N-CSRS

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

(Exact name of registrant as specified in charter)


522 Fifth Avenue, New York, New York		10036
(Address of principal executive offices)		(Zip code)

Randy Takian
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)

Registrant’s telephone number, including area code: 212-296-6990

Date of fiscal year end: August 31, 2009

Date of reporting period: February 28, 2009

Item 1 — Report to Shareholders



INVESTMENT MANAGEMENT

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, 2009

Market Conditions

The U.S. and global economies were under significant stress during the six-month reporting period. While U.S. gross domestic product (GDP) growth fell by only −0.5 percent in the third quarter of 2008, it declined dramatically in the fourth quarter to −6.3 percent. To put this in perspective, there have only been three quarters since the Great Depression that have seen bigger drops in GDP growth than that experienced in the fourth quarter of 2008. Growth for the quarter had originally been reported at −3.8 percent, but was revised downward significantly due to a large downward adjustment in inventories and weakness in consumer and consumption patterns. The outlook for first-quarter 2009 GDP shows a continuation of the severe recessionary environment with expectations of a −6.0 percent pace. Barring any rapid change in the outlook — and there is nothing to suggest that improvement is going to arrive quickly in our view — the growth of the economy will have run at a negative pace that has only been recorded once since the Great Depression. Although inflation, as measured by core CPI (consumer price index), registered 1.7 percent in January 2009, we believe that given collapsing domestic demand and the negative wealth impact of declining home values and equity market losses, the near-term risks of inflation are limited and instead much focus now lies on deflation.

The Federal Open Market Committee (FOMC) entered uncharted territory in response to the continuing economic malaise and the balance sheet destruction that has occurred in the wake of asset markdowns and large scale corporate failures or near failures. On October 8, 2008, the FOMC, acting in conjunction with global central banks, reduced the federal funds target rate by 50 basis points, citing the downside risk to economic growth of moderating inflation pressures and the intensification of the financial crisis. On October 29, 2008, the FOMC lowered its target rate by another 50 basis points to 1.00 percent as the pace of economic activity had slowed markedly and the “intensification of market turmoil” was likely to exert restraint on households and businesses. The FOMC made yet another rate reduction on December 16, 2008, establishing a range of 0.0 to 0.25 percent, effectively ushering in zero interest-rate policy. In a nod to how severe the economic crisis had become, the Federal Reserve (the “Fed”) announced that it would employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In addition, the Fed exhibited a commitment to quantitative easing by expanding the Fed balance sheet and support for liquidity enhancement programs.

Performance Analysis

As of February 28, 2009, Morgan Stanley Liquid Asset Fund had net assets of approximately $4.73 billion and an average portfolio maturity of 27 days. For the six-month period ended February 28, 2009, the Fund provided a total return of 0.49 percent. For the seven-day period ended February 28, 2009, the Fund provided an effective annualized yield of 0.04 percent and a current yield of 0.04 percent, while its 30-day moving average yield for February was 0.04 percent. Yield quotations more closely reflect the current earnings of the Fund. Past performance is no guarantee of future results.

Our strategy in managing the Fund remained consistent with its long-term focus on maintaining preservation of capital and liquidity. Given the unprecedented events during the reporting period, particularly the Lehman Brothers bankruptcy and the subsequent redemptions from prime money market funds, we focused our efforts on keeping the Fund very liquid — a strategy we expect to continue going forward. Slight improvements in overall market liquidity and fund flows late in the period did, however, allow us to reallocate a small portion of the Fund’s assets from short-term (overnight) instruments to those with one- to three-month maturities.

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 as of 02/28/09
Commercial Paper	43	.1%
Repurchase Agreements	42	.3
Floating Rate Notes	6	.3
Certificates of Deposit	5	.7
U.S. Government Obligations	2	.6


MATURITY SCHEDULE as of 02/28/09
1 – 30 Days	67	.5%
31 – 60 Days	9	.4
61 – 90 Days	22	.4
91 – 120 Days	0	.7
121 + Days	0	.0

Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned above. Portfolio composition and maturity schedule are as a percentage of total investments. 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.

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. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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) 869-NEWS, 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.

