. Foreign investment in the securities markets of certain foreign countries is restricted or controlled
to varying degrees.
Economic
sanctions may be, and have been, imposed against certain countries, organizations, companies, entities and/or individuals. Economic
sanctions and other similar governmental actions could, among other things, effectively restrict or eliminate a Fund’s ability
to purchase or sell securities or groups of securities, and thus may make a Fund’s investments in such securities less liquid or
more difficult to value. In addition, as a result of
economic sanctions, the Fund may be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and increased transaction costs. These conditions may
be in place for a substantial period of time and enacted with limited advance notice to a Fund.
Foreign
Money Market Securities
Certain
Funds may invest in foreign money market securities. As described elsewhere herein, foreign investing may involve risks relating
to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. Investments
in foreign markets may also be adversely affected by less stringent investor protections and disclosure standards, and governmental
actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the
imposition of punitive taxes. In addition, there are differences between U.S. and foreign regulatory requirements and market practices
that may result in additional risk. Foreign money market securities also present credit and interest rate risks similar to those attendant
to an investment in domestic money market securities.
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Custodial
Receipts
Certain
Funds may invest in custodial receipts representing interests in U.S. government securities, municipal obligations or other debt
instruments held by a custodian or trustee. Custodial receipts evidence ownership of future interest payments, principal payments
or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. Government, its agencies, instrumentalities,
political subdivisions or authorities, by a state or local governmental body or authority, or by other types of issuers. For
certain securities law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition, if for tax
purposes a Fund is not considered to be the owner of
the underlying securities held in the custodial account, the Fund may suffer adverse
tax consequences. As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged to
the custodial account.
Tender
Option Bonds
A
tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction
with the agreement of a third-party, such as a bank, broker-dealer or other financial institution, pursuant to which the institution
grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing
the option, the financial institution receives periodic fees equal to the difference between the bond’s fixed coupon rate and the
rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par
on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the
event of certain defaults or significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be
taken into account in determining the maturity of the tender option bonds and average portfolio maturity. There is a risk that the Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such
interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of a credit
rating downgrade, a payment default or a disqualification from tax-exempt status. Additionally, the Dodd–Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”), including the Volcker Rule, among other regulatory changes, may affect
the ability of bank-sponsored tender option bonds to continue to operate or remain cost-effective investments.
Corporate
Debt Obligations
Corporate
debt obligations are fixed-income securities issued by private corporations. The investment return of corporate debt obligations
reflects interest earnings and changes in the market value of the security. The market value of a corporate debt obligation may
be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or
principal payments at the time called for by an instrument. Debtholders, as creditors,
have a prior legal claim over common and preferred stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. Certain Funds will buy corporate debt obligations subject to any quality constraints set forth
under Rule 2a-7.
Revenue
Bonds
Revenue
bonds are municipal obligations that are secured by the revenue from a specific project. To the extent that such revenues do not
materialize, the revenue bonds may not be repaid. If a Fund invests in revenue bonds
that are issued by municipal issuers in the same
economic sector, a
Fund would be particularly susceptible to developments adversely affecting that sector. Revenue
bonds historically have been subject to a greater risk
of default than general obligation bonds because investors can look only to the revenue generated
by the project or other revenue source backing the project, rather than to the general taxing authority of the state or local government
issuer of the obligations. For example, investments in revenue bonds backed by receipts from hospitals are sensitive to hospital
bond ratings, which are often based on feasibility studies that contain projections of expenses, revenues and occupancy levels. Additional
factors which could affect a hospital’s gross receipts and net income available to service its debt are demand for hospital services,
the ability of the hospital to provide the services required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses, reputational issues, competition, availability and expenses
of malpractice insurance, Medicaid and Medicare funding and possible federal legislation regulating hospital charges.
LIBOR
Discontinuance or Unavailability Risk.
LIBOR
is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with supervisory guidance from regulators, some regulated
entities will cease to enter into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or
a later date, if a particular reference rate is expected to continue beyond 2021), LIBOR may no longer be available
or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives
and other instruments or investments comprising some or all of a Fund’s portfolio. In light of this eventuality, public and
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private
sector industry initiatives are currently underway to establish
new or alternative reference rates to be used in place of LIBOR. There
is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance
or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any
such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still
may be developing. There may also be challenges for a Fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a Fund’s performance
or net asset value.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a
Fund’s investments, which may change due to economic
and other events that affect markets generally, as well
as those that affect particular regions, countries, industries, companies or governments.
Price
movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Inflation
rates may change frequently and
significantly because of various factors, including unexpected shifts in the domestic or global economy and changes in monetary
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or
economic policies (or expectations that these policies may change). Changes in expected inflation rates may adversely affect market and
economic conditions, a Fund’s investments and an investment in a Fund. Other
financial, economic and other global market and social
developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar events affecting
the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects (which
may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an attractive investment
opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought by a Fund. As
a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment at the time or
seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle. Any such event(s)
could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk that you may lose
money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations,
cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would
generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by certain Funds
may include U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and
preferred stock and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For example,
if the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the securities
has declined, the Funds may incur a loss upon disposition of them. The risk of such loss may be greater when utilizing
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collateral
other than U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right
to control the collateral could be affected and result in certain costs and delays. Additionally, if the proceeds from the liquidation
of such collateral after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
The
Government Securities Portfolio may enter into repurchase agreements with the Federal Reserve Bank of New York. Reduced participation
in the repurchase agreement market by the Federal Reserve Bank of New York may affect the Fund’s investment strategies,
operations and/or return potential.
Municipals
Certain
Funds may purchase municipal obligations subject to any restraints set forth under Rule 2a-7. Municipal obligations are securities
issued by state and local governments and their agencies. These securities typically are “general obligation” or “revenue”bonds, notes or commercial paper, including participations
in lease obligations and installment purchase contracts of municipalities. These
obligations may have fixed, variable or floating rates. To the extent a Fund invests in municipal obligations issued by state and local
governments and their agencies, the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of
these municipal obligations. Municipal obligations are also subject to credit risk and interest risk. In the case of revenue bonds, for
example, credit risk is the possibility that the user
fees from a project or other specified revenue sources are insufficient to meet interest
and/or principal payment obligations. The Fund is subject to added credit risk if it concentrates its investments in a single economic
sector, which could be effected by economic, business or political developments which might affect all municipal obligations
in that particular economic sector.
Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds (other than the Treasury Securities Portfolio) may invest in investment companies, including money market funds, and may
invest all or some of their short-term cash investments in any money market fund advised or managed by the Adviser or its affiliates
(an “affiliated money market fund”). An investment in an investment company is subject to the underlying risks of that investment
company’s portfolio securities. In addition to a Fund’s fees and expenses, the Fund generally would bear its share of the
investment company’s fees and expenses other
than advisory and administrative fees of affiliated money market funds.
Promissory
Notes
Promissory
notes are generally debt obligations of the issuing entity and are subject to the risks of investing in the banking industry. Certain
Funds may invest up to 5% of their net assets in illiquid securities, including unsecured bank promissory notes.
Tax-Exempt
Variable Rate Demand Notes
Tax-exempt
variable rate demand notes are variable rate tax-exempt debt obligations that give investors the right to demand principal repayment.
Due to cyclical supply and demand considerations, at times the yields on these obligations can exceed the yield on taxable money
market obligations. The interest rate on these instruments may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. The interest rate of a floating rate instrument may be based on a known lending rate, such
as a bank’s prime rate, and is reset whenever such rate is adjusted. The interest rate on a variable rate demand note is reset
at specified intervals at a market rate. The Fund’s
ability to receive payments of principal and interest and other amounts in connection with
loans held by it will depend primarily on the financial condition of the issuer. The failure by the Fund to receive scheduled interest
or principal payments on a loan would adversely affect the income of the Fund and would likely reduce the value of its assets, which
would be reflected in a reduction in the Fund’s NAV.
Floating
rate and variable rate demand notes and bonds may have a stated maturity in excess of one year, but may have features that permit
a holder to demand payment of principal plus accrued interest upon a specified number of days’ notice. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided by banks. If these obligations are not secured
by letters of credit or other credit support arrangements, the Fund’s right to demand payment will be dependent on the ability
of the issuer to pay principal and interest on demand. In addition, these obligations frequently are not rated by credit rating agencies
and may involve heightened risk of default by the issuer. The issuer of such obligations normally has a corresponding right, after
a given period, to prepay in its discretion the outstanding principal of the obligation plus accrued interest upon a specific number
of days’ notice to the holders. There is no assurance that the Fund will be able to reinvest the proceeds of any prepayment at
the same interest rate or on the same terms as those
of the original instrument.
In
the absence of an active secondary market for floating rate and variable rate demand notes, the Fund may find it difficult to dispose
of the instruments, and the Fund could suffer a loss if the issuer defaults or during periods in which the Fund is not entitled to
exercise its demand rights. If a reliable trading market for the floating rate and variable rate instruments held by the Fund does not
exist and the Fund may not demand payment of the principal
amount of such instruments within seven days, the instruments may be deemed
illiquid and therefore subject to the Fund’s limitation on investments in illiquid securities.
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Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains, and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund (other than the Treasury Securities Portfolio)
may invest without limit in cash or cash equivalents and the Tax-Exempt Portfolio
may invest without limit in taxable money market securities. Also in such circumstances, the Treasury Securities Portfolio may
invest without limit in cash and repurchase agreements with the Federal Reserve Bank of New York collateralized by U.S. Treasury
obligations. If the Adviser incorrectly predicts the effects of these changes, such defensive investments may adversely affect a Fund’s
performance and the Fund may not achieve its investment objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, which
is the parent of the Distributor. Morgan Stanley is
a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment
banking, research and analysis, financing and financial advisory services. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees’
approval of the Trust’s Investment Advisory Agreement
is available in the Funds’ Annual Report to shareholders
for the fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021,
the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
Prime
Portfolio
0.07%
ESG
Money Market Portfolio
0.07%
Government
Portfolio
0.01%
Government
Securities Portfolio
0.01%
Treasury
Portfolio
0.02%
Treasury
Securities Portfolio
0.01%
Tax-Exempt
Portfolio
0.00%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse the Fund’s Investor Class, if necessary, if such fees would cause the total annual operating expenses
of such Fund’s Investor Class to exceed the percentage of daily net assets set forth in the table below. In determining the actual
amount of fee waiver and/or expense reimbursement for each Fund, if any, the Adviser and Administrator exclude from total annual
operating expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes, interest and other
extraordinary expenses (including litigation). The fee waivers and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Trust’s Board of Trustees acts to discontinue all or a portion of such waivers and/or
reimbursements when it deems
such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap Investor Class
Prime
Portfolio
0.30%
ESG
Money Market Portfolio
0.30%
Government
Portfolio
0.30%
Government
Securities Portfolio
0.30%
Treasury
Portfolio
0.30%
Treasury
Securities Portfolio
0.30%
Tax-Exempt
Portfolio
0.30%
The
Distributor, Adviser and Administrator may also waive distribution fees, advisory fees, administration fees and/or reimburse expenses
to enable a Fund to maintain a minimum level of daily net investment income. The Adviser and Administrator may make additional
voluntary fee waivers and/or expense reimbursements. The Distributor, Adviser and Administrator may discontinue these voluntary
fee waivers and/or expense reimbursements at any time in the future.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio and Government Securities Portfolio are intended
to qualify as eligible investments for federally chartered credit unions pursuant to the applicable provisions of the Federal Credit
Union Act and the National Credit Union Administration. Shares of the Government Portfolio and Government Securities Portfolio,
however, may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should
consult qualified legal counsel to determine whether these Funds are permissible investments under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers Investor Class shares of each Fund. The Trust also offers other classes of shares through separate prospectuses. Certain
of these classes may be subject to different fees and expenses. For information regarding other share classes, contact the Trust or
your financial intermediary.
Minimum
Investment Amount
Investor
Class shares are available to clients of the Adviser with investments at the time of initial purchase of at least $10 million. The Adviser,
in its sole discretion, may waive the minimum initial investment amount in certain cases including, but not limited to, shares
of the Fund purchased through a financial intermediary or when the Adviser anticipates the combined value of a client’s investments
will meet or exceed the minimum.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial intermediaries (also referred to as service organizations) who
may accept purchase and redemption orders for shares of each Fund on its behalf.
The
Adviser and/or the Distributor may pay additional compensation (out of their own funds and not as an expense of a Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with the sale, distribution, retention and/or servicing
of Fund shares. Such compensation may be significant in amount and the prospect of receiving any such additional compensation
may provide affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment
options. Any such payments will not change the NAV or the price of Fund shares. For more information, please see the Funds’
SAI.
The
Trust has adopted an Administration Plan for each Fund’s Investor Class shares (the “Plan”) to pay the Distributor
to compensate certain financial intermediaries (also
referred to as service organizations) who provide administrative services to shareholders.
Under the Plan, each Fund pays the Distributor a monthly administration fee at an annual rate of 0.10% of each Fund’s
average daily net assets of Investor Class shares which are owned beneficially by the customers of such service organization during
such period. The Distributor may waive distribution fees to enable a Fund to maintain a minimum level of daily net investment
income. The Distributor may discontinue these voluntary fee waivers at any time in the future.
Because
the fees are paid out of a Fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Valuation
of Shares
Each
of the Prime Portfolio’s, ESG Money Market Portfolio’s and Tax-Exempt Portfolio’s investments will be valued using
market-based prices provided by an approved pricing
service/vendor and the share price of each rounded to a minimum of the fourth decimal place.
The price of each of Government Portfolio’s, Government Securities Portfolio’s, Treasury Portfolio’s and Treasury
Securities Portfolio’s shares is based on the
amortized cost of the Fund’s securities. The amortized cost valuation method involves valuing a debt obligation
in reference to its cost rather than market forces. If the Adviser determines that a valuation is not reflective of the security’s
market value, such security is valued at its fair value
as determined in good faith under procedures established by and under the general
supervision of the Board.
The
NAV of each Fund is determined once daily (except that the NAV of Prime Portfolio is determined three times daily), normally at
the times set forth below, on each day that the NYSE is open (the “Pricing Time”), except when the following federal holidays
are observed: Columbus Day and Veterans Day.
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
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Government
Portfolio Treasury Portfolio
As
of 5:00 p.m. Eastern time
ESG
Money Market Portfolio Government Securities Portfolio Treasury
Securities Portfolio
As
of 3:00 p.m. Eastern time
Tax-Exempt
Portfolio
As
of 1:00 p.m. Eastern time
Prime
Portfolio
As
of 8:00 a.m., 12:00 p.m. and 3:00 p.m. Eastern time
Pricing
of Fund Shares
Investor
Class shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives your order
in good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal Reserve Bank
(“Federal Funds”) prior to the close of
the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same day your
Investor Class shares are purchased provided the Fund receives your purchase amount in Federal Funds that day as set forth above.
Orders to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV next determined:
for the Government Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; for the Tax-Exempt Portfolio—1:00 p.m.
Eastern time; and for the Prime Portfolio—8:00 a.m., 12:00 p.m. or 3:00 p.m. Eastern time. On any business day that the NYSE
closes early, or when SIFMA recommends that the securities markets close early, a Fund may close early and purchase orders received
after such earlier closing times will be processed the following business day. If the NYSE is closed due to inclement weather, technology
problems or any other reason on a day it would normally be open for business, or the NYSE has an unscheduled early closing
on a day it has opened for business, a Fund reserves the right to treat such day as a business day and accept purchase and redemption
orders until, and calculate its NAV as of, the normally scheduled close of regular trading on the NYSE for that day, or such
time noted above, so long as the Adviser believes there generally remains an adequate market to obtain reliable and accurate market
quotations. A Fund may elect to remain open on days when the NYSE is closed or closes early but on which SIFMA recommends
that the bond markets remain open for all or part of the day. Purchase orders received by a Fund and not funded by 6:45
p.m. Eastern time on the trade date may be subject to an overdraft charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
Investor
Class shares of the Funds may be purchased directly from the Fund or through a financial intermediary.
Purchasing
Shares Through a Financial Intermediary You
may open a new account and purchase Fund shares through certain authorized third-parties, such as brokers, dealers or other financial
intermediaries that have entered into a selling agreement with the Distributor (each, a “Financial Intermediary”). Your
Financial Intermediary will assist you with the procedures
to invest in shares of the Fund. The Financial Intermediary will establish times
by which such purchase orders and payments from customers must be received by the Financial Intermediary. Financial Intermediaries
are responsible for transmitting purchase orders and payments to the Trust and the Trust’s Custodian in a timely fashion.
Purchase orders placed with a Financial Intermediary and transmitted through a trading platform utilized by the Financial Intermediary
may be transmitted by the trading platform after the deadlines established by the Trust for receipt of purchase orders, as set
forth below; in such case, the purchase orders will receive a trade date of the next business day.
Investors
purchasing Investor Class shares through a Financial Intermediary may be charged a transaction-based or other fees by the Financial
Intermediary for its services. If you are purchasing Investor Class shares through a Financial Intermediary, please consult your
intermediary for more information regarding any such fees and for purchase instructions.
With
respect to sales through Financial Intermediaries, no offers or sales of Fund shares may be made in any foreign jurisdiction, except
with the consent of the Distributor.
Purchasing
Shares Directly From the Funds
Initial
Purchase You
may open an account, subject to acceptance by the Fund, and purchase Investor Class shares of a Fund by completing and signing
a New Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888) 378-1630
(which is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional Liquidity
Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804.
After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to the Custodian.
You should instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the following
Morgan
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wire
instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028 DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name) * For international investments
into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Automatic
Purchases Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has a positive balance as a result of credits incurred that day. If an account has a positive (credit) balance, shares of the respective
Fund will automatically be purchased. Any positive (credit) balance will be reduced by any debits to the account on that day
and shares of the Fund will automatically be sold.
Additional
Investments You may make additional investments
of Investor Class shares at the NAV next determined after the request is received in good order or
by wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification of receipt
of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
How
To Redeem Shares
You
may process a redemption request by contacting your Financial Intermediary. Otherwise, you may redeem shares of a Fund by mail
or, if authorized, by telephone, at no charge other than as described below. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will be redeemed at the NAV next determined
after we receive your redemption request in good order.
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
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(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Automatic
Redemptions Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has any debits that were incurred that day and shares of the Funds will automatically be redeemed to cover the debits if such debits
have not been reduced by any credits which may have accrued to the account on the same day.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the Prime Portfolio, ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio—1:00
p.m. Eastern time. On any business day that the NYSE closes early, the Fund may close early and redemption requests received after
such earlier closing times will be processed the following business day. The Fund may elect to remain open on days when the NYSE
is closed or closes early but on which SIFMA recommends that the bond markets remain open for all or part of the day. Generally,
payment for Fund shares sold will be made on the day on which the order is processed, but under certain circumstances may
not be made until the next business day. The Fund may postpone and/or suspend redemption and payment beyond one business
day only as follows: (a) for any period during which there is a non-routine closure of the Fedwire or applicable Federal Reserve
Banks; (b) for any period (i) during which the NYSE is closed other than customary weekend and holiday closings or (ii) during
which trading on the NYSE is restricted; (c) for any period during which an emergency exists as a result of which (i) disposal of
securities owned by the Fund is not reasonably practicable or (ii) it is not reasonably practicable for the Fund to fairly determine the
NAV of shares of the Fund; (d) for any period during which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted
or (ii) an emergency exists; (e) for any period that the SEC may by order permit; or (f) for any period during which the Fund
as part of a necessary liquidation of a Fund, has properly postponed and/or suspended redemption of shares and payment in accordance
with federal securities laws. In addition, when SIFMA recommends that the securities markets close early, payments with respect
to redemption requests received subsequent to the recommended close will be made the next business day (assuming that the Fund
in fact closes).
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by distributing
to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash.
In addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
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Exchange
Privilege
You
may exchange a Fund’s Investor Class shares for Investor Class shares of other available Funds of the Trust based on their respective
NAVs, except that you may not exchange Investor Class shares from or into the Prime Portfolio, ESG Money Market Portfolio
or Tax-Exempt Portfolio. We charge no fee for exchanges. If you purchased Fund shares through a Financial Intermediary, certain
other Funds of the Trust may be unavailable for exchange. Contact your Financial Intermediary to determine which Funds are
available for exchange.
You
can process your exchange by contacting your Financial Intermediary or online through Morgan Stanley’s Treasury Investment Portal
service at www.morganstanley.com/liquidity provided you have a pre-established Internet trading account, as set forth above under
“How To Purchase Shares.” You may also send exchange requests to the Fund’s transfer agent, DST Asset Manager Solutions,
Inc. (“DST”), by mail to Morgan Stanley
Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, KansasCity, MO64121-9804 or by calling the Fund at 1-888-378-1630.
You
will be subject to the same minimum initial investment and account size as an initial purchase. The Fund, in its sole discretion, may
waive the minimum initial investment amounts in certain cases including, but not limited to, exchanges involving Fund shares purchased
through a Financial Intermediary or when the Adviser anticipates the combined value of a client’s investments will meet or exceed
the minimum. The Fund may terminate or revise the exchange privilege upon required notice or in certain cases without notice.
The Fund reserves the right to reject an exchange order for any reason.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing and by certain selected accounts utilizing the Funds as a sweep
vehicle. Therefore, reasonably frequent purchases and redemptions of Fund shares by Fund shareholders do not present risks for
other shareholders of a Fund, and the policies and procedures adopted by the Board of Trustees/Directors as applicable to other funds
in the Morgan Stanley family of funds are generally not applicable with respect to frequent purchases and redemptions of Fund shares.
However, frequent trading by shareholders can disrupt management of the Funds and raise their respective expenses. Therefore,
we may not accept any request for a purchase or exchange when we think it is being used as a tool for market-timing, and we
may bar a shareholder who trades excessively from making further purchases for an indefinite period.
Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by giving written notice to your
Financial Intermediary or by checking the appropriate box in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates—Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio Under
Rule 2a-7, the Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio will be permitted (or in some cases, may
be required) to impose a liquidity fee on redemptions (up to 2%) or temporarily restrict redemptions from the Fund for up to 10
business days during a 90 calendar day period (a “redemption gate”), in the event that the Fund’s weekly liquid assets
fall below the following thresholds:
•
30%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 30% of the Fund’s total assets, and the Board
of Trustees determines it is in the best interests of
the Fund, the Board of Trustees may impose a liquidity fee of no more than 2% of the
amount redeemed and/or a redemption gate that temporarily suspends the right of redemption. The liquidity fee or
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redemption
gate may be imposed at any point during the applicable business day, generally at the subsequent NAV calculation time
of the applicable Fund following the determination of the Board of Trustees.
•
10%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 10% of the Fund’s total assets as of the end of
a business day, the Fund must impose, at the beginning
of the next business day, a liquidity fee of 1% of the amount redeemed, unless
the Board of Trustees determines that imposing such a fee would not be in the best interests of the Fund or determines that a
lower or higher fee (not to exceed 2%) would be in the best interests of the Fund.
Liquidity
fees and redemptions gates may be terminated at any time in the discretion of the Board of Trustees. Liquidity fees and redemptions
gates will also terminate at the beginning of the next business day once the applicable Fund has invested 30% or more of its
total assets in weekly liquid assets as of the end of a business day. A Fund may only suspend redemptions for up to 10 business days
in any 90 calendar day period.
Weekly
liquid assets generally include: (a) cash; (b) direct obligations of the U.S. Government; (c) certain U.S. government agency discount
notes with remaining maturities of 60 days or less; (d) securities that will mature or are subject to a demand feature that is exercisable
and payable within five business days; or (e) amounts receivable and due unconditionally within five business days on pending
sales of portfolio securities.
If
a Fund imposes a redemption gate, the Fund and your Financial Intermediary will not accept redemption or exchange orders out of
the Fund until the Fund has notified shareholders that the redemption gate has been lifted. Any redemption or exchange orders out
of a Fund submitted while a redemption gate is in effect will be cancelled without further notice. If you still wish to redeem or exchange
shares out of a Fund once the redemption gate has been lifted, you will need to submit a new redemption or exchange request
to the Fund or your Financial Intermediary. Unprocessed purchase orders that a Fund received prior to notification of the imposition
of a liquidity fee or redemption gate will be cancelled unless re-confirmed. Under certain circumstances, a Fund may honor
redemption or exchange orders out of the Fund (or pay redemptions without adding a liquidity fee to the redemption amount) if
the Fund can verify that the redemption or exchange order out of the Fund was submitted to the Fund’s agent before the Fund imposed
liquidity fees or suspended redemptions. Once a liquidity fee or a redemption gate is in place, shareholders will not be permitted
to exchange into or out of the applicable Fund until the fee or gate is terminated.
The
Board of Trustees generally expects that a liquidity fee or redemption gate would be imposed, if at all, during periods of extraordinary
market stress. The Board of Trustees generally expects that a redemption gate would be imposed prior to notification to shareholders
and Financial Intermediaries that a gate would be imposed. While the Board of Trustees may, in its discretion, impose a liquidity
fee at any time after the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, the Board of Trustees
generally expects that a liquidity fee would be imposed
only after the Fund has notified Financial Intermediaries and shareholders that
a liquidity fee will be imposed. The Fund retains the liquidity fees for the benefit of remaining shareholders.
The
Board of Trustees may, in its discretion, permanently suspend redemptions and liquidate the Fund if, among other things, the Fund,
at the end of a business day, has less than 10% of its total assets invested in weekly liquid assets. In the event of liquidation,
shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders.
Announcements
regarding the imposition of liquidity fees or redemption gates, or the termination of liquidity fees or redemption gates,
will be filed with the SEC on Form N-CR and will be available on the website of the Fund (http://www.morganstanley.com/im).
In addition, the Fund will make such announcements through a supplement to its Prospectus and may make such announcements
through a press release or by other means.
Dividend
payments will not be subject to liquidity fees or redemption gates; however, in the event that a liquidity fee or redemption gate
is in place at the time that dividends are distributed, all distributions will be made in the form of cash.
Trade
corrections requested after a liquidity fee or redemption gate is imposed will be honored so long as the “as of” date of
the transaction to be processed is prior to the effective
time of the liquidity fee or redemption gate and a valid reason for the trade error is provided.
Financial
Intermediaries will be required to promptly take such actions reasonably requested by the Fund, the Transfer Agent or the Adviser
to implement, modify or remove, or to assist the Fund in implementing, modifying or removing, a liquidity fee or redemption
gate established by the Fund.
The
Government Portfolio, the Government Securities Portfolio, the Treasury Portfolio and the Treasury Securities Portfolio are exempt
from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption gate” that
temporarily restricts redemptions. The Board of Trustees
has opted not to subject the Government Portfolio, the Government Securities Portfolio,
the Treasury Portfolio and the Treasury Securities Portfolio to a “liquidity fee” and/or a “redemption gate”
but has reserved its right to change this determination
in the future after providing appropriate notice to shareholders.
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Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
With
respect to the Government Securities Portfolio, while the Fund intends to limit its investments to certain U.S. Treasury obligations
and U.S. government securities, the interest of which is generally exempt from state income taxation, you should consult your
own tax adviser to determine whether distributions from the Government Securities Portfolio are exempt from state taxation in your
own state.
With
respect to the Tax-Exempt Portfolio, your income dividend distributions are normally exempt from federal income tax to the extent
they are derived from municipal obligations. Income derived from other portfolio securities may be subject to federal, state and/or
local income taxes. The income derived from some municipal securities is subject to the federal “alternative minimum tax.”
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
each of Government Portfolio, Government Securities Portfolio, Treasury Portfolio and Treasury Securities Portfolio intends to
maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when they sell or exchange their shares in these Funds
because the amount realized will be the same as their tax basis in the shares. Because each of Prime Portfolio, ESG Money Market
Portfolio and Tax-Exempt Portfolio does not maintain a stable share price, a sale of these Funds’ shares may result in capital
gain or loss to you.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses
(collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel,
including personnel of the investment adviser, on one
side of an information barrier may have access to information
and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts of
interest in determining whether to engage in such wall crossings. Information obtained in connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries (which may include affiliates of the Adviser and
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain circumstances, the Adviser restricts, limits or reduces the
amount of a Fund’s investment, or restricts the
type of governance or voting rights it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and
Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions.
Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments.
Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an acquisition.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of the Investor Class shares of
each Fund for the periods indicated. The Investor Class was fully redeemed during the month of October 2016 from the Prime Portfolio,
ESG Money Market Portfolio and Tax-Exempt Portfolio and there were no shares outstanding as of October 31, 2021.Accordingly, no financial highlights have been presented
in the applicable Fund’s Annual Report. Certain information reflects financial
results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned (or lost) on
an investment in each Fund (assuming reinvestment of all dividends and distributions).
The
ratios of expenses to average net assets listed in the tables below for each Fund are based on the average net assets of the Fund for
each of the periods listed in the tables. To the extent
that a Fund’s average net assets decrease over the Fund’s next fiscal year, such expense
ratios can be expected to increase, potentially significantly, because certain fixed costs will be spread over a smaller amount of assets.
Year
Ended October 31,
Net
Asset Value, Beginning
of Period
Net Investment Income
Net
Realized and Unrealized
Gain (Loss) on Investments
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
The
information below has been derived from the financial statements audited by Ernst & Young LLP, the Funds’ independent registered
public accounting firm. Ernst & Young LLP’s report, along with each Fund’s financial statements, are incorporated by
reference into the Funds’ SAI. The Annual Report
to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Net
Asset Value, End of
Period
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average Net
Assets Excluding Interest Expenses
Ratio
of Expenses to
Average Net Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income
to Average Net
Assets
Ratio
of Net Investment Income
(Loss) to Average Net
Assets (Before Waivers/ Reimbursement)
$
1.000
0.03
%
$
1,433,481
0.07
%
(3)
N/A
0.31
%
0.02
%
(0.22
)%
1.000
0.55
%
1,509,475
0.25
%
(3)
0.25
%
(3)
0.31
%
0.40
%
0.34
%
1.000
2.10
%
3,447,615
0.27
%
(3)
0.27
%
(3)
0.31
%
2.07
%
2.03
%
1.000
1.45
%
2,426,700
0.27
%
(3)
N/A
0.31
%
1.45
%
1.41
%
1.000
0.55
%
79,317
0.28
%
(3)
N/A
0.31
%
0.53
%
0.50
%
$
1.000
0.01
%
$
51
0.06
%
(3)
N/A
0.32
%
0.00
%
(4)
(0.26
)%
1.000
0.55
%
51
0.24
%
(3)
N/A
0.31
%
0.39
%
0.32
%
1.000
2.03
%
1,006
0.30
%
(3)
N/A
0.33
%
2.02
%
1.99
%
1.000
1.37
%
460
0.30
%
(3)
N/A
0.31
%
1.20
%
1.19
%
1.000
0.50
%
50
0.30
%
(3)
N/A
0.32
%
0.47
%
0.45
%
$
1.000
0.01
%
$
26,713
0.07
%
(3)
N/A
0.31
%
0.01
%
(0.23
)%
1.000
0.51
%
35,583
0.23
%
(3)
0.23
%
(3)
0.31
%
0.33
%
0.25
%
1.000
2.07
%
14,834
0.29
%
(3)
N/A
0.31
%
2.05
%
2.03
%
1.000
1.45
%
9,446
0.29
%
(3)
N/A
0.31
%
1.43
%
1.41
%
1.000
0.53
%
26,243
0.28
%
(3)
N/A
0.31
%
0.51
%
0.48
%
$
1.000
0.01
%
$
51
0.06
%
(3)
N/A
0.31
%
0.01
%
(0.24
)%
1.000
0.55
%
51
0.25
%
(3)
0.25
%
(3)
0.31
%
0.37
%
0.31
%
1.000
2.01
%
51
0.30
%
(3)
N/A
0.31
%
1.99
%
1.98
%
1.000
1.41
%
39,323
0.30
%
(3)
N/A
0.31
%
1.41
%
1.40
%
1.000
0.50
%
63,180
0.29
%
(3)
N/A
0.31
%
0.49
%
0.47
%
Notes
to Financial Highlights
(1)
Per
share amount is based on average shares outstanding.
(2)
Amount
is less than $0.0005 per share.
(3)
Ratio
of Expenses to Average Net Assets before and after Maximum Expense Ratios may vary among share classes by more or less than the administration
plan, service and shareholder administration
plan, distribution plan and/or shareholder services plan (the “plans”) fees due to either (1) fluctuations in daily net
asset amounts, (2) changes in the
plans’ fees during the period for each share class, (3) changes in the Funds’ expense cap during the year, (4) waivers to
the plans’ fees for each
share class, or (5) a combination of the previous points.
In
addition to this Prospectus, the Funds have an SAI dated February 28,
2022 (as may be supplemented from time to time), which
contains additional, more detailed information about
the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Shareholder Reports that contain additional information about the respective Fund’s investments. In each Fund’s
Annual Report to Shareholders, you will find a discussion of the market conditions and the investment strategies that significantly
affected such Fund’s performance during the last fiscal year. For additional Trust information, including information regarding
the investments comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity. If you purchased shares through a Financial Intermediary, you may also obtain these
documents, without charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
The
Securities
and Exchange Commission (“SEC”) has not
approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio
iInvestment
Objective
i
The Prime Portfolio (the “Fund”) seeks preservation
of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Administrative Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Administrative
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.15%
Total
Annual Fund Operating Expenses2
i0.36%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Administrative Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Administrative Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Administrative
Class
$i36
$i115
$i201
$i455
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Administrative Class shares
in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Administrative Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.35%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
LIBOR
Discontinuance or Unavailability Risk. The London
InterBank Offered Rate (“LIBOR”) is intended to represent the rate at which
contributing banks may obtain short-term borrowings from each other in the London interbank market. The regulatory authority
that oversees financial services firms and financial markets in the U.K. has announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions for purposes of determining the LIBOR rate. However,
subsequent announcements by the Financial Conduct Authority, the LIBOR administrator and other regulators indicate
that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be provided on a representative basis
until mid-2023. However, in connection with supervisory guidance from regulators, some regulated entities will cease to enter
into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or on a later
date, if a particular LIBOR tenor is expected to continue beyond the end of 2021), LIBOR may no longer be available or no longer
deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes, derivatives
and other instruments or investments comprising some or all of the Fund’s portfolio.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Administrative Class shares from year-to-year and by showing the average annual returns of the Fund’s Administrative
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
The
Administrative Class was fully redeemed during the month of October 2016 and did not have investors for subsequent periods. Accordingly,
the returns listed for each period in the bar chart and
table are calculated using returns of 0.00% for periods after October 2016. The average annual returns
of the Fund’s Institutional Class shares for the one, five and 10 year periods as of December 31, 2021
were 0.06%, 1.22% and 0.69%,respectively.
The Administrative Class shares would have similar returns because the shares are invested in the same portfolio and would differ only
to the extent that the classes do not have the same expenses.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Administrative
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio
iInvestment
Objective
i
The ESG Money Market Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Administrative Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Administrative
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Shareholder
Administration Fee1
i0.15%
Total
Annual Fund Operating Expenses2
i0.37%
Fee
Waiver and/or Expense Reimbursement2
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Administrative Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Administrative Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Administrative
Class
$i36
$i117
$i206
$i466
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Administrative Class shares
in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Administrative Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.35%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Adviser believes that environmental, social and governance
(“ESG”) factors have the ability to impact the fundamental credit risk of
an entity. The Fund’s investment process incorporates information about ESG issues via an integrated approach within the Adviser’s
fundamental investment analysis framework. The Adviser may engage with management of certain issuers regarding corporate
governance practices as well as what the Adviser deems to be materially important environmental and/or social issues facing a
company.
The Adviser has proprietary ESG-scoring methodologies
that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
During the security selection process, the Adviser employs
a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The Fund may invest in green commercial paper (a security
that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In analyzing whether an issuer meets any of the criteria
described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After applying the above exclusion screens, the Adviser
calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
From the final list of ESG-approved issuers, the Adviser
determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under normal circumstances, the Fund will invest 100%
of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
ESG
Investment Risk. The Fund’s adherence to
its ESG criteria and application of related analyses when selecting investments may affect
the Fund’s performance depending on whether such investments are in or out of favor and relative to similar funds that do not
adhere to such criteria or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices
or the Adviser’s assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs
and values of any particular investor. Additionally, the Fund’s adherence to its ESG criteria and application of related analyses
in connection with identifying and selecting investments in non-U.S. issuers often require subjective analysis and may be relatively
more difficult than applying the ESG criteria or related analyses to investments of U.S. issuers because data availability may
be more limited with respect to non-U.S. issuers. The exclusionary criteria related to the Fund’s ESG criteria may result in the
Fund forgoing opportunities to buy certain securities when it might otherwise be advantageous to do so, or selling securities for
ESG reasons when it might be otherwise disadvantageous for it to do so. The Fund’s investments in certain companies may be susceptible
to various factors that may impact their businesses or operations, including costs associated with government budgetary
constraints that impact publicly funded projects and clean energy initiatives, the effects of general economic conditions throughout
the world, increased competition from other providers of services, unfavorable tax laws or accounting policies and high
leverage.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Administrative Class shares from year-to-year and by showing the average annual returns of the Fund’s Administrative
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
*
The
Administrative Class was fully redeemed during the month of October 2016 and did not have investors for subsequent periods. Accordingly,
the returns listed for each period in the bar chart and
table are calculated using returns of 0.00% for periods after October 2016. The average annual returns
of the Fund’s Institutional Class shares for the one, five and 10 year periods as of December 31, 2021
were 0.05%, 1.24% and 0.72%,respectively.
The Administrative Class shares would have similar returns because the shares are invested in the same portfolio and would differ only
to the extent that the classes do not have the same expenses.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Administrative
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the
minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Administrative Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Administrative
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.15%
Total
Annual Fund Operating Expenses2
i0.36%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Administrative Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Administrative Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Administrative
Class
$i36
$i115
$i201
$i455
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Administrative Class shares
in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Administrative Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.35%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Administrative Class shares from year-to-year and by showing the average annual returns of the Fund’s Administrative
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Administrative
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio
iInvestment
Objective
i
The Government Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Administrative Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Administrative
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Shareholder
Administration Fee1
i0.15%
Total
Annual Fund Operating Expenses2
i0.37%
Fee
Waiver and/or Expense Reimbursement2
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Administrative Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Administrative Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Administrative
Class
$i36
$i117
$i206
$i466
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Administrative Class shares
in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Administrative Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.35%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest substantially
all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment. The U.S. government
securities that the Fund may purchase include those issued or guaranteed either by the U.S. Treasury or certain agencies, authorities
or instrumentalities of the U.S. Government. The Fund may also invest in repurchase agreements with the Federal Reserve
Bank of New York.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. government securities. This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Administrative Class shares from year-to-year and by showing the average annual returns of the Fund’s Administrative
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Administrative
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio
iInvestment
Objective
i
The Treasury Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Administrative Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Administrative
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.15%
Total
Annual Fund Operating Expenses2
i0.36%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Administrative Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Administrative Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Administrative
Class
$i36
$i115
$i201
$i455
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Administrative Class shares
in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Administrative Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.35%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. Treasury obligations, which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Administrative Class shares from year-to-year and by showing the average annual returns of the Fund’s Administrative
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Administrative
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio
iInvestment
Objective
i
The Treasury Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Administrative Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Administrative
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Shareholder
Administration Fee1
i0.15%
Total
Annual Fund Operating Expenses2
i0.36%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Administrative Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Administrative Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Administrative
Class
$i36
$i115
$i201
$i455
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Administrative Class shares
in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Administrative Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.35%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. A “government money market fund” is exempt from requirements that permit
money market funds to impose a “liquidity fee” and/or a “redemption gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain
the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that
the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in Treasury obligations, which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Administrative Class shares from year-to-year and by showing the average annual returns of the Fund’s Administrative
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Administrative
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio
iInvestment
Objective
i
The Tax-Exempt Portfolio (the “Fund”) seeks
to maximize current income exempt from federal income tax to the extent consistent with
preservation of capital and maintenance of liquidity.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Administrative Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Administrative
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.19%
Shareholder
Administration Fee1
i0.15%
Total
Annual Fund Operating Expenses2
i0.49%
Fee
Waiver and/or Expense Reimbursement2
i0.14%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Administrative Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Administrative Class, your investment has a 5% return each year and that
the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Administrative
Class
$i36
$i143
$i260
$i602
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Administrative Class shares
in connection with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Administrative Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.35%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests at least 80% of its assets in high
quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. The Fund may also invest in variable and floating rate demand instruments, tender option bonds, custodial
receipts and investments in other investment companies, including money market funds.
The Fund may invest up to 20% of its assets in taxable
money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax; however, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax. In addition, the Fund may temporarily invest more than 20%
of its assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may invest in variable and floating rate loans
and other variable and floating rate securities. Although these instruments
are generally less sensitive to interest rate changes than fixed rate instruments, the value of variable and floating rate loans
and other securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates.
The Fund may face a heightened level of interest rate
risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve
Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks,
including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended
durations (i.e., extension risk). During periods when
interest rates are low or there are negative interest rates, the Fund’s yield
(and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain positive returns or minimize
the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of liquidity or credit
risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an
instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
Tax-Exempt
Variable Rate Demand Notes. Tax-exempt variable
rate demand notes are variable rate tax-exempt debt obligations that give
investors the right to demand principal repayment. Due to cyclical supply and demand considerations, at times the yields on these
obligations can exceed the yield on taxable money market obligations. The interest rate on these instruments may be reset daily,
weekly or on some other reset period and may have a floor or ceiling on interest rate changes. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank’s prime rate, and is reset whenever such rate is adjusted. The
interest rate on a variable rate demand note is reset at specified intervals at a market rate. The Fund’s ability to receive payments
of principal and interest and other amounts in connection with debt obligations held by it will depend primarily on the financial
condition of the issuer. The failure by the Fund to receive scheduled interest or principal payments on a debt obligation would
adversely affect the income of the Fund and would likely reduce the value of its assets, which would be reflected in a reduction
in the Fund’s NAV.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
meet
redemptions. The risks associated with these developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Administrative Class shares from year-to-year and by showing the average annual returns of the Fund’s Administrative
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
The
Administrative Class was fully redeemed during the month of October 2016 and did not have investors for subsequent periods. Accordingly,
the returns listed for each period in the bar chart and
table are calculated using returns of 0.00% for periods after October 2016. The average annual returns
of the Fund’s Institutional Class shares for the one, five and 10 year periods as of December 31, 2021
were 0.00%, 0.74% and 0.42%,respectively.
The Administrative Class shares would have similar returns because the shares are invested in the same portfolio and would differ only
to the extent that the classes do not have the same expenses.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Administrative
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10
million. You may not be subject to the minimum investment requirement under certain circumstances. For more information, please
refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that are generally not subject to federal income tax; however the Fund may distribute taxable dividends,
including distributions of short-term capital gains, and long-term capital gains. In addition, interest on certain bonds may be
subject to the federal alternative minimum tax. To the extent that the Fund’s distributions are derived from interest on bonds
that are not exempt from applicable state and local
taxes, such distributions will be subject to such state and local taxes.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Prime
Portfolio
Investment
Objective
The
Prime Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S.
dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio
Investment
Objective
The
ESG Money Market Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser believes that ESG factors have the ability to impact the fundamental credit risk of an entity. The Fund’s investment process
incorporates information about ESG issues via an integrated approach within the Adviser’s fundamental investment analysis framework.
The Adviser may engage with management of certain issuers regarding corporate governance practices as well as what the Adviser
deems to be materially important environmental and/or social issues facing a company.
The
Adviser has proprietary ESG-scoring methodologies that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
During
the security selection process, the Adviser employs a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The
Fund may invest in green commercial paper (a security that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In
analyzing whether an issuer meets any of the criteria described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After
applying the above exclusion screens, the Adviser calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio (Con’t)
From
the final list of ESG-approved issuers, the Adviser determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under
normal circumstances, the Fund will invest 100% of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued
or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Securities Portfolio
Investment
Objective
The
Government Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest substantially all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The U.S. government securities that the Fund may purchase include those
issued or guaranteed either by the U.S. Treasury or certain agencies, authorities or instrumentalities of the U.S. Government. The
Fund may also invest in repurchase agreements with the Federal Reserve Bank of New York. The Fund may change its principal investment
strategies; however you would be notified of any changes.
Shareholders
should consult their individual tax adviser to determine whether the Fund’s distributions derived from interest on the Treasury
obligations and U.S. government securities referred to above are exempt from state taxation in their own state.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. government securities.
This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
The
Adviser will generally seek to place purchase orders for the Fund with broker-dealers that are owned by minorities, women, disabled
persons, veterans and members of other recognized diversity and inclusion groups and will place the majority of the aggregate
dollar volume of the Fund’s purchase orders for government agency securities obtained via auction or window through such broker-dealers,
subject in each case to the Adviser’s duty to seek best execution for the Fund’s orders.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Portfolio
Investment
Objective
The
Treasury Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Securities Portfolio
Investment
Objective
The
Treasury Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. In selecting investments, the Adviser seeks to maintain the Fund’s share price
at $1.00. The share price remaining stable at $1.00
means that the Fund would preserve the principal value of your investment. The Fund
may change its principal investment strategies; however you would be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Tax-Exempt
Portfolio
Investment
Objective
The
Tax-Exempt Portfolio seeks to maximize current income exempt from federal income tax to the extent consistent with preservation
of capital and maintenance of liquidity.
Approach
The
Fund invests at least 80% of its assets in high quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. Municipal obligations are securities issued by state and local governments and their agencies and typically
are either general obligation or revenue bonds, notes or commercial paper. General obligation securities are secured by the issuer’s
full faith and credit including its taxing power for payment of principal and interest. Revenue bonds, however, are generally payable
from a specific revenue source. They are issued for a wide variety of projects such as financing public utilities, hospitals, housing,
airports, highways and educational facilities. Included within the revenue bonds category are participations in lease obligations
and installment purchase contracts of municipalities. Additionally, the Fund’s investments may include variable and floating
rate demand instruments, tender option bonds, custodial receipts and investments in other investment companies, including money
market funds.
The
Fund may invest up to 20% of its assets in taxable money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax. However, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax.
While
at least 80% of the Fund’s assets typically will be invested in municipal obligations, the interest of which is exempt from
federal income taxes and is not subject to the federal
alternative minimum tax, the Fund may temporarily invest more than 20% of its
assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The
Fund operates as an “institutional money market fund” which is neither a “government money market fund” nor
“retail money market fund” as such terms
are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis, taking into consideration factors such as economic developments, budgetary trends, cash flow, debt service
coverage ratios and tax-law changes. Exposure to guarantors and liquidity providers is monitored separately. Weighted average maturity
is shifted in response to expectations as to the future course of money market interest rates, the shape of the money market yield
curve and the Fund’s recent cash flow experience.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
Certain
Funds may not be able to maintain a stable $1.00 share price at all times. If a Fund or another money market fund fails to maintain
a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), a Fund could be subject
to increased redemptions, which may adversely impact a Fund’s share price. In general, certain other money market funds have
in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption pressures will
not occur in the future. Neither a Fund’s sponsor nor any of its affiliates has a legal obligation to provide financial support
to a Fund, and you should not rely on or expect that
they or any person will provide any type of financial support to a Fund at any time to
help a Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making capital infusions into the
Fund, or taking other actions).
Floating
NAV Risk
Certain
Funds do not maintain a stable NAV per share. The value of a Fund’s shares will be calculated to four decimal places and will fluctuate
with changes in the values of a Fund’s portfolio securities. Investors should expect the value of their investment to vary and
reflect the current market value of a Fund’s
holdings. When you sell your shares, they may be worth more or less than what you originally
paid for them. This may result in a capital gain or loss.
Neither a Fund’s sponsor nor any of its affiliates has a legal obligation
to provide financial support to a Fund, and you should not rely on or expect that they or any person will provide any type of
financial support to a Fund at any time.
Bank
Obligations
Bank
obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time deposits
and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than
$1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, certain Funds may invest
in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the
time of purchase, U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such foreign banks and
foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S. government
regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks. Obligations of foreign banks, including Yankee obligations,
are subject to the same risks that pertain to domestic issuers, notably credit risk and market risk, but are also subject to certain
additional risks such as adverse foreign political and economic developments, the extent and quality of foreign government regulation
of the financial markets and institutions, foreign withholding taxes and other sovereign action such as nationalization or expropriation.
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Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. Certain Funds may invest in variable
and floating rate securities. Although these instruments are generally less sensitive to interest rate changes than fixed rate instruments,
the value of these securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates. A
low interest rate environment may prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A
Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or changes rates. During periods when interest rates are low or there are
negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or minimize the volatility of the Fund’s net asset value per share or maintain a stable net asset
value of $1.00 per share, as applicable. Credit ratings
may not be an accurate assessment of liquidity or credit risk. Although credit ratings
may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an instrument or an issuer can have
a rapid, adverse effect on the instrument’s liquidity and make it more difficult for a Fund to sell at an advantageous price or
time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that certain Funds may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, certain Funds may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are Ginnie Mae and the Federal Housing Administration. Also, certain Funds may purchase
securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Further,
certain Funds may purchase securities issued by agencies
and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality.
Among these agencies and instrumentalities is the Federal Farm Credit System. Because these securities are not backed
by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability of the issuers of some U.S. government securities held
by a Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. It is possible that
these issuers will not have the funds to meet their payment obligations in the future. The interest from U.S. government securities
generally is not subject to state and local taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
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Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
ESG
Investment Risk
A
Fund’s adherence to its ESG criteria and application of related analyses when selecting investments may affect a Fund’s
performance depending on whether such investments are
in or out of favor and relative to similar funds that do not adhere to such criteria
or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices or the Adviser’s
assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs and values of any
particular investor. Additionally, a Fund’s adherence to its ESG criteria and application of related analyses in connection with
identifying and selecting investments in non-U.S. issuers
often require subjective analysis and may be relatively more difficult than applying
the ESG criteria or related analyses to investments of U.S. issuers because data availability may be more limited with respect to
non-U.S. issuers. The exclusionary criteria related to a Fund’s ESG criteria may result in a Fund forgoing opportunities to buy
certain securities when it might otherwise be advantageous
to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous
for it to do so. A Fund’s investments in certain companies may be susceptible to various factors that may impact their
businesses or operations, including costs associated with government budgetary constraints that impact publicly funded projects and
clean energy initiatives, the effects of general economic conditions throughout the world, increased competition from other providers
of services, unfavorable tax laws or accounting policies and high leverage.
Foreign
Securities
Certain
Funds may invest in U.S. dollar-denominated securities issued by foreign governmental or corporate issuers, including Eurodollar
and Yankee obligations. Although the
Fund will invest in these securities only if the Adviser
determines they are of comparable quality to the Fund’s
U.S. investments, investing in securities of foreign issuers involves some additional risks. While these
securities are subject to the same type of risks that pertain to domestic issuers, namely credit risk and interest rate risk, they are
also subject to other additional risks. Foreign issuers
generally are subject to different accounting, auditing and financial reporting standards
than U.S. issuers. There may be less information available to the public about foreign issuers. Securities of foreign issuers can
be less liquid and experience greater price movements. In some foreign countries, there is also the risk of government expropriation,
excessive taxation, political or social instability, the imposition of currency controls or diplomatic developments that could
affect an investment. There also can be difficulty obtaining and enforcing judgments against issuers in foreign countries. Foreign
stock exchanges, broker-dealers and listed issuers may be subject to less government regulation and oversight. Governmental actions
can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the value and liquidity
of a Fund’s investments. Foreign investment in the securities markets of certain foreign countries is restricted or controlled
to varying degrees.
Economic
sanctions may be, and have been, imposed against certain countries, organizations, companies, entities and/or individuals. Economic
sanctions and other similar governmental actions could, among other things, effectively restrict or eliminate a Fund’s ability
to purchase or sell securities or groups of securities, and thus may make a Fund’s investments in such securities less liquid or
more difficult to value. In addition, as a result of
economic sanctions, the Fund may be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and increased transaction costs. These conditions may
be in place for a substantial period of time and enacted with limited advance notice to a Fund.
Foreign
Money Market Securities
Certain
Funds may invest in foreign money market securities. As described elsewhere herein, foreign investing may involve risks relating
to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. Investments
in foreign markets may also be adversely affected by less stringent investor protections and disclosure standards, and governmental
actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the
imposition of punitive taxes. In addition, there are differences between U.S. and foreign regulatory requirements and market practices
that may result in additional risk. Foreign money market securities also present credit and interest rate risks similar to those attendant
to an investment in domestic money market securities.
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Custodial
Receipts
Certain
Funds may invest in custodial receipts representing interests in U.S. government securities, municipal obligations or other debt
instruments held by a custodian or trustee. Custodial receipts evidence ownership of future interest payments, principal payments
or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. Government, its agencies, instrumentalities,
political subdivisions or authorities, by a state or local governmental body or authority, or by other types of issuers. For
certain securities law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition, if for tax
purposes a Fund is not considered to be the owner of
the underlying securities held in the custodial account, the Fund may suffer adverse
tax consequences. As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged to
the custodial account.
Tender
Option Bonds
A
tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction
with the agreement of a third-party, such as a bank, broker-dealer or other financial institution, pursuant to which the institution
grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing
the option, the financial institution receives periodic fees equal to the difference between the bond’s fixed coupon rate and the
rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par
on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the
event of certain defaults or significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be
taken into account in determining the maturity of the tender option bonds and average portfolio maturity. There is a risk that the Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such
interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of a credit
rating downgrade, a payment default or a disqualification from tax-exempt status. Additionally, the Dodd–Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”), including the Volcker Rule, among other regulatory changes, may affect
the ability of bank-sponsored tender option bonds to continue to operate or remain cost-effective investments.
Corporate
Debt Obligations
Corporate
debt obligations are fixed-income securities issued by private corporations. The investment return of corporate debt obligations
reflects interest earnings and changes in the market value of the security. The market value of a corporate debt obligation may
be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or
principal payments at the time called for by an instrument. Debtholders, as creditors,
have a prior legal claim over common and preferred stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. Certain Funds will buy corporate debt obligations subject to any quality constraints set forth
under Rule 2a-7.
Revenue
Bonds
Revenue
bonds are municipal obligations that are secured by the revenue from a specific project. To the extent that such revenues do not
materialize, the revenue bonds may not be repaid. If a Fund invests in revenue bonds
that are issued by municipal issuers in the same
economic sector, a
Fund would be particularly susceptible to developments adversely affecting that sector. Revenue
bonds historically have been subject to a greater risk
of default than general obligation bonds because investors can look only to the revenue generated
by the project or other revenue source backing the project, rather than to the general taxing authority of the state or local government
issuer of the obligations. For example, investments in revenue bonds backed by receipts from hospitals are sensitive to hospital
bond ratings, which are often based on feasibility studies that contain projections of expenses, revenues and occupancy levels. Additional
factors which could affect a hospital’s gross receipts and net income available to service its debt are demand for hospital services,
the ability of the hospital to provide the services required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses, reputational issues, competition, availability and expenses
of malpractice insurance, Medicaid and Medicare funding and possible federal legislation regulating hospital charges.
LIBOR
Discontinuance or Unavailability Risk.
LIBOR
is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with supervisory guidance from regulators, some regulated
entities will cease to enter into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or
a later date, if a particular reference rate is expected to continue beyond 2021), LIBOR may no longer be available
or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives
and other instruments or investments comprising some or all of a Fund’s portfolio. In light of this eventuality, public and
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private
sector industry initiatives are currently underway to establish
new or alternative reference rates to be used in place of LIBOR. There
is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance
or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any
such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still
may be developing. There may also be challenges for a Fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a Fund’s performance
or net asset value.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a
Fund’s investments, which may change due to economic
and other events that affect markets generally, as well
as those that affect particular regions, countries, industries, companies or governments.
Price
movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Inflation
rates may change frequently and
significantly because of various factors, including unexpected shifts in the domestic or global economy and changes in monetary
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or
economic policies (or expectations that these policies may change). Changes in expected inflation rates may adversely affect market and
economic conditions, a Fund’s investments and an investment in a Fund. Other
financial, economic and other global market and social
developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar events affecting
the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects (which
may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an attractive investment
opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought by a Fund. As
a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment at the time or
seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle. Any such event(s)
could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk that you may lose
money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations,
cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would
generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by certain Funds
may include U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and
preferred stock and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For example,
if the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the securities
has declined, the Funds may incur a loss upon disposition of them. The risk of such loss may be greater when utilizing
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collateral
other than U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right
to control the collateral could be affected and result in certain costs and delays. Additionally, if the proceeds from the liquidation
of such collateral after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
The
Government Securities Portfolio may enter into repurchase agreements with the Federal Reserve Bank of New York. Reduced participation
in the repurchase agreement market by the Federal Reserve Bank of New York may affect the Fund’s investment strategies,
operations and/or return potential.
Municipals
Certain
Funds may purchase municipal obligations subject to any restraints set forth under Rule 2a-7. Municipal obligations are securities
issued by state and local governments and their agencies. These securities typically are “general obligation” or “revenue”bonds, notes or commercial paper, including participations
in lease obligations and installment purchase contracts of municipalities. These
obligations may have fixed, variable or floating rates. To the extent a Fund invests in municipal obligations issued by state and local
governments and their agencies, the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of
these municipal obligations. Municipal obligations are also subject to credit risk and interest risk. In the case of revenue bonds, for
example, credit risk is the possibility that the user
fees from a project or other specified revenue sources are insufficient to meet interest
and/or principal payment obligations. The Fund is subject to added credit risk if it concentrates its investments in a single economic
sector, which could be effected by economic, business or political developments which might affect all municipal obligations
in that particular economic sector.
Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds (other than the Treasury Securities Portfolio) may invest in investment companies, including money market funds, and may
invest all or some of their short-term cash investments in any money market fund advised or managed by the Adviser or its affiliates
(an “affiliated money market fund”). An investment in an investment company is subject to the underlying risks of that investment
company’s portfolio securities. In addition to a Fund’s fees and expenses, the Fund generally would bear its share of the
investment company’s fees and expenses other
than advisory and administrative fees of affiliated money market funds.
Promissory
Notes
Promissory
notes are generally debt obligations of the issuing entity and are subject to the risks of investing in the banking industry. Certain
Funds may invest up to 5% of their net assets in illiquid securities, including unsecured bank promissory notes.
Tax-Exempt
Variable Rate Demand Notes
Tax-exempt
variable rate demand notes are variable rate tax-exempt debt obligations that give investors the right to demand principal repayment.
Due to cyclical supply and demand considerations, at times the yields on these obligations can exceed the yield on taxable money
market obligations. The interest rate on these instruments may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. The interest rate of a floating rate instrument may be based on a known lending rate, such
as a bank’s prime rate, and is reset whenever such rate is adjusted. The interest rate on a variable rate demand note is reset
at specified intervals at a market rate. The Fund’s
ability to receive payments of principal and interest and other amounts in connection with
loans held by it will depend primarily on the financial condition of the issuer. The failure by the Fund to receive scheduled interest
or principal payments on a loan would adversely affect the income of the Fund and would likely reduce the value of its assets, which
would be reflected in a reduction in the Fund’s NAV.
Floating
rate and variable rate demand notes and bonds may have a stated maturity in excess of one year, but may have features that permit
a holder to demand payment of principal plus accrued interest upon a specified number of days’ notice. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided by banks. If these obligations are not secured
by letters of credit or other credit support arrangements, the Fund’s right to demand payment will be dependent on the ability
of the issuer to pay principal and interest on demand. In addition, these obligations frequently are not rated by credit rating agencies
and may involve heightened risk of default by the issuer. The issuer of such obligations normally has a corresponding right, after
a given period, to prepay in its discretion the outstanding principal of the obligation plus accrued interest upon a specific number
of days’ notice to the holders. There is no assurance that the Fund will be able to reinvest the proceeds of any prepayment at
the same interest rate or on the same terms as those
of the original instrument.
In
the absence of an active secondary market for floating rate and variable rate demand notes, the Fund may find it difficult to dispose
of the instruments, and the Fund could suffer a loss if the issuer defaults or during periods in which the Fund is not entitled to
exercise its demand rights. If a reliable trading market for the floating rate and variable rate instruments held by the Fund does not
exist and the Fund may not demand payment of the principal
amount of such instruments within seven days, the instruments may be deemed
illiquid and therefore subject to the Fund’s limitation on investments in illiquid securities.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains, and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund (other than the Treasury Securities Portfolio)
may invest without limit in cash or cash equivalents and the Tax-Exempt Portfolio
may invest without limit in taxable money market securities. Also in such circumstances, the Treasury Securities Portfolio may
invest without limit in cash and repurchase agreements with the Federal Reserve Bank of New York collateralized by U.S. Treasury
obligations. If the Adviser incorrectly predicts the effects of these changes, such defensive investments may adversely affect a Fund’s
performance and the Fund may not achieve its investment objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, which
is the parent of the Distributor. Morgan Stanley is
a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment
banking, research and analysis, financing and financial advisory services. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees’
approval of the Trust’s Investment Advisory Agreement
is available in the Funds’ Annual Report to shareholders
for the fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021,
the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
Prime
Portfolio
0.07%
ESG
Money Market Portfolio
0.07%
Government
Portfolio
0.01%
Government
Securities Portfolio
0.01%
Treasury
Portfolio
0.02%
Treasury
Securities Portfolio
0.01%
Tax-Exempt
Portfolio
0.00%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse the Fund’s Administrative Class, if necessary, if such fees would cause the total annual operating expenses
of such Fund’s Administrative Class to exceed the percentage of daily net assets set forth in the table below. In determining the
actual amount of fee waiver and/or expense reimbursement for each Fund, if any, the Adviser and Administrator exclude from total
annual operating expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes, interest and
other extraordinary expenses (including litigation). The fee waivers and/or expense reimbursements will continue for at least one year
from the date of this Prospectus
or until such time as the Trust’s Board of Trustees
acts to discontinue all or a portion of such waivers
and/or reimbursements when it deems
such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap Administrative Class
Prime
Portfolio
0.35%
ESG
Money Market Portfolio
0.35%
Government
Portfolio
0.35%
Government
Securities Portfolio
0.35%
Treasury
Portfolio
0.35%
Treasury
Securities Portfolio
0.35%
Tax-Exempt
Portfolio
0.35%
The
Distributor, Adviser and Administrator may also waive distribution fees, advisory fees, administration fees and/or reimburse expenses
to enable a Fund to maintain a minimum level of daily net investment income. The Adviser and Administrator may make additional
voluntary fee waivers and/or expense reimbursements. The Distributor, Adviser and Administrator may discontinue these voluntary
fee waivers and/or expense reimbursements at any time in the future.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio and Government Securities Portfolio are intended
to qualify as eligible investments for federally chartered credit unions pursuant to the applicable provisions of the Federal Credit
Union Act and the National Credit Union Administration. Shares of the Government Portfolio and Government Securities Portfolio,
however, may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should
consult qualified legal counsel to determine whether these Funds are permissible investments under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers Administrative Class shares of each Fund. The Trust also offers other classes of shares through separate prospectuses.
Certain of these classes may be subject to different fees and expenses. For information regarding other share classes, contact
the Trust or your financial intermediary.
Minimum
Investment Amount
Administrative
Class shares are available to clients of the Adviser with investments at the time of initial purchase of at least $10 million.
The Adviser, in its sole discretion, may waive the minimum initial investment amount in certain cases including, but not limited
to, shares of the Fund purchased through a financial intermediary or when the Adviser anticipates the combined value of a client’s
investments will meet or exceed the minimum.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial intermediaries (also referred to as service organizations) who
may accept purchase and redemption orders for shares of each Fund on its behalf.
The
Adviser and/or the Distributor may pay additional compensation (out of their own funds and not as an expense of a Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with the sale, distribution, retention and/or servicing
of Fund shares. Such compensation may be significant in amount and the prospect of receiving any such additional compensation
may provide affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment
options. Any such payments will not change the NAV or the price of Fund shares. For more information, please see the Funds’
SAI.
The
Trust has adopted an Administration Plan for each Fund’s Administrative Class shares (the “Plan”) to pay the Distributor
to compensate certain financial intermediaries (also
referred to as service organizations) who provide administrative services to shareholders.
Under the Plan, each Fund pays the Distributor a monthly administration fee which shall not exceed during any one year
0.15% of each Fund’s average daily net assets of Administrative Class shares which are owned beneficially by the customers
of such service organization during such period. The
Distributor may waive distribution fees to enable a Fund to maintain a minimum level
of daily net investment income. The Distributor may discontinue these voluntary fee waivers at any time in the future.
Because
the fees are paid out of a Fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Valuation
of Shares
Each
of the Prime Portfolio’s, ESG Money Market Portfolio’s and Tax-Exempt Portfolio’s investments will be valued using
market-based prices provided by an approved pricing
service/vendor and the share price of each rounded to a minimum of the fourth decimal place.
The price of each of Government Portfolio’s, Government Securities Portfolio’s, Treasury Portfolio’s and Treasury
Securities Portfolio’s shares is based on the
amortized cost of the Fund’s securities. The amortized cost valuation method involves valuing a debt obligation
in reference to its cost rather than market forces. If the Adviser determines that a valuation is not reflective of the security’s
market value, such security is valued at its fair value
as determined in good faith under procedures established by and under the general
supervision of the Board.
The
NAV of each Fund is determined once daily (except that the NAV of Prime Portfolio is determined three times daily), normally at
the times set forth below, on each day that the NYSE is open (the “Pricing Time”), except when the following federal holidays
are observed: Columbus Day and Veterans Day.
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Government
Portfolio Treasury Portfolio
As
of 5:00 p.m. Eastern time
ESG
Money Market Portfolio Government Securities Portfolio Treasury
Securities Portfolio
As
of 3:00 p.m. Eastern time
Tax-Exempt
Portfolio
As
of 1:00 p.m. Eastern time
Prime
Portfolio
As
of 8:00 a.m., 12:00 p.m. and 3:00 p.m. Eastern time
Pricing
of Fund Shares
Administrative
Class shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives your
order in good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal Reserve
Bank (“Federal Funds”) prior to the close
of the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same day
your Administrative Class shares are purchased provided the Fund receives your purchase amount in Federal Funds that day as set
forth above. Orders to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV next
determined: for the Government Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the ESG Money Market Portfolio,
Government Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; for the Tax-Exempt Portfolio—1:00
p.m. Eastern time; and for the Prime Portfolio—8:00 a.m., 12:00 p.m. or 3:00 p.m. Eastern time. On any business day
that the NYSE closes early, or when SIFMA recommends that the securities markets close early, a Fund may close early and purchase
orders received after such earlier closing times will be processed the following business day. If the NYSE is closed due to inclement
weather, technology problems or any other reason on a day it would normally be open for business, or the NYSE has an unscheduled
early closing on a day it has opened for business, a Fund reserves the right to treat such day as a business day and accept purchase
and redemption orders until, and calculate its NAV as of, the normally scheduled close of regular trading on the NYSE for that
day, or such time noted above, so long as the Adviser believes there generally remains an adequate market to obtain reliable and accurate
market quotations. A Fund may elect to remain open and
price its shares on days when the NYSE is closed or
closes early but on which SIFMA recommends that the
bond markets remain open for all or part of the day. Purchase orders received by the
Funds
and not funded by 6:45
p.m. Eastern time on the trade date may be subject to an overdraft charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
Administrative
Class shares of the Funds may be purchased directly from the Fund or through a financial intermediary.
Purchasing
Shares Through a Financial Intermediary You
may open a new account and purchase Fund shares through certain authorized third-parties, such as brokers, dealers or other financial
intermediaries that have entered into a selling agreement with the Distributor (each, a “Financial Intermediary”). Your
Financial Intermediary will assist you with the procedures
to invest in shares of the Fund. The Financial Intermediary will establish times
by which such purchase orders and payments from customers must be received by the Financial Intermediary. Financial Intermediaries
are responsible for transmitting purchase orders and payments to the Trust and the Trust’s Custodian in a timely fashion.
Purchase orders placed with a Financial Intermediary and transmitted through a trading platform utilized by the Financial Intermediary
may be transmitted by the trading platform after the deadlines established by the Trust for receipt of purchase orders, as set
forth below; in such case, the purchase orders will receive a trade date of the next business day.
Investors
purchasing Administrative Class shares through a Financial Intermediary may be charged a transaction-based or other fees by
the Financial Intermediary for its services. If you are purchasing Administrative Class shares through a Financial Intermediary, please
consult your intermediary for more information regarding any such fees and for purchase instructions.
With
respect to sales through Financial Intermediaries, no offers or sales of Fund shares may be made in any foreign jurisdiction, except
with the consent of the Distributor.
Purchasing
Shares Directly From the Funds
Initial
Purchase You
may open an account, subject to acceptance by the Fund, and purchase Administrative Class shares of a Fund by completing and signing
a New Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888) 378-1630
(which is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional Liquidity
Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804.
After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to the Custodian.
You should instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the following
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
wire
instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028 DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name) * For international investments
into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Automatic
Purchases Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has a positive balance as a result of credits incurred that day. If an account has a positive (credit) balance, shares of the respective
Fund will automatically be purchased. Any positive (credit) balance will be reduced by any debits to the account on that day
and shares of the Fund will automatically be sold.
Additional
Investments You may make additional investments
of Administrative Class shares at the NAV next determined after the request is received in good
order or by wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification
of receipt of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase
Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
How
To Redeem Shares
You
may process a redemption request by contacting your Financial Intermediary. Otherwise, you may redeem shares of a Fund by mail
or, if authorized, by telephone, at no charge other than as described below. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will be redeemed at the NAV next determined
after we receive your redemption request in good order.
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Automatic
Redemptions Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has any debits that were incurred that day and shares of the Funds will automatically be redeemed to cover the debits if such debits
have not been reduced by any credits which may have accrued to the account on the same day.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the Prime Portfolio, ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio—1:00
p.m. Eastern time. On any business day that the NYSE closes early, the Fund may close early and redemption requests received after
such earlier closing times will be processed the following business day. The Fund may elect to remain open on days when the NYSE
is closed or closes early but on which SIFMA recommends that the bond markets remain open for all or part of the day. Generally,
payment for Fund shares sold will be made on the day on which the order is processed, but under certain circumstances may
not be made until the next business day. The Fund may postpone and/or suspend redemption and payment beyond one business
day only as follows: (a) for any period during which there is a non-routine closure of the Fedwire or applicable Federal Reserve
Banks; (b) for any period (i) during which the NYSE is closed other than customary weekend and holiday closings or (ii) during
which trading on the NYSE is restricted; (c) for any period during which an emergency exists as a result of which (i) disposal of
securities owned by the Fund is not reasonably practicable or (ii) it is not reasonably practicable for the Fund to fairly determine the
NAV of shares of the Fund; (d) for any period during which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted
or (ii) an emergency exists; (e) for any period that the SEC may by order permit; or (f) for any period during which the Fund
as part of a necessary liquidation of a Fund, has properly postponed and/or suspended redemption of shares and payment in accordance
with federal securities laws. In addition, when SIFMA recommends that the securities markets close early, payments with respect
to redemption requests received subsequent to the recommended close will be made the next business day (assuming that the Fund
in fact closes).
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by distributing
to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash.
In addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Exchange
Privilege
You
may exchange a Fund’s Administrative Class shares for Administrative Class shares of other available Funds of the Trust based on
their respective NAVs, except that you may not exchange Administrative Class shares from or into the Prime Portfolio, ESG Money
Market Portfolio or Tax-Exempt Portfolio. We charge no fee for exchanges. If you purchased Fund shares through a Financial
Intermediary, certain other Funds of the Trust may be unavailable for exchange. Contact your Financial Intermediary to determine
which Funds are available for exchange.
You
can process your exchange by contacting your Financial Intermediary or online through Morgan Stanley’s Treasury Investment Portal
service at www.morganstanley.com/liquidity provided you have a pre-established Internet trading account, as set forth above under
“How To Purchase Shares.” You may also send exchange requests to the Fund’s transfer agent, DST Asset Manager Solutions,
Inc. (“DST”), by mail to Morgan Stanley
Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, KansasCity, MO64121-9804 or by calling the Fund at 1-888-378-1630.
You
will be subject to the same minimum initial investment and account size as an initial purchase. The Fund, in its sole discretion, may
waive the minimum initial investment amounts in certain cases including, but not limited to, exchanges involving Fund shares purchased
through a Financial Intermediary or when the Adviser anticipates the combined value of a client’s investments will meet or exceed
the minimum. The Fund may terminate or revise the exchange privilege upon required notice or in certain cases without notice.
The Fund reserves the right to reject an exchange order for any reason.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing and by certain selected accounts utilizing the Funds as a sweep
vehicle. Therefore, reasonably frequent purchases and redemptions of Fund shares by Fund shareholders do not present risks for
other shareholders of a Fund, and the policies and procedures adopted by the Board of Trustees/Directors as applicable to other funds
in the Morgan Stanley family of funds are generally not applicable with respect to frequent purchases and redemptions of Fund shares.
However, frequent trading by shareholders can disrupt management of the Funds and raise their respective expenses. Therefore,
we may not accept any request for a purchase or exchange when we think it is being used as a tool for market-timing, and we
may bar a shareholder who trades excessively from making further purchases for an indefinite period.
Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by giving written notice to your
Financial Intermediary or by checking the appropriate box in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates—Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio Under
Rule 2a-7, the Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio will be permitted (or in some cases, may
be required) to impose a liquidity fee on redemptions (up to 2%) or temporarily restrict redemptions from the Fund for up to 10
business days during a 90 calendar day period (a “redemption gate”), in the event that the Fund’s weekly liquid assets
fall below the following thresholds:
•
30%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 30% of the Fund’s total assets, and the Board
of Trustees determines it is in the best interests of
the Fund, the Board of Trustees may impose a liquidity fee of no more than 2% of the
amount redeemed and/or a redemption gate that temporarily suspends the right of redemption. The liquidity fee or
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
redemption
gate may be imposed at any point during the applicable business day, generally at the subsequent NAV calculation time
of the applicable Fund following the determination of the Board of Trustees.
•
10%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 10% of the Fund’s total assets as of the end of
a business day, the Fund must impose, at the beginning
of the next business day, a liquidity fee of 1% of the amount redeemed, unless
the Board of Trustees determines that imposing such a fee would not be in the best interests of the Fund or determines that a
lower or higher fee (not to exceed 2%) would be in the best interests of the Fund.
Liquidity
fees and redemptions gates may be terminated at any time in the discretion of the Board of Trustees. Liquidity fees and redemptions
gates will also terminate at the beginning of the next business day once the applicable Fund has invested 30% or more of its
total assets in weekly liquid assets as of the end of a business day. A Fund may only suspend redemptions for up to 10 business days
in any 90 calendar day period.
Weekly
liquid assets generally include: (a) cash; (b) direct obligations of the U.S. Government; (c) certain U.S. government agency discount
notes with remaining maturities of 60 days or less; (d) securities that will mature or are subject to a demand feature that is exercisable
and payable within five business days; or (e) amounts receivable and due unconditionally within five business days on pending
sales of portfolio securities.
If
a Fund imposes a redemption gate, the Fund and your Financial Intermediary will not accept redemption or exchange orders out of
the Fund until the Fund has notified shareholders that the redemption gate has been lifted. Any redemption or exchange orders out
of a Fund submitted while a redemption gate is in effect will be cancelled without further notice. If you still wish to redeem or exchange
shares out of a Fund once the redemption gate has been lifted, you will need to submit a new redemption or exchange request
to the Fund or your Financial Intermediary. Unprocessed purchase orders that a Fund received prior to notification of the imposition
of a liquidity fee or redemption gate will be cancelled unless re-confirmed. Under certain circumstances, a Fund may honor
redemption or exchange orders out of the Fund (or pay redemptions without adding a liquidity fee to the redemption amount) if
the Fund can verify that the redemption or exchange order out of the Fund was submitted to the Fund’s agent before the Fund imposed
liquidity fees or suspended redemptions. Once a liquidity fee or a redemption gate is in place, shareholders will not be permitted
to exchange into or out of the applicable Fund until the fee or gate is terminated.
The
Board of Trustees generally expects that a liquidity fee or redemption gate would be imposed, if at all, during periods of extraordinary
market stress. The Board of Trustees generally expects that a redemption gate would be imposed prior to notification to shareholders
and Financial Intermediaries that a gate would be imposed. While the Board of Trustees may, in its discretion, impose a liquidity
fee at any time after the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, the Board of Trustees
generally expects that a liquidity fee would be imposed
only after the Fund has notified Financial Intermediaries and shareholders that
a liquidity fee will be imposed. The Fund retains the liquidity fees for the benefit of remaining shareholders.
The
Board of Trustees may, in its discretion, permanently suspend redemptions and liquidate the Fund if, among other things, the Fund,
at the end of a business day, has less than 10% of its total assets invested in weekly liquid assets. In the event of liquidation,
shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders.
Announcements
regarding the imposition of liquidity fees or redemption gates, or the termination of liquidity fees or redemption gates,
will be filed with the SEC on Form N-CR and will be available on the website of the Fund (http://www.morganstanley.com/im).
In addition, the Fund will make such announcements through a supplement to its Prospectus and may make such announcements
through a press release or by other means.
Dividend
payments will not be subject to liquidity fees or redemption gates; however, in the event that a liquidity fee or redemption gate
is in place at the time that dividends are distributed, all distributions will be made in the form of cash.
Trade
corrections requested after a liquidity fee or redemption gate is imposed will be honored so long as the “as of” date of
the transaction to be processed is prior to the effective
time of the liquidity fee or redemption gate and a valid reason for the trade error is provided.
Financial
Intermediaries will be required to promptly take such actions reasonably requested by the Fund, the Transfer Agent or the Adviser
to implement, modify or remove, or to assist the Fund in implementing, modifying or removing, a liquidity fee or redemption
gate established by the Fund.
The
Government Portfolio, the Government Securities Portfolio, the Treasury Portfolio and the Treasury Securities Portfolio are exempt
from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption gate” that
temporarily restricts redemptions. The Board of Trustees
has opted not to subject the Government Portfolio, the Government Securities Portfolio,
the Treasury Portfolio and the Treasury Securities Portfolio to a “liquidity fee” and/or a “redemption gate”
but has reserved its right to change this determination
in the future after providing appropriate notice to shareholders.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
With
respect to the Government Securities Portfolio, while the Fund intends to limit its investments to certain U.S. Treasury obligations
and U.S. government securities, the interest of which is generally exempt from state income taxation, you should consult your
own tax adviser to determine whether distributions from the Government Securities Portfolio are exempt from state taxation in your
own state.
With
respect to the Tax-Exempt Portfolio, your income dividend distributions are normally exempt from federal income tax to the extent
they are derived from municipal obligations. Income derived from other portfolio securities may be subject to federal, state and/or
local income taxes. The income derived from some municipal securities is subject to the federal “alternative minimum tax.”
