10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission File Number 1-11758

(Exact Name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 1585 Broadway New York, NY 10036 (Address of principal executive offices, including zip code) 36-3145972 (I.R.S. Employer Identification No.) (212) 761-4000 (Registrant’s telephone number, including area code)

November 30

(Former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  x	Accelerated Filer  ¨
Non-Accelerated Filer  ¨	Smaller reporting company  ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 30, 2009, there were 1,081,842,362 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended March 31, 2009

Table of Contents Page

Part I—Financial Information
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Statements of Financial Condition—March 31, 2009, December 31, 2008 and November  30, 2008	1
	Condensed Consolidated Statements of Income—Three Months Ended March 31, 2009 and 2008 and One Month Ended December 31, 2008	3
	Condensed Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2009 and 2008 and One Month Ended December 31, 2008	4
	Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2009 and 2008 and One Month Ended December 31, 2008	5
	Condensed Consolidated Statements of Changes in Total Equity—For the One Month Ended December  31, 2008 and the Three Months Ended March 31, 2009	6
	Condensed Consolidated Statement of Changes in Total Equity—For the Three Months Ended March 31, 2008	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
	Note 1.      Basis of Presentation and Summary of Significant Accounting Policies	8
	Note 2.      Fair Value Disclosures	16
	Note 3.      Collateralized Transactions	31
	Note 4.      Securitization Activities and Variable Interest Entities	33
	Note 5.      Goodwill and Net Intangible Assets	41
	Note 6.      Long-Term Borrowings	42
	Note 7.      Derivative Instruments and Hedging Activities	43
	Note 8.      Commitments, Guarantees and Contingencies	52
	Note 9.      Regulatory Requirements	58
	Note 10.    Total Equity	61
	Note 11.    Earnings per Common Share	63
	Note 12.    Interest and Dividends and Interest Expense	64
	Note 13.    Other Revenues	65
	Note 14.    Employee Benefit Plans	65
	Note 15.    Income Taxes	65
	Note 16.    Segment and Geographic Information	66
	Note 17.    Joint Ventures	69
	Note 18.    Transition Period Financial Information	70
	Note 19.    Subsequent Event	70
	Report of Independent Registered Public Accounting Firm	71
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	72
	Introduction	72
	Executive Summary	74
	Certain Factors Affecting Results of Operations	80
	Business Segments	81
	Other Matters	93
	Critical Accounting Policies	97
	Liquidity and Capital Resources	101
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	114
Item 4.	Controls and Procedures	127
	Financial Data Supplement (Unaudited)	128

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Page

Part II—Other Information
Item 1.	Legal Proceedings	129
Item 1A.	Risk Factors	131
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	132
Item 4.	Submission of Matters to a Vote of Security Holders	132
Item 6.	Exhibits	132

ii

AVAILABLE INFORMATION

Morgan Stanley files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including Morgan Stanley) file electronically with the SEC. Morgan Stanley’s electronic SEC filings are available to the public at the SEC’s internet site, www.sec.gov.

Morgan Stanley’s internet site is www.morganstanley.com. You can access Morgan Stanley’s Investor Relations webpage at www.morganstanley.com/about/ir. Morgan Stanley makes available free of charge, on or through its Investor Relations webpage, its proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Morgan Stanley also makes available, through its Investor Relations webpage, via a link to the SEC’s internet site, statements of beneficial ownership of Morgan Stanley’s equity securities filed by its directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.

Morgan Stanley has a Corporate Governance webpage. You can access information about Morgan Stanley’s corporate governance at www.morganstanley.com/about/company/governance. Morgan Stanley posts the following on its Corporate Governance webpage:

• Amended and Restated Certificate of Incorporation;

• Amended and Restated Bylaws;

• Charters for our Audit Committee; Internal Audit Subcommittee; Compensation, Management Development and Succession Committee; and Nominating and Governance Committee;

• Corporate Governance Policies;

• Policy Regarding Communication with the Board of Directors;

• Policy Regarding Director Candidates Recommended by Shareholders;

• Policy Regarding Corporate Political Contributions;

• Policy Regarding Shareholder Rights Plan;

• Code of Ethics and Business Conduct;

• Code of Conduct; and

• Integrity Hotline.

Morgan Stanley’s Code of Ethics and Business Conduct applies to all directors, officers and employees, including its Chief Executive Officer, its Chief Financial Officer and its Controller and Principal Accounting Officer. Morgan Stanley will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, Inc. on its internet site. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, 1585 Broadway, New York, NY 10036 (212-761-4000). The information on Morgan Stanley’s internet site is not incorporated by reference into this report.

iii

Part I—Financial Information.

Item 1. Financial Statements.

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in millions, except share data)

(unaudited)

	March 31, 2009		December 31, 2008		November 30, 2008
Assets
Cash and due from banks	$	8,019	$	13,354	$	11,276
Interest bearing deposits with banks		40,522		65,316		67,378
Cash deposited with clearing organizations or segregated under federal and other regulations or requirements		23,094		24,039		25,446
Financial instruments owned, at fair value (approximately $70 billion, $73 billion and $62 billion were pledged to various parties at March 31, 2009, December 31, 2008 and November 30, 2008, respectively):
U.S. government and agency securities		26,997		28,012		20,251
Other sovereign government obligations		23,899		21,084		20,071
Corporate and other debt		82,687		87,294		88,484
Corporate equities		34,260		42,321		37,174
Derivative and other contracts		79,149		89,418		99,766
Investments		9,482		10,385		10,598
Physical commodities		2,484		2,126		2,204
Total financial instruments owned, at fair value		258,958		280,640		278,548
Securities received as collateral, at fair value		7,088		5,231		5,217
Federal funds sold and securities purchased under agreements to resell		120,540		122,709		106,419
Securities borrowed		92,589		88,052		85,785
Receivables:
Customers		25,894		29,265		31,294
Brokers, dealers and clearing organizations		6,545		6,250		7,259
Other loans		6,698		6,547		6,528
Fees, interest and other		6,635		7,258		7,034
Other investments		3,816		3,709		3,309
Premises, equipment and software costs (net of accumulated depreciation of $3,206, $3,073 and $3,003 at March 31, 2009, December 31, 2008 and November 30, 2008, respectively)		6,018		5,095		5,057
Goodwill		2,226		2,256		2,243
Intangible assets (net of accumulated amortization of $228, $208 and $200 at March 31, 2009, December 31, 2008 and November 30, 2008, respectively) (includes $159, $184 and $220 at fair value at March 31, 2009, December 31, 2008 and November 30, 2008, respectively)		849		906		947
Other assets		16,532		16,137		15,295
Total assets	$	626,023	$	676,764	$	659,035

See Notes to Condensed Consolidated Financial Statements.

