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MORGAN STANLEY LIQUIDITY FUNDS Société d'Investissement à Capital Variable
organised under the laws of the Grand Duchy of Luxembourg
RCS Number: B 174 137
Annual Report
31 March 2016
No Subscriptions can be received on the basis of financial reports only. Subscriptions are
only valid if made on the basis of the appropriate application form, the current Prospectus,
the financial reports and any other documents required under any applicable laws or regulations.
MORGAN STANLEY LIQUIDITY FUNDS
Table of Contents
Directors and Service Providers Page 1
Board of Directors’ Report Page 2
Investment Advisers and Sub-Advisers Report:
MS Liquidity Funds - Euro Liquidity Fund Page 6
MS Liquidity Funds - US Dollar Liquidity Fund & US Dollar Treasury Liquidity Fund Page 7
MS Liquidity Funds - Sterling Liquidity Fund Page 9
Independent Auditor’s Report for audit in accordance with International Standards on Auditing
as adopted in Luxembourg Page 10
Independent Auditor’s Report for audit in accordance with auditing standards generally accepted
in the United States Page 11
Financial Statements:
Statement of Net Assets Page 12
Statement of Net Assets Statistics Page 14
Statement of Operations and Changes in Net Assets Page 17
Schedules of investments:
MS Liquidity Funds - Euro Liquidity Fund Page 19
MS Liquidity Funds - US Dollar Liquidity Fund Page 22
MS Liquidity Funds - US Dollar Treasury Liquidity Fund Page 25
MS Liquidity Funds - Sterling Liquidity Fund Page 26
Notes to the Financial Statements Page 29
Appendix 1: Total Expense Ratio (Unaudited) Page 43
MORGAN STANLEY LIQUIDITY FUNDS
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Directors and Service Providers
Board of Directors of the Company Depositary (continued)
State Street Bank Luxembourg S.C.A. (until 7 March 2016)
Michael Griffin, Chairman 49, avenue J.F. Kennedy
Ireland L-1855 Luxembourg
Grand Duchy of Luxembourg
Andrew Mack
United Kingdom Registrar and Transfer Agent**,
Administrative Agent** and Paying Agent**
William Jones The Bank of New York Mellon (International)
Luxembourg Luxembourg Branch (from 7 March 2016)
2-4 rue Eugène Ruppert
Henry Kelly L-2453 Luxembourg
Luxembourg Luxembourg
Judith Eden*(appointed on 21 July 2015) State Street Bank Luxembourg S.C.A. (until 7 March 2016)
United Kingdom 49, avenue J.F. Kennedy
L-1855 Luxembourg
Management Company Grand Duchy of Luxembourg
Morgan Stanley Investment Management Domiciliary Agent
(ACD) Limited
25, Cabot Square Morgan Stanley Investment Management
Canary Wharf Limited, Luxembourg Branch
London E14 4QA 6B, route de Trèves
United Kingdom L-2633 Senningerberg
Grand Duchy of Luxembourg
Directors of the Management Company
Investment Adviser**
Judith Eden*
United Kingdom Morgan Stanley Investment Management Inc.
522 Fifth Avenue
Véronique Gillet (resigned on 12 May 2015) New York, New York, 10036
Luxembourg United States of America
Bryan Greener (resigned on 18 September 2015) Sub-Investment Adviser***
Executive Director
Morgan Stanley Investment Management Limited Morgan Stanley & Co International plc
London 25, Cabot Square
United Kingdom Canary Wharf
London E14 4QA
Andrew Mack United Kingdom
United Kingdom
Distributor**
Andrew Onslow
Managing Director Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Limited 25, Cabot Square
London Canary Wharf
United Kingdom London E14 4QA
United Kingdom
Ruairi O’Healai
Managing Director Independent Auditor of the Company
Morgan Stanley Investment Management Limited
London Ernst & Young S.A.
United Kingdom 35E, avenue J.F. Kennedy
L-1855 Luxembourg
Diane Jane Hosie (appointed on 8 February 2016) Luxembourg
Managing Director
Morgan Stanley Investment Management Limited Legal Adviser
London
United Kingdom Arendt & Medernach S.A.
14, rue Erasme
Depositary L-2082 Luxembourg
The Bank of New York Mellon (International)
Grand Duchy of Luxembourg
Luxembourg Branch (from 7 March 2016)
2-4 rue Eugène Ruppert
L-2453 Luxembourg
Luxembourg
*Judith Eden resigned as a Managing Director from Morgan Stanley Investment Management Limited as well as a member of the Board of Directors of the
Management Company on 31 August 2015. She was re-appointed as a non-executive member of the Board of Directors of the Management Company on 6
January 2016.
**Delegated by the Management Company.
***Delegated by the Investment Adviser.
MORGAN STANLEY LIQUIDITY FUNDS
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Board of Directors’ Report
The Board of Directors of the Company (the “Board”) is pleased to present the Audited Financial Statements and Annual
Report for the year ended 31 March 2016.
Directors
Michael Griffin
Independent Director and Chairman. A member of the Board since December 2012.
Mr. Griffin has over 30 years of experience in the financial sector. For the past 16 years he has been a nonexecutive
director of fund companies in Dublin & Luxembourg where he worked with some of the leading sponsors in the sector.
Most of his executive experience was with the wholesale arm of the Ulster Bank Group in Dublin where he served on the
board and management committee of Ulster Investment Bank Limited for twelve years. In this role he managed the
Treasury trading of the bank which included sovereign debt, money markets and foreign exchange. He was Chairman of
the Irish Bankers’ Federation EMU Capital Markets Committee from 1996 to 1999. He is a fellow of the Institute of
Bankers in Ireland.
William Jones
Independent Director. A member of the Board since December 2012.
Mr. Jones is the founder of ManagementPlus Group which was established in 2006 and provides directorship and
management company services from Luxembourg, Cayman Islands, Singapore, New York and Geneva. Mr. Jones has 24
years’ experience in the hedge fund industry and has held senior positions with Goldman Sachs Asset Management
International and Bank of Bermuda/HSBC. Mr. Jones completed the first cohort of the INSEAD International Directors
Program (“IIDP”) in 2011 and is a member of the IIDP Advisory Board and served as its first President. Mr. Jones has
been certified as a director by IIDP and the Institut Luxembourgeois des Administrateurs (ILA). Mr. Jones serves the
Board of Directors of ILA and its Fund Governance Committee and co-chaired the Alternative Investment Task Force of
ILA’s Fund Governance Committee which issued the “ILA Guide for Board Members in the Context of AIF and AIFM” in
July 2014. Mr. Jones serves multiple committees of ALFI, the Luxembourg fund industry association. Mr. Jones was co-
vice chair of the Alternative Investment Management Association’s (AIMA) working group which issued “AIMA’s Fund
Director Guide” in April 2015. Mr. Jones served on the Board of Governors of the International School of Luxembourg
from 2011 to 2015 and was its Chairman during the 2014-15 school year.
Andrew Mack
Director (Director of Morgan Stanley Investment Management (ACD) Limited). A member of the Board since December
2012.
Mr. Mack joined Morgan Stanley in 1996 and has 29 years of investment experience. Mr. Mack joined Morgan Stanley as
a portfolio manager in the asset management business, where he launched and co-managed a global equity arbitrage fund.
He subsequently headed the global market risk oversight team for Morgan Stanley before taking over as market risk
manager of the European equities business. Mr. Mack was appointed as European head of multi asset class prime
brokerage in 2004 and took over prime brokerage sales for Europe in 2006 before running the European listed derivative
business. Mr. Mack re-joined Morgan Stanley Investment Management (MSIM) in 2008 as global chief risk officer, taking
over as head of MSIM EMEA at the beginning of 2009. Mr. Mack was an employee of Morgan Stanley until 30 June 2010.
Mr. Mack provided services as a consultant and senior adviser to Morgan Stanley between 1 July 2010 and 31 December
2013. Mr. Mack assumed a non-Executive Director role in Morgan Stanley Investment Management (ACD) Limited which
became the Management Company on 1st April 2014. Mr. Mack has been involved in taking and managing risk for most
of his investment career, his previous experience includes portfolio management, trading and risk management positions at
Cargill, Bankers Trust and Black River Asset Management, a Minneapolis based hedge fund.
Henry Kelly
Independent Director. A member of the Board since February 2013.
Henry Kelly is an independent board member of several investment funds and investment management companies
domiciled in Luxembourg and internationally. He is the Managing Director of the Luxembourg-based consultancy firm
that he founded in 1999, KellyConsult Sàrl, which provides advisory services to the investment fund sector. He is
Chairman of the Fund Governance Forum for the Association of the Luxembourg Fund Industry (ALFI) since its
establishment in 2011 and is a founding member of the Investment Funds Committee of the Luxembourg Institute of
Directors (ILA). He is a member of the European Fund and Asset Management Association (EFAMA) Corporate
Governance Working Group.
MORGAN STANLEY LIQUIDITY FUNDS
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Board of Directors’ Report (cont.)
From 1993 – 1999 he was a Managing Director of Flemings Luxembourg (now JP Morgan Asset Management) following
5 years’ experience in the capital markets division of BNP Paribas based in Paris. Prior to these posts he acquired seven
years’ experience with Price Waterhouse in Paris, Frankfurt and New York. He has a master’s degree in Modern
Languages from Cambridge University, is a Member of the Institute of Chartered Accountants in England & Wales and
holds the INSEAD Certificate in Corporate Governance. He obtained the qualification of ILA certified director in 2013.
Judith Eden
Director (Director of Morgan Stanley Investment Management (ACD) Limited). A member of the Board since July 2015.
Prior to retiring from Morgan Stanley in 2015, Ms. Eden was Chief Executive Officer of Morgan Stanley Investment
Management’s (MSIM’s) European Fund Management Company (MSIM ACD Ltd) and Chief Administrative officer of
MSIM’s international businesses. Ms. Eden originally joined Morgan Stanley in 1992 and has over 25 years of financial
industry experience spanning Strategy, Finance, Operational Management and Audit. Prior to joining Investment
Management (IM) in 2006, Judith held senior positions in Operations and Finance within the Morgan Stanley group.
Within IM she was previously a founding member and Chief Operating Officer of the Quantitative and Structured
Solutions (QSS) team within MSIM's Alternative Investments Unit.
Prior to joining Morgan Stanley, Ms. Eden worked in Price Waterhouse's (now PWC) Audit and Business Advisory
practice specialising in Financial Services. Ms. Eden is a Fellow of the Institute of Chartered Accountants of England and
Wales, a member of the UK Institute of Directors and hold INSEAD's Corporate Governance Certificate (IDP-C). Ms.
Eden serves on a number of boards, audit and risk committees in both public and private sector organisations.
Distribution of the Sub-Funds
Sub-Funds may be offered for sale in European Union Member States, subject to registration. In addition, applications to
register the Company and its Sub-Funds may be made in other countries.
All of the Sub-Funds and Share Classes are registered for distribution in the Grand Duchy of Luxembourg and a number of
the Sub-Funds and Share Classes are registered for distribution in the following jurisdictions: Denmark, France, Germany,
Ireland, Italy, the Netherlands, Singapore, Spain, Switzerland and the United Kingdom.
Role and Responsibility of the Board
The responsibility of the Board is governed exclusively by Luxembourg law. With respect to the annual accounts of the
Company, the duties of the Directors are governed by the law of 10 December 2010 on, inter alia, the accounting and
annual accounts of undertakings for collective investment and by the law of 17 December 2010 relating to undertakings for
collective investment.
The matters reserved for the Board include determination of each Sub-Fund’s investment objective and policies,
investment restrictions and powers, amendments to the Prospectus, reviewing and approving key investment and financial
data, including the annual accounts, as well as the appointment of, and review of the services provided by, the
Administrator, Auditor, Distributor, Depositary and other service providers.
Prior to each Board meeting the Directors receive detailed and timely information allowing them to be prepared for the
items under discussion during the meeting. For each quarterly meeting the Board requests, and receives, reports from,
amongst others, the Investment Adviser, the Depositary, the Administrator, the Distributor, Risk Management as well as
proposals for changes to the Fund structure as appropriate. Senior representatives of each of these functions attend Board
meetings to present relevant information and address any matters arising.
The Directors take decisions in the interests of the Company and its shareholders as a whole, where conflicts of interest
arise, any conflicted Director will refrain from taking part in any related deliberation or decision. A description of the
Company’s policy on conflicts of interest is available for inspection at the registered office.
The Board can take independent professional advice if necessary and at the Company’s expense.
MORGAN STANLEY LIQUIDITY FUNDS
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Board of Directors’ Report (cont.)
Board Composition
The Board as a whole has a breadth of investment knowledge, financial skills, as well as legal and other experience
relevant to the Company’s business. Directors are elected annually by shareholders at the Annual General Meeting. The
Board does not limit the number of years of Directors’ service and it does take into account the nature and requirements of
the fund industry and of the Company’s business when making recommendation to shareholders that Directors be elected.
Board Meetings and Committees
The Board meets regularly on a quarterly basis but if necessary additional ad hoc meetings will be arranged.
At the quarterly Board meetings, the agenda includes, amongst other matters, those items highlighted under the section
above called “Role and Responsibility of the Board” and the approval of the annual report and accounts.
In certain circumstances, when it may not be appropriate to wait until the next Board meeting to discuss a particular issue,
authority may be delegated to one or more Board member to deal with particular business issues.
Internal Control
The Board’s system of internal control mainly comprises monitoring the services provided by the service providers,
including the operational and compliance controls established by them to meet the Company’s obligations to shareholders
as set out in the Prospectus, Articles of Incorporation as well as all relevant regulations. They formally report to the Board
on a quarterly basis on the various activities they are responsible for and in addition shall inform the Board without delay
of any material administrative or accounting matters.
Corporate Governance and ALFI Code of Conduct
The Board is responsible for ensuring that a high level of corporate governance is met and considers that the Company has
complied with the best practices in the Luxembourg funds industry.
The Board has adopted the principles set out in the ALFI Code of Conduct (the “Code”). These principles were amended in
August 2013 and are set out below:
1. The Board should ensure that high standards of corporate governance are applied at all times;
2. The Board should have good professional standing and appropriate experience and ensure that it is collectively
competent to fulfill its responsibilities;
3. The Board should act fairly and independently in the best interests of the investors;
4. The Board should act with due care and diligence in the performance of its duties;
5. The Board should ensure compliance with all applicable laws, regulations and with the Company’s constitutional
documents;
6. The Board should ensure that investors are properly informed, are fairly and equitably treated, and receive the
benefits and services to which they are entitled;
7. The Board should ensure that an effective risk management process and appropriate internal controls are in place;
8. The Board should identify and manage fairly and effectively, to the best of its ability, any actual, potential or
apparent conflict of interest and ensure appropriate disclosure;
9. The Board should ensure that shareholder rights are exercised in a considered way and in the best interests of the
Company;
10. The Board should ensure that the remuneration of the Board members is reasonable and fair and adequately
disclosed
The Board considers that the Company has been in compliance with the principles of the Code in all material aspects
throughout the financial year ended 31 March 2016. The Board undertakes an annual review of ongoing compliance with
the principles of the Code.
Directors and Officers Indemnity Insurance
The Company has taken out Directors and Officers Indemnity Insurance which indemnifies the Directors against certain
liabilities arising in the course of their duties and responsibilities but does not cover against any fraudulent or dishonest
actions on their part.
MORGAN STANLEY LIQUIDITY FUNDS
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Board of Directors’ Report (cont.)
Independent Auditor
Ernst & Young S.A. has been the Company’s Independent Auditor since inception in 2012.
Annual General Meeting
The next Annual General Meeting of the Company will be held on 19 July 2016 at the Registered Office of the Company
to consider matters relating to the year ended on 31 March 2016. At this meeting shareholders will, amongst other matters,
be requested to consider the usual matters at such meetings including:
1. the adoption of the financial statements and approval of the allocation of the results;
2. the approval of Directors fees;
3. the election of the Directors, all of whom wish to stand for election;
4. the election of the Auditor.
On behalf of the Board of the Company:
Director
Director
Luxembourg, 30 June 2016
MORGAN STANLEY LIQUIDITY FUNDS
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MSLF Euro Liquidity Fund
Investment Sub-Advisers Report for the year ended 31 March 2016
Market Review In 2015 European Money Markets have continued their declining trend which was set in the middle of 2014 by the ECB by cutting the
deposit facility rate into negative territory. Although there was only a single 10 basis point cut in the deposit facility rate toward the end
of 2014, a series of monetary easing measures helped short term rates march lower throughout that year. Most importantly, on 22nd
January 2015 the European Central Bank (ECB) announced the long awaited sovereign quantitative easing (QE) program.
The ECB QE program was the driving force in money markets. Excess liquidity increased from €150bn at the start of 2015 to €650bn by
year-end and €750bn by March 2016, pushing money market yields toward the deposit facility rate (-0.30% in December 2015), and
increasing the supply/demand imbalance for European money market assets. Money market rates declined throughout 2015. 3-month
Euribor declined from +0.08% in January to -0.13% in December 2015. 3-month Eonia declined from -0.02% to -0.22%, while Eonia
overnight fixing ended 2015 at -0.15% from -0.07%. With short term rates moving firmly into negative territory, it was only a matter of
time for Money Market Funds yields to go negative, and indeed between April and May 2015 most of the industry was generating
negative returns. The transition to a negative rate regime was smooth and without notable operational hiccups and market consequences.
