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)

Ronald E. Robison
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)

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

Date of fiscal year end: August 31, 2008

Date of reporting period: February 29, 2008

Item 1 - Report to Shareholders

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

THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.

MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. AN
INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE
TO LOSE MONEY BY INVESTING IN THE FUND. PLEASE SEE THE PROSPECTUS FOR MORE
COMPLETE INFORMATION ON INVESTMENT RISKS.

FUND REPORT

For the six months ended February 29, 2008

MARKET CONDITIONS

Throughout most of the fiscal period under review, U.S. economic growth
weakened. Gross domestic product (GDP), which rose 4.9 percent in the third
quarter of 2007, expanded by only 0.6 percent in the final quarter of the year.
Job growth, as measured by non-farm payrolls, averaged less than 40,000 per
month, and contracted in both January and February. Consumer confidence declined
steadily through the period, reaching its lowest level in approximately five
years in February.

Financial markets grew increasingly volatile during the reporting period. The
fallout from the subprime mortgage sector's troubles spread across the broader
fixed income and lending markets. Citing deteriorating financial market
conditions and the negative impact that tighter credit conditions could have in
restraining economic growth, the Federal Open Market Committee (the "Fed") began
reducing its federal funds target rate in September, cutting the rate five times
during the six-month reporting period by a total of 225 basis points to 3.0
percent. On December 12, seeking to further improve credit market liquidity, the
Fed announced the creation of a Term Auction Facility (TAF), whereby term funds
would be auctioned to depository institutions against a wide variety of
collateral. TAF auctions are likely to continue for as long as credit market
conditions warrant. The Federal Reserve Chairman stated that the Fed is prepared
to act in a decisive and timely manner based on a worsening economic outlook,
more pronounced risks and further deepening of the housing contraction.

PERFORMANCE ANALYSIS

As of February 29, 2008, Morgan Stanley Liquid Asset Fund had net assets of
approximately $8.3 billion and an average portfolio maturity of 71 days. For the
six-month period ended February 29, 2008, the Fund provided a total return of
2.25 percent. For the seven-day period ended February 29, 2008, the Fund
provided an effective annualized yield of 3.57 percent and a current yield of
3.51 percent, while its 30-day moving average yield for February was 3.73
percent. Past performance is no guarantee of future results.

Our strategy in managing the portfolio remained consistent with the Fund's long-
term focus on preservation of capital and liquidity. Over the six-month review
period, we believed that the Fed would continue to reduce its target federal
funds rate in order to improve credit market liquidity and to help insure that
the housing market deterioration would not spillover into the broader economy.
As such, we sought to extend the Fund's weighted average maturity. We made
purchases of deposit liabilities and senior obligations of what we consider to
be strong financial institutions and corporations in the three-month and longer
segment of the money market curve. In an effort to help ensure sufficient
liquidity, we barbelled these trades with purchases of overnight repurchase
agreements and two month and shorter traditional asset-backed commercial paper.

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.

<Table>
<Caption>
PORTFOLIO COMPOSITION

Commercial Paper 44.7%
Certificates of Deposit 38.8
Floating Rate Notes 9.3
U.S. Governments Agencies 3.4
Repurchase Agreements 1.9
Corporate Bond Notes 1.1
Short-Term Bank Notes 0.8
</Table>

<Table>
<Caption>
MATURITY SCHEDULE

1 - 30 Days 27.2%
31 - 60 Days 21.2
61 - 90 Days 21.7
91 - 120 Days 10.6
121 + Days 19.3
</Table>

Data as of February 29, 2008. 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 INVESTS IN HIGH QUALITY, SHORT-TERM DEBT OBLIGATIONS. IN SELECTING
INVESTMENTS, THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS
INC., SEEKS TO MAINTAIN THE FUND'S SHARE PRICE AT $1.00. THE SHARE PRICE
REMAINING STABLE AT $1.00 MEANS THAT THE FUND WOULD PRESERVE THE PRINCIPAL VALUE
OF YOUR INVESTMENT.