1

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

(dollars in millions, except share data)

(unaudited)

	March 31, 2009			December 31, 2008			November 30, 2008
Liabilities and Shareholders’ Equity
Commercial paper and other short-term borrowings (includes $1,074, $1,246 and $1,412 at fair value at March 31, 2009, December 31, 2008 and November 30, 2008, respectively)	$	3,411		$	10,102		$	10,483
Deposits (includes $10,677, $9,993 and $6,008 at fair value at March 31, 2009, December 31, 2008 and November 30, 2008, respectively)		59,922			51,355			42,755
Financial instruments sold, not yet purchased, at fair value:
U.S. government and agency securities		7,854			11,902			10,156
Other sovereign government obligations		10,866			9,511			9,360
Corporate and other debt		8,832			9,927			9,361
Corporate equities		18,445			16,840			16,547
Derivative and other contracts		54,088			68,554			73,521
Physical commodities		—			33			—
Total financial instruments sold, not yet purchased, at fair value		100,085			116,767			118,945
Obligation to return securities received as collateral, at fair value		7,088			5,231			5,217
Securities sold under agreements to repurchase		69,641			92,213			102,401
Securities loaned		19,106			14,580			14,821
Other secured financings, at fair value		10,515			12,539			12,527
Payables:
Customers		108,213			123,617			115,225
Brokers, dealers and clearing organizations		1,719			1,585			3,141
Interest and dividends		3,022			3,305			2,584
Other liabilities and accrued expenses		11,986			16,179			15,963
Long-term borrowings (includes $31,258, $30,766 and $28,830 at fair value at March 31, 2009, December 31, 2008 and November 30, 2008, respectively)		182,108			179,835			163,437
		576,816			627,308			607,499
Commitments and contingencies
Equity
Morgan Stanley shareholders’ equity:
Preferred stock		19,208			19,168			19,155
Common stock, $0.01 par value;
Shares authorized: 3,500,000,000 at March 31, 2009, December 31, 2008 and November 30, 2008;
Shares issued: 1,211,701,552 at March 31, 2009, December 31, 2008 and November 30, 2008;
Shares outstanding: 1,081,607,788 at March 31, 2009, 1,074,497,565 at December 31, 2008 and 1,047,598,394 at November 30, 2008		12			12			12
Paid-in capital		429			459			1,619
Retained earnings		35,577			36,154			38,096
Employee stock trust		4,167			4,312			3,901
Accumulated other comprehensive loss		(471	)		(420	)		(125	)
Common stock held in treasury, at cost, $0.01 par value; 130,093,764 shares at March 31, 2009, 137,203,987 shares at December 31, 2008 and 164,103,158 shares at November 30, 2008		(6,233	)		(6,620	)		(7,926	)
Common stock issued to employee trust		(4,167	)		(4,312	)		(3,901	)
Total Morgan Stanley shareholders’ equity		48,522			48,753			50,831
Non-controlling interests		685			703			705
Total equity		49,207			49,456			51,536
Total liabilities and equity	$	626,023		$	676,764		$	659,035

See Notes to Condensed Consolidated Financial Statements.

2

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollars in millions, except share and per share data)

(unaudited)

	Three Months Ended March 31,						One Month Ended December 31,
	2009			2008			2008
Revenues:
Investment banking	$	886		$	971		$	198
Principal transactions:
Trading		1,091			2,793			(1,714	)
Investments		(1,272	)		(516	)		(205	)
Commissions		772			1,265			215
Asset management, distribution and administration fees		984			1,473			335
Other		432			1,015			238
Total non-interest revenues		2,893			7,001			(933	)
Interest and dividends		2,524			12,712			1,145
Interest expense		2,375			11,796			1,017
Net interest		149			916			128
Net revenues		3,042			7,917			(805	)
Non-interest expenses:
Compensation and benefits		2,082			3,843			615
Occupancy and equipment		342			292			125
Brokerage, clearing and exchange fees		269			470			101
Information processing and communications		296			311			99
Marketing and business development		118			197			37
Professional services		326			369			117
Other		494			397			110
Total non-interest expenses		3,927			5,879			1,204
Income (loss) before income taxes		(885	)		2,038			(2,009	)
(Benefit from) provision for income taxes		(695	)		606			(724	)
Net income (loss)	$	(190	)	$	1,432		$	(1,285	)
Net income (loss) applicable to non-controlling interests	$	(13	)	$	19		$	3
Net income (loss) applicable to Morgan Stanley	$	(177	)	$	1,413		$	(1,288	)
Earnings (losses) applicable to Morgan Stanley common shareholders	$	(578	)	$	1,311		$	(1,624	)
Earnings (losses) per basic common share	$	(0.57	)	$	1.27		$	(1.62	)
Earnings (losses) per diluted common share	$	(0.57	)	$	1.26		$	(1.62	)
Average common shares outstanding:
Basic		1,011,741,210			1,034,342,428			1,002,058,928
Diluted		1,011,741,210			1,039,026,879			1,002,058,928

See Notes to Condensed Consolidated Financial Statements.

3

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

	Three Months Ended March 31,						One Month Ended December 31,
	2009			2008			2008
	(unaudited)						(unaudited)
Net income (loss)	$	(190	)	$	1,432		$	(1,285	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(1)		(59	)		42			(96	)
Net change in cash flow hedges(2)		3			3			2
Net gain (loss) related to pension and other postretirement adjustments(3)		—			—			(200	)
Amortization of net loss related to pension and postretirement benefits(4)		7			5			—
Amortization of prior service credit related to pension and postretirement benefits(5)		(2	)		(1	)		(1	)
Comprehensive income (loss)	$	(241	)	$	1,481		$	(1,580	)
Comprehensive income (loss) applicable to non-controlling interests	$	(13	)	$	19		$	3
Comprehensive income (loss) applicable to Morgan Stanley	$	(228	)	$	1,462		$	(1,583	)

(1) Amounts are net of provision for (benefit from) income taxes of $31 million and $(161) million for the quarters ended March 31, 2009 and March 31, 2008, respectively, and $(52) million for the one month period ended December 31, 2008.

(2) Amounts are net of provision for (benefit from) income taxes of $2 million for the quarters ended March 31, 2009 and March 31, 2008, respectively, and $1 million for the one month period ended December 31, 2008.

(3) Amounts are net of provision for (benefit from) income taxes of $(132) million for the one month period ended December 31, 2008.

(4) Amounts are net of provision for (benefit from) income taxes of $4 million and $3 million for the quarters ended March 31, 2009 and March 31, 2008, respectively.

(5) Amounts are net of provision for (benefit from) income taxes of $(1) million for the quarters ended March 31, 2009 and March 31, 2008.

See Notes to Condensed Consolidated Financial Statements.

4

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

	Three Months Ended March 31,						One Month Ended December 31, 2008
	2009			2008
	(unaudited)						(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(190	)	$	1,432		$	(1,285	)
Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities:
Compensation payable in common stock and options		204			657			79
Depreciation and amortization		155			81			104
Loss (gain) on business dispositions		19			(698	)		—
Impairment charges		278			—			—
Changes in assets and liabilities:
Cash deposited with clearing organizations or segregated under federal and other regulations or requirements		945			(1,552	)		1,407
Financial instruments owned, net of financial instruments sold, not yet purchased		1,711			6,499			2,412
Securities borrowed		(4,537	)		(19,204	)		(2,267	)
Securities loaned		4,526			(34,993	)		(241	)
Receivables and other assets		2,771			6,902			1,479
Payables and other liabilities		(18,000	)		55,257			10,625
Federal funds sold and securities purchased under agreements to resell		2,169			(31,442	)		(16,290	)
Securities sold under agreements to repurchase		(22,572	)		16,978			(10,188	)
Net cash (used for) provided by operating activities		(32,521	)		(83	)		(14,165	)
CASH FLOWS FROM INVESTING ACTIVITIES
Net (payments for) proceeds from:
Premises, equipment and software costs		(1,127	)		(520	)		(107	)
Business acquisition, net of cash acquired		—			(8	)		—
Business dispositions		(8	)		752			—
Net cash (used for) provided by investing activities		(1,135	)		224			(107	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments for) proceeds from:
Short-term borrowings		(6,691	)		(4,353	)		(381	)
Derivatives financing activities		(53	)		(1,448	)		(3,354	)
Other secured financings		(2,024	)		15,115			12
Deposits		8,567			4,001			8,600
Excess tax benefits associated with stock-based awards		10			39			—
Net proceeds from:
Issuance of common stock		19			207			4
Issuance of long-term borrowings		19,433			8,859			13,590
Payments for:
Repayments of long-term borrowings		(14,414	)		(13,260	)		(5,694	)
Repurchases of common stock for employee tax withholding		(14	)		(55	)		(3	)
Cash dividends		(645	)		(314	)		—
Net cash provided by financing activities		4,188			8,791			12,774
Effect of exchange rate changes on cash and cash equivalents		(661	)		685			1,514
Net (decrease) increase in cash and cash equivalents		(30,129	)		9,617			16
Cash and cash equivalents, at beginning of period		78,670			24,659			78,654
Cash and cash equivalents, at end of period	$	48,541		$	34,276		$	78,670
Cash and cash equivalents include:
Cash and due from banks	$	8,019		$	11,077		$	13,354
Interest bearing deposits with banks		40,522			23,199			65,316
Cash and cash equivalents, at end of period	$	48,541		$	34,276		$	78,670

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash payments for interest were $2,360 million and $11,594 million for the quarters ended March 31, 2009 and March 31, 2008, respectively, and $867 million for the one month period ended December 31, 2008.

