UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-02575

Morgan Stanley Liquid Asset Fund Inc.
(Exact name of registrant as specified in charter)

1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)

Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)

Registrant's telephone number, including area code: 212-762-4000

Date of fiscal year end: August 31, 2005

Date of reporting period: February 28, 2005

Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Morgan Stanley Liquid
Asset Fund Inc. performed during the semiannual period. We will provide an
overview of the market conditions, and discuss some of the factors that affected
performance during the reporting period. In addition, this report includes the
Fund's financial statements and a list of Fund investments

This material must be preceded or accompanied by a prospectus for the fund being
offered.

Market forecasts provided in this report may not necessarily come to pass. There
is no assurance that the Fund will achieve its investment objective. The Fund is
subject to market risk, which is the possibility that market values of
securities owned by the Fund will decline and, therefore, the value of the
Fund's shares may be less than what you paid for them. Accordingly, you can lose
money investing in this Fund. Please see the prospectus for more complete
information on investment risks.

FUND REPORT

For the six-month period ended February 28, 2005

MARKET CONDITIONS

During the six months ended February 28, 2005, the U.S. economy experienced a
solid expansion. Job growth - as measured by non-farm payrolls - improved from
the pace of the preceding years, while the U.S. Gross Domestic Product (GDP)
grew at a solid annualized rate in the fourth quarter of 2004. The Federal Open
Market Committee (the "Fed") began its current tightening cycle at its June 30,
2004 meeting, and went on to increase its target rate for federal funds a
cumulative 150 basis points over six separate meetings to 2.50 percent as of its
February 2, 2005 meeting. The Fed's formal risk assessment was balanced, and it
has stated that increases will continue at a "measured pace." Against this
backdrop, money market fund yield levels began to rise from record lows.

PERFORMANCE ANALYSIS

As of February 28, 2005, the Morgan Stanley Liquid Asset Fund had net assets in
excess of $19.1 billion. For the six-month period ended February 28, 2005, the
Fund provided a return of 0.74 percent. For the seven-day period ended February
28, 2005, the Fund provided an effective annualized yield of 2.03 percent and a
current annualized yield of 2.01 percent, while its 30-day moving average
annualized yield for February 28, 2005 was 1.95 percent. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.

Our strategy in managing the Fund remained consistent with the Fund's long-term
focus on maintaining preservation of capital and liquidity. By shortening the
maturities of the portfolio's investments slightly, we were able to reinvest in
higher yielding money market securities as rates climbed. We adhered to a
conservative approach in managing the Fund that emphasized purchasing
high-quality money market obligations and avoided the use of derivatives or
structured notes that might fluctuate excessively with changing interest rates.

There is no guarantee that any sectors mentioned will continue to perform well
or be held by the Fund in the future.

<Table>
<Caption>
PORTFOLIO COMPOSITION

Commercial Paper 66.3%
U.S. Government & Agency Obligations 14.6
Certificates of Deposit 13.4
Bank Notes 5.6
Repurchase Agreement 0.1
</Table>

<Table>
<Caption>
MATURITY SCHEDULE

1 -- 30 Days 39.2%
31 -- 60 Days 50.5
61 -- 90 Days 4.2
91 -- 120 Days 3.6
121 + Days 2.5
</Table>

Data as of February 28, 2005. Subject to change daily. All percentages for
portfolio composition and maturity schedule are as a percentage of total
investments. These data are provided for informational purposes only and should
not be deemed a recommendation to buy or sell the securities mentioned. Morgan
Stanley is a full-service securities firm engaged in securities trading and
brokerage activities, investment banking, research and analysis, financing and
financial advisory services.

INVESTMENT STRATEGY

THE FUND WILL INVEST IN HIGH QUALITY, SHORT-TERM MONEY MARKET SECURITIES. THE
FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS INC., SEEKS TO
MAINTAIN THE FUND'S SHARE PRICE AT $1.00. THE SHARE PRICE REMAINING STABLE AT
$1.00 MEANS THAT THE FUND WOULD PRESERVE THE PRINCIPAL VALUE OF YOUR INVESTMENT.

AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE FUND.

FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS

EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN
STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY,
HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS
FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO
REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED
BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE
MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S
E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION
OF THE SEC, WASHINGTON, DC 20549-0102. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL
QUARTER FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 869-NEWS.

HOUSEHOLDING NOTICE

TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.

EXPENSE EXAMPLE

As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and service (12b-1) fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 09/01/04 - 02/28/05.

ACTUAL EXPENSES

The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the second line of the table is useful in
comparing ongoing costs, and will not help you determine the relative total cost
of owning different funds that have transactional costs, such as sales charges
(loads), and redemption fees, or exchange fees.

<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
09/01/04 -
09/01/04 02/28/05 02/28/05
------------- ------------- ---------------

Actual (0.74% return)....................................... $1,000.00 $1,007.40 $2.94
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,021.87 $2.96
</Table>

- ------------------

* Expenses are equal to the Fund's annualized expense ratio of 0.59%,
multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period).

Morgan Stanley Liquid Asset Fund Inc.
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED)

<Table>
<Caption>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF MATURITY
THOUSANDS PURCHASE DATE VALUE
- ----------------------------------------------------------------------------------------------------------

Commercial Paper (67.1%)
Asset-Backed - Auto (8.7%)
$ 780,000 FCAR Owner Trust.......................... 2.44-2.64% 03/08/05-04/21/05 $ 777,599,472
150,000 FCAR Owner Trust Series A1................ 2.64 04/18/05 149,474,000
350,000 New Center Asset Trust.................... 2.65 04/12/05-04/14/05 348,885,333
400,000 New Center Asset Trust Series A1.......... 2.43-2.57 03/07/05-03/28/05 399,427,459
---------------
1,675,386,264
---------------
Banking (1.1%)
50,000 Bank of America Corp. .................... 2.61 04/18/05 49,827,333
150,000 Citicorp.................................. 2.53 03/10/05 149,905,500
---------------
199,732,833
---------------
Finance - Automotive (1.8%)
30,000 American Honda Finance Corp. ............. 2.73 05/03/05 29,857,725
310,000 Toyota Motor Credit Corp. ................ 2.53-3.02 03/07/05-10/04/05 309,476,689
---------------
339,334,414
---------------
Finance - Consumer (1.9%)
370,000 HSBC Finance Corp. ....................... 2.47-2.56 03/14/05-03/23/05 369,500,978
---------------
Financial Conglomerates (4.9%)
935,000 General Electric Capital Corp. ........... 1.99-3.23 03/04/05-11/16/05 928,773,666
---------------
Insurance (1.0%)
50,000 American General Finance Corp. ........... 2.65 04/19/05 49,820,333
150,000 Prudential Funding LLC.................... 2.55 03/24/05 149,756,584
---------------
199,576,917
---------------
International Banks (45.1%)
933,000 Barclays U.S. Funding Corp. .............. 2.39-2.65 03/03/05-04/18/05 931,258,692
370,000 BNP Paribas Finance, Inc.................. 2.43-2.49 03/07/05-03/22/05 369,569,067
70,000 Calyon North America, Inc. ............... 2.60 04/18/05 69,759,200
400,000 Deutsche Bank Financial LLC............... 2.55 03/29/05 399,209,778
715,000 HBOS Treasury Services plc................ 2.40-2.77 03/09/05-05/11/05 713,310,993
520,000 ING (U.S.) Funding LLC.................... 2.49-2.65 03/15/05-04/19/05 519,150,910
700,000 Natexis Banques Populaires
U.S. Finance Co. LLC.................... 2.60-2.61 04/05/05-04/08/05 698,193,139
550,000 National Australia Funding (Delaware)
Inc. ................................... 2.51-2.53 03/03/05-03/28/05 549,270,667
280,000 Nordea North America Inc. ................ 2.46-2.54 03/14/05-04/11/05 279,453,632
545,000 Rabobank USA Financial Corp. ............. 2.47-2.70 03/30/05-04/29/05 543,658,486
465,000 Royal Bank of Canada...................... 2.47-2.67 03/17/05-04/13/05 464,102,075
895,000 Royal Bank of Scotland plc................ 2.39-2.65 03/04/05-04/15/05 893,054,793
580,000 Societe Generale N.A., Inc................ 2.47-2.78 03/23/05-06/03/05 576,312,866
</Table>

