485APOS 1 file001.htm POST-EFFECTIVE AMENDMENT

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 2004

1933 ACT FILE NO. 333-104972
1940 ACT FILE NO. 811-21339

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. ---- [ ]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND/OR
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 2 [X]

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MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
(a Massachusetts business trust)
(Exact Name of Registrant as Specified in Charter)
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(Address of Principal Executive Offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 548-7786
AMY R. DOBERMAN
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(Name and Address of Agent for Service)
--------------

Copies to:

CARL FRISCHLING, ESQ. STUART M. STRAUSS, ESQ.
KRAMER LEVIN NAFTALIS & FRANKEL LLP CLIFFORD CHANCE US LLP
919 THIRD AVENUE 31 WEST 52ND STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10019

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

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on February 28, 2005 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of rule 485

INSTITUTIONAL CLASS PROSPECTUS
February , 2005

[MORGAN STANLEY LOGO OMITTED]

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS

Money Market Portfolio
Prime Portfolio
Government Portfolio
Government Securities Portfolio
Treasury Portfolio
Treasury Securities Portfolio
Tax-Exempt Portfolio

SHAREHOLDER SERVICES:
1-888-378-1630
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PRICES AND INVESTMENT RESULTS:

www.morganstanley.com/im
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INVESTMENT ADVISER: MORGAN STANLEY INVESTMENT MANAGEMENT INC.
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Morgan Stanley Institutional Liquidity Funds (the "Fund") is a mutual fund
organized as a Massachusetts business trust currently consisting of the seven
Portfolios which are described in this prospectus. This prospectus offers
Institutional Class Shares of the Portfolio described herein.
--------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

INSTITUTIONAL CLASS PROSPECTUS
February , 2005

Table of Contents

PAGE

THE PORTFOLIOS
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Money Market Portfolio 1
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Prime Portfolio 2
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Government Portfolio 3
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Government Securities Portfolio 4
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Treasury Portfolio 5
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Treasury Securities Portfolio 6
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Tax-Exempt Portfolio 7
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FEES AND EXPENSES OF THE PORTFOLIOS 8
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ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION 9
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PORTFOLIO HOLDINGS 12
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PURCHASING SHARES 12
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REDEEMING SHARES 14
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GENERAL SHAREHOLDER INFORMATION 15
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INVESTMENT ADVISER 17
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FINANCIAL HIGHLIGHTS 18
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INSTITUTIONAL CLASS PROSPECTUS
February , 2005
MONEY MARKET PORTFOLIO

OBJECTIVE
The Money Market Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

APPROACH

The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing in liquid, high quality U.S. dollar-denominated money market
instruments of U.S. and foreign financial and non-financial corporations. The
Portfolio also invests in obligations of foreign governments and in obligations
of the U.S. government and its agencies and instrumentalities. The Portfolio's
money market investments may include commercial paper, corporate debt
obligations, funding agreements, debt obligations (including certificates of
deposit and promissory notes) of U.S. banks or foreign banks, or of U.S.
branches of foreign banks, or foreign branches of U.S. banks (such as Yankee
obligations), certificates of deposit of savings banks and savings and loan
organizations, short-term taxable municipal obligations, variable rate master
demand notes (including tax-exempt variable rate demand notes), asset-backed
securities and repurchase agreements. No individual security will have a
remaining maturity in excess of 397 days, except for adjustable rate government
securities with maturities in excess of 397 days.

PROCESS

Morgan Stanley Investment Management Inc. (the "Adviser"), has retained Morgan
Stanley Investment Advisors Inc. (the "Sub-Adviser") as sub-adviser for the
Portfolio. The Sub-Adviser follows a multi-pronged investment process with
respect to credit risk, interest rate risk and liquidity. Securities are
reviewed on an ongoing basis to maintain or improve creditworthiness taking
into consideration factors such as cash flow, asset quality, debt service
coverage ratios and economic developments. Additionally, exposure to guarantors
and liquidity providers is monitored separately as are the various
diversification requirements.

PRINCIPAL RISKS
There is no assurance that the Portfolio will achieve its investment objective.
Although the Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible for an investor to lose money by investing in the
Portfolio. Shares of the Portfolio are not bank deposits and are not insured or
guaranteed by the FDIC or any other government agency.

A principal risk of investing in the Portfolio is associated with its debt
obligation investments. All debt obligations, such as bonds, are subject to two
types of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer of a security will be unable to make interest
payments and/or repay the principal on its debt. Interest rate risk refers to
fluctuations in the value of a debt security resulting from changes in the
general level of interest rates. The Sub-Adviser actively manages the
Portfolio's assets to reduce the risk of losing any principal investment as a
result of credit or interest rate risks. The Portfolio's assets are reviewed to
maintain or improve creditworthiness. In addition, federal regulations require
money market funds to invest only in debt obligations of high quality and
short-term maturities. Repurchase agreements are subject to additional risks
associated with the possibility of default by the seller at a time when the
collateral has declined in value, or insolvency of the seller, which may affect
the Portfolio's right to control the collateral. Asset-backed securities raise
certain risk considerations including prepayment risk and the risk of
inadequate recovery on repossessed collateral. Because the Portfolio may
concentrate its investments in bank securities, an adverse development in the
banking industry may affect the value of the Portfolio's investments more than
if the Portfolio were not so concentrated.

The Portfolio may invest in U.S. dollar-denominated foreign securities and
money market instruments. Although the Portfolio will invest in these
securities only if the Sub-Adviser determines they are of comparable quality to
the Portfolio's U.S. investments, investing in securities of foreign issuers
involves some additional risks. These risks may include higher costs of foreign
investing, and the possibility of adverse political, economic or other
developments affecting the issuers of these securities.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

The Fund was recently organized and, as of the date of this Prospectus, the
Portfolio had no historical performance to report. Performance information will
be provided once the Portfolio has completed a full year of operation.

PRIME PORTFOLIO

OBJECTIVE
The Prime Portfolio seeks preservation of capital, daily liquidity and maximum
current income.

APPROACH

The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing in liquid, high quality money market instruments of domestic
financial and non-financial corporations, as well as obligations of the U.S.
government and its agencies and instrumentalities. The Portfolio's money market
investments may include commercial paper, corporate debt obligations, funding
agreements, debt obligations (including certificates of deposit and promissory
notes) of U.S. banks or foreign branches of U.S. banks, certificates of deposit
of savings banks and savings and loan organizations, short-term taxable
municipal obligations, variable rate master demand notes (including tax-exempt
variable rate demand notes), asset-backed securities and repurchase agreements.
No individual security will have a remaining maturity in excess of 397 days,
except for adjustable rate government securities with maturities in excess of
397 days.

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows a multi-pronged investment process with respect to credit
risk, interest rate risk and liquidity. Securities are reviewed on an ongoing
basis to maintain or improve creditworthiness taking into consideration factors
such as cash flow, asset quality, debt service coverage ratios and economic
developments. Additionally, exposure to guarantors and liquidity providers is
monitored separately as are the various diversification requirements.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

INSTITUTIONAL CLASS PROSPECTUS
February , 2005
GOVERNMENT PORTFOLIO

OBJECTIVE
The Government Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

APPROACH
The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing exclusively in obligations of the U.S. government and its agencies
and instrumentalities and in repurchase agreements collateralized by such
securities. The Portfolio may change its principal investment strategies;
however you would be notified of any changes. No individual security will have
a remaining maturity in excess of 397 days.

The U.S. government securities that the Portfolio may purchase include:

o U.S. treasury bills, notes and bonds, all of which are direct obligations
of the U.S. government.

o Securities issued by agencies and instrumentalities of the U.S.
government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these
obligations are the Government National Mortgage Association ("Ginnie
Mae") and the Federal Housing Administration.

o Securities issued by agencies and instrumentalities which are not backed
by the full faith and credit of the United States, but whose issuing
agency or instrumentality has the right to borrow, to meet its
obligations, from the U.S. Treasury. Among these agencies and
instrumentalities are the Federal National Mortgage Association ("Fannie
Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the
Federal Home Loan Banks.

o Securities issued by agencies and instrumentalities which are backed
solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System.

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows an investment process that seeks to select maturities based
on the shape of the money market yield curve and based on the expectations as
to future shifts in the level and shape of the curve, taking into consideration
such factors as current short-term interest rates, Federal Reserve policy
regarding interest rates and U.S. economic activity.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

GOVERNMENT SECURITIES PORTFOLIO

OBJECTIVE
The Government Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

APPROACH
The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing substantially all of its assets in U.S. Treasury obligations and
certain U.S. government securities, the interest from which is generally exempt
from state income taxation. These securities may include those issued by the
U.S. Treasury and certain agencies, authorities or instrumentalities of the
U.S. government. The Portfolio may change its principal investment strategies;
however you would be notified of any changes. The Portfolio may also invest in
repurchase agreements, however, under normal circumstances it does not intend
to do so. No individual security will have a remaining maturity in excess of
397 days.

Shareholders should consult their individual tax adviser to determine whether
the Portfolio's distributions derived from interest on the Treasury obligations
and U.S. government securities referred to above are exempt from state taxation
in their own state.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

INSTITUTIONAL CLASS PROSPECTUS
February , 2005
TREASURY PORTFOLIO

OBJECTIVE
The Treasury Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

APPROACH
The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing exclusively in U.S. Treasury obligations and repurchase agreements
collateralized by such securities. The Portfolio may change its principal
investment strategies; however you would be notified of any changes. No
individual security will have a remaining maturity in excess of 397 days.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

The Fund was recently organized and, as of the date of this Prospectus, the
Portfolio has no historical performance to report. Performance information will
be provided once the Portfolio has completed a full year of operation.

TREASURY SECURITIES PORTFOLIO

OBJECTIVE
The Treasury Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

APPROACH
The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing exclusively in U.S. Treasury obligations. Such obligations are backed
by the full faith and credit of the U.S. government. The Portfolio may change
its principal investment strategies; however you would be notified of any
changes. No individual security will have a remaining maturity in excess of 397
days.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

INSTITUTIONAL CLASS PROSPECTUS
February , 2005
TAX-EXEMPT PORTFOLIO

OBJECTIVE
The Tax-Exempt Portfolio seeks to maximize current income exempt from federal
income tax to the extent consistent with preservation of capital and
maintenance of liquidity.

APPROACH

The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing at least 80% of its assets in high quality short-term municipal
obligations, the interest of which is exempt from federal income taxes and is
not subject to the federal alternative minimum tax. This policy is fundamental
and may not be changed without shareholder approval. Municipal obligations are
securities issued by state and local governments and their agencies and
typically are either general obligation or revenue bonds, notes or commercial
paper. General obligation securities are secured by the issuer's faith and
credit including its taxing power for payment of principal and interest.
Revenue bonds, however, are generally payable from a specific revenue source.
They are issued for a wide variety of projects such as financing public
utilities, hospitals, housing, airports, highways and educational facilities.
Included within the revenue bonds category are participations in lease
obligations and installment purchase contracts of municipalities. Additionally,
the Portfolio's investments may include variable and floating rate demand
instruments, tender option bonds and custodial receipts.

The Portfolio may invest up to 20% of its assets in taxable money market
securities or in municipal obligations that pay interest income that may be
subject to the alternative minimum tax. However, it is currently intended that
the Portfolio will be managed so that income generated by the Portfolio will
not be subject to the alternative minimum tax. No individual security will have
a remaining maturity in excess of 397 days.

While at least 80% of the Portfolio's assets typically will be invested in
municipal obligations, the interest of which is exempt from federal income
taxes and is not subject to the federal alternative minimum tax, the Portfolio
may temporarily invest more than 20% of its assets in taxable money market
securities for defensive purposes under extraordinary market conditions.

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows a multi-pronged investment process with respect to credit
risk, interest rate risk and liquidity. Securities are reviewed on an ongoing
basis taking into consideration factors such as economic developments,
budgetary trends, cash flow, debt service coverage ratios and tax-law changes.
Exposure to guarantors and liquidity providers is monitored separately.
Weighted average maturity is shifted in response to expectations as to the
future course of money market interest rates, the shape of the money market
yield curve and the Portfolio's recent cash flow experience.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

FEES AND EXPENSES OF THE PORTFOLIOS

The table below describes the fees and expenses that an investor may pay if he
or she buys and holds shares of the Institutional Class of the Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES

MONEY GOVERNMENT TREASURY
MARKET PRIME GOVERNMENT SECURITIES TREASURY SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
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Advisory Fee 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
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12b-1 Fee 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
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Other Expenses % % %* %* %* %* %
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Total Institutional Class Operating Expenses** % % % % % % %
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* Other Expenses are based on estimated amounts.
** The Adviser has voluntarily agreed to reduce its advisory fee and/or absorb
other expenses so that total operating expenses of each Portfolio's
Institutional Class will not exceed 0.20%. This fee and expense waiver may be
discontinued at any time.

EXAMPLE

(sidebar)
The Portfolios do not charge any sales loads or other fees when you purchase or
redeem shares.

The example assumes that you invest $10,000 in each Portfolio's Institutional
Class for the time periods indicated and then redeem all of your shares at the
end of those periods. The example assumes that your investment has a 5% return
each year and that the Institutional Class' operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be equal to the amounts reflected in the table to the right.
(end sidebar)

This example is intended to help you compare the cost of investing in the
Portfolio's Institutional Class with the cost of investing in other mutual
funds.

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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Money Market Portfolio $ $ $ $
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Prime Portfolio
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Government Portfolio N/A N/A
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Government Securities Portfolio N/A N/A
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Treasury Portfolio N/A N/A
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Treasury Securities Portfolio N/A N/A
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Tax-Exempt Portfolio
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INSTITUTIONAL CLASS PROSPECTUS
February , 2005

ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION

BANK OBLIGATIONS. Bank obligations include certificates of deposit, commercial
paper, unsecured bank promissory notes, bankers' acceptances, time deposits and
other debt obligations. Certain Portfolios may invest in obligations issued or
backed by U.S. banks when a bank has more than $1 billion in total assets at
the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Portfolios may invest in U.S. dollar-denominated obligations issued or
guaranteed by foreign banks that have more than $1 billion in total assets at
the time of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks
having more than $1 billion in total assets at the time of purchase. Bank
obligations may be general obligations of the parent bank or may be limited to
the issuing branch by the terms of the specific obligation or by government
regulation.

If a Portfolio invests more than 25% of its total assets in bank obligations
(whether foreign or domestic), it may be especially affected by favorable and
adverse developments in or related to the banking industry. The activities of
U.S. and most foreign banks are subject to comprehensive regulations which, in
the case of U.S. regulations, have undergone substantial changes in the past
decade. The enactment of new legislation or regulations, as well as changes in
interpretation and enforcement of current laws, may affect the manner of
operations and profitability of domestic and foreign banks. Significant
developments in the U.S. banking industry have included increased competition
from other types of financial institutions, increased acquisition activity and
geographic expansion. Banks may be particularly susceptible to certain economic
factors, such as interest rate changes and adverse developments in the real
estate markets. Fiscal and monetary policy and general economic cycles can
affect the availability and cost of funds, loan demand and asset quality and
thereby impact the earnings and financial conditions of banks.

U.S. GOVERNMENT SECURITIES. The U.S. government securities that certain
Portfolios may purchase include U.S. Treasury bills, notes and bonds, all of
which are direct obligations of the U.S. government. In addition, certain
Portfolios may purchase securities issued by agencies and instrumentalities of
the U.S. government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are
the Government National Mortgage Association ("Ginnie Mae") and the Federal
Housing Administration. Certain of the Portfolios may also purchase securities
issued by agencies and instrumentalities which are not backed by the full faith
and credit of the United States, but whose issuing agency or instrumentality
has the right to borrow, to meet its obligations, from the U.S. Treasury. Among
these agencies and instrumentalities are the Federal National Mortgage
Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation
("Freddie Mac") and the Federal Home Loan Banks. Further, certain Portfolios
may purchase securities issued by agencies and instrumentalities which are
backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System. Because
these securities are not backed by the full faith and credit of the United
States, there is a risk that the U.S. government will not provide financial
support to these agencies if it is not obligated to do so by law. The maximum
potential liability of the issuers of some U.S. government securities held by
the Fund may greatly exceed their current resources, including their legal
right to support from the U.S. Treasury. It is possible that these issuers will
not have the funds to meet their payment obligations in the future.

FOREIGN SECURITIES. Certain Portfolios may invest in U.S. dollar-denominated
securities issued by foreign governmental or corporate issuers, including
Eurodollar and Yankee obligations. While these securities are subject to the
same type of risks that pertain to domestic issuers, namely credit risk and
interest rate risk, they are also subject to other additional risks which
include: adverse political and economic developments less securities regulation
and publicly available financial information, potential imposition of foreign
withholding taxes or expropriation of assets and more limited legal remedies
than those available in the United States.

bonds issued or guaranteed as to principal or interest by the U.S. government,
its agencies, instrumentalities, political subdivisions or authorities, or by a
state or local governmental body or authority, or by other types of issuers.
For certain securities law purposes, custodial receipts are not considered
obligations of the underlying issuers. In addition, if for tax purposes a
Portfolio is not considered to be the owner of the underlying securities held
in the custodial account, the Portfolio may suffer adverse tax consequences. As
a holder of custodial receipts, a Portfolio will bear its proportionate share
of the fees and expenses charged to the custodial account.

TENDER OPTION BONDS. A tender option bond is a municipal obligation (generally
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing
short-term, tax-exempt rates. The bond is typically issued in conjunction with
the agreement of a third party, such as a bank, broker-dealer or other
financial institution, pursuant to which the institution grants the security
holder the option, at periodic intervals, to tender its securities to the
institution. As consideration for providing the option, the financial
institution receives periodic fees equal to the difference between the bond's
fixed coupon rate and the rate, as determined by a remarketing or similar
agent, that would cause the securities, coupled with the tender option, to
trade at par on the date of such determination. Thus, after payment of this
fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. An institution will
normally not be obligated to accept tendered bonds in the event of certain
defaults or significant downgrading in the credit rating assigned to the issuer
of the bond. The tender option will be taken into account in determining the
maturity of the tender option bonds and a Portfolio's average portfolio
maturity. There is a risk that a Portfolio will not be considered the owner of
a tender option bond for federal income tax purposes, and thus will not be
entitled to treat such interest as exempt from federal income tax. Certain
tender option bonds may be illiquid or may become illiquid as a result of a
credit rating downgrade, a payment default or a disqualification from
tax-exempt status.

CORPORATE DEBT OBLIGATIONS. Corporate debt obligations are fixed income
securities issued by private corporations. Debtholders, as creditors, have a
prior legal claim over common and preferred stockholders of the corporation as
to both income and assets for the principal and interest due to the bondholder.
Certain Portfolios will buy corporate debt obligations subject to any quality
constraints set forth under Rule 2a-7 under the Investment Company Act of 1940,
as amended (the "1940 Act").

ASSET-BACKED SECURITIES. Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Credit support for asset-backed securities may be based on the underlying
assets and/or provided by a third party through credit enhancements. Credit
enhancement techniques include letters of credit, insurance bonds, limited
guarantees (which are generally provided by the issuer), senior-subordinated
structures and over-collateralization.

Asset-backed securities are not issued or guaranteed by the U.S. government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts for a
certain period by a letter of credit issued by a financial institution (such as
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. For example, there
is a risk that another party could acquire an interest in the obligations
superior to that of the holders of the asset-backed securities. There also is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on those securities. Asset-backed
securities entail prepayment risk, which may vary depending on the type of
asset. Securities subject to prepayment risk generally offer less potential for
gains when interest

INSTITUTIONAL CLASS PROSPECTUS
February , 2005

rates decline, and may offer a greater potential for loss when interest rates
rise. In addition, rising interest rates may cause prepayments to occur at a
slower than expected rate, thereby effectively lengthening the maturity of the
security and making the security more sensitive to interest rate changes.

ADJUSTABLE RATE GOVERNMENT SECURITIES. Adjustable rate government securities
are variable rate securities where the variable rate of interest is readjusted
no less frequently than every 397 days and are deemed to have a maturity equal
to the period remaining until the next readjustment of the interest rate.

PROMISSORY NOTES. Promissory notes are generally debt obligations of the
issuing entity and are subject to the risks of investing in the banking
industry. Certain Portfolios may invest up to 10% of its net assets in illiquid
securities, including unsecured bank promissory notes.

FUNDING AGREEMENTS. A funding agreement is a contract between an issuer and a
purchaser that obligates the issuer to pay a guaranteed rate of interest on a
principal sum deposited by the purchaser. Funding agreements will also
guarantee the return of principal and may guarantee a stream of payments over
time. A funding agreement has a fixed maturity and may have either a fixed,
variable or floating interest rate that is based on an index and guaranteed for
a fixed time period. The secondary market, if any, for these funding agreements
is limited; thus, such investments purchased by the Portfolios may be treated
as illiquid. Certain Portfolios may invest up to 10% of its net assets in
illiquid securities, including funding agreements.

TAX-EXEMPT VARIABLE RATE DEMAND NOTES. Tax-exempt variable rate demand notes
are variable rate tax-exempt debt obligations that give investors the right to
demand principal repayment. Due to cyclical supply and demand considerations,
at times the yields on these obligations can exceed the yield on taxable money
market obligations.

PORTFOLIO HOLDINGS

A description of the Fund's policies and procedures with respect to the
disclosure of each Portfolio's securities is available (i) in the Fund's
Statement of Additional Information ("SAI"), and (ii) on the
Fund's website www.morganstanley.com/funds.

The Fund discloses its portfolio holdings on the password-protected part of its
website every 15 days with a 15 calendar day lag.

This information remains available until it is included in the Fund's next
shareholder report or quarterly report.

PURCHASING SHARES

The Fund is designed for institutional investors seeking maximum current
income, a stable net asset value ("NAV") and convenient liquidation privileges.
The Portfolios are particularly suitable for banks, corporations and other
financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares of the Government
Portfolio and Government Securities Portfolio are intended to qualify as
eligible investments for federally chartered credit unions pursuant to the
applicable provisions of the Federal Credit Union Act and the National Credit
Union Administration. Shares of the Government Portfolio and Government
Securities Portfolio, however, may not qualify as eligible investments for
particular state-chartered credit unions. A state-chartered credit union should
consult qualified legal counsel to determine whether these Portfolios are
permissible investments under the law applicable to it.

Institutional Class Shares are available to investors who at the time of
initial purchase make a minimum investment of $10,000,000, or to clients of
Morgan Stanley Private Wealth Management. The Fund, in its sole discretion, may
waive the minimum initial and additional investment amounts in certain cases,
including shares of the Portfolios purchased through a financial intermediary.

This Prospectus offers Institutional Class shares of each Portfolio. The Fund
also offers other classes of shares through a separate Propectus. For
information regarding other share classes, contact the Fund or your financial
intermediary.

Institutional Class Shares of the Portfolio may be purchased directly from
Morgan Stanley Institutional Liquidity Funds or through a financial
intermediary (also referred to as a service organization). Investors purchasing
shares through a financial intermediary may be charged a transaction-based or
other fee by the financial intermediary for its services. If you are purchasing
Institutional Class Shares through a financial intermediary, please consult
your intermediary for purchase instructions. Customers of a financial
intermediary will normally give their purchase instructions to the financial
intermediary, who, in turn, will place purchase orders with the Fund. The
financial intermediary will establish times by which such purchase orders and
payments from customers must be received by the financial intermediary.
Financial intermediaries are responsible for transmitting purchase orders and
payments to the Fund and the Fund's custodian in a timely fashion.

Institutional Class Shares of the Portfolio may be purchased at the NAV next
determined after the Fund receives your purchase order and the Fund's custodian
bank, J.P. Morgan Chase & Co. (the "Custodian") receives monies credited by a
Federal Reserve Bank ("Federal Funds") prior to the close of the Fed wire. You
begin earning dividends the same day your Institutional Class Shares are
purchased provided the Fund receives your purchase amount in Federal Funds that
day as set forth above. Orders to purchase shares of a Portfolio must be
received by the Fund prior to the following times: for the Prime Portfolio,
Money Market Portfolio, Government Portfolio and Treasury Portfolio--5:00 p.m.
Eastern time; for the Government Securities Portfolio and Treasury Securities
Portfolio--3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio--2:00 p.m.
Eastern time. On any business day that the New York Stock Exchange closes early,
or when the Bond Market Association recommends that the securities markets close
early, the Fund may close early and purchase orders received after such earlier
closing times will be processed the following business day. Purchase orders
received by the Fund will not be processed until receipt of Federal Funds.

INSTITUTIONAL CLASS PROSPECTUS
February , 2004

PURCHASE BY WIRE
You may open an account, subject to acceptance by Morgan Stanley Institutional
Liquidity Funds, by completing and signing an Account Registration Form
provided by J.P. Morgan Investor Services Company ("J.P. Morgan"), the Fund's
transfer agent, which you can obtain by calling the Fund at 1-888-378-1630 and
mailing it to Morgan Stanley Institutional Liquidity Funds, 3435 Stelzer Road,
Columbus, Ohio 43219 and indicating the name of the Portfolio you wish to
purchase.

Upon approval of the application, you may purchase Institutional Class Shares
of the Portfolios by wiring Federal Funds to the Custodian.

You should forward a completed Account Registration Form to the Fund in advance
of the wire. See the section below entitled "Valuation of Shares." Instruct
your bank to send a Federal Funds (monies credited by a Federal Reserve Bank)
wire in a specified amount to the Custodian using the following wire
instructions:

J.P. MORGAN CHASE & CO.
1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #323-255167
Attn: Morgan Stanley Institutional Liquidity Funds
Trust Subscription Account
Ref: (Portfolio Name, Account Number,
Account Name)

If notification of your order is received prior to the time required by each
respective Portfolio, as set forth above, and the Custodian receives the funds
the same day prior to the close of the Fed wire, then your purchase will become
effective and begin to earn income on that day. Otherwise, your purchase will
be effective on the next business day.

PURCHASE BY INTERNET
If you have properly authorized the Internet Trading Option on your Account
Registration Form and completed, signed and returned to the Fund an Electronic
Transactions Agreement, you may place a purchase order for additional shares
online through Morgan Stanley's ClientLink service at www.morganstanley.com. For
more information, call Shareholder Services at 1-888-378-1630.

You are responsible for transmitting payments for shares purchased via the
Internet in a timely fashion, as set forth above.

AUTOMATIC PURCHASES
Selected accounts that utilize the Portfolios as their sweep vehicle will be
reviewed on each business day to determine whether the account has a positive
balance as a result of credits incurred that day. If an account has a positive
(credit) balance, shares of the respective Portfolio will automatically be
purchased. Any positive (credit) balance will be reduced by any debits to the
account on that day and shares of the Portfolio will automatically be sold.

ADDITIONAL INVESTMENTS
You may make additional investments of Institutional Class Shares (minimum
additional investment $1,000) at the NAV next determined after the request is
received in good order or by wiring Federal Funds to the Custodian as outlined
above. J.P. Morgan must receive notification of receipt of your Federal Funds
wire by the time required by each respective Portfolio, as set forth above
under "Purchasing Shares." Shareholder accounts that utilize the Fund as their
sweep vehicle are not subject to the minimum additional investment requirement.

OTHER PURCHASE INFORMATION

The Fund may suspend the offering of shares, or any class of shares, of the
Portfolios or reject any purchase or exchange orders when we think it is in the
best interest of the Fund.

Purchases of a Portfolio's shares will be made in full and fractional shares of
the Portfolio calculated to three decimal places.

To help the government fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account. What
this means to you: When you open an account, we will ask your name, address,
date of birth, and other information that will allow us to identify you. If you
are unable to verify your identity, we reserve the right to restrict additional
transactions and/or liquidate your account at the next calculated net asset
value after your account is closed (less any applicable sales/account charges
and/or tax penalties) or take any other action required by law.

REDEEMING SHARES

You may redeem shares of the Portfolios by mail, or, if authorized, by
telephone at no charge. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption. The
Portfolio will redeem shares at the NAV next determined after the request is
received in good order.

BY MAIL
Requests should be addressed to Morgan Stanley Institutional Liquidity Funds,
3435 Stelzer Road, Columbus, OH 43219.

To be in good order, redemption requests must include the following
documentation:

(a) A letter of instruction, if required, or a stock assignment specifying the
number of shares or dollar amount to be redeemed, signed by all registered
owners of the shares in the exact names in which the shares are registered;

(b) Any required signature guarantees; and

(c) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianship, corporations, pension and profit sharing
plans and other organizations.

BY TELEPHONE

If you have authorized the Telephone Redemption Option on the Account
Registration Form, you may request a redemption of shares by calling the Fund
at 1-888-378-1630 and requesting that the redemption proceeds be mailed or
wired to you.

If we determine that it is in the best interest of other shareholders not to
pay redemption proceeds in cash, we may pay you in part by distributing to you
readily marketable securities held by the Portfolio from which you are
redeeming. You may incur brokerage charges when you sell those securities.

BY INTERNET
You may redeem shares online through Morgan Stanley's ClientLink service at
www.morganstanley.com, provided you have a pre-established Internet trading
account, as set forth above under "Purchasing Shares." For more information,
call Shareholder Services at 1-888-378-1630.

AUTOMATIC REDEMPTIONS
Selected accounts that utilize the Portfolio as their sweep vehicle will be
reviewed on each business day to determine whether the account has any debits
that were incurred that day and shares of the Portfolio will automatically be
redeemed to cover the debits if such debits have not been reduced by any
credits which may have accrued to the account on the same day.

ALL SALES

You will not earn a dividend on the day your shares are sold. Orders to sell
shares (redemption requests) will be processed on the day on which they are
received, provided they are received prior to the following times: for the
Prime Portfolio, Money Market Portfolio, Government Portfolio and Treasury
Portfolio--5:00 p.m. Eastern time; for the Government Securities Portfolio and
Treasury Securities Portfolio--3:00 p.m. Eastern time; and for the Tax-Exempt
Portfolio--1:00 p.m. Eastern time. On any business day that the New York Stock
Exchange closes early or when the Bond Market Association recommends that the
securities markets close early, the Fund may close early and redemption
requests received after such earlier closing times will be processed the
following business day. Generally, payment for Fund shares sold will be made on
the day on which the order is processed, but under certain circumstances may
not be made until the next business day. Redemption requests or payments may be
postponed or suspended as permitted pursuant to Section 22(e) of the 1940 Act.
Generally, under that section, redemption requests or payments may be postponed
or suspended if the NYSE is closed for trading, or trading is restricted, an
emergency exists which makes the disposal of securities owned by a Fund or the
fair determination of the value of the Fund's net assets not reasonably
practicable, or the Securities and Exchange Commission, by order, permits the
suspension of the right of redemption. Redemption payments may also be delayed
in the event of the closing of the Federal Reserve wire payment system.

INSITITUTIONAL CLASS PROSPECTUS
February , 2005
GENERAL SHAREHOLDER INFORMATION

VALUATION OF SHARES
The price of each Portfolio's shares is based on the amortized cost of the
Portfolio's securities. The amortized cost valuation method involves valuing a
debt obligation in reference to its cost rather than market forces.

The NAV per share of each Portfolio is determined once daily, normally at the
times set forth below, on each day that the New York Stock Exchange is open.
Shares will not be priced on days that the New York Stock Exchange is closed.

Prime Portfolio As of 5:00 p.m.
Money Market Portfolio Eastern time
Government Portfolio
Treasury Portfolio

Government Securities As of 3:00 p.m.
Portfolio Eastern time
Treasury Securities
Portfolio

Tax-Exempt Portfolio As of 2:00 p.m.
Eastern time

EXCHANGE PRIVILEGE

You may exchange a Portfolio's Institutional Class Shares for Institutional
Class Shares of other available Portfolios of the Fund based on their
respective NAVs. We charge no fee for exchanges. If you purchased Portfolio
shares through a financial intermediary, certain Portfolios of the Fund may be
unavailable for exchange. Contact your financial intermediary to determine
which Portfolios are available for exchange. See also "Other Purchase
Information" for certain limitations relating to exchanges.

You can process your exchange by contacting your financial intermediary or
online through Morgan Stanley's ClientLink service at www.morganstanley.com
provided you have a pre-established Internet trading account, as set forth
above under "Purchasing Shares." Contact Shareholder Services for additional
information. Exchange requests can also be made by calling 1-888-378-1630.

