nvcsrs

MATURITY SCHEDULE as of 02/28/10



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, 2010

Market Conditions

The U.S. economy rebounded significantly during the six-month reporting period. According to gross domestic product (GDP) estimates, in the fourth quarter of 2009 the economy expanded at the fastest pace since the third quarter of 2006. However, the rate of expansion is expected to be lower for the first quarter of 2010. The employment picture has also improved, albeit modestly. After reaching a high of 10.1 percent in late 2009, the unemployment rate has fallen back to 9.7 percent. While this is still high and unlikely to fall significantly, it does appear that perhaps the rate has topped off.

The money markets continued to gain stability from the expansion of the Federal Reserve’s balance sheet. However, notable announcements during the month of February provided evidence that the period of extraordinary liquidity measures provided by emergency government actions were beginning to come to a gradual end. Specifically, on February 18, the Federal Reserve (the “Fed”) raised the discount rate by 25 basis points in an effort to bring normalcy to the financing markets and raise the spread between the discount rate and the Fed funds target rate. The Fed prepared the market for this and noted that the move was technical and did not represent a change in policy. In addition to the discount rate hike the Fed also announced a 25 basis point increase in the minimum bid rate for the final Term Auction Facility (TAF) auction on March 8. On February 23, the Treasury announced that it would ramp up its Supplementary Financing Program (SFP) with $200 billion of bill issuance in the form of weekly $25 billion auctions over an eight-week period. Since the proceeds of this Treasury issuance are transferred to an account at the Fed, the money is effectively drained from the banking system. Accordingly, the reintroduction of the SFP bills represents the first large-scale effort at the monumental process of beginning to drain the more than $1 trillion of excess reserves that resulted from the Fed’s quantitative easing.

As expected, the Federal Open Market Committee maintained their 0 to 25 basis point fed funds rate target. The credit bellwether 3-month London Interbank Offer Rate (LIBOR) declined to 0.25 percent by the end of the reporting period and the LIBOR/OIS spread (the differential between 3- month LIBOR and the overnight indexed swap rate) declined to 9 basis points. The decline in LIBOR levels and the LIBOR/OIS spread is indicative of improved financing conditions as the various government-sponsored programs globally reinvigorated financing activities.

Performance Analysis

As of February 28, 2010, Morgan Stanley Liquid Asset Fund had net assets of approximately $3.24 billion and an average portfolio maturity of 19 days. For the six-month period ended February 28, 2010, the Fund provided a total return of 0.00 percent. For the seven-day period ended February 28, 2010, the Fund provided an effective annualized yield of 0.01 percent (subsidized) and −0.49 percent (non-subsidized) and a current yield of 0.01 percent (subsidized) and −0.49 percent (non-subsidized). Yield quotations more closely reflect the current earnings of the Fund. The non-subsidized yield reflects what the yield would have been had a fee and/or expense waiver not been in place during the period shown. Past performance is no guarantee of future results.

During the reporting period, we continued to place a strong emphasis on purchasing high quality corporate, financial, and banking obligations. We focused on maintaining high levels of liquidity and a short weighted average maturity to guard against the uncertainty caused by volatility in the financial markets. Our strategy in managing the Fund remained consistent with our long-term focus on capital preservation and very high liquidity and as in the past, we adhered to a conservative approach. We continue to review all eligible securities on our purchase list to ensure that they continue to meet our high standards of minimal credit risk.

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 02/28/10
Repurchase Agreements	43	.8%
Certificates of Deposit	20	.3
Commercial Paper	19	.4
Floating Rate Notes	16	.5

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 “Investment Adviser,” Morgan Stanley Investment Advisors Inc., seeks to maintain the Fund’s share price at $1.00. The Fund’s investments include the following money market instruments: corporate obligations (including but not limited to commercial paper); debt obligations of U.S.-regulated banks and instruments secured by those obligations (including certificates of deposit); certificates of deposit of savings banks and savings and loan associations; debt obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities (“U.S. Government Securities”), including U.S. government securities guaranteed under the Federal Deposit Insurance Corporation (“FDIC”) Temporary Liquidity Guarantee Program; repurchase agreements; and asset-backed securities.