Cash payments for income taxes were $97 million and $157 million for the quarters ended March 31, 2009 and March 31, 2008, respectively, and $113 million for the one month period ended December 31, 2008.

See Notes to Condensed Consolidated Financial Statements.

5

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY

For the One Month Ended December 31, 2008 and the Three Months Ended March 31, 2009

(dollars in millions)

(unaudited)

	Preferred Stock		Common Stock		Paid-in Capital			Retained Earnings			Employee Stock Trust			Accumulated Other Comprehensive Income (Loss)			Common Stock Held in Treasury at Cost			Common Stock Issued to Employee Trust			Non- controlling Interest			Total Equity
BALANCE AT NOVEMBER 30, 2008	$	19,155	$	12	$	1,619		$	38,096		$	3,901		$	(125	)	$	(7,926	)	$	(3,901	)	$	705		$	51,536
Net income (loss)		—		—		—			(1,288	)		—			—			—			—			3			(1,285	)
Dividends		—		—		—			(641	)		—			—			—			—			(5	)		(646	)
Issuance of common stock		—		—		(1,305	)		—			—			—			1,309			—			—			4
Repurchases of common stock		—		—		—			—			—			—			(3	)		—			—			(3	)
Preferred stock accretion		13		—		—			(13	)		—			—			—			—			—			—
Compensation payable in common stock and options		—		—		150			—			411			—			—			(411	)		—			150
Net excess tax benefits (shortfall) associated with stock-based awards		—		—		(4	)		—			—			—			—			—			—			(4	)
Employee tax withholdings and other		—		—		(1	)		—			—			—			—			—			—			(1	)
Net change in cash flow hedges		—		—		—			—			—			2			—			—			—			2
Pension and other postretirement adjustments		—		—		—			—			—			(201	)		—			—			—			(201	)
Foreign currency translation adjustments		—		—		—			—			—			(96	)		—			—			—			(96	)
BALANCE AT DECEMBER 31, 2008	$	19,168	$	12	$	459		$	36,154		$	4,312		$	(420	)	$	(6,620	)	$	(4,312	)	$	703		$	49,456
Net income (loss)		—		—		—			(177	)		—			—			—			—			(13	)		(190	)
Dividends		—		—		—			(360	)		—			—			—			—			(5	)		(365	)
Issuance of common stock		—		—		(103	)		—			—			—			122			—			—			19
Repurchases of common stock		—		—		—			—			—			—			(14	)		—			—			(14	)
Preferred stock accretion		40		—					(40	)		—			—			—			—			—			—
Compensation payable in common stock and options		—		—		92			—			(145	)		—			279			145			—			371
Net excess tax benefits (shortfall) associated with stock-based awards		—		—		(19	)		—			—			—			—			—			—			(19	)
Net change in cash flow hedges		—		—		—			—			—			3			—			—			—			3
SFAS No. 158 pension adjustment		—		—		—			—			—			5			—			—			—			5
Foreign currency translation adjustments		—		—		—			—			—			(59	)		—			—			—			(59	)
BALANCE AT MARCH 31, 2009	$	19,208	$	12	$	429		$	35,577		$	4,167		$	(471	)	$	(6,233	)	$	(4,167	)	$	685		$	49,207

See Notes to Condensed Consolidated Financial Statements.

6

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY

For the Three Months Ended March 31, 2008

(dollars in millions)

(unaudited)

	Preferred Stock		Common Stock		Other Morgan Stanley Common Equity			Non- controlling Interest			Total Equity
BALANCE AT DECEMBER 31, 2007	$	1,100	$	12	$	30,665		$	1,571		$	33,348
Net income		—		—		1,413			19			1,432
Dividends		—		—		(314	)		(7	)		(321	)
Issuance of common stock		—		—		207			—			207
Repurchases of common stock		—		—		(55	)		—			(55	)
Compensation payable in common stock and options		—		—		925			—			925
Net excess tax benefits associated with stock-based awards		—		—		36			—			36
Employee tax withholdings and other		—		—		3			—			3
Net change in cash flow hedges		—		—		3			—			3
SFAS No. 158 pension adjustment		—		—		(15	)		—			(15	)
FIN 48 tax adjustment		—		—		(45	)		—			(45	)
Foreign currency translation adjustments		—		—		42			—			42
BALANCE AT MARCH 31, 2008	$	1,100	$	12	$	32,865		$	1,583		$	35,560

See Notes to Condensed Consolidated Financial Statements.

7

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation and Summary of Significant Accounting Policies.

The Company.    Morgan Stanley (or the “Company”) is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Global Wealth Management Group and Asset Management.

A summary of the activities of each of the Company’s business segments is as follows:

Institutional Securities includes capital raising; financial advisory services, including advice on mergers and acquisitions, restructurings, real estate and project finance; corporate lending; sales, trading, financing and market-making activities in equity and fixed income securities and related products, including foreign exchange and commodities; benchmark indices and risk management analytics; and investment activities.

Global Wealth Management Group provides brokerage and investment advisory services covering various investment alternatives; financial and wealth planning services; annuity and other insurance products; credit and other lending products; cash management services; retirement services; and trust and fiduciary services.

Asset Management provides global asset management products and services in equity, fixed income, alternative investments, which includes hedge funds and funds of funds, and merchant banking, which includes real estate, private equity and infrastructure, to institutional and retail clients through proprietary and third-party distribution channels. Asset Management also engages in investment activities.

Change in Fiscal Year End.

On December 16, 2008, the Board of Directors of the Company approved a change in the Company’s fiscal year end from November 30 to December 31 of each year. This change to the calendar year reporting cycle began January 1, 2009. As a result of the change, the Company had a one month transition period in December 2008. The unaudited results for the one month period ended December 31, 2008 are included in this report. The Company has also included selected unaudited results for the one month period ended December 31, 2007 for comparative purposes in Note 18. The audited results for the one month period ended December 31, 2008 will be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

In addition, the results for the quarter ended March 31, 2009 are compared with the results of the quarter ended March 31, 2008, which have been recast on a calendar basis due to the change in the Company’s fiscal year end from November 30 to December 31.

Basis of Financial Information.    The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which require the Company to make estimates and assumptions regarding the valuations of certain financial instruments, the valuation of goodwill, the outcome of litigation and tax matters, incentive-based accruals and other matters that affect the condensed consolidated financial statements and related disclosures. The Company believes that the estimates utilized in the preparation of the condensed consolidated financial statements are prudent and reasonable. Actual results could differ materially from these estimates.

Certain reclassifications have been made to prior-period amounts to conform to the current period’s presentation. All material intercompany balances and transactions have been eliminated.

The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008 (the “Form 10-K”). The condensed consolidated financial statements reflect all

8

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

adjustments that are, in the opinion of management, necessary for the fair statement of the results for the interim period. The results of operations for interim periods are not necessarily indicative of results for the entire year.