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

FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS

EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS ARE
FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON FORM
N-CSRS AND FORM N-CSR, RESPECTIVELY. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL
AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS
PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY FUND ALSO FILES A
COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND
THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS
FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS
POSTED TO

THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM N-Q
FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE SEC'S
WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY THEM AT THE SEC'S
PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE
SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC AT (800) SEC-
0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT OF A
DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS
(PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, DC 20549-0102.

HOUSEHOLDING NOTICE

TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 869-NEWS, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.

EXPENSE EXAMPLE

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

The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 09/01/07 - 02/29/08.

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*
------------- ------------- --------------
09/01/07 -
09/01/07 02/29/08 02/29/08
------------- ------------- --------------

Actual (2.25% return)................... $1,000.00 $1,022.50 $3.32
Hypothetical (5% annual return before
expenses)............................. $1,000.00 $1,021.58 $3.32
</Table>

- ---------
* Expenses are equal to the Fund's annualized expense ratio of 0.66%
multiplied by the average account value over the period, multiplied by
182**/366 (to reflect the one-half year period).

** Adjusted to reflect non-business days accruals.

Morgan Stanley Liquid Asset Fund Inc.
PORTFOLIO OF INVESTMENTS - FEBRUARY 29, 2008 (UNAUDITED)

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

Commercial Paper (45.0%)
Asset-Backed - Auto (0.6%)
$ 30,000 DaimlerChrysler Revolving Auto
Conduit LLC Series II.......... 3.21 % 05/08/08 $ 29,819,800
16,000 New Center Asset Trust Series
II............................. 3.76 03/03/08 15,996,666
--------------
45,816,466
--------------
Asset-Backed - Consumer (6.3%)
15,000 CAFCO LLC*....................... 3.35 04/18/08 14,933,600
189,000 CRC Funding LLC*................. 3.13 - 3.30 04/25/08 - 05/28/08 187,795,285
83,000 Gemini Securitization Corp.,
LLC*........................... 3.12 05/08/08 82,513,989
70,937 Old Line Funding, LLC*........... 3.21 04/25/08 - 05/02/08 70,578,875
20,000 Palisades CP*.................... 3.51 03/07/08 19,988,333
124,391 Ranger Funding Co LLC*........... 3.24 - 4.17 04/11/08 - 04/23/08 123,805,026
30,000 Thunder Bay Funding LLC*......... 3.30 - 3.38 03/14/08 - 04/18/08 29,931,928
--------------
529,547,036
--------------
Asset-Backed - Corporate (3.2%)
109,000 Atlantis One Funding*............ 3.12 05/09/08 108,352,358
151,000 CIESCO LLC*...................... 3.12 - 4.94 03/26/08 - 05/07/08 150,405,343
10,000 Nieuw Amsterdam Receivables
Corp*.......................... 3.27 05/16/08 9,931,389
--------------
268,689,090
--------------
Asset-Backed - Diversified (1.8%)
75,000 Falcon Asset Sec Co LLC*......... 3.31 03/20/08 74,869,375
73,000 Liberty Street Funding LLC*...... 3.40 - 4.03 03/20/08 - 03/28/08 72,822,575
--------------
147,691,950
--------------
Asset-Backed - Mortgage (0.9%)
73,000 Cancara Asset Sec LLC*........... 3.18 - 3.95 04/21/08 - 05/23/08 72,521,538
--------------

Asset-Backed - Securities (4.9%)
25,000 Amstel Funding Corp.*............ 4.79 03/10/08 24,970,313
257,000 Scaldis Capital LLC*............. 4.19 - 5.50 03/03/08 - 04/15/08 256,338,839
130,000 Solitaire Funding LLC*........... 3.27 06/05/08 128,885,800
--------------
410,194,952
--------------
Banking (5.9%)
33,000 Bank of America Corp. ........... 4.99 03/25/08 32,892,640
412,500 Citigroup Funding Inc. .......... 3.19 - 5.50 03/18/08 - 05/22/08 409,980,908
50,000 JPMorgan Chase & Co. ............ 5.15 03/07/08 49,958,000
--------------
492,831,548
--------------
</Table>