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
each of Government Portfolio, Government Securities Portfolio, Treasury Portfolio and Treasury Securities Portfolio intends to
maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when they sell or exchange their shares in these Funds
because the amount realized will be the same as their tax basis in the shares. Because each of Prime Portfolio, ESG Money Market
Portfolio and Tax-Exempt Portfolio does not maintain a stable share price, a sale of these Funds’ shares may result in capital
gain or loss to you.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses
(collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel,
including personnel of the investment adviser, on one
side of an information barrier may have access to information
and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts of
interest in determining whether to engage in such wall crossings. Information obtained in connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries (which may include affiliates of the Adviser and
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain circumstances, the Adviser restricts, limits or reduces the
amount of a Fund’s investment, or restricts the
type of governance or voting rights it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and
Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions.
Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments.
Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an acquisition.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of the Administrative Class shares
of each Fund for the periods indicated. The Administrative Class was fully redeemed during the month of October 2016 from the
Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio and there were no shares outstanding as of October 31, 2021.
Accordingly, no financial highlights have been presented in the applicable Fund’s Annual Report. Certain information reflects financial
results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned (or lost) on
an investment in each Fund (assuming reinvestment of all dividends and distributions).
The
ratios of expenses to average net assets listed in the tables below for each Fund are based on the average net assets of the Fund for
each of the periods listed in the tables. To the extent
that a Fund’s average net assets decrease over the Fund’s next fiscal year, such expense
ratios can be expected to increase, potentially significantly, because certain fixed costs will be spread over a smaller amount of assets.
Year
Ended October 31,
Net
Asset Value, Beginning of
Period
Net Investment Income
Net
Realized and Unrealized
Gain (Loss) on Investments
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
The
information below has been derived from the financial statements audited by Ernst & Young LLP, the Funds’ independent registered
public accounting firm. Ernst & Young LLP’s report, along with each Fund’s financial statements, are incorporated by
reference into the Funds’ SAI. The Annual Report
to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Net
Asset Value, End of
Period
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average
Net Assets Excluding Interest Expenses
Ratio
of Expenses to
Average Net Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income to
Average Net Assets
Ratio
of Net Investment Income
(Loss) to Average Net
Assets (Before Waivers/ Reimbursement)
$
1.000
0.03
%
$
357,558
0.07
%
(3)
N/A
0.36
%
0.02
%
(0.27
)%
1.000
0.52
%
161,405
0.26
%
(3)
0.26
%
(3)
0.36
%
0.39
%
0.29
%
1.000
2.05
%
186,966
0.32
%
(3)
0.32
%
(3)
0.36
%
2.02
%
1.98
%
1.000
1.40
%
181,397
0.32
%
(3)
N/A
0.36
%
1.40
%
1.36
%
1.000
0.50
%
169,710
0.33
%
(3)
N/A
0.36
%
0.48
%
0.45
%
$
1.000
0.01
%
$
51
0.06
%
(3)
N/A
0.37
%
0.00
%
(4)
(0.31
)%
1.000
0.52
%
51
0.27
%
(3)
N/A
0.37
%
0.37
%
0.27
%
1.000
1.98
%
51
0.35
%
(3)
N/A
0.38
%
1.97
%
1.94
%
1.000
1.32
%
50
0.35
%
(3)
N/A
0.36
%
1.15
%
1.14
%
1.000
0.45
%
50
0.35
%
(3)
N/A
0.37
%
0.42
%
0.40
%
$
1.000
0.01
%
$
3,294
0.07
%
(3)
N/A
0.36
%
0.01
%
(0.28
)%
1.000
0.49
%
3,435
0.27
%
(3)
0.27
%
(3)
0.36
%
0.29
%
0.20
%
1.000
2.02
%
3,534
0.34
%
(3)
N/A
0.36
%
2.00
%
1.98
%
1.000
1.39
%
2,500
0.34
%
(3)
N/A
0.36
%
1.38
%
1.36
%
1.000
0.48
%
4,340
0.33
%
(3)
N/A
0.36
%
0.46
%
0.43
%
$
1.000
0.01
%
$
18,968
0.06
%
(3)
N/A
0.36
%
0.01
%
(0.29
)%
1.000
0.52
%
2,024
0.27
%
(3)
0.27
%
(3)
0.36
%
0.34
%
0.25
%
1.000
1.96
%
2,015
0.35
%
(3)
N/A
0.36
%
1.94
%
1.93
%
1.000
1.36
%
2,378
0.35
%
(3)
N/A
0.36
%
1.36
%
1.35
%
1.000
0.45
%
127
0.34
%
(3)
N/A
0.36
%
0.44
%
0.42
%
Notes
to Financial Highlights
(1)
Per
share amount is based on average shares outstanding.
(2)
Amount
is less than $0.0005 per share.
(3)
Ratio
of Expenses to Average Net Assets before and after Maximum Expense Ratios may vary among share classes by more or less than the administration
plan, service and shareholder administration
plan, distribution plan and/or shareholder services plan (the “plans”) fees due to either (1) fluctuations in daily net
asset amounts, (2) changes in the
plans’ fees during the period for each share class, (3) changes in the Funds’ expense cap during the year, (4) waivers to
the plans’ fees for each
share class, or (5) a combination of the previous points.
In
addition to this Prospectus, the Funds have an SAI dated February 28,
2022 (as may be supplemented from time to time), which
contains additional, more detailed information about
the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Shareholder Reports that contain additional information about the respective Fund’s investments. In each Fund’s
Annual Report to Shareholders, you will find a discussion of the market conditions and the investment strategies that significantly
affected such Fund’s performance during the last fiscal year. For additional Trust information, including information regarding
the investments comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity. If you purchased shares through a Financial Intermediary, you may also obtain these
documents, without charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
The
Securities
and Exchange Commission (“SEC”) has not
approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio
iInvestment
Objective
i
The Prime Portfolio (the “Fund”) seeks preservation
of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Advisory Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Advisory
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Service
and Shareholder Administration Fee1
i0.25%
Total
Annual Fund Operating Expenses2
i0.46%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.45%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Advisory Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Advisory Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Advisory
Class
$i46
$i147
$i257
$i578
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Advisory Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Advisory Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.45%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
LIBOR
Discontinuance or Unavailability Risk. The London
InterBank Offered Rate (“LIBOR”) is intended to represent the rate at which
contributing banks may obtain short-term borrowings from each other in the London interbank market. The regulatory authority
that oversees financial services firms and financial markets in the U.K. has announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions for purposes of determining the LIBOR rate. However,
subsequent announcements by the Financial Conduct Authority, the LIBOR administrator and other regulators indicate
that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be provided on a representative basis
until mid-2023. However, in connection with supervisory guidance from regulators, some regulated entities will cease to enter
into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or on a later
date, if a particular LIBOR tenor is expected to continue beyond the end of 2021), LIBOR may no longer be available or no longer
deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes, derivatives
and other instruments or investments comprising some or all of the Fund’s portfolio.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Advisory Class shares from year-to-year and by showing the average annual returns of the Fund’s Advisory Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Advisory
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio
iInvestment
Objective
i
The ESG Money Market Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Advisory Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Advisory
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Service
and Shareholder Administration Fee1
i0.25%
Total
Annual Fund Operating Expenses2
i0.47%
Fee
Waiver and/or Expense Reimbursement2
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.45%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Advisory Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Advisory Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Advisory
Class
$i46
$i149
$i261
$i590
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Advisory Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Advisory Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.45%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Adviser believes that environmental, social and governance
(“ESG”) factors have the ability to impact the fundamental credit risk of
an entity. The Fund’s investment process incorporates information about ESG issues via an integrated approach within the Adviser’s
fundamental investment analysis framework. The Adviser may engage with management of certain issuers regarding corporate
governance practices as well as what the Adviser deems to be materially important environmental and/or social issues facing a
company.
The Adviser has proprietary ESG-scoring methodologies
that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
During the security selection process, the Adviser employs
a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The Fund may invest in green commercial paper (a security
that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In analyzing whether an issuer meets any of the criteria
described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After applying the above exclusion screens, the Adviser
calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
From the final list of ESG-approved issuers, the Adviser
determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under normal circumstances, the Fund will invest 100%
of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
ESG
Investment Risk. The Fund’s adherence to
its ESG criteria and application of related analyses when selecting investments may affect
the Fund’s performance depending on whether such investments are in or out of favor and relative to similar funds that do not
adhere to such criteria or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices
or the Adviser’s assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs
and values of any particular investor. Additionally, the Fund’s adherence to its ESG criteria and application of related analyses
in connection with identifying and selecting investments in non-U.S. issuers often require subjective analysis and may be relatively
more difficult than applying the ESG criteria or related analyses to investments of U.S. issuers because data availability may
be more limited with respect to non-U.S. issuers. The exclusionary criteria related to the Fund’s ESG criteria may result in the
Fund forgoing opportunities to buy certain securities when it might otherwise be advantageous to do so, or selling securities for
ESG reasons when it might be otherwise disadvantageous for it to do so. The Fund’s investments in certain companies may be susceptible
to various factors that may impact their businesses or operations, including costs associated with government budgetary
constraints that impact publicly funded projects and clean energy initiatives, the effects of general economic conditions throughout
the world, increased competition from other providers of services, unfavorable tax laws or accounting policies and high
leverage.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Advisory Class shares from year-to-year and by showing the average annual returns of the Fund’s Advisory Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Advisory
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the
minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Advisory Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Advisory
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Service
and Shareholder Administration Fee1
i0.25%
Total
Annual Fund Operating Expenses2
i0.46%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.45%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Advisory Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Advisory Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Advisory
Class
$i46
$i147
$i257
$i578
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Advisory Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Advisory Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.45%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Advisory Class shares from year-to-year and by showing the average annual returns of the Fund’s Advisory Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Advisory
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio
iInvestment
Objective
i
The Government Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Advisory Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Advisory
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Service
and Shareholder Administration Fee1
i0.25%
Total
Annual Fund Operating Expenses2
i0.47%
Fee
Waiver and/or Expense Reimbursement2
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.45%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Advisory Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Advisory Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Advisory
Class
$i46
$i149
$i261
$i590
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Advisory Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Advisory Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.45%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest substantially
all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment. The U.S. government
securities that the Fund may purchase include those issued or guaranteed either by the U.S. Treasury or certain agencies, authorities
or instrumentalities of the U.S. Government. The Fund may also invest in repurchase agreements with the Federal Reserve
Bank of New York.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. government securities. This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Advisory Class shares from year-to-year and by showing the average annual returns of the Fund’s Advisory Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Advisory
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio
iInvestment
Objective
i
The Treasury Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Advisory Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Advisory
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Service
and Shareholder Administration Fee1
i0.25%
Total
Annual Fund Operating Expenses2
i0.46%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.45%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Advisory Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Advisory Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Advisory
Class
$i46
$i147
$i257
$i578
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Advisory Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Advisory Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.45%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. Treasury obligations, which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Advisory Class shares from year-to-year and by showing the average annual returns of the Fund’s Advisory Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Advisory
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio
iInvestment
Objective
i
The Treasury Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Advisory Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Advisory
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Service
and Shareholder Administration Fee1
i0.25%
Total
Annual Fund Operating Expenses2
i0.46%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.45%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Advisory Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Advisory Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Advisory
Class
$i46
$i147
$i257
$i578
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Advisory Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Advisory Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.45%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. A “government money market fund” is exempt from requirements that permit
money market funds to impose a “liquidity fee” and/or a “redemption gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain
the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that
the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in Treasury obligations, which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Advisory Class shares from year-to-year and by showing the average annual returns of the Fund’s Advisory Class
shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Advisory
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio
iInvestment
Objective
i
The Tax-Exempt Portfolio (the “Fund”) seeks
to maximize current income exempt from federal income tax to the extent consistent with
preservation of capital and maintenance of liquidity.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Advisory Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Advisory
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.19%
Service
and Shareholder Administration Fee1
i0.25%
Total
Annual Fund Operating Expenses2
i0.59%
Fee
Waiver and/or Expense Reimbursement2
i0.14%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.45%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Advisory Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Advisory Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Advisory
Class
$i46
$i175
$i315
$i725
1
Institutions
or financial intermediaries may charge other fees directly to their customers who are beneficial owners of Advisory Class shares in connection
with their customers’ accounts.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Advisory Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.45%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests at least 80% of its assets in high
quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. The Fund may also invest in variable and floating rate demand instruments, tender option bonds, custodial
receipts and investments in other investment companies, including money market funds.
The Fund may invest up to 20% of its assets in taxable
money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax; however, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax. In addition, the Fund may temporarily invest more than 20%
of its assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may invest in variable and floating rate loans
and other variable and floating rate securities. Although these instruments
are generally less sensitive to interest rate changes than fixed rate instruments, the value of variable and floating rate loans
and other securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates.
The Fund may face a heightened level of interest rate
risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve
Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks,
including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended
durations (i.e., extension risk). During periods when
interest rates are low or there are negative interest rates, the Fund’s yield
(and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain positive returns or minimize
the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of liquidity or credit
risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an
instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
Tax-Exempt
Variable Rate Demand Notes. Tax-exempt variable
rate demand notes are variable rate tax-exempt debt obligations that give
investors the right to demand principal repayment. Due to cyclical supply and demand considerations, at times the yields on these
obligations can exceed the yield on taxable money market obligations. The interest rate on these instruments may be reset daily,
weekly or on some other reset period and may have a floor or ceiling on interest rate changes. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank’s prime rate, and is reset whenever such rate is adjusted. The
interest rate on a variable rate demand note is reset at specified intervals at a market rate. The Fund’s ability to receive payments
of principal and interest and other amounts in connection with debt obligations held by it will depend primarily on the financial
condition of the issuer. The failure by the Fund to receive scheduled interest or principal payments on a debt obligation would
adversely affect the income of the Fund and would likely reduce the value of its assets, which would be reflected in a reduction
in the Fund’s NAV.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
meet
redemptions. The risks associated with these developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Advisory Class shares from year-to-year and by showing the average annual returns of the Fund’s Advisory Class
shares for the one, five and 10 year periods and since
inception. iThe
Fund’s past performance is not necessarily an indication of how the Fund
will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
The
Advisory Class was fully redeemed during the month of November 2016 and did not have investors for subsequent periods. Accordingly, the
returns listed for each period in the bar chart and table
are calculated using returns of 0.00% for periods after November 2016. The average annual returns
of the Fund’s Institutional Class shares for the one, five and 10 year periods as of December 31, 2021
were 0.00%, 0.74% and 0.42%,respectively.
The Advisory Class shares would have similar returns because the shares are invested in the same portfolio and would differ only to the
extent that the classes do not have the same expenses.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Advisory
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that are generally not subject to federal income tax; however the Fund may distribute taxable dividends,
including distributions of short-term capital gains, and long-term capital gains. In addition, interest on certain bonds may be
subject to the federal alternative minimum tax. To the extent that the Fund’s distributions are derived from interest on bonds
that are not exempt from applicable state and local
taxes, such distributions will be subject to such state and local taxes.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Prime
Portfolio
Investment
Objective
The
Prime Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S.
dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio
Investment
Objective
The
ESG Money Market Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser believes that ESG factors have the ability to impact the fundamental credit risk of an entity. The Fund’s investment process
incorporates information about ESG issues via an integrated approach within the Adviser’s fundamental investment analysis framework.
The Adviser may engage with management of certain issuers regarding corporate governance practices as well as what the Adviser
deems to be materially important environmental and/or social issues facing a company.
The
Adviser has proprietary ESG-scoring methodologies that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
During
the security selection process, the Adviser employs a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The
Fund may invest in green commercial paper (a security that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In
analyzing whether an issuer meets any of the criteria described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After
applying the above exclusion screens, the Adviser calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio (Con’t)
From
the final list of ESG-approved issuers, the Adviser determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under
normal circumstances, the Fund will invest 100% of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued
or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Securities Portfolio
Investment
Objective
The
Government Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest substantially all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The U.S. government securities that the Fund may purchase include those
issued or guaranteed either by the U.S. Treasury or certain agencies, authorities or instrumentalities of the U.S. Government. The
Fund may also invest in repurchase agreements with the Federal Reserve Bank of New York. The Fund may change its principal investment
strategies; however you would be notified of any changes.
Shareholders
should consult their individual tax adviser to determine whether the Fund’s distributions derived from interest on the Treasury
obligations and U.S. government securities referred to above are exempt from state taxation in their own state.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. government securities.
This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
The
Adviser will generally seek to place purchase orders for the Fund with broker-dealers that are owned by minorities, women, disabled
persons, veterans and members of other recognized diversity and inclusion groups and will place the majority of the aggregate
dollar volume of the Fund’s purchase orders for government agency securities obtained via auction or window through such broker-dealers,
subject in each case to the Adviser’s duty to seek best execution for the Fund’s orders.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Portfolio
Investment
Objective
The
Treasury Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
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Treasury
Securities Portfolio
Investment
Objective
The
Treasury Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. In selecting investments, the Adviser seeks to maintain the Fund’s share price
at $1.00. The share price remaining stable at $1.00
means that the Fund would preserve the principal value of your investment. The Fund
may change its principal investment strategies; however you would be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Tax-Exempt
Portfolio
Investment
Objective
The
Tax-Exempt Portfolio seeks to maximize current income exempt from federal income tax to the extent consistent with preservation
of capital and maintenance of liquidity.
Approach
The
Fund invests at least 80% of its assets in high quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. Municipal obligations are securities issued by state and local governments and their agencies and typically
are either general obligation or revenue bonds, notes or commercial paper. General obligation securities are secured by the issuer’s
full faith and credit including its taxing power for payment of principal and interest. Revenue bonds, however, are generally payable
from a specific revenue source. They are issued for a wide variety of projects such as financing public utilities, hospitals, housing,
airports, highways and educational facilities. Included within the revenue bonds category are participations in lease obligations
and installment purchase contracts of municipalities. Additionally, the Fund’s investments may include variable and floating
rate demand instruments, tender option bonds, custodial receipts and investments in other investment companies, including money
market funds.
The
Fund may invest up to 20% of its assets in taxable money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax. However, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax.
While
at least 80% of the Fund’s assets typically will be invested in municipal obligations, the interest of which is exempt from
federal income taxes and is not subject to the federal
alternative minimum tax, the Fund may temporarily invest more than 20% of its
assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The
Fund operates as an “institutional money market fund” which is neither a “government money market fund” nor
“retail money market fund” as such terms
are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis, taking into consideration factors such as economic developments, budgetary trends, cash flow, debt service
coverage ratios and tax-law changes. Exposure to guarantors and liquidity providers is monitored separately. Weighted average maturity
is shifted in response to expectations as to the future course of money market interest rates, the shape of the money market yield
curve and the Fund’s recent cash flow experience.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
Certain
Funds may not be able to maintain a stable $1.00 share price at all times. If a Fund or another money market fund fails to maintain
a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), a Fund could be subject
to increased redemptions, which may adversely impact a Fund’s share price. In general, certain other money market funds have
in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption pressures will
not occur in the future. Neither a Fund’s sponsor nor any of its affiliates has a legal obligation to provide financial support
to a Fund, and you should not rely on or expect that
they or any person will provide any type of financial support to a Fund at any time to
help a Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making capital infusions into the
Fund, or taking other actions).
Floating
NAV Risk
Certain
Funds do not maintain a stable NAV per share. The value of a Fund’s shares will be calculated to four decimal places and will fluctuate
with changes in the values of a Fund’s portfolio securities. Investors should expect the value of their investment to vary and
reflect the current market value of a Fund’s
holdings. When you sell your shares, they may be worth more or less than what you originally
paid for them. This may result in a capital gain or loss.
Neither a Fund’s sponsor nor any of its affiliates has a legal obligation
to provide financial support to a Fund, and you should not rely on or expect that they or any person will provide any type of
financial support to a Fund at any time.
Bank
Obligations
Bank
obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time deposits
and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than
$1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, certain Funds may invest
in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the
time of purchase, U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such foreign banks and
foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S. government
regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks. Obligations of foreign banks, including Yankee obligations,
are subject to the same risks that pertain to domestic issuers, notably credit risk and market risk, but are also subject to certain
additional risks such as adverse foreign political and economic developments, the extent and quality of foreign government regulation
of the financial markets and institutions, foreign withholding taxes and other sovereign action such as nationalization or expropriation.
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
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Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. Certain Funds may invest in variable
and floating rate securities. Although these instruments are generally less sensitive to interest rate changes than fixed rate instruments,
the value of these securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates. A
low interest rate environment may prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A
Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or changes rates. During periods when interest rates are low or there are
negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or minimize the volatility of the Fund’s net asset value per share or maintain a stable net asset
value of $1.00 per share, as applicable. Credit ratings
may not be an accurate assessment of liquidity or credit risk. Although credit ratings
may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an instrument or an issuer can have
a rapid, adverse effect on the instrument’s liquidity and make it more difficult for a Fund to sell at an advantageous price or
time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that certain Funds may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, certain Funds may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are Ginnie Mae and the Federal Housing Administration. Also, certain Funds may purchase
securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Further,
certain Funds may purchase securities issued by agencies
and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality.
Among these agencies and instrumentalities is the Federal Farm Credit System. Because these securities are not backed
by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability of the issuers of some U.S. government securities held
by a Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. It is possible that
these issuers will not have the funds to meet their payment obligations in the future. The interest from U.S. government securities
generally is not subject to state and local taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
ESG
Investment Risk
A
Fund’s adherence to its ESG criteria and application of related analyses when selecting investments may affect a Fund’s
performance depending on whether such investments are
in or out of favor and relative to similar funds that do not adhere to such criteria
or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices or the Adviser’s
assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs and values of any
particular investor. Additionally, a Fund’s adherence to its ESG criteria and application of related analyses in connection with
identifying and selecting investments in non-U.S. issuers
often require subjective analysis and may be relatively more difficult than applying
the ESG criteria or related analyses to investments of U.S. issuers because data availability may be more limited with respect to
non-U.S. issuers. The exclusionary criteria related to a Fund’s ESG criteria may result in a Fund forgoing opportunities to buy
certain securities when it might otherwise be advantageous
to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous
for it to do so. A Fund’s investments in certain companies may be susceptible to various factors that may impact their
businesses or operations, including costs associated with government budgetary constraints that impact publicly funded projects and
clean energy initiatives, the effects of general economic conditions throughout the world, increased competition from other providers
of services, unfavorable tax laws or accounting policies and high leverage.
Foreign
Securities
Certain
Funds may invest in U.S. dollar-denominated securities issued by foreign governmental or corporate issuers, including Eurodollar
and Yankee obligations. Although the
Fund will invest in these securities only if the Adviser
determines they are of comparable quality to the Fund’s
U.S. investments, investing in securities of foreign issuers involves some additional risks. While these
securities are subject to the same type of risks that pertain to domestic issuers, namely credit risk and interest rate risk, they are
also subject to other additional risks. Foreign issuers
generally are subject to different accounting, auditing and financial reporting standards
than U.S. issuers. There may be less information available to the public about foreign issuers. Securities of foreign issuers can
be less liquid and experience greater price movements. In some foreign countries, there is also the risk of government expropriation,
excessive taxation, political or social instability, the imposition of currency controls or diplomatic developments that could
affect an investment. There also can be difficulty obtaining and enforcing judgments against issuers in foreign countries. Foreign
stock exchanges, broker-dealers and listed issuers may be subject to less government regulation and oversight. Governmental actions
can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the value and liquidity
of a Fund’s investments. Foreign investment in the securities markets of certain foreign countries is restricted or controlled
to varying degrees.
Economic
sanctions may be, and have been, imposed against certain countries, organizations, companies, entities and/or individuals. Economic
sanctions and other similar governmental actions could, among other things, effectively restrict or eliminate a Fund’s ability
to purchase or sell securities or groups of securities, and thus may make a Fund’s investments in such securities less liquid or
more difficult to value. In addition, as a result of
economic sanctions, the Fund may be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and increased transaction costs. These conditions may
be in place for a substantial period of time and enacted with limited advance notice to a Fund.
Foreign
Money Market Securities
Certain
Funds may invest in foreign money market securities. As described elsewhere herein, foreign investing may involve risks relating
to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. Investments
in foreign markets may also be adversely affected by less stringent investor protections and disclosure standards, and governmental
actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the
imposition of punitive taxes. In addition, there are differences between U.S. and foreign regulatory requirements and market practices
that may result in additional risk. Foreign money market securities also present credit and interest rate risks similar to those attendant
to an investment in domestic money market securities.
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Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
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Custodial
Receipts
Certain
Funds may invest in custodial receipts representing interests in U.S. government securities, municipal obligations or other debt
instruments held by a custodian or trustee. Custodial receipts evidence ownership of future interest payments, principal payments
or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. Government, its agencies, instrumentalities,
political subdivisions or authorities, by a state or local governmental body or authority, or by other types of issuers. For
certain securities law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition, if for tax
purposes a Fund is not considered to be the owner of
the underlying securities held in the custodial account, the Fund may suffer adverse
tax consequences. As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged to
the custodial account.
Tender
Option Bonds
A
tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction
with the agreement of a third-party, such as a bank, broker-dealer or other financial institution, pursuant to which the institution
grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing
the option, the financial institution receives periodic fees equal to the difference between the bond’s fixed coupon rate and the
rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par
on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the
event of certain defaults or significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be
taken into account in determining the maturity of the tender option bonds and average portfolio maturity. There is a risk that the Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such
interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of a credit
rating downgrade, a payment default or a disqualification from tax-exempt status. Additionally, the Dodd–Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”), including the Volcker Rule, among other regulatory changes, may affect
the ability of bank-sponsored tender option bonds to continue to operate or remain cost-effective investments.
Corporate
Debt Obligations
Corporate
debt obligations are fixed-income securities issued by private corporations. The investment return of corporate debt obligations
reflects interest earnings and changes in the market value of the security. The market value of a corporate debt obligation may
be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or
principal payments at the time called for by an instrument. Debtholders, as creditors,
have a prior legal claim over common and preferred stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. Certain Funds will buy corporate debt obligations subject to any quality constraints set forth
under Rule 2a-7.
Revenue
Bonds
Revenue
bonds are municipal obligations that are secured by the revenue from a specific project. To the extent that such revenues do not
materialize, the revenue bonds may not be repaid. If a Fund invests in revenue bonds
that are issued by municipal issuers in the same
economic sector, a
Fund would be particularly susceptible to developments adversely affecting that sector. Revenue
bonds historically have been subject to a greater risk
of default than general obligation bonds because investors can look only to the revenue generated
by the project or other revenue source backing the project, rather than to the general taxing authority of the state or local government
issuer of the obligations. For example, investments in revenue bonds backed by receipts from hospitals are sensitive to hospital
bond ratings, which are often based on feasibility studies that contain projections of expenses, revenues and occupancy levels. Additional
factors which could affect a hospital’s gross receipts and net income available to service its debt are demand for hospital services,
the ability of the hospital to provide the services required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses, reputational issues, competition, availability and expenses
of malpractice insurance, Medicaid and Medicare funding and possible federal legislation regulating hospital charges.
LIBOR
Discontinuance or Unavailability Risk.
LIBOR
is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with supervisory guidance from regulators, some regulated
entities will cease to enter into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or
a later date, if a particular reference rate is expected to continue beyond 2021), LIBOR may no longer be available
or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives
and other instruments or investments comprising some or all of a Fund’s portfolio. In light of this eventuality, public and
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
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private
sector industry initiatives are currently underway to establish
new or alternative reference rates to be used in place of LIBOR. There
is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance
or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any
such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still
may be developing. There may also be challenges for a Fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a Fund’s performance
or net asset value.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a
Fund’s investments, which may change due to economic
and other events that affect markets generally, as well
as those that affect particular regions, countries, industries, companies or governments.
Price
movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Inflation
rates may change frequently and
significantly because of various factors, including unexpected shifts in the domestic or global economy and changes in monetary
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
or
economic policies (or expectations that these policies may change). Changes in expected inflation rates may adversely affect market and
economic conditions, a Fund’s investments and an investment in a Fund. Other
financial, economic and other global market and social
developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar events affecting
the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects (which
may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an attractive investment
opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought by a Fund. As
a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment at the time or
seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle. Any such event(s)
could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk that you may lose
money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations,
cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would
generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by certain Funds
may include U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and
preferred stock and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For example,
if the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the securities
has declined, the Funds may incur a loss upon disposition of them. The risk of such loss may be greater when utilizing
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
collateral
other than U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right
to control the collateral could be affected and result in certain costs and delays. Additionally, if the proceeds from the liquidation
of such collateral after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
The
Government Securities Portfolio may enter into repurchase agreements with the Federal Reserve Bank of New York. Reduced participation
in the repurchase agreement market by the Federal Reserve Bank of New York may affect the Fund’s investment strategies,
operations and/or return potential.
Municipals
Certain
Funds may purchase municipal obligations subject to any restraints set forth under Rule 2a-7. Municipal obligations are securities
issued by state and local governments and their agencies. These securities typically are “general obligation” or “revenue”bonds, notes or commercial paper, including participations
in lease obligations and installment purchase contracts of municipalities. These
obligations may have fixed, variable or floating rates. To the extent a Fund invests in municipal obligations issued by state and local
governments and their agencies, the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of
these municipal obligations. Municipal obligations are also subject to credit risk and interest risk. In the case of revenue bonds, for
example, credit risk is the possibility that the user
fees from a project or other specified revenue sources are insufficient to meet interest
and/or principal payment obligations. The Fund is subject to added credit risk if it concentrates its investments in a single economic
sector, which could be effected by economic, business or political developments which might affect all municipal obligations
in that particular economic sector.
Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds (other than the Treasury Securities Portfolio) may invest in investment companies, including money market funds, and may
invest all or some of their short-term cash investments in any money market fund advised or managed by the Adviser or its affiliates
(an “affiliated money market fund”). An investment in an investment company is subject to the underlying risks of that investment
company’s portfolio securities. In addition to a Fund’s fees and expenses, the Fund generally would bear its share of the
investment company’s fees and expenses other
than advisory and administrative fees of affiliated money market funds.
Promissory
Notes
Promissory
notes are generally debt obligations of the issuing entity and are subject to the risks of investing in the banking industry. Certain
Funds may invest up to 5% of their net assets in illiquid securities, including unsecured bank promissory notes.
Tax-Exempt
Variable Rate Demand Notes
Tax-exempt
variable rate demand notes are variable rate tax-exempt debt obligations that give investors the right to demand principal repayment.
Due to cyclical supply and demand considerations, at times the yields on these obligations can exceed the yield on taxable money
market obligations. The interest rate on these instruments may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. The interest rate of a floating rate instrument may be based on a known lending rate, such
as a bank’s prime rate, and is reset whenever such rate is adjusted. The interest rate on a variable rate demand note is reset
at specified intervals at a market rate. The Fund’s
ability to receive payments of principal and interest and other amounts in connection with
loans held by it will depend primarily on the financial condition of the issuer. The failure by the Fund to receive scheduled interest
or principal payments on a loan would adversely affect the income of the Fund and would likely reduce the value of its assets, which
would be reflected in a reduction in the Fund’s NAV.
Floating
rate and variable rate demand notes and bonds may have a stated maturity in excess of one year, but may have features that permit
a holder to demand payment of principal plus accrued interest upon a specified number of days’ notice. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided by banks. If these obligations are not secured
by letters of credit or other credit support arrangements, the Fund’s right to demand payment will be dependent on the ability
of the issuer to pay principal and interest on demand. In addition, these obligations frequently are not rated by credit rating agencies
and may involve heightened risk of default by the issuer. The issuer of such obligations normally has a corresponding right, after
a given period, to prepay in its discretion the outstanding principal of the obligation plus accrued interest upon a specific number
of days’ notice to the holders. There is no assurance that the Fund will be able to reinvest the proceeds of any prepayment at
the same interest rate or on the same terms as those
of the original instrument.
In
the absence of an active secondary market for floating rate and variable rate demand notes, the Fund may find it difficult to dispose
of the instruments, and the Fund could suffer a loss if the issuer defaults or during periods in which the Fund is not entitled to
exercise its demand rights. If a reliable trading market for the floating rate and variable rate instruments held by the Fund does not
exist and the Fund may not demand payment of the principal
amount of such instruments within seven days, the instruments may be deemed
illiquid and therefore subject to the Fund’s limitation on investments in illiquid securities.
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains, and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund (other than the Treasury Securities Portfolio)
may invest without limit in cash or cash equivalents and the Tax-Exempt Portfolio
may invest without limit in taxable money market securities. Also in such circumstances, the Treasury Securities Portfolio may
invest without limit in cash and repurchase agreements with the Federal Reserve Bank of New York collateralized by U.S. Treasury
obligations. If the Adviser incorrectly predicts the effects of these changes, such defensive investments may adversely affect a Fund’s
performance and the Fund may not achieve its investment objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, which
is the parent of the Distributor. Morgan Stanley is
a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment
banking, research and analysis, financing and financial advisory services. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees’
approval of the Trust’s Investment Advisory Agreement
is available in the Funds’ Annual Report to shareholders
for the fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021,
the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
Prime
Portfolio
0.07%
ESG
Money Market Portfolio
0.07%
Government
Portfolio
0.01%
Government
Securities Portfolio
0.01%
Treasury
Portfolio
0.02%
Treasury
Securities Portfolio
0.01%
Tax-Exempt
Portfolio
0.00%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse the Fund’s Advisory Class, if necessary, if such fees would cause the total annual operating expenses
of such Fund’s Advisory Class to exceed the percentage of daily net assets set forth in the table below. In determining the actual
amount of fee waiver and/or expense reimbursement for each Fund, if any, the Adviser and Administrator exclude from total annual
operating expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes, interest and other
extraordinary expenses (including litigation). The fee waivers and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Trust’s Board of Trustees acts to discontinue all or a portion of such waivers and/or
reimbursements when it deems
such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap Advisory Class
Prime
Portfolio
0.45%
ESG
Money Market Portfolio
0.45%
Government
Portfolio
0.45%
Government
Securities Portfolio
0.45%
Treasury
Portfolio
0.45%
Treasury
Securities Portfolio
0.45%
Tax-Exempt
Portfolio
0.45%
The
Distributor, Adviser and Administrator may also waive distribution fees, advisory fees, administration fees and/or reimburse expenses
to enable a Fund to maintain a minimum level of daily net investment income. The Adviser and Administrator may make additional
voluntary fee waivers and/or expense reimbursements. The Distributor, Adviser and Administrator may discontinue these voluntary
fee waivers and/or expense reimbursements at any time in the future.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio and Government Securities Portfolio are intended
to qualify as eligible investments for federally chartered credit unions pursuant to the applicable provisions of the Federal Credit
Union Act and the National Credit Union Administration. Shares of the Government Portfolio and Government Securities Portfolio,
however, may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should
consult qualified legal counsel to determine whether these Funds are permissible investments under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers Advisory Class shares of each Fund. The Trust also offers other classes of shares through separate prospectuses. Certain
of these classes may be subject to different fees and expenses. For information regarding other share classes, contact the Trust or
your financial intermediary.
Minimum
Investment Amount
Advisory
Class shares are available to clients of the Adviser with investments at the time of initial purchase of at least $10 million. The
Adviser, in its sole discretion, may waive the minimum initial investment amount in certain cases including, but not limited to, shares
of the Fund purchased through a financial intermediary or when the Adviser anticipates the combined value of a client’s investments
will meet or exceed the minimum.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial intermediaries (also referred to as service organizations) who
may accept purchase and redemption orders for shares of each Fund on its behalf.
The
Adviser and/or the Distributor may pay additional compensation (out of their own funds and not as an expense of a Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with the sale, distribution, retention and/or servicing
of Fund shares. Such compensation may be significant in amount and the prospect of receiving any such additional compensation
may provide affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment
options. Any such payments will not change the NAV or the price of Fund shares. For more information, please see the Funds’
SAI.
The
Trust has adopted a Service and Shareholder Administration Plan for each Fund’s Advisory Class shares (the “Plan”)
to pay the Distributor to compensate certain financial
intermediaries (also referred to as service organizations) who provide administrative services
to shareholders. Under the Plan, each Fund pays the Distributor a monthly service fee which shall not exceed during any one year
0.25% of each Fund’s average daily net assets of Advisory Class shares which are owned beneficially by the customers of such
service organization during such period. The Distributor
may waive distribution fees to enable a Fund to maintain a minimum level of
daily net investment income. The Distributor may discontinue these voluntary fee waivers at any time in the future.
Because
the fees are paid out of a Fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Valuation
of Shares
Each
of the Prime Portfolio’s, ESG Money Market Portfolio’s and Tax-Exempt Portfolio’s investments will be valued using
market-based prices provided by an approved pricing
service/vendor and the share price of each rounded to a minimum of the fourth decimal place.
The price of each of Government Portfolio’s, Government Securities Portfolio’s, Treasury Portfolio’s and Treasury
Securities Portfolio’s shares is based on the
amortized cost of the Fund’s securities. The amortized cost valuation method involves valuing a debt obligation
in reference to its cost rather than market forces. If the Adviser determines that a valuation is not reflective of the security’s
market value, such security is valued at its fair value
as determined in good faith under procedures established by and under the general
supervision of the Board.
The
NAV of each Fund is determined once daily (except that the NAV of Prime Portfolio is determined three times daily), normally at
the times set forth below, on each day that the NYSE is open (the “Pricing Time”), except when the following federal holidays
are observed: Columbus Day and Veterans Day.
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
Information (Con’t)
Government
Portfolio Treasury Portfolio
As
of 5:00 p.m. Eastern time
ESG
Money Market Portfolio Government Securities Portfolio Treasury
Securities Portfolio
As
of 3:00 p.m. Eastern time
Tax-Exempt
Portfolio
As
of 1:00 p.m. Eastern time
Prime
Portfolio
As
of 8:00 a.m., 12:00 p.m. and 3:00 p.m. Eastern time
Pricing
of Fund Shares
Advisory
Class shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives your order
in good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal Reserve Bank
(“Federal Funds”) prior to the close of
the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same day your
Advisory Class shares are purchased provided the Fund receives your purchase amount in Federal Funds that day as set forth above.
Orders to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV next determined:
for the Government Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; for the Tax-Exempt Portfolio—1:00 p.m.
Eastern time; and for the Prime Portfolio—8:00 a.m., 12:00 p.m. or 3:00 p.m. Eastern time. On any business day that the NYSE
closes early, or when SIFMA recommends that the securities markets close early, a Fund may close early and purchase orders received
after such earlier closing times will be processed the following business day. If the NYSE is closed due to inclement weather, technology
problems or any other reason on a day it would normally be open for business, or the NYSE has an unscheduled early closing
on a day it has opened for business, a Fund reserves the right to treat such day as a business day and accept purchase and redemption
orders until, and calculate its NAV as of, the normally scheduled close of regular trading on the NYSE for that day, or such
time noted above, so long as the Adviser believes there generally remains an adequate market to obtain reliable and accurate market
quotations. A Fund may elect to remain open and
price its shares on days when the NYSE is closed or
closes early but on which SIFMA recommends that the
bond markets remain open for all or part of the day. Purchase orders received by the
Funds and not
funded by 6:45
p.m. Eastern time on the trade date may be subject to an overdraft charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
Advisory
Class shares of the Funds may be purchased directly from the Fund or through a financial intermediary.
Purchasing
Shares Through a Financial Intermediary You
may open a new account and purchase Fund shares through certain authorized third-parties, such as brokers, dealers or other financial
intermediaries that have entered into a selling agreement with the Distributor (each, a “Financial Intermediary”). Your
Financial Intermediary will assist you with the procedures
to invest in shares of the Fund. The Financial Intermediary will establish times
by which such purchase orders and payments from customers must be received by the Financial Intermediary. Financial Intermediaries
are responsible for transmitting purchase orders and payments to the Trust and the Trust’s Custodian in a timely fashion.
Purchase orders placed with a Financial Intermediary and transmitted through a trading platform utilized by the Financial Intermediary
may be transmitted by the trading platform after the deadlines established by the Trust for receipt of purchase orders, as set
forth below; in such case, the purchase orders will receive a trade date of the next business day.
Investors
purchasing Advisory Class shares through a Financial Intermediary may be charged a transaction-based or other fees by the Financial
Intermediary for its services. If you are purchasing Advisory Class shares through a Financial Intermediary, please consult your
intermediary for more information regarding any such fees and for purchase instructions.
With
respect to sales through Financial Intermediaries, no offers or sales of Fund shares may be made in any foreign jurisdiction, except
with the consent of the Distributor.
Purchasing
Shares Directly From the Funds
Initial
Purchase You
may open an account, subject to acceptance by the Fund, and purchase Advisory Class shares of a Fund by completing and signing
a New Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888) 378-1630
(which is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional Liquidity
Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804.
After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to the Custodian.
You should instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the following
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
wire
instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028 DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name) * For international investments
into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Automatic
Purchases Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has a positive balance as a result of credits incurred that day. If an account has a positive (credit) balance, shares of the respective
Fund will automatically be purchased. Any positive (credit) balance will be reduced by any debits to the account on that day
and shares of the Fund will automatically be sold.
Additional
Investments You may make additional investments
of Advisory Class shares at the NAV next determined after the request is received in good order
or by wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification of
receipt of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
How
To Redeem Shares
You
may process a redemption request by contacting your Financial Intermediary. Otherwise, you may redeem shares of a Fund by mail
or, if authorized, by telephone, at no charge other than as described below. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will be redeemed at the NAV next determined
after we receive your redemption request in good order.
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
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(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Automatic
Redemptions Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has any debits that were incurred that day and shares of the Funds will automatically be redeemed to cover the debits if such debits
have not been reduced by any credits which may have accrued to the account on the same day.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the Prime Portfolio, ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio—1:00
p.m. Eastern time. On any business day that the NYSE closes early, the Fund may close early and redemption requests received after
such earlier closing times will be processed the following business day. The Fund may elect to remain open on days when the NYSE
is closed or closes early but on which SIFMA recommends that the bond markets remain open for all or part of the day. Generally,
payment for Fund shares sold will be made on the day on which the order is processed, but under certain circumstances may
not be made until the next business day. The Fund may postpone and/or suspend redemption and payment beyond one business
day only as follows: (a) for any period during which there is a non-routine closure of the Fedwire or applicable Federal Reserve
Banks; (b) for any period (i) during which the NYSE is closed other than customary weekend and holiday closings or (ii) during
which trading on the NYSE is restricted; (c) for any period during which an emergency exists as a result of which (i) disposal of
securities owned by the Fund is not reasonably practicable or (ii) it is not reasonably practicable for the Fund to fairly determine the
NAV of shares of the Fund; (d) for any period during which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted
or (ii) an emergency exists; (e) for any period that the SEC may by order permit; or (f) for any period during which the Fund
as part of a necessary liquidation of a Fund, has properly postponed and/or suspended redemption of shares and payment in accordance
with federal securities laws. In addition, when SIFMA recommends that the securities markets close early, payments with respect
to redemption requests received subsequent to the recommended close will be made the next business day (assuming that the Fund
in fact closes).
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by distributing
to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash.
In addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
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Exchange
Privilege
You
may exchange a Fund’s Advisory Class shares for Advisory Class shares of other available Funds of the Trust based on their respective
NAVs, except that you may not exchange Advisory Class shares from or into the Prime Portfolio, ESG Money Market Portfolio
or Tax-Exempt Portfolio. We charge no fee for exchanges. If you purchased Fund shares through a Financial Intermediary, certain
other Funds of the Trust may be unavailable for exchange. Contact your Financial Intermediary to determine which Funds are
available for exchange.
You
can process your exchange by contacting your Financial Intermediary or online through Morgan Stanley’s Treasury Investment Portal
service at www.morganstanley.com/liquidity provided you have a pre-established Internet trading account, as set forth above under
“How To Purchase Shares.” You may also send exchange requests to the Fund’s transfer agent, DST Asset Manager Solutions,
Inc. (“DST”), by mail to Morgan Stanley
Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, KansasCity, MO64121-9804 or by calling the Fund at 1-888-378-1630.
You
will be subject to the same minimum initial investment and account size as an initial purchase. The Fund, in its sole discretion, may
waive the minimum initial investment amounts in certain cases including, but not limited to, exchanges involving Fund shares purchased
through a Financial Intermediary or when the Adviser anticipates the combined value of a client’s investments will meet or exceed
the minimum. The Fund may terminate or revise the exchange privilege upon required notice or in certain cases without notice.
The Fund reserves the right to reject an exchange order for any reason.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing and by certain selected accounts utilizing the Funds as a sweep
vehicle. Therefore, reasonably frequent purchases and redemptions of Fund shares by Fund shareholders do not present risks for
other shareholders of a Fund, and the policies and procedures adopted by the Board of Trustees/Directors as applicable to other funds
in the Morgan Stanley family of funds are generally not applicable with respect to frequent purchases and redemptions of Fund shares.
However, frequent trading by shareholders can disrupt management of the Funds and raise their respective expenses. Therefore,
we may not accept any request for a purchase or exchange when we think it is being used as a tool for market-timing, and we
may bar a shareholder who trades excessively from making further purchases for an indefinite period.
Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by giving written notice to your
Financial Intermediary or by checking the appropriate box in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates—Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio Under
Rule 2a-7, the Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio will be permitted (or in some cases, may
be required) to impose a liquidity fee on redemptions (up to 2%) or temporarily restrict redemptions from the Fund for up to 10
business days during a 90 calendar day period (a “redemption gate”), in the event that the Fund’s weekly liquid assets
fall below the following thresholds:
•
30%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 30% of the Fund’s total assets, and the Board
of Trustees determines it is in the best interests of
the Fund, the Board of Trustees may impose a liquidity fee of no more than 2% of the
amount redeemed and/or a redemption gate that temporarily suspends the right of redemption. The liquidity fee or
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redemption
gate may be imposed at any point during the applicable business day, generally at the subsequent NAV calculation time
of the applicable Fund following the determination of the Board of Trustees.
•
10%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 10% of the Fund’s total assets as of the end of
a business day, the Fund must impose, at the beginning
of the next business day, a liquidity fee of 1% of the amount redeemed, unless
the Board of Trustees determines that imposing such a fee would not be in the best interests of the Fund or determines that a
lower or higher fee (not to exceed 2%) would be in the best interests of the Fund.
Liquidity
fees and redemptions gates may be terminated at any time in the discretion of the Board of Trustees. Liquidity fees and redemptions
gates will also terminate at the beginning of the next business day once the applicable Fund has invested 30% or more of its
total assets in weekly liquid assets as of the end of a business day. A Fund may only suspend redemptions for up to 10 business days
in any 90 calendar day period.
Weekly
liquid assets generally include: (a) cash; (b) direct obligations of the U.S. Government; (c) certain U.S. government agency discount
notes with remaining maturities of 60 days or less; (d) securities that will mature or are subject to a demand feature that is exercisable
and payable within five business days; or (e) amounts receivable and due unconditionally within five business days on pending
sales of portfolio securities.
If
a Fund imposes a redemption gate, the Fund and your Financial Intermediary will not accept redemption or exchange orders out of
the Fund until the Fund has notified shareholders that the redemption gate has been lifted. Any redemption or exchange orders out
of a Fund submitted while a redemption gate is in effect will be cancelled without further notice. If you still wish to redeem or exchange
shares out of a Fund once the redemption gate has been lifted, you will need to submit a new redemption or exchange request
to the Fund or your Financial Intermediary. Unprocessed purchase orders that a Fund received prior to notification of the imposition
of a liquidity fee or redemption gate will be cancelled unless re-confirmed. Under certain circumstances, a Fund may honor
redemption or exchange orders out of the Fund (or pay redemptions without adding a liquidity fee to the redemption amount) if
the Fund can verify that the redemption or exchange order out of the Fund was submitted to the Fund’s agent before the Fund imposed
liquidity fees or suspended redemptions. Once a liquidity fee or a redemption gate is in place, shareholders will not be permitted
to exchange into or out of the applicable Fund until the fee or gate is terminated.
The
Board of Trustees generally expects that a liquidity fee or redemption gate would be imposed, if at all, during periods of extraordinary
market stress. The Board of Trustees generally expects that a redemption gate would be imposed prior to notification to shareholders
and Financial Intermediaries that a gate would be imposed. While the Board of Trustees may, in its discretion, impose a liquidity
fee at any time after the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, the Board of Trustees
generally expects that a liquidity fee would be imposed
only after the Fund has notified Financial Intermediaries and shareholders that
a liquidity fee will be imposed. The Fund retains the liquidity fees for the benefit of remaining shareholders.
The
Board of Trustees may, in its discretion, permanently suspend redemptions and liquidate the Fund if, among other things, the Fund,
at the end of a business day, has less than 10% of its total assets invested in weekly liquid assets. In the event of liquidation,
shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders.
Announcements
regarding the imposition of liquidity fees or redemption gates, or the termination of liquidity fees or redemption gates,
will be filed with the SEC on Form N-CR and will be available on the website of the Fund (http://www.morganstanley.com/im).
In addition, the Fund will make such announcements through a supplement to its Prospectus and may make such announcements
through a press release or by other means.
Dividend
payments will not be subject to liquidity fees or redemption gates; however, in the event that a liquidity fee or redemption gate
is in place at the time that dividends are distributed, all distributions will be made in the form of cash.
Trade
corrections requested after a liquidity fee or redemption gate is imposed will be honored so long as the “as of” date of
the transaction to be processed is prior to the effective
time of the liquidity fee or redemption gate and a valid reason for the trade error is provided.
Financial
Intermediaries will be required to promptly take such actions reasonably requested by the Fund, the Transfer Agent or the Adviser
to implement, modify or remove, or to assist the Fund in implementing, modifying or removing, a liquidity fee or redemption
gate established by the Fund.
The
Government Portfolio, the Government Securities Portfolio, the Treasury Portfolio and the Treasury Securities Portfolio are exempt
from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption gate” that
temporarily restricts redemptions. The Board of Trustees
has opted not to subject the Government Portfolio, the Government Securities Portfolio,
the Treasury Portfolio and the Treasury Securities Portfolio to a “liquidity fee” and/or a “redemption gate”
but has reserved its right to change this determination
in the future after providing appropriate notice to shareholders.
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Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
With
respect to the Government Securities Portfolio, while the Fund intends to limit its investments to certain U.S. Treasury obligations
and U.S. government securities, the interest of which is generally exempt from state income taxation, you should consult your
own tax adviser to determine whether distributions from the Government Securities Portfolio are exempt from state taxation in your
own state.
With
respect to the Tax-Exempt Portfolio, your income dividend distributions are normally exempt from federal income tax to the extent
they are derived from municipal obligations. Income derived from other portfolio securities may be subject to federal, state and/or
local income taxes. The income derived from some municipal securities is subject to the federal “alternative minimum tax.”
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
each of Government Portfolio, Government Securities Portfolio, Treasury Portfolio and Treasury Securities Portfolio intends to
maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when they sell or exchange their shares in these Funds
because the amount realized will be the same as their tax basis in the shares. Because each of Prime Portfolio, ESG Money Market
Portfolio and Tax-Exempt Portfolio does not maintain a stable share price, a sale of these Funds’ shares may result in capital
gain or loss to you.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
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If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses
(collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel,
including personnel of the investment adviser, on one
side of an information barrier may have access to information
and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts of
interest in determining whether to engage in such wall crossings. Information obtained in connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries (which may include affiliates of the Adviser and
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Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain circumstances, the Adviser restricts, limits or reduces the
amount of a Fund’s investment, or restricts the
type of governance or voting rights it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and
Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions.
Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments.
Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an acquisition.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of the Advisory Class shares of
each Fund for the periods indicated. The Advisory Class was fully redeemed during the month of November 2016 from the Tax-Exempt
Portfolio and there were no shares outstanding as of October 31, 2021.
Accordingly, no financial highlights have been presented
in the applicable Fund’s Annual Report. Certain information reflects financial results for a single Fund share. The total returns
in the tables represent the rate that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions).
The
ratios of expenses to average net assets listed in the tables below for each Fund are based on the average net assets of the Fund for
each of the periods listed in the tables. To the extent
that a Fund’s average net assets decrease over the Fund’s next fiscal year, such expense
ratios can be expected to increase, potentially significantly, because certain fixed costs will be spread over a smaller amount of assets.
Year
Ended October 31,
Net
Asset Value, Beginning of
Period
Net Investment Income
Net
Realized and Unrealized Gain
(Loss) on Investments
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Stanley Institutional Liquidity Funds Prospectus | Financial
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The
information below has been derived from the financial statements audited by Ernst & Young LLP, the Funds’ independent registered
public accounting firm. Ernst & Young LLP’s report, along with each Fund’s financial statements, are incorporated by
reference into the Funds’ SAI. The Annual Report
to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Net
Asset Value, End of
Period
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average Net
Assets Excluding Interest
Expenses
Ratio
of Expenses to Average Net
Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income
to Average Net Assets
Ratio
of Net Investment Income
(Loss) to Average Net
Assets (Before Waivers/ Reimbursement)
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Notes
to Financial Highlights
(1)
Per
share amount is based on average shares outstanding.
(2)
Amount
is less than $0.0005 per share.
(3)
Ratio
of Expenses to Average Net Assets before and after Maximum Expense Ratios may vary among share classes by more or less than the administration
plan, service and shareholder administration
plan, distribution plan and/or shareholder services plan (the “plans”) fees due to either (1) fluctuations in daily net
asset amounts, (2) changes in the
plans’ fees during the period for each share class, (3) changes in the Funds’ expense cap during the year, (4) waivers to
the plans’ fees for each
share class, or (5) a combination of the previous points.
In
addition to this Prospectus, the Funds have an SAI dated February 28,
2022 (as may be supplemented from time to time), which
contains additional, more detailed information about
the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Annual
and Semi-Annual Reports (“Shareholder Reports”) that
contain additional information about the respective
Fund’s investments. In each Fund’s Annual Report to Shareholders, you will find a discussion of the market conditions and
the investment strategies that significantly affected such Fund’s performance during the last fiscal year. For additional Trust
information, including information regarding the investments
comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity. If you purchased shares through a Financial Intermediary, you may also obtain these
documents, without charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
The
Securities
and Exchange Commission (“SEC”) has not
approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio
iInvestment
Objective
i
The Prime Portfolio (the “Fund”) seeks preservation
of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Participant Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Participant
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.25%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i0.71%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.70%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Participant Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Participant Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Participant
Class
$i72
$i226
$i394
$i882
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Participant Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.70%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
temporarily suspend your ability to sell shares if the
Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
•
LIBOR
Discontinuance or Unavailability Risk. The London
InterBank Offered Rate (“LIBOR”) is intended to represent the rate at which
contributing banks may obtain short-term borrowings from each other in the London interbank market. The regulatory authority
that oversees financial services firms and financial markets in the U.K. has announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions for purposes of determining the LIBOR rate. However,
subsequent announcements by the Financial Conduct Authority, the LIBOR administrator and other regulators indicate
that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be provided on a representative basis
until mid-2023. However, in connection with supervisory guidance from regulators, some regulated entities will cease to enter
into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or on a later
date, if a particular LIBOR tenor is expected to continue beyond the end of 2021), LIBOR may no longer be available or no longer
deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes, derivatives
and other instruments or investments comprising some or all of the Fund’s portfolio.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Participant Class shares from year-to-year and by showing the average annual returns of the Fund’s Participant
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
The
Participant Class was fully redeemed during the month of October 2016 and did not have investors for subsequent periods. Accordingly,
the returns listed for each period in the bar chart and
table are calculated using returns of 0.00% for periods after October 2016. The average annual returns
of the Fund’s Institutional Class shares for the one, five and 10 year periods as of December 31, 2021
were 0.06%, 1.22% and 0.69%,respectively.
The Participant Class shares would have similar returns because the shares are invested in the same portfolio and would differ only to
the extent that the classes do not have the same expenses.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Participant
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio
iInvestment
Objective
i
The ESG Money Market Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Participant Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Participant
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.25%
Other
Expenses
i0.07%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i0.72%
Fee
Waiver and/or Expense Reimbursement1
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.70%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Participant Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Participant Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Participant
Class
$i72
$i228
$i399
$i893
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Participant Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.70%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Adviser believes that environmental, social and governance
(“ESG”) factors have the ability to impact the fundamental credit risk of
an entity. The Fund’s investment process incorporates information about ESG issues via an integrated approach within the Adviser’s
fundamental investment analysis framework. The Adviser may engage with management of certain issuers regarding corporate
governance practices as well as what the Adviser deems to be materially important environmental and/or social issues facing a
company.
The Adviser has proprietary ESG-scoring methodologies
that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
During the security selection process, the Adviser employs
a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The Fund may invest in green commercial paper (a security
that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In analyzing whether an issuer meets any of the criteria
described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After applying the above exclusion screens, the Adviser
calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
From the final list of ESG-approved issuers, the Adviser
determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under normal circumstances, the Fund will invest 100%
of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
ESG
Investment Risk. The Fund’s adherence to
its ESG criteria and application of related analyses when selecting investments may affect
the Fund’s performance depending on whether such investments are in or out of favor and relative to similar funds that do not
adhere to such criteria or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices
or the Adviser’s assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs
and values of any particular investor. Additionally, the Fund’s adherence to its ESG criteria and application of related analyses
in connection with identifying and selecting investments in non-U.S. issuers often require subjective analysis and may be relatively
more difficult than applying the ESG criteria or related analyses to investments of U.S. issuers because data availability may
be more limited with respect to non-U.S. issuers. The exclusionary criteria related to the Fund’s ESG criteria may result in the
Fund forgoing opportunities to buy certain securities when it might otherwise be advantageous to do so, or selling securities for
ESG reasons when it might be otherwise disadvantageous for it to do so. The Fund’s investments in certain companies may be susceptible
to various factors that may impact their businesses or operations, including costs associated with government budgetary
constraints that impact publicly funded projects and clean energy initiatives, the effects of general economic conditions throughout
the world, increased competition from other providers of services, unfavorable tax laws or accounting policies and high
leverage.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Participant Class shares from year-to-year and by showing the average annual returns of the Fund’s Participant
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Participant
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $10 million. You may not be subject to the
minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Participant Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Participant
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.25%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i0.71%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.70%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Participant Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Participant Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Participant
Class
$i72
$i226
$i394
$i882
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Participant Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.70%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Participant Class shares from year-to-year and by showing the average annual returns of the Fund’s Participant
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Participant
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio
iInvestment
Objective
i
The Government Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Participant Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Participant
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.25%
Other
Expenses
i0.07%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i0.72%
Fee
Waiver and/or Expense Reimbursement1
i0.27%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.45%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Participant Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Participant Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Participant
Class
$i46
$i203
$i374
$i869
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Participant Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.45%, which includes a waiver
in which the Fund’s “Distributor,” Morgan Stanley Distribution, Inc., has agreed to waive 0.15% of the 0.25%
12b-1 fee and 0.10% of the 0.25% Shareholder
Service Fee that it may receive. These fee waivers and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or
until such time as the Board of Trustees of Morgan Stanley Institutional Liquidity Funds (the “Trust”) acts to discontinue
all or a portion of such waivers and/or reimbursements
when it deems such action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest substantially
all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment. The U.S. government
securities that the Fund may purchase include those issued or guaranteed either by the U.S. Treasury or certain agencies, authorities
or instrumentalities of the U.S. Government. The Fund may also invest in repurchase agreements with the Federal Reserve
Bank of New York.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. government securities. This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Participant Class shares from year-to-year and by showing the average annual returns of the Fund’s Participant
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Participant
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
Distributor (each, a “Financial Intermediary”). You may purchase and redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity,
provided you have a pre-established Internet trading account.
For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How To Purchase
Shares” and “Shareholder Information—How
To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio
iInvestment
Objective
i
The Treasury Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Participant Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Participant
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.25%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i0.71%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.70%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Participant Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Participant Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Participant
Class
$i72
$i226
$i394
$i882
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Participant Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.70%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. Treasury obligations, which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Participant Class shares from year-to-year and by showing the average annual returns of the Fund’s Participant
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Participant
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio
iInvestment
Objective
i
The Treasury Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Participant Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Participant
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.25%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i0.71%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.70%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Participant Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Participant Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Participant
Class
$i72
$i226
$i394
$i882
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Participant Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.70%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. A “government money market fund” is exempt from requirements that permit
money market funds to impose a “liquidity fee” and/or a “redemption gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain
the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that
the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in Treasury obligations, which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Participant Class shares from year-to-year and by showing the average annual returns of the Fund’s Participant
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Participant
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio
iInvestment
Objective
i
The Tax-Exempt Portfolio (the “Fund”) seeks
to maximize current income exempt from federal income tax to the extent consistent with
preservation of capital and maintenance of liquidity.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Participant Class shares of the Fund. The Fund does
not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of
the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and
examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Participant
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.25%
Other
Expenses
i0.19%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i0.84%
Fee
Waiver and/or Expense Reimbursement1
i0.14%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.70%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Participant Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Participant Class, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Participant
Class
$i72
$i254
$i452
$i1,024
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Participant Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.70%. The fee waivers and/or
expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests at least 80% of its assets in high
quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. The Fund may also invest in variable and floating rate demand instruments, tender option bonds, custodial
receipts and investments in other investment companies, including money market funds.
The Fund may invest up to 20% of its assets in taxable
money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax; however, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax. In addition, the Fund may temporarily invest more than 20%
of its assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may invest in variable and floating rate loans
and other variable and floating rate securities. Although these instruments
are generally less sensitive to interest rate changes than fixed rate instruments, the value of variable and floating rate loans
and other securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates.
The Fund may face a heightened level of interest rate
risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve
Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks,
including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended
durations (i.e., extension risk). During periods when
interest rates are low or there are negative interest rates, the Fund’s yield
(and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain positive returns or minimize
the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of liquidity or credit
risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an
instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
Tax-Exempt
Variable Rate Demand Notes. Tax-exempt variable
rate demand notes are variable rate tax-exempt debt obligations that give
investors the right to demand principal repayment. Due to cyclical supply and demand considerations, at times the yields on these
obligations can exceed the yield on taxable money market obligations. The interest rate on these instruments may be reset daily,
weekly or on some other reset period and may have a floor or ceiling on interest rate changes. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank’s prime rate, and is reset whenever such rate is adjusted. The
interest rate on a variable rate demand note is reset at specified intervals at a market rate. The Fund’s ability to receive payments
of principal and interest and other amounts in connection with debt obligations held by it will depend primarily on the financial
condition of the issuer. The failure by the Fund to receive scheduled interest or principal payments on a debt obligation would
adversely affect the income of the Fund and would likely reduce the value of its assets, which would be reflected in a reduction
in the Fund’s NAV.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Participant Class shares from year-to-year and by showing the average annual returns of the Fund’s Participant
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
The
Participant Class was fully redeemed during the month of October 2016 and did not have investors for subsequent periods. Accordingly,
the returns listed for each period in the bar chart and
table are calculated using returns of 0.00% for periods after October 2016. The average annual returns
of the Fund’s Institutional Class shares for the one, five and 10 year periods as of December 31, 2021
were 0.00%, 0.74% and 0.42%,respectively.
The Participant Class shares would have similar returns because the shares are invested in the same portfolio and would differ only to
the extent that the classes do not have the same expenses.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Participant
Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment of $10 million.
You may not be subject to the minimum investment requirement under certain circumstances. For more information, please refer
to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that are generally not subject to federal income tax; however the Fund may distribute taxable dividends,
including distributions of short-term capital gains, and long-term capital gains. In addition, interest on certain bonds may be
subject to the federal alternative minimum tax. To the extent that the Fund’s distributions are derived from interest on bonds
that are not exempt from applicable state and local
taxes, such distributions will be subject to such state and local taxes.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Prime
Portfolio
Investment
Objective
The
Prime Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S.
dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio
Investment
Objective
The
ESG Money Market Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser believes that ESG factors have the ability to impact the fundamental credit risk of an entity. The Fund’s investment process
incorporates information about ESG issues via an integrated approach within the Adviser’s fundamental investment analysis framework.
The Adviser may engage with management of certain issuers regarding corporate governance practices as well as what the Adviser
deems to be materially important environmental and/or social issues facing a company.
The
Adviser has proprietary ESG-scoring methodologies that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
During
the security selection process, the Adviser employs a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The
Fund may invest in green commercial paper (a security that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In
analyzing whether an issuer meets any of the criteria described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After
applying the above exclusion screens, the Adviser calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio (Cont’d)
From
the final list of ESG-approved issuers, the Adviser determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under
normal circumstances, the Fund will invest 100% of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued
or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Securities Portfolio
Investment
Objective
The
Government Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest substantially all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The U.S. government securities that the Fund may purchase include those
issued or guaranteed either by the U.S. Treasury or certain agencies, authorities or instrumentalities of the U.S. Government. The
Fund may also invest in repurchase agreements with the Federal Reserve Bank of New York. The Fund may change its principal investment
strategies; however you would be notified of any changes.
Shareholders
should consult their individual tax adviser to determine whether the Fund’s distributions derived from interest on the Treasury
obligations and U.S. government securities referred to above are exempt from state taxation in their own state.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. government securities.
This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
The
Adviser will generally seek to place purchase orders for the Fund with broker-dealers that are owned by minorities, women, disabled
persons, veterans and members of other recognized diversity and inclusion groups and will place the majority of the aggregate
dollar volume of the Fund’s purchase orders for government agency securities obtained via auction or window through such broker-dealers,
subject in each case to the Adviser’s duty to seek best execution for the Fund’s orders.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Portfolio
Investment
Objective
The
Treasury Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Securities Portfolio
Investment
Objective
The
Treasury Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. In selecting investments, the Adviser seeks to maintain the Fund’s share price
at $1.00. The share price remaining stable at $1.00
means that the Fund would preserve the principal value of your investment. The Fund
may change its principal investment strategies; however you would be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Tax-Exempt
Portfolio
Investment
Objective
The
Tax-Exempt Portfolio seeks to maximize current income exempt from federal income tax to the extent consistent with preservation
of capital and maintenance of liquidity.
Approach
The
Fund invests at least 80% of its assets in high quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. Municipal obligations are securities issued by state and local governments and their agencies and typically
are either general obligation or revenue bonds, notes or commercial paper. General obligation securities are secured by the issuer’s
full faith and credit including its taxing power for payment of principal and interest. Revenue bonds, however, are generally payable
from a specific revenue source. They are issued for a wide variety of projects such as financing public utilities, hospitals, housing,
airports, highways and educational facilities. Included within the revenue bonds category are participations in lease obligations
and installment purchase contracts of municipalities. Additionally, the Fund’s investments may include variable and floating
rate demand instruments, tender option bonds, custodial receipts and investments in other investment companies, including money
market funds.
The
Fund may invest up to 20% of its assets in taxable money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax. However, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax.
While
at least 80% of the Fund’s assets typically will be invested in municipal obligations, the interest of which is exempt from
federal income taxes and is not subject to the federal
alternative minimum tax, the Fund may temporarily invest more than 20% of its
assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The
Fund operates as an “institutional money market fund” which is neither a “government money market fund” nor
“retail money market fund” as such terms
are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis, taking into consideration factors such as economic developments, budgetary trends, cash flow, debt service
coverage ratios and tax-law changes. Exposure to guarantors and liquidity providers is monitored separately. Weighted average maturity
is shifted in response to expectations as to the future course of money market interest rates, the shape of the money market yield
curve and the Fund’s recent cash flow experience.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
Certain
Funds may not be able to maintain a stable $1.00 share price at all times. If a Fund or another money market fund fails to maintain
a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), a Fund could be subject
to increased redemptions, which may adversely impact a Fund’s share price. In general, certain other money market funds have
in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption pressures will
not occur in the future. Neither a Fund’s sponsor nor any of its affiliates has a legal obligation to provide financial support
to a Fund, and you should not rely on or expect that
they or any person will provide any type of financial support to a Fund at any time to
help a Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making capital infusions into the
Fund, or taking other actions).
Floating
NAV Risk
Certain
Funds do not maintain a stable NAV per share. The value of a Fund’s shares will be calculated to four decimal places and will fluctuate
with changes in the values of a Fund’s portfolio securities. Investors should expect the value of their investment to vary and
reflect the current market value of a Fund’s
holdings. When you sell your shares, they may be worth more or less than what you originally
paid for them. This may result in a capital gain or loss.
Neither a Fund’s sponsor nor any of its affiliates has a legal obligation
to provide financial support to a Fund, and you should not rely on or expect that they or any person will provide any type of
financial support to a Fund at any time.
Bank
Obligations
Bank
obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time deposits
and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than
$1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, certain Funds may invest
in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the
time of purchase, U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such foreign banks and
foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S. government
regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks. Obligations of foreign banks, including Yankee obligations,
are subject to the same risks that pertain to domestic issuers, notably credit risk and market risk, but are also subject to certain
additional risks such as adverse foreign political and economic developments, the extent and quality of foreign government regulation
of the financial markets and institutions, foreign withholding taxes and other sovereign action such as nationalization or expropriation.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. Certain Funds may invest in variable
and floating rate securities. Although these instruments are generally less sensitive to interest rate changes than fixed rate instruments,
the value of these securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates. A
low interest rate environment may prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A
Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or changes rates. During periods when interest rates are low or there are
negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or minimize the volatility of the Fund’s net asset value per share or maintain a stable net asset
value of $1.00 per share, as applicable. Credit ratings
may not be an accurate assessment of liquidity or credit risk. Although credit ratings
may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an instrument or an issuer can have
a rapid, adverse effect on the instrument’s liquidity and make it more difficult for a Fund to sell at an advantageous price or
time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that certain Funds may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, certain Funds may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are Ginnie Mae and the Federal Housing Administration. Also, certain Funds may purchase
securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Further,
certain Funds may purchase securities issued by agencies
and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality.
Among these agencies and instrumentalities is the Federal Farm Credit System. Because these securities are not backed
by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability of the issuers of some U.S. government securities held
by a Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. It is possible that
these issuers will not have the funds to meet their payment obligations in the future. The interest from U.S. government securities
generally is not subject to state and local taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
ESG
Investment Risk
A
Fund’s adherence to its ESG criteria and application of related analyses when selecting investments may affect a Fund’s
performance depending on whether such investments are
in or out of favor and relative to similar funds that do not adhere to such criteria
or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices or the Adviser’s
assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs and values of any
particular investor. Additionally, a Fund’s adherence to its ESG criteria and application of related analyses in connection with
identifying and selecting investments in non-U.S. issuers
often require subjective analysis and may be relatively more difficult than applying
the ESG criteria or related analyses to investments of U.S. issuers because data availability may be more limited with respect to
non-U.S. issuers. The exclusionary criteria related to a Fund’s ESG criteria may result in a Fund forgoing opportunities to buy
certain securities when it might otherwise be advantageous
to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous
for it to do so. A Fund’s investments in certain companies may be susceptible to various factors that may impact their
businesses or operations, including costs associated with government budgetary constraints that impact publicly funded projects and
clean energy initiatives, the effects of general economic conditions throughout the world, increased competition from other providers
of services, unfavorable tax laws or accounting policies and high leverage.
Foreign
Securities
Certain
Funds may invest in U.S. dollar-denominated securities issued by foreign governmental or corporate issuers, including Eurodollar
and Yankee obligations. Although the
Fund will invest in these securities only if the Adviser
determines they are of comparable quality to the Fund’s
U.S. investments, investing in securities of foreign issuers involves some additional risks. While these
securities are subject to the same type of risks that pertain to domestic issuers, namely credit risk and interest rate risk, they are
also subject to other additional risks. Foreign issuers
generally are subject to different accounting, auditing and financial reporting standards
than U.S. issuers. There may be less information available to the public about foreign issuers. Securities of foreign issuers can
be less liquid and experience greater price movements. In some foreign countries, there is also the risk of government expropriation,
excessive taxation, political or social instability, the imposition of currency controls or diplomatic developments that could
affect an investment. There also can be difficulty obtaining and enforcing judgments against issuers in foreign countries. Foreign
stock exchanges, broker-dealers and listed issuers may be subject to less government regulation and oversight. Governmental actions
can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the value and liquidity
of a Fund’s investments. Foreign investment in the securities markets of certain foreign countries is restricted or controlled
to varying degrees.
Economic
sanctions may be, and have been, imposed against certain countries, organizations, companies, entities and/or individuals. Economic
sanctions and other similar governmental actions could, among other things, effectively restrict or eliminate a Fund’s ability
to purchase or sell securities or groups of securities, and thus may make a Fund’s investments in such securities less liquid or
more difficult to value. In addition, as a result of
economic sanctions, the Fund may be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and increased transaction costs. These conditions may
be in place for a substantial period of time and enacted with limited advance notice to a Fund.
Foreign
Money Market Securities
Certain
Funds may invest in foreign money market securities. As described elsewhere herein, foreign investing may involve risks relating
to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. Investments
in foreign markets may also be adversely affected by less stringent investor protections and disclosure standards, and governmental
actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the
imposition of punitive taxes. In addition, there are differences between U.S. and foreign regulatory requirements and market practices
that may result in additional risk. Foreign money market securities also present credit and interest rate risks similar to those attendant
to an investment in domestic money market securities.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Custodial
Receipts
Certain
Funds may invest in custodial receipts representing interests in U.S. government securities, municipal obligations or other debt
instruments held by a custodian or trustee. Custodial receipts evidence ownership of future interest payments, principal payments
or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. Government, its agencies, instrumentalities,
political subdivisions or authorities, by a state or local governmental body or authority, or by other types of issuers. For
certain securities law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition, if for tax
purposes a Fund is not considered to be the owner of
the underlying securities held in the custodial account, the Fund may suffer adverse
tax consequences. As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged to
the custodial account.
Tender
Option Bonds
A
tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction
with the agreement of a third-party, such as a bank, broker-dealer or other financial institution, pursuant to which the institution
grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing
the option, the financial institution receives periodic fees equal to the difference between the bond’s fixed coupon rate and the
rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par
on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the
event of certain defaults or significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be
taken into account in determining the maturity of the tender option bonds and average portfolio maturity. There is a risk that the Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such
interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of a credit
rating downgrade, a payment default or a disqualification from tax-exempt status. Additionally, the Dodd–Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”), including the Volcker Rule, among other regulatory changes, may affect
the ability of bank-sponsored tender option bonds to continue to operate or remain cost-effective investments.
Corporate
Debt Obligations
Corporate
debt obligations are fixed-income securities issued by private corporations. The investment return of corporate debt obligations
reflects interest earnings and changes in the market value of the security. The market value of a corporate debt obligation may
be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or
principal payments at the time called for by an instrument. Debtholders, as creditors,
have a prior legal claim over common and preferred stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. Certain Funds will buy corporate debt obligations subject to any quality constraints set forth
under Rule 2a-7.
Revenue
Bonds
Revenue
bonds are municipal obligations that are secured by the revenue from a specific project. To the extent that such revenues do not
materialize, the revenue bonds may not be repaid. If a Fund invests in revenue bonds
that are issued by municipal issuers in the same
economic sector, a
Fund would be particularly susceptible to developments adversely affecting that sector. Revenue
bonds historically have been subject to a greater risk
of default than general obligation bonds because investors can look only to the revenue generated
by the project or other revenue source backing the project, rather than to the general taxing authority of the state or local government
issuer of the obligations. For example, investments in revenue bonds backed by receipts from hospitals are sensitive to hospital
bond ratings, which are often based on feasibility studies that contain projections of expenses, revenues and occupancy levels. Additional
factors which could affect a hospital’s gross receipts and net income available to service its debt are demand for hospital services,
the ability of the hospital to provide the services required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses, reputational issues, competition, availability and expenses
of malpractice insurance, Medicaid and Medicare funding and possible federal legislation regulating hospital charges.
LIBOR
Discontinuance or Unavailability Risk.
LIBOR
is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with supervisory guidance from regulators, some regulated
entities will cease to enter into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or
a later date, if a particular reference rate is expected to continue beyond 2021), LIBOR may no longer be available
or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives
and other instruments or investments comprising some or all of a Fund’s portfolio. In light of this eventuality, public and
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Stanley Institutional Liquidity Funds Prospectus | Additional
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private
sector industry initiatives are currently underway to establish
new or alternative reference rates to be used in place of LIBOR. There
is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance
or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any
such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still
may be developing. There may also be challenges for a Fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a Fund’s performance
or net asset value.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a
Fund’s investments, which may change due to economic
and other events that affect markets generally, as well
as those that affect particular regions, countries, industries, companies or governments.
Price
movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Inflation
rates may change frequently and
significantly because of various factors, including unexpected shifts in the domestic or global economy and changes in monetary
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
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or
economic policies (or expectations that these policies may change). Changes in expected inflation rates may adversely affect market and
economic conditions, a Fund’s investments and an investment in a Fund. Other
financial, economic and other global market and social
developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar events affecting
the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects (which
may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an attractive investment
opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought by a Fund. As
a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment at the time or
seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle. Any such event(s)
could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk that you may lose
money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations,
cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would
generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by certain Funds
may include U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and
preferred stock and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For example,
if the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the securities
has declined, the Funds may incur a loss upon disposition of them. The risk of such loss may be greater when utilizing
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collateral
other than U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right
to control the collateral could be affected and result in certain costs and delays. Additionally, if the proceeds from the liquidation
of such collateral after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
The
Government Securities Portfolio may enter into repurchase agreements with the Federal Reserve Bank of New York. Reduced participation
in the repurchase agreement market by the Federal Reserve Bank of New York may affect the Fund’s investment strategies,
operations and/or return potential.
Municipals
Certain
Funds may purchase municipal obligations subject to any restraints set forth under Rule 2a-7. Municipal obligations are securities
issued by state and local governments and their agencies. These securities typically are “general obligation” or “revenue”bonds, notes or commercial paper, including participations
in lease obligations and installment purchase contracts of municipalities. These
obligations may have fixed, variable or floating rates. To the extent a Fund invests in municipal obligations issued by state and local
governments and their agencies, the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of
these municipal obligations. Municipal obligations are also subject to credit risk and interest risk. In the case of revenue bonds, for
example, credit risk is the possibility that the user
fees from a project or other specified revenue sources are insufficient to meet interest
and/or principal payment obligations. The Fund is subject to added credit risk if it concentrates its investments in a single economic
sector, which could be effected by economic, business or political developments which might affect all municipal obligations
in that particular economic sector.
Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds (other than the Treasury Securities Portfolio) may invest in investment companies, including money market funds, and may
invest all or some of their short-term cash investments in any money market fund advised or managed by the Adviser or its affiliates
(an “affiliated money market fund”). An investment in an investment company is subject to the underlying risks of that investment
company’s portfolio securities. In addition to a Fund’s fees and expenses, the Fund generally would bear its share of the
investment company’s fees and expenses other
than advisory and administrative fees of affiliated money market funds.
