Investment Manager's Report - Morgan Stanley [PDF]

MORGAN STANLEY LIQUIDITY FUNDS Société d'Investissement à Capital Variable organised under the laws of the Grand Duchy of Luxembourg RCS Number: B 174 137

Annual Report 31 March 2017

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MORGAN STANLEY LIQUIDITY FUNDS

Table of Contents

Directors and Service Providers

Page 1

Board of Directors’ Report

Page 2

Investment Advisers and Sub-Advisers Report: MS Liquidity Funds - Euro Liquidity Fund

Page 6

MS Liquidity Funds - US Dollar Liquidity Fund & US Dollar Treasury Liquidity Fund

Page 8

MS Liquidity Funds - Sterling Liquidity Fund

Page 11

Independent Auditor’s Report for audit in accordance with International Standards on Auditing as adopted in Luxembourg

Page 12

Financial Statements: Statement of Net Assets

Page 13

Statement of Net Assets Statistics

Page 15

Statement of Operations and Changes in Net Assets

Page 18

Schedules of Investments: MS Liquidity Funds - Euro Liquidity Fund

Page 20

MS Liquidity Funds - US Dollar Liquidity Fund

Page 24

MS Liquidity Funds - US Dollar Treasury Liquidity Fund

Page 28

MS Liquidity Funds - Sterling Liquidity Fund

Page 30

Notes to the Financial Statements

Page 32

Appendix 1: Total Expense Ratio (Unaudited)

Page 43

Appendix 2: Securities Financing Transactions Regulation (Unaudited)

Page 44

MORGAN STANLEY LIQUIDITY FUNDS

Directors and Service Providers Board of Directors of the Company

Depositary

Michael Griffin, Chairman Non-Executive Director Ireland

The Bank of New York Mellon (International) Luxembourg Branch 2-4 rue Eugène Ruppert L-2453 Luxembourg Grand Duchy of Luxembourg

Andrew Mack Non-Executive Director United Kingdom William Jones Non-Executive Director Grand Duchy of Luxembourg Henry Kelly Non-Executive Director Grand Duchy of Luxembourg Judith Eden Non-Executive Director United Kingdom Management Company

Registrar and Transfer Agent*, Administrative Agent* and Paying Agent* The Bank of New York Mellon (International) Luxembourg Branch 2-4 rue Eugène Ruppert L-2453 Luxembourg Grand Duchy of Luxembourg Domiciliary Agent Morgan Stanley Investment Management Limited, Luxembourg Branch 6B, route de Trèves L-2633 Senningerberg Grand Duchy of Luxembourg

Morgan Stanley Investment Management (ACD) Limited 25 Cabot Square Canary Wharf London E14 4QA United Kingdom

Investment Adviser*

Directors of the Management Company

Sub-Investment Adviser**

Judith Eden Non-Executive Director United Kingdom

Morgan Stanley & Co International plc 25 Cabot Square Canary Wharf London E14 4QA United Kingdom

Andrew Mack Non-Executive Director United Kingdom

Morgan Stanley Investment Management Inc. 522 Fifth Avenue New York, New York, 10036 United States of America

Distributor*

Andrew Onslow Managing Director Morgan Stanley Investment Management Limited London United Kingdom

Morgan Stanley Investment Management Limited 25 Cabot Square Canary Wharf London E14 4QA United Kingdom

Ruairi O’Healai Managing Director, Morgan Stanley Investment Management Limited London United Kingdom

Independent Auditor of the Company

Diane Jane Hosie Managing Director Morgan Stanley Investment Management Limited London United Kingdom

Ernst & Young S.A. 35E, avenue J.F. Kennedy L-1855 Luxembourg Grand Duchy of Luxembourg Legal Adviser Arendt & Medernach S.A. 41A, avenue J. F. Kennedy L-2082 Luxembourg Grand Duchy of Luxembourg

*Delegated by the Management Company. **Delegated by the Investment Adviser.

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MORGAN STANLEY LIQUIDITY FUNDS Board of Directors’ Report The Board of Directors of the Company (the “Board”) is pleased to present the Audited Financial Statements and Annual Report for the year ended 31 March 2017. Directors Michael Griffin Independent Director and Chairman. A member of the Board since December 2012. Mr. Griffin has over 30 years of experience in the financial sector. For the past 17 years he has been a non-executive director of fund companies in Dublin & Luxembourg where he worked with some of the leading sponsors in the sector. Most of his executive experience was with the wholesale arm of the Ulster Bank Group in Dublin where he served on the board and management committee of Ulster Investment Bank Limited for twelve years. In this role, Mr. Griffin managed the Treasury trading of the bank which included sovereign debt, money markets and foreign exchange. Mr. Griffin was Chairman of the Irish Bankers’ Federation EMU Capital Markets Committee from 1996 to 1999. Mr. Griffin is a fellow of the Institute of Bankers in Ireland. William Jones Independent Director. A member of the Board since December 2012. Mr. Jones is the founder of ManagementPlus Group which was established in 2006 and provides directorship and management company services from Luxembourg, Cayman Islands, Singapore, New York and Geneva. Mr. Jones has 25 years’ experience in the hedge fund industry and has held senior positions with Goldman Sachs Asset Management International and Bank of Bermuda/HSBC. Mr. Jones completed the first cohort of the INSEAD International Directors Program (IIDP) in 2011 and is a member of the IIDP Advisory Board and served as its first President. Mr. Jones has been certified as a director by IIDP and the Institut Luxembourgeois des Administrateurs (ILA). Mr. Jones serves the Board of Directors of ILA and its Fund Governance Committee and co-chaired the Alternative Investment Task Force of ILA’s Fund Governance Committee which issued the “ILA Guide for Board Members in the Context of AIF and AIFM” in July 2014. Mr. Jones serves multiple committees of ALFI, the Luxembourg fund industry association. Mr. Jones was co-vice chair of the Alternative Investment Management Association’s (AIMA) working group which issued “AIMA’s Fund Director Guide” in April 2015. Mr. Jones served on the Board of Governors of the International School of Luxembourg from 2011 to 2015 and was its Chairman during the 2014-15 school year. Andrew Mack Director (Director of Morgan Stanley Investment Management (ACD) Limited). A member of the Board since December 2012. Mr. Mack joined Morgan Stanley in 1996 and has 30 years of investment experience. Mr. Mack joined Morgan Stanley as a portfolio manager in the asset management business, where he launched and co-managed a global equity arbitrage fund. He subsequently headed the global market risk oversight team for all of Morgan Stanley before taking over as market risk manager of the European equities business. Mr. Mack was appointed as European head of multi asset class prime brokerage in 2004 and took over prime brokerage sales for Europe in 2006 before running the European listed derivative business. Mr. Mack re-joined Morgan Stanley Investment Management (MSIM) in 2008 as global chief risk officer, taking over as head of MSIM EMEA at the beginning of 2009. Mr. Mack was an employee of Morgan Stanley until 30 June 2010. Mr. Mack provided services as a consultant and senior adviser to Morgan Stanley between 1 July 2010 and 31 December 2013. Mr. Mack assumed a non-Executive Director role in Morgan Stanley Investment Management (ACD) Limited which became the Management Company on 1st April 2014. Mr. Mack has been involved in taking and managing risk for most of his investment career, his previous experience includes portfolio management, trading and risk management positions at Cargill, Bankers Trust and Black River Asset Management, a Minneapolis based hedge fund. Henry Kelly Independent Director. A member of the Board since February 2013. Henry Kelly is an independent board member of several investment funds and investment management companies domiciled in Luxembourg and internationally. He is the Managing Director of the Luxembourg-based consultancy firm that he founded in 1999, KellyConsult Sàrl, which provides advisory services to the investment fund sector. He is Chairman of the Fund Governance Forum for the Association of the Luxembourg Fund Industry (ALFI) since its establishment in 2011 and is a founding member of the Investment Funds Committee of the Luxembourg Institute of Directors (ILA). He is a member of the European Fund and Asset Management Association (EFAMA) Corporate Governance Working Group. 2

MORGAN STANLEY LIQUIDITY FUNDS Board of Directors’ Report (continued) From 1993 – 1999 he was a Managing Director of Flemings Luxembourg (now JP Morgan Asset Management) following 5 years’ experience in the capital markets division of BNP Paribas based in Paris. Prior to these posts he acquired seven years’ experience with Price Waterhouse in Paris, Frankfurt and New York. He has a master’s degree in Modern Languages from Cambridge University, is a Member of the Institute of Chartered Accountants in England & Wales and holds the INSEAD Certificate in Corporate Governance. He obtained the qualification of ILA certified director in 2013. Judith Eden Director (Director of Morgan Stanley Investment Management (ACD) Limited). A member of the Board since July 2015. Prior to retiring from Morgan Stanley in 2015, Ms. Eden was Chief Executive Officer of Morgan Stanley Investment Management’s (MSIM’s) European Fund Management Company (MSIM ACD Ltd) and Chief Administrative officer of MSIM’s international businesses. Ms. Eden originally joined Morgan Stanley in 1992 and has over 25 years of financial industry experience spanning Strategy, Finance, Operational Management and Audit. Prior to joining Investment Management (IM) in 2006, Ms. Eden held senior positions in Operations and Finance within the Morgan Stanley group. Within IM she was previously a founding member and Chief Operating Officer of the Quantitative and Structured Solutions (QSS) team within MSIM's Alternative Investments Unit. Prior to joining Morgan Stanley, Ms. Eden worked in Price Waterhouse's (now PWC) Audit and Business Advisory practice specialising in Financial Services. Ms. Eden is a Fellow of the Institute of Chartered Accountants of England and Wales, a member of the UK Institute of Directors and hold INSEAD's Corporate Governance Certificate (IDP-C). Ms. Eden serves on a number of boards, audit and risk committees in both public and private sector organisations. Distribution of the Sub-Funds Sub-Funds may be offered for sale in European Union Member States, subject to registration. In addition, applications to register the Company and its Sub-Funds may be made in other countries. All of the Sub-Funds and Share Classes are registered for distribution in the Grand Duchy of Luxembourg and a number of the Sub-Funds and Share Classes are registered for distribution in the following jurisdictions: Denmark, France, Germany, Ireland, Italy, the Netherlands, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Role and Responsibility of the Board The responsibility of the Board is governed exclusively by Luxembourg law. With respect to the annual accounts of the Company, the duties of the Directors are governed by the law of 10 December 2010, as amended, on, inter alia, the accounting and annual accounts of undertakings for collective investment and by the law of 17 December 2010, as amended, relating to undertakings for collective investment. The matters reserved for the Board include determination of each Sub-Fund’s investment objective and policies, investment restrictions and powers, amendments to the Prospectus, reviewing and approving key investment and financial data, including the annual accounts, as well as the appointment of, and review of the services provided by, the Investment Adviser, the Depositary, the Administrator, the Distributor, the Auditor, and other service providers. Prior to each Board meeting the Directors receive detailed and timely information allowing them to be prepared for the items under discussion during the meeting. For each quarterly meeting the Board requests, and receives, reports from, amongst others, the Investment Adviser, the Depositary, the Administrator, the Distributor, Risk Management as well as proposals for changes to the Fund structure as appropriate. Senior representatives of each of these functions attend Board meetings to present relevant information and address any matters arising. The Directors take decisions in the interests of the Company and its shareholders as a whole, where conflicts of interest arise, any conflicted Director will refrain from taking part in any related deliberation or decision. A description of the Company’s policy on conflicts of interest is available for inspection at the registered office. The Board can take independent professional advice if necessary and at the Company’s expense.

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MORGAN STANLEY LIQUIDITY FUNDS Board of Directors’ Report (continued) Board Composition The Board as a whole has a breadth of investment knowledge, financial skills, as well as legal and other experience relevant to the Company’s business. Directors are elected annually by shareholders at the Annual General Meeting. The Board takes into account the nature and requirements of the fund industry and of the Company’s business when making recommendation to shareholders that Directors be elected. Board Meetings and Committees The Board meets regularly on a quarterly basis but if necessary additional ad hoc meetings will be arranged. At the quarterly Board meetings, the agenda includes, amongst other matters, those items highlighted under the section above called “Role and Responsibility of the Board” and the approval of the annual report and accounts. In certain circumstances, when it may not be appropriate to wait until the next Board meeting to discuss a particular issue, authority may be delegated to one or more Board member to deal with particular business issues. Internal Control The Board’s system of internal control mainly comprises monitoring the services provided by the service providers, including the operational and compliance controls established by them to meet the Company’s obligations to shareholders as set out in the Prospectus, Articles of Incorporation as well as all relevant regulations. They formally report to the Board on a quarterly basis on the various activities they are responsible for and in addition shall inform the Board without delay of any material administrative or accounting matters. Corporate Governance and ALFI Code of Conduct The Board is responsible for ensuring that a high level of corporate governance is met and considers that the Company has complied with the best practices in the Luxembourg funds industry. The Board has adopted the principles set out in the ALFI Code of Conduct (the “Code”). These principles were amended in August 2013 and are set out below: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

The Board should ensure that high standards of corporate governance are applied at all times; The Board should have good professional standing and appropriate experience and ensure that it is collectively competent to fulfill its responsibilities; The Board should act fairly and independently in the best interests of the investors; The Board should act with due care and diligence in the performance of its duties; The Board should ensure compliance with all applicable laws, regulations and with the Company’s constitutional documents; The Board should ensure that investors are properly informed, are fairly and equitably treated, and receive the benefits and services to which they are entitled; The Board should ensure that an effective risk management process and appropriate internal controls are in place; The Board should identify and manage fairly and effectively, to the best of its ability, any actual, potential or apparent conflict of interest and ensure appropriate disclosure; The Board should ensure that shareholder rights are exercised in a considered way and in the best interests of the Company; The Board should ensure that the remuneration of the Board members is reasonable and fair and adequately disclosed

The Board considers that the Company has been in compliance with the principles of the Code in all material aspects throughout the year ended 31 March 2017. The Board undertakes an annual review of ongoing compliance with the principles of the Code. Directors and Officers Indemnity Insurance The Company has taken out Directors and Officers Indemnity Insurance which indemnifies the Directors against certain liabilities arising in the course of their duties and responsibilities but does not cover against any fraudulent or dishonest actions on their part. 4

MORGAN STANLEY LIQUIDITY FUNDS Board of Directors’ Report (continued) Independent Auditor Ernst & Young S.A. has been the Company’s Independent Auditor since inception in 2012. Annual General Meeting The next Annual General Meeting of the Company will be held on 18 July 2017 at the Registered Office of the Company to consider matters relating to the year ended on 31 March 2017. At this meeting shareholders will, amongst other matters, be requested to consider the usual matters at such meetings including: 1. the adoption of the financial statements and approval of the allocation of the results; 2. the approval of Directors fees; 3. the election of the Directors, all of whom wish to stand for election; 4. the election of the Auditor.

On behalf of the Board of the Company:

Director

Director

Luxembourg, 28 June 2017

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MORGAN STANLEY LIQUIDITY FUNDS Morgan Stanley Liquidity Funds Euro Liquidity Fund Investment Sub-Advisers Report for the year ended 31 March 2017 Market Review In the year to 31 March 2017, the European Central Bank (ECB) has continued with its accommodative monetary policies, commencing the Corporate Sector Purchase Program (CSPP) on 8 June. Two Targeted Longer-Term Refinancing Options (TLTROs) were also launched during the period (in September 2016 and March 2017). The September TLTRO II added €34bn of net liquidity, whilst the TLTRO in March had a larger than expected take up. This resulted in the amount of excess liquidity in the system reaching a new record high of €1.5tn. The scale of the excess liquidity continues to push cash rates lower against money market benchmarks. At its December 2016 meeting, the ECB extended its asset purchase program to the end of 2017, as widely expected. Furthermore, the ECB loosened the eligibility requirements for their program to include bonds that yield less than the ECB deposit rate and have residual maturities of at least one year. However, the central bank surprised the market by tapering the monthly purchases by 20 billion euros to 60 billion euros from April 2017 to the end of the year. There has been some opposition to the ECBs policies, in particular negative rates, which have been compressing margin for banks and increasing lending rates in the real economy. Politicians in Germany have become increasingly vocal in their calls to increase interest rates, as inflation has increased in the Eurozone’s strongest economy. However, Draghi has defended the ECB’s accommodative policies highlighting the importance of both fiscal and structural policies to work in conjunction with monetary policies for interest rates to start normalizing at higher levels. Although in his press conference at the March 2017 meeting, Draghi did open the door to the potential for a reduction in stimulus, stating that the balance of risks has moved. Money market rates in EUR have spent the period in a state of steady gradual decline. 3 month EURIBOR has dropped from -0.244% to -0.329% over the period, with 3 month EUR LIBOR making a similar fall, from -0.249% to -0.358%, despite the deposit rate being constant throughout the period. As a consequence of this decline, LIBOR – OIS swap spreads in 3 month have compressed to basically flat. This is partly a base effect of the more diverse funding abilities in the EONIA panel banks, the fact that there is little credit risk in the panel of LIBOR banks and partly due to the zero probability of interest rate movements in the EUR market in the immediate future. Euro swap levels in longer dates have however trended higher as the period has progressed, from a low of -0.448% in mid-2016 for 1 year, following the Brexit referendum in the UK, to a high in late March following the less dovish rhetoric from Draghi of -0.312%. The European Banking Authority (EBA) stress test results came out on 29 July 2016. The figures were healthy, showing that capital buffers built over the past few years were sufficient to shelter them against negative growth scenarios. European Money Market Fund (MMF) Regulation was agreed upon between the European Council and Parliament in December 2016. Both short-term MMFs and standard MMFs (per European Securities and Markets Authority definition) remain. Two new short-term MMF structures were introduced; Public Debt Constant Net Asset Value (CNAV) MMF and Low Volatility (LVNAV) MMF. Trigger based liquidity fees and redemption gates are new features that apply to both Public Debt CNAV MMFs and LVNAV MMFs. Once the regulation is published in the Official Journal of the European Union, it will enter into force 20 days later. Implementation of the regulation must occur within 18 months after entry into force for existing MMFs. Domestic demand was robust at the start of the period and the main driver of growth, whilst manufacturing was weak. First quarter of 2016 GDP came out at +1.7% year-on-year, stronger than consensus for +1.5% and likely supported by robust private consumption. Euro area headline inflation was at -0.2% month-on-month in April 2016, down from 0% in March 2016, with euro appreciation the key factor behind the persistent low level of inflation. In June 2016, CPI increased more than expected, although the change was small and attributable to the more volatile components of the basket such as energy prices. Second quarter of GDP was also stronger than consensus (+1.5% year-on-year) at +1.6%, although this was down from the first quarter. Analysts believe this moderation was driven by weaker domestic consumption. PMI data however remained resilient despite the UK’s shock referendum result and a sluggish Eurozone economy. Third quarter GDP was confirmed at +0.3% quarter-on-quarter, with domestic demand being the main driver. PMI data remained in expansionary territory, whilst confidence remained resilient. Minutes from the ECB’s December meeting noted that officials believed the Eurozone’s economic recovery was gathering strength. However, there were concerns about low core inflation, with the uptick in headline inflation the result of rising oil prices. The strong economic data theme continued for the remainder of the period, with the Euro-area Flash PMI printing at a new 71-month high at 56.7 in March 2017.