The move lower in short-term rates continues in Q1 2016. At their meeting on 10 March 2016, the ECB governing council surprised
markets by announcing a series of new easing measures. First, the ECB announced a cut in all policy rates. The deposit rate was cut by
10bp to -40bp as largely expected. However, there was a surprise cut in the main refinancing rate of 5bp to 0. This means that banks can
now borrow money at the ECB liquidity operations at no cost. The Marginal Lending Facility rate was also cut by 5 basis points to 25bp.
Second, the ECB announced €20bn of extra purchases a month under the asset purchase program, expanding the monthly size to €80bn.
It is worthy of note that there is also going to be an expansion of the underlying eligible assets with the introduction of non-bank euro
denominated investment grade corporate bonds. Finally, the ECB launched a new 4-year targeted longer-term refinancing operations
program (TLTRO II), with four operations starting in June 2016. Depending on each individual bank's ability to meet certain lending
criteria, the final rate of the TLTRO II operations can be reduced to a level as low as -0.40%, which means banks would be paid by the
ECB to borrow money. We conclude that this was a very important series of announcements from the ECB, which clearly indicate a
shift in focus from interest rate targets to quantitative and credit easing measures. Following the announcements, money market rates
plummeted further, with Eonia fixing at -0.34% and rates predicted to be at -0.40% one year forward.
The ECB staff macroeconomic projections have slowly declined through the year and give us a good narrative of how disappointing the
overall growth pick-up has been. Back in March 2015 growth was penciled in at 1.5%, 1.9% and 2% for 2015, 2016 and 2017
respectively. In March 2016, GDP growth for 2016, 2017 and 2018 were set at 1.4% (down from 1.7% in December 2015), 1.7% (1.9%)
and 1.8%, virtually pushing out by 1-year the growth expectations set in March 2015. It was a similar story for inflation with March
2015 projections at 0.0%, 1.5% and 1.8% for 2015, 2016 and 2017, while in March 2016 the figures for 2016, 2017 and 2018 were
forecast at 0.1%, 1.3% and 1.8%. From a macro perspective 2015 has been a “muddle through” year, where extraordinary monetary
support from the ECB, a weak currency partially driven by ECB accommodation, and low energy prices have provided a highly
supportive back-drop for the Eurozone economy. This though was partially offset by ongoing political squabbling, which produced very
little in terms of structural reforms and fiscal support. Europe seems stuck in a low growth and low or no inflation environment which
looks hardly likely to change any time soon. Conversely, this is supporting for ongoing ECB easing and depressed level of rates in the
Eurozone for the foreseeable future. Looking at market pricing, Euribor future contracts indicate rates are expected to stay negative until
2020. Macro date confirmed this slow recovery. Unemployment improved from 11.5% to just over 10% while consumer confidence,
industrial production and retail sales were all flat from Q1 2015 to Q1 2016. Purchasing Managers’ Index data were also stable and in
expansion territory.
The political backdrop has worsened, as 2015 saw the rise of non-traditional parties across Europe, increasing political fragmentation
and uncertainty on the continent. Political uncertainty remains a theme throughout Europe, with Eurosceptic parties growing. The far
right Front National (FN) party of Marie Le Pen gained the largest share of votes (28%) in the first round of the French regional
election, and came first in 6 out of 13 regions. In the second round though, they failed to win any region. The Greek general election in
September 2015 has delivered some stability with Alexis Tsipras re-elected with the same coalition as before, but with a parliamentary
majority cleared of the more radical wing of the Syriza party. Negotiations with the IMF and EU on Greek debt and reforms have been
ongoing without a definitive conclusion. Spanish elections in December 2015 were inconclusive with four parties sharing the votes and
unable to form a viable reform.
Portfolio Activity
The investment strategy for the fund continued to be prudent and defensive in nature. We remained conservative in our approach to both
credit, duration and liquidity management keeping high levels of liquidity in the fund as well as targeting high quality and highly liquid
investments.
MORGAN STANLEY & CO INTERNATIONAL PLC.
April 2016
MORGAN STANLEY LIQUIDITY FUNDS
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MSLF US Dollar Liquidity Fund & MSLF US Dollar Treasury Liquidity Fund
Investment Advisers Report for the year ended 31 March 2016
Market Review
The economy grew an average of 2.3 percent in the first half of 2015, as 3.9 percent gross domestic product (GDP) growth in the second
quarter more than compensated for weak first quarter growth of 0.6 percent caused by bad winter weather. The economy expanded at a
somewhat slower pace in the third quarter, at 2.0 percent, as slower inventory growth subtracted from GDP as did lower exports due to
the dollar’s appreciation. Fourth quarter GDP rose in line with median forecasts, growing at 1.4 percent (annualized). Growth was
diminished due to slowing markets abroad, strong dollar appreciation, and plunging oil prices. The economy grew at an average of 2
percent through 2015. First quarter 2016 expanded at a modest 0.5 percent, the slowest pace in two years.
While economic growth continued to exhibit a choppy pattern, labour market conditions improved markedly. Non-farm payrolls rose an
average of 192,000 per month in the third quarter of 2015, accelerating in the fourth quarter to an average of 282,000. Healthy job
creation and fairly static participation rates allowed the unemployment rate to fall to 5.0 percent as of December 2015, at or near the
Federal Reserve’s (Fed) definition of full employment.
The January non-farm payrolls rose 168,000, led by strong results in the retail trade sector, but fell short of consensus expectation. The
unemployment rate decreased to 4.9 percent in January 2016. February 2016 produced strong employment data. Non-farm payrolls
increased 233,000 compared to consensus 195,000. The unemployment rate remained unchanged from January at 4.9 percent, and the
average hourly earnings fell 0.1 percent. The participation rate continued its upward trend, increasing to 62.9 percent. March 2016 non-
farm payrolls came in slightly above expectations at 208,000, compared to consensus 205,000. Most notable was an uptick in the
unemployment rate from 4.9 percent to 5 percent, which rose for positive reasons due to an increase in the participation rate that
outpaced job creation. The participation rate rose to 63 percent, the highest level since March 2014. US employment data continues to
show resilience despite increased global uncertainty.
At the June 2015 meeting, the Federal Open Market Committee (FOMC) delivered its much-anticipated updated interest rate projections
from FOMC members, which showed that the median forecast for the fed funds rate at the end of 2015 was unchanged from the March
2015 statement at 0.625 percent and that 15 of the 17 voting members believed that 2015 would be the appropriate time to increase
interest rates off of the zero bound. The Fed noted that the economy and labour market were improving but it needs to see more progress
before raising rates. Fed Chair Janet Yellen reiterated that the forward path of rate hikes will be very gradual and that all policy decisions
will be data dependent.
Over the 30 June 2015 quarter-end, the Federal Reserve Bank of New York (FRBNY) conducted term fixed-rate reverse repurchase
agreement (RRP) facility, in addition to the overnight RRP operation, which helped counterbalance some of the supply pullback in our
markets over quarter-ends. The FRBNY held two term auctions, with 7-day and 2-day maturity tenors, both for $100 billion each that
matured over month-end. Both auctions were oversubscribed and each stopped at a 0.07 percent rate. Aggregating the overnight RRP,
which totalled nearly $200 billion, with the term auctions, total RRP outstandings over the third quarter 2015 was about $450 billion, a
new high for the facility.
The July 2015 FOMC meeting went as expected, with no changes to policy and an upgraded assessment of the labour market. There was
no FOMC meeting in August 2015. However, China stole the spotlight globally as growth concerns sent the Shanghai Composite Index,
a gauge of the Chinese stock market, sharply lower. The People’s Bank of China has struggled to stem the market sell-off, despite using
a wide array of unconventional policy tools. Although global growth concerns linger, U.S. economic data continued to remain solid.
All eyes were on the FOMC in September 2015 as markets around the world eagerly anticipated the interest rate decision and update on
the economy. The September FOMC meeting was accompanied by the quarterly Summary of Economic Projections (SEP) and a press
conference with Chair Yellen. In the meeting’s most noteworthy decision, the benchmark fed funds rate was left unchanged, as the Fed
refrained from hiking rates for the first time since 2006. In terms of a rate outlook going forward, projections from FOMC members
showed that the median forecasts for the level of the fed funds rate over the next few years were revised downward slightly. Despite this,
13 of the 17 FOMC members still believed that 2015 was the appropriate time for the initial interest rate hike, which was down from 15
of 17 members in June. This messaging suggested a likelihood of a rate hike before the end of 2015.
The Fed saw further improvement in the labour market but inflation continued to run below the longer-run objective. The Fed also noted
that the “recent global economic and financial developments may restrain economic activity somewhat and are likely to put downward
pressure on inflation in the near-term.” Overall, in light of heightened uncertainties abroad and subdued inflation, the Fed believed it
should wait for further economic data to justify a rate hike. Forward guidance on this topic remained unchanged as the FOMC needed to
see further progress in the labour market and must be “reasonably confident” that inflation is moving toward the long-run target of 2
percent over the medium term before raising rates. Messaging from Chair Yellen reiterated that the forward path of rate hikes will be
very gradual and that all policy decisions will be data dependent.
The October 2015 FOMC meeting offered the market an important update on the Fed’s views on market conditions and the economy.
The FOMC indicated that the economy continued to expand at a moderate pace and upgraded household spending and business fixed
investment progress to “solid” from “moderate.” The statement also noted that the pace of job gains had slowed but the unemployment
rate remained steady. Concerns had dissipated about global developments restraining financial activity, as this wording was completely
dropped from the October statement. A key addition to this statement was the explicit mentioning of the next meeting in the context of
raising rates. Many believed that the FOMC continued to favor increasing rates off of the zero bound before the end of the year.
MORGAN STANLEY LIQUIDITY FUNDS
8
MSLF US Dollar Liquidity Fund & MSLF US Dollar Treasury Liquidity Fund (continued)
Investment Advisers Report for the year ended 31 March 2016 (continued)
Market Review (continued)
November 2015 contained no Fed meetings, but continued to produce strong non-farm payroll and GDP results.
The rates market reflected this positive sentiment as short-dated Treasuries sold off considerably during November, with yields on 1-, 3-,
6-, and 12-month Treasuries all rising by 10 to 20 basis points.
At the much-anticipated December 2015 FOMC meeting, interest rates were increased in line with expectations by basis points to a
range of 0.25 percent to 0.50 percent. FOMC members acknowledged progress in the labour market but noted that inflation remains
below their target. The Committee expects inflation to rise to 2 percent over the medium term as transitory factors dissipate. The Fed’s
updated interest rate forecasts were revised down very slightly. These projections imply four rate hikes in 2016, while market pricing
indicated expectations of only two hikes in 2016. Overall, the Fed vowed to remain data dependent in terms of its decisions on further
policy normalization going forward.
Following the December 2015 rate hike, the FRBNY made adjustments to the overnight fixed-rate RRP facility, increasing the offering
rate from 5 basis points to 25 basis points. In addition, the previous $300 billion overnight limit was removed. On year-end, the FOMC
accepted a new high of over $474 billion in overnight repos that all matured on 4 January 2016, aiding the collateral squeeze in our
markets at quarter-end periods. Unlike previous quarter-ends, there were no submissions in the term auctions leading up to year-end due
to a lack of yield incentive.
The January 2016 FOMC meeting went as expected, with members concerned about weakening growth in foreign economies and
turbulence in the global equity markets. With the Committee’s uncertainty about the impact of global developments on the U.S.
economy, they have adopted a “wait and see” stance before considering any additional monetary actions in the near term.
In line with market expectations, Federal Reserve officials held off from raising borrowing costs at the March 2016 FOMC meeting
citing concerns about global economic and financial developments, keeping the target federal funds rate at .25 percent to .5 percent. The
committee also revised their forecast of four rate hikes from the December 2015 meeting, down to two for the remainder of 2016, with
Fed Chair Janet Yellen saying it’s appropriate to “proceed cautiously” in raising interest rates. The market is more cautious, only pricing
in approximately 1 rate hike for the remainder of 2016.
Portfolio Activity
We remain quite comfortable in our conservative approach to managing both these Sub-Funds. 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 Sub-Funds,
has put us in a unique position to respond to market uncertainty and regulatory developments. Our investment philosophy continues to
revolve around prudent credit, duration, and risk management and portfolios that are positioned defensively and with very high levels of
liquidity.
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
April 2016
MORGAN STANLEY LIQUIDITY FUNDS
9
MSLF Sterling Liquidity Fund
Investment Sub-Advisers Report for the year ended 31 March 2016
Market Review The Bank of England (BoE) did not adjust monetary policy during the 12 month period ending 31 March 2016, maintaining the Bank
Rate at 0.50% and the asset purchase program at £375 billion. The Monetary Policy Committee (MPC) minutes released throughout the
period showed the votes to maintain the Bank Rate and the asset purchase program were, with some minor exceptions, generally
unanimous. The lonely dissenter, Ian McCafferty, dropped his rate hike vote in February 2016.
The message from the MPC minutes and inflation report turned out to be rather consistent, indicating robust domestic growth threatened
by the global slowdown and potential shocks, such as oil price volatility, Chinese currency devaluation, European banking worries, and
the US economy stuttering. The great overhang is represented by the referendum on EU membership which will take place on 23 June
2016. This event is raising uncertainty and slowing the economic momentum with new projects and investment being put on hold until
after the vote. At the time of writing the outcome is highly uncertain with polls putting the “Leave” and “Remain” camps neck and neck.
At a Parliament’s Treasury Select Committee (TSC) hearing, Carney said the BoE would not make any recommendation on the EU
referendum. Nonetheless he acknowledged the benefits of being part of the Union, though admitting this would expose the British
economy more to external shocks. He also highlighted the risk the referendum would bring to UK financial stability and made available
three long-term repo operations for banks to access 6-month liquidity around the referendum (14, 21 and 28 June 2016).
Concerns over global deflationary forces increased over the course of the year to the point that for a period the SONIA Overnight Index
Swaps (OIS) curve, the main indicator of BoE policy rates, was inverted pricing 10 basis point interest rate cuts toward the beginning of
2017. At a TSC (Treasury Select Committee) hearing in February 2016, MPC member Dr. Gertjan Vlieghe said he has “little tolerance
for further downside (inflation) surprises”, and should they continue, “we will get relatively quickly to a point where I find it appropriate
to respond to it”. At the same meeting, it was noted that the BoE balance sheet grew from 7% of Gross Domestic Product (GDP) pre-
crisis to approximately 22% of GDP now, and is expected to remain at these levels. Finally, despite rate cuts being a distinct possibility,
the Monetary Policy Committee (MPC) is not considering negative interest rates. Committee members indicated very broad ranges for
the new normal Bank Rate: Dr. Gertjan Vlieghe: 1 – 3%; Nemat Shafik: 2.5%; Martin Weale: 1.5 – 3.5%.
Money market rates were ranged-bound over the period. 3-month LIBOR ranged between 0.57% and 0.59%, while 3-month OIS traded
consistently between 0.46% and 0.47%, indicating that a rate hike was never imminent. However, future rate hike expectations have
been aggressively pared back as the year went on. Back in June 2015, the Mar-17 future contract implied a LIBOR level as high as
1.60%. By the end of March 2016 this expectation was pared back to 0.60%. It is possible that once the EU referendum is out of the way,
rate hike expectations might be pulled forward again, but a weakening domestic macro picture and persistently declining global growth
expectations are unlikely to see the BoE in a hurry to move interest rates higher.
Macro data were characterized by robust domestic indicators, particularly labour market with unemployment reaching a multi-year rate
of 5%. Nonetheless, surveys such as Purchasing Managers’ Index continued to weaken during the year, driven by softer global growth
expectations and EU referendum uncertainty. GDP growth and inflation expectations have been consistently adjusted lower. The
February 2016 inflation report showed that the Consumer Price Index was expected to remain lower for most of 2016 before picking up
and reaching 2.1% at the 2-year horizon. The GDP forecast was lowered to 2.2% for 2016, 2.4% for 2017 and 2.5% for 2018. This is in
stark contrast with much rosier expectations set a year earlier for 2016 and 2017. Back in February 2015, the inflation report forecast
inflation for 2015 at 0.5% (from 1.4% forecast in November 2014). In 2016 instead inflation was expected to accelerate to 1.8% and in
2017 to reach 2.1%. GDP growth was seen at 2.9% for 2015 and 2016, and 2.7% in 2017. It is now quite possible that 2016 GDP growth
will come in below 2%. Despite the skills shortage in the labour market wage inflation has failed to pick up substantially casting further
doubts on the BoE’s ability to bring inflation back to target. After a long phase of sustained strength, the British Pound has started to
depreciate substantially, partially driven by EU referendum uncertainty. This could prove to be a boost for inflation.
Portfolio Activity
The investment strategy for the fund continued to be prudent and defensive in nature. We remained conservative in our approach to both
credit, duration and liquidity management keeping high levels of liquidity in the fund as well as targeting high quality and highly liquid
investments.
MORGAN STANLEY & CO INTERNATIONAL PLC.
April 2016
MORGAN STANLEY LIQUIDITY FUNDS
10
Independent Auditor’s Report for audit in accordance with International Standards on Auditing as adopted in
Luxembourg
To the Shareholders of
Morgan Stanley Liquidity Funds
6B, route de Trèves
L-2633 Senningerberg
Grand Duchy of Luxembourg
We have audited the accompanying financial statements of Morgan Stanley Liquidity Funds (the “Company”) and of each of its sub-
funds, which comprise the statement of net assets including the schedule of investments as at 31 March 2016 and the statement of
operations and changes in net assets for the year then ended, and a summary of significant accounting policies and other explanatory
notes to the financial statements.
Responsibility of the Board of Directors of the Company for the financial statements
The Board of Directors of the Company is responsible for the preparation and fair presentation of these financial statements in
accordance with Luxembourg legal and regulatory requirements relating to the preparation of the financial statements and for such
internal control as the Board of Directors of the Company determines is necessary to enable the preparation and presentation of financial
statements that are free from material misstatement, whether due to fraud or error.
