-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M+W5b+X6SOEBC3R6hw2EmPyjs1rt/WavR5Ld+p+QfUB26S2IAToIOrBboveNCFIq WxTXZGF5YnW65pF6L94wkA== 0000950123-05-005175.txt : 20050428 0000950123-05-005175.hdr.sgml : 20050428 20050428155252 ACCESSION NUMBER: 0000950123-05-005175 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050228 FILED AS OF DATE: 20050428 DATE AS OF CHANGE: 20050428 EFFECTIVENESS DATE: 20050428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY LIQUID ASSET FUND INC CENTRAL INDEX KEY: 0000093285 IRS NUMBER: 132822397 STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02575 FILM NUMBER: 05780619 BUSINESS ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: (212) 869-6397 MAIL ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER LIQUID ASSET FUND INC DATE OF NAME CHANGE: 19980622 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER LIQUID ASSET FUND INC DATE OF NAME CHANGE: 19930715 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER SEARS LIQUID ASSET FUND INC DATE OF NAME CHANGE: 19930209 N-CSRS 1 y06799nvcsrs.txt MORGAN STANLEY LIQUID ASSET FUND, INC UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-02575 Morgan Stanley Liquid Asset Fund Inc. (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: August 31, 2005 Date of reporting period: February 28, 2005 Item 1 - Report to Shareholders Welcome, Shareholder: In this report, you'll learn about how your investment in Morgan Stanley Liquid Asset Fund Inc. performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments This material must be preceded or accompanied by a prospectus for the fund being offered. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. Please see the prospectus for more complete information on investment risks. FUND REPORT For the six-month period ended February 28, 2005 MARKET CONDITIONS During the six months ended February 28, 2005, the U.S. economy experienced a solid expansion. Job growth - as measured by non-farm payrolls - improved from the pace of the preceding years, while the U.S. Gross Domestic Product (GDP) grew at a solid annualized rate in the fourth quarter of 2004. The Federal Open Market Committee (the "Fed") began its current tightening cycle at its June 30, 2004 meeting, and went on to increase its target rate for federal funds a cumulative 150 basis points over six separate meetings to 2.50 percent as of its February 2, 2005 meeting. The Fed's formal risk assessment was balanced, and it has stated that increases will continue at a "measured pace." Against this backdrop, money market fund yield levels began to rise from record lows. PERFORMANCE ANALYSIS As of February 28, 2005, the Morgan Stanley Liquid Asset Fund had net assets in excess of $19.1 billion. For the six-month period ended February 28, 2005, the Fund provided a return of 0.74 percent. For the seven-day period ended February 28, 2005, the Fund provided an effective annualized yield of 2.03 percent and a current annualized yield of 2.01 percent, while its 30-day moving average annualized yield for February 28, 2005 was 1.95 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Our strategy in managing the Fund remained consistent with the Fund's long-term focus on maintaining preservation of capital and liquidity. By shortening the maturities of the portfolio's investments slightly, we were able to reinvest in higher yielding money market securities as rates climbed. We adhered to a conservative approach in managing the Fund that emphasized purchasing high-quality money market obligations and avoided the use of derivatives or structured notes that might fluctuate excessively with changing interest rates. There is no guarantee that any sectors mentioned will continue to perform well or be held by the Fund in the future.