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MORGAN STANLEY LIQUIDITY FUNDS Morgan Stanley Liquidity Funds Euro Liquidity Fund Investment Sub-Advisers Report for the year ended 31 March 2017 Market Review On the political front, there has been further progress on Greece following the approval of the pension and tax reform bills by the Greek parliament. Meanwhile, the far-right failed to win the presidential race in Austria (even after a repeat presidential election runoff due to voting irregularities). There was another inconclusive general election in Spain before 10 months of upheaval came to an end in October 2016 when Mariano Rajoy, leader of the conservative People’s party (PP), was returned to office. The theme of political fragmentation was prevalent throughout the period and there were victories for populist movements/candidates in both the UK and Italian referendums, as well as Donald Trump in the US election. The result of this was viewed as slightly negative for Europe as trade may be curtailed due to more protectionist measures by the US. In a reverse of the political trend, the populist candidate Wilders in the Netherlands failed to take control of the Dutch parliament. Instead incumbent premier Rutte took the most seats, and will now begin a projected period of negoatiation to form a coalition. In France meanwhile, the first round of French elections is to be held on 23 April, with the second round runoff between the top two candidates on 7 May.

MORGAN STANLEY & CO INTERNATIONAL PLC. May 2017

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MORGAN STANLEY LIQUIDITY FUNDS Morgan Stanley Liquidity Funds US Dollar Liquidity Fund & Morgan Stanley Liquidity Funds US Dollar Treasury Liquidity Fund Investment Advisers Report for the year ended 31 March 2017 Market Review The economy grew at a modest pace of 1.1 percent in the first half of 2016, as measured by gross domestic product (GDP) growth, due to lagging growth caused by continued turbulence in the financial markets and global economic problems. i Household purchases were the lone bright spot in the first half of 2016, while businesses continued to trim inventories and reduce outlays on equipment and construction projects. The U.S. economy picked up in the third quarter of 2016, growing at 3.5 percent, the largest increase in two years, predominantly due to a rebound in inventories and a jump in the export market. Fourth-quarter 2016 GDP slowed to 2.1 percent, due to declining business investments that were partially offset by a pickup in household purchases. Despite global uncertainty, U.S. employment data continued to show resiliency in the first half of 2016, averaging 180,000.ii The first half was highlighted by a surprising 43,000 gain in May, where employers added the fewest number of workers in almost six years. Payroll growth in June rebounded and came in at 297,000, tempering fears of a slowing labor market. Both the unemployment rate and participation rate ended the first half of 2016 where they started, at 4.9 percent and 62.7 percent, respectively. U.S. employment data in the third quarter of 2016 continued its positive momentum, with non-farm payrolls averaging 238,000 through September. iii Fourth-quarter non-farm payrolls averaged 148,000, with participation in the labor force at 62.7 percent and the unemployment rate at 4.7 percent as of year-end 2016. Through the first quarter of 2017, non-farm payrolls averaged 178,000, beating market consensus in both January and February, but underperforming in March due to weather related factors. The unemployment rate ended the quarter at 4.5 percent, the lowest level since May 2007. Monetary policy remained a key driver of sentiment and market performance. In line with market expectations, Federal Reserve (Fed) officials held off from raising borrowing costs at the March 2016 Federal Open Market Committee (FOMC) meeting, citing concerns about global economic and financial developments, keeping the target federal funds rate at 0.25 to 0.50 percent. The Committee revised their forecast of four rate hikes from the December 2015 meeting, down to two for the remainder of 2016, with Federal Reserve Chair Janet Yellen saying it’s appropriate to “proceed cautiously” in raising interest rates. The market was more cautious, only pricing in approximately one rate hike for the remainder of 2016. At the April 2016 FOMC meeting, rates were left unchanged and the Committee signaled their openness to raising rates in June if upcoming data warranted. The Fed acknowledged that financial conditions eased somewhat since the March meeting and removed the assessment that “financial conditions continue to pose risks to the outlook” of the economy. In May 2016, the April FOMC minutes were released and surprised the market with a hawkish tone. The minutes stated that “most” participants judged that it “likely would be appropriate for the Committee to increase the target range for the federal funds rate in June” if economic data were supportive. Referring to the June meeting, officials judged it appropriate to leave their options open, making a decision based on upcoming economic data points. June 2016 was full of market-moving events across the globe. The month started with the May non-farm payroll report, which came in at 38,000, significantly below the 160,000 consensus. This was later revised to 24,000. The addition was the fewest new jobs since September 2010, and immediately the market priced out any rate hike at the FOMC meeting later in the month. With the poor non-farm payroll result still fresh and the upcoming Brexit vote on the horizon, as expected the Fed held rates steady at their mid-month meeting and maintained a target federal funds range of 0.25 to 0.50 percent. The Fed did express confidence in a jobs rebound and reiterated that interest rates are likely to rise at a gradual level. In addition, the “dot plot,” which charts the Fed’s interest rate forecasts, took on a dovish tone, decreasing the members voting for a 2016 hike, as well as lowering the 2017 and 2018 interest rate path. In a referendum on June 23, 2016, the United Kingdom voted to leave the European Union (EU), with 52 percent in favor. The vote to leave was supported by resentment over Britain’s high annual contributions to the EU as well as concerns about the uptick in immigration due to the recent refugee crisis. The process of leaving the EU is lengthy, as it will take two years from the time the U.K. files the official notification through Article 50 of the Lisbon Treaty. This is unchartered territory, and the global markets reacted accordingly. Risk assets were down and investors piled into perceived safe-haven assets, sending yields to near-record lows. The 30-year U.S. Treasury yield declined to 2.19 percent and the 10-year slid to 1.39 percent in days following the referendum. iv

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MORGAN STANLEY LIQUIDITY FUNDS Morgan Stanley Liquidity Funds US Dollar Liquidity Fund & Morgan Stanley Liquidity Funds US Dollar Treasury Liquidity Fund (continued) Investment Advisers Report for the year ended 31 March 2017 (continued) Market Review (continued) In July 2016, markets managed to stabilize from the turbulence following the Brexit vote in the prior month. The July FOMC meeting went fairly in line with market expectations, with no changes to policy and rates. The tone of the meeting was hawkish, with the Fed saying that “near-term risks to the economic outlook have diminished.” The Committee repeated that it expects conditions will evolve in a manner that warrants a gradual increase in the federal funds rate. With no FOMC meeting taking place in August 2016, market participants were focused on the annual Jackson Hole summit, which was highlighted by comments from Fed Chair Yellen. “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” she said in the text of the speech to central bankers and economists. These remarks left open the possibility of an interest-rate hike in September. As a result of the interpreted hawkish comments, bonds fell while the dollar rose. At the September 2016 FOMC meeting, however, the Committee left the target range for the federal funds rate unchanged, citing that the risks to the economic outlook remained balanced and, although the case for an increase in policy rates had strengthened, the Committee decided to wait for further progress toward its objectives. The non-hike appeared to be a very close call, as three Committee members dissented against the decision. However, there was a material split in the Committee, as three other members called for no further rate increases for the remainder of the year, blurring the expectations of an additional rate hike before year-end. On October 14, 2016, the long-awaited implementation of the revised SEC Rule 2a-7 took effect. Sweeping changes included the mandatory adoption of trigger-based redemption fees and liquidity gates for prime and tax-exempt funds, along with the conversion to floating net asset value. Government and treasury funds were largely unchanged. Money market fund managers adopted a defensive approach leading up to the reform date, shortening their maturities and increasing liquidity. This caused a shift in the supply/demand equilibrium for credit products, causing a technical imbalance that resulted in a sharp rise for both 3- and 6-month Libor rates. Three-month Libor closed at 0.88 percent as of October 14, 2016, up over 20 basis points from the start of the third quarter, while 6-month Libor closed at 1.26 percent, up over 30 basis points from the start of the quarter.v As expected, money market participants shifted over $1 trillion from prime funds into government funds, for the year ended October 31, 2016. vi November 2016 saw two major events. On November 8, 2016, the United States held Presidential elections, with Republican candidate Donald Trump defeating Democratic candidate Hillary Clinton. Trump was viewed as a more hawkish candidate, and the U.S. Treasury market reacted accordingly, sending yields higher across the curve. On November 11, 2016, Fed Chair Yellen testified before the Joint Economic Committee in Congress. She signaled that the U.S. central bank was getting closer to lifting interest rates, as the economy continued to create jobs at a healthy rate while inflation inched higher. She warned of the risks of waiting too long before raising rates. In the weeks following her testimony, the market-implied odds of a rate hike at the December FOMC meeting reached 100 percent. In a unanimous decision, the FOMC raised interest rates for the first time in 2016 at its December meeting, citing strengthening labor markets and increased inflation expectations. The move brought the target for the federal funds rate to a range of 0.50 to 0.75 percent. The projections showed that central bankers expected three quarter-point rate increases in 2017, up from the two previously forecasted in September. Following the rate hike on December 14, 2016, the Federal Reserve Bank of New York made adjustments to the overnight fixed-rate reverse repurchase (or RRP) facility, increasing the offering rate from 25 basis points to 50 basis points, while maintaining a counterparty limit of $30 billion per day. The January 2017 FOMC meeting statement was mostly in line with market expectations. The FOMC remained accommodative and kept interest rates on hold at the target range of 0.50 percent to 0.75 percent. In its statement, the FOMC expressed continued confidence in both economic activity and the labor market despite a lower-than-expected fourth-quarter GDP growth result and below-target inflation levels. Job gains remained strong and the unemployment rate remained near recent lows. The Committee expects economic activity will remain strong and expand at a moderate pace, labor market conditions will continue to strengthen and inflation will meet its 2 percent target over the medium term.

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MORGAN STANLEY LIQUIDITY FUNDS Morgan Stanley Liquidity Funds US Dollar Liquidity Fund & Morgan Stanley Liquidity Funds US Dollar Treasury Liquidity Fund (continued) Investment Advisers Report for the year ended 31 March 2017 (continued) Market Review (continued) With the timing of rate hikes still uncertain, market participants in February 2017 focused on Fed Chair Yellen’s semiannual testimony to Congress and the release of the minutes from the January 2017 FOMC meeting. In her testimony before Congress, Chair Yellen took a slightly hawkish tone when she raised concerns about delaying further rate hikes, stating that “waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting the financial markets and pushing the economy into a recession.” Later in the month, the January 2017 FOMC meeting minutes reiterated Fed Chair Yellen’s sentiments, as Fed officials indicated that a hike “fairly soon” might be appropriate to avoid the risk of overheating the market. As a result, market participants increased the odds of a rate hike occurring at the FOMC’s next meeting in March 2017. In early March, Chair Yellen delivered a speech in which she indicated an interest-rate hike would “likely be appropriate” at the upcoming central bank meeting if employment and inflation continued to meet expectations. With positive economic data releases through the first half of the month, the Federal Reserve raised its benchmark lending rate a quarter point to .75 to 1 percent at their March meeting. Officials reiterated their “gradual” approach to tightening monetary policy, continuing to project two additional hikes in 2017 and three in 2018. The Federal Reserve Bank of New York adjusted the overnight fixed-rate reverse repurchase (or RRP) facility, increasing the offering rate from 50 basis points to 75 basis points, while maintaining a counterparty limit of $30 billion per day

MORGAN STANLEY INVESTMENT MANAGEMENT INC. May 2017

. i

Source for GDP data: Bureau of Economic Analysis Source for employment data: Bureau of Labor Statistics and Bloomberg L.P. iii Source for employment data: Bureau of Labor Statistics and Bloomberg L.P. iv Source: Bloomberg L.P., July 1, 2016 v Source: Intercontinental Exchange and Bloomberg L.P. vi Source: iMoneynet, an Informa business ii

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MORGAN STANLEY LIQUIDITY FUNDS Morgan Stanley Liquidity Funds Sterling Liquidity Fund Investment Sub-Advisers Report for the year ended 31 March 2017 Market Review In the 12 month period ending 31 March 2017, the Bank of England (BoE) adjusted the Bank Rate for the first time since March 2009. The vote to cut the Bank Rate to 0.25% in August 2016 was unanimous and takes the Rate to the lowest level on record. At the same meeting there was a 6-3 vote to raise Quantitative Easing gilt purchases by £60bn to £435bn over a 6-month period. In addition a £10bn non-financial corporate bond purchase scheme was also announced, as well as a new ‘Term Funding Scheme’ to support banks’ profit margins and avoid reduced lending. These aggressive measures came in the wake of the shock outcome of the European Union (EU) referendum on 23 June 2016, where contrary to market and bookmakers expectations the UK voted to leave the EU by a majority 52% of votes, opening a long phase of uncertainty for global markets. The Sterling suffered the brunt of the move, declining over 10% against the Dollar in early trading, when the Leave win had become all but certainty. Political turmoil also ensued, with Prime Minister Cameron announcing that he would step down, although this period of uncertainty came to a close when Theresa May became the new Prime Minister, without a leadership contest. Prime Minister May subsequently triggered the Article 50 clause to start the process of exiting the European Union on 29 March 2017, kicking off 2 years of intense negotiations. It is widely conceded a transition arrangement will need to be agreed, before a long term trade agreement can be finalised. The new Chancellor, Philip Hammond, delivered his Autumn statement in November 2016, signalling a shift in UK fiscal policy away from closing the budget deficit by 2020. Hammond said that borrowing over the next five years would be more than £100bn higher than previously expected, as the government tries to support a British economy that is predicted to slow as it leaves the EU. Money market rates after a stable period in the run up to the EU referendum, were far more volatile post the outcome of the vote. Between the start of April and the days before the vote 3-month LIBOR fixed consistently around 0.58-0.59%, peaking in mid-May at 0.5923%. While there was a small sell-off ahead of 23rd June of 4-5bps as the uncertainty of the outcome became more of a concern for markets, the major movement was not seen until after the result, as markets started to price in the probability of a base rate cut. When this was duly delivered in early August, 3 month LIBOR dropped to around 0.38%. As the UK economy and subsequent data releases saw a degree of resilience, 3 month LIBOR recovered to around 0.4%, however this trend declined through the rest of the period ending the financial year at a low for the period of 0.3374%. OIS curves have also seen significant flattening through the period as the probability of rate increases diminished towards the end of the period. 1 year swaps having started the period pricing in a full 25bp rate hike, the outcome of the referendum saw a 35bp fall in levels. 12 month swaps continued to match LIBOR movements, with a mid-period recovery before ending the period falling back to below 0.5%. European Money Market Fund (MMF) Regulation was agreed upon between the European Council and Parliament in December 2016. Both short-term MMFs and standard MMFs (per European Securities and Markets Authority definition) remain. Two new short-term MMF structures were introduced; Public Debt Constant Net Asset Value (CNAV) MMF and Low Volatility (LVNAV) MMF. Trigger based liquidity fees and redemption gates are new features that apply to both Public Debt CNAV MMFs and LVNAV MMFs. Once the regulation is published in the Official Journal of the European Union, it will enter into force 20 days later. Implementation of the regulation must occur within 18 months after entry into force for existing MMFs. The period started with an ongoing moderation of UK growth, with surveys such as the Purchasing Managers’ Index (PMI) weakening ahead of the June referendum, as firms postponed spending decisions. In the immediate aftermath of the vote to leave the EU, the UK July PMI was very weak, with the composite reading the lowest since April 2009. All indicators dropped below 50, some being the lowest since the 2008 financial crisis. However, second quarter of 2016 GDP was better than expected at +0.6% quarter-on-quarter. Economic data was resilient in the following months, with a rebound in investment despite the ongoing uncertainty. Consumption also remained strong despite weakening confidence surveys. The impact of a weaker sterling added to inflationary pressures towards the end of 2016, leading to worries of a ‘slow-motion slowdown’ as the purchasing power of consumers falls. In January 2017, Bank of England Governor Mr. Carney highlighted that consumers seemed to be ‘entirely looking through Brexit related uncertainties’ but warned that relying on consumer spending for economic growth did not bode well for the future. Indeed, retail sales have been falling in recent months, suggesting that the post Brexit surge of confidence in the UK consumer is starting to recede as inflation starts impacting on prices. Furthermore, despite a tight job market, there is little sign of nominal wage growth. This combined with rising inflation is increasing the squeeze on consumers, leading to a downturn in overall activity. MORGAN STANLEY & CO INTERNATIONAL PLC. May 2017 11

MORGAN STANLEY LIQUIDITY FUNDS Independent Auditor’s Report for audit in accordance with International Standards on Auditing as adopted in Luxembourg To the Shareholders of Morgan Stanley Liquidity Funds 6B, route de Trèves L-2633 Senningerberg Grand Duchy of Luxembourg We have audited the accompanying financial statements of Morgan Stanley Liquidity Funds (the “Company”) and of each of its subfunds, which comprise the statement of net assets including the schedule of investments as at 31 March 2017 and the statement of operations and changes in net assets for the year then ended, and a summary of significant accounting policies and other explanatory notes to the financial statements. Responsibility of the Board of Directors of the Company for the financial statements The Board of Directors of the Company is responsible for the preparation and fair presentation of these financial statements in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the financial statements and for such internal control as the Board of Directors of the Company determines is necessary to enable the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Responsibility of the “réviseur d’entreprises agréé” Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the judgement of the “réviseur d’entreprises agréé”, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the “réviseur d’entreprises agréé” considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors of the Company, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Morgan Stanley Liquidity Funds and of each of its sub-funds as of 31 March 2017, and of the results of their operations and changes in their net assets for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements. Other matter Supplementary information included in the annual report has been reviewed in the context of our mandate but has not been subject to specific audit procedures carried out in accordance with the standards described above. Consequently, we express no opinion on such information. However, we have no observation to make concerning such information in the context of the financial statements taken as a whole.