Promissory
Notes
Promissory
notes are generally debt obligations of the issuing entity and are subject to the risks of investing in the banking industry. Certain
Funds may invest up to 5% of their net assets in illiquid securities, including unsecured bank promissory notes.
Tax-Exempt
Variable Rate Demand Notes
Tax-exempt
variable rate demand notes are variable rate tax-exempt debt obligations that give investors the right to demand principal repayment.
Due to cyclical supply and demand considerations, at times the yields on these obligations can exceed the yield on taxable money
market obligations. The interest rate on these instruments may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. The interest rate of a floating rate instrument may be based on a known lending rate, such
as a bank’s prime rate, and is reset whenever such rate is adjusted. The interest rate on a variable rate demand note is reset
at specified intervals at a market rate. The Fund’s
ability to receive payments of principal and interest and other amounts in connection with
loans held by it will depend primarily on the financial condition of the issuer. The failure by the Fund to receive scheduled interest
or principal payments on a loan would adversely affect the income of the Fund and would likely reduce the value of its assets, which
would be reflected in a reduction in the Fund’s NAV.
Floating
rate and variable rate demand notes and bonds may have a stated maturity in excess of one year, but may have features that permit
a holder to demand payment of principal plus accrued interest upon a specified number of days’ notice. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided by banks. If these obligations are not secured
by letters of credit or other credit support arrangements, the Fund’s right to demand payment will be dependent on the ability
of the issuer to pay principal and interest on demand. In addition, these obligations frequently are not rated by credit rating agencies
and may involve heightened risk of default by the issuer. The issuer of such obligations normally has a corresponding right, after
a given period, to prepay in its discretion the outstanding principal of the obligation plus accrued interest upon a specific number
of days’ notice to the holders. There is no assurance that the Fund will be able to reinvest the proceeds of any prepayment at
the same interest rate or on the same terms as those
of the original instrument.
In
the absence of an active secondary market for floating rate and variable rate demand notes, the Fund may find it difficult to dispose
of the instruments, and the Fund could suffer a loss if the issuer defaults or during periods in which the Fund is not entitled to
exercise its demand rights. If a reliable trading market for the floating rate and variable rate instruments held by the Fund does not
exist and the Fund may not demand payment of the principal
amount of such instruments within seven days, the instruments may be deemed
illiquid and therefore subject to the Fund’s limitation on investments in illiquid securities.
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Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains, and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund (other than the Treasury Securities Portfolio)
may invest without limit in cash or cash equivalents and the Tax-Exempt Portfolio
may invest without limit in taxable money market securities. Also in such circumstances, the Treasury Securities Portfolio may
invest without limit in cash and repurchase agreements with the Federal Reserve Bank of New York collateralized by U.S. Treasury
obligations. If the Adviser incorrectly predicts the effects of these changes, such defensive investments may adversely affect a Fund’s
performance and the Fund may not achieve its investment objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, which
is the parent of the Distributor. Morgan Stanley is
a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment
banking, research and analysis, financing and financial advisory services. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees’
approval of the Trust’s Investment Advisory Agreement
is available in the Funds’ Annual Report to shareholders
for the fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021,
the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
Prime
Portfolio
0.07%
ESG
Money Market Portfolio
0.07%
Government
Portfolio
0.01%
Government
Securities Portfolio
0.01%
Treasury
Portfolio
0.02%
Treasury
Securities Portfolio
0.01%
Tax-Exempt
Portfolio
0.00%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse the Fund’s Participant Class, if necessary, if such fees would cause the total annual operating expenses
of such Fund’s Participant Class to exceed the percentage of daily net assets set forth in the table below. In determining the
actual amount of fee waiver and/or expense reimbursement
for each Fund, if any, the Adviser and Administrator exclude from total annual
operating expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes, interest and other
extraordinary expenses (including litigation). The fee waivers and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Trust’s Board of Trustees acts to discontinue all or a portion of such waivers and/or
reimbursements when it deems
such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap Participant Class
Prime
Portfolio
0.70%
ESG
Money Market Portfolio
0.70%
Government
Portfolio
0.70%
Government
Securities Portfolio
0.45%
Treasury
Portfolio
0.70%
Treasury
Securities Portfolio
0.70%
Tax-Exempt
Portfolio
0.70%
The
Distributor, Adviser and Administrator may also waive distribution fees, advisory fees, administration fees and/or reimburse expenses
to enable a Fund to maintain a minimum level of daily net investment income. The Adviser and Administrator may make additional
voluntary fee waivers and/or expense reimbursements. The Distributor, Adviser and Administrator may discontinue these voluntary
fee waivers and/or expense reimbursements at any time in the future.
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Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio and Government Securities Portfolio are intended
to qualify as eligible investments for federally chartered credit unions pursuant to the applicable provisions of the Federal Credit
Union Act and the National Credit Union Administration. Shares of the Government Portfolio and Government Securities Portfolio,
however, may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should
consult qualified legal counsel to determine whether these Funds are permissible investments under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers Participant Class shares of each Fund. The Trust also offers other classes of shares through separate prospectuses.
Certain of these classes may be subject to different fees and expenses. For information regarding other share classes, contact
the Trust or your financial intermediary.
Minimum
Investment Amount
Participant
Class shares are available to clients of the Adviser with investments at the time of initial purchase of at least $10 million. The
Adviser, in its sole discretion, may waive the minimum initial investment amount in certain cases including, but not limited to, shares
of the Fund purchased through a financial intermediary or when the Adviser anticipates the combined value of a client’s investments
will meet or exceed the minimum.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial intermediaries (also referred to as service organizations) who
may accept purchase and redemption orders for shares of each Fund on its behalf.
The
Adviser and/or the Distributor may pay additional compensation (out of their own funds and not as an expense of a Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with the sale, distribution, retention and/or servicing
of Fund shares. Such compensation may be significant in amount and the prospect of receiving any such additional compensation
may provide affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment
options. Any such payments will not change the NAV or the price of Fund shares. For more information, please see the Funds’
SAI.
The
Trust has adopted a Distribution Plan for each Fund’s Participant Class shares pursuant to Rule 12b-1 under the 1940 Act (the “Plan”)
to pay the Distributor to provide for, or to compensate certain financial intermediaries (also referred to as service organizations)
for, providing distribution related services to the Fund. Under the Plan, each Fund pays the Distributor a monthly distribution
fee which shall not exceed during any one year 0.25% of each Fund’s average daily net assets of Participant Class shares which
are owned beneficially by the customers of such service organization during such period. The Distributor may waive distribution
fees to enable a Fund to maintain a minimum level of daily net investment income. The Distributor may discontinue these
voluntary fee waivers at any time in the future.
The
Trust has also adopted a Shareholder Service Plan for each Fund’s Participant Class shares to pay the Distributor to provide for,
or to compensate service organizations for providing
personal and account maintenance services and administrative services to shareholders.
Under this Plan, each Fund pays the Distributor a monthly service fee which shall not exceed during any one year 0.25%
of each Fund’s average daily net assets of Participant Class Shares which are owned beneficially by the customers of such service
organization during such period. The Distributor may waive distribution fees to enable a Fund to maintain a minimum level of
daily net investment income. The Distributor may discontinue these voluntary fee waivers at any time in the future.
With
respect to the Government Securities Portfolio, the Fund’s Distributor has agreed to waive 0.15% of the 0.25% 12b-1 fee
and 0.10% of the 0.25% Shareholder Service Fee
that it may receive. These fee waivers will continue for at least one year from
the date of this Prospectus or
until such time as the Board of Trustees of the Trust acts to discontinue all or a portion of such waivers when it deems
such action is appropriate.
Because
the fees are paid out of a Fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Valuation
of Shares
Each
of the Prime Portfolio’s, ESG Money Market Portfolio’s and Tax-Exempt Portfolio’s investments will be valued using
market-based prices provided by an approved pricing
service/vendor and the share price of each rounded to a minimum of the fourth decimal place.
The price of each of Government Portfolio’s, Government Securities Portfolio’s, Treasury Portfolio’s and Treasury
Securities Portfolio’s shares is based on the
amortized cost of the Fund’s securities. The amortized cost valuation method involves valuing a debt obligation
in reference to its cost rather than market forces. If the Adviser determines that a valuation is not reflective of the security’s
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Shareholder
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market
value, such security is valued at its fair value as determined in good faith under procedures established by and under the general
supervision of the Board.
The
NAV of each Fund is determined once daily (except that the NAV of Prime Portfolio is determined three times daily), normally at
the times set forth below, on each day that the NYSE is open (the “Pricing Time”), except when the following federal holidays
are observed: Columbus Day and Veterans Day.
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
Government
Portfolio Treasury Portfolio
As
of 5:00 p.m. Eastern time
ESG
Money Market Portfolio Government Securities Portfolio Treasury
Securities Portfolio
As
of 3:00 p.m. Eastern time
Tax-Exempt
Portfolio
As
of 1:00 p.m. Eastern time
Prime
Portfolio
As
of 8:00 a.m., 12:00 p.m. and 3:00 p.m. Eastern time
Pricing
of Fund Shares
Participant
Class shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives your order
in good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal Reserve Bank
(“Federal Funds”) prior to the close of
the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same day your
Participant Class shares are purchased provided the Fund receives your purchase amount in Federal Funds that day as set forth above.
Orders to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV next determined:
for the Government Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; for the Tax-Exempt Portfolio—1:00 p.m
Eastern time; and for the Prime Portfolio—8:00 a.m., 12:00 p.m. or 3:00 p.m. Eastern time. On any business day that the NYSE
closes early, or when SIFMA recommends that the securities markets close early, a Fund may close early and purchase orders received
after such earlier closing times will be processed the following business day. If the NYSE is closed due to inclement weather, technology
problems or any other reason on a day it would normally be open for business, or the NYSE has an unscheduled early closing
on a day it has opened for business, a Fund reserves the right to treat such day as a business day and accept purchase and redemption
orders until, and calculate its NAV as of, the normally scheduled close of regular trading on the NYSE for that day, or such
time noted above, so long as the Adviser believes there generally remains an adequate market to obtain reliable and accurate market
quotations. A Fund may elect to remain open on days when the NYSE is closed or closes early but on which SIFMA recommends
that the bond markets remain open for all or part of the day. Purchase orders received by a Fund and not funded by 6:45
p.m. Eastern time on the trade date may be subject to an overdraft charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
Participant
Class shares of the Funds may be purchased directly from the Fund or through a financial intermediary.
Purchasing
Shares Through a Financial Intermediary You
may open a new account and purchase Fund shares through certain authorized third-parties, such as brokers, dealers or other financial
intermediaries that have entered into a selling agreement with the Distributor (each, a “Financial Intermediary”). Your
Financial Intermediary will assist you with the procedures
to invest in shares of the Fund. The Financial Intermediary will establish times
by which such purchase orders and payments from customers must be received by the Financial Intermediary. Financial Intermediaries
are responsible for transmitting purchase orders and payments to the Trust and the Trust’s Custodian in a timely fashion.
Purchase orders placed with a Financial Intermediary and transmitted through a trading platform utilized by the Financial Intermediary
may be transmitted by the trading platform after the deadlines established by the Trust for receipt of purchase orders, as set
forth below; in such case, the purchase orders will receive a trade date of the next business day.
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Investors
purchasing Participant Class shares through a Financial Intermediary may be charged a transaction-based or other fees by the
Financial Intermediary for its services. If you are purchasing Participant Class shares through a Financial Intermediary, please consult
your intermediary for more information regarding any such fees and for purchase instructions.
With
respect to sales through Financial Intermediaries, no offers or sales of Fund shares may be made in any foreign jurisdiction, except
with the consent of the Distributor.
Purchasing
Shares Directly From the Funds
Initial
Purchase You
may open an account, subject to acceptance by the Fund, and purchase Participant Class shares of a Fund by completing and signing
a New Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888) 378-1630
(which is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional Liquidity
Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804.
After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to the Custodian.
You should instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the following wire
instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028 DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name) * For international investments
into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Automatic
Purchases Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has a positive balance as a result of credits incurred that day. If an account has a positive (credit) balance, shares of the respective
Fund will automatically be purchased. Any positive (credit) balance will be reduced by any debits to the account on that day
and shares of the Fund will automatically be sold.
Additional
Investments You may make additional investments
of Participant Class shares at the NAV next determined after the request is received in good order
or by wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification of
receipt of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
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How
To Redeem Shares
You
may process a redemption request by contacting your Financial Intermediary. Otherwise, you may redeem shares of a Fund by mail
or, if authorized, by telephone, at no charge other than as described below. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will be redeemed at the NAV next determined
after we receive your redemption request in good order.
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Automatic
Redemptions Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has any debits that were incurred that day and shares of the Funds will automatically be redeemed to cover the debits if such debits
have not been reduced by any credits which may have accrued to the account on the same day.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the Prime Portfolio, ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio—1:00
p.m. Eastern time. On any business day that the NYSE closes early, the Fund may close early and redemption requests received after
such earlier closing times will be processed the following business day. The Fund may elect to remain open on days when the NYSE
is closed or closes early but on which SIFMA recommends that the bond markets remain open for all or part of the day. Generally,
payment for Fund shares sold will be made on the day on which the order is processed, but under certain circumstances may
not be made until the next business day. The Fund may postpone and/or suspend redemption and payment beyond one business
day only as follows: (a) for any period during which there is a non-routine closure of the Fedwire or applicable Federal Reserve
Banks; (b) for any period (i) during which the NYSE is closed other than customary weekend and holiday closings or (ii) during
which trading on the NYSE is restricted; (c) for any period during which an emergency exists as a result of which (i) disposal of
securities owned by the Fund is not reasonably practicable or (ii) it is not reasonably practicable for the Fund to fairly determine the
NAV of shares of the Fund; (d) for any period during which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted
or (ii) an emergency exists; (e) for any period that the SEC may by order permit; or (f) for any period during which the
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Fund
as part of a necessary liquidation of a Fund, has properly postponed and/or suspended redemption of shares and payment in accordance
with federal securities laws. In addition, when SIFMA recommends that the securities markets close early, payments with respect
to redemption requests received subsequent to the recommended close will be made the next business day (assuming that the Fund
in fact closes).
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by distributing
to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash.
In addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
Exchange
Privilege
You
may exchange a Fund’s Participant Class shares for Participant Class shares of other available Funds of the Trust based on their
respective NAVs, except that you may not exchange Participant
Class shares from or into the Prime Portfolio, ESG Money Market Portfolio
or Tax-Exempt Portfolio. We charge no fee for exchanges. If you purchased Fund shares through a Financial Intermediary, certain
other Funds of the Trust may be unavailable for exchange. Contact your Financial Intermediary to determine which Funds are
available for exchange.
You
can process your exchange by contacting your Financial Intermediary or online through Morgan Stanley’s Treasury Investment Portal
service at www.morganstanley.com/liquidity provided you have a pre-established Internet trading account, as set forth above under
“How To Purchase Shares.” You may also send exchange requests to the Fund’s transfer agent, DST Asset Manager Solutions,
Inc. (“DST”), by mail to Morgan Stanley
Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, KansasCity, MO64121-9804 or by calling the Fund at 1-888-378-1630.
You
will be subject to the same minimum initial investment and account size as an initial purchase. The Fund, in its sole discretion, may
waive the minimum initial investment amounts in certain cases including, but not limited to, exchanges involving Fund shares purchased
through a Financial Intermediary or when the Adviser anticipates the combined value of a client’s investments will meet or exceed
the minimum. The Fund may terminate or revise the exchange privilege upon required notice or in certain cases without notice.
The Fund reserves the right to reject an exchange order for any reason.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing and by certain selected accounts utilizing the Funds as a sweep
vehicle. Therefore, reasonably frequent purchases and redemptions of Fund shares by Fund shareholders do not present risks for
other shareholders of a Fund, and the policies and procedures adopted by the Board of Trustees/Directors as applicable to other funds
in the Morgan Stanley family of funds are generally not applicable with respect to frequent purchases and redemptions of Fund shares.
However, frequent trading by shareholders can disrupt management of the Funds and raise their respective expenses. Therefore,
we may not accept any request for a purchase or exchange when we think it is being used as a tool for market-timing, and we
may bar a shareholder who trades excessively from making further purchases for an indefinite period.
Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
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The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by giving written notice to your
Financial Intermediary or by checking the appropriate box in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates—Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio Under
Rule 2a-7, the Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio will be permitted (or in some cases, may
be required) to impose a liquidity fee on redemptions (up to 2%) or temporarily restrict redemptions from the Fund for up to 10
business days during a 90 calendar day period (a “redemption gate”), in the event that the Fund’s weekly liquid assets
fall below the following thresholds:
•
30%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 30% of the Fund’s total assets, and the Board
of Trustees determines it is in the best interests of
the Fund, the Board of Trustees may impose a liquidity fee of no more than 2% of the
amount redeemed and/or a redemption gate that temporarily suspends the right of redemption. The liquidity fee or redemption
gate may be imposed at any point during the applicable business day, generally at the subsequent NAV calculation time
of the applicable Fund following the determination of the Board of Trustees.
•
10%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 10% of the Fund’s total assets as of the end of
a business day, the Fund must impose, at the beginning
of the next business day, a liquidity fee of 1% of the amount redeemed, unless
the Board of Trustees determines that imposing such a fee would not be in the best interests of the Fund or determines that a
lower or higher fee (not to exceed 2%) would be in the best interests of the Fund.
Liquidity
fees and redemptions gates may be terminated at any time in the discretion of the Board of Trustees. Liquidity fees and redemptions
gates will also terminate at the beginning of the next business day once the applicable Fund has invested 30% or more of its
total assets in weekly liquid assets as of the end of a business day. A Fund may only suspend redemptions for up to 10 business days
in any 90 calendar day period.
Weekly
liquid assets generally include: (a) cash; (b) direct obligations of the U.S. Government; (c) certain U.S. government agency discount
notes with remaining maturities of 60 days or less; (d) securities that will mature or are subject to a demand feature that is exercisable
and payable within five business days; or (e) amounts receivable and due unconditionally within five business days on pending
sales of portfolio securities.
If
a Fund imposes a redemption gate, the Fund and your Financial Intermediary will not accept redemption or exchange orders out of
the Fund until the Fund has notified shareholders that the redemption gate has been lifted. Any redemption or exchange orders out
of a Fund submitted while a redemption gate is in effect will be cancelled without further notice. If you still wish to redeem or exchange
shares out of a Fund once the redemption gate has been lifted, you will need to submit a new redemption or exchange request
to the Fund or your Financial Intermediary. Unprocessed purchase orders that a Fund received prior to notification of the imposition
of a liquidity fee or redemption gate will be cancelled unless re-confirmed. Under certain circumstances, a Fund may honor
redemption or exchange orders out of the Fund (or pay redemptions without adding a liquidity fee to the redemption amount) if
the Fund can verify that the redemption or exchange order out of the Fund was submitted to the Fund’s agent before the Fund imposed
liquidity fees or suspended redemptions. Once a liquidity fee or a redemption gate is in place, shareholders will not be permitted
to exchange into or out of the applicable Fund until the fee or gate is terminated.
The
Board of Trustees generally expects that a liquidity fee or redemption gate would be imposed, if at all, during periods of extraordinary
market stress. The Board of Trustees generally expects that a redemption gate would be imposed prior to notification to shareholders
and Financial Intermediaries that a gate would be imposed. While the Board of Trustees may, in its discretion, impose a liquidity
fee at any time after the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, the Board of Trustees
generally expects that a liquidity fee would be imposed
only after the Fund has notified Financial Intermediaries and shareholders that
a liquidity fee will be imposed. The Fund retains the liquidity fees for the benefit of remaining shareholders.
The
Board of Trustees may, in its discretion, permanently suspend redemptions and liquidate the Fund if, among other things, the Fund,
at the end of a business day, has less than 10% of its total assets invested in weekly liquid assets. In the event of liquidation,
shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders.
Announcements
regarding the imposition of liquidity fees or redemption gates, or the termination of liquidity fees or redemption gates,
will be filed with the SEC on Form N-CR and will be available on the website of the Fund (http://www.morganstanley.com/im).
In addition, the Fund will make such announcements through a supplement to its Prospectus and may make such announcements
through a press release or by other means.
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Dividend
payments will not be subject to liquidity fees or redemption gates; however, in the event that a liquidity fee or redemption gate
is in place at the time that dividends are distributed, all distributions will be made in the form of cash.
Trade
corrections requested after a liquidity fee or redemption gate is imposed will be honored so long as the “as of” date of
the transaction to be processed is prior to the effective
time of the liquidity fee or redemption gate and a valid reason for the trade error is provided.
Financial
Intermediaries will be required to promptly take such actions reasonably requested by the Fund, the Transfer Agent or the Adviser
to implement, modify or remove, or to assist the Fund in implementing, modifying or removing, a liquidity fee or redemption
gate established by the Fund.
The
Government Portfolio, the Government Securities Portfolio, the Treasury Portfolio and the Treasury Securities Portfolio are exempt
from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption gate” that
temporarily restricts redemptions. The Board of Trustees
has opted not to subject the Government Portfolio, the Government Securities Portfolio,
the Treasury Portfolio and the Treasury Securities Portfolio to a “liquidity fee” and/or a “redemption gate”
but has reserved its right to change this determination
in the future after providing appropriate notice to shareholders.
Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
With
respect to the Government Securities Portfolio, while the Fund intends to limit its investments to certain U.S. Treasury obligations
and U.S. government securities, the interest of which is generally exempt from state income taxation, you should consult your
own tax adviser to determine whether distributions from the Government Securities Portfolio are exempt from state taxation in your
own state.
With
respect to the Tax-Exempt Portfolio, your income dividend distributions are normally exempt from federal income tax to the extent
they are derived from municipal obligations. Income derived from other portfolio securities may be subject to federal, state and/or
local income taxes. The income derived from some municipal securities is subject to the federal “alternative minimum tax.”
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
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Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
each of Government Portfolio, Government Securities Portfolio, Treasury Portfolio and Treasury Securities Portfolio intends to
maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when they sell or exchange their shares in these Funds
because the amount realized will be the same as their tax basis in the shares. Because each of Prime Portfolio, ESG Money Market
Portfolio and Tax-Exempt Portfolio does not maintain a stable share price, a sale of these Funds’ shares may result in capital
gain or loss to you.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses
(collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel,
including personnel of the investment adviser, on one
side of an information barrier may have access to information
and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts of
interest in determining whether to engage in such wall crossings. Information obtained in connection with such wall crossings may
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limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries (which may include affiliates of the Adviser and Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain circumstances, the Adviser restricts, limits or reduces the
amount of a Fund’s investment, or restricts the
type of governance or voting rights it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and
Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions.
Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments.
Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an acquisition.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of the Participant Class shares
of each Fund for the periods indicated. The Participant Class was fully redeemed during the month of October 2016 from the Prime
Portfolio and Tax-Exempt Portfolio and there were no shares outstanding as of October 31, 2021.
Accordingly, no financial highlights have been presented
in the applicable Fund’s Annual Report. Certain information reflects financial results for a single Fund
share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in each Fund
(assuming reinvestment of all dividends and distributions).
The
ratios of expenses to average net assets listed in the tables below for each Fund are based on the average net assets of the Fund for
each of the periods listed in the tables. To the extent
that a Fund’s average net assets decrease over the Fund’s next fiscal year, such expense
ratios can be expected to increase, potentially significantly, because certain fixed costs will be spread over a smaller amount of assets.
Year
Ended October 31,
Net
Asset Value, Beginning of
Period
Net Investment Income
Net
Realized and Unrealized Gain
(Loss) on Investments
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
The
information below has been derived from the financial statements audited by Ernst & Young LLP, the Funds’ independent registered
public accounting firm. Ernst & Young LLP’s report, along with each Fund’s financial statements, are incorporated by
reference into the Funds’ SAI. The Annual Report
to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Net
Asset Value, End of
Period
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average Net
Assets Excluding Interest
Expenses
Ratio
of Expenses to Average Net
Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income to
Average Net Assets
Ratio
of Net Investment Income
(Loss) to Average Net
Assets (Before Waivers/ Reimbursement)
$
1.0007
0.02
%
$
51
0.17
%
(3)
N/A
0.72
%
0.03
%
(0.52
)%
1.0008
0.54
%
51
0.52
%
(3)
N/A
0.72
%
0.49
%
0.29
%
1.0006
1.94
%
51
0.66
%
(3)
0.66
%
(3)
0.72
%
1.88
%
1.82
%
1.0003
1.34
%
50
0.65
%
(3)
N/A
0.75
%
1.41
%
1.31
%
1.0002
0.55
%
50
0.60
%
(3)
N/A
0.82
%
0.56
%
0.34
%
$
1.000
0.03
%
$
2,082,873
0.07
%
(3)
N/A
0.71
%
0.02
%
(0.62
)%
1.000
0.38
%
1,671,051
0.36
%
(3)
0.36
%
(3)
0.71
%
0.29
%
(0.06
)%
1.000
1.69
%
942,575
0.67
%
(3)
0.67
%
(3)
0.71
%
1.67
%
1.63
%
1.000
1.04
%
770,987
0.67
%
(3)
N/A
0.71
%
1.05
%
1.01
%
1.000
0.19
%
919,665
0.68
%
(3)
N/A
0.71
%
0.13
%
0.10
%
$
1.000
0.01
%
$
15,949,390
0.06
%
(3)
N/A
0.72
%
0.00
%
(4)
(0.66
)%
1.000
0.47
%
6,549,518
0.29
%
(3)
N/A
0.71
%
0.35
%
(0.07
)%
1.000
1.88
%
2,724,346
0.45
%
(3)
N/A
0.73
%
1.87
%
1.59
%
1.000
1.22
%
2,780,482
0.45
%
(3)
N/A
0.71
%
1.05
%
0.79
%
1.000
0.36
%
17,766,128
0.44
%
(3)
N/A
0.72
%
0.33
%
0.05
%
$
1.000
0.01
%
$
2,998,738
0.07
%
(3)
N/A
0.71
%
0.01
%
(0.63
)%
1.000
0.36
%
2,383,586
0.39
%
(3)
0.39
%
(3)
0.71
%
0.17
%
(0.15
)%
1.000
1.66
%
1,430,849
0.69
%
(3)
N/A
0.71
%
1.65
%
1.63
%
1.000
1.04
%
789,069
0.69
%
(3)
N/A
0.71
%
1.03
%
1.01
%
1.000
0.19
%
484,458
0.68
%
(3)
N/A
0.71
%
0.11
%
0.08
%
$
1.000
0.01
%
$
259
0.06
%
(3)
N/A
0.71
%
0.01
%
(0.64
)%
1.000
0.37
%
575
0.40
%
(3)
0.40
%
(3)
0.71
%
0.21
%
(0.10
)%
1.000
1.61
%
629
0.70
%
(3)
N/A
0.71
%
1.59
%
1.58
%
1.000
1.00
%
234
0.70
%
(3)
N/A
0.71
%
1.01
%
1.00
%
1.000
0.16
%
307
0.62
%
(3)
N/A
0.71
%
0.16
%
0.07
%
Notes
to Financial Highlights
(1)
Per
share amount is based on average shares outstanding.
(2)
Amount
is less than $0.0005 per share.
(3)
Ratio
of Expenses to Average Net Assets before and after Maximum Expense Ratios may vary among share classes by more or less than the administration
plan, service and shareholder administration
plan, distribution plan and/or shareholder services plan (the “plans”) fees due to either (1) fluctuations in daily net
asset amounts, (2) changes in the
plans’ fees during the period for each share class, (3) changes in the Funds’ expense cap during the year, (4) waivers to
the plans’ fees for each
share class, or (5) a combination of the previous points.
In
addition to this Prospectus, the Funds have an SAI dated February 28,
2022 (as may be supplemented from time to time), which
contains additional, more detailed information about
the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Shareholder Reports that contain additional information about the respective Fund’s investments. In each Fund’s
Annual Report to Shareholders, you will find a discussion of the market conditions and the investment strategies that significantly
affected such Fund’s performance during the last fiscal year. For additional Trust information, including information regarding
the investments comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity. If you purchased shares through a Financial Intermediary, you may also obtain these
documents, without charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
The
Securities
and Exchange Commission (“SEC”) has not
approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio
iInvestment
Objective
i
The Prime Portfolio (the “Fund”) seeks preservation
of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Cash Management Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Cash
Management Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.10%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.05%
Total
Annual Fund Operating Expenses1
i0.36%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Cash Management Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Cash Management Class, your investment has a 5% return each year and
that the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Cash
Management Class
$i36
$i115
$i201
$i455
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Cash Management Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.35%.
The fee waivers and/or expense reimbursements will continue
for at least one year from the date
of this Prospectus or until such time as the Board of
Trustees of Morgan Stanley Institutional Liquidity Funds
(the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
temporarily suspend your ability to sell shares if the
Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
•
LIBOR
Discontinuance or Unavailability Risk. The London
InterBank Offered Rate (“LIBOR”) is intended to represent the rate at which
contributing banks may obtain short-term borrowings from each other in the London interbank market. The regulatory authority
that oversees financial services firms and financial markets in the U.K. has announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions for purposes of determining the LIBOR rate. However,
subsequent announcements by the Financial Conduct Authority, the LIBOR administrator and other regulators indicate
that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be provided on a representative basis
until mid-2023. However, in connection with supervisory guidance from regulators, some regulated entities will cease to enter
into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or on a later
date, if a particular LIBOR tenor is expected to continue beyond the end of 2021), LIBOR may no longer be available or no longer
deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes, derivatives
and other instruments or investments comprising some or all of the Fund’s portfolio.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Cash Management Class shares from year-to-year and by showing the average annual returns of the Fund’s Cash Management
Class shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the
Fund will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Cash
Management Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $1 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio
iInvestment
Objective
i
The ESG Money Market Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Cash Management Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Cash
Management Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.10%
Other
Expenses
i0.07%
Shareholder
Service Fee
i0.05%
Total
Annual Fund Operating Expenses1
i0.37%
Fee
Waiver and/or Expense Reimbursement1
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Cash Management Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Cash Management Class, your investment has a 5% return each year and
that the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Cash
Management Class
$i36
$i117
$i206
$i466
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Cash Management Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.35%.
The fee waivers and/or expense reimbursements will continue
for at least one year from the date
of this Prospectus or until such time as the Board of
Trustees of Morgan Stanley Institutional Liquidity Funds
(the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Adviser believes that environmental, social and governance
(“ESG”) factors have the ability to impact the fundamental credit risk of
an entity. The Fund’s investment process incorporates information about ESG issues via an integrated approach within the Adviser’s
fundamental investment analysis framework. The Adviser may engage with management of certain issuers regarding corporate
governance practices as well as what the Adviser deems to be materially important environmental and/or social issues facing a
company.
The Adviser has proprietary ESG-scoring methodologies
that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
During the security selection process, the Adviser employs
a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The Fund may invest in green commercial paper (a security
that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In analyzing whether an issuer meets any of the criteria
described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After applying the above exclusion screens, the Adviser
calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
From the final list of ESG-approved issuers, the Adviser
determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under normal circumstances, the Fund will invest 100%
of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
ESG
Investment Risk. The Fund’s adherence to
its ESG criteria and application of related analyses when selecting investments may affect
the Fund’s performance depending on whether such investments are in or out of favor and relative to similar funds that do not
adhere to such criteria or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices
or the Adviser’s assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs
and values of any particular investor. Additionally, the Fund’s adherence to its ESG criteria and application of related analyses
in connection with identifying and selecting investments in non-U.S. issuers often require subjective analysis and may be relatively
more difficult than applying the ESG criteria or related analyses to investments of U.S. issuers because data availability may
be more limited with respect to non-U.S. issuers. The exclusionary criteria related to the Fund’s ESG criteria may result in the
Fund forgoing opportunities to buy certain securities when it might otherwise be advantageous to do so, or selling securities for
ESG reasons when it might be otherwise disadvantageous for it to do so. The Fund’s investments in certain companies may be susceptible
to various factors that may impact their businesses or operations, including costs associated with government budgetary
constraints that impact publicly funded projects and clean energy initiatives, the effects of general economic conditions throughout
the world, increased competition from other providers of services, unfavorable tax laws or accounting policies and high
leverage.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Cash Management Class shares from year-to-year and by showing the average annual returns of the Fund’s Cash Management
Class shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the
Fund will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Cash
Management Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $1 million. You may not be subject to these minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Cash Management Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Cash
Management Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.10%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.05%
Total
Annual Fund Operating Expenses1
i0.36%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Cash Management Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Cash Management Class, your investment has a 5% return each year and
that the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Cash
Management Class
$i36
$i115
$i201
$i455
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Cash Management Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.35%.
The fee waivers and/or expense reimbursements will continue
for at least one year from the date
of this Prospectus or until such time as the Board of
Trustees of Morgan Stanley Institutional Liquidity Funds
(the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Cash Management Class shares from year-to-year and by showing the average annual returns of the Fund’s Cash Management
Class shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the
Fund will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Cash
Management Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $1 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio
iInvestment
Objective
i
The Government Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Cash Management Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Cash
Management Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.10%
Other
Expenses
i0.07%
Shareholder
Service Fee
i0.05%
Total
Annual Fund Operating Expenses1
i0.37%
Fee
Waiver and/or Expense Reimbursement1
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Cash Management Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Cash Management Class, your investment has a 5% return each year and
that the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Cash
Management Class
$i36
$i117
$i206
$i466
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Cash Management Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.35%.
The fee waivers and/or expense reimbursements will continue
for at least one year from the date
of this Prospectus or until such time as the Board of
Trustees of Morgan Stanley Institutional Liquidity Funds
(the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest substantially
all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment. The U.S. government
securities that the Fund may purchase include those issued or guaranteed either by the U.S. Treasury or certain agencies, authorities
or instrumentalities of the U.S. Government. The Fund may also invest in repurchase agreements with the Federal Reserve
Bank of New York.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. government securities. This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Cash Management Class shares from year-to-year and by showing the average annual returns of the Fund’s Cash Management
Class shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the
Fund will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Cash
Management Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $1 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Securities Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio
iInvestment
Objective
i
The Treasury Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Cash Management Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Cash
Management Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.10%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.05%
Total
Annual Fund Operating Expenses1
i0.36%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Cash Management Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Cash Management Class, your investment has a 5% return each year and
that the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Cash
Management Class
$i36
$i115
$i201
$i455
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Cash Management Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.35%.
The fee waivers and/or expense reimbursements will continue
for at least one year from the date
of this Prospectus or until such time as the Board of
Trustees of Morgan Stanley Institutional Liquidity Funds
(the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. Treasury obligations, which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Cash Management Class shares from year-to-year and by showing the average annual returns of the Fund’s Cash Management
Class shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the
Fund will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Cash
Management Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $1 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio
iInvestment
Objective
i
The Treasury Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Cash Management Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Cash
Management Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.10%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.05%
Total
Annual Fund Operating Expenses1
i0.36%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Cash Management Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Cash Management Class, your investment has a 5% return each year and
that the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Cash
Management Class
$i36
$i115
$i201
$i455
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Cash Management Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.35%.
The fee waivers and/or expense reimbursements will continue
for at least one year from the date
of this Prospectus or until such time as the Board of
Trustees of Morgan Stanley Institutional Liquidity Funds
(the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. A “government money market fund” is exempt from requirements that permit
money market funds to impose a “liquidity fee” and/or a “redemption gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain
the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that
the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in Treasury obligations, which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Cash Management Class shares from year-to-year and by showing the average annual returns of the Fund’s Cash Management
Class shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the
Fund will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
Cash
Management Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $1 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio
iInvestment
Objective
i
The Tax-Exempt Portfolio (the “Fund”) seeks
to maximize current income exempt from federal income tax to the extent consistent with
preservation of capital and maintenance of liquidity.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Cash Management Class shares of the Fund. The Fund
does not charge any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses
of the Fund, such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the
tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Cash
Management Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.10%
Other
Expenses
i0.19%
Shareholder
Service Fee
i0.05%
Total
Annual Fund Operating Expenses1
i0.49%
Fee
Waiver and/or Expense Reimbursement1
i0.14%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.35%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Cash Management Class with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Cash Management Class, your investment has a 5% return each year and
that the Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement
arrangement for only the first year). Although your actual costs may be higher or lower, based on these assumptions your
costs would be:
1
Year
3
Years
5
Years
10
Years
Cash
Management Class
$i36
$i143
$i260
$i602
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Cash Management Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.35%.
The fee waivers and/or expense reimbursements will continue
for at least one year from the date
of this Prospectus or until such time as the Board of
Trustees of Morgan Stanley Institutional Liquidity Funds
(the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such
action is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests at least 80% of its assets in high
quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. The Fund may also invest in variable and floating rate demand instruments, tender option bonds, custodial
receipts and investments in other investment companies, including money market funds.
The Fund may invest up to 20% of its assets in taxable
money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax; however, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax. In addition, the Fund may temporarily invest more than 20%
of its assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may invest in variable and floating rate loans
and other variable and floating rate securities. Although these instruments
are generally less sensitive to interest rate changes than fixed rate instruments, the value of variable and floating rate loans
and other securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates.
The Fund may face a heightened level of interest rate
risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve
Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks,
including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended
durations (i.e., extension risk). During periods when
interest rates are low or there are negative interest rates, the Fund’s yield
(and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain positive returns or minimize
the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of liquidity or credit
risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an
instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
Tax-Exempt
Variable Rate Demand Notes. Tax-exempt variable
rate demand notes are variable rate tax-exempt debt obligations that give
investors the right to demand principal repayment. Due to cyclical supply and demand considerations, at times the yields on these
obligations can exceed the yield on taxable money market obligations. The interest rate on these instruments may be reset daily,
weekly or on some other reset period and may have a floor or ceiling on interest rate changes. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank’s prime rate, and is reset whenever such rate is adjusted. The
interest rate on a variable rate demand note is reset at specified intervals at a market rate. The Fund’s ability to receive payments
of principal and interest and other amounts in connection with debt obligations held by it will depend primarily on the financial
condition of the issuer. The failure by the Fund to receive scheduled interest or principal payments on a debt obligation would
adversely affect the income of the Fund and would likely reduce the value of its assets, which would be reflected in a reduction
in the Fund’s NAV.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Cash Management Class shares from year-to-year and by showing the average annual returns of the Fund’s Cash Management
Class shares for the one, five and 10 year periods. iThe
Fund’s past performance is not necessarily an indication of how the
Fund will perform in the future. Updated
performance information is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Tax-Exempt
Portfolio (Cont’d)
Purchase
and Sale of Fund Shares
Cash
Management Class shares of the Fund are available to investors who at the time of initial purchase make a minimum investment
of $1 million. You may not be subject to the minimum investment requirement under certain circumstances. For more information,
please refer to the section of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that are generally not subject to federal income tax; however the Fund may distribute taxable dividends,
including distributions of short-term capital gains, and long-term capital gains. In addition, interest on certain bonds may be
subject to the federal alternative minimum tax. To the extent that the Fund’s distributions are derived from interest on bonds
that are not exempt from applicable state and local
taxes, such distributions will be subject to such state and local taxes.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Prime
Portfolio
Investment
Objective
The
Prime Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S.
dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
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Stanley Institutional Liquidity Funds | Details
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ESG
Money Market Portfolio
Investment
Objective
The
ESG Money Market Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser believes that ESG factors have the ability to impact the fundamental credit risk of an entity. The Fund’s investment process
incorporates information about ESG issues via an integrated approach within the Adviser’s fundamental investment analysis framework.
The Adviser may engage with management of certain issuers regarding corporate governance practices as well as what the Adviser
deems to be materially important environmental and/or social issues facing a company.
The
Adviser has proprietary ESG-scoring methodologies that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
During
the security selection process, the Adviser employs a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The
Fund may invest in green commercial paper (a security that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In
analyzing whether an issuer meets any of the criteria described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After
applying the above exclusion screens, the Adviser calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
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Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio (Cont’d)
From
the final list of ESG-approved issuers, the Adviser determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under
normal circumstances, the Fund will invest 100% of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued
or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Securities Portfolio
Investment
Objective
The
Government Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest substantially all of its assets in U.S. Treasury obligations and certain U.S. government securities,
the interest from which is generally exempt from state income taxation, in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The U.S. government securities that the Fund may purchase include those
issued or guaranteed either by the U.S. Treasury or certain agencies, authorities or instrumentalities of the U.S. Government. The
Fund may also invest in repurchase agreements with the Federal Reserve Bank of New York. The Fund may change its principal investment
strategies; however you would be notified of any changes.
Shareholders
should consult their individual tax adviser to determine whether the Fund’s distributions derived from interest on the Treasury
obligations and U.S. government securities referred to above are exempt from state taxation in their own state.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. government securities.
This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
The
Adviser will generally seek to place purchase orders for the Fund with broker-dealers that are owned by minorities, women, disabled
persons, veterans and members of other recognized diversity and inclusion groups and will place the majority of the aggregate
dollar volume of the Fund’s purchase orders for government agency securities obtained via auction or window through such broker-dealers,
subject in each case to the Adviser’s duty to seek best execution for the Fund’s orders.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Portfolio
Investment
Objective
The
Treasury Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Securities Portfolio
Investment
Objective
The
Treasury Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. In selecting investments, the Adviser seeks to maintain the Fund’s share price
at $1.00. The share price remaining stable at $1.00
means that the Fund would preserve the principal value of your investment. The Fund
may change its principal investment strategies; however you would be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds | Details
of the Funds
Tax-Exempt
Portfolio
Investment
Objective
The
Tax-Exempt Portfolio seeks to maximize current income exempt from federal income tax to the extent consistent with preservation
of capital and maintenance of liquidity.
Approach
The
Fund invests at least 80% of its assets in high quality short-term municipal obligations, the interest of which is exempt from federal
income taxes and is not subject to the federal alternative minimum tax. This policy is fundamental and may not be changed without
shareholder approval. Municipal obligations are securities issued by state and local governments and their agencies and typically
are either general obligation or revenue bonds, notes or commercial paper. General obligation securities are secured by the issuer’s
full faith and credit including its taxing power for payment of principal and interest. Revenue bonds, however, are generally payable
from a specific revenue source. They are issued for a wide variety of projects such as financing public utilities, hospitals, housing,
airports, highways and educational facilities. Included within the revenue bonds category are participations in lease obligations
and installment purchase contracts of municipalities. Additionally, the Fund’s investments may include variable and floating
rate demand instruments, tender option bonds, custodial receipts and investments in other investment companies, including money
market funds.
The
Fund may invest up to 20% of its assets in taxable money market securities or in municipal obligations that pay interest income that
may be subject to the alternative minimum tax. However, it is currently intended that the Fund will be managed so that income generated
by the Fund will not be subject to the alternative minimum tax.
While
at least 80% of the Fund’s assets typically will be invested in municipal obligations, the interest of which is exempt from
federal income taxes and is not subject to the federal
alternative minimum tax, the Fund may temporarily invest more than 20% of its
assets in taxable money market securities for defensive purposes in attempting to respond to adverse market conditions.
The
Fund operates as an “institutional money market fund” which is neither a “government money market fund” nor
“retail money market fund” as such terms
are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis, taking into consideration factors such as economic developments, budgetary trends, cash flow, debt service
coverage ratios and tax-law changes. Exposure to guarantors and liquidity providers is monitored separately. Weighted average maturity
is shifted in response to expectations as to the future course of money market interest rates, the shape of the money market yield
curve and the Fund’s recent cash flow experience.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
Certain
Funds may not be able to maintain a stable $1.00 share price at all times. If a Fund or another money market fund fails to maintain
a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), a Fund could be subject
to increased redemptions, which may adversely impact a Fund’s share price. In general, certain other money market funds have
in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption pressures will
not occur in the future. Neither a Fund’s sponsor nor any of its affiliates has a legal obligation to provide financial support
to a Fund, and you should not rely on or expect that
they or any person will provide any type of financial support to a Fund at any time to
help a Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making capital infusions into the
Fund, or taking other actions).
Floating
NAV Risk
Certain
Funds do not maintain a stable NAV per share. The value of a Fund’s shares will be calculated to four decimal places and will fluctuate
with changes in the values of a Fund’s portfolio securities. Investors should expect the value of their investment to vary and
reflect the current market value of a Fund’s
holdings. When you sell your shares, they may be worth more or less than what you originally
paid for them. This may result in a capital gain or loss.
Neither a Fund’s sponsor nor any of its affiliates has a legal obligation
to provide financial support to a Fund, and you should not rely on or expect that they or any person will provide any type of
financial support to a Fund at any time.
Bank
Obligations
Bank
obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time deposits
and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than
$1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, certain Funds may invest
in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the
time of purchase, U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such foreign banks and
foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S. government
regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks. Obligations of foreign banks, including Yankee obligations,
are subject to the same risks that pertain to domestic issuers, notably credit risk and market risk, but are also subject to certain
additional risks such as adverse foreign political and economic developments, the extent and quality of foreign government regulation
of the financial markets and institutions, foreign withholding taxes and other sovereign action such as nationalization or expropriation.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. Certain Funds may invest in variable
and floating rate securities. Although these instruments are generally less sensitive to interest rate changes than fixed rate instruments,
the value of these securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates. A
low interest rate environment may prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A
Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or changes rates. During periods when interest rates are low or there are
negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or minimize the volatility of the Fund’s net asset value per share or maintain a stable net asset
value of $1.00 per share, as applicable. Credit ratings
may not be an accurate assessment of liquidity or credit risk. Although credit ratings
may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an instrument or an issuer can have
a rapid, adverse effect on the instrument’s liquidity and make it more difficult for a Fund to sell at an advantageous price or
time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that certain Funds may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, certain Funds may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are Ginnie Mae and the Federal Housing Administration. Also, certain Funds may purchase
securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Further,
certain Funds may purchase securities issued by agencies
and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality.
Among these agencies and instrumentalities is the Federal Farm Credit System. Because these securities are not backed
by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability of the issuers of some U.S. government securities held
by a Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. It is possible that
these issuers will not have the funds to meet their payment obligations in the future. The interest from U.S. government securities
generally is not subject to state and local taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
ESG
Investment Risk
A
Fund’s adherence to its ESG criteria and application of related analyses when selecting investments may affect a Fund’s
performance depending on whether such investments are
in or out of favor and relative to similar funds that do not adhere to such criteria
or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices or the Adviser’s
assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs and values of any
particular investor. Additionally, a Fund’s adherence to its ESG criteria and application of related analyses in connection with
identifying and selecting investments in non-U.S. issuers
often require subjective analysis and may be relatively more difficult than applying
the ESG criteria or related analyses to investments of U.S. issuers because data availability may be more limited with respect to
non-U.S. issuers. The exclusionary criteria related to a Fund’s ESG criteria may result in a Fund forgoing opportunities to buy
certain securities when it might otherwise be advantageous
to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous
for it to do so. A Fund’s investments in certain companies may be susceptible to various factors that may impact their
businesses or operations, including costs associated with government budgetary constraints that impact publicly funded projects and
clean energy initiatives, the effects of general economic conditions throughout the world, increased competition from other providers
of services, unfavorable tax laws or accounting policies and high leverage.
Foreign
Securities
Certain
Funds may invest in U.S. dollar-denominated securities issued by foreign governmental or corporate issuers, including Eurodollar
and Yankee obligations. Although the
Fund will invest in these securities only if the Adviser
determines they are of comparable quality to the Fund’s
U.S. investments, investing in securities of foreign issuers involves some additional risks. While these
securities are subject to the same type of risks that pertain to domestic issuers, namely credit risk and interest rate risk, they are
also subject to other additional risks. Foreign issuers
generally are subject to different accounting, auditing and financial reporting standards
than U.S. issuers. There may be less information available to the public about foreign issuers. Securities of foreign issuers can
be less liquid and experience greater price movements. In some foreign countries, there is also the risk of government expropriation,
excessive taxation, political or social instability, the imposition of currency controls or diplomatic developments that could
affect an investment. There also can be difficulty obtaining and enforcing judgments against issuers in foreign countries. Foreign
stock exchanges, broker-dealers and listed issuers may be subject to less government regulation and oversight. Governmental actions
can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the value and liquidity
of a Fund’s investments. Foreign investment in the securities markets of certain foreign countries is restricted or controlled
to varying degrees.
Economic
sanctions may be, and have been, imposed against certain countries, organizations, companies, entities and/or individuals. Economic
sanctions and other similar governmental actions could, among other things, effectively restrict or eliminate a Fund’s ability
to purchase or sell securities or groups of securities, and thus may make a Fund’s investments in such securities less liquid or
more difficult to value. In addition, as a result of
economic sanctions, the Fund may be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and increased transaction costs. These conditions may
be in place for a substantial period of time and enacted with limited advance notice to a Fund.
Foreign
Money Market Securities
Certain
Funds may invest in foreign money market securities. As described elsewhere herein, foreign investing may involve risks relating
to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. Investments
in foreign markets may also be adversely affected by less stringent investor protections and disclosure standards, and governmental
actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the
imposition of punitive taxes. In addition, there are differences between U.S. and foreign regulatory requirements and market practices
that may result in additional risk. Foreign money market securities also present credit and interest rate risks similar to those attendant
to an investment in domestic money market securities.
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Custodial
Receipts
Certain
Funds may invest in custodial receipts representing interests in U.S. government securities, municipal obligations or other debt
instruments held by a custodian or trustee. Custodial receipts evidence ownership of future interest payments, principal payments
or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. Government, its agencies, instrumentalities,
political subdivisions or authorities, by a state or local governmental body or authority, or by other types of issuers. For
certain securities law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition, if for tax
purposes a Fund is not considered to be the owner of
the underlying securities held in the custodial account, the Fund may suffer adverse
tax consequences. As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged to
the custodial account.
Tender
Option Bonds
A
tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction
with the agreement of a third-party, such as a bank, broker-dealer or other financial institution, pursuant to which the institution
grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing
the option, the financial institution receives periodic fees equal to the difference between the bond’s fixed coupon rate and the
rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par
on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the
event of certain defaults or significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be
taken into account in determining the maturity of the tender option bonds and average portfolio maturity. There is a risk that the Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such
interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of a credit
rating downgrade, a payment default or a disqualification from tax-exempt status. Additionally, the Dodd-Frank Act, including
the Volcker Rule, among other regulatory changes, may affect the ability of bank-sponsored tender option bonds to continue
to operate or remain cost-effective investments.
Corporate
Debt Obligations
Corporate
debt obligations are fixed-income securities issued by private corporations. The investment return of corporate debt obligations
reflects interest earnings and changes in the market value of the security. The market value of a corporate debt obligation may
be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or
principal payments at the time called for by an instrument. Debtholders, as creditors,
have a prior legal claim over common and preferred stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. Certain Funds will buy corporate debt obligations subject to any quality constraints set forth
under Rule 2a-7.
Revenue
Bonds
Revenue
bonds are municipal obligations that are secured by the revenue from a specific project. To the extent that such revenues do not
materialize, the revenue bonds may not be repaid. If a Fund invests in revenue bonds
that are issued by municipal issuers in the same
economic sector, a
Fund would be particularly susceptible to developments adversely affecting that sector. Revenue
bonds historically have been subject to a greater risk
of default than general obligation bonds because investors can look only to the revenue generated
by the project or other revenue source backing the project, rather than to the general taxing authority of the state or local government
issuer of the obligations. For example, investments in revenue bonds backed by receipts from hospitals are sensitive to hospital
bond ratings, which are often based on feasibility studies that contain projections of expenses, revenues and occupancy levels. Additional
factors which could affect a hospital’s gross receipts and net income available to service its debt are demand for hospital services,
the ability of the hospital to provide the services required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses, reputational issues, competition, availability and expenses
of malpractice insurance, Medicaid and Medicare funding and possible federal legislation regulating hospital charges.
LIBOR
Discontinuance or Unavailability Risk.
LIBOR
is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with supervisory guidance from regulators, some regulated
entities will cease to enter into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or
a later date, if a particular reference rate is expected to continue beyond 2021), LIBOR may no longer be available
or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives
and other instruments or investments comprising some or all of a Fund’s portfolio. In light of this eventuality, public and
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private
sector industry initiatives are currently underway to establish
new or alternative reference rates to be used in place of LIBOR. There
is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance
or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any
such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still
may be developing. There may also be challenges for a Fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a Fund’s performance
or net asset value.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a
Fund’s investments, which may change due to economic
and other events that affect markets generally, as well
as those that affect particular regions, countries, industries, companies or governments.
Price
movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Inflation
rates may change frequently and
significantly because of various factors, including unexpected shifts in the domestic or global economy and changes in monetary
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or
economic policies (or expectations that these policies may change). Changes in expected inflation rates may adversely affect market and
economic conditions, a Fund’s investments and an investment in a Fund. Other
financial, economic and other global market and social
developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar events affecting
the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects (which
may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an attractive investment
opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought by a Fund. As
a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment at the time or
seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle. Any such event(s)
could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk that you may lose
money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations,
cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would
generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by certain Funds
may include U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and
preferred stock and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For example,
if the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the securities
has declined, the Funds may incur a loss upon disposition of them. The risk of such loss may be greater when utilizing
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collateral
other than U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right
to control the collateral could be affected and result in certain costs and delays. Additionally, if the proceeds from the liquidation
of such collateral after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
The
Government Securities Portfolio may enter into repurchase agreements with the Federal Reserve Bank of New York. Reduced participation
in the repurchase agreement market by the Federal Reserve Bank of New York may affect the Fund’s investment strategies,
operations and/or return potential.
Municipals
Certain
Funds may purchase municipal obligations subject to any restraints set forth under Rule 2a-7. Municipal obligations are securities
issued by state and local governments and their agencies. These securities typically are “general obligation” or “revenue”bonds, notes or commercial paper, including participations
in lease obligations and installment purchase contracts of municipalities. These
obligations may have fixed, variable or floating rates. To the extent a Fund invests in municipal obligations issued by state and local
governments and their agencies, the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of
these municipal obligations. Municipal obligations are also subject to credit risk and interest risk. In the case of revenue bonds, for
example, credit risk is the possibility that the user
fees from a project or other specified revenue sources are insufficient to meet interest
and/or principal payment obligations. The Fund is subject to added credit risk if it concentrates its investments in a single economic
sector, which could be effected by economic, business or political developments which might affect all municipal obligations
in that particular economic sector.
Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds (other than the Treasury Securities Portfolio) may invest in investment companies, including money market funds, and may
invest all or some of their short-term cash investments in any money market fund advised or managed by the Adviser or its affiliates
(an “affiliated money market fund”). An investment in an investment company is subject to the underlying risks of that investment
company’s portfolio securities. In addition to a Fund’s fees and expenses, the Fund generally would bear its share of the
investment company’s fees and expenses other
than advisory and administrative fees of affiliated money market funds.
Promissory
Notes
Promissory
notes are generally debt obligations of the issuing entity and are subject to the risks of investing in the banking industry. Certain
Funds may invest up to 5% of their net assets in illiquid securities, including unsecured bank promissory notes.
Tax-Exempt
Variable Rate Demand Notes
Tax-exempt
variable rate demand notes are variable rate tax-exempt debt obligations that give investors the right to demand principal repayment.
Due to cyclical supply and demand considerations, at times the yields on these obligations can exceed the yield on taxable money
market obligations. The interest rate on these instruments may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. The interest rate of a floating rate instrument may be based on a known lending rate, such
as a bank’s prime rate, and is reset whenever such rate is adjusted. The interest rate on a variable rate demand note is reset
at specified intervals at a market rate. The Fund’s
ability to receive payments of principal and interest and other amounts in connection with
loans held by it will depend primarily on the financial condition of the issuer. The failure by the Fund to receive scheduled interest
or principal payments on a loan would adversely affect the income of the Fund and would likely reduce the value of its assets, which
would be reflected in a reduction in the Fund’s NAV.
Floating
rate and variable rate demand notes and bonds may have a stated maturity in excess of one year, but may have features that permit
a holder to demand payment of principal plus accrued interest upon a specified number of days’ notice. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided by banks. If these obligations are not secured
by letters of credit or other credit support arrangements, the Fund’s right to demand payment will be dependent on the ability
of the issuer to pay principal and interest on demand. In addition, these obligations frequently are not rated by credit rating agencies
and may involve heightened risk of default by the issuer. The issuer of such obligations normally has a corresponding right, after
a given period, to prepay in its discretion the outstanding principal of the obligation plus accrued interest upon a specific number
of days’ notice to the holders. There is no assurance that the Fund will be able to reinvest the proceeds of any prepayment at
the same interest rate or on the same terms as those
of the original instrument.
In
the absence of an active secondary market for floating rate and variable rate demand notes, the Fund may find it difficult to dispose
of the instruments, and the Fund could suffer a loss if the issuer defaults or during periods in which the Fund is not entitled to
exercise its demand rights. If a reliable trading market for the floating rate and variable rate instruments held by the Fund does not
exist and the Fund may not demand payment of the principal
amount of such instruments within seven days, the instruments may be deemed
illiquid and therefore subject to the Fund’s limitation on investments in illiquid securities.
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Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains, and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund (other than the Treasury Securities Portfolio)
may invest without limit in cash or cash equivalents and the Tax-Exempt Portfolio
may invest without limit in taxable money market securities. Also in such circumstances, the Treasury Securities Portfolio may
invest without limit in cash and repurchase agreements with the Federal Reserve Bank of New York collateralized by U.S. Treasury
obligations. If the Adviser incorrectly predicts the effects of these changes, such defensive investments may adversely affect a Fund’s
performance and the Fund may not achieve its investment objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, which
is the parent of the Distributor. Morgan Stanley is
a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment
banking, research and analysis, financing and financial advisory services. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees’
approval of the Trust’s Investment Advisory Agreement
is available in the Funds’ Annual Report to shareholders
for the fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021,
the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
Prime
Portfolio
0.07%
ESG
Money Market Portfolio
0.07%
Government
Portfolio
0.01%
Government
Securities Portfolio
0.01%
Treasury
Portfolio
0.02%
Treasury
Securities Portfolio
0.01%
Tax-Exempt
Portfolio
0.00%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse the Fund’s Cash Management Class, if necessary, if such fees would cause the total annual operating
expenses of such Fund’s Cash Management Class to exceed the percentage of daily net assets set forth in the table below. In determining
the actual amount of fee waiver and/or expense reimbursement for each Fund, if any, the Adviser and Administrator exclude
from total annual operating expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes,
interest and other extraordinary expenses (including litigation). The fee waivers and/or expense reimbursements will continue for
at least one year from the date
of this Prospectus or until such time as the Trust’s
Board of Trustees acts to discontinue all or a portion
of such waivers and/or reimbursements when it deems
such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap Cash Management Class
Prime
Portfolio
0.35%
ESG
Money Market Portfolio
0.35%
Government
Portfolio
0.35%
Government
Securities Portfolio
0.35%
Treasury
Portfolio
0.35%
Treasury
Securities Portfolio
0.35%
Tax-Exempt
Portfolio
0.35%
The
Distributor, Adviser and Administrator may also waive distribution fees, advisory fees, administration fees and/or reimburse expenses
to enable a Fund to maintain a minimum level of daily net investment income. The Adviser and Administrator may make additional
voluntary fee waivers and/or expense reimbursements. The Distributor, Adviser and Administrator may discontinue these voluntary
fee waivers and/or expense reimbursements at any time in the future.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio and Government Securities Portfolio are intended
to qualify as eligible investments for federally chartered credit unions pursuant to the applicable provisions of the Federal Credit
Union Act and the National Credit Union Administration. Shares of the Government Portfolio and Government Securities Portfolio,
however, may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should
consult qualified legal counsel to determine whether these Funds are permissible investments under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers Cash Management Class shares of each Fund. The Trust also offers other classes of shares through separate prospectuses.
Certain of these classes may be subject to different fees and expenses. For information regarding other share classes, contact
the Trust or your financial intermediary.
Minimum
Investment Amount
Cash
Management Class shares are available to clients of the Adviser with investments at the time of initial purchase of at least $1 million
or to clients of Morgan Stanley & Co. LLC and its broker-dealer affiliates. The Adviser, in its sole discretion, may waive the minimum
initial investment amount in certain cases including, but not limited to, shares of the Fund purchased through a financial intermediary
or when the Adviser anticipates the combined value of a client’s investments will meet or exceed the minimum.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial intermediaries (also referred to as service organizations) who
may accept purchase and redemption orders for shares of each Fund on its behalf.
The
Adviser and/or the Distributor may pay additional compensation (out of their own funds and not as an expense of a Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with the sale, distribution, retention and/or servicing
of Fund shares. Such compensation may be significant in amount and the prospect of receiving any such additional compensation
may provide affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment
options. Any such payments will not change the NAV or the price of Fund shares. For more information, please see the Funds’
SAI.
The
Trust has adopted a Distribution Plan for each Fund’s Cash Management Class shares pursuant to Rule 12b-1 under the 1940 Act
(the “Plan”) to pay the Distributor to provide for, or to compensate certain financial intermediaries (also referred to
as service organizations) for, providing distribution
related services to the Fund. Under the Plan, each Fund pays the Distributor a monthly distribution
fee which shall not exceed during any one year 0.10% of each Fund’s average daily net assets of Cash Management Class shares
which are beneficially owned by the customers of such service organization during such period. The Distributor may waive distribution
fees to enable a Fund to maintain a minimum level of daily net investment income. The Distributor may discontinue these
voluntary fee waivers at any time in the future.
The
Trust has also adopted a Shareholder Service Plan for each Fund’s Cash Management Class shares to pay the Distributor to provide
for, or to compensate service organizations for providing administrative services to shareholders. Under this Plan, each Fund pays
the Distributor a monthly service fee which shall be assessed at an annual rate of 0.05% of each Fund’s average daily net assets
of Cash Management Class Shares which are owned beneficially
by the customers of such service organization during such period. The Distributor
may waive distribution fees to enable a Fund to maintain a minimum level of daily net investment income. The Distributor
may discontinue these voluntary fee waivers at any time in the future.
Because
the fees are paid out of a Fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Valuation
of Shares
Each
of the Prime Portfolio’s, ESG Money Market Portfolio’s and Tax-Exempt Portfolio’s investments will be valued using
market-based prices provided by an approved pricing
service/vendor and the share price of each rounded to a minimum of the fourth decimal place.
The price of each of Government Portfolio’s, Government Securities Portfolio’s, Treasury Portfolio’s and Treasury
Securities Portfolio’s shares is based on the
amortized cost of the Fund’s securities. The amortized cost valuation method involves valuing a debt obligation
in reference to its cost rather than market forces. If the Adviser determines that a valuation is not reflective of the security’s
market value, such security is valued at its fair value
as determined in good faith under procedures established by and under the general
supervision of the Board.
The
NAV of each Fund is determined once daily (except that the NAV of Prime Portfolio is determined three times daily), normally at
the times set forth below, on each day that the NYSE is open (the “Pricing Time”), except when the following federal holidays
are observed: Columbus Day and Veterans Day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
Information (Con’t)
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
Government
Portfolio Treasury Portfolio
As
of 5:00 p.m. Eastern time
ESG
Money Market Portfolio Government Securities Portfolio Treasury
Securities Portfolio
As
of 3:00 p.m. Eastern time
Tax-Exempt
Portfolio
As
of 1:00 p.m. Eastern time
Prime
Portfolio
As
of 8:00 a.m., 12:00 p.m. and 3:00 p.m. Eastern time
Pricing
of Fund Shares
Cash
Management Class shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives
your order in good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal
Reserve Bank (“Federal Funds”) prior to
the close of the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same
day your Cash Management Class shares are purchased provided the Fund receives your purchase amount in Federal Funds that day
as set forth above. Orders to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV
next determined: for the Government Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the ESG Money Market Portfolio,
Government Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; for the Tax-Exempt Portfolio—1:00
p.m. Eastern time; and for the Prime Portfolio—8:00 a.m., 12:00 p.m. or 3:00 p.m. Eastern time. On any business day
that the NYSE closes early, or when SIFMA recommends that the securities markets close early, a Fund may close early and purchase
orders received after such earlier closing times will be processed the following business day. If the NYSE is closed due to inclement
weather, technology problems or any other reason on a day it would normally be open for business, or the NYSE has an unscheduled
early closing on a day it has opened for business, a Fund reserves the right to treat such day as a business day and accept purchase
and redemption orders until, and calculate its NAV as of, the normally scheduled close of regular trading on the NYSE for that
day, or such time noted above, so long as the Adviser believes there generally remains an adequate market to obtain reliable and accurate
market quotations. A Fund may elect to remain open and
price its shares on days when the NYSE is closed or
closes early but on which SIFMA recommends that the
bond markets remain open for all or part of the day. Purchase orders received by the
Funds
and not funded by 6:45
p.m. Eastern time on the trade date may be subject to an overdraft charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
Cash
Management Class shares of the Funds may be purchased directly from the Fund or through a financial intermediary.
Purchasing
Shares Through a Financial Intermediary You
may open a new account and purchase Fund shares through certain authorized third-parties, such as brokers, dealers or other financial
intermediaries that have entered into a selling agreement with the Distributor (each, a “Financial Intermediary”). Your
Financial Intermediary will assist you with the procedures
to invest in shares of the Fund. The Financial Intermediary will establish times
by which such purchase orders and payments from customers must be received by the Financial Intermediary. Financial Intermediaries
are responsible for transmitting purchase orders and payments to the Trust and the Trust’s Custodian in a timely fashion.
Purchase orders placed with a Financial Intermediary and transmitted through a trading platform utilized by the Financial Intermediary
may be transmitted by the trading platform after the deadlines established by the Trust for receipt of purchase orders, as set
forth below; in such case, the purchase orders will receive a trade date of the next business day.
Investors
purchasing Cash Management Class shares through a Financial Intermediary may be charged a transaction-based or other fees
by the Financial Intermediary for its services. If you are purchasing Cash Management Class shares through a Financial Intermediary,
please consult your intermediary for more information regarding any such fees and for purchase instructions.
With
respect to sales through Financial Intermediaries, no offers or sales of Fund shares may be made in any foreign jurisdiction, except
with the consent of the Distributor.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Initial
Purchase You
may open an account, subject to acceptance by the Fund, and purchase Cash Management Class shares of a Fund by completing and
signing a New Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888)
378-1630 (which is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional
Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804.
After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to
the Custodian. You should instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the following
wire instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028 DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name) * For international investments
into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Automatic
Purchases Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has a positive balance as a result of credits incurred that day. If an account has a positive (credit) balance, shares of the respective
Fund will automatically be purchased. Any positive (credit) balance will be reduced by any debits to the account on that day
and shares of the Fund will automatically be sold.
Additional
Investments You may make additional investments
of Cash Management Class shares at the NAV next determined after the request is received in good
order or by wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification
of receipt of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase
Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
How
To Redeem Shares
You
may process a redemption request by contacting your Financial Intermediary. Otherwise, you may redeem shares of a Fund by mail
or, if authorized, by telephone, at no charge other than as described below. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will be redeemed at the NAV next determined
after we receive your redemption request in good order.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Automatic
Redemptions Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has any debits that were incurred that day and shares of the Funds will automatically be redeemed to cover the debits if such debits
have not been reduced by any credits which may have accrued to the account on the same day.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio and Treasury Portfolio—5:00 p.m. Eastern time; for the Prime Portfolio, ESG Money Market Portfolio, Government
Securities Portfolio and Treasury Securities Portfolio—3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio—1:00
p.m. Eastern time. On any business day that the NYSE closes early, the Fund may close early and redemption requests received after
such earlier closing times will be processed the following business day. The Fund may elect to remain open on days when the NYSE
is closed or closes early but on which SIFMA recommends that the bond markets remain open for all or part of the day. Generally,
payment for Fund shares sold will be made on the day on which the order is processed, but under certain circumstances may
not be made until the next business day. The Fund may postpone and/or suspend redemption and payment beyond one business
day only as follows: (a) for any period during which there is a non-routine closure of the Fedwire or applicable Federal Reserve
Banks; (b) for any period (i) during which the NYSE is closed other than customary weekend and holiday closings or (ii) during
which trading on the NYSE is restricted; (c) for any period during which an emergency exists as a result of which (i) disposal of
securities owned by the Fund is not reasonably practicable or (ii) it is not reasonably practicable for the Fund to fairly determine the
NAV of shares of the Fund; (d) for any period during which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted
or (ii) an emergency exists; (e) for any period that the SEC may by order permit; or (f) for any period during which the Fund
as part of a necessary liquidation of a Fund, has properly postponed and/or suspended redemption of shares and payment in accordance
with federal securities laws. In addition, when SIFMA recommends that the securities markets close early, payments with respect
to redemption requests received subsequent to the recommended close will be made the next business day (assuming that the Fund
in fact closes).
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by distributing
to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash.
In addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
Exchange
Privilege
You
may exchange a Fund’s Cash Management Class shares for Cash Management Class shares of other available Funds of the Trust based
on their respective NAVs, except that you may not exchange Cash Management Class shares from or into the Prime Portfolio, ESG
Money Market Portfolio or Tax-Exempt Portfolio. We charge no fee for exchanges. If you purchased Fund shares through a Financial
Intermediary, certain other Funds of the Trust may be unavailable for exchange. Contact your Financial Intermediary to determine
which Funds are available for exchange.
You
can process your exchange by contacting your Financial Intermediary or online through Morgan Stanley’s Treasury Investment Portal
service at www.morganstanley.com/liquidity provided you have a pre-established Internet trading account, as set forth above under
“How To Purchase Shares.” You may also send exchange requests to the Fund’s transfer agent, DST Asset Manager Solutions,
Inc. (“DST”), by mail to Morgan Stanley
Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, KansasCity, MO64121-9804 or by calling the Fund at 1-888-378-1630.
You
will be subject to the same minimum initial investment and account size as an initial purchase. The Fund, in its sole discretion, may
waive the minimum initial investment amounts in certain cases including, but not limited to, exchanges involving Fund shares purchased
through a Financial Intermediary or when the Adviser anticipates the combined value of a client’s investments will meet or exceed
the minimum. The Fund may terminate or revise the exchange privilege upon required notice or in certain cases without notice.
The Fund reserves the right to reject an exchange order for any reason.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing and by certain selected accounts utilizing the Funds as a sweep
vehicle. Therefore, reasonably frequent purchases and redemptions of Fund shares by Fund shareholders do not present risks for
other shareholders of a Fund, and the policies and procedures adopted by the Board of Trustees/Directors as applicable to other funds
in the Morgan Stanley family of funds are generally not applicable with respect to frequent purchases and redemptions of Fund shares.
However, frequent trading by shareholders can disrupt management of the Funds and raise their respective expenses. Therefore,
we may not accept any request for a purchase or exchange when we think it is being used as a tool for market-timing, and we
may bar a shareholder who trades excessively from making further purchases for an indefinite period.
Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by giving written notice to
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
your
Financial Intermediary or by checking the appropriate box in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates—Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio Under
Rule 2a-7, the Prime Portfolio, ESG Money Market Portfolio and Tax-Exempt Portfolio will be permitted (or in some cases, may
be required) to impose a liquidity fee on redemptions (up to 2%) or temporarily restrict redemptions from the Fund for up to 10
business days during a 90 calendar day period (a “redemption gate”), in the event that the Fund’s weekly liquid assets
fall below the following thresholds:
•
30%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 30% of the Fund’s total assets, and the Board
of Trustees determines it is in the best interests of
the Fund, the Board of Trustees may impose a liquidity fee of no more than 2% of the
amount redeemed and/or a redemption gate that temporarily suspends the right of redemption. The liquidity fee or redemption
gate may be imposed at any point during the applicable business day, generally at the subsequent NAV calculation time
of the applicable Fund following the determination of the Board of Trustees.
•
10%
weekly liquid assets—If the weekly liquid assets of a Fund fall below 10% of the Fund’s total assets as of the end of
a business day, the Fund must impose, at the beginning
of the next business day, a liquidity fee of 1% of the amount redeemed, unless
the Board of Trustees determines that imposing such a fee would not be in the best interests of the Fund or determines that a
lower or higher fee (not to exceed 2%) would be in the best interests of the Fund.
Liquidity
fees and redemptions gates may be terminated at any time in the discretion of the Board of Trustees. Liquidity fees and redemptions
gates will also terminate at the beginning of the next business day once the applicable Fund has invested 30% or more of its
total assets in weekly liquid assets as of the end of a business day. A Fund may only suspend redemptions for up to 10 business days
in any 90 calendar day period.
Weekly
liquid assets generally include: (a) cash; (b) direct obligations of the U.S. Government; (c) certain U.S. government agency discount
notes with remaining maturities of 60 days or less; (d) securities that will mature or are subject to a demand feature that is exercisable
and payable within five business days; or (e) amounts receivable and due unconditionally within five business days on pending
sales of portfolio securities.
If
a Fund imposes a redemption gate, the Fund and your Financial Intermediary will not accept redemption or exchange orders out of
the Fund until the Fund has notified shareholders that the redemption gate has been lifted. Any redemption or exchange orders out
of a Fund submitted while a redemption gate is in effect will be cancelled without further notice. If you still wish to redeem or exchange
shares out of a Fund once the redemption gate has been lifted, you will need to submit a new redemption or exchange request
to the Fund or your Financial Intermediary. Unprocessed purchase orders that a Fund received prior to notification of the imposition
of a liquidity fee or redemption gate will be cancelled unless re-confirmed. Under certain circumstances, a Fund may honor
redemption or exchange orders out of the Fund (or pay redemptions without adding a liquidity fee to the redemption amount) if
the Fund can verify that the redemption or exchange order out of the Fund was submitted to the Fund’s agent before the Fund imposed
liquidity fees or suspended redemptions. Once a liquidity fee or a redemption gate is in place, shareholders will not be permitted
to exchange into or out of the applicable Fund until the fee or gate is terminated.
The
Board of Trustees generally expects that a liquidity fee or redemption gate would be imposed, if at all, during periods of extraordinary
market stress. The Board of Trustees generally expects that a redemption gate would be imposed prior to notification to shareholders
and Financial Intermediaries that a gate would be imposed. While the Board of Trustees may, in its discretion, impose a liquidity
fee at any time after the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, the Board of Trustees
generally expects that a liquidity fee would be imposed
only after the Fund has notified Financial Intermediaries and shareholders that
a liquidity fee will be imposed. The Fund retains the liquidity fees for the benefit of remaining shareholders.
The
Board of Trustees may, in its discretion, permanently suspend redemptions and liquidate the Fund if, among other things, the Fund,
at the end of a business day, has less than 10% of its total assets invested in weekly liquid assets. In the event of liquidation,
shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders.
Announcements
regarding the imposition of liquidity fees or redemption gates, or the termination of liquidity fees or redemption gates,
will be filed with the SEC on Form N-CR and will be available on the website of the Fund (http://www.morganstanley.com/im).
In addition, the Fund will make such announcements through a supplement to its Prospectus and may make such announcements
through a press release or by other means.
Dividend
payments will not be subject to liquidity fees or redemption gates; however, in the event that a liquidity fee or redemption gate
is in place at the time that dividends are distributed, all distributions will be made in the form of cash.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
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Trade
corrections requested after a liquidity fee or redemption gate is imposed will be honored so long as the “as of” date of
the transaction to be processed is prior to the effective
time of the liquidity fee or redemption gate and a valid reason for the trade error is provided.
Financial
Intermediaries will be required to promptly take such actions reasonably requested by the Fund, the Transfer Agent or the Adviser
to implement, modify or remove, or to assist the Fund in implementing, modifying or removing, a liquidity fee or redemption
gate established by the Fund.
The
Government Portfolio, the Government Securities Portfolio, the Treasury Portfolio and the Treasury Securities Portfolio are exempt
from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption gate” that
temporarily restricts redemptions. The Board of Trustees
has opted not to subject the Government Portfolio, the Government Securities Portfolio,
the Treasury Portfolio and the Treasury Securities Portfolio to a “liquidity fee” and/or a “redemption gate”
but has reserved its right to change this determination
in the future after providing appropriate notice to shareholders.
Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
With
respect to the Government Securities Portfolio, while the Fund intends to limit its investments to certain U.S. Treasury obligations
and U.S. government securities, the interest of which is generally exempt from state income taxation, you should consult your
own tax adviser to determine whether distributions from the Government Securities Portfolio are exempt from state taxation in your
own state.
With
respect to the Tax-Exempt Portfolio, your income dividend distributions are normally exempt from federal income tax to the extent
they are derived from municipal obligations. Income derived from other portfolio securities may be subject to federal, state and/or
local income taxes. The income derived from some municipal securities is subject to the federal “alternative minimum tax.”
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
each of Government Portfolio, Government Securities Portfolio, Treasury Portfolio and Treasury Securities Portfolio intends
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
to
maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when they sell or exchange their shares in these Funds
because the amount realized will be the same as their tax basis in the shares. Because each of Prime Portfolio, ESG Money Market
Portfolio and Tax-Exempt Portfolio does not maintain a stable share price, a sale of these Funds’ shares may result in capital
gain or loss to you.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses
(collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel,
including personnel of the investment adviser, on one
side of an information barrier may have access to information
and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts of
interest in determining whether to engage in such wall crossings. Information obtained in connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries (which may include affiliates of the Adviser and Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain circumstances, the Adviser restricts, limits or reduces the
amount of a Fund’s investment, or restricts the
type of governance or voting rights it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and
Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions.
Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments.
Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an acquisition.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of the Cash Management Class
shares of each Fund for the periods indicated. Certain information reflects financial results for a single Fund share. The total returns
in the tables represent the rate that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions).
The
ratios of expenses to average net assets listed in the tables below for each Fund are based on the average net assets of the Fund for
each of the periods listed in the tables. To the extent
that a Fund’s average net assets decrease over the Fund’s next fiscal year, such expense
ratios can be expected to increase, potentially significantly, because certain fixed costs will be spread over a smaller amount of assets.
Year
Ended October 31,
Net
Asset Value, Beginning of
Period
Net Investment Income
Net
Realized and Unrealized Gain
(Loss) on Investments
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
The
information below has been derived from the financial statements audited by Ernst & Young LLP, the Funds’ independent registered
public accounting firm. Ernst & Young LLP’s report, along with each Fund’s financial statements, are incorporated by
reference into the Funds’ SAI. The Annual Report
to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average Net
Assets Excluding Interest Expenses
Ratio
of Expenses to
Average Net Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income to Average Net
Assets
Ratio
of Net Investment Income
(Loss) to Average Net
Assets (Before Waivers/ Reimbursement)
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Notes
to Financial Highlights
(1)
Per
share amount is based on average shares outstanding.
(2)
Amount
is less than $0.0005 per share.