Consolidation.    The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and other entities in which the Company has a controlling financial interest including certain variable interest entities (“VIEs”). The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”) on January 1, 2009. Accordingly, for consolidated subsidiaries that are less than wholly owned, the third-party holdings of equity interests are referred to as non-controlling interests. The portion of net income attributable to non-controlling interests for such subsidiaries is presented as Net income (loss) applicable to non-controlling interests on the condensed consolidated statements of income, and the portion of the shareholders’ equity of such subsidiaries is presented as Non-controlling interests on the condensed consolidated statements of financial condition.

For entities where (1) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (2) the equity holders bear the economic residual risks of the entity and have the right to make decisions about the entity’s activities, the Company consolidates those entities it controls through a majority voting interest or otherwise. For entities that do not meet these criteria, commonly known as VIEs, the Company consolidates those entities where the Company is deemed to be the primary beneficiary when it absorbs a majority of the expected losses or a majority of the expected residual returns, or both, of such entities.

Notwithstanding the above, certain securitization vehicles, commonly known as qualifying special purpose entities (“QSPEs”), are not consolidated by the Company if they meet certain criteria regarding the types of assets and derivatives they may hold, the types of sales they may engage in and the range of discretion they may exercise in connection with the assets they hold (see Note 4).

For investments in entities in which the Company does not have a controlling financial interest but has significant influence over operating and financial decisions, the Company generally applies the equity method of accounting with net gains and losses recorded within Other revenues. Where the Company has elected to measure certain eligible investments at fair value in accordance with SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”) net gains and losses are recorded within Principal transactions—investments (see Note 2).

Equity and partnership interests held by entities qualifying for accounting purposes as investment companies are carried at fair value.

The Company’s U.S. and international subsidiaries include Morgan Stanley & Co. Incorporated (“MS&Co.”), Morgan Stanley & Co. International plc (“MSIP”), Morgan Stanley Japan Securities Co., Ltd. (“MSJS”) and Morgan Stanley Investment Advisors Inc.

Income Statement Presentation.    The Company, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. In connection with the delivery of the various products and services to clients, the Company manages its revenues and related expenses in the aggregate. As such, when assessing the performance of its businesses, the Company considers its principal trading, investment banking, commissions, and interest and dividend income, along with the associated interest expense, as one integrated activity for each of the Company’s separate businesses.

Revenue Recognition.

Investment Banking.    Underwriting revenues and advisory fees from mergers, acquisitions and restructuring transactions are recorded when services for the transactions are determined to be completed, generally as set

9

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

forth under the terms of the engagement. Transaction-related expenses, primarily consisting of legal, travel and other costs directly associated with the transaction, are deferred and recognized in the same period as the related investment banking transaction revenue. Underwriting revenues are presented net of related expenses. Non-reimbursed expenses associated with advisory transactions are recorded within Non-interest expenses.

Commissions.    The Company generates commissions from executing and clearing customer transactions on stock, options and futures markets. Commission revenues are recognized in the accounts on trade date.

Asset Management, Distribution and Administration Fees.    Asset management, distribution and administration fees are recognized over the relevant contract period. Sales commissions paid by the Company in connection with the sale of certain classes of shares of its open-end mutual fund products are accounted for as deferred commission assets. The Company periodically tests the deferred commission assets for recoverability based on cash flows expected to be received in future periods. In certain management fee arrangements, the Company is entitled to receive performance-based fees (also referred to as incentive fees) when the return on assets under management exceeds certain benchmark returns or other performance targets. In such arrangements, performance fee revenue is accrued (or reversed) quarterly based on measuring account/fund performance to date versus the performance benchmark stated in the investment management agreement. Performance-based fees are recorded within Principal transactions—investment revenues or Asset management, distribution and administration fees depending on the nature of the arrangement.

Financial Instruments and Fair Value.

A significant portion of the Company’s financial instruments is carried at fair value with changes in fair value recognized in earnings each period. A description of the Company’s policies regarding fair value measurement and its application to these financial instruments follows.

Financial Instruments Measured at Fair Value.    All of the instruments within Financial instruments owned and Financial instruments sold, not yet purchased, are measured at fair value, either through the fair value option election (discussed below) or as required by other accounting pronouncements. These financial instruments primarily represent the Company’s trading and investment activities and include both cash and derivative products. In addition, Securities received as collateral and Obligation to return securities received as collateral are measured at fair value as required by other accounting pronouncements. Additionally, certain Commercial paper and other short-term borrowings (primarily structured notes), certain Deposits, Other secured financings and certain Long-term borrowings (primarily structured notes and certain junior subordinated debentures) are measured at fair value through the fair value option election.

Gains and losses on all of these financial instruments carried at fair value are reflected in Principal transactions—trading revenues, Principal transactions—investment revenues or Investment banking revenues in the condensed consolidated statements of income, except for derivatives accounted for as hedges (see “Hedge Accounting” section herein and Note 7). Interest income and expense and dividend income are recorded within the condensed consolidated statements of income depending on the nature of the instrument and related market conventions. When interest and dividends are included as a component of the instruments’ fair value, interest and dividends are included within Principal transactions—trading revenues or Principal transactions—investment revenues. Otherwise, they are included within Interest and dividend income or Interest expense. The fair value of over-the-counter (“OTC”) financial instruments, including derivative contracts related to financial instruments and commodities, is presented in the accompanying condensed consolidated statements of financial condition on a net-by-counterparty basis, when appropriate. Additionally, the Company nets fair value of cash collateral paid or received against fair value amounts recognized for net derivative positions executed with the same counterparty under the same master netting arrangement.

10

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Fair Value Option.    SFAS No. 159 permits the irrevocable fair value option election on an instrument-by-instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company applies the fair value option for eligible instruments, including certain loans and lending commitments, certain equity method investments, certain structured notes, certain junior subordinated debentures, certain time deposits and certain other secured financings.

Fair Value Measurement—Definition and Hierarchy.    Under the provisions of SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), effective December 1, 2006, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. SFAS No. 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

• Level 2—Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

• Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or Level 2 to Level 3 (see Note 2). In addition, a continued downturn in market conditions could lead to further declines in the valuation of many instruments.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

11

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Valuation Techniques.    Many cash and OTC contracts have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that a party is willing to pay for an asset. Ask prices represent the lowest price that a party is willing to accept for an asset. For financial instruments whose inputs are based on bid-ask prices, the Company does not require that the fair value estimate always be a predetermined point in the bid-ask range. The Company’s policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets the Company’s best estimate of fair value. For offsetting positions in the same financial instrument, the same price within the bid-ask spread is used to measure both the long and short positions.

Fair value for many cash and OTC contracts is derived using pricing models. Pricing models take into account the contract terms (including maturity) as well as multiple inputs, including, where applicable, commodity prices, equity prices, interest rate yield curves, credit curves, correlation, creditworthiness of the counterparty, option volatility and currency rates. Where appropriate, valuation adjustments are made to account for various factors such as liquidity risk (bid-ask adjustments), credit quality and model uncertainty. Credit valuation adjustments are applied to both cash instruments and OTC derivatives. For cash instruments, the impact of changes in the Company’s own credit spreads is considered when measuring the fair value of liabilities and the impact of changes in the counterparty’s credit spreads is considered when measuring the fair value of assets. For OTC derivatives, the impact of changes in both the Company’s and the counterparty’s credit standing is considered when measuring fair value. In determining the expected exposure, the Company considers collateral held and legally enforceable master netting agreements that mitigate the Company’s exposure to each counterparty. All valuation adjustments are subject to judgment, are applied on a consistent basis and are based upon observable inputs where available. The Company generally subjects all valuations and models to a review process initially and on a periodic basis thereafter.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that the Company believes market participants would use in pricing the asset or liability at the measurement date.