ERNST & YOUNG Société Anonyme Cabinet de révision agréé

Luxembourg, 28 June 2017

Michael Ferguson

12

MORGAN STANLEY LIQUIDITY FUNDS

Statement of Net Assets As of 31 March 2017

Euro Liquidity Fund EUR

US Dollar Liquidity Fund USD

US Dollar Treasury Liquidity Fund USD

Sterling Liquidity Fund GBP

Combined USD

Investment in securities at amortized cost (Note 2a) Time deposits (Note 9) Reverse repurchase agreements (Note 8) Interest receivable (Note 2c) Cash at bank (Note 2d)(1) Operating fee reimbursement Other assets

5,172,371,367 993,659,997 340,000,000 7,682,877 42,439 399,206 264,084

17,362,579,040 1,993,000,000 400,000,000 11,223,919 1,099,634 2,512,909 10,160

2,089,616,748 – 465,000,000 4,319,694 35,172,196 689,234 22,802

2,061,576,205 144,606,039 200,000,000 1,732,783 2,639 91,955 9,419

27,562,207,742 3,236,592,436 1,478,737,286 25,927,599 36,320,520 3,744,099 327,191

TOTAL ASSETS

6,514,419,970

19,770,425,662

2,594,820,674

2,408,019,040

32,343,856,873

Payable for investment purchased Dividends payable (Note 3) Expense payable

145,122,757 – 1,762,968

209,418,239 15,844,310 7,762,438

– 1,149,944 1,416,483

– 469,269 846,790

364,634,392 17,581,052 12,123,373

TOTAL LIABILITIES

146,885,725

233,024,987

2,566,427

1,316,059

394,338,817

6,367,534,245

19,537,400,675

2,592,254,247

2,406,702,981

31,949,518,056

ASSETS

LIABILITIES

NET ASSET VALUE

(1) Cash

is held at the Depositary.

On behalf of the Board of the Company:

Director

Director

28 June 2017

.

The accompanying notes form an integral part of financial statements.

13

MORGAN STANLEY LIQUIDITY FUNDS

Statement of Net Assets As of 31 March 2016

Euro Liquidity Fund EUR

US Dollar Liquidity Fund USD

US Dollar Treasury Liquidity Fund USD

Sterling Liquidity Fund GBP

Combined USD

Investment in securities at amortized cost (Note 2a) Time deposits (Note 9) Reverse repurchase agreements (Note 8) Interest receivable (Note 2c) Cash at bank (Note 2d)(1) Receivable from investment sold Operating fee reimbursement Other assets

2,620,917,518 353,447,628 200,000,000 3,397,146 5,821 – 376,608 24,456

8,020,197,165 930,000,000 900,000,000 4,267,698 62,735,323 347,478,028 840,928 –

1,365,302,629 – 130,000,000 1,329,908 43,640,073 99,992,313 186,358 –

2,007,415,111 286,301,563 250,000,000 1,242,697 4,390 – 247,421 –

15,257,429,049 1,744,273,165 1,617,235,473 11,254,957 106,388,339 447,470,341 1,812,069 27,869

TOTAL ASSETS

3,178,169,177

10,265,519,142

1,640,451,281

2,545,211,182

19,185,891,262

Payable for investment purchased Dividends payable (Note 3) Expense payable

62,307,437 – 1,087,366

– 4,650,921 5,947,224

100,000,000 310,910 763,112

119,991,237 980,622 1,377,221

343,466,034 6,371,280 9,928,926

TOTAL LIABILITIES

63,394,803

10,598,145

101,074,022

122,349,080

359,766,240

3,114,774,374

10,254,920,997

1,539,377,259

2,422,862,102

18,826,125,022

ASSETS

LIABILITIES

NET ASSET VALUE

(1) Cash

is held at the Depositary.

The accompanying notes form an integral part of financial statements.

14

MORGAN STANLEY LIQUIDITY FUNDS

Statement of Net Assets Statistics As of 31 March 2017

Currency

Outstanding Shares as at 31 March 2017

Outstanding Shares as at 31 March 2016

Outstanding Shares as at 31 March 2015

Euro Liquidity Fund Advisory Shares Institutional Shares Institutional Accumulation Shares Institutional Select Shares(Note 1) Institutional (+1) Accumulation Shares(Note 1) MS Reserve Shares Qualified Accumulation Shares

EUR EUR EUR EUR EUR EUR EUR

– 5,195,468,206 5,052,534 – 1 621,384,136 –

– 2,619,231,047 292,742 1,891,776 – 461,601,715 –

200,001 2,626,897,424 355,656 – – 455,540,651 3,667

US Dollar Liquidity Fund Advantage Accumulation Shares Advisory Shares(Note 1) Advisory Accumulation Shares Institutional Shares Institutional Accumulation Shares Institutional Select Shares Master Shares MS Reserve Shares Qualified Accumulation Shares(Note 1)

USD USD USD USD USD USD USD USD USD

1,915 50,000 – 11,444,903,889 3,920,026 9,730,272 5,527,514,738 294,745,484 18,266,991

1,915 – – 5,678,343,980 434,384 96,411,194 4,162,860,364 254,905,289 157,900

1,915 10,000 1 6,497,826,582 1,292,896 1,010,208 4,237,292,052 272,821,475 24,025

US Dollar Treasury Liquidity Fund Advisory Shares(Note 1) Institutional Shares Institutional Select Shares MS Reserve Shares

USD USD USD USD

50,000 1,734,597,405 50,088,298 807,518,544

– 956,120,649 50,010,000 533,246,611

10,000 224,190,299 10,000 438,736,235

Sterling Liquidity Fund Institutional Shares Institutional Accumulation Shares Institutional Select Shares Institutional Select Accumulation Shares MS Reserve Shares(Note 1) Qualified Shares Qualified Accumulation Shares

GBP GBP GBP GBP GBP GBP GBP

2,373,899,407 8,887 25,000,000 – – 6,793,742 –

2,364,122,971 163,548 7,000,000 – 24,195,694 9,022,300 –

1,988,785,860 157,669 7,041,521 570 27,321,857 11,631,435 588

The accompanying notes form an integral part of financial statements.

15

MORGAN STANLEY LIQUIDITY FUNDS

Statement of Net Assets Statistics As of 31 March 2017 (continued)

Currency

Net Asset Value per Share as at 31 March 2017

Net Asset Value per Share as at 31 March 2016

Net Asset Value per Share as at 31 March 2015

Euro Liquidity Fund Advisory Shares Institutional Shares Institutional Accumulation Shares Institutional Select Shares(Note 1) Institutional (+1) Accumulation Shares(Note 1) MS Reserve Shares Qualified Accumulation Shares

EUR EUR EUR EUR EUR EUR EUR

– 1.00 108.99 – 100.00 1.00 –

– 1.00 109.48 1.00 – 1.00 –

1.00 1.00 109.63 – – 1.00 109.62

US Dollar Liquidity Fund Advantage Accumulation Shares Advisory Shares(Note 1) Advisory Accumulation Shares Institutional Shares Institutional Accumulation Shares Institutional Select Shares Master Shares MS Reserve Shares Qualified Accumulation Shares(Note 1)*

USD USD USD USD USD USD USD USD USD

101.51 1.00 – 1.00 107.54 1.00 1.00 1.00 100.66

101.13 – – 1.00 106.85 1.00 1.00 1.00 100.02

101.09 1.00 101.07 1.00 106.67 1.00 1.00 1.00 106.66

US Dollar Treasury Liquidity Fund Advisory Shares(Note 1) Institutional Shares Institutional Select Shares MS Reserve Shares

USD USD USD USD

1.00 1.00 1.00 1.00

– 1.00 1.00 1.00

1.00 1.00 1.00 1.00

Sterling Liquidity Fund Institutional Shares Institutional Accumulation Shares Institutional Select Shares Institutional Select Accumulation Shares MS Reserve Shares(Note 1) Qualified Shares Qualified Accumulation Shares

GBP GBP GBP GBP GBP GBP GBP

1.00 113.64 1.00 – – 1.00 –

1.00 113.25 1.00 – 1.00 1.00 –

1.00 112.74 1.00 100.08 1.00 1.00 112.73

*All shares issued were redeemed on 8 September 2015. The share class remained inactive until 14 March 2016 when shares were issued at a Net Asset Value per Share of USD 100.00.

The accompanying notes form an integral part of financial statements.

16

MORGAN STANLEY LIQUIDITY FUNDS

Statement of Net Assets Statistics As of 31 March 2017 (continued)

Currency

Net Assets as at 31 March 2017

Net Assets as at 31 March 2016

Net Assets as at 31 March 2015

Euro Liquidity Fund Advisory Shares Institutional Shares Institutional Accumulation Shares Institutional Select Shares(Note 1) Institutional (+1) Accumulation Shares(Note 1) MS Reserve Shares Qualified Accumulation Shares

EUR EUR EUR EUR EUR EUR EUR

– 5,195,468,206 550,681,803 – 100 621,384,136 –

– 2,619,231,047 32,049,835 1,891,776 – 461,601,715 –

200,001 2,626,897,424 38,989,437 – – 455,540,651 401,945

US Dollar Liquidity Fund Advantage Accumulation Shares Advisory Shares(Note 1) Advisory Accumulation Shares Institutional Shares Institutional Accumulation Shares Institutional Select Shares Master Shares MS Reserve Shares Qualified Accumulation Shares(Note 1)

USD USD USD USD USD USD USD USD USD

194,388 50,000 – 11,444,903,889 421,553,492 9,730,272 5,527,514,738 294,745,484 1,838,708,412

193,653 – – 5,678,343,980 46,413,168 96,411,194 4,162,860,364 254,905,289 15,793,425

193,589 10,000 101 6,497,826,582 137,906,967 1,010,208 4,237,292,052 272,821,475 2,562,486

US Dollar Treasury Liquidity Fund Advisory Shares(Note 1) Institutional Shares Institutional Select Shares MS Reserve Shares

USD USD USD USD

50,000 1,734,597,405 50,088,298 807,518,544

– 956,120,649 50,010,000 533,246,611

10,000 224,190,299 10,000 438,736,235

Sterling Liquidity Fund Institutional Shares Institutional Accumulation Shares Institutional Select Shares Institutional Select Accumulation Shares MS Reserve Shares(Note 1) Qualified Shares Qualified Accumulation Shares

GBP GBP GBP GBP GBP GBP GBP

2,373,899,407 1,009,832 25,000,000 – – 6,793,742 –

2,364,122,971 18,521,138 7,000,000 – 24,195,694 9,022,300 –

1,988,785,860 17,775,955 7,041,521 57,025 27,321,857 11,631,435 66,239

The accompanying notes form an integral part of financial statements.

17

MORGAN STANLEY LIQUIDITY FUNDS Statement of Operations and Changes in Net Assets For the year ended to 31 March 2017

INCOME Interest (Note 2c) Total Positive/(Negative) Income EXPENSES Management fees (Note 4,6) Less: Management fees waived Management fees - Net Taxe d'Abonnement (Note 5) Legal fees (Note 6c) Director's fees, director's liability insurance premium and expenses (Note 6b) Ratings fees (Note 6c) Tax charges (excluding Taxe d'Abonnement) (Note 5) Other fees (Note 6c) Audit fees (Note 6c) Professional fees (Note 6c) Distribution fees (Note 6c) Less: Operating fee reimbursement Total Expenses Net Investment Income/(Expense) Less: Distribution paid from income (Note 3) Receipt from the Compulsory Redemption of shares (Note 3) Net Increase/(Decrease) in Net Assets resulting from operations Proceeds from issuance of shares Shares redeemed

Euro Liquidity Fund EUR

US Dollar Liquidity Fund USD

US Dollar Treasury Liquidity Fund USD

Sterling Liquidity Fund GBP

Combined USD

(20,027,884) (20,027,884)

133,912,823 133,912,823

8,638,932 8,638,932

11,960,782 11,960,782

136,206,569 136,206,569

9,157,195 (5,949,952) 3,207,243

20,135,622 (212,827) 19,922,795

2,988,440 (62,748) 2,925,692

5,124,470 (2,044,373) 3,080,097

39,870,957 (9,477,067) 30,393,890

– 30,341

643,006 32,645

– 32,645

797 26,042

644,048 132,624

56,214 61,028 15,571 19,187 13,778 13,556 6,316 (215,749) 3,207,485

61,374 75,728 16,527 22,771 14,859 22,426 6,994 (290,421) 20,528,704

61,270 47,897 934 17,685 14,859 – 6,993 (181,861) 2,926,114

48,638 53,521 12,276 15,711 11,719 8,129 5,116 (181,079) 3,080,967

247,904 260,550 50,594 82,046 60,155 47,927 27,605 (945,720) 31,001,623

(23,235,369)

113,384,119

5,712,818

8,879,815

105,204,946

–

(102,491,846)

(5,712,818)

(8,864,975)

(119,791,533)

22,385,524

–

–

–

24,565,645

(849,845)

10,892,273

–

14,840

9,979,058

26,441,306,498 89,208,789,774 16,720,381,500 18,556,711,055 159,199,936,144 (23,187,696,782) (79,937,202,369) (15,667,504,512) (18,572,885,016) (145,326,133,787)

Increase/(Decrease) in Net Assets from share transactions

3,253,609,716

9,271,587,405

1,052,876,988

(16,173,961)

13,873,802,357

Increase/(Decrease) in Net Assets

3,252,759,871

9,282,479,678

1,052,876,988

(16,159,121)

13,883,781,415

Net Assets at the beginning of the year Foreign exchange adjustment on translation

3,114,774,374 –

10,254,920,997 –

1,539,377,259 –

2,422,862,102 –

18,826,125,022 (760,388,381)

NET ASSETS AT THE END OF THE YEAR

6,367,534,245

19,537,400,675

2,592,254,247

2,406,702,981

31,949,518,056

On behalf of the Board of the Company: Director

Director

28 June 2017

The accompanying notes form an integral part of financial statements.

18

MORGAN STANLEY LIQUIDITY FUNDS Statement of Operations and Changes in Net Assets For the year ended to 31 March 2016

Euro Liquidity Fund EUR

US Dollar Liquidity Fund USD

US Dollar Treasury Liquidity Fund USD

Sterling Liquidity Fund GBP

Combined USD

Interest (Note 2c) Total Positive/(Negative) Income

(2,725,036) (2,725,036)

40,145,865 40,145,865

1,736,661 1,736,661

13,654,417 13,654,417

59,435,878 59,435,878

EXPENSES Management fees (Note 4,6) Less: Management fees waived Management fees - Net

5,423,641 (4,101,086) 1,322,555

14,646,196 (2,259,683) 12,386,513

1,306,196 (652,466) 653,730

4,770,045 (1,905,096) 2,864,949

29,121,815 (10,307,628) 18,814,187

– 34,196

406,859 34,546

– 34,546

533 25,129

407,662 144,677

47,714 56,687 19,942 20,374 13,766 12,672 11,152 (223,208) 1,315,850

52,844 71,401 21,540 20,404 15,687 35,716 9,586 (258,994) 12,796,102

52,948 31,901 13,725 26,014 15,687 1,147 9,586 (185,554) 653,730

35,571 41,033 15,559 14,870 10,914 5,122 7,637 (155,596) 2,865,721

212,022 227,661 80,706 91,298 63,003 58,563 42,981 (925,223) 19,217,537

INCOME

Taxe d'Abonnement (Note 5) Legal fees (Note 6c) Director's fees, director's liability insurance premium and expenses (Note 6b) Ratings fees (Note 6c) Tax charges (excluding Taxe d'Abonnement) (Note 5) Other fees (Note 6c) Audit fees (Note 6c) Professional fees (Note 6c) Distribution fees (Note 6c) Less: Operating fee reimbursement Total Expenses Net Investment Income/(Expense) Less: Distribution paid from income (Note 3) Receipt from the Compulsory Redemption of shares (Note 3) Net Increase/(Decrease) in Net Assets resulting from operations Proceeds from issuance of shares Shares redeemed

(4,040,886)

27,349,763

1,082,931

10,788,696

40,218,341

(1,829)

(27,075,715)

(1,082,957)

(10,707,153)

(44,283,831)

3,985,919

–

–

–

4,399,611

(56,796)

274,048

(26)

81,543

334,121

14,162,192,012 62,301,227,920 12,170,777,189 16,125,747,721 114,386,682,282 (14,169,390,300) (63,196,204,431) (11,294,346,438) (15,755,647,054) (113,855,865,173)

Increase/(Decrease) in Net Assets from share transactions

(7,198,288)

(894,976,511)

876,430,751

370,100,667

530,817,109

Increase/(Decrease) in Net Assets

(7,255,084)

(894,702,463)

876,430,725

370,182,210

531,151,230

Net Assets at the beginning of the year Foreign exchange adjustment on translation

3,122,029,458 –

11,149,623,460 –

662,946,534 –

2,052,679,892 –

18,212,834,027 82,139,765

NET ASSETS AT THE END OF THE YEAR

3,114,774,374

10,254,920,997

1,539,377,259

2,422,862,102

18,826,125,022

The accompanying notes form an integral part of financial statements.

