UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-02575 |
|
Morgan Stanley Liquid Asset Fund Inc. |
(Exact name of registrant as specified in charter) |
|
522 Fifth Avenue, New York, New York | | 10036 |
(Address of principal executive offices) | | (Zip code) |
|
John H. Gernon 522 Fifth Avenue, New York, New York 10036 |
(Name and address of agent for service) |
|
Registrant’s telephone number, including area code: | 212-296-0289 | |
|
Date of fiscal year end: | August 31, | |
|
Date of reporting period: | February 28, 2017 | |
| | | | | | | | |
Item 1 - Report to Shareholders
Directors
Frank L. Bowman
Kathleen A. Dennis
Nancy C. Everett
Jakki L. Haussler
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Patricia Maleski
Michael E. Nugent, Chair of the Board
W. Allen Reed
Fergus Reid
Officers
John H. Gernon
President and Principal Executive Officer
Timothy J. Knierim
Chief Compliance Officer
Francis J. Smith
Treasurer and Principal Financial Officer
Mary E. Mullin
Secretary
Transfer Agent
Boston Financial Data Services, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
Legal Counsel
Dechert LLP
1095 Avenue of the Americas
New York, New York 10036
Counsel to the Independent Directors
Perkins Coie LLP
30 Rockefeller Plaza
New York, New York 10112
Adviser and Administrator
Morgan Stanley Investment Management 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) 548-7786.
This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Please read the Prospectus carefully before investing.
Morgan Stanley Distribution, Inc., member FINRA.
© 2017 Morgan Stanley
INVESTMENT MANAGEMENT
Morgan Stanley Liquid Asset Fund Inc.
Semi-Annual Report
February 28, 2017
ILASAN
1745254 EXP 4.30.18
Morgan Stanley Liquid Asset Fund Inc.
Table of Contents
| Welcome Shareholder | | | 3 | | |
| Fund Report | | | 4 | | |
| Expense Example | | | 8 | | |
| Portfolio of Investments | | | 9 | | |
| Statement of Assets and Liabilities | | | 11 | | |
| Statement of Operations | | | 11 | | |
| Statements of Changes in Net Assets | | | 12 | | |
| Notes to Financial Statements | | | 13 | | |
| Financial Highlights | | | 22 | | |
| Privacy Notice | | | 23 | | |
2
Welcome Shareholder,
We are pleased to provide this semi-annual report, in which you will learn how your investment in Morgan Stanley Liquid Asset Fund Inc. (the "Fund") performed during the latest six-month period. It includes an overview of the market conditions and discusses some of the factors that affected performance during the reporting period. In addition, the report contains financial statements and a list of portfolio holdings.
Morgan Stanley Investment Management is a client-centric, investor-led organization. Our global presence, intellectual capital, and breadth of products and services enable us to partner with investors to meet the evolving challenges of today's financial markets. We aim to deliver superior investment service and to empower our clients to make the informed decisions that help them reach their investment goals.
As always, we thank you for selecting Morgan Stanley Investment Management, and look forward to working with you in the months and years ahead.
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. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
3
Fund Report (unaudited)
For the six months ended February 28, 2017
Market Conditions
The U.S. economy picked up in the third quarter of 2016, growing at 3.5 percent as measured by gross domestic product (GDP) growth, the largest increase in two years, predominantly due to a rebound in inventories and a jump in the export market.(i) Fourth-quarter 2016 GDP slowed to 1.9 percent on moderate consumer spending.
U.S. employment data in the third quarter of 2016 continued its positive momentum, with non-farm payrolls averaging 238,000 through September 2016.(ii) Fourth-quarter non-farm payrolls averaged 148,000, with participation in the labor force at 62.7 percent and the unemployment rate at 4.7 percent as of year-end 2016. Non-farm payrolls started 2017 averaging 237,000, beating market consensus in both January and February 2017, while the unemployment rate held constant at 4.7 percent. Back-to-back employment outperformances support recent comments by Federal Reserve ("Fed") officials who have indicated an interest rate hike would be appropriate in upcoming months.
Monetary policy remained a key driver of sentiment and market performance. Despite comments by Federal Reserve Chair Janet Yellen in August 2016 that left open the possibility of an interest-rate hike in the following month, at the September 2016 Federal Open Market Committee ("FOMC" or "Committee") meeting, the Committee left the target range for the federal funds rate unchanged. The Committee cited that the risks to the economic outlook remained balanced and, although the case for an increase in policy rates had strengthened, the Committee decided to wait for further progress toward its objectives. The non-hike appeared to be a very close call, as three Committee members
dissented against the decision. However, there was a material split in the Committee, as three other members called for no further rate increases for the remainder of 2016, blurring the expectations of an additional rate hike before year-end.