When you exchange for shares of another Portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same
minimum initial investment and account size as an initial purchase. The Fund,
in its sole discretion, may waive the minimum initial investment amounts in
certain cases, including exchanges involving Portfolio shares purchased through
a financial intermediary.

FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
[Because, as a money market fund, the Portfolios' principal investment strategy
is to maintain a stable share price, the policies and procedures adopted by the
Board of Trustees/Directors applicable to other funds in the Morgan Stanley
family of funds are generally not applicable with respect to frequent purchases
and redemptions of Portfolio shares. Therefore, reasonably frequent purchases
and redemptions of Portfolio shares by Portfolio shareholders do not present
risks for other shareholders of a Portfolio. We expect the Portfolios to be
used by shareholders for short-term investing and by certain selected accounts
utilizing the Portfolios as a sweep vehicle.] However, frequent trading by
shareholders can disrupt management of the Portfolios and raise their
respective expenses. Therefore, we may not accept any request for a purchase or
exchange when we think it is being used as a tool for market timing, and we may
bar a shareholder who trades excessively from making further purchases for an
indefinite period.

TELEPHONE/INTERNET TRANSACTIONS
For your protection, we will employ reasonable procedures to confirm that
transaction instructions communicated over the telephone/Internet are genuine.
These procedures may include requiring various forms of personal instructions
such as name, mailing address, social security, other tax identification
information and password/authorization codes, including PIN (Personal
Information Number). Telephone Instructions also may be recorded. During
periods of drastic economic or market changes, it is possible that the
telephone/Internet orders may be difficult to implement, although this has not
been the case with the Fund in the past.

DISTRIBUTIONS
The Portfolios pass substantially all of their earnings along to their
investors as "distributions." The Portfolios earn interest from fixed-income
investments. These amounts are passed along to Portfolio shareholders as
"income dividend distributions." Each Portfolio realizes capital gains whenever
it sells securities for a higher price than it paid for them. These amounts may
be passed along as "capital gain distributions;" the Adviser does not
anticipate that there will be significant capital gains distributions.

The Portfolios declare income dividends at approximately 4:00 p.m. on each
business day based on their respective estimated daily net income to
shareholders of record. To the extent actual income is greater or lesser than
the estimated amount, adjustments will be made to the following business day's
income dividends. These dividends accrue daily and are distributed on the last
business day of each month. Short-term capital gains, if any, are distributed
periodically. Long-term capital gains, if any, are distributed at least
annually. The Portfolio automatically reinvests all dividends and distributions
in additional shares. However, you may elect to receive distributions in cash
by giving written notice to your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.

TAXES
The tax information provided in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in a particular Portfolio.

Except as noted below, dividends you receive will generally be taxable as
ordinary income, whether you receive them in cash or in additional shares.

With respect to the Government Securities Portfolio, while the Portfolio
intends to limit its investments to certain U.S. Treasury Obligations and U.S.
Government securities, the interest of which is generally exempt from state
income taxation, you should consult your own tax adviser to determine whether
distributions from the Government Securities Portfolio are exempt from state
taxation in your own state.

With respect to the Tax-Exempt Portfolio, your income dividend distributions
are normally exempt from federal income tax -- to the extent they are derived
from municipal obligations. Income derived from other portfolio securities may
be subject to federal, state and/or local income taxes. The income derived from
some municipal securities is subject to the federal "alternative minimum tax."
Certain tax-exempt securities whose proceeds are used to finance private,
for-profit organizations are subject to this special tax system that ensures
that individuals pay at least some federal taxes. Although interest on these
securities is generally exempt from federal income tax, some taxpayers who have
many tax deductions or exemptions nevertheless may have to pay tax on the
income.

Corporate shareholders may be entitled to a dividends-received deduction for
the portion of dividends they receive which are attributable to dividends
received by such Portfolios from U.S. corporations. In addition, dividends
received by non-corporate shareholders (for taxable years beginning on or
before December 31, 2008) attributable to dividends received by such Portfolios
from certain U.S. and qualifying foreign corporations may be subject to tax at
rates applicable to long-term capital gains. Capital gain distributions may be
taxable at different rates depending on the length of time the Portfolio holds
its assets.

Every January, you will be sent a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
information on your dividends and capital gains for tax purposes.

Exchanges and redemptions of shares in a Portfolio are taxable events and may
result in a taxable gain or loss to you.

When you open your account, you should provide your social security or tax
identification number on your investment application. By providing this
information, you will avoid being subject to federal backup withholding on
taxable distributions and redemption proceeds (as of the date of this
Prospectus, this rate is 28%). Any withheld amount would be sent to the IRS as
an advance payment of taxes due on your income for such year.

INSTITUTIONAL CLASS PROSPECTUS
February , 2005
INVESTMENT ADVISER

ADVISER

Morgan Stanley Investment Management Inc., the investment adviser, with
principal offices at 1221 Avenue of the Americas, New York, NY 10020, conducts a
worldwide portfolio management business and provides a broad range of portfolio
management services to customers in the United States and abroad. Morgan Stanley
is the direct parent of Morgan Stanley Investment Management Inc. and Morgan
Stanley & Co. Incorporated, the Fund's Distributor. Morgan Stanley is a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses -- securities, asset
management and credit services. Morgan Stanley is a full service securities firm
engaged in securities trading and brokerage activities, as well as providing
investment banking, research and analysis, financing and financial advisory
services. As of December 31, 2004, Morgan Stanley Investment Management Inc.,
together with its affiliated asset management companies, had approximately $
billion in assets under management with approximately $ billion in institutional
assets.

Each Portfolio pays the Adviser monthly compensation calculated daily by
applying the annual rate of 0.15% to each Portfolio's daily net assets.

SUB-ADVISER

Morgan Stanley Investment Advisors Inc. ("MSIA") serves as Sub-Adviser to the
Portfolios. As Sub-Adviser, MSIA makes day-to-day investment decisions for the
Portfolios and places the Portfolios' purchase and sales orders. The Adviser
pays MSIA 40% of the fee the Adviser receives from each Portfolio as
compensation for its sub-advisory services. MSIA, located at 1221 Avenue of the
Americas, New York, NY 10020, is a wholly-owned subsidiary of Morgan Stanley.
MSIA develops, markets and manages a broad spectrum of proprietary mutual funds
that are sold by Morgan Stanley financial advisors and offers professional money
management services on a customized basis to individuals, institutional
investors and retirement plan sponsors.

PORTFOLIO MANAGEMENT

The assets of the Prime Portfolio, Money Market Portfolio, Government
Securities Portfolio, Government Portfolio and Treasury Portfolio are managed
by the Taxable Money Market Group. Current members of the Taxable Money Market
Group include Jonathan Page, Managing Director, Dale Albright, Executive
Director and Jonas Kolk, Executive Director. The assets of the Tax-Exempt
Portfolio are managed by the Tax-Exempt Money Market Group. Current members of
the Tax-Exempt Money Market Group include Katherine Stromberg, Executive
Director, William Oliver, Vice President and Liam Carroll, Vice President.

DISTRIBUTOR

Shares of the Fund are distributed exclusively through Morgan Stanley & Co.
Incorporated ("the Distributor"), a wholly-owned subsidiary of Morgan Stanley.
The Distributor has entered into arrangements with certain financial
intermediaries (also referred to as service organizations) who may accept
purchase and redemption orders for shares of the Portfolios on its behalf.

The Adviser and/or the Distributor may pay additional compensation (out of
their own funds and not as an expense of the Fund) to selected affiliated or
unaffiliated brokers or other service providers in connection with the sale,
distribution, retention and/or servicing of Fund shares. Such compensation may
be significant in amount and the prospect of receiving any such additional
compensation may provide affiliated or unaffiliated entities with an incentive
to favor sales of shares of the Fund over other investment options. Any such
payments will not change the net asset value or the price of Fund shares.
For more information, please see the Fund's SAI.

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you understand
the financial performance of each Portfolio for the life of the Portfolio or
Class. Certain information reflects financial results for a single Portfolio
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in each Portfolio (assuming reinvestment
of all dividends and distributions). The financial highlights for the fiscal
year ended October 31, 2004 have been audited by Ernst & Young LLP. Ernst &
Young LLP's unqualified report appears in the Fund's Annual Report to
Shareholders and is incorporated by reference in the SAI. The Annual Report and
each Portfolio's financial statements, as well as the SAI, are available at no
cost from the Fund at the toll free number noted on the back cover to this
Prospectus.

[CHART TO COME]

WHERE TO FIND ADDITIONAL INFORMATION

In addition to this prospectus, the Fund has an SAI, dated February , 2005,
which contains additional, more detailed information about the Fund and the
Portfolio. The SAI is incorporated by reference into this Prospectus and,
therefore, legally forms a part of this Prospectus.

The Fund publishes annual and semi-annual reports ("Shareholder Reports") that
contain additional information about each Portfolio's investments. In the Fund's
annual report, you will find a discussion of the market conditions and the
investment strategies that significantly affected each Portfolio's performance
during the last fiscal year. For additional Fund information, including
information regarding a Portfolio's investments, please call the toll-free
number below.

You may obtain the SAI and Shareholder Reports, without charge, by contacting
the Fund at the toll-free number below. If you purchased shares through a
financial intermediary, you may also obtain these documents, without charge, by
contacting your financial intermediary.

Information about the Fund, including the SAI and Shareholder Reports, may be
obtained from the Securities and Exchange Commission in any of the following
ways. (1) In person: you may review and copy documents in the Commission's
Public Reference Room in Washington D.C. (for information call 1-202-942-8090);
(2) On-line: you may retrieve information from the Commission's web site at
http://www.sec.gov; (3) By mail: you may request documents, upon payment of a
duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-0102; or (4) By e-mail: you may
request documents, upon payment of a duplicating fee, by e-mailing the
Securities and Exchange Commission at the following address: publicinfo@sec.gov.
To aid you in obtaining this information, the Fund's Investment Company Act
registration number is 811-21339.

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
3435 STELZER ROAD
COLUMBUS, OH 43219

FOR SHAREHOLDER INQUIRIES,
CALL 1-888-378-1630.

PRICES AND INVESTMENT RESULTS ARE AVAILABLE AT www.morganstanley.com/im.

[MORGAN STANLEY LOGO OMITTED]

SERVICE CLASS PROSPECTUS
February , 2005
[MORGAN STANLEY LOGO OMITTED]

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS

Money Market Portfolio
Prime Portfolio
Government Portfolio
Government Securities Portfolio
Treasury Portfolio
Treasury Securities Portfolio
Tax-Exempt Portfolio

SHAREHOLDER SERVICES:
1-888-378-1630
--------------------------------------------------------------------------------
PRICES AND INVESTMENT RESULTS:
www.morganstanley.com/im
--------------------------------------------------------------------------------
INVESTMENT ADVISER: MORGAN STANLEY INVESTMENT MANAGEMENT INC.
--------------------------------------------------------------------------------
Morgan Stanley Institutional Liquidity Funds (the "Fund") is a mutual fund
organized as a Massachusetts business trust currently consisting of the seven
Portfolios which are described in this prospectus. This prospectus offers
Service Class Shares of the Portfolio described herein.
--------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

SERVICE CLASS PROSPECTUS
February , 2005
TABLE OF CONTENTS

PAGE

FEES AND EXPENSES OF THE PORTFOLIOS 8
-----------------------------------------------------------
ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION 9
-----------------------------------------------------------
PORTFOLIO HOLDINGS 12
-----------------------------------------------------------
PURCHASING SHARES 12
-----------------------------------------------------------
REDEEMING SHARES 14
-----------------------------------------------------------
GENERAL SHAREHOLDER INFORMATION 15
-----------------------------------------------------------
INVESTMENT ADVISER 17
-----------------------------------------------------------
FINANCIAL HIGHLIGHTS 18
-----------------------------------------------------------

SERVICE CLASS PROSPECTUS
February , 2005
MONEY MARKET PORTFOLIO

OBJECTIVE
The Money Market Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

APPROACH

PROCESS

Morgan Stanley Investment Management Inc. (the "Adviser") has retained Morgan
Stanley Investment Advisors Inc. (the "Sub-Adviser"), as sub-adviser for the
Portfolio. The Sub-Adviser follows a multi-pronged investment process with
respect to credit risk, interest rate risk and liquidity. Securities are
reviewed on an ongoing basis to maintain or improve creditworthiness taking
into consideration factors such as cash flow, asset quality, debt service
coverage ratios and economic developments. Additionally, exposure to guarantors
and liquidity providers is monitored separately as are the various
diversification requirements.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

PRIME PORTFOLIO

OBJECTIVE

The Prime Portfolio seeks preservation of capital, daily liquidity and maximum
current income.

APPROACH

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

SERVICE CLASS PROSPECTUS
February , 2005
GOVERNMENT PORTFOLIO

OBJECTIVE
The Government Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

The U.S. government securities that the Portfolio may purchase include:

o U.S. treasury bills, notes and bonds, all of which are direct obligations
of the U.S. government.

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows an investment process that seeks to select maturities based
on the shape of the money market yield curve and based on expectations as to
future shifts in the level and shape of the curve, taking into consideration
such factors as current short-term interest rates, Federal Reserve policy
regarding interest rates and U.S. economic activity.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

GOVERNMENT SECURITIES PORTFOLIO

OBJECTIVE
The Government Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows an investment process that seeks to select maturities based
on the shape of the money market yield curve and based on expectations as to
future shifts in the level and shape of the curve, taking into consideration
such factors as current short-term interest rates, Federal Reserve policy
regarding interest rates and U.S. economic activity.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

SERVICE CLASS PROSPECTUS
February , 2005
TREASURY PORTFOLIO

OBJECTIVE
The Treasury Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

TREASURY SECURITIES PORTFOLIO

OBJECTIVE
The Treasury Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows an investment process that seeks to select maturities based
on the shape of the money market yield curve and based on expectations as to
future shifts in the level and shape of the curve, taking into consideration
such factors as current short-term interest rates, Federal Reserve policy
regarding interest rates and U.S. economic activity.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

SERVICE CLASS PROSPECTUS
February , 2005
TAX-EXEMPT PORTFOLIO

OBJECTIVE
The Tax-Exempt Portfolio seeks to maximize current income exempt from federal
income tax to the extent consistent with preservation of capital and
maintenance of liquidity.

APPROACH

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows a multi-pronged investment process with respect to credit
risk, interest rate risk and liquidity. Securities are reviewed on an ongoing
basis, taking into consideration factors such as economic developments,
budgetary trends, cash flow, debt service coverage ratios and tax-law changes.
Exposure to guarantors and liquidity providers is monitored. Weighted average
maturity is shifted in response to expectations as to the future course of
money market interest rates, the shape of the money market yield curve and the
Portfolio's recent cash flow experience.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

FEES AND EXPENSES OF THE PORTFOLIOS

The table below describes the fees and expenses that an investor may pay if he
or she buys and holds shares of the Service Class of the Portfolios.

(sidebar)
The Portfolios do not charge any sales loads or other fees when you purchase or
redeem shares.
(end sidebar)

ANNUAL PORTFOLIO OPERATING EXPENSES
MONEY GOVERNMENT TREASURY
MARKET PRIME GOVERNMENT SECURITIES TREASURY SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------

Advisory Fee 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
------------------------------------------------------------------------------------------------------------------------------
12b-1 Fee 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------------------------
Other Expenses % % %* %* %* %* %
------------------------------------------------------------------------------------------------------------------------------
Shareholder
Administration Fee** % % % % % % %
------------------------------------------------------------------------------------------------------------------------------
Total Service Class
Operating Expenses*** % % % % % % %
------------------------------------------------------------------------------------------------------------------------------

* Other Expenses are based on estimated amounts.

** Institutions or financial intermediaries may charge other fees directly
to their customers who are beneficial owners of Service Class Shares in
connection with their customers' accounts.

*** The Adviser has voluntarily agreed to reduce its advisory fee and/or
absorb other expenses so that total operating expenses of each
Portfolio's Service Class will not exceed 0.25%. This fee and expense
waiver may be discontinued at any time.

EXAMPLE
This example is intended to help you compare the cost of investing in the
Portfolio's Service Class with the cost of investing in other mutual funds.

(sidebar)
The example assumes that you invest $10,000 in each Portfolio's Service Class
for the time periods indicated and then redeem all of your shares at the end of
those periods. The example assumes that your investment has a 5% return each
year and that the Service Class' operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be equal to the amounts reflected in the table to the right.
(end sidebar)

1 YEAR 3 YEARS 5 YEARS 10 YEARS

-----------------------------------------------------------------------------------------
Money Market Portfolio $ $ $ $
-----------------------------------------------------------------------------------------
Prime Portfolio
-----------------------------------------------------------------------------------------
Government Portfolio N/A N/A
-----------------------------------------------------------------------------------------
Government Securities Portfolio N/A N/A
-----------------------------------------------------------------------------------------
Treasury Portfolio N/A N/A
-----------------------------------------------------------------------------------------
Treasury Securities Portfolio N/A N/A
-----------------------------------------------------------------------------------------
Tax-Exempt Portfolio
-----------------------------------------------------------------------------------------

SERVICE CLASS PROSPECTUS
February , 2005

ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION

SERVICE CLASS PROSPECTUS
February , 2005

PORTFOLIO HOLDINGS

The Fund discloses portfolio holdings on the password-protected part of its
website every 15 days with a 15 calendar day lag.

This information remains available until it is included in the Fund's next
shareholder report or quarterly report.

PURCHASING SHARES

The Fund is designed for institutional investors seeking maximum current
income, a stable net asset value ("NAV") and convenient liquidation privileges.
The Portfolios are particularly suitable for banks, corporations and other
financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares of the Government
Portfolio and Government Securities Portfolio are intended to qualify as
eligible investments for federally chartered credit unions pursuant to the
applicable provisions of the Federal Credit Union Act and the National Credit
Union Administration. Shares of the Government Portfolio and Government
Securities Portfolio, however, may not qualify as eligible investments for
particular state- chartered credit unions. A state-chartered credit union
should consult qualified legal counsel to determine whether these Portfolios
are permissible investments under the law applicable to it.

Service Class Shares are available to clients of the Investment Adviser with
investments at the time of initial purchase of at least $10,000,000. The Fund,
in its sole discretion, may waive the minimum initial and additional investment
amounts in certain cases, including shares of the Portfolios purchased through
a financial intermediary.

This Prospectus offers Service Class Shares of each Portfolio. The Fund also
offers other classes of shares through separate Prospectuses. Certain of these
classes may be subject to lower fees and expenses. For information regarding
other share classes, contact the Fund or your financial intermediary.

Service Class Shares of the Portfolio may be purchased through a financial
intermediary (also referred to as a service organization). Investors purchasing
shares through a financial intermediary may be charged a transaction-based or
other fee by the financial intermediary for its services. If you are purchasing
Service Class Shares through a financial intermediary, please consult your
intermediary for purchase instructions. Customers of a financial intermediary
will normally give their purchase instructions to the financial intermediary,
who, in turn, will place purchase orders with the Fund. The financial
intermediary will establish times by which such purchase orders and payments
from customers must be received by the financial intermediary. Financial
intermediaries are responsible for transmitting purchase orders and payments to
the Fund and the Fund's custodian in a timely fashion.

Service Class Shares of the Portfolio may be purchased at the NAV next
determined after the Fund receives your purchase order and the Fund's custodian
bank, J.P. Morgan Chase & Co. (the "Custodian") receives monies credited by a
Federal Reserve Bank ("Federal Funds") prior to the close of the Fed wire. You
begin earning dividends the same day your Service Class Shares are purchased
provided the Fund receives your purchase amount in Federal Funds that day as
set forth above. Orders to purchase shares of a Portfolio must be received by
the Fund prior to the following times: for the Prime Portfolio, Money Market
Portfolio, Government Portfolio and Treasury Portfolio--5:00 p.m. Eastern time;
for the Government Securities Portfolio and Treasury Securities Portfolio--3:00
p.m. Eastern time; and for the Tax-Exempt Portfolio--2:00 p.m. Eastern time. On
any business day that the New York Stock Exchange closes early, or when the
Bond Market Association recommends that the securities markets close early, the
Fund may close early and purchase orders received after such earlier closing
times will be processed the following business day. Purchase orders received by
the Fund will not be processed until receipt of Federal Funds.

SERVICE CLASS PROSPECTUS
February , 2005

PURCHASE BY WIRE
You may open an account, subject to acceptance by Morgan Stanley Institutional
Liquidity Funds, by completing and signing an Account Registration Form
provided by J.P. Morgan Investor Services Company ("J.P. Morgan"), the Fund's
transfer agent, which you can obtain by calling the Fund at 1-888-378-1630 and
mailing it to Morgan Stanley Institutional Liquidity Funds, 3435 Stelzer Road,
Columbus, OH 43219 and indicating the name of the Portfolio you wish to
purchase.

Upon approval of the application, you may purchase Service Class Shares of the
Portfolios by wiring Federal Funds to the Custodian. You should forward a
completed Account Registration Form to the Fund in advance of the wire. See the
section below entitled "Valuation of Shares." Instruct your bank to send a
Federal Funds (monies credited by a Federal Reserve Bank) wire in a specified
amount to the Custodian using the following wire instructions:

You are responsible for transmitting payments for shares purchased via the
Internet in a timely fashion, as set forth above.

ADDITIONAL INVESTMENTS
You may make additional investments of Service Class Shares (minimum additional
investment $1,000) at the NAV next determined after the request is received in
good order, by wiring Federal Funds to the Custodian as outlined above. J.P.
Morgan must receive notification of receipt of your Federal Funds wire by the
time required by each respective Portfolio, as set forth above under
"Purchasing Shares." Shareholder accounts that utilize the Fund as their sweep
vehicle are not subject to the minimum additional investment requirement.

OTHER PURCHASE INFORMATION

The Fund may suspend the offering of shares, or any class of shares, of the
Portfolios or reject any purchase or exchange orders when we think it is in the
best interest of the Fund.

Purchases of a Portfolio's shares will be made in full and fractional shares of
the Portfolio calculated to three decimal places.

REDEEMING SHARES

BY MAIL
Requests should be addressed to Morgan Stanley Institutional Liquidity Funds,
3435 Stelzer Road, Columbus, OH 43219.

To be in good order, redemption requests must include the following
documentation:

(b) Any required signature guarantees; and

(c) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianship, corporations, pension and profit sharing
plans and other organizations.

BY TELEPHONE

ALL SALES

SERVICE CLASS PROSPECTUS
February , 2005

GENERAL SHAREHOLDER INFORMATION

Prime Portfolio As of 5:00 p.m.
Money Market Portfolio Eastern time
Government Portfolio
Treasury Portfolio

Government Securities As of 3:00 p.m.
Portfolio Eastern time
Treasury Securities
Portfolio

Tax-Exempt Portfolio As of 2:00 p.m.
Eastern time

EXCHANGE PRIVILEGE

You may exchange a Portfolio's Service Class Shares for Service Class Shares of
other available Portfolios of the Fund based on their respective NAVs. We
charge no fee for exchanges. If you purchased Portfolio shares through a
financial intermediary, certain Portfolios of the Fund may be unavailable for
exchange. Contact your financial intermediary to determine which portfolios are
available for exchange. See also "Other Purchase Information" for certain
limitations relating to exchanges.

You can process your exchange by contacting your financial intermediary or
online through Morgan Stanley's ClientLink service at www.morganstanley.com
provided you have a pre-established Internet trading account, as set forth above
under "Purchasing Shares." Contact Shareholder Services for additional
information. Exchange requests can also be made by calling 1-888-378-1630.

FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
[Because, as a money market fund, the Portfolios' principal investment strategy
is to maintain a stable share price, the policies and procedures adopted by the
Board of Trustees/Directors applicable to other funds in the Morgan Stanley
family of funds are generally not applicable with respect to frequent purchases
and redemptions of Portfolio shares. Therefore, reasonably frequent purchases
and redemptions of Portfolio shares by Portfolio shareholders do not present
risks for other shareholders of a Portfolio.We expect the Portfolios to be used
by shareholders for short-term investing and by certain selected accounts
utilizing the Portfolios as a sweep vehicle.] However, frequent trading by
shareholders can disrupt management of the Portfolios and raise their
respective expenses. Therefore, we may not accept any request for a purchase or
exchange when we think it is being used as a tool for market timing, and we may
bar a shareholder who trades excessively from making further purchases for an
indefinite period.

Each Portfolio realizes capital gains whenever it sells securities for a higher
price than it paid for them. These amounts may be passed along as "capital gain
distributions;" the Adviser does not anticipate that there will be significant
capital gains distributions.

The Portfolios declare income dividends at approximately 4:00 p.m. on each
business day based on their respective estimated daily net income to
shareholders of record. To the extent actual income in greater or lesser than
the estimated amount, adjustments will be made to the following business day's
income dividends. These dividends accrue daily and are distributed on the last
business day of each month. Short-term capital gains, if any, are distributed
periodically. Long-term capital gains, if any, are distributed at least
annually. The Portfolio automatically reinvests all dividends and distributions
in additional shares. However, you may elect to receive distributions in cash
by giving written notice to your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.

Except as noted below, dividends you receive will generally be taxable as
ordinary income, whether you receive them in cash or in additional shares.

Exchanges and redemptions of shares in a Portfolio are taxable events and may
result in a taxable gain or loss to you.

SERVICE CLASS PROSPECTUS
February , 2005
INVESTMENT ADVISER

ADVISER

Morgan Stanley Investment Management Inc., the investment adviser, with
principal offices at 1221 Avenue of the Americas, New York, NY 10020, conducts
a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad.
Morgan Stanley is the direct parent of Morgan Stanley Investment Management
Inc. and Morgan Stanley & Co. Incorporated, the Fund's Distributor. Morgan
Stanley is a preeminent global financial services firm that maintains leading
market positions in each of its three primary businesses -- securities, asset
management and credit services. Morgan Stanley is a full service securities
firm engaged in securities trading and brokerage activities, as well as
providing investment banking, research and analysis, financing and financial
advisory services. As of December 31, 2004, Morgan Stanley Investment
Management Inc., together with its affiliated asset management companies, had
approximately $ billion in assets under management with approximately $
billion in institutional assets.

Each Portfolio pays the Adviser monthly compensation calculated daily by
applying the annual rate of 0.15% to each Portfolio's daily net assets.

SUB-ADVISER

Morgan Stanley Investment Advisors Inc. ("MSIA") serves as Sub-Adviser to the
Portfolios. As Sub-Adviser, MSIA makes day-to-day investment decisions for the
Portfolios and places the Portfolios' purchase and sales orders. The Adviser
pays MSIA 40% of the fee the Adviser receives from each Portfolio as
compensation for its sub-advisory services. MSIA, located at 1221 Avenue of the
Americas, New York, NY 10020, is a wholly-owned subsidiary of Morgan Stanley.
MSIA develops, markets and manages a broad spectrum of proprietary mutual funds
that are sold by Morgan Stanley financial advisors and offers professional
money management services on a customized basis to individuals, institutional
investors and retirement plan sponsors.

PORTFOLIO MANAGEMENT

DISTRIBUTOR

SHAREHOLDER ADMINISTRATION PLAN

The Fund has adopted an Administration Plan for each Portfolio's Service Class
Shares (the "Plan"). Under the Plan, each Portfolio pays the Distributor a
monthly or quarterly fee at an annual rate of 0.05% of each Portfolio's average
daily net assets attributable to Service Class Shares to compensate certain
financial intermediaries (also referred to as service organizations) who provide
administrative services to shareholders.

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you understand
the financial performance of each Portfolio for the life of the Portfolio or
Class. Certain information reflects financial results for a single Portfolio
share. The total returns in the tables represent the rate that an investor
would have earned (or lost) on an investment in each Portfolio (assuming
reinvestment of all dividends and distributions). The financial highlights for
the fiscal year ended October 31, 2004 have been audited by Ernst & Young LLP.
Ernst & Young LLP's unqualified report appears in the Fund's Annual Report to
Shareholders and is incorporated by reference in the SAI. The Annual Report and
each Portfolio's financial statements, as well as the SAI, are available at no
cost from the Fund at the toll free number noted on the back cover to this
Prospectus.

[CHART TO COME]

WHERE TO FIND ADDITIONAL INFORMATION

Information about the Fund, including the SAI and Shareholder Reports, may be
obtained from the Securities and Exchange Commission in any of the following
ways. (1) In person: you may review and copy documents in the Commission's
Public Reference Room in Washington D.C. (for information call 1-202-942-8090);
(2) On-line: you may retrieve information from the Commission's web site at
http://www.sec.gov; (3) By mail: you may request documents, upon payment of a
duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-0102; or (4) By e-mail: you may
request documents, upon payment of a duplicating fee, by e-mailing the
Securities and Exchange Commission at the following address:
publicinfo@sec.gov. To aid you in obtaining this information, the Fund's
Investment Company Act registration number is 811-21339.

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
3435 STELZER ROAD
COLUMBUS, OH 43219

FOR SHAREHOLDER INQUIRIES,
CALL 1-888-378-1630.

PRICES AND INVESTMENT RESULTS ARE AVAILABLE AT www.morganstanley.com/im.

[MORGAN STANLEY LOGO OMITTED]

ADVISORY CLASS PROSPECTUS
February , 2005
[MORGAN STANLEY LOGO OMITTED]

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS

Money Market Portfolio
Prime Portfolio
Government Portfolio
Government Securities Portfolio
Treasury Portfolio
Treasury Securities Portfolio
Tax-Exempt Portfolio

SHAREHOLDER SERVICES:
1-888-378-1630
--------------------------------------------------------------------------------
PRICES AND INVESTMENT RESULTS:
www.morganstanley.com/im
--------------------------------------------------------------------------------
INVESTMENT ADVISER: MORGAN STANLEY INVESTMENT MANAGEMENT INC.
--------------------------------------------------------------------------------
Morgan Stanley Institutional Liquidity Funds (the "Fund") is a mutual fund
organized as a Massachusetts business trust currently consisting of the seven
Portfolios which are described in this prospectus. This prospectus offers
Advisory Class Shares of the Portfolio described herein.
--------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

ADVISORY CLASS PROSPECTUS
February , 2005
TABLE OF CONTENTS

PAGE

ADVISORY CLASS PROSPECTUS
February , 2005
MONEY MARKET PORTFOLIO

OBJECTIVE
The Money Market Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

APPROACH

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

PRIME PORTFOLIO

OBJECTIVE
The Prime Portfolio seeks preservation of capital, daily liquidity and maximum
current income.

APPROACH

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

ADVISORY CLASS PROSPECTUS
February , 2005
GOVERNMENT PORTFOLIO

OBJECTIVE
The Government Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

The U.S. government securities that the Portfolio may purchase include:

o U.S. treasury bills, notes and bonds, all of which are direct obligations
of the U.S. government.

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows an investment process that seeks to select securities based
on the shape of the money market yield curve and based on the expectations as
to future shifts in the level and shape of the curve, taking into consideration
such factors as current short-term interest rates, Federal Reserve policy
regarding interest rates and U.S. economic activity.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

GOVERNMENT SECURITIES PORTFOLIO

OBJECTIVE
The Government Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

ADVISORY CLASS PROSPECTUS
February , 2005
TREASURY PORTFOLIO

OBJECTIVE
The Treasury Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

TREASURY SECURITIES PORTFOLIO

OBJECTIVE
The Treasury Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

ADVISORY CLASS PROSPECTUS
February , 2005
TAX-EXEMPT PORTFOLIO

OBJECTIVE
The Tax-Exempt Portfolio seeks to maximize current income exempt from federal
income tax to the extent consistent with preservation of capital and
maintenance of liquidity.

APPROACH

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows a multi-pronged investment process with respect to credit
risk, interest rate risk and liquidity. Securities are reviewed on an ongoing
basis taking into consideration factors such as economic developments,
budgetary trends, cash flow, debt service coverage ratios and tax-law changes.
Exposure to guarantors and liquidity providers is monitored separately.
Weighted average maturity is shifted in response to expectations as to the
future course of money market interest rates, the shape of the money market
yield curve and the Portfolio's recent cash flow experience.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

FEES AND EXPENSES OF THE PORTFOLIOS

The table below describes the fees and expenses that an investor may pay if he
or she buys and holds shares of the Advisory Class of the Portfolios.