19

MORGAN STANLEY LIQUIDITY FUNDS Euro Liquidity Fund Schedule of Investments As of 31 March 2017 (Expressed in EUR) DENOMINATION CURRENCY

ISSUE

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS COMMERCIAL PAPER 42.71% AGENCE CENTRALE DES ORGANISMES AGENCE CENTRALE DES ORGANISMES BANQUE FEDERATIVE DU CREDIT MUTUEL BANQUE FEDERATIVE DU CREDIT MUTUEL BANQUE FEDERATIVE DU CREDIT MUTUEL BANQUE FEDERATIVE DU CREDIT MUTUEL BANQUE FEDERATIVE DU CREDIT MUTUEL BANQUE FEDERATIVE DU CREDIT MUTUEL BANQUE FEDERATIVE DU CREDIT MUTUEL CREDIT AGRICOLE CIB CREDIT AGRICOLE CIB CREDIT AGRICOLE CIB CREDIT AGRICOLE CIB DANSKE BANK A/S DANSKE BANK A/S DANSKE BANK A/S DANSKE BANK A/S DANSKE BANK A/S DZ BANK AG DEUTSCHE ZENTRAL-GENOSS DZ BANK AG DEUTSCHE ZENTRAL-GENOSS DZ BANK AG DEUTSCHE ZENTRAL-GENOSS ERSTE ABWICKLUNGSANSTALT ERSTE ABWICKLUNGSANSTALT HONEYWELL INTERNATIONAL INC HONEYWELL INTERNATIONAL INC HONEYWELL INTERNATIONAL INC HONEYWELL INTERNATIONAL INC HONEYWELL INTERNATIONAL INC HONEYWELL INTERNATIONAL INC HONEYWELL INTERNATIONAL INC KA FINANZ AG KA FINANZ AG KA FINANZ AG KA FINANZ AG KA FINANZ AG KA FINANZ AG KA FINANZ AG KA FINANZ AG KA FINANZ AG LANDESBANK HESSEN-THUERINGEN GIROZE NORDEA BANK AB NORDEA BANK AB NORDEA BANK AB NORDEA BANK AB NORDEA BANK AB NORDEA BANK AB NORDEA BANK AB OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY

EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR

75,000,000 50,000,000 30,000,000 7,000,000 30,000,000 25,000,000 50,000,000 50,000,000 25,000,000 25,000,000 25,000,000 25,000,000 50,000,000 25,000,000 25,000,000 50,000,000 50,000,000 25,000,000 50,000,000 11,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,500,000 25,000,000 20,000,000 25,000,000 25,000,000 25,000,000 11,000,000 15,500,000 50,000,000 25,000,000 20,000,000 30,000,000 25,000,000 35,000,000 23,000,000 75,000,000 25,000,000 30,000,000 25,000,000 25,000,000 30,000,000 25,000,000 30,000,000 12,000,000 11,250,000 30,000,000 50,000,000 17,000,000 27,500,000 17,000,000 22,500,000 13,000,000 11,000,000 15,000,000 13,500,000

-

09-May-17 16-May-17 03-Apr-17 03-Apr-17 09-Jun-17 13-Jun-17 03-Jul-17 03-Jul-17 10-Jul-17 16-Jun-17 27-Jun-17 06-Jul-17 31-Aug-17 09-Jun-17 11-Jul-17 12-Jul-17 14-Aug-17 01-Sep-17 05-Apr-17 05-Apr-17 10-May-17 18-Apr-17 27-Jul-17 22-May-17 24-May-17 09-Jun-17 09-Jun-17 27-Jun-17 02-Aug-17 14-Aug-17 10-Apr-17 20-Apr-17 02-May-17 16-May-17 19-May-17 24-May-17 03-Jul-17 19-Jul-17 12-Oct-17 02-May-17 12-Apr-17 25-May-17 13-Jun-17 14-Jun-17 27-Jun-17 06-Jul-17 22-Aug-17 19-Apr-17 05-May-17 08-May-17 31-May-17 13-Jun-17 13-Jul-17 14-Aug-17 15-Aug-17 16-Aug-17 22-Aug-17 10-Apr-17 12-Apr-17

75,034,215 50,025,680 30,000,000 7,000,000 30,021,517 25,019,001 50,046,827 50,046,197 25,024,537 25,021,607 25,024,818 25,026,147 50,081,385 25,014,913 25,020,656 50,054,238 50,060,133 25,037,817 50,000,807 11,000,281 25,009,267 25,004,904 25,038,396 25,008,514 25,510,846 25,012,573 20,010,059 25,018,315 25,019,348 25,021,267 11,001,038 15,503,551 50,019,544 25,011,380 20,010,500 30,017,463 25,029,118 35,045,485 23,050,419 75,033,850 25,002,441 30,016,063 25,018,766 25,022,526 30,032,622 25,026,801 30,044,735 12,002,456 11,253,906 30,011,394 50,037,891 17,014,443 27,531,698 17,026,434 22,535,249 13,020,518 11,018,133 15,000,905 13,501,047

1.18 0.79 0.47 0.11 0.47 0.39 0.79 0.79 0.39 0.39 0.39 0.39 0.79 0.39 0.39 0.79 0.79 0.39 0.79 0.17 0.39 0.39 0.39 0.39 0.40 0.39 0.32 0.39 0.39 0.39 0.17 0.24 0.79 0.39 0.32 0.47 0.39 0.55 0.36 1.18 0.39 0.47 0.39 0.39 0.47 0.39 0.47 0.19 0.18 0.47 0.79 0.27 0.43 0.27 0.35 0.21 0.17 0.24 0.21

The accompanying notes form an integral part of financial statements.

20

MORGAN STANLEY LIQUIDITY FUNDS Euro Liquidity Fund Schedule of Investments (continued) As of 31 March 2017 (Expressed in EUR) DENOMINATION CURRENCY

ISSUE

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS COMMERCIAL PAPER 42.71% PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY PROCTER & GAMBLE COMPANY RABOBANK NEDERLAND NV SOCIETE DE FINANCEMENT LOCAL SA SOCIETE DE FINANCEMENT LOCAL SA SOCIETE DE FINANCEMENT LOCAL SA SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI BANKING CORPORATION SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB TORONTO DOMINION BANK TORONTO DOMINION BANK TORONTO DOMINION BANK TOYOTA MOTOR FINANCE (NETHERLANDS) UBS AG UNILEVER NV UNILEVER NV UNILEVER NV UNILEVER NV UNITED PARCEL SERVICE INC UNITED PARCEL SERVICE INC UNITED PARCEL SERVICE INC UNITED PARCEL SERVICE INC UNITED PARCEL SERVICE INC UNITED PARCEL SERVICE INC

EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR

26,000,000 25,000,000 25,000,000 30,000,000 3,000,000 20,000,000 11,000,000 24,000,000 23,500,000 20,000,000 30,000,000 50,000,000 20,000,000 25,000,000 19,500,000 25,000,000 30,000,000 25,000,000 20,000,000 20,000,000 20,000,000 25,000,000 25,000,000 25,000,000 25,000,000 20,000,000 25,000,000 25,000,000 25,000,000 50,000,000 2,000,000 20,000,000 66,000,000 50,000,000 25,000,000 20,000,000 20,000,000 20,000,000 30,000,000 20,000,000 20,000,000

-

24-Apr-17 28-Apr-17 04-May-17 31-May-17 09-Jun-17 19-Jun-17 22-Jun-17 03-Jul-17 07-Jul-17 11-Jul-17 13-Jul-17 14-Jun-17 16-Jun-17 31-Jul-17 18-Apr-17 09-Jun-17 19-Jun-17 13-Jul-17 03-Apr-17 17-Jul-17 18-Jul-17 09-Aug-17 11-Aug-17 21-Aug-17 29-Aug-17 03-Oct-17 04-Apr-17 15-Jun-17 21-Jun-17 22-May-17 14-Sep-17 05-May-17 12-May-17 19-May-17 22-May-17 07-Apr-17 13-Apr-17 18-Apr-17 20-Apr-17 23-May-17 03-Jul-17

Total Commercial Paper

26,004,706 25,005,387 25,009,170 30,014,996 3,001,900 20,013,273 11,007,584 24,019,735 23,520,173 20,017,065 30,027,821 50,047,057 20,018,741 25,037,244 19,503,820 25,020,495 30,023,135 25,025,288 20,000,000 20,019,282 20,019,467 25,027,606 25,028,037 25,033,112 25,035,005 20,036,667 25,000,125 25,014,225 25,014,292 50,029,286 2,003,469 20,007,915 66,031,834 50,028,130 25,014,983 20,000,934 20,002,390 20,003,585 30,005,815 20,011,400 20,020,000

0.41 0.39 0.39 0.47 0.05 0.32 0.17 0.38 0.37 0.32 0.47 0.79 0.32 0.39 0.31 0.39 0.47 0.39 0.31 0.32 0.32 0.39 0.39 0.39 0.39 0.31 0.39 0.39 0.39 0.79 0.03 0.32 1.04 0.79 0.39 0.31 0.32 0.32 0.47 0.32 0.32

2,719,759,790

42.71

50,000,000 25,019,730 50,042,449 50,053,159 50,050,629 1,500,730 40,028,029 1,000,634 100,141,238 15,004,916 25,027,461 40,050,335

0.79 0.39 0.79 0.79 0.79 0.02 0.63 0.02 1.57 0.24 0.39 0.63

CERTIFICATES OF DEPOSIT 16.59% BANQUE FEDERATIVE DU CREDIT MUTUEL CITIBANK NA CITIBANK NA CITIBANK NA CITIBANK NA CREDIT SUISSE AG CREDIT SUISSE AG CREDIT SUISSE AG CREDIT SUISSE AG DZ BANK AG DEUTSCHE ZENTRAL-GENOSS DZ BANK AG DEUTSCHE ZENTRAL-GENOSS HSBC BANK PLC

EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR

50,000,000 25,000,000 50,000,000 50,000,000 50,000,000 1,500,000 40,000,000 1,000,000 100,000,000 15,000,000 25,000,000 40,000,000

-

03-Apr-17 08-Jun-17 13-Jun-17 03-Jul-17 03-Jul-17 23-May-17 02-Jun-17 07-Jul-17 24-Aug-17 04-May-17 06-Jul-17 21-Jul-17

The accompanying notes form an integral part of financial statements.

21

MORGAN STANLEY LIQUIDITY FUNDS Euro Liquidity Fund Schedule of Investments (continued) As of 31 March 2017 (Expressed in EUR) DENOMINATION CURRENCY

ISSUE

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS CERTIFICATES OF DEPOSIT 16.59% MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD RABOBANK NEDERLAND NV RABOBANK NEDERLAND NV SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SVENSKA HANDELSBANKEN AB

EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR

50,000,000 25,000,000 25,000,000 25,000,000 27,000,000 11,000,000 25,000,000 25,000,000 50,000,000 25,000,000 20,000,000 25,000,000 40,000,000 20,000,000 50,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 15,000,000

-

03-Apr-17 10-Apr-17 13-Apr-17 18-Apr-17 28-Apr-17 02-May-17 08-May-17 13-Jun-17 03-Jul-17 19-Apr-17 09-Aug-17 10-Apr-17 27-Apr-17 03-Jul-17 03-Jul-17 10-Apr-17 11-May-17 03-Jul-17 17-Jul-17 31-Jul-17 13-Sep-17 08-Sep-17

Total Certificates of Deposit

50,000,000 25,002,020 25,002,885 25,004,327 27,008,442 11,003,813 25,010,097 25,020,978 50,051,240 25,003,338 20,024,219 25,001,703 40,013,339 20,020,252 50,050,629 25,001,217 25,008,061 25,024,999 25,021,908 25,025,658 25,038,553 15,023,743

0.79 0.39 0.39 0.39 0.42 0.17 0.39 0.39 0.79 0.39 0.32 0.39 0.63 0.32 0.79 0.39 0.39 0.39 0.39 0.39 0.39 0.24

1,056,280,731

16.59

20,038,267 5,006,003 25,045,082 20,025,588 28,029,326 1,944,915 39,066,612 21,528,428 24,068,702 15,530,962 17,247,990 79,092,955 17,127,252 45,731,919 32,062,234 80,766,850 61,447,186

0.32 0.08 0.39 0.31 0.44 0.03 0.61 0.34 0.38 0.24 0.27 1.24 0.27 0.72 0.50 1.27 0.97

533,760,271

8.38

100,003,703 75,043,970 50,034,932 50,040,028 100,129,194

1.57 1.18 0.78 0.79 1.57

FLOATING RATE NOTES 8.38% ABN AMRO BANK ASB FINANCE LTD BANK OF NOVA SCOTIA BAYERISCHE MOTOREN WERKE AG DANSKE BANK A/S EUROPEAN INVESTMENT BANK HSBC BANK PLC ING BANK NV ING BANK NV LLOYDS BANK PLC NATIONAL AUSTRALIA BANK LTD RABOBANK NEDERLAND NV RABOBANK NEDERLAND NV RABOBANK NEDERLAND NV SKANDINAVISKA ENSKILDA BANKEN AB TORONTO DOMINION BANK UBS AG

EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR

20,000,000 5,000,000 25,000,000 20,000,000 28,000,000 1,941,000 39,000,000 21,500,000 24,000,000 15,500,000 17,204,000 79,000,000 17,100,000 45,647,000 32,000,000 80,715,000 61,423,000

0.38% 0.08% 0.04% 0.32% 0.15% 0.33% 0.38% 0.21% 0.30% 0.07% -

03-Jul-17 03-Jul-17 15-Sep-17 28-Jul-17 29-May-17 27-Jul-17 25-Sep-17 05-Jun-17 14-Aug-17 21-Aug-17 16-Jan-18 12-Jun-17 20-Sep-17 12-Oct-17 15-Sep-17 16-Jun-17 15-May-17

Total Floating Rate Notes TREASURY BILLS 7.07% REPUBLIC OF FRANCE REPUBLIC OF FRANCE REPUBLIC OF FRANCE REPUBLIC OF FRANCE REPUBLIC OF FRANCE

EUR EUR EUR EUR EUR

100,000,000 75,000,000 50,000,000 50,000,000 100,000,000

-

05-Apr-17 04-May-17 11-May-17 17-May-17 14-Jun-17

The accompanying notes form an integral part of financial statements.

22

MORGAN STANLEY LIQUIDITY FUNDS Euro Liquidity Fund Schedule of Investments (continued) As of 31 March 2017 (Expressed in EUR) DENOMINATION CURRENCY

ISSUE

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS TREASURY BILLS 7.07% REPUBLIC OF FRANCE

EUR

75,000,000

-

05-Jul-17

75,130,979

1.18

450,382,806

7.07

41,260,468 25,560,886 71,890,894 14,794,765 60,502,109 1,707,291 10,144,814 11,914,751 77,131,486 2,770,337 14,959,083 24,193,485 5,357,400

0.65 0.40 1.13 0.23 0.95 0.03 0.16 0.19 1.21 0.04 0.24 0.38 0.08

362,187,769

5.69

50,000,000

0.79

50,000,000

0.79

Total Transferable Securities and Money Market Instruments

5,172,371,367

81.23

Total Investments

5,172,371,367

81.23

Other assets in excess of liabilities

1,195,162,878

18.77

Total Net Assets

6,367,534,245

100.00

Total Treasury Bills CORPORATE BONDS 5.69% BA COVERED BOND ISSUER BANQUE FEDERATIVE DU CREDIT MUTUEL DNB BANK ASA DNB BANK ASA ERSTE ABWICKLUNGSANSTALT FMS WERTMANAGEMENT ANSTALT DES OFF HSBC BANK PLC LANDESBANK HESSEN-THUERINGEN GIROZE NORDEA BANK AB OP CORPORATE BANK PLC RABOBANK NEDERLAND NV SKANDINAVISKA ENSKILDA BANKEN AB SVENSKA HANDELSBANKEN AB

EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR

41,250,000 25,500,000 71,845,000 14,625,000 60,100,000 1,700,000 9,931,000 11,900,000 76,500,000 2,730,000 14,931,000 24,169,000 5,300,000

4.25% 3.50% 2.38% 2.38% 1.13% 1.00% 3.13% 0.38% 2.38% 3.00% 3.38% 3.88% 3.38%

05-Apr-17 25-Apr-17 11-Apr-17 31-Aug-17 30-Aug-17 18-Jul-17 15-Nov-17 26-May-17 17-Jul-17 08-Sep-17 21-Apr-17 12-Apr-17 17-Jul-17

Total Corporate Bonds COMMERCIAL PAPER - INTEREST BEARING 0.79% FMS WERTMANAGEMENT ANSTALT DES OFF

EUR

50,000,000

(0.50)%

14-Aug-17

Total Commercial Paper - Interest Bearing

The accompanying notes form an integral part of financial statements.

