-----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, OdZUp51Ovkj8fO58lxe0jvefd6pBXdDySIDKdV7lvVPXoXjL/NaTxLhUIe1YHWNe OP/jOu68RMevSxlJNuge7g== 0000950123-06-005807.txt : 20060505 0000950123-06-005807.hdr.sgml : 20060505 20060505120053 ACCESSION NUMBER: 0000950123-06-005807 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060228 FILED AS OF DATE: 20060505 DATE AS OF CHANGE: 20060505 EFFECTIVENESS DATE: 20060505 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: 06811495 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 0000093285 S000004052 MORGAN STANLEY LIQUID ASSET FUND INC C000011338 MORGAN STANLEY LIQUID ASSET FUND INC dwlxx N-CSRS 1 y18631nvcsrs.txt FORM N-CSR 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, 2006 Date of reporting period: February 28, 2006 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 A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. AN INVESTMENT IN A MONEY MARKET 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 AN INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE INFORMATION ON INVESTMENT RISKS. FUND REPORT For the six months ended February 28, 2006 MARKET CONDITIONS During the six-month period ended February 28, 2006, the Federal Open Market Committee (the "Fed") continued its pattern of raising short-term rates which it began in June of 2004. Through 14 steps of 25 basis points each--including four during the six months covered by this report--the Fed increased its target rate for federal funds from 1.00 percent to 4.50 percent, a four-and-one-half year high. Short-term yields increased alongside the target rate and provided increased return opportunities for money market investors. PERFORMANCE ANALYSIS As of February 28, 2006, the Morgan Stanley Liquid Asset Fund had net assets of more than $17.1 billion and an average portfolio maturity of 49 days. For the six-month period ended February 28, 2006, the Fund provided a total return of 1.77 percent. For the seven-day period ended February 28, 2006, the Fund provided an effective annualized yield of 4.13 percent and a current annualized yield of 4.05 percent, while its 30-day moving average annualized yield for February was 4.02 percent. Past performance is no guarantee of future results. Our strategy in managing the portfolio remained consistent with the Fund's long-term focus on preservation of capital and liquidity. We adhered to a conservative approach in managing the portfolio, emphasizing high-quality money market obligations. We avoided the use of derivatives or structured notes that might fluctuate excessively with changing interest rates. We also took advantage of the rising yields available on the money market securities. As short-term interest rates climbed, we reinvested the proceeds of maturing short-term holdings into higher-yielding securities. Should rates continue to rise during the months ahead, we intend to maintain this approach. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future.
PORTFOLIO COMPOSITION Commercial Paper 77.5% U.S. Government Agencies 10.9 Certificates of Deposit 10.4 Bank Note 1.2
MATURITY SCHEDULE 1 -- 30 Days 40.6% 31 -- 60 Days 30.4% 61 -- 90 Days 14.4% 91 -- 120 Days 10.0% 121 + Days 4.6%
Data as of February 28, 2006. Subject to change daily. All percentages for portfolio composition and maturity schedule are as a percentage of total investments. 2 INVESTMENT STRATEGY THE FUND INVESTS IN HIGH QUALITY, SHORT-TERM DEBT OBLIGATIONS. IN SELECTING INVESTMENTS, 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. 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 advisory 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 09/01/05 - 02/28/06. 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* ------------- ------------- --------------- 09/01/05 - 09/01/05 02/28/06 02/28/06 ------------- ------------- --------------- Actual (1.77% return)....................................... $1,000.00 $1,017.70 $3.00 Hypothetical (5% annual return before expenses)............. $1,000.00 $1,021.82 $3.01
- ------------------ * Expenses are equal to the Fund's annualized expense ratio of 0.60% 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, 2006 (UNAUDITED)
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF MATURITY THOUSANDS PURCHASE DATE VALUE - ---------------------------------------------------------------------------------------------------------- Commercial Paper (78.6%) Banking (12.1%) $ 685,000 Bank of America Corp. .................... 4.43-4.92% 03/13/06-08/23/06 $ 682,633,486 544,000 Citigroup Funding Inc. ................... 4.51-4.88 04/03/06-08/16/06 539,723,371 500,000 J.P. Morgan Chase & Co. .................. 4.53-4.56 03/28/06-04/04/06 498,130,708 100,000 LaSalle Bank Corp. ....................... 4.51 03/06/06 99,937,639 250,000 Wells Fargo & Co. ........................ 4.44 03/01/06 250,000,000 --------------- 2,070,425,204 --------------- Finance - Automotive (0.5%) 93,000 Toyota Motor Credit Corp. ................ 