PORTFOLIO COMPOSITION Commercial Paper 66.3% U.S. Government & Agency Obligations 14.6 Certificates of Deposit 13.4 Bank Notes 5.6 Repurchase Agreement 0.1
MATURITY SCHEDULE 1 -- 30 Days 39.2% 31 -- 60 Days 50.5 61 -- 90 Days 4.2 91 -- 120 Days 3.6 121 + Days 2.5
Data as of February 28, 2005. Subject to change daily. All percentages for portfolio composition and maturity schedule are as a percentage of total investments. These data are provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. 2 INVESTMENT STRATEGY THE FUND WILL INVEST IN HIGH QUALITY, SHORT-TERM MONEY MARKET SECURITIES. THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS INC., 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. AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC, WASHINGTON, DC 20549-0102. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL QUARTER FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 869-NEWS. HOUSEHOLDING NOTICE TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS. YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS. 3 EXPENSE EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 09/01/04 - 02/28/05. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD * ------------- ------------- --------------- 09/01/04 - 09/01/04 02/28/05 02/28/05 ------------- ------------- --------------- Actual (0.74% return)....................................... $1,000.00 $1,007.40 $2.94 Hypothetical (5% annual return before expenses)............. $1,000.00 $1,021.87 $2.96
- ------------------ * Expenses are equal to the Fund's annualized expense ratio of 0.59%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). 4 Morgan Stanley Liquid Asset Fund Inc. PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED)
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF MATURITY THOUSANDS PURCHASE DATE VALUE - ---------------------------------------------------------------------------------------------------------- Commercial Paper (67.1%) Asset-Backed - Auto (8.7%) $ 780,000 FCAR Owner Trust.......................... 2.44-2.64% 03/08/05-04/21/05 $ 777,599,472 150,000 FCAR Owner Trust Series A1................ 2.64 04/18/05 149,474,000 350,000 New Center Asset Trust.................... 2.65 04/12/05-04/14/05 348,885,333 400,000 New Center Asset Trust Series A1.......... 2.43-2.57 03/07/05-03/28/05 399,427,459 --------------- 1,675,386,264 --------------- Banking (1.1%) 50,000 Bank of America Corp. .................... 2.61 04/18/05 49,827,333 150,000 Citicorp.................................. 2.53 03/10/05 149,905,500 --------------- 199,732,833 --------------- Finance - Automotive (1.8%) 30,000 American Honda Finance Corp. ............. 2.73 05/03/05 29,857,725 310,000 Toyota Motor Credit Corp. ................ 2.53-3.02 03/07/05-10/04/05 309,476,689 --------------- 339,334,414 --------------- Finance - Consumer (1.9%) 370,000 HSBC Finance Corp. ....................... 2.47-2.56 03/14/05-03/23/05 369,500,978 --------------- Financial Conglomerates (4.9%) 935,000 General Electric Capital Corp. ........... 1.99-3.23 03/04/05-11/16/05 928,773,666 --------------- Insurance (1.0%) 50,000 American General Finance Corp. ........... 2.65 04/19/05 49,820,333 150,000 Prudential Funding LLC.................... 2.55 03/24/05 149,756,584 --------------- 199,576,917 --------------- International Banks (45.1%) 933,000 Barclays U.S. Funding Corp. .............. 2.39-2.65 03/03/05-04/18/05 931,258,692 370,000 BNP Paribas Finance, Inc.................. 2.43-2.49 03/07/05-03/22/05 369,569,067 70,000 Calyon North America, Inc. ............... 2.60 04/18/05 69,759,200 400,000 Deutsche Bank Financial LLC............... 2.55 03/29/05 399,209,778 715,000 HBOS Treasury Services plc................ 2.40-2.77 03/09/05-05/11/05 713,310,993 520,000 ING (U.S.) Funding LLC.................... 2.49-2.65 03/15/05-04/19/05 519,150,910 700,000 Natexis Banques Populaires U.S. Finance Co. LLC.................... 2.60-2.61 04/05/05-04/08/05 698,193,139 550,000 National Australia Funding (Delaware) Inc. ................................... 2.51-2.53 03/03/05-03/28/05 549,270,667 280,000 Nordea North America Inc. ................ 2.46-2.54 03/14/05-04/11/05 279,453,632 545,000 Rabobank USA Financial Corp. ............. 2.47-2.70 03/30/05-04/29/05 543,658,486 465,000 Royal Bank of Canada...................... 2.47-2.67 03/17/05-04/13/05 464,102,075 895,000 Royal Bank of Scotland plc................ 2.39-2.65 03/04/05-04/15/05 893,054,793 580,000 Societe Generale N.A., Inc................ 2.47-2.78 03/23/05-06/03/05 576,312,866