23

MORGAN STANLEY LIQUIDITY FUNDS US Dollar Liquidity Fund Schedule of Investments As of 31 March 2017 (Expressed in USD) DENOMINATION CURRENCY

ISSUE

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS CERTIFICATES OF DEPOSIT 41.49% BANCO DEL ESTADO DE CHILE BANCO DEL ESTADO DE CHILE BANK OF AMERICA NA BANK OF MONTREAL BANK OF MONTREAL BANK OF MONTREAL BANK OF MONTREAL BANK OF MONTREAL BANK OF NOVA SCOTIA CANADIAN IMPERIAL BANK OF COMMERCE CANADIAN IMPERIAL BANK OF COMMERCE CITIBANK NA CITIBANK NA CREDIT SUISSE AG CREDIT SUISSE AG CREDIT SUISSE AG CREDIT SUISSE AG DZ BANK AG DEUTSCHE ZENTRAL-GENOSS HSBC BANK PLC HSBC BANK PLC HSBC BANK PLC KBC BANK NV KBC BANK NV KBC BANK NV MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD NORDEA BANK AB NORDEA BANK FINLAND PLC OVERSEA-CHINESE BANKING CORP OVERSEA-CHINESE BANKING CORP OVERSEA-CHINESE BANKING CORP ROYAL BANK OF CANADA ROYAL BANK OF CANADA ROYAL BANK OF CANADA SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB SWEDBANK AB TORONTO DOMINION BANK TORONTO DOMINION BANK TORONTO DOMINION BANK TORONTO DOMINION BANK TORONTO DOMINION BANK TORONTO DOMINION BANK

USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD

100,000,000 150,000,000 207,000,000 50,000,000 25,000,000 100,000,000 150,000,000 150,000,000 12,800,000 35,070,000 40,000,000 205,000,000 240,000,000 195,000,000 182,000,000 45,000,000 221,000,000 81,000,000 110,000,000 75,000,000 102,000,000 150,000,000 150,000,000 20,000,000 154,000,000 65,500,000 95,000,000 100,000,000 50,000,000 100,000,000 150,000,000 230,000,000 40,000,000 30,000,000 110,000,000 215,000,000 200,000,000 200,000,000 175,000,000 91,000,000 150,000,000 140,000,000 500,000,000 200,000,000 40,000,000 150,000,000 72,300,000 100,000,000 175,000,000 850,000,000 200,000,000 75,000,000 22,100,000 14,500,000 200,000,000 225,000,000

0.93% 0.93% 1.32% 1.10% 1.15% 1.15% 1.14% 1.14% 1.42% 1.01% 1.42% 1.25% 1.30% 1.68% 1.56% 1.83% 1.92% 1.20% 1.37% 1.46% 1.24% 1.58% 1.10% 1.54% 1.38% 1.23% 1.60% 1.44% 0.92% 1.15% 1.24% 1.26% 1.16% 1.44% 1.58% 1.45% 0.92% 0.91% 1.44% 1.23% 1.20% 0.88% 0.87% 1.42% 1.42% 1.52% 1.24% 1.50%

03-Apr-17 06-Apr-17 16-Oct-17 03-Apr-17 17-Apr-17 21-Apr-17 20-Jun-17 22-Jun-17 12-Apr-17 06-Apr-17 23-May-17 12-Jun-17 15-Jun-17 24-Apr-17 10-Jul-17 24-Aug-17 12-Sep-17 24-Apr-17 07-Aug-17 16-Aug-17 01-Nov-17 16-Jun-17 26-Jun-17 27-Jun-17 11-Apr-17 03-May-17 17-May-17 01-Jun-17 06-Jun-17 09-Jun-17 24-Aug-17 07-Sep-17 06-Sep-17 21-Apr-17 03-Apr-17 15-Jun-17 22-Aug-17 04-Apr-17 20-Sep-17 24-Oct-17 12-Apr-17 09-May-17 03-Apr-17 04-Apr-17 29-Jun-17 30-Jun-17 21-Apr-17 07-Aug-17 27-Sep-17 03-Apr-17 06-Apr-17 31-Aug-17 16-Oct-17 16-Oct-17 06-Nov-17 20-Nov-17

100,000,000 150,000,000 207,000,000 50,000,000 25,000,000 100,000,000 150,000,000 150,000,000 12,800,341 35,069,558 40,008,012 205,000,000 240,000,000 195,000,000 182,000,000 45,086,553 221,408,923 81,000,000 110,000,000 75,000,000 102,000,000 149,638,617 149,588,135 19,943,493 154,000,000 65,499,980 95,000,000 99,807,328 49,895,519 99,781,249 150,000,000 230,000,000 40,062,391 30,004,995 110,000,000 215,000,000 200,000,000 200,000,000 175,000,000 91,000,000 150,000,000 140,000,000 500,000,000 200,000,000 39,886,611 149,564,976 72,311,422 100,000,000 175,000,000 850,000,000 200,000,000 75,000,000 22,135,228 14,531,014 200,000,000 225,000,000

0.51 0.77 1.06 0.26 0.13 0.51 0.77 0.77 0.07 0.18 0.20 1.05 1.23 1.00 0.93 0.23 1.13 0.41 0.56 0.38 0.52 0.77 0.77 0.10 0.79 0.34 0.49 0.51 0.26 0.51 0.77 1.18 0.21 0.15 0.56 1.10 1.02 1.02 0.90 0.47 0.77 0.72 2.56 1.02 0.20 0.77 0.37 0.51 0.90 4.35 1.02 0.38 0.11 0.07 1.02 1.15

The accompanying notes form an integral part of financial statements.

24

MORGAN STANLEY LIQUIDITY FUNDS US Dollar Liquidity Fund Schedule of Investments (continued) As of 31 March 2017 (Expressed in USD)

ISSUE

DENOMINATION CURRENCY

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS CERTIFICATES OF DEPOSIT 41.49% TORONTO DOMINION BANK WELLS FARGO BANK NA

USD USD

170,000,000 21,400,000

1.12% 1.40%

11-Dec-17 07-Nov-17

Total Certificates of Deposit

170,000,000 21,407,901

0.87 0.11

8,105,432,246

41.49

75,000,000 115,000,000 47,000,000 42,000,000 100,000,000 145,000,000 200,000,000 160,000,000 300,000,000 245,000,000 155,000,000 35,010,246 40,000,000 25,000,000 50,000,000 100,000,000 247,000,000 200,000,000 150,000,000 100,000,000 100,000,000 278,000,000 90,000,000 170,000,000 175,000,000 95,000,000 200,000,000 172,500,000 200,000,000 190,000,000 50,087,823 93,000,000 64,000,000 81,000,770

0.38 0.59 0.24 0.21 0.51 0.74 1.02 0.82 1.54 1.25 0.79 0.19 0.20 0.13 0.26 0.51 1.26 1.02 0.77 0.51 0.51 1.42 0.46 0.87 0.90 0.49 1.02 0.88 1.02 0.97 0.27 0.48 0.33 0.42

4,489,598,839

22.98

49,988,139 105,950,510 343,810,418 19,948,722 39,887,333 179,400,150 199,981,715

0.26 0.54 1.76 0.10 0.20 0.92 1.02

COMMERCIAL PAPER - INTEREST BEARING 22.98% ANZ NEW ZEALAND INT'L LTD ASB FINANCE LTD ASB FINANCE LTD ASB FINANCE LTD BNZ INTERNATIONAL FUNDING LTD BNZ INTERNATIONAL FUNDING LTD COMMONWEALTH BANK OF AUSTRALIA DZ BANK AG DEUTSCHE ZENTRAL-GENOSS DZ BANK AG DEUTSCHE ZENTRAL-GENOSS ERSTE ABWICKLUNGSANSTALT ERSTE ABWICKLUNGSANSTALT HSBC BANK PLC HSBC BANK PLC HSBC BANK PLC HSBC BANK PLC ING US FUNDING LLC ING US FUNDING LLC JP MORGAN SECURITIES LLC JP MORGAN SECURITIES LLC JP MORGAN SECURITIES LLC JP MORGAN SECURITIES LLC JP MORGAN SECURITIES LLC NATIONAL AUSTRALIA BANK LTD NATIONAL AUSTRALIA BANK LTD NATIONAL AUSTRALIA BANK LTD OVERSEA-CHINESE BANKING CORP OVERSEA-CHINESE BANKING CORP TOYOTA MOTOR FINANCE (NETHERLANDS) TOYOTA MOTOR FINANCE (NETHERLANDS) TOYOTA MOTOR FINANCE (NETHERLANDS) WESTPAC BANKING CORP WESTPAC BANKING CORP WESTPAC SECURITIES NZ LTD WESTPAC SECURITIES NZ LTD

USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD

75,000,000 115,000,000 47,000,000 42,000,000 100,000,000 145,000,000 200,000,000 160,000,000 300,000,000 245,000,000 155,000,000 35,000,000 40,000,000 25,000,000 50,000,000 100,000,000 247,000,000 200,000,000 150,000,000 100,000,000 100,000,000 278,000,000 90,000,000 170,000,000 175,000,000 95,000,000 200,000,000 172,500,000 200,000,000 190,000,000 50,000,000 93,000,000 64,000,000 81,000,000

1.33% 1.38% 1.27% 1.21% 1.60% 1.46% 1.44% 1.28% 1.01% 0.98% 1.05% 1.38% 1.28% 1.27% 1.29% 1.38% 1.20% 1.35% 1.21% 1.36% 1.23% 1.23% 1.45% 1.02% 1.19% 1.28% 1.05% 1.52% 1.50% 1.33% 1.59% 1.32% 1.44% 1.17%

14-Jul-17 17-Jul-17 06-Sep-17 09-Nov-17 21-Apr-17 23-Aug-17 23-Aug-17 11-Jul-17 06-Sep-17 05-Jul-17 07-Sep-17 05-Jul-17 15-Sep-17 10-Nov-17 13-Nov-17 03-May-17 01-Aug-17 19-Jun-17 05-Jul-17 24-Jul-17 20-Sep-17 01-Nov-17 17-Nov-17 01-Dec-17 08-Mar-18 07-Apr-17 12-Sep-17 19-Jun-17 23-Jun-17 28-Jul-17 22-Sep-17 02-Nov-17 26-May-17 02-Nov-17

Total Commercial Paper - Interest Bearing COMMERCIAL PAPER 22.13% ABN AMRO BANK ABN AMRO BANK ABN AMRO BANK ABN AMRO BANK ABN AMRO BANK ABN AMRO BANK AGENCE CENTRALE DES ORGANISMES

USD USD USD USD USD USD USD

50,000,000 106,000,000 344,000,000 20,000,000 40,000,000 180,000,000 200,000,000

-

10-Apr-17 17-Apr-17 19-Apr-17 13-Jun-17 20-Jun-17 05-Jul-17 06-Apr-17

The accompanying notes form an integral part of financial statements.

25

MORGAN STANLEY LIQUIDITY FUNDS US Dollar Liquidity Fund Schedule of Investments (continued) As of 31 March 2017 (Expressed in USD)

ISSUE

DENOMINATION CURRENCY

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS COMMERCIAL PAPER 22.13% AGENCE CENTRALE DES ORGANISMES AGENCE CENTRALE DES ORGANISMES AGENCE CENTRALE DES ORGANISMES AGENCE CENTRALE DES ORGANISMES BANK NEDERLANDSE GEMEENTEN BANK OF NOVA SCOTIA BANQUE ET CAISSE D'EPARGNE DE L'ETAT BANQUE FEDERATIVE DU CREDIT MUTUEL DBS BANK LTD DBS BANK LTD DBS BANK LTD DNB BANK ASA DNB BANK ASA ERSTE ABWICKLUNGSANSTALT ERSTE ABWICKLUNGSANSTALT ERSTE ABWICKLUNGSANSTALT ERSTE ABWICKLUNGSANSTALT OVERSEA-CHINESE BANKING CORP SUNCORP-METWAY LTD SUNCORP-METWAY LTD SUNCORP-METWAY LTD SUNCORP-METWAY LTD SUNCORP-METWAY LTD SUNCORP-METWAY LTD SUNCORP-METWAY LTD SUNCORP-METWAY LTD SUNCORP-METWAY LTD SUNCORP-METWAY LTD SUNCORP-METWAY LTD UNITED OVERSEAS BANK LTD UNITED OVERSEAS BANK LTD UNITED OVERSEAS BANK LTD UNITED OVERSEAS BANK LTD

USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD

250,000,000 150,000,000 150,000,000 100,000,000 25,000,000 100,000,000 125,000,000 230,000,000 250,000,000 157,000,000 73,000,000 200,000,000 350,000,000 75,000,000 100,000,000 87,250,000 100,000,000 100,000,000 25,000,000 50,000,000 60,000,000 43,000,000 25,000,000 46,000,000 95,000,000 14,000,000 30,000,000 40,000,000 25,000,000 90,000,000 100,000,000 50,000,000 75,000,000

-

13-Apr-17 18-Apr-17 28-Apr-17 15-May-17 07-Apr-17 03-Apr-17 15-Jun-17 10-Jul-17 05-Apr-17 11-Apr-17 12-Apr-17 03-Apr-17 04-Apr-17 24-Apr-17 24-May-17 26-May-17 15-Jun-17 06-Apr-17 10-Apr-17 04-May-17 07-Jun-17 19-Jul-17 24-Jul-17 31-Jul-17 01-Aug-17 15-Aug-17 21-Aug-17 06-Sep-17 12-Sep-17 15-Jun-17 20-Jun-17 21-Jul-17 24-Jul-17

Total Commercial Paper

249,920,368 149,929,576 149,883,652 99,876,366 24,997,556 100,000,000 124,695,833 229,221,416 249,985,417 156,961,622 72,979,925 200,000,000 349,991,639 74,950,125 99,841,333 87,106,135 99,772,889 99,992,333 24,994,653 49,948,333 59,865,667 42,826,185 24,894,222 45,793,205 94,566,333 13,929,650 29,842,500 39,748,667 24,836,875 89,790,125 99,750,833 49,818,333 74,720,000

1.28 0.77 0.77 0.51 0.13 0.51 0.64 1.17 1.28 0.80 0.37 1.02 1.79 0.38 0.51 0.45 0.51 0.51 0.13 0.26 0.31 0.22 0.13 0.24 0.48 0.07 0.15 0.20 0.13 0.46 0.51 0.26 0.38

4,324,398,753

22.13

124,700,000 149,632,750

0.64 0.77

274,332,750

1.41

73,171,114 27,226,564

0.37 0.14

100,397,678

0.51

ASSET BACKED COMMERCIAL PAPER 1.41% METLIFE SHORT TERM FUNDING LLC METLIFE SHORT TERM FUNDING LLC

USD USD

125,000,000 150,000,000

-

14-Jun-17 20-Jun-17

Total Asset Backed Commercial Paper CORPORATE BONDS 0.51% CREDIT SUISSE AG MIZUHO BANK LTD

USD USD

73,163,000 27,226,000

1.38% 1.30%

26-May-17 16-Apr-17

Total Corporate Bonds

The accompanying notes form an integral part of financial statements.

26

MORGAN STANLEY LIQUIDITY FUNDS US Dollar Liquidity Fund Schedule of Investments (continued) As of 31 March 2017 (Expressed in USD)

ISSUE

DENOMINATION CURRENCY

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS FLOATING RATE NOTES 0.35% CREDIT SUISSE AG NATIONAL AUSTRALIA BANK LTD WESTPAC BANKING CORP

USD USD USD

4,600,000 51,690,000 12,100,000

1.54% 1.43% 1.42%

26-May-17 30-Jun-17 01-Dec-17

4,601,676 51,700,306 12,116,792

0.02 0.27 0.06

68,418,774

0.35

Total Transferable Securities and Money Market Instruments

17,362,579,040

88.87

Total Investments

17,362,579,040

88.87

2,174,821,635

11.13

19,537,400,675

100.00

Total Floating Rate Notes

Other assets in excess of liabilities Total Net Assets

The accompanying notes form an integral part of financial statements.