On October 14, 2016, the long-awaited implementation of the revised SEC Rule 2a-7 took effect. Sweeping changes included the mandatory adoption of trigger-based redemption fees and liquidity gates for prime and tax-exempt funds, along with the conversion to floating net asset value. Government and treasury funds were largely unchanged. Money market fund managers adopted a defensive approach leading up to the reform date, shortening their maturities and increasing liquidity. This caused a shift in the supply/demand equilibrium for credit products, causing a technical imbalance that resulted in a sharp rise for both 3- and 6-month Libor rates. Three-month Libor closed at 0.88 percent as of October 14, 2016, up over 20 basis points from the start of the third quarter, while 6-month Libor closed at 1.26 percent, up over 30 basis points from the start of the quarter.(iii) As expected, money market participants shifted over $1 trillion from prime funds into government funds, for the year ended October 31, 2016.(iv)
November 2016 saw two major events. On November 8, 2016, the United States held Presidential elections, with Republican candidate Donald Trump defeating Democratic candidate Hillary Clinton. Trump
(i) Source for GDP data: Bureau of Economic Analysis
(ii) Source for employment data: Bureau of Labor Statistics and Bloomberg L.P.
(iii) Source: Intercontinental Exchange and Bloomberg L.P.
(iv) Source: iMoneynet, an Informa business
4
was viewed as a more hawkish candidate, and the U.S. Treasury market reacted accordingly, sending yields higher across the curve. On November 11, 2016, Fed Chair Yellen testified before the Joint Economic Committee in Congress. She signaled that the U.S. central bank was getting closer to lifting interest rates, as the economy continued to create jobs at a healthy rate while inflation inched higher. She warned of the risks of waiting too long before raising rates. In the weeks following her testimony, the market-implied odds of a rate hike at the December 2016 FOMC meeting reached 100 percent.
In a unanimous decision, the FOMC raised interest rates for the first time in 2016 at its December meeting, citing strengthening labor markets and increased inflation expectations. The move brought the target for the federal funds rate to a range of 0.50 to 0.75 percent. The projections showed that central bankers expected three quarter-point rate increases in 2017, up from the two previously forecasted in September 2016. Following the rate hike on December 14, 2016, the Federal Reserve Bank of New York made adjustments to the overnight fixed-rate reverse repurchase facility, increasing the offering rate from 25 basis points to 50 basis points, while maintaining a counterparty limit of $30 billion per day.
The January 2017 FOMC meeting statement was mostly in line with market expectations. The FOMC remained accommodative and kept interest rates on hold at the target range of 0.50 percent to 0.75 percent. In its statement, the FOMC expressed continued confidence in both economic activity and the labor market despite a lower-than-expected fourth-quarter GDP growth result and below-target inflation levels. Job gains remained strong and the unemployment rate remained near recent
lows. The FOMC expected economic activity to remain strong and expand at a moderate pace, labor market conditions to continue to strengthen and inflation to meet its 2 percent target over the medium term.
With the timing of rate hikes still uncertain, market participants in February 2017 focused on Fed Chair Yellen's semi-annual testimony to Congress and the release of the minutes from the January 2017 FOMC meeting. In her testimony before Congress, Fed Chair Yellen took a slightly hawkish tone when she raised concerns about delaying further rate hikes, stating that "waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting the financial markets and pushing the economy into a recession." Later in the month, the January 2017 FOMC meeting minutes reiterated Fed Chair Yellen's sentiments, as Fed officials indicated that a hike "fairly soon" might be appropriate to avoid the risk of overheating the market. As a result, market participants increased the odds of a rate hike occurring at the FOMC's next meeting in March 2017.
Performance Analysis
As of February 28, 2017, Morgan Stanley Liquid Asset Fund Inc. had net assets of approximately $109 million and an average portfolio maturity of 1 day. For the six-month period ended February 28, 2017, the Fund provided a total return of 0.00 percent. For the seven-day period ended February 28, 2017, the Fund provided an effective annualized yield of 0.01 percent (subsidized) and –0.14 percent (non-subsidized) and a current yield of 0.01 percent (subsidized) and –0.14 percent (non-subsidized), while its 30-day moving average yield for February was 0.01 percent (subsidized) and –0.13
5
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.
We remain quite comfortable in our conservative approach to managing the Fund. We believe our investment process and focus on credit research and risk management, combined with the continued high degree of liquidity and short maturity position of the Fund, have put us in a favorable position to respond to market uncertainty and regulatory developments. Our investment philosophy continues to revolve around prudent credit, duration, and risk management, and a portfolio that is positioned defensively and with very high levels of liquidity.
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 02/28/17 | |
Repurchase Agreements | | | 100.0 | % | |
MATURITY SCHEDULE as of 02/28/17 | |
| 1 - 30 Days | | | 100.0 | % | |
Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the types of securities mentioned above. Portfolio composition and maturity schedule are stated 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 "Adviser," Morgan Stanley Investment Management 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 (including U.S. branches or subsidiaries of foreign banks) and instruments secured by those obligations (including certificates of deposit and commercial paper); 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; municipal obligations, including tax-exempt variable rate demand notes; repurchase agreements; and asset-backed securities.