See Notes to Financial Statements 5 Morgan Stanley Liquid Asset Fund Inc. PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF MATURITY THOUSANDS PURCHASE DATE VALUE - ---------------------------------------------------------------------------------------------------------- $ 300,000 Svenska Handelsbanken Inc. ............... 2.45-2.62% 03/10/05-04/12/05 $ 299,451,750 390,000 Swedbank.................................. 2.47-2.61 03/14/05-04/14/05 389,167,383 822,000 UBS Finance (Delaware) LLC................ 2.43-2.70 03/08/05-04/22/05 819,796,995 45,000 UniCredit Delaware Inc. .................. 2.62 04/13/05 44,860,250 85,000 Westpac Capital Corp. .................... 2.42 03/09/05 84,954,478 --------------- 8,644,535,154 --------------- Investment Banks/Brokers (2.6%) 500,000 Citigroup Global Markets Holdings Inc. ... 2.51-2.61 03/11/05-04/06/05 499,113,778 --------------- Total Commercial Paper (Cost $12,855,954,004).............................. 12,855,954,004 --------------- U.S. Government & Agency Obligations (14.7%) 18,000 Federal Farm Credit Bank.................. 2.29 07/21/05 17,839,895 635,000 Federal Home Loan Banks................... 1.88-2.65 03/18/05-06/17/05 633,015,312 754,000 Federal National Mortgage Assoc. ......... 1.98-2.79 04/01/05-05/25/05 751,162,747 1,031,000 Freddie Mac............................... 2.00-3.07 03/11/05-12/12/05 1,026,321,766 400,000 U.S. Treasury Bills....................... 1.97-2.00 04/07/05-04/14/05 399,115,111 --------------- Total U.S. Government & Agency Obligations (Cost $2,827,454,831)........... 2,827,454,831 --------------- Certificates of Deposit (13.6%) 300,000 Branch Banking & Trust Co., N.C. ......... 2.53-2.55 03/29/05-03/31/05 300,000,000 250,000 Citibank, N.A. ........................... 2.82 05/25/05 250,000,000 945,000 First Tennessee Bank, N.A. ............... 2.50-2.72 03/21/05-04/25/05 945,000,000 200,000 SunTrust Bank............................. 2.58 04/21/05 200,000,000 910,000 Wells Fargo Bank, N.A. ................... 2.49-2.56 03/01/05-03/31/05 910,000,000 --------------- Total Certificates of Deposit (Cost $2,605,000,000)........................ 2,605,000,000 --------------- Short-Term Bank Notes (5.7%) 795,000 Bank of America, N.A. .................... 2.62-2.68 04/20/05-04/28/05 795,000,000 300,000 Standard Federal Bank, N.A. .............. 2.63-2.67 04/15/05-04/20/05 300,000,000 --------------- Total Short-Term Bank Notes (Cost $1,095,000,000).......................... 1,095,000,000 ---------------
See Notes to Financial Statements 6 Morgan Stanley Liquid Asset Fund Inc. PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF MATURITY THOUSANDS PURCHASE DATE VALUE - ---------------------------------------------------------------------------------------------------------- Repurchase Agreement (0.1%) $10,066 The Bank of New York (dated 02/28/05; proceeds $10,066,923) (a) (Cost $10,066,259)............................ 2.375% 03/01/05 $ 10,066,259 --------------- Total Investments (Cost $19,393,475,094) (b).................. 101.2% 19,393,475,094 Liabilities in Excess of Other Assets......................... (1.2) (228,006,112) ----- --------------- Net Assets.................................................... 100.0% $19,165,468,982 ===== ===============
- --------------------- (a) Collateralized by Federal National Mortgage Assoc. 6.00% due 10/01/34 valued at $10,267,584. (b) Cost is the same for federal income tax purposes.