27

MORGAN STANLEY LIQUIDITY FUNDS US Dollar Treasury Liquidity Fund Schedule of Investments As of 31 March 2017 (Expressed in USD)

ISSUE

DENOMINATION CURRENCY

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS TREASURY NOTES 44.10% GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA

USD

15,000,000

0.88%

15-Apr-17

15,001,410

0.58

USD

45,000,000

0.88%

30-Apr-17

45,011,159

1.74

USD

320,000,000

0.86%

30-Apr-17

320,023,836

12.35

USD

40,000,000

3.13%

30-Apr-17

40,076,556

1.55

USD

53,000,000

0.50%

30-Apr-17

52,995,832

2.04

USD

20,000,000

0.88%

15-May-17

20,007,374

0.77

USD

5,000,000

8.75%

15-May-17

5,046,935

0.19

USD

58,000,000

2.75%

31-May-17

58,201,065

2.25

USD

106,000,000

0.63%

31-May-17

106,009,994

4.09

USD

80,800,000

0.88%

15-Jun-17

80,845,398

3.12

USD

45,000,000

2.50%

30-Jun-17

45,204,773

1.74

USD

93,400,000

0.63%

30-Jun-17

93,403,072

3.60

USD

107,000,000

0.75%

30-Jun-17

107,036,283

4.13

USD

20,000,000

0.63%

31-Jul-17

19,997,553

0.77

USD

20,000,000

0.50%

31-Jul-17

19,986,212

0.77

USD

33,000,000

2.38%

31-Jul-17

33,181,173

1.28

USD

5,000,000

0.88%

15-Aug-17

5,002,070

0.19

USD

41,000,000

1.88%

31-Aug-17

41,189,747

1.59

USD

35,000,000

0.63%

31-Aug-17

34,984,079

1.35

1,143,204,521

44.10

Total Treasury Notes TREASURY BILLS 19.26% GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA

USD

15,000,000

-

27-Apr-17

14,992,525

0.58

USD

10,000,000

-

18-May-17

9,993,250

0.39

USD

420,000,000

-

15-Jun-17

419,334,938

16.18

USD

10,000,000

-

22-Jun-17

9,985,667

0.38

USD

25,000,000

-

27-Jul-17

24,952,083

0.96

USD

20,000,000

-

17-Aug-17

19,951,267

0.77

499,209,730

19.26

Total Treasury Bills

The accompanying notes form an integral part of financial statements.

28

MORGAN STANLEY LIQUIDITY FUNDS US Dollar Treasury Liquidity Fund Schedule of Investments (continued) As of 31 March 2017 (Expressed in USD)

ISSUE

DENOMINATION CURRENCY

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS GOVERNMENT BONDS 17.25% GOVERNMENT OF THE UNITED STATES OF AMERICA GOVERNMENT OF THE UNITED STATES OF AMERICA

USD

159,864,000

0.13%

15-Apr-17

160,113,761

6.18

USD

287,000,000

0.86%

31-Jul-17

287,088,736

11.07

447,202,497

17.25

Total Transferable Securities and Money Market Instruments

2,089,616,748

80.61

Total Investments

2,089,616,748

80.61

502,637,499

19.39

2,592,254,247

100.00

Total Government Bonds

Other assets in excess of liabilities Total Net Assets

The accompanying notes form an integral part of financial statements.

29

MORGAN STANLEY LIQUIDITY FUNDS Sterling Liquidity Fund Schedule of Investments As of 31 March 2017 (Expressed in GBP) DENOMINATION CURRENCY

ISSUE

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS CERTIFICATES OF DEPOSIT 37.44% ABN AMRO BANK BANK OF AMERICA NA BANK OF AMERICA NA BANK OF AMERICA NA BANK OF MONTREAL BANK OF NOVA SCOTIA CAISSE DES DEPOTS ET CONSIGNATIONS CAISSE DES DEPOTS ET CONSIGNATIONS CANADIAN IMPERIAL BANK OF COMMERCE CREDIT AGRICOLE CIB CREDIT AGRICOLE CIB CREDIT AGRICOLE CIB DANSKE BANK A/S DANSKE BANK A/S DANSKE BANK A/S LLOYDS BANK PLC MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD MIZUHO BANK LTD NORDEA BANK AB NORDEA BANK AB NORINCHUKIN BANK RABOBANK NEDERLAND NV SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SUMITOMO MITSUI TRUST BANK LTD SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB SVENSKA HANDELSBANKEN AB TORONTO DOMINION BANK UBS AG UNITED OVERSEAS BANK LTD UNITED OVERSEAS BANK LTD UNITED OVERSEAS BANK LTD WELLS FARGO BANK INTERNATIONAL WELLS FARGO BANK INTERNATIONAL WELLS FARGO BANK INTERNATIONAL

GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP

25,000,000 30,000,000 25,000,000 25,000,000 2,000,000 25,000,000 25,000,000 50,000,000 3,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 20,000,000 15,000,000 33,000,000 25,000,000 25,000,000 25,000,000 5,000,000 10,000,000 25,000,000 12,000,000 25,000,000 10,000,000 25,000,000 25,000,000 25,000,000 25,000,000 30,000,000 20,000,000 30,000,000 25,000,000 1,000,000 25,000,000 25,000,000 25,000,000 10,000,000 35,000,000 10,500,000

0.51% 0.42% 0.50% 0.90% 0.21% 0.85% 0.52% 0.52% 0.52% 0.29% 0.39% 0.37% 0.35% 0.35% 0.40% 0.28% 0.28% 0.25% 0.69% 0.71% 0.49% 0.60% 0.50%

10-Jul-17 18-May-17 11-Jul-17 18-Aug-17 26-Jun-17 03-Jul-17 10-Jul-17 24-Jul-17 12-May-17 16-May-17 09-Jun-17 19-Jun-17 06-Jun-17 09-Jun-17 12-Jun-17 08-May-17 06-Apr-17 03-May-17 10-May-17 06-Jun-17 06-Jun-17 03-Apr-17 16-Jun-17 12-Apr-17 01-Sep-17 04-Apr-17 24-Apr-17 28-Apr-17 09-May-17 20-Sep-17 15-May-17 16-May-17 27-Jun-17 22-May-17 06-Sep-17 16-Jun-17 20-Sep-17 22-Sep-17 13-Apr-17 24-Apr-17 25-Apr-17

Total Certificates of Deposit

24,969,862 30,000,000 25,000,000 25,000,000 2,002,982 25,000,000 24,973,872 49,946,379 3,002,014 24,985,897 24,982,126 24,983,664 25,000,000 25,000,000 20,000,000 15,000,143 33,000,460 24,992,404 25,001,011 24,984,671 5,000,000 10,000,000 24,987,337 11,999,290 25,000,000 9,999,940 24,997,124 24,996,918 24,986,475 24,947,142 30,000,000 20,000,000 30,000,000 25,000,000 1,001,102 24,984,051 24,956,998 24,956,492 10,000,656 35,006,429 10,500,000

1.04 1.25 1.04 1.04 0.08 1.04 1.04 2.07 0.12 1.04 1.04 1.04 1.04 1.04 0.83 0.62 1.37 1.04 1.04 1.04 0.21 0.41 1.04 0.50 1.04 0.41 1.04 1.04 1.04 1.03 1.25 0.83 1.25 1.04 0.04 1.04 1.04 1.03 0.41 1.45 0.44

901,145,439

37.44

24,993,253 9,997,929 24,992,656 24,993,667 24,996,311 14,985,932 19,981,574 19,972,671 19,995,590 24,999,397 24,998,993 24,987,657 24,980,897 24,986,652 39,998,655 9,999,617 24,984,454

1.04 0.41 1.04 1.04 1.04 0.62 0.83 0.83 0.83 1.04 1.04 1.04 1.04 1.04 1.66 0.41 1.04

COMMERCIAL PAPER 35.46% ABN AMRO BANK AGENCE CENTRALE DES ORGANISMES AGENCE CENTRALE DES ORGANISMES AGENCE CENTRALE DES ORGANISMES BANQUE FEDERATIVE DU CREDIT MUTUEL BANQUE FEDERATIVE DU CREDIT MUTUEL BANQUE FEDERATIVE DU CREDIT MUTUEL BANQUE FEDERATIVE DU CREDIT MUTUEL DANSKE BANK A/S DEKABANK DEUTSCHE GIROZENTRALE DEKABANK DEUTSCHE GIROZENTRALE DZ BANK AG DEUTSCHE ZENTRAL-GENOSS DZ BANK AG DEUTSCHE ZENTRAL-GENOSS DZ BANK AG DEUTSCHE ZENTRAL-GENOSS ERSTE ABWICKLUNGSANSTALT ERSTE ABWICKLUNGSANSTALT ERSTE ABWICKLUNGSANSTALT

GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP

25,000,000 10,000,000 25,000,000 25,000,000 25,000,000 15,000,000 20,000,000 20,000,000 20,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 40,000,000 10,000,000 25,000,000

-

24-Apr-17 09-May-17 10-May-17 10-May-17 13-Apr-17 08-Jun-17 03-Jul-17 12-Jul-17 08-May-17 07-Apr-17 10-Apr-17 15-May-17 07-Jun-17 20-Jun-17 06-Apr-17 07-Apr-17 13-Jun-17

The accompanying notes form an integral part of financial statements.

30

MORGAN STANLEY LIQUIDITY FUNDS Sterling Liquidity Fund Schedule of Investments (continued) As of 31 March 2017 (Expressed in GBP) DENOMINATION CURRENCY

ISSUE

HOLDINGS

COUPON RATE

MATURITY DATE

AMORTIZED COST

PERCENTAGE OF NET ASSETS

TRANSFERABLE SECURITIES AND MONEY MARKET INSTRUMENTS COMMERCIAL PAPER 35.46% ERSTE ABWICKLUNGSANSTALT HONDA FINANCE EUROPE PLC ING BANK NV NORDEA BANK AB NORDEA BANK AB OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OP CORPORATE BANK PLC OVERSEA-CHINESE BANKING CORP PACCAR FINANCIAL EUROPE BV PACCAR FINANCIAL EUROPE BV RABOBANK NEDERLAND NV SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI BANKING CORPORATION SUMITOMO MITSUI BANKING CORPORATION TOYOTA MOTOR FINANCE (NETHERLANDS) TOYOTA MOTOR FINANCE (NETHERLANDS) TOYOTA MOTOR FINANCE (NETHERLANDS)

GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP

20,000,000 15,000,000 18,000,000 25,000,000 30,000,000 10,000,000 10,000,000 14,000,000 8,000,000 5,000,000 50,000,000 17,000,000 25,000,000 25,000,000 35,000,000 6,000,000 25,000,000 25,000,000 25,000,000 19,000,000 12,000,000 50,000,000

-

20-Jul-17 17-May-17 05-Apr-17 03-May-17 17-May-17 10-Apr-17 08-Jun-17 12-Jun-17 06-Jul-17 24-Jul-17 27-Jul-17 14-Aug-17 23-Jun-17 18-Apr-17 25-Apr-17 11-Sep-17 11-May-17 03-Aug-17 14-Aug-17 28-Apr-17 09-Jun-17 21-Aug-17

19,982,855 14,993,677 17,999,754 24,993,840 29,989,520 9,999,444 9,990,981 13,988,475 7,989,724 4,994,332 49,952,786 16,974,037 24,987,247 24,997,535 34,994,938 5,988,117 24,986,760 24,959,986 24,957,285 18,996,618 11,990,329 49,937,756

0.83 0.62 0.75 1.04 1.25 0.41 0.41 0.58 0.33 0.21 2.08 0.70 1.04 1.04 1.45 0.25 1.04 1.04 1.04 0.79 0.50 2.07

853,491,901

35.46

24,999,754 19,999,299 9,009,542 24,999,000 24,997,520 25,000,000 25,000,000 15,000,000 25,000,000 24,500,000 17,799,034

1.04 0.83 0.37 1.04 1.04 1.04 1.04 0.62 1.04 1.02 0.74

236,304,149

9.82

50,051,056 16,487,081 2,637,906 1,458,673

2.08 0.69 0.11 0.06

70,634,716

2.94

Total Transferable Securities and Money Market Instruments

2,061,576,205

85.66

Total Investments

2,061,576,205

85.66

345,126,776

14.34

2,406,702,981

100.00

Total Commercial Paper FLOATING RATE NOTES 9.82% COMMONWEALTH BANK OF AUSTRALIA COMMONWEALTH BANK OF AUSTRALIA COMMONWEALTH BANK OF AUSTRALIA NATIONAL AUSTRALIA BANK LTD NATIONAL AUSTRALIA BANK LTD RABOBANK NEDERLAND NV RABOBANK NEDERLAND NV ROYAL BANK OF CANADA SVENSKA HANDELSBANKEN AB WESTPAC BANKING CORP WESTPAC BANKING CORP

GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP

25,000,000 20,000,000 9,000,000 25,000,000 25,000,000 25,000,000 25,000,000 15,000,000 25,000,000 24,500,000 17,800,000

0.61% 0.62% 0.62% 0.59% 0.40% 0.60% 0.59% 0.62% 0.64% 0.62% 0.59%

21-Apr-17 06-Jun-17 18-Sep-17 15-Jun-17 03-Apr-18 28-Apr-17 27-Jun-17 31-Aug-17 10-Jul-17 20-Apr-17 08-Jun-17

Total Floating Rate Notes CORPORATE BONDS 2.94% LLOYDS BANK PLC NATIONAL AUSTRALIA BANK LTD RABOBANK NEDERLAND NV SVENSKA HANDELSBANKEN AB

GBP GBP GBP GBP

50,000,000 16,194,000 2,597,000 1,450,000

1.50% 3.63% 3.25% 1.88%

02-May-17 08-Nov-17 01-Nov-17 29-Aug-17

Total Corporate Bonds

Other assets in excess of liabilities Total Net Assets

The accompanying notes form an integral part of financial statements.

31

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements 31 March 2017 1.

General information: Morgan Stanley Liquidity Funds (the “Company”) was incorporated on 21 December 2012 for an unlimited period of time as a self-managed société d’investissement à capital variable under the form of a société anonyme. The Company is authorised under Part I of the Law of 17 December 2010 in accordance with the provisions of the UCITS Directive and listed on the official list of UCITS approved by the Commission de Surveillance du Secteur Financier (the “CSSF”). The registered office of the Company is located at 6B route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg. Effective 1 April 2014, Morgan Stanley Investment Management (ACD) Limited (“MSIM (ACD)”) was appointed as Management Company to provide collective portfolio management services to the Company. MSIM (ACD) is authorised by the Financial Conduct Authority in the United Kingdom to provide these services. This change was communicated to investors in the shareholder notices dated 28 February 2014 and was reflected within the updated Prospectus that came into effect on 1 April 2014. The Company is an “umbrella fund” which is composed of more than one Sub-Fund, each representing a separate portfolio of assets. However, each Sub-Fund is exclusively responsible for all liabilities attributable to it. The Company currently offers four Sub-Funds: the Euro Liquidity Fund, the US Dollar Liquidity Fund, the US Dollar Treasury Liquidity Fund and the Sterling Liquidity Fund. The Euro Liquidity Fund was launched on 10 January 2013 and the three other Sub-Funds were launched on 17 June 2013. The Class of Shares that are active (except footnoted differently) as at 31 March 2017 are detailed in the table below: Name of the Sub-Fund

Euro Liquidity Fund

US Dollar Liquidity Fund

US Dollar Treasury Liquidity Fund

Sterling Liquidity Fund

Class of Shares

Launch date

Institutional Shares Institutional Accumulation Shares

17 June 2013 17 June 2013

Institutional Select Shares* Institutional (+1) Accumulation Shares MS Reserve Shares Advantage Accumulation Shares Advisory Shares** Institutional Shares

24 June 2015 24 May 2016 17 June 2013 17 June 2013 16 August 2016 17 June 2013

Institutional Accumulation Shares Institutional Select Shares Master Shares MS Reserve Shares Qualified Accumulation Shares*** Advisory Shares**

17 June 2013 16 January 2014 9 September 2013 17 June 2013 15 March 2016 16 August 2016

Institutional Shares Institutional Select Shares MS Reserve Shares Institutional Shares Institutional Accumulation Shares Institutional Select Shares

17 June 2013 16 January 2014 17 June 2013 17 June 2013 17 June 2013 26 June 2014

MS Reserve Shares**** Qualified Shares

28 November 2013 17 June 2013

* Share class was fully redeemed on 19 October 2016. ** Share class was fully redeemed on 24 February 2016 hence was inactive and re-launched on 16 August 2016 at a price of USD 1.00. *** Share class was fully redeemed on 4 September 2015 hence was inactive and re-launched on 15 March 2016 at a price of USD100.00. **** Share class was fully redeemed on 28 March 2017.

32

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 1.

General information: (continued) Each Sub-Fund’s Investment objective is to provide investors with liquidity and an attractive rate of income relative to short term interest rates, to the extent consistent with the preservation of capital. Each Sub-Fund has its own Investment policy but all are classified as Short-Term Money Market Funds in accordance with CESR guidelines on a common definition of European money market funds (CESR/10-049). The Board of Directors of the Company adopted the principles of the ALFI Code of Conduct, designed to provide the Board with a framework of principles and best practice recommendations for the governance of the Company.

2.