Expense Example

As a shareholder of the Fund, you incur ongoing costs, including advisory fees; distribution and shareholder servicing 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 09/01/08 – 02/28/09.

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.


					Expenses Paid
	Beginning		Ending		During Period@
	Account Value		Account Value		09/01/08 –
	09/01/08		02/28/09		02/28/09
Actual (0.49% return)	$	1,000.00	$	1,004.90	$	3.30
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,021.64	$	3.33


@		Expenses are equal to the Fund’s annualized expense ratio of 0.66% multiplied by the average account value over the period, multiplied by 182^@@/365 (to reflect the one-half year period). If the Fund had borne all of its expenses, the annualized expense ratio would have been 0.69%. These figures reflect fees paid in connection with the U.S. Treasury Guarantee Program for Money Market Funds. This fee had an effect of 0.04%.

@@		Adjusted to reflect non-business days accruals.

Morgan Stanley Liquid Asset Fund Inc.

Portfolio of Investments - February 28, 2009 (unaudited)


			ANNUALIZED
PRINCIPAL			YIELD
AMOUNT IN			ON DATE OF	MATURITY
THOUSANDS		DESCRIPTION	PURCHASE	DATE	VALUE
		Commercial Paper (43.2%)
		Asset-Backed – Consumer (18.0%)
$	106,961	Entreprise Funding Co., LLC (a)	0.70%	05/18/09	$	106,796,696
	232,000	Jupiter Securitization (a)	0.55 – 0.57	05/11/09 – 05/14/09		231,736,050
	104,874	Old Line Funding, LLC (a)	0.50 – 0.75	03/20/09 – 04/20/09		104,821,153
	155,341	Park Avenue Rec Co LLC (a)	0.57	05/20/09		155,141,775
	177,000	Salisbury Receivables Co. (a)	0.55 – 0.75	03/03/09 – 05/19/09		176,837,908
	25,000	Thunder Bay Funding LLC (a)	0.50	04/17/09		24,983,333
	53,790	Windmill Funding Corp (a)	0.75 – 1.15	03/19/09 – 04/13/09		53,749,609

						854,066,524

		Asset-Backed – Corporate (4.8%)
	35,000	Amsterdam Funding Corp. (a)	0.75	04/20/09		34,962,813
	190,285	Atlantis One Funding (a)	0.75	05/04/09 – 05/22/09		189,993,466

						224,956,279

		Asset-Backed – Diversified (18.3%)
	215,000	Falcon Asset Securities (a)	0.50 – 0.55	03/20/09 – 05/12/09		214,814,653
	48,521	Kitty Hawk Funding Corp (a)	0.68 – 0.75	03/19/09 – 04/14/09		48,483,627
	235,501	Ranger Funding Co. LLC (a)	0.73 – 1.25	03/02/09 – 06/01/09		235,342,034
	238,000	Sheffield Receiving Corp (a)	0.50 – 1.31	03/12/09 – 04/06/09		237,833,764
	129,103	Yorktown Capital LLC (a)	0.55 – 1.25	03/19/09 – 05/18/09		128,948,907

						865,422,985

		International Banks (2.1%)
	25,000	Royal Bank of Scotland Group	3.11	03/16/09		24,966,000
	75,000	Societe Generale N.A., Inc.	0.78	04/28/09		74,904,125

						99,870,125

		Total Commercial Paper (Cost $2,044,315,913)				2,044,315,913

		Floating Rate Notes (6.3%)
		Finance-Auto (1.8%)
	85,000	Toyota Motor Credit Corp.	0.46 (b)	03/10/09 (c)		85,000,000


		International Banks (4.5%)
	50,000	Bank of Nova Scotia – NY	1.64 (b)	05/06/09 (c)		50,000,000
	165,000	Barclays Bank PLC	0.92 – 2.64 (b)	03/09/09 – 03/20/09 (c)		165,000,000

						215,000,000

		Total Floating Rate Notes (Cost $300,000,000)				300,000,000

		Certificates of Deposit (5.7%)
		Domestic Banks (4.6%)
	218,000	Chase Bank	0.40	03/11/09		218,000,000

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.