4.53-4.59 05/18/06-06/14/06 91,923,511 --------------- Finance - Consumer (1.2%) 159,000 American Express Credit Corp. ............ 4.52-4.59 05/04/06-05/15/06 157,671,611 50,000 HSBC Finance Corp. ....................... 4.57 04/25/06 49,654,722 --------------- 207,326,333 --------------- Financial Conglomerates (4.4%) 756,500 General Electric Capital Corp. ........... 3.55-4.97 03/02/06-11/10/06 750,246,738 --------------- Insurance (0.9%) 150,000 Prudential Funding LLC.................... 4.59 04/12/06 149,202,000 --------------- International Banks (59.5%) 250,000 ANZ (DE) Inc. ............................ 4.44 03/20/06 249,420,764 750,000 Abbey National North America LLC.......... 4.43-4.66 03/09/06-05/01/06 746,367,715 325,000 BNP Paribas Finance, Inc. ................ 4.54-4.73 04/18/06-05/31/06 321,418,285 725,000 Barclays U.S. Funding Corp. .............. 4.42-4.67 03/08/06-05/02/06 723,010,167 250,000 CBA (Delaware) Finance Inc. .............. 4.42-4.46 03/03/06-03/31/06 249,424,361 760,000 Calyon North America, Inc. ............... 4.42-4.89 03/09/06-08/21/06 753,869,855 450,000 Deutsche Bank Financial LLC............... 4.49-4.76 04/10/06-10/03/06 444,037,778 700,000 Dexia Delaware LLC........................ 4.59-4.62 04/11/06-04/18/06 696,053,722 550,000 DnB NOR Bank ASA.......................... 4.43-4.49 03/10/06-04/05/06 548,690,000 700,000 HBOS Treasury Services plc................ 4.44-4.69 03/17/06-05/15/06 695,959,764 378,000 ING (U.S.) Funding LLC.................... 4.50-4.62 03/14/06-06/27/06 374,873,101 568,000 Natexis Banques Populaires U.S. Finance Co. LLC................................. 4.43-4.81 03/21/06-07/14/06 564,439,890 403,000 Nordea North America, Inc. ............... 4.49-4.55 04/28/06-05/25/06 399,323,872 600,000 Royal Bank of Canada...................... 4.63-4.65 04/25/06-04/27/06 595,665,688 750,000 Royal Bank of Scotland plc................ 4.42-4.53 03/03/06-03/24/06 748,633,000 290,000 Sanpaolo IMI U.S. Finance Co. ............ 4.41-4.59 03/06/06-04/28/06 289,220,450 500,000 Societe Generale N.A., Inc. .............. 4.48-4.63 03/07/06-04/26/06 497,457,875 277,000 Spintab AB................................ 4.38-4.65 03/02/06-05/03/06 276,450,110
See Notes to Financial Statements 5 Morgan Stanley Liquid Asset Fund Inc. PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2006 (UNAUDITED) continued
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF MATURITY THOUSANDS PURCHASE DATE VALUE - ---------------------------------------------------------------------------------------------------------- $ 320,000 Svenska Handelsbanken Inc. ............... 4.47-4.59% 04/03/06-06/15/06 $ 317,602,283 45,000 Swedbank.................................. 4.54 03/27/06 44,853,425 655,000 UBS Finance (Delaware) LLC................ 4.52-4.68 03/15/06-06/01/06 651,566,747 --------------- 10,188,338,852 --------------- Total Commercial Paper (Cost $13,457,462,638).............................. 13,457,462,638 --------------- U.S. Government Agencies (11.1%) 803,000 Federal National Mortgage Assoc. ......... 4.37-4.76 03/22/06-08/09/06 797,720,751 1,106,000 Freddie Mac............................... 3.55-4.81 03/07/06-10/23/06 1,094,238,366 --------------- Total U.S. Government Agencies (Cost $1,891,959,117)....................... 1,891,959,117 --------------- Certificates of Deposit (10.5%) 450,000 Branch Banking & Trust Co., N.C. ......... 4.46-4.65 03/10/06-04/28/06 450,000,000 205,000 Citibank, N.A. ........................... 4.48-4.77 04/06/06-05/26/06 205,000,000 700,000 First Tennessee Bank, N.A. ............... 4.52-4.68 03/14/06-05/03/06 700,000,000 350,000 Washington Mutual Bank F.A. .............. 4.68-4.70 05/03/06-05/09/06 350,000,000 100,000 Wells Fargo Bank, N.A. ................... 4.48 03/07/06 100,000,000 --------------- Total Certificates of Deposit (Cost $1,805,000,000)........................ 1,805,000,000 --------------- Short-Term Bank Note (1.2%) 200,000 World Savings Bank, FSB (Cost $200,000,000)........................... 4.62 04/19/06 200,000,000 --------------- Repurchase Agreement (0.1%) 9,452 The Bank of New York (dated 02/28/06; proceeds $9,452,768) (a) (Cost $9,451,619)....................... 4.375 03/01/06 9,451,619 ---------------
Total Investments (Cost $17,363,873,374) (b).................... 101.5% 17,363,873,374 Liabilities in Excess of Other Assets........................... (1.5) (248,663,002) ----- --------------- Net Assets...................................................... 100.0% $17,115,210,372 ===== ===============