(sidebar)
The Portfolios do not charge any sales loads or other fees when you purchase or
redeem shares.
(end sidebar)

ANNUAL PORTFOLIO OPERATING EXPENSES
MONEY GOVERNMENT TREASURY
MARKET PRIME GOVERNMENT SECURITIES TREASURY SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------

Advisory Fee 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
-----------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-----------------------------------------------------------------------------------------------------------------
Other Expenses % % %* %* %* %* %
-----------------------------------------------------------------------------------------------------------------
Service and Shareholder
Administration Fee* % % % % 5% % %
-----------------------------------------------------------------------------------------------------------------
Total Advisory Class
Operating Expenses*** % % % % % % %
-----------------------------------------------------------------------------------------------------------------

* Other Expenses are based on estimated amounts.

** Institutions or financial intermediaries may charge other fees directly to
their customers who are beneficial owners of Advisory Class Shares in
connection with their customers' accounts.

*** The Adviser has voluntarily agreed to reduce its advisory fee and/or absorb
other expenses so that total operating expenses of each Portfolio's
Advisory Class will not exceed 0.45%. This fee and expense waiver may be
discontinued at any time.

EXAMPLE
This example is intended to help you compare the cost of investing in the
Portfolio's Advisory Class with the cost of investing in other mutual funds.

(sidebar)
The example assumes that you invest $10,000 in each Portfolio's Advisory Class
for the time periods indicated and then redeem all of your shares at the end of
those periods. The example assumes that your investment has a 5% return each
year and that the Advisory Class' operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be equal to the amounts reflected in the table to the right.
(end sidebar)

1 YEAR 3 YEARS 5 YEARS 10 YEARS

Money Market Portfolio $ $ $ $
---------------------------------------------------------------------------------
Prime Portfolio
---------------------------------------------------------------------------------
Government Portfolio N/A N/A
---------------------------------------------------------------------------------
Government Securities Portfolio N/A N/A
---------------------------------------------------------------------------------
Treasury Portfolio N/A N/A
---------------------------------------------------------------------------------
Treasury Securities Portfolio N/A N/A
---------------------------------------------------------------------------------
Tax-Exempt Portfolio
---------------------------------------------------------------------------------

ADVISORY CLASS PROSPECTUS
February , 2005

ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION

U.S. GOVERNMENT SECURITIES. The U.S. government securities that certain
Portfolios may purchase include U.S. Treasury bills, notes and bonds, all of
which are direct obligations of the U.S., government. In addition, certain
Portfolios may purchase securities issued by agencies and instrumentalities of
the U.S. government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are
the Government National Mortgage Association ("Ginnie Mae") and the Federal
Housing Administration. Certain of the Portfolios may also purchase securities
issued by agencies and instrumentalities which are not backed by the full faith
and credit of the United States, but whose issuing agency or instrumentality
has the right to borrow, to meet its obligations, from the U.S. Treasury. Among
these agencies and instrumentalities are the Federal National Mortgage
Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation
("Freddie Mac") and the Federal Home Loan Banks. Further, certain Portfolios
may purchase securities issued by agencies and instrumentalities which are
backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System. Because
these securities are not backed by the full faith and credit of the United
States, there is a risk that the U.S. government will not provide financial
support to these agencies if it is not obligated to do so by law. The maximum
potential liability of the issuers of some U.S. government securities held by
the Fund may greatly exceed their current resources, including their legal
right to support from the U.S. Treasury. It is possible that these issuers will
not have the funds to meet their payment obligations in the future.

ADVISORY CLASS PROSPECTUS
February , 2005

PORTFOLIO HOLDINGS

The Fund discloses its portfolio holdings on the password-protected part of its
website every 15 days with a 15 calendar day lag.

This information remains available until it is included in the Fund's next
shareholder report or quarterly report.

PURCHASING SHARES

Advisory Class Shares are available to clients of the Investment Adviser with
investments at the time of initial purchase of at least $10,000,000. The Fund,
in its sole discretion, may waive the minimum initial and additional investment
amounts in certain cases, including shares of the Portfolios purchased through
a financial intermediary.

This Prospectus offers Advisory Class Shares of each Portfolio. The Fund also
offers other classes of shares through separate Prospectuses. Certain of these
classes may be subject to lower fees and expenses. For information regarding
other share classes, contact the Fund or your financial intermediary.

Advisory Class Shares of the Portfolio may be purchased directly from Morgan
Stanley Institutional Liquidity Funds or through a financial intermediary (also
referred to as a service organization). Investors purchasing shares through a
financial intermediary may be charged a transaction-based or other fee by the
financial intermediary for its services. If you are purchasing Advisory Class
Shares through a financial intermediary, please consult your intermediary for
purchase instructions. Customers of a financial intermediary will normally give
their purchase instructions to the financial intermediary, who, in turn, will
place purchase orders with the Fund. The financial intermediary will establish
times by which such purchase orders and payments from customers must be
received by the financial intermediary. Financial intermediaries are
responsible for transmitting purchase orders and payments to the Fund and the
Fund's custodian in a timely fashion.

Advisory Class Shares of the Portfolio may be purchased at the NAV next
determined after the Fund receives your purchase order and the Fund's custodian
bank, J.P. Morgan Chase & Co. (the "Custodian") receives monies credited by a
Federal Reserve Bank ("Federal Funds") prior to the close of the Fed wire. You
begin earning dividends the same day your Advisory Class Shares are purchased
provided that the Fund receives your purchase amount in Federal Funds that day
as set forth above. Orders to purchase shares of a Portfolio must be received
by the Fund prior to the following times: for the Prime Portfolio, Money Market
Portfolio, Government Portfolio and Treasury Portfolio--5:00 p.m. Eastern time;
for the Government Securities Portfolio and Treasury Securities Portfolio--3:00
p.m. Eastern time; and for the Tax-Exempt Portfolio--2:00 p.m. Eastern time. On
any business day that the New York Stock Exchange closes early, or when the
Bond Market Association recommends that the securities markets close early, the
Fund may close early and purchase orders received after such earlier closing
times will be

ADVISORY CLASS PROSPECTUS
February , 2005

processed the following business day. Purchase orders received by the Fund will
not be procured until receipt of Federal Funds.

PURCHASE BY WIRE
You may open an account, subject to acceptance by Morgan Stanley Institutional
Liquidity Funds, by completing and signing an Account Registration Form
provided by J.P. Morgan Investor Services Company ("J.P. Morgan"), the Fund's
transfer agent, which you can obtain by calling the Fund at 1-888-378-1630 and
mailing it to Morgan Stanley Institutional Liquidity Funds, 3435 Stelzer Road,
Columbus, OH 43219 and indicating the name of the Portfolio you wish to
purchase.

Upon approval of the application, you may purchase Advisory Class Shares of the
Portfolios by wiring Federal Funds to the Custodian. You should forward a
completed Account Registration Form to the Fund in advance of the wire. See the
section below entitled "Valuation of Shares." Instruct your bank to send a
Federal Funds (monies credited by a Federal Reserve Bank) wire in a specified
amount to the Custodian using the following wire instructions:

J.P. MORGAN CHASE & CO.

1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #323-255167
Attn: Morgan Stanley Institutional Liquidity Funds
Trust Subscription Account
Ref: (Portfolio Name, Account Number,
Account Name)

You are responsible for transmitting payments for shares purchased via the
Internet in a timely fashion, as set forth above.

AUTOMATIC PURCHASES

Selected accounts that utilize the Portfolios as their sweep vehicle will be
reviewed on each business day to determine whether the account has a positive
balance as a result of credits incurred that day. If an account has a positive
(credit) balance, shares of the respective Portfolio will automatically be
purchased. Any positive (credit) balance will be reduced by any debits to the
account on that day and shares of the Portfolio will automatically be sold.

ADDITIONAL INVESTMENTS
You may make additional investments of Advisory Class Shares (minimum
additional investment $1,000) at the NAV next determined after the request is
received in good order by wiring Federal Funds to the Custodian as outlined
above. J.P. Morgan must receive notification of receipt of your Federal Funds
wire by the time required by each respective Portfolio, as set forth above
under "Purchasing Shares." Shareholder accounts that utilize the Fund as their
sweep vehicle are not subject to the minimum additional investment requirement.

OTHER PURCHASE INFORMATION

The Fund may suspend the offering of shares, or any class of shares, of the
Portfolios or reject any purchase or exchange orders when we think it is in the
best interest of the Fund.

Purchases of a Portfolio's shares will be made in full and fractional shares of
the Portfolio calculated to three decimal places.

REDEEMING SHARES

BY MAIL
Requests should be addressed to Morgan Stanley Institutional Liquidity Funds,
3435 Stelzer Road, Columbus, OH 43219.

To be in good order, redemption requests must include the following
documentation:

(b) Any required signature guarantees; and

(c) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianship, corporations, pension and profit sharing
plans and other organizations.

BY TELEPHONE

ALL SALES

ADVISORY CLASS PROSPECTUS
February , 2005

GENERAL SHAREHOLDER INFORMATION

Prime Portfolio As of 5:00 p.m.
Money Market Portfolio Eastern time
Government Portfolio
Treasury Portfolio

Government Securities As of 3:00 p.m.
Portfolio Eastern time

Treasury Securities
Portfolio
As of 2:00 p.m.

Tax-Exempt Portfolio Eastern time

EXCHANGE PRIVILEGE

You may exchange a Portfolio's Advisory Class Shares for Advisory Class Shares
of other available Portfolios of the Fund based on their respective NAVs. We
charge no fee for exchanges. If you purchased Portfolio shares through a
financial intermediary, certain Fund Portfolios may be unavailable for
exchange. Contact your financial intermediary to determine which Portfolios are
available for exchange. See also "Other Purchase Information" for certain
limitations relating to exchanges.

The Portfolios declare income dividends at approximately 4:00 p.m. on each
business day based on their respective estimated daily net income to
shareholders of record. To the extent actual income is greater or lower than
the estimated amount, adjustments will be made to the following business day's
income dividends. These dividends accrue daily and are distributed on the last
business day of each month. Short-term capital gains, if any, are distributed
periodically. Long-term capital gains, if any, are distributed at least
annually. The Portfolio automatically reinvests all dividends and distributions
in additional shares. However, you may elect to receive distributions in cash
by giving written notice to your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.

Except as noted below, dividends you receive will generally be taxable as
ordinary income, whether you receive them in cash or in additional shares.

Exchanges and redemptions of shares in a Portfolio are taxable events and may
result in a taxable gain or loss to you.

ADVISORY CLASS PROSPECTUS
February , 2005
INVESTMENT ADVISER

ADVISER

Morgan Stanley Investment Management Inc., the investment adviser, with
principal offices at 1221 Avenue of the Americas, New York, NY 10020, conducts
a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad.
Morgan Stanley is the direct parent of Morgan Stanley Investment Management
Inc. and Morgan Stanley & Co. Incorporated, the Fund's Distributor. Morgan
Stanley is a preeminent global financial services firm that maintains leading
market positions in each of its three primary businesses--securities, asset
management and credit services. Morgan Stanley is a full service securities
firm engaged in securities trading and brokerage activities, as well as
providing investment banking, research and analysis, financing and financial
advisory services. As of December 31, 2004, Morgan Stanley Investment
Management Inc., together with its affiliated asset management companies, had
approximately $ billion in assets under management with approximately $
billion in institutional assets.

Each Portfolio pays the Adviser monthly compensation calculated daily by
applying the annual rate of 0.15% to each Portfolio's daily net assets.

SUB-ADVISER

Morgan Stanley Investment Advisors Inc. ("MSIA") serves as Sub-Adviser to the
Portfolios. As Sub-Adviser, MSIA makes day-to-day investment decisions for the
Portfolios and places the Portfolios' purchase and sales orders. The Adviser
pays MSIA 40% of the fee the Adviser receives from each Portfolio as
compensation for its sub-advisory services. MSIA, located at 1221 Avenue of the
Americas, New York, NY 10020, is a wholly-owned subsidiary of Morgan Stanley.
MSIA develops, markets and manages a broad spectrum of proprietary mutual funds
that are sold by Morgan Stanley financial advisors and offers professional
money management services on a customized basis to individuals, institutional
investors and retirement plan sponsors.

PORTFOLIO MANAGEMENT

DISTRIBUTOR

SERVICE AND SHAREHOLDER ADMINISTRATION PLAN

The Fund has adopted a Service and Shareholder Administration Plan for each
Portfolio's Advisory Class Shares (the "Plan"). Under the Plan, each Portfolio
pays the Distributor a monthly or quarterly fee at an annual rate of 0.05% of
each Portfolio's average daily net assets attributable to Advisory Class Shares
to compensate certain financial intermediaries (also referred to as service
organizations) who provide administrative services to shareholders.

FINANCIAL HIGHLIGHTS

[CHART TO COME]

WHERE TO FIND ADDITIONAL INFORMATION

Information about the Fund, including the SAI and Shareholder Reports, may be
obtained from the Securities and Exchange Commission in any of the following
ways. (1) In person: you may review and copy documents in the Commission's
Public Reference Room in Washington D.C. (for information call 1-202-942-8090);
(2) On-line: you may retrieve information from the Commission's web site at
http://www.sec.gov; (3) By mail: you may request documents, upon payment of a
duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-0102; or (4) By e-mail: you may
request documents, upon payment of a duplicating fee, by e-mailing the
Securities and Exchange Commission at the following address:
publicinfo@sec.gov. To aid you in obtaining this information, the Fund's
Investment Company Act registration number is 811-21339.

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
3435 STELZER ROAD
COLUMBUS, OH 43219

FOR SHAREHOLDER INQUIRIES,
CALL 1-888-378-1630.

PRICES AND INVESTMENT RESULTS ARE AVAILABLE AT www.morganstanley.com/im.

[MORGAN STANLEY LOGO OMITTED]

ADMINISTRATIVE CLASS PROSPECTUS
February , 2005
[MORGAN STANLEY LOGO OMITTED]

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS

Money Market Portfolio
Prime Portfolio
Government Portfolio
Government Securities Portfolio
Treasury Portfolio
Treasury Securities Portfolio
Tax-Exempt Portfolio

SHAREHOLDER SERVICES:
1-888-378-1630
--------------------------------------------------------------------------------
PRICES AND INVESTMENT RESULTS:
www.morganstanley.com/im
--------------------------------------------------------------------------------
INVESTMENT ADVISER: MORGAN STANLEY INVESTMENT MANAGEMENT INC.
--------------------------------------------------------------------------------
Morgan Stanley Institutional Liquidity Funds (the "Fund") is a mutual fund
organized as a Massachusetts business trust currently consisting of the seven
Portfolios which are described in this prospectus. This prospectus offers
Administrative Class Shares of the Portfolio described herein.
--------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

ADMINISTRATIVE CLASS PROSPECTUS
February , 2005
TABLE OF CONTENTS

PAGE

THE PORTFOLIOS
-------------------------------------------------------------
Money Market Portfolio 1
-------------------------------------------------------------
Prime Portfolio 2
-------------------------------------------------------------
Government Portfolio 3
-------------------------------------------------------------
Government Securities Portfolio 4
-------------------------------------------------------------
Treasury Portfolio 5
-------------------------------------------------------------
Treasury Securities Portfolio 6
-------------------------------------------------------------
Tax-Exempt Portfolio 7
-------------------------------------------------------------

FEES AND EXPENSES OF THE PORTFOLIOS 8
-------------------------------------------------------------
ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION 9
-------------------------------------------------------------
PORTFOLIO HOLDINGS 12
-------------------------------------------------------------
PURCHASING SHARES 12
-------------------------------------------------------------
REDEEMING SHARES 14
-------------------------------------------------------------
GENERAL SHAREHOLDER INFORMATION 15
-------------------------------------------------------------
INVESTMENT ADVISER 17
-------------------------------------------------------------
FINANCIAL HIGHLIGHTS 18
-------------------------------------------------------------

ADMINISTRATIVE CLASS PROSPECTUS
February , 2005

MONEY MARKET PORTFOLIO

OBJECTIVE
The Money Market Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

APPROACH

The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing in liquid, high quality U.S. dollar-denominated money market
instruments of U.S. and foreign financial and non-financial corporations. The
Portfolio also invests in obligations of foreign governments and in obligations
of the U.S. government and its agencies and instrumentalities. The Portfolio's
money market investments may include commercial paper, corporate debt
obligations, funding agreements, debt obligations (including certificates of
deposit and promissory notes) of U.S. banks or or foreign banks, or of U.S.
branches of foreign banks, or foreign branches of U.S. banks (such as Yankee
obligations), certificates of deposit of savings banks and savings and loan
organizations, short-term taxable municipal obligations, variable rate master
demand notes (including tax-exempt variable rate demand notes), asset-backed
securities and repurchase agreements. No individual security will have a
remaining maturity in excess of 397 days, except for adjustable rate government
securities with maturities in excess of 397 days.

PROCESS

Morgan Stanley Investment Management Inc. (the "Adviser") has retained Morgan
Stanley Investment Advisors Inc. (the "Sub-Adviser") as sub-adviser for the
Portfolio. The Sub-Adviser follows a multi-pronged investment process with
respect to credit risk, interest rate risk and liquidity. Securities are
reviewed on an ongoing basis to maintain or improve creditworthiness taking
into consideration factors such as cash flow, asset quality, debt service
coverage ratios and economic developments. Additionally, exposure to guarantors
and liquidity providers is monitored separately as are the various
diversification requirements.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

PRIME PORTFOLIO

OBJECTIVE
The Prime Portfolio seeks preservation of capital, daily liquidity and maximum
current income.

APPROACH

The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing in liquid, high quality money market instruments of domestic
financial and non-financial corporations, as well as obligations of the U.S.
government and its agencies and instrumentalities. The Portfolio's money market
investments may include commercial paper, corporate debt obligations, funding
agreements, debt obligations (including certificates of deposit and promissory
notes) of U.S. banks or foreign branches of U.S. banks, certificates of deposit
of savings banks and savings and loan organizations, short-term taxable
municipal obligations, variable rate master demand notes (including tax-exempt
variable rate demand notes), asset-backed securities and repurchase agreements.
No individual security will have a remaining maturity in excess of 397 days
except for adjustable rate government securities with maturities in excess of
397 days.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

ADMINISTRATIVE CLASS PROSPECTUS
February , 2005
GOVERNMENT PORTFOLIO

OBJECTIVE
The Government Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

The U.S. government securities that the Portfolio may purchase include:

o U.S. treasury bills, notes and bonds, all of which are direct obligations
of the U.S. government.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

GOVERNMENT SECURITIES PORTFOLIO

OBJECTIVE
The Government Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

ADMINISTRATIVE CLASS PROSPECTUS
February , 2005
TREASURY PORTFOLIO

OBJECTIVE
The Treasury Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

TREASURY SECURITIES PORTFOLIO

OBJECTIVE
The Treasury Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows an investment process that seeks to select maturities based
on the shape of the money market yield curve and based on the expectations as
to future shifts in the level and shape of the curve, into consideration such
factors as current short-term interest rates, Federal Reserve policy regarding
interest rates and U.S. economic activity.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

ADMINISTRATIVE CLASS PROSPECTUS
February , 2005
TAX-EXEMPT PORTFOLIO

OBJECTIVE
The Tax-Exempt Portfolio seeks to maximize current income exempt from federal
income tax to the extent consistent with preservation of capital and
maintenance of liquidity.

APPROACH

PROCESS
The Adviser has retained the Sub-Advisor as sub-adviser for the Portfolio. The
Sub-Adviser follows a multi-pronged investment process with respect to credit
risk, interest rate risk and liquidity. Securities are reviewed on an ongoing
basis taking into consideration factors such as economic developments,
budgetary trends, cash flow, debt service coverage ratio and tax-law changes.
Exposure to guarantors and liquidity providers is monitored separately.
Weighted average maturity is shifted in response to expectations as to the
future course of money market interest rates, the shape of the money market
yield curve and the Portfolio's recent cash flow experiences.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

FEES AND EXPENSES OF THE PORTFOLIOS

The table below describes the fees and expenses that an investor may pay if he
or she buys and holds shares of the Administrative Class of the Portfolios.

(sidebar)
The Portfolios do not charge any sales loads or other fees when you purchase or
redeem shares.
(end sidebar)

ANNUAL PORTFOLIO OPERATING EXPENSES
--------------------------------------------------------------------------------------
MONEY GOVERNMENT TREASURY
MARKET PRIME GOVERNMENT SECURITIES TREASURY SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------

Advisory Fee 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
---------------------------------------------------------------------------------------------------------------
12b-1 Fee 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
---------------------------------------------------------------------------------------------------------------
Other Expenses % % %* %* %* %* %
---------------------------------------------------------------------------------------------------------------
Shareholder
Administration Fees** % % % % % % %
---------------------------------------------------------------------------------------------------------------
Total Administrative
Class Operating
Expenses*** % % % % % % %
---------------------------------------------------------------------------------------------------------------

* Other Expenses are based on estimated amounts.
** Institutions or financial intermediaries may charge other fees directly to
their customers who are beneficial owners of Administrative Class Shares in
connection with their customers' accounts.

*** The Adviser has voluntarily agreed to reduce its advisory fee and/or absorb
other expenses so that total operating expenses of each Portfolio's
Administrative Class will not exceed 0.35%. This fee and expense waiver may
be discontinued at any time.

EXAMPLE
This example is intended to help you compare the cost of investing in the
Portfolio's Administrative Class with the cost of investing in other mutual
funds.

(sidebar)
The example assumes that you invest $10,000 in each Portfolio's Administrative
Class for the time periods indicated and then redeem all of your shares at the
end of those periods. The example assumes that your investment has a 5% return
each year and that the Administrative Class' operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be equal to the amounts reflected in the table to the right.
(end sidebar)

1 YEAR 3 YEARS 5 YEARS 10 YEARS

Money Market Portfolio $ $ $ $
----------------------------------------------------------------------------------
Prime Portfolio
----------------------------------------------------------------------------------
Government Portfolio N/A N/A
----------------------------------------------------------------------------------
Government Securities Portfolio N/A N/A
----------------------------------------------------------------------------------
Treasury Portfolio N/A N/A
----------------------------------------------------------------------------------
Treasury Securities Portfolio N/A N/A
----------------------------------------------------------------------------------
Tax-Exempt Portfolio
----------------------------------------------------------------------------------

ADMINISTATIVE CLASS PROSPECTUS
February , 2005

ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION

ADMINISTATIVE CLASS PROSPECTUS
February , 2005

PORTFOLIO HOLDINGS

The Fund discloses its portfolio holdings on the password-protected part of its
website every 15 days with a 15 calendar day lag.

This information remains available until it is included in the Fund's next
shareholder report or quarterly report.

PURCHASING SHARES

Administrative Class Shares are available to clients of the Investment Adviser
with investments at the time of initial purchase of at least $10,000,000. The
Fund, in its sole discretion, may waive the minimum initial and additional
investment amounts in certain cases, including shares of the Portfolios
purchased through a financial intermediary.

This Prospectus offers Administrative Class Shares of each Portfolio. The Fund
offers other classes of shares through separate Prospectuses. Certain of these
classes may be subject to lower fees and expenses. For information regarding
other share classes, contact the Fund or your financial intermediary.

Administrative Class Shares of the Portfolio may be purchased through a
financial intermediary (also referred to as a service organization). Investors
purchasing shares through a financial intermediary may be charged a
transaction-based or other fee by the financial intermediary for its services.
If you are purchasing Administrative Class Shares through a financial
intermediary, please consult your intermediary for purchase instructions.
Customers of a financial intermediary will normally give their purchase
instructions to the financial intermediary, who, in turn, will place purchase
orders with the Fund. The financial intermediary will establish times by which
such purchase orders and payments from customers must be received by the
financial intermediary. Financial intermediaries are responsible for
transmitting purchase orders and payments to the Fund and the Fund's custodian
in a timely fashion.

Administrative Class Shares of the Portfolio may be purchased at the NAV next
determined after the Fund receives your purchase order and the Fund's custodian
bank, J.P. Morgan Chase & Co. (the "Custodian") receives monies credited by a
Federal Reserve Bank ("Federal Funds") prior to the close of the Fed wire. You
begin earning dividends the same day your Administrative Class Shares are
purchased provided the Fed receives your purchase amount in Federal Funds that
day as set forth above. Orders to purchase shares of a Portfolio must be
received by the Fund prior to the following times: for the Prime Portfolio,
Money Market Portfolio, Government Portfolio and Treasury Portfolio--5:00 p.m.
Eastern time; for the Government Securities Portfolio and Treasury Securities
Portfolio--3:00 p.m. Eastern time; and for the Tax-Exempt Portfolio--2:00 p.m.
Eastern time. On any business day that the New York Stock Exchange closes
early, or when the Bond Market Association recommends that the securities
markets close early, the Fund may close early and purchase orders received
after such earlier closing times will be processed the following business day.
Purchase orders received by the Fund will not be purchased until receipt of
Federal Funds.

ADMINISTRATIVE CLASS PROSPECTUS
February , 2005

PURCHASE BY WIRE
You may open an account, subject to acceptance by Morgan Stanley Institutional
Liquidity Funds, by completing and signing an Account Registration Form
provided by J.P. Morgan Investor Services Company ("J.P. Morgan"), the Fund's
transfer agent, which you can obtain by calling the Fund at 1-888-378-1630 and
mailing it to Morgan Stanley Institutional Liquidity Funds, 3435 Stelzer Road,
Columbus, OH 43219 and indicating the name of the Portfolio you wish to
purchase.

Upon approval of the application, you may purchase Administrative Class Shares
of the Portfolios by wiring Federal Funds to the Custodian. You should forward
a completed Account Registration Form to the Fund in advance of the wire. See
the section below entitled "Valuation of Shares." Instruct your bank to send a
Federal Funds (monies credited by a Federal Reserve Bank) wire in a specified
amount to the Custodian using the following wire instructions:

You are responsible for transmitting payments for shares purchased via the
Internet in a timely fashion, as set forth above.

ADDITIONAL INVESTMENTS
You may make additional investments of Administrative Class Shares (minimum
additional investment $1,000) at the NAV next determined after the request is
received in good order by wiring Federal Funds to the Custodian as outlined
above. J.P. Morgan must receive notification of receipt of your Federal Funds
wire by the time required by each respective Portfolio, as set forth above
under "Purchasing Shares." Shareholder accounts that utilize the Fund as their
sweep vehicle are not subject to the minimum additional investment requirement.

OTHER PURCHASE INFORMATION

The Fund may suspend the offering of shares, or any class of shares, of the
Portfolios or reject any purchase or exchange orders when we think it is in the
best interest of the Fund.

Purchases of a Portfolio's shares will be made in full and fractional shares of
the Portfolio calculated to three decimal places.

REDEEMING SHARES

BY MAIL
Requests should be addressed to Morgan Stanley Institutional Liquidity Funds,
3435 Stelzer Road, Columbus, OH 43219.

To be in good order, redemption requests must include the following
documentation:

(b) Any required signature guarantees; and

(c) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianship, corporations, pension and profit sharing
plans and other organizations.

BY TELEPHONE

ALL SALES

ADMINISTRATIVE CLASS PROSPECTUS
February , 2005

GENERAL SHAREHOLDER INFORMATION

Prime Portfolio As of 5:00 p.m.
Money Market Portfolio Eastern time
Government Portfolio
Treasury Portfolio

Government Securities As of 3:00 p.m.
Portfolio Eastern time

Treasury Securities
Portfolio

Tax-Exempt Portfolio As of 2:00 p.m.
Eastern time

EXCHANGE PRIVILEGE

You may exchange a Portfolio's Administrative Class Shares for Administrative
Class Shares of other available Portfolios of the Fund based on their
respective NAVs. We charge no fee for exchanges. If you purchased Portfolio
shares through a financial intermediary, certain Fund Portfolios may be
unavailable for exchange. Contact your financial intermediary to determine
which Portfolios are available for exchange. See also "Other Purchase
Information" for certain limitations relating to exchanges.

You can process your exchange by contacting your financial intermediary or
online through Morgan Stanley's ClientLink service at www.morganstanley.com
provided you have a pre-established Internet trading account, as set forth above
under "Purchasing Shares." Contact Shareholder Services for additional
information. Exchange requests can also be made by calling 1-888-378-1630.

Except as noted below, dividends you receive will generally be taxable as
ordinary income, whether you receive them in cash or in additional shares.

Exchanges and redemptions of shares in a Portfolio are taxable events and may
result in a taxable gain or loss to you.

ADMINISTRATIVE CLASS PROSPECTUS
February , 2005

INVESTMENT ADVISER

ADVISER

Morgan Stanley Investment Management Inc., the investment adviser, with
principal offices at 1221 Avenue of the Americas, New York, NY 10020, conducts
a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad.
Morgan Stanley is the direct parent of Morgan Stanley Investment Management
Inc. and Morgan Stanley & Co. Incorporated, the Fund's Distributor. Morgan
Stanley is a preeminent global financial services firm that maintains leading
market positions in each of its three primary businesses--securities, asset
management and credit services. Morgan Stanley is a full service securities
firm engaged in securities trading and brokerage activities, as well as
providing investment banking, research and analysis, financing and financial
advisory services. As of December 31, 2004, Morgan Stanley Investment
Management Inc., together with its affiliated asset management companies, had
approximately $ billion in assets under management with approximately $
billion in institutional assets.

Each Portfolio pays the Adviser monthly compensation calculated daily by
applying the annual rate of 0.15% to each Portfolio's daily net assets.

SUB-ADVISER

Morgan Stanley Investment Advisors Inc. ("MSIA") serves as Sub-Adviser to the
Portfolios. As Sub-Adviser, MSIA makes day-to-day investment decisions for the
Portfolios and places the Portfolios' purchase and sales orders. The Adviser
pays MSIA 40% of the fee the Adviser receives from each Portfolio as
compensation for its sub-advisory services. MSIA, located at 1221 Avenue of the
Americas, New York, NY 10020, is a wholly-owned subsidiary of Morgan Stanley.
MSIA develops, markets and manages a broad spectrum of proprietary mutual funds
that are sold by Morgan Stanley financial advisors and offers professional
money management services on a customized basis to individuals, institutional
investors and retirement plan sponsors.

PORTFOLIO MANAGEMENT

DISTRIBUTOR

SHAREHOLDER ADMINISTRATION PLAN

The Fund has adopted an Administration Plan for each Portfolio's Administrative
Class Shares (the "Plan"). Under the Plan, each Portfolio pays the Distributor
a monthly or quarterly fee at an annual rate of 0.05% of each Portfolio's
average daily net assets attributable to Administrative Class Shares to
compensate certain financial intermediaries (also referred to as service
organizations) who provide administrative services to shareholders.

FINANCIAL HIGHLIGHTS

[CHART TO COME]

WHERE TO FIND ADDITIONAL INFORMATION

Information about the Fund, including the SAI and Shareholder Reports, may be
obtained from the Securities and Exchange Commission in any of the following
ways. (1) In person: you may review and copy documents in the Commission's
Public Reference Room in Washington D.C. (for information call 1-202-942-8090);
(2) On-line: you may retrieve information from the Commission's web site at
http://www.sec.gov; (3) By mail: you may request documents, upon payment of a
duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-0102; or (4) By e-mail: you may
request documents, upon payment of a duplicating fee, by e-mailing the
Securities and Exchange Commission at the following address:
publicinfo@sec.gov. To aid you in obtaining this information, the Fund's
Investment Company Act registration number is 811-21339.

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
3435 STELZER ROAD
COLUMBUS, OH 43219

FOR SHAREHOLDER INQUIRIES,
CALL 1-888-378-1630.

PRICES AND INVESTMENT RESULTS ARE AVAILABLE AT www.morganstanley.com/im.