Portfolio of Investments - February 28, 2009 (unaudited) continued


			ANNUALIZED
PRINCIPAL			YIELD
AMOUNT IN			ON DATE OF	MATURITY
THOUSANDS		DESCRIPTION	PURCHASE	DATE	VALUE
		International Banks (1.1%)
$	50,000	Calyon – NY	3.10%	03/13/09	$	50,000,000

		Total Certificates of Deposit (Cost $268,000,000)				268,000,000

		U.S. Government Obligations (2.6%)
	123,000	U.S. Treasury Bills (Cost $122,973,794)	0.295	03/26/09		122,973,794

		Repurchase Agreements (42.4%)
	100,000	Bank of America Securities, LLC (dated 02/27/09; proceeds $100,002,167; fully collateralized by Federal National Mortgage Assoc. discount note due 03/31/09 value at $102,000,596.) (Cost $100,000,000)	0.26	03/02/09		100,000,000

	833,469	Barclays Capital, Inc. (dated 02/27/09; proceeds $833,487,753; fully collateralized by U.S. Treasury Bonds and Notes, zero coupon to 6.125% due 08/15/09 – 08/15/29, value at $850,138,455.) (Cost $833,469,000)	0.27	03/02/09		833,469,000

	500,000	BNP Paribas Securities Corp. (dated 02/27/09; proceeds $500,011,667; fully collateralized by Federal National Mortgage Assoc. 3.529% – 6.651% due 10/01/35 – 11/01/40 and Federal Home Loan Mortgage Corp. 5.202% – 5.975% due 12/01/31 - 11/01/38, valued at $515,000,000) (Cost $500,000,000)	0.28	03/02/09		500,000,000

	575,000	Goldman Sachs & Co. ( dated 02/27/09; proceeds $575,012,938; fully collateralized by Federal National Mortgage Assoc. 4.00% – 7.00% due 03/01/15 – 08/01/47 and Federal Home Loan Mortgage Corp. 4.50% – 7.50% due 09/01/19 – 01/01/39, value at $592,250,000.) (Cost $575,000,000)	0.27	03/02/09		575,000,000

		Total Repurchase Agreements (Cost $2,008,469,000)				2,008,469,000

		Total Investments (Cost $4,743,758,707) (d)		100.2%		4,743,758,707
		Liabilities in Excess of Other Assets		(0.2)		(10,504,588	)

		Net Assets		100.0%	$	4,733,254,119


(a)		Resale is restricted to qualified institutional investors.
(b)		Rate shown is the rate in effect at February 28, 2009.
(c)		Date of next interest rate reset.
(d)		Cost is the same for federal income tax purposes.

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.

Financial Statements

Statement of Assets and Liabilities

February 28, 2009 (unaudited)


Assets:
Investments in securities, at value (cost $4,743,758,707, including repurchase agreements of $2,008,469,000)	$	4,743,758,707
Cash		199,493
Receivable for:
Capital stock sold		17,616,417
Interest		1,050,678
Prepaid expenses and other assets		597,894

Total Assets		4,763,223,189

Liabilities:
Payable for:
Capital stock redeemed		26,669,330
Transfer agent fee		1,618,501
Investment advisory fee		616,072
Administration fee		185,265
Accrued expenses and other payables		879,902

Total Liabilities		29,969,070

Net Assets	$	4,733,254,119

Composition of Net Assets:
Paid-in-capital	$	4,732,633,753
Accumulated undistributed net investment income		671,174
Accumulated net realized loss		(50,808	)

Net Assets	$	4,733,254,119

Net Asset Value Per Share
4,733,300,515 shares outstanding (50,000,000,000 shares authorized of $.01 par value)		$1.00

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.

Financial Statements continued

Statement of Operations

For the six months ended February 28, 2009 (unaudited)


Net Investment Income:
Interest Income	$	48,010,231

Expenses
Investment advisory fee		7,045,959
Transfer agent fees and expenses		6,445,435
Shareholder service fee		2,790,595
Administration fee		1,395,298
Mutual fund insurance (Note 11)		1,191,086
Shareholder reports and notices		164,840
Custodian fees		97,601
Registration fees		77,208
Directors’ fees and expenses		54,542
Professional fees		43,272
Other		27,932

Total Expenses		19,333,768
Less: amounts waived		(953,403	)
Less: expense offset		(5,756	)

Net Expenses		18,374,609

Net Investment Income		29,635,622
Net Realized Gain		9,111

Net Increase	$	29,644,733

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.