You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
6
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/im. 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 and monthly holdings for each money market fund on Form N-MFP. Morgan Stanley does not deliver these reports to shareholders, nor are the first and third fiscal quarter reports posted to the Morgan Stanley public web site. However, the holdings for each money market fund are posted to the Morgan Stanley public web site. You may obtain the Form N-Q filings (as well as the Form N-CSR, N-CSRS and N-MFP 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 room of the SEC, 100 F Street, NE, 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) 548-7786, 8:00 a.m. to 6:00 p.m., ET. Once our Customer Service Center has received your instructions, we will begin sending individual copies for each account within 30 days.
7
Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including advisory fees, administration fees, shareholder services 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.
This example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 09/01/16 – 02/28/17.
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
Account Value | | Ending
Account Value | | Expenses Paid
During Period(1) | |
| | | 09/01/16 | | 02/28/17 | | 09/01/16 –
02/28/17 | |
Actual (0.00% return) | | $ | 1,000.00 | | | $ | 1,000.05 | | | $ | 2.18 | | |
Hypothetical (5% annual return before expenses) | | $ | 1,000.00 | | | $ | 1,022.61 | | | $ | 2.21 | | |
(1) Expenses are equal to the Fund's annualized expense ratio of 0.44% multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). If the Fund had borne all of its expenses, the annualized expense ratio would have been 0.86%.
Refer to Note 6 in the Notes to Financial Statements for discussion of prior period custodian out-of-pocket expenses that were reimbursed in the current period.
8
Morgan Stanley Liquid Asset Fund Inc.
Portfolio of Investments n February 28, 2017 (unaudited)
PRINCIPAL
AMOUNT
(000) | |
| | ANNUALIZED
YIELD
ON DATE OF
PURCHASE | | MATURITY
DATE | | VALUE | |
| | | Repurchase Agreements | |
$ | 25,000 | | | ABN Amro Securities LLC, (Interest in
$1,200,000,000 joint repurchase
agreement, dated 02/28/17 under which
ABN Amro Securities LLC, will repurchase
the securities provided as collateral for
$1,200,018,000 on 03/01/17. The
securities provided as collateral at the end
of the period held with BNY Mellon,
tri-party agent, were various U.S.
Government agency securities and U.S.
Government obligations with various
maturities to 01/20/67; valued at
$1,227,016,001) | | | 0.54 | % | | 03/01/17 | | $ | 25,000,000 | | |
| | 20,000 | | | BNY Mellon Capital Markets, (dated
02/28/17; proceeds $20,000,300; fully
collateralized by various U.S. Government
Agencies, 1.35% - 4.63% due
08/28/19 - 02/20/47 and a U.S.
Government obligation, 0.81% due
01/31/18; valued at $20,573,550) | | | 0.54 | | | 03/01/17 | | | 20,000,000 | | |
| | 12,000 | | | Credit Agricole Corp., (Interest in
$1,500,000,000 joint repurchase
agreement, dated 02/28/17 under which
Credit Agricole Corp., will repurchase the
securities provided as collateral for
$1,500,022,083 on 03/01/17. The
securities provided as collateral at the end
of the period held with BNY Mellon,
tri-party agent, were various U.S.
Government agency securities and U.S.
Government obligation with various
maturities to 02/01/47; valued at
$1,540,544,092) | | | 0.53 | | | 03/01/17 | | | 12,000,000 | | |
| | 5,000 | | | ING Financial Markets LLC, (dated
02/28/17; proceeds $5,000,106; fully
collateralized by various Corporate Bonds,
2.35% - 4.54% due 08/15/22 - 01/15/47;
valued at $5,251,140) | | | 0.76 | | | 03/01/17 | | | 5,000,000 | | |
See Notes to Financial Statements
9
Morgan Stanley Liquid Asset Fund Inc.
Portfolio of Investments n February 28, 2017 (unaudited) continued
PRINCIPAL
AMOUNT IN
(000) | |
| | ANNUALIZED
YIELD
ON DATE OF
PURCHASE | | MATURITY
DATE | | VALUE | |
$ | 5,000 | | | Mizuho Securities USA, Inc., (dated
02/28/17; proceeds $5,000,106; fully
collateralized by various Common Stocks;
valued at $5,250,027) | | | 0.76 | % | | 03/01/17 | | $ | 5,000,000 | | |
| | 5,000 | | | Pershing LLC, (dated 02/28/17; proceeds
$5,000,121; fully collateralized by various
Corporate Bonds, 1.00% - 6.45% due
06/26/17 - 12/15/45; valued at
$5,251,308) | | | 0.87 | | | 03/01/17 | | | 5,000,000 | | |
| | 23,000 | | | RBS Securities, Inc., (dated 02/28/17;
proceeds $23,000,339; fully collateralized
by various U.S. Government Agencies,
0.00% - 0.56% due 07/27/17 - 10/09/19;
valued at $23,464,094) | | | 0.53 | | | 03/01/17 | | | 23,000,000 | | |
| | 5,000 | | | Scotia Capital USA, Inc., (dated 02/28/17;
proceeds $5,000,119; fully collateralized
by various Corporate Bonds, 4.25% - 9.10%
due 04/01/17 - 01/15/24; valued at
$5,300,321) | | | 0.86 | | | 03/01/17 | | | 5,000,000 | | |
| | 5,000 | | | SG Americas Securities, (dated 02/28/17;
proceeds $5,000,122; fully collateralized
by various Corporate Bonds, 5.85% - 7.60%
due 06/01/25 - 01/15/44; valued at
$5,300,351) | | | 0.88 | | | 03/01/17 | | | 5,000,000 | | |
| | 5,000 | | | Wells Fargo Securities LLC, (dated
02/28/17; proceeds $5,000,113; fully
collateralized by various Common Stocks;
valued at $5,250,014) | | | 0.81 | | | 03/01/17 | | | 5,000,000 | | |
| | | | | Total Investments (Cost $110,000,000) (a) | | | | | 100.9 | % | | | 110,000,000 | | |
| | | | | Liabilities in Excess of Other Assets | | | | | (0.9 | ) | | | (1,017,296 | ) | |
| | | | | Net Assets | | | | | 100.0 | % | | $ | 108,982,704 | | |
(a) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes.