[MORGAN STANLEY LOGO OMITTED]

INVESTOR CLASS PROSPECTUS
February , 2005

[MORGAN STANLEY LOGO OMITTED]

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS

Money Market Portfolio
Prime Portfolio
Government Porfolio
Government Securities Portfolio
Treasury Portfolio
Treasury Securities Portfolio
Tax-Exempt Portfolio

SHAREHOLDER SERVICES:
1-888-378-1630
--------------------------------------------------------------------------------
PRICES AND INVESTMENT RESULTS:
www.morganstanley.com/im
--------------------------------------------------------------------------------
INVESTMENT ADVISER: MORGAN STANLEY INVESTMENT MANAGEMENT INC.
--------------------------------------------------------------------------------
Morgan Stanley Institutional Liquidity Funds (the "Fund") is a mutual fund
organized as a Massachusetts business trust currently consisting of the seven
Portfolios which are described in this prospectus. This prospectus offers
Investor Class Shares of the Portfolio described herein.
--------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

INVESTOR CLASS PROSPECTUS
February , 2005

TABLE OF CONTENTS

PAGE

FEES AND EXPENSES OF THE PORTFOLIOS 8
-----------------------------------------------------------
ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION 9
-----------------------------------------------------------
PORTFOLIO HOLDINGS 12
-----------------------------------------------------------
PURCHASING SHARES 12
-----------------------------------------------------------
REDEEMING SHARES 14
-----------------------------------------------------------
GENERAL SHAREHOLDER INFORMATION 16
-----------------------------------------------------------
INVESTMENT ADVISER 18
-----------------------------------------------------------
FINANCIAL HIGHLIGHTS 19
-----------------------------------------------------------

INVESTOR CLASS PROSPECTUS
February , 2005

MONEY MARKET PORTFOLIO

OBJECTIVE
The Money Market Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

APPROACH

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

PRIME PORTFOLIO

OBJECTIVE
The Prime Portfolio seeks preservation of capital, daily liquidity and maximum
current income.

APPROACH
The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing in liquid, high quality money market instruments of domestic
financial and non-financial corporations, as well as obligations of the U.S.
government and its agencies and instrumentalities. The Portfolio's money market
investments may include commercial paper, corporate debt obligations, funding
agreements, debt obligations (including certificates of deposit and promissory
notes) of U.S. banks or foreign branches of U.S. banks, certificates of deposit
of savings banks and savings and loan organizations, short-term taxable
municipal obligations, variable rate master demand notes (including tax-exempt
variable rate demand notes), asset-backed securities and repurchase agreements.
No individual security will have a remaining maturity in excess of 397 days,
except for adjustable rate government securities with maturities in excess of
397 days.

PROCESS
The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows a multi-pronged investment process with respect to credit
risk, interest rate risk and liquidity. Securities are reviewed on an ongoing
basis to maintain or improve creditworthiness taking into consideration factors
such as cash flow, asset quality, debt service coverage ratios and economic
developments. Additionally, exposure to guarantors and liquidity providers is
monitored separately as are the various diversification requirements.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

INVESTOR CLASS PROSPECTUS
February , 2005
GOVERNMENT PORTFOLIO

OBJECTIVE
The Government Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

The U.S. government securities that the Portfolio may purchase include:

o U.S. treasury bills, notes and bonds, all of which are direct obligations
of the U.S. government.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

GOVERNMENT SECURITIES PORTFOLIO

OBJECTIVE
The Government Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

INVESTOR CLASS PROSPECTUS
February , 2005

TREASURY PORTFOLIO

OBJECTIVE
The Treasury Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

TREASURY SECURITIES PORTFOLIO

OBJECTIVE
The Treasury Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

INVESTOR CLASS PROSPECTUS
February , 2005

TAX-EXEMPT PORTFOLIO

OBJECTIVE
The Tax-Exempt Portfolio seeks to maximize current income exempt from federal
income tax to the extent consistent with preservation of capital and
maintenance of liquidity.

APPROACH

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows a multi-pronged investment process with respect to credit
risk, interest rate risk and liquidity. Securities are reviewed on an ongoing
basis taking into consideration factors such as economic developments,
budgetary trends, cash flow, debt service coverage ratios and tax-law changes.
Exposure to guarantors and liquidity providers is monitored separately.
Weighted average maturity is shifted in response to expectations as to the
future course of money market interest rates, the shape of the yield curve and
the Portfolio's recent cash flow experience.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

FEES AND EXPENSES OF THE PORTFOLIOS

The table below describes the fees and expenses that an investor may pay if he
or she buys and holds shares of the Investor Class of the Portfolios.

(sidebar)
The Portfolios do not charge any sales loads or other fees when you purchase or
redeem shares.
(end sidebar)

ANNUAL PORTFOLIO OPERATING EXPENSES
MONEY GOVERNMENT TREASURY
MARKET PRIME GOVERNMENT SECURITIES TREASURY SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO

Advisory Fee 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
---------------------------------------------------------------------------------------------------------------
12b-1 Fee 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
---------------------------------------------------------------------------------------------------------------
Other Expenses % % %* %* %* %* %
---------------------------------------------------------------------------------------------------------------
Shareholder
Administration Fee** % % % % % % %
---------------------------------------------------------------------------------------------------------------
Total Investor Class
Operating Expenses*** % % % % % % %
---------------------------------------------------------------------------------------------------------------

* Other Expenses are based on estimated amounts.
** Institutions or financial intermediaries may charge other fees directly to
their customers who are beneficial owners of Investor Class Shares in
connection with their customers' accounts.
*** The Adviser has voluntarily agreed to reduce its advisory fee and/or absorb
other expenses so that total operating expenses of each Portfolio's
Investor Class will not exceed 0.30%. This fee and expense waiver may be
discontinued at any time.

EXAMPLE
This example is intended to help you compare the cost of investing in the
Portfolio's Investor Class with the cost of investing in other mutual funds.

(sidebar)
The example assumes that you invest $10,000 in each Portfolio's Investor Class
for the time periods indicated and then redeem all of your shares at the end of
those periods. The example assumes that your investment has a 5% return each
year and that the Investor Class' operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be equal to the amounts reflected in the table to the right.
(end sidebar)

1 YEAR 3 YEARS 5 YEARS 10 YEARS

INVESTOR CLASS PROSPECTUS
February , 2005

ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION

TENDER OPTION BONDS. A tender option bond is a municipal obligation (generally
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing
short-term, tax-exempt rates. The bond is typically issued in conjunction with
the agreement of a third party, such as a bank, broker-dealer or other
financial institution, pursuant to which the institution grants the security
holder the option, at periodic intervals, to tender its securities to the
institution. As consideration for providing the option, the financial
institution receives periodic fees equal to the difference between the bond's
fixed coupon rate and the rate, as determined by a remarketing or similar
agent, that would cause the securities, coupled with the tender option, to
trade at par on the date of such determination. Thus, after payment of this
fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. An institution will
normally not be obligated to accept tendered bonds in the event of certain
defaults or significant downgrading in the credit rating assigned to the issuer
of the bond. The tender option will be taken into account in determining the
maturity of the tender option bonds and a Portfolio average portfolio maturity.
There is a risk that a Portfolio will not be considered the owner of a tender
option bond for federal income tax purposes, and thus will not be entitled to
treat such interest as exempt from federal income tax. Certain tender option
bonds may be illiquid or may become illiquid as a result of a credit rating
downgrade, a payment default or a disqualification from tax-exempt status.

INVESTOR CLASS PROSPECTUS
February , 2005

PORTFOLIO HOLDINGS

The Fund discloses its portfolio holdings on the password-protected part of its
website every 15 days with a 15 calendar day lag.

This information remains available until it is included in the Fund's next
shareholder report or quarterly report.

PURCHASING SHARES

Investor Class Shares are available to investors who at the time of initial
purchase make a minimum investment of $10,000,000, or, to clients of Morgan
Stanley Private Wealth Management. The Fund, in its sole discretion, may waive
the minimum initial and additional investment amounts in certain cases,
including shares of the Portfolios purchased through a financial intermediary.

This Prospectus offers Investor Class Shares of each Portfolio. The Fund also
offers other classes of shares through separate Prospectuses. Certain of these
classes may be subject to lower fees and expenses. For information regarding
other share classes, contact the Fund or your financial intermediary.

Investor Class Shares of the Portfolio may be purchased directly from Morgan
Stanley Institutional Liquidity Funds or through a financial intermediary (also
referred to as a service organization). Investors purchasing shares through a
financial intermediary may be charged a transaction-based or other fee by the
financial intermediary for its services. If you are purchasing Investor Class
Shares through a financial intermediary, please consult your intermediary for
purchase instructions. Customers of a financial intermediary will normally give
their purchase instructions to the financial intermediary, who, in turn, will
place purchase orders with the Fund. The financial intermediary will establish
times by which such purchase orders and payments from customers must be
received by the financial intermediary. Financial intermediaries are
responsible for transmitting purchase orders and payments to the Fund and the
Fund's custodian in a timely fashion.

Investor Class Shares of the Portfolio may be purchased at the NAV next
determined after the Fund receives your purchase order and the Fund's custodian
bank, J.P. Morgan Chase & Co. (the "Custodian") receives monies credited by a
Federal Reserve Bank ("Federal Funds") prior to the close of the Fed wire. You
begin earning dividends the same day your Investor Class Shares are purchased
provided the Fund receives your purchase amount in Federal Funds that day as
set forth above. Orders to purchase shares of a Portfolio must be received by
the Fund prior to the following times: for the Prime Portfolio, Money Market
Portfolio, Government Portfolio and Treasury Portfolio--5:00 p.m. Eastern time;
for the Government Securities Portfolio and Treasury Securities Portfolio--3:00
p.m. Eastern time; and for the Tax-Exempt Portfolio--2:00 p.m. Eastern time. On
any business day that the New York Stock Exchange closes early, or when the
Bond Market Association recommends that the securities markets close early, the
Fund may close early and purchase

INVESTOR CLASS PROSPECTUS
February , 2005

orders received after such earlier closing times will be processed the
following business day. Purchase orders received by the Fund will not be
processed until receipt of Federal Funds.

PURCHASE BY WIRE

You may open an account, subject to acceptance by Morgan Stanley Institutional
Liquidity Funds, by completing and signing an Account Registration Form
provided by J.P. Morgan Investor Services Company ("J.P. Morgan"), the Fund's
transfer agent, which you can obtain by calling the Fund at 1-888-378-1630 and
mailing it to Morgan Stanley Institutional Liquidity Funds, 3435 Stelzer Road,
Columbus, OH 43219 and indicating the name of the Portfolio you wish to
purchase.

Upon approval of the application, you may purchase Investor Class Shares of the
Portfolios by wiring Federal Funds to the Custodian. You should forward a
completed Account Registration Form to the Fund in advance of the wire. See the
section below entitled "Valuation of Shares." Instruct your bank to send a
Federal Funds (monies credited by a Federal Reserve Bank) wire in a specified
amount to the Custodian using the following wire instructions:

PURCHASE BY INTERNET
If you have properly authorized the Internet Trading Option on your Account
Registration Form and completed, signed and returned to the Fund an Electronic
Transactions Agreement, you may place a purchase order for additional shares
online through Morgan Stanley's ClientLink service at www.morganstanley.com.
For more information, call Shareholder Services at 1-888-378-1630.

You are responsible for transmitting payments for shares purchased via the
Internet in a timely fashion, as set forth above.

AUTOMATIC PURCHASES

ADDITIONAL INVESTMENTS
You may make additional investments of Investor Class Shares (minimum
additional investment $1,000) at the NAV next determined after the request is
received in good order by wiring Federal Funds to the Custodian as outlined
above. J.P. Morgan must receive notification of receipt of your Federal Funds
wire by the time required by each respective Portfolio, as set forth above
under "Purchasing Shares." Shareholder accounts that utilize the Fund as their
sweep vehicle are not subject to the minimum additional investment requirement.

OTHER PURCHASE INFORMATION

The Fund may suspend the offering of shares, or any class of shares, of the
Portfolios or reject any purchase or exchange orders when we think it is in the
best interest of the Fund.

Purchases of a Portfolio's shares will be made in full and fractional shares of
the Portfolio calculated to three decimal places.

identify you. If you are unable to verify your identity, we reserve the right
to restrict additional transactions and/or liquidate your account at the next
calculated net asset value after your account is closed (less any applicable
sales/account charges and/or tax penalties) or take any other action required
by law.

Redeeming Shares

BY MAIL
Requests should be addressed to Morgan Stanley Institutional Liquidity Funds,
3435 Stelzer Road, Columbus, OH 43219.

To be in good order, redemption requests must include the following
documentation:

(b) Any required signature guarantees; and

(c) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianship, corporations, pension and profit sharing
plans and other organizations.

BY TELEPHONE

ALL SALES

INVESTOR CLASS PROSPECTUS
February , 2005

Section 22(e) of the 1940 Act. Generally, under that section, redemption
requests or payments may be postponed or suspended if the NYSE is closed for
trading, or trading is restricted, an emergency exists which makes the disposal
of securities owned by a Fund or the fair determination of the value of the
Fund's net assets not reasonably practicable, or the Securities and Exchange
Commission, by order, permits the suspension of the right of redemption.
Redemption payments may also be delayed in the event of the closing of the
Federal Reserve wire payment system.

GENERAL SHAREHOLDER INFORMATION

VALUATION OF SHARES

The price of each Portfolio's shares is based on the amortized cost of the
Portfolio's securities. The amortized cost valuation method involves valuing a
debt obligation in reference to its cost rather than market forces.

Prime Portfolio As of 5:00 p.m.
Money Market Portfolio Eastern time
Government Portfolio
Treasury Portfolio

Government Securities As of 3:00 p.m.
Portfolio Eastern time
Treasury Securities
Portfolio

Tax-Exempt Portfolio As of 2:00 p.m.
Eastern time

EXCHANGE PRIVILEGE

You may exchange a Portfolio's Investor Class Shares for Investor Class Shares
of other available Portfolios of the Fund based on their respective NAVs. We
charge no fee for exchanges. If you purchased Portfolio shares through a
financial intermediary, certain Portfolios of the Fund may be unavailable for
exchange. Contact your financial intermediary to determine which Portfolios are
available for exchange. See also "Other Purchase Information" for certain
limitations relating to exchanges.

INVESTOR CLASS PROSPECTUS
February , 2005

shareholders as "income dividend distributions." Each Portfolio realizes
capital gains whenever it sells securities for a higher price than it paid for
them. These amounts may be passed along as "capital gain distributions;" the
Adviser does not anticipate that there will be significant capital gains
distributions.

Except as noted below, dividends you receive will generally be taxable as
ordinary income, whether you receive them in cash or in additional shares.

Exchanges and redemptions of shares in a Portfolio are taxable events and may
result in a taxable gain or loss to you.

INVESTMENT ADVISER

ADVISER

Morgan Stanley Investment Management Inc., the investment adviser, with
principal offices at 1221 Avenue of the Americas, New York, NY 10020, conducts
a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad.
Morgan Stanley is the direct parent of Morgan Stanley Investment Management
Inc. and Morgan Stanley & Co. Incorporated, the Fund's Distributor. Morgan
Stanley is a preeminent global finanical services firm that maintains leading
market positions in each of its three primary businesses--securities, asset
management and credit services. Morgan Stanley is a full service securities
firm engaged in securities trading and brokerage activities, as well as
providing investment banking, research and analysis, financing and financial
advisory services. As of December 31, 2004, Morgan Stanley Investment
Management Inc., together with its affiliated asset management companies, had
approximately $ billion in assets under management with approximately $
billion in institutional assets.

Each Portfolio pays the Adviser monthly compensation calculated daily by
applying the annual rate of 0.15% to each Portfolio's daily net assets.

SUB-ADVISER

Morgan Stanley Investment Advisors Inc. ("MSIA") serves as Sub-Adviser to the
Portfolios. As Sub-Adviser, MSIA makes day-to-day investment decisions for the
Portfolios and places the Portfolios' purchase and sales orders. The Adviser
pays MSIA 40% of the fee the Adviser receives from each Portfolio as
compensation for its sub-advisory services. MSIA, located at 1221 Avenue of the
Americas, New York, NY 10020, is a wholly-owned subsidiary of Morgan Stanley.
MSIA develops, markets and manages a broad spectrum of proprietary mutual funds
that are sold by Morgan Stanley financial advisors and offers professional
money management services on a customized basis to individuals, institutional
investors and retirement plan sponsors.

PORTFOLIO MANAGEMENT

DISTRIBUTOR

SHAREHOLDER ADMINISTRATION PLAN

The Fund has adopted an Administration Plan for each Portfolio's Investor Class
Shares (the "Plan"). Under the Plan, each Portfolio pays the Distributor a
monthly or quarterly fee at an annual rate of 0.05% of each Portfolio's average
daily net assets attributable to Investor Class Shares to compensate certain
financial intermediaries (also referred to as service organizations) who
provide administrative services to shareholders.

INVESTOR CLASS PROSPECTUS
February , 2005

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you understand
the financial performance of each Portfolio for the life of the Portfolio or
Class. Certain information reflects financial results for a single Portfolio
share. The total returns in the tables represent the rate that an investor
would have earned (or lost) on an investment in each Portfolio (assuming
reinvestment of all dividends and distributions). The financial highlights for
the fiscal year ended October 31, 2004 have been audited by Ernst & Young LLP.
Ernst & Young LLP's unqualified report appears in the Fund's Annual Report to
Shareholders and is incorporated by reference in the SAI. The Annual Report and
each Portfolio's financial statements, as well as the SAI, are available at no
cost from the Fund at the toll free number noted on the
back cover to this Prospectus.

[CHART TO COME]

WHERE TO FIND ADDITIONAL INFORMATION

Information about the Fund, including the SAI and Shareholder Reports, may be
obtained from the Securities and Exchange Commission in any of the following
ways. (1) In person: you may review and copy documents in the Commission's
Public Reference Room in Washington D.C. (for information call 1-202-942-8090);
(2) On-line: you may retrieve information from the Commission's web site at
http://www.sec.gov; (3) By mail: you may request documents, upon payment of a
duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-0102; or (4) By e-mail: you may
request documents, upon payment of a duplicating fee, by e-mailing the
Securities and Exchange Commission at the following address:
publicinfo@sec.gov. To aid you in obtaining this information, the Fund's
Investment Company Act registration number is 811-21339.

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
3435 STELZER ROAD
COLUMBUS, OH 43219

FOR SHAREHOLDER INQUIRIES,
CALL 1-888-378-1630.

PRICES AND INVESTMENT RESULTS ARE AVAILABLE AT www.morganstanley.com/im.

[MORGAN STANLEY LOGO OMITTED]

PARTICIPANT CLASS PROSPECTUS
February , 2005
[MORGAN STANLEY LOGO OMITTED]

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS

Money Market Portfolio
Prime Portfolio
Government Portfolio
Government Securities Portfolio
Treasury Portfolio
Treasury Securities Portfolio
Tax-Exempt Portfolio

SHAREHOLDER SERVICES:
1-888-378-1630
--------------------------------------------------------------------------------
PRICES AND INVESTMENT RESULTS:
www.morganstanley.com/im
--------------------------------------------------------------------------------
INVESTMENT ADVISER: MORGAN STANLEY INVESTMENT MANAGEMENT INC.
--------------------------------------------------------------------------------
Morgan Stanley Institutional Liquidity Funds (the "Fund") is a mutual fund
organized as a Massachusetts business trust currently consisting of the seven
Portfolios which are described in this prospectus. This prospectus offers
Participant Class Shares of the Portfolio described herein.
--------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

PARTICIPANT CLASS PROSPECTUS
February , 2005
TABLE OF CONTENTS

PAGE

FEES AND EXPENSES OF THE PORTFOLIOS 8
-----------------------------------------------------------
ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION 9
-----------------------------------------------------------
PORTFOLIO HOLDINGS 12
-----------------------------------------------------------
PURCHASING SHARES 12
-----------------------------------------------------------
REDEEMING SHARES 14
-----------------------------------------------------------
GENERAL SHAREHOLDER INFORMATION 16
-----------------------------------------------------------
INVESTMENT ADVISER 18
-----------------------------------------------------------
FINANCIAL HIGHLIGHTS 19
-----------------------------------------------------------

PARTICIPANT CLASS PROSPECTUS
February , 2005

MONEY MARKET PORTFOLIO

OBJECTIVE
The Money Market Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

APPROACH

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

PRIME PORTFOLIO

OBJECTIVE
The Prime Portfolio seeks preservation of capital, daily liquidity and maximum
current income.

APPROACH

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

PARTICIPANT CLASS PROSPECTUS
February , 2005
GOVERNMENT PORTFOLIO

OBJECTIVE
The Government Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

The U.S. government securities that the Portfolio may purchase include:

o U.S. treasury bills, notes and bonds, all of which are direct obligations
of the U.S. government.

PROCESS
The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows an investment process that seeks to select securities based
on the shape of the money market yield curve and based on the expectations as
to future shifts in the level and shape of the curve, taking into consideration
such factors as current short-term interest rates, Federal Reserve policy
regarding interest rates and U.S. economic activity.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

GOVERNMENT SECURITIES PORTFOLIO

OBJECTIVE
The Government Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

PARTICIPANT CLASS PROSPECTUS
February , 2005
TREASURY PORTFOLIO

OBJECTIVE
The Treasury Portfolio seeks preservation of capital, daily liquidity and
maximum current income.

APPROACH
The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing exclusively in U.S. Treasury obligations and repurchase agreements
collateralized by such securities. The Portfolio may change its principal
investment strategies; however you would be notified of any changes.No
individual security will have a remaining maturity in excess of 397 days.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

TREASURY SECURITIES PORTFOLIO

OBJECTIVE
The Treasury Securities Portfolio seeks preservation of capital, daily
liquidity and maximum current income.

APPROACH
The Portfolio seeks to maintain a stable net asset value of $1.00 per share by
investing exclusively in U.S. Treasury obligations. Such obligations are backed
by the full faith and credit of the U.S. government. The Portfolio may change
its principal investment strategies; however you would be notified of any
changes.No individual security will have a remaining maturity in excess of 397
days.

PROCESS

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

PARTICIPANT CLASS PROSPECTUS
February , 2005
TAX-EXEMPT PORTFOLIO

OBJECTIVE
The Tax-Exempt Portfolio seeks to maximize current income exempt from federal
income tax to the extent consistent with preservation of capital and
maintenance of liquidity.

APPROACH

PROCESS

The Adviser has retained the Sub-Adviser as sub-adviser for the Portfolio. The
Sub-Adviser follows a multi-pronged investment process with respect to credit
risk, interest rate risk and liquidity. Securities are reviewed on an ongoing
basis taking into consideration factors such as economic developments,
budgetary trends, cash flow, debt service coverage ratios and tax-law changes.
Exposure to guarantors and liquidity providers is monitored separately.
Weighted average maturity is shifted in response to expectations as to the
future course of money market interest rates, the shape of the money market
yield curve and the Portfolio's recent cash flow experience.

You may obtain the Portfolio's 7-day current yield by calling 1-888-378-1630.

FEES AND EXPENSES OF THE PORTFOLIOS

The table below describes the fees and expenses that an investor may pay if he
or she buys and holds shares of the Participant Class of the Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
MONEY GOVERNMENT TREASURY
MARKET PRIME GOVERNMENT SECURITIES TREASURY SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO

Advisory Fee 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
------------------------------------------------------------------------------------------------------------------------------
Distribution and/or
Service (12b-1 Fee) % % % % % % %
------------------------------------------------------------------------------------------------------------------------------
Other Expenses % % %* %* %* %* %
------------------------------------------------------------------------------------------------------------------------------
Total Participant Class
Operating Expenses** % % % % % % %
------------------------------------------------------------------------------------------------------------------------------

* Other Expenses are based on estimated amounts.
** The Adviser has voluntarily agreed to reduce its advisory fee and/or absorb
other expenses so that total operating expenses of each Portfolio's
Participant Class will not exceed 0.60%. This fee and expense waiver may be
discontinued at any time.

(sidebar)
The Portfolios do not charge any sales loads or other fees when you purchase or
redeem shares.

The example assumes that you invest $10,000 in each Portfolio's Participant
Class for the time periods indicated and then redeem all of your shares at the
end of those periods. The example assumes that your investment has a 5% return
each year and that the Participant Class' operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be equal to the amounts reflected in the table to the right.
(endsidebar)

EXAMPLE
This example is intended to help you compare the cost of investing in the
Portfolio's Participant Class with the cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------

PARTICIPANT CLASS PROSPECTUS
February , 2005

ADDITIONAL INVESTMENT STRATEGY AND RISK INFORMATION

U.S. GOVERNMENT SECURITIES. The U.S. government securities that certain
Portfolios may purchase include U.S. Treasury bills, notes and bonds, all of
which are direct obligations of the U.S., government. In addition, certain
Portfolios may purchase securities issued by agencies and instrumentalities of
the U.S. government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations are
the Government National Mortgage Association ("Ginnie Mae") and the Federal
Housing Administration. Certain of the Portfolios may also purchase securities
issued by agencies and instrumentalities which are not backed by the full faith
and credit of the United States, but whose issuing agency or instrumentality
has the right to borrow, to meet its obligations, from the U.S. Treasury. Among
these agencies and instrumentalities are the Federal National Mortgage
Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation
("Freddie Mac") and the Federal Home Loan Banks. Further, certain Portfolios
may purchase securities issued by agencies and instrumentalities which are
backed solely by the credit of the issuing agency or instrumentality. Among
these agencies and instrumentalities is the Federal Farm Credit System. Because
these securities are not backed by the full faith and credit of the United
States, there is a risk that the U.S. government will not provide financial
support to these agencies if it is not obligated to do so by law. The maximum
potential liability of the issuers of some U.S. government securities held by
the Fund may greatly exceed their current resources, including their legal
right to support from the U.S. Treasury. It is possible that these issuers will
not have the funds to meet their payment obligations in the future.

PARTICIPANT CLASS PROSPECTUS
February , 2005

PORTFOLIO HOLDINGS

The Fund discloses its portfolio holdings on the password-protected part of its
website every 15 days with a 15 calendar day lag.

This information remains available until it is included in the Fund's next
shareholder report or quarterly report.

PURCHASING SHARES

The Fund is designed for institutional investors seeking maximum current
income, a stable net asset value ("NAV") and convenient liquidation privileges.
The Portfolios are particularly suitable for banks, corporations and other
financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares of the Government
Portfolio and Government Securities Portfolio are intended to qualify as
eligible investments for federally chartered credit unions. Pursuant to the
applicable provisions of the Federal Credit Union Act and the National Credit
Union Administration. Shares of the Government Portfolio and Government
Securities Portfolio, however, may not qualify as eligible investments for
particular state- chartered credit unions. A state-chartered credit union
should consult qualified legal counsel to determine whether these Portfolios
are premissible investments under the law applicable to it.

Participant Class Shares are available to clients of the Investment Adviser
with investments at the time of initial purchase of at least $10,000,000. The
Fund, in its sole discretion, may waive the minimum initial and additional
investment amounts in certain cases, including shares of the Portfolios
purchased through a financial intermediary.

This Prospectus offers Participant Class Shares of each Portfolio. The Fund
also offers other classes of shares through separate Prospectuses. These
classes are subject to lower fees and expenses. For information regarding other
share classes, contact the Fund or your financial intermediary.

Participant Class Shares of the Portfolio may be purchased through a financial
intermediary (also referred to as a service organization). Investors purchasing
shares through a financial intermediary may be charged a transaction-based or
other fee by the financial intermediary for its services. If you are purchasing
Participant Class Shares through a financial intermediary, please consult your
intermediary for purchase instructions. Customers of a financial intermediary
will normally give their purchase instructions to the financial intermediary,
who, in turn, will place purchase orders with the Fund. The financial
intermediary will establish times by which such purchase orders and payments
from customers must be received by the financial intermediary. Financial
intermediaries are responsible for transmitting purchase orders and payments to
the Fund and the Fund's custodian in a timely fashion.

Participant Class Shares of the Portfolio may be purchased at the NAV next
determined after the Fund receives your purchase order and the Fund's custodian
bank, J.P. Morgan Chase & Co. (the "Custodian") receives monies credited by a
Federal Reserve Bank ("Federal Funds") prior to the close of the Fed wire. You
begin earning dividends the same day your Participant Class Shares are purchased
provided that the Fund receives your purchase amount in Federal Funds that day
as set forth above. Orders to purchase shares of a Portfolio must be received by
the Fund prior to the following times: for the Prime Portfolio, Money Market
Portfolio, Government Portfolio and Treasury Portfolio--5:00 p.m. Eastern time;
for the Government Securities Portfolio and Treasury Securities Portfolio--3:00
p.m. Eastern time; and for the Tax-Exempt Portfolio--2:00 p.m. Eastern time. On
any business day that the New York Stock Exchange closes early, or when the Bond
Market Association recommends that the securities markets close early, the Fund
may close early and purchase orders received

PARTICIPANT CLASS PROSPECTUS
February , 2005

after such earlier closing times will be processed the following business day.
Purchase orders received by the Fund will not be processed until receipt of
Federal Funds.

PURCHASE BY WIRE

Upon approval of the application, you may purchase Participant Class Shares of
the Portfolios by wiring Federal Funds to the Custodian. You should forward a
completed Account Registration Form to the Fund in advance of the wire. See the
section below entitled "Valuation of Shares." Instruct your bank to send a
Federal Funds (monies credited by a Federal Reserve Bank) wire in a specified
amount to the Custodian using the following wire instructions:

PURCHASE BY INTERNET
If you have properly authorized the Internet Trading Option on your Account
Registration Form and completed, signed and returned to the Fund an Electronic
Transactions Agreement, you may place a purchase order for additional shares
online through Morgan Stanley's ClientLink service at www.morganstanley.com.
For more information, call Shareholder Services at 1-888-378-1630.

You are responsible for transmitting payments for shares purchased via the
Internet in a timely fashion, as set forth above.

ADDITIONAL INVESTMENTS
You may make additional investments of Participant Class Shares (minimum
additional investment $1,000) at the NAV next determined after the request is
received in good order by wiring Federal Funds to the Custodian as outlined
above. J.P. Morgan must receive notification of receipt of your Federal Funds
wire by the time required by each respective Portfolio, as set forth above
under "Purchasing Shares." Shareholder accounts that utilize the Fund as their
sweep vehicle are not subject to the minimum additional investment requirement.

OTHER PURCHASE INFORMATION

The Fund may suspend the offering of shares, or any class of shares, of the
Portfolios or reject any purchase or exchange orders when we think it is in the
best interest of the Fund.

Purchases of a Portfolio's shares will be made in full and fractional shares of
the Portfolio calculated to three decimal places.

identify you. If you are unable to verify your identity, we reserve the right to
restrict additional transactions and/or liquidate your account at the next
calculated net asset value after your account is closed (less any applicable
sales/account charges and/or tax penalties) or take any other action required by
law.

REDEEMING SHARES

BY MAIL
Requests should be addressed to Morgan Stanley Institutional Liquidity Funds,
3435 Stelzer Road, Columbus, OH 43219.

To be in good order, redemption requests must include the following
documentation:

(b) Any required signature guarantees; and

(c) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianship, corporations, pension and profit sharing
plans and other organizations.

BY TELEPHONE

ALL SALES

PARTICIPANT CLASS PROSPECTUS
February , 2005

GENERAL SHAREHOLDER INFORMATION

Prime Portfolio As of 5:00 p.m.
Money Market Portfolio Eastern time
Government Portfolio
Treasury Portfolio

Government Securities As of 3:00 p.m.
Portfolio Eastern time
Treasury Securities
Portfolio

Tax-Exempt Portfolio As of 2:00 p.m.
Eastern time

EXCHANGE PRIVILEGE

You may exchange a Portfolio's Participant Class Shares for Participant Class
Shares of other available Portfolios of the Fund based on their respective
NAVs. We charge no fee for exchanges. If you purchased Portfolio shares through
a financial intermediary, certain Fund Portfolios may be unavailable for
exchange. Contact your financial intermediary to determine which Portfolios are
available for exchange. See also "Other Purchase Information" for certain
limitations relating to exchanges.

You can process your exchange by contacting your financial intermediary or
online through Morgan Stanley's ClientLink service at www.morganstanley.com
provided you have a pre-established Internet trading account, as set forth above
under "Purchasing Shares." Contact Shareholder Services for additional
information. Exchange requests can also be made by calling 1-888-378-1630.

PARTICIPANT CLASS PROSPECTUS
February , 2005

Except as noted below, dividends you receive will generally be taxable as
ordinary income, whether you receive them in cash or in additional shares.

Exchanges and redemptions of shares in a Portfolio are taxable events and may
result in a taxable gain or loss to you.