Financial Statements continued

Statements of Changes in Net Assets


	FOR THE SIX			FOR THE YEAR
	MONTHS ENDED			ENDED
	FEBRUARY 28, 2009			AUGUST 31, 2008
	(unaudited)

Increase (Decrease) in Net Assets:
Operations:
Net investment income	$	29,635,622		$	303,276,876
Net realized gain (loss)		9,111			(9,056,722	)
Net increase from payments by affiliate (Note 4)		—			8,996,803

Net Increase		29,644,733			303,216,957
Dividends to shareholders from net investment income		(29,642,552	)		(303,281,003	)
Net decrease from capital stock transactions		(2,397,407,552	)		(3,320,693,657	)

Net Decrease		(2,397,405,371	)		(3,320,757,703	)
Net Assets:
Beginning of period		7,130,659,490			10,451,417,193

End of Period
(Including accumulated undistributed net investment income of $671,174 and $678,104, respectively)	$	4,733,254,119		$	7,130,659,490

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2009 (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 under the Act .

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 and are included in interest income. 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. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization.

D. Federal Income Tax Policy — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. The Fund files tax returns with the U.S. Internal Revenue Service, New York State and New York City. The Fund follows the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes. FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. There are no unrecognized tax benefits in the accompanying financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statement of Operations. Each of the tax years in the four year period ended August 31, 2008, remains subject to examination by taxing authorities.

E. Dividends and Distributions to Shareholders — The Fund records dividends and distributions to shareholders as of the close of each business day.

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2009 (unaudited) continued

F. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles in the United States 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 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 the 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.

Under an agreement between the Administrator and State Street Bank and Trust Company (“State Street”), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.

3. Shareholder Services Plan

Pursuant to a Shareholder Service Plan (the “Plan”), the Fund may pay Morgan Stanley Distributors Inc. (the “Distributor”) as compensation for the provision of services to shareholders a service fee up to the rate of 0.15% on an annualized basis of the average daily net assets of the Fund.

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, 2009, the shareholder servicing fee was accrued at the annual rate of 0.08%.

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2009 (unaudited) continued

The Distributor, Investment Adviser and Administrator have voluntarily agreed to waive the Fund’s shareholder servicing fee, investment advisory fee and administration fee, respectively, in order to maintain a minimum distribution yield for the Fund. This waiver may be terminated at any time.

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, 2009, aggregated $211,594,930,802 and $214,011,341,551, respectively.

On October 23, 2007, a security owned by the Fund was subject to a credit downgrade by a rating agency. As a result of this downgrade, the Adviser determined that the security was no longer an eligible security for the Fund to own. As a result, the Adviser purchased this security from the Fund at amortized cost plus accrued interest. Prior to the purchase, the Fund owned $90,000,000 par value of this security. Had this security been sold to a third party, the Fund would have realized a loss of approximately $8,996,803. As a result, this estimated loss along with an offsetting payment from the Adviser has been reflected in the Statement of Operations and Statement of Changes in Net Assets. The net result of this transaction, including the purchase of the security at amortized cost by the Adviser, had no impact on the Fund’s net assets, net asset value per share or net investment income.

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 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, 2009, included in Directors’ fees and expenses in the Statement of Operations amounted to $3,005. At February 28, 2009, the Fund had an accrued pension liability of $60,098 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 or she 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.

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2009 (unaudited) continued

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, 2009			AUGUST 31, 2008
	(unaudited)

Shares sold		2,146,759,148			10,543,187,318
Shares issued in reinvestment of dividends and distributions		29,543,116			301,781,732

		2,176,302,264			10,844,969,050
Shares redeemed		(4,573,709,816	)		(14,165,662,707	)

Net decrease		(2,397,407,552	)		(3,320,693,657	)

6. Expense Offset

The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Fund with the custodian.