Responsibility of the “réviseur d’entreprises agréé”
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the judgement of the “réviseur d’entreprises agréé”, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the “réviseur d’entreprises
agréé” considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by the Board of Directors of the Company, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the financial position of Morgan Stanley Liquidity Funds and of each
of its sub-funds as of 31 March 2016, and of the results of their operations and changes in their net assets for the year then ended in
accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements.
Other matter
Supplementary information included in the annual report has been reviewed in the context of our mandate but has not been subject to
specific audit procedures carried out in accordance with the standards described above. Consequently, we express no opinion on such
information. However, we have no observation to make concerning such information in the context of the financial statements taken as a
whole.
ERNST & YOUNG
Société Anonyme
Cabinet de révision agréé
Luxembourg, 30 June 2016 Michael Ferguson
MORGAN STANLEY LIQUIDITY FUNDS
11
Independent Auditor’s Report for audit in accordance with auditing standards generally accepted in the United
States
To the Shareholders of
Morgan Stanley Liquidity Funds
6B, route de Trèves
L-2633 Senningerberg
Grand Duchy of Luxembourg
We have audited the accompanying financial statements of Morgan Stanley Liquidity Funds (the “Company”), which comprise the
statement of net assets including the schedule of investments as of 31 March 2016 and the related statements of operations and changes
in net assets for the year then ended, and the related notes to the financial statements.
Responsibility of the Board of Directors of the Company for the Financial Statements
The Board of Directors of the Company is responsible for the preparation and fair presentation of these financial statements in
conformity with Luxembourg legal and regulatory requirements; this includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to
fraud or error.
Responsibility of the “réviseur d’entreprises agréé”
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we
express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Morgan Stanley
Liquidity Funds at 31 March 2016, and the results of its operations, changes in net assets for the year then ended, in conformity with
Luxembourg legal and regulatory requirements.
Ernst & Young S.A.
Luxembourg, 30 June 2016
MORGAN STANLEY LIQUIDITY FUNDS
The accompanying notes form an integral part of financial statements.
12
Statement of Net Assets
As of 31 March 2016
US Dollar
Euro US Dollar Treasury Sterling
Liquidity Liquidity Liquidity Liquidity
Fund Fund Fund Fund Combined
ASSETS EUR USD USD GBP USD
Investment in securities at amortized cost (Note
2a) 2,620,917,518 8,020,197,165 1,365,302,629 2,007,415,111 15,257,429,049
Time deposits (Note 9) 353,447,628 930,000,000 – 286,301,563 1,744,273,165
Reverse Repurchase agreements (Note 8) 200,000,000 900,000,000 130,000,000 250,000,000 1,617,235,473
Interest receivable (Note 2c) 3,397,146 4,267,698 1,329,908 1,242,697 11,254,957
Cash at bank (Note 2d)(1) 5,821 62,735,323 43,640,073 4,390 106,388,339
Receivable from investment sold – 347,478,028 99,992,313 – 447,470,341
Operating fee reimbursement 376,608 840,928 186,358 247,421 1,812,069
Other assets 24,456 – – – 27,869
TOTAL ASSETS 3,178,169,177 10,265,519,142 1,640,451,281 2,545,211,182 19,185,891,262
LIABILITIES
Payable for investment purchased 62,307,437 – 100,000,000 119,991,237 343,466,034
Dividends payable (Note 3) – 4,650,921 310,910 980,622 6,371,280
Expense payable 1,087,366 5,947,224 763,112 1,377,221 9,928,926
TOTAL LIABILITIES 63,394,803 10,598,145 101,074,022 122,349,080 359,766,240
NET ASSET VALUE 3,114,774,374 10,254,920,997 1,539,377,259 2,422,862,102 18,826,125,022
(1) Cash is held at the Depositary. On behalf of the Board of the Company:
Director
Director
30 June 2016
.
MORGAN STANLEY LIQUIDITY FUNDS
The accompanying notes form an integral part of financial statements.
13
Statement of Net Assets
As of 31 March 2015
US Dollar Euro US Dollar Treasury Sterling
Liquidity Liquidity Liquidity Liquidity
Fund Fund Fund Fund Combined
ASSETS EUR USD USD GBP USD
Investment in securities at amortized cost (Note 2a) 2,654,422,491 9,484,455,513 548,075,226 1,687,026,129 15,387,771,653
Time deposits (Note 9) 374,677,104 1,280,000,000 – 375,750,213 2,240,204,670
Reverse Repurchase agreements (Note 8) 190,000,000 125,000,000 135,000,000 140,000,000 671,890,083
Interest receivable (Note 2c) 6,844,724 6,390,473 251,250 857,105 15,265,327
Cash at bank (Note 2d)1 – 280,275,987 29,836,414 2,325 310,115,852
Operating fee reimbursement 156,565 118,852 – 21,007 318,188
TOTAL ASSETS 3,226,100,884 11,176,240,825 713,162,890 2,203,656,779 18,625,565,773
LIABILITIES
Payable for investment purchased 103,670,544 23,846,337 49,998,056 149,886,045 407,692,515
Dividends payable (Note 3) 6,321 1,088,806 14,179 701,728 2,151,490
Expense payable 319,795 1,682,222 204,014 389,113 2,807,334
Other liabilities 74,766 – 107 1 80,407
TOTAL LIABILITIES 104,071,426 26,617,365 50,216,356 150,976,887 412,731,746
NET ASSET VALUE 3,122,029,458 11,149,623,460 662,946,534 2,052,679,892 18,212,834,027
(1) Cash is held at the Depositary.
MORGAN STANLEY LIQUIDITY FUNDS
The accompanying notes form an integral part of financial statements.
14
Statement of Net Assets Statistics
As of 31 March 2016
Outstanding Shares as at
Outstanding Shares as at
Outstanding Shares as at
Currency 31 March 2016 31 March 2015 31 March 2014
Euro Liquidity Fund
Advisory Shares(Note 1) EUR – 200,001 700,001 Institutional Shares EUR 2,619,231,047 2,626,897,424 1,940,539,493
Institutional Accumulation Shares EUR 292,742 355,656 251,523
Institutional Select Shares(Note 1) EUR 1,891,776 – – MS Reserve Shares EUR 461,601,715 455,540,651 210,040,485
Qualified Accumulation Shares(Note 1) EUR – 3,667 3,672
US Dollar Liquidity Fund
Advantage Accumulation Shares USD 1,915 1,915 1,915
Advisory Shares(Note 1) USD – 10,000 10,000 Advisory Accumulation Shares(Note 1) USD – 1 1
Institutional Shares USD 5,678,343,980 6,497,826,582 5,275,034,000
Institutional Accumulation Shares USD 434,384 1,292,896 2,666,827 Institutional Select Shares USD 96,411,194 1,010,208 1,010,008
Master Shares USD 4,162,860,364 4,237,292,052 4,206,346,687
MS Reserve Shares USD 254,905,289 272,821,475 203,605,553 Qualified Shares USD – – 1,101,168
Qualified Accumulation Shares(Note 1) USD 157,900 24,025 138,190
US Dollar Treasury Liquidity Fund
Advisory Shares(Note 1) USD – 10,000 10,000
Institutional Shares USD 956,120,649 224,190,299 322,780,457 Institutional Select Shares USD 50,010,000 10,000 10,000
MS Reserve Shares USD 533,246,611 438,736,235 664,837,334
Sterling Liquidity Fund
Institutional Shares GBP 2,364,122,971 1,988,785,860 1,164,747,566
Institutional Accumulation Shares GBP 163,548 157,669 264,609 Institutional Select Shares GBP 7,000,000 7,041,521 –
Institutional Select Accumulation Shares(Note 1) GBP – 570 –
MS Reserve Shares GBP 24,195,694 27,321,857 25,725,407 Qualified Shares GBP 9,022,300 11,631,435 12,450,530
Qualified Accumulation Shares(Note 1) GBP – 588 1,359
MORGAN STANLEY LIQUIDITY FUNDS
The accompanying notes form an integral part of financial statements.
15
Statement of Net Assets Statistics
As of 31 March 2016 (cont.)
Net Asset Value per Share as at
Net Asset Value per Share as at
Net Asset Value per Share as at
Currency 31 March 2016 31 March 2015 31 March 2014
Euro Liquidity Fund
Advisory Shares(Note 1) EUR – 1.00 1.00 Institutional Shares EUR 1.00 1.00 1.00
Institutional Accumulation Shares EUR 109.48 109.63 109.57
Institutional Select Shares(Note 1) EUR 1.00 – – MS Reserve Shares EUR 1.00 1.00 1.00
Qualified Accumulation Shares(Note 1) EUR – 109.62 109.56
US Dollar Liquidity Fund
Advantage Accumulation Shares USD 101.13 101.09 101.08
Advisory Shares(Note 1) USD – 1.00 1.00 Advisory Accumulation Shares(Note 1) USD – 101.07 101.07
Institutional Shares USD 1.00 1.00 1.00
Institutional Accumulation Shares USD 106.85 106.67 106.63 Institutional Select Shares USD 1.00 1.00 1.00
Master Shares USD 1.00 1.00 1.00
MS Reserve Shares USD 1.00 1.00 1.00 Qualified Shares USD – – 1.00
Qualified Accumulation Shares(Note 1)* USD 100.02 106.66 106.63
US Dollar Treasury Liquidity Fund
Advisory Shares(Note 1) USD – 1.00 1.00
Institutional Shares USD 1.00 1.00 1.00 Institutional Select Shares USD 1.00 1.00 1.00
MS Reserve Shares USD 1.00 1.00 1.00
Sterling Liquidity Fund
Institutional Shares GBP 1.00 1.00 1.00
Institutional Accumulation Shares GBP 113.25 112.74 112.29 Institutional Select Shares GBP 1.00 1.00 –
Institutional Select Accumulation Shares(Note 1) GBP – 100.08 –
MS Reserve Shares GBP 1.00 1.00 1.00 Qualified Shares GBP 1.00 1.00 1.00
Qualified Accumulation Shares(Note 1) GBP – 112.73 112.29
*All shares issued were redeemed on 8 September 2015. The share class remained inactive until 14 March 2016 when shares were issued at a Net Asset Value per Share of $100.00.
MORGAN STANLEY LIQUIDITY FUNDS
The accompanying notes form an integral part of financial statements.
16
Statement of Net Assets Statistics
As of 31 March 2016 (cont.)
Net Assets as at Net Assets as at Net Assets as at Currency 31 March 2016 31 March 2015 31 March 2014
Euro Liquidity Fund
Advisory Shares(Note 1) EUR – 200,001 700,001
Institutional Shares EUR 2,619,231,047 2,626,897,424 1,940,539,493 Institutional Accumulation Shares EUR 32,049,835 38,989,437 27,558,788
Institutional Select Shares(Note 1) EUR 1,891,776 – –
MS Reserve Shares EUR 461,601,715 455,540,651 210,040,485 Qualified Accumulation Shares(Note 1) EUR – 401,945 402,330
US Dollar Liquidity Fund Advantage Accumulation Shares USD 193,653 193,589 193,567
Advisory Shares(Note 1) USD – 10,000 10,000
Advisory Accumulation Shares(Note 1) USD – 101 101 Institutional Shares USD 5,678,343,980 6,497,826,582 5,275,034,000
Institutional Accumulation Shares USD 46,413,168 137,906,967 284,375,119
Institutional Select Shares USD 96,411,194 1,010,208 1,010,008 Master Shares USD 4,162,860,364 4,237,292,052 4,206,346,687
MS Reserve Shares USD 254,905,289 272,821,475 203,605,553
Qualified Shares USD – – 1,101,168 Qualified Accumulation Shares(Note 1) USD 15,793,425 2,562,486 14,735,829
US Dollar Treasury Liquidity Fund Advisory Shares(Note 1) USD – 10,000 10,000
Institutional Shares USD 956,120,649 224,190,299 322,780,457
Institutional Select Shares USD 50,010,000 10,000 10,000 MS Reserve Shares USD 533,246,611 438,736,235 664,837,334
Sterling Liquidity Fund Institutional Shares GBP 2,364,122,971 1,988,785,860 1,164,747,566
Institutional Accumulation Shares GBP 18,521,138 17,775,955 29,712,988
Institutional Select Shares GBP 7,000,000 7,041,521 – Institutional Select Accumulation Shares(Note 1) GBP – 57,025 –
MS Reserve Shares GBP 24,195,694 27,321,857 25,725,407
Qualified Shares GBP 9,022,300 11,631,435 12,450,530 Qualified Accumulation Shares(Note 1) GBP – 66,239 152,586
MORGAN STANLEY LIQUIDITY FUNDS
Statement of Operations and Changes in Net Assets
For the Year ended 31 March 2016
The accompanying notes form an integral part of financial statements.
17
US Dollar
Euro US Dollar Treasury Sterling
Liquidity Liquidity Liquidity Liquidity
Fund Fund Fund Fund Combined
INCOME EUR USD USD GBP USD
Interest (Note 2c) (2,725,036) 40,145,865 1,736,661 13,654,417 59,435,878
Total Positive/(Negative) Income (2,725,036) 40,145,865 1,736,661 13,654,417 59,435,878
EXPENSES
Management fees (Note 4,6) 5,423,641 14,646,196 1,306,196 4,770,045 29,121,815
Less: Management fees waived (4,101,086) (2,259,683) (652,466) (1,905,096) (10,307,628)
Management fees - Net 1,322,555 12,386,513 653,730 2,864,949 18,814,187
Taxe d'Abonnement (Note 5) – 406,859 – 533 407,662
Legal fees (Note 6c) 34,196 34,546 34,546 25,129 144,677 Director's fees and director's liability insurance
premium (Note 6b) 47,714 52,844 52,948 35,571 212,022
Ratings fees (Note 6c) 56,687 71,401 31,901 41,033 227,661 Tax Charges (excluding Taxe d'Abonnement) (Note 5) 19,942 21,540 13,725 15,559 80,706
Other fees (Note 6c) 20,374 20,404 26,014 14,870 91,298
Audit fees (Note 6c) 13,766 15,687 15,687 10,914 63,003
Professional fees (Note 6c) 12,672 35,716 1,147 5,122 58,563
Distribution fees (Note 6c) 11,152 9,586 9,586 7,637 42,981
Less: Operating fee reimbursement (223,208) (258,994) (185,554) (155,596) (925,223)
Total Expenses 1,315,850 12,796,102 653,730 2,865,721 19,217,537
Net Investment Income/(Expense) (4,040,886) 27,349,763 1,082,931 10,788,696 40,218,341
Less: Distribution paid from income (Note 3) (1,829) (27,075,715) (1,082,957) (10,707,153) (44,283,831)
Receipt from the Compulsory Redemption of shares (Note 3, 16) 3,985,919 – – – 4,399,611
Net Increase/(Decrease) in Net Assets resulting
from operations (56,796) 274,048 (26) 81,543 334,121
Proceeds from issuance of shares 14,162,192,012 62,301,227,920 12,170,777,189 16,125,747,721 114,386,682,282
Shares redeemed (14,169,390,300) (63,196,204,431) (11,294,346,438) (15,755,647,054) (113,855,865,173)
Increase/(Decrease) in Net Assets from share
transactions (7,198,288) (894,976,511) 876,430,751 370,100,667 530,817,109
Increase/(Decrease) in Net Assets (7,255,084) (894,702,463) 876,430,725 370,182,210 531,151,230
Net Assets at the beginning of the year 3,122,029,458 11,149,623,460 662,946,534 2,052,679,892 18,212,834,027
Foreign exchange adjustment on translation – – – – 82,139,765
NET ASSETS AT THE END OF THE YEAR 3,114,774,374 10,254,920,997 1,539,377,259 2,422,862,102 18,826,125,022
On behalf of the Board of the Company: Director
Director
30 June 2016
MORGAN STANLEY LIQUIDITY FUNDS
The accompanying notes form an integral part of financial statements.
18
Statement of Operations and Changes in Net Assets
For the Year ended 31 March 2015
US Dollar
Euro US Dollar Treasury Sterling
Liquidity Liquidity Liquidity Liquidity
Fund Fund Fund Fund Combined
INCOME EUR USD USD GBP USD
Interest (Note 2c) 3,627,480 19,151,392 336,192 9,345,389 39,112,629
Total Income 3,627,480 19,151,392 336,192 9,345,389 39,112,629
EXPENSES
Management fees (Note 4,6) 6,375,840 11,480,737 788,446 3,529,911 25,997,200
Less: Management fees waived (4,578,960) (2,367,061) (613,357) (1,406,039) (11,021,453)
Management fees - Net 1,796,880 9,113,676 175,089 2,123,872 14,975,747
Taxe d'Abonnement (Note 5) 45 470,244 – 1,072 472,027
Legal fees (Note 6c) 72,873 82,943 82,944 52,242 341,949 Director's fees and director's liability insurance
premium (Note 6b) 44,586 57,084 57,085 34,718 226,325
Ratings fees (Note 6c) 44,755 62,850 30,035 36,114 207,502 Tax Charges (excluding Taxe d'Abonnement)
(Note 5) 15,442 16,846 11,990 10,883 65,843
Other fees 13,916 21,751 20,347 11,778 78,620
Audit fees (Note 6c) 14,000 17,663 17,663 10,969 70,652
Professional fees (Note 6c) 11,292 22,806 1,890 3,278 44,221
Distribution fees (Note 6c) 6,099 8,407 8,407 5,076 32,682
Less: Operating fee reimbursement (222,442) (338,510) (230,402) (165,204) (1,115,572)
Total Expenses 1,797,446 9,535,760 175,048 2,124,798 15,399,996
Net Investment Income 1,830,034 9,615,632 161,144 7,220,591 23,712,633
Less: Distribution paid from income (Note 3) (1,815,262) (9,552,090) (161,140) (7,162,178) (23,536,390)
Net Increase/Decrease in Net Assets resulting
from operations 14,772 63,542 4 58,413 176,243
Proceeds from issuance of shares 13,599,152,544 50,560,263,780 8,930,587,315 11,160,336,886 94,618,978,887
Shares redeemed (12,656,378,955) (49,397,115,894) (9,255,278,576) (10,340,504,484) (91,270,948,507)
Increase/(Decrease) in Net Assets from share
transactions 942,773,589 1,163,147,886 (324,691,261) 819,832,402 3,348,030,380
Increase/(Decrease) in Net Assets 942,788,361 1,163,211,428 (324,691,257) 819,890,815 3,348,206,623
Net Assets at the beginning of the year 2,179,241,097 9,986,412,032 987,637,791 1,232,789,077 16,032,832,406
Foreign exchange adjustment on translation – – – – (1,168,205,002)
NET ASSETS AT THE END OF THE YEAR 3,122,029,458 11,149,623,460 662,946,534 2,052,679,892 18,212,834,027
MORGAN STANLEY LIQUIDITY FUNDS Euro Liquidity Fund
Schedule of Investments
As of 31 March 2016
(Expressed in EUR)
The accompanying notes form an integral part of financial statements.