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 20549-1520.

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; 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 09/01/09 – 02/28/10.

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) or exchange fees.


	Beginning		Ending		Expenses Paid
	Account Value		Account Value		During Period@
					09/01/09 –
	09/01/09		02/28/10		02/28/10
Actual (0.00% return)	$	1,000.00	$	1,000.00	$	1.23
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,023.29	$	1.24


@		Expenses are equal to the Fund’s annualized expense ratio of 0.25% multiplied by the average account value over the period, multiplied by 179/365 (to reflect the one-half year period). If the fund had borne all of its expenses, the annualized expense ratio would have been 0.71%. These figures reflect fees paid in connection with the U.S. Treasury’s Temporary Guarantee Program for Money Market Funds. This fee had an effect of 0.01%.

Morgan Stanley Liquid Asset Fund Inc.

Portfolio of Investments - February 28, 2010 (unaudited)


			ANNUALIZED
PRINCIPAL			YIELD
AMOUNT IN			ON DATE OF	MATURITY
THOUSANDS			PURCHASE	DATE	VALUE
		Repurchase Agreements (43.8%)
$	420,000	Barclays Captial, Inc. (dated 02/26/10; proceeds $420,003,850; fully collateralized by Federal National Mortgage Association 4.00% – 5.859% due 01/01/23 – 07/01/39, Government National Mortgage Association 5.00% – 6.00% due 01/15/39 – 10/15/39 and Federal Home Loan Mortgage Corporation 5.789% due 02/01/37, valued at $432,600,000)	0.11%	03/01/10	$	420,000,000

	500,000	BNP Paribas Securities Corp. (dated 02/26/10; proceeds $500,004,583; fully collateralized by Federal National Mortgage Association 2.853% – 6.348% due 01/01/23 – 09/01/39 and Federal Home Loan Mortgage Corporation 6.193% – 6.196% due 09/01/37 – 11/01/37, valued at $515,000,000)	0.11	03/01/10		500,000,000

	497,080	Goldman Sachs & Co. (dated 02/26/10; proceeds $497,084,971; fully collateralized by Government National Mortgage Association 5.00% – 7.00% due 12/15/25 – 07/15/39, valued at $511,992,400)	0.12	03/01/10		497,080,000

		Total Repurchase Agreements (Cost $1,417,080,000)				1,417,080,000

		Certificates of Deposit (20.3%)
		International Banks
	115,000	Banco Bilbao Vizcaya Argentina – NY	0.35	03/29/10		115,000,478
	160,000	Calyon North America, Inc.	0.22	03/03/10		160,000,000
	75,000	Intesa Funding LLC	0.18	03/02/10		75,000,000
	25,000	Lloyds TSB Bank PLC	0.45	05/24/10		25,000,000
	124,000	Svenska Handelsbanken NY	0.25	03/08/10		124,000,155
	158,000	UniCredito Italiano	0.23	03/09/10		158,000,000

		Total Certificates of Deposit (Cost $657,000,633)				657,000,633

		Commercial Paper (19.5%)
		Domestic Bank (1.7%)
	55,000	Bank of America Corp.	0.10	03/01/10		54,999,694

		International Banks (17.8%)
	125,000	Atlantis One Funding (a)	0.14	03/01/10		124,999,028
	85,000	Intesa Funding LLC	0.25	03/29/10		84,982,291
	144,000	Lloyds TSB Bank PLC	0.55	04/15/10		143,896,600
	71,000	Nordea Bank	0.19	04/28/10		70,977,517

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.