(3)
Ratio
of Expenses to Average Net Assets before and after Maximum Expense Ratios may vary among share classes by more or less than the administration
plan, service and shareholder administration
plan, distribution plan and/or shareholder services plan (the “plans”) fees due to either (1) fluctuations in daily net
asset amounts, (2) changes in the
plans’ fees during the period for each share class, (3) changes in the Funds’ expense cap during the year, (4) waivers to
the plans’ fees for each
share class, or (5) a combination of the previous points.
In
addition to this Prospectus, the Funds have an SAI dated February 28,
2022 (as may be supplemented from time to time), which
contains additional, more detailed information about
the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Shareholder Reports that contain additional information about the respective Fund’s investments. In each Fund’s
Annual Report to Shareholders, you will find a discussion of the market conditions and the investment strategies that significantly
affected such Fund’s performance during the last fiscal year. For additional Trust information, including information regarding
the investments comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity. If you purchased shares through a Financial Intermediary, you may also obtain these
documents, without charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
The
Securities
and Exchange Commission (“SEC”) has not
approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Select Class shares of the Fund. The Fund does not charge
any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Select
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.55%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i1.01%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i1.00%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Select Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Select Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Select
Class
$i102
$i321
$i557
$i1,235
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 1.00%. The fee waivers and/or expense
reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Select Class shares
for the one,
five year and since inception periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
There
is no minimum initial investment amount for Select Class shares of the Fund.
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio
iInvestment
Objective
i
The Treasury Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Select Class shares of the Fund. The Fund does not charge
any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses(expenses
that you pay each year as a percentage of the value of your investment)
Select
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.55%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i1.01%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i1.00%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Select Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Select Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Select
Class
$i102
$i321
$i557
$i1,235
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 1.00%. The fee waivers and/or expense
reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. Treasury obligations, which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Select Class shares
for the one,
five year and since inception periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
There
is no minimum initial investment amount for Select Class shares of the Fund.
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Portfolio (Cont’d)
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio
iInvestment
Objective
i
The Treasury Securities Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Select Class shares of the Fund. The Fund does not charge
any sales loads or other fees when you purchase or redeem shares. You may pay fees other than the fees and expenses of the Fund,
such as brokerage commissions and other fees charged by financial intermediaries, which are not reflected in the tables and examples
below.
iAnnual
Fund Operating Expenses(expenses
that you pay each year as a percentage of the value of your investment)
Select
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
i0.55%
Other
Expenses
i0.06%
Shareholder
Service Fee
i0.25%
Total
Annual Fund Operating Expenses1
i1.01%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i1.00%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Select Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Select Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Select
Class
$i102
$i321
$i557
$i1,235
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Select Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 1.00%. The fee waivers and/or expense
reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Board of Trustees of Morgan Stanley Institutional Liquidity
Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action
is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. A “government money market fund” is exempt from requirements that permit
money market funds to impose a “liquidity fee” and/or a “redemption gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain
the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that
the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in U.S. treasury obligations. This policy may be changed without shareholder approval; however, shareholders would be notified
upon 60 days’ notice in writing of any changes
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the
Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. The U.S. government securities
in which the Fund invests can be subject to two types of risk: credit risk
and interest rate risk. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. While the credit risk associated
with U.S. government securities generally is considered to be minimal, the interest rate risk can be substantial.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Select Class shares from year-to-year and by showing the average annual returns of the Fund’s Select Class shares
for the one,
five year and since inception periods. iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
There
is no minimum initial investment amount for Select Class shares of the Fund.
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting an authorized
third-party, such as a broker-dealer or other financial intermediary that has entered into a selling agreement with the Fund’s
“Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”). You may purchase and
redeem shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you have a pre-established
Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder Information—How
To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Treasury
Securities Portfolio (Cont’d)
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a Financial Intermediary (such as a bank), the Adviser and/or the Distributor may pay the Financial
Intermediary for the sale of Fund shares and related services. These payments, which may be significant in amount, may create
a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued
or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Treasury
Portfolio
Investment
Objective
The
Treasury Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, and repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”under federal regulations. The Fund may also hold cash
from time to time. A “government money market fund” is a money market fund
that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S. government
agencies or instrumentalities and/or repurchase agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States, and repurchase agreements collateralized
by such securities. This policy may be changed without shareholder approval; however, shareholders would be notified upon
60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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of the Funds
Treasury
Securities Portfolio
Investment
Objective
The
Treasury Securities Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in U.S. Treasury obligations, which are backed by the full faith and credit of the United
States, in order to qualify as a “government money market fund” under federal regulations. The Fund may also hold cash from
time to time. A “government money market fund” is a money market fund that invests at least 99.5% of its total assets
in cash, securities issued or guaranteed by the United
States or certain U.S. government agencies or instrumentalities and/or repurchase agreements
that are collateralized fully by the foregoing. In selecting investments, the Adviser seeks to maintain the Fund’s share price
at $1.00. The share price remaining stable at $1.00
means that the Fund would preserve the principal value of your investment. The Fund
may change its principal investment strategies; however you would be notified of any changes.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in U.S. Treasury obligations,
which are backed by the full faith and credit of the United States. This policy may be changed without
shareholder approval; however, shareholders would be notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
Certain
Funds may not be able to maintain a stable $1.00 share price at all times. If a Fund or another money market fund fails to maintain
a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), a Fund could be subject
to increased redemptions, which may adversely impact a Fund’s share price. In general, certain other money market funds have
in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption pressures will
not occur in the future. Neither a Fund’s sponsor nor any of its affiliates has a legal obligation to provide financial support
to a Fund, and you should not rely on or expect that
they or any person will provide any type of financial support to a Fund at any time to
help a Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making capital infusions into the
Fund, or taking other actions).
Floating
NAV Risk
Certain
Funds do not maintain a stable NAV per share. The value of a Fund’s shares will be calculated to four decimal places and will fluctuate
with changes in the values of a Fund’s portfolio securities. Investors should expect the value of their investment to vary and
reflect the current market value of a Fund’s
holdings. When you sell your shares, they may be worth more or less than what you originally
paid for them. This may result in a capital gain or loss.
Neither a Fund’s sponsor nor any of its affiliates has a legal obligation
to provide financial support to a Fund, and you should not rely on or expect that they or any person will provide any type of
financial support to a Fund at any time.
Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. Certain Funds may invest in variable
and floating rate securities. Although these instruments are generally less sensitive to interest rate changes than fixed rate instruments,
the value of these securities may decline if their interest rates do not rise as quickly, or as much, as general interest rates. A
low interest rate environment may prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A
Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or changes rates. During periods when interest rates are low or there are
negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or minimize the volatility of the Fund’s net asset value per share or maintain a stable net asset
value of $1.00 per share, as applicable. Credit ratings
may not be an accurate assessment of liquidity or credit risk. Although credit ratings
may not accurately reflect the true credit risk of an instrument, a change in the credit rating of an instrument or an issuer can have
a rapid, adverse effect on the instrument’s liquidity and make it more difficult for a Fund to sell at an advantageous price or
time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
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Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that certain Funds may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, certain Funds may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are Ginnie Mae and the Federal Housing Administration. Also, certain Funds may purchase
securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Further,
certain Funds may purchase securities issued by agencies
and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality.
Among these agencies and instrumentalities is the Federal Farm Credit System. Because these securities are not backed
by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability of the issuers of some U.S. government securities held
by a Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. It is possible that
these issuers will not have the funds to meet their payment obligations in the future. The interest from U.S. government securities
generally is not subject to state and local taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
Custodial
Receipts
Certain
Funds may invest in custodial receipts representing interests in U.S. government securities held by a custodian or trustee. Custodial
receipts evidence ownership of future interest payments, principal payments or both on notes or bonds issued or guaranteed
as to principal or interest by the U.S. Government, its agencies, instrumentalities, political subdivisions or authorities. For certain
securities law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition, if for tax purposes
a Fund is not considered to be the owner of the underlying securities held in the custodial account, the Fund may suffer adverse
tax consequences. As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged to
the custodial account.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in
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pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a
Fund’s investments, which may change due to economic
and other events that affect markets generally, as well
as those that affect particular regions, countries, industries, companies or governments.
Price
movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Inflation
rates may change frequently and
significantly because of various factors, including unexpected shifts in the domestic or global economy and changes in monetary or
economic policies (or expectations that these policies may change). Changes in expected inflation rates may adversely affect market and
economic conditions, a Fund’s investments and an investment in a Fund. Other
financial, economic and other global market and social
developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar events affecting
the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects (which
may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an attractive investment
opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought by a Fund. As
a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment at the time or
seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle. Any such event(s)
could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk that you may lose
money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if
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Additional
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sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations,
cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would
generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by certain Funds
may include U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and
preferred stock and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For example,
if the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the securities
has declined, the Funds may incur a loss upon disposition of them. The risk of such loss may be greater when utilizing collateral
other than U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right
to control the collateral could be affected and result in certain costs and delays. Additionally, if the proceeds from the liquidation
of such collateral after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds (other than the Treasury Securities Portfolio) may invest in investment companies, including money market funds, and may
invest all or some of their short-term cash investments in any money market fund advised or managed by the Adviser or its affiliates
(an “affiliated money market fund”). An investment in an investment company is subject to the underlying risks of that investment
company’s portfolio securities. In addition to a Fund’s fees and expenses, the Fund generally would bear its share of the
investment company’s fees and expenses other
than advisory and administrative fees of affiliated money market funds.
Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains,
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and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund (other than the Treasury Securities Portfolio)
may invest without limit in cash or cash equivalents. Also in such circumstances, the
Treasury Securities Portfolio may invest without limit in cash and repurchase agreements with the Federal Reserve Bank of New York
collateralized by U.S. Treasury obligations. If the Adviser incorrectly predicts the effects of these changes, such defensive investments
may adversely affect a Fund’s performance and the Fund may not achieve its investment objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, who is the parent of the Distributor. Morgan Stanley
is a preeminent global financial services firm engaged
in securities trading and brokerage activities, as well as providing investment banking,
research and analysis, financing and financial advisory services. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion billion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees approving the Trust’s Investment Advisory Agreement is available in the
Funds’ Annual Report to shareholders for the
fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021,
the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
Government
Portfolio
0.01%
Treasury
Portfolio
0.02%
Treasury
Securities Portfolio
0.01%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse the Fund’s Select Class, if necessary, if such fees would cause the total annual operating expenses of
such Fund’s Select Class to exceed the percentage of daily net assets set forth in the table below. In determining the actual amount
of fee waiver and/or expense reimbursement for each
Fund, if any, the Adviser and Administrator exclude from total annual operating
expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes, interest and other extraordinary
expenses (including litigation). The fee waivers and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or
until such time as the Trust’s Board of Trustees acts to discontinue all or a portion of such waivers and/or
reimbursements when it deems
such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap Select Class
Government
Portfolio
1.00%
Treasury
Portfolio
1.00%
Treasury
Securities Portfolio
1.00%
The
Distributor, Adviser and Administrator may also waive distribution fees, advisory fees, administration fees and/or reimburse expenses
to enable a Fund to maintain a minimum level of daily net investment income. The Adviser and Administrator may make additional
voluntary fee waivers and/or expense reimbursements. The Distributor, Adviser and Administrator may discontinue these voluntary
fee waivers and/or expense reimbursements at any time in the future.
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Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio are intended to qualify as eligible investments for federally
chartered credit unions pursuant to the applicable provisions of the Federal Credit Union Act and the National Credit Union
Administration. Shares of the Government Portfolio, however, may not qualify as eligible investments for particular state-chartered
credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether these Funds are permissible
investments under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers Select Class shares of the Government, Treasury and Treasury Securities Portfolios. The Trust also offers other classes
of shares through separate prospectuses. Certain of these classes may be subject to different fees and expenses. For information regarding
other share classes, contact the Trust or your financial intermediary.
Minimum
Investment Amount
There
is no minimum initial investment amount for Select Class shares of the Funds.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial intermediaries (also referred to as service organizations) who
may accept purchase and redemption orders for shares of each Fund on its behalf.
The
Adviser and/or the Distributor may pay additional compensation (out of their own funds and not as an expense of a Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with the sale, distribution, retention and/or servicing
of Fund shares. Such compensation may be significant in amount and the prospect of receiving any such additional compensation
may provide affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment
options. Any such payments will not change the NAV or the price of Fund shares. For more information, please see the Funds’
SAI.
The
Fund has adopted a Distribution Plan for each Fund’s Select Class shares pursuant to Rule 12b-1 under the 1940 Act (the “Distribution
Plan”) to pay the Distributor to provide for, or to compensate certain financial intermediaries (also referred to as service
organizations) for, providing distribution related services to the Fund. Under the Distribution Plan, each Fund pays the Distributor
a monthly distribution fee which shall not exceed during any one year 0.55% of the Fund’s average daily net assets of Select
Class shares, which are owned beneficially by the customers of such service organization during such period. The Distributor may
waive distribution fees to enable each Fund to maintain a minimum level of daily net investment income. The Distributor may discontinue
these voluntary fee waivers at any time in the future.
The
Trust has also adopted a Shareholder Service Plan for each Fund’s Select Class shares to pay the Distributor to provide for, or
to compensate service organizations for providing personal
and account maintenance services and administrative services to shareholders (“Shareholder
Service Plan”). Under this Shareholder Service Plan, each Fund pays the Distributor a monthly service fee which shall not
exceed during any one year 0.25% of the Fund’s average daily net assets of Select Class shares, which are owned beneficially
by the customers of such service organization during
such period. The Distributor may waive distribution fees to enable each Fund to maintain
a minimum level of daily net investment income. The Distributor may discontinue these voluntary fee waivers at any time in
the future.
Because
such distribution and service fees are paid out of a Fund’s assets on an ongoing basis, over time these fees will increase the
cost of your investment and reduce your return and may
cost you more than paying other types of sales charges.
Valuation
of Shares
The
price of each Fund’s shares is based on the amortized cost of the Fund’s securities. The amortized cost valuation method
involves valuing a debt obligation in reference to its
cost rather than market forces. If the Adviser determines that a valuation is not reflective of
the security’s market value, such security is valued at its fair value as determined in good faith under procedures established
by and under the general supervision of the Board.
The
NAV of each Fund is determined once daily, normally at the times set forth below, on each day that the NYSE is open (the “Pricing
Time”), except when the following federal holidays are observed: Columbus Day and Veterans Day.
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain
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open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
Government
Portfolio Treasury Portfolio
As
of 5:00 p.m. Eastern time
Treasury
Securities Portfolio
As
of 3:00 p.m. Eastern time
Pricing
of Fund Shares
Select
Class shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives your order in
good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal Reserve Bank
(“Federal Funds”) prior to the close of
the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same day your
Select Class shares are purchased provided the Fund receives your purchase amount in Federal Funds that day as set forth above. Orders
to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV next determined: for
the Government Portfolio and Treasury Portfolio—5:00 p.m. Eastern time and for the Treasury Securities Portfolio—3:00 p.m.
Eastern time. On any business day that the NYSE closes
early, or when SIFMA recommends that the securities markets close early, a Fund
may close early and purchase orders received after such earlier closing times will be processed the following business day. If the NYSE
is closed due to inclement weather, technology problems or any other reason on a day it would normally be open for business, or
the NYSE has an unscheduled early closing on a day it has opened for business, a Fund reserves the right to treat such day as a business
day and accept purchase and redemption orders until, and calculate its NAV as of, the normally scheduled close of regular trading
on the NYSE for that day, or such time noted above, so long as the Adviser believes there generally remains an adequate market
to obtain reliable and accurate market quotations. A Fund may elect to remain open on days when the NYSE is closed or closes
early but on which SIFMA recommends that the bond markets remain open for all or part of the day. Purchase orders received by
a Fund and not funded by 6:45
p.m. Eastern time on the trade date may be subject to an overdraft charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
Select
Class shares of the Funds may be purchased directly from the Fund or through a financial intermediary.
Purchasing
Shares Through a Financial Intermediary You
may open a new account and purchase Fund shares through certain authorized third-parties, such as brokers, dealers or other financial
intermediaries that have entered into a selling agreement with the Distributor (each, a “Financial Intermediary”). Your
Financial Intermediary will assist you with the procedures
to invest in shares of the Fund. The Financial Intermediary will establish times
by which such purchase orders and payments from customers must be received by the Financial Intermediary. Financial Intermediaries
are responsible for transmitting purchase orders and payments to the Trust and the Trust’s Custodian in a timely fashion.
Purchase orders placed with a Financial Intermediary and transmitted through a trading platform utilized by the Financial Intermediary
may be transmitted by the trading platform after the deadlines established by the Trust for receipt of purchase orders, as set
forth below; in such case, the purchase orders will receive a trade date of the next business day.
Investors
purchasing Select Class shares through a Financial Intermediary may be charged a transaction-based or other fees by the Financial
Intermediary for its services. If you are purchasing Select Class shares through a Financial Intermediary, please consult your intermediary
for more information regarding any such fees and for purchase instructions.
With
respect to sales through Financial Intermediaries, no offers or sales of Fund shares may be made in any foreign jurisdiction, except
with the consent of the Distributor.
Purchasing
Shares Directly From the Funds
Initial
Purchase You
may open an account, subject to acceptance by the Fund, and purchase Select Class shares of a Fund by completing and signing a
New Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888) 378-1630 (which
is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional Liquidity Funds,
c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804.
After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to the Custodian. You should
instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the following wire instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
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DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name) * For international investments
into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Automatic
Purchases Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has a positive balance as a result of credits incurred that day. If an account has a positive (credit) balance, shares of the respective
Fund will automatically be purchased. Any positive (credit) balance will be reduced by any debits to the account on that day
and shares of the Fund will automatically be sold.
Additional
Investments You may make additional investments
of Select Class shares at the NAV next determined after the request is received in good order or
by wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification of receipt
of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
How
To Redeem Shares
You
may process a redemption request by contacting your Financial Intermediary. Otherwise, you may redeem shares of a Fund by mail
or, if authorized, by telephone, at no charge other than as described below. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will be redeemed at the NAV next determined
after we receive your redemption request in good order.
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Automatic
Redemptions Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has any debits that were incurred that day and shares of the Funds will automatically be redeemed to cover the debits if such debits
have not been reduced by any credits which may have accrued to the account on the same day.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio and Treasury Portfolio—5:00 p.m. Eastern time and for the Treasury Securities Portfolio—3:00 p.m. Eastern time.
On any business day that the NYSE closes early, the Fund may close early and redemption requests received after such earlier closing
times will be processed the following business day. The Fund may elect to remain open on days when the NYSE is closed or closes
early but on which SIFMA recommends that the bond markets remain open for all or part of the day. Generally, payment for Fund
shares sold will be made on the day on which the order is processed, but under certain circumstances may not be made until the
next business day. The Fund may postpone and/or suspend redemption and payment beyond one business day only as follows: (a)
for any period during which there is a non-routine closure of the Fedwire or applicable Federal Reserve Banks; (b) for any period (i)
during which the NYSE is closed other than customary weekend and holiday closings or (ii) during which trading on the NYSE is restricted;
(c) for any period during which an emergency exists as a result of which (i) disposal of securities owned by the Fund is not reasonably
practicable or (ii) it is not reasonably practicable for the Fund to fairly determine the NAV of shares of the Fund; (d) for any
period during which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted or (ii) an emergency exists; (e) for
any period that the SEC may by order permit; or (f) for any period during which the Fund as part of a necessary liquidation of a Fund,
has properly postponed and/or suspended redemption of shares and payment in accordance with federal securities laws. In addition,
when SIFMA recommends that the securities markets close early, payments with respect to redemption requests received subsequent
to the recommended close will be made the next business day (assuming that the Fund in fact closes).
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by distributing
to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash.
In addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
Exchange
Privilege
You
may exchange a Fund’s Select Class shares for Select Class shares of other available Funds of the Trust based on their respective
NAVs. We charge no fee for exchanges. If you purchased
Fund shares through a Financial Intermediary, certain other Funds of the Trust
may be unavailable for exchange. Contact your Financial Intermediary to determine which Funds are available for exchange.
You
can process your exchange by contacting your Financial Intermediary or online through Morgan Stanley’s Treasury Investment Portal
service at www.morganstanley.com/liquidity provided you have a pre-established Internet trading account, as set forth above under
“How To Purchase Shares.” You may also send exchange requests to the Fund’s transfer agent, DST Asset Manager Solutions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
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Inc.
(“DST”), by mail to Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804 or by calling the Fund at
1-888-378-1630.
You
will be subject to the same minimum initial investment and account size as an initial purchase. The Fund, in its sole discretion, may
waive the minimum initial investment amounts in certain cases including, but not limited to, exchanges involving Fund shares purchased
through a Financial Intermediary or when the Adviser anticipates the combined value of a client’s investments will meet or exceed
the minimum. The Fund may terminate or revise the exchange privilege upon required notice or in certain cases without notice.
The Fund reserves the right to reject an exchange order for any reason.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing and by certain selected accounts utilizing the Funds as a sweep
vehicle. Therefore, reasonably frequent purchases and redemptions of Fund shares by Fund shareholders do not present risks for
other shareholders of a Fund, and the policies and procedures adopted by the Board of Trustees/Directors as applicable to other funds
in the Morgan Stanley family of funds are generally not applicable with respect to frequent purchases and redemptions of Fund shares.
However, frequent trading by shareholders can disrupt management of the Funds and raise their respective expenses. Therefore,
we may not accept any request for a purchase or exchange when we think it is being used as a tool for market-timing, and we
may bar a shareholder who trades excessively from making further purchases for an indefinite period.
Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by giving written notice to your
Financial Intermediary or by checking the appropriate box in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates The Government Portfolio,
the Treasury Portfolio and the Treasury Securities Portfolio are exempt from requirements that permit money
market funds to impose a “liquidity fee” and/or a “redemption gate” that temporarily restricts redemptions.
The Board of Trustees has opted not to subject the Government
Portfolio, the Treasury Portfolio and the Treasury Securities Portfolio to a “liquidity
fee” and/or a “redemption gate” but has reserved its right to change this determination in the future after providing
appropriate notice to shareholders.
Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
Morgan
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An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
each of Government Portfolio, Treasury Portfolio and Treasury Securities Portfolio intends to maintain a stable $1.00 NAV, shareholders
will typically not recognize gain or loss when they sell or exchange their shares in these Funds because the amount realized
will be the same as their tax basis in the shares.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses
(collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel,
including personnel of the investment adviser, on one
side of an information barrier may have access to information
and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts of
interest in determining whether to engage in such wall crossings. Information obtained in connection with such wall crossings may
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
Information (Con’t)
limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries (which may include affiliates of the Adviser and Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain circumstances, the Adviser restricts, limits or reduces the
amount of a Fund’s investment, or restricts the
type of governance or voting rights it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and
Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions.
Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments.
Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an acquisition.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of the Select Class shares of each
Fund for the periods indicated. Certain information reflects financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment of all dividends
and distributions).
The
ratios of expenses to average net assets listed in the tables below for each Fund are based on the average net assets of the Fund for
each of the periods listed in the tables. To the extent
that a Fund’s average net assets decrease over the Fund’s next fiscal year, such expense
ratios can be expected to increase, potentially significantly, because certain fixed costs will be spread over a smaller amount of assets.
Year
Ended October 31,
Net
Asset Value, Beginning
of Period
Net Investment Income
Net
Realized and Unrealized Gain
(Loss) on Investments
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
The
information below has been derived from the financial statements audited by Ernst & Young LLP, the Funds’ independent registered
public accounting firm. Ernst & Young LLP’s report, along with each Fund’s financial statements, are incorporated by
reference into the Funds’ SAI. The Annual Report
to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Net
Asset Value, End of
Period
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average Net
Assets Excluding Interest Expenses
Ratio
of Expenses to Average Net
Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income to
Average Net Assets
Ratio
of Net Investment Income
(Loss) to Average Net
Assets (Before Waivers/ Reimbursement)
$
1.000
0.03
%
$
51
0.07
%
(3)
N/A
1.01
%
0.02
%
(0.92
)%
1.000
0.26
%
51
0.51
%
(3)
0.51
%
(3)
1.01
%
0.14
%
(0.36
)%
1.000
1.39
%
50
0.97
%
(3)
0.97
%
(3)
1.01
%
1.37
%
1.33
%
1.000
0.74
%
50
0.97
%
(3)
N/A
1.01
%
0.75
%
0.71
%
1.000
0.04
%
50
0.79
%
(3)
N/A
1.01
%
0.02
%
(0.20
)%
$
1.000
0.01
%
$
51
0.07
%
(3)
N/A
1.01
%
0.01
%
(0.93
)%
1.000
0.25
%
51
0.51
%
(3)
0.51
%
(3)
1.01
%
0.05
%
(0.45
)%
1.000
1.36
%
50
0.99
%
(3)
N/A
1.01
%
1.35
%
1.33
%
1.000
0.74
%
50
0.99
%
(3)
N/A
1.01
%
0.73
%
0.71
%
1.000
0.04
%
50
0.78
%
(3)
N/A
1.01
%
0.01
%
(0.22
)%
$
1.000
0.01
%
$
51
0.06
%
(3)
N/A
1.01
%
0.01
%
(0.94
)%
1.000
0.25
%
51
0.54
%
(3)
0.54
%
(3)
1.00
%
0.07
%
(0.39
)%
1.000
1.30
%
50
1.00
%
(3)
N/A
1.01
%
1.29
%
1.28
%
1.000
0.70
%
50
1.00
%
(3)
N/A
1.01
%
0.71
%
0.70
%
1.000
0.02
%
50
0.76
%
(3)
N/A
1.01
%
0.02
%
(0.23
)%
Notes
to Financial Highlights
(1)
Per
share amount is based on average shares outstanding.
(2)
Amount
is less than $0.0005 per share.
(3)
Ratio
of Expenses to Average Net Assets before and after Maximum Expense Ratios may vary among share classes by more or less than the administration
plan, service and shareholder administration
plan, distribution plan and/or shareholder services plan (the “plans”) fees due to either (1) fluctuations in daily net
asset amounts, (2) changes in the
plans’ fees during the period for each share class, (3) changes in the Funds’ expense cap during the year, (4) waivers to
the plans’ fees for each
share class, or (5) a combination of the previous points.
In
addition to this Prospectus, the Funds have an SAI dated February 28,
2022 (as may be supplemented from time to time), which
contains additional, more detailed information about
the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Shareholder Reports that contain additional information about the respective Fund’s investments. In each Fund’s
Annual Report to Shareholders, you will find a discussion of the market conditions and the investment strategies that significantly
affected such Fund’s performance during the last fiscal year. For additional Trust information, including information regarding
the investments comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity. If you purchased shares through a Financial Intermediary, you may also obtain these
documents, without charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
The
Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio
iInvestment
Objective
i
The ESG Money Market Portfolio (the “Fund”)
seeks preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell shares of the CastleOak Share Class (“CastleOak Shares”
or “CastleOak Class”) of the Fund. The Fund does not charge any sales loads or other fees when you purchase or redeem shares.
You may pay fees other than the fees and expenses of the Fund, such as brokerage commissions and other fees charged by financial
intermediaries, which are not reflected in the tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
CastleOak
Shares
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.07%
Total
Annual Fund Operating Expenses1
i0.22%
Fee
Waiver and/or Expense Reimbursement1
i0.02%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s CastleOak Shares with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
CastleOak Shares, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
CastleOak
Shares
$i20
$i69
$i122
$i278
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or
reimburse the Fund’s CastleOak Shares so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as
applicable), certain investment
related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers
and/or expense reimbursements will
continue for at least one year from the date of this Prospectus or until such time as the Board of Trustees of Morgan Stanley
Institutional Liquidity Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when
it deems such action is appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Adviser believes that environmental, social and governance
(“ESG”) factors have the ability to impact the fundamental credit risk of
an entity. The Fund’s investment process incorporates information about ESG issues via an integrated approach within the Adviser’s
fundamental investment analysis framework. The Adviser may engage with management of certain issuers regarding corporate
governance practices as well as what the Adviser deems to be materially important environmental and/or social issues facing a
company.
The Adviser has proprietary ESG-scoring methodologies
that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
During the security selection process, the Adviser employs
a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The Fund may invest in green commercial paper (a security
that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In analyzing whether an issuer meets any of the criteria
described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After applying the above exclusion screens, the Adviser
calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
From the final list of ESG-approved issuers, the Adviser
determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under normal circumstances, the Fund will invest 100%
of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Because the share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any
other government agency. The Fund’s
sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for a Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
ESG
Investment Risk. The Fund’s adherence to
its ESG criteria and application of related analyses when selecting investments may affect
the Fund’s performance depending on whether such investments are in or out of favor and relative to similar funds that do not
adhere to such criteria or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices
or the Adviser’s assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs
and values of any particular investor. Additionally, the Fund’s adherence to its ESG criteria and application of related analyses
in connection with identifying and selecting investments in non-U.S. issuers often require subjective analysis and may be relatively
more difficult than applying the ESG criteria or related analyses to investments of U.S. issuers because data availability may
be more limited with respect to non-U.S. issuers. The exclusionary criteria related to the Fund’s ESG criteria may result in the
Fund forgoing opportunities to buy certain securities when it might otherwise be advantageous to do so, or selling securities for
ESG reasons when it might be otherwise disadvantageous for it to do so. The Fund’s investments in certain companies may be susceptible
to various factors that may impact their businesses or operations, including costs associated with government budgetary
constraints that impact publicly funded projects and clean energy initiatives, the effects of general economic conditions throughout
the world, increased competition from other providers of services, unfavorable tax laws or accounting policies and high
leverage.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions,
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the
Fund’s share price and exacerbate
pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
ESG
Money Market Portfolio (Cont’d)
1
Institutional
Class shares are not offered in this Prospectus. CastleOak Shares of the Fund had not completed a full calendar year of operations as
of December 31, 2021
and therefore CastleOak Shares do not have annualized return information to report. CastleOak Shares would have substantially similar
annual returns because the shares are invested in the same portfolio of securities and the annual returns would differ only to the extent
that the Classes do not have the same expenses. Return
information for the Fund’s CastleOak Shares will be shown in future prospectuses offering the Fund’s
CastleOak Shares after the Fund’s CastleOak Shares have a full calendar year of return information to report.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
CastleOak
Shares of the Fund are only available to clients of CastleOak Securities, L.P. (“CastleOak Securities” and “CastleOak
Clients”) who at the time of initial purchase
make a minimum investment
of $5 million. You may not be subject to the
minimum investment requirement under certain circumstances.
For more information, please refer to the section of this Prospectus entitled “Shareholder
Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting CastleOak
Securities or another authorized third-party, such as a broker-dealer or other financial intermediary that has entered into a selling
agreement with the Fund’s “Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”).
You may purchase and redeem shares online through Morgan
Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity,
provided you have a pre-established Internet trading account. For more information, please refer to
the sections of this Prospectus entitled “Shareholder Information—How To Purchase Shares” and “Shareholder
Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through CastleOak Securities or another Financial Intermediary (such as a bank), the Adviser and/or
the Distributor may pay the Financial Intermediary for the sale of Fund shares and related services. These payments, which may be significant
in amount, may create a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the
Fund over another investment. Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell shares of the CastleOak Share Class (“CastleOak Shares”
or “CastleOak Class”) of the Fund. The Fund does not charge any sales loads or other fees when you purchase or redeem shares.
You may pay fees other than the fees and expenses of the Fund, such as brokerage commissions and other fees charged by financial
intermediaries, which are not reflected in the tables and examples below.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
CastleOak
Shares
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses
i0.06%
Total
Annual Fund Operating Expenses1
i0.21%
Fee
Waiver and/or Expense Reimbursement1
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s CastleOak Shares with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Fund’s
CastleOak Shares, your investment has a 5% return each year and that the
Fund’s operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
CastleOak
Shares
$i20
$i67
$i117
$i267
1
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or
reimburse the Fund’s CastleOak Shares so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as
applicable), certain investment
related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers
and/or expense reimbursements will
continue for at least one year from the date of this Prospectus or until such time as the Board of Trustees of Morgan Stanley
Institutional Liquidity Funds (the “Trust”) acts to discontinue all or a portion of such waivers and/or reimbursements when
it deems such action is appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted
a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Corporation
(“FDIC”) or any other government agency.
The Fund’s sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for a Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain
a stable $1.00 share priceand
exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future. Updated performance information
is available online at iwww.morganstanley.com/liquidity.
Institutional
Class shares are not offered in this Prospectus. CastleOak Shares of the Fund had not completed a full calendar year of operations as
of December 31, 2021
and therefore CastleOak Shares do not have annualized return information to report. CastleOak Shares would have substantially similar
annual returns because the shares are invested in the same portfolio of securities and the annual returns would differ only to the extent
that the Classes do not have the same expenses. Return
information for the Fund’s CastleOak Shares will be shown in future prospectuses offering the Fund’s
CastleOak Shares after the Fund’s CastleOak Shares have a full calendar year of return information to report.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Purchase
and Sale of Fund Shares
CastleOak
Shares of the Fund are only available to clients of CastleOak Securities, L.P. (“CastleOak Securities” and “CastleOak
Clients”) who at the time of initial purchase
make a minimum investment of $5 million. You may not be subject to the minimum investment
requirement under certain circumstances. For more information, please refer to the section of this Prospectus entitled “Shareholder
Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630) or by contacting
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
CastleOak
Securities or another authorized third-party, such as a broker-dealer or other financial intermediary that has entered into a selling
agreement with the Fund’s “Distributor,” Morgan Stanley Distribution, Inc. (each, a “Financial Intermediary”).
You may purchase and redeem shares online through Morgan
Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity,
provided you have a pre-established Internet trading account. For more information, please refer to
the sections of this Prospectus entitled “Shareholder Information—How To Purchase Shares” and “Shareholder
Information—How To Redeem Shares.”
Selected
accounts that utilize the Fund as their sweep vehicle will be reviewed on each business day and shares will automatically be purchased
or sold to cover any credits or debits incurred that day.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through CastleOak Securities or another Financial Intermediary (such as a bank), the Adviser and/or
the Distributor may pay the Financial Intermediary for the sale of Fund shares and related services. These payments, which may be significant
in amount, may create a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the
Fund over another investment. Ask your salesperson or visit your Financial Intermediary’s web site for more information.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio
Investment
Objective
The
ESG Money Market Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial and non-financial
corporations. The Fund also invests in obligations of foreign governments and in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate
debt obligations, debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or
of U.S. branches or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit
of savings banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,”
which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser believes that ESG factors have the ability to impact the fundamental credit risk of an entity. The Fund’s investment process
incorporates information about ESG issues via an integrated approach within the Adviser’s fundamental investment analysis framework.
The Adviser may engage with management of certain issuers regarding corporate governance practices as well as what the Adviser
deems to be materially important environmental and/or social issues facing a company.
The
Adviser has proprietary ESG-scoring methodologies that explicitly consider the risks and opportunities ESG factors pose to money
market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies
that it applies to issuers.
During
the security selection process, the Adviser employs a rules-based process to construct the portfolio. Initially, the Adviser determines
from the universe of money market fund-eligible issuers those which, in its opinion, have the lowest credit risk and/or best
credit profile, excluding the following:
•
Corporations
that generate revenue from the manufacturing or production of tobacco;
•
Corporations
that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon
that randomly scatters submunitions);
•
Corporations
that generate revenue from the manufacturing or production of firearms;
•
Corporations
that generate revenue from the mining of thermal coal or coal fired power generation; and
•
Corporations
that primarily generate revenue from the fossil fuel industries, which the Adviser has determined produce a certain level
of carbon emissions.
The
Fund may invest in green commercial paper (a security that is typically issued to raise capital specifically to support climate-related
or environmental projects) issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has
determined that the proceeds will not be used to finance fossil fuel generation capabilities.
In
analyzing whether an issuer meets any of the criteria described above, the Adviser may rely upon, among other things, information provided
by an independent third party.
After
applying the above exclusion screens, the Adviser calculates proprietary ESG scores for the remaining issuers based on a number of
variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG
score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus
eliminating those issuers with the lowest ESG performance. The Adviser’s minimum ESG score thresholds may be adjusted from
time to time, provided that a subset of issuers are always excluded by ESG factors.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
ESG
Money Market Portfolio (Con’t)
From
the final list of ESG-approved issuers, the Adviser determines the securities and issuers in which the Fund will invest, taking into
account a variety of relevant considerations (including, without limitation, yield, interest rate changes, credit quality and duration).
Under
normal circumstances, the Fund will invest 100% of its net assets (excluding cash) in securities whose issuer or guarantor, in the
Adviser’s opinion at the time of purchase, meets the Fund’s ESG criteria.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued
or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets
plus the amount of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
The
Government Portfolio may not be able to maintain a stable $1.00 share price at all times. If the Fund or another money market fund
fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), the Fund
could be subject to increased redemptions, which may adversely impact the Fund’s share price. In general, certain other money market
funds have in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption
pressures will not occur in the future. Neither the Fund’s sponsor nor any of its affiliates has a legal obligation to provide
financial support to the Fund, and you should not rely
on or expect that they or any person will provide any type of financial support to
the Fund at any time to help the Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making
capital infusions into the Fund, or taking other actions).
Floating
NAV Risk
The
ESG Money Market Portfolio does not maintain a stable NAV per share. The value of the Fund’s shares will be calculated to four
decimal places and will fluctuate with changes in the values of the Fund’s portfolio securities. Investors should expect the value
of their investment to vary and reflect the current
market value of the Fund’s holdings. When you sell your shares, they may be worth more
or less than what you originally paid for them. This may result in a capital gain or loss.
Neither the Fund’s sponsor nor any of its
affiliates has a legal obligation to provide financial support to the Fund, and you should not rely on or expect that they or any person
will provide any type of financial support to the Fund at any time.
Bank
Obligations
Bank
obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time deposits
and other debt obligations. The Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1
billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, a Fund may invest in U.S. dollar-denominated
obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase,
U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such foreign banks and foreign
branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations
of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S. government regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks. Obligations of foreign banks, including Yankee obligations,
are subject to the same risks that pertain to domestic issuers, notably credit risk and market risk, but are also subject to certain
additional risks such as adverse foreign political and economic developments, the extent and quality of foreign government regulation
of the financial markets and institutions, foreign withholding taxes and other sovereign action such as nationalization or expropriation.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. A low interest rate environment may
prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A Fund may face a heightened level
of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts a quantitative
easing program and/or changes rates. During periods when interest rates are low or there are negative interest rates, a Fund’s
yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain positive returns
or minimize the volatility of the Fund’s NAV per share or maintain a stable net asset value of $1.00 per share, as applicable.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit
risk of an instrument, a change in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s
liquidity and make it more difficult for a Fund to sell at an advantageous price or time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that a Fund may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, a Fund may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are the Government National Mortgage Association (“Ginnie Mae”) and the Federal Housing
Administration. Also, a Fund may purchase securities issued by agencies and instrumentalities which are not backed by the full
faith and credit of the United States, but whose issuing agency or instrumentality has the right to borrow, to meet its obligations, from
the U.S. Treasury. Among these agencies and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
Further,
a Fund may purchase securities issued by agencies and instrumentalities which are backed solely by the credit of the issuing
agency or instrumentality. Among these agencies and instrumentalities is the Federal Farm Credit System. Because these securities
are not backed by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial
support to these agencies if it is not obligated to do so by law. The maximum potential liability of the issuers of some U.S. government
securities held by a Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury.
It is possible that these issuers will not have the funds to meet their payment obligations in the future. The interest from U.S.
government securities generally is not subject to state and local taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk),
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market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
ESG
Investment Risk
The
ESG Money Market Portfolio’s adherence to its ESG criteria and application of related analyses when selecting investments may affect
the Fund’s performance depending on whether such investments are in or out of favor and relative to similar funds that do not adhere
to such criteria or apply such analyses. Socially responsible norms differ by country and region, and a company’s ESG practices
or the Adviser’s assessment of such may change over time. The Fund may invest in companies that do not reflect the beliefs and
values of any particular investor. Additionally, the Fund’s adherence to its ESG criteria and application of related analyses in
connection with identifying and selecting investments
in non-U.S. issuers often require subjective analysis and may be relatively more difficult
than applying the ESG criteria or related analyses to investments of U.S. issuers because data availability may be more limited
with respect to non-U.S. issuers. The exclusionary criteria related to the Fund’s ESG criteria may result in the Fund forgoing
opportunities to buy certain securities when it might
otherwise be advantageous to do so, or selling securities for ESG reasons when it might
be otherwise disadvantageous for it to do so. The Fund’s investments in certain companies may be susceptible to various factors
that may impact their businesses or operations, including costs associated with government budgetary constraints that impact publicly
funded projects and clean energy initiatives, the effects of general economic conditions throughout the world, increased competition
from other providers of services, unfavorable tax laws or accounting policies and high leverage.
Foreign
Securities
The
ESG Money Market Portfolio may invest in U.S. dollar-denominated securities issued by foreign governmental or corporate issuers,
including Eurodollar and Yankee obligations. Although the Fund will invest in these securities only if the Adviser determines they
are of comparable quality to the Fund’s U.S. investments, investing in securities of foreign issuers involves some additional risks.
While these securities are subject to the same type
of risks that pertain to domestic issuers, namely credit risk and interest rate risk, they
are also subject to other additional risks. Foreign issuers generally are subject to different accounting, auditing and financial reporting
standards than U.S. issuers. There may be less information available to the public about foreign issuers. Securities of foreign issuers
can be less liquid and experience greater price movements. In some foreign countries, there is also the risk of government expropriation,
excessive taxation, political or social instability, the imposition of currency controls or diplomatic developments that could
affect an investment. There also can be difficulty obtaining and enforcing judgments against issuers in foreign countries. Foreign
stock exchanges, broker-dealers and listed issuers may be subject to less government regulation and oversight.
Economic
sanctions may be, and have been, imposed against certain countries, organizations, companies, entities and/or individuals. Economic
sanctions and other similar governmental actions could, among other things, effectively restrict or eliminate the Fund’s ability
to purchase or sell securities or groups of securities, and thus may make the Fund’s investments in such securities less liquid
or more difficult to value. In addition, as a result
of economic sanctions, the Fund may be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and increased transaction costs. These conditions may
be in place for a substantial period of time and enacted with limited advance notice to the Fund.
Governmental
actions can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the
value and liquidity of a Fund’s investments. Foreign investment in the securities markets of certain foreign countries is restricted
or controlled to varying degrees.
Foreign
Money Market Securities
The
ESG Money Market Portfolio may invest in foreign money market securities. As described elsewhere herein, foreign investing may
involve risks relating to political, social and economic developments abroad to a greater extent than investing in the securities of U.S.
issuers. Investments in foreign markets may also be adversely affected by less stringent investor protections and disclosure standards,
and governmental actions such as the imposition of capital controls, nationalization of companies or industries, expropriation
of assets or the imposition of punitive taxes. In addition, there are differences between U.S. and foreign regulatory requirements
and market practices that may result in additional risk. Foreign money market securities also present credit and interest rate
risks similar to those attendant to an investment in domestic money market securities.
Corporate
Debt Obligations
Corporate
debt obligations are fixed-income securities issued by private corporations. The investment return of corporate debt obligations
reflects interest earnings and changes in the market value of the security. The market value of a corporate debt obligation
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may
be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or
principal payments at the time called for by an instrument. Debtholders, as creditors,
have a prior legal claim over common and preferred stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. The ESG Money Market Portfolio will buy corporate debt obligations subject to any quality
constraints set forth under Rule 2a-7.
Revenue
Bonds
Revenue
bonds are municipal obligations that are secured by the revenue from a specific project. To the extent that such revenues do not
materialize, the revenue bonds may not be repaid. If a Fund invests in revenue bonds that are issued by municipal issuers in the same
economic sector, the Fund would be particularly susceptible to developments adversely affecting that sector. Revenue bonds historically
have been subject to a greater risk of default than general obligation bonds because investors can look only to the revenue generated
by the project or other revenue source backing the project, rather than to the general taxing authority of the state or local government
issuer of the obligations. For example, investments in revenue bonds backed by receipts from hospitals are sensitive to hospital
bond ratings, which are often based on feasibility studies that contain projections of expenses, revenues and occupancy levels. Additional
factors which could affect a hospital’s gross receipts and net income available to service its debt are demand for hospital services,
the ability of the hospital to provide the services required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses, reputational issues, competition, availability and expenses
of malpractice insurance, Medicaid and Medicare funding and possible federal legislation regulating hospital charges.
LIBOR
Discontinuance or Unavailability Risk.
LIBOR
is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the
most widely used tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with supervisory guidance from regulators, some regulated
entities will cease to enter into most new LIBOR-based contracts after January 1, 2022. As
a result, it is possible that commencing in 2022 (or
a later date, if a particular reference rate is expected to continue beyond 2021), LIBOR may no longer be available
or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives
and other instruments or investments comprising some or all of a Fund’s portfolio. In light of this eventuality, public and private
sector industry initiatives are currently underway to establish
new or alternative reference rates to be used in place of LIBOR. There
is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance
or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any
such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still
may be developing. There may also be challenges for a Fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a Fund’s performance
or net asset value.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The
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purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a
Fund’s investments, which may change due to economic
and other events that affect markets generally, as well
as those that affect particular regions, countries, industries, companies or governments.
Price
movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Other financial, economic and other global
market and social developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar
events affecting the U.S. or global financial markets may occur, the effects that such events may have and the duration of those
effects (which may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an
attractive investment opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought
by a Fund. As a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment
at the time or seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle.
Any such event(s) could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk
that you may lose money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations,
cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In
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addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, the Fund
would generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by a Fund may include
U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and preferred
stock, as applicable, and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain
full collateralization (typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For
example, if the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the
securities has declined, the Funds may incur a loss
upon disposition of them. The risk of such loss may be greater when utilizing collateral
other than U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right
to control the collateral could be affected and result in certain costs and delays. Additionally, if the proceeds from the liquidation
of such collateral after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
Municipals
The
ESG Money Market Portfolio may purchase municipal obligations subject to any restraints set forth under Rule 2a-7. Municipal obligations
are securities issued by state and local governments and their agencies. These securities typically are “general obligation”or “revenue” bonds, notes or commercial
paper, including participations in lease obligations and installment purchase contracts of municipalities.
These obligations may have fixed, variable or floating rates. To the extent a Fund invests in municipal obligations issued
by state and local governments and their agencies, the Fund may be susceptible to political, economic, regulatory or other factors
affecting issuers of these municipal obligations. Municipal obligations are also subject to credit risk and interest risk. In the case
of revenue bonds, for example, credit risk is the possibility that the user fees from a project or other specified revenue sources are
insufficient to meet interest and/or principal payment
obligations. The Fund is subject to added credit risk if it concentrates its investments
in a single economic sector, which could be effected by economic, business or political developments which might affect all
municipal obligations in that particular economic sector.
Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds may invest in investment companies, including money market funds, and may invest all or some of their short-term cash investments
in any money market fund advised or managed by the Adviser or its affiliates (an “affiliated money market fund”). An investment
in an investment company is subject to the underlying risks of that investment company’s portfolio securities. In addition to
a Fund’s fees and expenses, the Fund generally would bear its share of the investment company’s fees and expenses other
than advisory and administrative fees of affiliated
money market funds.
Promissory
Notes
Promissory
notes are generally debt obligations of the issuing entity and are subject to the risks of investing in the banking industry. The
ESG Money Market Portfolio may invest up to 5% of its net assets in illiquid securities, including unsecured bank promissory notes.
Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may
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negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains, and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund may invest without limit in cash or cash equivalents.
If the Adviser incorrectly predicts the effects of these changes, such defensive
investments may adversely affect a Fund’s performance and the Fund may not achieve its investment objective.
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Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, which
is the parent of the Distributor. Morgan Stanley is
a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment
banking, research and analysis, financing and financial advisory services. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees’
approval of the Trust’s Investment Advisory Agreement
is available in the Funds’ Annual Report to shareholders
for the fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021,
the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
ESG
Money Market Portfolio
0.07%
Government
Portfolio
0.01%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse a Fund’s CastleOak Class, if necessary, if such fees would cause the total annual operating expenses
of such Fund’s CastleOak Class to exceed the percentage of daily net assets set forth in the table below. In determining the actual
amount of fee waiver and/or expense reimbursement for each Fund, if any, the Adviser and Administrator exclude from total annual
operating expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes, interest and other
extraordinary expenses (including litigation). The fee waivers and/or expense reimbursements will continue for at least one year from
the date of this Prospectus or until such time as the
Trust’s Board of Trustees acts to discontinue all or a portion of such waivers and/or
reimbursements when it deems
such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap CastleOak Class
ESG
Money Market Portfolio
0.20%
Government
Portfolio
0.20%
The
Adviser and Administrator may also waive advisory fees, administration fees and/or reimburse expenses to enable a Fund to maintain
a minimum level of daily net investment income. The Adviser and Administrator may make additional voluntary fee waivers
and/or expense reimbursements. The Adviser and Administrator may discontinue these voluntary fee waivers and/or expense reimbursements
at any time in the future.
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Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio are intended to qualify as eligible investments for federally
chartered credit unions pursuant to the applicable provisions of the Federal Credit Union Act and the National Credit Union
Administration. Shares of the Government Portfolio, however, may not qualify as eligible investments for particular state-chartered
credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether the Fund is a permissible
investment under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers CastleOak Shares of each Fund. The Trust also offers other classes of shares through separate prospectuses. Certain
of these classes may be subject to different fees and expenses. For information regarding other share classes, contact the Trust or
your financial intermediary.
Minimum
Investment Amount
CastleOak
Shares are available to CastleOak Clients who at the time of initial purchase make a minimum investment of $5 million. The
Adviser, in its sole discretion, may waive the minimum initial investment amount in certain cases including, but not limited to, shares
of the Fund purchased through a financial intermediary or when the Adviser anticipates the combined value of a client’s investments
will meet or exceed the minimum.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial intermediaries (also referred to as service organizations) who
may accept purchase and redemption orders for shares of each Fund on its behalf.
The
Adviser and/or the Distributor may pay additional compensation (out of their own funds and not as an expense of a Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with the sale, distribution, retention and/or servicing
of Fund shares. Such compensation may be significant in amount and the prospect of receiving any such additional compensation
may provide affiliated or unaffiliated entities with an incentive to favor sales of shares of the Fund over other investment
options. Any such payments will not change the NAV or the price of Fund shares. For more information, please see the Funds’
SAI.
Valuation
of Shares
The
ESG Money Market Portfolio’s investments will be valued using market-based prices provided by an approved pricing service/vendor
and the share price of each rounded to a minimum of the fourth decimal place. The price of the Government Portfolio’s shares
is based on the amortized cost of the Fund’s securities. The amortized cost valuation method involves valuing a debt obligation
in reference to its cost rather than market forces.
If the Adviser determines that a valuation is not reflective of the security’s market value,
such security is valued at its fair value as determined in good faith under procedures established by and under the general supervision
of the Board.
The
NAV of each Fund is determined once daily, normally at the times set forth below, on each day that the NYSE is open (the “Pricing
Time”), except when the following federal holidays are observed: Columbus Day and Veterans Day.
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
Government
Portfolio
As
of 5:00 p.m. Eastern time
ESG
Money Market Portfolio
As
of 3:00 p.m. Eastern time
Pricing
of Fund Shares
CastleOak
Shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives your order in
good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal Reserve Bank
(“Federal Funds”) prior to the close of
the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same day your
CastleOak Shares are purchased provided the Fund receives your purchase amount in Federal Funds that day as set forth above. Orders
to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV next determined: for
the Government Portfolio—5:00 p.m. Eastern time and for the ESG Money Market Portfolio—3:00 p.m. Eastern time. On any business
day that the NYSE closes early, or when SIFMA recommends that the securities markets close early, a Fund may close early
Morgan
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and
purchase orders received after such earlier closing times will be processed the following business day. If the NYSE is closed due to inclement
weather, technology problems or any other reason on a day it would normally be open for business, or the NYSE has an unscheduled
early closing on a day it has opened for business, a Fund reserves the right to treat such day as a business day and accept purchase
and redemption orders until, and calculate its NAV as of, the normally scheduled close of regular trading on the NYSE for that
day, or such time noted above, so long as the Adviser believes there generally remains an adequate market to obtain reliable and accurate
market quotations. A Fund may elect to remain open on days when the NYSE is closed or closes early but on which SIFMA recommends
that the bond markets remain open for all or part of the day. Purchase orders received by a Fund and not funded by 6:45
p.m. Eastern time on the trade date may be subject to an overdraft charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
CastleOak
Shares of the Funds are only available to CastleOak Clients. CastleOak Shares of the Funds may be purchased through CastleOak
Securities, through another financial intermediary or directly from the Funds. CastleOak Securities may impose policies, limitations
and fees that are different than those described herein.
Purchasing
Shares Through CastleOak Securities or Other Financial Intermediaries You
may open a new account and purchase Fund shares through CastleOak Securities and other authorized third-parties, such as brokers,
dealers or other financial intermediaries that have entered into a selling agreement with the Distributor (each, a “Financial Intermediary”).
Your Financial Intermediary will assist you with the procedures to invest in shares of the Fund. The Financial Intermediary
will establish times by which such purchase orders and payments from customers must be received by the Financial Intermediary.
Financial Intermediaries are responsible for transmitting purchase orders and payments to the Trust and the Trust’s Custodian
in a timely fashion. Purchase orders placed with a Financial Intermediary and transmitted through a trading platform utilized
by the Financial Intermediary may be transmitted by the trading platform after the deadlines established by the Trust for receipt
of purchase orders, as set forth below; in such case, the purchase orders will receive a trade date of the next business day.
Investors
purchasing CastleOak Shares through a Financial Intermediary may be charged a transaction-based or other fees by the Financial
Intermediary for its services. If you are purchasing CastleOak Shares through a Financial Intermediary, please consult your intermediary
for more information regarding any such fees and for purchase instructions.
With
respect to sales through Financial Intermediaries, no offers or sales of Fund shares may be made in any foreign jurisdiction, except
with the consent of the Distributor.
Purchasing
Shares Directly From the Funds
Initial
Purchase You
may open an account, subject to acceptance by the Fund, and purchase CastleOak Shares of a Fund by completing and signing a New
Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888) 378-1630 (which
is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional Liquidity Funds,
c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804.
After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to the Custodian. You should
instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the following wire instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028 DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name) * For international investments
into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan
Morgan
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Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Automatic
Purchases Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has a positive balance as a result of credits incurred that day. If an account has a positive (credit) balance, shares of the respective
Fund will automatically be purchased. Any positive (credit) balance will be reduced by any debits to the account on that day
and shares of the Fund will automatically be sold.
Additional
Investments You may make additional investments
of CastleOak Shares at the NAV next determined after the request is received in good order or by
wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification of receipt
of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
How
To Redeem Shares
You
may process a redemption request by contacting your Financial Intermediary. Otherwise, you may redeem shares of a Fund by mail
or, if authorized, by telephone, at no charge other than as described below. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will be redeemed at the NAV next determined
after we receive your redemption request in good order.
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Morgan
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Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Automatic
Redemptions Selected accounts that utilize
the Funds as their sweep vehicle will be reviewed on each business day to determine whether the account
has any debits that were incurred that day and shares of the Funds will automatically be redeemed to cover the debits if such debits
have not been reduced by any credits which may have accrued to the account on the same day.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio—5:00 p.m. Eastern time and for the ESG Money Market Portfolio—3:00 p.m. Eastern time. On any business
day that the NYSE closes early, the Fund may close early and redemption requests received after such earlier closing times will
be processed the following business day. The Fund may elect to remain open on days when the NYSE is closed or closes early but on
which SIFMA recommends that the bond markets remain open for all or part of the day. Generally, payment for Fund shares sold will
be made on the day on which the order is processed, but under certain circumstances may not be made until the next business day.
The Fund may postpone and/or suspend redemption and payment beyond one business day only as follows: (a) for any period during
which there is a non-routine closure of the Fedwire or applicable Federal Reserve Banks; (b) for any period (i) during which the
NYSE is closed other than customary weekend and holiday closings or (ii) during which trading on the NYSE is restricted; (c) for any
period during which an emergency exists as a result of which (i) disposal of securities owned by the Fund is not reasonably practicable
or (ii) it is not reasonably practicable for the Fund to fairly determine the NAV of shares of the Fund; (d) for any period during
which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted or (ii) an emergency exists; (e) for any period
that the SEC may by order permit; or (f) for any period during which the Fund as part of a necessary liquidation of a Fund, has
properly postponed and/or suspended redemption of shares and payment in accordance with federal securities laws. In addition, when
SIFMA recommends that the securities markets close early, payments with respect to redemption requests received subsequent to
the recommended close will be made the next business day (assuming that the Fund in fact closes).
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by distributing
to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash.
In addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
Exchange
Privilege
Currently,
CastleOak Shares are not eligible for exchange.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing and by certain selected accounts utilizing the Funds as a sweep
vehicle. Therefore, reasonably frequent purchases and redemptions of Fund shares by Fund shareholders do not present risks for
other shareholders of a Fund, and the policies and procedures adopted by the Board of Trustees/Directors as applicable to other funds
in the Morgan Stanley family of funds are generally not applicable with respect to frequent purchases and redemptions of Fund shares.
However, frequent trading by shareholders can disrupt management of the Funds and raise their respective expenses. Therefore,
we may not accept any request for a purchase or exchange when we think it is being used as a tool for market-timing, and we
may bar a shareholder who trades excessively from making further purchases for an indefinite period.
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Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by giving written notice to your
Financial Intermediary or by checking the appropriate box in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates—ESG Money Market Portfolio Under
Rule 2a-7, the ESG Money Market Portfolio will be permitted (or in some cases, may be required) to impose a liquidity fee on
redemptions (up to 2%) or temporarily restrict redemptions from the Fund for up to 10 business days during a 90 calendar day period
(a “redemption gate”), in the event that the Fund’s weekly liquid assets fall below the following thresholds:
•
30%
weekly liquid assets—If the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, and the Board
of Trustees determines it is in the best interests of
the Fund, the Board of Trustees may impose a liquidity fee of no more than 2% of the
amount redeemed and/or a redemption gate that temporarily suspends the right of redemption. The liquidity fee or redemption
gate may be imposed at any point during the applicable business day, generally at the subsequent NAV calculation time
of the Fund following the determination of the Board of Trustees.
•
10%
weekly liquid assets—If the weekly liquid assets of the Fund fall below 10% of the Fund’s total assets as of the end
of a business day, the Fund must impose, at the beginning
of the next business day, a liquidity fee of 1% of the amount redeemed, unless
the Board of Trustees determines that imposing such a fee would not be in the best interests of the Fund or determines that a
lower or higher fee (not to exceed 2%) would be in the best interests of the Fund.
Liquidity
fees and redemptions gates may be terminated at any time in the discretion of the Board of Trustees. Liquidity fees and redemptions
gates will also terminate at the beginning of the next business day once the Fund has invested 30% or more of its total assets
in weekly liquid assets as of the end of a business day. The Fund may only suspend redemptions for up to 10 business days in any
90 calendar day period.
Weekly
liquid assets generally include: (a) cash; (b) direct obligations of the U.S. Government; (c) certain U.S. government agency discount
notes with remaining maturities of 60 days or less; (d) securities that will mature or are subject to a demand feature that is exercisable
and payable within five business days; or (e) amounts receivable and due unconditionally within five business days on pending
sales of portfolio securities.
If
the Fund imposes a redemption gate, the Fund and your Financial Intermediary will not accept redemption or exchange orders out of
the Fund until the Fund has notified shareholders that the redemption gate has been lifted. Any redemption or exchange orders out
of the Fund submitted while a redemption gate is in effect will be cancelled without further notice. If you still wish to redeem or exchange
shares out of the Fund once the redemption gate has been lifted, you will need to submit a new redemption or exchange request
to the Fund or your Financial Intermediary. Unprocessed purchase orders that the Fund received prior to notification of the imposition
of a liquidity fee or redemption gate will be cancelled unless re-confirmed. Under certain circumstances, the Fund may honor
redemption or exchange orders out of the Fund (or pay redemptions without adding a liquidity fee to the redemption amount) if
the Fund can verify that the redemption or exchange order out of the Fund was submitted to the Fund’s agent before the Fund imposed
liquidity fees or suspended redemptions. Once a liquidity fee or a redemption gate is in place, shareholders will not be permitted
to exchange into or out of the Fund until the fee or gate is terminated.
The
Board of Trustees generally expects that a liquidity fee or redemption gate would be imposed, if at all, during periods of extraordinary
market stress. The Board of Trustees generally expects that a redemption gate would be imposed prior to notification to shareholders
and Financial Intermediaries that a gate would be imposed. While the Board of Trustees may, in its discretion, impose a liquidity
fee at any time after the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, the Board of Trustees
generally expects that a liquidity fee would be imposed
only after the Fund has notified Financial Intermediaries and shareholders that
a liquidity fee will be imposed. The Fund retains the liquidity fees for the benefit of remaining shareholders.
The
Board of Trustees may, in its discretion, permanently suspend redemptions and liquidate the Fund if, among other things, the Fund,
at the end of a business day, has less than 10% of its total assets invested in weekly liquid assets. In the event of liquidation,
shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders.
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Announcements
regarding the imposition of liquidity fees or redemption gates, or the termination of liquidity fees or redemption gates,
will be filed with the SEC on Form N-CR and will be available on the website of the Fund (http://www.morganstanley.com/im).
In addition, the Fund will make such announcements through a supplement to its Prospectus and may make such announcements
through a press release or by other means.
Dividend
payments will not be subject to liquidity fees or redemption gates; however, in the event that a liquidity fee or redemption gate
is in place at the time that dividends are distributed, all distributions will be made in the form of cash.
Trade
corrections requested after a liquidity fee or redemption gate is imposed will be honored so long as the “as of” date of
the transaction to be processed is prior to the effective
time of the liquidity fee or redemption gate and a valid reason for the trade error is provided.
Financial
Intermediaries will be required to promptly take such actions reasonably requested by the Fund, the Transfer Agent or the Adviser
to implement, modify or remove, or to assist the Fund in implementing, modifying or removing, a liquidity fee or redemption
gate established by the Fund.
The
Government Portfolio is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions. The Board of Trustees has opted not to subject the Government Portfolio to
a “liquidity fee” and/or a “redemption gate” but has reserved its right to change this determination in the
future after providing appropriate notice to shareholders.
Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
the Government Portfolio intends to maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when
they sell or exchange their shares in this Fund because the amount realized will be the same as their tax basis in the shares.
Morgan
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Because
the ESG Money Market Portfolio does not maintain a stable share price, a sale of this Fund’s shares may result in capital gain
or loss to you.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises clients and sponsors, manages or advises other investment funds
and investment programs, accounts and businesses (collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel, including personnel of the investment adviser, on one side of an information barrier may have access
to information and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts
of interest in determining whether to engage in such
wall crossings. Information obtained in connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in
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Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries (which may include affiliates of the Adviser and Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain circumstances, the Adviser restricts, limits or reduces the
amount of a Fund’s investment, or restricts the
type of governance or voting rights it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions. Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments. Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an acquisition.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of the
CastleOak Shares of each Fund since
inception. Certain information reflects financial results
for a single Fund share. The total returns in the tables represent
the rate that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment of all dividends and
distributions).
The
ratios of expenses to average net assets listed in the tables below for each
Fund are based on the average net assets of the Fund since
inception. To the extent that a Fund’s average
net assets decrease over the Fund’s next fiscal year, such expense ratios can be expected
to increase, potentially significantly, because certain fixed costs will be spread over a smaller amount of assets.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
The
information below has been derived from the financial statements audited by Ernst & Young LLP, the Funds’ independent registered
public accounting firm. Ernst & Young LLP’s report, along with each Fund’s financial statements, are incorporated by
reference into the Funds’ SAI. The Annual Report
to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Net
Asset Value, End of
Period
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average Net
Assets Excluding Interest
Expenses
Ratio
of Expenses to Average Net
Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income
to Average Net Assets
Ratio
of Net Investment Loss
to Average Net
Assets (Before Waivers/ Reimbursement)
$
1.0009
0.01
%
(3)
$
255,136
0.14
%
(4)
N/A
0.22
%
(4)
0.06
%
(4)
(0.02
)%
(4)
$
1.000
0.01
%
(3)
$
371,765
0.07
%
(4)
N/A
0.21
%
(4)
0.02
%
(4)
(0.12
)%
(4)
Notes
to Financial Highlights
(1)
Per
share amount is based on average shares outstanding
In
addition to this Prospectus, the Funds have an SAI dated February28, 2022 (as may be supplemented from time to time),
which contains additional, more detailed information
about the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Annual
and Semi-Annual Reports (“Shareholder Reports”) that
contain additional information about the respective
Fund’s investments. In each Fund’s Annual Report to Shareholders, you will find a discussion of the market conditions and
the investment strategies that significantly affected such Fund’s performance during the last fiscal year. For additional Trust
information, including information regarding the investments
comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity. If you purchased shares through a Financial Intermediary, you may also obtain these
documents, without charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
The
Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio
iInvestment
Objective
i
The Prime Portfolio (the “Fund”) seeks preservation
of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Impact Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Impact
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses1
i0.06%
Total
Annual Fund Operating Expenses2
i0.21%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Impact Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Impact Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Impact
Class
$i20
$i67
$i117
$i267
1
iOther
Expenses have been estimated for the current fiscal year.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Impact Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers and/or expense
reimbursements will continue for at least one year from the date of this Prospectus or until such time as the Board of Trustees of Morgan
Stanley Institutional Liquidity Funds (the “Trust”)
acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action is
appropriate.
iPrincipal
Investment Strategies
i
The Fund invests in liquid, high quality U.S. dollar-denominated
money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations.
The Fund may also invest in U.S. dollar-denominated foreign
securities and money market instruments.
The Fund operates as an “institutional money market
fund,” which is neither a “government money market fund” nor “retail money market
fund” as such terms are defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended (“Rule
2a-7” under the “1940 Act”). As such, the Fund is required to price and transact in its shares at a net asset value
per share (“NAV”) reflecting market-based
values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the fourth decimal
place. Like other money market funds of its type, the Fund is subject to the possible imposition of liquidity fees and/or redemption
gates.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.Because the
share price of the Fund will fluctuate, when you sell your shares they may
be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily
suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other
factors. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
any
other government agency.The
Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not
expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In
the case of revenue bonds, notes or commercial paper,
for example, the credit risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment obligations.
In such instances, the value of the Fund could decline
and the Fund could lose money. Interest rate risk refers to the decline in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up.
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility, increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative interest
rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain
positive returns or minimize the volatility of the Fund’s net asset value per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the Fund to sell at an advantageous price or time.
•
Bank
Obligations. The activities of U.S. and most foreign
banks are subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations
and profitability of domestic and foreign banks. In addition, banks may be particularly susceptible to certain economic factors.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Asset-Backed
Securities. Asset-backed securities involve the
risk that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being insufficient to support payment on the securities. Some asset-backed
securities also entail prepayment risk and extension risk, which may vary depending on the type of asset.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Foreign
Money Market Securities. Investing in money market
securities of foreign issuers involves some additional risks, including the
possibility of adverse political, economic or other developments affecting the issuers of these securities.
•
Municipal
Obligations. To the extent the Fund invests in municipal
obligations issued by state and local governments and their agencies,
the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers of these municipal obligations.
To the extent that the Fund invests in municipal obligations of issuers in the same economic sector, it could be more sensitive
to economic, business or political developments that affect such sector. During certain economic and other conditions, the
financial resources of many issuers of municipal securities may be significantly stressed, which could impair any such issuer’s
ability to meet its financial obligations when due and
adversely impact the value of its securities held by the Fund.
•
LIBOR
Discontinuance or Unavailability Risk. The London
InterBank Offered Rate (“LIBOR”) is intended to represent the rate at which
contributing banks may obtain short-term borrowings from each other in the London interbank market. The regulatory
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Prime
Portfolio (Cont’d)
authority
that oversees financial services firms and financial markets in the U.K. has announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions for purposes of determining the LIBOR rate. However,
subsequent announcements by the Financial Conduct Authority, the LIBOR administrator and other regulators indicate
that it is possible that the most widely used tenors of U.S. Dollar LIBOR may continue to be provided on a representative basis
until mid-2023. However, in connection with supervisory guidance from regulators, some regulated entities will cease to enter
into most new LIBOR-based contracts after January 1, 2022. As a result, it is possible that commencing in 2022 (or on a later
date, if a particular LIBOR tenor is expected to continue beyond the end of 2021), LIBOR may no longer be available or no longer
deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes, derivatives
and other instruments or investments comprising some or all of the Fund’s portfolio.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect and increase the volatility of the Fund’s share price
and exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect and increase the volatility of
the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
•
Floating
NAV Risk. The Fund does not maintain a stable NAV
per share. The value of the Fund’s shares will be calculated to four decimal
places and will fluctuate with changes in the values of the Fund’s portfolio securities. When you sell your shares, they may be
worth more or less than what you originally paid for them. This may result in a capital gain or loss.
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future.Updated
performance information is available online at iwww.morganstanley.com/liquidity.
Institutional
Class shares are not offered in this Prospectus. Impact Class shares of the Fund had not completed a full calendar year of operations
as of December 31, 2021 and therefore Impact Class shares
do not have annualized return information to report. Impact Class shares would have substantially
similar annual returns because the shares are invested in the same portfolio of securities and the annual returns would differ only to
the extent that the Classes do not have the same expenses.
Return information for the Fund’s Impact Class shares will be shown in future prospectuses offering
the Fund’s Impact Class shares after the Fund’s Impact Class shares have a full calendar year of return information to report.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
The
Adviser will make a contribution from its own resources, annually after the end of each calendar year, to certain diversity, equity and
inclusion initiatives in an amount of 0.02% of the net annualized assets under management in the Impact Class of the Fund, provided
that the gross annual yield of the Fund is 0.08% or greater. If the gross annual yield of the relevant share class is less than 0.08%,
the Adviser reserves the right to calculate the contribution as 12.5% of the total net charged expenses after all applicable waivers
and reimbursements subject to 30 day notification to shareholders. The recipients of the contribution may include one or more
organizations that focus on any of the following: affordable housing, children’s health and nutrition and education, among other
diversity, equity and inclusion related causes. The Adviser maintains the option to increase this contribution in amount and/or frequency
in its sole discretion. The Adviser may
only decrease or terminate the contributions described above subject to approval from
the Board of Trustees. The Adviser will disclose, on
an annual basis, the amount of any contributions made and the recipients of
such contributions on the Fund’s website
at www.morganstanley.com/liquidity.
Purchase
and Sale of Fund Shares
Impact
Class shares of the Fund are available to direct Fund investors who at the time of initial purchase make a minimum investment
of $50 million. Investors investing in the Fund using the Adviser-hosted portal or an electronic portal not providing Fund shareholder
services are direct investors eligible to purchase Impact Class shares (subject to the minimum investment amount). You may
not be subject to the minimum investment requirement under certain circumstances. For more information, please refer to the section
of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630). You may purchase and redeem
shares online through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you
have a pre-established Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder
Information—How To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio
iInvestment
Objective
i
The Government Portfolio (the “Fund”) seeks
preservation of capital, daily liquidity and maximum current income.
iFees
and Expenses
i
The table below describes the expenses that you may pay
if you buy, hold and sell Impact Class shares of the Fund. The Fund does not
charge any sales loads or other fees when you purchase or redeem shares.
iAnnual
Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
Impact
Class
Advisory
Fee
i0.15%
Distribution
and/or Shareholder Service (12b-1) Fee
iNone
Other
Expenses1
i0.06%
Total
Annual Fund Operating Expenses2
i0.21%
Fee
Waiver and/or Expense Reimbursement2
i0.01%
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement2
i0.20%
iExample
i
The example below is intended to help you compare the
cost of investing in the Fund’s Impact Class with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund’s
Impact Class, your investment has a 5% return each year and that the Fund’s
operating expenses remain the same (except that the example incorporates the fee waiver and/or expense reimbursement arrangement
for only the first year). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1
Year
3
Years
5
Years
10
Years
Impact
Class
$i20
$i67
$i117
$i267
1
iOther
Expenses have been estimated for the current fiscal year.
2
The
Fund’s “Adviser” and “Administrator,” Morgan Stanley Investment Management Inc., has agreed to reduce
its advisory fee, its administration fee and/or reimburse
the Fund’s Impact Class so that Total Annual Fund Operating Expenses, excluding acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest
and other extraordinary expenses (including litigation), will not exceed 0.20%. The fee waivers and/or expense
reimbursements will continue for at least one year from the date of this Prospectus or until such time as the Board of Trustees of Morgan
Stanley Institutional Liquidity Funds (the “Trust”)
acts to discontinue all or a portion of such waivers and/or reimbursements when it deems such action is
appropriate.
iPrincipal
Investment Strategies
i
The Fund has adopted a policy to invest exclusively in
obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. A “government money
market fund” is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions.
In selecting investments, the Adviser seeks to maintain the Fund’s share price at $1.00. The
share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.
In addition, the Fund has adopted a policy that provides,
under normal circumstances, at least 80% of the Fund’s assets will be invested
in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
iPrincipal
Risks
i
There is no assurance that the Fund will achieve its investment
objective.
iYou
could lose money by investing in the Fund.Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. iAn
investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) or any other government agency.The Fund’s
sponsor has no legal obligation to provide financial support to the
Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
The principal risks of investing in the Fund include:
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
•
Credit
and Interest Rate Risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money. Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. A changing interest
rate environment increases certain risks, including the potential for periods of volatility, increased redemptions, shortened durations
(i.e., prepayment risk) and extended durations (i.e., extension risk). During
periods when interest rates are low or there are negative
interest rates, the Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable
to maintain positive returns or a stable net asset value (“NAV”) of $1.00 per share.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more
difficult for the Fund to sell at an advantageous price or time.
•
Fixed-Income
Securities. Fixed-income securities are subject
to the risk of the issuer’s inability to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or changes rates. The Fund may be subject to certain liquidity
risks that may result from the lack of an active market and the reduced number and capacity of traditional market participants
to make a market in fixed-income securities.
•
U.S.
Government Securities. Different types of U.S. government
securities are subject to different levels of credit risk, including the risk
of default, depending on the nature of the particular government support for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
•
Repurchase
Agreements. Repurchase agreements are subject to
risks associated with the possibility of default by the seller at a time when
the collateral has declined in value, or insolvency of the seller, which may affect the Fund’s right to control the collateral
and result in certain costs and delays. Repurchase agreements
may involve a greater degree of credit risk than investments in U.S. government
securities.
•
Market
and Geopolitical Risk. The value of your investment
in the Fund is based on the values of the Fund’s investments, which may
change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries,
industries, companies or governments. These events may be sudden and unexpected, and could adversely affect the liquidity
of the Fund’s investments, which may in turn impact valuation, the Fund’s ability to sell securities and/or its ability
to meet redemptions. The risks associated with these
developments may be magnified if certain social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) adversely interrupt
the global economy and financial markets. It is difficult to predict when events affecting the U.S. or global financial markets
may occur, the effects that such events may have and the duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses and populations and have a significant and rapid negative impact
on the performance of the Fund’s investments,
adversely affect the Fund’s ability to maintain a stable $1.00 share priceand exacerbate pre-existing risks to the Fund.
•
Liquidity.
The Fund may make investments that are illiquid or that may become illiquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. The liquidity
of portfolio securities can deteriorate rapidly due to credit events affecting issuers or guarantors, such as a credit rating downgrade,
or due to general market conditions or a lack of willing buyers. An inability to sell one or more portfolio positions, or selling
such positions at an unfavorable time and/or under unfavorable conditions, can adversely affect the Fund’s ability to maintain
a stable $1.00 share price.
•
Stable
NAV Risk. The Fund may not be able to maintain a
stable $1.00 share price at all times. If the Fund or another money market
fund fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or if there is a perceived threat of the inability
to maintain a stable NAV or a particular weekly liquid asset level), the Fund could be subject to increased redemptions, which
may adversely impact the Fund’s share price.
•
Large
Shareholder Transactions Risk. The Fund may experience
adverse effects when shareholders purchase or redeem large amounts
of shares of the Fund, which may occur rapidly or unexpectedly. Such larger than normal shareholder redemptions may negatively
impact the Fund’s NAV and liquidity.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
•
Money
Market Fund Regulation. The
SEC and other government agencies continue to review the regulation of money market funds.
As of the date of this Prospectus, the SEC has proposed changes to the rules that govern money market funds. Legislative developments
may also affect money market funds. These changes and developments, if implemented, may affect the investment strategies,
performance, yield, operating expenses and continued viability of the Fund.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
iPerformance
Information
i
iThe
bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Fund’s Institutional Class shares from year-to-year and by showing the average annual returns of the Fund’s Institutional
Class shares for the one, five and 10 year periods.
iThe
Fund’s past performance is not necessarily an indication of how the Fund will perform
in the future.Updated
performance information is available online at iwww.morganstanley.com/liquidity.
Institutional
Class shares are not offered in this Prospectus. Impact Class shares of the Fund had not completed a full calendar year of operations
as of December 31, 2021 and therefore Impact Class shares
do not have annualized return information to report. Impact Class shares would have substantially
similar annual returns because the shares are invested in the same portfolio of securities and the annual returns would differ only to
the extent that the Classes do not have the same expenses.
Return information for the Fund’s Impact Class shares will be shown in future prospectuses offering
the Fund’s Impact Class shares after the Fund’s Impact Class shares have a full calendar year of return information to report.
i
iYou
may obtain the Fund’s 7-day current yield by calling i1-888-378-1630./
/
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
The
Adviser will make a contribution from its own resources, annually after the end of each calendar year, to certain diversity, equity and
inclusion initiatives in an amount of 0.02% of the net annualized assets under management in the Impact Class of the Fund, provided
that the gross annual yield of the Fund is 0.08% or greater. If the gross annual yield of the relevant share class is less than 0.08%,
the Adviser reserves the right to calculate the contribution as 12.5% of the total net charged expenses after all applicable waivers
and reimbursements subject to 30 day notification to shareholders. The recipients of the contribution may include one or more
organizations that focus on any of the following: affordable housing, children’s health and nutrition and education, among other
diversity, equity and inclusion related causes. The Adviser maintains the option to increase this contribution in amount and/or frequency
in its sole discretion. The Adviser may
only decrease or terminate the contributions described above subject to approval from
the Board of Trustees. The Adviser will disclose, on
an annual basis, the amount of any contributions made and the recipients of
such contributions on the Fund’s website
at www.morganstanley.com/liquidity.
Purchase
and Sale of Fund Shares
Impact
Class shares of the Fund are available to direct Fund investors who at the time of initial purchase make a minimum investment
of $50 million. Investors investing in the Fund using the Adviser-hosted portal or an electronic portal not providing Fund shareholder
services are direct investors eligible to purchase Impact Class shares (subject to the minimum investment amount). You may
not be subject to the minimum investment requirement under certain circumstances. For more information, please refer to the section
of this Prospectus entitled “Shareholder Information—Minimum Investment Amount.”
