Filed Pursuant to Rule 497(e)
                                                Registration File No: 333-104972


                                  STATEMENT OF ADDITIONAL INFORMATION SUPPLEMENT
                                  AUGUST 23, 2004


Supplement dated August 23, 2004 to the Statement of Additional Information of
Morgan Stanley Institutional Liquidity Funds dated January 14, 2004


Morgan Stanley Institutional Liquidity Funds

The subsection "Revenue Sharing" which appears under the section "Service and
Distribution of Shares" in the Statement of Additional Information is hereby
deleted and replaced by the following:

     The Adviser or the Distributor may pay additional compensation, out of
     their own funds and not as an additional charge to the Fund, to selected
     affiliated or unaffiliated brokers, dealers or other financial
     intermediaries ("Intermediaries") in connection with the sale,
     distribution, retention, and/or servicing of Fund shares. For example, the
     Adviser or the Distributor may pay compensation to Intermediaries for the
     purpose of promoting the sale of Fund shares, maintaining share balances,
     and/or for sub-accounting, administrative or shareholder processing
     services. Such payments are made by the Adviser or the Distributor and are
     in addition to any distribution-related or transfer agency/shareholder
     servicing fees that may be payable by the Fund or by the Distributor as a
     12b-1 fee. The payments made by the Adviser or the Distributor may be based
     on gross sales, current assets, number of accounts, or other measures as
     determined by the Adviser or the Distributor. The amount of these payments
     is determined from time to time by the Adviser or the Distributor, may be
     substantial, and may be different for different Intermediaries.

     With respect to certain affiliated entities of the Adviser or the
     Distributor ("Affiliated Entities") and Intermediaries, these payments
     currently include the following amounts paid by either the Adviser or the
     Distributor from its own funds:

     (1) For sales of shares of MSIF Inc. and MSIF Trust (except the Money
     Market Funds), an amount equal to 35% of each portfolio's stated advisory
     fee.

     (2) For sales of the Money Market Funds, an amount equal to 0.10% of the
     value of shares held in the accounts.

     (3) For sales of shares of the Universal Funds, an amount equal to 25% of
     each portfolio's stated advisory fee on first, second, and third years' net
     cash flows, and 0.00% thereafter.

     (4) For sales of shares of the Universal Funds, an amount equal to 40% of
     each portfolio's net advisory and administrative fees.

     (5) For sales of shares of the Institutional Fund of Hedge Funds, an amount
     equal to 0.075% of the assets in the accounts.

     (6) For sales of shares of MSIF Inc., MSIF Trust and Universal Funds, an
     amount up to 0.45% of the assets in the accounts, in addition to 12b-1 fees
     paid, if any.

     (7) For sales of shares of the Morgan Stanley Institutional Liquidity
     Funds, a range in an amount equal to 0.03% to 0.10% of the assets in the
     accounts, in addition to 12b-1 fees paid, if any.

     (8) For sales of Investment Class shares of certain MSIF Trust portfolios
     by the Morgan Stanley Stable Value Fund,(1) and amount equal to 0.225% of
     the value of such shares held by the Stable Value Fund, in addition to a
     portion of the shareholder servicing fee.

     The prospect of receiving, or the receipt of additional compensation as
     described above by Affiliated Entities or other Intermediaries out of the
     Investment Manager's or Distributor's own funds, may provide Affiliated
     Entities and such Intermediaries and/or their salespersons with an
     incentive to favor sales of shares of the Fund, and other mutual funds
     whose affiliates make similar compensation


     available, over sales of shares of mutual funds (or non-mutual fund
     investments) with respect to which the Affiliated Entity or the
     Intermediary does not receive additional compensation, or lower levels of
     additional compensation. These payment arrangements, however, will not
     change the price that an investor pays for Fund shares or the amount that a
     Fund receives to invest on behalf of an investor. You may wish to take such
     payment arrangements into account when considering and evaluating any
     recommendations relating to Fund shares.




               PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.