Portfolio of Investments - February 28, 2010 (unaudited) continued


			ANNUALIZED
PRINCIPAL			YIELD
AMOUNT IN			ON DATE OF	MATURITY
THOUSANDS			PURCHASE	DATE	VALUE
$	120,000	Rabobank Nederland	0.24 %	03/29/10	$	119,976,000
	30,000	Societe Generale N.A., Inc.	0.26	03/16/10		29,996,317

						574,827,753

		Total Commercial Paper (Cost $629,827,447)				629,827,447

		Floating Rate Notes (16.5%)
		International Banks (9.3%)
	139,000	Societe Generale NY, Inc.	0.55 (b)	05/05/10 (c)		139,000,000
	162,500	Westpac Banking Corp. (a)	0.28 (b)	03/08/10 (c)		162,500,000

						301,500,000

		U.S. Government Agency (7.2%)
	233,000	Federal Home Loan Bank	0.06 – 0.07 (b)	05/08/10 – 05/18/10 (c)		232,933,406

		Total Floating Rate Notes (Cost $534,433,406)				534,433,406

		Total Investments (Cost $3,238,341,486) (d)		100.1%		3,238,341,486
		Liabilities in Excess of Other Assets		(0.1)		(2,943,066	)

		Net Assets		100.0%	$	3,235,398,420


(a)		Resale is restricted to qualified institutional investors.
(b)		Rate shown is the rate in effect at February 28, 2010.
(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, 2010 (unaudited)


Assets:
Investments in securities, at value (cost $3,238,341,486, including repurchase agreements of $1,417,080,000)	$	3,238,341,486
Cash		201,161
Receivable for:
Capital stock sold		10,597,839
Interest		603,480
Receivable from Adviser		293,194
Prepaid expenses and other assets		112,210

Total Assets		3,250,149,370

Liabilities:
Payable for:
Capital stock redeemed		13,537,254
Transfer agent fee		594,634
Accrued expenses and other payables		619,062

Total Liabilities		14,750,950

Net Assets	$	3,235,398,420

Composition of Net Assets:
Paid-in-capital	$	3,234,750,236
Accumulated undistributed net investment income		671,176
Accumulated net realized loss		(22,992	)

Net Assets	$	3,235,398,420

Net Asset Value Per Share 3,235,416,910 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, 2010 (unaudited)


Net Investment Income:
Interest Income	$	4,419,332

Expenses
Investment advisory fee		4,853,978
Transfer agent fees and expenses		3,654,974
Shareholder servicing fee		1,706,699
Administration fee		853,349
Shareholder reports and notices		504,707
Mutual fund insurance (Note 10)		126,658
Custodian fees		75,927
Directors’ fees and expenses		67,627
Professional fees		49,709
Registration fees		28,328
Other		182,039

Total Expenses		12,103,995

Less: amounts waived/reimbursed		(7,821,655	)


Net Expenses		4,282,340

Net Investment Income		136,992
Net Realized Gain		20,345

Net Increase	$	157,337

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, 2010			AUGUST 31, 2009
	(unaudited)

Increase (Decrease) in Net Assets:
Operations:
Net investment income	$	136,992		$	29,826,275
Net realized gain		20,345			49,861

Net Increase		157,337			29,876,136
Dividends to shareholders from net investment income		(170,279	)		(29,833,195	)
Net decrease from capital stock transactions		(532,220,430	)		(3,363,070,639	)

Net Decrease		(532,233,372	)		(3,363,027,698	)
Net Assets:
Beginning of period		3,767,631,792			7,130,659,490

End of Period (Including accumulated undistributed net investment income of $671,176 and $704,463, respectively)	$	3,235,398,420		$	3,767,631,792

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2010 (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 as earned.

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 recognizes the tax effects of a tax position taken or expected to be taken in a tax return only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of the benefit. The difference between the tax benefit recognized in the financial statements for a tax position taken and the tax benefit claimed in the income tax return is referred to as an unrecognized tax benefit. 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 filed in the four-year period ended August 31, 2009, 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, 2010 (unaudited) continued

F. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

G. Subsequent Events — The Fund considers events or transactions that occur after the date of the Statement of Assets and Liabilities but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.

2. Fair Valuation Measurements

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. GAAP utilizes 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 — unadjusted 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.