- --------------------- (a) Collateralized by Federal National Mortgage Assoc. 5.50% due 08/01/35 valued at $9,640,652. (b) Cost is the same for federal income tax purposes. See Notes to Financial Statements 6 Morgan Stanley Liquid Asset Fund Inc. FINANCIAL STATEMENTS Statement of Assets and Liabilities February 28, 2006 (unaudited) Assets: Investments in securities, at value (cost $17,363,873,374).................................... $17,363,873,374 Cash........................................................ 90,000 Receivable for: Interest................................................ 4,333,564 Capital stock sold...................................... 186,301 Prepaid expenses and other assets........................... 317,168 --------------- Total Assets............................................ 17,368,800,407 --------------- Liabilities: Payable for: Capital stock redeemed.................................. 247,783,141 Investment advisory fee................................. 2,858,811 Distribution fee........................................ 1,317,569 Administration fee...................................... 658,784 Transfer agent fee...................................... 287,427 Accrued expenses and other payables......................... 684,303 --------------- Total Liabilities....................................... 253,590,035 --------------- Net Assets.............................................. $17,115,210,372 =============== Composition of Net Assets: Paid-in-capital............................................. $17,114,517,426 Accumulated undistributed net investment income............. 692,946 --------------- Net Assets.............................................. $17,115,210,372 =============== Net Asset Value Per Share 17,115,188,600 shares outstanding (50,000,000,000 shares authorized of $.01 par value)............................... $1.00 ===============
See Notes to Financial Statements 7 Morgan Stanley Liquid Asset Fund Inc. FINANCIAL STATEMENTS continued Statement of Operations For the six months ended February 28, 2006 (unaudited) Net Investment Income: Interest Income............................................. $ 357,984,412 ------------- Expenses Transfer agent fees and expenses............................ 19,382,334 Investment advisory fee..................................... 18,808,489 Distribution fee............................................ 8,463,874 Administration fee.......................................... 4,341,243 Shareholder reports and notices............................. 318,132 Custodian fees.............................................. 195,769 Directors' fees and expenses................................ 114,989 Registration fees........................................... 96,228 Professional fees........................................... 50,213 Other....................................................... 637,041 ------------- Total Expenses.......................................... 52,408,312 ------------- Net Investment Income....................................... $ 305,576,100 =============
See Notes to Financial Statements 8 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, 2006 AUGUST 31, 2005 ----------------- --------------- (unaudited) Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 305,576,100 $ 381,295,276 Net realized gain........................................... -- 117 --------------- --------------- Net Increase............................................ 305,576,100 381,295,393 --------------- --------------- Dividends and Distributions to Shareholders from: Net investment income....................................... (305,565,538) (381,300,392) Net realized gain........................................... -- (117) --------------- --------------- Total Dividends and Distributions....................... (305,565,538) (381,300,509) --------------- --------------- Net decrease from capital stock transactions................ (956,473,957) (2,403,078,668) --------------- --------------- Net Decrease............................................ (956,463,395) (2,403,083,784) Net Assets: Beginning of period......................................... 18,071,673,767 20,474,757,551 --------------- --------------- End of Period (Including accumulated undistributed net investment income of $692,946 and $682,384, respectively)..................... $17,115,210,372 $18,071,673,767 =============== ===============
See Notes to Financial Statements 9 Morgan Stanley Liquid Asset Fund Inc. NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 (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, in accordance with Rule 2a-7 of the Investment Company Act of 1940. 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 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 10 Morgan Stanley Liquid Asset Fund Inc. NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 (UNAUDITED) continued exceeding $750 million; 0.325% to the portion of the daily net assets 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 daily net assets exceeding $25 billion but not exceeding $30 billion; and 0.196% to the portion of the daily net assets in excess of $30 billion. 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. 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, 2006, 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, 2006, aggregated $45,494,483,045 and $46,682,654,636, respectively. Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent. 