19
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
COMMERCIAL PAPER 38.67%
BANQUE FEDERATIVE DU CREDIT MUTUEL EUR 25,000,000 0.00% 21-Apr-16 25,000,695 0.80 BANQUE FEDERATIVE DU CREDIT MUTUEL EUR 30,000,000 0.00% 27-Apr-16 30,001,084 0.96
BANQUE FEDERATIVE DU CREDIT MUTUEL EUR 30,000,000 0.00% 09-Sep-16 30,026,189 0.97 CATERPILLAR INTERNATIONAL FINANCE EUR 6,000,000 0.00% 04-Apr-16 6,000,085 0.19
CATERPILLAR INTERNATIONAL FINANCE EUR 35,000,000 0.00% 15-Jun-16 35,021,161 1.13
CATERPILLAR INTERNATIONAL FINANCE EUR 6,000,000 0.00% 04-Jul-16 6,004,402 0.19 DEKABANK DEUTSCHE GIROZENTRALE EUR 15,000,000 0.00% 08-Apr-16 15,000,729 0.48
DEKABANK DEUTSCHE GIROZENTRALE EUR 14,000,000 0.00% 08-Apr-16 14,000,681 0.45
DEKABANK DEUTSCHE GIROZENTRALE EUR 28,000,000 0.00% 15-Apr-16 28,001,144 0.90 DEKABANK DEUTSCHE GIROZENTRALE EUR 24,000,000 0.00% 02-May-16 24,002,274 0.77
DEKABANK DEUTSCHE GIROZENTRALE EUR 20,000,000 0.00% 21-Jun-16 20,014,410 0.64
DZ BANK AG DEUTSCHE ZENTRAL-GENOSS EUR 25,000,000 0.00% 07-Apr-16 25,000,083 0.80 ENGIE SA EUR 10,000,000 0.00% 20-Apr-16 10,000,026 0.32
ENGIE SA EUR 22,000,000 0.00% 22-Apr-16 22,001,797 0.71
GE CAPITAL EUROPEAN FUNDING EUR 15,000,000 0.00% 19-Apr-16 15,000,975 0.48 GE CAPITAL EUROPEAN FUNDING EUR 10,000,000 0.00% 19-Apr-16 10,000,650 0.32
HONEYWELL INTERNATIONAL INC EUR 25,000,000 0.00% 07-Apr-16 25,000,125 0.80
HONEYWELL INTERNATIONAL INC EUR 25,000,000 0.00% 11-May-16 25,000,278 0.80 KA FINANZ AG EUR 30,000,000 0.00% 07-Apr-16 30,000,275 0.96
KA FINANZ AG EUR 25,000,000 0.00% 27-May-16 25,001,167 0.80
KA FINANZ AG EUR 25,000,000 0.00% 17-Jun-16 25,007,759 0.80 KA FINANZ AG EUR 5,000,000 0.00% 12-Jul-16 5,001,134 0.16
KA FINANZ AG EUR 10,000,000 0.00% 21-Jul-16 10,006,482 0.32
KA FINANZ AG EUR 20,000,000 0.00% 10-Oct-16 20,027,776 0.64 POHJOLA BANK PLC EUR 30,000,000 0.00% 12-Apr-16 30,002,201 0.97
POHJOLA BANK PLC EUR 12,000,000 0.00% 14-Apr-16 12,000,173 0.39
POHJOLA BANK PLC EUR 14,500,000 0.00% 24-May-16 14,506,623 0.47 POHJOLA BANK PLC EUR 15,000,000 0.00% 01-Jun-16 15,008,647 0.48
POHJOLA BANK PLC EUR 30,000,000 0.00% 13-Jun-16 30,012,786 0.97
POHJOLA BANK PLC EUR 13,000,000 0.00% 15-Aug-16 13,014,260 0.42 PROCTER & GAMBLE COMPANY EUR 13,500,000 0.00% 01-Apr-16 13,500,000 0.44
PROCTER & GAMBLE COMPANY EUR 26,000,000 0.00% 12-Apr-16 26,000,318 0.84
PROCTER & GAMBLE COMPANY EUR 25,000,000 0.00% 26-Apr-16 25,000,695 0.80 PROCTER & GAMBLE COMPANY EUR 11,000,000 0.00% 28-Apr-16 11,000,578 0.35
PROCTER & GAMBLE COMPANY EUR 20,000,000 0.00% 22-Jun-16 20,007,292 0.64
PROCTER & GAMBLE COMPANY EUR 15,000,000 0.00% 29-Jun-16 15,005,936 0.48 PROCTER & GAMBLE COMPANY EUR 13,500,000 0.00% 01-Jul-16 13,505,462 0.43
SUMITOMO MITSUI BANKING CORPORATION EUR 25,000,000 0.00% 19-May-16 25,007,671 0.80
SUMITOMO MITSUI BANKING CORPORATION EUR 25,000,000 0.00% 10-Jun-16 25,014,108 0.80 SUMITOMO MITSUI BANKING CORPORATION EUR 30,000,000 0.00% 08-Jul-16 30,016,345 0.97
SVENSKA HANDELSBANKEN AB EUR 25,000,000 0.00% 01-Apr-16 25,000,000 0.80
SVENSKA HANDELSBANKEN AB EUR 20,000,000 0.00% 11-May-16 20,001,556 0.64 SVENSKA HANDELSBANKEN AB EUR 25,000,000 0.00% 08-Jun-16 25,004,725 0.80
SVENSKA HANDELSBANKEN AB EUR 20,000,000 0.00% 06-Jul-16 20,005,603 0.64
SVENSKA HANDELSBANKEN AB EUR 7,000,000 0.00% 22-Jul-16 7,002,506 0.23 SVENSKA HANDELSBANKEN AB EUR 25,000,000 0.00% 25-Aug-16 25,018,267 0.81
SVENSKA HANDELSBANKEN AB EUR 20,000,000 0.00% 03-Oct-16 20,026,758 0.64
TORONTO DOMINION BANK EUR 50,000,000 0.00% 10-Aug-16 49,998,181 1.61 UNILEVER NV EUR 25,000,000 0.00% 31-May-16 25,004,169 0.80
UNILEVER NV EUR 25,000,000 0.00% 06-Jun-16 25,006,420 0.80
UNILEVER NV EUR 25,000,000 0.00% 05-Jul-16 25,008,582 0.80 UNILEVER NV EUR 25,000,000 0.00% 05-Sep-16 25,026,194 0.81
UNITED PARCEL SERVICE INC EUR 50,000,000 0.00% 08-Apr-16 50,001,945 1.61 UNITED PARCEL SERVICE INC EUR 25,000,000 0.00% 08-Jun-16 25,013,232 0.80
UNITED PARCEL SERVICE INC EUR 20,000,000 0.00% 30-Jun-16 20,016,013 0.64
UNITED PARCEL SERVICE INC EUR 18,500,000 0.00% 18-Jul-16 18,516,665 0.60
Total Commercial Paper 1,204,375,292 38.67
MORGAN STANLEY LIQUIDITY FUNDS Euro Liquidity Fund
Schedule of Investments (continued)
As of 31 March 2016
(Expressed in EUR)
The accompanying notes form an integral part of financial statements.
20
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
TREASURY BILL 18.63%
FRANCE TREASURY BILL EUR 215,000,000 0.00% 06-Apr-16 215,012,895 6.90 FRANCE TREASURY BILL EUR 65,000,000 0.00% 13-Apr-16 65,009,030 2.09
FRANCE TREASURY BILL EUR 50,000,000 0.00% 20-Apr-16 50,009,323 1.60 FRANCE TREASURY BILL EUR 25,000,000 0.00% 04-May-16 25,008,211 0.80
FRANCE TREASURY BILL EUR 50,000,000 0.00% 19-May-16 50,024,523 1.61
FRANCE TREASURY BILL EUR 50,000,000 0.00% 01-Jun-16 50,036,254 1.61 FRANCE TREASURY BILL EUR 75,000,000 0.00% 15-Jun-16 75,066,215 2.41
FRANCE TREASURY BILL EUR 50,000,000 0.00% 29-Jun-16 50,052,590 1.61
Total Treasury Bill 580,219,041 18.63
CERTIFICATE OF DEPOSIT 11.30%
CREDIT SUISSE AG EUR 7,000,000 0.21% 13-Apr-16 7,000,490 0.23 MIZUHO BANK LTD EUR 25,000,000 0.00% 08-Apr-16 25,000,681 0.80
MIZUHO BANK LTD EUR 25,000,000 0.00% 16-May-16 25,007,191 0.80
MIZUHO BANK LTD EUR 30,000,000 0.00% 06-Jun-16 30,014,860 0.97 MIZUHO BANK LTD EUR 25,000,000 0.00% 01-Jul-16 25,017,391 0.80
SOCIETE DE FINANCEMENT LOCAL SA EUR 50,000,000 0.00% 23-May-16 50,009,757 1.61
SOCIETE DE FINANCEMENT LOCAL SA EUR 10,000,000 0.00% 08-Jun-16 10,005,671 0.32
SOCIETE DE FINANCEMENT LOCAL SA EUR 25,000,000 0.00% 13-Jun-16 25,005,072 0.80
SOCIETE DE FINANCEMENT LOCAL SA EUR 25,000,000 0.00% 23-Aug-16 25,022,526 0.81
SUMITOMO MITSUI BANKING CORPORATION EUR 25,000,000 0.00% 06-Jun-16 25,013,758 0.80 SUMITOMO MITSUI TRUST BANK LTD EUR 30,000,000 0.00% 11-Apr-16 30,001,434 0.96
SUMITOMO MITSUI TRUST BANK LTD EUR 25,000,000 0.00% 11-Jul-16 25,015,442 0.80
SUMITOMO MITSUI TRUST BANK LTD EUR 25,000,000 0.00% 18-Aug-16 25,013,523 0.80 SUMITOMO MITSUI TRUST BANK LTD EUR 25,000,000 0.00% 23-Aug-16 25,014,010 0.80
Total Certificate of Deposit 352,141,806 11.30
FLOATING RATE NOTE 8.58%
ANZ NEW ZEALAND INT'L LTD EUR 13,475,000 0.26% 05-Dec-16 13,506,752 0.43 AUSTRALIA AND NEW ZEALAND BANKING EUR 1,250,000 0.20% 04-Oct-16 1,251,584 0.04
COMMONWEALTH BANK OF AUSTRALIA EUR 11,365,000 0.19% 21-Oct-16 11,382,637 0.36
CREDIT SUISSE AG EUR 30,110,000 0.16% 22-Jul-16 30,129,357 0.97 NATIONAL AUSTRALIA BANK LTD EUR 26,400,000 0.16% 19-Jul-16 26,417,986 0.85
NORDEA BANK AB EUR 36,100,000 0.10% 25-Nov-16 36,149,526 1.16
RABOBANK NEDERLAND NV EUR 10,000,000 0.00% 29-Jul-16 10,000,000 0.32 RABOBANK NEDERLAND NV EUR 40,000,000 0.16% 18-Nov-16 40,049,053 1.29
RABOBANK NEDERLAND NV EUR 50,000,000 0.05% 13-Jan-17 50,013,911 1.61
RABOBANK NEDERLAND NV EUR 30,000,000 0.03% 19-Jan-17 30,000,000 0.96 SWEDBANK AB EUR 18,500,000 0.15% 20-Sep-16 18,526,344 0.59
Total Floating Rate Note 267,427,150 8.58
MORGAN STANLEY LIQUIDITY FUNDS Euro Liquidity Fund
Schedule of Investments (continued)
As of 31 March 2016
(Expressed in EUR)
The accompanying notes form an integral part of financial statements.
21
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
CORPORATE BOND 5.01%
DEUTSCHE BAHN FINANCE BV EUR 2,630,000 4.25% 23-Nov-16 2,705,438 0.09 ERSTE ABWICKLUNGSANSTALT EUR 19,100,000 0.50% 04-Nov-16 19,189,692 0.62
KREDITANSTALT FUR WIEDERAUFBAU EUR 20,000,000 0.50% 25-Jul-16 20,047,495 0.64 NATIONAL AUSTRALIA BANK LTD EUR 62,818,000 4.75% 15-Jul-16 63,678,910 2.05
NATIONAL AUSTRALIA BANK LTD EUR 2,157,000 3.75% 06-Jan-17 2,219,927 0.07
NRW.BANK EUR 3,060,000 0.63% 01-Aug-16 3,069,603 0.10 OESTERREICHISCHE KONTROLLBANK AG EUR 20,000,000 3.88% 15-Sep-16 20,376,289 0.65
SKANDINAVISKA ENSKILDA BANKEN AB EUR 5,610,000 3.75% 19-May-16 5,638,353 0.18
SWEDBANK AB EUR 19,107,000 2.38% 04-Apr-16 19,110,815 0.61
Total Corporate Bond 156,036,522 5.01
COMMERCIAL PAPER - INTEREST BEARING 1.61%
FMS WERTMANAGEMENT ANSTALT DES OFF EUR 50,000,000 -0.36% 02-Mar-17 50,000,000 1.61
Total Commercial Paper - Interest Bearing 50,000,000 1.61
GOVERNMENT BOND 0.34%
STATE OF NORTH RHINE-WESTPHALIA EUR 10,715,000 0.50% 14-Apr-16 10,717,707 0.34
Total Government Bond 10,717,707 0.34
Total Transferable Securities and Money Market Instruments 2,620,917,518 84.14
Total Investments 2,620,917,518 84.14
Other assets in excess of liabilities 493,856,856 15.86
Total Net Assets 3,114,774,374 100.00
MORGAN STANLEY LIQUIDITY FUNDS US Dollar Liquidity Fund
Schedule of Investments
As of 31 March 2016
(Expressed in USD)
The accompanying notes form an integral part of financial statements.