7. Risks Relating to Certain Financial Instruments

The Fund may invest in securities issued by Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”). Securities issued by FNMA and FHLMC are not backed by or entitled to the full faith and credit of the United States; rather, they are supported by the right of the issuer to borrow from the Treasury.

On September 7, 2008, the Federal Housing Agency (“FHFA”) was appointed as conservator of FNMA and FHLMC. In addition, the U.S. Department of the Treasury has agreed to provide capital as needed to ensure FNMA and FHLMC continue to provide liquidity to the housing and mortgage markets.

8. Federal Income Tax Status

The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These “book/tax” differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital.

As of August 31, 2008, the Fund had temporary book/tax differences primarily attributable to post-October losses (capital losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund’s next taxable year).

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2009 (unaudited) continued

9. Fair Valuation Measurements

The Fund adopted FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), effective September 1, 2008. In accordance with SFAS 157, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. SFAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.


	•	Level 1 — quoted prices in active markets for identical investments

	•	Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

	•	Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

The following is a summary of the inputs used as of February 28, 2009 in valuing the Fund’s investments carried at value:

FAIR VALUE MEASUREMENTS AT FEBRUARY 28, 2009 USING

QUOTED PRICES IN

SIGNIFICANT

ACTIVE MARKET FOR

OTHER OBSERVABLE

UNOBSERVABLE

IDENTICAL ASSETS

INPUTS

TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)

Investments in Securities

4,743,758,707

—

$4,743,758,707

—

10. Accounting Pronouncement

On March 19, 2008, FASB released Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2009 (unaudited) continued

instruments, and disclosures about credit- risk-related contingent features in derivative agreements. The application of SFAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At this time, management is evaluating the implications of SFAS 161 and its impact on the Fund’s financial statements has not yet been determined.

11. Guarantee Program for Money Market Funds

On September 29, 2008, the Trustees approved the participation by the Fund in the U.S. Treasury’s Temporary Guarantee Program for Money Market Funds (the “Program”). Under this Program, the U.S. Treasury will guarantee to investors that they will receive $1.00 for each money market fund share held as of close of business on September 19, 2008. Eligible funds must be regulated under Rule 2a-7 of the Act, must maintain a stable share price of $1.00 and must be publicly offered and registered with the Securities and Exchange Commission (“SEC”). To participate in the Program, eligible funds must pay a fee. While the Program protects the accounts of investors, each money market fund makes the decision to sign up for the Program. Investors cannot sign up for the Program individually. The Program was in effect for an initial three month term, expiring December 18, 2008. On November 24, 2008, the U.S. Treasury announced an extension of the Program through April 30, 2009. All money market funds that currently participate in the Program and meet the extension requirements are eligible to continue to participate for an additional fee. The Fund met the requirements and continued to participate in this Program. The Program will continue to provide coverage to shareholders up to amounts that they held in participating money market funds as of the close of business on September 19, 2008. On March 31, 2009, the Treasury announced the further extension of the Program until September 18, 2009, and the Fund will continue to participate in this Program.

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
	MONTHS ENDED			FOR THE YEAR ENDED AUGUST 31,
	FEBRUARY 28, 2009			2008				2007			2006				2005			2004
	(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		0.005			0.035				0.047			0.040				0.020			0.006
Less dividends from net investment income		(0.005	)		(0.035	)			(0.047	)⁽¹⁾		(0.040	)			(0.020	)⁽¹⁾		(0.006	)⁽¹⁾

Net asset value, end of period		$1.00			$1.00				$1.00			$1.00				$1.00			$1.00

Total Return		0.49%⁽³	⁾		3.56%⁽²	⁾			4.86	%		4.10		%		2.03	%		0.58	%
Ratios to Average Net Assets:
Total Expenses (before expense offset)		0.66%⁽⁴	^)(5)(6)		0.63		%		0.67	%		0.60		%		0.59	%		0.58	%
Net investment income		1.06%⁽⁴	^)(5)(6)		3.61		%		4.73	%		3.99		%		1.98	%		0.57	%
Supplemental Data:
Net assets, end of period, in millions		$4,733			$7,131				$10,451			$16,886				$18,072			$20,475