See Note 2 for a description of valuation techniques applied to the major categories of financial instruments measured at fair value.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis.    Certain of the Company’s assets are measured at fair value on a non-recurring basis. The Company incurs impairment charges for any write downs of these assets to fair value. A continued downturn in market conditions could result in impairment charges in future periods.

For assets and liabilities measured at fair value on a non-recurring basis, fair value is determined by using various valuation approaches. The same hierarchy as described above, which maximizes the use of observable inputs and minimizes the use of unobservable inputs, by generally requiring that the observable inputs be used when available, is used in measuring fair value for these items.

For further information on financial assets and liabilities that are measured at fair value on a recurring and non-recurring basis, see Note 2.

Hedge Accounting.

The Company applies hedge accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) using various derivative financial instruments and non-U.S. dollar-denominated debt used to hedge interest rate and foreign exchange risk arising from assets and liabilities not held at fair value as part of asset liability management. These derivative financial instruments are included within Financial instruments owned—Derivative and other contracts or Financial instruments sold, not yet purchased—Derivative and other contracts in the condensed consolidated statements of financial condition.

12

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The Company’s hedges are designated and qualify for accounting purposes as one of the following types of hedges: hedges of changes in fair value of assets and liabilities due to the risk being hedged (fair value hedges), hedges of the variability of future cash flows from floating rate assets and liabilities due to the risk being hedged (cash flow hedges) and hedges of net investments in foreign operations whose functional currency is different from the reporting currency of the parent company (net investment hedges).

For further information on derivative instruments and hedging activities, see Note 7.

Condensed Consolidated Statements of Cash Flows.

For purposes of the condensed consolidated statements of cash flows, cash and cash equivalents consist of Cash and due from banks and Interest bearing deposits with banks, which are highly liquid investments with original maturities of three months or less and readily convertible to known amounts of cash. The Company’s significant non-cash activities include assumed liabilities, in connection with business acquisitions, of $22 million in the quarter ended March 31, 2008.

Securitization Activities.

The Company engages in securitization activities related to commercial and residential mortgage loans, corporate bonds and loans, U.S. agency collateralized mortgage obligations and other types of financial assets (see Note 4). Generally, such transfers of financial assets are accounted for as sales when the Company has relinquished control over the transferred assets. The gain or loss on sale of such financial assets depends, in part, on the previous carrying amount of the assets involved in the transfer allocated between the assets sold and the retained interests based upon their respective fair values at the date of sale. Transfers that are not accounted for as sales are treated as secured financings (“failed sales”).

Earnings per Common Share.

Basic earnings per common share (“EPS”) is computed by dividing income available to Morgan Stanley common shareholders by the weighted average number of common shares outstanding for the period. Income available to Morgan Stanley common shareholders represents net income applicable to Morgan Stanley reduced by preferred stock dividends, amortization of discounts on preferred stock issued and allocations of earnings to participating securities. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied either the explicit vesting terms or retirement-eligible requirements. Diluted EPS reflects the assumed conversion of all dilutive securities.

Effective October 13, 2008, as a result of the adjustment to Equity Units sold to a wholly owned subsidiary of China Investment Corporation Ltd. (“CIC”) (see Note 10), the Company calculates earnings per common share in accordance with the Emerging Issues Task Force (“EITF”) No. 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share” (“EITF 03-6”). EITF 03-6 addresses the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company along with common shareholders according to a predetermined formula. The two-class method requires the Company to present earnings per common share as if all of the earnings for the period are distributed to Morgan Stanley common shareholders and any participating securities, regardless of whether any actual dividends or distributions are made. The amount allocated to the participating securities is based upon the contractual terms of their respective contract and is reflected as a reduction to “Net income applicable to Morgan Stanley common shareholders” for

13

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

both the Company’s basic and diluted earnings per share calculations (see Note 11). The two-class method does not impact the Company’s actual net income applicable to Morgan Stanley or other financial results. Unless contractually required by the terms of the participating securities, no losses are allocated to participating securities for purposes of the earnings per share calculation under the two-class method.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method as described in SFAS No. 128, “Earnings per Share.” Under the guidance in FSP EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 became effective for the Company on January 1, 2009. All prior-period earnings per share data presented have been adjusted retrospectively. The adoption of FSP EITF 03-6-1 reduced basic earnings per share by $0.08 and $0.01 for the quarter ended March 31, 2008 and the one month period ended December 31, 2008, respectively, and reduced diluted earnings per share by $0.06 and $0.01 for the quarter ended March 31, 2008 and the one month period ended December 31, 2008, respectively.

Deferred Compensation Arrangements.

Deferred Compensation Plans.    The Company also maintains various deferred compensation plans for the benefit of certain employees that provide a return to the participating employees based upon the performance of various referenced investments. The Company often invests directly, as a principal, in such referenced investments related to its obligations to perform under the deferred compensation plans. Changes in value of such investments made by the Company are recorded primarily in Principal transactions—Investments. Expenses associated with the related deferred compensation plans are recorded in Compensation and benefits.

Accounting Developments.

Dividends on Share-Based Payment Awards.    In June 2007, the EITF reached consensus on Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF No. 06-11”). EITF No. 06-11 requires that the tax benefit related to dividend equivalents paid on restricted stock units that are expected to vest be recorded as an increase to additional paid-in capital. The Company adopted EITF No. 06-11 prospectively effective December 1, 2008. The Company previously accounted for this tax benefit as a reduction to its income tax provision. The adoption of EITF No. 06-11 did not have a material impact on the Company’s condensed consolidated financial statements.

Transfers of Financial Assets and Repurchase Financing Transactions.    In February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP FAS No. 140-3”). The objective of FSP FAS No. 140-3 is to provide implementation guidance on accounting for a transfer of a financial asset and repurchase financing. Under the guidance in FSP FAS No. 140-3, there is a presumption that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (i.e., a linked transaction) for purposes of evaluation under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS No. 140”). If certain criteria are met, however, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under SFAS No. 140. The adoption of FSP FAS 140-3 on December 1, 2008 did not have a material impact on the Company’s condensed consolidated financial statements.

14

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Determination of the Useful Life of Intangible Assets.    In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 removes the requirement of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) for an entity to consider, when determining the useful life of an acquired intangible asset, whether the intangible asset can be renewed without substantial cost or material modifications to the existing terms and conditions associated with the intangible asset. FSP FAS 142-3 replaces the previous useful-life assessment criteria with a requirement that an entity shall consider its own experience in renewing similar arrangements. If the entity has no relevant experience, it would consider market participant assumptions regarding renewal. The adoption of FSP FAS 142-3 on January 1, 2009 did not have a material impact on the Company’s condensed consolidated financial statements.

Instruments Indexed to an Entity’s Own Stock.    In June 2008, the FASB ratified the consensus reached by the EITF on Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No. 07-5”). EITF No. 07-5 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. EITF No. 07-5 applies to any freestanding financial instrument or embedded feature that has all of the characteristics of a derivative or freestanding instrument that is potentially settled in an entity’s own stock (with the exception of share-based payment awards within the scope of SFAS 123(R)). To meet the definition of “indexed to own stock,” an instrument’s contingent exercise provisions must not be based on (a) an observable market, other than the market for the issuer’s stock (if applicable), or (b) an observable index, other than an index calculated or measured solely by reference to the issuer’s own operations, and the variables that could affect the settlement amount must be inputs to the fair value of a “fixed-for-fixed” forward or option on equity shares. The adoption of EITF No. 07-5 on January 1, 2009 did not change the classification or measurement of the Company’s financial instruments.