INVESTMENT ADVISER

ADVISER

Morgan Stanley Investment Management Inc., the investment adviser, with
principal offices at 1221 Avenue of the Americas, New York, NY 10020, conducts
a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad.
Morgan Stanley is the direct parent of Morgan Stanley Investment Management
Inc. and Morgan Stanley & Co. Incorporated, the Fund's Distributor. Morgan
Stanley is a preeminent global financial services firm that maintains leading
market positions in each of its three primary businesses--securities, asset
management and credit services. Morgan Stanley is a full service securities
firm engaged in securities trading and brokerage activities, as well as
providing investment banking, research and analysis, financing and financial
advisory services. As of December 31, 2004, Morgan Stanley Investment
Management Inc., together with its affiliated asset management companies, had
approximately $ billion in assets under management with approximately $
billion in institutional assets.

Each Portfolio pays the Adviser monthly compensation calculated daily by
applying the annual rate of 0.15% to each Portfolio's daily net assets.

SUB-ADVISER

Morgan Stanley Investment Advisors Inc. ("MSIA") serves as Sub-Adviser to the
Portfolios. As Sub-Adviser, MSIA makes day-to-day investment decisions for the
Portfolios and places the Portfolios' purchase and sales orders. The Adviser
pays MSIA 40% of the fee the Adviser receives from each Portfolio as
compensation for its sub-advisory services. MSIA, located at 1221 Avenue of the
Americas, New York, NY 10020, is a wholly-owned subsidiary of Morgan Stanley.
MSIA develops, markets and manages a broad spectrum of proprietary mutual funds
that are sold by Morgan Stanley financial advisors and offers professional
money management services on a customized basis to individuals, institutional
investors and retirement plan sponsors.

PORTFOLIO MANAGEMENT

DISTRIBUTOR

DISTRIBUTION AND SHAREHOLDER SERVICE PLAN

The Fund has adopted a Distribution and Shareholder Service Plan for each
Portfolio's Participant Class Shares pursuant to Rule 12b-1 under the 1940 Act
(the "Plan"). Under the Plan, each Portfolio pays the Distributor a monthly or
quarterly fee at an annual rate of 0.05% of each Portfolio's average daily net
assets attributable to Participant Class Shares to compensate certain financial
intermediaries (also referred to as service organizations) who provide personal
and account maintenance services, administrative services to shareholders, and
distribution related services to the Fund. The Distributor also may retain part
of this fee as compensation for providing distribution related services.

PARTICIPANT CLASS PROSPECTUS
February , 2005

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you understand
the financial performance of each Portfolio for the life of the Portfolio or
Class. Certain information reflects financial results for a single Portfolio
share. The total returns in the tables represent the rate that an investor
would have earned (or lost) on an investment in each Portfolio (assuming
reinvestment of all dividends and distributions). The financial highlights for
the fiscal year ended October 31, 2004 have been audited by Ernst & Young LLP.
Ernst & Young LLP's unqualified report appears in the Fund's Annual Report to
Shareholders and is incorporated by reference in the SAI. The Annual Report and
each Portfolio's financial statements, as well as the SAI, are available at no
cost from the Fund at the toll free number noted on the back cover to this
Prospectus.

[CHART TO COME]

WHERE TO FIND ADDITIONAL INFORMATION

Information about the Fund, including the SAI and Shareholder Reports, may be
obtained from the Securities and Exchange Commission in any of the following
ways. (1) In person: you may review and copy documents in the Commission's
Public Reference Room in Washington D.C. (for information call 1-202-942-8090);
(2) On-line: you may retrieve information from the Commission's web site at
http://www.sec.gov; (3) By mail: you may request documents, upon payment of a
duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-0102; or (4) By e-mail: you may
request documents, upon payment of a duplicating fee, by e-mailing the
Securities and Exchange Commission at the following address:
publicinfo@sec.gov. To aid you in obtaining this information, the Fund's
Investment Company Act registration number is 811-21339.

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
3435 STELZER ROAD
COLUMBUS, OH 43219

FOR SHAREHOLDER INQUIRIES,
CALL 1-888-378-1630.

PRICES AND INVESTMENT RESULTS ARE AVAILABLE AT www.morganstanley.com/im.

[MORGAN STANLEY LOGO OMITTED]

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION

RELATING TO THE FOLLOWING PROSPECTUSES:

INSTITUTIONAL CLASS PROSPECTUS
SERVICE CLASS PROSPECTUS
INVESTOR CLASS PROSPECTUS
ADMINISTRATIVE CLASS PROSPECTUS
ADVISORY CLASS PROSPECTUS
PARTICIPANT CLASS PROSPECTUS

FEBRUARY , 2005

Morgan Stanley Institutional Liquidity Funds (the "Fund") is a mutual fund
currently consisting of the following seven portfolios: the Money Market
Portfolio, the Prime Portfolio, the Government Portfolio, the Government
Securities Portfolio, the Treasury Portfolio, the Treasury Securities Portfolio
and the Tax-Exempt Portfolio (the "Portfolios"). Each Portfolio offers the
following classes of shares: Institutional Class, Service Class, Investor Class,
Administrative Class, Advisory Class and Participant Class. The Fund is designed
to provide investors with a variety of liquidity options. This Statement of
Additional Information (the "SAI") sets forth information about the Fund and
information applicable to the Portfolios.

This SAI is not a prospectus but should be read in conjunction with the Fund's
prospectuses dated February , 2005, as may be supplemented from time to time.
To obtain any of these prospectuses, please call Shareholder Services at the
number indicated below.

The Fund's most recent annual report is a separate document supplied with this
SAI and includes the Fund's audited financial statements, which are incorporated
by reference into this SAI.

Shareholder Services: 1-888-378-1630
Prices and Investment Results: www.morganstanley.com/im

TABLE OF CONTENTS

INVESTMENTS AND INVESTMENT STRATEGIES ........................ 3
INVESTMENT OBJECTIVES AND LIMITATIONS ........................ 9
DISCLOSURE OF PORTFOLIO HOLDINGS ............................. 10
PURCHASE OF SHARES ........................................... 12
REDEMPTION OF SHARES ......................................... 13
TRANSACTIONS WITH BROKER/DEALERS ............................. 13
SHAREHOLDER SERVICES ......................................... 13
VALUATION OF SHARES .......................................... 13
MANAGEMENT OF THE FUND ....................................... 14
INVESTMENT ADVISER ........................................... 26
PRINCIPAL UNDERWRITER ........................................ 28
SERVICE AND DISTRIBUTION OF SHARES ........................... 28
FUND ADMINISTRATION .......................................... 30
OTHER SERVICE PROVIDERS ...................................... 31
BROKERAGE TRANSACTIONS ....................................... 31
GENERAL INFORMATION .......................................... 32
TAX CONSIDERATIONS ........................................... 33
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES .......... 36
PERFORMANCE INFORMATION ...................................... 36
FINANCIAL STATEMENTS ......................................... 37
APPENDIX A: PROXY VOTING POLICIES AND PROCEDURES ............. A-1
APPENDIX B: DESCRIPTION OF RATINGS ........................... B-1

INVESTMENTS AND INVESTMENT STRATEGIES

The following discussion of each Portfolio's investments and risks should be
read in conjunction with the sections of the Fund's Prospectus entitled
"Additional Investment Strategy and Risk Information." The Portfolios'
investments are limited by the quality, maturity and diversification
requirements adopted under Rule 2a-7 of the Investment Company Act of 1940, as
amended (the "1940 Act").

U.S. TREASURY OBLIGATIONS AND U.S. GOVERNMENT SECURITIES. U.S. Treasury
Obligations include securities issued or guaranteed by the U.S. Treasury ("U.S.
Treasury Obligations"). Payment of principal and interest on these obligations
is backed by the full faith and credit of the U.S. government. U.S. Treasury
Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if
such components are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS").

U.S. Government Securities are obligations issued or guaranteed by U.S.
government agencies, authorities, instrumentalities or sponsored enterprises
("U.S. Government Securities"), which may or may not be backed by the full faith
and credit of the U.S. government. Some U.S. Government Securities are supported
by the full faith and credit of the U.S. Treasury (such as in the case of those
issued by the Government National Mortgage Association ("Ginnie Mae")) through
provisions in its charter that it may make "indefinite and unlimited" drawings
on the Treasury, if needed to service its debt); others (such as those issued by
the Federal Home Loan Banks) are not backed by the full faith and credit of the
United States but are supported by the right of the issuer to borrow from the
U.S. Treasury under certain circumstances; others (such as those issued by the
Federal National Mortgage Association ("Fannie Mae")) are supported by the
discretionary authority of the U.S. government to purchase certain obligations
of the issuer to assist them in meeting their debt obligations; and others (such
as those issued by the Federal Farm Credit System) by only the credit of the
issuer.

If a U.S. Government Security is not backed by the full faith and credit of the
United States, the investor must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment
and may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitment.

An instrumentality is a government agency organized under federal charter with
government supervision. Instrumentalities issuing or guaranteeing securities
include, among others, Federal Home Loan Banks, the Federal Land Banks, Central
Bank for Cooperatives, Federal Intermediate Credit Banks and Fannie Mae.

U.S. Government Securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. government, its agencies, authorities or instrumentalities;
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government Securities also include zero coupon bonds. Certain
debt issued by Resolution Funding Corporation has both its principal and
interest backed by the full faith and credit of the U.S. Treasury in that its
principal is defeased by U.S. Treasury zero coupon issues, while the U.S.
Treasury is explicitly required to advance funds sufficient to pay interest on
it, if needed.

Some Portfolios invest in U.S. Treasury Obligations and certain U.S. Government
Securities the interest from which is generally exempt from state income
taxation. Securities generally eligible for this exemption include those issued
by the U.S. Treasury and certain agencies, authorities or instrumentalities of
the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit
Banks, Tennessee Valley Authority and Student Loan Marketing Association.

U.S. government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the U.S.
government will provide financial support to U.S. government agencies,
authorities, instrumentalities or sponsored enterprises if it is not obligated
to do so by law.

generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt. Credit support for asset-backed securities may be based on
the underlying assets and/or provided by a third party through credit
enhancements. Credit enhancement techniques include letters of credit, insurance
bonds, limited guarantees (which are generally provided by the issuer),
senior-subordinated structures and over-collateralization.

BANK OBLIGATIONS. Bank obligations include certificates of deposit, commercial
paper, unsecured bank promissory notes, bankers' acceptances, time deposits and
other debt obligations. Certain Portfolios may invest in obligations issued or
backed by U.S. banks when a bank has more than $1 billion in total assets at the
time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Portfolios may invest in U.S. dollar-denominated obligations issued or
guaranteed by foreign banks that have more than $1 billion in total assets at
the time of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks having
more than $1 billion in total assets at the time of purchase. Bank obligations
may be general obligations of the parent bank or may be limited to the issuing
branch by the terms of the specific obligation or by government regulation.

INVESTMENT COMPANIES. A Portfolio may invest in securities of other investment
companies subject to statutory limitations prescribed by the 1940 Act.
Currently, these limitations include a prohibition on any Portfolio acquiring
more than 3% of the voting shares of any other investment company, and a
prohibition on investing more than 5% of a Portfolio's total assets in
securities of any one investment company or more than 10% of its total assets in
securities of all investment companies. A Portfolio will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies. Such other investment companies will have investment
objectives, policies and restrictions substantially similar to those of the
acquiring Portfolio and will be subject to substantially the same risks.
Although the Portfolios do not expect to do so in the foreseeable future, each
Portfolio is authorized to invest substantially all of its assets in a single
open-end investment company or series thereof that has substantially the same
investment objective, policies and fundamental restrictions as the Portfolio.

CORPORATES. Corporate bonds ("Corporates") are fixed income securities issued by
private corporations. Bondholders, as creditors, have a prior legal claim over
common and preferred stockholders of the corporation as to both income and
assets for the principal and interest due to the bondholder. The Portfolios will
buy Corporates subject to any quality constraints set forth under Rule 2a-7 of
the 1940 Act.

CUSTODIAL RECEIPTS. Certain Portfolios may invest in custodial receipts
representing interests in U.S. Government Securities, municipal obligations or
other debt instruments held by a custodian or trustee. Custodial receipts
evidence ownership of future interest payments, principal payments or both on
notes or bonds issued or guaranteed as to principal or interest by the U.S.
government, its agencies, instrumentalities, political subdivisions or
authorities, or by a state or local governmental body or authority, or by other
types of issuers. For certain securities law purposes, custodial receipts are
not considered obligations of the underlying issuers. In addition, if for tax
purposes a Portfolio is not considered to be the owner of the underlying
securities held in the custodial account, the Portfolio may suffer adverse tax
consequences. As a holder of custodial receipts, a Portfolio will bear its
proportionate share of the fees and expenses charged to the custodial account.

INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS. The Tax-Exempt Portfolio may
invest more than 25% of its total assets in industrial development and pollution
control bonds (two kinds of tax-exempt municipal bonds) whether or not the users
of the facilities financed by such bonds are in the same industry. In cases
where such users are in the same industry, there may be additional risk to the
Portfolio in the event of an economic downturn in such industry, which may
result generally in a lowered need for such facilities and a lowered ability of
such users to pay for the use of such facilities.

LEASE OBLIGATIONS. Included within the revenue bonds category in which certain
Portfolios may invest are participations in lease obligations or installment
purchase contracts (collectively called "lease obligations") of municipalities.
State and local governments issue lease obligations to acquire equipment and
facilities.

Lease obligations may have risks not normally associated with general obligation
or other revenue bonds. Leases and installment purchase or conditional sale
contracts (which may provide for title to the leased asset to pass eventually to
the issuer) have developed as a means for governmental issuers to acquire
property and equipment without the necessity of complying with the
constitutional and statutory requirements generally applicable for the issuance
of debt. Certain lease obligations contain "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on an annual or other periodic basis. Consequently,
continued lease payments on those lease obligations containing
"non-appropriation" clauses are dependent on future legislative actions. If such
legislative actions do not occur, the holders of the lease obligation may
experience difficulty in exercising their rights, including disposition of the
property.

FLOATING AND VARIABLE RATE OBLIGATIONS. The Portfolios may purchase floating and
variable rate obligations, including floating and variable rate municipal
obligations. The value of these obligations is generally more stable than that
of a fixed rate obligation in response to changes in interest rate levels.
Subject to the conditions for using amortized cost valuation under the 1940 Act,
a Portfolio may consider the maturity of a variable or floating rate obligation
to be shorter than its ultimate stated maturity if the obligation is a U.S.
Treasury Obligation or U.S. Government Security, if the obligation has a
remaining maturity of 397 calendar days or less, or if the obligation has a
demand feature that permits the Portfolio to receive payment at any time or at
specified intervals not exceeding 397 calendar days. The issuers or financial
intermediaries providing demand features may support their ability to purchase
the obligations by obtaining credit with liquidity supports. These may include
lines of credit, which are conditional commitments to lend, and letters of
credit, which will ordinarily be irrevocable, both of which may be issued by
domestic banks or foreign banks which have a branch, agency or subsidiary in the
United States. A Portfolio may purchase variable or floating rate obligations
from the issuers or may purchase certificates of participation, a type of
floating or variable rate obligation, which are interests in a pool of debt
obligations held by a bank or other financial institution.

ADJUSTABLE RATE GOVERNMENT SECURITIES. Adjustable rate government securities are
variable rate securities where the variable rate of interest is readjusted no
less frequently than every 397 days and deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.

PROMISSORY NOTES. Promissory notes are generally debt obligations of the issuing
entity and are subject to the risks of investing in the banking industry.
Certain Portfolios may invest up to 10% of its net assets in illiquid
securities, including unsecured bank promissory notes.

FUNDING AGREEMENTS. A funding agreement is a contract between an issuer and a
purchaser that obligates the issuer to pay a guaranteed rate of interest on a
principal sum deposited by the purchaser. Funding agreements will also guarantee
the return of principal and may guarantee a stream of payments over time. A
funding agreement has a fixed maturity and may have either a fixed, variable or
floating interest rate that is based on an index and guaranteed for a fixed time
period. The secondary market, if any, for these funding agreements is limited;
thus, such investments purchased by the Portfolios may be treated as illiquid.
Certain Portfolios may invest up to 10% in illiquid securities, including
funding agreements.

REPURCHASE AGREEMENTS. The Portfolios may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Portfolios
in repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Portfolio. These agreements, which may be
viewed as a type of secured lending by the Portfolios, typically involve the
acquisition by the Portfolios of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that a Portfolio will sell back to the institution, and that
the institution will repurchase, the underlying security serving as collateral
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. The collateral will be marked-to-market
daily to determine that the value of the collateral, as specified in the
agreement, does not decrease below the purchase price plus accrued interest. If
such a decrease occurs, additional collateral will be requested and, when
received, added to the account to maintain full collateralization. The Portfolio
will accrue interest from the institution until the time when the repurchase is
to occur. Although this date is deemed by the Portfolio to be the maturity date
of a repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits.

While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Portfolios follow procedures approved by the
Trustees designed to minimize such risks. These procedures include effecting
repurchase transactions only with large, well capitalized and well established
financial institutions, whose financial condition will be continually monitored
by the Sub-Adviser. In addition, as described above, the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price which consists of the acquisition price paid to the seller of
the securities plus the accrued resale premium, which is defined as the amount
specified in the repurchase agreement or the daily amortization of the
difference between the acquisition price and the resale price specified in the
repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Funds will seek to liquidate such collateral.
However, the exercising of the Portfolio's right to liquidate such collateral
could involve certain costs or delays and, to the extent that proceeds from any
sale upon a default of the obligation to repurchase were less than the
repurchase price, the Portfolio could suffer a loss. In addition, certain
Portfolios may invest in repurchase agreements backed by non-governmental
collateral. Such repurchase agreements may be subject to the automatic stay
provision of the Bankruptcy Code, and may result in the inability of a Portfolio
to immediately liquidate the collateral in the event of default or bankruptcy by
the seller. It is the current policy of the Portfolios not to invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by a Portfolio, amounts
to more than 10% of its net assets. A Portfolio's investments in repurchase
agreements may at times be substantial as set forth in the Prospectus.

REVERSE REPURCHASE AGREEMENTS. The Portfolios may also use reverse repurchase
agreements. Reverse repurchase agreements involve sales by the Portfolios of
portfolio assets concurrently with an agreement by the Portfolio to repurchase
the same assets at a later date at a fixed price. Generally, the effect of such
a transaction is that the Portfolio can recover all or most of the cash invested
in the portfolio securities

involved during the term of the reverse repurchase agreement, while it will be
able to keep the interest income associated with those portfolio securities.
Such transactions are only advantageous if the interest cost to the Portfolio of
the reverse repurchase transaction is less than the cost of obtaining the cash
otherwise. Opportunities to achieve this advantage may not always be available,
and the Portfolio intends to use the reverse repurchase technique only when it
will be to its advantage to do so. The Portfolio will establish a segregated
account with its Custodian bank in which it will maintain cash or cash
equivalents or other portfolio securities equal in value to its obligations in
respect of reverse repurchase agreements. Reverse repurchase agreements are
considered borrowings by a Portfolio and for purposes other than meeting
redemptions may not exceed 5% of a Portfolio's total assets.

PRIVATE PLACEMENTS. The Portfolios may invest in commercial paper issued in
reliance on the so-called "private placement" exemption afforded by Section 4(2)
of the Securities Act of 1933 ("Securities Act") and which may be sold to other
institutional investors pursuant to Rule 144A under the Securities Act. Rule
144A permits the Portfolios to sell restricted securities to qualified
institutional buyers without limitation. The Sub-Adviser, pursuant to procedures
adopted by the Trustees, will make a determination as to the liquidity of each
restricted security purchased by the Portfolios. If a restricted security is
determined to be "liquid," the security will not be included within the category
"illiquid securities."

PUT OPTIONS. Certain Portfolios may purchase securities together with the right
to resell them to the seller at an agreed upon price or yield within a specified
period prior to the maturity date of such securities. Such a right to resell is
commonly known as a "put," and the aggregate price which the Portfolio pays for
securities with puts may be higher than the price which otherwise would be paid
for the securities. The primary purpose of this practice is to permit the
Portfolio to be fully invested in securities, the interest on which is exempt
from Federal income tax, while preserving the necessary flexibility and
liquidity to purchase securities on a when-issued basis, to meet unusually large
redemptions and to purchase at a later date securities other than those subject
to the put. The Fund's policy is, generally, to exercise the puts on their
expiration date, when the exercise price is higher than the current market price
for the related securities. Puts may be exercised prior to the expiration date
in order to fund obligations to purchase other securities or to meet redemption
requests. These obligations may arise during periods in which proceeds from
sales of Portfolio shares and from recent sales of portfolio securities are
insufficient to meet such obligations or when the funds available are otherwise
allocated for investment. In addition, puts may be exercised prior to their
expiration date in the event the Sub-Adviser revises their evaluation of the
creditworthiness of the issuer of the underlying security. In determining
whether to exercise puts prior to their expiration date and in selecting which
puts to exercise in such circumstances, the Sub-Adviser considers, among other
things, the amount of cash available to the Portfolio, the expiration dates of
the available puts, any future commitments for securities purchases, the yield,
quality and maturity dates of the underlying securities, alternative investment
opportunities and the desirability of retaining the underlying securities in the
Portfolio.

The Fund values securities which are subject to puts at their amortized cost and
values the put, apart from the security, at zero. Thus, the cost of the put will
be carried on the Portfolio's books as an unrealized loss from the date of
acquisition and will be reflected in realized gain or loss when the put is
exercised or expires. Since the value of the put is dependent on the ability of
the put writer to meet its obligation to repurchase, the Fund's policy is to
enter into put transactions only with municipal securities dealers who are
approved by the Fund's Trustees. Each dealer will be approved on its own merits
and it is the Fund's general policy to enter into put transactions only with
those dealers which are determined to present minimal credit risks. In
connection with such determination, the Board of Trustees will review, among
other things, the ratings, if available, of equity and debt securities of such
municipal securities dealers, their reputations in the municipal securities
markets, the net worth of such dealers and their efficiency in consummating
transactions. Bank dealers normally will be members of the Federal Reserve
System, and other dealers will be members of the NASD or members of a national
securities exchange. The Trustees have directed the Adviser and the Sub-Adviser
not to enter into put transactions with, and to exercise outstanding puts of,
any municipal securities dealer which, in the judgment of the Adviser or
Sub-Adviser, ceases at any time to present a minimal credit risk. In the event
that a dealer should default on its obligation to repurchase an underlying
security, the Fund is unable to predict whether all or any portion of any loss
sustained could be subsequently recovered from such dealer.

In Revenue Ruling 82-144, the Internal Revenue Service stated that, under
certain circumstances, a purchaser of tax-exempt obligations which are subject
to puts will be considered the owner of the obligations for Federal income tax
purposes.

TENDER OPTION BONDS. A tender option bond is a municipal obligation (generally
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing
short-term, tax-exempt rates. The bond is typically issued in conjunction with
the agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which the institution grants the security holder the
option, at periodic intervals, to tender its securities to the institution. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate, as determined by a remarketing or similar agent, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term,
tax-exempt rate. An institution will normally not be obligated to accept
tendered bonds in the event of certain defaults or a significant downgrading in
the credit rating assigned to the issuer of the bond. The tender option will be
taken into account in determining the maturity of the tender option bonds and a
Fund's average portfolio maturity. There is a risk that a Fund will not be
considered the owner of a tender option bond for federal income tax purposes,
and thus will not be entitled to treat such interest as exempt from federal
income tax. Certain tender option bonds may be illiquid or may become illiquid
as a result of a credit rating downgrade, a payment default or a
disqualification from tax-exempt status.

VARIABLE RATE MASTER DEMAND NOTES. These are obligations that permit a Portfolio
to invest fluctuating amounts, at varying rates of interest, pursuant to direct
arrangements between the Portfolio, as lender, and the borrower. These
obligations permit daily changes in the amounts borrowed. Because these
obligations are direct lending arrangements between the lender and borrower, it
is not contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value, plus accrued interest. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Portfolio's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand.

WHEN-ISSUED SECURITIES. Certain fixed income securities are purchased on a
"when-issued" basis. This means that the securities are purchased at a certain
price, but may not be delivered for up to 90 days. No payment or delivery is
made until a Portfolio receives payment or delivery from the other party to the
transaction. Although the Portfolio receives no income from the above described
securities prior to delivery, the market value of such securities is still
subject to change. As a consequence, it is possible that the market price of the
securities at the time of delivery may be higher or lower than the purchase
price. The Portfolio will maintain with the custodian a segregated account
consisting of cash or liquid securities in an amount at least equal to these
commitments.

YANKEE AND EUROBOND OBLIGATIONS. Certain Portfolios may invest in Eurobond and
Yankee obligations provided that such obligations are U.S. dollar-denominated.
Eurobonds may be issued by government and corporate issuers in Europe. Yankee
bank obligations are U.S. dollar-denominated obligations issued in the U.S.
capital markets by foreign banks.

Eurobond and Yankee obligations are subject to the same risks that pertain to
domestic issues, notably credit risk and market risk. However, Eurobond (and to
a limited extent, Yankee) obligations also are subject to certain sovereign
risks. One such risk is the possibility that a sovereign country might prevent
capital from flowing across its borders. Other risks include: adverse political
and economic developments; the extent and quality of government regulation of
financial markets and institutions; the imposition of foreign withholding taxes,
and the expropriation or nationalization of foreign issuers. The Sub-Adviser, on
behalf of a Portfolio, will perform the same credit analysis on Eurobond and
Yankee obligations that it purchases as it does on domestic issues, and will
seek to invest in obligations of issuers that have at least the same financial
strength as the domestic issuers whose securities it purchases.

ZERO COUPONS. Zero coupon bonds are fixed income securities that do not make
regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the

imputed interest an investor will earn if the obligation is held until maturity.
For tax purposes, a portion of this imputed interest is deemed as income
received by zero coupon bondholders each year. The Fund, which expects to
qualify as a regulated investment company, intends to pass along such interest
as a component of the Portfolios' distributions of net investment income.

Zero Coupons may offer investors the opportunity to earn higher yields than
those available on ordinary interest-paying obligations of similar credit
quality and maturity. However, zero coupon obligation prices may also exhibit
greater price volatility than ordinary fixed income securities because of the
manner in which their principal and interest are returned to the investor. Zero
Coupon Treasury Bonds are sold under a variety of different names, such as:
Certificate of Accrual on Treasury Securities ("CATS"), Treasury Receipts
("TRS"), Separate Trading of Registered Interest and Principal of Securities
("STRIPS") and Treasury Investment Growth Receipts ("TIGERS").

LEVERAGING. Each Portfolio may borrow money from a bank in an amount up to
331/3% of its respective total assets (including the amount borrowed) less its
liabilities (not including any borrowings but including the fair market value at
the time of computation of any other senior securities then outstanding). Each
Portfolio will maintain asset coverage in accordance with the 1940 Act.
Leveraging portfolio assets has speculative characteristics. The use of leverage
may cause a Portfolio to liquidate portfolio positions when it may not be
advantageous to do so to satisfy its obligations or to maintain asset coverage.
Leverage, including borrowing, may cause a Portfolio to be more volatile than if
the Portfolio had not been leveraged. This is because leverage tends to
exaggerate the effect of any increase or decrease in the value of a Portfolio's
portfolio securities.

INVESTMENT OBJECTIVES AND LIMITATIONS

FUNDAMENTAL OBJECTIVES/LIMITATIONS. Each Portfolio's investment objective has
been adopted as fundamental and the Portfolios are subject to the following
restrictions which are also fundamental policies and may not be changed without
the approval of the lesser of (1) at least 67% of the voting securities of the
respective Portfolio present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Portfolio are present or represented by
proxy, or (2) more than 50% of the outstanding voting securities of the
respective Portfolio.

As a matter of fundamental policy, each Portfolio will not change its investment
objective and will not:

(1) invest in physical commodities or contracts on physical commodities;

(2) purchase or sell real estate, although it may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate;

(3) make loans except: (i) by purchasing debt securities in accordance
with its investment objectives and policies, or entering into repurchase
agreements, (ii) by lending its portfolio securities, and (iii) by lending
Portfolio assets to other Portfolios of the Fund, so long as such loans are not
inconsistent with the 1940 Act, or the rules and regulations, or interpretations
or orders of the SEC thereunder;

(4) with respect to 75% of its assets, purchase a security if, as a
result, it would hold more than 10% (taken at the time of such investment) of
the outstanding voting securities of any issuer.

(5) purchase any securities other than obligations of U.S. regulated
banks or of the U.S. government, or its agencies or instrumentalities, and, with
respect to the Tax-Exempt Portfolio, industrial development bonds, if
immediately after such purchase, 25% or more of the value of the Portfolio's
total assets would be invested in the securities of issuers in the same
industry; there is no limitation as to investments in bank obligations or in
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, and, with respect to the Tax-Exempt Portfolio, to industrial
development bonds where the users of the facilities financed by such bonds are
in the same industry.

(6) with respect to 75% of its assets, purchase securities of any issuer
if, as a result, more than 5% of the Portfolio's total assets, taken at market
value at the time of such investment, would be invested in the securities of
such issuer except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.

(7) borrow money, except (i) each Portfolio may borrow money from a bank
in an amount up to 5% of its total assets; (ii) as a temporary measure for
extraordinary or emergency purposes, or to meet redemption requests which might
otherwise require the untimely disposition of securities, and (iii) in
connection with reverse repurchase agreements, provided that (i), (ii) and (iii)
in combination do not exceed 331/3% of the Portfolio's total assets (including
the amount borrowed) less liabilities (exclusive of borrowings);

(8) issue senior securities as defined in the 1940 Act except insofar as
the Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase agreements or reverse repurchase agreements, (b)
purchasing any securities on a when-issued or delayed delivery basis; (c)
borrowing money as set forth above; or (d) lending portfolio securities.

(9) underwrite the securities of other issuers (except to the extent that
the Fund may be deemed to be an underwriter within the meaning of the Securities
Act of 1933 in connection with the disposition of restricted securities)

In addition, as a non-fundamental policy, each Portfolio may not invest its
assets in securities of any investment company, except as permitted by the 1940
Act or the rules, regulations, interpretations or orders of the SEC and its
staff thereunder. Each Portfolio may invest substantially all of its assets in a
single open-end investment company or series thereof that has substantially the
same investment objectives, policies and restrictions as the Portfolio.

Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of a Portfolio's assets will not be considered a violation of the
restriction, and the sale of securities will not be required unless otherwise
noted or required by law (such as limitations relating to borrowing or
investments in illiquid securities).

DISCLOSURE OF PORTFOLIO HOLDINGS

The Fund's Board of Trustees and Morgan Stanley Investment Management Inc. (the
"Adviser") have adopted policies and procedures regarding disclosure of
portfolio holdings (the "Policy"). Pursuant to the Policy, the Adviser may
disclose information concerning Fund portfolio holdings only if such disclosure
is consistent with the antifraud provisions of the federal securities laws and
the Fund's and the Adviser's fiduciary duties to the Fund shareholders. The
Adviser may not receive compensation or any other consideration in connection
with the disclosure of information about the portfolio securities of the Fund.
Consideration includes any agreement to maintain assets in the Fund or in other
investment companies or accounts managed by the Adviser or by any affiliated
person of the Adviser. Material non-public information concerning portfolio
holdings may be divulged to third parties only when the Fund has a legitimate
business purpose for doing so and the recipients of the information are subject
to a duty of confidentiality which has been memorialized in an approved
non-disclosure agreement. Under no circumstances shall current or prospective
Fund shareholders receive non-public portfolio holdings information, except as
described below.

The Fund makes its portfolio holdings available on the password-protected part
of its website every 15 days with a 15 calendar day lag. In addition,
prospective investors may receive portfolio holdings information if they enter
into an agreement or undertaking to keep the information confidential.

[All other portfolio holdings information that has not been disseminated in a
manner making it available to investors generally as described above, is
non-public information for purposes of the Policy.]

The Fund may make selective disclosure of non-public portfolio holdings under
certain exemptions. Third parties eligible for exemptions include, but are not
limited to, information exchange subscribers, consultants, fund analysts,
portfolio analytics services, third-party service providers and mutual fund
rating agencies, provided that the third party expressly agrees to maintain the
disclosed information in confidence and not to trade portfolio securities based
on the material nonpublic information. Non-public portfolio holdings information
may not be disclosed to a third party unless and until the arrangement has been
reviewed and approved pursuant to the requirements set forth in the Policy.
Subject to the terms and

conditions of any agreement between the Adviser or the Fund and the third party
recipient, if these conditions for disclosure are satisfied, there shall be no
restriction on the frequency with which Fund non-public portfolio holdings
information is released, and no lag period shall apply.