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.
PORTFOLIO OF INVESTMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued

Financial Conglomerates (2.7%)
$230,500 General Electric Capital Corp. .. 2.80 - 4.08% 07/07/08 - 09/22/08 $ 227,080,311
--------------

Insurance (0.3%)
25,000 ING America Insurance-Holding
Inc. .......................... 5.02 03/28/08 24,907,188
--------------

International Banks (17.5%)
105,000 Bank of Ireland*................. 3.20 04/25/08 104,489,875
95,000 Barclays U.S. Funding LLC........ 3.05 - 3.12 05/09/08 - 08/27/08 93,850,838
208,000 DnB Nor Bank ASA*................ 3.15 - 4.80 03/31/08 - 05/30/08 206,873,567
39,000 KBC Financial Products
International*................. 3.02 - 4.90 05/23/08 - 07/03/08 38,585,321
317,000 Royal Bank of Scotland*.......... 2.92 - 4.92 04/28/08 - 08/14/08 312,901,859
166,000 Santander Central Hispano Finance
(Del) Inc. .................... 4.73 - 5.14 03/28/08 - 06/02/08 164,412,010
266,190 Societe Generale N.A., Inc. ..... 3.74 - 4.91 04/21/08 - 07/21/08 263,366,119
107,000 Swedbank......................... 3.07 - 4.32 04/14/08 - 05/02/08 106,442,240
173,000 UBS Finance (Delaware) LLC....... 3.23 - 5.16 03/14/08 - 07/18/08 171,973,953
--------------
1,462,895,782
--------------
Investment Banks/Brokers (0.9%)
75,000 Goldman Sachs Group, Inc. (The).. 4.01 05/23/08 74,316,979
--------------
Total Commercial Paper (Cost $3,756,492,840)........................... 3,756,492,840
--------------
Certificates of Deposit (39.0%)
Domestic Banks (1.0%)
50,000 Union Bank of California, NA..... 4.70 03/31/08 50,000,000
35,000 Wachovia Bank, NA................ 3.03 07/11/08 35,147,348
--------------
85,147,348
--------------
International Banks (38.0%)
150,000 Bank of Montreal-Chicago......... 2.91 - 5.09 04/18/08 - 08/07/08 150,045,093
366,000 Bank of Scotland................. 3.10 - 5.04 03/13/08 - 06/11/08 365,991,886
317,000 Barclays Bank plc................ 2.95 - 5.37 03/17/08 - 11/24/08 317,162,172
373,000 BNP Paribas...................... 2.96 - 4.88 04/24/08 - 07/09/08 373,595,968
353,000 Calyon........................... 3.03 - 4.92 03/24/08 - 07/25/08 353,027,498
91,000 Canadian Imperial Bank........... 4.70 - 4.78 03/12/08 - 04/30/08 90,998,427
137,000 Credit Suisse - NY............... 4.87 - 5.46 03/12/08 - 06/06/08 137,000,000
95,000 Deutsche Bank AG................. 3.02 05/02/08 95,000,000
58,000 Fortis Bank - NY................. 3.15 05/28/08 58,000,000
215,000 NATIXIS.......................... 3.00 - 4.73 03/31/08 - 08/04/08 214,946,117
100,000 Royal Bank of Scotland plc....... 4.80 - 4.96 04/14/08 - 04/30/08 100,000,000
211,000 Banco Santander Central Hispano
SA............................. 3.00 - 3.05 07/31/08 - 08/22/08 211,007,129
</Table>

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.
PORTFOLIO OF INVESTMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued

$148,000 Societe Generale................. 3.13 - 5.08% 03/20/08 - 05/13/08 $ 148,008,165
90,000 Svenska Handelsbanken............ 5.13 04/07/08 90,000,000
231,000 Toronto Dominion Bank............ 2.92 - 5.02 03/17/08 - 08/29/08 231,000,000
237,000 UBS AG........................... 4.00 - 5.46 03/03/08 - 06/16/08 237,002,260
--------------
3,172,784,715
--------------
Total Certificates of Deposit (Cost $3,257,932,063).................... 3,257,932,063
--------------
Floating Rate Notes (9.4%)
Asset-Backed - Structured
Investment Vehicles (2.0%)
92,000 Asscher Finance Corp.*........... 4.83+ 03/25/08++ 91,997,052
73,000 Cullinan Finance Corp.*.......... 3.07+ 03/03/08++ 72,997,516
--------------
164,994,568
--------------
Finance - Auto (1.1%)
50,000 American Honda Finance Corp.*.... 3.15+ 05/06/08++ 50,000,000
43,000 Toyota Motor Credit Corp. ....... 3.09+ 03/03/08++ 43,002,242
--------------
93,002,242
--------------
Domestic Banks (0.5%)
41,000 Wachovia Bank NA................. 4.75+ 04/04/08++ 41,000,000
--------------

International Banks (3.5%)
150,000 Banco Bilbao Vizcaya
Argentaria - NY................ 4.65+ 04/03/08++ 149,995,232
50,000 BNP Paribas*..................... 3.13+ 05/07/08++ 50,000,000
90,000 NATIXIS.......................... 4.77+ 03/31/08++ 89,997,488
--------------
289,992,720
--------------
Investment Banks/Brokers (2.3%)
43,000 Deutsche Bank AG................. 4.75+ 03/21/08++ 43,000,000
150,000 Merrill Lynch & Co. Inc.*........ 3.26+ 03/18/08++ 150,000,000
--------------
193,000,000
--------------
Total Floating Rate Notes (Cost $781,989,530).......................... 781,989,530
--------------
U.S. Government
Agencies - Discount Notes (3.1%)
163,714 Federal Home Loan Banks.......... 2.55 - 4.34 03/19/08 - 08/06/08 162,543,752
97,685 Federal National Mortgage Assoc.. 4.23 - 4.40 03/26/08 - 06/11/08 97,044,184
--------------
Total U.S. Government Agencies - Discount Notes (Cost $259,587,936).... 259,587,936
--------------
</Table>

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.
PORTFOLIO OF INVESTMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued

Repurchase Agreements (1.9%)
$155,000 Barclays Capital Inc. (dated
02/29/08; proceeds
$155,041,075) (a).............. 3.18 % 03/03/08 $ 155,000,000
2,256 The Bank of New York (dated
02/29/08; proceeds $2,256,679)
(b)............................ 3.00 03/03/08 2,256,115
--------------
Total Repurchase Agreement (Cost $157,256,115)......................... 157,256,115
--------------
Corporate Bond Notes (1.1%)
Asset-Backed - Structured
Investment Vehicles
70,000 Asscher Finance Corp.*........... 5.45 06/25/08 70,000,000
25,000 Cullinan Finance Corp.*.......... 5.40 04/25/08 25,000,000
--------------
Total Corporate Bond Notes (Cost $95,000,000).......................... 95,000,000
--------------
Short-Term Bank Note (0.8%)
65,000 Bank of America Corp. (Cost
$65,000,000)................... 4.75 04/07/08 65,000,000
--------------

U.S. Government Agencies - Debenture Bonds (0.3%)
25,000 Federal Home Loan Banks (Cost
$25,000,000)................... 4.45 11/05/08 25,000,000
--------------

</Table>

<Table>

Total Investments (Cost $8,398,258,484) (c)..... 100.6% 8,398,258,484

Liabilities in Excess of Other Assets ........... (0.6) (49,797,115)
----- --------------
Net Assets ...................................... 100.0% $8,348,461,369
===== ==============