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2010 (unaudited) continued

The following is the summary of the inputs used as of February 28, 2010 in valuing the Fund’s investments carried at fair value:


			FAIR VALUE MEASUREMENTS AT FEBRUARY 28, 2010 USING
			UNADJUSTED
			QUOTED PRICES IN		OTHER SIGNIFICANT		SIGNIFICANT
			ACTIVE MARKET FOR		OBSERVABLE		UNOBSERVABLE
			IDENTICAL INVESTMENTS		INPUTS		INPUTS
INVESTMENT TYPE	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)

Short-Term Investments
Repurchase Agreements	$	1,417,080,000		—	$	1,417,080,000		—
Certificates of Deposit		657,000,633		—		657,000,633		—
Commercial Paper		629,827,447		—		629,827,447		—
Floating Rate Notes		534,433,406		—		534,433,406		—

Total	$	3,238,341,486		—	$	3,238,341,486		—

3. 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 at 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 exceeding $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.

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2010 (unaudited) continued

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.

4. 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, 2010, the shareholder servicing fee was accrued at the annual rate of 0.10%.

The Distributor, Investment Adviser and Administrator have voluntarily agreed to waive/reimburse all or a portion of the Fund’s shareholder servicing fee, investment advisory fee and administration fee, respectively, to the extent that total expenses exceed total income of the Fund on a daily basis. For the six months ended February 28, 2010, the Distributor waived $1,706,699, the Investment Adviser waived $5,261,607 and the Administrator waived $853,349. The fee waivers and/or expense reimbursements are expected to continue until such time that the Board of Directors acts to discontinue such waivers and/or reimbursements when it deems such action is appropriate.

5. 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, 2010 aggregated $152,275,927,407 and $152,816,933,455, 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 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, 2010, included in “directors’ fees and expenses” in the Statement of Operations amounted to $10,152. At February 28, 2010, the Fund had an accrued pension liability of $66,393, which is included in “accrued expenses and other payables” in the Statement of Assets and Liabilities.

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2010 (unaudited) continued

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.

6. 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, 2010			AUGUST 31, 2009
	(unaudited)

Shares sold		1,064,115,586			3,477,323,940
Shares issued in reinvestment of dividends		170,187			29,733,676

		1,064,285,773			3,507,057,616
Shares redeemed		(1,596,506,203	)		(6,870,128,255	)

Net decrease		(532,220,430	)		(3,363,070,639	)

7. 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 transfer agent and custodian. For the six months ended February 28, 2010, the Fund did not have an expense offset.

8. Risks Relating to Certain Financial Instruments

The Fund may invest in, or receive as collateral for repurchase agreements 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.

The Federal Housing Finance Agency (“FHFA”) serves as conservator of FNMA and FHLMC and 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.

9. 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 GAAP. These “book/tax” differences are either considered temporary or permanent in nature. To the extent these differences are

Morgan Stanley Liquid Asset Fund Inc.

Notes to Financial Statements - February 28, 2010 (unaudited) continued

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, 2009, the Fund had temporary book/tax differences 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).

10. Guarantee Program for Money Market Funds

On September 29, 2008, the Directors 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 guaranteed investors, of participating money market funds that they would receive $1.00 for each money market fund share held as of close of business on September 19, 2008.

Each money market fund paid a fee in order to participate in the Program. The Program went into effect for an initial three month term and was subsequently extended by the U.S. Treasury through September 18, 2009.

11. New Accounting Pronouncement

On January 21, 2010, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2010-06. The ASU amends Accounting Standards Codification 820 to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques in Level 2 and Level 3 fair value measurements. The application of ASU 2010-06 is required for fiscal years and interim periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements, which are required for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. At this time, the Fund’s management is evaluating the implications of ASU 2010-06 on the Fund’s financial statements.