[The Adviser may provide interest lists [description to come] to broker-dealers
who execute securities transactions for the Fund without entering into a
non-disclosure agreement with the broker-dealers, provided that the interest
list satisfies all of the following criteria: (1) the interest list must contain
only the cusip numbers and/or ticker symbols of securities held in all
registered management investment companies advised by the Adviser or any
affiliate of the Adviser (the "MSIM Funds") on an aggregate, rather than a
fund-by-fund basis; (2) the interest list must not contain information about the
number or value of shares owned by a specified MSIM Fund; (3) the interest list
may identify the investment strategy, but not the particular MSIM Funds, to
which the list relates; and (4) the interest list may not identify the portfolio
manager or team members responsible for managing the MSIM Funds.]

Fund shareholders may elect in some circumstances to redeem their shares of the
Fund in exchange for their pro rata share of the securities held by the Fund.
Under such circumstances, Fund shareholders may receive a complete listing of
the holdings of the Fund up to seven (7) calendar days prior to making the
redemption request provided that they represent orally or in writing that they
agree to maintain the confidentiality of the portfolio holdings information.

In addition, persons who owe a duty of trust or confidence to the Adviser or the
Fund (such as legal counsel) may receive non-public portfolio holdings
information without entering into a non-disclosure agreement. Further, certain
entities such as municipalities, which may not be authorized to enter into a
non-disclosure agreement, may enter into an undertaking to keep any nonpublic
holdings information confidential.

The Adviser and/or the Fund have entered into ongoing arrangements to make
available public and/or non-public information about the Fund's portfolio
securities. In no instance may the Adviser or the Fund receive any compensation
or consideration in exchange for the portfolio holdings. Provided that the
recipient of the information falls into one or more of the categories listed
below, and the recipient has entered into a non-disclosure agreement with the
Fund, the recipient may receive portfolio holdings information pursuant to such
agreement without obtaining pre-approval from either the Portfolio Holdings
Review Committee (the "PHRC") or the Fund's Board of Trustees. In all such
instances, however, the PHRC will be responsible for reporting to the Fund's
Board of Trustees, or designated Committee thereof, material information
concerning the ongoing arrangements at each Board's next regularly scheduled
Board meeting. Categories or parties eligible to receive information pursuant to
such ongoing arrangements include fund rating agencies, information exchange
subscribers, consultants and analysts, portfolio analytics providers, service
providers and asset allocators.

The Adviser and/or the Fund currently have entered into ongoing arrangements
with the following parties: [To come.]

All selective disclosures of non-public portfolio holdings information made to
third parties pursuant to the exemptions set forth in the Policy must be
pre-approved by both the PHRC and the Fund's Board of Trustees (or designated
Committee thereof), except for disclosures made to third parties pursuant to
ongoing arrangements (described above) and disclosures made to third parties
pursuant to Special Meetings of the PHRC. The Adviser shall report quarterly to
the Board of Trustees (or a designated Committee thereof) information concerning
all parties receiving non-public portfolio holdings information pursuant to an
exemption. [Procedures to monitor the use of such non-public portfolio holdings
information include requiring annual certifications that the recipients have
utilized such information only pursuant to the terms of the agreement between
the recipient and the Adviser and, for those recipients receiving information
electronically, acceptance of the information will constitute reaffirmation that
the third party expressly agrees to maintain the disclosed information in
confidence and not to trade portfolio securities based on the material nonpublic
information.]

The PHRC is responsible for creating and implementing the Policy and, in this
regard, has expressly adopted it. The following are some of the functions and
responsibilities of the PHRC:

(a) The PHRC, which will consist of executive officers of the Fund and
the Adviser, is responsible for establishing portfolio holdings disclosure
policies and guidelines and determining how portfolio holdings information will
be disclosed on an ongoing basis.

(b) The PHRC will periodically review and have the authority to amend as
necessary the Fund's portfolio holdings disclosure policies and guidelines (as
expressed by the Policy).

(c) The PHRC will meet at least quarterly to (among other matters): (1)
address any outstanding issues relating to the Policy; (2) review non-disclosure
agreements that have been executed with third parties and determine whether the
third parties will receive portfolio holdings information; and (3) generally
review the procedures that the Adviser employs to ensure that disclosure of
information about portfolio securities is in the best interests of Fund
shareholders, including procedures to address conflicts between the interests of
Fund shareholders, on the one hand, and those of the Adviser; the Distributor;
or any affiliated person of the Fund, the Adviser, or the Distributor, on the
other.

(d) Any member of the PHRC may call a Special Meeting of the PHRC to
consider whether a third party may receive non-public portfolio holdings
information pursuant to a validly executed non-disclosure agreement. At least
three members of the PHRC, or their designees, and one member of the Funds Audit
Committee, or his or her designee, shall be present at the Special Meeting in
order to constitute a quorum. At any Special Meeting at which a quorum is
present, the decision of a majority of the PHRC members present and voting shall
be determinative as to any matter submitted to a vote; provided, however, that
the Audit Committee member, or his or her designee, must concur in the
determination in order for it to become effective.

(e) The PHRC, or its designee(s), will document in writing all of their
decisions and actions, which documentation will be maintained by the PHRC, or
its designee(s) for a period of at least six years. The PHRC, or its
designee(s), will report their decisions to the Board of Trustees at each
Board's next regularly scheduled Board meeting. The report will contain
information concerning decisions made by the PHRC during the most recently ended
calendar quarter immediately preceding the Board meeting.

PURCHASE OF SHARES

The name of the Portfolio requested should be designated on the Account
Registration Form. Each Portfolio reserves the right in its sole discretion (i)
to suspend the offering of its shares, (ii) to reject purchase orders, and (iii)
to reduce or waive the minimum for initial and subsequent investments. The
officers of the Fund may from time to time waive the minimum initial and
subsequent investment requirements in connection with investments in the Fund by
certain investors, including but not limited to (a) employees of the Adviser or
Morgan Stanley Investment Advisors Inc. (the "Sub-Adviser") and their
affiliates, and (b) other investors with whom the Adviser or Sub-Adviser wish to
develop a relationship or whose investments are expected, over a reasonable
period of time, to exceed the minimum initial investment requirement.

The Portfolios declare dividends daily and, therefore, at the time of a
purchase, must have funds immediately available for investment. As a result, you
must pay for shares of each Portfolio with Federal Funds (monies credited to the
Portfolio's custodian by a Federal Reserve Bank).

Investors purchasing and redeeming shares of the Portfolio through a financial
intermediary may be charged a transaction-based fee or other fee for the
financial intermediary's services. Each financial intermediary is responsible
for sending you a schedule of fees and information regarding any additional or
different conditions regarding purchases and redemptions. Customers of financial
intermediaries should read this SAI in light of the terms governing accounts
with their organization. The Fund does not pay compensation to or receive
compensation from financial intermediaries for the sale of Institutional Class
Shares but does pay compensation in connection with other share classes.

Neither Morgan Stanley & Co. Incorporated, as distributor (the "Distributor")
nor the Fund will be responsible for any loss, liability, cost, or expense for
acting upon facsimile instructions or upon telephone instructions that they
reasonably believe to be genuine. In order to confirm that telephone
instructions in connection with redemptions are genuine, the Fund and
Distributor will provide written confirmation of transactions initiated by
telephone.

REDEMPTION OF SHARES

The Portfolio may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange ("NYSE") is closed, or
trading on the NYSE is restricted as determined by the SEC, (ii) during any
period when an emergency exists as defined by the rules of the SEC as a result
of which it is not reasonably practicable for a Portfolio to dispose of
securities owned by it, or fairly to determine the value of its assets, and
(iii) for such other periods as the SEC may permit.

The Fund has made an election with the SEC pursuant to Rule 18f-1 under the 1940
Act to pay in cash all redemptions requested by any shareholder of record
limited in amount during any 90-day period to the lesser of $250,000 or 1% of
the net assets of a Portfolio at the beginning of such period. Such commitment
is irrevocable without the prior approval of the SEC. Redemptions in excess of
the above limits may be paid in whole or in part in investment securities or in
cash, as the Trustees may deem advisable; however, payment will be made wholly
in cash unless the Trustees believe that economic or market conditions exist
which would make such a practice detrimental to the best interests of the Fund.
If redemptions are paid in investment securities, such securities will be valued
as set forth in the Fund's prospectuses under "Valuation of Shares" and a
redeeming shareholder would normally incur brokerage expenses in converting
these securities to cash.

No charge is made by the Portfolio for redemptions. Redemption proceeds may be
more or less than the shareholder's cost depending on the market value of the
securities held by the Portfolio.

TRANSACTIONS WITH BROKER/DEALERS

The Fund has authorized certain brokers to accept on its behalf purchase and
redemption orders. Some of these brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
For purposes of determining the purchase price of shares, the Fund will be
deemed to have received a purchase or redemption order when an authorized
broker, or if applicable, a broker's authorized designee, accepts the order. In
other words, orders will be priced at the net asset value next computed after
such orders are accepted by an authorized broker or the broker's authorized
designee.

SHAREHOLDER SERVICES

TRANSFER OF SHARES

Shareholders may transfer shares of the Portfolios to another person by written
request to the Shareholder Services Group at the address noted above. If shares
are being transferred to a new account, requests for transfer must be
accompanied by a completed Account Registration Form for the receiving party. If
shares are being transferred to an existing account, the request should clearly
identify the account and number of shares to be transferred and include the
signature of all registered owners and all share certificates, if any, which are
subject to the transfer. The signature on the letter of request, the share
certificate or any stock power must be guaranteed in the same manner as
described under "Redemption of Shares." As in the case of redemptions, the
written request must be received in good order before any transfer can be made.

VALUATION OF SHARES

For the purpose of calculating each Portfolio's NAV, securities are valued by
the amortized cost method of valuation, which does not take into account
unrealized gains or losses. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value based on amortized cost is higher or
lower than the price each Portfolio would receive if it sold the instrument.

The use of amortized cost and the maintenance of each Portfolio's per share NAV
at $1.00 is based on its election to operate under the provisions of Rule 2a-7
under the 1940 Act. As conditions of operating

under Rule 2a-7, each Portfolio must maintain a dollar-weighted average
Portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in U.S.
dollar-denominated securities which are determined by the Trustees to present
minimal credit risks and which are of eligible quality as determined under the
rule.

The Board has established procedures reasonably designed, taking into account
current market conditions and each Portfolio's investment objective, to
stabilize the net asset value per share as computed for the purposes of sales
and redemptions at $1.00. These procedures include periodic review, as the
Trustees deem appropriate and at such intervals as are reasonable in light of
current market conditions, of the relationship between the amortized cost value
per share and a net asset value per share based upon available indications of
market value. In such a review, investments for which market quotations are
readily available are valued at the most recent bid price or quoted yield
equivalent for such securities or for securities of comparable maturity, quality
and type as obtained from one or more of the major market makers for the
securities to be valued. Other investments and assets are valued at fair value,
as determined in good faith by the Board.

In the event of a deviation of over 1/2 of 1% between a Portfolio's NAV based
upon available market quotations or market equivalents and $1.00 per share based
on amortized cost, the Trustees will promptly consider what action, if any,
should be taken. The Board will also take any action they deem appropriate to
eliminate or to reduce to the extent reasonably practicable any material
dilution or other unfair results which might arise from differences between the
two. This action may include redeeming shares in kind, selling instruments prior
to maturity to realize capital gains or losses or to shorten average maturity,
withholding dividends, paying distributions from capital gains or losses, or
utilizing a NAV not equal to $1.00 based upon available market quotations.

MANAGEMENT OF THE FUND

[TO BE FURTHER UPDATED IN FEBRUARY 2005]

OFFICERS AND TRUSTEES. The Board of the Fund consists of nine Trustees. These
same individuals also serve as directors or trustees for certain of the funds
advised by the Adviser and Morgan Stanley AIP GP LP (the "Institutional Funds")
and all of the funds advised by Morgan Stanley Investment Advisors Inc. (the
"Retail Funds"). Seven Trustees have no affiliation or business connection with
the Adviser or any of its affiliated persons and do not own any stock or other
securities issued by the Adviser's parent company, Morgan Stanley. These
Trustees are the "non-Interested Persons" of the Fund as defined under Section
2(a)(19) of the 1940 Act (the "Independent Trustees"). The other two Trustees
(the "Management Trustees") are affiliated with the Adviser.

INDEPENDENT TRUSTEES. The Independent Trustees of the Fund, their term of office
and length of time served, their principal business occupations during the past
five years, the number of portfolios in the Fund Complex (defined below)
overseen by each Independent Trustee (as of December 31, 2004) and other
directorships, if any, held by the Trustees, are shown below. The Fund Complex
includes all open-end and closed-end funds (including all of their portfolios)
advised by the Adviser and any funds that have an investment advisor that is an
affiliated person of the Adviser (including but not limited to Morgan Stanley
Investment Advisers Inc.).

NUMBER OF
PORTFOLIOS IN
FUND
POSITION(S) COMPLEX OTHER
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED (1) DURING PAST 5 YEARS (2) TRUSTEE HELD BY TRUSTEE
---------------------------- ------------- ----------------- -------------------------------- -------------- --------------------

Michael Bozic (63) Trustee Since July 2003 Private Investor; Director or 208 Director of
c/o Kramer Levin Naftalis & Trustee of the Retail Funds Weirton Steel
Frankel LLP (since April 1994) and the Corporation.
Counsel to the Institutional Funds (since
Independent Trustees July 2003); formerly Vice
919 Third Avenue Chairman of Kmart
New York, NY Corporation (December
1998-October 2000),
Chairman and Chief Executive
Officer of Levitz Furniture
Corporation (November 1995-
November 1998) and President and
Chief Executive Officer of Hills
Department Stores (May 1991-July
1995); formerly variously
Chairman, Chief Executive
Officer, President and Chief
Operating Officer (1987-1991) of
the Sears Merchandise Group of
Sears, Roebuck & Co.

Edwin J. Garn (72) Trustee Since July 2003 Managing Director of Summit 208 Director of
c/o Summit Ventures LLC Ventures LLC; Director or Franklin Covey
1 Utah Center Trustee of the Retail Funds (time management
201 S. Main Street (since January 1993) and the systems), BMW
Salt Lake City, UT Institutional Funds (since July Bank of North
2003); member of the Utah America, Inc.
Regional Advisory Board of (industrial loan
Pacific Corp.; formerly United corporation),
States Senator (R- Utah) United Space
(1974-1992) and Chairman, Alliance (joint
Senate Banking Committee venture between
(1980-1986), Mayor of Salt Lockheed Martin
Lake City, Utah (1971-1974), and the Boeing
Astronaut, Space Shuttle Company) and
Discovery (April 12-19, 1985), Nuskin Asia Pacific
and Vice Chairman, (multilevel
Huntsman Corporation marketing);
(chemical company). member of the
board of various
civic and charitable
organizations.

----------
(1) This is the earliest date the Trustee began serving the Institutional
Funds. Each Trustee serves an indefinite term, until his or her successor
is elected.

(2) The dates referenced below indicating commencement of service as
Director/Trustee for the Retail and Institutional Funds reflect the
earliest date the Director/Trustee began serving the Retail and
Institutional Funds, as applicable.

Wayne E. Hedien (70) Trustee Since July 2003 Retired; Director or Trustee 208 Director of The
c/o Kramer Levin Naftalis & of the Retail Funds (since PMI Group Inc.
Frankel LLP September 1997) and the (private mortgage
Counsel to the Institutional Funds (since July insurance); Trustee
Independent Trustees 2003); formerly associated and Vice Chairman
919 Third Avenue with the Allstate Companies of The Field
New York, NY (1966-1994), most recently as Museum of
Chairman of The Allstate Natural
History; Corporation (March
director of various
1993-December 1994) and other
business and Chairman and Chief
charitable Executive Officer of
its organizations. wholly-owned
subsidiary, Allstate Insurance
Company (July 1989-December 1994).

Dr. Manuel H. Johnson (55) Trustee Since July 2003 Chairman of the Audit 208
c/o Johnson Smick Committee and Director or
International, Inc. Trustee of the Retail Funds
2099 Pennsylvania Avenue (since July 1991) and the
N.W. Institutional Funds (since
Suite 950 July 2003); Senior Partner,
Washington, D.C. Johnson Smick International,
Inc., a consulting firm; Co-
Chairman and a founder of
the Group of Seven Council
(G7C), an international
economic commission;
formerly Vice Chairman of
the Board of Governors of
the Federal Reserve System
and Assistant Secretary of the
U.S. Treasury.

Joseph J. Kearns (62) Trustee Since August Deputy Chairman of the 209 Director of Electro
PMB754 1994 Audit Committee and Rent Corporation
23852 Pacific Coast Highway Director or Trustee of the (equipment
Malibu, CA Retail Funds (since July 2003) leasing), The Ford
and the Institutional Funds Family
(since August 1994); Foundation, and
previously Chairman of the the UCLA
Audit Committee of the Foundation.
Institutional Funds
( October 2001-July 2003);
President, Kearns &
Associates LLC (investment
consulting); formerly CFO of
the J. Paul Getty Trust.

----------
(1) This is the earliest date the Trustee began serving the Institutional
Funds. Each Trustee serves an indefinite term, until his or her successor
is elected.

Michael E. Nugent (68) Trustee Since July 2001 Chairman of the Insurance 208 Director of various
c/o Triumph Capital, L.P. Committee and Director or business
445 Park Avenue Trustee of the Retail Funds organizations.
New York, NY (since July 1991) and the
Institutional Funds
(since July 2001);
General Partner of
Triumph Capital,
L.P., a private
investment
partnership;
formerly Vice
President, Bankers
Trust Company and
BT Capital
Corporation
(1984-1988).

Fergus Reid (72) Trustee Since June 1992 Chairman of the Governance 209 Trustee and
c/o Lumelite Plastics Committee and Director or Director of certain
Corporation Trustee of the Retail Funds investment
85 Charles Colman Blvd. (since July 2003) and the companies in the
Pawling, NY Institutional Funds (since JPMorgan Funds
June 1992); Chairman of complex managed
Lumelite Plastics Corporation. by JPMorgan
Investment
Management Inc.

----------
(1) This is the earliest date the Trustee began serving the Institutional
Funds. Each Trustee serves an indefinite term, until his or her successor
is elected.

[This space intentionally left blank].

MANAGEMENT TRUSTEES. The Trustees who are affiliated with the Adviser or
affiliates of the Adviser (as set forth below) and executive officers of the
Fund, their term of office and length of time served, their principal business
occupations during the past five years, the number of portfolios in the Fund
Complex overseen by each Management Trustee (as of December 31, 2004) and the
other directorships, if any, held by the Trustee, are shown below.

NUMBER OF
PORTFOLIOS IN
FUND OTHER
COMPLEX DIRECTORSHIPS
POSITION(S) OVERSEEN BY HELD BY
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) MANAGEMENT MANAGEMENT
MANAGEMENT TRUSTEE REGISTRANT TIME SERVED (3) DURING PAST 5 YEARS (4) TRUSTEE TRUSTEE
------------------------------- ------------- ----------------- -------------------------------- -------------- ---------------

Charles A. Fiumefreddo (71) Chairman Since July 2003 Chairman and Director or 208 None
c/o Morgan Stanley Trust of the Trustee of the Retail Funds
Harborside Financial Center, Board and (since July 1991) and the
Plaza Two, Trustee Institutional Funds (since
Jersey City, NJ July 2003); formerly Chief
Executive Officer of the
Retail Funds (until
September 2002).

James F. Higgins (56) Trustee Since July 2003 Director or Trustee of the 208 Director of
c/o Morgan Stanley Trust Retail Funds (since June AXA Financial,
Harborside Financial Center, 2000) and the Institutional Inc. and The
Plaza Two, Funds (since July 2003); Equitable Life
Jersey City, NJ Senior Advisor of Morgan Assurance
Stanley (since August 2000); Society of the
Director of Morgan Stanley United States
Distributors Inc. and Dean (financial
Witter Realty Inc.; previously services).
President and Chief
Operating Officer of the
Private Client Group of
Morgan Stanley (May
1999-August 2000), and
President and Chief
Operating Officer of
Individual Securities of
Morgan Stanley (February
1997-May 1999).

----------
(3) This is the date the Trustee began serving the Institutional Funds. Each
Trustee serves an indefinite term, until his or her successor is elected.

(4) The dates referenced below indicating commencement of service as
Director/Trustee for the Retail and Institutional Funds reflect the
earliest date the Director/Trustee began serving the Retail and
Institutional Funds, as applicable.

OFFICERS:

Mitchell M. Merin (51) President Since July 2003 President and Chief Operating Officer of Morgan
1221 Avenue of the Americas Stanley Investment Management Inc.; President,
New York, NY Director and Chief Executive Officer of Morgan
Stanley Investment Advisors Inc. and Morgan
Stanley Services Company Inc.; Chairman and
Director of Morgan Stanley Distributors Inc.;
Chairman and Director of Morgan Stanley Trust;
Director of various Morgan Stanley subsidiaries;
President of the Institutional Funds (since July
2003) and President of the Retail Funds (since
May 1999); Trustee (since July 2003) and
President (since December 2002) of the Van
Kampen Closed-End Funds; Trustee (since May
1999) and President (since October 2002) of the
Van Kampen Open-End Funds.

Barry Fink (49) Vice President Since July 2003 General Counsel (since May 2000) and Managing
1221 Avenue of the Americas Director (since December 2000) of Morgan
New York, NY Stanley Investment Management; Managing
Director (since December 2000), Secretary (since
February 1997) and Director (since July 1998) of
Morgan Stanley Investment Advisors Inc. and
Morgan Stanley Services Company Inc.; Assistant
Secretary of Morgan Stanley DW Inc.; Vice
President and General Counsel of the Retail
Funds; Managing Director, Secretary and Director
of Morgan Stanley Distributors Inc.; previously
Secretary of the Retail Funds (February 1997-July
2003); previously Vice President and Assistant
General Counsel of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services
Company Inc. (February 1997-December 2001).

----------
(5) This is the date the Officer began serving the Institutional Funds. Each
Officer serves an indefinite term, until his or her successor is elected.

(6) The dates referenced below indicating commencement of service as an
Officer for the Retail and Institutional Funds reflect the earliest date
the Officer began serving the Retail or Institutional Funds, as
applicable.

POSITION(S)
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED (5) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS (6)
------------------------------ ----------------- ------------------- ---------------------------------------------------
Ronald E. Robison (65) Executive Vice Since July 2003 Principal Executive Officer - Office of the Funds
1221 Avenue of the Americas President and (since November 2003); Chief Global Operations
New York, NY Principal Officer and Managing Director of Morgan Stanley
Executive Investment Management Inc.; Managing Director
Officer of Morgan Stanley & Co. Incorporated; Managing
Director of Morgan Stanley; Managing Director,
Chief Administrative Officer and Director of Morgan
Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc.; Chief Executive Officer and
Director of Morgan Stanley Trust; Managing Director
and Director of Morgan Stanley Distributors Inc;
Executive Vice President and Principal Executive
Officer of the Retail Funds (since April 2003) and the
Institutional Funds (since July 2003); previously
President and Director of the Institutional Funds
(March 2001-July 2003).

Joseph J. McAlinden (61) Vice President Since July 2003 Managing Director and Chief Investment Officer
1221 Avenue of the Americas of Morgan Stanley Investment Advisors Inc. and
New York, NY Morgan Stanley Investment Management Inc.;
Director of Morgan Stanley Trust, Chief Investment
Officer of the Van Kampen Funds; Vice President of the
Institutional Funds (since July 2003) and the Retail
Funds (since July 1995).

Amy R. Doberman (42) Vice President Since July 2004 Managing Director and General Counsel, U.S.
1221 Avenue of the Americas Investment Management; Managing Director of
New York, NY Morgan Stanley Investment Management Inc. and
Morgan Stanley Investment Advisors Inc.; Vice
President of the Institutional and Retail Funds
(since July 2004); previously, Managing Director
and General Counsel-Americas, USB Global Asset
Management (July 2000-July 2004) and General Counsel,
Aeltus Investment Management, Inc. (January 1997-July
2000).

Stefanie V. Chang (37) Vice President Since December Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas 1997 Incorporated and Morgan Stanley Investment
New York, NY Management Inc. and Morgan Stanley Investment Advisors
Inc.; Vice President of the Institutional Funds (since
December 1997) and the Retail Funds (since July 2003);
formerly practiced law with the New York law firm of
Rogers & Wells (now Clifford Chance LLP).

James Garrett (36) Treasurer and Treasurer since Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Chief Financial February 2002 Incorporated and Morgan Stanley Investment
New York, NY 10020 Officer and Chief Management Inc.; Treasurer and Chief
Financial Officer Financial Officer of the Institutional Funds;
since July 2003 previously with PriceWaterhouse LLP (now
PricewaterhouseCoopers LLP).

Mary E. Mullin (37) Secretary Since June 1999 Vice President of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment
New York, NY Advisors Inc. and Morgan Stanley Investment Management
Inc.; Secretary of the Institutional Funds (since June
1999) and the Retail Funds (since July 2003); formerly
practiced law with the New York law firms of McDermott,
Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.

Carsten Otto (41) Chief Since October U.S. Director of Compliance for Morgan Stanley
1221 Avenue of the Americas Compliance 2004 Investment Management Inc. (since October
New York, NY 10020 Officer 2004); Executive Director of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley
Investment Management Inc.; formerly Assistant
Secretary and Assistant General Counsel for the
Retail Funds.
Michael Leary (38) Assistant Since March Assistant Director and Vice President of Fund
JPMorgan Investor Services Co. Treasurer 2003 Administration, JPMorgan Investors Services Co.
73 Tremont Street (formerly Chase Global Funds Services
Boston, MA Company); formerly Audit Manager at Ernst&
Young, LLP.

----------
(5) This is the date the Officer began serving the Institutional Funds. Each
Officer serves an indefinite term, until his or her successor is elected.

For each Trustee, the dollar range of equity securities beneficially owned by
the Trustee in the Fund and in the Family of Investment Companies (Family of
Investment Companies includes all of the registered investment companies advised
by the Adviser, Morgan Stanley Investment Advisors Inc. and Morgan Stanley AIP
GP LP) for the calendar year ended December 31, 2004 is set forth in the table
below.

AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES
IN ALL REGISTERED INVESTMENT COMPANIES
OVERSEEN BY TRUSTEE IN FAMILY OF
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND INVESTMENT COMPANIES
NAME OF TRUSTEE (AS OF DECEMBER 31, 2004) (AS OF DECEMBER 31, 2004)
------------------------ ----------------------------------------------- --------------------------------------------

INDEPENDENT:
Michael Bozic over $100,000
Edwin J. Garn over $100,000
Wayne E. Hedien over $100,000
Dr. Manuel H. Johnson over $100,000
Joseph J. Kearns(1) over $100,000
Michael E. Nugent over $100,000
Fergus Reid(1) over $100,000
INTERESTED:
Charles A. Fiumefreddo over $100,000
James F. Higgins over $100,000

----------
(1) Includes the total amount of compensation deferred by the Trustee at his
election pursuant to a deferred compensation plan. Such deferred
compensation is placed in a deferral account and deemed to be invested in
one or more of the Retail Funds or Institutional Funds (or portfolio
thereof) that are offered as investment options under the plan. As of
December 31, 2004, Messrs. Kearns and Reid had deferred a total of $ o and
$ o , respectively, pursuant to the deferred compensation plan.

As to each Independent Trustee and his immediate family members, no person owned
beneficially or of record securities in an investment advisor or principal
underwriter of the Fund, or a person (other than a registered investment
company) directly or indirectly controlling, controlled by or under common
control with an investment advisor or principal underwriter of the Fund.

As of January , 2005, the Trustees and officers of the Fund, as a group, owned
less than 1% of the outstanding common stock of each Portfolio of the Fund.

INDEPENDENT TRUSTEES AND THE COMMITTEES. Law and regulation establish both
general guidelines and specific duties for the Independent Trustees. The
Institutional Funds seek as Independent Trustees individuals of distinction and
experience in business and finance, government service or academia; these are
people whose advice and counsel are in demand by others and for whom there is
often competition. To accept a position on the Institutional Funds' Boards, such
individuals may reject other attractive assignments because the Institutional
Funds make substantial demands on their time. All of the Independent Trustees
serve as members of the Audit Committee. In addition, three Trustees, including
two Independent Trustees, serve as members of the Insurance Committee, and three
Independent Trustees serve as members of the Governance Committee.

The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements, continually reviewing fund
performance, checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill any
Independent Trustee vacancy on the board of any fund that has a Rule 12b-1 plan
of distribution.

The Board of Trustees has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended. The Audit Committee is charged with recommending to the
full Board the engagement or discharge of the Fund's independent registered
public accounting firm; directing investigations into matters within the scope
of the independent registered public accounting firm's duties, including the
power to retain outside specialists; reviewing

with the independent registered public accounting firm the audit plan and
results of the auditing engagement; approving professional services provided by
the independent registered public accounting firm and other accounting firms
prior to the performance of the services; reviewing the independence of the
independent registered public accounting firm; considering the range of audit
and non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board. The Fund has adopted a formal, written Audit Committee Charter. The Fund
held Audit Committee meetings during its fiscal year ended October 31, 2004.

The members of the Audit Committee of the Fund are currently Michael Bozic,
Edwin J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Joseph J. Kearns, Michael
E. Nugent and Fergus Reid. None of the members of the Fund's Audit Committee is
an "interested person," as defined under the Investment Company Act, of any of
the Funds (with such disinterested Trustees being Independent Trustees or
individually, Independent Trustee). Each Independent Trustee is also
"independent" from the Fund under the listing standards of the New York Stock
Exchange, Inc. (NYSE). The current Chairman of the Audit Committee of the Fund
is Dr. Manuel H. Johnson.

The Board of Trustees of the Fund also has a Governance Committee. The
Governance Committee identifies individuals qualified to serve as Independent
Trustees on the Fund's Board and on committees of the Board and recommends such
qualified individuals for nomination by the Fund's Independent Trustees as
candidates for election as Independent Trustees, advises the Fund's Board with
respect to Board composition, procedures and committees, develops and recommends
to the Fund's Board a set of corporate governance principles applicable to the
Fund, monitors and makes recommendations on corporate governance matters and
policies and procedures of the Fund's Board of Trustees and any Board committees
and oversees periodic evaluations of the Fund's Board and its committees. The
members of the Governance Committee of the Fund are currently Michael Bozic,
Edwin J. Garn and Fergus Reid, each of whom is an Independent Trustee. The
current Chairman of the Governance Committee is Fergus Reid. The Governance
Committee held one meeting during its fiscal year ended October 31, 2004.

The Fund does not have a separate nominating committee. While the Fund's
Governance Committee recommends qualified candidates for nominations as
Independent Trustees, the Board of Trustees of the Fund believes that the task
of nominating prospective Independent Trustees is important enough to require
the participation of all current Independent Trustees, rather than a separate
committee consisting of only certain Independent Trustees. Accordingly, each
current Independent Trustee (Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Dr.
Manuel H. Johnson, Joseph J. Kearns, Michael E. Nugent and Fergus Reid, for all
Funds) participates in the election and nomination of candidates for election as
Independent Trustees for the Fund for which the Independent Trustee serves.
Persons recommended by the Fund's Governance Committee as candidates for the
nomination as Independent Trustees shall possess such knowledge, experience,
skills, expertise and diversity so as to enhance the Board's ability to manage
and direct the affairs and business of the Fund, including, when applicable, to
enhance the ability of committees of the Board to fulfill their duties and/or to
satisfy any independence requirements imposed by law, regulation or any listing
requirements of the NYSE. While the Independent Trustees of the Fund expect to
be able to continue to identify from their own resources an ample number of
qualified candidates for the Fund's Board as they deem appropriate, they will
consider nominations from shareholders to the Board. Nominations from
shareholders should be in writing and sent to the Independent Trustees as
described below.