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 11 Morgan Stanley Liquid Asset Fund Inc. NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 (UNAUDITED) continued time of retirement. Benefits under this plan are based on factors which include years of service and compensation. 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. Aggregate pension costs for the six months ended February 28, 2006 included in Directors' fees and expenses in the Statement of Operations amounted to $3,712. At February 28, 2006, the Fund had an accrued pension liability of $63,703 which is included in accrued expenses in the Statement of Assets and Liabilities. The Fund has 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 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, 2006 AUGUST 31, 2005 ----------------- --------------- (unaudited) Shares sold................................................. 25,084,529,784 51,455,651,164 Shares issued in reinvestment of dividends and distributions............................................. 305,073,508 380,704,220 --------------- --------------- 25,389,603,292 51,836,355,384 Shares redeemed............................................. (26,346,077,249) (54,239,434,052) --------------- --------------- Net decrease................................................ (956,473,957) (2,403,078,668) =============== ===============
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, filed in the United States District Court Southern District of New York on April 16, 2004, 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 12 Morgan Stanley Liquid Asset Fund Inc. NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 (UNAUDITED) continued 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 9, 2005, Plaintiffs sought leave to supplement their complaint to assert claims on behalf of other investors, which motion defendants opposed. While the Fund and Adviser believe that each has meritorious defenses, the ultimate outcome of this matter is not presently determinable and no provision has been made in the Fund's financial statements for the effect, if any, of this matter. 13 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, 2006 2005 2004 2003 2002 2001 ----------------- -------- -------- -------- -------- -------- (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........ 0.018 0.020 0.006 0.009 0.018 0.051 Less dividends from net investment income.... (0.018) (0.020)+ (0.006)+ (0.009) (0.018)+ (0.051)+ ------ ------ ------ ------ ------ ------ Net asset value, end of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ====== ====== ====== Total Return................................. 1.77%(1) 2.03% 0.58% 0.86% 1.78% 5.24% Ratios to Average Net Assets: Expenses..................................... 0.60%(2) 0.59% 0.58% 0.56% 0.56% 0.57% Net investment income........................ 3.52%(2) 1.98% 0.57% 0.85% 1.76% 5.04% Supplemental Data: Net assets, end of period, in millions....... $17,115 $18,072 $20,475 $23,081 $23,931 $23,187
- --------------------- + Includes capital gain distribution of less than $0.001. (1) Not annualized. (2) Annualized.
See Notes to Financial Statements 14 (This Page Intentionally Left Blank) 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 Ronald E. Robison President and Principal Executive Officer J. David Germany Vice President Dennis F. Shea Vice President Barry Fink Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Yu 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 the 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) 2006 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Liquid Asset Fund Semiannual Report February 28, 2006 [MORGAN STANLEY LOGO] 37925RPT-RA06-00317P-T02/06 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 second fiscal quarter of the period covered by this 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, 2006 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, 2006 /s/ Francis Smith - ---------------------------------------- Francis Smith Principal Financial Officer April 19, 2006 3 EX-99.CERT 2 y18631exv99wcert.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): 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 4 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, 2006 /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, 2006 /s/ Francis Smith ---------------------------------------- Francis Smith Principal Financial Officer 7 EX-99.906CERT 3 y18631exv99w906cert.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, 2006 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, 2006 /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 Assets Fund Inc. and will be retained by Morgan Stanley Liquid Assets 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 Assets Fund Inc. In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended February 28, 2006 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, 2006 /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 Assets Fund Inc. and will be retained by Morgan Stanley Liquid Assets Fund Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 9 -----END PRIVACY-ENHANCED MESSAGE-----