Transfers of Financial Assets and Extinguishments of Liabilities and Consolidation of Variable Interest Entities.    In September 2008, the FASB issued for comment revisions to SFAS No. 140 and FASB Interpretation No. 46, as revised (“FIN 46R”), “Consolidation of Variable Interest Entities.” The changes proposed include a removal of the scope exemption from FIN 46R for QSPEs, a revision of the current risks and rewards-based FIN 46R consolidation model to a qualitative model based on control and a requirement that consolidation of VIEs be reevaluated on an ongoing basis. Although the revised standards have not yet been finalized, these changes may have a significant impact on the Company’s condensed consolidated financial statements as the Company may be required to consolidate QSPEs to which the Company has previously sold assets. In addition, the Company may also be required to consolidate other VIEs that are not currently consolidated based on an analysis under the current FIN 46R consolidation model. The proposed revisions, as currently drafted, would be effective for fiscal years that begin after November 15, 2009.

Disclosures about Postretirement Benefit Plan Assets.    In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP FAS 132(R)-1). FSP FAS 132(R)-1 amends SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets required by this FSP shall be provided for fiscal years ending after December 15, 2009.

Guidance and Disclosures on Fair Value Measurements.    In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”(“FSP FAS 157-4”) and FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1).”

15

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

FSP FAS 157-4 provides additional application guidance in determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms what SFAS No. 157 states is the objective of fair value measurement—to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The Company plans to adopt FSP FAS 157-4 in the second quarter of 2009 and does not expect such adoption to have a material impact on the Company’s condensed consolidated financial statements.

FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting” by requiring an entity to provide qualitative and quantitative information on a quarterly basis about fair value estimates for any financial instruments not measured on the balance sheet at fair value. The Company plans to adopt the disclosure requirements of FSP FAS 107-1 and APB 28-1 in the second quarter of 2009.

2.    Fair Value Disclosures.

Fair Value Measurements.

A description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis follows.

Financial Instruments Owned and Financial Instruments Sold, Not Yet Purchased

U.S. Government and Agency Securities

• U.S. Government Securities.    U.S. government securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. government securities are categorized in Level 1 of the fair value hierarchy.

• U.S. Agency Securities.    U.S. agency securities are comprised of two main categories consisting of agency issued debt and mortgage pass-throughs. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. Mortgage pass-throughs include To-be-announced (“TBA”) securities and mortgage pass-through pools. TBA securities are generally valued using quoted market prices or are benchmarked thereto. Fair value of mortgage pass-through pools are model driven with respect to spreads of the comparable TBA security. Actively traded non-callable agency issued debt securities and TBA securities are categorized in Level 1 of the fair value hierarchy. Callable agency issued debt securities and mortgage pass-through certificates are generally categorized in Level 2 of the fair value hierarchy.

Other Sovereign Government Obligations

• Foreign sovereign government obligations are valued using quoted prices in active markets when available. To the extent quoted prices are not available, fair value is determined based on a valuation model that has as inputs interest rate yield curves, cross-currency basis index spreads, and country credit spreads for structures similar to the bond in terms of issuer, maturity and seniority. These bonds are generally categorized in Levels 1 or 2 of the fair value hierarchy.

16

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Corporate and Other Debt

• Corporate Bonds.    The fair value of corporate bonds is estimated using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads adjusted for any basis difference between cash and derivative instruments. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that reference a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default swap spreads and recovery rates based on collateral values as significant inputs. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the hierarchy.

• Corporate Loans and Lending Commitments.    The fair value of corporate loans is estimated using recently executed transactions, market price quotations (where observable) and market observable loan credit default swap spread levels adjusted for any basis difference between cash and derivative instruments, along with proprietary valuation models and default recovery analysis where such transactions and quotations are unobservable. The fair value of contingent corporate lending commitments is estimated by using executed transactions on comparable loans and the anticipated market price based on pricing indications from syndicate banks and customers. The valuation of these commitments also takes into account certain fee income. Corporate loans and lending commitments are generally categorized in Level 2 of the fair value hierarchy; in instances where prices or significant spread inputs are unobservable, they are categorized in Level 3 of the hierarchy.

• Municipal Bonds.    The fair value of municipal bonds is estimated using recently executed transactions, market price quotations and pricing models that factor in, where applicable, interest rates, bond or credit default swap spreads and volatility. These bonds are generally categorized in Level 2 of the fair value hierarchy.

• Mortgage Loans.    Mortgage loans are valued using prices based on trade data for identical or comparable instruments. Where observable prices are not available, the Company estimates fair value based on benchmarking to prices and rates observed in the primary market for similar loan or borrower types, or based on the present value of expected future cash flows using its best estimates of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved. Due to the subjectivity involved in comparability assessment related to mortgage loan vintage, geographical concentration, prepayment speed and projected loss assumptions, the majority of loans are classified in Level 3 of the fair value hierarchy.

• Commercial Mortgage-Backed Securities (“CMBS”), Residential Mortgage-Backed Securities (“RMBS”), and other Asset-Backed Securities (“ABS”).    CMBS, RMBS and other ABS may be valued based on external price or spread data. When position-specific external price data are not observable, the valuation is based on prices of comparable bonds. Valuation levels of CMBS and RMBS indices are used as an additional data point for benchmarking purposes or to price outright index positions. CMBS, RMBS and other ABS are categorized in Level 3 if external prices or spread inputs are unobservable or if the comparability assessment involves significant subjectivity related to property type differences, cash flows, performance and other inputs; otherwise, they are categorized in Level 2 of the fair value hierarchy.

• Auction Rate Securities (“ARS”).    The Company primarily holds investments in Student Loan Auction Rate Securities (“SLARS”) and Municipal Auction Rate Securities (“MARS”) with interest rates that are reset through periodic auctions. SLARS are ABS backed by pools of student loans. MARS are municipal bonds often wrapped by municipal bond insurance. ARS were historically traded and valued as floating

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(UNAUDITED)

rate notes, priced at par due to the auction mechanism. Beginning in fiscal 2008, uncertainties in the credit markets have resulted in auctions failing for certain types of ARS. Once the auctions failed, ARS could no longer be valued using observations of auction market prices. Accordingly, the fair value of ARS is determined using independent external market data where available and an internally developed methodology to discount for the lack of liquidity and non-performance risk in the current market environment.

The key drivers that impact the valuation of SLARS are the underlying collateral types, amount of leverage in each structure, credit rating and liquidity considerations. The key drivers that impact the valuation of MARS are independent external market data, the maximum rate, quality of underlying issuers/insurers and evidence of issuer calls. MARS are generally categorized in Level 2 as the valuation technique relies on observable external data. SLARS are generally categorized in Level 3 of the fair value hierarchy.

• Retained Interests in Securitization Transactions.    Fair value for retained interests in securitized financial assets (in the form of one or more tranches of the securitization) is determined using observable prices or, in cases where observable prices are not available for certain retained interests, the Company estimates fair value based on the present value of expected future cash flows using its best estimates of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved. When observable prices are available, retained interests are categorized in Level 2 of the fair value hierarchy. In the absence of observable prices, retained interests are categorized in Level 3 of the fair value hierarchy.

Corporate Equities

• Exchange-Traded Equity Securities.    Exchange-traded equity securities are generally valued based on quoted prices from the exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized in Level 1 of the fair value hierarchy.

Derivative and Other Contracts

• Listed Derivative Contracts.    Listed derivatives that are actively traded are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. Listed derivatives that are not actively traded are valued using the same approaches as those applied to OTC derivatives; they are generally categorized in Level 2 of the fair value hierarchy.

• OTC Derivative Contracts.    OTC derivative contracts include forward, swap and option contracts related to interest rates, foreign currencies, credit standing of reference entities, equity prices or commodity prices.