Finally, the Boards of the Institutional Funds have formed an Insurance
Committee to review and monitor the insurance coverage maintained by the Fund.
The Insurance Committee currently consists of Messrs. Nugent, Fiumefreddo and
Hedien. The Insurance Committee held six Insurance Committee meetings during the
fiscal year ended October 31, 2004.

ADVANTAGES OF HAVING THE SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR THE RETAIL
FUNDS AND INSTITUTIONAL FUNDS. The Independent Trustees and the funds'
management believe that having the same Independent Trustees for each of the
Retail Funds and Institutional Funds avoids the duplication of effort that would
arise from having different groups of individuals serving as Independent
Trustees for each of the funds or even of sub-groups of funds. They believe that
having the same individuals serve as

Independent Trustees of these funds tends to increase their knowledge and
expertise regarding matters which affect the Fund Complex generally. This
arrangement also precludes the possibility of separate groups of Independent
Trustees arriving at conflicting decisions regarding operations and management
of the funds and avoids the cost and confusion that would likely ensue. Finally,
having the same Independent Trustees serve on the boards of the Retail Funds and
Institutional Funds enhances the ability of each fund to obtain, at modest cost
to each, the services of Independent Trustees of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Retail Funds and Institutional Funds.

TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust provides
that no Trustee, officer, employee or agent of the Fund is liable to the Fund or
to a shareholder, nor is any Trustee, officer, employee or agent liable to any
third persons in connection with the affairs of the Fund, except as such
liability may arise from his/her or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his/her or its duties. It also
provides that all third persons shall look solely to the Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.

SHAREHOLDER COMMUNICATIONS. Shareholders may send communications to the Fund's
Board of Trustees. Shareholders should send communications intended for the
Fund's Board by addressing the communications directly to the Board (or
individual Board members) and/or otherwise clearly indicating in the salutation
that the communication is for the Board (or individual Board members) and by
sending the communication to either the Fund's office or directly to such Board
member(s) at the address specified for each trustee previously noted. Other
shareholder communications received by the Fund not directly addressed and sent
to the Board will be reviewed and generally responded to by management, and will
be forwarded to the Board only at management's discretion based on the matters
contained therein.

COMPENSATION OF TRUSTEES AND OFFICERS.

Each Independent Trustee receives an annual retainer fee of $168,000 for serving
the Retail Funds and Institutional Funds. In addition, each Independent Trustee
receives $2,000 for attending each of the four quarterly board meetings and two
performance meetings that occur each year. The Chairman of the Audit Committee
receives an additional annual retainer fee of $60,000. Other Committee Chairmen
and the Deputy Chairman of the Audit Committee receive an additional annual
retainer fee of $30,000. The aggregate compensation paid to each Independent
Trustee is paid by the Retail Funds and Institutional Funds, and is allocated on
a pro rata basis among each of the operational funds/portfolios of the Retail
Funds and Institutional Funds based on the relative net assets of each of the
funds/portfolios. Mr. Fiumefreddo receives an annual fee for his service as
Chairman of the Board and for administrative services provided to each Board.

The Fund also reimburses such Trustees for travel and other out-of pocket
expenses incurred by them in connection with attending such meetings. Trustees
and officers of the Fund who are employed by the Adviser or an affiliated
company receive no compensation or expense reimbursement from the Fund for their
services as Trustee.

Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan
(the "Plan") which allows each Independent Trustee to defer payment of all, or a
portion, of the fees he or she receives for serving on the Board of Trustees
throughout the year. Each eligible Trustee generally may elect to have the
deferred amounts credited with a return equal to the total return on one or more
of the Retail Funds or Institutional Funds (or portfolios thereof) that are
offered as investment options under the Plan. At the Trustee's election,
distributions are either in one lump sum payment, or in the form of equal annual
installments over a period of five years. The Fund intends that the Deferred
Compensation Plan shall be maintained at all times on an unfunded basis for
federal income tax purposes under the Internal Revenue Code of 1986, as amended
(the "Code"). The rights of an eligible Trustee and the beneficiaries to the
amounts held under the Deferred Compensation Plan are unsecured and such amounts
are subject to the claims of the creditors of the Fund.

Prior to April 1, 2004, the Fund maintained a similar unfunded Deferred
Compensation Plan (the "Prior Plan") which also allowed each Independent Trustee
to defer payment of all, or a portion, of the fees he

or she received for serving on the Board of Trustees throughout the year. The
Plan amends and supersedes the Prior Plan and all amounts payable under the
Prior Plan are now subject to the terms of the Plan (except for amounts due to
be paid during the calendar year 2004 which will remain subject to the terms of
the Prior Plan).

The following table shows aggregate compensation paid to the Fund's Trustees
from the Fund for the fiscal year ended October 31, 2004.

FUND COMPENSATION

AGGREGATE
COMPENSATION
FROM FUND
(AS OF OCTOBER 31, 2004) (4)
NAME OF TRUSTEE -----------------------------

TRUSTEES:
Michael Bozic(1)(3) ................ $1,000
Charles A. Fiumefreddo*(2) ......... 2,000
Edwin J. Garn(1)(3) ................ 1,000
Wayne E. Hedien(1)(2) .............. 1,000
James F. Higgins* .................. 0
Manuel H. Johnson(1) ............... 1,400
Joseph J. Kearns(1)(4) ............. 1,200
Michael E. Nugent(1)(2) ............ 1,200
Fergus Reid(1)(3) .................. 1,200

----------

(*) Messrs. Fiumefreddo and Higgins are deemed to be "interested persons" of the
Fund as that term is defined in the 1940 Act.

(1) Member of the Audit Committee. Dr. Johnson is the Chairman of the Audit
Committee, and Mr. Kearns is the Deputy Chairman of the Audit Committee.

(2) Member of the Insurance Committee. Mr. Nugent is the Chairman of the
Insurance Committee.
(3) Member of the Governance Committee. Mr. Reid is the Chairman of the
Governance Committee.
(4) Includes amounts deferred at the election of Trustees under the Prior
Plan. The total amount of deferred compensation (including interest)
payable or accrued by Messrs. Kearns [and Reid] are $ [and $ ],
respectively. [update]

The following table shows aggregate compensation paid to each of the Fund's
Trustees by the Fund Complex (which includes all of the Retail and Institutional
Funds) for the calendar year ended December 31, 2004. Because the funds in the
Fund Complex have different fiscal year ends, the amounts shown in this table
are presented on a calendar-year basis.

CASH COMPENSATION FROM FUND COMPLEX

NUMBER OF PORTFOLIOS TOTAL COMPENSATION
IN THE FUND COMPLEX FROM THE FUND COMPLEX
FROM WHICH THE TRUSTEE PAYABLE TO TRUSTEES
NAME OF TRUSTEE RECEIVED COMPENSATION (AS OF DECEMBER 31, 2004)
-------------------------------- ------------------------ --------------------------

TRUSTEES:
Michael Bozic .................. 208 $
Charles A. Fiumefreddo ......... 208 $
Edwin J. Garn .................. 208 $
Wayne E. Hedien ................ 208 $
James F. Higgins ............... 208 $
Manuel H. Johnson .............. 208 $
Joseph J. Kearns(1) ............ 209 $
Michael E. Nugent .............. 208 $
Fergus Reid .................... 209 $

----------

(1) Includes amounts deferred at the election of Trustee under the Prior Plan.
The total amount of deferred compensation (including interest) payable or
accrued by Mr. Kearns is $ o .

Prior to December 31, 2003, 49 of the Retail Funds (the "Adopting Funds") had
adopted a retirement program under which an Independent Trustee who retired
after serving for at least five years as an

Independent Trustee of any such fund (an "Eligible Trustee") would have been
entitled to retirement payments based on factors such as length of service, upon
reaching the eligible retirement age. On December 31, 2003, the amount of
accrued retirement benefits for each Eligible Trustee was frozen, and will be
payable, together with a return of 8% per annum, at or following each such
Eligible Trustee's retirement as shown in the table below.

The following table illustrates the retirement benefits accrued to the Fund's
Independent Trustees by the 49 Retail Funds for the calendar year ended December
31, 2004, and the estimated retirement benefits for the Independent Trustees
from the 49 Retail Funds for each calendar year following retirement. Messrs.
Kearns and Reid did not participate in the retirement program. [To be updated]

RETIREMENT BENEFITS ACCRUED ESTIMATED ANNUAL BENEFITS
NAME OF INDEPENDENT AS FUND EXPENSES UPON RETIREMENT (1)
TRUSTEE BY ALL ADOPTING FUNDS FROM ALL ADOPTING FUNDS
------------------------------- ----------------------------- --------------------------

Michael Bozic ................. $ $
Edwin J. Garn ................. $ $
Wayne E. Hedien ............... $ $
Dr. Manuel H. Johnson ......... $ $
Michael E. Nugent ............. $ $

----------
(1) Total compensation accrued under the retirement plan, together with a
return of 8% per annum, will be paid annually commencing upon retirement
and continuing for the remainder of the Trustee's life.

INVESTMENT ADVISER

Morgan Stanley Investment Management Inc. (the "Adviser") is the investment
adviser to the Fund pursuant to an Investment Advisory Agreement (the
"Agreement"). The Adviser is wholly owned by subsidiaries of Morgan Stanley
("Morgan Stanley"). The Adviser, located at 1221 Avenue of the Americas, New
York, New York 10020, conducts a worldwide portfolio management business and
provides a broad range of portfolio management services to customers which
include employee benefit plans, endowment funds, foundations and other
institutional investors in the United States and abroad. As of December 31,
2004, the Adviser, together with its affiliated asset management companies, had
approximately $ billion in assets under management with approximately
$ billion in institutional assets.

Under the Investment Advisory Agreement with the Fund, the Adviser, subject to
the control and supervision of the Fund's Board and in conformance with the
stated investment objectives and policies of the Portfolios, manages the
investment and reinvestment of the assets of the Portfolios. In this regard, it
is the responsibility of the Adviser to supervise investment decisions for the
Portfolios and the placement of the Portfolios' purchase and sales orders for
investment securities by the sub-adviser.

As compensation for the services rendered by the Adviser under the Agreement and
the assumption by the Adviser of the expenses related thereto (other than the
cost of securities purchased for each Portfolio and the taxes and brokerage
commissions, if any, payable in connection with the purchase and/or sale of such
securities), each Portfolio pays the Adviser monthly compensation calculated
daily by applying the annual rate of 0.15% to each Portfolio's daily net assets.

The Adviser has voluntarily agreed to reduce its advisory fees and/or absorb or
reimburse certain expenses to the extent necessary so that total annual
operating expenses of each Institutional Class, Service Class, Investor Class,
Administrative Class, Advisory Class and Participant Class will not exceed
0.20%, 0.25%, 0.30%, 0.35%, 0.45% and 0.60%, of their average daily net assets,
respectively. This fee and expense waiver may be discontinued at any time.

For the fiscal year ended October 31, 2004, the Fund paid the following advisory
fees:

ADVISORY FEES PAID ADVISORY FEES WAIVED
-------------------- ---------------------
2004 2004
PORTFOLIO (000) (000)
------------------------------------------ -------------------- ---------------------

Money Market Portfolio ...................
Prime Portfolio ..........................
Government Portfolio* ....................
Government Securities Portfolio* .........
Treasury Portfolio* ......................
Treasury Securities Portfolio* ...........
Tax-Exempt Portfolio .....................

----------
* Not in operation during period.

The Agreement continues for successive one year periods, only if each renewal is
specifically approved by an in-person vote of the Fund's Board, including the
affirmative votes of a majority of the Trustees who are not parties to the
agreement or "interested persons" (as defined in the 1940 Act) of any such party
at a meeting called for the purpose of considering such approval. In addition,
the question of continuance of the Agreement may be presented to the
shareholders of the Fund; in such event, continuance shall be effected only if
approved by the affirmative vote of a majority of the outstanding voting
securities of the Portfolio. If the holders of the Portfolio fail to approve the
Agreement, the Adviser may continue to serve as investment adviser to each
Portfolio which approved the Agreement, and to any Portfolio which did not
approve the Agreement until new arrangements have been made. The Agreement is
automatically terminated if assigned, and may be terminated by the Portfolio
without the payment of any penalty, at any time, (1) by vote of a majority of
the entire Board or (2) by vote of a majority of the outstanding voting
securities of the Portfolio on sixty (60) days' written notice to the Adviser or
(3) by the Adviser without the payment of any penalty, upon 90 days' written
notice to the Fund.

INVESTMENT SUB-ADVISER

Morgan Stanley Investment Advisers Inc. ("MSIA" or the "Sub-Adviser"), with
principal offices at 1221 Avenue of the Americas, New York, New York 10020,
serves as the investment sub-adviser to the Portfolios pursuant to an investment
sub-advisory agreement with the Adviser. As compensation for managing the
day-to-day investments of the Portfolios, the Adviser pays MSIA 40% of the
investment advisory fee that the Adviser receives from each Portfolio (net of
applicable fee waivers).

PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD

The Fund's policies and procedures with respect to the voting of proxies
relating to the Fund's portfolio securities are attached hereto as Appendix A.
Information on how the Fund voted proxies relating to portfolio securities
during the most recent twelve-month period ended June 30 is available without
charge, upon request, by calling (800) 869-NEWS or by visiting the Mutual Fund
Center on our web site at www.morganstanley.com. This information is also
available on the Securities and Exchange Commission's (the "SEC") web site at
http://www.sec.gov.

APPROVAL OF THE ADVISORY AGREEMENTS

In approving the investment advisory agreement and sub-advisory agreement, the
Board of Trustees, including the Independent Trustees, considered the nature,
quality and scope of the services provided by the Adviser and the Sub-Adviser,
the performance, fees and expenses of the Portfolios compared to other similar
investment companies, the Adviser's and the Sub-Adviser's expenses in providing
the services, the profitability of the Adviser and the Sub-Adviser and their
affiliated companies and other benefits they derive from their relationship with
the Fund and the extent to which economies of scale are shared with the
Portfolios. The Independent Trustees reviewed reports from third parties and
management about the foregoing factors. The Independent Trustees noted their
confidence in the capability and integrity of the

senior management and staff of the Adviser and the Sub-Adviser and the financial
strength of the Adviser and the Sub-Adviser and their affiliated companies. The
Independent Trustees weighed the foregoing factors in light of the advice given
to them by legal counsel to the Fund as to the law applicable to the review and
approval of investment advisory contracts. Based upon its review, the Board of
Trustees, including all of the Independent Trustees, determined, in the exercise
of its business judgment that approval of the investment advisory agreement (and
the sub-advisory agreement) was in the best interests of the Portfolios and
their shareholders.

The Fund bears all of its own costs and expenses, including but not limited to:
services of its independent accountants, its administrator and dividend
disbursing and transfer agent, legal counsel, taxes, insurance premiums, costs
incidental to meetings of its shareholders and Trustees, the cost of filing its
registration statements under federal and state securities laws, reports to
shareholders, and custodian fees. These Fund expenses are, in turn, allocated to
each Portfolio, based on their relative net assets. Each Portfolio, bears its
own advisory fees and brokerage commissions and transfer taxes in connection
with the acquisition and disposition of its investment securities.

PRINCIPAL UNDERWRITER

Morgan Stanley & Co. Incorporated (the "Distributor") distributes the shares of
the Fund pursuant to a distribution agreement (the "Distribution Agreement").
Under the Distribution Agreement, the Distributor, as agent of the Fund, agrees
to use its best efforts as sole distributor of the Fund's shares.

The Distribution Agreement continues in effect so long as such continuance is
approved at least annually by the Fund's Board, including a majority of those
Trustees who are not parties to such Distribution Agreement nor interested
persons of any such party. The Distribution Agreement provides that the Fund
will bear the costs of the registration of its shares with the SEC and various
states and the printing of its prospectuses, statements of additional
information and reports to shareholders.

SERVICE AND DISTRIBUTION OF SHARES

ADMINISTRATION PLANS

The Fund has entered into an Administration Plan with respect to its Service
Class Shares, Investor Class Shares and Administrative Class Shares pursuant to
which each class of shares will pay the Distributor a monthly or quarterly
administration fee of up to 0.05%, 0.10% and 0.15% of the average daily net
assets of each such class of shares, respectively, to compensate Service
Organizations (defined below) for providing, among other things, certain of the
following services: (i) acting or arranging for another party to act, as
recordholder and nominee of all shares of each class beneficially owned by
shareholders of the Fund; (ii) establishing and maintaining individual accounts
and records with respect to shares of each class owned by shareholders of the
Fund; (iii) processing and issuing confirmations concerning shareholder orders
to purchase, redeem and exchange shares of each class; (iv) receiving and
transmitting funds representing the purchase price or redemption proceeds of
such shares of each class; (v) processing dividend payments; (vi) forwarding
shareholder communications such as proxies and shareholder reports; and (vii)
receiving, tabulating and transmitting proxies. Service Organizations include
institutions that (i) act directly or indirectly as nominees and recordholders
of shares of each class for their respective customers who are or may become
beneficial owners of such shares; (ii) provide services to other Service
Organizations intended to facilitate or improve a Service Organization's
services to shareholders of the Fund with respect to the Portfolios; and/or
(iii) perform certain account administration services with respect to the
shareholders pursuant to agreements between the Fund, on behalf of the
respective class of each Portfolio, and such Service Organizations.

For the fiscal year ended October 31, 2004, the Fund paid the following
administration fees pursuant to the Administration Plan:

INSTITUTIONAL SERVICE INVESTOR ADMINISTRATIVE ADVISORY PARTICIPANT
PORTFOLIO CLASS CLASS CLASS CLASS CLASS CLASS
------------------------------- --------------- --------- ---------- ---------------- ---------- ------------

Money Market .................. $ $ $ $ $ $
Prime .........................
Government ....................
Government Securities .........
Treasury ......................
Treasury Securities ...........
Tax-Exempt ....................

SERVICE AND SHAREHOLDER ADMINISTRATION PLAN

The Fund has also entered into a Service and Shareholder Administration Plan
with respect to its Advisory Class Shares pursuant to which its Advisory Class
Shares will pay the Distributor a monthly or quarterly administration fee of up
to 0.25% of the average daily net assets of such class of shares, to compensate
Service Organizations (described above) for providing shareholder administration
services described above and for, among other things, providing the following
personal and account maintenance services: (i) providing facilities to answer
inquiries and respond to correspondence with shareholders of the Fund and other
investors about the status of their accounts or about other aspects of the Fund
or the applicable Portfolio; (ii) acting as liaison between shareholders and the
Fund, including obtaining information from the Fund and assisting the Fund in
correcting errors and resolving problems; (iii) providing such statistical and
other information as may be reasonably requested by the Fund or necessary for
the Fund to comply with applicable federal or state law; and (iv) assisting
shareholders of the Fund in completing application forms, selecting dividend and
other account options and opening custody accounts with the Service
Organization.

For the fiscal year ended October 31, 2004, the Fund paid the following service
and shareholder administration fees pursuant to the Service and Shareholder
Administration Plan:

DISTRIBUTION AND SHAREHOLDER SERVICE PLAN

Finally, the Fund has entered into a Distribution and Shareholder Service Plan
with respect to its Participant Class Shares pursuant to which its Participant
Class Shares will pay the Distributor a monthly or quarterly service fee of up
to 0.40% of the average daily net assets of such class of shares, as
compensation for, or to compensate service organizations for providing, as the
case may be, shareholder administration services and personal and account
maintenance services (as both are described above), or for any activities or
expenses primarily intended to result in the sale of Participant Class Shares,
including, but not limited to the following Distribution Related Services: (i)
printing and distribution of sales literature and advertising materials; and
(ii) compensation to broker/dealers who sell Participant Class Shares. The Fund,
on behalf of the Participant Class Shares, has adopted this Plan in accordance
with the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of shares.

Continuance of each Plan must be approved annually by a majority of the
Trustees of the Fund and the Trustees who are not "interested persons" of the
Fund within the meaning of the 1940 Act. The Plans

require that quarterly written reports of amounts spent under each respective
Plan and the purposes of such expenditures be furnished to and review by
Trustees. The Plans may not be amended to increase materially the amount which
may be spent thereunder by each class without approval by a majority of the
outstanding shares of each respective class. All material amendments of the
Plans will require approval by a majority of the Trustees of the Fund and of the
Trustees who are not "interested persons" of the Fund.

For the fiscal year ended October 31, 2004, the Fund paid the following
distribution and shareholder service fees pursuant to the Distribution and
Shareholder Service Plan:

REVENUE SHARING [TO BE CONFIRMED]

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 the Fund, a range in an amount equal to 0.03%
to 0.10% of the assets in the accounts.

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.

FUND ADMINISTRATION

The Adviser also provides administrative services to the Fund pursuant to an
Administration Agreement. The services provided under the Administration
Agreement are subject to the supervision of the officers and the Board of
Trustees of the Fund and include day-to-day administration of matters related to
the corporate existence of the Fund, maintenance of records, preparation of
reports, supervision of the Fund's

arrangements with its custodian, and assistance in the preparation of the Fund's
registration statement under federal laws. The Administration Agreement also
provides that the Adviser, through its agents, will provide dividend disbursing
and transfer agent services to the Fund. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which on an
annual basis equals 0.05% of the average daily net assets of each Portfolio. The
Adviser may compensate other service providers for performing shareholder
servicing and administrative services.

SUB-ADMINISTRATOR. Under an agreement between the Adviser and J.P. Morgan
Investor Services Co. ("J.P. Morgan"), J.P. Morgan, a corporate affiliate of
J.P. Morgan Chase Bank, provides certain administrative services to the Fund.
The Adviser supervises and monitors the administrative services provided by J.P.
Morgan. Their services are also subject to the supervision of the officers and
Board of Trustees of the Fund.

OTHER SERVICE PROVIDERS

CUSTODIAN. J.P. Morgan Chase & Co., located at 3 Chase MetroTech Center,
Brooklyn, NY 11245, serves as Custodian for the Fund. The Custodian holds cash,
securities, and other assets of the Fund as required by the 1940 Act.

TRANSFER AND DIVIDEND DISBURSING AGENT. J.P. Morgan, 73 Tremont Street, Boston,
MA 02108-3913, serves as the Funds' Transfer Agent and Dividend Disbursing
Agent.

INDEPENDENT AUDITORS. Ernst & Young LLP serves as independent auditor for the
Fund and audits the annual financial statements of the Portfolios of the Fund.

FUND COUNSEL. Clifford Chance US LLP, located at 31 West 52nd Street, New York,
NY 10019, acts as the Fund's legal counsel.

BROKERAGE TRANSACTIONS

PORTFOLIO TRANSACTIONS

The investment advisory agreement authorizes the Adviser and/or the Sub-Adviser
to select the brokers or dealers that will execute the purchases and sales of
investment securities for the Portfolios and directs the Adviser and/or the
Sub-Adviser to use its best efforts to obtain the best execution with respect to
all transactions for each Portfolio and any other portfolios the Fund may
establish. In so doing, the Adviser and/or the Sub-Adviser will consider all
matters it deems relevant, including the following: the Adviser's and/or
Sub-Adviser's knowledge of negotiated commission rates and spreads currently
available; the nature of the security or instrument being traded; the size and
type of the transaction; the nature and character of the markets for the
security or instrument to be purchased or sold; the desired timing of the
transaction; the activity existing and expected in the market for the particular
security or instrument; confidentiality; the execution, clearance, and
settlement capabilities of the broker or dealer selected and other brokers or
dealers considered; the reputation and perceived soundness of the broker or
dealer selected and other brokers or dealers considered; the Adviser's and/or
Sub-Adviser's knowledge of any actual or apparent operational problems of a
broker or dealer; and the reasonableness of the commission or its equivalent for
the specific transaction.

In seeking to implement the Fund's policies, the Adviser and/or the Sub-Adviser
effects transactions with those brokers and dealers who the Adviser and/or the
Sub-Adviser believe provide the most favorable prices and are capable of
providing efficient executions. If the Adviser and/or the Sub-Adviser believe
the prices and executions are obtainable from more than one broker or dealer, it
may give consideration to placing portfolio transactions with those brokers and
dealers who also furnish research and other services to the Portfolios and any
other portfolios the Fund may establish or the Adviser and/or the Sub-Adviser.
The services may include, but are not limited to, any one or more of the
following: information as to the availability of securities for purchase or
sale; statistical or factual information or opinions pertaining to investment;
wire services; and appraisals or evaluations of portfolio securities. The
information and services received by the Adviser from brokers and dealers may be
of benefit to them and any of their asset management affiliates in the
management of accounts of some of their other clients and may not in all cases
benefit the Fund directly.

The Adviser and/or Sub-Adviser is prohibited from directing brokerage
transactions on the basis of the referral of clients or the sale of shares of
advised investment companies. However, the Adviser may place Portfolio orders
with qualified broker-dealers who recommend the Portfolios or who act as agents
in the purchase of shares of the Portfolios for their clients.

The Adviser and certain of its affiliates currently serve as investment adviser
to a number of clients, including other investment companies, and may in the
future act as investment adviser to others. It is the practice of the Adviser
and its affiliates to cause purchase and sale transactions to be allocated among
clients whose assets they manage (including the Fund) in such manner they deem
equitable. In making such allocations among the Fund and other client accounts,
various factors may be considered, including the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the Portfolios and any other portfolios the Fund may establish and
other client accounts. The Adviser and its affiliates may operate one or more
order placement facilities and each facility will implement order allocation in
accordance with the procedures described above. From time to time, each facility
may transact in a security at the same time as other facilities are trading in
that security.

As a direct subsidiary of Morgan Stanley, the Adviser is affiliated with certain
U.S.-registered broker-dealers and foreign broker-dealers (collectively, the
"Affiliated Brokers"). The Adviser may, in the exercise of its discretion under
its investment advisory agreement, effect transactions in securities or other
instruments for the Fund through the Affiliated Brokers.

GENERAL INFORMATION

FUND HISTORY

Morgan Stanley Institutional Liquidity Funds is an open end management
investment company established under Massachusetts law as a Massachusetts
business trust under a Declaration of Trust dated February 13, 2003.

DESCRIPTION OF SHARES AND VOTING RIGHTS

The shareholders of the Fund are entitled to a full vote for each full share of
beneficial interest held. The Fund is authorized to issue an unlimited number of
shares of beneficial interest. All classes of shares of beneficial interest of
each Fund are of $0.01 par value and are equal as to earnings, assets and voting
privileges except that each Class will have exclusive voting privileges with
respect to matters relating to distribution expenses borne solely by such Class
or any other matter in which the interests of one Class differ from the
interests of any other Class. The Service Class, Investor Class, Administrative
Class, Advisory Class and Participant Class bear expenses related to
compensating service organizations who provide personal and account maintenance
services and administrative services to shareholders and distribution related
services to the Fund, as the case may be (see, "Service and Distribution of
Shares").

The Fund's Declaration of Trust permits the Trustees to authorize the creation
of additional portfolios of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any portfolio. The Trustees have not presently authorized any such
additional series of classes of shares other than as set forth in the
Prospectuses.

The Fund is not required to hold annual meetings of shareholders and in ordinary
circumstances the Fund does not intend to hold such meetings. The Trustees may
call special meetings of shareholders for action by shareholder vote as may be
required by the 1940 Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by the actions of the Trustees. In
addition, under certain circumstances, the shareholders may call a meeting to
remove the Trustees, and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.

Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of each Fund. However, each Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Fund, requires that
notice of such Fund obligations include such disclaimer, and provides for
indemnification out of the Fund's property for any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which a Fund itself would be unable to meet its obligations.
Given the above limitations on shareholder personal liability, and the nature of
the Fund's assets and operations, the possibility of a Fund being unable to meet
its obligations is remote and thus, in the opinion of Massachusetts counsel to
the Funds, the risk to the Fund's shareholders of personal liability is remote.

The Trustees themselves have the power to alter the number and the terms of
office of the Trustees (as provided for in the Declaration of Trust), and they
may at any time lengthen or shorten their own terms or make their terms of
unlimited duration and appoint their own successors, provided that always at
least a majority of the Trustees has been elected by the shareholders of the
respective Fund.

DIVIDENDS AND DISTRIBUTIONS

The Fund's policy is to distribute substantially all of the Portfolios' net
investment income, if any, together with any net realized capital gains in the
amount and at the times that will avoid both income (including capital gains)
taxes on it and the imposition of the federal excise tax on undistributed income
and capital gains. The amounts of any income dividends or capital gains
distributions cannot be predicted.

Unless the shareholder elects otherwise in writing, all dividends and
distributions are automatically received in additional shares of the Portfolios
at net asset value (as of the business day following the record date). This will
remain in effect until the Fund is notified by the shareholder in writing at
least three days prior to the record date that either the Income Option (income
dividends in cash and capital gains distributions in additional shares at net
asset value) or the Cash Option (both income dividends and capital gain
distributions in cash) has been elected. An account statement is sent to
shareholders whenever a dividend or distribution is paid.

The Portfolios and any other portfolios which the Fund may establish from time
to time are treated as a separate entity (and hence, as a separate "regulated
investment company") for federal tax purposes. Any net capital gains recognized
by a Portfolio are distributed to its investors without need to offset (for
federal income tax purposes) such gains against any net capital losses of
another Portfolio.

SPECIAL CONSIDERATIONS FOR THE PORTFOLIO. The Portfolios declare income
dividends at approximately 4:00 p.m. on each business day based on their
respective estimated daily net income to shareholders of record. To the extent
actual income is greater or lesser than the estimated amount, adjustments will
be made to the following business day's income dividends. Shareholders of record
are those shareholders who have submitted a purchase order prior to the
following times for each Portfolio and who have submitted payment for their
shares prior to the close of Fed wire that day: for the Money Market Portfolio,
Prime Portfolio, Government Portfolio and Treasury Portfolio -- 5.00 p.m.
Eastern Time; for the Government Securities Portfolio and Treasury Securities
Portfolio -- 3:00 p.m. Eastern Time; and for the Tax-Exempt Portfolio -- 2:00
p.m. Eastern Time. Shareholders who redeem prior to such respective times are
not entitled to dividends for that day. Dividends declared for Saturdays,
Sundays and holidays are payable to shareholders of record as of such respective
times on the preceding business day on which the Portfolio was open for
business. These dividends accrue daily and are distributed on the last business
day of each month. Net realized short-term capital gains, if any, of the
Portfolios will be distributed whenever the Trustees determine that such
distributions would be in the best interest of shareholders, but at least once a
year. The Portfolios do not expect to realize any long-term capital gains.
Should any such gains be realized, they will be distributed annually.

TAX CONSIDERATIONS

The Portfolios and any other portfolios which the Fund may establish from time
to time each is or will be treated as a separate entity for federal income tax
purposes and intends to qualify for the special tax

treatment afforded regulated investment companies. As such, each Portfolio will
not be subject to federal income tax to the extent it distributes net investment
company taxable income and net capital gains to shareholders. The Fund will
notify you annually as to the tax classification of all distributions.

The Portfolios intend to declare and pay dividends and capital gain
distributions so as to avoid imposition of the federal excise tax. To do so, the
Portfolios expect to distribute an amount at least equal to (i) 98% of its
calendar year ordinary income, (ii) 98% of its capital gains net income for the
one-year period ending October 31st, and (iii) 100% of any undistributed
ordinary and capital gain net income from the prior year.

In order for a Portfolio to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income including, but not limited
to, dividends, interest, income derived from loans of securities, and gains from
the sale of securities or foreign currencies, or other income derived with
respect to its business of investing in such securities or currencies. It is
anticipated that any net gain realized from the closing out of futures contracts
will be considered gain from the sale of securities and therefore be qualifying
income for purposes of the 90% requirement. In addition, (i) the Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income and 90% of its investment company
taxable income; and (ii) at the close of each quarter of the Portfolio's taxable
year, the Portfolio must diversify its assets, including the requirement that
(a) at least 50% of its total assets must be represented by cash and cash items,
U.S. government securities, securities of other regulated investment companies
and such other securities with limitations, and (b) at the close of each quarter
of the Portfolio's taxable year, not more than 25% of the value of its assets
may be invested in securities of any one issuer, or of two or more issuers
engaged in same or similar businesses if the Portfolio owns at least 20% of the
voting power of such issuers. Pursuant to recently enacted legislation, for
taxable years of a regulated investment company beginning after October 22,
2004, net income derived from an interest in a "qualified publicly traded
partnership," as defined in the Internal Revenue Code, will be treated as
qualifying income. In addition, the outstanding voting securities of any issuer
includes the equity securities of a qualified publicly traded partnership, and
no more than 25% of the value of a regulated investment company's total assets
may be invested in the securities of one or more qualified publicly traded
partnerships.