Shares
of the Fund may be purchased or sold on any day the New York Stock Exchange (“NYSE”) is open for business (except when the
following federal holidays are observed: Columbus Day and Veterans Day) directly from the Fund by mail (c/o DST Asset
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Summary
Government
Portfolio (Cont’d)
Manager
Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804), by telephone (1-888-378-1630). You may purchase and redeem
shares online through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided you
have a pre-established Internet trading account. For more information, please refer to the sections of this Prospectus entitled “Shareholder
Information—How To Purchase Shares” and “Shareholder Information—How To Redeem Shares.”
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or capital gains, unless you hold shares through a tax-exempt
account or plan, such as an individual retirement account or 401(k) plan, in which case dividends and distributions on your shares
generally will be taxed when withdrawn from the tax-exempt account or plan.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Prime
Portfolio
Investment
Objective
The
Prime Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund invests in liquid, high quality U.S. dollar-denominated money market instruments of U.S. and foreign financial corporations
and U.S. non-financial corporations. The Fund also invests in obligations issued or guaranteed by the U.S. Government and
its agencies and instrumentalities. The Fund’s money market investments may include commercial paper, corporate debt obligations,
debt obligations (including certificates of deposit and promissory notes) of U.S. banks or foreign banks, or of U.S. branches
or subsidiaries of foreign banks, or foreign branches of U.S. banks (such as Yankee obligations), certificates of deposit of savings
banks and savings and loan organizations, asset-backed securities, repurchase agreements and municipal obligations. The Fund
may also invest in U.S. dollar-denominated foreign securities and money market instruments.
The
Fund operates as an “institutional money market fund,” which is neither a “government money market fund” nor
“retail money market fund” as such terms
are defined or interpreted under Rule 2a-7. As such, the Fund is required to price and transact in its shares
at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating” NAV), rounded to a minimum of the
fourth decimal place. Like other money market funds
of its type, the Fund is subject to the possible imposition of liquidity fees and/or
redemption gates.
Process
The
Adviser follows a multi-pronged investment process with respect to credit risk, interest rate risk and liquidity. Securities are reviewed
on an ongoing basis to maintain or improve creditworthiness taking into consideration factors such as cash flow, asset quality,
debt service coverage ratios and economic developments. Additionally, exposure to guarantors and liquidity providers is monitored
separately as are the various diversification requirements.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. In addition, federal regulations
require money market funds to invest only in debt obligations of high quality and
short-term maturities.
The
Adviser serves as investment advisor to a range of money market funds following different investment focuses/strategies. These include
other “prime” money market funds, which may invest in similar types of securities as the Fund. There may be overlap between
the portfolio holdings and investments the Fund and other “prime” money market funds for which the Adviser serves as investment
advisor.
Morgan
Stanley Institutional Liquidity Funds | Details
of the Funds
Government
Portfolio
Investment
Objective
The
Government Portfolio seeks preservation of capital, daily liquidity and maximum current income.
Approach
The
Fund has adopted a policy to invest exclusively in obligations issued or guaranteed by the U.S. Government and its agencies and instrumentalities
and in repurchase agreements collateralized by such securities in order to qualify as a “government money market fund”
under federal regulations. The Fund may also hold cash from time to time. A “government money market fund” is a money market
fund that invests at least 99.5% of its total assets in cash, securities issued or guaranteed by the United States or certain U.S.
government agencies or instrumentalities and/or repurchase
agreements that are collateralized fully by the foregoing. In selecting investments,
the Adviser seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment. The Fund may change its principal investment strategies; however you would
be notified of any changes.
The
U.S. government securities that the Fund may purchase include:
•
U.S.
treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.
•
Securities
issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration.
•
Securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies
and instrumentalities are the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) and the Federal Home Loan Banks.
•
Securities
issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.
In
addition, the Fund has adopted a policy that provides, under normal circumstances, at least 80% of the Fund’s assets will be
invested in obligations issued or guaranteed by the
U.S. Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities. This policy may be changed without shareholder approval; however, shareholders would be
notified upon 60 days’ notice in writing of any changes.
Process
The
Adviser follows an investment process that seeks to select maturities based on the shape of the money market yield curve and based
on the expectations as to future shifts in the level and shape of the curve, taking into consideration such factors as current short-term
interest rates, Federal Reserve policy regarding interest rates and U.S. economic activity.
The
Adviser actively manages the Fund’s assets in an attempt to reduce the risk of losing any principal investment as a result of credit
or interest rate risks. The Fund’s assets are
reviewed to maintain or improve creditworthiness. In addition, federal regulations require money
market funds to invest only in debt obligations of high quality and short-term maturities.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets plus the amount
of any borrowings for investment purposes.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
This
section discusses additional information relating to the Funds’ investment strategies, other types of investments that the
Funds may make and related risk factors. The Funds’ investment practices and limitations are also described in more detail
in the Statement of Additional Information (“SAI”), which is incorporated by reference and legally is a part of this Prospectus.
For details on how to obtain a copy of the SAI and other reports and information, see the back cover of this Prospectus.
Economies
and financial markets throughout the world have experienced periods of increased volatility, uncertainty and distress and
disruption to consumer demand,
economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic. To the extent
these conditions continue, the risks associated with an investment in a Fund, including those described below,
could be heightened and a Fund’s investments (and thus a shareholder’s investment in a Fund) may be particularly susceptible
to reduced
yield or income or other adverse developments. The duration and extent of COVID-19 and associated economic and market
conditions and uncertainty over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19
and the extent to which the associated conditions impact a Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to change at any time.
Stable
NAV Risk
The
Government Portfolio may not be able to maintain a stable $1.00 share price at all times. If the Fund or another money market fund
fails to maintain a stable NAV or maintain certain weekly liquid asset levels (or such perception exists in the marketplace), the Fund
could be subject to increased redemptions, which may adversely impact the Fund’s share price. In general, certain other money market
funds have in the past failed to maintain stable NAVs, and there can be no assurance that such failures and resulting redemption
pressures will not occur in the future. Neither the Fund’s sponsor nor any of its affiliates has a legal obligation to provide
financial support to the Fund, and you should not rely
on or expect that they or any person will provide any type of financial support to
the Fund at any time to help the Fund maintain a stable $1.00 share price (such as purchasing distressed assets from the Fund, making
capital infusions into the Fund, or taking other actions).
Floating
NAV Risk
The
Prime Portfolio does not maintain a stable NAV per share. The value of the Fund’s shares will be calculated to four decimal places
and will fluctuate with changes in the values of the Fund’s portfolio securities. Investors should expect the value of their investment
to vary and reflect the current market value of the Fund’s holdings. When you sell your shares, they may be worth more or
less than what you originally paid for them. This may result in a capital gain or loss. Neither the Fund’s sponsor nor any of its
affiliates has a legal obligation to provide financial
support to the Fund, and you should not rely on or expect that they or any person will
provide any type of financial support to the Fund at any time.
Bank
Obligations
Bank
obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time deposits
and other debt obligations. The Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1
billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, a Fund may invest in U.S. dollar-denominated
obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase,
U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such foreign banks and foreign
branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations
of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S. government regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks. Obligations of foreign banks, including Yankee obligations,
are subject to the same risks that pertain to domestic issuers, notably credit risk and market risk, but are also subject to certain
additional risks such as adverse foreign political and economic developments, the extent and quality of foreign government regulation
of the financial markets and institutions, foreign withholding taxes and other sovereign action such as nationalization or expropriation.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value of a debt security resulting from changes in the general
level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income securities go up. A low interest rate environment may
prevent a Fund from providing a positive yield or paying Fund expenses out of current income. A Fund may face a heightened level
of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts a quantitative
easing program and/or changes rates. During periods when interest rates are low or there are negative interest rates, a Fund’s
yield (and total return) also may be low or otherwise adversely affected or the Fund may be unable to maintain positive returns
or minimize the volatility of the Fund’s NAV per share or maintain a stable net asset value of $1.00 per share, as applicable.
Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may not accurately reflect the true credit
risk of an instrument, a change in the credit rating of an instrument or an issuer can have a rapid, adverse effect on the instrument’s
liquidity and make it more difficult for a Fund to sell at an advantageous price or time.
Certain
countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the
risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have
unpredictable effects on markets and may expose debt
and related markets to heightened volatility and may detract from Fund performance
to the extent a Fund is exposed to such interest rates and/or volatility. During periods when interest rates are low or there
are negative interest rates, a Fund’s yield (and total return) also may be low or otherwise adversely affected or the Fund may
be unable to maintain positive returns.
Governmental
authorities and regulators may enact significant fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened
risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed
or are ineffective in achieving their desired outcomes.
Liquidity
A
Fund may make investments that are illiquid or restricted or that may become less liquid in response to overall economic conditions
or adverse investor perceptions, and which may entail greater risk than investments in other types of securities. These investments
may be more difficult to value or sell, particularly in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity risk may be magnified in a changing interest rate environment or in other
circumstances where investor redemptions from money market and other fixed-income mutual funds may be higher than normal.
If a Fund is forced to sell an illiquid or restricted security to fund redemptions or for other cash needs, it may be forced to sell
the security at a loss or for less than its value.
U.S.
Government Securities
The
U.S. government securities that a Fund may purchase include U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, a Fund may purchase securities issued or guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities
issuing these obligations are Ginnie Mae and the Federal Housing Administration. Also, a Fund may purchase securities
issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose issuing
agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies and instrumentalities
are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Further,
a Fund may purchase securities issued by agencies and
instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among these agencies and
instrumentalities is the Federal Farm Credit System. Because these securities are not backed by the full faith and credit of the United
States, there is a risk that the U.S. Government will not provide financial support to these agencies if it is not obligated to do so
by law. The maximum potential liability of the issuers of some U.S. government securities held by a Fund may greatly exceed their current
resources, including their legal right to support from the U.S. Treasury. It is possible that these issuers will not have the funds to
meet their payment obligations in the future. The interest from U.S. government securities generally is not subject to state and local
taxation.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage securities, municipal bonds, loan participations and assignments, zero coupon bonds, convertible
securities, Eurobonds, Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash equivalents.
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal and interest payments on its obligations (i.e.,
credit risk) and are subject to price volatility resulting
from, among other things, interest rate sensitivity (i.e., interest rate risk),
Morgan
Stanley Institutional Liquidity Funds Prospectus | Additional
Information About the Fund’s Investment Strategies and Related Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks (Con’t)
market
perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). The Funds may face a heightened
level of interest rate risk in times of monetary policy change and/or uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e., prepayment risk) and extended durations (i.e., extension
risk). Securities with longer durations are likely to be more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated fixed-income securities have greater volatility because there is less certainty
that principal and interest payments will be made as scheduled. The Funds may be subject to liquidity risk, which may result
from the lack of an active market and the reduced number and capacity of traditional market participants to make a market in fixed-income
securities. Fixed-income securities may be called (i.e., redeemed by the issuer) prior to final maturity. If a callable security
is called, a Fund may have to reinvest the proceeds at a lower rate of interest.
Foreign
Securities
The
Prime Portfolio may invest in U.S. dollar-denominated securities issued by foreign governmental or corporate issuers, including Eurodollar
and Yankee obligations. Although the Fund will invest in these securities only if the Adviser determines they are of comparable
quality to the Fund’s U.S. investments, investing in securities of foreign issuers involves some additional risks. While these
securities are subject to the same type of risks that pertain to domestic issuers, namely credit risk and interest rate risk, they are
also subject to other additional risks. Foreign issuers
generally are subject to different accounting, auditing and financial reporting standards
than U.S. issuers. There may be less information available to the public about foreign issuers. Securities of foreign issuers can
be less liquid and experience greater price movements. In some foreign countries, there is also the risk of government expropriation,
excessive taxation, political or social instability, the imposition of currency controls or diplomatic developments that could
affect an investment. There also can be difficulty obtaining and enforcing judgments against issuers in foreign countries. Foreign
stock exchanges, broker-dealers and listed issuers may be subject to less government regulation and oversight. Governmental actions
can have a significant effect on the economic conditions in foreign countries, which also may adversely affect the value and liquidity
of the Fund’s investments. Foreign investment in the securities markets of certain foreign countries is restricted or controlled
to varying degrees.
Economic
sanctions may be, and have been, imposed against certain countries, organizations, companies, entities and/or individuals. Economic
sanctions and other similar governmental actions could, among other things, effectively restrict or eliminate the Fund’s ability
to purchase or sell securities or groups of securities, and thus may make the Fund’s investments in such securities less liquid
or more difficult to value. In addition, as a result
of economic sanctions, the Fund may be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and increased transaction costs. These conditions may
be in place for a substantial period of time and enacted with limited advance notice to the Fund.
Foreign
Money Market Securities
The
Prime Portfolio may invest in foreign money market securities. As described elsewhere herein, foreign investing may involve risks relating
to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. Investments
in foreign markets may also be adversely affected by less stringent investor protections and disclosure standards, and governmental
actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the
imposition of punitive taxes. In addition, there are differences between U.S. and foreign regulatory requirements and market practices
that may result in additional risk. Foreign money market securities also present credit and interest rate risks similar to those attendant
to an investment in domestic money market securities.
Custodial
Receipts
A
Fund may invest in custodial receipts representing interests in U.S. government securities, municipal obligations or other debt instruments
held by a custodian or trustee. Custodial receipts evidence ownership of future interest payments, principal payments or both
on notes or bonds issued or guaranteed as to principal or interest by the U.S. Government, its agencies, instrumentalities, political
subdivisions or authorities, by a state or local governmental body or authority, or by other types of issuers. For certain securities
law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition, if for tax purposes a Fund
is not considered to be the owner of the underlying securities held in the custodial account, the Fund may suffer adverse tax consequences.
As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged to the custodial
account.
Corporate
Debt Obligations
Corporate
debt obligations are fixed-income securities issued by private corporations. The investment return of corporate debt obligations
reflects interest earnings and changes in the market value of the security. The market value of a corporate debt obligation may
be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or
principal payments at the time called for by an instrument. Debtholders, as creditors,
have a prior legal claim over common and preferred stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. The Prime Portfolio will buy corporate debt obligations subject to any quality constraints
set forth under Rule 2a-7.
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Revenue
Bonds
Revenue
bonds are municipal obligations that are secured by the revenue from a specific project. To the extent that such revenues do not
materialize, the revenue bonds may not be repaid. If a Fund invests in revenue bonds that are issued by municipal issuers in the same
economic sector, a Fund would be particularly susceptible to developments adversely affecting that sector. Revenue bonds historically
have been subject to a greater risk of default than general obligation bonds because investors can look only to the revenue generated
by the project or other revenue source backing the project, rather than to the general taxing authority of the state or local government
issuer of the obligations. For example, investments in revenue bonds backed by receipts from hospitals are sensitive to hospital
bond ratings, which are often based on feasibility studies that contain projections of expenses, revenues and occupancy levels. Additional
factors which could affect a hospital’s gross receipts and net income available to service its debt are demand for hospital services,
the ability of the hospital to provide the services required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses, reputational issues, competition, availability and expenses
of malpractice insurance, Medicaid and Medicare funding and possible federal legislation regulating hospital charges.
LIBOR
Discontinuance or Unavailability Risk.
LIBOR
is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the most widely used tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with supervisory guidance from regulators, some regulated
entities will cease to enter into most new LIBOR-based contracts after January 1, 2022. As a result, it is possible that commencing
in 2022 (or a later date, if a particular reference rate is expected to continue beyond 2021), LIBOR may no longer be available
or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives
and other instruments or investments comprising some or all of a Fund’s portfolio. In light of this eventuality, public and private
sector industry initiatives are currently underway to establish new or alternative reference rates to be used in place of LIBOR. There
is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same
value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance
or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs
incurred in connection with closing out positions and entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any
such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still
may be developing. There may also be challenges for a Fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a Fund’s performance
or net asset value.
Asset-Backed
Securities
Asset-backed
securities represent an interest in a pool of assets such as automobile loans, credit card receivables or mortgage or home equity
loans, or certificates of participation or lease obligations or other municipal debt obligations, that have been securitized in pass-through
structures. These types of pass-through securities provide for monthly payments that are a “pass-through” of the monthly
interest and principal payments made by the individual borrowers on the pooled receivables. Such securities also may be debt
instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such
as a trust, organized solely for the purpose of owning such assets and issuing such debt. Credit support for asset-backed securities may
be based on the underlying assets and/or provided by a third-party through credit enhancements. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.
Asset-backed
securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to certain amounts for a certain period by a letter of credit
issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase
of asset-backed securities raises risk considerations specific to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed
securities. Asset-backed securities entail prepayment risk and extension risk, which may vary depending on the type of asset. Securities
subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential
for loss when interest rates rise. In addition, rising interest rates may cause prepayments to occur at a slower than expected
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rate,
thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Other
factors, such as changes in credit card use and payment patterns, may also influence prepayment rates. Asset-backed securities also
involve the risk that various federal and state consumer laws and other legal and economic factors such as defaults on the underlying
loans may result in the collateral backing the securities being insufficient to support payment on the securities. The risk of such
defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. There is also the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support payments on those securities.
Market
and Geopolitical Risk
The
value of your investment in a Fund is based on the values of a Fund’s investments, which may change due to economic and other
events that affect markets generally, as well as those that affect particular regions, countries, industries, companies or governments.
Price movements, sometimes called volatility, may be greater or less depending on the types of securities a Fund owns and
the markets in which the securities trade. Volatility and disruption in financial markets and economies may be sudden and unexpected,
expose a Fund to greater risk, including risks associated with reduced market liquidity and fair valuation, and adversely affect
a Fund’s operations. For example, the Adviser potentially will be prevented from executing investment decisions at an advantageous
time or price as a result of any domestic or global market disruptions and reduced market liquidity may impact a Fund’s
ability to sell securities to meet redemptions.
The
increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one
region or financial market may adversely impact issuers in a different country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations
for inflation), interest rates, global demand for particular products or resources,
natural disasters, health emergencies (such as epidemics and pandemics), terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. Inflation
rates may change frequently and
significantly because of various factors, including unexpected shifts in the domestic or global economy and changes in monetary or
economic policies (or expectations that these policies may change). Changes in expected inflation rates may adversely affect market and
economic conditions, a Fund’s investments and an investment in a Fund. Other
financial, economic and other global market and social
developments or disruptions may result in similar adverse circumstances, and it is difficult to predict when similar events affecting
the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects (which
may last for extended periods). In general, the securities or other instruments that the Adviser believes represent an attractive investment
opportunity or in which a Fund seeks to invest may be unavailable entirely or in the specific quantities sought by a Fund. As
a result, a Fund may need to obtain the desired exposure through a less advantageous investment, forgo the investment at the time or
seek to replicate the desired exposure through a derivative transaction or investment in another investment vehicle. Any such event(s)
could have a significant adverse impact on the value and risk profile of a Fund’s portfolio. There is a risk that you may lose
money by investing in a Fund.
Social,
political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies
and financial markets and the Adviser’s investment advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations, cause a significant negative impact on the performance
of a Fund’s investments, adversely affect and increase the volatility of a Fund’s share price or
adversely affect the Fund’s ability to maintain
a stable $1.00 share price (as applicable), exacerbate
pre-existing political, social and economic risks to a Fund. A Fund’s
operations may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition,
governments, their regulatory agencies, or self-regulatory organizations may take actions that affect the instruments in
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which
a Fund invests, or the issuers of such instruments, in ways that could have a significant negative impact on a Fund’s investment
performance.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation. In a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep
money with the bank. To the extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would
generate a negative return on that investment.
Money
Market Fund Regulation
The
SEC and other government agencies continue to review the regulation of money market funds. As of the date of this Prospectus, the
SEC has proposed changes to the rules that govern money market funds. Legislative developments may also affect money market funds.
These changes and developments, if implemented, may affect the investment strategies, performance, yield, operating expenses and
continued viability of the Fund.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by collateral. These agreements typically involve the
acquisition by the Funds of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the repurchase agreements entered into by a Fund may include
U.S. government securities, municipal securities, corporate debt obligations, convertible securities and common and preferred
stock and may be of below investment grade quality. These securities are marked-to-market daily in order to maintain full collateralization
(typically purchase price plus accrued interest). The use of repurchase agreements involves certain risks. For example, if
the selling institution defaults on its obligation to repurchase the underlying securities at a time when the value of the securities
has declined, the Funds may incur a loss upon disposition
of them. The risk of such loss may be greater when utilizing collateral other than
U.S. government securities. In the event of an insolvency or bankruptcy by the selling institution, the Funds’ right to control
the collateral could be affected and result in certain
costs and delays. Additionally, if the proceeds from the liquidation of such collateral
after an insolvency were less than the repurchase price, the Funds could suffer a loss. Fund procedures are followed that are designed
to minimize such risks.
Municipals
The
Prime Portfolio may purchase municipal obligations subject to any restraints set forth under Rule 2a-7. Municipal obligations are
securities issued by state and local governments and their agencies. These securities typically are “general obligation”
or “revenue”bonds, notes or commercial
paper, including participations in lease obligations and installment purchase contracts of municipalities. These
obligations may have fixed, variable or floating rates. To the extent the Fund invests in municipal obligations issued by state and
local governments and their agencies, the Fund may be susceptible to political, economic, regulatory or other factors affecting issuers
of these municipal obligations. Municipal obligations are also subject to credit risk and interest risk. In the case of revenue bonds,
for example, credit risk is the possibility that the user fees from a project or other specified revenue sources are insufficient to meet
interest and/or principal payment obligations. The Fund is subject to added credit risk if it concentrates its investments in a single
economic sector, which could be effected by economic, business or political developments which might affect all municipal obligations
in that particular economic sector.
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Stanley Institutional Liquidity Funds Prospectus | Additional
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Additional
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Additional
Risks and Investment Strategies of the Funds
Investment
Companies
The
Funds may invest in investment companies, including money market funds, and may invest all or some of their short-term cash investments
in any money market fund advised or managed by the Adviser or its affiliates (an “affiliated money market fund”). An investment
in an investment company is subject to the underlying risks of that investment company’s portfolio securities. In addition to
a Fund’s fees and expenses, the Fund generally would bear its share of the investment company’s fees and expenses other
than advisory and administrative fees of affiliated
money market funds.
Promissory
Notes
Promissory
notes are generally debt obligations of the issuing entity and are subject to the risks of investing in the banking industry. The
Prime Portfolio may invest up to 5% of its net assets in illiquid securities, including unsecured bank promissory notes.
Large
Shareholder Transactions Risk
A
Fund may experience adverse effects when certain shareholders purchase or redeem large amounts of shares of a Fund. Such larger than
normal redemptions may cause a Fund to sell portfolio securities at times when it would not otherwise do so, which may negatively
impact a Fund’s NAV and liquidity. Similarly, large Fund share purchases may adversely affect a Fund’s performance to the
extent that a Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to shareholders if such sales of investments resulted in gains, and
may also increase transaction costs. In addition, a large redemption could result in a Fund’s current expenses being allocated
over a smaller asset base, leading to an increase in
a Fund’s expense ratio. Although large shareholder transactions may be more frequent under
certain circumstances, a Fund is generally subject to the risk that shareholders can purchase or redeem a significant percentage of
Fund shares at any time.
Investment
Discretion
In
pursuing a Fund’s investment objective, the Adviser has considerable leeway in deciding which investments it buys, holds or sells
on a day-to-day basis, and which trading strategies
it uses. For example, the Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such decisions will affect a Fund’s performance.
Temporary
Defensive Investments
When
the Adviser believes that changes in market, economic, political or other conditions warrant, each Fund may make investments for
temporary defensive purposes that may be inconsistent with a Fund’s principal investment strategies. In such circumstances, each
Fund may invest without limit in cash or cash equivalents.
If the Adviser incorrectly predicts the effects of these changes, such defensive
investments may adversely affect a Fund’s performance and the Fund may not achieve its investment objective.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Fund
Management
Fund
Management
Adviser
Morgan
Stanley Investment Management Inc. with principal offices at 522 Fifth Avenue, New York, NY10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser, which is the parent of the Distributor. Morgan Stanley
is a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment
banking, research and analysis, financing and financial advisory services. As of December 31, 2021, the Adviser, together with
its affiliated asset management companies, had approximately $1.6
trillion in assets under management or supervision.
A
discussion regarding the basis for the Board of Trustees’ approval of the Trust’s Investment Advisory Agreement is available
in the Funds’ Annual Report to shareholders for
the fiscal year ended October 31, 2021.
Advisory
Fees
The
Adviser makes investment decisions for the Funds. Each Fund, in turn, pays the Adviser a monthly advisory fee calculated daily by
applying an annual rate to each Fund’s daily net assets.
For
the fiscal year ended October 31, 2021, the Adviser received from each Fund the advisory fee (net of fee waivers, if applicable) set forth
in the table below.
Fund
(as a percentage of average daily net assets)
Prime
Portfolio
0.07%
Government
Portfolio
0.01%
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse a Fund’s Impact Class, if necessary, if such fees would cause the total annual operating expenses of
such Fund’s Impact Class to exceed the percentage of daily net assets set forth in the table below. In determining the actual amount
of fee waiver and/or expense reimbursement for each Fund, if any, the Adviser and Administrator exclude from total annual operating
expenses, acquired fund fees and expenses (as applicable), certain investment related expenses, taxes, interest and other extraordinary
expenses (including litigation). The fee waivers and/or expense reimbursements will continue for at least one year from the
date of this Prospectus or until such time as the Trust’s Board of Trustees acts to discontinue all or a portion of such waivers
and/or reimbursements when it deems such action is appropriate.
A
Fund’s annual operating expenses may vary throughout the period and from year to year. A Fund’s actual expenses may be different
than the expenses listed in the Fund’s fee and expense table based upon the extent and amount of a fee waiver and/or expense
reimbursement.
Expense
Cap Impact Class
Prime
Portfolio
0.20%
Government
Portfolio
0.20%
The
Adviser and Administrator may also waive advisory fees, administration fees and/or reimburse expenses to enable a Fund to maintain
a minimum level of daily net investment income. The Adviser and Administrator may make additional voluntary fee waivers
and/or expense reimbursements. The Adviser and Administrator may discontinue these voluntary fee waivers and/or expense reimbursements
at any time in the future.
The
Adviser will make a contribution from its own resources, annually after the end of each calendar year, to certain diversity, equity and
inclusion initiatives in an amount of 0.02% of the net annualized assets under management in the Impact Class of the relevant Fund,
provided that the gross annual yield of that Fund is 0.08% or greater. If the gross annual yield of the relevant share class is less
than 0.08%, the Adviser reserves the right to calculate
the contribution as 12.5% of the total net charged expenses after all applicable waivers
and reimbursements subject to 30 day notification to shareholders. The recipients of the contribution may include one or more
organizations that focus on any of the following: affordable housing, children’s health and nutrition and education, among other
diversity, equity and inclusion related causes. The Adviser maintains the option to increase this contribution in amount and/or frequency
in its sole discretion. The Adviser may
only decrease or terminate the contributions described above subject to approval from
the Board of Trustees. The Adviser will disclose, on
an annual basis, the amount of any contributions made and the recipients of
such contributions on the Funds’ website
at www.morganstanley.com/liquidity.
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Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
Information
The
Trust is designed for institutional investors seeking maximum current income and convenient liquidation privileges. The Funds are
particularly suitable for corporations, banks and other financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares
of the Government Portfolio are intended to qualify as eligible investments for federally
chartered credit unions pursuant to the applicable provisions of the Federal Credit Union Act and the National Credit Union
Administration. Shares of the Government Portfolio, however, may not qualify as eligible investments for particular state-chartered
credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether these Funds are permissible
investments under the law applicable to it.
Share
Class Arrangements
This
Prospectus offers Impact Class shares of each Fund. The Trust also offers other classes of shares through separate prospectuses. Certain
of these classes may be subject to different fees and expenses. For information regarding other share classes, contact the Trust or
your financial intermediary.
Minimum
Investment Amount
Impact
Class shares are available to direct Fund investors who at the time of initial purchase make a minimum investment of $50 million.
Investors investing in a Fund using the Adviser-hosted portal or an electronic portal not providing Fund shareholder services are
direct investors eligible to purchase Impact Class shares (subject to the minimum investment amount). The Adviser, in its sole discretion,
may waive the minimum initial investment amount in certain cases including, but not limited to, when the Adviser anticipates
the combined value of a client’s investments will meet or exceed the minimum.
Distributor
Shares
of the Funds are distributed exclusively through Morgan Stanley Distribution, Inc., a wholly-owned subsidiary of Morgan Stanley.
The Distributor receives no compensation from the Trust for distributing Impact Class shares of the Funds.
Valuation
of Shares
The
Prime Portfolio’s investments will be valued using market-based prices provided by an approved pricing service/vendor and the share
price of each rounded to a minimum of the fourth decimal place. The price of the Government Portfolio’s shares is based on the
amortized cost of the Fund’s securities. The amortized cost valuation method involves valuing a debt obligation in reference to
its cost rather than market forces. If the Adviser determines
that a valuation is not reflective of the security’s market value, such security is
valued at its fair value as determined in good faith under procedures established by and under the general supervision of the Board.
The
NAV of Government Portfolio is determined once daily and the NAV of Prime Portfolio is determined three times daily, normally
at the times set forth below, on each day that the NYSE is open (the “Pricing Time”), except when the following federal
holidays are observed: Columbus Day and Veterans Day.
Shares
will generally not be priced on days that the NYSE is closed, although Fund shares may be priced on such days if the Securities Industry
and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or part of the day. On
any business day when SIFMA recommends that the bond markets close early, a Fund reserves the right to close at or prior to the SIFMA
recommended closing time. If a Fund does so, it will cease granting same day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given on the next business day. The Fund may, however, elect to remain open
and price shares of each Fund on days where the NYSE is closed but the primary securities markets on which the Funds’ securities
trade remain open.
Government
Portfolio
As
of 5:00 p.m. Eastern time
Prime
Portfolio
As
of 8:00 a.m., 12:00 p.m. and 3:00 p.m. Eastern time
Pricing
of Fund Shares
Impact
Class shares of the Funds may be purchased or sold (redeemed) at the NAV next determined after the Fund receives your order
in good order and State Street Bank and Trust Company (the “Custodian”) receives monies credited by a Federal Reserve Bank
(“Federal Funds”) prior to the close of
the Federal Reserve Wire Network (“Fedwire”). You begin earning dividends the same day your
Impact Class shares are purchased provided the Fund receives your purchase amount in Federal Funds that day as set forth above.
Orders to purchase shares of a Fund must be received by the Fund prior to the following times to receive the NAV next determined:
for the Government Portfolio—5:00 p.m. Eastern time and for the Prime Portfolio—8:00 a.m., 12:00 p.m. or 3:00 p.m.
Eastern time. On any business day that the NYSE closes early, or when SIFMA recommends that the securities markets close early,
a Fund may close early and purchase orders received after such earlier closing times will be processed the following business day.
If the NYSE is closed due to inclement weather, technology problems or any other reason on a day it would normally be open for
business, or the NYSE has an unscheduled early closing on a day it has opened for business, a Fund reserves the right to treat such day
as a business day and accept purchase and redemption orders until, and calculate its NAV as of, the normally scheduled close of regular
trading on the NYSE for that day, or such time noted above, so long as the Adviser believes there generally remains an adequate
market to obtain reliable and accurate market quotations. A Fund may elect to remain open and price its shares on days
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
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Shareholder
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when
the NYSE is closed or closes early but on which SIFMA recommends that the bond markets remain open for all or part of the day.
Purchase orders received by the Funds and not funded by 6:45 p.m. Eastern time on the trade date may be subject to an overdraft
charge.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the disclosure of each Fund’s portfolio securities is
available in the Trust’s SAI.
How
To Purchase Shares
Impact
Class shares of the Funds may be purchased directly from the Fund.
Purchasing
Shares Directly From the Funds
Initial
Purchase You may open an account, subject
to acceptance by the Fund, and purchase Impact Class shares of a Fund by completing and signing a
New Account Application which you can obtain by calling Morgan Stanley Services Company Inc. or the Fund at (888) 378-1630 (which
is generally accessible weekdays 7:00 a.m.-6:00 p.m. Eastern time) and mailing it to Morgan Stanley Institutional Liquidity Funds,
c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO64121-9804. After submitting a completed New
Account Application to DST, you may wire Federal Funds (monies credited by a Federal Reserve Bank) to the Custodian. You should
instruct your bank to send a Federal Funds wire in a specified amount to the Custodian using the following wire instructions:
State
Street Bank and Trust Company One Lincoln Street Boston,
MA02111-2101 ABA #011000028 DDA
#00575399 Attn: Morgan Stanley Institutional Liquidity
Funds Subscription Account Ref: (Fund Name, Account
Number, Account Name) * For international investments
into the US funds, BIC Code: SBOSUS33XXX must be referenced, as well as the information listed above.
If
notification of your order is received prior to the time required by each respective Fund, as set forth above, and the Custodian receives
the funds the same day prior to the close of the Fedwire, then your purchase will become effective and begin to earn income on
that day. Otherwise, your purchase will be effective on the next business day.
Purchase
by Internet If you have properly authorized
the Internet Trading Option on your New Account Application and completed, signed and returned to
the Fund an Electronic Transactions Agreement, you may place a purchase order for additional shares online through Morgan Stanley’s
Treasury Investment Portal service at www.morganstanley.com/liquidity. For more information, call Morgan Stanley Services
Company Inc. at 1-888-378-1630.
You
are responsible for transmitting payments for shares purchased via the Internet in a timely fashion, as set forth above.
Additional
Investments You may make additional investments
of Impact Class shares at the NAV next determined after the request is received in good order or
by wiring Federal Funds to the Custodian as outlined above. State Street Bank and Trust Company must receive notification of receipt
of your Federal Funds wire by the time required by each respective Fund, as set forth above under “How To Purchase Shares.”
General
To
help the U.S. Government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person who opens an account. What this means to you is that
when you open an account, we will ask your name, address, date of birth and other information that will allow us to identify you.
If we are unable to verify your identity, we reserve the right to restrict additional transactions and/or liquidate your account at the
next calculated NAV after your account is closed (less any applicable sales/account charges and/or tax penalties) or take any other action
required by law. In accordance with federal law requirements, the Trust has implemented an anti-money laundering compliance
program, which includes the designation of an anti-money laundering compliance officer.
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How
To Redeem Shares
You
may redeem shares of a Fund by mail or, if authorized, by telephone, at no charge other than as described below. The value of shares
redeemed may be more or less than the purchase price, depending on the NAV at the time of redemption. Shares of a Fund will
be redeemed at the NAV next determined after we receive your redemption request in good order.
Redemptions
by Letter Requests should be addressed to
Morgan Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804,
Kansas City, MO64121-9804.
To
be in good order, redemption requests must include the following documentation:
(a)
A letter of instruction, if required, or a stock assignment specifying the account name, the account number, the name of the Fund and
the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which the
shares are registered, and whether you wish to receive the redemption proceeds by wire to the bank account we have on file for you;
(b)
Any required signature guarantees if you are requesting payment to anyone other than the registered owner(s) or that payment be sent
to any address other than the address of the registered owner(s) or pre-designated bank account; and
(c)
Other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianship, corporations, pension and
profit sharing plans and other organizations.
Redemptions
by Telephone You automatically have telephone
redemption and exchange privileges unless you indicate otherwise by checking the applicable box on
the New Account Application or calling the Fund to opt out of such privileges. You may request a redemption of shares of a Fund by
calling the Fund at 1-888-378-1630 and requesting that the redemption proceeds be mailed or wired to you. Telephone redemptions
and exchanges may not be available if you cannot reach the Fund by telephone, whether because all telephone lines are busy
or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption and exchange procedures described
in this section. Telephone instructions will be accepted if received by the Fund between 7:00 a.m. and 6:00 p.m. Eastern time
on any day the NYSE is open for business, except when the following federal holidays are observed: Columbus Day and Veterans
Day. Orders to redeem or exchange shares of a Fund must be received by the Fund prior to the applicable Fund’s final Pricing
Time of that day. Orders received after such Pricing Time will be processed the following business day. To opt out of telephone
privileges, please contact the Fund at 1-888-378-1630.
Redemptions
by Internet You may redeem shares online
through Morgan Stanley’s Treasury Investment Portal service at www.morganstanley.com/liquidity, provided
you have a pre-established Internet trading account, as set forth above under “How To Purchase Shares.” For more information,
call the Fund at 1-888-378-1630.
Redemption
Proceeds You will not earn a dividend on
the day your shares are sold. Orders to sell shares (redemption requests) will be processed on the day on
which they are received, provided they are received prior to the following times to receive the NAV next determined: for the Government
Portfolio—5:00 p.m. Eastern time and for the Prime Portfolio—3:00 p.m. Eastern time. On any business day that the NYSE
closes early, the Fund may close early and redemption requests received after such earlier closing times will be processed the following
business day. The Fund may elect to remain open on days when the NYSE is closed or closes early but on which SIFMA recommends
that the bond markets remain open for all or part of the day. Generally, payment for Fund shares sold will be made on the
day on which the order is processed, but under certain circumstances may not be made until the next business day. The Fund may
postpone and/or suspend redemption and payment beyond one business day only as follows: (a) for any period during which there
is a non-routine closure of the Fedwire or applicable Federal Reserve Banks; (b) for any period (i) during which the NYSE is closed
other than customary weekend and holiday closings or (ii) during which trading on the NYSE is restricted; (c) for any period during
which an emergency exists as a result of which (i) disposal of securities owned by the Fund is not reasonably practicable or (ii) it
is not reasonably practicable for the Fund to fairly determine the NAV of shares of the Fund; (d) for any period during which the SEC
has, by rule or regulation, deemed that (i) trading shall be restricted or (ii) an emergency exists; (e) for any period that the SEC may
by order permit; or (f) for any period during which the Fund as part of a necessary liquidation of a Fund, has properly postponed
and/or suspended redemption of shares and payment in accordance with federal securities laws. In addition, when SIFMA recommends
that the securities markets close early, payments with respect to redemption requests received subsequent to the recommended
close will be made the next business day (assuming that the Fund in fact closes).
Each
Fund typically expects to meet redemption requests by using a combination of sales of securities held by a Fund and/or holdings of
cash and cash equivalents. On a less regular basis, each Fund also reserves the right to use borrowings to meet redemption requests, and
each Fund may use these methods during both normal and stressed market conditions.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
If
we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you in part by
distributing to you readily marketable securities held by the Fund from which you are redeeming. Such in-kind securities may be illiquid
and difficult or impossible for a shareholder to sell at a time and at a price that a shareholder would like. Redemptions paid in such
securities generally will give rise to income, gain or loss for income tax purposes in the same manner as redemptions paid in cash. In
addition, you may incur brokerage costs and a further gain or loss for income tax purposes when you ultimately sell the securities.
Exchange
Privilege
Currently,
Impact Class shares are not eligible for exchange.
Telephone/Internet
Transactions
For
your protection, we will employ reasonable procedures to confirm that instructions communicated over the telephone/Internet are
genuine. These procedures may include requiring various forms of personal identification (such as name, mailing address, social security
number or other tax identification number and password/authorization codes, including PIN (Personal Identification Number)),
tape-recording telephone communications and providing written confirmation of instructions communicated by telephone/Internet.
If reasonable procedures are employed, none of Morgan Stanley, DST or the Fund will be liable for following telephone/Internet
instructions which it reasonably believes to be genuine. During periods of drastic economic or market changes, it is
possible that the telephone/Internet privileges may be difficult to implement, although this has not been the case with the Funds in the
past.
Frequent
Purchases and Redemptions of Fund Shares
We
expect the Funds to be used by shareholders for short-term investing. Therefore, reasonably frequent purchases and redemptions of
Fund shares by Fund shareholders do not present risks for other shareholders of a Fund, and the policies and procedures adopted by
the Board of Trustees/Directors as applicable to other funds in the Morgan Stanley family of funds are generally not applicable with
respect to frequent purchases and redemptions of Fund shares. However, frequent trading by shareholders can disrupt management
of the Funds and raise their respective expenses. Therefore, we may not accept any request for a purchase or exchange when
we think it is being used as a tool for market-timing, and we may bar a shareholder who trades excessively from making further purchases
for an indefinite period.
Distributions
The
Funds pass substantially all of their earnings along to their investors as “distributions.” The Funds earn interest from
fixed-income investments. These amounts are passed along
to Fund shareholders as “income dividend distributions.” Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them. These amounts may be passed along as “capital gain
distributions.” The Adviser does not anticipate
that there will be significant capital gain distributions.
The
Funds declare income dividends daily on each business day and pay them monthly to shareholders. Dividends are based on estimates
of income, expenses and shareholder activity for the Funds. Actual income, expenses and shareholder activity may differ from
estimates and differences, if any, will be included in the calculation of subsequent dividends. Short-term capital gains, if any, are
distributed periodically. Long-term capital gains, if
any, are distributed at least annually. The Funds automatically reinvest all dividends
and distributions in additional shares. However, you may elect to receive distributions in cash by checking the appropriate box
in the Distribution Option section on the Account Registration Form.
Liquidity
Fees and Redemption Gates—Prime Portfolio Under
Rule 2a-7, the Prime Portfolio will be permitted (or in some cases, may be required) to impose a liquidity fee on redemptions (up
to 2%) or temporarily restrict redemptions from the Fund for up to 10 business days during a 90 calendar day period (a “redemption
gate”), in the event that the Fund’s weekly liquid assets fall below the following thresholds:
•
30%
weekly liquid assets—If the weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, and the Board
of Trustees determines it is in the best interests of
the Fund, the Board of Trustees may impose a liquidity fee of no more than 2% of the
amount redeemed and/or a redemption gate that temporarily suspends the right of redemption. The liquidity fee or redemption
gate may be imposed at any point during the applicable business day, generally at the subsequent NAV calculation time
of the Fund following the determination of the Board of Trustees.
•
10%
weekly liquid assets—If the weekly liquid assets of the Fund fall below 10% of the Fund’s total assets as of the end
of a business day, the Fund must impose, at the beginning
of the next business day, a liquidity fee of 1% of the amount redeemed, unless
the Board of Trustees determines that imposing such a fee would not be in the best interests of the Fund or determines that a
lower or higher fee (not to exceed 2%) would be in the best interests of the Fund.
Liquidity
fees and redemptions gates may be terminated at any time in the discretion of the Board of Trustees. Liquidity fees and redemptions
gates will also terminate at the beginning of the next business day once the Fund has invested 30% or more of its total assets
in weekly liquid assets as of the end of a business day. The Fund may only suspend redemptions for up to 10 business days in any
90 calendar day period.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Weekly
liquid assets generally include: (a) cash; (b) direct obligations of the U.S. Government; (c) certain U.S. government agency discount
notes with remaining maturities of 60 days or less; (d) securities that will mature or are subject to a demand feature that is exercisable
and payable within five business days; or (e) amounts receivable and due unconditionally within five business days on pending sales of
portfolio securities.
If
the Fund imposes a redemption gate, the Fund will not accept redemption or exchange orders out of the Fund until the Fund has notified
shareholders that the redemption gate has been lifted. Any redemption or exchange orders out of the Fund submitted while a redemption
gate is in effect will be cancelled without further notice. If you still wish to redeem or exchange shares out of the Fund once
the redemption gate has been lifted, you will need to submit a new redemption or exchange request to the Fund. Unprocessed purchase
orders that the Fund received prior to notification of the imposition of a liquidity fee or redemption gate will be cancelled unless
re-confirmed. Under certain circumstances, the Fund may honor redemption or exchange orders out of the Fund (or pay redemptions
without adding a liquidity fee to the redemption amount) if the Fund can verify that the redemption or exchange order out
of the Fund was submitted to the Fund’s agent before the Fund imposed liquidity fees or suspended redemptions. Once a liquidity
fee or a redemption gate is in place, shareholders will not be permitted to exchange into or out of the Fund until the fee or gate
is terminated.
The
Board of Trustees generally expects that a liquidity fee or redemption gate would be imposed, if at all, during periods of extraordinary
market stress. The Board of Trustees generally expects that a redemption gate would be imposed prior to notification to shareholders
that a gate would be imposed. While the Board of Trustees may, in its discretion, impose a liquidity fee at any time after the
weekly liquid assets of the Fund fall below 30% of the Fund’s total assets, the Board of Trustees generally expects that a
liquidity fee would be imposed only after the Fund has
notified shareholders that a liquidity fee will be imposed. The Fund retains the liquidity
fees for the benefit of remaining shareholders.
The
Board of Trustees may, in its discretion, permanently suspend redemptions and liquidate the Fund if, among other things, the Fund,
at the end of a business day, has less than 10% of its total assets invested in weekly liquid assets. In the event of liquidation,
shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to such shareholders.
Announcements
regarding the imposition of liquidity fees or redemption gates, or the termination of liquidity fees or redemption gates,
will be filed with the SEC on Form N-CR and will be available on the website of the Fund (http://www.morganstanley.com/im).
In addition, the Fund will make such announcements through a supplement to its Prospectus and may make such announcements
through a press release or by other means.
Dividend
payments will not be subject to liquidity fees or redemption gates; however, in the event that a liquidity fee or redemption gate
is in place at the time that dividends are distributed, all distributions will be made in the form of cash.
Trade
corrections requested after a liquidity fee or redemption gate is imposed will be honored so long as the “as of” date of
the transaction to be processed is prior to the effective
time of the liquidity fee or redemption gate and a valid reason for the trade error is provided.
The
Government Portfolio is exempt from requirements that permit money market funds to impose a “liquidity fee” and/or a “redemption
gate” that temporarily restricts redemptions. The Board of Trustees has opted not to subject the Government Portfolio to
a “liquidity fee” and/or a “redemption gate” but has reserved its right to change this determination in the
future after providing appropriate notice to shareholders.
Taxes
The
tax information provided in this Prospectus is provided as general information. You should consult your own tax professional about
the tax consequences of an investment in a particular Fund.
It
is each Fund’s intention to qualify as a regulated investment company and distribute all or substantially all of its taxable and
tax-exempt income.
Except
as noted below, dividends you receive will generally be taxable, whether you receive them in cash or in additional shares. Income
dividend distributions and any short-term capital gain distributions are generally taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in a Fund. Distributions
paid by the Funds are not expected to be eligible for lower tax rates applicable to qualified dividends.
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares.
Dividends
paid by a Fund to shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and
qualifying U.S. source net interest income (including income from original issue discount and market discount), and that are designated
by the Fund as “interest-related dividends” or “short-term capital gain dividends,” will generally not be
subject to U.S. withholding tax, provided that the income
would not be subject to U.S. federal income tax if earned directly by the foreign shareholder.
However, depending on the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends
as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to a Fund to enable the Fund to determine whether withholding is required.
U.S.
investors will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous year.
The statement provides information on your dividends and any capital gains for
tax purposes.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
the Government Portfolio intends to maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when
they sell or exchange their shares in this Fund because the amount realized will be the same as their tax basis in the shares. Because
the Prime Portfolio does not maintain a stable share price, a sale of this Fund’s shares may result in capital gain or loss to
you.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
When
you open your account, you should provide appropriate tax documentation including your social security or tax identification number
on your investment application. By providing this information, you generally will avoid being subject to federal backup withholding
on taxable distributions and redemption proceeds at the applicable rate. Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.
It
is not expected that shareholders of the Funds would receive a charitable contribution or other tax benefit in respect of the Adviser’s
contributions.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service
Morgan
Stanley Institutional Liquidity Funds Prospectus | Shareholder
Information
Shareholder
Information (Con’t)
investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises clients and sponsors, manages or advises other investment funds
and investment programs, accounts and businesses (collectively, together with any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of investment objectives that in some
instances may overlap or
conflict with a Fund’s investment objectives and present conflicts of interest. In addition, Morgan Stanley may also from time
to time create new or successor Affiliated Investment
Accounts that may compete with a Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information. It is expected that confidential
or material nonpublic information regarding an investment or potential
investment opportunity may become available to the Adviser. If such information becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject to policies and procedures and any applicable
regulations, personnel, including personnel of the investment adviser, on one side of an information barrier may have access
to information and personnel on the other side of the information barrier through “wall crossings.” The Adviser faces conflicts
of interest in determining whether to engage in such
wall crossings. Information obtained in connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions. Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments. Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a transaction with or relating to the company
being sold or participating in any financing activity related to merger or acquisition.
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
Financial
Highlights
The
following financial highlights tables are intended to help you understand the financial performance of each Fund. Because Impact
Class shares have not yet commenced operations as of the date of this Prospectus, financial highlights for Institutional Class shares
are shown. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate
that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment of all dividends and distributions).
The
ratios of expenses to average net assets listed in the tables below for Institutional Class shares of each Fund are based on the average
net assets of the Fund for each of the periods listed in the tables. To the extent that a Fund’s average net assets decrease over
the Fund’s next fiscal year, such expense ratios
can be expected to increase, potentially significantly, because certain fixed costs will be spread
over a smaller amount of assets.
Year
Ended October 31,
Net
Asset Value, Beginning of
Period
Net Investment Income
Net
Realized and Unrealized Gain
(Loss) on Investments
Morgan
Stanley Institutional Liquidity Funds Prospectus | Financial
Highlights
The
information below has been derived from the financial statements audited by Ernst
& Young LLP, the Funds’ independent registered
public accounting firm. Ernst
& Young LLP’s report, along with each Fund’s
financial statements, are incorporated by reference
into the Funds’ SAI. The Annual Report to Shareholders (which includes each Fund’s financial statements) and SAI are available
at no cost from the Trust at the toll free number noted on the back cover to this Prospectus.
Net
Asset Value, End of
Period
Total Return
Net
Assets, End of Period (000)
Ratio
of Expenses to
Average Net Assets
Ratio
of Expenses to Average Net
Assets Excluding Interest
Expenses
Ratio
of Expenses to Average Net
Assets (Before Waivers/ Reimbursement)
Ratio
of Net Investment Income
to Average Net Assets
Ratio
of Net Investment Income
(Loss) to Average Net
Assets (Before Waivers/ Reimbursement)
$
1.0001
0.07
%
$
16,772,763
0.14
%
N/A
0.21
%
0.06
%
(0.01
)%
1.0001
0.83
%
20,230,517
0.13
%
N/A
0.21
%
0.81
%
0.73
%
1.0008
2.45
%
12,521,950
0.16
%
N/A
0.21
%
2.38
%
2.33
%
1.0005
1.84
%
7,679,347
0.15
%
N/A
0.21
%
1.87
%
1.81
%
1.0005
1.05
%
4,605,363
0.12
%
N/A
0.23
%
1.09
%
0.98
%
$
1.000
0.03
%
$
125,443,478
0.07
%
N/A
0.21
%
0.02
%
(0.12
)%
1.000
0.61
%
75,357,703
0.17
%
0.17
%
0.21
%
0.48
%
0.44
%
1.000
2.20
%
57,870,416
0.17
%
0.17
%
0.21
%
2.17
%
2.13
%
1.000
1.55
%
42,900,056
0.17
%
N/A
0.21
%
1.55
%
1.51
%
1.000
0.65
%
40,080,925
0.18
%
N/A
0.21
%
0.63
%
0.60
%
Notes
to Financial Highlights
(1)
Per
share amount is based on average shares outstanding
In
addition to this Prospectus, the Funds have an SAI dated February28, 2022(as may be supplemented from time to time),
which contains additional, more detailed information
about the Trust and the Funds. The SAI is incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus.
The
Trust publishes Annual and Semi-Annual Reports (“Shareholder Reports”) that contain additional information about the respective
Fund’s investments. In each Fund’s Annual Report to Shareholders, you will find a discussion of the market conditions and
the investment strategies that significantly affected such Fund’s performance during the last fiscal year. For additional Trust
information, including information regarding the investments
comprising each of the Funds, please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the Trust at the toll-free number below or on our Internet
site at: www.morganstanley.com/liquidity.
Shareholder
Reports and other information about the Funds are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Morgan
Stanley Institutional Liquidity Funds c/o DST Asset
Manager Solutions, Inc. P.O. Box 219804 KansasCity, MO64121-9804
For
Shareholder Inquiries, call the Trust toll-free
at 1-888-378-1630.
Morgan
Stanley Institutional Liquidity Funds (the “Trust”) is a mutual fund currently consisting of the following seven portfolios:
the ESG Money Market Portfolio, the Prime Portfolio,
the Government Portfolio, the Government Securities Portfolio, the Treasury Portfolio,
the Treasury Securities Portfolio and the Tax-Exempt Portfolio (each a “Fund” and collectively the “Funds”).
Each Fund offers the following classes of shares: Institutional
Class, Institutional Select Class, Investor Class, Administrative Class, Advisory Class,
Participant Class and Cash Management Class. The Government Portfolio, the Treasury Portfolio and the Treasury Securities Portfolio
also offer Select Class shares. The ESG
Money Market Portfolio and Government Portfolio offer CastleOak Class shares. The
Government Portfolio and Prime Portfolio offer Impact Class shares. The Funds
are designed to provide investors with a variety of
liquidity options. This Statement of Additional Information (the “SAI”) sets forth information about the Trust and information
applicable to the Funds. This SAI is not a prospectus
but should be read in conjunction with the Funds’ Prospectuses relating to the Institutional
Class, Institutional Select Class, Investor Class, Administrative Class, Advisory Class, Participant Class, Cash Management
Class, Select Class, CastleOak
Class and Impact
Class dated February 28,
2022, as may be supplemented from time to time.
To obtain any of these Prospectuses, please call Shareholder Services at the number indicated below. The Funds’ most recent Annual
Report to Shareholders is a separate document supplied with this SAI.
The
following discussion of each Fund’s investments and risks should be read in conjunction with the sections of the Funds’
Prospectuses entitled “Principal Investment Strategies,”“Principal Risks,”“Approach,” and “Additional Information about the Funds’
Investment Strategies and Related Risks.” The Funds’ investments are limited by the quality, maturity and diversification
requirements adopted under Rule 2a-7 of the Investment
Company Act of 1940, as amended (“Rule 2a-7” of the “1940 Act”). In addition,
each Fund is “diversified” and, as such, each Fund’s investments are required to meet certain diversification requirements
under federal securities laws.
Morgan
Stanley Investment Management Inc. is the adviser (the “Adviser” or “MSIM”) to each Fund.
Agencies.
Agencies refer to fixed-income securities issued or guaranteed by federal agencies and U.S. government sponsored instrumentalities.
They may or may not be backed by the full faith and credit of the United States. If they are not backed by the full faith
and credit of the United States, the investor must look principally to the agency or instrumentality issuing or guaranteeing the obligation
for ultimate repayment, and may not be able to assert a claim against the United States itself in the event the agency or instrumentality
does not meet its commitment. Agencies that are backed by the full faith and credit of the United States include the Export-Import
Bank, Farmers Home Administration, Federal Financing Bank and others. Certain debt issued by Resolution Funding
Corporation has both its principal and interest backed by the full faith and credit of the U.S. Treasury in that its principal is backed
by U.S. Treasury zero coupon issues, while the U.S. Treasury is explicitly required to advance funds sufficient to pay interest on
it, if needed. Certain agencies and instrumentalities, such as the Government National Mortgage Association (“Ginnie Mae”),
are, in effect, backed by the full faith and credit
of the United States through provisions in their charters that they may make “indefinite and
unlimited” drawings on the Treasury if needed to service their debt. Debt from certain other agencies and instrumentalities, including
the Federal Home Loan Banks, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage
Corporation (“Freddie Mac”), are not guaranteed by the United States, but those institutions are protected by the discretionary
authority of the U.S. Treasury to purchase certain amounts of their securities to assist them in meeting their debt obligations.
Finally, other agencies and instrumentalities, such as the Farm Credit System, are federally chartered institutions under U.S.
Government supervision, but their debt securities are backed only by the creditworthiness of those institutions, not the U.S. Government.
Some of the U.S. government agencies that issue or guarantee securities include the Export-Import Bank of the United States,
Farmers Home Administration, Federal Housing Administration, Maritime Administration, Small Business Administration and
the Tennessee Valley Authority.
An
instrumentality of the U.S. Government is a government agency organized under federal charter with government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan Banks, the Federal Land Bank, Central
Bank for Cooperatives, Federal Intermediate Credit Banks and Fannie Mae.
U.S.
Government Securities. U.S. government securities
refer to a variety of fixed-income securities issued or guaranteed by the U.S. Government
and its various instrumentalities and agencies. The U.S. government securities that certain Funds may purchase include U.S.
Treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government. In addition, certain Funds may purchase
securities issued by agencies and instrumentalities of the U.S. Government that are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are Ginnie Mae and the Federal Housing Administration.
Certain Funds may also purchase securities issued by agencies and instrumentalities that are not backed by the full faith
and credit of the United States, but whose issuing agency or instrumentality has the right to borrow, to meet its obligations, from
the U.S. Treasury. Among these agencies and instrumentalities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
Further, certain Funds may purchase securities issued by agencies and instrumentalities that are backed solely by the credit of the
issuing agency or instrumentality. Among these agencies and instrumentalities is the Federal Farm Credit System.
Asset-Backed
Securities. Certain Funds may invest in asset-backed
securities. Asset-backed securities utilize the securitization techniques
used to develop MBS. These techniques are also applied to a broad range of other assets. Various types of assets, primarily automobile
and credit card receivables and home equity loans, are being securitized in pass-through structures similar to the mortgage pass-through
structures. These types of securities are known as asset-backed securities. A Fund may invest in any type of asset-backed security.
Asset-backed securities have risk characteristics similar to MBS. Like MBS, they generally decrease in value as a result of interest
rate increases, but may benefit less than other fixed-income securities from declining interest rates, principally because of prepayments.
Also, as in the case of MBS, prepayments generally increase during a period of declining interest rates although other factors,
such as changes in credit use and payment patterns, may also influence prepayment rates. Asset-backed securities also involve the
risk that various federal and state consumer laws and other legal, regulatory and economic factors may result in the collateral backing
the securities being insufficient to support payment on the securities.
Bank
Obligations. Bank obligations include certificates
of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances,
time deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a
bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition, certain
Funds may invest in U.S. dollar-denominated obligations
issued or guaranteed by foreign banks that have more than $1 billion in total
assets at the time of purchase, U.S. branches or subsidiaries of such foreign banks (Yankee obligations), foreign branches of such
foreign
banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may
be general obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by U.S.
government regulation.
If
a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected
by favorable and adverse developments in or related
to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive
regulations, which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have included
increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors, such as interest rate changes and adverse developments in the real estate
markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset
quality and thereby impact the earnings and financial conditions of banks.
Investment
Company Securities. In accordance with Rule 2a-7
under the 1940 Act, a money market fund (such as a Fund) is permitted
to invest in securities issued by a registered investment company that also is a money market fund. The Funds (other
than the Treasury Securities Portfolio)may, to the
extent noted in the Fund’s non-fundamental limitations, invest in investment company securities
as may be permitted by (i) the 1940 Act; (ii) the rules and regulations promulgated by the SEC under the 1940 Act; or (iii) an
exemption or other relief applicable to the Fund from provisions of the 1940 Act. The 1940 Act generally prohibits an investment company
from acquiring more than 3% of the outstanding voting shares of an investment company and limits such investments to no
more than 5% of a Fund’s total assets in any one investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits a Fund from acquiring
in the aggregate more than 10% of the outstanding voting shares of any
registered closed-end investment company. A Fund may invest in investment company securities of investment companies managed
by the Adviser or its affiliates to the extent permitted under the 1940 Act or as otherwise authorized by the SEC. To the extent
a Fund invests a portion of its assets in investment company securities, those assets will be subject to the risks of the purchased investment
company’s portfolio securities, and a shareholder in the Fund will bear not only his proportionate share of the expenses of the
Fund, but also, indirectly the expenses of the purchased investment company. The SEC has adopted changes to the regulatory framework
governing investments by investment companies in other investment companies, which may adversely affect a Fund’s ability
to invest in one or more investment companies in excess of applicable statutory limits.
To
the extent permitted by applicable law, each Fund (other
than the Treasury Securities Portfolio)may
invest all or some of its short-term cash investments
in any money market fund advised or managed by the Adviser or its affiliates. In connection with any such
investments, each Fund, to the extent permitted by the 1940 Act, will pay its share of all expenses (other than advisory and administrative
fees) of a money market fund in which it invests, which may result in the Fund bearing some additional expenses. The rules
governing money market funds: (1) permit (and, under certain circumstances, require) certain money market funds to impose a “liquidity
fee” (up to 2%), or a “redemption gate” that temporarily restricts redemptions from a money market fund, if weekly
liquidity levels fall below the required regulatory
threshold, and (2) require “institutional money market funds” to operate with a floating
net asset value per share (“NAV”) rounded to a minimum of the fourth decimal place in the case of a fund with a $1.0000
share price or an equivalent or more precise level of
accuracy for money market funds with a different share price (e.g., $10.000 per share,
or $100.00 per share). These may affect the investment strategies, performance and operating expenses of money market funds. If
a Fund invests in the Government Portfolio, the Government Securities Portfolio, the Treasury Portfolio or the Treasury Securities Portfolio,
such requirements do not currently apply.
Corporates.
Corporates are fixed-income
securities issued by private businesses. Holders, as
creditors, have a prior legal claim over holders of
equity securities of the issuer as to both income and assets for the principal and interest due to the holder. The
Funds will buy corporates subject
to any quality constraints set forth under Rule 2a-7.
Custodial
Receipts. Certain Funds may invest in custodial
receipts representing interests in U.S. government securities, municipal obligations
or other debt instruments held by a custodian or trustee. Custodial receipts evidence ownership of future interest payments,
principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. Government, its agencies,
instrumentalities, political subdivisions or authorities, by a state or local governmental body or authority, or by other types of
issuers. For certain securities law purposes, custodial receipts are not considered obligations of the underlying issuers. In addition,
if for tax purposes a Fund is not considered to be the
owner of the underlying securities held in the custodial account, the Fund may suffer
adverse tax consequences. As a holder of custodial receipts, a Fund will bear its proportionate share of the fees and expenses charged
to the custodial account.
Industrial
Development and Pollution Control Bonds. The Tax-Exempt
Portfolio may invest more than 25% of its total assets in industrial
development and pollution control bonds (two kinds of tax-exempt municipal bonds) whether or not the users of the facilities
financed by such bonds are in the same industry. In cases where such users are in the same industry, there may be additional risk
to the Fund in the event of an economic downturn in such industry, which may result generally in a lowered need for such facilities
and a lowered ability of such users to pay for the use of such facilities.
Lease
Obligations. Included within the revenue bonds category
in which a Fund may invest are participations in lease obligations or installment
purchase contracts (hereinafter collectively called “lease obligations”) of municipalities. State and local governments,
agencies or authorities issue lease obligations to acquire
equipment and facilities. Lease obligations may have risks not normally associated
with general obligation or other revenue bonds. Leases, and installment purchase or conditional sale contracts (which may provide
for title to the leased asset to pass eventually to the issuer), have developed as a means for governmental issuers to acquire property
and equipment without the necessity of complying with the constitutional and statutory requirements generally applicable for
the issuance of debt. Certain lease obligations contain “non-appropriation” clauses that provide that the governmental issuer
has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the appropriate legislative
body on an annual or other periodic basis. Consequently, continued lease payments on those lease obligations containing “non-appropriation”
clauses are dependent on future legislative actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including disposition of the property.
In
addition, lease obligations do not have the depth of marketability associated with more conventional municipal obligations, and, as
a result, certain of such lease obligations may be considered illiquid securities. The Adviser, pursuant to procedures adopted by the
Trustees, will make a determination as to the liquidity
of each lease obligation purchased by the Funds. If a lease obligation is determined
to be “liquid,” the security will not be included within the category “illiquid securities.”
Variable
Rate and Floating Rate Obligations. A Fund may invest
in variable rate and floating rate obligations. Subject to the conditions
for using amortized cost valuation under the 1940 Act, a Fund may consider the maturity of a variable or floating rate obligation
to be shorter than its ultimate stated maturity if the obligation is issued or guaranteed by the U.S. Government or its various
instrumentalities and agencies, if the obligation has a remaining maturity of 397 calendar days or less or if the obligation has a demand
feature that permits the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The interest
rate payable, on a variable rate obligation, is adjusted at pre-designated periodic intervals and, on a floating rate obligation, whenever
there is a change in the market rate of interest on which the interest rate payable is based. Other features may include the right
whereby a Fund may demand prepayment of the principal amount of the obligation prior to its stated maturity and the right of the
issuer to prepay the principal amount prior to maturity. The principal benefit of a variable rate obligation is that the interest rate
adjustment minimizes changes in the market value of
the obligation. As a result, the purchase of variable rate and floating rate obligations
should enhance the ability of a Fund to maintain a stable NAV, as applicable, and to sell obligations prior to maturity at a price
that is approximately the full principal amount of the obligations. The principal benefit to a Fund of purchasing obligations with
a demand feature is that liquidity, and the ability of the Fund to obtain repayment of the full principal amount of an obligation prior
to maturity, is enhanced. The payment of principal and interest by issuers of certain obligations purchased by a Fund may be guaranteed
by letters of credit or other credit facilities offered by banks or other financial institutions. Such guarantees will be considered
in determining whether an obligation meets a Fund’s investment quality requirements. A Fund may purchase variable or floating
rate obligations from the issuers or may purchase certificates of participation, a type of variable or floating rate obligation, which
are interests in a pool of debt obligations held by a bank or other financial institution. Certain of the variable rate obligations may
be in the form of preferred shares of registered closed-end investment companies.
Adjustable
Rate Government Securities. Adjustable rate government
securities are variable rate securities where the variable rate of interest
is readjusted no less frequently than every 397 calendar days and deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate.
Promissory
Notes. Promissory notes are generally debt obligations
of the issuing entity and are subject to the risks of investing in corporate
debt. Certain Funds may invest up to 5% of their net assets in illiquid securities, including unsecured bank promissory notes.
Funding
Agreements. A funding agreement is a contract between
an issuer and a purchaser that obligates the issuer to pay a guaranteed
rate of interest on a principal sum deposited by the purchaser. Funding agreements will also guarantee the return of principal
and may guarantee a stream of payments over time. A funding agreement has a fixed maturity and may have either a fixed, variable
or floating interest rate that is based on an index and guaranteed for a fixed time period. The secondary market, if any, for these
funding agreements is limited; thus, such investments purchased by the Funds may be treated as illiquid.Certain Funds may invest
up to 5% of their net assets in illiquid securities, including funding agreements.
Repurchase
Agreements. Repurchase agreements are transactions
in which a Fund purchases a security or basket of securities and simultaneously
commits to resell that security or basket to the seller (a bank, broker or dealer) at a mutually agreed-upon date and price.
The resale price reflects the purchase price plus an agreed-upon market rate of interest which is unrelated to the coupon rate or date
of maturity of the purchased security. The term of these agreements usually ranges from overnight to one week, and never exceeds
one year. Repurchase agreements with a term of over seven days are considered illiquid.
In
these transactions, a Fund receives securities that have a market value at least equal to the purchase price (including accrued interest)
of the repurchase agreement, and this value is maintained during the term of the agreement. These securities are held by the Trust’s
custodian or an approved third party for the benefit of a Fund until repurchased. Repurchase agreements permit a Fund to
remain
fully invested while retaining overnight flexibility to pursue investments of a longer-term nature. If the seller defaults and the value
of the repurchased securities declines, a Fund might incur a loss. If bankruptcy proceedings are commenced with respect to the seller,
a Fund’s realization upon the collateral may be delayed.
While
repurchase agreements involve certain risks not associated with direct investments in debt securities, each Fund follows procedures
approved by the Trustees that are designed to minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions whose financial condition will be continually monitored
by the Adviser. In addition, the value of the collateral underlying the repurchase agreement will be at least equal to the repurchase
price, including any accrued interest earned on the repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Funds will seek to liquidate such collateral. However, the exercising of a Fund’s right to liquidate
such collateral could involve certain costs or delays
and, to the extent that proceeds from any sale upon a default of the obligation to repurchase
were less than the repurchase price, the Fund could suffer a loss. Certain Funds may invest in repurchase agreements backed
by municipal securities and non-governmental collateral such as corporate debt obligations, convertible securities and common
and preferred stock. Certain of these securities may be rated below investment grade.
Repurchase
agreements involving obligations other than U.S. government securities may be subject to special risks. Repurchase agreements
secured by obligations that are not eligible for direct investment under a Fund’s investment objectives and restrictions may
require the Fund to promptly dispose of such collateral if the seller or guarantor becomes insolvent. A Fund may enter into repurchase
agreements on a forward commitment basis. To the extent a Fund does so and the counterparty to the trade fails to effectuate
the trade at the scheduled time, the Fund may be forced to deploy its capital in a repurchase agreement with a less favorable rate
of return than it otherwise may have achieved or may be unable to enter into a repurchase agreement at all at the desired time.
A
Fund will not invest in repurchase agreements that do not mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amount to more than 5% of its net assets. A Fund’s investments in repurchase agreements may
at times be substantial when, in the view of the Fund’s
Adviser, liquidity or other conditions warrant.
Reverse
Repurchase Agreements. The Funds (other than the
Treasury Securities Portfolio) may also use reverse repurchase agreements
as part of their investment strategies. Reverse repurchase agreements involve sales by a Fund of portfolio assets concurrently
with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while it will be able to keep the interest income associated with those portfolio securities. Such transactions
are only advantageous if the interest cost to a Fund of the reverse repurchase transaction is less than the cost of otherwise obtaining
the cash. Opportunities to achieve this advantage may not always be available, and each Fund intends to use the reverse repurchase
technique only when it will be to its advantage to do so. Each Fund will also earmark or segregate cash or liquid assets or establish
a segregated account with its custodian bank in which it will maintain cash or liquid assets equal in value to its obligations in respect
of reverse repurchase agreements. Reverse repurchase agreements are considered borrowings by a Fund and for purposes other than
meeting redemptions may not exceed 5% of a Fund’s total assets. All forms of borrowing (including reverse repurchase agreements)
are limited in the aggregate and may not exceed 33⅓%
of a Fund’s total assets, except as permitted
by law. See “Leveraging,” below, for a
description of leverage risk.
Private
Placements. The Funds (other
than the Treasury Securities Portfolio)may
invest in commercial paper issued in reliance on the
so-called “private placement” exemption afforded by Section 4(a)(2) of the Securities Act of 1933 (the “1933 Act”)
and which may be sold to other institutional investors
pursuant to Rule 144A under the 1933 Act. Rule 144A permits the Funds to sell restricted
securities to qualified institutional buyers without limitation. However, investing in Rule 144A securities could have the effect
of increasing the level of Fund illiquidity to the extent a Fund, at a particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities.
Section
4(a)(2) and Rule 144A securities may involve a higher degree of business and financial risk that can result in substantial losses.
As a result of the absence of a public trading market for these securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than those
originally paid by a Fund or less than what may be considered the fair value of such securities. Furthermore, companies whose securities
are not publicly traded may not be subject to the disclosure and other investor protection requirements which might be applicable
if their securities were publicly traded. The illiquidity of the market, as well as the lack of publicly available information regarding
these securities, may also adversely affect the ability to arrive at a fair value for certain securities at certain times and could make
it difficult for a Fund to sell certain securities. If such securities are required to be registered under the securities laws of one
or more jurisdictions before being sold, a Fund may
be required to bear the expenses of registration.
The
Adviser, pursuant to procedures adopted by the Trustees, will make a determination as to the liquidity of each restricted security purchased
by the Funds. If a restricted security is determined to be “liquid,” the security will not be included within the category
“illiquid securities.”
Put
Options. A Fund may purchase securities together
with the right to resell them to the seller at an agreed-upon price or yield within
a specified period prior to the maturity date of such securities. Such a right to resell is commonly known as a “put,” and
the aggregate price which a Fund pays for securities
with puts may be higher than the price which otherwise would be paid for the securities.
The primary purpose of this practice is to permit a Fund to be fully invested in securities, the interest on which is exempt from
federal income tax, while preserving the necessary flexibility and liquidity to purchase securities on a when-issued basis, to meet unusually
large redemptions and to purchase at a later date securities other than those subject to the put. The Trust’s policy is, generally,
to exercise the puts on their expiration date, when the exercise price is higher than the current market price for the related securities.
Puts may be exercised prior to the expiration date in order to fund obligations to purchase other securities or to meet redemption
requests. These obligations may arise during periods in which proceeds from sales of Fund shares and from recent sales of portfolio
securities are insufficient to meet such obligations or when the funds available are otherwise allocated for investment. In addition,
puts may be exercised prior to their expiration date in the event the Adviser revises its evaluation of the creditworthiness of the
issuer of the underlying security. In determining whether to exercise puts prior to their expiration date and in selecting which puts
to exercise in such circumstances, the Adviser considers, among other things, the amount of cash available to the Fund, the expiration
dates of the available puts, any future commitments for securities purchases, the yield, quality and maturity dates of the underlying
securities, alternative investment opportunities and the desirability of retaining the underlying securities in the Fund’s portfolio.
Each
Fund values securities which are subject to puts at their amortized cost and values the put, apart from the security, at zero. Thus,
the cost of the put will be carried on a Fund’s books as an unrealized loss from the date of acquisition and will be reflected
in realized gain or loss when the put is exercised or
expires. Since the value of the put is dependent on the ability of the put writer to meet
its obligation to repurchase, the Trust’s policy is to enter into put transactions only with municipal securities dealers who are
approved by the Trust’s Trustees. Each dealer
will be approved on its own merits and it is the Trust’s general policy to enter into put transactions
only with those dealers which are determined to present minimal credit risks. In connection with such determination, the
Adviser will review, among other things, the ratings, if available, of equity and debt securities of such municipal securities dealers,
their reputations in the municipal securities markets,
the net worth of such dealers and their efficiency in consummating transactions. Bank
dealers normally will be members of the Federal Reserve System, and other dealers will be members of the Financial Industry Regulatory
Authority (“FINRA”) or members of a national securities exchange. The Trustees have directed the Adviser not to enter into
put transactions with, and to exercise outstanding puts of, any municipal securities dealer which, in the judgment of the Adviser, ceases
at any time to present a minimal credit risk. In the event that a dealer should default on its obligation to repurchase an underlying
security, a Fund is unable to predict whether all or any portion of any loss sustained could be subsequently recovered from such
dealer.
In
Revenue Ruling 82-144, the Internal Revenue Service (“IRS”) stated that, under certain circumstances, a purchaser of tax-exempt
obligations which are subject to puts will be considered
the owner of the obligations for federal income tax purposes.
Municipals.
Municipal securities include debt obligations of states, territories or possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the income on which is generally exempt from federal income
tax at the time of issuance, in the opinion of bond counsel or other counsel to the issuers of such securities. Municipals include
both municipal bonds (those securities with maturities of five years or more) and municipal notes (those with maturities of less
than five years). Municipal bonds are issued for a wide variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets,
water and sewer works; to obtain funds for operating expenses; to refund outstanding
municipal obligations; and to loan funds to various public institutions and facilities. Certain industrial development bonds
are also considered municipal bonds if their interest is exempt from federal income tax. Industrial development bonds are issued
by, or on behalf of, public authorities to obtain funds for various privately-operated manufacturing facilities, housing, sports arenas,
convention centers, airports, mass transportation systems and water, gas or sewage works. Industrial development bonds are ordinarily
dependent on the credit quality of a private user, not the public issuer. Private activity bonds are another type of municipal security.
The
two principal classifications of municipal bonds are “general obligation” and “revenue” or “special
tax” bonds. General obligation bonds are secured
by the issuer’s pledge of its full faith, credit and taxing power for the payment of principal and interest. Thus,
these bonds may be vulnerable to limits on a government’s power or ability to raise revenue or increase taxes and its ability to
maintain a fiscally sound budget. The timely payments
may also be influenced by any unfunded pension liabilities or other post-employee
benefit plan liabilities. These bonds may also depend on legislative appropriation and/or funding or other support from other
governmental bodies in order to make payments. Revenue or special tax bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other tax, but not from general
tax revenues. As a result, these bonds historically
have been subject to a greater risk of default than general obligation bonds because investors
can look only to the revenue generated by the project or other revenue source backing the project, rather than to the general taxing
authority of the state or local government issuer of the obligations.
Industrial
revenue bonds in most cases are revenue bonds and generally do not have the pledge of the credit of the issuer. The payment
of the principal and interest on such industrial revenue bonds is dependent solely on the ability of the user of the facilities financed
by the bonds to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such
payment. Short-term municipal obligations issued by states, cities, municipalities or municipal agencies, include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and short-term discount notes.
Private
activity bonds may be used by municipalities to finance the development of industrial facilities for use by private enterprise. Principal
and interest payments are to be made by the private enterprise benefitting from the development, which means that the holder
of the bond is exposed to the risk that the private issuer may default on the bond. The credit and quality of private activity bonds
and industrial development bonds are usually related to the credit of the corporate user of the facilities. Payment of interest on and
repayment of principal of such bonds is the responsibility of the corporate user (and/or any guarantor).
Municipal
notes are issued to meet the short-term funding requirements of local, regional and state governments. Municipal notes include
bond anticipation notes, revenue anticipation notes and tax and revenue anticipation notes. These are short-term debt obligations
issued by state and local governments to aid cash flows while waiting for taxes or revenue to be collected, at which time the
debt is retired. Other types of municipal notes in which a Fund may invest are construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes and similar instruments.
Municipal
bonds generally include debt obligations issued by states and their political subdivisions, and duly constituted authorities and
corporations, to obtain funds to construct, repair or improve various public facilities such as airports, bridges, highways, hospitals,
housing, schools, streets and water and sewer works. Municipal bonds may also be issued to refinance outstanding obligations
as well as to obtain funds for general operating expenses and for loans to other public institutions and facilities. In addition,
municipal bonds may include obligations of municipal housing authorities and single-family mortgage revenue bonds. Weaknesses
in federal housing subsidy programs and their administration may result in a decrease of subsidies available for payment of
principal and interest on housing authority bonds. Economic developments, including fluctuations in interest rates and increasing construction
and operating costs, may also adversely impact revenues of housing authorities. In the case of some housing authorities, inability
to obtain additional financing could also reduce revenues available to pay existing obligations. Single-family mortgage revenue
bonds are subject to extraordinary mandatory redemption at par in whole or in part from the proceeds derived from prepayments
of underlying mortgage loans and also from the unused proceeds of the issue within a stated period which may be within
a year from the date of issue.