</Table>

- ----------

<Table>

* Resale is restricted to qualified institutional investors.
+ Rate shown is the rate in effect at February 29, 2008.
++ Date of next interest rate reset.
(a) Collateralized by Federal National Mortgage Assoc. 4.50% -
6.00% due 03/01/23 - 09/01/37 valued at $157,410,731 and
Freddie Mac 6.00% due 12/01/37 valued at $689,270.
(b) Collateralized by Federal National Mortgage Assoc. 6.03% due
04/01/36 valued at $2,301,237.
(c) Cost is the same for federal income tax purposes.
</Table>

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
February 29, 2008 (unaudited)

<Table>

Assets:
Investments in securities, at value
(cost $8,398,258,484)....................................... $8,398,258,484
Cash.......................................................... 90,056
Receivable for:
Interest................................................... 42,917,606
Capital stock sold......................................... 502,756
Prepaid expenses and other assets............................. 172,094
--------------
Total Assets............................................... 8,441,940,996
--------------
Liabilities:
Payable for:
Investments purchased...................................... 49,577,000
Capital stock redeemed..................................... 38,767,190
Investment advisory fee.................................... 1,564,880
Transfer agent fee......................................... 1,161,845
Distribution fee........................................... 666,064
Administration fee......................................... 333,032
Dividends and distributions to shareholders................ 154,567
Accrued expenses and other payables........................... 1,255,049
--------------
Total Liabilities.......................................... 93,479,627
--------------
Net Assets................................................. $8,348,461,369
==============
Composition of Net Assets:
Paid-in-capital............................................... $8,347,848,104
Accumulated undistributed net investment income............... 680,363
Net realized loss............................................. (67,098)
--------------
Net Assets................................................. $8,348,461,369
==============
Net Asset Value Per Share
8,348,514,866 shares outstanding (50,000,000,000 shares
authorized of $.01 par value)............................... $1.00
=====

</Table>

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.
FINANCIAL STATEMENTS continued

Statement of Operations
For the six months ended February 29, 2008 (unaudited)

<Table>

Net Investment Income:
Interest Income................................................ $232,670,210
------------
Expenses
Transfer agent fees and expenses............................... 11,121,620
Investment advisory fee........................................ 10,514,911
Distribution fee............................................... 4,527,093
Administration fee............................................. 2,263,547
Shareholder reports and notices................................ 591,009
Custodian fees................................................. 159,475
Registration fees.............................................. 101,540
Directors' fees and expenses................................... 81,335
Professional fees.............................................. 33,290
Other.......................................................... 341,747
------------
Total Expenses.............................................. 29,735,567
Less: expense offset........................................... (49,836)
------------
Net Expenses................................................ 29,685,731
------------
Net Investment Income....................................... 202,984,479
Net Realized Loss on investments............................ (9,063,901)
Net increase from payments by affiliate (Note 4)............ 8,996,803
------------
Net Increase................................................... $202,917,381
============

</Table>

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.
FINANCIAL STATEMENTS continued

Statements of Changes in Net Assets

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 29, 2008 AUGUST 31, 2007
----------------- ---------------
(unaudited)

Increase (Decrease) in Net Assets:
Operations:
Net investment income............................. $ 202,984,479 $ 598,842,169
Net realized gain (loss).......................... (9,063,901) 1,500
Net increase from payments by affiliate........... 8,996,803 --
--------------- ---------------
Net Increase................................... 202,917,381 598,843,669
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income............................. (202,986,347) (598,839,959)
Net realized gain................................. -- (1,500)
--------------- ---------------
Total Dividends and Distributions.............. (202,986,347) (598,841,459)
--------------- ---------------
Net decrease from capital stock transactions...... (2,102,886,858) (6,434,503,553)
--------------- ---------------
Net Decrease................................... (2,102,955,824) (6,434,501,343)
Net Assets:
Beginning of period............................... 10,451,417,193 16,885,918,536
--------------- ---------------
End of Period
(Including accumulated undistributed net
investment income of $680,363 and $682,231,
respectively)..................................... $ 8,348,461,369 $10,451,417,193
=============== ===============

</Table>

See Notes to Financial Statements

Morgan Stanley Liquid Asset Fund Inc.
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED)

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

The following is a summary of significant accounting policies:

A. Valuation of Investments -- Portfolio securities are valued at amortized
cost, which approximates market value, in accordance with Rule 2a-7 under the
Act.