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, 2010			2009				2008				2007			2006				2005
	(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:		0.000	⁽¹⁾		(0.005	)			0.035				0.047			0.040				0.020
Less dividends from net investment income		0.000	⁽¹⁾		0.005				(0.035	)			(0.047	)⁽²⁾		(0.040	)			(0.020	)⁽²⁾

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

Total Return		0.00	%⁽³⁾⁽⁷⁾		0.49		%		3.56%⁽⁴	⁾			4.86	%		4.10		%		2.03	%
Ratios to Average Net Assets:
Total expenses (before expense offset)		0.25	%^(5)(6)(8)		0.57%⁽⁵	⁾⁽⁶⁾			0.63		%		0.67	%		0.60		%		0.59	%
Net investment income		0.01	%^(5)(6)(8)		0.61%⁽⁵	⁾⁽⁶⁾			3.61		%		4.73	%		3.99		%		1.98	%
Supplemental Data:
Net assets, end of period, in millions		$3,235			$3,768				$7,131				$10,451			$16,886				$18,072


(1)		Amount is less than $0.001.
(2)		Includes capital gain distribution of less than $0.001.
(3)		Amount is less than 0.005%.
(4)		The Adviser fully reimbursed the Fund for the loss incurred resulting from the disposal of an investment. Without this reimbursement, the total return was 3.47%.
(5)		Reflects fees paid in connection with the U.S. Treasury’s Temporary Guarantee Program for Money Markets Funds. This fee had an effect of 0.01% and 0.05% for the six months ended February 28, 2010 and for the year ended 2009, respectively (see Note 10).
(6)		If the Fund had borne all expenses that were reimbursed or waived by the Distributor, Investment Adviser and Administrator, the annualized expense and net investment income (loss) ratios, before expense offset, would have been as follows:


	EXPENSE			NET INVESTMENT
PERIOD ENDED	RATIO			INCOME (LOSS) RATIO
February 28, 2010		0.71	%		(0.45	)%
August 31, 2009		0.69			0.49


(7)		Not annualized.
(8)		Annualized.

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 (“Policy”) annually.

This Policy applies to current and former individual clients of Morgan Stanley Distributors Inc., as well as current and former individual investors in Morgan Stanley mutual funds and related companies.

This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders, nor is this Policy applicable to individuals who are either beneficiaries of a trust for which we serve as trustee or participants in an employee benefit plan administered or advised by us. This Policy is, however, applicable to individuals who select us to be a custodian of securities or assets in individual retirement accounts, 401(k) accounts, 529 Educational Savings Accounts, accounts subject to the Uniform Gifts to Minors Act, or similar accounts. 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 and understand your concerns about safeguarding such 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, how we collect it, when we may share it with others, and how others may use it. It discusses the steps you may take to limit our sharing of information about you with affiliated Morgan Stanley companies (“affiliated companies”). It also discloses how you may limit our affiliates’ use of shared information for marketing purposes. 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 better serve you and manage our business, it is important that we collect and maintain accurate information about you. We obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our websites and from third parties and other sources.

For example:


•	We collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through application 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.

Morgan Stanley Liquid Asset Fund Inc.

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

•

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 you return to one of our sites, and help to improve our sites’ content and personalize your experience on our sites by, for example, suggesting 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 better serve you, to manage our business and as otherwise required or permitted by law, we may disclose personal information we collect about you to other affiliated companies and to non-affiliated third parties.

A. Information We Disclose to Our Affiliated Companies. In order to manage your account(s) effectively, including servicing and processing your transactions, to let you know about products and services offered by us and affiliated companies, to manage our business, and as otherwise required or permitted by law, we may disclose personal information about you to other affiliated companies. Offers for products and services from affiliated companies are developed under conditions designed to safeguard your personal information.

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 marketing services on our behalf, to perform joint marketing agreements with other financial institutions, and as otherwise required or permitted by law. For example, some instances where we may disclose information about you to 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 a non-affiliated third party, they are required to limit their use of personal information about you to the particular purpose for which it was shared and they are not allowed to share personal information about you with others except to fulfill that limited purpose or as may be required by law.