Note
obligations with demand or put options may have a stated maturity in excess of one year, but permit any holder to demand payment
of principal plus accrued interest upon a specified number of days’ notice. Frequently, such obligations are secured by letters
of credit or other credit support arrangements provided
by banks. The issuer of such notes normally has a corresponding right, after a given
period, to repay at its discretion the outstanding principal of the note plus accrued interest upon a specific number of days’
notice to the bondholders. The interest rate on a demand
note may be based upon a known lending rate, such as the prime lending rate,
and be adjusted when such rate changes, or the interest rate on a demand note may be a market rate that is adjusted at specified intervals.
Each note purchased by the Funds will meet the quality criteria set out in the applicable Prospectus for the Fund.
The
yields of municipal bonds depend on, among other things, general money market conditions, conditions in the municipal bond market,
the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of Moody’s and Standard
& Poor’s represent their opinions of the quality of the municipal bonds rated by them. It should be emphasized that such ratings
are general and are not absolute standards of quality. Consequently, municipal bonds with the same maturity, coupon and rating
may have different yields, while municipal bonds of the same maturity and coupon, but with different ratings, may have the same
yield. It will be the responsibility of the Adviser to appraise independently the fundamental quality of the bonds held by the Funds.
Municipal
bonds are sometimes purchased on a “when-issued” or “delayed-delivery” basis, which means a Fund has committed
to purchase certain specified securities at an agreed-upon
price when they are issued. The period between commitment date and issuance
date can be a month or more. It is possible that the securities will never be issued and the commitment canceled.
From
time to time proposals have been introduced before Congress to restrict or eliminate the federal income tax exemption for interest
on municipal bonds. Similar proposals may be introduced in the future.
Similarly,
from time to time proposals have been introduced before state and local legislatures to restrict or eliminate the state and local
income tax exemption for interest on municipal bonds. Similar proposals may be introduced in the future.
The
Funds may also purchase bonds the income on which is subject to the alternative minimum tax (“AMT bonds”). AMT bonds are
tax-exempt private activity bonds issued after August 7, 1986, the proceeds of which are directed, at least in part, to private, for-profit
organizations. While the income from AMT bonds is exempt from regular federal income tax, it is a tax preference item in the calculation
of the alternative minimum tax. The alternative minimum tax is a special separate tax that applies to some taxpayers who have
certain adjustments to income or tax preference items.
An
issuer of municipal securities may file for bankruptcy or otherwise seek to reorganize its debts by extending debt maturities, reducing
the amount of principal or interest, refinancing the debt or taking other measures, in each case which may significantly affect
the rights of creditors and the value of the municipal securities and the value of a Fund’s investments in such municipal securities.
In addition, changes to bankruptcy laws may adversely impact a Fund’s investments in municipal securities, including creditor
rights, if the issuer seeks bankruptcy protection.
Build
America Bonds are taxable municipal securities on which the issuer receives federal support of the interest paid. Assuming certain
specified conditions are satisfied, issuers of Build America Bonds may either (i) receive reimbursement from the U.S. Treasury with
respect to a portion of its interest payments on the bonds (“direct pay” Build America Bonds) or (ii) provide tax credits
to investors in the bonds (“tax
credit” Build America Bonds). Unlike most other municipal securities, interest received on Build America Bonds
is subject to federal and state income tax. Issuance of Build America Bonds ceased on December 31, 2010. The number of Build
America Bonds available in the market is limited, which may negatively affect the value of the Build America Bonds.
The
Funds may hold municipal private placements. These securities are sold through private negotiations, usually to institutions or mutual
funds, and generally have resale restrictions. Their yields are usually higher than comparable public securities to compensate the
investor for their limited marketability.
Tender
Option Bonds. A tender option bond is a municipal
obligation (generally held pursuant to a custodial arrangement) created by
dividing the income stream provided by an underlying municipal bond having a relatively long maturity and bearing interest at a fixed
rate substantially higher than prevailing short-term tax-exempt rates to create two securities issued by a special-purpose trust –
floating rate certificates and residual interest securities.
Tender option bonds are typically
issued in conjunction with the agreement of a third
party, such as a bank, broker-dealer or other financial institution, pursuant to which the institution grants the security holder the
option, at periodic intervals, to tender its securities to the institution. A Fund holds the class of interest, or floating rate certificate,
which receives tax-exempt interest based on short-term rates and has the ability to tender the certificate at par. As consideration
for providing the tender option, the financial institution receives periodic fees equal to the difference between the bond’s
fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the
tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds
a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. The tender option will be taken into account
in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk that a Fund may
not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest
as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of a credit rating
downgrade, a payment default or a disqualification from tax-exempt status. Additionally, the Dodd-Frank Act, including the Volcker
Rule, among other regulatory changes, may affect the ability of bank-sponsored tender option bonds to continue to operate or
remain cost-effective investments for a Fund.
Variable
Rate Master Demand Notes. These are obligations
that permit a Fund to invest fluctuating amounts, at varying rates of interest,
pursuant to direct arrangements between the Fund, as lender, and the borrower. These obligations permit daily changes in the
amounts borrowed. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued interest. Accordingly, where these obligations are not secured by letters
of credit or other credit support arrangements, a Fund’s right to redeem is dependent on the ability of the borrower to pay principal
and interest on demand.
When-Issued
Securities. Certain fixed income securities are
purchased on a “when-issued” basis. This means that the securities are purchased
at a certain price, but may not be delivered for up to 90 days. No payment or delivery is made until a Fund receives payment
or delivery from the other party to the transaction. Although a Fund receives no income from the above described securities prior
to delivery, the market value of such securities is still subject to change. As a consequence, it is possible that the market price of
the securities at the time of delivery may be higher
or lower than the purchase price. A Fund will also earmark cash or segregate liquid securities
or maintain with the custodian a segregated account consisting of cash or liquid securities in an amount at least equal to these
commitments.
Eurodollar
and Yankee Dollar Obligations. Certain Funds may
invest in Eurodollar and Yankee dollar obligations provided that such
obligations are U.S. dollar-denominated. Eurodollar and Yankee dollar obligations are fixed income securities that include time deposits,
which are non-negotiable deposits maintained in a bank for a specified period of time at a stated interest rate. Eurodollar obligations
may be issued by government and corporate issuers in Europe. Yankee dollar obligations, which include time deposits and certificates
of deposit, are U.S. dollar-denominated obligations issued in the U.S. capital markets by foreign banks. Eurodollar bank obligations,
which include time deposits and certificates of deposit, are U.S. dollar-denominated obligations issued outside the U.S. capital
markets by foreign branches of U.S. banks and by foreign banks. The Funds may consider Yankee dollar obligations to be domestic
securities for purposes of their investment policies.
Eurodollar
and Yankee dollar obligations are subject to the same risks as domestic issues, notably credit risk, market risk and liquidity risk.
However, Eurodollar (and to a limited extent, Yankee dollar) obligations are also subject to certain sovereign risks. One such risk is
the possibility that a sovereign country might prevent capital from flowing across its borders. Other risks include adverse political
and economic developments; the extent and quality of
government regulations of financial markets and institutions; the imposition of
foreign withholding taxes; and the expropriation or nationalization of foreign issuers.
Zero
Coupons. Zero coupons are fixed-income securities
on which the holder does not receive periodic cash payments of interest or principal.
Generally, these securities are subject to greater price volatility and lesser liquidity in the event of adverse market conditions than
comparably rated securities paying cash interest at regular intervals. Although a Fund will not receive cash periodic coupon payments
on these securities, the Fund may be deemed to have received interest income, or “phantom income” during the life of the
obligation. A Fund may have to distribute such phantom
income to avoid taxes at the Fund level, although it has not received any cash
payment.
Zero
coupons are sold at a discount from their face value. The difference between a zero coupon’s issue or purchase price and its face
value represents the imputed interest an investor will
earn if the obligation is held until maturity. For tax purposes, a portion of this imputed
interest is deemed as income received by zero coupon bondholders each year. Each Fund intends to pass along such interest as
a component of the Fund’s distributions of net investment income.
Zero
coupons may offer investors the opportunity to earn a higher yield than that available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon prices may also exhibit greater price volatility than ordinary fixed-income securities
because of the manner in which their principal and interest are returned to the investor.
Leveraging.
Each Fund may borrow money from a bank in an amount up to 33 1/3% of its respective total assets (including the amount
borrowed) less its liabilities (not including any borrowings but including the fair market value at the time of computation of any
other senior securities then outstanding). Each Fund will maintain asset coverage in accordance with the 1940 Act. Leveraging portfolio
assets has speculative characteristics. The use of leverage may cause a Fund to liquidate portfolio positions when it may not be
advantageous to do so in order to satisfy its obligations or to maintain asset coverage. Leverage, including borrowing, may cause a Fund
to be more volatile than if the Fund had not been leveraged. This is because leverage tends to exaggerate the effect of any increase
or decrease in the value of a Fund’s portfolio securities.
Regulatory
Matters. The Adviser, on behalf of each Fund, has
filed a notice of eligibility with the National Futures Association (“NFA”)
claiming an exclusion from the definition of the term “commodity pool operator” (“CPO”) pursuant to CFTC Regulation
4.5, as promulgated under the Commodity Exchange Act,
as amended (“CEA”), with respect to each Fund’s operations. Therefore, neither
the Funds nor the Adviser (with respect to the Funds) is subject to registration or regulation as a commodity pool or CPO under
the CEA. If the Adviser or a Fund becomes subject to these requirements, as well as related NFA rules, the Fund may incur additional
compliance and other expenses.
Regulatory
and Legal Risk. U.S. and non-U.S. governmental agencies
and other regulators regularly implement additional regulations
and legislators pass new laws that affect the investments held by a Fund, the strategies used by a Fund or the level of regulation
or taxation applying to a Fund (such as regulations related to investments in derivatives and other transactions). These regulations
and laws impact the investment strategies, performance, costs and operations of a Fund or taxation of shareholders.
Special
Risks Related to Cyber Security. The Trust and its
service providers are susceptible to cyber security risks that include, among
other things, theft, unauthorized monitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted
data; denial of service attacks; unauthorized access to relevant systems; compromises to networks or devices that the Trust and
its service providers use to service the Trust’s operations; or operational disruption or failures in the physical infrastructure
or operating systems that support the Trust and its
service providers. Cyber attacks against or security breakdowns of the Trust or its service
providers may adversely impact the Trust and its shareholders, potentially resulting in, among other things, financial losses; the
inability of Fund shareholders to transact business and a Fund to process transactions; inability to calculate a Fund’s NAV; violations
of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement or other compensation
costs; and/or additional compliance costs. The Trust may incur additional costs for cyber security risk management and
remediation purposes. In addition, cyber security risks may also impact issuers of securities in which a Fund invests, which may cause
a Fund’s investment in such issuers to lose value. There can be no assurance that the Trust or its service providers will not suffer
losses relating to cyber attacks or other information
security breaches in the future.
Market
and Geopolitical Risk. The value of your investment
in a Fund is based on the values of a Fund’s investments.
These values change daily due
to economic and other events that affect markets generally, as well as those that affect particular regions, countries, industries,
companies or governments. Price
movements, sometimes called volatility, may be greater or less depending on the types of securities
a Fund owns and the markets in which the securities trade. The increasing interconnectivity between global economies and financial
markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different
country, region or financial market. Securities in a Fund’s portfolio may underperform due to inflation (or expectations for inflation),
interest rates, global demand for particular products or resources, natural disasters, pandemics, epidemics, terrorism,
regulatory
events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years, such
as terrorist attacks around the world, natural disasters, social and political discord or debt crises and downgrades, among others, may
result in market volatility and may have long term effects on both the U.S. and global financial markets. The occurrence of such events
may be sudden and unexpected, and it is difficult to predict when similar events affecting the U.S. or global financial markets may
occur, the effects that such events may have and the duration of those effects. Any such event(s) could have a significant adverse impact
on the value, liquidity and risk profile of a Fund’s portfolio, as well as its ability to sell securities to meet redemptions.
There is a risk that you may lose money by investing
in a Fund.
Social,
political, economic and other conditions and events, such as war,
natural disasters, health emergencies (e.g., epidemics
and pandemics), terrorism, conflicts and social unrest,
may occur and could significantly impact issuers, industries, governments and other
systems, including the financial markets. As global systems, economies and financial markets are increasingly interconnected, events
that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region
or financial market will, more frequently, adversely impact issuers in other countries, regions or markets. These impacts can be exacerbated
by failures of governments and societies to adequately respond to an emerging event or threat. These types of events quickly
and significantly impact markets in the U.S. and across the globe leading to extreme market volatility and disruption. The extent
and nature of the impact on supply chains or economies and markets from these events is unknown, particularly if a health emergency
or other similar event, such as the recent COVID-19 (the “Coronavirus”) outbreak, persists for an extended period of time.
Social, political, economic and other conditions and events, such as natural disasters, health emergencies (e.g., epidemics and pandemics),
terrorism, conflicts and social unrest, could reduce consumer demand or economic output, result in market closures, travel
restrictions or quarantines, and generally have a significant impact on the economies and financial markets and the Adviser’s investment
advisory activities and services of other service providers, which in turn could adversely affect a Fund’s investments and other
operations. The value of a Fund’s investment may decrease as a result of such events, particularly if these events adversely impact
the operations and effectiveness of the Adviser or key service providers or if these events disrupt systems and processes necessary
or beneficial to the investment advisory or other activities on behalf a Fund.
Many
countries have experienced outbreaks of infectious illnesses in recent decades, including swine flu, avian influenza, SARS and the
Coronavirus,
and may experience similar outbreaks in the future. For example, the Coronavirus
outbreak has resulted in numerous deaths and the imposition
of both local and more widespread “work from home” and other quarantine measures, border closures
and other travel restrictions, causing social unrest and commercial disruption on a global scale and significant volatility in financial
markets.
The
ongoing spread of the Coronavirus has had, and is expected to continue to have, a material adverse impact on local economies in the
affected jurisdictions and also on the global economy, as cross border commercial activity and market sentiment are increasingly impacted
by the outbreak and government and other measures seeking to contain its spread. The global impact of the outbreak has been
rapidly evolving, and many countries have reacted by instituting quarantines and restrictions on travel. These actions are creating
disruption in supply chains, and adversely impacting a number of industries, including but not limited to retail, transportation,
hospitality and entertainment. In addition to these developments having adverse consequences for certain companies and
other issuers in which a Fund invests and the value of a Fund’s investments therein, the operations of the Adviser (including those
relating to the Fund) could be impacted adversely, including through quarantine measures and travel restrictions imposed on the
Adviser’s or service providers’ personnel located in affected countries, regions or local areas, or any related health issues
of such personnel. Any of the foregoing events could
materially and adversely affect the Adviser’s ability to source, manage and divest investments
on behalf of a Fund and pursue a Fund’s investment objectives and strategies. Similar consequences could arise with respect
to other infectious diseases. Given the significant economic and financial market disruptions and
general uncertainty associated with the Coronavirus
pandemic, the
valuation and performance of the Fund’s investments may be impacted adversely.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy tool to encourage economic growth during periods
of deflation.
In
a negative interest rate environment, debt instruments may trade at negative yields, which means the purchaser of the instrument may
receive at maturity less than the total amount invested. In addition, in a negative interest rate environment, if a bank charges negative
interest rates, instead of receiving interest on deposits, a depositor must pay the bank fees to keep money with the bank. To the
extent a Fund holds a debt instrument or has a bank deposit with a negative interest rate, a Fund would generate a negative return on
that investment.
In
light of current market conditions, interest rates and bond yields in the United States and many other countries are at or near historic
lows, and in some cases, such rates and yields are negative. During periods of very low or negative interest rates, a Fund’s susceptibility
to interest rate risk (i.e., the risks associated with changes in interest rates) may be magnified, its yield and income may be
diminished and its performance may be adversely affected (e.g., during periods of very low or negative interest rates, the Fund may be
unable to maintain positive returns). These levels of interest rates (or negative interest rates) may magnify the risks associated with
rising interest rates. Changing interest rates, including
rates that fall below zero, may have unpredictable effects on markets, including market
volatility and reduced liquidity, and may adversely affect a Fund’s yield, income and performance
and for a Fund that
operates
as an “institutional money market fund”, the Fund’s NAV (i.e., adversely affect and increase the volatility of the
Fund’s share price). For a Fund that operates
as a money market fund and uses the amortized cost method of valuation to seek to maintain a stable
NAV per share, a negative interest rate environment could impact the Fund’s ability to maintain a stable NAV per share at $1.00
and the Trustees may enact certain measures to seek to maintain a stable NAV per share at $1.00. See the “Offering Price”section for more details.
Government
and other public debt, including municipal obligations in which a Fund may invest, can be adversely affected by large and
sudden changes in local and global economic conditions that result in increased debt levels. Although high levels of government and
other public debt do not necessarily indicate or cause economic problems, high levels of debt may create certain systemic risks if sound
debt management practices are not implemented. A high debt level may increase market pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by a Fund that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns, can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in inflation or volatility. Increasing government and
other public debt may adversely affect issuers, obligors, guarantors or instruments across a variety of asset classes.
During periods of controversy or
uncertainty regarding the status of negotiations in the U.S. Congress to increase the statutory debt ceiling or other adverse
political or economic developments, the Adviser may take steps intended to mitigate the associated risks to the Fund’s portfolio
(such as by investing in longer or shorter duration U.S. government securities), which may be ineffective or otherwise adversely
impact the Fund’s performance.
ESG
Investment Risk. To the extent that a Fund considers
environmental, social and governance (“ESG”) criteria and application of related
analyses when selecting investments, the Fund’s performance may be affected depending on whether such investments are in or
out of favor and relative to similar funds that do not adhere to such criteria or apply such analyses. A
company’s ESG practices or the
Adviser’s assessment of such may change over time. Additionally,
a Fund’s adherence to its ESG criteria and application of related analyses
in connection with identifying and selecting investments may
require subjective analysis and may be difficult
if data about a particular company
is limited. A Fund’s consideration of ESG criteria
may result in the Fund buying certain
securities or forgoing opportunities
to buy certain securities.
A Fund’s investments in certain companies may
be susceptible to various factors that may impact its
businesses or operations, including the
effects of general economic conditions throughout the world, increased competition from
other providers of services, unfavorable tax laws or accounting policies and high leverage.
LIBOR
Discontinuance or Unavailability Risk. A Fund’s
investments, payment obligations and financing terms may be based on floating
rates, such as the
London Interbank Offered Rates (collectively, “LIBOR”), Euro
Interbank Offered Rate and other similar types of reference
rates (each, a “Reference Rate”). These Reference Rates are generally intended to represent the rate at which contributing
banks may obtain short-term borrowings from each other within certain financial markets. On July 27, 2017, the Chief Executive
of the UK Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that the FCA will no longer persuade
nor require banks to submit rates for the calculation of LIBOR and certain other Reference Rates after the end of 2021. Such
announcement indicates that the continuation of LIBOR and other Reference Rates on the current basis cannot and will not be guaranteed
after the end of 2021. On
March 5, 2021, the FCA announced that LIBOR will either cease to be provided by any administrator,
or no longer be representative for many LIBOR settings after December 31, 2021, and for certain commonly-used tenors
of U.S. dollar LIBOR after June 30, 2023. In advance
of 2022, regulators and market participants are currently engaged in identifying
successor Reference Rates (“Alternative Reference Rates”). When a Reference Rate is discontinued, the Alternative Reference
Rate may not have the same volume or liquidity and may be lower than market expectations, which could have an adverse impact
on the value of preferred and debt securities with floating or fixed-to-floating rate coupons. In addition, any Alternative Reference
Rate and any pricing adjustments imposed by a regulator or counterparties or otherwise may adversely affect a Fund’s performance
or NAV. At this time, it is not possible to completely identify or predict the effect of any such changes, any establishment
of Alternative Reference Rates or any other reforms to Reference Rates that may be enacted in the UK or elsewhere.
INVESTMENT
OBJECTIVES AND LIMITATIONS
Fundamental
Objectives/Limitations. Each Fund’s investment
objective has been adopted as fundamental and the Funds are subject
to the following restrictions which are also fundamental policies and may not be changed without the approval of the lesser of (1)
at least 67% of the voting securities of the respective Fund present at a meeting if the holders of more than 50% of the outstanding
voting securities of the Fund are present or represented by proxy, or (2) more than 50% of the outstanding voting securities
of the respective Fund.
As
a matter of fundamental policy, each Fund will not change its investment objective and will not:
1
invest
in physical commodities or contracts on physical commodities;
purchase
or sell real estate, although it may purchase and sell securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are secured by interests in real estate;
3
make
loans except: (i) by purchasing debt securities in accordance with its investment objectives and policies, or entering into repurchase
agreements, (ii) by lending its portfolio securities, and (iii) by lending Fund assets to other Funds of the Trust, so long
as such loans are not inconsistent with the 1940 Act, or the rules and regulations, or interpretations or orders of the SEC thereunder;
4
with
respect to 75% of its assets, purchase a security if, as a result, it would hold more than 10% (taken at the time of such investment)
of the outstanding voting securities of any issuer;
5
purchase
any securities other than obligations of U.S. regulated banks or of the U.S. Government, or its agencies or instrumentalities,
and, with respect to the Tax-Exempt Portfolio, industrial development bonds, if immediately after such purchase,
25% or more of the value of the Fund’s total assets would be invested in the securities of issuers in the same industry; there
is no limitation as to investments in bank obligations or in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, and, with respect to the Tax-Exempt Portfolio, to industrial development bonds where the users of the
facilities financed by such bonds are in the same industry;
6
with
respect to 75% of its assets, purchase securities of any issuer if, as a result, more than 5% of the Fund’s total assets,
taken at market value at the time of such investment,
would be invested in the securities of such issuer except that this restriction does not
apply to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities;
7
borrow
money, except (i) each Fund may borrow money from a bank in an amount up to 5% of its total assets; (ii) as a temporary
measure for extraordinary or emergency purposes, or to meet redemption requests which might otherwise require the untimely
disposition of securities; and (iii) in connection with reverse repurchase agreements, provided that (i), (ii) and (iii) in combination
do not exceed 33 1/3% of the Fund’s total assets (including the amount borrowed) less liabilities (exclusive of borrowings);
8
issue
senior securities as defined in the 1940 Act except insofar as the Trust may be deemed to have issued a senior security by reason
of (a) entering into any repurchase agreements or reverse repurchase agreements; (b) purchasing any securities on a when-issued
or delayed delivery basis; (c) borrowing money as set forth above; or (d) lending portfolio securities; and
9
underwrite
the securities of other issuers (except to the extent that the Trust may be deemed to be an underwriter within the meaning
of the 1933 Act in connection with the disposition of restricted securities).
In
addition, as a non-fundamental policy, each Fund will not invest its assets in securities of any investment company, except as permitted
by the 1940 Act or the rules, regulations, interpretations or orders of the SEC and its staff thereunder. Each Fund may invest
substantially all of its assets in a single open-end investment company or series thereof that has substantially the same investment
objectives, policies and restrictions as the Fund.
The
percentage limitations contained in these fundamental and non-fundamental limitations apply at the time of purchase of securities.
A later change in percentage resulting from changes in the value of a Fund’s assets or in total or net assets of the Fund will
not be considered a violation of the restriction and
the sale of securities will not be required unless otherwise noted or required. The foregoing
does not apply to borrowings. Future series of the Trust may adopt different limitations.
The
investment policies, limitations or practices of the Funds may not apply during periods of unusual or adverse market, economic, political
or other conditions. Such market, economic, political or other conditions may include periods of abnormal or heightened market
volatility, strained credit and/or liquidity conditions or increased governmental intervention in the markets or industries. During
such periods, a Fund may not invest according to its principal investment strategies or in the manner in which its name may suggest,
and may be subject to different and/or heightened risks. It is possible that such unusual or adverse conditions may continue for
extended periods of time. Although permitted under the fundamental policies set forth above, the Treasury Securities Portfolio will
not lend its portfolio securities or otherwise lend its assets.
For
purposes of policies adopted in accordance with Rule 35d-1 under the 1940 Act, the term “assets,” as defined in Rule 35d-1
under the 1940 Act, means net assets plus the amount
of any borrowings for investment purposes.
DISCLOSURE
OF PORTFOLIO HOLDINGS
The
Trust’s Board of Trustees and the Adviser have adopted policies and procedures regarding disclosure of portfolio holdings (the
“Policy”). Pursuant to the Policy, the
Adviser may disclose information concerning Trust portfolio holdings only if such disclosure is consistent
with the antifraud provisions of the federal securities laws and the Trust’s and the Adviser’s fiduciary duties to Trust
shareholders. In no instance may the Adviser or the
Trust receive compensation or any other consideration in connection with the disclosure
of information about the portfolio securities of the Trust. Consideration includes any agreement to maintain assets in the Trust
or in other investment companies or accounts managed by the Adviser or by any affiliated person of the Adviser. Non-public information
concerning portfolio holdings may be divulged to third parties only when the Trust has a legitimate business purpose for
doing
so and the recipients of the information are subject to a duty of confidentiality. Under no circumstances shall current or prospective
Trust shareholders receive non-public portfolio holdings information, except as described below.
In
order to comply with amendments to Rule 2a-7, information concerning the Trust’s portfolio holdings, as well as its daily weighted
average portfolio maturity and weighted average life, is posted on its public website no later than five business days after the end
of each month. It is also the current policy of the Trust to post this information on its website on a weekly basis. In addition, the
Trust also discloses on its website its market-based
NAV, daily and weekly liquid assets and daily net inflows and outflows as of each business
day for the preceding six months, as of the end of the preceding business day. The market-based NAV is for informational purposes
for each of the Government Portfolio, Government Securities Portfolio, Treasury Portfolio and Treasury Securities Portfolio,
which currently use an amortized cost valuation methodology to value underlying securities, and the shares of these Funds generally
transact at $1.00 per share. Each of the ESG Money Market Portfolio, Prime Portfolio and Tax-Exempt Portfolio currently price
and transact in its shares at a NAV reflecting market-based values of its portfolio holdings (i.e., at a “floating NAV”).
In the event that the Trust files information regarding
certain material events with the SEC on Form N-CR, the Trust will disclose on its website
certain information that the Trust is required to report on Form N-CR (e.g., the imposition or termination of a liquidity fee or
redemption gate). The Trust provides a complete schedule of portfolio holdings for the second and fourth fiscal quarters in its Semi-Annual
and Annual Reports. Also, the Trust files a complete schedule of portfolio holdings information with the SEC on Form N-MFP
within five business days after the end of each month. The SEC makes Form N-MFP filings publicly available on its website at
the same time as the filing and a link to the SEC filing is posted on the Trust’s website.
All
other portfolio holdings information that has not been disseminated in a manner making it available generally as described above is
non-public information for purposes of the Policy.
The
Trust also makes its complete portfolio holdings available weekly on its website, at least two business days following the end of the
prior week. In addition, prospective investors generally may obtain holdings information if they enter into an agreement or undertaking
to keep the information confidential.
The
Trust may make selective disclosure of non-public portfolio holdings information pursuant to certain exemptions set forth in the Policy.
Third parties eligible for exemptions under the Policy and therefore eligible to receive such disclosures currently include clients/shareholders
(such as redeeming shareholders in-kind), fund rating agencies, information exchange subscribers, proxy voting or
advisory services, pricing services, consultants and analysts, portfolio analytics providers, transition managers and service providers,
provided that the third party expressly agrees to maintain
the disclosed information in confidence and not to trade portfolio securities or
related derivative securities based on the non-public information. Non-public portfolio holdings information may not be disclosed to
a third party pursuant to an exemption unless and until the third party recipient has entered into a non-disclosure agreement with the
Trust and the arrangement has been reviewed and approved, as set forth in the Policy and discussed below. In addition, persons who
owe a duty of trust or confidence to the Trust or the Adviser may receive non-public portfolio holdings information without entering
into a non-disclosure agreement. Currently, these persons include (i) the Funds’ independent registered public accounting firm
(as of the Trust’s fiscal year-end and on an as-needed basis), (ii) counsel to the Funds (on an as-needed basis), (iii) counsel
to the Independent Trustees (on an as-needed basis)
and (iv) members of the Board of Trustees (on an as-needed basis). Subject to the terms
and conditions of any agreement between the Adviser or the Trust and the third party recipient, if these conditions for disclosure
are satisfied, there shall be no restriction on the frequency with which Trust non-public portfolio holdings information is released,
and no lag period shall apply (unless otherwise indicated below).
The
Adviser may provide interest lists to broker-dealers who execute securities transactions for the Funds without entering into a non-disclosure
agreement with the broker-dealers, provided that the interest list satisfies all of the following criteria: (1) the interest list
must contain only the CUSIP numbers and/or ticker symbols of securities held in all registered management investment companies
advised by the Adviser or any affiliate of the Adviser (the “Morgan Stanley Funds”) on an aggregate, rather than a fund-by-fund
basis; (2) the interest list will not disclose portfolio holdings on a fund-by-fund basis; (3) the interest list must not contain information
about the number or value of shares owned by a specified Morgan Stanley Fund; (4) the interest list may identify the investment
strategy, but not the particular Morgan Stanley Funds, to which the list relates; and (5) the interest list may not identify the
portfolio manager or team members responsible for managing the Morgan Stanley Funds.
The
Trust may discuss or otherwise disclose performance attribution analyses (i.e., mention the effects of having a particular security in
the portfolio(s)) where such discussion is not contemporaneously made public, provided that the particular holding has been disclosed
publicly or the information that includes such holding(s) has been made available to shareholders requesting such information.
Additionally, any discussion of the analyses may not be more current than the date the holding was disclosed publicly or the
information that includes such holding(s) has been made available to shareholders requesting such information.
Portfolio
holdings information may be provided to broker-dealers, prime brokers, futures commission merchants, or similar providers in
connection with each Fund’s portfolio trading or operational processing activities; such entities generally need access to such
information in the performance of their duties and responsibilities
to fund service providers and are subject to a duty of confidentiality,
including a duty not to trade on material non-public information, imposed by law or contract. Portfolio holdings
information
may also be provided to affiliates of MSIM pursuant to regulatory requirements or for legitimate business purposes, which
may include risk management, or may be reported by each Fund’s counterparties to certain global trade repositories pursuant to
regulatory requirements.
The
Adviser, the Trust and/or certain Funds currently have entered into ongoing arrangements regarding the selective disclosure of complete
portfolio holdings information with the following parties:
Name
Frequency1
Lag
Time
Service
Providers
State
Street Bank and Trust Company
Daily
basis
Daily
BlackRock
Financial Management Inc.
Daily
basis
2
KellyCo
Marketing
Monthly
basis and Quarterly basis
Varying
lag times after the date of the information
R.R.
Donnelley & Sons Company
Monthly
basis and Quarterly basis
Varying
lag times after the date of the information
Portfolio
Analytics Providers
Bloomberg
Finance, L.P.
Daily
basis
2
Abel
Noser Solutions, LLC
Daily
basis
Daily
1
Dissemination
of portfolio holdings information to entities listed above may occur less frequently than indicated (or not at all).
2
Information
will typically be provided on a real time basis or as soon thereafter as possible.
Further,
certain entities such as municipalities, which may not be authorized to enter into a non-disclosure agreement, may enter into an
undertaking to keep any non-public holdings information confidential.
All
disclosures of non-public portfolio holdings information made to third-parties pursuant to the exemptions set forth in the Policy must
be reviewed and approved by the Adviser, which will also determine from time-to-time whether such third-parties should continue
to receive portfolio holdings information.
The
Adviser shall report quarterly to the Board of Trustees (or a designated committee thereof) at the next regularly scheduled meeting:
(i) any material information concerning all parties receiving non-public portfolio holdings information pursuant to an exemption;
and (ii) any new non-disclosure agreements entered into during the reporting period. Procedures to monitor the use of such
non-public portfolio holdings information may include requiring annual certifications that the recipients have utilized such information
only pursuant to the terms of the agreement between the recipient and the Adviser and, for those recipients receiving information
electronically, acceptance of the information will constitute reaffirmation that the third-party expressly agrees to maintain
the disclosed information in confidence and not to trade portfolio securities based on the non-public information.
PURCHASE
AND REDEMPTION OF SHARES
Purchase
of Shares. The name of the Fund requested should
be designated on the Account Registration Form. Each Fund reserves the
right in its sole discretion (i) to suspend the offering of its shares, (ii) to reject purchase orders, and (iii) to reduce or waive the
minimum for initial and subsequent investments. The
officers of the Trust may from time to time waive the minimum initial and subsequent
investment requirements in connection with investments in the Trust by certain investors, including but not limited to (a)
employees of the Adviser and its affiliates, and (b) other investors with whom the Adviser wishes to develop a relationship or whose
investments are expected, over a reasonable period of time, to exceed the minimum initial investment requirement.
The
Funds declare dividends daily and, therefore, at the time of a purchase, must have funds immediately available for investment. As a
result, you must pay for shares of each Fund with Federal funds (monies credited to the Fund’s custodian by a Federal Reserve Bank).
Investors
purchasing and redeeming shares of the Fund through a financial intermediary may be charged a transaction-based fee or other
fee for the financial intermediary’s services. Each financial intermediary is responsible for sending you a schedule of fees and
information regarding any additional or different conditions
regarding purchases and redemptions. Customers of financial intermediaries
should read this SAI in light of the terms governing accounts with their organization. The Trust does not pay compensation
to or receive compensation from financial intermediaries for the sale of Institutional Class Shares but does pay compensation
in connection with other share classes.
Neither
Morgan Stanley Distribution, Inc. (the “Distributor”) nor the Trust will be responsible for any loss, liability, cost, or
expense for acting upon facsimile instructions or upon
telephone instructions that they reasonably believe to be genuine. In order to confirm that
telephone instructions in connection with redemptions are genuine, the Trust and the Distributor will provide written confirmation
of transactions initiated by telephone.
Redemption
of Shares. Redemptions are not made on days during
which the New York Stock Exchange (“NYSE”) is closed or on the
following federal holidays: Columbus Day and Veterans Day. Generally, payment for Trust shares sold will be made on the day on
which the order is processed, but under certain circumstances may not be made until the next business day. The Trust may
postpone
and/or suspend redemption and payment beyond one business day only as follows: (a) for any period during which there is a
non-routine closure of the Federal Reserve Wire Network or applicable Federal Reserve Banks; (b) or any period (i) during which the
NYSE is closed other than customary weekend and holiday closings or (ii) during which trading on the New York Stock Exchange
is restricted; (c) for any period during which an emergency exists as a result of which (i) disposal of securities owned by a Fund
is not reasonably practicable or (ii) it is not reasonably practicable for a Fund to fairly determine the NAV of shares of a Fund; (d)
for any period during which the SEC has, by rule or regulation, deemed that (i) trading shall be restricted or (ii) an emergency exists;
(e) for any period that the SEC may by order permit; (f) the Board of Trustees has imposed a redemption gate that temporarily suspends
the right of redemption; or (g) for any period during which the Trust as part of a necessary liquidation of a Fund, has properly
postponed and/or suspended redemption of shares and payment in accordance with federal securities laws. In addition, when
the Securities Industry and Financial Markets Association recommends that the securities markets close early, payments with respect
to redemption requests received subsequent to the recommended close will be made the next business day. If the NYSE is closed
due to inclement weather, technology problems or any other reason on a day it would normally be open for business, or the NYSE
has an unscheduled early closing on a day it has opened for business, a Fund reserves the right to treat such day as a business day
and accept purchase and redemption orders until, and calculate its NAV as of, the normally scheduled close of regular trading on the
NYSE for that day, or such time as noted in a Fund’s Prospectus, so long as the Adviser believes there generally remains an adequate
market to obtain reliable and accurate market quotations.
The
Trust has made an election with the SEC pursuant to Rule 18f-1 under the 1940 Act to pay in cash all redemptions requested by any
shareholder of record limited in amount during any 90-day period to the lesser of $250,000 or 1% of the net assets of a Fund at the
beginning of such period. Such commitment is irrevocable without the prior approval of the SEC. Redemptions in excess of the above
limits may be paid in whole or in part in investment securities or in cash, as the Trustees may deem advisable; however, payment
will be made wholly in cash unless the Trustees believe that economic or market conditions exist which would make such a practice
detrimental to the best interests of the Trust. If redemptions are paid in investment securities, such securities will be valued as
set forth in the Funds’ Prospectuses under “Valuation of Shares” and a redeeming shareholder would normally incur
brokerage expenses in converting these securities to
cash.
No
charge is made by the Funds for redemptions. Redemption proceeds may be more or less than the shareholder’s cost depending on
the market value of the securities held by the Funds.
Transactions
With Brokers/Dealers. The Trust has authorized certain
brokers to receive on its behalf purchase and redemption orders.
Some of these brokers are authorized to designate other intermediaries to receive purchase and redemption orders on the Trust’s
behalf. For purposes of determining the purchase price of shares, the Trust will be deemed to have received a purchase or redemption
order when an authorized broker, or if applicable, a broker’s authorized designee, receives the order in proper form. In other
words, orders will be priced at the NAV next computed after such orders are received in proper form by an authorized broker or
the broker’s authorized designee.
ACCOUNT
POLICIES AND FEATURES
Transfer
of Shares. Shareholders may transfer shares of the
Funds to another person by written request to Shareholder Services at Morgan
Stanley Institutional Liquidity Funds, c/o DST Asset Manager Solutions, Inc., P.O. Box 219804, Kansas City, MO 64121-9804.
If shares are being transferred to an existing account, the request should clearly identify the account and number of shares to be transferred
and include the signature of all registered owners and all share certificates, if any, which are subject to the transfer. The signature
on the letter of request, the share certificate or any stock power must be guaranteed in the same manner as described under “Redemption
of Shares.” As in the case of redemptions, the written request must be received in good order before any transfer can be made.
Valuation
of Shares. For the purpose of calculating the Government
Portfolio’s, Government Securities Portfolio’s, Treasury Portfolio’s
and Treasury Securities Portfolio’s NAV, securities are valued by the amortized cost method of valuation, which does not take
into account unrealized gains or losses. This involves valuing an instrument at its cost and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods during which value based on amortized cost is higher
or lower than the price these Funds would receive if they sold the instrument.
The
use of amortized cost and the maintenance of each applicable Fund’s NAV at $1.00 is based on its election to operate under the
provisions of Rule 2a-7. As conditions of operating
under Rule 2a-7, each Fund must maintain a dollar-weighted average Fund maturity
of 60 days or less, purchase only instruments having remaining maturities of thirteen months or less and invest only in U.S. dollar-denominated
securities which are determined by the Trustees to present minimal credit risks and which are of eligible quality as
determined under the rule.
The
Board has established procedures reasonably designed, taking into account current market conditions and each applicable Fund’s
investment objective, to stabilize the NAV as computed
for the purposes of sales and redemptions at $1.00. These procedures include
periodic
review, as the Trustees deem appropriate and at such intervals as are reasonable in light of current market conditions, of the relationship
between the amortized cost value per share and a NAV based upon available indications of market value. In such a review,
investments for which market quotations are readily available are valued at the most recent bid price or quoted yield equivalent
for such securities or for securities of comparable maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued at fair value, as determined in good faith by the Board.
For
each of the applicable Funds, in the unlikely event that the Trust’s Board of Trustees are to determine pursuant to Rule 2a-7 that
the extent of the deviation between a Fund’s
amortized cost per share and its market-based NAV may result in material dilution or other
unfair results to shareholders, the Board will cause a Fund to take such action as it deems appropriate to eliminate or reduce to the
extent practicable such dilution or unfair results, including, but not limited to, considering suspending redemption of shares and liquidating
the Fund under Rule 22e-3 under the 1940 Act.
In
the event of a negative interest rate environment, the net income of a Fund may fall below zero (i.e., become negative). If this occurs,
or to the extent the deviation between a Fund’s amortized cost per share and its market-based NAV may result in material dilution
or other unfair results to shareholders, or
to the extent the deviation between a Fund’s amortized cost per share and its market-based
NAV may result in material dilution or other unfair results to shareholders, the Trustees
may enact certain measures to seek to maintain a stable
NAV per share at $1.00 for each applicable Fund. These measures may include the reduction or suspension of
the issuance of dividends, the implementation of reverse distributions or periodic reverse share splits, as necessary in the Trustees’
judgment, to seek to maintain a stable NAV per share
at $1.00. In each case, measures taken by the Trustees in an effort to stabilize the
NAV per share at $1.00 are subject to applicable law and the provisions of the Fund’s organizational documents. Investments in
a Fund are subject to the potential that the Trustees
may enact such measures.
A
Fund may also effect reverse distributions to offset the impact of the negative income on a Fund’s NAV per share, thereby reducing
the number of shares outstanding and maintaining a stable
NAV per share at $1.00. In a reverse distribution, the number of shares would
be reduced on a pro rata basis from each shareholder.
If
there is a reverse share split, the number of shares of a Fund will decrease, on a pro rata basis, as necessary to reflect the negative
income of the Fund and maintain a stable NAV per share
at $1.00.
Depending
on the specific measure(s) taken, these measures would result in shareholders not receiving a dividend, holding fewer shares
of the Fund and/or experiencing a loss in the aggregate value of their investment in the Fund. There is no assurance that the Trustees
will take such actions or that such measures will result in a stable NAV per share of $1.00.
If
the Trustees determine that it is no longer in the best interests of the Trust and its shareholders to maintain a stable price of $1.00
per share or if the Trustees believe that maintaining
such price no longer reflects a market-based NAV, the Trustees have the right to change
from an amortized cost basis of valuation to valuation based on market quotations. The Trust will notify shareholders of an applicable
Fund of any such change.
Each
of the ESG Money Market Portfolio’s, Prime Portfolio’s and Tax-Exempt Portfolio’s investments will be valued using
market-based prices provided by an approved pricing
service/vendor and the share price of each rounded to the fourth decimal place.
Each
Fund invests in eligible securities (“Eligible Securities”) as defined in Rule 2a-7. An Eligible Security means a security:
(i) with a remaining maturity of 397 calendar days or
less that a Trust’s Board determines presents minimal credit risks to the Fund, which determination
must include an analysis of the capacity of the security’s issuer or guarantor (including for this paragraph the provider of
a conditional demand feature, when applicable) to meet its financial obligations, and such analysis must include, to the extent appropriate,
consideration of the following factors with respect to the security’s issuer or guarantor: (a) financial condition; (b) sources
of liquidity; (c) ability to react to future market-wide and issuer- or guarantor-specific events, including ability to repay debt in
a highly adverse situation; and (d) strength of the issuer’s or guarantor’s industry within the economy and relative to
economic trends, and issuer’s or guarantor’s
competitive position within its industry; (ii) that is issued by a registered investment company that is
a money market fund; or (iii) that is a government security. As permitted by Rule 2a-7, the Board has delegated to the Trust’s
Adviser the responsibility to make the above determinations
pursuant to Rule 2a-7.
MANAGEMENT
OF THE TRUST
Board
of Trustees
General.
The Board of Trustees of the Trust oversees the management of the Trust, but does not itself manage the Trust. The Trustees
review various services provided by or under the direction of the Adviser to ensure that the Trust’s general investment policies
and programs are properly carried out. The Trustees also conduct their review to ensure that administrative services are provided
to the Trust in a satisfactory manner.
Under
state law, the duties of the Trustees are generally characterized as a duty of loyalty and a duty of care. The duty of loyalty requires
a Trustee to exercise his or her powers in the interest of the Trust and not the Trustee’s own interest or the interest of
another
person or organization. A Trustee satisfies his or her duty of care by acting in good faith with the care of an ordinarily prudent
person and in a manner the Trustee reasonably believes to be in the best interest of the Trust and its shareholders.
Trustees
and Officers. The Board of the Trust consists of
nine Trustees. These same individuals also serve as directors or trustees for certain
of the funds advised by the Adviser and Morgan Stanley AIP GP LP. None of the Trustees have an affiliation or business connection
with the Adviser or any of its affiliated persons or own any stock or other securities issued by the Adviser’s parent company,
Morgan Stanley. They are the “non-interested” or “Independent” Trustees as defined under the 1940 Act.
Board
Structure and Oversight Function. The Board’s
leadership structure features an Independent Trustee serving as Chairperson and
the Board Committees described below. The Chairperson participates in the preparation of the agenda for meetings of the Board and
the preparation of information to be presented to the Board with respect to matters to be acted upon by the Board. The Chairperson
also presides at all meetings of the Board and is involved in discussions regarding matters pertaining to the oversight of the
management of the Trust between meetings.
The
Board of Trustees operates using a system of committees to facilitate the timely and efficient consideration of all matters of importance
to the Trustees, the Trust and Trust stockholders, and to facilitate compliance with legal and regulatory requirements and
oversight of the Trust’s activities and associated risks. The Board of Trustees has established six standing committees: (1) Audit
Committee, (2) Governance Committee, (3) Compliance
and Insurance Committee, (4) Equity Investment Committee, (5) Fixed Income,
Liquidity and Alternatives Investment Committee and (6) Risk Committee,
which are each comprised exclusively of Independent
Trustees. Each committee charter governs the scope of the committee’s responsibilities with respect to the oversight of the
Trust. The responsibilities of each committee, including their oversight responsibilities, are described further under the caption “Independent
Trustees and the Committees.”
The
Funds are subject to a number of risks, including investment, compliance, operational and valuation risk, among others. The Board
of Trustees oversees these risks as part of its broader oversight of the Trust’s affairs through various Board and committee activities.
The Board has adopted, and periodically reviews, policies and procedures designed to address various risks to the Funds. In addition,
appropriate personnel, including but not limited to the Trust’s Chief Compliance Officer, members of the Trust’s administration
and accounting teams, representatives from the Trust’s independent registered public accounting firm, the Trust’s Treasurer,
portfolio management personnel, risk management personnel and independent valuation and brokerage evaluation service providers,
make regular reports regarding the Trust’s activities and related risks to the Board of Trustees and the committees, as appropriate.
These reports include, among others, quarterly performance reports, quarterly risk reports and discussions with members of
the risk teams relating to each asset class. The Board’s committee structure allows separate committees to focus on different aspects
of risk and the potential impact of these risks on some
or all of the funds in the complex and then report back to the full Board. In between
regular meetings, Trust officers also communicate with the Trustees regarding material exceptions and items relevant to the Board’s
risk oversight function. The Board recognizes that it is not possible to identify all of the risks that may affect the Funds, and that
it is not possible to develop processes and controls to eliminate all of the risks that may affect the Funds. Moreover, the Board recognizes
that it may be necessary for the Funds to bear certain risks (such as investment risk) to achieve their respective investment objective.
As
needed between meetings of the Board, the Board or a specific committee receives and reviews reports relating to the Trust and engages
in discussions with appropriate parties relating to the Trust’s operations and related risks.
Management
Information
Trustees.
The Trust seeks as Trustees individuals of distinction and experience in business and finance, government service or academia.
In determining that a particular Trustee was and continues to be qualified to serve as Trustee, the Board has considered a variety
of criteria, none of which, in isolation, was controlling. Based on a review of the experience, qualifications, attributes or skills of
each Trustee, including those enumerated in the table below, the Board has determined that each of the Trustees is qualified to serve
as a Trustee of the Trust. In addition, the Board believes that, collectively, the Trustees have balanced and diverse experience, qualifications,
attributes and skills that allow the Board to operate effectively in governing the Trust and protecting the interests of shareholders.
Information about the Trust’s Governance Committee and Board of Trustees nomination process is provided below under
the caption “Independent Trustees and the Committees.”
The
Trustees of the Trust, their birth years, addresses, positions held, length of time served, their principal business occupations during
the past five years and other relevant professional experience, the number of portfolios in the Fund Complex (described below)
overseen by each Independent Trustee and other directorships, if any, held by the Trustees, are shown below (as of January 1, 2021).
The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Adviser and any
registered funds that have an adviser that is an affiliate of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP) (the
“Morgan Stanley AIP Funds”).
Name,
Address and Birth Year of
Independent Trustee
Position(s)
Held with Registrant
Length
of Time Served*
Principal
Occupation(s) During Past
5 Years and Other Relevant
Professional Experience
Number
of Funds in Fund Complex
Overseen by Independent
Trustee
Other
Directorships Held by Independent
Trustee During Past 5 Years**
Frank
L. Bowman c/o Perkins Coie
LLP Counsel to the Independent
Trustees 1155 Avenue of the
Americas 22nd
Floor New York, NY10036 Birth
Year: 1944
Trustee
Since
August 2006
President,
Strategic Decisions, LLC (consulting)
(since February 2009); Director
or Trustee of various Morgan Stanley
Funds (since August 2006);
Chairperson of the Compliance and
Insurance Committee (since
October 2015); formerly, Chairperson
of the Insurance Sub-Committee
of the Compliance and Insurance
Committee (2007-2015); served as
President and Chief Executive
Officer of the Nuclear Energy Institute
(policy organization) (February
2005-November 2008); retired as
Admiral, U.S. Navy after serving
over 38 years on active duty including
8 years as Director of the Naval
Nuclear Propulsion Program
in the Department of the Navy and
the U.S. Department of Energy (1996-2004);
served as Chief of Naval Personnel
(July 1994-September 1996)
and on the Joint Staff as Director
of Political Military Affairs (June
1992-July 1994); knighted as Honorary
Knight Commander of the
Most Excellent Order of the British
Empire; awarded the Officier
de l’Orde National du Mérite
by the French Government; elected
to the National Academy of Engineering
(2009).
77
Director
of Naval and Nuclear Technologies
LLP; Director Emeritus of
the Armed Services YMCA; Member
of the National Security Advisory
Council of the Center for U.S. Global
Engagement and a member
of the CNA Military Advisory Board;
Chairman of Fairhaven United
Methodist Church; Member of the
Board of Advisors of the Dolphin
Scholarship Foundation; Director
of other various nonprofit organizations;
formerly, Director of BP, plc (November
2010-May 2019).
Name,
Address and Birth Year of
Independent Trustee
Position(s)
Held with Registrant
Length
of Time Served*
Principal
Occupation(s) During Past
5 Years and Other Relevant
Professional Experience
Number
of Funds in Fund Complex
Overseen by Independent
Trustee
Other
Directorships Held by Independent
Trustee During Past 5 Years**
Kathleen
A. Dennis c/o Perkins Coie
LLP Counsel to the Independent
Trustees 1155 Avenue of the
Americas 22nd
Floor New York, NY10036 Birth
Year: 1953
Trustee
Since August 2006
Chairperson
of the Governance Committee (since
January 2021), Chairperson of the
Liquidity and Alternatives
Sub-Committee of the Investment
Committee (2006-2020) and Director
or Trustee of various Morgan Stanley
Funds (since August 2006);
President, Cedarwood Associates
(mutual fund and investment
management consulting) (since July
2006); formerly, Senior Managing
Director of Victory Capital Management
(1993-2006).
77
Board
Member, University of Albany Foundation
(2012-present); Board Member,
Mutual Funds Directors Forum (2014-present);
Director of various non-profit organizations.
Nancy
C. Everett c/o Perkins Coie
LLP Counsel to the Independent
Trustees 1155 Avenue of the
Americas 22nd
Floor New York, NY10036 Birth
Year: 1955
Trustee
Since January 2015
Chairperson
of the Equity Investment Committee
(since January 2021); Director or
Trustee of various Morgan Stanley
Funds (since January 2015); Chief
Executive Officer, Virginia Commonwealth
University Investment Company
(since November 2015); Owner,
OBIR, LLC (institutional investment
management consulting) (since
June 2014); formerly, Managing Director,
BlackRock, Inc. (February 2011-December
2013) and Chief Executive Officer,
General Motors Asset Management
(a/k/a Promark Global Advisors,
Inc.) (June 2005-May 2010).
78
Formerly,
Member of Virginia Commonwealth
University School of Business
Foundation (2005-2016); Member of
Virginia Commonwealth University
Board of Visitors (2013-2015); Member
of Committee on Directors for Emerging
Markets Growth Fund, Inc. (2007-2010);
Chairperson of Performance
Equity Management, LLC (2006-2010);
and Chairperson, GMAM Absolute
Return Strategies Fund, LLC (2006-2010).
Name,
Address and Birth Year of
Independent Trustee
Position(s)
Held with Registrant
Length
of Time Served*
Principal
Occupation(s) During Past
5 Years and Other Relevant
Professional Experience
Number
of Funds in Fund Complex
Overseen by Independent
Trustee
Other
Directorships Held by Independent
Trustee During Past 5 Years**
Jakki
L. Haussler c/o Perkins Coie
LLP Counsel to the Independent
Trustees 1155 Avenue of the
Americas 22nd
Floor New York, NY10036 Birth
Year: 1957
Trustee
Since January 2015
Director
or Trustee of various Morgan Stanley
Funds (since January 2015);
Chairman, Opus Capital Group (since
1996); formerly, Chief Executive
Officer, Opus Capital Group (1996-2019);
Director, Capvest Venture Fund,
LP (May 2000-December 2011); Partner,
Adena Ventures, LP (July 1999-December
2010); Director, The Victory Funds
(February 2005-July 2008).
78
Director
of Cincinnati Bell Inc. and Member,
Audit Committee and Chairman,
Governance and Nominating Committee;
Director of Service Corporation
International and Member,
Audit Committee and Investment
Committee; Director, Barnes Group
Inc. (since July 2021); Director
of Northern Kentucky University
Foundation and Member,
Investment Committee; Member of
Chase College of Law Transactional
Law Practice Center Board of Advisors;
Director of Best Transport; Director
of Chase College of Law Board
of Visitors; formerly, Member, University
of Cincinnati Foundation Investment
Committee.
Dr.
Manuel H. Johnson c/o Johnson
Smick International, Inc. 220
I Street, NE Suite 200 Washington,
D.C.20002 Birth Year: 1949
Trustee
Since July
1991
Senior
Partner, Johnson Smick International,
Inc. (consulting firm); Chairperson
of the Fixed Income, Liquidity and
Alternatives Investment Committee
(since January 2021), Chairperson
of the Investment Committee (2006-2020)
and Director or Trustee of various
Morgan Stanley Funds (since July
1991); Co-Chairman and a founder
of the Group of Seven Council (G7C)
(international economic commission);
formerly, Chairperson of the Audit
Committee (July 1991-September
2006); Vice Chairman of the Board
of Governors of the Federal
Reserve System and Assistant Secretary
of the U.S. Treasury.
Name,
Address and Birth Year of
Independent Trustee
Position(s)
Held with Registrant
Length
of Time Served*
Principal
Occupation(s) During Past
5 Years and Other Relevant
Professional Experience
Number
of Funds in Fund Complex
Overseen by Independent
Trustee
Other
Directorships Held by Independent
Trustee During Past 5 Years**
Joseph
J. Kearns c/o Perkins Coie
LLP Counsel to the Independent
Trustees 1155 Avenue of the
Americas 22nd
Floor New York, NY10036 Birth
Year: 1942
Trustee
Since August 1994
Senior
Adviser, Kearns & Associates
LLC (investment consulting); Chairperson
of the Audit Committee (since October
2006) and Director or Trustee of
various Morgan Stanley Funds
(since August 1994); formerly, Deputy
Chairperson of the Audit Committee
(July 2003-September 2006) and Chairperson
of the Audit Committee of various
Morgan Stanley Funds (since
August 1994); CFO of the J. Paul
Getty Trust (1982-1999).
78
Director,
Rubicon Investments (since February
2019); Prior to August 2016, Director
of Electro Rent Corporation
(equipment leasing). Prior to December31, 2013, Director of The Ford Family
Foundation.
Michael
F. Klein c/o Perkins Coie LLP Counsel
to the Independent Trustees 1155
Avenue of the Americas 22nd
Floor New York, NY10036 Birth
Year: 1958
Trustee
Since August 2006
Chairperson
of the Risk Committee (since January
2021); Managing Director, Aetos
Alternatives Management, LP (since
March 2000); Co-President,
Aetos Alternatives Management,
LP (since January 2004) and Co-Chief
Executive Officer of Aetos Alternatives
Management, LP (since August
2013); Chairperson of the Fixed
Income Sub-Committee of
the Investment Committee (2006-2020)
and Director or Trustee of
various Morgan Stanley Funds (since
August 2006); formerly, Managing
Director, Morgan Stanley & Co.
Inc. and Morgan Stanley Dean
Witter Investment Management and
President, various Morgan
Stanley Funds (June 1998-March 2000);
Principal, Morgan Stanley &
Co. Inc. and Morgan Stanley Dean
Witter Investment Management (August
1997-December 1999).
77
Director
of certain investment funds managed
or sponsored by Aetos Alternatives
Management, LP; Director
of Sanitized AG and Sanitized Marketing
AG (specialty chemicals).
Name,
Address and Birth Year of
Independent Trustee
Position(s)
Held with Registrant
Length
of Time Served*
Principal
Occupation(s) During Past
5 Years and Other Relevant
Professional Experience
Number
of Funds in Fund Complex
Overseen by Independent
Trustee
Other
Directorships Held by Independent
Trustee During Past 5 Years**
Patricia
A. Maleski c/o Perkins Coie
LLP Counsel to the Independent
Trustees 1155 Avenue of the
Americas 22nd
Floor New York, NY10036 Birth
Year: 1960
Trustee
Since January 2017
Director
or Trustee of various Morgan Stanley
Funds (since January 2017);
Managing Director, JPMorgan Asset
Management (2004-2016); Oversight
and Control Head of Fiduciary
and Conflicts of Interest Program
(2015-2016); Chief Control
Officer—Global Asset Management
(2013-2015); President, JPMorgan
Funds (2010-2013); Chief Administrative
Officer (2004-2013); various other
positions including Treasurer and
Board Liaison (since 2001).
78
Trustee,
Nutley Family Service Bureau, Inc.
(since January 2022).
W.
Allen Reed c/o Perkins Coie
LLP Counsel to the Independent
Trustees 1155 Avenue of the
Americas 22nd
Floor New York, NY10036 Birth
Year: 1947
Chair
of the Board and Trustee
Chair
of the Board since August 2020 and
Trustee since August 2006
Chair
of the Boards of various Morgan
Stanley Funds (since August 2020);
Director or Trustee of various Morgan
Stanley Funds (since August 2006);
formerly, Vice Chair of the
Boards of various Morgan Stanley
Funds (January 2020-August 2020);
President and Chief Executive Officer
of General Motors Asset Management;
Chairman and Chief Executive Officer
of the GM Trust Bank and Corporate
Vice President of General
Motors Corporation (August 1994-December
2005).
77
Formerly,
Director of Legg Mason, Inc. (2006-2019);
and Director of the Auburn University
Foundation (2010-2015).
Name,
Address and Birth Year of
Independent Trustee
Position(s)
Held with Registrant
Length
of Time Served*
Principal
Occupation(s) During Past
5 Years and Other Relevant
Professional Experience
Number
of Funds in Fund Complex
Overseen by Independent
Trustee
Other
Directorships Held by Independent
Trustee During Past 5 Years**
Frances
L. Cashman c/o Perkins Coie
LLP Counsel to the Independent
Trustees 1155 Avenue of the
Americas 22nd
Floor New York, NY10036 Birth
Year: 1961
Advisory
Board Member
Advisory
Board Member since January 2022
Chief
Executive Officer, Asset Management
Division, Euromoney Institutional
Investor PLC (financial information)
(May 2021-Present); Executive Vice
President and various other roles,
Legg Mason & Co. (asset management)
(2010-2020); Managing Director,
Stifel Nicolaus (2005-2010).
78
Trustee
and Investment Committee Member,
Georgia Tech Foundation
(Since June 2019); Trustee and Chair
of Marketing Committee, Loyola Blakefield
(Since September 2017); Trustee,
MMI Gateway Foundation (since September
2017); Director and Investment Committee
Member, Catholic Community Foundation
Board (2012–2018); Director
and Investment Committee
Member, St. Ignatius Loyola Academy
(2011-2017).
Eddie
A. Grier c/o Perkins Coie LLP Counsel
to the Independent Trustees 1155
Avenue of the Americas 22nd
Floor New York, NY10036 Birth
Year: 1955
Advisory
Board Member
Advisory
Board Member since January 2022
Dean,
Santa Clara University Leavey School
of Business (since April 2021);
Dean, Virginia Commonwealth University
School of Business (2010-2021);
President and various other
roles, Walt Disney Company (entertainment
and media) (1981-2010).
78
Director,
Witt/Kieffer, Inc. (executive search)
(since 2016); Director, NuStar
GP, LLC (energy) (since August 2021);
Director, Sonida Senior Living,
Inc. (residential community operator)
(2016-2021); Director, NVR, Inc.
(homebuilding) (2013-2020);
Director, Middleburg Trust Company
(wealth management) (2014-2019);
Director, Colonial Williamsburg
Company (since 2012); Regent,
University of Massachusetts Global
(since 2021); Director and
Chair, ChildFund International (2012-2021);
Trustee, Brandman University (2010-2021);
Director, Richmond Forum (2012-2019).
*
This
is the earliest date the Trustee began serving the Morgan Stanley Funds. Each Trustee serves an indefinite term, until his or her successor
is elected.
**
This
includes any directorships at public companies and registered investment companies held by the Trustee at any time during the past five
years.
The
executive officers of the Trust, their birth years, addresses, positions held, length of time served and their principal business occupations
during the past five years are shown below (as of February1, 2022).
John
H. Gernon 522 Fifth Avenue NewYork, NY10036 Birth Year:
1963
President
and Principal Executive Officer
Since
September 2013
President
and Principal Executive Officer of the Equity and Fixed Income Funds and
the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds
and various money market funds (since May 2014) in the Fund Complex; Managing
Director of the Adviser; Head of Public Markets Product Development (since
2006).
Deidre
A. Downes 1633 Broadway NewYork, NY10019 Birth Year:
1977
Chief
Compliance Officer
Since
November 2021
Executive
Director of the Adviser (since January 2021) and Chief Compliance officer
of various Morgan Stanley Funds (since November 2021). Formerly, Vice President
and Corporate Counsel at PGIM and Prudential Financial (October 2016
– December 2020).
Francis
J. Smith 522 Fifth Avenue NewYork, NY10036 Birth Year:
1965
Treasurer
and Principal Financial Officer
Treasurer
since July 2003 and Principal Financial
Officer since September 2002
Managing
Director of the Adviser and various entities affiliated with the Adviser; Treasurer
(since July 2003) and Principal Financial Officer of various Morgan Stanley
Funds (since September 2002).
Mary
E. Mullin 1633 Broadway NewYork, NY10019 Birth Year:
1967
Secretary
Since
June 1999
Managing
Director of the Adviser; Secretary of various Morgan Stanley Funds (since
June 1999).
Michael
J. Key 522 Fifth Avenue NewYork, NY10036 Birth Year:
1979
Vice
President
Since
June 2017
Vice
President of the Equity and Fixed Income Funds, Liquidity Funds, various money
market funds and the Morgan Stanley AIP Funds in the Fund Complex (since
June 2017); Managing Director of the Adviser; Head of Product Development
for Equity and Fixed Income Funds (since August 2013).
*
This
is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor
is elected and has qualified.
In
addition, the following individuals who are officers of the Adviser or who are officers of its affiliates serve as assistant secretaries
of the Trust: Princess Kludjeson, Francesca
Mead and Jill R. Whitelaw.
It
is a policy of the Trust’s Board that each Trustee shall invest in any combination of the Morgan Stanley Funds that the Trustee
determines meets his or her own specific investment
objectives, without requiring any specific investment in any particular Fund.
For
each Trustee, the dollar range of equity securities beneficially owned by the Trustee in the Funds and in the Family of Investment
Companies (Family of Investment Companies includes all of the registered investment companies advised by the Adviser and
Morgan Stanley AIP GP LP) for the calendar year ended December 31, 2021
is set forth in the table below.
Name
of Trustee
Dollar
Range of Equity Securities in the Funds (as
of December 31, 2021)
Aggregate
Dollar Range of Equity Securities in All Registered
Investment Companies Overseen by Trustee
in Family of Investment Companies (as of December31, 2021)
Independent:
Frank
L. Bowman
None
over
$100,000
Kathleen
A. Dennis
None
over
$100,000
Nancy
C. Everett
None
over
$100,000
Jakki
L. Haussler
None
over
$100,000
Manuel
H. Johnson
None
over
$100,000
Joseph
J. Kearns1
2
over
$100,000
Michael
F. Klein1
None
over
$100,000
Patricia
Maleski
2
over
$100,000
W.
Allen Reed1
None
over
$100,000
1
Includes
the total amount of compensation deferred by the Trustee at his election pursuant to a deferred compensation plan. Such deferred compensation
is placed in a deferral account and deemed to be invested
in one or more of the Morgan Stanley Funds (or portfolio thereof) that are offered as investment options under the
plan.
2
Joseph
J. Kearns—Treasury Securities Portfolio (over $100,000); and Patricia Maleski—Prime Portfolio (over $100,000).
As
to each Independent Trustee and his or her immediate family members, no person owned beneficially or of record securities of an investment
adviser or principal underwriter of the Trust, or a person (other than a registered investment company) directly or indirectly
controlling, controlled by or under common control with an investment adviser or principal underwriter of the Trust.
As
of January1, 2022, the Trustees and officers of the Trust, as
a group, owned less than 1% of any class of the outstanding shares of beneficial
interest of each Fund.
Law
and regulation establish both general guidelines and specific duties for the Independent Trustees. The Board has six committees: (1)
Audit Committee, (2) Governance Committee, (3) Compliance and Insurance Committee, (4) Equity Investment Committee, (5)
Fixed Income, Liquidity and Alternatives Investment Committee and (6) Risk Committee.
The
Independent Trustees are charged with recommending to the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually reviewing fund performance, checking on the pricing
of portfolio securities, brokerage commissions, transfer agent costs and performance and trading among funds in the same complex;
and approving fidelity bond and related insurance coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill any Independent Trustee vacancy on the board of
any fund that has a Rule 12b-1 plan of distribution.
The
Board of Trustees has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (the “1934 Act”). The Audit Committee is charged with recommending to the full
Board the engagement or discharge of the Trust’s
independent registered public accounting firm; directing investigations into matters within
the scope of the independent registered public accounting firm’s duties, including the power to retain outside specialists; reviewing
with the independent registered public accounting firm the audit plan and results of the auditing engagement; approving professional
services provided by the independent registered public accounting firm and other accounting firms prior to the performance
of the services; reviewing the independence of the independent registered public accounting firm; considering the range of
audit and non-audit fees; reviewing the adequacy of the Trust’s system of internal controls and reviewing the valuation process.
The Trust has adopted a formal, written Audit Committee
Charter.
The
members of the Audit Committee of the Trust are Nancy C. Everett, Jakki L. Haussler and Joseph J. Kearns. None of the members
of the Trust’s Audit Committee is an “interested person,” as defined under the 1940 Act, of the Trust (with such
disinterested Trustees being “Independent Trustees”
or individually, “Independent Trustee”). Each Independent Trustee is also “independent”
from the Trust under the listing standards of the NYSE. The Chairperson of the Audit Committee of the Trust is Joseph
J. Kearns.
The
Board of Trustees of the Trust also has a Governance Committee. The Governance Committee identifies individuals qualified to serve
as Independent Trustees on the Trust’s Board and on committees of the Board and recommends such qualified individuals for nomination
by the Trust’s Independent Trustees as candidates for election as Independent Trustees, advises the Trust’s Board with respect
to Board composition, procedures and committees, develops and recommends to the Trust’s Board a set of corporate governance
principles applicable to the Trust, monitors and makes recommendations on corporate governance matters and policies and
procedures of the Trust’s Board of Trustees and any Board committees and oversees periodic evaluations of the Trust’s Board
and its committees. The members of the Governance Committee
of the Trust are Kathleen A. Dennis, Manuel H. Johnson, Michael F.
Klein, Patricia Maleski and W. Allen Reed, each of whom is an Independent Trustee. In addition, W. Allen Reed (as Chair of the Morgan
Stanley Funds) periodically may attend other operating Committee meetings. The Chairperson of the Governance Committee
is Kathleen A. Dennis.
The
Trust does not have a separate nominating committee. While the Trust’s Governance Committee recommends qualified candidates
for nominations as Independent Trustees, the Board of Trustees of the Trust believes that the task of nominating prospective
Independent Trustees is important enough to require the participation of all current Independent Trustees, rather than a separate
committee consisting of only certain Independent Trustees. Accordingly, all the Independent Trustees participate in the selection
and nomination of candidates for election as Independent Trustees for the Trust. Persons recommended by the Trust’s Governance
Committee as candidates for nomination as Independent Trustees shall possess such experience, qualifications, attributes,
skills and diversity so as to enhance the Board’s ability to manage and direct the affairs and business of the Trust, including,
when applicable, to enhance the ability of committees of the Board to fulfill their duties and/or to satisfy any independence
requirements imposed by law, regulation or any listing requirements of the NYSE. While the Independent Trustees of the
Trust expect to be able to continue to identify from their own resources an ample number of qualified candidates for the Trust’s
Board as they deem appropriate,
they will consider nominations from shareholders to the Board. Nominations from shareholders should
be in writing and sent to the Independent Trustees as described below under the caption “Shareholder Communications.”
The
Board formed the Compliance and Insurance Committee to address insurance coverage and oversee the compliance function for the
Trust and the Board. The Compliance and Insurance Committee consists of Frank L. Bowman, Kathleen A. Dennis and Patricia Maleski,
each of whom is an Independent Trustee. The Chairperson of the Compliance and Insurance Committee is Frank L. Bowman.
The
Equity Investment Committee and the Fixed Income, Liquidity and Alternatives Investment Committees oversee the Trust’s portfolio
investment process and review the performance of the Trust’s investments. The Equity Investment Committee and the Fixed
Income, Liquidity and Alternatives Investment Committees also recommend to the Board to approve or renew the Trust’s Investment
Advisory and Administration Agreements. Each Investment Committee focuses on the Trust’s primary areas of
investment,
namely equities, fixed income, liquidity and alternatives. Kathleen A. Dennis, Nancy C. Everett, Jakki L. Haussler and Michael
F. Klein are members of the Equity Investment Committee. The Chairperson of the Equity Investment Committee is Nancy C.
Everett. Frank L. Bowman, Manuel H. Johnson, Joseph J. Kearns and Patricia Maleski are members of the Fixed Income, Liquidity
and Alternatives Investment Committee. The Chairperson of the Fixed Income, Liquidity and Alternatives Investment Committee
is Manuel H. Johnson.
The
Risk Committee assists the Board in connection with the oversight of the Trust’s risks, including investment risks, operational
risks and risks posed by the Trust’s
service providers as well as the effectiveness of the guidelines, policies and processes for monitoring
and mitigating such risks. The members of the Risk Committee of the Trust are Manuel H. Johnson, Michael F. Klein and
W. Allen Reed, each of whom is an Independent Trustee. The Chairperson of the Risk Committee is Michael F. Klein.
During
the Trust’s fiscal year ended October 31, 2021, the Board of Trustees held the following meetings:
Board
of Trustees/Committee
Number
of Meetings
Board
of Trustees
6
Audit
Committee
4
Governance
Committee
10
Compliance
and Insurance Committee
4
Equity
Investment Committee
51
Fixed
Income, Liquidity and Alternatives Investment Committee
51
Risk
Committee
32
1
Prior
to January 1, 2021, this Committee was constituted as a sub-committee of the now defunct Investment Committee, and the number of meetings
indicated includes meetings as a
sub-committee.
The
Board has concluded, based on each Trustee’s experience, qualifications and attributes that each Board member should serve as a
Trustee. Following is a brief summary of the information
that led to and/or supports this conclusion.
Mr.
Bowman has experience in a variety of business and financial matters through his prior service as a Director or Trustee for various
funds in the Fund Complex, where he serves as Chairperson of the Compliance and Insurance Committee (and formerly served
as Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee). Mr. Bowman also serves as a Director
of Naval and Nuclear Technologies LLP and Director Emeritus for the Armed Services YMCA, and formerly served as a Director
of BP, plc. Mr. Bowman serves as a Trustee of the Fairhaven United Methodist Church. Mr. Bowman is also a member of the
National Security Advisory Council of the Center for U.S. Global Engagement, a member of the CNA Military Advisory Board and
a member of the Dolphin Scholarship Foundation Advisory Board. Mr. Bowman retired as an Admiral in the U.S. Navy after serving
over 38 years on active duty including eight years as Director of the Naval Nuclear Propulsion Program in the Department of the
Navy and the U.S. Department of Energy (1996-2004). Additionally, Mr. Bowman served as the U.S. Navy’s Chief of Naval Personnel
(1994-1996) where he was responsible for the planning and programming of all manpower, personnel, training and education
resources for the U.S. Navy, and on the Joint Staff as Director of Political Military Affairs (1992-1994). In addition, Mr. Bowman
served as President and Chief Executive Officer of the Nuclear Energy Institute. Mr. Bowman has received such distinctions as
a knighthood as Honorary Knight Commander of the Most Excellent Order of the British Empire and the Officier de l’Orde National
du Mérite from the French Government, and was elected to the National Academy of Engineering (2009). He is President of
the consulting firm Strategic Decisions, LLC.
Ms.
Dennis has over 25 years of business experience in the financial services industry and related fields including serving as a Director
or Trustee of various other funds in the Fund Complex,
where she serves as Chairperson of the Governance Committee. Ms. Dennis possesses
a strong understanding of the regulatory framework under which investment companies must operate based on her years of service
to this Board and her position as Senior Managing Director of Victory Capital Management.
Ms.
Everett has over 35 years of experience in the financial services industry, including roles with both registered investment companies
and registered investment advisers. By serving on the boards of other registered funds, such as GMAM Absolute Return Strategies
Fund, LLC and Emerging Markets Growth Fund, Inc., Ms. Everett has acquired significant experience with financial, accounting,
investment and regulatory matters. Ms. Everett is also a Chartered Financial Analyst.
With
more than 30 years of experience in the financial services industry, including her years of entrepreneurial and managerial experience
in the development and growth of Opus Capital Group, Ms. Haussler brings a valuable perspective to the Trust’s Board. Through
her role at Opus Capital and her service as a director of several venture capital funds and other boards, Ms. Haussler has gained
valuable experience dealing with accounting principles and evaluating financial results of large corporations. She is a certified public
accountant (inactive) and a licensed attorney in the State of Ohio (inactive).
In
addition to his tenure as a Director or Trustee of various other funds in the Fund Complex, where he formerly served as Chairperson
of the Audit Committee, Dr. Johnson has also served as an officer or a board member of numerous companies for over 20
years. These positions included Co-Chairman and a founder of the Group of Seven Council, Director of NVR, Inc., Director of Evergreen
Energy and Director of Greenwich Capital Holdings. He also has served as Vice Chairman of the Board of Governors of the
Federal Reserve System and Assistant Secretary of the U.S. Treasury. In addition, Dr. Johnson also served as Chairman of the Financial
Accounting Foundation, which oversees the Financial Accounting Standards Board, for seven years.
Mr.
Kearns gained extensive experience regarding accounting through his experience on the Audit Committees of the boards of other funds
in the Fund Complex, including serving as either Chairperson or Deputy Chairperson of the Audit Committee for nearly 20 years,
and through his position as Chief Financial Officer of the J. Paul Getty Trust. He also has experience in financial, accounting, investment
and regulatory matters through his position as President and founder of Kearns & Associates LLC, a financial consulting company.
Mr. Kearns previously served as a Director of Electro Rent Corporation and previously served as Director of The Ford Family
Foundation. The Board has determined that Mr. Kearns is an “audit committee financial expert” as defined by the SEC.
Through
his prior positions as a Managing Director of Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management
and as President and a Trustee of the Morgan Stanley Institutional Funds, Mr. Klein has experience in the management and
operation of registered investment companies, enabling him to provide management input and investment guidance to the Board.
Mr. Klein also has extensive experience in the investment management industry based on his current positions as Managing Director
and Co-Chief Executive and Co-President of Aetos Alternatives Management, LP and as a Director of certain investment funds
managed or sponsored by Aetos Alternatives Management, LP. In addition, he also has experience as a member of the board of other
funds in the Fund Complex.
Ms.
Maleski has over 30 years of experience in the financial services industry and extensive experience with registered investment companies.
Ms. Maleski began her career as a certified public accountant at Price Waterhouse LLP (“PW”) and was a member of PW’s
Investment Company Practice. After a brief stint at the Bank of New York, Ms. Maleski began her affiliation with the JPMorgan
Funds, at the Pierpont Group, and then with J.P. Morgan Investment Management Inc. From 2001-2013, Ms. Maleski held
roles with increasing responsibilities, from Vice President and Board Liaison, Treasurer and Principal Financial Officer, Chief Administrative
Officer and finally President and Principal Executive Officer for the JPMorgan Fund complex. Between 2013 and 2016,
Ms. Maleski served as Global Head of Oversight and Control of JPMorgan Asset Management and then as Head of JPMorgan Chase’s
Fiduciary and Conflicts of Interest Program. Ms. Maleski has extensive experience in the management and operation of funds in
addition to regulatory and accounting and valuation matters.
Mr.
Reed has experience on investment company boards and is experienced with financial, accounting, investment and regulatory matters
through his prior service as a Director of iShares Inc. and his service as Chair of the Board and as Trustee or Director of other funds
in the Fund Complex. Mr. Reed also gained substantial experience in the financial services industry through his prior positions as
a Director of Legg Mason, Inc. and as President and CEO of General Motors Asset Management.
With
more than 30 years of experience in the financial services industry, Ms. Cashman possesses valuable insights and expertise regarding
governance, marketing, communications, and strategy. Ms. Cashman is Chief Executive Officer of the Asset Management Division
of Euromoney Institutional Investor PLC. Prior to that, Ms. Cashman spent over 20 years at Legg Mason & Co., ultimately serving
as Executive Vice President and Global Head of Marketing and Communications. She has gained valuable experience as Director
of two investment management entities and as a distribution leader reporting to boards of other mutual funds. In addition, Ms.
Cashman also serves as Trustee for the Georgia Tech Foundation and the Gateway Foundation. Ms. Cashman also serves as an Advisory
Board Member for FLX Distribution. Ms. Cashman has served as an Advisory Board member since January 1, 2022.
During
the course of a career spanning more than 40 years in both academia and industry, Mr. Grier has gained substantial experience
in management, operations, finance, marketing, and oversight. Mr. Grier is the Dean of Santa Clara University’s Leavey School
of Business. Prior to that, Mr. Grier was the Dean of the Virginia Commonwealth University School of Business. Before joining
academia, Mr. Grier spent 29 years at the Walt Disney Company where he served in various leadership roles, including as President
of the Disneyland Resort. Mr. Grier also gained substantial oversight experience serving on the boards of Sonia Senior Living,
Inc. (formerly, Capital Senior Living Corporation), NVR, Inc., and Middleburg Trust Company. In addition, Mr. Grier currently
serves as a Director of Witt/Kieffer, Inc., Director of NuStar GP, LLC, Director of the Colonial Williamsburg Company, and
Regent of University of Massachusetts Global. Mr. Grier is also a Certified Public Accountant. Mr. Grier has served as an Advisory
Board member since January 1, 2022.