See Notes to Financial Statements
10
Morgan Stanley Liquid Asset Fund Inc.
Financial Statements (unaudited)
Statement of Assets and Liabilities
February 28, 2017
Assets: | |
Investments in securities, at value
(cost $110,000,000, including
value of repurchase agreements
of $110,000,000) | | $ | 110,000,000 | | |
Cash | | | 54,281 | | |
Receivable for: | |
Capital stock sold | | | 2,465 | | |
Interest | | | 1,876 | | |
Prepaid expenses and other assets | | | 227,779 | | |
Total Assets | | | 110,286,401 | | |
Liabilities: | |
Payable for: | |
Transfer and sub transfer agent fees | | | 600,572 | | |
Shareholder reports and notices fee | | | 323,715 | | |
Directors' fees | | | 50,194 | | |
Capital stock redeemed | | | 39,733 | | |
Advisory fee | | | 34,321 | | |
Administration fee | | | 4,243 | | |
| Accrued expenses and other payables | | | 250,919 | | |
Total Liabilities | | | 1,303,697 | | |
Net Assets | | $ | 108,982,704 | | |
Composition of Net Assets: | |
Paid-in-capital | | $ | 109,018,188 | | |
Dividends in excess of net investment
income | | | (35,484 | ) | |
Net Assets | | $ | 108,982,704 | | |
Net Asset Value Per Share | |
108,977,845 shares outstanding
(50,000,000,000 shares authorized
of $0.01 par value) | | $ | 1.00 | | |
Statement of Operations
For the six months ended February 28, 2017
Net Investment Income: | |
Interest Income | | $ | 344,970 | | |
Expenses | |
Advisory fee (Note 3) | | | 338,905 | | |
Shareholder services fee (Note 4) | | | 76,125 | | |
Professional fees | | | 65,014 | | |
Transfer and sub transfer agent fees (Note 5) | | | 45,000 | | |
Administration fee (Note 3) | | | 38,062 | | |
Registration fees | | | 27,603 | | |
Shareholder reports and notices | | | 24,663 | | |
Directors' fees and expenses | | | 11,280 | | |
Custodian fees | | | 10,737 | | |
Other | | | 17,243 | | |
Total Expenses | | | 654,632 | | |
Less: amounts waived/reimbursed (Note 4) | | | (292,636 | ) | |
Less: reimbursement of custodian fees
(Note 6) | | | (24,535 | ) | |
Net Expenses | | | 337,461 | | |
Net Investment Income | | | 7,509 | | |
Net Increase | | $ | 7,509 | | |
See Notes to Financial Statements
11
Morgan Stanley Liquid Asset Fund Inc.
Financial Statements continued
Statements of Changes in Net Assets
| | | FOR THE SIX
MONTHS ENDED
FEBRUARY 28, 2017 | | FOR THE YEAR
ENDED
AUGUST 31, 2016 | |
| | | (unaudited) | | | |
Increase (Decrease) in Net Assets:
Operations: | |
Net investment income | | $ | 7,509 | | | $ | 1,839,757 | | |
Net realized gain | | | — | | | | 256,739 | | |
Net Increase | | | 7,509 | | | | 2,096,496 | | |
Dividends and Distributions to Shareholders from: | |
Net investment income | | | (7,480 | ) | | | (1,839,757 | ) | |
Net realized gain | | | — | | | | (197,738 | ) | |
Total Dividends and Distributions | | | (7,480 | ) | | | (2,037,495 | ) | |
Net decrease from capital stock transactions | | | (254,278,081 | ) | | | (6,904,362,139 | ) | |
Net Decrease | | | (254,278,052 | ) | | | (6,904,303,138 | ) | |
Net Assets: | |
Beginning of period | | | 363,260,756 | | | | 7,267,563,894 | | |
End of Period
(Including dividends in excess of net investment income of $(35,484)
and $(35,513)) | | $ | 108,982,704 | | | $ | 363,260,756 | | |
See Notes to Financial Statements
12
Morgan Stanley Liquid Asset Fund Inc.