See Notes to Financial Statements
5

Morgan Stanley Liquid Asset Fund Inc.
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued

$ 300,000 Svenska Handelsbanken Inc. ............... 2.45-2.62% 03/10/05-04/12/05 $ 299,451,750
390,000 Swedbank.................................. 2.47-2.61 03/14/05-04/14/05 389,167,383
822,000 UBS Finance (Delaware) LLC................ 2.43-2.70 03/08/05-04/22/05 819,796,995
45,000 UniCredit Delaware Inc. .................. 2.62 04/13/05 44,860,250
85,000 Westpac Capital Corp. .................... 2.42 03/09/05 84,954,478
---------------
8,644,535,154
---------------
Investment Banks/Brokers (2.6%)
500,000 Citigroup Global Markets Holdings Inc. ... 2.51-2.61 03/11/05-04/06/05 499,113,778
---------------
Total Commercial Paper (Cost $12,855,954,004).............................. 12,855,954,004
---------------
U.S. Government & Agency Obligations (14.7%)
18,000 Federal Farm Credit Bank.................. 2.29 07/21/05 17,839,895
635,000 Federal Home Loan Banks................... 1.88-2.65 03/18/05-06/17/05 633,015,312
754,000 Federal National Mortgage Assoc. ......... 1.98-2.79 04/01/05-05/25/05 751,162,747
1,031,000 Freddie Mac............................... 2.00-3.07 03/11/05-12/12/05 1,026,321,766
400,000 U.S. Treasury Bills....................... 1.97-2.00 04/07/05-04/14/05 399,115,111
---------------
Total U.S. Government & Agency Obligations (Cost $2,827,454,831)........... 2,827,454,831
---------------
Certificates of Deposit (13.6%)
300,000 Branch Banking & Trust Co., N.C. ......... 2.53-2.55 03/29/05-03/31/05 300,000,000
250,000 Citibank, N.A. ........................... 2.82 05/25/05 250,000,000
945,000 First Tennessee Bank, N.A. ............... 2.50-2.72 03/21/05-04/25/05 945,000,000
200,000 SunTrust Bank............................. 2.58 04/21/05 200,000,000
910,000 Wells Fargo Bank, N.A. ................... 2.49-2.56 03/01/05-03/31/05 910,000,000
---------------
Total Certificates of Deposit (Cost $2,605,000,000)........................ 2,605,000,000
---------------
Short-Term Bank Notes (5.7%)
795,000 Bank of America, N.A. .................... 2.62-2.68 04/20/05-04/28/05 795,000,000
300,000 Standard Federal Bank, N.A. .............. 2.63-2.67 04/15/05-04/20/05 300,000,000
---------------
Total Short-Term Bank Notes (Cost $1,095,000,000).......................... 1,095,000,000
---------------
</Table>

See Notes to Financial Statements
6

Morgan Stanley Liquid Asset Fund Inc.
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued

Repurchase Agreement (0.1%)
$10,066 The Bank of New York (dated 02/28/05;
proceeds $10,066,923) (a) (Cost
$10,066,259)............................ 2.375% 03/01/05 $ 10,066,259
---------------
Total Investments (Cost $19,393,475,094) (b).................. 101.2% 19,393,475,094

Liabilities in Excess of Other Assets......................... (1.2) (228,006,112)
----- ---------------
Net Assets.................................................... 100.0% $19,165,468,982
===== ===============
</Table>

- ---------------------

<Table>

(a) Collateralized by Federal National Mortgage Assoc. 6.00% due
10/01/34 valued at $10,267,584.
(b) Cost is the same for federal income tax purposes.
</Table>