Depending on the product and the terms of the transaction, the fair value of OTC derivative products can be either observed or modeled using a series of techniques, and model inputs from comparable benchmarks, including closed-form analytic formula, such as the Black-Scholes option-pricing model, and simulation models or a combination thereof. Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgment, and the pricing inputs are observed from actively quoted markets, as is the case for generic interest rate swaps, certain option contracts and certain credit default swaps. In the case of more established derivative products, the pricing models used by the Company are widely accepted by the financial services industry. A substantial majority of OTC derivative products valued by the Company using pricing models fall into this category and are categorized within Level 2 of the fair value hierarchy.

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(UNAUDITED)

Other derivative products include complex products that have become illiquid, require more judgment in the implementation of the valuation technique applied due to the complexity of the valuation assumptions and the reduced observability of inputs. This includes derivative interests in certain mortgage-related collateralized debt obligation (“CDO”) securities, basket credit default swaps, CDO-squared positions and certain types of ABS credit default swaps where direct trading activity or quotes are unobservable. These instruments involve significant unobservable inputs and are categorized in Level 3 of the fair value hierarchy.

Derivative interests in complex mortgage-related CDOs and credit default swaps, for which observability of external price data is extremely limited, are valued based on an evaluation of the market and model input parameters sourced from similar positions as indicated by primary and secondary market activity. Each position is evaluated independently taking into consideration the underlying collateral performance and pricing, behavior of the tranche under various cumulative loss and prepayment scenarios, deal structures (e.g., non-amortizing reference obligations, call features) and liquidity. While these factors may be supported by historical and actual external observations, the determination of their value as it relates to specific positions nevertheless requires significant judgment.

For basket credit default swaps and CDO-squared positions, the correlation input between reference credits is unobservable for each specific swap and is benchmarked to standardized proxy baskets for which correlation data are available. The other model inputs such as credit spread, interest rates and recovery rates are observable. In instances where the correlation input is deemed to be significant, these instruments are categorized in Level 3 of the fair value hierarchy.

The Company trades various derivative structures with commodity underlyings. Depending on the type of structure, the model inputs generally include interest rate yield curves, commodity underlier curves, implied volatility of the underlying commodities and, in some cases, the implied correlation between these inputs. The fair value of these products is estimated using executed trades and broker and consensus data to provide values for the aforementioned inputs. Where these inputs are unobservable, relationships to observable commodities and data points, based on historic and/or implied observations, are employed as a technique to estimate the model input values. Commodity derivatives are generally categorized in Level 2 of the fair value hierarchy; in instances where significant inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy.

For further information on derivative instruments and hedging activities, see Note 7.

Investments

• Investments in Private Equity and Real Estate.    The Company’s investments in private equity and real estate take the form of direct private equity investments and investments in private equity and real estate funds. Initially, the transaction price is generally considered by the Company as the exit price and is the Company’s best estimate of fair value. Thereafter, valuation is based on an assessment of each underlying investment, considering rounds of financing and third-party transactions, expected cash flows and market-based information, including comparable company transactions, trading multiples and changes in market outlook, among other factors. These nonpublic investments are included in Level 3 of the fair value hierarchy because, due to infrequent trading, exit prices tend to be unobservable and reliance is placed on the above methods.

Physical Commodities

• The Company trades various physical commodities, including crude oil and refined products, natural gas, base and precious metals and agricultural products. Fair value for physical commodities is determined using observable inputs, including broker quotations and published indices. Physical commodities are categorized in Level 2 of the fair value hierarchy.

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(UNAUDITED)

Deposits

• Time Deposits.    The fair value of certificates of deposit is estimated using third-party quotations. These deposits are categorized in Level 2 of the fair value hierarchy.

Commercial Paper and Other Short-term Borrowings/Long-Term Borrowings

• Structured Notes.    The Company issues structured notes that have coupons or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities. Fair value of structured notes is estimated using valuation models for the derivative and debt portions of the notes. These models incorporate observable inputs referencing identical or comparable securities, including prices that the notes are linked to, interest rate yield curves, option volatility, and currency, commodity or equity rates. The impact of the Company’s own credit spreads is also included based on the Company’s observed secondary bond market spreads. Most structured notes are categorized in Level 2 of the fair value hierarchy.

The following fair value hierarchy tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2009, December 31, 2008 and November 30, 2008. See Note 1 for a discussion of the Company’s policies regarding this fair value hierarchy.

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(UNAUDITED)

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2009

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting			Balance at March 31, 2009
	(dollars in millions)
Assets
Financial instruments owned:
U.S. government and agency securities	$	11,357	$	15,623	$	17	$	—		$	26,997
Other sovereign government obligations		19,733		4,164		2		—			23,899
Corporate and other debt(1)		78		51,121		31,488		—			82,687
Corporate equities		30,012		3,302		946		—			34,260
Derivative and other contracts(2)		2,995		147,166		25,966		(96,978	)		79,149
Investments		407		241		8,834		—			9,482
Physical commodities		—		2,484		—		—			2,484
Total financial instruments owned		64,582		224,101		67,253		(96,978	)		258,958
Securities received as collateral		6,651		434		3		—			7,088
Intangible assets(3)		—		—		159		—			159
Liabilities
Commercial paper and other short-term borrowings	$	—	$	1,074	$	—	$	—		$	1,074
Deposits		—		10,677		—		—			10,677
Financial instruments sold, not yet purchased:
U.S. government and agency securities		5,846		2,008		—		—			7,854
Other sovereign government obligations		10,421		445		—		—			10,866
Corporate and other debt		20		6,862		1,950		—			8,832
Corporate equities		17,898		473		74		—			18,445
Derivative and other contracts(2)		6,944		90,013		9,445		(52,314	)		54,088
Total financial instruments sold, not yet purchased		41,129		99,801		11,469		(52,314	)		100,085
Obligation to return securities received as collateral		6,651		434		3		—			7,088
Other secured financings(1)		17		6,234		4,264		—			10,515
Long-term borrowings		—		25,587		5,671		—			31,258

(1) Approximately $6.5 billion of assets is included in Corporate and other debt and approximately $5.2 billion of related liabilities is included in Other secured financings related to consolidated VIEs or non-consolidated VIEs (in the cases where the assets were transferred by the Company to the VIE and the transfers were accounted for as secured financings). The Company cannot unilaterally remove the assets from the VIEs; these assets are not generally available to the Company. The related liabilities issued by these VIEs are non-recourse to the Company. Approximately $6.0 billion of these assets and approximately $3.7 billion of these liabilities are included in Level 3 of the fair value hierarchy. See Note 4 for additional information on consolidated and non-consolidated VIEs, including retained interests in these entities that the Company holds.

(2) For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled “Counterparty and Cash Collateral Netting.” For contracts with the same counterparty, counterparty netting among positions classified within the same level is included within that level. For further information on derivative instruments and hedging activities, see Note 7.

(3) Amount represents mortgage servicing rights (“MSRs”) accounted for at fair value. See Note 4 for further information on MSRs.