Each Portfolio will distribute to shareholders annually any net capital gains
which have been recognized for federal income tax purposes including unrealized
gains at the end of the Portfolio's fiscal year on certain futures transactions.
Such distributions will be combined with distributions of capital gains realized
on the Portfolio's other investments and shareholders will be advised of the
nature of the payments.

The Fund is required by federal law to withhold 28% of reportable payments
(which may include dividends and capital gains distributions) paid to
shareholders (as of the date of this Prospectus is 28%). In order to avoid this
backup withholding requirement, you must certify on your Account Registration
Form that your Social Security Number or Taxpayer Identification Number is
correct, and that you are not subject to backup withholding.

Shareholders who are not citizens or residents of the United States and certain
foreign entities may be subject to withholding of United States tax on
distributions made by a Portfolio of investment income and short-term capital
gains. Under recently enacted legislation, dividends paid by a Portfolio to
shareholders who are nonresident aliens or foreign entities that are derived
from short-term capital gains and qualifying net interest income (including
income from original issue discount and market discount), and that are properly
designated by the Portfolio as "interest-related dividends" or "short-term
capital gain dividends," will generally not be subject to U.S. withholding tax,
provided that the income would not be subject to U.S. federal income tax if
earned directly by the foreign shareholder. In addition, distributions of the
Fund attributable to gains from sales or exchanges of "U.S. real property
interests," as defined in the Internal Revenue Code (including gains on the sale
or exchange of shares in certain U.S. real property holding corporations) may be
subject to U.S. withholding tax and may give rise to an obligation on the part
of the foreign stockholder to file a U.S. federal income tax return. Also, such
gain may be subject to a 30% branch profits tax in the hands of a foreign
stockholder that is a corporation. These provisions generally would apply to
distributions with respect to taxable years of a Portfolio beginning after
December 31, 2004 and before January 1, 2008.

Although income received on direct U.S. Government obligations is taxable at the
Federal level, such income may be exempt from state tax, depending on the state,
when received by a shareholder. Each Portfolio will inform shareholders annually
of the percentage of income and distributions derived from direct U.S.
Government obligations. Shareholders should consult their tax advisers to
determine whether any portion of dividends received from the Portfolio is
considered tax exempt in their particular states.

Any gain or loss recognized on a sale or redemption of shares of a Portfolio by
a shareholder who is not a dealer in securities will generally be treated as
long-term capital gain or loss if the shares have been held for more than twelve
months and short-term if for twelve months or less. Under current law, the
maximum rate on long-term capital gains available to non-corporate shareholders
generally is 15%. Without future congressional action, the maximum tax rate on
long-term capital would return to 20% in 2009. If shares held for six months or
less are sold or redeemed for a loss, two special rules apply: First, if shares
on which a net capital gain distribution has been received are subsequently sold
or redeemed, and such shares have been held for six months or less, any loss
recognized will be treated as long-term capital loss to the extent of the
long-term capital gain distributions. Second, any loss recognized by a
shareholder upon the sale or redemption of shares of a municipal portfolio fund
held for six months or less will be disallowed to the extent of any
exempt-interest dividends received by the Shareholder with respect to such
shares.

Gain or loss on the sale or redemption of shares of a Portfolio is measured by
the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or
redemption of shares.

Exchanges of shares of a Portfolio for shares of another Portfolio are also
subject to similar tax treatment. Such an exchange is treated for tax purposes
as a sale of the original shares in the first portfolio, followed by the
purchase of shares in the second portfolio.

If a shareholder realizes a loss on the redemption or exchange of a Portfolio's
shares and reinvests in that Portfolio's shares within 30 days before or after
the redemption or exchange, the transactions may be subject to the "wash sale"
rules, resulting in a postponement of the recognition of such loss for tax
purposes. The ability to deduct capital losses may be subject to other
limitations under the Internal Revenue Code.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of January , 2005, the following represents persons or entities that own of
record or beneficially, more than 5% of the shares of any Class of the following
Portfolio's outstanding shares:

PARTICIPANT CLASS [UPDATE]

PORTFOLIO NAME AND ADDRESS NUMBER OF SHARES % OF CLASS
--------------------- ----------------------------------- ------------------ -----------

[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %

ADVISORY CLASS

PORTFOLIO NAME AND ADDRESS NUMBER OF SHARES % OF CLASS
--------------------- ----------------------------------- ------------------ -----------

[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %

INVESTOR CLASS

PORTFOLIO NAME AND ADDRESS NUMBER OF SHARES % OF CLASS
--------------------- ----------------------------------- ------------------ -----------

[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %

INSTITUTIONAL CLASS

PORTFOLIO NAME AND ADDRESS NUMBER OF SHARES % OF CLASS
--------------------- ----------------------------------- ------------------ -----------

[Name of Portfolio] [Name and Address of Shareholder] [ ] %

SERVICE CLASS

PORTFOLIO NAME AND ADDRESS NUMBER OF SHARES % OF CLASS
--------------------- ----------------------------------- ------------------ -----------

[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %

ADMINISTRATIVE CLASS

PORTFOLIO NAME AND ADDRESS NUMBER OF SHARES % OF CLASS
--------------------- ----------------------------------- ------------------ -----------

[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %
[Name of Portfolio] [Name and Address of Shareholder] [ ] %

[The persons listed above as owning 25% or more of the outstanding shares of a
Portfolio may be presumed to "control" (as that term is defined in the 1940
Act) such Portfolio. As a result, those persons would have the ability to vote
a majority of the shares of the Portfolios on any matter requiring the approval
of shareholders of such Portfolios.]

As of the date of this Statement of Additional Information, the aggregate number
of shares of beneficial interest of the Portfolios owned by the Fund's officers
and Trustees as a group was less than 1% of each Portfolio's shares of
beneficial interest outstanding.

PERFORMANCE INFORMATION

[To be inserted]

FINANCIAL STATEMENTS

The Fund's Financial Statements for the fiscal year ended October 31, 2004,
including notes thereto and the reports of Ernst & Young LLP thereon, are
incorporated herein by reference. A copy of the 2004 Annual Reports will
accompany the delivery of this Statement of Additional Information.

*****

This Statement of Additional Information and the Prospectus do not contain all
of the information set forth in the Registration Statement the Fund has filed
with the SEC. The complete Registration Statement for the Fund may be obtained
from the SEC.

APPENDIX A
MORGAN STANLEY INVESTMENT MANAGEMENT

PROXY VOTING POLICY AND PROCEDURES
--------------------------------------------------------------------------------
I. POLICY STATEMENT

INTRODUCTION. Morgan Stanley Investment Management's ("MSIM") policies and
procedures for voting proxies with respect to securities held in the accounts of
clients applies to those MSIM entities that provide discretionary Investment
Management services and for which a MSIM entity has the authority to vote their
proxies. The policies and procedures and general guidelines in this section will
be reviewed and, as necessary, updated periodically to address new or revised
proxy voting issues. The MSIM entities covered by these policies and procedures
currently include the following: Morgan Stanley Investment Advisors Inc., Morgan
Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan
Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan
Stanley Investment Management Limited, Morgan Stanley Investment Management
Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan
Stanley Investment Management Private Limited, Morgan Stanley Investments LP,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van
Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").

Each MSIM Affiliate will vote proxies as part of its authority to manage,
acquire and dispose of account assets. With respect to the MSIM registered
management investment companies (Van Kampen, Institutional and Advisor
Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote
proxies pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by its Board of
Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named
fiduciary" for an ERISA account has reserved the authority for itself, or in the
case of an account not governed by ERISA, the Investment Management Agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in
a prudent and diligent manner, vote proxies in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which we manage assets, consistent with the objective of maximizing long-term
investment returns ("Client Proxy Standard"). In certain situations, a client or
its fiduciary may provide a MSIM Affiliate with a statement of proxy voting
policy. In these situations, the MSIM Affiliate will comply with the client's
policy unless to do so would be inconsistent with applicable laws or regulations
or the MSIM Affiliate's fiduciary responsibility.

PROXY RESEARCH SERVICES. To assist the MSIM Affiliates in their
responsibility for voting proxies and the overall global proxy voting process,
Institutional Shareholder Services ("ISS") and the Investor Responsibility
Research Center ("IRRC") have been retained as experts in the proxy voting and
corporate governance area. ISS and IRRC are independent advisers that specialize
in providing a variety of fiduciary-level proxy-related services to
institutional investment managers, plan sponsors, custodians, consultants, and
other institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. In
addition to research, ISS provides vote execution, reporting, and recordkeeping.
MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor
and supervise the services provided by the proxy research services.

VOTING PROXIES FOR CERTAIN NON-US COMPANIES. While the proxy voting process
is well established in the United States and other developed markets with a
number of tools and services available to assist an investment manager, voting
proxies of non-US companies located in certain jurisdictions, particularly
emerging markets, may involve a number of problems that may restrict or prevent
a MSIM Affiliate's ability to vote such proxies. These problems include, but are
not limited to: (i) proxy statements and ballots being written in a language
other than English; (ii) untimely and/or inadequate notice of shareholder
meetings; (iii) restrictions on the ability of holders outside the issuer's
jurisdiction of organization to exercise votes; (iv) requirements to vote
proxies in person, (v) the imposition of restrictions on the sale of the
securities for a period of time in proximity to the shareholder meeting; and
(vi) requirements to provide local agents with power of attorney to facilitate
the MSIM Affiliate's voting

A-1

instructions. As a result, clients' non-U.S. proxies will be voted on a best
efforts basis only, consistent with the Client Proxy Standard. ISS has been
retained to provide assistance to the MSIM Affiliates in connection with voting
their clients' non-US proxies.

II. GENERAL PROXY VOTING GUIDELINES

To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may vote in a manner that is contrary to the following general guidelines,
pursuant to the procedures set forth in Section IV. below, provided the vote is
consistent with the Client Proxy Standard.

III. GUIDELINES

A. MANAGEMENT PROPOSALS

1. When voting on routine ballot items the following proposals are generally
voted in support of management, subject to the review and approval of the
Proxy Review Committee, as appropriate.

o Selection or ratification of auditors.

o Approval of financial statements, director and auditor reports.

o Election of Directors.

o Limiting Directors' liability and broadening indemnification of
Directors.

o Requirement that a certain percentage (up to 662/3%) of its Board's
members be comprised of independent and unaffiliated Directors.

o Requirement that members of the company's compensation, nominating and
audit committees be comprised of independent or unaffiliated
Directors.

o Recommendations to set retirement ages or require specific levels of
stock ownership by Directors.

o General updating/corrective amendments to the charter.

o Elimination of cumulative voting.

o Elimination of preemptive rights.

o Provisions for confidential voting and independent tabulation of
voting results.

o Proposals related to the conduct of the annual meeting except those
proposals that relate to the "transaction of such other business which
may come before the meeting."

2. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on a shareholder, are
generally voted in support of management, subject to the review and
approval of the Proxy Review Committee, as appropriate.

Capitalization changes

o Capitalization changes that eliminate other classes of stock and
voting rights.

o Proposals to increase the authorization of existing classes of common
stock (or securities convertible into common stock) if: (i) a clear
and legitimate business purpose is stated; (ii) the number of shares
requested is reasonable in relation to the purpose for which
authorization is requested; and (iii) the authorization does not
exceed 100% of shares currently authorized and at least 30% of the new
authorization will be outstanding.

A-2

o Proposals to create a new class of preferred stock or for issuances of
preferred stock up to 50% of issued capital.

o Proposals for share repurchase plans.

o Proposals to reduce the number of authorized shares of common or
preferred stock, or to eliminate classes of preferred stock.

o Proposals to effect stock splits.

o Proposals to effect reverse stock splits if management proportionately
reduces the authorized share amount set forth in the corporate
charter. Reverse stock splits that do not adjust proportionately to
the authorized share amount will generally be approved if the
resulting increase in authorized shares coincides with the proxy
guidelines set forth above for common stock increases.

Compensation

o Director fees, provided the amounts are not excessive relative to
other companies in the country or industry.

o Employee stock purchase plans that permit discounts up to 15%, but
only for grants that are part of a broad based employee plan,
including all non-executive employees.

o Establishment of Employee Stock Option Plans and other employee
ownership plans.

Anti-Takeover Matters

o Modify or rescind existing supermajority vote requirements to amend
the charters or bylaws.

o Adoption of anti-greenmail provisions provided that the proposal: (i)
defines greenmail; (ii) prohibits buyback offers to large block
holders not made to all shareholders or not approved by disinterested
shareholders; and (iii) contains no anti-takeover measures or other
provisions restricting the rights of shareholders.

3. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on the shareholder, are
generally voted against (notwithstanding management support), subject to
the review and approval of the Proxy Review Committee, as appropriate.

o Capitalization changes that add classes of stock which substantially
dilute the voting interests of existing shareholders.

o Proposals to increase the authorized number of shares of existing
classes of stock that carry preemptive rights or supervoting rights.

o Creation of "blank check" preferred stock.

o Changes in capitalization by 100% or more.

o Compensation proposals that allow for discounted stock options which
have not been offered to employees in general.

o Amendments to bylaws that would require a supermajority shareholder
vote to pass or repeal certain provisions.

o Proposals to indemnify auditors.

A-3

4. The following types of non-routine proposals, which potentially may have
a potential financial or best interest impact on an issuer, are voted as
determined by the Proxy Review Committee.

Corporate Transactions

o Mergers, acquisitions and other special corporate transactions (i.e.,
takeovers, spin-offs, sales of assets, reorganizations, restructurings
and recapitalizations) will be examined on a case-by-case basis. In
all cases, ISS and IRRC research and analysis will be used along with
MSIM Affiliates' research and analysis, based on, among other things,
MSIM internal company-specific knowledge.

o Change-in-control provisions in non-salary compensation plans,
employment contracts, and severance agreements that benefit management
and would be costly to shareholders if triggered.

o Shareholders rights plans that allow appropriate offers to
shareholders to be blocked by the board or trigger provisions that
prevent legitimate offers from proceeding.

o Executive/Director stock option plans. Generally, stock option plans
should meet the following criteria:

(i) Whether the stock option plan is incentive based;

(ii) For mature companies, should be no more than 5% of the
issued capital at the time of approval;

(iii) For growth companies, should be no more than 10% of the
issued capital at the time of approval.

Anti-Takeover Provisions

o Proposals requiring shareholder ratification of poison pills.

o Anti-takeover and related provisions that serve to prevent the
majority of shareholders from exercising their rights or effectively
deter the appropriate tender offers and other offers.

B. SHAREHOLDER PROPOSALS

1. The following shareholder proposals are generally supported, subject to
the review and approval of the Proxy Review Committee, as appropriate:

o Requiring auditors to attend the annual meeting of shareholders.

o Requirement that members of the company's compensation, nominating and
audit committees be comprised of independent or unaffiliated
Directors.

o Requirement that a certain percentage of its Board's members be
comprised of independent and unaffiliated Directors.

o Confidential voting.

o Reduction or elimination of supermajority vote requirements.

2. The following shareholder proposals will be voted as determined by the
Proxy Review Committee.

o Proposals that limit tenure of directors.

o Proposals to limit golden parachutes.

o Proposals requiring directors to own large amounts of stock to be
eligible for election.

o Restoring cumulative voting in the election of directors.

A-4

o Proposals that request or require disclosure of executive compensation
in addition to the disclosure required by the Securities and Exchange
Commission ("SEC") regulations.

o Proposals that limit retirement benefits or executive compensation.

o Requiring shareholder approval for bylaw or charter amendments.

o Requiring shareholder approval for shareholder rights plan or poison
pill.

o Requiring shareholder approval of golden parachutes.

o Elimination of certain anti-takeover related provisions.

o Prohibit payment of greenmail.

3. The following shareholder proposals are generally not supported, subject
to the review and approval of the Committee, as appropriate.

o Requirements that the issuer prepare reports that are costly to
provide or that would require duplicative efforts or expenditures that
are of a non-business nature or would provide no pertinent information
from the perspective of institutional shareholders.

o Restrictions related to social, political or special interest issues
that impact the ability of the company to do business or be
competitive and that have a significant financial or best interest
impact to the shareholders.

o Proposals that require inappropriate endorsements or corporate
actions.

IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES

A. PROXY REVIEW COMMITTEE

1. The MSIM Proxy Review Committee ("Committee") is responsible for creating
and implementing MSIM's Proxy Voting Policy and Procedures and, in this
regard, has expressly adopted them. Following are some of the functions
and responsibilities of the Committee.

(a) The Committee, which will consist of members designated by
MSIM's Chief Investment Officer, is responsible for
establishing MSIM's proxy voting policies and guidelines and
determining how MSIM will vote proxies on an ongoing basis.

(b) The Committee will periodically review and have the authority
to amend as necessary MSIM's proxy voting policies and
guidelines (as expressed in these Proxy Voting Policy and
Procedures) and establish and direct voting positions
consistent with the Client Proxy Standard.

(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to
MSIM's Proxy Voting Policy and Procedures; and (2) generally
review proposals at upcoming shareholder meetings of MSIM
portfolio companies in accordance with this Policy and
Procedures including, as appropriate, the voting results of
prior shareholder meetings of the same issuer where a similar
proposal was presented to shareholders. The Committee, or its
designee, will timely communicate to ISS MSIM's Proxy Voting
Policy and Procedures (and any amendments to them and/or any
additional guidelines or procedures it may adopt).

(d) The Committee will meet on an ad hoc basis to (among other
matters): (1) authorize "split voting" (i.e., allowing
certain shares of the same issuer that are the subject of the
same proxy solicitation and held by one or more MSIM
portfolios to be voted differently than other shares) and/or
"override voting" (i.e., voting all MSIM portfolio shares in
a manner contrary to the Procedures); (2) review and approve
upcoming votes, as appropriate, for matters for which
specific direction has been provided in Sections I, II, and
III above; and (3) determine how to vote matters for which
specific direction has not been provided in Sections I, II
and III above. Split votes will generally not be approved
within a single Global Investor Group

A-5

team. The Committee may take into account ISS recommendations and the
research provided by IRRC as well as any other relevant information
they may request or receive.

(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential
material conflict of interest, or gives rise to the
appearance of a potential material conflict of interest, the
Committee will designate a special committee to review, and
recommend a course of action with respect to, the conflict(s)
in question ("Special Committee"). The Special Committee may
request the assistance of the Law and Compliance Departments
and will have sole discretion to cast a vote. In addition to
the research provided by ISS and IRRC, the Special Committee
may request analysis from MSIM Affiliate investment
professionals and outside sources to the extent it deems
appropriate.

(f) The Committee and the Special Committee, or their
designee(s), will document in writing all of their decisions
and actions, which documentation will be maintained by the
Committee and the Special Committee, or their designee(s) for
a period of at least 6 years. To the extent these decisions
relate to a security held by a MSIM U.S. registered
investment company, the Committee and Special Committee, or
their designee(s), will report their decisions to each
applicable Board of Trustees/Directors of those investment
companies at each Board's next regularly Scheduled Board
meeting. The report will contain information concerning
decisions made by the Committee and Special Committee during
the most recently ended calendar quarter immediately
preceding the Board meeting.

(g) The Committee and Special Committee, or their designee(s),
will timely communicate to applicable PMs, the Compliance
Departments and, as necessary to ISS, decisions of the
Committee and Special Committee so that, among other things,
ISS will vote proxies consistent with their decisions.

A-6

APPENDIX B

DESCRIPTION OF RATINGS

[To be inserted]

B-1

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
PART C: OTHER INFORMATION

ITEM 22. EXHIBITS

(a) Declaration of Trust of the Registrant, dated February 13,
2003, is incorporated by reference to Exhibit (a) of the
Initial Registration Statement on Form N-1A, filed on May 2,
2003.

(b) Amended and Restated By-Laws of the Registrant dated October
23, 2003, is incorporated by reference to Exhibit (b) to
Pre-Effective Amendment No. 1 to Registration Statement on
Form N-1A, filed on October 31, 2003.

(d)(1) Investment Management Agreement between the Registrant
and Morgan Stanley Investment Management Inc. is
incorporated by reference to Exhibit (d)(1) to Pre-Effective
Amendment No. 1 to Registration Statement on Form N-1A,
filed on October 31, 2003.

(d)(2) Sub-Advisory Agreement between Morgan Stanley Investment
Management Inc. and Morgan Stanley Investment Advisors Inc.
is incorporated by reference to Exhibit (d)(2) to
Pre-Effective Amendment No. 1 to Registration Statement on
Form N-1A, filed on October 31, 2003.

(e) Distribution Agreement between the Registrant and Morgan
Stanley & Co. Incorporated is incorporated by reference to
Exhibit (e) to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-1A, filed on October 31, 2003.

(f) Not applicable

(g) Custodian Agreement is incorporated by reference to Exhibit
(g) to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-1A, filed on October 31, 2003.

(h)(1) Administration/Service Agreement between Registrant and
Morgan Stanley Investment Management Inc. is incorporated by
reference to Exhibit (h)(1) to Pre-Effective Amendment No. 1
to Registration Statement on Form N-1A, filed on October 31,
2003.

(h)(2) Sub-Administration Agreement between Morgan Stanley
Investment Management Inc. and JP Morgan Chase, is
incorporated by reference to Exhibit (h)(2) to Pre-Effective
Amendment No. 1 to Registration Statement on Form N-1A,
filed in October 31, 2003.

(i)(1) Opinion of Clifford Chance US LLP, to be filed by
further amendment.

(i)(2) Opinion of Dechert, to be filed by further amendment.

(j) Consent of Independent Registered
Public Accounting Firm, to be filed by further amendment.

(k) Not applicable

(l) Investment Letter of Morgan Stanley Investment Management
Inc. is incorporated by reference to Exhibit (l) to
Pre-Effective Amendment No. 1 to Registration Statement on
Form N-1A, filed on October 31, 2003.

(m)(1) Administration Plans between the Registrant and Morgan
Stanley & Co. Incorporated is incorporated by reference to
Exhibit (m)(1) to Pre-Effective Amendment No. 1 to
Registration Statement on Form N-1A, filed on October 31,
2003.

(m)(2) Plan of Distribution pursuant to Rule 12b-1 between the
Registrant and Morgan Stanley & Co. Incorporated is
incorporated by reference to Exhibit (m)(2) to Pre-Effective
Amendment No. 1 to Registration Statement on Form N-1A,
filed on October 31, 2003.

(n) Amended Multiple Class Plan pursuant to Rule 18f-3, to be
filed by further amendment.

(o) Not applicable

(p)(1) Code of Ethics of Morgan
Stanley Investment Management, to be filed by further
amendment.

(p)(2) Code of Ethics of the Morgan Stanley Funds is
incorporated by reference to Exhibit (p)(2) to Pre-Effective
Amendment No. 1 to Registration Statement on Form N-1A,
filed on October 31, 2003.
Other Powers of Attorney, filed herein.

ITEM 23. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND

None.

ITEM 24. INDEMNIFICATION

Pursuant to Section 5.3 of the Registrant's Declaration of
Trust and under Section 4.8 of the Registrant's By-Laws, the indemnification of
the Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was not
unlawful. In addition, indemnification is permitted only if it is determined
that the actions in question did not render them liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be indemnified for the
expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation. The
Registrant may also advance money for these expenses provided that they give
their undertakings to repay the Registrant unless their conduct is later
determined to permit indemnification.

Pursuant to Section 5.2 of the Registrant's Declaration of
Trust and paragraph 8 of the Registrant's Investment Management Agreement,
neither the Investment Manager nor any trustee, officer, employee or agent of
the Registrant shall be liable for any action or failure to act, except in the
case of bad faith, willful misfeasance, gross negligence or reckless disregard
of duties to the Registrant.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the

foregoing provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer, or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act, and will be governed by the final
adjudication of such issue.

The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent with Release
11330 of the Securities and Exchange Commission under the Investment Company Act
of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such Act
remains in effect.

The Registrant, in conjunction with the Investment Manager,
the Registrant's Trustees, and other registered investment management companies
managed by the Investment Manager, maintains insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Registrant, or who
is or was serving at the request of the Registrant as a trustee, director,
officer, employee or agent of another trust or corporation, against any
liability asserted against him and incurred by him or arising out of his
position. However, in no event will the Registrant maintain insurance to
indemnify any such person for any act for which the Registrant itself is not
permitted to indemnify him.

ITEM 25. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

See "Fund Management" in the Prospectus regarding the business of the
investment adviser. The following information is given regarding officers of
Morgan Stanley Investment Management Inc. ("Morgan Stanley Investment
Management"). Morgan Stanley Investment Management is a wholly-owned subsidiary
of Morgan Stanley & Co.

THE PRINCIPAL ADDRESSES ARE AS FOLLOWS:

MORGAN STANLEY SERVICES COMPANY INC. ("MORGAN STANLEY SERVICES")
c/o Morgan Stanley Trust, Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311

MORGAN STANLEY DISTRIBUTORS INC. ("MORGAN STANLEY DISTRIBUTORS")
MORGAN STANLEY DW INC. ("MORGAN STANLEY DW")
MORGAN STANLEY FUNDS
MORGAN STANLEY INVESTMENT ADVISORS INC.
MORGAN STANLEY INVESTMENT MANAGEMENT
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
MORGAN STANLEY INVESTMENT GROUP INC. ("MORGAN STANLEY INVESTMENT GROUP")
THE UNIVERSAL INSTITUTIONAL FUNDS, INC. ("UNIVERSAL INSTITUTIONAL FUNDS")
1221 Avenue of the Americas, New York, New York 10020

MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT LTD.
MORGAN STANLEY & CO. INTERNATIONAL LIMITED ("MORGAN STANLEY & CO. INTERNATIONAL")
25 Cabot Square, London, England

MORGAN STANLEY INVESTMENTS LP
MORGAN STANLEY INSTITUTIONAL FUND TRUST
MORGAN STANLEY DISTRIBUTION, INC.
One Tower Bridge, West Conshohocken, PA 19428

VAN KAMPEN INVESTMENT ASSET MANAGEMENT INC. ("VAN KAMPEN")
1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181

MORGAN STANLEY TRUST ("MORGAN STANLEY TRUST")
Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311

------------------------------------------------------------ ---------------------------------------------------------
NAME AND POSITION WITH MORGAN STANLEY INVESTMENT OTHER SUBSTANTIAL BUSINESS, PROFESSION
MANAGEMENT INC. OR VOCATION
------------------------------------------------------------ ---------------------------------------------------------

Mitchell M. Merin President, Chief Operating Officer and Director of
Morgan Stanley Investment Advisors Inc.; Chairman and
Director of Morgan Stanley Distributors Inc.; Chairman
President, Chief Operating Officer and Director and Director of Morgan Stanley Trust; President, Chief
Executive Officer and Director of Morgan Stanley
Services Company Inc.; President of the Morgan Stanley
Retail Funds and the Institutional Funds; Director of
various Morgan Stanley subsidiaries; Trustee, President
and Chief Executive Officer of the Van Kampen Open-End
Funds; President and Chief Executive Officer of the Van
Kampen Closed-End Funds.

Ronald E. Robison Principal Executive Officer-Office of the Fund;
Managing Director, Chief Administrative Officer and
Managing Director, Chief Administrative Officer and Director of Morgan Stanley Investment Advisors Inc. and
Director Morgan Stanley Services Company Inc.; Chief Executive
Officer and Director of Morgan Stanley Trust; Managing
Director of Morgan Stanley Distributors Inc.; Executive
Vice President and Principal Executive Officer of the
Morgan Stanley Funds; Director of Morgan Stanley SICAV.

Joseph J. McAlinden Chief Investment Officer and Managing Director of
Morgan Stanley Investment Advisors Inc.; Director of
Managing Director and Chief Investment Officer Morgan Stanley Trust.

Rajesh K. Gupta Managing Director and Chief of Administrative
Officer-Investments of Morgan Stanley Investment
Managing Director and Chief Administrative Officer - Advisors Inc.
Investments

P. Dominic Caldecott Managing Director of Morgan Stanley Investment Advisors
Inc. and Morgan Stanley Investment
Managing Director Management Limited;
Vice President and Investment Manager of Morgan Stanley
& Co. International.

Barry Fink Managing Director and General Counsel of Morgan Stanley
Investment Advisors Inc.; Managing Director and
General Counsel and Managing Director Director of Morgan Stanley Services Company Inc.;
Managing Director, Secretary, and Director of Morgan
Stanley Distributors Inc.; Vice President of the Morgan
Stanley Funds.

Alexander C. Frank Global Treasurer of Morgan Stanley.

Managing Director and Treasurer

In addition, Morgan Stanley Investment Management Inc. acts as
investment adviser or subadviser to several other registered investment
companies.

ITEM 26. PRINCIPAL UNDERWITERS

(a) Morgan Stanley & Co. Incorporated acts as the distributor
for Morgan Stanley Institutional Fund Inc. and the Universal Funds, Inc.,
registered open-end management investment companies.

(b) The following information is given regarding directors and
officers of Morgan Stanley Distributors not listed in Item 26 above. The
principal address of Morgan Stanley Distributors is 1221 Avenue of the Americas,
New York, New York 10020. None of the following persons has any position or
office with the Registrant.

[TO BE UPDATED]

Name and Principal Position and Offices With
Business Address* Morgan Stanley & Co. Incorporated
---------------------------- --------------------------------------------------
Zoe Cruz Director
Bruce D. Fiedorek Director and Vice Chairman
John P. Havens Director
Donald G. Kempf, Jr. Director
Tarek F. Abdel-Meguid Director
Stephan F. Newhouse Director, Co-President and Chief Operating Officer
Vikram S. Pandit Director, Co-President and Chief Operating Officer
Joseph R. Perella Director, Chairman and Chief Executive Officer
Thierry G. Porte Director
Philip J. Purcell Director
Robin Roger Director, General Counsel and Secretary
Alexander C. Frank Treasurer
Robert G. Scott Chief Financial Officer

* Morgan Stanley & Co. Incorporated 1585 Broadway New York NY 10036

ITEM 27. LOCATION OF ACCOUNTS AND RECORDS

J.P. Morgan Investor Services Co., Registrant's sub-transfer
agent and sub-dividend disbursing agent, P.O. Box 2798, Boston, Massachusetts,
02208-2798, maintains physical possession of each such account, book or other
document of the Fund.

In particular, with respect to the records required by Rule
31a-1(b)(1), J.P. Morgan Investor Services Co. maintains physical possession of
all journals containing itemized daily records of

all purchases and sales of securities, including sales and redemptions of Fund
securities, and also maintains physical possession of all receipts and
deliveries of securities (including certificate numbers if such detail is not
recorded by custodian or transfer agent), all receipts and disbursements of
cash, and all other debts and credits.

In addition, Morgan Stanley Investment Management, Inc.,
Registrant's investment adviser and administrator, 1221 Avenue of the Americas,
New York, New York 10020, maintains possession of the Fund's corporate
organizational records, in addition to certain other records required by Rule
31a-1(b).

ITEM 28. MANAGEMENT SERVICES

Not applicable.

ITEM 29. UNDERTAKINGS

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post-Effective Amendment No. 1 to Registration Statement No.
333-104972 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York on the 29th day of December, 2004.

Morgan Stanley Institutional Liquidity Funds

By: /s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

SIGNATURE TITLE DATE
----------------------------------------------- ------------------------------ -------------------------------

(1) Principal Executive Officer Executive Vice President and December 29, 2004
Principal Executive Officer
*/s/ Ronald E. Robison
-----------------------------------------------
Ronald E. Robison
Treasurer and Chief Financial December 29, 2004
Officer
(2) Principal Financial Officer

*/s/ James Garrett
-----------------------------------------------
James Garrett

(3) Majority of the Trustees
------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------
Michael Bozic Joseph J. Kearns
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien Fergus Reid
Dr. Manuel H. Johnson

/s/ Carl Frischling December 29, 2004
-----------------------------------------------
By: Carl Frischling
Attorney-In-Fact for the
Independent Trustees

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MANAGEMENT TRUSTEES
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Charles A. Fiumefreddo
James F. Higgins

*/s/ Barry Fink December 29, 2004
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By: Barry Fink
Attorney-In-Fact for the
Management Trustees

MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS

EXHIBIT INDEX

Other. Powers of Attorney.