7 See Notes to Financial Statements Morgan Stanley Liquid Asset Fund Inc. FINANCIAL STATEMENTS Statement of Assets and Liabilities February 28, 2005 (unaudited) Assets: Investments in securities, at value (cost $19,393,475,094).................................... $19,393,475,094 Cash........................................................ 90,001 Receivable for: Interest................................................ 6,334,695 Capital stock sold...................................... 1,826,312 Prepaid expenses and other assets........................... 68,290 --------------- Total Assets............................................ 19,401,794,392 --------------- Liabilities: Payable for: Capital stock redeemed.................................. 229,869,626 Investment advisory fee................................. 3,186,514 Distribution fee........................................ 1,482,950 Administration fee...................................... 741,475 Accrued expenses and other payables......................... 1,044,845 --------------- Total Liabilities....................................... 236,325,410 --------------- Net Assets.............................................. $19,165,468,982 =============== Composition of Net Assets: Paid-in-capital............................................. $19,164,778,827 Accumulated undistributed net investment income............. 690,155 --------------- Net Assets.............................................. $19,165,468,982 =============== Net Asset Value Per Share, 19,165,450,001 shares outstanding (50,000,000,000 shares authorized of $.01 par value)........ $1.00 ===============
See Notes to Financial Statements 8 Morgan Stanley Liquid Asset Fund Inc. FINANCIAL STATEMENTS continued Statement of Operations For the six months ended February 28, 2005 (unaudited) Net Investment Income: Interest Income............................................. $203,257,277 ------------ Expenses Investment advisory fee..................................... 22,878,859 Transfer agent fees and expenses............................ 20,745,412 Distribution fee............................................ 9,880,251 Administration fee.......................................... 3,242,006 Shareholder reports and notices............................. 373,582 Custodian fees.............................................. 221,434 Registration fees........................................... 154,586 Directors' fees and expenses................................ 131,618 Professional fees........................................... 51,067 Other....................................................... 436,742 ------------ Total Expenses.......................................... 58,115,557 ------------ Net Investment Income................................... 145,141,720 Net Realized Gain....................................... 117 ------------ Net Increase................................................ $145,141,837 ============
See Notes to Financial Statements 9 Morgan Stanley Liquid Asset Fund Inc. FINANCIAL STATEMENTS continued Statement of Changes in Net Assets
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED FEBRUARY 28, 2005 AUGUST 31, 2004 ----------------- --------------- (unaudited) Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 145,141,720 $ 122,377,207 Net realized gain........................................... 117 1,006 --------------- --------------- Net Increase............................................ 145,141,837 122,378,213 --------------- --------------- Dividends and Distributions to Shareholders from: Net investment income....................................... (145,139,065) (122,390,326) Net realized gain........................................... (117) (1,006) --------------- --------------- Total Dividends and Distributions....................... (145,139,182) (122,391,332) --------------- --------------- Net decrease from capital stock transactions................ (1,309,291,224) (2,606,181,892) --------------- --------------- Net Decrease............................................ (1,309,288,569) (2,606,195,011) Net Assets: Beginning of period......................................... 20,474,757,551 23,080,952,562 --------------- --------------- End of Period (Including accumulated undistributed net investment income of $690,155 and $687,500, respectively)..................... $19,165,468,982 $20,474,757,551 =============== ===============
See Notes to Financial Statements 10 Morgan Stanley Liquid Asset Fund Inc. NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED) 1. Organization and Accounting Policies Morgan Stanley Liquid Asset Fund Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objectives are high current income, preservation of capital and liquidity. The Fund was incorporated in Maryland on September 3, 1974 and commenced operations on September 22, 1975. The following is a summary of significant accounting policies: A. Valuation of Investments -- Portfolio securities are valued at amortized cost, which approximates market value. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. Repurchase Agreements -- The Fund may invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. E. Dividends and Distributions to Shareholders -- The Fund records dividends and distributions to shareholders as of the close of each business day. F. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. Investment Advisory/Administration Agreements Effective November 1, 2004, pursuant to an Investment Advisory Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Adviser"), the Fund pays the Investment Adviser an advisory fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.45% to the portion of the daily net assets not exceeding $250 million; 0.375% to the portion of the daily net assets exceeding $250 million but not exceeding $750 million; 0.325% to the portion of the daily net assets 11 Morgan Stanley Liquid Asset Fund Inc. NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued exceeding $750 million but not exceeding $1.25 billion; 0.30% to the portion of the daily net assets exceeding $1.25 billion but not exceeding $1.5 billion; 0.275% to the portion of the daily net assets exceeding $1.5 billion but not exceeding $1.75 billion; 0.25% to the portion of the daily net assets exceeding $1.75 billion but not exceeding $2.25 billion; 0.225% to the portion of the daily net assets exceeding $2.25 billion but not exceeding $2.75 billion; 0.20% to the portion of the daily net assets exceeding $2.75 billion but not exceeding $15 billion; 0.199% to the portion of the daily net assets exceeding $15 billion but not exceeding $17.5 billion; 0.198% to the portion of the daily net assets exceeding $17.5 billion but not exceeding $25 billion; 0.197% to the portion of the daily net assets in excess of $25 billion but not exceeding $30 billion; and 0.196% to the portion of the daily net assets exceeding $30 billion. Effective November 1, 2004, pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.05% to the Fund's daily net assets. Prior to November 1, 2004, the Fund had retained the Investment Adviser to provide administrative services and to manage the investment of the Fund's assets pursuant to an investment management agreement pursuant to which the Fund paid the Investment Adviser a monthly management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.50% to the portion of the daily net assets not exceeding $500 million; 0.425% to the portion of the daily net assets exceeding $500 million but not exceeding $750 million; 0.375% to the portion of the daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of the daily net assets exceeding $1 billion but not exceeding $1.35 billion; 0.325% to the portion of the daily net assets exceeding $1.35 billion but not exceeding $1.75 billion; 0.30% to the portion of the daily net assets exceeding $1.75 billion but not exceeding $2.15 billion; 0.275% to the portion of the daily net assets exceeding $2.15 billion but not exceeding $2.5 billion; 0.25% to the portion of the daily net assets exceeding $2.5 billion but not exceeding $15 billion; 0.249% to the portion of the daily net assets exceeding $15 billion but not exceeding $17.5 billion; 0.248% to the portion of the daily net assets exceeding $17.5 billion but not exceeding $25 billion; 0.247% to the portion of the daily net assets in excess of $25 billion but not exceeding $30 billion; and 0.246% to the portion of the daily net assets exceeding $30 billion. 12 Morgan Stanley Liquid Asset Fund Inc. NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued 3. Plan of Distribution Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Adviser and Administrator, is the distributor of the Fund's shares and in accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act, finances certain expenses in connection with the promotion of sales of Fund shares. Reimbursements for these expenses are made in monthly payments by the Fund to the Distributor, which will in no event exceed an amount equal to a payment at the annual rate of 0.15% of the Fund's average daily net assets during the month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal year will not be reimbursed by the Fund through payments accrued in any subsequent fiscal year. For the six months ended February 28, 2005, the distribution fee was accrued at the annual rate of 0.10%. 4. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales/maturities of portfolio securities for the six months ended February 28, 2005, aggregated $58,524,437,203 and $59,966,607,572, respectively. Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent. At February 28, 2005, the Fund had transfer agent fees and expenses payable of approximately $399,600. The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Directors of the Fund who will have served as independent Directors for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. Aggregate pension costs for the six months ended February 28, 2005 included in Directors' fees and expenses in the Statement of Operations amounted to $3,712. At February 28, 2005, the Fund had an accrued pension liability of $62,230 which is included in accrued expenses in the Statement of Assets and Liabilities. On December 2, 2003, the Directors voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003. Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan (the "Compensation Plan") which allows each independent Director to defer payment of all, or a portion, of the fees he receives for serving on the Board of Directors. Each eligible Director 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 Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an 13 Morgan Stanley Liquid Asset Fund Inc. NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 5. Capital Stock Transactions in capital stock, at $1.00 per share, were as follows:
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED FEBRUARY 28, 2005 AUGUST 31, 2004 ----------------- --------------- (unaudited) Shares sold................................................. 25,931,889,293 58,528,750,330 Shares issued in reinvestment of dividends and distributions............................................. 144,921,469 122,175,653 --------------- --------------- 26,076,810,762 58,650,925,983 Shares redeemed............................................. (27,386,101,986) (61,257,107,875) --------------- --------------- Net decrease................................................ (1,309,291,224) (2,606,181,892) =============== ===============