Notes to Financial Statements n February 28, 2017 (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 applies investment company accounting and reporting guidance. 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 Securities and Exchange Commission ("SEC") has adopted changes to the rules that govern money market funds. The Fund operates as a "retail money market fund," which allows the Fund to continue to seek a stable net asset value ("NAV"). The Fund will be permitted to impose a liquidity fee on redemptions from the Fund or temporarily restrict redemptions from the Fund for up to 10 business days.
The following is a summary of significant accounting policies:
A. Valuation of Investments — Portfolio securities are valued at amortized cost, which approximates fair value, in accordance with Rule 2a-7 under the Act. The amortized cost of an instrument is determined by valuing it at its original cost and thereafter amortizing any discount or premium from its face value at a constant rate until maturity.
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 invests 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 as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian for investment companies advised by Morgan Stanley Investment Management Inc. ("the Adviser"). The Fund will participate on a pro rata basis with the other investment companies in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Repurchase agreements are subject to Master Repurchase Agreements, which are agreements between the Fund and its counterparties that typically include provisions which provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of
13
Morgan Stanley Liquid Asset Fund Inc.
Notes to Financial Statements n February 28, 2017 (unaudited) continued
default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated on the Portfolio of Investments, the cash or securities to be repurchased exceeds the repurchase price to be paid under the repurchase agreement reducing the net settlement amount to zero.
D. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the close of each business day. Dividends from net investment income, if any, are declared and paid daily. Net realized capital gains, if any, are distributed at least annually.
E. 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.
F. Indemnifications — The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
2. Fair Valuation Measurements
Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value 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. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing 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 valuing 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. Factors considered in making this
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Morgan Stanley Liquid Asset Fund Inc.
Notes to Financial Statements n February 28, 2017 (unaudited) continued
determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances
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 to value the Fund's investments as of February 28, 2017.
INVESTMENT TYPE | | LEVEL 1
UNADJUSTED
QUOTED
PRICES | | LEVEL 2
OTHER
SIGNIFICANT
OBSERVABLE
INPUTS | | LEVEL 3
SIGNIFICANT
UNOBSERVABLE
INPUTS | | TOTAL | |
Assets: | |
Repurchase Agreements | | $ | — | | | $ | 110,000,000 | | | $ | — | | | $ | 110,000,000 | | |
Total Assets | | $ | — | | | $ | 110,000,000 | | | $ | — | | | $ | 110,000,000 | | |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes. The Fund recognizes transfers between the levels as of the end of the period. As of February 28, 2017, the Fund did not have any investments transfer between investment levels.
3. Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with the Adviser, the Fund pays the Adviser an advisory fee, accrued daily and paid 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
15
Morgan Stanley Liquid Asset Fund Inc.
Notes to Financial Statements n February 28, 2017 (unaudited) continued
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. For the six months ended February 28, 2017, the advisory fee rate (net of waivers) was equivalent to an annual effective rate of 0.17% of the Fund's average daily net assets.
The Adviser also serves as the Administrator to the Fund and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.05% of the Fund's average daily net assets.
Under a Sub-Administration 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 Services Plan (the "Plan"), the Fund may pay Morgan Stanley Distribution, Inc. (the "Distributor"), an affiliate of the Adviser/Administrator, 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, 2017, the distribution fee was accrued at the annual rate of 0.10%.
The Distributor and Adviser/Administrator have agreed to waive all or a portion of the Fund's shareholder services fee, advisory fee and administration fee, respectively, and/or reimburse expenses, to the extent that total expenses exceed total income of the Fund on a daily basis. For the six months ended February 28, 2017, the Distributor waived $76,125, the Adviser waived $208,332 and the Administrator waived $6,214. For the same period, the Adviser reimbursed additional expenses to the extent the Fund's total expenses exceeded total income on a daily basis in the amount of $1,965. These fee waivers and/or expense reimbursements will continue for at least one year from the date of the Fund's Prospectus or until such time that the Fund's Board of Directors, (the "Directors"), act to discontinue all or a portion of such waivers and/or expense reimbursements when they deem such action is appropriate.
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Morgan Stanley Liquid Asset Fund Inc.
Notes to Financial Statements n February 28, 2017 (unaudited) continued
5. Dividend Disbursing and Transfer Agent
The Fund's dividend disbursing and transfer agent is Boston Financial Data Services, Inc. ("BFDS"). Pursuant to a Transfer Agency Agreement, the Fund pays BFDS a fee based on the number of classes, accounts and transactions relating to the Fund.
6. Custodian Fees
State Street (the "Custodian") serves as Custodian for the Fund in accordance with a Custodian Agreement. The Custodian holds cash, securities, and other assets of the Fund as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.