Summary of Significant Accounting Policies: The financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in Luxembourg. (a) Valuation of Investments The securities, money market instruments and other instruments are valued based on their amortised cost. Under this method, amortised cost is determined by valuing an instrument at its cost and thereafter assuming a constant amortisation to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instruments. The Company generally uses the amortised cost method of valuation to determine the value of the following investments, provided that such investments comply with the above conditions: (i) investments with a residual maturity of fifteen months or less or (ii) floating rate investments with a residual maturity of two years or less (measured to the date on which the issuer must unconditionally repay the principal amount to the Company on foot of either maturity, put option or other repayment demand feature), where the Board of Directors have determined that the investment has a market value that approximates its amortised cost value and the investment has an annual or shorter interval coupon/interest rate re-fix or (iii) floating rate investments which meet the conditions described in (ii) above except that they have a residual maturity of up to five years, provided that they are of high credit quality and are issued by the US government, an agency or instrumentality of the US government, the government of an OECD member, an agency or instrumentality of such government or by the government of a Member State or an agency or instrumentality of such government. Subject to the above, the Board of Directors uses the amortised cost method of valuation of any investments of a Fund which is a Money Market Fund or a Short Term Money Market Fund unless it is not appropriate to use such method in respect of certain investment(s) of such Fund, in which case one of the other methods of valuation outlined below is used. The Administrator determines at least weekly the extent to which the Net Asset Value of the relevant Fund or Class using this method of valuation deviates from the Net Asset Value which would be obtained using available market quotations. Deviations in excess of 0.10% between the market value and the amortised cost value are brought to the attention of the Investment Adviser. Deviations in excess of 0.15% between the market value and the amortised cost value of the relevant Fund or Class are brought to the attention of the Board of Directors and the Depositary. If this deviation exceeds 0.25% of the Net Asset Value of the relevant Fund, the Administrator reviews the valuation daily and the Board of Directors takes such corrective action, if any, as they deem appropriate to eliminate or reduce, to the extent reasonably practicable, any such deviation. Notwithstanding the generality of the foregoing, the Board of Directors utilises the market value of any individual investment in the event that the market value of that investment deviates by more than 1% from its amortised cost valuation. As at 31 March 2017 and 31 March 2016 there were no deviations in excess of 0.10%. (b) Security Transactions When applicable, security transactions are accounted for on the trade date.

33

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 2.

Summary of Significant Accounting Policies: (continued) (c) Interest Income Interest income is accrued daily and includes the amortisation of premiums and accretion of discounts. Interest income is recognised on an accrual basis and is shown net of withholding taxes, except where the withholding tax has been recovered or is receivable. It is possible for the interest income of a Sub-Fund to be negative depending on market conditions. (d) Cash Cash and other liquid assets are valued at their face value plus interest accrued, where applicable. It is possible for the interest accrual of a Sub-Fund to be negative depending on market conditions. (e) Foreign currency translation Financial statements are presented for each Sub-Fund in the base currency of the Sub-Fund. The combined Statement of Net Assets, Statement of Operations and Changes in Net Assets are presented in US dollars, based on the exchange rate ruling at the date of these financial statements and on the average exchange rate over the reporting period for the Statement of Operations and Changes in Net Assets. The currency exchange rates against the US Dollar were as follows: as of 31 March 2017 1 USD = 0.934972 EUR 1 USD = 0.799712 GBP

as of 31 March 2016 1 USD = 0.877539 EUR 1 USD = 0.695749 GBP

The average currency exchange rates against the US Dollar were as follows: as of 31 March 2017 1 USD = 0.911952 EUR 1 USD = 0.767960 GBP

as of 31 March 2016 1 USD = 0.905971 EUR 1 USD = 0.664086 GBP

(f) Reverse repurchase agreement valuation policy The Company may enter into reverse repurchase transactions which consist of the purchase and sale of securities, backed by collateral, with a clause reserving the seller the right or the obligation to repurchase from the acquirer the securities sold at a price and term specified by the two parties in their contractual arrangement. These are valued at par value. 3.

Dividends and Distributions: The Directors intend to declare all net income of the Euro Liquidity Fund, US Dollar Liquidity Fund, US Dollar Treasury Liquidity Fund and Sterling Liquidity Fund with the exception of Advisory Accumulation Shares, Institutional Accumulation Shares, Institutional Select Accumulation Shares, Qualified Accumulation Shares and Advantage Accumulation Shares (“the Accumulating Share Classes”) on each Dealing Day as a dividend to Shareholders on the register of members as at the close of business on the relevant Dealing Day in an attempt to stabilise the Net Asset Value per Share of each class at €1.00 in the case of the Euro Liquidity Fund, US$1.00 in the case of the US Dollar Liquidity Fund, US$1.00 in the case of the US Dollar Treasury Liquidity Fund and £1.00 in the case of the Sterling Liquidity Fund. Dividends are declared daily and are payable monthly on or about the first Business Day of each following month. For this purpose, net income of each Sub-Fund (from the time immediately preceding determination thereof) shall consist of interest and dividends earned by each Sub-Fund and realised and unrealised profits on the disposal/valuation of investments as may be lawfully distributed less realised and unrealised losses (including fees and expenses) of each Sub-Fund. In the case of the Accumulating Classes of Shares, the US Dollar Liquidity Fund, Euro Liquidity Fund, Sterling Liquidity Fund and US Dollar Treasury Liquidity Fund intend to retain the net income and/or capital gains attributable to such Classes of Shares and the value of these Classes of Shares. 34

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 3.

Dividends and Distributions: (continued) Where there are substantial adverse movements in interest rates, there can be no assurance that the Sub-Funds will be successful in maintaining positive net investment income. Where a Sub-Fund posts negative net investment income, in order to maintain a stable Net Asset Value per Share for Distributing Classes of Shares, the Management Company shall address such by the compulsory redemption equally of such number of Shares held by each Shareholder in the relevant Class of Shares required to cover the negative net income of that Class of Share, with the proceeds of each such redemption being retained by the Sub-Fund. In the case of Accumulating Classes of Shares, the Net Asset Value per Share will decrease in lieu of the compulsory redemption of Shares.

4.

Management Company Services Agreement, Investment Advisory Agreement, Depositary Agreement, Administration Agreement, Registrar and Transfer Agent Agreement, Paying Agent Agreement, Domiciliary Agreement and Distribution Agreement: The Board of Directors of the Company has appointed MSIM (ACD) as designated management company (the “Management Company”) pursuant to the Management Company Services Agreement dated 1 April 2014 1. The Management Company is responsible for providing collective portfolio management services (including investment management, administrative and distribution services), risk management and other administrative and operational services to the Company, subject to the overall supervision and control of the Company. The Management Company has delegated to Morgan Stanley Investment Management Inc., the function of Investment Adviser of the Sub-Funds pursuant to an investment advisory agreement dated 1 April 2014 (the “Investment Advisory Agreement”). The Company may terminate its appointment immediately where it is in the best interest of Shareholders to do so. The Board of Directors of the Company has appointed The Bank of New York Mellon (International) Limited, Luxembourg Branch (the “Depositary”) as the depositary of all of the Company’s assets, including its cash and securities, which are held either directly or through other financial institutions such as correspondent banks, subsidiaries or affiliates of the Depositary or clearing systems. The rights and duties of the Depositary are governed by the Depositary Agreement entered into on 7 March 2016 for an unlimited period of time from the date of its signature. The Management Company has delegated to The Bank of New York Mellon (International) Limited, Luxembourg Branch (the “Adminstrator”) the function of Administrator pursuant to the Administration Agreement dated 7 March 2016. The Administrator carries out all administrative duties related to the administration of the Company, including the calculation of the Net Asset Value of the Shares, the provision of accounting services to the Company and notices and other documents to the Shareholders. The Management Company has also delegated to the Administrator the function of registrar and transfer agent of the Company pursuant to the Administration Agreement dated 7 March 2016. In this function the Administrator processes all subscriptions, redemptions and transfers of Shares and will register these transactions in the share register of the Company. The Management Company has also appointed the Administrator as the paying agent of the Company pursuant to the Administration Agreement dated 7 March 2016. In this function the Administrator assists in the payment of dividends declared by the Company to its Shareholders. Pursuant to a Domiciliary Agreement, the Management Company has appointed Morgan Stanley Investment Management Limited, Luxembourg Branch, as its Domiciliary Agent to provide the Company’s registered office, to store its corporate documents and to perform other related administrative functions. The Management Company has appointed Morgan Stanley Investment Management Limited to act as Distributor pursuant to the Distribution Agreement dated 1 April 2014. In this respect, it may engage certain financial institutions (Intermediaries) to solicit and sell Shares to investors. 1

By way of a referendum, on 23 June 2016, the United Kingdom voted to leave the European Union. It is acknowledged that uncertainty exists in relation to the United Kingdom’s future relationship with the European Union and specifically with regards to current ‘passporting’ which permits the management Company (MSIM ACD), as a UK company, to sponsor an umbrella domiciled within Luxembourg. The Management Company are closely monitoring this and indeed all other Brexit related developments to ensure that any potential impact to the Company and its Unitholders is managed in good faith and communicated appropriately.

35

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 5.

Taxation: Under current law and practice, the Company is not liable to any Luxembourg income tax, nor are dividends paid by the Company liable to any Luxembourg withholding tax. However, the Company is liable in Luxembourg to a reduced rate of subscription tax (“taxe d’abonnement”) of 0.01% per annum of its net assets, such tax being payable quarterly and calculated on the total Net Asset Value of the Company at the end of the relevant quarter. Pursuant to Article 175 b) of the Law, an exemption from the subscription tax may be applicable where a Fund or Class meets the following criteria: (i) the Shares of the Fund or the Class must be reserved to Institutional Investors; (ii) the exclusive object of the Fund's portfolio must be the investment in money market instruments and/or deposits with credit institutions; (iii) the remaining average maturity of the Fund's portfolio must be less than 90 days, and (iv) the Fund must benefit from the highest possible rating of a recognized rating agency. Under the aforementioned legislation and regulations prevailing in Luxembourg, Master Shares, Master Accumulation Shares, Qualified Shares, Qualified Accumulation Shares, Advantage Shares, Advantage Accumulation Shares are subject to annual subscription tax (“taxe d’abonnement”) at a reduced rate of 0.01% per annum of their net assets. The remaining Classes of Shares listed within the Company’s prospectus are exempt from this tax. The Company is registered for VAT in Luxembourg and is required to self-assess for Luxembourg VAT on services received from outside Luxembourg (that are considered taxable under Luxembourg VAT rules). In respect of any Sub-Fund or Class of Shares the Management Company may choose (in the event that the TER as outlined in Appendix 1 is exceeded) to waive all or any portion of its subscription tax (“taxe d’abonnement”) and/or absorb some or all other expenses in its absolute discretion for any period of time. This waiver is entirely voluntary and may be discontinued at any time without notice at the sole discretion of the Management Company.

6.

Fees and expenses: (a) Service Provider Fees The Company shall pay the Management Company a Management Fee in respect of each Sub-Fund, the particulars of which are set out in "Fund Particulars" within the Company’s prospectus. In addition, the Company is responsible for all of the Management Company’s reasonable cash disbursements, including but not limited to out-of-pocket expenses, provided however that the Management Company shall be required to provide the Company with evidence of any such disbursement. The fees of the Investment Adviser, the Depositary, the Administrator and the Distributor appointed in respect of each Sub-Fund (all of which fees are payable monthly in arrears) will be paid by the Management Company out of the Management Fee it receives. The Management Company may instruct the Company to pay any of these fees to the Investment Adviser, the Depositary, the Administrator directly out of the assets of the Company. In such case, the Management Fee due to the Management Company is reduced accordingly. In respect of any Sub-Fund or Class of Shares the Management Company may choose to waive all or any portion of its fee and/or absorb some or all other expenses in its absolute discretion for any period of time. This waiver is entirely voluntary and may be discontinued at any time without notice at the sole discretion of the Management Company.

36

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 6.

Fees and expenses: (continued) (a) Service Provider Fees (continued) The maximum chargeable Management fee rates as at 31 March 2017 were as follows: Name of the Sub-Fund

Euro Liquidity Fund

Class of Shares

Management Fee Rate

Institutional Shares

0.20% per annum of the NAV

Institutional Accumulation Shares Institutional Select Shares MS Reserve Shares

0.20% per annum of the NAV 0.21% per annum of the NAV 0.20% per annum of the NAV Nil

Advantage Accumulation Shares

0.45% per annum of the NAV

Advisory Shares Institutional Shares Institutional Accumulation Shares Institutional Select Shares Master Shares MS Reserve Shares

0.45% per annum of the NAV 0.20% per annum of the NAV 0.20% per annum of the NAV 0.21% per annum of the NAV Nil Nil

Qualified Accumulation Shares Advisory Shares Institutional Shares Institutional Select Shares MS Reserve Shares

0.20% per annum of the NAV 0.45% per annum of the NAV 0.20% per annum of the NAV 0.21% per annum of the NAV Nil

Institutional Shares Institutional Accumulation Shares Institutional Select Shares MS Reserve Shares Qualified Shares

0.20% per annum of the NAV 0.20% per annum of the NAV 0.21% per annum of the NAV Nil 0.20% per annum of the NAV

Institutional (+1) Accumulation Shares

US Dollar Liquidity Fund

US Dollar Treasury Liquidity Fund

Sterling Liquidity Fund

(b) Director’s Remuneration The Directors are paid an annual fee of Euro 30,000 by the Company for their services as Directors. The Chairman of the Board receives an additional Euro 5,000 in respect of his chairman duties. In addition, the Directors are also entitled to be reimbursed for their reasonable and vouched out of pocket expenses incurred in discharging their duties as Directors. In respect of any Sub-Fund or Class of Shares the Management Company may choose (in the event that the TER as outlined in Appendix 1 is exceeded) to waive all or any portion of its Director’s Remuneration and/or absorb some or all other expenses in its absolute discretion for any period of time. This waiver is entirely voluntary and may be discontinued at any time without notice at the sole discretion of the Management Company. (c) Ongoing Charges and Expenses The Company pays any expenses in respect of circulating details of the Net Asset Value, stamp duties, taxes, company secretarial fees, insurance, the fees and expenses of the auditors, tax and legal advisers and fees connected with listing on any stock exchange and the costs of regulatory bodies, trade bodies and rating agencies. The costs of printing and distributing reports, accounts and any explanatory memoranda, any necessary translation fees, the costs of registering the Company for sale in any jurisdiction, the fees and expenses of any paying or information agents, or correspondent banks, the fees and expenses of any representative appointed in respect of the Company in any jurisdiction, the cost of publishing prices and any costs incurred as a result of periodic updates of the Prospectus, or of a change in law or the introduction of any new law (including any costs incurred as a result of compliance with any applicable code, whether or not having the force of law) are also paid by the Company. The Management Company has chosen to reimburse these expenses to all the share classes in the funds in order to reduce the impact the fees may have on the net returns of the Fund. This reimbursement is entirely voluntary and may be discontinued at any time without notice at the sole discretion of the Management Company.

37

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 6.

Fees and expenses: (continued) (d) Establishment Charges and Expenses The cost of establishing the Company and the expenses of the initial offer of Shares in the Sub-Funds, the preparation and printing of the initial Prospectus, marketing costs and the fees of all professionals relating to it were borne by the Distributor of the fund.

7.

Related Party Holdings, Transactions and Affiliations: Morgan Stanley Investment Funds - US Dollar Liquidity Fund (the “Feeder Fund”), which is administered by J.P. Morgan Bank Luxembourg S.A., is a feeder fund of the Company’s US Dollar Liquidity Fund (the “Master Fund”). The Feeder Fund invests at least 85% of its assets in shares of the Master Fund (Master Share Class). As of 31 March 2017, the Feeder Fund held 28% of the net asset value of the Master Fund, or 100% of the Master Class of Share within the Master Fund. Morgan Stanley Investment Funds was incorporated on 21 November 1988 under the laws of the Grand Duchy of Luxembourg as a “Société d’Investissement à Capital Variable” (“SICAV”) and is registered as an undertaking for collective investment pursuant to Part 1 of the Law of 17 December 2010. The 2010 Law transposes the recast UCITS Directive (Directive 2009/65/EC) into Luxembourg legislation. A number of other Sub-Funds of Morgan Stanley Investment Funds invest into the Company from time to time. These transactions were all executed in the normal course of business at arm’s length. The Sub-Funds of Morgan Stanley Investment Funds that held shares in the Company’s Euro Liquidity Fund as at 31 March 2017 were as follows: Absolute Return Fixed Income Fund Diversified Alpha Plus Fund Diversified Alpha Plus Low Volatility Fund Emerging Europe, Middle East and Africa Equity Fund Euro Bond Fund Euro Corporate Bond Fund Euro Strategic Bond Fund European Currencies High Yield Bond Fund European Equity Alpha Fund European Property Fund Eurozone Equity Alpha Fund Global Balanced Risk Control Fund Global Bond Fund Short Maturity Euro Bond Fund Buy and Hold 2020 Fund European Champions Fund The Sub-Funds of Morgan Stanley Investment Funds that held shares in the Company’s US Dollar Liquidity Fund as at 31 March 2017 were as follows: Asian Fixed Income Opportunities Fund Asia-Pacific Equity Fund Emerging Europe, Middle East & Africa Equity Fund Emerging Leaders Equity Fund Emerging Markets Corporate Debt Fund Emerging Markets Debt Fund Emerging Markets Domestic Debt Fund Emerging Markets Equity Fund Emerging Markets Fixed Income Opportunities Fund Frontier Emerging Markets Equity Fund Global Credit Fund 38

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 7.