The
Trustees’ principal occupations and other relevant professional experience during the past five years or more are shown in the
above tables.
The
Board has adopted a policy that Board members are expected to retire no later than the end of the year they reach the age of 78. The
Governance Committee has discretion to grant waivers from this retirement policy under special circumstances, including for Board
members to continue serving in Chair or Chair-related roles beyond the retirement age. Current Board members who have
reached
the age of 75 as of January 1, 2021, are grandfathered as exceptions to the retirement policy and may continue to serve on the
Board until the end of the year in which they turn 80 years of age.
Advantages
of Having the Same Individuals as Trustees for the Morgan Stanley Funds.
The Independent Trustees and the Trust’s management
believe that having the same Independent Trustees for each of the Morgan Stanley Funds avoids the duplication of
effort that would arise from having different groups of individuals serving as Independent Trustees for each of the funds or even of sub-groups
of funds. They believe that having the same individuals serve as Independent Trustees of all the Morgan Stanley Funds tends
to increase their knowledge and expertise regarding matters which affect the Fund Complex generally and enhances their ability to
negotiate on behalf of each fund with the fund’s service providers. This arrangement also precludes the possibility of separate
groups of Independent Trustees arriving at conflicting
decisions regarding operations and management of the funds and avoids the cost
and confusion that would likely ensue. Finally, having the same Independent Trustees serve on all fund boards enhances the ability
of each fund to obtain, at modest cost to each separate fund, the services of Independent Trustees of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the Morgan Stanley Funds.
Trustee
and Officer Indemnification. The Trust’s
Declaration of Trust provides that no Trustee, officer, employee or agent of the Trust
is liable to the Trust or to a shareholder, nor is any Trustee, officer, employee or agent liable to any third persons in connection with
the affairs of the Trust, except as such liability may arise from his/her or its own bad faith, willful misfeasance, gross negligence
or reckless disregard of his/her or its duties. It also
provides that all third persons shall look solely to Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability in connection with the affairs of the Trust.
Shareholder
Communications. Shareholders may send communications
to the Trust’s Board of Trustees. Shareholders should send communications
intended for the Trust’s Board by addressing the communications directly to the Board (or individual Board members)
and/or otherwise clearly indicating in the salutation that the communication is for the Board (or individual Board members)
and by sending the communication to either the Trust’s office or directly to such Board member(s) at the address specified for
each Trustee previously noted. Other shareholder communications received by the Trust not directly addressed and sent to the Board
will be reviewed and generally responded to by management, and will be forwarded to the Board only at management’s discretion
based on the matters contained therein.
Compensation
Effective
January 1, 2021, each Trustee (except for the Chair of the Boards) receives an annual retainer fee of $295,000 ($280,000 prior
to January 1, 2020) for serving as a Trustee of the Morgan Stanley Funds.
The
Audit Committee Chairperson receives an additional annual retainer fee of $80,000, the Risk Committee Chairperson, the Equity
Investment Committee Chairperson, Fixed Income, Liquidity and Alternatives Investment Committee Chairperson and Governance
Committee Chairperson each receive an additional annual retainer fee of $50,000 and the Compliance and Insurance Committee
Chairperson receives an additional annual retainer fee of $65,000. The aggregate compensation paid to each Trustee is paid
by the Morgan Stanley Funds, and is allocated on a pro rata basis among each of the operational funds of the Morgan Stanley Funds
based on the relative net assets of each of the funds. The Chair of the Boards receives a total annual retainer fee of $590,000 ($560,000
prior to January 1, 2020) for his services and for administrative services provided to each Board.
The
Trust also reimburses such Trustees for travel and other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees of the Trust who are employed by the Adviser receive no compensation or expense reimbursement from the Trust
for their services as a Trustee.
Effective
April 1, 2004, the Trust began a Deferred Compensation Plan (the “DC Plan”), which allows each Trustee to defer payment
of all, or a portion, of the fees he or she receives for serving on the Board of Trustees throughout the year. Each eligible Trustee
generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan
Stanley Funds that are offered as investment options under the DC Plan. At the Trustee’s election, distributions are either in
one lump sum payment, or in the form of equal annual
installments over a period of five years. The rights of an eligible Trustee and the
beneficiaries to the amounts held under the DC Plan are unsecured and such amounts are subject to the claims of the creditors of the
Trust.
Prior
to April 1, 2004, the Trust maintained a similar Deferred Compensation Plan (the “Prior DC Plan”), which also allowed each
Independent Trustee to defer payment of all, or a portion,
of the fees he or she received for serving on the Board of Trustees throughout
the year. Generally, the DC Plan amends and supersedes the Prior DC Plan and all amounts payable under the Prior DC Plan
are now subject to the terms of the DC Plan (except for amounts paid during the calendar year 2004, which remain subject to the
terms of the Prior DC Plan).
The
following table shows aggregate compensation payable to each of the Trust’s Trustees from the Trust for the fiscal year ended October31, 2021
and the aggregate compensation payable to each of the Trust’s Trustees by the Fund Complex (which includes all
Total
Compensation From Trust and
Fund Complex Paid to
the Trustees3
Frank
L. Bowman
$266,852
$360,000
Kathleen
A. Dennis
255,733
345,000
Nancy
C. Everett
255,496
345,000
Jakki
L. Haussler
218,477
295,000
Manuel
H. Johnson
255,733
345,000
Joseph
J. Kearns2,3
277,784
375,000
Michael
F. Klein2,3
255,724
345,000
Patricia
Maleski
218,477
295,000
W.
Allen Reed3
437,305
590,000
1
Includes
all amounts paid for serving as director/trustee of the funds
in the Fund Complex, as well as serving as Chair of the
Boards or a Chairperson of a Committee.
2
The
amounts shown in this column represent the aggregate compensation before deferral with respect to the Trust’s fiscal year. The
following Trustees deferred compensation from the Trust
during the fiscal year ended October 31, 2021:
Mr. Kearns, $118,487,
and Mr. Klein, $255,724.
3
The
amounts shown in this column represent the aggregate compensation paid by all of the funds in the Fund Complex as of December 31, 2021
before deferral by the Trustee under the DC Plan. As
of December 31, 2021,
the value (including interest) of the deferral accounts across the Fund Complex for Messrs. Kearns, Klein
and Reed pursuant to the deferred compensation plans was $975,487,
$3,251,083 and 4,684,889, respectively. Because the funds
in the Fund Complex have different fiscal year ends,
the amounts shown in this column are presented on a calendar year basis.
Prior
to December 31, 2003, 49 of the Morgan Stanley Funds (the “Adopting Funds”), not including the Trust, had adopted a retirement
program under which an Independent Trustee who retired after serving for at least five years as an Independent Trustee of any
such fund (an “Eligible Trustee”) would have been entitled to retirement payments, based on factors such as length of service,
upon reaching the eligible retirement age. On December31, 2003, the amount of accrued retirement benefits for each Eligible Trustee
was frozen, and will be payable, together with a return of 8% per annum, at or following each such Eligible Trustee’s retirement
as shown in the table below.
The
following table illustrates the retirement benefits accrued to the Trust’s Independent Trustees by the Adopting Funds for the calendar
year ended December 31, 2020, and the estimated retirement benefits for the Independent Trustees from the Adopting Funds
for each calendar year following retirement. Only the Trustees listed below participated in the retirement program.
Name
of Independent Trustee
Retirement
Benefits Accrued as Fund Expenses By
All Adopting Funds1
Estimated
Annual Benefits Upon Retirement2From All Adopting Funds
Manuel
H. Johnson
$(14,585)
$55,816
1
Mr.
Johnson’s retirement expenses are negative due to the fact that his retirement date has been extended and therefore his expenses
have been overaccrued.
2
Total
compensation accrued under the retirement plan, together with a return of 8% per annum, will be paid annually commencing upon retirement
and continuing for the remainder
of the Trustee’s life.
Code
of Ethics
The
Trust, the Adviser and the Distributor have each adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act. The Codes
of Ethics are designed to detect and prevent improper personal trading. The Codes of Ethics permit personnel subject to the Codes
of Ethics to invest in securities, including securities that may be purchased, sold or held by the Trust, subject to a number of restrictions
and controls, including prohibitions against purchases of securities in an initial public offering and a preclearance requirement
with respect to personal securities transactions.
ADVISER
The
Adviser is a wholly owned subsidiary of Morgan Stanley (NYSE: “MS”), a preeminent global financial securities firm engaged
in securities trading and brokerage activities, as well
as providing investment banking, research and analysis, financing and financial advisory
services. The principal offices of Morgan Stanley are located at 1585 Broadway, New York, NY10036, and the principal offices
of the Adviser are located at 522 Fifth Avenue, New York, NY10036. As of December 31, 2021,
the Adviser, together with its affiliated asset management
companies, had approximately $1.6
trillion in assets under management or supervision.
The
Adviser provides investment advice and portfolio management services pursuant to an Investment Advisory Agreement and, subject
to the control and supervision of the Trust’s Board of Trustees, makes each Fund’s day-to-day investment decisions, arranges
for the execution of portfolio transactions and generally
manages each Fund’s investments.
As
compensation for the services rendered by the Adviser under the Agreement and the assumption by the Adviser of the expenses related
thereto (other than the cost of securities purchased for each Fund and the taxes and brokerage commissions, if any, payable in connection
with the purchase and/or sale of such securities), each Fund pays the Adviser monthly compensation calculated daily by applying
the annual rate of 0.15% to each Fund’s daily net assets.
Morgan
Stanley Investment Management Inc., as the Adviser and the Administrator, has agreed to reduce its advisory fee, its administration
fee and/or reimburse certain expenses to the extent necessary so that total annual operating expenses of each Institutional
Class, Institutional Select Class, Investor Class, Administrative Class, Advisory Class, Participant Class, Cash Management
Class, Select Class, CastleOak
Class and Impact
Class will not exceed 0.20%, 0.25%, 0.30%, 0.35%, 0.45%, 0.70% (0.45%
with respect to Government Securities Portfolio, which includes a waiver in which the Fund’s Distributor has agreed to waive 0.15%
of the 0.25% 12b-1 fee and 0.10% of the 0.25% Shareholder Service Fee that it may receive), 0.35%,
1.00%, 0.20% and 0.20%
of their average daily net assets, respectively. In determining the actual amount of fee waivers and/or expense reimbursements for
a Fund, if any, the Adviser and Administrator exclude from total annual fund operating expenses, acquired fund fees and expenses (as
applicable), certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation). If these expenses
were included, each Fund’s total annual fund operating expenses after fee waivers and/or reimbursements would exceed the percentage
limits stated above. These fee waivers and expense reimbursements will continue for at least one year from
the date of the applicable Prospectus
or until such time as the Trust’s Board of Trustees
acts to discontinue all or a portion of such waivers and/or reimbursements
when it deems such action is appropriate. The Distributor, Adviser and Administrator may also waive distribution fees,
advisory fees, administration fees and/or reimburse expenses to enable a Fund to maintain a minimum level of daily net investment
income. Furthermore, the Adviser and Administrator may make additional voluntary fee waivers and/or expense reimbursements.
The Distributor, Adviser and Administrator may discontinue these voluntary fee waivers and/or expense reimbursements
at any time in the future.
The
following table reflects for each Fund (i) the advisory fee paid; and (ii) the advisory fee waived and/or affiliated rebates for each
of the past three fiscal years ended October 31, 2019,
2020 and 2021:
The
Trust bears all of its own costs and expenses, including but not limited to: services of its independent accountants, its administrator
and dividend disbursing and transfer agent, legal counsel, taxes, insurance premiums, costs incidental to meetings of its shareholders
and Trustees, the cost of filing its registration statements under federal and state securities laws, reports to shareholders and
custodian fees. These Trust expenses are, in turn, allocated to each Fund, based on their relative net assets. Each Fund bears its own
advisory fees and brokerage commissions and transfer taxes in connection with the acquisition and disposition of its investment securities.
The
Agreement continues for successive one year periods only if each renewal is specifically approved by an in-person vote of the Trust’s
Board, including the affirmative votes of a majority of the Trustees who are not parties to the agreement or “interested persons”
(as defined in the 1940 Act) of any such party at a meeting called for the purpose of considering such approval. In addition, the
question of continuance of the Agreement may be presented to the shareholders of the Funds; in such event, continuance shall be effected
only if approved by the affirmative vote of a majority of the outstanding voting securities of each Fund. If the holders of a Fund
fail to approve the Agreement, the Adviser may continue to serve as investment adviser to each Fund that approved the Agreement,
and to any Fund that did not approve the Agreement until new arrangements have been made. The Agreement is automatically
terminated if assigned, and may be terminated by a Fund without the payment of any penalty, at any time, (1) by vote of
a majority of the entire Board or (2) by vote of a majority of the outstanding voting securities of the Trust on sixty (60) days’
written notice to the Adviser or (3) by the Adviser
without the payment of any penalty, upon ninety (90) days’ written notice to the Trust.
The
Board of Trustees believes that the voting of proxies on securities held by the Trust is an important element of the overall investment
process. As such, the Trustees have delegated the responsibility to vote such proxies to MSIM.
A
copy of MSIM’s Proxy Voting Policy (“Proxy Policy”) is attached hereto as Appendix A. In addition, a copy of the
Proxy Policy, as well as the Trust’s most recent
proxy voting record for the 12-month period ended June 30, as filed with the SEC, are available without
charge on our web site at www.morganstanley.com/liquidity. The Trust’s proxy voting record is also available without charge on
the SEC’s web site at www.sec.gov.
PRINCIPAL
UNDERWRITER
Morgan
Stanley Distribution, Inc., an indirect wholly-owned subsidiary of Morgan Stanley, with its principal office at 522 Fifth Avenue,
New York, NY10036, distributes the shares of each Fund. Under the Distribution Agreement, the Distributor, as agent of the
Trust, agrees to use its best efforts as sole distributor of each Fund’s shares. The Distribution Agreement continues in effect
so long as such continuance is approved at least annually
by the Trust’s Board, including a majority of those Trustees who are not parties
to such Distribution Agreement nor interested persons of any such party. The Distribution Agreement provides that each Fund
will bear the costs of the registration of its shares with the SEC and various states and the printing of its prospectuses, statements
of additional information and reports to shareholders.
SERVICE
AND DISTRIBUTION OF SHARES
Administration
Plans
The
Trust has entered into an Administration Plan with respect to its Institutional Select Class Shares to pay the Distributor to compensate
Service Organizations (defined below) who provide administrative services to shareholders. Under the Plan, the Trust, on behalf
of the Institutional Select Class Shares, is authorized to pay the Distributor a monthly administration fee of 0.05% of each Fund’s
average daily net assets of Institutional Select Class Shares owned beneficially by the customers of such Service Organizations during
such period, to compensate Service Organizations for providing the following services: processing and issuing confirmations concerning
shareholder orders to purchase, redeem and exchange shares of such class; receiving and transmitting funds representing the
purchase price or redemption proceeds of such shares; and forwarding shareholder communications such as prospectus updates, proxies
and shareholder reports.
For
the fiscal year ended October 31, 2021,
the ESG Money Market, Prime, Government, Government Securities, Treasury, Treasury
Securities and Tax-Exempt Portfolios of the Institutional Select Class paid $10,
$3,978, $0, $0, $0, $0 and $0, respectively, to
compensate the Distributor pursuant to the Institutional Select Class Administration Plan and such payments reflect a waiver of $15,
$3,136, $7,936,700, $25, $6,187,509, $1,269,263 and $25
respectively. These fees were used to reimburse third parties for various
Fund administration activities performed on behalf of the Trust.
The
Trust also has entered into an Administration Plan with respect to its Investor Class Shares to pay the Distributor to compensate Service
Organizations who provide administrative services to shareholders. Under the Plan, the Trust, on behalf of the Investor Class Shares,
is authorized to pay the Distributor a monthly administration fee of 0.10% of each Fund’s average daily net assets of Investor
Class Shares owned beneficially by the customers of
such Service Organizations during such period, to compensate Service Organizations
for making available the following services: (a) acting, or arranging for another party to act, as recordholder and nominee
of all shares of such class beneficially owned by shareholders of the Trust; (b) providing sub-accounting with respect to shares
of such class of a Fund beneficially owned by shareholders or the information necessary for sub-accounting, including establishing
and maintaining individual accounts and records with respect to shares of such class owned by each shareholder; (c) processing
and issuing confirmations concerning shareholder orders to purchase, redeem and exchange shares of such class; (d) providing
periodic statements to each shareholder showing account balances and transactions during the relevant period; and (e) processing
dividend payments.
For
the fiscal year ended October 31, 2021,
the ESG Money Market, Prime, Government, Government Securities, Treasury, Treasury
Securities and Tax-Exempt Portfolios of the Investor Class paid $0, $0, $0,
$0, $0, $0 and $0, respectively, to compensate the
Distributor pursuant to the Investor Class Administration Plan and such payments reflect a waiver of $0, $0, $1,602,272,
$51, $36,354, $51, $0,
respectively. These fees were used to reimburse third parties for various Fund administration activities performed on
behalf of the Trust.
The
Trust has entered into an Administration Plan with respect to its Administrative Class Shares to pay the Distributor to compensate
Service Organizations who provide administrative services to shareholders. Under the Plan, the Trust, on behalf of the Administrative
Class Shares, is authorized to pay the Distributor a monthly administration fee which shall not exceed during any one year
0.15% of the average daily net assets of Administrative Class Shares owned beneficially by the customers of such Service Organizations
during such period. An initial 0.10% of the average daily net assets of the Administrative Class Shares will be assessed for
making available the services listed in (a) through (e) above; an additional 0.05% of the average daily net assets of the
Administrative
Class Shares will be assessed for making available the following shareholder administration services: (f) receiving, tabulating
and transmitting proxies; (g) responding to shareholder inquiries relating to such class of shares or these services; and (h) providing
sweep services (“Sweep Services”) which may include: (i) providing the necessary computer hardware and software which links
the service organization to an account management system; (ii) providing software that aggregates a shareholder’s orders and establishes
an order to purchase or redeem shares of a Fund based on established target levels for the shareholder’s demand deposit accounts;
(iii) providing periodic statements showing a shareholder’s account balance and, to the extent practicable, integrating such information
with other shareholder transactions otherwise effected through or with the Service Organization; and (iv) furnishing (either
separately or on an integrated basis with other reports sent to a shareholder by the Service Organization) monthly and year-end
statements and confirmations of purchases, exchanges and redemptions.
For
the fiscal year ended October 31, 2021,
the ESG Money Market, Prime, Government, Government Securities, Treasury, Treasury
Securities and Tax-Exempt Portfolios of the Administrative Class paid $0, $0, $0,
$0, $0, $0 and $0, respectively, to compensate
the Distributor pursuant to the Administrative Class Administration Plan and such payments reflect a waiver of $0, $0, $298,066,
$76, $4,949, $11,469 and $0, respectively. These fees
were used to reimburse third parties for various Fund administration
activities performed on behalf of the Trust.
Service
Organizations include institutions that (i) act directly or indirectly as nominees and recordholders of shares of each class for their
respective customers who are or may become beneficial owners of such shares; (ii) provide services to other Service Organizations
intended to facilitate or improve a Service Organization’s services to shareholders of the Funds with respect to the Funds;
and/or (iii) perform certain account administration services with respect to the shareholders pursuant to agreements between the
Trust, on behalf of the respective class of each Fund, and such Service Organizations.
Service
and Shareholder Administration Plan
The
Trust has also entered into a Service and Shareholder Administration Plan with respect to its Advisory Class Shares to pay the Distributor
to compensate Service Organizations who provide administrative services to shareholders. Under the Plan, the Trust, on behalf
of the Advisory Class Shares, is authorized to pay the Distributor a monthly service fee which shall not exceed during any one year
0.25% of the average daily net assets of Advisory Class Shares owned beneficially by the customers of such Service Organizations during
such period. An initial 0.10% of the average daily net assets of the Advisory Class Shares will be assessed for making available the
services listed in (a) through (e) above; an additional 0.05% of the average daily net assets of the Advisory Class Shares will be
assessed for providing some or all of the services listed
in (f) through (h) above; and an additional 0.10% of the average daily net assets
of the Advisory Class Shares will be assessed for making available some or all of the following shareholder services: (i) providing facilities
to answer inquiries and respond to correspondence with shareholders of the Trust and other investors about the status of their
accounts or about other aspects of the Trust or the applicable Fund; (j) acting as liaison between shareholders and the Trust, including
obtaining information from the Trust and assisting the Trust in correcting errors and resolving problems; (k) assisting shareholders
of the Trust in completing application forms, selecting dividend and other account options and opening custody accounts
with the Service Organization; and (l) displaying and making prospectuses available to existing shareholders on the Service Organization’s
premises.
For
the fiscal year ended October 31, 2021,
the ESG Money Market, Prime, Government, Government Securities, Treasury, Treasury
Securities and Tax-Exempt Portfolios of the Advisory Class paid $15,
$17, $0, $0, $0, $0 and $0, respectively, to compensate
the Distributor pursuant to the Advisory Class Service and Shareholder Administration Plan and such payments reflect a waiver
of $112,
$573, $3,963,767, $89,629, $1,575,137, $56,859 and $0,
respectively. These fees were used to reimburse third parties
for shareholder administration-related and personal and account maintenance services performed on behalf of the Trust.
Shareholder
Service Plans
The
Trust has entered into a Shareholder Service Plan with respect to its Participant Class Shares to pay the Distributor to provide for,
or to compensate Service Organizations for providing personal and account maintenance services and administrative services to shareholders.
Under the Plan, the Trust, on behalf of the Participant Class Shares, is authorized to pay the Distributor a monthly service
fee which shall not exceed during any one year 0.25% of the average daily net assets of Participant Class Shares owned beneficially
by the customers of such Service Organizations during such period. Such service fee is assessed as follows: an initial 0.10%
of the average daily net assets of the Participant Class Shares will be assessed for making available the services listed in (a) through
(e) above; an additional 0.05% of the average daily net assets of the Participant Class Shares will be assessed for making available
the services listed in (f) through (h) above; and an additional 0.10% of the average daily net assets of the Participant Class Shares
will be assessed for making available some or all of the services listed in (i) through (l) above. With respect to the Government Securities
Portfolio, the Trust’s Distributor has agreed to waive 0.10% of the 0.25% Shareholder Service Fee that it may receive.
This waiver will continue for at least one year from
the date of the applicable Prospectus or until such
time as the Trust’s Board of Trustees acts to
discontinue all or a portion of such waiver when it deems such action is appropriate.
For
the fiscal year ended October 31, 2021,
the ESG Money Market, Prime, Government, Government Securities, Treasury, Treasury
Securities and Tax-Exempt Portfolios of the Participant Class paid $7,
$0, $0, $0, $0, $0 and $0, respectively, to
compensate
the Distributor pursuant to the Participant Class Shareholder Service Plan and reflect a waiver of $120,
$0, $4,449,202, $26,776,747, $7,848,041,
$714 and $0, respectively. These fees were used to reimburse
third parties for shareholder administration-related
and personal and account maintenance services performed on behalf of the Trust.
The
Trust has also entered into a Shareholder Service Plan with respect to its Cash Management Class Shares to pay the Distributor to
compensate Service Organizations who provide administrative services to shareholders. Under the Plan, the Trust, on behalf of the Cash
Management Class Shares, is authorized to pay the Distributor a monthly service fee which shall be assessed at an annual rate of 0.05%
of the average daily net assets of Cash Management Class Shares owned beneficially by the customers of such Service Organizations
during such period, to compensate Service Organizations for staffing and maintaining call centers and answering inquiries
and addressing issues related to the Cash Management Share Class.
For
the fiscal year ended October 31, 2021,
the ESG Money Market, Prime, Government, Government Securities, Treasury, Treasury
Securities and Tax-Exempt Portfolios of the Cash Management Class paid $835,
$572, $0, $0, $0, $0 and $0, respectively, to
compensate the Distributor pursuant to the Cash Management Class Shareholder Service Plan and reflect a waiver of $3,483,
$2,149, $2,267, $178, $8,714, $5,260
and $2,367, respectively. These fees were used to reimburse
third parties for shareholder administration-related
and personal and account maintenance services performed on behalf of the Trust.
The
Trust has also entered into a Shareholder Service Plan with respect to its Select Class Shares to pay the Distributor to provide for,
or to compensate Service Organizations for providing personal and account maintenance services and administrative services to shareholders.
Under the Plan, the Trust, on behalf of the Select Class Shares, is authorized to pay the Distributor a monthly service fee
which shall not exceed during any one year 0.25% of the average daily net assets of Select Class Shares owned beneficially by the
customers of such Service Organizations during such
period. Such service fee is assessed as follows: an initial 0.10% of the average daily
net assets of the Select Class Shares will be assessed for making available the services listed in (a) through (d) above; an additional
0.05% of the average daily net assets of the Select Class Shares will be assessed for making available the services listed in (f)
through (h) above; and an additional 0.10% of the
average daily net assets of the Select Class Shares will be assessed for making available
some or all of the services listed in (i) through (l) above.
For
the fiscal year ended October 31, 2021,
the Government, Treasury and Treasury Securities Portfolios of the Select Class paid $0,
$0 and $0,
respectively, to compensate the Distributor pursuant to the Select Class Shareholder Service Plan and reflect a waiver of $126,
$126 and $126, respectively. These fees were used to
reimburse third parties for shareholder administration-related and personal
and account maintenance services performed on behalf of the Trust.
Distribution
Plans
The
Trust has also entered into a Distribution Plan with respect to its Participant Class Shares to pay the Distributor to provide for, or
to compensate Service Organizations for providing distribution-related services. Under the Plan, the Trust, on behalf of the Participant
Class Shares, is authorized to pay the Distributor a monthly distribution fee which shall not exceed during any one year 0.25%
(which is assessed annually) of the average daily net assets of Participant Class Shares owned beneficially by the customers of such
Service Organizations during such period. Distribution-related services for which the Distributor or a Service Organization may be
compensated include any activities or expenses primarily intended to result in the sale of Participant Class shares, including, but not
limited to: distribution of sales literature and advertising materials and compensation to broker-dealers who sell Participant Class shares.
The Distributor may negotiate with any such broker-dealer the services to be provided by the broker-dealer to shareholders in connection
with the sale of Participant Class shares, and all or any portion of the compensation paid to the Distributor pursuant to this
Distribution Plan may be reallocated by the Distributor to broker-dealers who sell shares. The Trust, on behalf of the Participant Class
Shares, has adopted this Plan in accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates circumstances
under which an investment company may directly or indirectly bear expenses relating to the distribution of shares. The Distributor
may retain any portion of the fees it does not expend in meeting its obligations to the Trust. With respect to the Government
Securities Portfolio, the Trust’s Distributor has agreed to waive 0.15% of the 0.25% 12b-1 Fee that it may receive. This
waiver will continue for at least one year from
the date of the applicable Prospectus or until such
time as the Trust’s Board of Trustees acts to
discontinue all or a portion of such waiver when it deems such action is appropriate.
For
the fiscal year ended October 31, 2021,
the ESG Money Market, Prime, Government, Government Securities, Treasury, Treasury
Securities and Tax-Exempt Portfolios of the Participant Class paid $7,
$0, $0 $0, $0, $0 and $0, respectively, to compensate
the Distributor pursuant to the Participant Class Distribution Plan and reflect a waiver of $120,
$0, $4,449,202, $26,776,747, $7,848,041,
$714 and $0, respectively. These fees were used to reimburse
third parties for various Fund administration activities
performed on behalf of the Trust.
The
Trust has also entered into a Distribution Plan with respect to its Cash Management Class Shares to pay the Distributor to provide
for, or to compensate Service Organizations for providing distribution-related services. Under the Plan, the Trust, on behalf of
the Cash Management Class Shares, is authorized to pay the Distributor a monthly distribution fee which shall not exceed during any
one year 0.10% (which is assessed annually) of the average daily net assets of Cash Management Class Shares owned beneficially by
the customers of such Service Organizations during such period. Distribution-related services for which the Distributor may be
compensated
include any activities or expenses primarily intended to result in the sale of Cash Management Class Shares including, but
not limited to, printing and distribution of sales literature and advertising materials, and compensation to broker-dealers who sell Cash
Management Class Shares. The Distributor may negotiate with any such broker-dealer the services to be provided by the broker-dealer
in connection with the sale of Cash Management Class shares, and all or any portion of the compensation paid to the Distributor
pursuant to this Distribution Plan may be reallocated by the Distributor to broker-dealers who sell Shares. The Trust, on behalf
of the Cash Management Class Shares, has adopted this Plan in accordance with the provisions of Rule 12b-1 under the 1940 Act
which regulates circumstances under which an investment company may directly or indirectly bear expenses relating to the distribution
of shares. The Distributor may retain any portion of the fees it does not expend in meeting its obligations to the Trust.
For
the fiscal year ended October 31, 2021,
the ESG Money Market, Prime, Government, Government Securities, Treasury, Treasury
Securities and Tax-Exempt Portfolios of the Cash Management Class paid $1,670,
$1,146, $0, $0, $0, $0 and $0,respectively,
to compensate the Distributor pursuant to the Cash Management Class Distribution Plan and reflect a waiver of $6,966,
$4,297, $4,534, $354, $17,429, $10,521 and $4,733, respectively.
These fees were used to reimburse third parties for various
Fund administration activities performed on behalf of the Trust.
Finally,
the Trust has entered into a Distribution Plan with respect to its Select Class Shares to pay the Distributor to provide for, or to
compensate Service Organizations for providing distribution-related services. Under the Plan, the Trust, on behalf of the Select Class
Shares, is authorized to pay the Distributor a monthly distribution fee which shall not exceed during any one year 0.55% (which
is assessed annually) of the average daily net assets of Select Class Shares owned beneficially by the customers of such Service Organizations
during such period. Distribution-related services for which the Distributor or a Service Organization may be compensated
include any activities or expenses primarily intended to result in the sale of Select Class shares, including, but not limited
to: distribution of sales literature and advertising materials and compensation to broker-dealers who sell Select Class shares. The
Distributor may negotiate with any such broker-dealer the services to be provided by the broker-dealer to shareholders in connection
with the sale of Select Class shares, and all or any portion of the compensation paid to the Distributor pursuant to this Distribution
Plan may be reallocated by the Distributor to broker-dealers who sell shares. The Trust, on behalf of the Select Class Shares,
has adopted this Plan in accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates circumstances under
which an investment company may directly or indirectly bear expenses relating to the distribution of shares. The Distributor may
retain any portion of the fees it does not expend in meeting its obligations to the Trust.
For
the fiscal year ended October 31, 2021,
the Government, Treasury and Treasury Securities Portfolios of the Select Class paid $0,
$0 and $0,
respectively, to compensate the Distributor pursuant to the Select Class Distribution Plan and reflect a waiver of $278,
$278, and $278,
respectively. These fees were used to reimburse third parties for various Fund administration activities performed on behalf
of the Trust.
No
interested person of the Trust nor any Independent Trustee has any direct financial interest in the operation of each Plan except to
the extent that the Distributor, the Adviser, Morgan Stanley & Co. LLC, Morgan Stanley Smith Barney LLC or certain of their employees
may be deemed to have such an interest as a result of benefits derived from the successful operation of a Plan or as a result of
receiving a portion of the amounts expended thereunder by the Trust.
Continuance
of each Plan must be approved annually by a majority of the Trustees of the Trust and the Trustees who are not “interested
persons” of the Trust within the meaning of the 1940 Act. The Plans require that quarterly written reports of amounts spent
under each respective Plan and the purposes of such expenditures be furnished to and review by Trustees. The Plans may not be
amended to increase materially the amount which may be spent thereunder by each class without approval by a majority of the outstanding
shares of each respective class. All material amendments of the Plans will require approval by a majority of the Trustees of
the Trust and of the Trustees who are not “interested persons” of the Trust.
Revenue
Sharing
The
Adviser and/or Distributor may pay compensation, out of their own funds and not as an expense of the Funds, to certain affiliated
entities of the Adviser and the Distributor (“Affiliated Entities”) and to certain unaffiliated brokers, dealers and other
financial intermediaries, including recordkeepers and
administrators of various deferred compensation plans (“Intermediaries”) in connection
with the sale, distribution, marketing and retention of shares of the Funds and/or shareholder servicing. For example, the Adviser
or the Distributor may pay additional compensation to Affiliated Entities and other Intermediaries for, among other things, promoting
the sale and distribution of Fund shares, providing access to various programs, mutual fund platforms or preferred or recommended
mutual fund lists offered by the Affiliated Entity or other Intermediary, granting the Distributor access to the Affiliated
Entity’s or Intermediary’s financial advisors and consultants, providing assistance in the ongoing education and training
of the Affiliated Entity’s or Intermediary’s
financial personnel, furnishing marketing support, maintaining share balances, and/or for sub-accounting,
recordkeeping, administrative, shareholder or transaction processing services. The Adviser and/or Distributor will also
reimburse certain investors, or make payments to certain third party vendors, to defray costs incurred by investors for the use of treasury
management systems or other business-related software for investments in funds. Such payments are in addition to any distribution
fees, shareholder servicing fees and/or transfer agency fees that may be payable by the Funds. The additional payments may
be based on various factors, including level of sales (based on gross or net sales or some specified minimum sales or some other
similar
criteria related to sales of the Funds and/or some or all other Morgan Stanley Funds), amount of assets invested by the Affiliated
Entity’s or Intermediary’s customers (which could include current or aged assets of the Funds), a Fund’s advisory
fees, some other agreed upon amount, or other measures
as determined from time to time by the Adviser and/or Distributor. The amount of these
payments may be different for different Affiliated Entities and Intermediaries.
With
respect to Morgan Stanley Smith Barney LLC, these payments may include the following amounts, which are paid in accordance
with the applicable compensation structure:
(1)
an ongoing annual fee in an amount of $582,650
in consideration of the Adviser’s participation at various Morgan Stanley Smith Barney
LLC events, including seminars, conferences and meetings as determined by Morgan Stanley Smith Barney LLC; and
(2)
an ongoing annual fee in an amount of $525,000
in consideration of Morgan Stanley Smith Barney LLC providing Adviser with access
to distribution analytical data in relation to sales of the Funds and certain other products managed and/or sponsored by the Adviser
or its affiliates.
With
respect to Affiliated Entities, these payments, which are paid in accordance with the applicable compensation structure, may include
an ongoing annual fee in an amount up to 0.10% of the total average NAV in respect of the applicable period of shares of the Funds
held in the applicable accounts.
The
prospect of receiving, or the receipt of, additional compensation, as described above, by Affiliated Entities or other Intermediaries
may provide Affiliated Entities and such Intermediaries, and/or their financial advisers or other salespersons with an incentive
to favor sales of shares of the Funds over other investment options with respect to which an Affiliated Entity or an Intermediary
does not receive additional compensation (or receives lower levels of additional compensation). These payment arrangements,
however, will not change the price that an investor pays for shares of a Fund or the amount that a Fund receives to invest
on behalf of an investor. Investors may wish to take such payment arrangements into account when considering and evaluating any
recommendations relating to Fund shares and should review carefully any disclosure provided by an Affiliated Entity or Intermediary
as to its compensation.
Other
Payments to Intermediaries
The
Adviser and/or the Distributor may also make payments, out of their own assets and not as an expense to a Fund, to Intermediaries
to offset certain nominal expenses of Intermediaries related to setup, connectivity or other technological maintenance of
the Intermediary’s investment platform and/or the provision of services with respect to a Fund or share class on an Intermediary’s
investment platform. Investors
may wish to take such payment arrangements into account when considering an investment in Fund shares.
FUND
ADMINISTRATION
The
Adviser also provides administrative services to the Trust pursuant to an Administration Agreement. The services provided under the
Administration Agreement are subject to the supervision of the officers and the Board of Trustees of the Trust and include day-to-day
administration of matters related to the corporate existence of the Trust, maintenance of records, preparation of reports, supervision
of the Trust’s arrangements with its custodian and assistance in the preparation of the Trust’s registration statement under
federal laws. The Administration Agreement also provides that the Adviser, through its agents, will provide dividend disbursing and
transfer agent services to the Trust. For its services under the Administration Agreement, the Trust pays the Adviser a monthly fee
which on an annual basis equals 0.05% of the average daily net assets of each Fund. The Adviser may compensate other service providers
for performing shareholder servicing and administrative services.
For
the fiscal years ended October 31, 2019,
2020 and 2021, the Trust paid the following administrative
fees;
Administrative
Fees Paid
Fund
2019 (000)
20201 (000)
20212 (000)
ESG
Money Market Portfolio
$
1,373
$1,791
$1,736
Prime
Portfolio
5,294
8,218
8,210
Government
Portfolio
28,460
42,779
51,356
Government
Securities Portfolio
1,569
2,456
3,318
Treasury
Portfolio
8,540
14,633
16,079
Treasury
Securities Portfolio
11,086
19,276
19,025
Tax-Exempt
Portfolio
289
214
6
1
For
the fiscal year ended October 31, 2020,
the administration fees paid reflect a waiver of approximately $65,000,
$198,000 and $36,000 for the ESG Money Market,
Prime and Tax-Exempt Portfolios, respectively.
2
For
the fiscal year ended October 31, 2021,
the administration fees paid reflect a waiver of approximately $10,596,000,
$2,490,000, $2,712,000, $9,173,000 and $138,000
for the Government, Government Securities, Treasury, Treasury Securities and
Tax-Exempt Portfolios, respectively.
Sub-Administrator.
Under an agreement between the Administrator and State Street Bank and Trust Company (“State Street”), State
Street provides certain administrative services to the Trust. For such services, the Administrator pays State Street a portion of the
administrative fee the Administrator receives from the Trust. The Administrator supervises and monitors the administrative and accounting
services provided by State Street. Their services are also subject to the supervision of the officers and Board of Trustees of the
Trust.
OTHER
SERVICE PROVIDERS
Custodian.
State Street, One Lincoln Street, Boston, MA02111-2101, is the custodian of the Trust’s assets. Any of the Trust’s cash
balances with the Custodian in excess of $250,000 are
unprotected by federal deposit insurance. These balances may, at times, be substantial.
Transfer
and Dividend Disbursing Agent. DST Asset Manager
Solutions, Inc., 2000 Crown Colony Drive, Quincy, MA 02169-0953,
serves as the Funds’ transfer agent and dividend disbursing agent.
Co-Transfer
Agent. Morgan Stanley Services Company, Inc. (“MSSCI”),
522 Fifth Avenue, New York, NY10036, is a registered transfer
agent and operates the Trust’s call center. In connection therewith, MSSCI performs certain transfer agency services related to
processing and relaying purchase and redemption orders to DST Asset Manager Solutions, Inc., the Funds’ transfer agent. MSSCI does
not receive any direct compensation from the Funds for providing the call center or the related transfer agency services.
Independent
Registered Public Accounting Firm. Ernst & Young
LLP, located at 200 Clarendon Street, Boston, MA02116-5021, serves
as independent registered public accounting firm and provides audit and audit-related services, tax-related services and assistance
in connection with various SEC filings.
Fund
Counsel. Dechert LLP, located at 1095 Avenue of
the Americas, New York, NY10036, acts as the Funds’ legal counsel.
BROKERAGE
TRANSACTIONS
Brokerage
Selection
The
Adviser is responsible for decisions to buy and sell securities for a Fund, for broker-dealer selection and for negotiation of commission
rates. The Adviser is prohibited from directing brokerage transactions on the basis of the referral of clients or the sale of shares
of advised investment companies. Purchases and sales of securities on a stock exchange are effected through brokers who charge a
commission for their services. In the OTC market, securities may be traded as agency transactions through broker-dealers or traded on
a “net” basis with dealers acting as principal for their own accounts without a stated commission, although the price of
the security usually includes profit to the dealer.
In underwritten offerings, securities are purchased at a fixed price which includes an amount
of compensation to the underwriter, generally referred to as the underwriter’s concession or discount. When securities are purchased
or sold directly from or to an issuer, no commissions or discounts are paid.
A
Fund may purchase certain money market instruments directly from an issuer without payment of a commission or concession. Money
market instruments are generally traded on a “net” basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the security
usually includes a profit to the dealer.
The
Trust anticipates that certain of its transactions involving foreign securities will be effected on foreign securities exchanges. There
is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.
The
Adviser selects broker-dealers for the execution of transactions for the Funds in accordance with its duty to seek “best execution”(i.e., the most favorable terms of execution). In seeking
best execution, the Adviser is not obligated to choose the broker-dealer offering
the lowest available commission rate if, in the Adviser’s reasonable judgment, (i) the total costs or proceeds from the transaction
might be less favorable than may be obtained elsewhere; (ii) a higher commission is justified by the brokerage and research
services provided by the broker-dealer that fall within the safe harbor of Section 28(e) of the 1934 Act or otherwise is permitted
under applicable law; or (iii) other considerations, such as the order size, the time required for execution, the depth and breadth
of the market for the security or minimum credit quality requirements to transact business with a particular broker-dealer. The
research services received include services which aid the Adviser in fulfilling its investment decision-making responsibilities, including
(a) furnishing advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability
of securities or purchasers or sellers of securities; and (b) furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of accounts.
When
effecting transactions on behalf of the Funds, the Adviser may trade with any broker-dealer on their list of approved broker-dealers.
Approved broker-dealers have met criteria as established by the Adviser’s Trading and Research Governance team (“TRG”).
TRG reviews and approves broker-dealers periodically
to determine whether broker-dealers on the approved list continue to meet such
criteria. The approval lists are reported quarterly to the Adviser’s Counterparty Governance Committee. When selecting an approved
broker-dealer (including an affiliate) to execute securities transactions, the following factors may be considered: (i) best
available
price; (ii) reliability, integrity and reputation in the industry (which may include a review of financial information and creditworthiness);
(iii) execution capabilities, including block positioning, speed of execution and quality and responsiveness of its trading
desk; (iv) knowledge of and access to the markets for the securities being traded; (v) potential ability to obtain price improvement;
(vi) ability to maintain confidentiality; (vii) ability to handle non-traditional trades; (viii) commission and commission-equivalent
rates; (ix) technology infrastructure; (x) clearance and settlement capabilities; (xi) the size of the trade relative to
other trades in the same instrument; (xii) ability of a counterparty to commit its capital to a Fund’s trade and its access to
liquidity; (xiii) counterparty restrictions associated
with a portfolio, including regulatory trading, documentation requirement or any specific clearing
broker-dealer requirements; (xiv) client-directed execution; (xv) client-specific restrictions; and (xvi) such other factors as may
be appropriate.
Subject
to the duty to seek best execution, the Adviser uses a portion of the commissions generated when executing client transactions to
acquire brokerage and research services that aid in fulfilling investment decision-making responsibilities in accordance with Section
28(e) and applicable law. Commissions paid to broker-dealers
providing brokerage and research services may be higher than those charged
by other broker-dealers. Subject to applicable law, the Adviser receives a benefit when using client commissions to obtain brokerage
and research services because the Adviser does not have to produce or pay for the brokerage research services itself. Therefore,
the Adviser has an incentive to select or recommend a broker-dealer based on its interest in receiving brokerage and research
services, rather than solely on its clients’ interest in obtaining the best price.
The
Adviser has adopted policies and procedures designed to help track and evaluate the benefits received from brokerage and research
services, as well as to track how much clients pay above the amount that broker-dealers from which the Adviser receives brokerage
and research services may have charged solely for execution of such trades. The Adviser utilizes a voting system to assist in making
a good faith determination of the value of brokerage and research services it receives in accordance with Section 28(e) and applicable
law. In many cases, these involve subjective judgments or approximations. The Adviser has established a process for budgeting
research costs and allocating such costs across client accounts.
The
Adviser and certain other affiliated advisers have entered into commission sharing arrangements (“CSAs”) with executing
brokers (“CSA Partners”) and a third-party
vendor (“CSA Aggregator”). Pursuant to these arrangements, and under the Adviser’s supervision, the
CSA Partners and CSA Aggregator track execution and research commissions separately and pool and distribute research credits in
accordance with the policies and procedures discussed above to approved research providers (which may include executing brokerage
firms or independent research providers (“Approved Research Providers”)) that provide brokerage and research services. The
CSA Aggregator also reconciles research credits from trades with CSA Partners, and pays Approved Research Providers and provides
other related administrative functions. In addition, a CSA Partner may provide the Adviser with proprietary research it has developed
and, upon instruction, may retain research commission credits as compensation for the provision of such proprietary research
services. The Adviser believes that these arrangements allow it to monitor the amount of trading costs that are attributable to execution
services on the one hand and other brokerage and research services on the other.
Transactions
that generate research credits include equity transactions executed on an agency basis or via a riskless principal transaction
where the executing broker-dealer receives a commission. The Adviser does not use CSAs or otherwise have arrangements to
pay for brokerage and research services with client commissions in connection with trading fixed-income securities. Consistent with
long-standing industry practice in the fixed-income markets, however, the Adviser, subject to applicable law, may receive brokerage
and research services and other information, including access to fixed-income trading platforms that dealers provide for no charge
to their customers in the ordinary course of business. Fixed-income instruments typically trade at a bid/ask spread and without an
explicit brokerage charge. While there is not a formal trading expense or commission, clients will bear the implicit trading costs reflected
in these spreads.
The
Adviser may receive “mixed use” products and services from an Approved Research Provider, where a portion of the product
or service assists in its investment decision-making
process in accordance with Section 28(e) and a portion may be used for other purposes.
Where a product or service has a mixed use, the Adviser will make a reasonable allocation of its cost according to its use and will
use client commissions to pay only for the portion of the product or service that assists in its investment decision-making process. The
Adviser may have an incentive to allocate the costs to uses that assist in its investment decision-making process because the Adviser
may pay for such costs with client commissions rather than its own resources. To the extent the Adviser receives “mixed use”products and services, the Adviser will allocate the
anticipated costs of a mixed use product or service in good faith and maintain records
concerning allocations in order to mitigate such conflicts.
Client
accounts that pay a greater amount of commissions relative to other accounts may bear a greater share of the cost of brokerage and
research services than such other accounts. The Adviser may use brokerage and research services obtained with brokerage commissions
from some clients for the benefit of other clients whose brokerage commissions do not pay for such brokerage and research
services. The Adviser may also share brokerage and research services with its affiliated advisers, and the clients of its affiliated advisers
may receive the benefits of such brokerage and research services. These arrangements remain subject to the Adviser’s overall obligation
to seek best execution for client trading.
The
EU’s Markets in Financial Instruments Directive II (“MiFID II”), which became effective January 3, 2018, requires
investment advisers regulated under MiFID II to pay
for research services separately from trade execution services, either through their own resources
or a research payment account funded by a specific charge to a client. Although the Adviser is not directly subject to the provisions
of MiFID II, certain of its affiliated advisers are, such as Morgan Stanley Investment Management Limited; accordingly, as applicable,
the Adviser makes a reasonable valuation and allocation of the cost of research services as between MiFID II client accounts
and other accounts that participate in CSAs and will pay for research services received with respect to MiFID II client accounts
from its own resources. The Adviser and affiliated advisers subject to MiFID II may separately pay for fixed-income research from
their own resources. Following its withdrawal from the EU on January 31, 2020, the United Kingdom has entered a transition period,
during which EU law (including MiFID II) will continue to apply in the United Kingdom. Following the transition period, investment
managers in the United Kingdom may still be required to comply with certain MiFID II equivalent requirements in accordance
with the handbook of rules and guidance issued by the Financial Conduct Authority.
When
permitted under applicable law, portfolio managers generally will aggregate orders of their clients for the same securities in a single
order so that such orders are executed simultaneously in order to facilitate best execution and to reduce brokerage costs. The Adviser
effects aggregated orders in a manner designed to ensure that no participating client is favored over any other client.
In
general, accounts that participate in an aggregated order will participate on a pro rata or other objective basis. Pro rata allocation
of securities and other instruments will generally consist
of allocation based on the order size of a participating client account in proportion
to the size of the orders placed for other accounts participating in the aggregated order. However, the Adviser may allocate such
securities and other instruments using a method other than pro rata if its supply is limited, based on differing portfolio characteristics
among accounts or to avoid odd lots or small allocations, among other reasons. These allocations are made in the good faith
judgment of the Adviser with a goal of seeking to ensure that fair and equitable allocation occurs over time. There may be times that
the Adviser is not able to aggregate orders because of applicable law or other considerations when doing so might otherwise be advantageous.
Pursuant
to an order issued by the SEC, the Trust is permitted to engage in principal transactions in money market instruments, subject
to certain conditions, with Morgan Stanley & Co. LLC, a broker-dealer affiliated with the Trust’s Adviser.
During
the fiscal years ended October 31, 2019,
2020 and 2021, the Trust did not effect any principal
transactions with Morgan Stanley & Co. LLC.
Commissions
Paid
During
the fiscal years ended October 31, 2019,
2020 and 2021, the Trust did not pay any commissions
or concessions and did not pay any brokerage commissions
to an affiliated broker or dealer.
Regular
Broker-Dealers
During
the fiscal year ended October 31, 2021,
the Funds purchased securities issued by the following issuers, which were among the ten
brokers or ten dealers that executed transactions for or with the Trust or the Fund in the largest dollar amounts during the period:
Fund
Issuer
ESG
Money Market Portfolio
Bank
of New York Mellon Bank of
Nova Scotia Barclays Bank PLC Canadian
Imperial Bank of Commerce Goldman
Sachs & Co. ING Financial
Markets LLC Mizuho Securities
USA Inc. Natixis Global Asset
Management, L.P. Tullett Prebon
Financial Services LLC
Prime
Portfolio
Bank
of New York Mellon Bank of
America Securities LLC Bank
of Nova Scotia Canadian Imperial
Bank of Commerce Goldman Sachs
& Co. ING Financial Markets
LLC Mizuho Securities USA Inc. Natixis
Global Asset Management, L.P. Tullett
Prebon Financial Services LLC
Morgan
Stanley Institutional Liquidity Funds is an open-end, management investment company established under Massachusetts law as
a Massachusetts business trust under a Declaration of Trust dated February 13, 2003 and amended as of July 25, 2005. Effective December13, 2010, the Trust’s Service Class was renamed the Institutional Select Class. Effective October 31, 2019, the Trust’s
Money Market Portfolio was renamed the ESG Money Market
Portfolio.
Description
of Shares and Voting Rights
The
shareholders of the Trust are entitled to a full vote for each full share of beneficial interest held. The Trust is authorized to issue
an unlimited number of shares of beneficial interest.
All shares of beneficial interest of each Fund are of $0.01 par value and are equal as
to earnings, assets and voting privileges except that each class will have exclusive voting privileges with respect to matters relating
to distribution expenses borne solely by such class
or any other matter in which the interests of one class differ from the interests of any other
class. The Institutional Select Class, Investor Class, Administrative Class, Advisory Class, Participant Class, Cash Management Class
and Select Class bear expenses related to compensating service organizations who provide personal and account maintenance services
and administrative services to shareholders and distribution related services to the Funds, as the case may be (see “Service and
Distribution of Shares”).
The
Trust’s Declaration of Trust permits the Trustees to authorize the creation of additional portfolios of shares (the proceeds of
which would be invested in separate, independently managed
portfolios) and additional classes of shares within any portfolio. The Trustees
have not presently authorized any such additional portfolios or classes of shares other than as set forth in the Prospectuses.
The
Trust is not required to hold annual meetings of shareholders and in ordinary circumstances the Trust does not intend to hold such
meetings. The Trustees may call special meetings of shareholders for action by shareholder vote as may be required by the 1940 Act
or the Declaration of Trust. Under certain circumstances, the Trustees may be removed by the actions of the Trustees. In addition,
under certain circumstances, the shareholders may call a meeting to remove the Trustees and the Trust is required to provide
assistance in communicating with shareholders about such a meeting. The voting rights of shareholders are not cumulative, so
that holders of more than 50% of the shares voting can, if they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.
Under
Massachusetts law, shareholders of a business trust may, under certain limited circumstances, be held personally liable as partners
for the obligations of each Fund. However, the Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust, requires that notice of such Trust obligations include such disclaimer, and provides for indemnification
out of the Trust’s property for any shareholder held personally liable for the obligations of the Trust. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would
be unable to meet its obligations. Given the above limitations
on shareholder personal liability, and the nature of the Trust’s assets and
operations, the possibility of the Trust being unable to meet its obligations is remote and thus, in the opinion of Massachusetts counsel
to the Trust, the risk to the Trust’s shareholders of personal liability is remote.
The
Trustees themselves have the power to alter the number and the terms of office of the Trustees (as provided for in the Declaration
of Trust), and they may at any time lengthen or shorten their own terms or make their terms of unlimited duration and appoint
their own successors, provided that always at least a majority of the Trustees has been elected by the shareholders of the Trust.
The
Trust’s policy is to distribute substantially all of the Funds’ net investment income, if any, together with any net realized
capital gains in the amount and at the times that will
avoid both income (including capital gains) taxes on it and the imposition of the federal
excise tax on undistributed income and capital gains. The amounts of any income dividends or capital gains distributions cannot
be predicted.
Unless
the shareholder elects otherwise in writing, all dividends and distributions are automatically reinvested in additional shares of the
Funds at NAV (as of the business day following the record date). This will remain in effect until the Trust is notified by the shareholder
in writing that either the income option (income dividends in cash and capital gains distributions in additional shares at NAV)
or the cash option (both income dividends and capital gain distributions in cash) has been elected. It may take up to three business
days to effect this change. An account statement is sent to shareholders whenever a dividend or distribution is paid.
The
Funds and any other portfolios which the Trust may establish from time to time are treated as separate entities (and hence, as separate
“regulated investment companies”) for federal tax purposes. Any net capital gains recognized by a Fund are distributed to
its investors and may generally not be offset (for federal
income tax purposes) by any net capital losses of another Fund.
Special
Considerations for the Funds. The Funds declare
income dividends daily on each business day and pay them monthly to shareholders.
Dividends are based on estimates of income, expenses and shareholder activity for the Funds. Actual income, expenses and
shareholders activity may differ from estimates and differences, if any, will be included in the calculation of subsequent dividends.
Shareholders
of record are those shareholders who have submitted a purchase order prior to the following times for each Fund and who
have submitted payment for their shares prior to the close of Fed wire that day: for the Government Portfolio and Treasury Portfolio—5:00
p.m. Eastern time; for the ESG Money Market Portfolio, Prime Portfolio, Government Securities Portfolio and Treasury
Securities Portfolio—3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio—1:00 p.m. Eastern time. Shareholders who
redeem prior to such respective times are not entitled to dividends for that day. Dividends declared for Saturdays, Sundays and holidays
are payable to shareholders of record as of such respective times on the preceding business day on which the Fund was open for
business. Net realized short-term capital gains, if any, of the Funds will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The Funds do not expect to realize any long-term capital
gains. Should any such gains be realized, they will be distributed annually.
Duties
of Financial Intermediaries under Rule 2a-7 with Respect to Funds Designated as “Institutional” Money Market Funds
Financial
Intermediaries (as defined in each Fund’s Prospectus) will take such actions reasonably requested by a Fund to impose, lift or
modify a liquidity fee or redemption gate, or assist a Fund in imposing, lifting or modifying a liquidity fee or redemption gate.
If
a Fund implements a liquidity fee, unless the Financial Intermediary will calculate and remit the liquidity fee in accordance with the
Trust’s reasonable directions, the Financial Intermediary authorizes the Trust or the Distributor to calculate the liquidity fee
owed to the Fund as a result of redemptions submitted
through the Financial Intermediary (the “Fee Amount”) following the imposition
of the liquidity fee and to withhold an amount equal to the Fee Amount from any redemption proceeds or other payments
that the Fund owes to the Financial Intermediary in its sole discretion.
To
facilitate the Trust’s or the Distributor’s ability to calculate the Fee Amount, following such notification, the Financial
Intermediary will provide the Trust or the Distributor,
before each NAV calculation time (as detailed in each Fund’s Prospectus), with
the gross dollar amount and number of Fund shares that the Financial Intermediary’s customers tendered for redemption before the
NAV calculation time and, if requested by the Trust, after the time at which the liquidity fee was imposed or before the time at which
the liquidity fee was terminated or modified, as applicable.
Upon
the reasonable request of the Distributor, the Trust or its authorized agent, Financial Intermediaries will provide (i) copies (or a
summary) of the policies, procedures and internal controls covering the foregoing and (ii) information or certification as to the adequacy
of such procedures and the effectiveness of their implementation, in such form as may be reasonably satisfactory to the Distributor
and/or Trust (or its authorized agent).
In
the event that a Financial Intermediary cannot redeem shares as provided herein, the Financial Intermediary will promptly notify the
Trust and will comply with any requests from the Trust or the Distributor relating to the involuntary redemption of such shares (including
shares held in an omnibus account).
TAXES
The
Funds and any other portfolios which the Trust may establish from time to time each is or will each be treated as a separate entity
for federal income tax purposes and intend to qualify for the special tax treatment afforded regulated investment companies under
the Internal Revenue Code of 1986, as amended (the “Code”). As such, each Fund will not be subject to federal income tax
to
the
extent it distributes its net investment company taxable income, net tax-exempt interest income and net capital gains to shareholders.
The Trust will notify you annually as to the tax classification of all distributions.
The
Funds intend to declare and pay dividends and capital gain distributions so as to avoid imposition of the federal excise tax. To do
so, the Funds generally expect to distribute an amount at least equal to the sum of (i) 98% of its calendar year (taking into account
certain deferrals and elections) ordinary income, (ii) 98.2% of its capital gain net income for the one-year period ending October
31st of that year, and (iii) 100% of any undistributed ordinary and capital gain net income from the prior year.
In
order for a Fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income including, but not limited to, dividends, interest, income derived
from loans of securities and gains from the sale of securities or foreign currencies, or other income derived with respect to its business
of investing in such securities or currencies. In addition, (i) the Fund must distribute annually to its shareholders at least the sum
of 90% of its net tax-exempt interest income and 90% of its investment company taxable income; and (ii) at the close of each quarter
of the Fund’s taxable year, the Fund must diversify its assets, including a requirement that (a) at least 50% of its total
assets must be represented by cash and cash items, U.S.
government securities, securities of other regulated investment companies and other securities
with limitations, and (b) at the close of each quarter of the Fund’s taxable year, not more than 25% of the value of its assets
may be invested in securities of any one issuer, or
of two or more issuers engaged in the same or similar businesses if the Fund owns at
least 20% of the voting power of such issuers or in securities of certain “qualified publicly traded partnerships.”
Net income derived from an interest in a “qualified
publicly traded partnership,” as defined in the Code, will be treated as qualifying income. If a Fund
fails to qualify for any taxable year as a regulated investment company, all of its taxable income will be subject to tax at regular corporate
income tax rates without any deduction for distributions to shareholders, and such distributions generally will be taxable to shareholders
as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits.
Each
Fund will distribute to shareholders annually any net capital gains which have been recognized for federal income tax purposes. Such
distributions will be combined with distributions of capital gains realized on the Fund’s other investments and shareholders will
be advised of the nature of the payments.
The
Trust may be required to withhold U.S. federal income tax at the applicable rate of reportable payments (which may include dividends
and capital gains distributions) paid to shareholders. In order to avoid this backup withholding requirement, you must certify
on your Account Registration Form that your social security number or taxpayer identification number is correct, that you are not
subject to backup withholding and provide appropriate tax documentation.
Shareholders
who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax
on distributions made by a Fund of investment income and short-term capital gains at a rate of 30% (or a lower tax treaty rate, if
applicable). Such shareholders may also be subject to
United States estate tax with respect to their shares. Dividends paid by a Fund to
shareholders who are nonresident aliens or foreign entities that are derived from short-term capital gains and qualifying U.S. source
net interest income (including income from original issue discount and market discount), and that are designated by the Fund as
“interest-related dividends” or “short-term capital gain dividends,” will generally not be subject to U.S.
withholding tax, provided that the income would not
be subject to U.S. federal income tax if earned directly by the foreign shareholder. However, depending on
the circumstances, a Fund may designate all, some or none of the Fund’s potentially eligible dividends as exempt.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail
to comply (or be deemed compliant) with extensive new
reporting and withholding requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information
to the Funds to enable the Funds to determine whether withholding is required.
Although
income received on direct U.S. Government obligations is taxable at the federal level, when received by a shareholder such income
may be exempt from state tax, depending on the state. Each Fund will inform shareholders annually of the percentage of income
and distributions derived from direct U.S. Government obligations. Shareholders should consult their tax advisers to determine
whether any portion of dividends received from the Fund is considered tax-exempt in their particular states.
Dividends
paid to shareholders of the Tax-Exempt Portfolio that are derived from municipal bond interest are expected to be designated
as exempt-interest dividends that are generally excluded from gross income for tax purposes. Interest on indebtedness incurred
or continued by a shareholder to purchase or carry shares of this Fund is not deductible to the extent it is deemed related to the
Fund’s distributions of tax-exempt interest. Tax-exempt distributions received from this Fund are taken into account in determining,
and may increase, the portion of social security and certain railroad retirement benefits that may be subject to federal income
tax. Further, entities or persons who are “substantial users” (or persons related to “substantial users”)
of facilities financed by industrial development or
private activity bonds should consult their tax advisers before purchasing shares of these Funds. “Substantial
user” is defined in applicable Treasury regulations to include a “non-exempt person” who regularly uses in its trade
or business a part of a facility financed from the proceeds
of industrial development bonds, and the same definition should apply in the case
of private activity bonds.
Under
recently issued Treasury regulations, certain distributions reported by the Funds as section 163(j) interest dividends may be treated
as interest income by shareholders for purposes of the tax rules applicable to interest expense limitations under Code section 163(j).
Such treatment by the shareholder is generally subject to holding period requirements and other potential limitations, although
the holding period requirements are generally not applicable to dividends declared by money market funds and certain other
funds that declare dividends daily and pay such dividends on a monthly or more frequent basis. The amount that a Fund is eligible
to report as a Section 163(j) dividend for a tax year is generally limited to the excess of the Fund’s business interest income
over the sum of the Fund’s (i) business interest
expense and (ii) other deductions properly allocable to the Fund’s business interest income.
Any
gain or loss recognized on a sale or redemption of shares of a Fund by a shareholder will generally be treated as long-term capital gain
or loss if the shares have been held for more than twelve months and short-term if held for twelve months or less. Under current law,
the maximum rate on long-term capital gains available to non-corporate shareholders generally is 15 or 20%, depending on whether
the shareholder’s income exceeds certain threshold amounts. If shares held for six months or less are sold or redeemed for a loss,
a special rule applies. If shares on which a net capital gain distribution has been received are subsequently sold or redeemed, and such
shares have been held for six months or less, any loss recognized will be treated as long-term capital loss to the extent of the long-term
capital gain distributions.
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates
and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Sales,
exchanges and redemptions of shares in a Fund are generally taxable events and may result in taxable gain or loss to you. Because
each of Government Portfolio, Government Securities Portfolio, Treasury Portfolio and Treasury Securities Portfolio (together,
the “Stable NAV Funds”) intends to maintain a stable $1.00 NAV, shareholders will typically not recognize gain or loss when
they sell or exchange their shares in these Funds because the amount realized will be the same as their tax basis in the shares. Because
each of ESG Money Market Portfolio, Prime Portfolio and Tax-Exempt Portfolio does not maintain a stable share price, a sale
of these Funds’ shares may result in capital gain or loss to you.
Gain
or loss on the sale or redemption of shares of a Fund is generally measured by the difference between the amount of cash received
(or the fair market value of any property received) and the tax basis of the shares. Shareholders should keep records of investments
made (including shares acquired through reinvestment of dividends and distributions) so they can compute the tax basis of
their shares. Under certain circumstances, a shareholder may compute and use an average cost basis in determining the gain or loss on
the sale or redemption of shares.
With
respect to any gain or loss recognized on the sale or exchange of shares of a Fund, unless you choose to adopt a simplified “NAV
method” of accounting (described below), the amount of any gain or loss and the rate of tax will depend mainly upon how much
you paid for the shares, how much you sell them for, and how long you held them. In this case, any gain or loss generally will be
treated as short-term capital gain or loss if you held your shares as capital assets for one year or less, and long-term capital gain
or loss if you held your shares as capital assets for
more than one year. The maximum individual tax rate applicable to long-term capital gains
is generally 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. Any loss realized
upon a taxable disposition of Fund shares held for six
months or less will be treated as a long-term capital loss, rather than a short-term
capital loss, to the extent of any long-term capital gain distributions received (or deemed received) by you with respect to the Fund
shares.
If
a Fund were to undergo a reverse stock split, effect a reverse distribution (see above), or undergo a similar transaction, such transaction
is expected to be tax-free to Fund shareholders. Your total cost basis in your Fund shares would remain the same but per share
basis would be slightly higher than before such transaction. Your holding period for the Fund shares received in the reverse stock
split is expected to include the period during which you held the Fund shares surrendered in the reverse stock split. It is possible that
a reverse distribution may be treated as a shareholder level investment expense incurred outside the Fund; if so treated, a shareholder
may be unable to claim a current deduction or loss with respect to such expense. This description of the tax consequences of
these potential transactions is not binding on the IRS.
If
you elect to adopt the simplified “NAV method” of accounting, rather than compute gain or loss on every taxable sale or
other disposition of shares of a Fund as described above,
you would determine your gain or loss based on the change in the aggregate value of
your Fund shares during a computation period (such as your taxable year), reduced by your net investment (i.e., purchases minus sales)
in those Fund shares during the computation period. Under the simplified “NAV method,” any resulting capital gain or loss
would be reportable on a net basis and would generally
be treated as a short-term capital gain or loss.
A
liquidity fee imposed by a Fund will reduce the amount you will receive upon the redemption of your shares, and will generally decrease
the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. There
is some degree of uncertainty with respect to the tax treatment of liquidity fees received by money market funds, and such tax
treatment
may be the subject of future guidance issued by the IRS. If a Fund receives liquidity fees, it will consider the appropriate tax
treatment of such fees to the Fund at such time.
Exchanges
of shares of a Fund for shares of another Fund are also subject to similar tax treatment. Such an exchange is treated for tax purposes
as a sale of the original shares in the first Fund, followed by the purchase of shares in the second Fund. With respect to the stable
NAV Funds, if a shareholder realizes a loss on the redemption or exchange of a Fund’s shares and receives securities that are considered
substantially identical to that Fund’s shares or reinvests in that Fund’s shares within 30 days before or after the redemption
or exchange, the transactions may be subject to the “wash sale” rules resulting in a postponement of the recognition of
such loss for tax purposes. The ability to deduct capital
losses may be subject to other limitations under the Code.
Shareholders
are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a
Fund.
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As
of February 1, 2022,
the following persons or entities own, of record or beneficially, 5% or more of the shares of any class of the following
Funds’ outstanding shares:
INSTITUTIONAL
CLASS
Fund
Name
and Address
%
of Class
ESG
Money Market Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames St Wharf 6th Fl. BaltimoreMD21231-3496
51.35%
ESG
Money Market Portfolio
Morgan
Stanley & CO Inc FBO 038CAC557 201
Harborside Financials CTR., Plaza
III, Floor 2 Jersey City, NJ07311
9.66%
Prime
Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl. Baltimore,
MD21231-3496
21.05%
Prime
Portfolio
BOFA
Securities Inc. For The Sole Benefit
Of Its Customers ATTN Money
Fund 200 N College St. Fl.
3 NC1-004-03-06 Charlotte,
NC28202-2191
11.07%
Prime
Portfolio
Star
Ohio ATTN Director Of Investments 30
E Broad St. Fl. 9 Columbus,
OH43215-3414
10.09%
Prime
Portfolio
Wells
Fargo Bank Account For Benefit
Of Its Customers ATTN Money
Fund Mail Code D1109-010 1525
W WT Harris Blvd CharlotteNC28262-8522
9.57%
Prime
Portfolio
New
York State Common Retirement Fund
(NYSCRF) Securities Finance Trust
CO As Agent ATTN Sonya Silva 1
Boston Pl Fl 24th Boston, MA02108-4407
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefits Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl. Baltimore,
MD21231-3496
7.75%
Government
Portfolio
Wells
Fargo Bank Account For Benefit
Of Its Customers ATTN Money
Fund Mail Code D1109-010 1525
W WT Harris Blvd CharlotteNC28262-8522
Morgan
Stanley & CO Inc FBO 038CAC557 201
Harborside Financials CTR., Plaza
III, Floor 2 Jersey City, NJ07311
14.00%
Government
Securities Portfolio
GS
Global Cash Services OMNIBUS A/C FBO
Goldman Sachs & CO LLC
Customers ATTN Financial Control 71
S Wacker DR STE 500 ChicagoIL60606-4673
13.57%
Government
Securities Portfolio
JPMorgan
Chase Bank, N.A. FBO Its Customers ATTN:Liquidity
Operations 10410 Highland Manor
Drive Floor 03 TampaFL33610-9128
13.51%
Government
Securities Portfolio
Wells
Fargo Bank Account For Benefit
Of Its Customers ATTN Money
Fund Mail Code D1109-010 1525
W WT Harris Blvd CharlotteNC28262-8522
7.95%
Government
Securities Portfolio
JPMS
- Chase Processing 28521 JPMS
IB 352 FBO 7528153815153 FBO
Baxter International INC 4
Chase Metrotech Center 7THFL BrooklynNY11245-0003
5.59%
Treasury
Portfolio
State
Street Bank and Trust CO C/O
Cash Sweep FBO Morgan Stanley
Funds ATTN Cash Sweep Support
Rich Letham 1776 Heritage Drive NorthQuincy, MA02171-2119
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl. Baltimore,
MD21231-3496
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl Baltimore,
MD21231-3496
Silicon
Valley Bank ATTN Liquidity
Mngt Middle Office 3003 Tasman
DR Santa ClaraCA95054-1191
93.59%
Government
Securities Portfolio
Morgan
Stanley Investment Management ATTN
Michael Agosta 750 Seventh
Ave. 12th Fl. New York, NY10019-6835
100%
Treasury
Portfolio
Silicon
Valley Bank ATTN Liquidity
Mngt Middle Office 3003 Tasman
DR Santa ClaraCA95054-1191
99.98%
Treasury
Securities Portfolio
Continental
Stock Transfer & Trust Company
ATF Executive Network Partnering
Corporation ATTN M Mullings
J Ulla N Tilhoo S Nelson 1
State St Fl 30 New York, NY10004
86.49%
Treasury
Securities Portfolio
Continental
Stock Transfer & Trust Company
ATF East Stone Acquisition
Corp ATTN M Mullings J Ulla
N Tilhoo S Nelson 1 State St
Fl 30 New York, NY10004
7.00%
Tax-Exempt
Portfolio
Morgan
Stanley Investment Management ATTN
Michael Agosta 750 Seventh
Ave 12th FL New YorkNY10019-6835
100%
INVESTOR
CLASS
Fund
Name
and Address
%
of Class
ESG
Money Market Portfolio
MSILF
Output Audit Dept Test Account
C/O MST ATTN Rick Wilkinson 522
5th AVE FL 6th New YorkNY10036-7601
100%
Government
Portfolio
Regions
Bank Treasure Management Sweep
Operations ATTN Tonya James 2090
Parkway Office Circle Hoover,
AL35244-1805
94.64%
Government
Portfolio
Manufacturers
and Traders Trust Company ATTN
Trust & Investment Services 1100
Wehrle DR WilliamsvilleNY14221-7748
5.36%
Government
Securities Portfolio
Morgan
Stanley Investment Management ATTN
Michael Agosta 750 Seventh
Ave. 12th Fl. New York, NY10019-6835
100%
Treasury
Portfolio
Manufacturers
and Traders Trust Company ATTN
Trust & Investment Services 1100
Wehrle Dr. Williamsville, NY14221-7748
86.29%
Treasury
Portfolio
Gateway
Arch Park Foundation Construction
Escrow Set Aside ATTN Janis
Cooper 1 S Memorial Dr. Ste
700 Saint Louis, MO63102-2439
13.66%
Treasury
Securities Portfolio
Morgan
Stanley Investment Management ATTN
Michael Agosta 750 Seventh
Ave 12th Fl New York, NY10019-6835
Morgan
Stanley Investment Management ATTN
Michael Agosta 750 Seventh
Ave. 12th Fl. New York, NY10019-6835
100%
Prime
Portfolio
Citibank
NA FBO Hardee’s Funding LLC
Series 2013-1 Senior Notes INT PMT
AC 110831 ATTN A/C 110831 Har- dee’s
2013-1 SR NT INT PMT AC 480
Washington Blvd 30th Floor JerseyCityNJ07310-2053
78.82%
Prime
Portfolio
Citibank
NA FBO Hardee’s Funding LLC
Series 2013-1 SR Notes PRIN PMT AC
110833 ATTN A/C 110833 Hardee’s 2013-1
SR NT PRIN PMT AC 480 Washington
Blvd 30th Floor Jersey CityNJ07310-2053
17.79%
Government
Portfolio
SEI
Private Trust Company C/O Regions
Bank 1 Freedom Valley DR. Oaks,
PA19456-9989
50.21%
Government
Portfolio
Manufacturers
And Traders Trust Company ATTN
Trust & Investment Services 1100
Wehrle DR WilliamsvilleNY14221-7748
Morgan
Stanley Investment Management ATTN
Michael Agosta 750 Seventh
Ave. 12th Fl. New York, NY10019-6835
100%
Government
Portfolio
UMB
Bank NA ATTN Trust Dept Money
Market Desk 928 Grand Blvd
MS 1010405 PO Box 419260 KansasCity, MO64141-6260
99.99%
Government
Securities Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl. Baltimore,
MD21231-3496
UMB
Bank NA ATTN Trust Dept Money
Market Desk 928 Grand Blvd
MS 1010405 PO Box 419260 KansasCity, MO64141-6260
100%
Treasury
Securities Portfolio
Berkeley
Point Capital LLC DBA Newmark
As Trustee For Freddie Mac 8
Spring House Innovation Park STE
200 AmblerPA19002-1220
58.75%
Treasury
Securities Portfolio
Morgan
Stanley Smith Barney LLC ATTN
Michael Agosta 750 Seventh
Ave 12th Fl New YorkNY10019-6835
29.65%
Treasury
Securities Portfolio
Berkeley
Point Capital LLC DBA Newmark
as TTEE For Freddie Mac ATTN
Roberta Logue 8 Spring House
Innovation Park STE 200 AmblerPA19002-1220
11.61%
CASH
MANAGEMENT CLASS
Fund
Name
and Address
%
of Class
Government
Securities Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl. Baltimore,
MD21231-3496
100%
Treasury
Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl Baltimore,
MD21231-3496
100%
Treasury
Securities Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl Baltimore,
MD21231-3496
100%
Government
Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit of Customers of MSSB 1300
Thames St Wharf 6th Fl. Baltimore,
MD21231-3496
98.84%
Tax-Exempt
Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl Baltimore,
MD21231-3496
99.63%
ESG
Money Market Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames St Wharf 6th Fl. Baltimore,
MD21231-3496
99.47%
Prime
Portfolio
Morgan
Stanley Smith Barney LLC Special
Custody Acct For The Exclusive
Benefit Of Customers Of MSSB 1300
Thames Street Wharf 6th Fl Baltimore,
MD21231-3496
99.41%
As
of February 1, 2022,
no person was known by the Trust to own beneficially or of record 5% or more of any outstanding class of shares
of a Fund not listed above.
The
persons listed above as owning 25% or more of the outstanding shares of a Fund may be presumed to “control” (as that
term is defined in the 1940 Act) such Fund. As a result,
those persons would have the ability to vote a majority of the shares of the Funds on any
matter requiring the approval of shareholders of such Funds.
The
percentage ownership of shares of beneficial interest of each Fund changes from time to time depending on purchases and redemptions
by shareholders and the total number of shares outstanding.
PERFORMANCE
INFORMATION
Calculation
of Yield
The
tables below describe the current yields of each class of the Funds for the 7-day period ended October 31, 2021
and the effective yields of the Funds for the 7-day
period ended October 31, 2021.
Performance information for the Impact Class of the Prime Portfolio
and the Government Portfolio will be provided once the Impact Class of those Funds have completed a full fiscal year of operations.
Taxable
Equivalent Rates Based on Tax-Exempt Yield of:
From
To
From
To
3.50%
4%
5%
6%
7%
8%
9%
10%
11%
$
—
$
19,900
$
—
$
9,950
10.00%
3.89%
4.44%
5.56%
6.67%
7.78%
8.89%
10.00%
11.11%
12.22%
$
19,900
$
81,050
$
9,950
$
40,525
12.00%
3.98%
4.55%
5.68%
6.82%
7.95%
9.09%
10.23%
11.36%
12.50%
$
81,050
$172,750
$
40,525
$
86,375
22.00%
4.49%
5.13%
6.41%
7.69%
8.97%
10.26%
11.54%
12.82%
14.10%
$172,750
$329,850
$
86,375
$164,925
24.00%
4.61%
5.26%
6.58%
7.89%
9.21%
10.53%
11.84%
13.16%
14.47%
$329,850
$418,850
$164,925
$209,425
32.00%
5.15%
5.88%
7.35%
8.82%
10.29%
11.76%
13.24%
14.71%
16.18%
$418,850
$628,300
$209,425
$523,600
35.00%
5.38%
6.15%
7.69%
9.23%
10.77%
12.31%
13.85%
15.38%
16.92%
$628,300
Over
$523,600
Over
37.00%
5.56%
6.35%
7.94%
9.52%
11.11%
12.70%
14.29%
15.87%
17.46%
$628,300
Over
$523,600
Over
40.80%
5.91%
6.76%
8.45%
10.14%
11.82%
13.51%
15.20
16.89%
18.58%
Note:
Net amount subject to 2021
Federal Income Tax after deductions and exemptions, not indexed for 2018
income tax rates. These rates are subject to change
with any updates to the tax laws.
The
tables below describe the taxable equivalent yields and the taxable equivalent effective yields of each class of the Tax-Exempt Portfolio
for the seven days ended October 31, 2021,
assuming the same tax rate.