(1)		Includes capital gain distribution of less than $0.001.
(2)		The Investment Adviser fully reimbursed the Fund for losses incurred resulting from the disposal of investments. Without this reimbursement, the total return was 3.47%. (See Note 4)
(3)		Not annualized.
(4)		Annualized.
(5)		Reflects fees paid in connection with the U.S. Treasury Guarantee Program for Money Market Funds. This fee had an effect of 0.04%. (See Note 11).
(6)		If the Fund had borne all its expenses that were reimbursed or waived by the Investment Adviser and Administrator, the annualized expense and net investment income ratios, before expense offset, would have been as follows:


	EXPENSE			NET INVESTMENT
PERIOD ENDED	RATIO			INCOME RATIO
February 28, 2009		0.69	%		1.03	%

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.

An Important Notice Concerning Our U.S. Privacy Policy (unaudited)

We are required by federal law to provide you with a copy of our Privacy Policy annually.

The following Policy applies to current and former individual investors in Morgan Stanley Advisor funds. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders. Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law.

We Respect Your Privacy

We appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, why we collect it, and when we may share it with others. We hope this Policy will help you understand how we collect and share non-public personal information that we gather about you. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as “personal information.”


1.	What Personal Information Do We Collect About You?

To serve you better and manage our business, it is important that we collect and maintain accurate information about you. We may obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our Web sites and from third parties and other sources.

For example:


•	We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us.

•	We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources.

•	We may obtain information about your creditworthiness and credit history from consumer reporting agencies.

•	We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements.

•	If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer’s operating system and Web browser, your use of our Web sites and your product and service preferences, through the use of “cookies.” “Cookies” recognize your computer each time your return to one of our sites, and help to improve our sites’ content and personalize your experience on our sites by, for example, suggesting

Morgan Stanley Liquid Asset Fund Inc.

An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued


	offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies.


2.	When Do We Disclose Personal information We Collect About You?

To provide you with the products and services you request, to serve you better and to manage our business, we may disclose personal information we collect about you to our affiliated companies and to non-affiliated third parties as required or permitted by law.

A. Information We Disclose to Our Affiliated Companies. We do not disclose personal information that we collect about you to our affiliated companies except to enable them to provide services on our behalf or as otherwise required or permitted by law.

B. Information We Disclose to Third Parties. We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide services on our behalf, to perform joint marketing agreements with other financial institutions, or as otherwise required or permitted by law. For example, some instances where we may disclose information about you to nonaffiliated third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with these companies, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose.


3.	How Do We Protect the Security and Confidentiality of Personal Information We Collect About You?

We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information.

Directors

Frank L. Bowman

Michael Bozic

Kathleen A. Dennis

James F. Higgins

Dr. Manuel H. Johnson

Joseph J. Kearns

Michael F. Klein

Michael E. Nugent

W. Allen Reed

Fergus Reid

Officers

Michael E. Nugent

Chairperson of the Board

Randy Takian

President and Principal Executive Officer

Kevin Klingert

Vice President

Carsten Otto

Chief Compliance Officer

Stefanie V. Chang Yu

Vice President

Francis J. Smith

Treasurer and Chief Financial Officer

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

Legal Counsel

Clifford Chance US LLP

31 West 52nd Street

New York, New York 10019

Counsel to the Independent Directors

Kramer Levin Naftalis & Frankel LLP

1177 Avenue of the Americas

New York, New York 10036

Investment Adviser

Morgan Stanley Investment Advisors Inc.

522 Fifth Avenue

New York, New York 10036

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.

Morgan Stanley Distributors Inc., member FINRA.

INVESTMENT MANAGEMENT

Morgan Stanley

Liquid Asset Fund Inc.

Semiannual
Report
February 28, 2009

ILASAN
1U09-01688P-Y02/09

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.

(a) Refer to Item 1.

(b) Not applicable.

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.

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

/s/ Randy Takian
Randy Takian
Principal Executive Officer
April 16, 2009

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/ Randy Takian
Randy Takian
Principal Executive Officer
April 16, 2009

/s/ Francis Smith
Francis Smith
Principal Financial Officer
April 16, 2009