In December 2015, the Fund's Custodian announced that it had identified inconsistencies in the way in which clients were invoiced for out-of-pocket expenses from 1998 until November 2015. The dollar amount difference between what was charged and what should have been charged, plus interest, was paid back to the Fund in September 2016 as a reimbursement. The Custodian reimbursed the Fund directly, which was recognized as a change in accounting estimate and was reflected as "Reimbursement of custodian fees" in the Statement of Operations. Pursuant to the expense limitations described in Note 3, the Fund has experienced waiver of advisory fees and expenses reimbursed by the Adviser during the current period. Accordingly, the reimbursement of out-of-pocket custodian expenses in the current period resulted in the reduction in the current period waiver of advisory fees and expenses reimbursed by the Adviser.
7. Transactions with Affiliates
The Fund is permitted to purchase and sell securities ("cross-trade") from and to other Morgan Stanley Funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Directors in compliance with Rule 17a-7 under the Act (the "Rule"). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the six months ended February 28, 2017, the Fund did not engage in any cross-trade transactions.
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. At February 28, 2017, the Fund had an accrued pension liability of $50,194, which is reflected as "Directors' fees" in the Statement of Assets and Liabilities.
17
Morgan Stanley Liquid Asset Fund Inc.
Notes to Financial Statements n February 28, 2017 (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 NAV of the Fund.
8. Capital Stock
Transactions in capital stock, at $1.00 per share, were as follows:
| | | FOR THE SIX
MONTHS ENDED
FEBRUARY 28, 2017 | | FOR THE YEAR
ENDED
AUGUST 31, 2016 | |
| | | (unaudited) | | | |
Shares sold | | | 15,614,050 | | | | 13,392,745,684 | | |
Shares issued in reinvestment of dividends | | | 7,480 | | | | 2,037,495 | | |
| | | | 15,621,530 | | | | 13,394,783,179 | | |
Shares redeemed | | | (269,899,611 | ) | | | (20,299,145,318 | ) | |
Net decrease in shares outstanding | | | (254,278,081 | ) | | | (6,904,362,139 | ) | |
9. Federal Income Tax Status
It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for federal income taxes is required in the financial statements.
FASB ASC 740-10, "Income Taxes — Overall", 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. Management has concluded that there are no significant uncertain tax positions that would require recognition in the 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. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Each of the tax years in the four-year period ended August 31, 2016, remains subject to examination by taxing authorities.
The tax character of distributions paid may differ from the character of distributions shown in the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary income
18
Morgan Stanley Liquid Asset Fund Inc.
Notes to Financial Statements n February 28, 2017 (unaudited) continued
for tax purposes. The tax character of distributions paid during fiscal years 2016 and 2015 was as follows:
2016 DISTRIBUTIONS
PAID FROM:
ORDINARY
INCOME | | 2015 DISTRIBUTIONS
PAID FROM:
ORDINARY
INCOME | |
| $ | 2,037,495 | | | $ | 726,663 | | |
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.
Permanent differences, due to equalization and deferred compensation, resulted in the following reclassifications among the components of net assets at August 31, 2016:
DIVIDENDS
IN EXCESS OF
NET INVESTMENT
INCOME | | ACCUMULATED
UNDISTRIBUTED
NET REALIZED
GAIN | | PAID-IN-CAPITAL | |
| $ | (128,340 | ) | | $ | (37,877 | ) | | $ | 166,217 | | |
At August 31, 2016, the components of distributable earnings for the Fund on a tax basis were as follows:
UNDISTRIBUTED
ORDINARY | | UNDISTRIBUTED
LONG-TERM | |
| INCOME | | CAPITAL GAIN | |
| $ | 206,869 | | | $ | — | | |
To the extent that capital loss carryforwards are used to offset any future capital gains realized during the carryover period as provided by U.S. federal income tax regulations, no capital gains tax liability will be incurred by the Fund for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. During the year ended August 31, 2016, the Fund utilized capital loss carryforwards for U.S. federal income tax purposes of $21,124.
19
Morgan Stanley Liquid Asset Fund Inc.
Notes to Financial Statements n February 28, 2017 (unaudited) continued
10. 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 and are supported by the right of the issuer to borrow from the U.S. Department of 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.
The Fund may enter into repurchase agreements under which the Fund sends cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral proceeds may be subject to certain costs and delays.
11. Other
At February 28, 2017, the Fund had record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Fund. The aggregate percentage of such owners was 78.0%.
12. Accounting Pronouncements
In December 2016, FASB issued Accounting Standards update 2016-19 — Technical Corrections and Improvements ("ASU 2016-19"), which is effective for interim periods for all entities beginning after December 15, 2016. ASU 2016-19 includes an amendment to Topic 820, Fair Value Measurement, which clarifies the difference between a valuation approach and a valuation technique when applying the guidance in that Topic. That amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The transition guidance for the amendment must be applied prospectively because it could potentially involve the use of hindsight that includes fair value measurements. Although still evaluating the potential impacts of ASU 2016-19 to the Fund, management expects that the impact of the Fund's adoption will be limited to additional financial statement disclosures.