22
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
CERTIFICATE OF DEPOSIT 38.12%
BANCO DEL ESTADO DE CHILE USD 150,000,000 0.36% 04-Apr-16 150,000,000 1.46 BANK OF MONTREAL USD 165,000,000 0.30% 06-Apr-16 165,000,000 1.61
BANK OF MONTREAL USD 125,000,000 0.63% 20-May-16 125,000,000 1.22 BANK OF NOVA SCOTIA USD 80,000,000 0.77% 26-Jul-16 80,000,000 0.78
BANQUE FEDERATIVE DU CREDIT MUTUEL USD 125,000,000 0.00% 01-Jul-16 124,766,670 1.22
BNZ INTERNATIONAL FUNDING LTD USD 100,000,000 0.81% 19-Sep-16 100,000,000 0.98 CANADIAN IMPERIAL BANK OF COMMERCE USD 65,000,000 0.77% 22-Jul-16 65,000,000 0.63
CITIBANK NA USD 130,000,000 0.64% 01-Jun-16 130,000,000 1.27
CREDIT INDUSTRIEL ET COMMERCIAL USD 25,000,000 0.72% 02-May-16 25,000,000 0.24 CREDIT INDUSTRIEL ET COMMERCIAL USD 250,000,000 0.84% 07-Jul-16 250,000,000 2.44
CREDIT INDUSTRIEL ET COMMERCIAL USD 65,000,000 0.83% 21-Jul-16 65,000,000 0.63
CREDIT SUISSE AG USD 102,000,000 0.70% 25-Apr-16 102,000,000 0.99 CREDIT SUISSE AG USD 105,000,000 0.73% 20-May-16 105,000,000 1.02
CREDIT SUISSE AG USD 75,000,000 0.78% 30-Jun-16 75,000,000 0.73
CREDIT SUISSE AG USD 60,000,000 0.78% 08-Jul-16 60,000,000 0.59 CREDIT SUISSE AG USD 85,000,000 0.86% 22-Jul-16 85,000,000 0.83
DZ BANK AG DEUTSCHE ZENTRAL-GENOSS USD 64,000,000 0.68% 17-Jun-16 64,000,000 0.62
DZ BANK AG DEUTSCHE ZENTRAL-GENOSS USD 63,000,000 0.68% 24-Jun-16 63,000,000 0.61 DZ BANK AG DEUTSCHE ZENTRAL-GENOSS USD 63,000,000 0.68% 24-Jun-16 63,000,000 0.61
HSBC BANK PLC USD 133,000,000 0.74% 11-Jul-16 133,000,000 1.30
MIZUHO BANK LTD USD 63,000,000 0.70% 15-Jun-16 62,999,998 0.62 MIZUHO BANK LTD USD 25,000,000 0.70% 15-Jun-16 25,000,000 0.24
MIZUHO BANK LTD USD 63,000,000 0.70% 16-Jun-16 63,000,000 0.61
MIZUHO BANK LTD USD 60,000,000 0.68% 18-Jul-16 60,000,000 0.59 MIZUHO BANK LTD USD 64,000,000 0.67% 21-Jul-16 64,000,000 0.62
OVERSEA-CHINESE BANKING CORP USD 64,000,000 0.70% 08-Jul-16 64,000,000 0.62
ROYAL BANK OF CANADA USD 109,500,000 0.73% 30-Jun-16 109,499,303 1.07 STATE STREET BANK & TRUST CO USD 127,000,000 0.65% 10-Jun-16 127,000,000 1.24
SUMITOMO MITSUI BANKING CORPORATION USD 150,000,000 0.67% 04-Apr-16 150,003,492 1.47
SUMITOMO MITSUI BANKING CORPORATION USD 215,000,000 0.69% 27-May-16 215,000,000 2.10 SWEDBANK AB USD 165,000,000 0.36% 05-Apr-16 165,000,000 1.61
SWEDBANK AB USD 300,000,000 0.35% 06-Apr-16 300,000,000 2.93
TORONTO DOMINION BANK USD 133,800,000 0.60% 24-May-16 133,800,000 1.30 UBS AG USD 100,000,000 0.67% 01-Jun-16 100,000,000 0.98
UBS AG USD 25,000,000 0.67% 03-Jun-16 25,000,000 0.24
WELLS FARGO BANK NA USD 200,000,000 0.74% 27-Jun-16 200,000,000 1.95 WESTPAC BANKING CORP USD 14,920,000 0.80% 15-Apr-16 14,920,117 0.15
Total Certificate of Deposit 3,908,989,580 38.12
COMMERCIAL PAPER 18.64%
AGENCE CENTRALE DES ORGANISMES USD 100,000,000 0.00% 16-Jun-16 99,847,264 0.98 AGENCE CENTRALE DES ORGANISMES USD 150,000,000 0.00% 24-Jun-16 149,755,571 1.46
AGENCE CENTRALE DES ORGANISMES USD 250,000,000 0.00% 06-Jul-16 249,514,770 2.43
BANQUE ET CAISSE D'EPARGNE DE L'ETAT USD 70,000,000 0.00% 08-Jul-16 69,862,800 0.68 BPCE SA USD 25,000,000 0.00% 02-May-16 24,984,500 0.24
COMMONWEALTH BANK OF AUSTRALIA USD 160,000,000 0.00% 29-Sep-16 159,999,676 1.56
ERSTE ABWICKLUNGSANSTALT USD 45,000,000 0.00% 13-Jun-16 44,940,687 0.44 ERSTE ABWICKLUNGSANSTALT USD 76,400,000 0.00% 14-Jun-16 76,297,921 0.75
ERSTE ABWICKLUNGSANSTALT USD 77,000,000 0.00% 16-Jun-16 76,894,339 0.75
ING US FUNDING LLC USD 140,000,000 0.00% 10-May-16 139,893,833 1.37 ING US FUNDING LLC USD 125,000,000 0.00% 01-Jul-16 124,756,701 1.22
SUMITOMO MITSUI TRUST BANK LTD USD 6,280,000 0.00% 02-May-16 6,275,890 0.06
MORGAN STANLEY LIQUIDITY FUNDS US Dollar Liquidity Fund
Schedule of Investments (continued)
As of 31 March 2016
(Expressed in USD)
The accompanying notes form an integral part of financial statements.
23
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
COMMERCIAL PAPER 18.64%
SUMITOMO MITSUI TRUST BANK LTD USD 75,000,000 0.00% 15-Jun-16 74,890,625 0.73 SUMITOMO MITSUI TRUST BANK LTD USD 82,000,000 0.00% 16-Jun-16 81,878,822 0.80
SUMITOMO MITSUI TRUST BANK LTD USD 140,000,000 0.00% 24-Jun-16 139,771,333 1.36 SUNCORP-METWAY LTD USD 25,000,000 0.00% 22-Jun-16 24,956,153 0.24
SUNCORP-METWAY LTD USD 50,000,000 0.00% 29-Jun-16 49,906,921 0.49
SUNCORP-METWAY LTD USD 37,350,000 0.00% 05-Jul-16 37,275,093 0.36 SUNCORP-METWAY LTD USD 10,000,000 0.00% 11-Jul-16 9,978,958 0.10
SUNCORP-METWAY LTD USD 32,000,000 0.00% 14-Jul-16 31,914,027 0.31
SUNCORP-METWAY LTD USD 25,000,000 0.00% 19-Jul-16 24,929,604 0.24 SUNCORP-METWAY LTD USD 22,000,000 0.00% 27-Jul-16 21,934,545 0.22
SUNCORP-METWAY LTD USD 25,000,000 0.00% 08-Aug-16 24,923,854 0.24
UNITED OVERSEAS BANK LTD USD 26,000,000 0.00% 15-Apr-16 25,993,226 0.25 UNITED OVERSEAS BANK LTD USD 65,000,000 0.00% 05-Jul-16 64,879,931 0.63
UNITED OVERSEAS BANK LTD USD 75,000,000 0.00% 15-Aug-16 74,787,500 0.73
Total Commercial Paper 1,911,044,544 18.64
COMMERCIAL PAPER - INTEREST BEARING 9.95%
ABS FINANCE LTD USD 100,000,000 0.80% 22-Sep-16 100,000,000 0.97
ASB FINANCE LTD USD 55,000,000 0.69% 31-May-16 55,000,000 0.54
BNZ INTERNATIONAL FUNDING LTD USD 75,000,000 0.80% 23-Sep-16 75,000,000 0.73
HSBC BANK PLC USD 250,000,000 0.86% 19-Sep-16 250,000,000 2.44 JP MORGAN SECURITIES LLC USD 250,000,000 0.66% 19-May-16 250,000,000 2.44
OVERSEA-CHINESE BANKING CORP USD 90,000,000 0.66% 23-May-16 90,000,000 0.88
WESTPAC SECURITIES NZ LTD USD 100,000,000 0.81% 19-Sep-16 100,000,000 0.97 WESTPAC SECURITIES NZ LTD USD 100,000,000 0.80% 22-Sep-16 100,000,000 0.98
Total Commercial Paper - Interest Bearing 1,020,000,000 9.95
FLOATING RATE NOTE 7.19%
BANK OF AMERICA NA USD 57,000,000 0.78% 22-Jul-16 57,000,000 0.56 JPMORGAN CHASE BANK NA USD 163,500,000 0.80% 07-Jun-16 163,500,000 1.59
MACQUARIE BANK LTD USD 45,608,000 1.08% 15-Jun-16 45,616,424 0.44
SUMITOMO MITSUI BANKING CORPORATION USD 37,530,000 1.29% 19-Jul-16 37,580,587 0.37 SVENSKA HANDELSBANKEN AB USD 121,000,000 0.63% 13-May-16 121,000,000 1.18
WELLS FARGO BANK NA USD 28,000,000 0.78% 02-Jun-16 27,997,276 0.27
WELLS FARGO BANK NA USD 84,000,000 0.75% 14-Jun-16 84,000,000 0.82 WELLS FARGO BANK NA USD 201,000,000 0.68% 17-Jun-16 201,000,000 1.96
Total Floating Rate Note 737,694,287 7.19
TREASURY NOTE 3.40%
UNITED STATES TREASURY NOTE USD 348,546,500 0.13% 15-Apr-16 348,714,043 3.40
Total Treasury Note 348,714,043 3.40
MORGAN STANLEY LIQUIDITY FUNDS US Dollar Liquidity Fund
Schedule of Investments (continued)
As of 31 March 2016
(Expressed in USD)
The accompanying notes form an integral part of financial statements.
24
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
CORPORATE BOND 0.91%
EUROPEAN INVESTMENT BANK USD 46,000,000 10.00% 05-May-16 46,390,715 0.45 MACQUARIE BANK LTD USD 47,199,000 2.00% 15-Aug-16 47,363,996 0.46
Total Corporate Bond 93,754,711 0.91
Total Transferable Securities and Money Market Instruments 8,020,197,165 78.21
Total Investments 8,020,197,165 78.21
Other assets in excess of liabilities 2,234,723,832 21.79
Total Net Assets 10,254,920,997 100.00
MORGAN STANLEY LIQUIDITY FUNDS US Dollar Treasury Liquidity Fund
Schedule of Investments
As of 31 March 2016
(Expressed in USD)
The accompanying notes form an integral part of financial statements.
25
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
TREASURY NOTE 53.67%
UNITED STATES TREASURY NOTE USD 100,000,000 0.25% 15-Apr-16 100,000,000 6.50 UNITED STATES TREASURY NOTE USD 32,181,000 0.13% 15-Apr-16 32,195,077 2.09
UNITED STATES TREASURY NOTE USD 330,000,000 0.37% 30-Apr-16 330,011,817 21.44 UNITED STATES TREASURY NOTE USD 30,000,000 2.63% 30-Apr-16 30,053,994 1.95
UNITED STATES TREASURY NOTE USD 10,000,000 0.25% 15-May-16 9,998,942 0.65
UNITED STATES TREASURY NOTE USD 10,000,000 3.25% 31-May-16 10,047,693 0.65 UNITED STATES TREASURY NOTE USD 18,000,000 1.75% 31-May-16 18,041,980 1.17
UNITED STATES TREASURY NOTE USD 25,000,000 3.25% 30-Jun-16 25,158,838 1.63
UNITED STATES TREASURY NOTE USD 20,000,000 0.63% 15-Jul-16 20,016,866 1.30 UNITED STATES TREASURY NOTE USD 5,000,000 3.25% 31-Jul-16 5,041,893 0.33
UNITED STATES TREASURY NOTE USD 55,000,000 3.00% 31-Aug-16 55,558,726 3.61
UNITED STATES TREASURY NOTE USD 5,000,000 1.00% 31-Aug-16 5,009,896 0.33 UNITED STATES TREASURY NOTE USD 5,000,000 3.00% 30-Sep-16 5,061,848 0.33
UNITED STATES TREASURY NOTE USD 10,000,000 0.50% 30-Sep-16 9,999,839 0.65
UNITED STATES TREASURY NOTE USD 60,000,000 0.35% 31-Oct-16 59,983,696 3.90 UNITED STATES TREASURY NOTE USD 110,000,000 0.38% 31-Jan-17 109,993,773 7.14
Total Treasury Note 826,174,878 53.67
TREASURY BILL 35.02%
UNITED STATES TREASURY BILL USD 135,000,000 0.00% 21-Apr-16 134,979,750 8.77
UNITED STATES TREASURY BILL USD 125,000,000 0.00% 28-Apr-16 124,981,249 8.12 UNITED STATES TREASURY BILL USD 30,000,000 0.00% 12-May-16 29,989,391 1.95
UNITED STATES TREASURY BILL USD 30,000,000 0.00% 16-Jun-16 29,963,520 1.95
UNITED STATES TREASURY BILL USD 20,000,000 0.00% 23-Jun-16 19,986,167 1.30 UNITED STATES TREASURY BILL USD 50,000,000 0.00% 30-Jun-16 49,954,063 3.24
UNITED STATES TREASURY BILL USD 25,000,000 0.00% 07-Jul-16 24,966,926 1.62 UNITED STATES TREASURY BILL USD 75,000,000 0.00% 14-Jul-16 74,900,333 4.86
UNITED STATES TREASURY BILL USD 25,000,000 0.00% 04-Aug-16 24,959,705 1.62
UNITED STATES TREASURY BILL USD 9,500,000 0.00% 25-Aug-16 9,482,470 0.62 UNITED STATES TREASURY BILL USD 15,000,000 0.00% 29-Sep-16 14,964,177 0.97
Total Treasury Bill 539,127,751 35.02
Total Transferable Securities and Money Market Instruments 1,365,302,629 88.69
Total Investments 1,365,302,629 88.69
Other assets in excess of liabilities 174,074,630 11.31
Total Net Assets 1,539,377,259 100.00
MORGAN STANLEY LIQUIDITY FUNDS Sterling Liquidity Fund
Schedule of Investments
As of 31 March 2016
(Expressed in GBP)
The accompanying notes form an integral part of financial statements.
26
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
COMMERCIAL PAPER 33.17%
ABN AMRO BANK GBP 20,000,000 0.00% 18-Apr-16 19,995,345 0.83 ABN AMRO BANK GBP 25,000,000 0.00% 09-Jun-16 24,971,215 1.03
AGENCE CENTRALE DES ORGANISMES GBP 15,000,000 0.00% 11-Apr-16 14,997,946 0.62 AGENCE CENTRALE DES ORGANISMES GBP 18,000,000 0.00% 09-May-16 17,989,888 0.74
BANQUE FEDERATIVE DU CREDIT MUTUEL GBP 10,000,000 0.00% 06-Apr-16 9,999,247 0.41
BANQUE FEDERATIVE DU CREDIT MUTUEL GBP 25,000,000 0.00% 08-Apr-16 24,996,560 1.03 BANQUE FEDERATIVE DU CREDIT MUTUEL GBP 15,000,000 0.00% 08-Jun-16 14,978,149 0.62
BANQUE FEDERATIVE DU CREDIT MUTUEL GBP 30,000,000 0.00% 01-Aug-16 29,921,099 1.23
DEKABANK DEUTSCHE GIROZENTRALE GBP 25,000,000 0.00% 07-Apr-16 24,997,538 1.03 DNB BANK ASA GBP 25,000,000 0.00% 06-Jul-16 24,953,480 1.03
DZ BANK AG DEUTSCHE ZENTRAL-GENOSS GBP 25,000,000 0.00% 07-Apr-16 24,997,093 1.03
ERSTE ABWICKLUNGSANSTALT GBP 15,000,000 0.00% 13-Apr-16 14,997,535 0.62 ERSTE ABWICKLUNGSANSTALT GBP 27,000,000 0.00% 23-May-16 26,976,958 1.11
ERSTE ABWICKLUNGSANSTALT GBP 30,000,000 0.00% 22-Jun-16 29,959,645 1.24
GE CAPITAL UK FUNDING GBP 30,000,000 0.00% 15-Apr-16 29,994,133 1.24 MACQUARIE BANK LTD GBP 25,000,000 0.00% 08-Apr-16 24,996,936 1.03
OVERSEA-CHINESE BANKING CORP GBP 25,000,000 0.00% 14-Apr-16 24,994,010 1.03
PACCAR FINANCIAL EUROPE BV GBP 20,000,000 0.00% 01-Apr-16 20,000,000 0.83 PACCAR FINANCIAL EUROPE BV GBP 15,000,000 0.00% 05-Apr-16 14,999,178 0.62
PACCAR FINANCIAL EUROPE BV GBP 10,000,000 0.00% 08-Apr-16 9,999,041 0.41
PACCAR FINANCIAL EUROPE BV GBP 10,000,000 0.00% 18-Apr-16 9,997,672 0.41 PACCAR FINANCIAL EUROPE BV GBP 15,000,000 0.00% 25-Apr-16 14,995,071 0.62
PACCAR FINANCIAL EUROPE BV GBP 20,000,000 0.00% 03-May-16 19,991,237 0.83
POHJOLA BANK PLC GBP 10,000,000 0.00% 10-May-16 9,993,918 0.41 POHJOLA BANK PLC GBP 17,000,000 0.00% 20-May-16 16,987,235 0.70
POHJOLA BANK PLC GBP 6,000,000 0.00% 08-Jun-16 5,992,969 0.25
POHJOLA BANK PLC GBP 22,500,000 0.00% 10-Jun-16 22,472,901 0.93 POHJOLA BANK PLC GBP 30,000,000 0.00% 14-Jun-16 29,959,990 1.24
POHJOLA BANK PLC GBP 10,000,000 0.00% 06-Jul-16 9,983,221 0.41
SKANDINAVISKA ENSKILDA BANKEN AB GBP 25,000,000 0.00% 06-Apr-16 24,997,645 1.03 SKANDINAVISKA ENSKILDA BANKEN AB GBP 20,000,000 0.00% 11-Apr-16 19,996,124 0.83
SKANDINAVISKA ENSKILDA BANKEN AB GBP 20,000,000 0.00% 27-Jul-16 19,947,752 0.82
SKANDINAVISKA ENSKILDA BANKEN AB GBP 20,000,000 0.00% 01-Aug-16 19,952,041 0.82 STADSHYPOTEK AB GBP 25,000,000 0.00% 22-Aug-16 24,936,541 1.03
SUMITOMO MITSUI BANKING CORPORATION GBP 25,000,000 0.00% 11-Aug-16 24,935,137 1.03
SUMITOMO MITSUI BANKING CORPORATION GBP 25,000,000 0.00% 19-Aug-16 24,931,206 1.03 TORONTO DOMINION BANK GBP 25,000,000 0.00% 18-Oct-16 24,887,235 1.03
TOYOTA MOTOR FINANCE (NETHERLANDS) GBP 49,000,000 0.00% 01-Apr-16 49,000,000 2.02
Total Commercial Paper 803,672,891 33.17
CERTIFICATE OF DEPOSIT 22.49%
BANK OF AMERICA NA GBP 40,000,000 0.63% 04-Apr-16 40,000,000 1.65
BANK OF AMERICA NA GBP 18,000,000 0.63% 08-Jul-16 18,000,000 0.74
BANK OF MONTREAL GBP 30,000,000 0.00% 10-Jun-16 29,960,438 1.24 BANK OF MONTREAL GBP 25,000,000 0.69% 02-Aug-16 25,000,000 1.03
CREDIT SUISSE AG GBP 25,000,000 0.00% 07-Apr-16 24,996,929 1.03
CREDIT SUISSE AG GBP 25,000,000 0.00% 15-Apr-16 24,992,835 1.03 DZ BANK AG DEUTSCHE ZENTRAL-GENOSS GBP 25,000,000 0.00% 22-Jul-16 24,944,203 1.03
MIZUHO BANK LTD GBP 25,000,000 0.00% 23-May-16 24,979,017 1.03
MIZUHO BANK LTD GBP 15,400,000 0.00% 31-May-16 15,384,834 0.64 NATIONWIDE BUILDING SOCIETY GBP 50,000,000 0.86% 07-Apr-16 50,002,934 2.06
NORDEA BANK AB GBP 7,000,000 0.60% 04-Apr-16 7,000,040 0.29
NORINCHUKIN BANK GBP 25,000,000 0.00% 15-Apr-16 24,995,207 1.03
MORGAN STANLEY LIQUIDITY FUNDS Sterling Liquidity Fund
Schedule of Investments (continued)
As of 31 March 2016
(Expressed in GBP)
The accompanying notes form an integral part of financial statements.