Taxable
Equivalent Effective Yield 7-Day
Period Ended October 31,2021
Tax-Exempt
Portfolio
Institutional
Class
0.02%
0.02%
Institutional
Select Class
0.02%
0.02%
Investor
Class
N/A
N/A
Administrative
Class
N/A
N/A
Advisory
Class
N/A
N/A
Participant
Class
N/A
N/A
Cash
Management Class
0.02%
0.02%
POTENTIAL
CONFLICTS OF INTEREST
As
a diversified global financial services firm, Morgan Stanley, the parent company of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities, lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses
(collectively, together with the
Morgan Stanley Funds, any new or successor funds,
programs, accounts or businesses
(other than funds, programs, accounts or businesses sponsored, managed, or advised by former
direct or indirect subsidiaries of Eaton Vance Corp. (“Eaton Vance Investment Accounts”)), the ‘‘MS Investment
Accounts”, and, together
with the Eaton Vance Investment Accounts, the “Affiliated Investment Accounts’’)
with a wide variety of investment objectives that in
some instances may overlap or conflict with a Fund’s investment objectives and present conflicts of interest. In addition,
Morgan Stanley or the Adviser may
also from time to time create new or successor Affiliated Investment Accounts that may compete
with a Fund and present similar conflicts of interest. The discussion below enumerates certain actual, apparent and potential conflicts
of interest. There is no assurance that conflicts of interest will be resolved in favor of Fund shareholders and, in fact, they may
not be. Conflicts of interest not described below may also exist.
The
discussions below with respect to actual, apparent and potential conflicts of interest also may be applicable to or arise from the Eaton
Vance Investment Accounts whether or not specifically identified.
Material
Non-public and Other Information. It is expected
that confidential or material non-public information regarding an investment
or potential investment opportunity may become available to the Adviser. If such information becomes available, the Adviser
may be precluded (including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity
with respect to such investment or investment opportunity. The Adviser may also from time to time be subject to contractual
‘‘stand-still’’ obligations and/or confidentiality obligations that may restrict its ability to trade in certain
investments on a
Fund’s
behalf. In addition, the Adviser may be precluded from disclosing such information to an investment
team, even in circumstances in which the information
would be beneficial if disclosed. Therefore, the investment
team may not be provided access to
material non-public information in the possession of Morgan Stanley that might be relevant to an investment decision to be made on
behalf of a Fund, and the investment
team may initiate a transaction or sell an investment
that, if such information had been known to it, may
not have been undertaken. In addition, certain members of the investment
team may be recused from certain investment-related
discussions so that such members do not receive information that would limit their ability to perform functions of their
employment with the
Adviser or its affiliates unrelated to that of a Fund.
Furthermore, access to certain parts of Morgan Stanley may
be subject to third party confidentiality obligations and to information barriers established by Morgan Stanley in order to manage
potential conflicts of interest and regulatory restrictions, including without limitation joint transaction restrictions pursuant to
the 1940 Act. Accordingly, the Adviser’s ability to source investments from other business units within Morgan Stanley may be limited
and there can be no assurance that the Adviser will be able to source any investments from any one or more parts of the Morgan
Stanley network.
The
Adviser may restrict its investment decisions and activities on behalf of the Funds in various circumstances, including because of applicable
regulatory requirements or information held by the Adviser or Morgan Stanley. The Adviser might not engage in transactions
or other activities for, or enforce certain rights in favor of, a Fund due to Morgan Stanley’s activities outside the Funds.
In instances where trading of an
investment is restricted, the Adviser may not
be able to purchase or sell such investment on behalf of a
Fund, resulting in a Fund’s inability to participate in certain desirable transactions. This inability to buy or sell an investment
could have an adverse effect on
a Fund’s portfolio due to, among other things, changes in an investment’s value during the period its trading
is restricted. Also, in situations where the Adviser is required to aggregate its positions with those of other Morgan Stanley business
units for position limit calculations, the Adviser may have to refrain
from making investments due
to the positions held by other
Morgan Stanley business units or their clients. There may be other situations where the Adviser refrains from making an investment
due to additional disclosure obligations, regulatory requirements, policies, and reputational risk, or the Adviser may
limit purchases or sales of securities in respect of
which Morgan Stanley is engaged in an underwriting or other distribution
capacity.
Morgan
Stanley has established certain information barriers and other policies to address the sharing of information between different businesses
within Morgan Stanley. As a result of information barriers, the Adviser generally will not have access, or will have limited access,
to certain information and personnel in other areas of Morgan Stanley and
generally will not manage the Funds with the benefit
of the information held by such other areas. Morgan Stanley, due to its access to and knowledge of funds, markets and securities
based on its prime brokerage and other businesses, may make decisions based on information or take (or refrain from taking)
actions with respect to interests in investments of the kind held (directly or indirectly) by the Funds in a manner that may be adverse
to the Fund,
and will not have any obligation or other duty to share information with the Adviser.
In
limited circumstances, however, including for purposes of managing business and reputational risk, and subject to policies and procedures
and any applicable regulations, Morgan
Stanley personnel, including personnel of the Adviser, on
one side of an information barrier may have access to
information and personnel on the other side of the information barrier through “wall crossings.”
The Adviser faces conflicts of interest in determining whether to engage in such wall crossings. Information obtained in connection
with such wall crossings may limit or restrict the ability of the Adviser to engage in or otherwise effect transactions on behalf
of the Funds (including purchasing or selling securities that the Adviser may otherwise have purchased or sold for a Fund in the
absence of a wall crossing). In managing conflicts of interest that arise because of the foregoing, the Adviser generally will be subject
to fiduciary requirements. The
Adviser may also implement internal information barriers or ethical walls,
and the conflicts described herein with respect to information
barriers and otherwise with respect to Morgan Stanley and the Adviser will also apply internally
within the Adviser. As a result, a Fund may not be permitted
to transact in (e.g., dispose of a security in whole or in part) during
periods when it otherwise would have been able to do so, which could adversely affect a Fund. Other investors in the security that
are not subject to such restrictions may be able to transact in the security during such periods. There may also be circumstances in
which, as a result of information held by certain portfolio management teams in the Adviser, the Adviser limits an activity or transaction
for a Fund, including if a
Fund is managed by a portfolio management team other than the team holding such information.
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and its
investment teams, may have obligations to other clients
or investors in Affiliated Investment Accounts, the
fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of
an investment
team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other accounts.
Morgan
Stanley currently invests and plans to continue to invest on its own behalf and on behalf of its Affiliated Investment Accounts
in a wide variety of investment opportunities globally. Morgan Stanley and its Affiliated Investment Accounts, to the extent
consistent
with applicable law and policies and procedures, will be permitted to invest in investment opportunities without making such
opportunities available to a Fund beforehand. Subject to the foregoing, Morgan Stanley may offer investments that fall into the investment
objectives of an Affiliated Investment Account to such account or make such investment on its own behalf, even though such
investment also falls within a Fund’s investment objectives. A Fund may invest in opportunities that Morgan Stanley and/or one
or more Affiliated Investment Accounts has declined,
and vice versa. All of the foregoing may reduce the number of investment opportunities
available to a Fund and may create conflicts of interest in allocating investment opportunities. Investors should note that
the conflicts inherent in making such allocation decisions may not always be resolved to a Fund’s advantage. There can be no assurance
that a Fund will have an opportunity to participate in certain opportunities that fall within their
investment objectives.
To
seek to reduce potential conflicts of interest and to attempt to allocate such investment opportunities in a fair and equitable manner,
the Adviser has implemented allocation policies and procedures. These policies and procedures are intended to give all clients
of the Adviser, including the Fund,
fair access to investment opportunities consistent with the requirements of organizational documents,
investment strategies, applicable laws and regulations, and the fiduciary duties of the Adviser. Each client of the Adviser that
is subject to the allocation policies and procedures, including each Fund, is assigned an
investment team and portfolio manager(s)
by the Adviser. The investment
team and portfolio managers review investment opportunities
and will decide with respect to the allocation of each
opportunity considering various factors and in accordance with the allocation policies and procedures. The allocation
policies and procedures are subject to change. Investors should note that the conflicts inherent in making such allocation decisions
may not always be resolved to the advantage of a Fund.
It
is possible that Morgan Stanley or an Affiliated Investment Account,
including another Morgan Stanley Fund, will invest in
or advise
(in the case of Morgan Stanley) a company that is or
becomes a competitor of a company of which a Fund holds an investment.
Such investment could create a conflict between the Fund, on the one hand, and Morgan Stanley or the Affiliated Investment
Account, on the other hand. In such a situation, Morgan Stanley may also have a conflict in the allocation of its own resources
to the portfolio investment. Furthermore, certain Affiliated Investment Accounts will be focused primarily on investing in other
funds which may have strategies that overlap and/or directly conflict and compete with a Fund.
In
addition, certain investment professionals who are involved in a Fund’s activities remain responsible for the investment activities
of other Affiliated Investment Accounts managed by the
Adviser and its affiliates, and they will devote time to the management of such investments
and other newly created Affiliated Investment Accounts (whether in the form of funds, separate accounts or other vehicles),
as well as their own investments. In addition, in connection with the management of investments for other Affiliated Investment
Accounts, members of Morgan Stanley and its affiliates may serve on the boards of directors of or advise companies which
may compete with a Fund’s portfolio investments. Moreover, these Affiliated Investment Accounts managed by Morgan Stanley
and its affiliates may pursue investment opportunities that may also be suitable for a Fund.
It
should be noted that Morgan Stanley may, directly or indirectly, make large investments in certain of its Affiliated Investment Accounts,
and accordingly Morgan Stanley’s investment in a Fund may not be a determining factor in the outcome of any of the foregoing
conflicts. Nothing herein restricts or in any way limits the activities of Morgan Stanley, including its ability to buy or sell interests
in, or provide financing to, equity and/or debt instruments, funds or portfolio companies, for its own accounts or for the accounts
of Affiliated Investment Accounts or other investment funds or clients in accordance with applicable law.
Different
clients of the Adviser, including a Fund, may invest in different classes of securities of the same issuer, depending on the respective
clients’ investment objectives and policies. As a result, the Adviser and its affiliates, at times, will seek to satisfy fiduciary
obligations to certain clients
owning one class of securities of a particular issuer by pursuing or enforcing rights on behalf of those clients
with respect to such class of securities, and those activities may have an adverse effect on another client which owns a different class
of securities of such issuer. For example, if one client holds debt securities of an issuer and another client holds equity securities
of the same issuer, if the issuer
experiences financial or operational challenges, the Adviser and its affiliates may seek a liquidation of the
issuer on behalf of the client that holds the debt securities, whereas the client holding the equity securities may benefit from a reorganization
of the issuer. Thus, in such situations, the actions taken by the Adviser or its affiliates on behalf of one client can negatively
impact securities held by another client. These conflicts also exist as between the Adviser’s clients, including the Fund, and
the Affiliated Investment Accounts
managed by Eaton Vance.
The
Adviser and its affiliates may give advice and recommend securities to other clients which may differ from advice given to, or securities
recommended or bought for, a Fund even though such other clients’ investment objectives may be similar to those of the Fund.
The
Adviser and its affiliates manage long and short portfolios. The simultaneous management of long and short portfolios creates conflicts
of interest in portfolio management and trading in that opposite directional positions may be taken in client accounts, including
client accounts managed by the same investment team, and creates risks such as: (i) the risk that short sale activity could adversely
affect the market value of long positions in one or more portfolios (and vice versa) and (ii) the risks associated with the trading
desk receiving opposing orders in the same security simultaneously. The Adviser and its affiliates have adopted policies and procedures
that are reasonably designed to mitigate these conflicts. In certain circumstances, the Adviser invests on behalf of itself in
securities
and other instruments that would be appropriate for, held by, or may fall within the investment guidelines of its clients, including
a Fund. At times, the Adviser may give advice or take action for its own accounts that differs from, conflicts with, or is adverse
to advice given or action taken for any client.
From
time to time, conflicts also arise due to the fact that certain securities or instruments may be held in some client accounts, including
a Fund, but not in others, or that client accounts may have different levels of holdings in certain securities or instruments. In
addition, due to differences in the investment strategies or restrictions among client accounts, the Adviser may take action with respect
to one account that differs from the action taken with respect to another account. In some cases, a client account may compensate
the Adviser based on the performance of the securities held by that account. The existence of such a performance based fee
may create additional conflicts of interest for the Adviser in the allocation of management time, resources and investment opportunities.
The Adviser has adopted several policies and procedures designed to address these potential conflicts including a code of
ethics and policies that govern the Adviser’s trading practices, including, among other things, the aggregation and allocation
of trades among clients, brokerage
allocations, cross trades and best execution.
In
addition, at times an investment team will give advice or take action with respect to the investments of one or more clients that is not
given or taken with respect to other clients with similar investment programs, objectives, and strategies. Accordingly, clients with similar
strategies will not always hold the same securities or instruments or achieve the same performance. The Adviser’s investment teams
also advise clients with conflicting programs, objectives or strategies. These conflicts also exist as between the Adviser’s clients,
including the Fund, and the Affiliated
Investment Accounts managed by Eaton Vance.
Morgan
Stanley and its affiliates maintain separate trading desks that operate independently of each other and do not share information
with the Adviser. The Morgan Stanley and affiliate trading desks may compete against the Adviser trading desks when implementing
buy and sell transactions, possibly causing certain Affiliated Investment Accounts to pay more or receive less for a security
than other Affiliated Investment Accounts.
Investments
by Separate Investment Departments.
The entities and individuals that provide investment-related services for the Fund
and certain other MS Investment Accounts (the “MS Investment Department”) may be different from the entities and individuals
that provide investment-related services to Eaton Vance Investment Accounts (the “Eaton Vance Investment Department”
and, together with the MS Investment Department, the “Investment Departments”). Although Morgan Stanley has implemented
information barriers between the Investment Departments in accordance with internal policies and procedures, each Investment
Department may engage in discussions and share information and resources with the other Investment Department on certain
investment-related matters. The sharing of information and resources between the Investment Departments is designed to further
increase the knowledge and effectiveness of each Investment Department. Because each Investment Department generally makes
investment decisions and executes trades independently of the other, the quality and price of execution, and the performance of
investments and accounts, can be expected to vary. In addition, each Investment Department may use different trading systems and
technology and may employ differing investment and trading strategies. As a result, an Eaton Vance Investment Account could trade
in advance of the Fund (and vice versa), might complete trades more quickly and efficiently than the Fund, and/or achieve different
execution than the Fund on the same or similar investments made contemporaneously, even when the Investment Departments
shared research and viewpoints that led to that investment decision. Any sharing of information or resources between the
Investment Department servicing the Fund and the Eaton Vance Investment Department may result, from time to time, in the Fund
simultaneously or contemporaneously seeking to engage in the same or similar transactions as an account serviced by the other Investment
Department and for which there are limited buyers or sellers on specific securities, which could result in less favorable execution
for the Fund than such Affiliated Investment Account. The MS Investment Department will not knowingly or intentionally
cause the Fund to engage in a cross trade with an account serviced by the Eaton Vance Investment Department, however,
subject to applicable law and internal policies and procedures, the Fund may conduct cross trades with other accounts serviced
by the MS Investment Department. Although the MS Investment Department may aggregate the Fund’s trades with trades of
other accounts serviced by the MS Investment Department, subject to applicable law and internal policies and procedures, there will
be no aggregation or coordination of trades with accounts serviced by the Eaton Vance Investment Department, even when both Investment
Departments are seeking to acquire or dispose of the same investments contemporaneously.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of
their own funds and not as an expense of the Fund,
to certain Financial Intermediaries (which may include affiliates of the Adviser and
the Distributor),
including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund
and/or shareholder servicing. For example, the Adviser or the Distributor may
pay additional compensation to a Financial Intermediary for, among other things, promoting the sale and distribution of Fund shares,
providing access to various programs, mutual fund platforms or preferred or recommended mutual fund lists that may be offered
by a Financial Intermediary, granting the Distributor access to a Financial Intermediary’s financial advisors and consultants,
providing assistance in the ongoing education and training
of a Financial Intermediary’s financial personnel, furnishing marketing support,
maintaining share balances and/or for sub-accounting, recordkeeping, administrative, shareholder or transaction processing services.
Such payments are in addition to any distribution fees, shareholder servicing fees and/or transfer agency fees that may be
payable
by the Fund.
The additional payments may be based on various factors, including level of sales (based on gross or net sales or some
specified minimum sales or some other similar criteria related to sales of the Fund
and/or some or all other Morgan Stanley Funds), amount
of assets invested by the Financial Intermediary’s customers (which could include current or aged assets of the Fundand/or some or all other Morgan Stanley Funds), a Fund’s
advisory fee,
some other agreed upon amount or other measures as determined
from time to time by the Adviser and/or the Distributor. The amount of these payments may be different for different Financial
Intermediaries.
The
prospect of receiving, or the receipt of, additional compensation, as described above, by Financial Intermediaries may provide such
Financial Intermediaries and their financial advisors and other salespersons with an incentive to favor sales of shares of the Fundover other investment options with respect to which
these Financial Intermediaries do not receive additional compensation (or receives
lower levels of additional compensation). These payment arrangements, however, will not change the price that an investor pays
for shares of the Fund
or the amount that the Fund
receives to invest on behalf of an investor. Investors
may wish to take such payment arrangements into account
when considering and evaluating any recommendations relating to Fund shares and should review
carefully any disclosures provided by Financial Intermediaries as to their compensation.
In
addition, in certain circumstances, the Adviser restricts, limits or reduces the amount of the Fund’s investment, or restricts
the type of governance or voting
rights it acquires or exercises, where the Fund (potentially together with Morgan Stanley) exceeds a certain ownership
interest, or possesses certain degrees of voting or control or has other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will
generally conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a
Fund’s holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments,
or could cause Morgan Stanley to
have an interest in one or more portfolio investments that is different from, and potentially adverse to that
of a Fund. Furthermore, from time to time, the Adviser or its affiliates may invest “seed” capital in a Fund, typically
to enable the Fund to commence
investment operations and/or achieve sufficient scale. The Adviser and its affiliates may hedge such seed capital
exposure by investing in derivatives or other instruments expected to produce offsetting exposure. Such hedging transactions, if
any, would occur outside of a Fund.
Morgan
Stanley’s sales and trading, financing and principal investing businesses (whether or not specifically identified as such, and
including Morgan Stanley’s trading and principal
investing businesses) will not be required to offer any investment opportunities to a Fund.
These businesses may encompass, among other things, principal trading activities as well as principal investing.
Morgan
Stanley’s sales and trading, financing and principal investing businesses have acquired or invested in, and in the future may acquire
or invest in, minority and/or majority control positions in equity or debt instruments of diverse public and/or private companies.
Such activities may put Morgan Stanley in a position to exercise contractual, voting or creditor rights, or management or other
control with respect to securities or loans of portfolio investments or other issuers, and in these instances Morgan Stanley may, in
its discretion and subject to applicable law, act to protect its own interests or interests of clients, and not a Fund’s interests.
Subject
to the limitations of applicable law, a Fund may purchase from or sell assets to, or make investments in, companies in which Morgan
Stanley has or may acquire an interest, including as an owner, creditor or counterparty.
Morgan
Stanley’s Investment Banking and
Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions. Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or
the best interests of any of its investments.
Morgan
Stanley could be engaged in financial advising, whether on the buy-side or sell-side, or in financing or lending assignments that
could result in Morgan Stanley’s determining in its discretion or being required to act exclusively on behalf of one or more third
parties, which could limit a Fund’s ability to
transact with respect to one or more existing or potential investments. Morgan Stanley may
have relationships with third-party funds, companies or investors who may have invested in or may look to invest in portfolio companies,
and there could be conflicts between a Fund’s best interests, on the one hand, and the interests of a Morgan Stanley client or
counterparty, on the other hand.
To
the extent that Morgan Stanley advises creditor or debtor companies in the financial restructuring of companies either prior to or after
filing for protection under Chapter 11 of the U.S.
Bankruptcy Code or similar laws in other jurisdictions,
the Adviser’s flexibility in making investments
in such restructurings on a Fund’s behalf may be limited.
Morgan
Stanley could provide investment banking services to competitors of portfolio companies, as well as to private equity and/or private
credit funds; such activities may present Morgan Stanley with a conflict of interest vis-a-vis a Fund’s investment and may also
result in a conflict in respect of the allocation of
investment banking resources to portfolio companies.
To
the extent permitted by applicable law, Morgan Stanley may provide a broad range of financial services to companies in which a Fund
invests, including strategic and financial advisory services, interim acquisition financing and other lending and underwriting or placement
of securities, and Morgan Stanley generally will be paid fees (that may include warrants or other securities) for such services.
Morgan Stanley will not share any of the foregoing interest, fees and other compensation received by it (including, for the avoidance
of doubt, amounts received by the Adviser) with a Fund, and any advisory fees payable will not be reduced thereby.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide
lending and other related financing services in connection with such transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction.
Under these circumstances, a Fund may be precluded from participating in a transaction with or relating to the company being
sold or participating in any financing activity related to merger or acquisition.
The
involvement or presence of Morgan Stanley in the investment banking and other commercial activities described above (or the financial
markets more broadly) may restrict or otherwise limit investment opportunities that may otherwise be available to the Fund. For
example, issuers may hire and compensate Morgan Stanley to provide underwriting, financial advisory, placement agency, brokerage
services or other services and, because of limitations imposed by applicable law and regulation, a Fund may be prohibited from
buying or selling securities issued by those issuers or participating in related transactions or otherwise limited in its ability to engage
in such investments.
Morgan
Stanley’s Marketing Activities. Morgan Stanley
is engaged in the business of underwriting, syndicating, brokering, administering,
servicing, arranging and advising on the distribution of a wide variety of securities and other investments in which a Fund
may invest. Subject to the restrictions of the 1940 Act, including Sections
10(f) and 17(e) thereof, a Fund may invest in transactions
in which Morgan Stanley acts as underwriter, placement agent, syndicator, broker, administrative agent, servicer, advisor, arranger
or structuring agent and receives fees or other compensation from the sponsors of such products or securities. Any fees earned
by Morgan Stanley in such capacity will not be shared with the Adviser or the Fund.
Certain conflicts of interest, in addition to the receipt
of fees or other compensation, would be inherent in these transactions. Moreover, the interests of one of Morgan Stanley’s
clients with respect to an issuer of securities in which a Fund has an investment may be adverse to the Adviser’s or a Fund’s
best interests. In conducting the foregoing activities,
Morgan Stanley will be acting for its other clients and will have no obligation to act
in the Adviser’s or a Fund’s best interests.
Client
Relationships. Morgan Stanley has existing and potential
relationships with a significant number of corporations, institutions and
individuals. In providing services to its clients, Morgan Stanley may face conflicts of interest with respect to activities recommended
to or performed for such clients, on the one hand, and a Fund, its shareholders or the entities in which the Fund invests,
on the other hand. In addition, these client relationships may present conflicts of interest in determining whether to offer certain
investment opportunities to a Fund.
In
acting as principal or in providing advisory and other services to its other clients, Morgan Stanley may engage in or recommend activities
with respect to a particular matter that conflict with or are different from activities engaged in or recommended by the Adviser
on a Fund’s behalf.
Principal
Investments. To the extent
permitted by applicable law, there may be situations in which a Fund’s interests may conflict with
the interests of one or more general accounts of Morgan Stanley and its affiliates or accounts managed by Morgan Stanley or its affiliates.
This may occur because these accounts hold public and private debt and equity securities of many issuers which may be or become
portfolio companies, or from whom portfolio companies may be acquired.
Transactions
with Portfolio Companies of Affiliated Investment Accounts.
The companies in which a Fund may invest may be counterparties
to or participants in agreements, transactions or other arrangements with portfolio companies or other entities of portfolio
investments of Affiliated Investment Accounts (for example, a company in which a Fund invests may retain a company in which
an Affiliated Investment Account invests to provide services or may acquire an asset from such company or vice versa). Certain of
these agreements, transactions and arrangements involve fees, servicing payments, rebates and/or other benefits to Morgan Stanley or
its affiliates. For example, portfolio entities may, including at the encouragement of Morgan Stanley, enter into agreements regarding
group procurement and/or vendor discounts. Morgan Stanley and its affiliates may also participate in these agreements and may
realize better pricing or discounts as a result of the participation of portfolio entities. To the extent permitted by applicable law,
certain of these agreements may provide for commissions
or similar payments and/or discounts or rebates to be paid to a portfolio entity
of an Affiliated Investment Account, and such payments or discounts or rebates may also be made directly to Morgan Stanley or
its affiliates. Under these arrangements, a particular portfolio company or other entity may benefit to a greater degree than the other
participants, and the Morgan Stanley Funds, investment vehicles and accounts (which may or may not include a Fund) that own
an interest in such entity will receive a greater relative benefit from the arrangements than the Morgan Stanley Funds, investment
vehicles or accounts that do not own an interest therein. Fees and compensation received by portfolio companies of Affiliated
Investment Accounts in relation to the foregoing will not be shared with a Fund or offset advisory fees payable.
Investments
in Portfolio Investments of Other Funds. To the
extent permitted by applicable law, when a Fund invests in certain companies
or other entities, other funds affiliated with the Adviser may have made or may be making an investment in such companies
or other entities. Other funds that have been or may be managed by the Adviser may invest in the companies or other entities
in which a Fund has made an investment. Under such circumstances, a Fund and such other funds may have conflicts of interest
(e.g., over the terms, exit strategies and related matters, including the exercise of remedies of their respective investments). If the
interests held by a Fund are different from (or take priority over) those held by such other funds, the Adviser may be required to make
a selection at the time of conflicts between the interests held by such other funds and the interests held by a Fund.
Allocation
of Expenses. Expenses may be incurred that are attributable
to a Fund and one or more other Affiliated Investment Accounts
(including in connection with issuers in which a Fund and such other Affiliated Investment Accounts have overlapping investments).
The allocation of such expenses among such entities raises potential conflicts of interest. The Adviser and its affiliates intend
to allocate such common expenses among a Fund and any such other Affiliated Investment Accounts on a pro rata basis or in such
other manner as the Adviser deems
to be fair and equitable or in such other manner as may
be required by applicable law.
Temporary
Investments. To more efficiently invest short-term
cash balances held by a Fund, the Adviser may invest such balances on
an overnight “sweep” basis in shares of one or more money market funds or other short-term vehicles. It is anticipated that
the investment adviser to these money market funds or
other short-term vehicles may be the Adviser (or an affiliate) to the extent permitted
by applicable law, including Rule 12d1-1 under the 1940 Act. In such a case, the affiliated investment adviser may receive asset-based
fees in respect of a Fund’s investment (which will reduce the net return realized by a Fund).
Transactions
with Affiliates. The Adviser and
any investment sub-adviser might purchase securities
from underwriters or placement agents in which a
Morgan Stanley affiliate is a member of a syndicate
or selling group, as a result of which an affiliate might benefit from
the purchase through receipt of a fee or otherwise. Neither
the Adviser nor any investment sub-adviser will purchase
securities on behalf of a Fund from an affiliate that
is acting as a manager of a syndicate or selling group. Purchases by the Adviser on behalf of a
Fund from an affiliate acting as a placement agent must meet the requirements of applicable law. Furthermore, Morgan Stanley may
face conflicts of interest when a
Fund uses service providers affiliated with Morgan Stanley
because Morgan Stanley receives greater overall fees
when they are used.
General
Process for Potential Conflicts. All of the transactions
described above involve the potential for conflicts of interest between
the Adviser, related persons of the Adviser and/or their clients. The Advisers Act, the 1940 Act and ERISA impose certain requirements
designed to decrease the possibility of conflicts of interest between an investment adviser and its clients. In some cases, transactions
may be permitted subject to fulfillment of certain conditions. Certain other transactions may be prohibited. In addition, the
Adviser has instituted policies and procedures designed to prevent conflicts of interest from arising and, when they do arise, to ensure
that it effects transactions for clients in a manner that is consistent with its fiduciary duty to its clients and in accordance with
applicable law. The Adviser seeks to ensure that potential
or actual conflicts of interest are appropriately resolved taking into consideration
the overriding best interests of the client.
APPENDIX
A — MORGAN STANLEY INVESTMENT MANAGEMENT EQUITY PROXY VOTING POLICY
AND PROCEDURES
I.
POLICY STATEMENT
Morgan
Stanley Investment Management’s policy and procedures for voting proxies, the Equity Proxy Voting Policy and Procedures (the
“Policy”), with respect to securities held in the accounts of clients applies to those Morgan Stanley Investment Management
(“MSIM”) entities that provide discretionary
investment management services and for which an MSIM entity has authority to vote proxies.
For purposes of this Policy, clients shall include: Morgan Stanley U.S. registered investment companies, other Morgan Stanley
pooled investment vehicles, and MSIM separately managed accounts (including accounts for Employee Retirement Income Security
(“ERISA”) clients and ERISA-equivalent clients). This Policy is reviewed and updated as necessary to address new and evolving
proxy voting issues and standards.
The
MSIM entities covered by this Policy currently include the following: Morgan Stanley AIP GP LP, Morgan Stanley Investment Management
Inc., Morgan Stanley Investment Management Limited, Morgan Stanley Investment Management Company, Morgan Stanley
Asia Limited, Morgan Stanley Investment Management (Japan) Co. Limited, Morgan Stanley Investment Management Private
Limited MS 522 CLO Manager LLC, and MS 522 CLO CM LLC (each an “MSIM Affiliate” and collectively referred to as the
“MSIM Affiliates” or as “we” below).
Each
MSIM Affiliate will use its best efforts to vote proxies as part of its authority to manage, acquire and dispose of account assets.
■
With
respect to the U.S. registered investment companies sponsored, managed or advised by any MSIM Affiliate (the “MS Funds”),
each MSIM Affiliate will vote proxies under this Policy pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by the Board of Directors/Trustees of the MS Funds.
■
For
other pooled investment vehicles (e.g., UCITS), each MSIM Affiliate will vote proxies under this Policy pursuant to authority
granted under its applicable investment advisory agreement or, in the absence of such authority, as authorized by the relevant
governing board.
■
For
separately managed accounts (including ERISA and ERISA-equivalent clients), each MSIM Affiliate will vote proxies under this
Policy pursuant to authority granted under the applicable investment advisory agreement or investment management agreement.
Where an MSIM Affiliate has the authority to vote proxies on behalf of ERISA and ERISA-equivalent clients, the MSIM
Affiliate must do so in accordance with its fiduciary duties under ERISA (and the Internal Revenue Code).
■
In
certain situations, a client or its fiduciary may reserve the authority to vote proxies for itself or an outside party or may provide
an MSIM Affiliate with a statement of proxy voting policy. The MSIM Affiliate will comply with the client’s policy.
An
MSIM Affiliate will not vote proxies unless the investment management agreement, investment advisory agreement or other authority
explicitly authorizes the MSIM Affiliate to vote proxies.
MSIM
Affiliates will vote proxies in a prudent and diligent manner and in the best interests of clients, including beneficiaries of and participants
in a client’s benefit plan(s) for which the MSIM Affiliates manage assets, consistent with the objective of maximizing long-term
investment returns (“Client Proxy Standard”) and this Policy. In addition to voting proxies of portfolio companies, MSIM
routinely engages with the management or board of companies
in which we invest on a range of environmental, social and governance
issues. Governance is a window into or proxy for management and board quality. MSIM engages with companies where we
have larger positions, voting issues are material or where we believe we can make a positive impact on the governance structure. MSIM’s
engagement process, through private communication with companies, allows us to understand the governance structures at investee
companies and better inform our voting decisions.
Retention
and Oversight of Proxy Advisory Firms
ISS
and Glass Lewis (together with other proxy research providers as we may retain from time to time, the “Research Providers”)
are independent advisers that specialize in providing
a variety of fiduciary-level proxy-related services to institutional investment managers,
plan sponsors, custodians, consultants, and other institutional investors. The services provided include in-depth research, global
issuer analysis, and voting recommendations.
To
facilitate proxy voting, MSIM has retained Research Providers to provide company level reports that summarize key data elements contained
within an issuer’s proxy statement. Although we are aware of the voting recommendations included in the Research Providers’
company level reports, these recommendations are not an input into our vote nor is any potential vote prepopulated based on
a Research Provider’s research. MSIM votes all proxies based on its own proxy voting policies in the best interests of each client.
In addition to research, MSIM retains ISS to provide
vote execution, reporting, and recordkeeping services.
As
part of MSIM’s ongoing oversight of the Research Providers, MSIM performs periodic due diligence on the Research Providers. Topics
of the reviews include, but are not limited to, conflicts of interest, methodologies for developing their policies and vote recommendations,
and resources.
Voting
proxies of companies located in some jurisdictions may involve several problems that can restrict or prevent the ability to vote such
proxies or entail significant costs. These problems include, but are not limited to: (i) proxy statements and ballots being written in
a language other than English; (ii) untimely and/or inadequate notice of shareholder meetings; (iii) restrictions on the ability of holders
outside the issuer’s jurisdiction of organization to exercise votes; (iv) requirements to vote proxies in person; (v) the imposition
of restrictions on the sale of the securities for a period of time in proximity to the shareholder meeting; and (vi) requirements
to provide local agents with power of attorney to facilitate our voting instructions. As a result, we vote clients’ non-U.S. proxies
on a best efforts basis only, after weighing the costs and benefits of voting such proxies, consistent with the Client Proxy Standard.
ISS has been retained to provide assistance in connection with voting non-U.S. proxies.
Securities
Lending - MS Funds or any other investment vehicle
sponsored, managed or advised by a MSIM affiliate may participate in
a securities lending program through a third party provider. The voting rights for shares that are out on loan are transferred to the
borrower and therefore, the lender (i.e., an MS Fund
or another investment vehicle sponsored, managed or advised by a MSIM affiliate)
is not entitled to vote the lent shares at the company meeting. In general, MSIM believes the revenue received from the lending
program outweighs the ability to vote and we will not recall shares for the purpose of voting. However, in cases in which MSIM
believes the right to vote outweighs the revenue received, we reserve the right to recall the shares on loan on a best efforts basis.
II.
GENERAL PROXY VOTING GUIDELINES
To
promote consistency in voting proxies on behalf of our clients, we follow this Policy (subject to any exception set forth herein). The
Policy addresses a broad range of issues, and provides general voting parameters on proposals that arise most frequently. However,
details of specific proposals vary, and those details affect particular voting decisions, as do factors specific to a given company.
Pursuant to the procedures set forth herein, we may vote in a manner that is not in accordance with the following general guidelines,
provided the vote is approved by the Proxy Review Committee (see Section III) and is consistent with the Client Proxy Standard.
Morgan Stanley AIP GP LP (“Morgan Stanley AIP”) will follow the procedures as described in Appendix A.
We
endeavor to integrate governance and proxy voting policy with investment goals, using the vote to encourage portfolio companies to
enhance long-term shareholder value and to provide a high standard of transparency such that equity markets can value corporate assets
appropriately.
We
seek to follow the Client Proxy Standard for each client. At times, this may result in split votes, for example when different clients
have varying economic interests in the outcome of a particular voting matter (such as a case in which varied ownership interests
in two companies involved in a merger result in different stakes in the outcome). We also may split votes at times based on differing
views of portfolio managers.
We
may abstain from or vote against matters for which disclosure is inadequate.
A.
Routine Matters
We
generally support routine management proposals. The following are examples of routine management proposals:
■
Approval
of financial statements and auditor reports if delivered with an unqualified auditor’s opinion.
■
General
updating/corrective amendments to the charter, articles of association or bylaws, unless we believe that such amendments
would diminish shareholder rights.
■
Most
proposals related to the conduct of the annual meeting, with the following exceptions. We generally oppose proposals that relate
to “the transaction of such other business which may come before the meeting,” and open-ended requests for adjournment.
However, where management specifically states the reason for requesting an adjournment and the requested adjournment
would facilitate passage of a proposal that would otherwise be supported under this Policy (i.e., an uncontested corporate
transaction), the adjournment request will be supported. We do not support proposals that allow companies to call a special
meeting with a short (generally two weeks or less) time frame for review.
We
generally support shareholder proposals advocating confidential voting procedures and independent tabulation of voting results.
B.
Board of Directors
1
Election
of directors: Votes on board nominees can involve balancing a variety of considerations. In vote decisions, we may take into
consideration whether the company has a majority voting policy in place that we believe makes the director vote more meaningful.
In the absence of a proxy contest, we generally support the board’s nominees for director except as follows:
a
We
consider withholding support from or voting against a nominee if we believe a direct conflict exists between the interests
of the nominee and the public shareholders, including failure to meet fiduciary standards of care and/or loyalty. We
may oppose directors where we conclude that actions of directors are unlawful, unethical or negligent. We consider opposing
individual board members or an entire slate if we believe the board is entrenched and/or dealing inadequately with
performance problems; if we believe the board is acting with insufficient independence between the board and
management;
or if we believe the board has not been sufficiently forthcoming with information on key governance or other material
matters.
b
We
consider withholding support from or voting against interested directors if the company’s board does not meet market standards
for director independence, or if otherwise we believe board independence is insufficient. We refer to prevalent market
standards as promulgated by a stock exchange or other authority within a given market (e.g., New York Stock Exchange
or Nasdaq rules for most U.S. companies, and The Combined Code on Corporate Governance in the United Kingdom).
Thus, for an NYSE company with no controlling shareholder, we would expect that at a minimum a majority of
directors should be independent as defined by NYSE. Where we view market standards as inadequate, we may withhold votes
based on stronger independence standards. Market standards notwithstanding, we generally do not view long board tenure
alone as a basis to classify a director as non-independent.
i
At
a company with a shareholder or group that controls the company by virtue of a majority economic interest in the company,
we have a reduced expectation for board independence, although we believe the presence of independent directors
can be helpful, particularly in staffing the audit committee, and at times we may withhold support from or vote
against a nominee on the view the board or its committees are not sufficiently independent. In markets where board
independence is not the norm (e.g. Japan), however, we consider factors including whether a board of a controlled
company includes independent members who can be expected to look out for interests of minority holders.
ii
We
consider withholding support from or voting against a nominee if he or she is affiliated with a major shareholder that
has representation on a board disproportionate to its economic interest.
c
Depending
on market standards, we consider withholding support from or voting against a nominee who is interested and who
is standing for election as a member of the company’s compensation/remuneration, nominating/governance or audit committee.
d
We
consider withholding support from or voting against nominees if the term for which they are nominated is excessive. We
consider this issue on a market-specific basis.
e
We
consider withholding support from or voting against nominees if in our view there has been insufficient board renewal (turnover),
particularly in the context of extended poor company performance. Also, if the board has failed to consider diversity,
including but not limited to, gender and ethnicity, in its board composition.
f
We
consider withholding support from or voting against a nominee standing for election if the board has not taken action to
implement generally accepted governance practices for which there is a “bright line” test. For example, in the context of
the U.S. market, failure to eliminate a dead hand or
slow hand poison pill would be seen as a basis for opposing one or more
incumbent nominees.
g
In
markets that encourage designated audit committee financial experts, we consider voting against members of an audit committee
if no members are designated as such. We also consider voting against the audit committee members if the company
has faced financial reporting issues and/or does not put the auditor up for ratification by shareholders.
h
We
believe investors should have the ability to vote on individual nominees, and may abstain or vote against a slate of nominees
where we are not given the opportunity to vote on individual nominees.
i
We
consider withholding support from or voting against a nominee who has failed to attend at least 75% of the nominee’s board
and board committee meetings within a given year without a reasonable excuse. We also consider opposing nominees
if the company does not meet market standards for disclosure on attendance.
j
We
consider withholding support from or voting against a nominee who appears overcommitted, particularly through service
on an excessive number of boards. Market expectations are incorporated into this analysis; for U.S. boards, we generally
oppose election of a nominee who serves on more than five public company boards (excluding investment companies),
or public company CEOs that serve on more than two outside boards given the level of time commitment required
in their primary job.
k
We
consider withholding support from or voting against a nominee where we believe executive remuneration practices are poor,
particularly if the company does not offer shareholders a separate “say-on-pay” advisory vote on pay.
2
Discharge
of directors’ duties: In markets where an annual discharge of directors’ responsibility is a routine agenda item, we generally
support such discharge. However, we may vote against discharge or abstain from voting where there are serious findings
of fraud or other unethical behavior for which the individual bears responsibility. The annual discharge of responsibility represents
shareholder approval of disclosed actions taken by the board during the year and may make future shareholder action against
the board difficult to pursue.
3
Board
independence: We generally support U.S. shareholder proposals requiring that a certain percentage (up to 66⅔%) of the company’s
board members be independent directors, and promoting all-independent audit, compensation and nominating/governance
committees.
Board
diversity: We generally support shareholder proposals urging diversity of board membership with respect to gender, race or
other factors where we believe the board has failed to take these factors into account.
5
Majority
voting: We generally support proposals requesting or requiring majority voting policies in election of directors, so long as
there is a carve-out for plurality voting in the case of contested elections.
6
Proxy
access: We consider proposals on procedures for inclusion of shareholder nominees and to have those nominees included in
the company’s proxy statement and on the company’s proxy ballot on a case-by-case basis. Considerations include ownership
thresholds, holding periods, the number of directors
that shareholders may nominate and any restrictions on forming a group
7
Reimbursement
for dissident nominees: We generally support well-crafted U.S. shareholder proposals that would provide for reimbursement
of dissident nominees elected to a board, as the cost to shareholders in electing such nominees can be factored into
the voting decision on those nominees.
8
Proposals
to elect directors more frequently: In the U.S. public company context, we usually support shareholder and management
proposals to elect all directors annually (to “declassify” the board), although we make an exception to this policy where
we believe that long-term shareholder value may be harmed by this change given particular circumstances at the company at
the time of the vote on such proposal. As indicated above, outside the United States, we generally support greater accountability
to shareholders that comes through more frequent director elections, but recognize that many markets embrace longer
term lengths, sometimes for valid reasons given other aspects of the legal context in electing boards.
9
Cumulative
voting: We generally support proposals to eliminate cumulative voting in the U.S. market context. (Cumulative voting
provides that shareholders may concentrate their votes for one or a handful of candidates, a system that can enable a minority
bloc to place representation on a board.) U.S. proposals to establish cumulative voting in the election of directors generally
will not be supported.
10
Separation
of Chairman and CEO positions: We vote on shareholder proposals to separate the Chairman and CEO positions and/or
to appoint an independent Chairman based in part on prevailing practice in particular markets, since the context for such
a practice varies. In many non-U.S. markets, we view separation of the roles as a market standard practice, and support division
of the roles in that context. In the United States, we consider such proposals on a case-by-case basis, considering, among
other things, the existing board leadership structure, company performance, and any evidence of entrenchment or perceived
risk that power is overly concentrated in a single individual.
11
Director
retirement age and term limits: Proposals setting or recommending director retirement ages or director term limits are voted
on a case-by-case basis that includes consideration of company performance, the rate of board renewal, evidence of effective
individual director evaluation processes, and any indications of entrenchment.
12
Proposals
to limit directors’ liability and/or broaden indemnification of officers and directors: Generally, we will support such proposals
provided that an individual is eligible only if he or she has not acted in bad faith, with gross negligence or with reckless
disregard of their duties.
C.
Statutory Auditor Boards
The
statutory auditor board, which is separate from the main board of directors, plays a role in corporate governance in several markets.
These boards are elected by shareholders to provide assurance on compliance with legal and accounting standards and the company’s
articles of association. We generally vote for statutory auditor nominees if they meet independence standards. In markets that
require disclosure on attendance by internal statutory auditors, however, we consider voting against nominees for these positions who
failed to attend at least 75% of meetings in the previous year. We also consider opposing nominees if the company does not meet
market standards for disclosure on attendance.
D.
Corporate Transactions and Proxy Fights.
We
examine proposals relating to mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sales of assets,
reorganizations, restructurings and recapitalizations) on a case-by-case basis in the interests of each fund or other account. Proposals
for mergers or other significant transactions that are friendly and approved by the Research Providers usually are supported if
there is no portfolio manager objection. We also analyze proxy contests on a case-by-case basis.
E.
Changes in Capital Structure.
1
We
generally support the following:
■
Management
and shareholder proposals aimed at eliminating unequal voting rights, assuming fair economic treatment of classes
of shares we hold.
■
U.S.
management proposals to increase the authorization of existing classes of common stock (or securities convertible into common
stock) if: (i) a clear business purpose is stated that we can support and the number of shares requested is reasonable
in relation to the purpose for which authorization is requested; and/or (ii) the authorization does not exceed 100%
of shares currently authorized and at least 30% of the total new authorization will be outstanding. (We consider proposals
that do not meet these criteria on a case-by-case basis.)
U.S.
management proposals to create a new class of preferred stock or for issuances of preferred stock up to 50% of issued capital,
unless we have concerns about use of the authority for anti-takeover purposes.
■
Proposals
in non-U.S. markets that in our view appropriately limit potential dilution of existing shareholders. A major consideration
is whether existing shareholders would have preemptive rights for any issuance under a proposal for standing share
issuance authority. We generally consider market-specific guidance in making these decisions; for example, in the U.K.
market we usually follow Association of British Insurers’ (“ABI”) guidance, although company-specific factors may
be considered and for example, may sometimes lead us
to voting against share authorization proposals even if they meet ABI guidance.
■
Management
proposals to authorize share repurchase plans, except in some cases in which we believe there are insufficient protections
against use of an authorization for anti-takeover purposes.
■
Management
proposals to reduce the number of authorized shares of common or preferred stock, or to eliminate classes of preferred
stock.
■
Management
proposals to effect stock splits.
■
Management
proposals to effect reverse stock splits if management proportionately reduces the authorized share amount set
forth in the corporate charter. Reverse stock splits that do not adjust proportionately to the authorized share amount generally
will be approved if the resulting increase in authorized shares coincides with the proxy guidelines set forth above for
common stock increases.
■
Management
dividend payout proposals, except where we perceive company payouts to shareholders as inadequate.
2
We
generally oppose the following (notwithstanding management support):
■
Proposals
to add classes of stock that would substantially dilute the voting interests of existing shareholders.
■
Proposals
to increase the authorized or issued number of shares of existing classes of stock that are unreasonably dilutive, particularly
if there are no preemptive rights for existing shareholders. However, depending on market practices, we consider
voting for proposals giving general authorization for issuance of shares not subject to preemptive rights if the authority
is limited.
■
Proposals
that authorize share issuance at a discount to market rates, except where authority for such issuance is de minimis,
or if there is a special situation that we believe justifies such authorization (as may be the case, for example, at a company
under severe stress and risk of bankruptcy).
■
Proposals
relating to changes in capitalization by 100% or more.
We
consider on a case-by-case basis shareholder proposals to increase dividend payout ratios, in light of market practice and perceived market
weaknesses, as well as individual company payout history and current circumstances. For example, currently we perceive low payouts
to shareholders as a concern at some Japanese companies, but may deem a low payout ratio as appropriate for a growth company
making good use of its cash, notwithstanding the broader market concern.
F.
Takeover Defenses and Shareholder Rights.
1
Shareholder
rights plans: We generally support proposals to require shareholder approval or ratification of shareholder rights plans
(poison pills). In voting on rights plans or similar takeover defenses, we consider on a case-by-case basis whether the company
has demonstrated a need for the defense in the context of promoting long-term share value; whether provisions of the defense
are in line with generally accepted governance principles in the market (and specifically the presence of an adequate qualified
offer provision that would exempt offers meeting certain conditions from the pill); and the specific context if the proposal
is made in the midst of a takeover bid or contest for control.
2
Supermajority
voting requirements: We generally oppose requirements for supermajority votes to amend the charter or bylaws, unless
the provisions protect minority shareholders where there is a large shareholder. In line with this view, in the absence of a large
shareholder we support reasonable shareholder proposals to limit such supermajority voting requirements. Also, we oppose provisions
that do not allow shareholders any right to amend the charter or bylaws.
3
Shareholders
right to call a special meeting: We consider proposals to enhance a shareholder’s rights to call meetings on a case-by-case
basis. At large-cap U.S. companies, we generally support efforts to establish the right of holders of 10% or more of shares
to call special meetings, unless the board or state law has set a policy or law establishing such rights at a threshold that we believe
to be acceptable.
4
Written
consent rights: In the U.S. context, we examine proposals for shareholder written consent rights on a case-by-case basis.
5
Reincorporation:
We consider management and shareholder proposals to reincorporate to a different jurisdiction on a case-by-case
basis. We oppose such proposals if we believe the main purpose is to take advantage of laws or judicial precedents that reduce
shareholder rights.
6
Anti-greenmail
provisions: Proposals relating to the adoption of anti-greenmail provisions will be supported, provided that the
proposal:
(i) defines greenmail; (ii) prohibits buyback offers to large block holders (holders of at least 1% of the outstanding shares
and in certain cases, a greater amount) not made to all shareholders or not approved by disinterested shareholders; and (iii)
contains no anti-takeover measures or other provisions restricting the rights of shareholders.
7
Bundled
proposals: We may consider opposing or abstaining on proposals if disparate issues are “bundled” and presented for a single
vote.
G.
Auditors.
We
generally support management proposals for selection or ratification of independent auditors. However, we may consider opposing
such proposals with reference to incumbent audit firms if the company has suffered from serious accounting irregularities and
we believe rotation of the audit firm is appropriate, or if fees paid to the auditor for non-audit-related services are excessive. Generally,
to determine if non-audit fees are excessive, a 50% test will be applied (i.e., non-audit-related fees should be less than 50%
of the total fees paid to the auditor). We generally
vote against proposals to indemnify auditors.
H.
Executive and Director Remuneration.
1
We
generally support the following:
■
Proposals
for employee equity compensation plans and other employee ownership plans, provided that our research does not
indicate that approval of the plan would be against shareholder interest. Such approval may be against shareholder interest
if it authorizes excessive dilution and shareholder cost, particularly in the context of high usage (“run rate”) of equity
compensation in the recent past; or if there are objectionable plan design and provisions.
■
Proposals
relating to fees to outside directors, provided the amounts are not excessive relative to other companies in the country
or industry, and provided that the structure is appropriate within the market context. While stock-based compensation
to outside directors is positive if moderate and appropriately structured, we are wary of significant stock option
awards or other performance-based awards for outside directors, as well as provisions that could result in significant forfeiture
of value on a director’s decision to resign from a board (such forfeiture can undercut director independence).
■
Proposals
for employee stock purchase plans that permit discounts, but only for grants that are part of a broad-based employee
plan, including all non-executive employees, and only if the discounts are limited to a reasonable market standard
or less.
■
Proposals
for the establishment of employee retirement and severance plans, provided that our research does not indicate that
approval of the plan would be against shareholder interest.
2
We
generally oppose retirement plans and bonuses for non-executive directors and independent statutory auditors.
3
In
the U.S. context, we generally vote against shareholder proposals requiring shareholder approval of all severance agreements but
we generally support proposals that require shareholder approval for agreements in excess of three times the annual compensation
(salary and bonus) or proposals that require companies to adopt a provision requiring an executive to receive accelerated
vesting of equity awards if there is a change of control and the executive is terminated. We generally oppose shareholder
proposals that would establish arbitrary caps on pay. We consider on a case-by-case basis shareholder proposals that seek
to limit Supplemental Executive Retirement Plans (SERPs), but support such shareholder proposals where we consider SERPs
excessive.
4
Shareholder
proposals advocating stronger and/or particular pay-for-performance models will be evaluated on a case-by-case basis,
with consideration of the merits of the individual proposal within the context of the particular company and its labor markets,
and the company’s current and past practices. While we generally support emphasis on long-term components of senior
executive pay and strong linkage of pay to performance, we consider factors including whether a proposal may be overly prescriptive,
and the impact of the proposal, if implemented as written, on recruitment and retention.
5
We
generally support proposals advocating reasonable senior executive and director stock ownership guidelines and holding requirements
for shares gained in executive equity compensation programs
6
We
generally support shareholder proposals for reasonable “claw-back” provisions that provide for company recovery of senior
executive bonuses to the extent they were based on achieving
financial benchmarks that were not actually met in light of subsequent
restatements.
7
Management
proposals effectively to re-price stock options are considered on a case-by-case basis. Considerations include the company’s
reasons and justifications for a re-pricing, the company’s competitive position, whether senior executives and outside directors
are excluded, potential cost to shareholders, whether the re-pricing or share exchange is on a value-for-value basis, and whether
vesting requirements are extended.
8
Say-on-Pay:
We consider proposals relating to an advisory vote on remuneration on a case-by-case basis. Considerations include a
review of the relationship between executive remuneration and performance based on operating trends and total shareholder return
over multiple performance periods. In addition, we review remuneration structures and potential poor pay practices, including
relative magnitude of pay, discretionary bonus awards, tax gross ups, change-in-control features, internal pay equity
and
peer group construction. As long-term investors, we support remuneration policies that align with long-term shareholder returns.
I.
Social and Environmental Issues.
Shareholders
in the United States and certain other markets submit proposals encouraging changes in company disclosure and practices
related to particular social and environmental matters. As MSIM believes that relevant social and environmental issues can influence
risk and return, we consider how to vote on proposals related to social and environmental issues on a case-by-case basis by determining
the relevance of social and environmental issues identified in the proposal and their likely impacts on shareholder value. In
reviewing proposals on social and environmental issues, we consider a company’s current disclosures and our understanding of the
company’s management of material social and environmental
issues in comparison to peers. We seek to balance concerns on reputational
and other risks that lie behind a proposal against costs of implementation, while considering appropriate shareholder and management
prerogatives. We may abstain from voting on proposals that do not have a readily determinable financial impact on shareholder
value and we may oppose proposals that intrude excessively on management prerogatives and/or board discretion. We generally
vote against proposals requesting reports or actions that we believe are duplicative, related to matters not material to the business,
or that would impose unnecessary or excessive costs.
Environmental
Issues
We
generally support proposals that, if implemented, would enhance useful disclosure, such as disclosures aligned with SASB (Sustainability
Accounting Standards Board) and the TCFD (Task Force on Climate-related Financial Disclosures). We also generally
support proposals that aim to meaningfully reduce or mitigate a company’s impact on the global climate.
Social
Issues
We
generally support proposals that, if implemented, would enhance useful disclosure on employee and board diversity, including gender,
race, and other factors. We consider proposals on other social issues on a case-by-case basis but generally support proposals that
seek to enhance useful disclosure on material issues such as human rights risks, supply chain management and human capital management.
J.
Funds of Funds.
Certain
MS Funds advised by an MSIM Affiliate invest only in other MS Funds. If an underlying fund has a shareholder meeting, in order
to avoid any potential conflict of interest, such proposals will be voted in the same proportion as the votes of the other shareholders
of the underlying fund, unless otherwise determined by the Proxy Review Committee. In markets where proportional voting
is not available we will not vote at the meeting, unless otherwise determined by the Proxy Review Committee. Other MS Funds
invest in unaffiliated funds. If an unaffiliated underlying fund has a shareholder meeting and the MS Fund owns more than 25%
of the voting shares of the underlying fund, the MS Fund will vote its shares in the unaffiliated underlying fund in the same proportion
as the votes of the other shareholders of the underlying fund to the extent possible.
III.
ADMINISTRATION OF THE POLICY
The
MSIM Proxy Review Committee (the “Committee”) has overall responsibility for the Policy. The Committee consists of investment
professionals who represent the different investment disciplines and geographic locations of MSIM, and is chaired by the director
of the Global Stewardship Team (“GST”). Because proxy voting is an investment responsibility and may affect shareholder
value, and because of their knowledge of companies and
markets, portfolio managers and other members of investment staff play a key
role in proxy voting, although the Committee has final authority over proxy votes. The GST administers and implements the Policy,
as well as monitoring services provided by the proxy advisory firms and other research providers used in the proxy voting process.
The
GST Director is responsible for identifying issues that require Committee deliberation or ratification. The GST, working with advice
of investment teams and the Committee, is responsible for voting on routine items and on matters that can be addressed in line
with these Policy guidelines. The GST has responsibility for voting case-by-case where guidelines and precedent provide adequate guidance.
The
Committee may periodically review and has the authority to amend, as necessary, the Policy and establish and direct voting positions
consistent with the Client Proxy Standard.
GST
and members of the Committee may take into account Research Providers’ recommendations and research as well as any other relevant
information they may request or receive, including portfolio manager and/or analyst comments and research, as applicable. Generally,
proxies related to securities held in client accounts that are managed pursuant to quantitative, index or index-like strategies (“Index
Strategies”) will be voted in the same manner as those held in actively managed accounts, unless economic interests of the accounts
differ. Because accounts managed using Index Strategies are passively managed accounts, research from portfolio managers and/or
analysts related to securities held in these accounts may not be available. If the affected securities are held only in accounts that
are managed pursuant to Index Strategies, and the proxy
relates to a matter that is not described in this Policy, the GST will consider
all
available information from the Research Providers, and to the extent that the holdings are significant, from the portfolio managers and/or
analysts.
A.
Committee Procedures
The
Committee meets at least quarterly, and reviews and considers changes to the Policy at least annually. Through meetings and/or written
communications, the Committee is responsible for monitoring and ratifying “split votes” (i.e., allowing certain shares of
the same issuer that are the subject of the same proxy
solicitation and held by one or more MSIM portfolios to be voted differently than other
shares) and/or “override voting” (i.e., voting all MSIM portfolio shares in a manner contrary to the Policy). The Committee
will review developing issues and approve upcoming votes,
as appropriate, for matters as requested by GST.
The
Committee reserves the right to review voting decisions at any time and to make voting decisions as necessary to ensure the independence
and integrity of the votes.
B.
Material Conflicts of Interest
In
addition to the procedures discussed above, if the GST Director determines that an issue raises a material conflict of interest, the GST
Director may request a special committee (“Special Committee”) to review, and recommend a course of action with respect
to, the conflict(s) in question.
A
potential material conflict of interest could exist in the following situations, among others:
1
The
issuer soliciting the vote is a client of MSIM or an affiliate of MSIM and the vote is on a matter that materially affects the issuer.
2
The
proxy relates to Morgan Stanley common stock or any other security issued by Morgan Stanley or its affiliates except if echo voting
is used, as with MS Funds, as described herein.
3
Morgan
Stanley has a material pecuniary interest in the matter submitted for a vote (e.g., acting as a financial advisor to a party to
a merger or acquisition for which Morgan Stanley will be paid a success fee if completed).
4
One
of Morgan Stanley’s independent directors or one of MS Funds’ directors also serves on the board of directors or is a nominee
for election to the board of directors of a company held by an MS Fund or affiliate.
If
the GST Director determines that an issue raises a potential material conflict of interest, depending on the facts and circumstances,
the issue will be addressed as follows:
1
If
the matter relates to a topic that is discussed in this Policy, the proposal will be voted as per the Policy.
2
If
the matter is not discussed in this Policy or the Policy indicates that the issue is to be decided case-by-case, the proposal will be
voted in a manner consistent with the Research Providers, provided that all the Research Providers consulted have the same recommendation,
no portfolio manager objects to that vote, and the vote is consistent with MSIM’s Client Proxy Standard.
3
If
the Research Providers’ recommendations differ, the GST Director will refer the matter to a Special Committee to vote on the
proposal, as appropriate.
Any
Special Committee shall be comprised of the GST Director, and at least two portfolio managers (preferably members of the Committee),
as approved by the Committee. The GST Director may request non-voting participation by MSIM’s General Counsel or
his/her designee and the Chief Compliance Officer or his/her designee. In addition to the research provided by Research Providers, the
Special Committee may request analysis from MSIM Affiliate investment professionals and outside sources to the extent it deems appropriate.
C.
Proxy Voting Reporting
The
GST will document in writing all Committee and Special Committee decisions and actions, which documentation will be maintained
by the GST for a period of at least six years. To the extent these decisions relate to a security held by an MS Fund, the GST
will report the decisions to each applicable Board of Trustees/Directors of those MS Funds (the “Board”) at each Board’s
next regularly scheduled Board meeting. The report will
contain information concerning decisions made during the most recently ended calendar
quarter immediately preceding the Board meeting.
In
addition, to the extent that Committee and Special Committee decisions and actions relate to a security held by other pooled investment
vehicles, the GST will report the decisions to the relevant governing board of the pooled investment vehicle.
MSIM
will promptly provide a copy of this Policy to any client requesting it. MSIM will also, upon client request, promptly provide a
report indicating how each proxy was voted with respect to securities held in that client’s account.
MSIM’s
Legal Department, in conjunction with GST and GST IT for MS Fund reporting and with the AIP investment team for AIP
Closed-End 40 Act Fund reporting, is responsible for filing an annual Form N-PX on behalf of each MS Fund and AIP Closed-End
40 Act Fund for which such filing is required, indicating how all proxies were voted with respect to each such fund’s holdings.
Also,
MSIM maintains voting records of individual agenda items at company meetings in a searchable database on its website on a rolling
12-month basis.
In
addition, ISS provides vote execution, reporting and recordkeeping services to MSIM.
IV.
RECORDKEEPING
Records
are retained in accordance with Morgan Stanley’s Global Information Management Policy, which establishes general Firm-wide
standards and procedures regarding the retention, handling, and destruction of official books and records and other information of
legal or operational significance. The Global Information Management Policy incorporates Morgan Stanley’s Master Retention Schedule,
which lists various record classes and associated retention periods on a global basis.
Approved
by the Board September 2015, September 27-28, 2016, September 27-28, 2017, October 3-4, 2018, September 24-25, 2019
and September 30-October 1, 2020.
Appendix
A applies to the following accounts managed by Morgan Stanley AIP GP LP: (i) closed-end funds registered under the Investment
Company Act of 1940, as amended; (ii) discretionary separate accounts; (iii) unregistered funds; and (iv) non-discretionary
accounts offered in connection with AIP’s Custom Advisory Portfolio Solutions service.
Generally,
AIP will follow the guidelines set forth in Section II of MSIM’s Proxy Voting Policy and Procedures. To the extent that such
guidelines do not provide specific direction, or AIP determines that consistent with the Client Proxy Standard, the guidelines should
not be followed, the Proxy Review Committee has delegated the voting authority to vote securities held by accounts managed by
AIP to the Fund of Hedge Funds investment team, the Private Markets investment team or the Portfolio Solutions team of AIP. A summary
of decisions made by the applicable investment teams will be made available to the Proxy Review Committee for its information
at the next scheduled meeting of the Proxy Review Committee.
In
certain cases, AIP may determine to abstain from determining (or recommending) how a proxy should be voted (and therefore abstain
from voting such proxy or recommending how such proxy should be voted), such as where the expected cost of giving due consideration
to the proxy does not justify the potential benefits to the affected account(s) that might result from adopting or rejecting
(as the case may be) the measure in question.
Waiver
of Voting Rights
For
regulatory reasons, AIP may either 1) invest in a class of securities of an underlying fund (the “Fund”) that does not provide
for voting rights; or 2) waive 100% of its voting
rights with respect to the following:
1
Any
rights with respect to the removal or replacement of a director, general partner, managing member or other person acting in a
similar capacity for or on behalf of the Fund (each individually a “Designated Person,” and collectively, the “Designated
Persons”), which may include, but are not limited
to, voting on the election or removal of a Designated Person in the event of such
Designated Person’s death, disability, insolvency, bankruptcy, incapacity, or other event requiring a vote of interest holders
of the Fund to remove or replace a Designated Person;
and
2
Any
rights in connection with a determination to renew, dissolve, liquidate, or otherwise terminate or continue the Fund, which may
include, but are not limited to, voting on the renewal, dissolution, liquidation, termination or continuance of the Fund upon
the occurrence of an event described in the Fund’s organizational documents; provided,
however, that, if the Fund’s organizational
documents require the consent of the Fund’s general partner or manager, as the case may be, for any such termination
or continuation of the Fund to be effective, then AIP may exercise its voting rights with respect to such matter.
An
S&P Global Ratings issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific
financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term
note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other
forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The
opinion reflects S&P Global Ratings’ view of the obligor’s capacity and willingness to meet its financial commitments
as they come due, and this opinion may assess terms,
such as collateral security and subordination, which could affect ultimate payment in the
event of default.
Issue
credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short-term
in the relevant market. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features
on long-term obligations. Medium-term notes are assigned long-term ratings.
I.
S&P’s Long-Term Issue Credit Ratings
AAA:
An obligation rated ‘AAA’ has the highest rating assigned by S&P Global Ratings. The obligor’s capacity to meet
its financial commitments on the obligation is extremely
strong.
AA:
An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity
to meet its financial commitments on the obligation
is very strong.
A:
An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions
than obligations in higher-rated categories. However,
the obligor’s capacity to meet its financial commitments on the obligation is still
strong.
BBB:
An obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances
are more likely to weaken the obligor’s capacity to meet its financial commitments on the obligation.
BB;
B; CCC; CC; and C: Obligations rated ‘BB’,
‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative characteristics.
‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have
some quality and protective characteristics, these may
be outweighed by large uncertainties or major exposure to adverse conditions.
BB:
An obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial,
or economic conditions that could lead to the obligor’s inadequate capacity to meet
its financial commitments on the obligation.
B:
An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently
has the capacity to meet its financial commitments on
the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity
or willingness to meet its financial commitments on the obligation.
CCC:
An obligation rated ‘CCC’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial
commitments on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet its financial commitments on the obligation.
CC:
An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default
has not yet occurred but S&P Global Ratings expects
default to be a virtual certainty, regardless of the anticipated time to default.
C:
An obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative
seniority or lower ultimate recovery compared with obligations
that are rated higher.
D:
An obligation rated ‘D’ is in default
or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category
is used when payments on an obligation are not made on the date due, unless S&P Global Ratings believes that such payments
will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or
30 calendar days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action
and where default on an obligation is a virtual certainty,
for example due to automatic stay provisions. A rating on an obligation is lowered
to ‘D’ if it is subject to a distressed exchange offer.
NR:
Indicates that a rating has not been assigned or is no longer assigned.
Note:
Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the rating categories.
A-1:
A short-term obligation rated ‘A-1’ is rated in the highest category by S&P Global Ratings. The obligor’s capacity
to meet its financial commitments on the obligation
is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates
that the obligor’s capacity to meet its financial commitments on these obligations is extremely strong.
A-2:
A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rating
categories. However, the obligor’s capacity to meet its financial commitments on
the obligation is satisfactory.
A-3:
A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to weaken an obligor’s
capacity to meet its financial commitments on the obligation.
B:
A short-term obligation rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitments;
however, it faces major ongoing uncertainties that could lead to the obligor’s inadequate
capacity to meet its financial commitments.
C:
A short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its
financial commitments on the obligation.
D:
A short-term obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments,
the ‘D’ rating category is used when payments
on an obligation are not made on the date due, unless S&P Global Ratings believes that such payments
will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as
five business days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar
action and where default on an obligation is a virtual
certainty, for example due to automatic stay provisions. A rating on an obligation is lowered
to ‘D’ if it is subject to a distressed exchange offer.
NR:
Indicates that a rating has not been assigned or is no longer assigned.
III.
Municipal Short-Term Note Ratings
SP-1:
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus
(+) designation.
SP-2:
Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3:
Speculative capacity to pay principal and interest.
D:
‘D’ is assigned upon failure to pay the note when due, completion of a distressed exchange offer, or the filing of a bankruptcy
petition or the taking of similar action anywhere default
on an obligation is a virtual certainty, for example, due to automatic stay provisions.
Moody’s
Investors, Inc.
Ratings
assigned on Moody’s global long-term and short-term rating scales are forward-looking opinions of the relative credit risks of
financial obligations issued by non-financial corporates,
financial institutions, structured finance vehicles, project finance vehicles, and
public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect
both on the likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default.
Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect both on the likelihood
of a default on contractually promised payments and the expected financial loss suffered in the event of default.
I.
Moody’s Global Long-Term Rating Scale
Aaa:
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa:
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A:
Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa:
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative
characteristics.
Ba:
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit risk.
Caa:
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and
interest.
C:
Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of that generic rating category. Additionally, a “(hyb)” indicator is appended
to all ratings of hybrid securities issued by banks,
insurers, finance companies, and securities firms.
II.
Moody’s Global Short-Term Rating Scale
P-1:
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2:
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3:
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP:
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
Fitch
Ratings Inc.
Fitch
Ratings’ credit ratings relating to issuers are an opinion on the relative ability of an entity to meet financial commitments,
such as interest, preferred dividends, repayment of
principal, insurance claims or counterparty obligations. Credit ratings relating to securities
and obligations of an issuer can include a recovery expectation. Credit ratings are used by investors as indications of the likelihood
of receiving the money owed to them in accordance with the terms on which they invested. The agency’s credit ratings cover
the global spectrum of corporate, sovereign financial, bank, insurance, and public finance entities (including supranational and sub-national
entities) and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other
financial assets.
I.
Fitch’s Long-Term Issuer Credit Rating Scale
AAA:
Highest credit quality. ‘AAA’ ratings denote the lowest expectation of default risk. They are assigned only in cases of
exceptionally strong capacity for payment of financial
commitments. This capacity is highly unlikely to be adversely affected by foreseeable
events.
AA:
Very high credit quality. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity
for payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
A:
High credit quality. ‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments
is considered strong. This capacity may, nevertheless,
be more vulnerable to adverse business or economic conditions than is the case for higher
ratings.
BBB:
Good credit quality. ‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment
of financial commitments is considered adequate, but
adverse business or economic conditions are more likely to impair this capacity.
BB:
Speculative. ‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes
in business or economic conditions over time; however,
business or financial flexibility exists that supports the servicing of financial commitments.
B:
Highly speculative. ‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however,
capacity for continued payment is vulnerable to deterioration in the business and economic
environment.
CCC:
Substantial credit risk. Default is a real possibility.
CC:
Very high levels of credit risk. Default of some kind appears probable.
C:
Near default. A default or default-like process has begun, or the issuer is in standstill, or for a closed funding vehicle, payment capacity
is irrevocably impaired. Conditions that are indicative of a ‘C’ category rating for an issuer include: a. the issuer has
entered into a grace or cure period following non-payment
of a material financial obligation; b. the issuer has entered into a temporary negotiated
waiver or standstill agreement following a payment default on a material financial obligation; c. the formal announcement by
the issuer or their agent of a distressed debt exchange; d. a closed financing vehicle where payment capacity is irrevocably impaired
such that it is not expected to pay interest and/or
principal in full during the life of the transaction, but where no payment default is imminent.
RD:
Restricted default. ‘RD’ ratings indicate an issuer that in Fitch’s opinion has experienced: a. an uncured payment
default or distressed debt exchange on a bond, loan
or other material financial obligation, but b. has not entered into bankruptcy filings, administration,
receivership, liquidation, or other formal winding-up procedure, and c. has not otherwise ceased operating. This would
include: i. the selective payment default on a specific class or currency of debt; ii. the uncured expiry of any applicable grace period,
cure period or default forbearance period following a payment default on a bank loan, capital markets security or other
material
financial obligation; iii. the extension of multiple waivers or forbearance periods upon a payment default on one or more material
financial obligations, either in series or in parallel; ordinary execution of a distressed debt exchange on one or more material financial
obligations.
D:
Default. ‘D’ ratings indicate an issuer that in Fitch’s opinion has entered into bankruptcy filings, administration,
receivership, liquidation or other formal winding-up
procedure or that has otherwise ceased business.
Default
ratings are not assigned prospectively to entities or their obligations; within this context, non-payment on an instrument that contains
a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period,
unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a distressed debt exchange.
Imminent
default, categorized under ‘C’, typically refers to the occasion where a payment default has been intimated by the issuer
and is all but inevitable. This may, for example, be
where an issuer has missed a scheduled payment but (as is typical) has a grace period
during which it may cure the payment default. Another alternative would be where an issuer has formally announced a distressed
debt exchange, but the date of the exchange still lies several days or weeks in the immediate future.
In
all cases, the assignment of a default rating reflects the agency’s opinion as to the most appropriate rating category consistent
with the rest of its universe of ratings and may differ
from the definition of default under the terms of an issuer’s financial obligations or local
commercial practice.
Note:
The modifiers “+” or “-” may be appended to a rating to denote relative status within major rating categories.
Such suffixes are not added to ‘AAA’ ratings
and ratings below the ‘CCC’ category.
II.
Fitch’s Short-Term Ratings Assigned to Issuers or Obligations in Corporate, Public and Structure Finance
F1:
Highest Short-Term Credit Quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have
an added “+” to denote any exceptionally strong credit feature.
F2:
Good Short-Term Credit Quality. Good intrinsic capacity for timely payment of financial commitments.
F3:
Fair Short-Term Credit Quality. The intrinsic capacity for timely payment of financial commitments is adequate.
B:
Speculative Short-Term Credit Quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability
to near term adverse changes in financial and economic conditions.
C:
High Short-Term Default Risk. Default is a real possibility.
RD:
Restricted Default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet
other financial obligations. Typically applicable to entity ratings only.
D:
Default. Indicates a broad-based default event for an entity, or the default of a short-term obligation.
Note:
The modifiers “+” or “-” may be appended to a rating to denote relative status within major rating categories.
For the short-term rating category of ‘F1’,
a ‘+’ may be appended.
ITEM 29. Persons
Controlled by or Under Common Control with the Fund
None.
ITEM 30. Indemnification
Pursuant to Section 5.3
of the Registrant’s Declaration of Trust and under Section 4.8 of the Registrant’s By-Laws, the indemnification of the
Registrant’s trustees, officers, employees and agents is permitted if it is determined that they acted under the belief that their
actions were in or not opposed to the best interest of the Registrant, and, with respect to any criminal proceeding, they had reasonable
cause to believe their conduct was not unlawful. In addition, indemnification is permitted only if it is determined that the actions in
question did not render them liable by reason of willful misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of reckless disregard of their obligations and duties to the Registrant. Trustees, officers, employees and agents will be
indemnified for the expense of litigation if it is determined that they are entitled to indemnification against any liability established
in such litigation. The Registrant may also advance money for these expenses provided that they give their undertakings to repay the Registrant
unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2
of the Registrant’s Declaration of Trust and paragraph 8 of the Registrant’s Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant shall be liable for any action or failure to act, except
in the case of bad faith, willful misfeasance, gross negligence or reckless disregard of duties to the Registrant.
Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted
to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee, officer, or controlling person of the Registrant in connection with the successful
defense of any action, suit or proceeding) is asserted against the Registrant by such trustee, officer or controlling person in connection
with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Act, and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes
that it will apply the indemnification provision of its by-laws in a manner consistent with Release 11330 of the Securities and Exchange
Commission under the Investment Company Act of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such Act remains
in effect.
The Registrant, in conjunction
with the Investment Manager, the Registrant’s Trustees, and other registered investment management companies managed by the Investment
Manager, maintains insurance on behalf of any person who is or was a Trustee, officer, employee, or agent of the Registrant, or who is
or was serving at the request of the Registrant as a trustee, director, officer, employee or agent of another trust or corporation, against
any liability asserted against him and incurred by him or arising out of his position. However,
in no event will the Registrant maintain insurance to indemnify any such person for any act for which the Registrant itself is not permitted
to indemnify him.
ITEM 31. Business
and Other Connections of Investment Adviser
See “Fund Management”
in the Prospectus regarding the business of the investment adviser. The following information is given regarding directors and officers
of Morgan Stanley Investment Management Inc. Morgan Stanley Investment Management Inc. is a wholly-owned subsidiary of Morgan Stanley.
Set forth below is the name
and principal business address of each company for which directors or officers of Morgan Stanley Investment Management Inc. serve as directors,
officers or employees:
Listed below as of December31, 2021 are the officers and Directors of Morgan Stanley Investment Management Inc.:
NAME AND POSITION WITH
OTHER SUBSTANTIAL BUSINESS,
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
PROFESSION OR VOCATION
Dan Simkowitz
Managing Director and President
Managing Director of Morgan Stanley.
Stefanie V. Chang Yu
Managing Director, Secretary and General Counsel
Managing Director and Secretary of
other entities affiliated with the Adviser.
Tom Torrisi
Managing Director and Chief Compliance Officer
Jeannine Ali
Managing Director and Chief Financial Officer
John Hagarty
Managing Director and Director
Ken Topping
Managing Director and Director
Anita Rios
Executive Director and Treasurer
Anton Kuzmanov
Managing Director and Director
Tatiana Segal
Managing Director and Director
Jared P. Wong
Executive Director and Chief Anti-Money Laundering Officer
For information as to the business,
profession, vocation or employment of a substantial nature of additional officers of the Adviser, reference is made to the Adviser’s
current Form ADV (File No. 801-15757) filed under the Investment Advisers Act of 1940, incorporated herein by reference.
ITEM 32. Principal
Underwriters
(a) Morgan Stanley Distribution,
Inc., a Delaware corporation, is the principal underwriter of the Registrant. Morgan Stanley Distribution, Inc. is also the principal
underwriter of the following investment companies:
(1)
Morgan Stanley California Tax-Free Daily Income Trust
(2)
Morgan Stanley Europe Opportunity Fund Inc.
(3)
Morgan Stanley Global Fixed Income Opportunities Fund
(4)
Morgan Stanley Institutional Fund, Inc.
(5)
Morgan Stanley Institutional Fund Trust
C:
(6)
Morgan Stanley Insight Fund
(7)
Morgan Stanley Mortgage Securities Trust
(8)
Morgan Stanley Tax-Free Daily Income Trust
(9)
Morgan Stanley U.S. Government Money Market Trust
(10)
Morgan Stanley U.S. Government Securities Trust
(11)
Morgan Stanley Variable Insurance Fund, Inc.
(12)
Morgan Stanley Variable Investment Series
(b) The
following information is given as of December 31, 2021 regarding directors and officers of Morgan Stanley Distribution, Inc. The principal
address of Morgan Stanley Distribution, Inc. is 522 Fifth Avenue, New York, NY10036.
C:
NAME AND PRINCIPAL BUSINESS
POSITIONS AND OFFICES WITH
POSITIONS AND OFFICES WITH
ADDRESS
UNDERWRITER
REGISTRANT
Matthew J. Witkos
President
None
Ilene L. Shore
Chief Compliance Officer
None
Jared P. Wong
Chief Anti-Money Laundering Officer
None
Stefanie V. Chang Yu
General Counsel
None
Susan Brengle
Managing Director
None
Jacques Chappuis
Managing Director
None
Jeffrey Corso
Managing Director
None
James Costabile
Managing Director
None
Frank J Famiglietti
Managing Director
None
Frederick McMullen
Managing Director
None
Samantha Schoen
Managing Director
None
Brian Taranto
Managing Director
None
Kristin Carcio
Executive Director
None
Anita Rios
Treasurer
None
Fred (Feng) Wang
Assistant Treasurer
None
Michelle Rousseau
Secretary
None
John Crowe
Principal Financial Officer and Financial
and Operations Principal
None
Aaron Guth
Assistant Secretary
None
Matt Mistal
Principal Operations Officer
None
Lopez Erick
Deputy Anti-Money Laundering Officer
None
(c) Not applicable.
ITEM 33. Location
of Accounts and Records
State the name and address of
each person maintaining physical possession of each account, book, or other document required to be maintained by section 31(a) [15
U.S.C. 80a-30(a)] and the rules under that section.
(records relating to its function as investment
adviser and administrator)
ITEM 34. Management
Services
Registrant is not a party to
any such management-related service contract.
ITEM 35. Undertakings
None.
C:
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 28th day of February, 2022.
Pursuant to the requirements of the Securities Act of
1933, this Post-Effective Amendment No. 41 has been signed below by the following persons in the capacities and on the dates indicated.