In October 2016, the SEC issued a new rule, Investment Company Reporting Modernization, which, among other provisions, amends Regulation S-X to require standardized, enhanced disclosures,
20
Morgan Stanley Liquid Asset Fund Inc.
Notes to Financial Statements n February 28, 2017 (unaudited) continued
particularly related to derivatives, in investment company financial statements. Compliance with the guidance is effective for financial statements filed with the SEC on or after August 1, 2017; adoption will have no effect on the Fund's net assets or results of operations. Although still evaluating the potential impacts of the Investment Company Reporting Modernization to the Fund, management expects that the impact of the Fund's adoption will be limited to additional financial statement disclosures.
13. Subsequent Event
On March 9, 2017, the Board of Directors of the Fund approved the redemption (the "Redemption") of all issued and outstanding shares of stock of the Fund. Prior to the Redemption, the Fund will suspend the offering of shares to all investors on or about March 31, 2017. The Redemption is expected to occur on May 23, 2017.
21
Morgan Stanley Liquid Asset Fund Inc.
Financial Highlights
Selected ratios and per share data for a share of capital stock outstanding throughout each period:
| | | FOR THE SIX | | FOR THE YEAR ENDED AUGUST 31, | |
| | | MONTHS ENDED | | | |
| | | FEBRUARY 28, 2017(1) | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 | |
| | | (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 | (2) | | | 0.001 | | | | 0.000 | (2) | | | 0.000 | (2) | | | 0.000 | (2) | | | 0.000 | (2) | |
Less dividends from net investment
income | | | (0.000 | )(2) | | | (0.001 | )(3) | | | (0.000 | )(2) | | | (0.000 | )(2) | | | (0.000 | )(2) | | | (0.000 | )(2) | |
Net asset value, end of period | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | |
Total Return | | | 0.00 | %(5) | | | 0.05 | % | | | 0.01 | % | | | 0.01 | % | | | 0.01 | % | | | 0.01 | % | |
Ratios to Average Net Assets: | |
Net expenses | | | 0.44 | %(4)(6) | | | 0.41 | %(4) | | | 0.23 | %(4) | | | 0.19 | %(4) | | | 0.23 | %(4) | | | 0.25 | %(4) | |
Net investment income | | | 0.01 | %(4)(6) | | | 0.04 | %(4) | | | 0.01 | %(4) | | | 0.01 | %(4) | | | 0.01 | %(4) | | | 0.01 | %(4) | |
Supplemental Data: | |
Net assets, end of period, in millions | | $ | 109 | | | $ | 363 | | | $ | 7,268 | | | $ | 7,615 | | | $ | 9,233 | | | $ | 10,366 | | |
(1) Refer to Note 6 in the Notes to Financial Statements for discussion of prior period custodian out-of-pocket expenses that were reimbursed in the current period. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of the Fund. The annualized expense and net investment income ratios would be unchanged as the reimbursement of custodian fees was offset against current period expense waivers/reimbursements with no impact to the net expenses or net investment income.
(2) Amount is less than $0.001.
(3) Includes capital gain distribution of less than $0.001.
(4) If the Fund had borne all of its expenses that were reimbursed or waived by the Distributor and Adviser/Administrator, the annualized expense and net investment loss ratios, would have been as follows:
| PERIOD ENDED | | EXPENSE
RATIO | | NET INVESTMENT
LOSS RATIO | |
February 28, 2017 | | | 0.86 | % | | | (0.41 | )% | |
August 31, 2016 | | | 0.49 | | | | (0.04 | ) | |
August 31, 2015 | | | 0.46 | | | | (0.22 | ) | |
August 31, 2014 | | | 0.45 | | | | (0.25 | ) | |
August 31, 2013 | | | 0.45 | | | | (0.21 | ) | |
August 31, 2012 | | | 0.47 | | | | (0.21 | ) | |
(5) Not annualized.
(6) Annualized.
See Notes to Financial Statements
22
Morgan Stanley Liquid Asset Fund Inc.
Privacy Notice (unaudited)
Morgan Stanley Investment Management Inc.
An Important Notice Concerning Our U.S. Privacy Policy
We are required by federal law to provide you with a copy of our privacy policy annually. This policy applies to current and former individual investors in funds managed or sponsored by Morgan Stanley Investment Management Inc. ("MSIM") as well as current and former individual clients of MSIM. This policy is not applicable to partnerships, corporations, trusts or other non-individual clients or investors. Please note that we may amend this policy at any time, and will inform you of any changes 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 Notice describes what non-public personal information we collect about you, why we collect it, when we may share it with others and how certain others may use it. It discusses the steps you may take to limit our sharing of certain information about you to affiliated companies in the Morgan Stanley family of companies ("other Morgan Stanley companies"). It also discloses how you may limit use of certain shared information for marketing purposes by other Morgan Stanley branded companies. 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?
We obtain personal 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 subscription documents, 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.
23
Morgan Stanley Liquid Asset Fund Inc.
Privacy Notice (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." Please consult the Terms of Use of these sites for more details.