27
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
CERTIFICATE OF DEPOSIT 22.49%
RABOBANK NEDERLAND NV GBP 25,000,000 0.00% 29-Jul-16 24,941,525 1.03 SUMITOMO MITSUI TRUST BANK LTD GBP 25,000,000 0.61% 08-Apr-16 25,000,000 1.03
SUMITOMO MITSUI TRUST BANK LTD GBP 25,000,000 0.00% 09-Aug-16 24,928,167 1.03 SUMITOMO MITSUI TRUST BANK LTD GBP 25,000,000 0.00% 05-Sep-16 24,914,322 1.03
SUMITOMO MITSUI TRUST BANK LTD GBP 25,000,000 0.00% 19-Sep-16 24,906,680 1.03
SVENSKA HANDELSBANKEN AB GBP 25,000,000 0.62% 31-May-16 25,000,000 1.03 SVENSKA HANDELSBANKEN AB GBP 25,000,000 0.55% 06-Jun-16 25,000,000 1.03
TORONTO DOMINION BANK GBP 20,000,000 0.95% 02-Dec-16 20,000,000 0.83
TORONTO DOMINION BANK GBP 15,000,000 0.97% 11-Jan-17 15,000,000 0.62 WELLS FARGO BANK INTERNATIONAL GBP 25,000,000 0.60% 29-Jul-16 25,000,000 1.03
Total Certificate of Deposit 544,947,131 22.49
FLOATING RATE NOTE 22.08%
AUSTRALIA AND NEW ZEALAND BANKING GBP 25,000,000 0.57% 06-Jun-16 24,999,429 1.03
AUSTRALIA AND NEW ZEALAND BANKING GBP 25,000,000 0.63% 28-Oct-16 25,000,000 1.03 AUSTRALIA AND NEW ZEALAND BANKING GBP 25,000,000 0.85% 17-Jan-17 25,000,000 1.03
COMMONWEALTH BANK OF AUSTRALIA GBP 25,000,000 0.84% 29-Mar-17 24,995,041 1.03
DBS BANK LTD GBP 30,000,000 0.53% 01-Apr-16 30,000,000 1.24
DBS BANK LTD GBP 10,000,000 0.58% 08-Jun-16 9,999,907 0.42
ERSTE ABWICKLUNGSANSTALT GBP 19,000,000 0.59% 08-Jul-16 19,000,000 0.78
EUROPEAN INVESTMENT BANK GBP 15,000,000 0.79% 22-Feb-17 15,014,755 0.62 NATIONAL AUSTRALIA BANK LTD GBP 25,000,000 0.59% 10-Jun-16 25,000,000 1.03
NATIONAL AUSTRALIA BANK LTD GBP 10,000,000 0.61% 19-Aug-16 9,999,618 0.41
NATIONAL AUSTRALIA BANK LTD GBP 25,000,000 0.83% 17-Dec-16 24,994,672 1.03 NATIONAL AUSTRALIA BANK LTD GBP 27,000,000 0.85% 14-Feb-17 26,995,319 1.12
NRW.BANK GBP 25,000,000 0.56% 18-Jul-16 24,997,977 1.03 NRW.BANK GBP 20,000,000 0.59% 17-Aug-16 19,999,246 0.83
NRW.BANK GBP 10,000,000 0.61% 16-Sep-16 9,998,932 0.41
NRW.BANK GBP 20,000,000 0.67% 11-Nov-16 20,000,000 0.83 RABOBANK NEDERLAND NV GBP 50,000,000 0.77% 16-Jan-17 50,000,000 2.06
ROYAL BANK OF CANADA GBP 35,000,000 0.59% 25-Aug-16 35,000,000 1.44
ROYAL BANK OF CANADA GBP 20,000,000 0.77% 01-Dec-16 20,000,000 0.83 ROYAL BANK OF CANADA GBP 20,000,000 0.84% 19-Dec-16 20,000,000 0.83
ROYAL BANK OF CANADA GBP 25,000,000 0.86% 08-Feb-17 25,000,000 1.03
WESTPAC BANKING CORP GBP 24,000,000 0.59% 08-Jul-16 23,997,541 0.99 WESTPAC SECURITIES NZ LTD GBP 25,000,000 0.89% 23-Dec-16 24,994,549 1.03
Total Floating Rate Note 534,986,986 22.08
TREASURY BILL 3.28%
UK TREASURY BILL GBP 3,266,500 0.00% 04-Apr-16 3,266,386 0.13
UK TREASURY BILL GBP 7,200,000 0.00% 11-Apr-16 7,199,113 0.30 UK TREASURY BILL GBP 34,000,000 0.00% 18-Apr-16 33,993,237 1.40
UK TREASURY BILL GBP 35,127,000 0.00% 25-Apr-16 35,116,380 1.45
Total Treasury Bill 79,575,116 3.28
MORGAN STANLEY LIQUIDITY FUNDS Sterling Liquidity Fund
Schedule of Investments (continued)
As of 31 March 2016
(Expressed in GBP)
The accompanying notes form an integral part of financial statements.
28
ISSUE DENOMINATION
CURRENCY HOLDINGS COUPON
RATE MATURITY
DATE AMORTIZED
COST
PERCENTAGE OF
NET ASSETS
TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS
CORPORATE BOND 1.83%
LANDESBANK BADEN-WURTTEMBERG GBP 15,000,000 1.25% 15-Dec-16 15,052,121 0.62 NEDERLANDSE WATERSCHAPSBANK NV GBP 4,161,000 2.13% 07-Sep-16 4,184,431 0.18
WESTPAC BANKING CORP GBP 25,000,000 0.84% 14-Mar-17 24,996,435 1.03
Total Corporate Bond 44,232,987 1.83
Total Transferable Securities and Money Market Instruments 2,007,415,111 82.85
Total Investments 2,007,415,111 82.85
Other assets in excess of liabilities 415,446,991 17.15
Total Net Assets 2,422,862,102 100.00
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements
31 March 2016
29
1. General information:
Morgan Stanley Liquidity Funds (the “Company”) was incorporated on 21 December 2012 for an unlimited
period of time as a self-managed société d’investissement à capital variable under the form of a société anonyme.
The Company is authorised under Part I of the Law of 17 December 2010 in accordance with the provisions of the
UCITS Directive and listed on the official list of UCITS approved by the Commission de Surveillance du Secteur
Financier (the “CSSF”). The registered office of the Company is located at 6B route de Trèves, L-2633
Senningerberg, Grand Duchy of Luxembourg.
Effective 1 April 2014, Morgan Stanley Investment Management (ACD) Limited (“MSIM (ACD)”) was
appointed as Management Company to provide collective portfolio management services to the Company. MSIM
(ACD) is authorised by the Financial Conduct Authority in the United Kingdom to provide these services. This
change was communicated to investors in the shareholder notices dated 28 February 2014 and was reflected
within the updated Prospectus that came into effect on 1 April 2014.
The Company is an “umbrella fund” which is composed of more than one Sub-Fund, each representing a separate
portfolio of assets. However, each Sub-Fund is exclusively responsible for all liabilities attributable to it.
The Company currently offers four Sub-Funds: the Euro Liquidity Fund, the US Dollar Liquidity Fund, the US
Dollar Treasury Liquidity Fund and the Sterling Liquidity Fund. The Euro Liquidity Fund was launched on 10
January 2013 and the three other Sub-Funds were launched on 17 June 2013.
The Class of Shares that are active as at 31 March 2016 are detailed in the table below:
Name of the Sub-Fund Class of Shares Launch date
Euro Liquidity Fund
Institutional Shares 17 June 2013 Institutional Accumulation Shares 17 June 2013
Institutional Select Shares* 24 June 2015 MS Reserve Shares 17 June 2013
US Dollar Liquidity Fund
Advantage Accumulation Shares 17 June 2013 Institutional Shares 17 June 2013
Institutional Accumulation Shares 17 June 2013
Institutional Select Shares 16 January 2014
Master Shares 9 September 2013
MS Reserve Shares 17 June 2013
Qualified Accumulation Shares** 17 June 2013
US Dollar Treasury Liquidity Fund
Institutional Shares 17 June 2013
Institutional Select Shares 16 January 2014
MS Reserve Shares 17 June 2013
Sterling Liquidity Fund
Institutional Shares 17 June 2013
Institutional Accumulation Shares 17 June 2013
Institutional Select Shares 26 June 2014
MS Reserve Shares 28 November 2013
Qualified Shares 17 June 2013
*Share class opened during the year.
** Share class was suspended on 4 September 2015 and re-launched on 15 March 2016 at a price of USD100.00.
The Class of Shares that closed during the year are detailed in the table below:
Name of the Sub-Fund Class of Shares Closure date
Euro Liquidity Fund Advisory Shares 16 June 2015
Qualified Accumulation Shares 31 July 2015
US Dollar Liquidity Fund Advisory Shares 24 February 2016
Advisory Accumulation Shares 4 February 2016
US Dollar Treasury Liquidity Fund Advisory Shares 24 February 2016
Sterling Liquidity Fund Institutional Select Accumulation Shares 1 April 2015
Qualified Accumulation Shares 28 October 2015
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
30
1. General information: (continued)
Each Sub-Fund’s Investment objective is to provide investors with liquidity and an attractive rate of income
relative to short term interest rates, to the extent consistent with the preservation of capital.
Each Sub-Fund has its own Investment policy but all are classified as Short-Term Money Market Funds in
accordance with CESR guidelines on a common definition of European money market funds (CESR/10-049).
2. Summary of Significant Accounting Policies:
The financial statements of the Company have been prepared in accordance with the accounting principles
generally accepted in Luxembourg.
(a) Valuation of Investments
The securities, money market instruments and other instruments are valued based on their amortised cost. Under
this method, amortised cost is determined by valuing an instrument at its cost and thereafter assuming a constant
amortisation to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the
market value of the instruments.
The Company generally uses the amortised cost method of valuation to determine the value of the following
investments, provided that such investments comply with the above conditions: (i) investments with a residual
maturity of fifteen months or less or (ii) floating rate investments with a residual maturity of two years or less
(measured to the date on which the issuer must unconditionally repay the principal amount to the Company on
foot of either maturity, put option or other repayment demand feature), where the Board of Directors have
determined that the investment has a market value that approximates its amortised cost value and the investment
has an annual or shorter interval coupon/interest rate re-fix or (iii) floating rate investments which meet the
conditions described in (ii) above except that they have a residual maturity of up to five years, provided that they
are of high credit quality and are issued by the US government, an agency or instrumentality of the US
government, the government of an OECD member, an agency or instrumentality of such government or by the
government of a Member State or an agency or instrumentality of such government.
Subject to the above, the Board of Directors uses the amortised cost method of valuation of any investments of a
Fund which is a Money Market Fund or a Short Term Money Market Fund unless it is not appropriate to use such
method in respect of certain investment(s) of such Fund, in which case one of the other methods of valuation
outlined below is used.
The Administrator determines at least weekly the extent to which the Net Asset Value of the relevant Fund or
Class using this method of valuation deviates from the Net Asset Value which would be obtained using available
market quotations. Deviations in excess of 0.10% between the market value and the amortised cost value are
brought to the attention of the Investment Adviser. Deviations in excess of 0.15% between the market value and
the amortised cost value of the relevant Fund or Class are brought to the attention of the Board of Directors and
the Depositary. If this deviation exceeds 0.25% of the Net Asset Value of the relevant Fund, the Administrator
reviews the valuation daily and the Board of Directors takes such corrective action, if any, as they deem
appropriate to eliminate or reduce, to the extent reasonably practicable, any such deviation. Notwithstanding the
generality of the foregoing, the Board of Directors utilises the market value of any individual investment in the
event that the market value of that investment deviates by more than 1% from its amortised cost valuation.
(b) Security Transactions
When applicable, security transactions are accounted for on the trade date.
(c) Interest Income
Interest income is accrued daily and includes the amortisation of premiums and accretion of discounts. Interest
income is recognised on an accrual basis and is shown net of withholding taxes, except where the withholding tax
has been recovered or is receivable. It is possible for the interest income of a Sub-Fund to be negative depending
on market conditions.
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
31
2. Summary of Significant Accounting Policies: (continued)
(d) Cash
Cash and other liquid assets are valued at their face value plus interest accrued, where applicable. It is possible for
the interest accrual of a Sub-Fund to be negative depending on market conditions.
(e) Foreign currency translation
Financial statements are presented for each Sub-Fund in the base currency of the Sub-Fund. The combined
Statement of Net Assets, Statement of Operations and Changes in Net Assets are presented in US dollars, based
on the exchange rate ruling at the date of these financial statements and on the average exchange rate over the
reporting period for the Statement of Operations and Changes in Net Assets.
The currency exchange rates against the US Dollar were as follows:
as of 31 March 2016 as of 31 March 2015
1 USD = 0.877539 EUR 1 USD = 0.695749 GBP
1 USD = 0.931099 EUR 1 USD = 0.673627 GBP
The average currency exchange rates against the US Dollar were as follows:
as of 31 March 2016 as of 31 March 2015
1 USD = 0.905971 EUR
1 USD = 0.664086 GBP
1 USD = 0.792627 EUR 1 USD = 0.621017 GBP
(f) Reverse repurchase agreement valuation policy
The Company may enter into reverse repurchase transactions which consist of the purchase and sale of securities,
backed by collateral, with a clause reserving the seller the right or the obligation to repurchase from the acquirer
the securities sold at a price and term specified by the two parties in their contractual arrangement. These are
valued at par value.
3. Dividends and Distributions:
The Directors intend to declare all net income of the US Dollar Liquidity Fund, Euro Liquidity Fund, Sterling
Liquidity Fund and US Dollar Treasury Liquidity Fund with the exception of Advisory Accumulation Shares,
Institutional Accumulation Shares, Institutional Select Accumulation Shares, Qualified Accumulation Shares and
Advantage Accumulation Shares (“the Accumulating Share Classes”) on each Dealing Day as a dividend to
Shareholders on the register of members as at the close of business on the relevant Dealing Day in an attempt to
stabilise the Net Asset Value per Share of each class at US$1.00 in the case of the US Dollar Liquidity Fund,
€1.00 in the case of the Euro Liquidity Fund, £1.00 in the case of the Sterling Liquidity Fund and US$1.00 in the
case of the US Dollar Treasury Liquidity Fund. Dividends are declared daily and are payable monthly on or about
the first Business Day of each following month. For this purpose, net income of each Sub-Fund (from the time
immediately preceding determination thereof) shall consist of interest and dividends earned by each Sub-Fund and
realised and unrealised profits on the disposal/valuation of investments as may be lawfully distributed less realised
and unrealised losses (including fees and expenses) of each Sub-Fund.
In the case of the Accumulating Classes of Shares, the US Dollar Liquidity Fund, Euro Liquidity Fund, Sterling
Liquidity Fund and US Dollar Treasury Liquidity Fund intend to retain the net income and/or capital gains
attributable to such Classes of Shares and the value of these Classes of Shares.
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
32
3. Dividends and Distributions: (continued)
Where there are substantial adverse movements in interest rates, there can be no assurance that the Sub-Funds will
be successful in maintaining positive net investment income. Where a Sub-Fund posts negative net investment
income, in order to maintain a stable Net Asset Value per Share for Distributing Classes of Shares, the
Management Company shall address such by the compulsory redemption equally of such number of Shares held
by each Shareholder in the relevant Class of Shares required to cover the negative net income of that Class of
Share, with the proceeds of each such redemption being retained by the Sub-Fund. In the case of Accumulating
Classes of Shares, the Net Asset Value per Share will decrease in lieu of the compulsory redemption of Shares.
4. Management Company Services Agreement, Investment Advisory Agreement, Depositary Agreement,
Administration Agreement, Registrar and Transfer Agent Agreement, Paying Agent Agreement,
Domiciliary Agreement and Distribution Agreement:
The Board of Directors of the Company has appointed MSIM (ACD) as designated management company (the
“Management Company”) pursuant to the Management Company Services Agreement dated 1 April 2014.
The Management Company is responsible for providing collective portfolio management services (including
investment management, administrative and marketing services), risk management and other administrative and
operational services to the Company, subject to the overall supervision and control of the Company.