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

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

D. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no provision for federal income
taxes is required. The Fund files tax returns with the U.S. Internal Revenue
Service, New York State and New York City. The Fund adopted the provisions of
the Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN
48") Accounting for Uncertainty in Income Taxes on June 29, 2007. FIN 48 sets
forth a minimum threshold for financial statement recognition of the benefit of
a tax position taken or expected to be taken in a tax return. The implementation
of FIN 48 did not result in any unrecognized tax benefits in the accompanying
financial statements. If applicable, the Fund recognizes interest accrued
related to unrecognized tax benefits in interest expense and penalties in other
expenses in the Statement of Operations. Each of the tax years in the four year
period ended February 29, 2008, remains subject to examination by taxing
authorities.

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

Morgan Stanley Liquid Asset Fund Inc.
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued

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

2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Adviser"), the Fund pays the Investment Adviser
an advisory fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.45% to the portion of the daily net assets not exceeding $250
million; 0.375% to the portion of the daily net assets exceeding $250 million
but not exceeding $750 million; 0.325% to the portion of the daily net assets
exceeding $750 million but not exceeding $1.25 billion; 0.30% to the portion of
the daily net assets exceeding $1.25 billion but not exceeding $1.5 billion;
0.275% to the portion of the daily net assets exceeding $1.5 billion but not
exceeding $1.75 billion; 0.25% to the portion of the daily net assets exceeding
$1.75 billion but not exceeding $2.25 billion; 0.225% to the portion of the
daily net assets exceeding $2.25 billion but not exceeding $2.75 billion; 0.20%
to the portion of the daily net assets exceeding $2.75 billion but not exceeding
$15 billion; 0.199% to the portion of the daily net assets exceeding $15 billion
but not exceeding $17.5 billion; 0.198% to the portion of the daily net assets
exceeding $17.5 billion but not exceeding $25 billion; 0.197% to the portion of
the daily net assets exceeding $25 billion but not exceeding $30 billion; and
0.196% to the portion of the daily net assets in excess of $30 billion.

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

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

3. Shareholder Services Plan
Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the
Investment Adviser and Administrator, is the distributor of the Fund's shares.
Pursuant to a Shareholder Services Plan (the "Plan") with the Distributor, the
Fund pays the Distributor as compensation for the provision of services to
shareholders a service fee, accrued daily and payable monthly, up to 0.15% on an
annualized basis of the Fund's average daily net assets. For the six months
ended February 29, 2008, the service fee was accrued at the annual rate of
0.10%.

Morgan Stanley Liquid Asset Fund Inc.
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued

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 29, 2008, aggregated $49,651,955,506 and
$51,951,959,060, respectively.

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

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.

The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation. The
Directors voted to close the plan to new participants and eliminate the future
benefits growth due to increases to compensation after July 31, 2003. Aggregate
pension costs for the six months ended February 29, 2008, included in Directors'
fees and expenses in the Statement of Operations amounted to $3,005. At February
29, 2008, the Fund had an accrued pension liability of $61,266 which is included
in accrued expenses in the Statement of Assets and Liabilities.

The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan")
which allows each independent Director to defer payment of all, or a portion, of
the fees he or she receives for serving on the Board of Directors. Each eligible
Director generally may elect to have the deferred amounts credited with a return
equal to the total return on one or more of the Morgan Stanley funds that are
offered as investment options under the Compensation Plan.
Appreciation/depreciation and distributions received from these investments are
recorded with an offsetting increase/decrease in the deferred compensation
obligation and do not affect the net asset value of the Fund.