2. When Do We Disclose Personal Information We Collect About You?
We may disclose personal information we collect about you to other Morgan Stanley companies and to non-affiliated third parties.
a. Information We Disclose to Other Morgan Stanley Companies. We may disclose personal information to other Morgan Stanley companies for a variety of reasons, including to manage your account(s) effectively, to service and process your transactions, to let you know about products and services offered by us and other Morgan Stanley companies, to manage our business, and as otherwise required or permitted by law. Offers for products and services from other Morgan Stanley companies are developed under conditions designed to safeguard your personal information.
b. Information We Disclose to Non-affiliated Third Parties. We do not disclose personal information that we collect about you to non-affiliated third parties except to those who provide marketing services on our behalf, to financial institutions with whom we have joint marketing agreements, and as otherwise required or permitted by law. For example, we may disclose personal information to nonaffiliated third parties 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 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 or as may be permitted or 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, and we require them to adhere to confidentiality standards with respect to such information.
24
Morgan Stanley Liquid Asset Fund Inc.
Privacy Notice (unaudited) continued
4. How Can You Limit The Sharing Of Certain Types Of Personal Information With Other Morgan Stanley Companies?
We offer you choices as to whether we share with other Morgan Stanley companies the personal information that was collected to determine your eligibility for products and services you request ("eligibility information"). Eligibility information does not include your identification information or personal information pertaining to our transactions or experiences with you. Please note that, even if you direct us not to share eligibility information with other Morgan Stanley companies ("opt-out"), we may still share personal information, including eligibility information, with those companies in circumstances excluded from the opt-out under applicable law, such as to process transactions or to service your account.
5. How Can You Limit The Use Of Certain Types Of Personal Information By Other Morgan Stanley Companies For Marketing?
By following the opt-out instructions in Section 6 below, you may limit other Morgan Stanley branded companies from marketing their products or services to you based on personal information we disclose to them. This information may include, for example, your income and account history with us. Please note that, even if you choose to limit Other Morgan Stanley Companies from using personal information about you that we may share with them for marketing their products and services to you, Other Morgan Stanley Companies may use your personal information that they obtain from us to market to you in circumstances permitted by law, such as if the Other Morgan Stanley Company has its own relationship with you.
6. How Can You Send Us An Opt-Out Instruction?
If you wish to limit our sharing of eligibility information about you with other Morgan Stanley companies or other Morgan Stanley companies' use of personal information for marketing purposes, as described in this notice, you may do so by:
• Calling us at (800) 548-7786
Monday–Friday between 8a.m. and 6p.m.(EST)
• Writing to us at the following address:
Boston Financial Data Services, Inc.
c/o Privacy Coordinator
P.O. Box 219804
Kansas City, Missouri 64121
Your written request should include your name, address, telephone number and account number(s) to which the opt-out applies and whether you are opting out with respect to sharing of eligibility information (Section 4 above), or if information used for Marketing (Section 5 above) or both. Written opt-out
25
Morgan Stanley Liquid Asset Fund Inc.
Privacy Notice (unaudited) continued
requests 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 third party.
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 have a joint account, your direction for us not to share this information with other Morgan Stanley companies and for those other Morgan Stanley companies not to use your personal information for marketing will be applied to all account holders on that account. Please understand that if you limit our sharing or our affiliated companies' use of personal information, you and any joint account holder(s) may not receive information about Morgan Stanley products and services, including products or services that could help you manage your financial resources and achieve your investment objectives.
7. What If An Affiliated Company Becomes A Non-Affiliated Third Party?
If, at any time in the future, an affiliated company becomes a non-affiliated third party, further disclosures of personal information made to the former affiliated company will be limited to those described in Section 2(b) above relating to non-affiliated third parties. If you elected under Section 6 to limit disclosures we make to affiliated companies, or use of personal information by affiliated companies, your election will not apply to use by any former affiliated company of your personal information in their possession once it becomes a non-affiliated third party.
26
Morgan Stanley Liquid Asset Fund Inc.
Privacy Notice (unaudited) continued
Special Notice to Residents of Vermont
The following 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 Morgan Stanley 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 Morgan Stanley companies, please notify us in writing at the following address:
Boston Financial Data Services, Inc.
c/o Privacy Coordinator
P.O. Box 219804
Kansas City, Missouri 64121
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.
Special Notice to Residents of California
The following section supplements our policy with respect to our individual clients who have a California address and supersedes anything to the contrary in the above policy with respect to those clients only.
In response to a California law, if your account has a California home address, your personal information will not be disclosed to nonaffiliated third parties except as permitted by applicable California law, and we will limit sharing such information with our affiliates to comply with California privacy laws that apply to us.
27
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 annual 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/ John H. Gernon | |
John H. Gernon | |
Principal Executive Officer | |
April 20, 2017 | |
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/ John H. Gernon | |
John H. Gernon | |
Principal Executive Officer | |
April 20, 2017 | |
| |
/s/ Francis Smith | |
Francis Smith | |
Principal Financial Officer | |
April 20, 2017 | |
