Fitch Rates Morgan Stanley's Institutional Liquidity Funds - Money Market Portfolio 'AAAmmf'

Fitch Ratings has assigned an 'AAAmmf' rating to the Morgan Stanley Institutional Liquidity Fund - Money Market Portfolio managed by Morgan Stanley Investment Management Inc. (MSIM) a wholly owned subsidiary of Morgan Stanley (NYSE: MS).

KEY RATING DRIVERS:

The main drivers for the assigned 'AAAmmf' rating are:

--The fund's investment guidelines mandating overall credit quality, diversification and maturity profile;

--Minimal exposure to interest rate and spread risks;

--The capabilities and resources of MISM as investment adviser.

The 'AAAmmf' rating assignment reflects the fund's extremely strong capacity to achieve its investment objectives of preserving capital and providing shareholder liquidity through limiting credit, market and liquidity risks.

CREDIT QUALITY/DIVERSIFICATION

The fund seeks a high level of current income consistent with liquidity and the preservation of capital by investing in short-term U.S. dollar-denominated debt obligations, including obligations of domestic and foreign banks, commercial paper, municipal securities and repurchase agreements backed by U.S. Treasury and agency securities or investment grade debt securities.

As of Oct. 3, 2014, the fund had $2.5 billion in assets.

Under normal market conditions, the fund invests in securities rated at least 'F1' by Fitch or equivalent or enters into repurchase agreements with counterparties rated at least 'F1' or equivalent.

These investment policies are consistent with Fitch's 'AAAmmf' rating criteria.

MATURITY PROFILE

The fund seeks to manage its market risk exposure by limiting its dollar-weighted average maturity (WAM) and weighted average life to maturity (WAL) to 60 and 120 days, respectively, consistent with Fitch's 'AAAmmf' rating criteria.

LIQUIDITY PROFILE

The fund's additional investment restrictions are aimed at maintaining sufficient levels of daily and weekly liquidity to meet investors' redemption requests. In line with amended Rule 2a-7 under the Investment Company Act of 1940, the fund must invest at least 10% of total assets in daily liquid assets and at least 30% of total assets in weekly liquid assets. As of this rating assignment, the fund fully met these liquidity requirements. In addition, this is consistent with Fitch's 'AAAmmf' rating criteria.

INVESTMENT ADVISER

MSIM, together with its investment advisory affiliates, had more than 570 investment professionals around the world and approximately $396 billion in assets under management or supervision as of June 30, 2014. MSIM provides investment management solutions to a diverse client base, which includes governments, institutions, corporations and individuals worldwide. Fitch views MSIM's investment advisory capabilities, resource commitment, operational controls, corporate governance, and compliance procedures as consistent with the rating assigned to the fund.

Fitch also rates the following money market funds managed by Morgan Stanley Investment Management: Morgan Stanley Institutional Liquidity Funds: Prime Portfolio and Morgan Stanley Institutional Liquidity Funds: Tax-Exempt Portfolio, MS Liquidity Funds - Euro Liquidity Fund, MS Liquidity Funds - Sterling Liquidity Fund and MS Liquidity Funds - US Dollar Liquidity Fund.

MONEY FUND REFORM

Fitch's rating review reflects the current regulatory structure of U.S. MMFs. On July 23, the SEC voted to adopt rule changes to money fund regulations under Rule 2a-7. Under the new rules some money funds would be required to float their net asset values (NAV) and some would have the ability to impose liquidity fees and/or redemption gates at a time of stress. The SEC has provided the industry two years to implement these structural changes.

Given the long implementation period for the reforms, Fitch's rating assignment takes into account the current structure and operations of money funds. So far there have not been material outflows from money funds following adoption of the reforms, but Fitch continues to monitor shareholder flows, as well as funds' liquidity and portfolios. The funds rating may be sensitive to material changes in the credit quality, market risk, and/or liquidity profiles of the funds, or drastic changes in shareholder asset flows.

RATING SENSITIVITIES AND SURVEILLANCE

The rating may be sensitive to material changes in the credit quality or market risk profiles of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch. Furthermore, given the fund investment mandate, the rating may be sensitive to material adverse changes in the U.S. economy, and specifically, the municipal and financial sectors.

Fitch receives weekly fund holdings information and other pertinent fund data from the fund administrator to conduct surveillance against ratings guidelines and maintain its money market fund ratings. For additional information about Fitch money market fund rating criteria, please review the criteria referenced below, which can be found on Fitch's web site.

Applicable Criteria and Related Research

--'Global Money Market Fund Rating Criteria' (Jan. 13, 2014).

Applicable Criteria and Related Research:

Global Money Market Fund Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=727497

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=912315

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