Related Party Holdings, Transactions and Affiliations: (continued)

Global Fixed Income Opportunities Fund Global High Yield Bond Fund Global Mortgage Securities Fund Global Premier Credit Fund Latin American Equity Fund Liquid Alpha Capture Fund Global Convertible Bond Fund European Currencies High Yield Bond Fund Euro Strategic Bond Fund Euro Corporate Bond Fund Global Bond Fund Asian Equity Fund Global Buy and Maintain Bond Fund The Sub-Funds of Morgan Stanley Investment Funds that held shares in the Company’s US Dollar Treasury Liquidity Fund as at 31 March 2017 were as follows: Asian Property Fund Global Advantage Fund Global Brands Fund Global Discovery Fund Global Infrastructure Fund Global Opportunity Fund Global Property Fund Global Quality Fund International Equity (Ex US) Fund US Advantage Fund US Growth Fund US Insight Fund US Property Fund Global Brands Equity Income Fund No Sub-Fund of Morgan Stanley Investment Funds held shares in the Company’s Sterling Liquidity Fund. The affiliations of the Board of Directors of the Company are as follows: All the Directors of Morgan Stanley Liquidity Funds are also Directors of Morgan Stanley Investment Funds. Ms. Judith Eden and Mr. Andrew Mack, Directors of Morgan Stanley Liquidity Funds, are also non-executive Directors of the Management Company Morgan Stanley Investment Management (ACD) Limited. The (Sub-)Investment Advisor, the Management Company, the Domiciliary Agent and the Distributor are related parties to the Company following the contractual arrangement disclosed in note 4. No portfolio transactions of the Company that occurred during the period were executed through affiliated firms or brokers.

39

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 8.

Reverse Repurchase Transactions: As at 31 March 2017, all the Sub-Funds had entered into reverse repurchase transactions. The total commitment of the reverse repurchase agreements is as follows: Name of the Sub-Fund

Euro Liquidity Fund

Description Societe Generale / -0.90%/ 03/04/2017 Societe Generale / -1.30%/ 03/04/2017

Tri-Party Agent

Reverse Repurchase Transactions

CCY

Market Value of Collateral Received

CCY

Euroclear

200,000,000

EUR

204,001,021

EUR

Euroclear

140,000,000

EUR

142,800,000

EUR

340,000,000

EUR

346,801,021

EUR

200,000,000

USD

206,000,000

USD

200,000,000

USD

204,000,026

USD

400,000,000

USD

410,000,026

USD

350,000,000

USD

357,001,830

USD

100,000,000

USD

102,000,078

USD

15,000,000

USD

15,300,046

USD

465,000,000

USD

474,301,954

USD

Euroclear

100,000,000

GBP

102,000,001

GBP

Euroclear

100,000,000

GBP

102,000,000

GBP

200,000,000

GBP

204,000,001

GBP

Total

US Dollar Liquidity Fund

Goldman Sachs & Co / 0.79% / 03/04/2017 Merrill Lynch Pierce Fenner & Smith Inc / 0.86% / 03/04/2017

Bank of New York Bank of New York

Total

US Dollar Treasury Liquidity Fund

JP Morgan Securities LLC / 0.80% / 03/04/2017 Merrill Lynch Pierce Fenner & Smith Inc / 0.85% / 03/04/2017 Merrill Lynch Pierce Fenner & Smith Inc / 0.75% / 03/04/2017

JP Morgan Securities Bank of New York Bank of New York

Total

Sterling Liquidity Fund

Lloyds TSB Bank PLC / 0.10% / 03/04/2017 National Australia Bank Limited / -0.20% / 03/04/2017 Total

The collateral received by the Sub-Funds in respect of reverse repurchase transactions as at 31 March 2017 is outlined in section II of Appendix 2: Securities Financing Transaction Regulations (Unaudited). During the financial year, interest received by and charged to the Sub-Funds in relation to reverse repurchase transactions was recorded under the heading “Interest” within the Statement of Operations and Changes in Net Assets. These values are outlined in section V of Appendix 2. There are no other direct or indirect costs relating to reverse repurchase transactions.

40

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 9.

Time Deposits: As at 31 March 2017, the Sub-Funds Euro Liquidity Fund, US Dollar Liquidity Fund and Sterling Liquidity Fund held time deposits as follows: Name of the Sub-Fund

Euro Liquidity Fund

Counterparty BNP PARIBAS ING Bank NV Bred Banque Populaire Commonwealth Bank of Australia Credit Agricole Group Bred Banque Populaire Bred Banque Populaire Bred Banque Populaire Total

Name of the Sub-Fund

Counterparty

Canadian Imperial Bank of Commerce DNB Bank ASA Australia and New Zealand Banking Skandinaviska Enskilda Banken AB US Dollar Liquidity Fund National Australia Bank Ltd Natixis Credit Agricole Group National Bank of Canada BNP Paribas Total Name of the Sub-Fund

Counterparty

Commonwealth Bank of Australia Sterling Liquidity Fund Bred Banque Populaire BNP Paribas Total

10.

Currency

Holdings

EUR EUR EUR EUR EUR EUR EUR EUR EUR

322,188,097 160,016,231 149,718,408 112,000,000 99,848,527 59,989,968 49,922,016 39,976,750 993,659,997

Currency

Holdings

USD USD USD USD USD USD USD USD USD USD

363,000,000 313,000,000 300,000,000 300,000,000 240,000,000 221,000,000 136,000,000 95,000,000 25,000,000 1,993,000,000

Currency

Holdings

GBP GBP GBP GBP

116,147,706 26,044,171 2,414,162 144,606,039

Interest (%) Maturity Date (0.50) (0.50) (0.46) (0.60) (0.55) (0.43) (0.43) (0.43)

3-Apr-17 3-Apr-17 3-Apr-17 3-Apr-17 3-Apr-17 6-Apr-17 4-Apr-17 5-Apr-17

Interest (%) Maturity Date 0.82 0.80 0.82 0.81 0.80 0.82 0.80 0.81 0.80

3-Apr-17 3-Apr-17 3-Apr-17 3-Apr-17 3-Apr-17 3-Apr-17 3-Apr-17 3-Apr-17 3-Apr-17

Interest (%) Maturity Date 0.25 0.22 0.15

3-Apr-17 3-Apr-17 3-Apr-17

Indemnifications: The Company has arrangements in place for the indemnification of the members of its Board of Directors, the Administrator, the Depositary and the Management Company (the “Indemnified Parties”) in certain circumstances, which exclude the Indemnified Parties’ own negligence, wilful default, or fraud.

11.

Transaction Costs: There were no transaction costs charged to the Sub-Funds during the year ended 31 March 2017.

12.

Determination of Global Exposure: The methodology used in order to calculate the Global Exposure resulting from the use of financial derivative instruments is the commitment approach in accordance with the CSSF Circular 11/512.

13.

Statement of Portfolios changes: The list of changes in the portfolio for the period is available free of charge at the registered office of the Management Company.

41

MORGAN STANLEY LIQUIDITY FUNDS Notes to the Financial Statements (continued) 31 March 2017 14.

Counterparty Risk: All instruments listed in Notes 8 and 9 are transacted through third parties. The Company is subject to the risk that counterparties will not be able to fulfil their obligations with respect to transactions, positions, balances or otherwise, whether due to insolvency, bankruptcy or other causes. In such case, the Company may be able to recover none or only a portion of its assets held with such counterparty. This could subject the Company to substantial losses.

15.

Remuneration Policy of the Management Company: The Management Company has a remuneration policy in place which seeks to ensure that the interests of the Company and the Shareholders are aligned. Such remuneration policy imposes remuneration rules on staff and senior management within the Management Company whose activities have an impact on the risk profile of the Company. The Management Company shall seek to ensure that such remuneration policies and practices will be consistent with sound and effective risk management and with UCITS Regulation. The Management Company shall also seek to ensure that such remuneration policies and practices shall not encourage risk taking which is inconsistent with the risk profile and constitutional documents of the Company. The Management Company shall seek to ensure that the remuneration policy will, at all times, be consistent with the business strategy, objectives, values and interests of the Company and the Shareholders and that the remuneration policy will include measures that seek to ensure that all relevant conflicts of interest can be managed appropriately at all times. Individuals who are subject to the provisions of the UCITS remuneration policy (“Remuneration Code Staff”) will complete the first full remuneration performance year under the new UCITS remuneration rules on 31 December 2017. Therefore, the total amount of remuneration the Remuneration Code Staff receive, and how this remuneration is split into fixed and variable remuneration, is not available for the Company’s annual accounting period in question.

16.

Significant events: European Money Market Fund (MMF) Regulation was agreed upon between the European Council and Parliament in December 2016. Both short-term MMFs and standard MMFs (per European Securities and Markets Authority definition) remain. Two new short-term MMF structures were introduced; Public Debt Constant Net Asset Value (CNAV) MMF and Low Volatility (LVNAV) MMF. Trigger based liquidity fees and redemption gates are new features that apply to both Public Debt CNAV MMFs and LVNAV MMFs. 20 days after the regulation is formally published in the official journal of the European Union, an 18 month implementation timeframe will commence, providing investors and managers with time to prepare and communicate the changes. There were no other significant events during the year.

42

MORGAN STANLEY LIQUIDITY FUNDS Appendix 1: Total Expense Ratio (Unaudited) The below table discloses the total expense ratios (TER) attributable to the Classes of Shares of the Sub-Funds as at 31 March 2017. All total expense ratios disclosed are net of waived investment management fees and reimbursed operating fees. Name of the Sub-Fund

Euro Liquidity Fund

US Dollar Liquidity Fund

US Dollar Treasury

Sterling Liquidity Fund

Class of Shares

TER (%) As at 31 March 2017

TER (%) As at 31 March 2016

Institutional Shares

0.07%

0.05%

Institutional Accumulation Shares

0.07%

0.05%

Institutional Select Shares*

-

0.10%

Institutional (+1) Accumulation Shares**

0.07%

-

MS Reserve Shares

0.00%

0.00%

Advantage Accumulation Shares

0.46%

0.30%

Advisory Shares***

0.45%

-

Institutional Shares

0.20%

0.17%

Institutional Accumulation Shares

0.20%

0.17%

Institutional Select Shares

0.21%

0.21%

Master Shares

0.01%

0.01%

MS Reserve Shares

0.00%

0.00%

Qualified Accumulation Shares****

0.21%

0.19%

Advisory Shares***

0.45%

-

Institutional Shares

0.20%

0.10%

Institutional Select Shares

0.21%

0.21%

MS Reserve Shares

0.00%

0.00%

Institutional Shares

0.12%

0.12%

Institutional Accumulation Shares

0.12%

0.12%

Institutional Select Shares

0.17%

0.17%

MS Reserve Shares*****

-

0.00%

Qualified Shares

0.13%

0.13%

* Share class was fully redeemed on 19 October 2016. ** Share class launched on 24 May 2016. *** Share class was fully redeemed on 24 February 2016 hence was inactive and re-launched on 16 August 2016 at a price of USD 1.00. **** Share class was fully redeemed on 4 September 2015 hence was inactive and re-launched on 15 March 2016 at a price of USD100.00. ***** Share class was fully redeemed on 28 March 2017.

43

MORGAN STANLEY LIQUIDITY FUNDS Appendix 2: Securities Financing Transactions Regulation (Unaudited) The Company engages in Securities Financing Transactions (as defined in Article 3 of Regulation (EU) 2015/2365, securities financing transactions include reverse repurchase transactions, securities or commodities lending and securities or commodities borrowing, buy-sell back transactions or sell-buy back transactions and margin lending transactions). In accordance with Article 13 of the Regulation, the Company’s only involvement in and exposures related to securities financing transactions is its engagement in reverse repurchase activity for the year ended 31 March 2017 as detailed below:

I.

Global Data

Amount of assets engaged in Reverse Repurchase Transactions The following table details the total value of assets engaged in reverse repurchase transactions as at 31 March 2017:

Sub-Fund Name

Sub-Fund Currency

Market Value in Sub-Fund Currency

% of Total Net Assets Value

Euro Liquidity Fund

EUR

340,000,000

5.34

US Dollar Liquidity Fund

USD

400,000,000

2.05

US Dollar Treasury Liquidity Fund

USD

465,000,000

17.94

Sterling Liquidity Fund

GBP

200,000,000

8.31

II.

Concentration Data

Collateral Issuers The following table lists the issuers by value of non-cash collateral received by the Sub-Funds in respect of reverse repurchase transactions as at 31 March 2017:

Issuer Name Fannie Mae Freddie Mac

COLLATERAL MARKET VALUE (in Sub-Fund Currency) US Dollar US Dollar Sterling Euro Liquidity Liquidity Treasury Liquidity Fund Fund Liquidity Fund Fund EUR USD USD GBP – – – 121,186,903 –

–

–

–

–

Government of the Kingdom of Spain

72,430,753

84,813,097 –

Government of the Republic of France

142,800,000

–

–

–

Government of the Republic of Italy

131,570,268 –

–

–

–

–

204,000,026 –

474,301,954 –

204,000,001

346,801,021

410,000,026

474,301,954

204,000,001

Government of the United States of America Government of the United Kingdom Total

–

44

MORGAN STANLEY LIQUIDITY FUNDS Appendix 2: Securities Financing Transactions Regulation (Unaudited) (continued) II.

Concentration Data (continued)

Counterparties The following table lists the counterparties by value of assets engaged in reverse repurchase transactions as at 31 March 2017:

Sub-Fund Name

Counterparty

Euro Liquidity Fund

Societe Generale

US Dollar Liquidity Fund

Merrill Lynch

US Dollar Liquidity Fund US Dollar Treasury Liquidity Fund US Dollar Treasury Liquidity Fund

Goldman Sachs JP Morgan Securities

Sterling Liquidity Fund

Sterling Liquidity Fund III.

Merrill Lynch Lloyds Bank PLC National Australia Bank Ltd, London

Market Value of Reverse Repurchase Transactions

Incorporation Country

Settlement and Clearing

Currency

France United States of America United States of America United States of America United States of America United Kingdom

Tri-party

EUR

346,801,021

Tri-party

USD

204,000,026

Tri-party

USD

206,000,000

Tri-party

USD

357,001,830

Tri-party

USD

117,300,124

Tri-party

GBP

102,000,001

Tri-party

GBP

102,000,000

United Kingdom

Aggregate Transaction Data

Type, currency and quality of collateral Non-cash collateral received by each Sub-Fund in respect of reverse repurchase transactions as at the reporting date is in the form of fixed income instruments issued by United States government sponsored enterprises or by governments of the following countries: Italy, France, Spain, UK and USA. All collateral received is denominated in the same currency as each respective sub-fund. All of the Sub-Funds’ securities collateral have a credit rating of investment grade. Quality of collateral has been interpreted as pertaining to fixed income instruments, which have been assessed and reported in accordance with whether they are considered investment grade, below investment grade or not-rated. These designations are derived from the credit rating issued to the security or its issuer by at least one globally recognised credit rating agency, such as Standard & Poor’s and Moody’s. Fixed income instruments with a credit rating between ‘AAA’ and ‘BBB’ are deemed as investment grade. Credit ratings for fixed income instruments below these designations are considered below investment grade. COLLATERAL MARKET VALUE (in SubFund Currency) Total

Sub-Fund Name

Sub-Fund Currency

Type of Collateral

Quality of Collateral

Euro Liquidity Fund

EUR

Fixed Income

Investment grade

346,801,021

US Dollar Liquidity Fund

USD

Fixed Income

Investment grade

410,000,026

US Dollar Treasury Liquidity Fund

USD

Fixed Income

Investment grade

474,301,954

Sterling Liquidity Fund

GBP

Fixed Income

Investment grade

204,000,001

45

MORGAN STANLEY LIQUIDITY FUNDS Appendix 2: Securities Financing Transactions Regulation (Unaudited) (continued) III.

Aggregate Transaction Data (continued)

Maturity tenure of collateral The following table provides an analysis of the maturity tenor of collateral received in relation to the reverse repurchase transactions as at the reporting date:

COLLATERAL MARKET VALUE (in Sub-Fund Currency) Sub-Fund Name Euro Liquidity Fund US Dollar Liquidity Fund US Dollar Treasury Liquidity Fund Sterling Liquidity Fund

Sub-Fund Currency

1 day

2 to 6 days

1 to 4 weeks

1 to 3 months

3 to 12 months

more than 1 year

open maturity

EUR

–

763

59,483,105

72,204,386

86,638,378

128,474,390

–

USD

–

–

–

–

–

410,000,027

–

USD

–

–

–

9,410,597

372,541,887

92,349,469

–

GBP

–

–

–

–

7,211,539

196,788,462

–

Maturity tenure of reverse repurchase transactions All transactions as at 31 March 2017 were entered into for a duration of one business day of the respective sub-fund. IV.

Re-use of Collateral

Non-cash collateral received by a Sub-Fund may not be sold, re-invested or pledged. As the collateral in receipt for reverse repurchase transactions is entirely in the form of securities, there is no re-use of this collateral. V.

Safekeeping of Collateral

Collateral Received Whilst there are several Tri-Party Agents who hold the collateral received by the Sub-Funds, it is the Depositary, Bank of New York Mellon (International) Luxembourg Branch, who is ultimately responsible for the safekeeping of the collateral on behalf of these sub-funds. All collateral is held in segregated accounts. Collateral Granted No collateral is granted by the Company as part of the reverse repurchase transactions.

46

MORGAN STANLEY LIQUIDITY FUNDS Appendix 2: Securities Financing Transactions Regulation (Unaudited) (continued) V.

Safekeeping of Collateral (continued)

Return and Cost All returns from reverse repurchase transactions will accrue to the Sub-Funds and are not subject to any returns sharing arrangements with the Management Company, the Investment Advisor or any other third parties. The following table provides an analysis of return and cost in respect of the reverse repurchase transactions for the year ended 31 March 2017: in Sub-fund Currency

Interest received by Sub-Funds

Interest charged to Sub-Funds

EUR

–

US Dollar Liquidity Fund

USD

3,025,995

1,686,722 –

US Dollar Treasury Liquidity Fund

USD

1,364,966

–

Sterling Liquidity Fund

GBP

566,092

–

Sub-Fund Name

Sub-Fund Currency

Euro Liquidity Fund

There are no other direct or indirect costs relating to reverse repurchase transactions.

47