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 about you, and we require them to adhere to confidentiality standards with respect to such information.

Morgan Stanley Liquid Asset Fund Inc.

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


4.	How Can You Limit Our Sharing of Certain Personal Information About You With Our Affiliated Companies for Eligibility Determination?

We respect your privacy and offer you choices as to whether we share with our affiliated companies personal information that was collected to determine your eligibility for products and services such as credit reports and other information that you have provided to us or that we may obtain from third parties (“eligibility information”). Please note that, even if you direct us not to share certain eligibility information with our affiliated companies, we may still share your personal information, including eligibility information, with those companies under circumstances that are permitted under applicable law, such as to process transactions or to service your account. We may also share certain other types of personal information with affiliated companies – such as your name, address, telephone number, e-mail address and account number(s), and information about your transactions and experiences with us.


5.	How Can You Limit the Use of Certain Personal Information About You by Our Affiliated Companies for Marketing?

You may limit our affiliated companies from using certain personal information about you that we may share with them for marketing their products or services to you. This information includes our transactions and other experiences with you such as your assets and account history. Please note that, even if you choose to limit our affiliated companies from using certain personal information about you that we may share with them for marketing their products and services to you, we may still share such personal information about you with them, including our transactions and experiences with you, for other purposes as permitted under applicable law.


6.	How Can You Send Us an Opt-Out Instruction?

If you wish to limit our sharing of certain personal information about you with our affiliated companies for “eligibility purposes” and for our affiliated companies’ use in marketing products and services to you as described in this notice, you may do so by:


•	Calling us at (800) 869-6397 Monday-Friday between 8a.m. and 8p.m. (EST)

•	Writing to us at the following address: Morgan Stanley Privacy Department Harborside Financial Center, Plaza Two, 3rd Floor Jersey City, NJ 07311

If you choose to write to us, your written request should include: your name, address, telephone number and account number(s) to which the opt-out applies and should not be sent with any other correspondence. In order to process your request, we require that the request be provided by you directly and not through a

Morgan Stanley Liquid Asset Fund Inc.

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

third party. Once you have informed us about your privacy preferences, your opt-out preference will remain in effect with respect to this Policy (as it may be amended) until you notify us otherwise. If you are a joint account owner, we will accept instructions from any one of you and apply those instructions to the entire account. Please allow approximately 30 days from our receipt of your opt-out for your instructions to become effective.

Please understand that if you opt-out, you and any joint account holders may not receive certain Morgan Stanley or our affiliated companies’ products and services that could help you manage your financial resources and achieve your investment objectives.

If you have more than one account with us or our affiliates, you may receive multiple privacy policies from us, and would need to follow the directions stated in each particular policy for each account you have with us.

Special Notice to Residents of Vermont

This section supplements our Policy with respect to our individual clients who have a Vermont address and supersedes anything to the contrary in the above Policy with respect to those clients only.

The State of Vermont requires financial institutions to obtain your consent prior to sharing personal information that they collect about you with affiliated companies and non-affiliated third parties other than in certain limited circumstances. Except as permitted by law, we will not share personal information we collect about you with non-affiliated third parties or other affiliated companies unless you provide us with your written consent to share such information (“opt-in”).

If you wish to receive offers for investment products and services offered by or through other affiliated companies, please notify us in writing at the following address:

Morgan Stanley Privacy Department
Harborside Financial Center, Plaza Two, 3rd Floor
Jersey City, NJ 07311

Your authorization should include: your name, address, telephone number and account number(s) to which the opt-in applies and should not be sent with any other correspondence. In order to process your authorization, we require that the authorization be provided by you directly and not through a third-party.

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

Dechert LLP

1095 Avenue of the Americas

New York, New York 10036

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, 2010

ILASAN

IU10-01733P-Y02/10

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 Inc.
/s/ Randy Takian
Randy Takian
Principal Executive Officer April 15, 2010

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 15, 2010


/s/ Francis Smith
Francis Smith
Principal Financial Officer April 15, 2010


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