6. Legal Matters The Investment Adviser, certain affiliates of the Investment Adviser, certain officers of such affiliates and certain investment companies advised by the Investment Adviser or its affiliates, including the Fund, are named as defendants in a consolidated class action. This consolidated action also names as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges that defendants, including the Fund, violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Investment Adviser and certain affiliates of the Investment Adviser allegedly offered economic incentives to brokers and others to recommend the funds advised by the Investment Adviser or its affiliates to investors rather than funds managed by other companies, and (ii) that the funds advised by the Investment Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their efforts to recommend these funds to investors. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The defendants have moved to dismiss the action and intend to otherwise vigorously defend it. On March 10, 2005, Plaintiffs sought leave to supplement their complaint to assert claims on behalf of other investors. While the Fund and Adviser believe that each has meritorious defenses, the ultimate outcome of this matter is not presently determinable at this early stage of the litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of this matter. 14 Morgan Stanley Liquid Asset Fund Inc. FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of capital stock outstanding throughout each period:
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED ---------------------------------------------------- FEBRUARY 28, 2005 2004 2003 2002 2001 2000 ----------------- -------- -------- -------- -------- -------- (unaudited) Selected Per Share Data: Net asset value, beginning of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- ------ ------ ------ ------ ------ Net income from investment operations........ 0.007 0.006 0.009 0.018 0.051 0.055 Less dividends from net investment income.... (0.007)+ (0.006)+ (0.009) (0.018)+ (0.051)+ (0.055) -------- ------ ------ ------ ------ ------ Net asset value, end of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ====== ====== ====== ====== ====== Total Return................................. 0.74%(1) 0.58% 0.86% 1.78% 5.24% 5.69% Ratios to Average Net Assets: Expenses..................................... 0.59%(2) 0.58% 0.56% 0.56% 0.57% 0.58% Net investment income........................ 1.47%(2) 0.57% 0.85% 1.76% 5.04% 5.51% Supplemental Data: Net assets, end of period, in millions....... $19,165 $20,475 $23,081 $23,931 $23,187 $19,628
- --------------------- + Includes capital gain distribution of less than $0.001. (1) Not annualized. (2) Annualized.
See Notes to Financial Statements 15 DIRECTORS Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Fergus Reid OFFICERS Charles A. Fiumefreddo Chairman of the Board Mitchell M. Merin President Ronald E. Robison Executive Vice President and Principal Executive Officer Joseph J. McAlinden Vice President Barry Fink Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Vice President Francis J. Smith Treasurer and Chief Financial Officer Thomas F. Caloia Vice President Mary E. Mullin Secretary TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT ADVISER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its directors. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. (c) 2005 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Liquid Asset Fund Semiannual Report February 28, 2005 37925RPT-RA05-00295P-Y02/05 Item 2. Code of Ethics. Not applicable for semiannual reports. Item 3. Audit Committee Financial Expert. Not applicable for semiannual reports. Item 4. Principal Accountant Fees and Services Not applicable for semiannual reports. Item 5. Audit Committee of Listed Registrants. Not applicable for semiannual reports. Item 6. Refer to Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable for semiannual reports. Item 8. Portfolio Managers of Closed-End Management Investment Companies Applicable only to reports filed by closed-end funds. Item 9. Closed-End Fund Repurchases Applicable to reports filed by closed-end funds. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) Code of Ethics - Not applicable for semiannual reports. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Liquid Asset Fund Inc. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer April 19, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer April 19, 2005 /s/ Francis Smith Francis Smith Principal Financial Officer April 19, 2005 3 EX-99.CERT 2 y06799exv99wcert.txt CERTIFICATIONS EXHIBIT 12 B1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Liquid Asset Fund Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 4 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: April 19, 2005 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer 5 EXHIBIT 12 B2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS I, Francis Smith, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Liquid Asset Fund Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 6 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: April 19, 2005 /s/ Francis Smith Francis Smith Principal Financial Officer 7 EX-99.906CERT 3 y06799exv99w906cert.txt CERTIFICATIONS SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Liquid Asset Fund Inc. In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended February 28, 2005 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: April 19, 2005 /s/ Ronald E. Robison --------------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Liquid Asset Fund Inc. and will be retained by Morgan Stanley Liquid Asset Fund Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 8 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Liquid Asset Fund Inc. In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended February 28, 2005 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: April 19, 2005 /s/ Francis Smith --------------------------- Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Liquid Asset Fund Inc. and will be retained by Morgan Stanley Liquid Asset Fund Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 9 -----END PRIVACY-ENHANCED MESSAGE-----