Morgan Stanley Liquid Asset Fund Inc.
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued

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 29, 2008 AUGUST 31, 2007
----------------- ---------------

(unaudited)

Shares sold....................................... 6,238,159,528 24,966,716,052
Shares issued in reinvestment of dividends and
distributions................................... 202,076,166 597,670,096
-------------- ---------------
6,440,235,694 25,564,386,148
Shares redeemed................................... (8,543,122,552) (31,998,894,113)
-------------- ---------------
Net decrease...................................... (2,102,886,858) (6,434,507,965)
============== ===============

</Table>

6. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest
earned on cash balances maintained by the Fund with the transfer agent.

7. Accounting Pronouncement
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS 157), was issued and is effective for fiscal years
beginning after November 15, 2007. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. Management is currently evaluating the impact the adoption of SFAS
157 will have on the Fund's financial statement disclosures.

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 29, 2008 2007 2006 2005 2004 2003
----------------- ------- ------- ------- ------- -------
(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........ 0.022 0.047 0.040 0.020 0.006 0.009

Less dividends from net investment income.... (0.022) (0.047)+ (0.040) (0.020)+ (0.006)+ (0.009)
------- --------- -------- --------- --------- --------

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

Total Return................................. 2.25%(1)(3) 4.86% 4.10% 2.03% 0.58% 0.86%

Ratios to Average Net Assets:
Total expenses (before expense offset)....... 0.66%(2) 0.67% 0.60% 0.59% 0.58% 0.56%

Net investment income........................ 4.47%(2) 4.73% 3.99% 1.98% 0.57% 0.85%

Supplemental Data:
Net assets, end of period, in millions....... $8,348 $10,451 $16,886 $18,072 $20,475 $23,081
</Table>

- ----------

<Table>

+ Includes capital gain distribution of less than $0.001.
(1) Not annualized.
(2) Annualized.
(3) The Investment Adviser fully reimbursed the Fund for losses incurred
resulting from the disposal of investments. Without this reimbursement,
the total return was 2.15%. (See Note 4.)
</Table>

See Notes to Financial Statements

(This Page Intentionally Left Blank)

DIRECTORS

Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid

OFFICERS

Michael E. Nugent
Chairperson of the Board

Ronald E. Robison
President and Principal Executive Officer

J. David Germany
Vice President

Dennis F. Shea
Vice President

Amy R. Doberman
Vice President

Carsten Otto
Chief Compliance Officer

Stefanie V. Chang Yu
Vice President

Francis J. Smith
Treasurer and Chief Financial Officer

Mary E. Mullin
Secretary

TRANSFER AGENT

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

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

LEGAL COUNSEL

Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019

COUNSEL TO THE INDEPENDENT DIRECTORS

Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036

INVESTMENT ADVISER

Morgan Stanley Investment Advisors Inc.
522 Fifth Avenue
New York, New York 10036

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

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

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

Morgan Stanley Distributors Inc., member FINRA.

[MORGAN STANLEY LOGO]

MORGAN STANLEY FUNDS

Morgan Stanley
Liquid Asset Fund Inc.

Semiannual Report
February 29, 2008

ILASAN
IU08-02227P-T02/08

Item 2. Code of Ethics.

Not applicable for semiannual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semiannual reports.

Item 4. Principal Accountant Fees and Services

Not applicable for semiannual reports.

Item 5. Audit Committee of Listed Registrants.

Not applicable for semiannual reports.

Item 6.

Refer to Item 1.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.

Not applicable for semiannual reports.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Applicable only to reports filed by closed-end funds.

Item 9. Closed-End Fund Repurchases

Applicable to reports filed by closed-end funds.

Item 10. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 11. Controls and Procedures

(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.

(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.

Item 12. Exhibits

(a) Code of Ethics - Not applicable for semiannual reports.

(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Morgan Stanley Liquid Asset Fund Inc.

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
April 17, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
April 17, 2008

/s/ Francis Smith
Francis Smith
Principal Financial Officer
April 17, 2008