7
See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
February 28, 2005 (unaudited)

<Table>

Assets:
Investments in securities, at value
(cost $19,393,475,094).................................... $19,393,475,094
Cash........................................................ 90,001
Receivable for:
Interest................................................ 6,334,695
Capital stock sold...................................... 1,826,312
Prepaid expenses and other assets........................... 68,290
---------------
Total Assets............................................ 19,401,794,392
---------------
Liabilities:
Payable for:
Capital stock redeemed.................................. 229,869,626
Investment advisory fee................................. 3,186,514
Distribution fee........................................ 1,482,950
Administration fee...................................... 741,475
Accrued expenses and other payables......................... 1,044,845
---------------
Total Liabilities....................................... 236,325,410
---------------
Net Assets.............................................. $19,165,468,982
===============
Composition of Net Assets:
Paid-in-capital............................................. $19,164,778,827
Accumulated undistributed net investment income............. 690,155
---------------
Net Assets.............................................. $19,165,468,982
===============
Net Asset Value Per Share,
19,165,450,001 shares outstanding
(50,000,000,000 shares authorized of $.01 par value)........ $1.00
===============
</Table>

See Notes to Financial Statements
8

Morgan Stanley Liquid Asset Fund Inc.
FINANCIAL STATEMENTS continued

Statement of Operations
For the six months ended February 28, 2005 (unaudited)

<Table>

Net Investment Income:
Interest Income............................................. $203,257,277
------------
Expenses
Investment advisory fee..................................... 22,878,859
Transfer agent fees and expenses............................ 20,745,412
Distribution fee............................................ 9,880,251
Administration fee.......................................... 3,242,006
Shareholder reports and notices............................. 373,582
Custodian fees.............................................. 221,434
Registration fees........................................... 154,586
Directors' fees and expenses................................ 131,618
Professional fees........................................... 51,067
Other....................................................... 436,742
------------
Total Expenses.......................................... 58,115,557
------------
Net Investment Income................................... 145,141,720
Net Realized Gain....................................... 117
------------
Net Increase................................................ $145,141,837
============
</Table>

See Notes to Financial Statements
9

Morgan Stanley Liquid Asset Fund Inc.
FINANCIAL STATEMENTS continued

Statement of Changes in Net Assets

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
----------------- ---------------
(unaudited)

Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 145,141,720 $ 122,377,207
Net realized gain........................................... 117 1,006
--------------- ---------------
Net Increase............................................ 145,141,837 122,378,213
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income....................................... (145,139,065) (122,390,326)
Net realized gain........................................... (117) (1,006)
--------------- ---------------
Total Dividends and Distributions....................... (145,139,182) (122,391,332)
--------------- ---------------

Net decrease from capital stock transactions................ (1,309,291,224) (2,606,181,892)
--------------- ---------------
Net Decrease............................................ (1,309,288,569) (2,606,195,011)
Net Assets:
Beginning of period......................................... 20,474,757,551 23,080,952,562
--------------- ---------------
End of Period
(Including accumulated undistributed net investment income
of $690,155 and $687,500, respectively)..................... $19,165,468,982 $20,474,757,551
=============== ===============
</Table>

See Notes to Financial Statements
10

Morgan Stanley Liquid Asset Fund Inc.
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED)

1. Organization and Accounting Policies

Morgan Stanley Liquid Asset Fund Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objectives are
high current income, preservation of capital and liquidity. The Fund was
incorporated in Maryland on September 3, 1974 and commenced operations on
September 22, 1975.

The following is a summary of significant accounting policies:

A. Valuation of Investments -- Portfolio securities are valued at amortized
cost, which approximates market value.

B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.

C. Repurchase Agreements -- The Fund may invest directly with institutions in
repurchase agreements. The Fund's custodian receives the collateral, which is
marked-to-market daily to determine that the value of the collateral does not
decrease below the repurchase price plus accrued interest.

D. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.

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

F. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.

2. Investment Advisory/Administration Agreements

Effective November 1, 2004, pursuant to an Investment Advisory Agreement with
Morgan Stanley Investment Advisors Inc. (the "Investment Adviser"), the Fund
pays the Investment Adviser an advisory fee, accrued daily and payable monthly,
by applying the following annual rates to the net assets of the Fund determined
as of the close of each business day: 0.45% to the portion of the daily net
assets not exceeding $250 million; 0.375% to the portion of the daily net assets
exceeding $250 million but not exceeding $750 million; 0.325% to the portion of
the daily net assets