The Management Company has delegated to Morgan Stanley Investment Management Inc., the function of
Investment Adviser of the Sub-Funds pursuant to an investment advisory agreement dated 1 April 2014 (the
“Investment Advisory Agreement”). The Company may terminate its appointment immediately where it is in the
best interest of Shareholders to do so.
The Board of Directors of the Company has appointed The Bank of New York Mellon (International) Limited,
Luxembourg Branch (the “Depositary”) as the depositary of all of the Company’s assets, including its cash and
securities, which are held either directly or through other financial institutions such as correspondent banks,
subsidiaries or affiliates of the Depositary or clearing systems. The rights and duties of the Depositary are
governed by the Depositary Agreement entered into on 7 March 2016 for an unlimited period of time from the
date of its signature. Prior to 7 March 2016 State Street Bank Luxembourg S.C.A was delegated the function of
the depositary.
The Management Company has delegated to The Bank of New York Mellon (International) Limited, Luxembourg
Branch (the “Adminstrator”) the function of Administrator pursuant to the Administration Agreement dated 7
March 2016. The Administrator carries out all administrative duties related to the administration of the Company,
including the calculation of the Net Asset Value of the Shares, the provision of accounting services to the
Company and notices and other documents to the Shareholders. Prior to 7 March 2016 State Street Bank
Luxembourg S.C.A was delegated the function of the administrator.
The Management Company has also delegated to the Administrator the function of registrar and transfer agent of
the Company pursuant to the Administration Agreement dated 7 March 2016. In this function the Administrator
processes all subscriptions, redemptions and transfers of Shares and will register these transactions in the share
register of the Company. Prior to 7 March 2016 State Street Bank Luxembourg S.C.A was delegated the function
of the registrar and transfer agent.
The Management Company has also appointed the Administrator as the paying agent of the Company pursuant to
the Administration Agreement dated 7 March 2016. In this function the Administrator assists in the payment of
dividends declared by the Company to its Shareholders. Prior to 7 March 2016 State Street Bank Luxembourg
S.C.A was delegated the function of the paying agent.
Pursuant to a Domiciliary Agreement, the Management Company has appointed Morgan Stanley Investment
Management Limited, Luxembourg Branch, as its Domiciliary Agent to provide the Company’s registered office,
to store its corporate documents and to perform other related administrative functions.
The Management Company has appointed Morgan Stanley Investment Management Limited to act as Distributor
pursuant to the Distribution Agreement dated 1 April 2014. In this respect, it may engage certain financial
institutions (Intermediaries) to solicit and sell Shares to investors.
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
33
5. Taxation:
Under current law and practice, the Company is not liable to any Luxembourg income tax, nor are dividends paid
by the Company liable to any Luxembourg withholding tax. However, the Company is liable in Luxembourg to a
reduced rate of subscription tax (“taxe d’abonnement”) of 0.01% per annum of its net assets, such tax being
payable quarterly and calculated on the total Net Asset Value of the Company at the end of the relevant quarter.
Pursuant to Article 175 b) of the Law, an exemption from the subscription tax may be applicable where a Fund or
Class meets the following criteria: (i) the Shares of the Fund or the Class must be reserved to Institutional
Investors; (ii) the exclusive object of the Fund's portfolio must be the investment in money market instruments
and/or deposits with credit institutions; (iii) the remaining average maturity of the Fund's portfolio must be less
than 90 days, and (iv) the Fund must benefit from the highest possible rating of a recognized rating agency.
Under the aforementioned legislation and regulations prevailing in Luxembourg, Master Shares, Master
Accumulation Shares, Qualified Shares, Qualified Accumulation Shares, Advantage Shares, Advantage
Accumulation Shares are subject to annual subscription tax (“taxe d’abonnement”) at a reduced rate of 0.01% per
annum of their net assets. The remaining Classes of Shares listed within the Company’s prospectus are exempt
from this tax.
The Company is registered for VAT in Luxembourg and is required to self-assess for Luxembourg VAT on
services received from outside Luxembourg (that are considered taxable under Luxembourg VAT rules).
6. Fees and expenses:
(a) Service provider fees
The Company shall pay the Management Company a Management Fee in respect of each Sub-Fund, the
particulars of which are set out in "Fund Particulars" within the Company’s prospectus. In addition, the Company
is responsible for all of the Management Company’s reasonable cash disbursements, including but not limited to
out-of-pocket expenses, provided however that the Management Company shall be required to provide the
Company with evidence of any such disbursement.
The fees of the Investment Adviser, the Depositary, the Administrator and the Distributor appointed in respect of
each Sub-Fund (all of which fees are payable monthly in arrears) will be paid by the Management Company out
of the Management Fee it receives. The Management Company may instruct the Company to pay any of these
fees to the Investment Adviser, the Depositary, the Administrator directly out of the assets of the Company. In
such case, the Management Fee due to the Management Company is reduced accordingly.
In respect of any Sub-Fund or Class of Shares the Management Company may choose to waive all or any portion
of its fee and/or absorb some or all other expenses in its absolute discretion for any period of time.
The Management Fee Rates as at 31 March 2016 were as follows:
Name of the Sub-Fund Class of Shares Management Fee Rate
Euro Liquidity Fund
Institutional Shares 0.20% per annum of the NAV
Institutional Accumulation Shares 0.20% per annum of the NAV
Institutional Select Shares 0.21% per annum of the NAV
MS Reserve Shares Nil
US Dollar Liquidity Fund
Advantage Accumulation Shares 0.45% per annum of the NAV
Advisory Shares 0.45% per annum of the NAV
Advisory Accumulation Shares 0.45% per annum of the NAV
Institutional Shares 0.20% per annum of the NAV
Institutional Accumulation Shares 0.20% per annum of the NAV
Institutional Select Shares 0.21% per annum of the NAV
Master Shares Nil
MS Reserve Shares Nil
Qualified Accumulation Shares 0.20% per annum of the NAV
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
34
6. Fees and expenses: (continued)
(a) Service provider fees (continued)
Name of the Sub-Fund Class of Shares Management Fee Rate
US Dollar Treasury Liquidity Fund
Institutional Shares 0.20% per annum of the NAV
Institutional Select Shares 0.21% per annum of the NAV
MS Reserve Shares Nil
Sterling Liquidity Fund
Institutional Shares 0.20% per annum of the NAV
Institutional Accumulation Shares 0.20% per annum of the NAV
Institutional Select Shares 0.21% per annum of the NAV
MS Reserve Shares Nil
Qualified Shares 0.20% per annum of the NAV
(b) Director’s Remuneration
The Directors are paid an annual fee of Euro 30,000 by the Company for their services as Directors. In addition,
the Directors are also entitled to be reimbursed for their reasonable and vouched out of pocket expenses incurred
in discharging their duties as Directors.
(c) Ongoing Charges and Expenses
The Company pays any expenses in respect of circulating details of the Net Asset Value, stamp duties, taxes,
company secretarial fees, insurance, the fees and expenses of the auditors, tax and legal advisers and fees
connected with listing on any stock exchange and the costs of regulatory bodies, trade bodies and rating agencies.
The costs of printing and distributing reports, accounts and any explanatory memoranda, any necessary translation
fees, the costs of registering the Company for sale in any jurisdiction, the fees and expenses of any paying or
information agents, or correspondent banks, the fees and expenses of any representative appointed in respect of
the Company in any jurisdiction, the cost of publishing prices and any costs incurred as a result of periodic
updates of the Prospectus, or of a change in law or the introduction of any new law (including any costs incurred
as a result of compliance with any applicable code, whether or not having the force of law) are also paid by the
Company.
(d) Establishment Charges and Expenses
The cost of establishing the Company and the expenses of the initial offer of Shares in the Sub-Funds, the
preparation and printing of the initial Prospectus, marketing costs and the fees of all professionals relating to it
were borne by the Distributor of the fund.
7. Related Party Holdings, Transactions and Affiliations:
Morgan Stanley Investment Funds - US Dollar Liquidity Fund (the “Feeder Fund”), which is administered by J.P.
Morgan Bank Luxembourg S.A., is a feeder fund of the Company’s US Dollar Liquidity Fund (the “Master
Fund”). The Feeder Fund invests at least 85% of its assets in shares of the Master Fund (Master Share Class).
As of 31 March 2016, the Feeder Fund held 41% of the net asset value of the Master Fund, or 100% of the Master
Class of Share within the Master Fund.
Morgan Stanley Investment Funds was incorporated on 21 November 1988 under the laws of the Grand Duchy of
Luxembourg as a “Société d’Investissement à Capital Variable” (“SICAV”) and is registered as an undertaking
for collective investment pursuant to Part 1 of the Law of 17 December 2010. The 2010 Law transposes the recast
UCITS Directive (Directive 2009/65/EC) into Luxembourg legislation.
A number of other Sub-Funds of Morgan Stanley Investment Funds invest into the Company from time to time.
These transactions were all executed in the normal course of business at arm’s length.
The Sub-Funds of Morgan Stanley Investment Funds that held shares in the Company’s Euro Liquidity Fund as at
31 March 2016 were as follows:
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
35
7. Related Party Holdings, Transactions and Affiliations: (continued)
Absolute Return Fixed Income Fund
Diversified Alpha Plus Fund
Diversified Alpha Plus Low Volatility Fund
Emerging Europe, Middle East and Africa Equity Fund
Euro Bond Fund
Euro Corporate Bond (Ex Financials) Fund
Euro Corporate Bond Fund
Euro Strategic Bond Fund
European Currencies High Yield Bond Fund
European Equity Alpha Fund
European Property Fund
Eurozone Equity Alpha Fund
Global Balanced Risk Control Fund
Global Bond Fund
Short Maturity Euro Bond Fund
The Sub-Funds of Morgan Stanley Investment Funds that held shares in the Company’s US Dollar Liquidity Fund
as at 31 March 2016 were as follows:
Asian Fixed Income Opportunities Fund
Asia-Pacific Equity Fund
Emerging Europe, Middle East & Africa Equity Fund
Emerging Leaders Equity Fund
Emerging Markets Corporate Debt Fund
Emerging Markets Debt Fund
Emerging Markets Domestic Debt Fund
Emerging Markets Equity Fund
Emerging Markets Fixed Income Opportunities Fund
Frontier Emerging Markets Equity Fund
Global Convertible Bond Fund
Global Credit Fund
Global Fixed Income Opportunities Fund
Global High Yield Bond Fund
Global Mortgage Securities Fund
Global Premier Credit Fund
Latin American Equity Fund
Liquid Alpha Capture Fund
The Sub-Funds of Morgan Stanley Investment Funds that held shares in the Company’s US Dollar Treasury
Liquidity Fund as at 31 March 2016 were as follows:
Asian Property Fund
Global Advantage Fund
Global Brands Fund
Global Discovery Fund
Global Infrastructure Fund
Global Opportunity Fund
Global Property Fund
Global Quality Fund
International Equity (Ex US) Fund
US Advantage Fund
US Growth Fund
US Insight Fund
US Property Fund
No Sub-Fund of Morgan Stanley Investment Funds held shares in the Company’s Sterling Liquidity Fund.
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
36
7. Related Party Holdings, Transactions and Affiliations: (continued)
No portfolio transactions of the Company that occurred during the period were executed through affiliated firms
or brokers.
8. Reverse repurchase agreements:
As at 31 March 2016, all the Sub-Funds had entered into reverse repurchase agreements. The total commitment of
the reverse repurchase agreements is as follows:
Name of the Sub-Fund Description Counterparty
Reverse
Repurchase
Agreements
CCY
Market
Value of
Collateral
Received
CCY
Euro Liquidity Fund
Citigroup Global Markets / -0.15% /
01/04/2016 Euroclear 100,000,000 EUR 101,999,617 EUR
Societe Generale / -0.37% /
01/04/2016 Euroclear 100,000,000 EUR 101,999,021 EUR
Total 200,000,000 203,998,638
US Dollar Liquidity Fund
Goldman Sachs & Co / 0.30% /
01/04/2016 Bank of New
York 200,000,000 USD 206,000,000 USD
JP Morgan Securities LLC / 0.31% /
01/04/2016 JP Morgan
Securities 250,000,000 USD 255,002,907 USD Merrill Lynch Pierce Fenner & Smith
Inc / 0.30% / 01/04/2016 Bank of New
York 250,000,000 USD 255,000,047 USD Merrill Lynch Pierce Fenner & Smith
Inc / 0.29% / 01/04/2016 Bank of New
York 200,000,000 USD 204,180,447 USD
Total 900,000,000 920,183,401
US Dollar Treasury
Liquidity Fund
JP Morgan Securities LLC / 0.31% /
01/04/2016 JP Morgan
Securities 130,000,000 USD 132,602,653 USD
Total 130,000,000 132,602,653
Sterling Liquidity Fund
National Australia Bank Ltd / 0.43% /
04/04/2016 Euroclear 100,000,000 GBP 102,000,001 GBP
BNP Paribas / 0.10% / 01/04/2016 Euroclear 100,000,000 GBP 102,000,280 GBP
Lloyds Bank Plc / 0.40% / 01/04/2016 Euroclear 50,000,000 GBP 51,000,560 GBP
Total 250,000,000 255,000,841
The collateral received in respect of the reverse repurchase agreements consists of the following securities:
Name of the Sub-Fund Collateral Description Collateral Type Tri-Party
Agent CCY
Market Value of
Securities Collateral
received
Euro Liquidity Fund
Italy Government Bond, 4.50%,
01/08/18
Government
Bond Euroclear EUR 101,999,617
Spain Government Bond, 0.00%, 30/11/19
Government Bond Euroclear EUR 101,999,021
Total 203,998,638
US Dollar Liquidity Fund
Fannie Mae / 3.50 / 01/03/2045 US Agency Goldman Sachs
USD 38,144,881
Fannie Mae / 4.50 / 01/11/2043 US Agency Goldman
Sachs
USD 33,884,386
Fannie Mae / 4.00 / 01/04/2044 US Agency Goldman Sachs
USD 37,826,863
Fannie Mae / 3.50 / 01/08/2042 US Agency Goldman
Sachs
USD 38,009,283
Freddie Mac / 1.86 / 01/07/2045 US Agency Goldman
Sachs
USD 37,774,158
Fannie Mae / 3.50 / 01/08/2042 US Agency Goldman
Sachs
USD 20,360,429
United States Treasury Notes / 0.50% / 30/09/2016
Treasury Note JP Morgan Securities
USD 173,556,849
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
37
8. Reverse repurchase agreements (continued):
Name of the Sub-Fund Collateral Description Collateral Type Tri-Party
Agent
CCY Market Value of
Securities Collateral
received
US Dollar Liquidity Fund
(continued)
United States Treasury Notes / 2.00% / 15/02/2023
Treasury Note JP Morgan Securities
USD 81,446,057
United States Treasury Notes / 0.63 /
15/01/2026
Treasury Note Merrill
Lynch
USD 100,122,269
United States Treasury Notes / 1.25 / 31/03/2021
Treasury Note Merrill Lynch
USD 154,877,778
Tenn Valley Authority / 0.00 /
15/06/2030
US Agency Merrill
Lynch
USD 1,240
Tenn Valley Authority / 0.00 /
05/01/2026
US Agency Merrill
Lynch
USD 763
Tenn Valley Authority / 6.25 /
15/12/2017
US Agency Merrill
Lynch
USD 304,761
Tenn Valley Authority / 6.75 / 01/11/2025
US Agency Merrill Lynch
USD 651,324
Tenn Valley Authority / 1.75 /
15/10/2018
US Agency Merrill
Lynch
USD 3,080
Tenn Valley Authority / 4.25 / 15/09/2065
US Agency Merrill Lynch
USD 1,030,262
Tenn Valley Authority / 2.88 /
15/09/2024
US Agency Merrill
Lynch
USD 905,368
Tenn Valley Authority / 1.88 / 15/08/2022
US Agency Merrill Lynch
USD 2,789,877
Tenn Valley Authority / 5.50 /
18/07/2017
US Agency Merrill
Lynch
USD 1,044,696
Tenn Valley Authority / 5.50 / 15/06/2038
US Agency Merrill Lynch
USD 43,649
Tenn Valley Authority / 4.65 /