Morgan Stanley Liquid Asset Fund Inc.
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued

exceeding $750 million but not exceeding $1.25 billion; 0.30% to the portion of
the daily net assets exceeding $1.25 billion but not exceeding $1.5 billion;
0.275% to the portion of the daily net assets exceeding $1.5 billion but not
exceeding $1.75 billion; 0.25% to the portion of the daily net assets exceeding
$1.75 billion but not exceeding $2.25 billion; 0.225% to the portion of the
daily net assets exceeding $2.25 billion but not exceeding $2.75 billion; 0.20%
to the portion of the daily net assets exceeding $2.75 billion but not exceeding
$15 billion; 0.199% to the portion of the daily net assets exceeding $15 billion
but not exceeding $17.5 billion; 0.198% to the portion of the daily net assets
exceeding $17.5 billion but not exceeding $25 billion; 0.197% to the portion of
the daily net assets in excess of $25 billion but not exceeding $30 billion; and
0.196% to the portion of the daily net assets exceeding $30 billion.

Effective November 1, 2004, pursuant to an Administration Agreement with Morgan
Stanley Services Company Inc. (the "Administrator"), an affiliate of the
Investment Adviser, the Fund pays an administration fee, accrued daily and
payable monthly, by applying the annual rate of 0.05% to the Fund's daily net
assets.

Prior to November 1, 2004, the Fund had retained the Investment Adviser to
provide administrative services and to manage the investment of the Fund's
assets pursuant to an investment management agreement pursuant to which the Fund
paid the Investment Adviser a monthly management fee, accrued daily and payable
monthly, by applying the following annual rates to the net assets of the Fund
determined as of the close of each business day: 0.50% to the portion of the
daily net assets not exceeding $500 million; 0.425% to the portion of the daily
net assets exceeding $500 million but not exceeding $750 million; 0.375% to the
portion of the daily net assets exceeding $750 million but not exceeding $1
billion; 0.35% to the portion of the daily net assets exceeding $1 billion but
not exceeding $1.35 billion; 0.325% to the portion of the daily net assets
exceeding $1.35 billion but not exceeding $1.75 billion; 0.30% to the portion of
the daily net assets exceeding $1.75 billion but not exceeding $2.15 billion;
0.275% to the portion of the daily net assets exceeding $2.15 billion but not
exceeding $2.5 billion; 0.25% to the portion of the daily net assets exceeding
$2.5 billion but not exceeding $15 billion; 0.249% to the portion of the daily
net assets exceeding $15 billion but not exceeding $17.5 billion; 0.248% to the
portion of the daily net assets exceeding $17.5 billion but not exceeding $25
billion; 0.247% to the portion of the daily net assets in excess of $25 billion
but not exceeding $30 billion; and 0.246% to the portion of the daily net assets
exceeding $30 billion.

Morgan Stanley Liquid Asset Fund Inc.
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued

3. Plan of Distribution

Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the
Investment Adviser and Administrator, is the distributor of the Fund's shares
and in accordance with a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 under the Act, finances certain expenses in connection with the promotion
of sales of Fund shares.

Reimbursements for these expenses are made in monthly payments by the Fund to
the Distributor, which will in no event exceed an amount equal to a payment at
the annual rate of 0.15% of the Fund's average daily net assets during the
month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal
year will not be reimbursed by the Fund through payments accrued in any
subsequent fiscal year. For the six months ended February 28, 2005, the
distribution fee was accrued at the annual rate of 0.10%.

4. Security Transactions and Transactions with Affiliates

The cost of purchases and proceeds from sales/maturities of portfolio securities
for the six months ended February 28, 2005, aggregated $58,524,437,203 and
$59,966,607,572, respectively.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent. At February 28, 2005, the Fund had
transfer agent fees and expenses payable of approximately $399,600.

The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation.
Aggregate pension costs for the six months ended February 28, 2005 included in
Directors' fees and expenses in the Statement of Operations amounted to $3,712.
At February 28, 2005, the Fund had an accrued pension liability of $62,230 which
is included in accrued expenses in the Statement of Assets and Liabilities. On
December 2, 2003, the Directors voted to close the plan to new participants and
eliminate the future benefits growth due to increases to compensation after July
31, 2003.

Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan
(the "Compensation Plan") which allows each independent Director to defer
payment of all, or a portion, of the fees he receives for serving on the Board
of Directors. Each eligible Director generally may elect to have the deferred
amounts credited with a return equal to the total return on one or more of the
Morgan Stanley funds that are offered as investment options under the
Compensation Plan. Appreciation/depreciation and distributions received from
these investments are recorded with an

Morgan Stanley Liquid Asset Fund Inc.
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED) continued

offsetting increase/decrease in the deferred compensation obligation and do not
affect the net asset value of the Fund.

5. Capital Stock

Transactions in capital stock, at $1.00 per share, were as follows:

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
----------------- ---------------
(unaudited)

Shares sold................................................. 25,931,889,293 58,528,750,330
Shares issued in reinvestment of dividends and
distributions............................................. 144,921,469 122,175,653
--------------- ---------------
26,076,810,762 58,650,925,983
Shares redeemed............................................. (27,386,101,986) (61,257,107,875)
--------------- ---------------
Net decrease................................................ (1,309,291,224) (2,606,181,892)
=============== ===============
</Table>

6. Legal Matters

The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. This consolidated action also names
as defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint generally alleges that defendants,
including the Fund, violated their statutory disclosure obligations and
fiduciary duties by failing properly to disclose (i) that the Investment Adviser
and certain affiliates of the Investment Adviser allegedly offered economic
incentives to brokers and others to recommend the funds advised by the
Investment Adviser or its affiliates to investors rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Adviser or
its affiliates, including the Fund, allegedly paid excessive commissions to
brokers in return for their efforts to recommend these funds to investors. The
complaint seeks, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants have moved to dismiss the
action and intend to otherwise vigorously defend it. On March 10, 2005,
Plaintiffs sought leave to supplement their complaint to assert claims on behalf
of other investors. While the Fund and Adviser believe that each has meritorious
defenses, the ultimate outcome of this matter is not presently determinable at
this early stage of the litigation, and no provision has been made in the Fund's
financial statements for the effect, if any, of this matter.

Morgan Stanley Liquid Asset Fund Inc.
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of capital stock outstanding
throughout each period:

<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ----------------------------------------------------
FEBRUARY 28, 2005 2004 2003 2002 2001 2000
----------------- -------- -------- -------- -------- --------
(unaudited)

Selected Per Share Data:

Net asset value, beginning of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------ ------ ------ ------ ------

Net income from investment operations........ 0.007 0.006 0.009 0.018 0.051 0.055

Less dividends from net investment income.... (0.007)+ (0.006)+ (0.009) (0.018)+ (0.051)+ (0.055)
-------- ------ ------ ------ ------ ------

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

Total Return................................. 0.74%(1) 0.58% 0.86% 1.78% 5.24% 5.69%

Ratios to Average Net Assets:
Expenses..................................... 0.59%(2) 0.58% 0.56% 0.56% 0.57% 0.58%

Net investment income........................ 1.47%(2) 0.57% 0.85% 1.76% 5.04% 5.51%

Supplemental Data:
Net assets, end of period, in millions....... $19,165 $20,475 $23,081 $23,931 $23,187 $19,628
</Table>

- ---------------------

<Table>

+ Includes capital gain distribution of less than $0.001.
(1) Not annualized.
(2) Annualized.
</Table>

See Notes to Financial Statements
15

DIRECTORS

Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid

OFFICERS

Charles A. Fiumefreddo
Chairman of the Board

Mitchell M. Merin
President

Ronald E. Robison
Executive Vice President and Principal Executive Officer

Joseph J. McAlinden
Vice President

Barry Fink
Vice President

Amy R. Doberman
Vice President

Carsten Otto
Chief Compliance Officer

Stefanie V. Chang
Vice President

Francis J. Smith
Treasurer and Chief Financial Officer

Thomas F. Caloia
Vice President

Mary E. Mullin
Secretary

TRANSFER AGENT

Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281

INVESTMENT ADVISER

Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020

The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.

This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its directors. It is available, without charge, by calling (800) 869-NEWS.

This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.

Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.

[MORGAN STANLEY LOGO]

MORGAN STANLEY FUNDS

Morgan Stanley
Liquid Asset Fund
Semiannual Report
February 28, 2005

37925RPT-RA05-00295P-Y02/05

Item 2. Code of Ethics.