15/06/2035
US Agency Merrill
Lynch
USD 303,315
Tenn Valley Authority / 7.13 / 01/05/2030
US Agency Merrill Lynch
USD 4,009,880
Tenn Valley Authority / 5.38 /
01/04/2056
US Agency Merrill
Lynch
USD 130,589
Tenn Valley Authority / 5.88 / 01/04/2036
US Agency Merrill Lynch
USD 3,254,022
Tenn Valley Authority / 4.50 /
01/04/2018
US Agency Merrill
Lynch
USD 2,240,195
Tenn Valley Authority / 4.88 / 15/01/2048
US Agency Merrill Lynch
USD 448,155
Tenn Valley Authority / 6.15 /
15/01/2038
US Agency Merrill
Lynch
USD 1,424,793
Freddie Mac / 0.75 / 14/07/2017 US Agency Merrill Lynch
USD 83,156
Freddie Mac / 0.50 / 13/05/2016 US Agency Merrill
Lynch
USD 200,423
Fannie Mae / 6.03 / 08/10/2027 US Agency Merrill
Lynch
USD 205,950
Fannie Mae / 6.12 / 23/03/2028 US Agency Merrill
Lynch
USD 237,214
Fannie Mae / 6.03 / 08/10/2027 US Agency Merrill
Lynch
USD 1,402,343
Fannie Mae / 0.00 / 23/09/2016 US Agency Merrill
Lynch
USD 4,991
Fannie Mae / 1.75 / 26/11/2019 US Agency Merrill
Lynch
USD 111,014
Fannie Mae / 0.00 / 15/01/2030 US Agency Merrill
Lynch
USD 2,531,774
Fannie Mae / 0.00 / 15/01/2029 US Agency Merrill
Lynch
USD 2,040
Fannie Mae / 6.16 / 07/08/2028 US Agency Merrill
Lynch
USD 220,077
Fannie Mae / 0.00 / 01/06/2017 US Agency Merrill
Lynch
USD 173,359
Fannie Mae / 0.00 / 15/07/2037 US Agency Merrill
Lynch
USD 2,444
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
38
8. Reverse repurchase agreements (continued):
Name of the Sub-Fund Collateral Description Collateral Type Tri-Party
Agent
CCY Market Value of
Securities Collateral
received
US Dollar Liquidity Fund
(continued)
Fannie Mae / 6.25 / 15/05/2029 US Agency Merrill Lynch
USD 5,306,981
Fannie Mae / 0.00 / 15/05/2022 US Agency Merrill
Lynch
USD 2,650,470
Fannie Mae Dn / 0.00 / 01/08/2016 US Agency Merrill Lynch
USD 3,033,747
Fannie Mae Dn / 0.00 / 06/07/2016 US Agency Merrill
Lynch
USD 999
Fannie Mae Dn / 0.00 / 01/07/2016 US Agency Merrill
Lynch
USD 1,439,631
Fannie Mae Dn / 0.00 / 02/05/2016 US Agency Merrill
Lynch
USD 71,983
Fannie Mae Dn / 0.00 / 20/04/2016 US Agency Merrill Lynch
USD 3,000
Fannie Mae / 8.95 / 12/02/2018 US Agency Merrill
Lynch
USD 219,591
Freddie Mac / 0.00 / 15/09/2028 US Agency Merrill Lynch
USD 362,962
Freddie Mac / 0.00 / 15/03/2031 US Agency Merrill
Lynch
USD 633
Federal Home Loan Bank / 3.50 / 09/12/2016
US Agency Merrill Lynch
USD 15,446
Federal Home Loan Bank / 3.75 /
09/09/2016
US Agency Merrill
Lynch
USD 203,271
Federal Home Loan Bank / 5.25 / 05/06/2017
US Agency Merrill Lynch
USD 234,928
Federal Home Loan Bank / 4.75 /
16/12/2016
US Agency Merrill
Lynch
USD 78,214
Federal Home Loan Bank / 5.63 / 11/06/2021
US Agency Merrill Lynch
USD 122,155
Federal Home Loan Bank / 5.38 /
18/05/2016
US Agency Merrill
Lynch
USD 71,762
Federal Home Loan Bank / 5.38 / 15/08/2024
US Agency Merrill Lynch
USD 37,681
Federal Farm Credit Bank / 3.33 /
27/11/2030
US Agency Merrill
Lynch
USD 1,274,338
Federal Farm Credit Bank / 3.37 / 13/11/2030
US Agency Merrill Lynch
USD 5,109,092
Federal Farm Credit Bank / 3.47 /
28/10/2030
US Agency Merrill
Lynch
USD 4,420,459
Federal Farm Credit Bank / 3.50 / 05/10/2029
US Agency Merrill Lynch
USD 4,453,491
Federal Farm Credit Bank / 1.49 /
30/03/2020
US Agency Merrill
Lynch
USD 1,598,290
Federal Farm Credit Bank / 2.62 /
28/03/2025
US Agency Merrill
Lynch
USD 4,560,413
Federal Farm Credit Bank / 2.73 /
10/02/2025
US Agency Merrill
Lynch
USD 1,113,921
Federal Farm Credit Bank / 3.39 /
27/01/2031
US Agency Merrill
Lynch
USD 4,908,378
Federal Farm Credit Bank / 3.34 /
25/01/2030
US Agency Merrill
Lynch
USD 3,889,860
Federal Farm Credit Bank / 3.02 /
12/01/2026
US Agency Merrill
Lynch
USD 3,331,572
Federal Farm Credit Bank / 3.83 /
20/07/2035
US Agency Merrill
Lynch
USD 3,534,733
Federal Farm Credit Bank / 3.72 /
01/06/2035
US Agency Merrill
Lynch
USD 4,257,834
Federal Farm Credit Bank / 3.50 /
13/04/2035
US Agency Merrill
Lynch
USD 2,032,687
Federal Farm Credit Bank / 3.99 /
24/07/2034
US Agency Merrill
Lynch
USD 2,057,532
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
39
8. Reverse repurchase agreements (continued):
Name of the Sub-Fund Collateral Description Collateral Type Tri-Party
Agent
CCY Market Value of
Securities Collateral
received
US Dollar Liquidity Fund
(continued)
Federal Farm Credit Bank / 3.26 / 05/11/2031
US Agency Merrill Lynch
USD 922,068
Federal Farm Credit Bank / 3.00 /
13/09/2027
US Agency Merrill
Lynch
USD 3,377,968
Federal Farm Credit Bank / 3.51 / 09/03/2032
US Agency Merrill Lynch
USD 84,016
Freddie Mac Dn / 0.00 / 06/06/2016 US Agency Merrill
Lynch
USD 437,737
Freddie Mac Dn / 0.00 / 04/04/2016 US Agency Merrill
Lynch
USD 307,994
Freddie Mac Dn / 0.00 / 01/04/2016 US Agency Merrill
Lynch
USD 3,539,965
Federal Home Loan Dn / 0.00 / 21/10/2016
US Agency Merrill Lynch
USD 3,989,360
Federal Home Loan Dn / 0.00 /
08/07/2016
US Agency Merrill
Lynch
USD 3,995,920
Federal Home Loan Dn / 0.00 / 30/06/2016
US Agency Merrill Lynch
USD 1,040,157
Federal Home Loan Dn / 0.00 /
10/06/2016
US Agency Merrill
Lynch
USD 152,904
Federal Home Loan Dn / 0.00 / 01/06/2016
US Agency Merrill Lynch
USD 3,270,200
Federal Home Loan Dn / 0.00 /
02/05/2016
US Agency Merrill
Lynch
USD 4,793,849
Federal Home Loan Dn / 0.00 / 29/04/2016
US Agency Merrill Lynch
USD 1,308,764
Federal Home Loan Dn / 0.00 /
06/04/2016
US Agency Merrill
Lynch
USD 1,999,920
Federal Home Loan Bank / 3.73 / 01/07/2033
US Agency Merrill Lynch
USD 77,885
Federal Home Loan Bank / 2.38 /
10/09/2021
US Agency Merrill
Lynch
USD 156,817
Federal Home Loan Bank / 1.50 / 08/03/2019
US Agency Merrill Lynch
USD 15,243
Federal Home Loan Bank / 1.88 /
08/03/2019
US Agency Merrill
Lynch
USD 15,383
Federal Home Loan Bank / 2.38 / 09/03/2018
US Agency Merrill Lynch
USD 139,031
Federal Home Loan Bank / 2.13 /
10/06/2016
US Agency Merrill
Lynch
USD 75,734
Federal Home Loan Bank / 3.63 / 12/03/2021
US Agency Merrill Lynch
USD 33,173
Federal Home Loan Bank / 2.63 /
08/12/2017
US Agency Merrill
Lynch
USD 25,959
Federal Farm Credit Bank / 5.30 /
06/02/2017
US Agency Merrill
Lynch
USD 19,891
Federal Farm Credit Bank / 4.88 /
17/01/2017
US Agency Merrill
Lynch
USD 12,518
Freddie Mac / 0.00 / 15/11/2038 US Agency Merrill
Lynch
USD 380,374
United States Treasury Notes / 2.63 /
15/08/2020
Treasury Note Merrill
Lynch
USD 89,850,810
Total 920,183,401
US Dollar Treasury
Liquidity Fund
United States Treasury Notes / 2.13%
/ 15/05/2025 Treasury Note
JP Morgan
Securities USD 132,602,653
Total 132,602,653
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
40
8. Reverse repurchase agreements (continued):
Name of the Sub-Fund Collateral Description Collateral Type Tri-Party
Agent CCY
Market Value of
Securities Collateral
received
Sterling Liquidity Fund
United Kingdom Government Bond, FRN, 17/07/2024
Government Bond Euroclear GBP 19,890,000
United Kingdom Government Bond,
4.25%, 07/12/2027
Government
Bond Euroclear GBP 19,889,999
United Kingdom Government Bond, 0.06%, 22/03/2029
Government Bond Euroclear GBP 19,890,000
United Kingdom Government Bond,
1.75%, 22/07/2019
Government
Bond Euroclear GBP 16,285,283
United Kingdom Government Bond,
4.50%, 07/09/2034
Government
Bond Euroclear GBP 6,039,884
United Kingdom Government Bond,
2.25%, 07/09/2023
Government
Bond Euroclear GBP 114,835
United Kingdom Government Bond, 4.25%, 07/03/2036
Government Bond Euroclear GBP 19,890,000
United Kingdom Government Bond,
6.00%, 07/12/2028
Government
Bond Euroclear GBP 19,973,804
United Kingdom Government Bond, FRN, 16/04/2020
Government Bond Euroclear GBP 19,909,845
United Kingdom Government Bond,
FRN 22/11/2017
Government
Bond Euroclear GBP 13,364,345
United Kingdom Government Bond, FRN 22/11/2022
Government Bond Euroclear GBP 18,627,197
United Kingdom Government Bond,
FRN 22/11/2019
Government
Bond Euroclear GBP 19,715,210
United Kingdom Government Bond, 3.75, 07/09/2021
Government Bond Euroclear GBP 10,409,879
United Kingdom Government Bond,
8.00%, 07/06/2021
Government
Bond Euroclear GBP 9,968,329
United Kingdom Government Bond, FRN, 22/11/2037
Government Bond Euroclear GBP 10,029,114
United Kingdom Government Bond,
4.50%, 07/12/2042
Government
Bond Euroclear GBP 2,413,349
United Kingdom Government Bond, FRN, 22/03/2040
Government Bond Euroclear GBP 9,066,176
United Kingdom Government Bond,
0.63%, 22/11/2042
Government
Bond Euroclear GBP 8,170,236
United Kingdom Government Bond, FRN, 22/03/2034
Government Bond Euroclear GBP 1,344,681
United Kingdom Government Bond,
FRN, 11/01/35
Government
Bond Euroclear GBP 10,008,675
Total 255,000,841
During the financial year, the following income was recorded by the Fund in relation to its reverse repurchase
agreements under the heading “Interest” within the Statement of Operations and Changes in Net Assets:
Sub-Fund Reverse repurchase
agreement income Sub-Fund base Ccy
Euro Liquidity Fund (1,137,750) EUR
US Dollar Liquidity Fund 4,956,781 USD
US Dollar Treasury Liquidity Fund 295,422 USD
Sterling Liquidity Fund 2,464,983 GBP
Total 6,579,436 USD
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
41
9. Time Deposits:
As at 31 March 2016, the Sub-Funds Euro Liquidity Fund, US Dollar Liquidity Fund and Sterling Liquidity Fund
held time deposits as follows:
Name of the Sub-Fund Counterparty Currency Holdings Interest
(%) Maturity Date
Euro Liquidity Fund
BNP Paribas EUR 118,797,764 (0.46) 1-Apr-16
Bred Banque Populaire EUR 95,613,010 (0.42) 1-Apr-16
Commonwealth Bank of Australia EUR 139,036,854 (0.34) 1-Apr-16
Total 353,447,628
US Dollar Liquidity Fund
Lloyds Bank Plc USD 115,000,000 0.26 1-Apr-16
Lloyds Bank Plc USD 75,000,000 0.26 1-Apr-16
Skandinaviska Enskilda Banken AB USD 80,000,000 0.25 1-Apr-16
Canadian Imperial Bank of Commerce USD 130,000,000 0.23 1-Apr-16
National Australia Bank Ltd USD 230,000,000 0.23 1-Apr-16
United Overseas Bank Ltd USD 300,000,000 0.38 6-Apr-16
Total 930,000,000
Sterling Liquidity Fund
Bred Banque Populaire GBP 156,237,415 0.46 1-Apr-16
Canadian Imperial Bank of Commerce GBP 50,005,055 0.20 1-Apr-16
Lloyds Bank Plc GBP 80,059,093 0.30 1-Apr-16
Total 286,301,563
10. Indemnifications:
The Company has arrangements in place for the indemnification of the members of its Board of Directors, the
Administrator, the Depositary and the Management Company (the “Indemnified Parties”) in certain
circumstances, which exclude the Indemnified Parties’ own negligence, wilful default, or fraud.
11. Transaction Costs:
There were no transaction costs charged to the Sub-Funds during the year ended 31 March 2016.
12. Determination of Global Exposure:
The methodology used in order to calculate the Global Exposure resulting from the use of financial derivative
instruments is the commitment approach in accordance with the CSSF Circular 11/512.
13. Statement of Portfolios changes:
The list of changes in the portfolio for the period is available free of charge at the registered office of the
Management Company.
14. Counterparty Risk:
All instruments listed in Notes 8 and 9 are transacted through third parties. The Company is subject to the risk that
counterparties will not be able to fulfil their obligations with respect to transactions, positions, balances or
otherwise, whether due to insolvency, bankruptcy or other causes. In such case, the Company may be able to
MORGAN STANLEY LIQUIDITY FUNDS
Notes to the Financial Statements (continued)
31 March 2016
42
14. Counterparty Risk: (continued)
recover none or only a portion of its assets held with such counterparty. This could subject the Company to
substantial losses.
15. Remuneration Policy of the Management Company
The Management Company has a remuneration policy in place which seeks to ensure that the interests of the
Company and the Shareholders are aligned. Such remuneration policy imposes remuneration rules on staff and
senior management within the Management Company whose activities have an impact on the risk profile of the
Company. The Management Company shall seek to ensure that such remuneration policies and practices will be
consistent with sound and effective risk management and with UCITS Regulation. The Management Company
shall also seek to ensure that such remuneration policies and practices shall not encourage risk taking which is
inconsistent with the risk profile and constitutional documents of the Company.
The Management Company shall seek to ensure that the remuneration policy will, at all times, be consistent with
the business strategy, objectives, values and interests of the Company and the Shareholders and that the
remuneration policy will include measures that seek to ensure that all relevant conflicts of interest can be managed
appropriately at all times.
16. Significant events:
On 6 May 2015 the Euro Liquidity Fund for the first time posted negative net investment income. Consequently,
the compulsory redemption of Shares was initiated for Distributing Classes of Shares in order to maintain a stable
Net Asset Value per Share. The daily compulsory redemptions equal such number of Shares held by each
Shareholder in the relevant Class of Shares required to cover the declared negative net investment income of that
Class of Share, with the proceeds of each such redemption being retained by the Sub-Fund. Given the current
monetary policies employed by the ECB it is anticipated that this negative Euro money market yield environment
will continue for the foreseeable future.
Ms. Veronique Gillet resigned as member of the Board of Directors of the Management Company with effect
from 12 May 2015.
Mr. Bryan Greener resigned as member of the Board of Directors of the Management Company with effect from
18 September 2015.
Ms. Judith Eden was appointed as a Director to the Board of Directors of the Company on 21 July 2015. In
addition she resigned as a Managing Director from Morgan Stanley Investment Management Limited as well as a
member of the Board of Directors of the Management Company on 31 August 2015. She was re-appointed as a
non-executive member of the Board of Directors of the Management Company on 6 January 2016.
Ms. Diane Jane Hosie was appointed to the Board of Directors of the Management Company on 8 February 2016.
On 7 March 2016, the Board of Directors of the Company appointed The Bank of New York Mellon
(International) Limited, Luxembourg Branch as depositary, administrator, registrar and transfer agent and paying
agent to the Company. Prior to 7 March 2016, State Street Bank Luxembourg S.C.A performed these roles.
17. Summary of accounting differences between Luxembourg legal and regulatory requirements for
investment funds and accounting principles generally accepted in the United States:
The Company's financial statements are prepared in accordance with Luxembourg legal and regulatory
requirements for investment funds. There are no significant accounting differences between Luxembourg and
United States generally accepted accounting principles for the Company. These differences have no impact on the
net assets of the sub-funds.
MORGAN STANLEY LIQUIDITY FUNDS
43
Appendix 1: Total Expense Ratio (Unaudited)
The below table discloses the total expense ratios (“TER”) attributable to the Classes of Shares of the Sub-Funds as at 31
March 2016. All total expense ratios disclosed are net of waived investment management fees and reimbursed operating
fees.
Name of the Sub-Fund Class of Shares TER (%)
As at 31 March 2016
TER (%)
As at 31 March 2015
Euro Liquidity Fund
Institutional Shares 0.05% 0.06%
Institutional Accumulation Shares 0.05% 0.06%
Institutional Select Shares* 0.10% -
MS Reserve Shares 0.00% 0.00%
US Dollar Liquidity Fund
Advantage Accumulation Shares 0.30% 0.18%
Institutional Shares 0.17% 0.16%
Institutional Select Shares 0.21% 0.17%
Institutional Accumulation Shares 0.17% 0.16%
Master Shares 0.01% 0.01%
MS Reserve Shares 0.00% 0.00%
Qualified Accumulation Shares 0.19% 0.16%
US Dollar Treasury
Institutional Shares 0.10% 0.04%
Institutional Select Shares 0.21% 0.04%
MS Reserve Shares 0.00% 0.00%
Sterling Liquidity Fund
Institutional Shares 0.12% 0.12%
Institutional Accumulation Shares 0.12% 0.12%
Institutional Select Shares 0.17% 0.17%
MS Reserve Shares 0.00% 0.00%
Qualified Shares 0.13% 0.13%
* Launch date of 24 June 2015