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(UNAUDITED)

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2008

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting			Balance at December 31, 2008
	(dollars in millions)
Assets
Financial instruments owned:
U.S. government and agency securities	$	10,150	$	17,735	$	127	$	—		$	28,012
Other sovereign government obligations		16,118		4,965		1		—			21,084
Corporate and other debt(1)		99		52,277		34,918		—			87,294
Corporate equities		37,807		3,538		976		—			42,321
Derivative and other contracts(2)		1,069		156,224		37,711		(105,586	)		89,418
Investments		417		270		9,698		—			10,385
Physical commodities		—		2,126		—		—			2,126
Total financial instruments owned		65,660		237,135		83,431		(105,586	)		280,640
Securities received as collateral		4,623		578		30		—			5,231
Intangible assets(3)		—		—		184		—			184
Liabilities
Commercial paper and other short-term borrowings	$	—	$	1,246	$	—	$	—		$	1,246
Deposits		—		9,993		—		—			9,993
Financial instruments sold, not yet purchased:
U.S. government and agency securities		11,133		769		—		—			11,902
Other sovereign government obligations		7,303		2,208		—		—			9,511
Corporate and other debt		17		6,102		3,808		—			9,927
Corporate equities		15,064		1,749		27		—			16,840
Derivative and other contracts(2)		3,886		118,432		14,329		(68,093	)		68,554
Physical commodities		—		33		—		—			33
Total financial instruments sold, not yet purchased		37,403		129,293		18,164		(68,093	)		116,767
Obligation to return securities received as collateral		4,623		578		30		—			5,231
Other secured financings(1)		—		6,391		6,148		—			12,539
Long-term borrowings		—		25,293		5,473		—			30,766

(1) Approximately $8.9 billion of assets is included in Corporate and other debt and approximately $7.9 billion of related liabilities is included in Other secured financings related to consolidated VIEs or non-consolidated VIEs (in the cases where the assets were transferred by the Company to the VIE and the transfers were accounted for as secured financings). The Company cannot unilaterally remove the assets from the VIEs; these assets are not generally available to the Company. The related liabilities issued by these VIEs are non-recourse to the Company. Approximately $8.1 billion of these assets and approximately $5.9 billion of these liabilities are included in Level 3 of the fair value hierarchy. See Note 4 for additional information on consolidated and non-consolidated VIEs, including retained interests in these entities that the Company holds.

(2) For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled “Counterparty and Cash Collateral Netting.” For contracts with the same counterparty, counterparty netting among positions classified within the same level is included within that level. For further information on derivative instruments and hedging activities, see Note 7.

(3) Amount represents mortgage servicing rights (“MSRs”) accounted for at fair value. See Note 4 for further information on MSRs.

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(UNAUDITED)

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of November 30, 2008

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting			Balance at November 30, 2008
	(dollars in millions)
Assets
Financial instruments owned:
U.S. government and agency securities	$	5,930	$	14,115	$	206	$	—		$	20,251
Other sovereign government obligations		9,148		10,920		3		—			20,071
Corporate and other debt(1)		47		53,977		34,460		—			88,484
Corporate equities		32,519		3,748		907		—			37,174
Derivative and other contracts(2)		2,478		150,033		40,852		(93,597	)		99,766
Investments		536		330		9,732		—			10,598
Physical commodities		2		2,202		—		—			2,204
Total financial instruments owned		50,660		235,325		86,160		(93,597	)		278,548
Securities received as collateral		4,402		800		15		—			5,217
Intangible assets(3)		—		—		220		—			220
Liabilities
Commercial paper and other short-term borrowings	$	—	$	1,412	$	—	$	—		$	1,412
Deposits		—		6,008		—		—			6,008
Financial instruments sold, not yet purchased:
U.S. government and agency securities		9,474		682		—		—			10,156
Other sovereign government obligations		5,140		4,220		—		—			9,360
Corporate and other debt		18		5,400		3,943		—			9,361
Corporate equities		16,418		108		21		—			16,547
Derivative and other contracts(2)		5,509		115,621		13,228		(60,837	)		73,521
Total financial instruments sold, not yet purchased		36,559		126,031		17,192		(60,837	)		118,945
Obligation to return securities received as collateral		4,402		800		15		—			5,217
Other secured financings(1)		—		6,780		5,747		—			12,527
Long-term borrowings		—		23,413		5,417		—			28,830

(1) Approximately $9.0 billion of assets is included in Corporate and other debt and approximately $7.2 billion of related liabilities is included in Other secured financings related to consolidated VIEs or non-consolidated VIEs (in the cases where the assets were transferred by the Company to the VIE and the transfers were accounted for as secured financings). The Company cannot unilaterally remove the assets from the VIEs; these assets are not generally available to the Company. The related liabilities issued by these VIEs are non-recourse to the Company. Approximately $7.7 billion of these assets and approximately $5.0 billion of these liabilities are included in Level 3 of the fair value hierarchy. See Note 4 for additional information on consolidated and non-consolidated VIEs, including retained interests in these entities that the Company holds.

(2) For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled “Counterparty and Cash Collateral Netting.” For contracts with the same counterparty, counterparty netting among positions classified within the same level is included within that level. For further information on derivative instruments and hedging activities, see Note 7.

(3) Amount represents mortgage servicing rights (“MSRs”) accounted for at fair value. See Note 4 for further information on MSRs.

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(UNAUDITED)

The following tables present additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters ended March 31, 2009 and March 31, 2008 and the one month period ended December 31, 2008. Level 3 instruments may be offset with instruments classified in Level 1 and Level 2. As a result, the realized and unrealized gains or (losses) for assets and liabilities within the Level 3 category presented in the tables below do not reflect the related realized and unrealized gains or (losses) on hedging instruments that have been classified by the Company within the Level 1 and/or Level 2 categories. Additionally, both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains or (losses) during the period for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value during the period that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

The following tables reflect gains or (losses) for all assets and liabilities categorized as Level 3 for the quarters ended March 31, 2009 and March 31, 2008 and the one month period ended December 31, 2008, respectively. For assets and liabilities that were transferred into Level 3 during the period, gains or (losses) are presented as if the assets or liabilities had been transferred into Level 3 as of the beginning of the period; similarly, for assets and liabilities that were transferred out of Level 3 during the period, gains or (losses) are presented as if the assets or liabilities had been transferred out as of the beginning of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2009

	Beginning Balance at December 31, 2008		Total Realized and Unrealized Gains or (Losses)(1)			Purchases, Sales, Other Settlements and Issuances, net			Net Transfers In and/or (Out) of Level 3			Ending Balance at March 31, 2009		Unrealized Gains or (Losses) for Level 3 Assets/ Liabilities Outstanding at March 31, 2009(2)
	(dollars in millions)
Assets
Financial instruments owned:
U.S. government and agency securities	$	127	$	(1	)	$	(86	)	$	(23	)	$	17	$	—
Other sovereign government obligations		1		(1	)		(1	)		3			2		(2	)
Corporate and other debt		34,918		(3,314	)		226			(342	)		31,488		(3,501	)
Corporate equities		976		(95	)		(231	)		296			946		(95	)
Net derivative and other contracts(3)		23,382		2,363			250			(9,474	)		16,521		3,132
Investments		9,698		(1,319	)		510			(55	)		8,834		(1,269	)
Securities received as collateral		30		—			(27	)		—			3		—
Intangible assets		184		(25	)		—			—			159		(25	)
Liabilities
Financial instruments sold, not yet purchased:
Corporate and other debt	$	3,808	$	(20	)	$	647		$	(2,525	)	$	1,950	$	(47	)
Corporate equities		27		20			44			23			74		4
Obligation to return securities received as collateral		30		—			(27	)		—			3		—
Other secured financings		6,148		1,053			(542	)		(289	)		4,264		1,053
Long-term borrowings		5,473		(129	)		83			(14	)		5,671		(129	)

(1) Total realized and unrealized gains or (losses) are primarily included in Principal transactions—trading in the condensed consolidated statements of income except for $(1,319) million related to Financial instruments owned—investments, which is included in Principal transactions—investments.

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(UNAUDITED)

(2) Amounts represent unrealized gains or (losses) for the quarter ended March 31, 2009 related to assets and liabilities still outstanding at March 31, 2009.

(3) Net derivative and other contracts represent Financial instruments owned—derivative and other contracts net of Financial instruments sold, not yet purchased—derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 7.

Financial instruments owned—Corporate and other debt.    The net losses in Corporate and other debt were primarily driven by certain corporate loans and lending commitments, certain asset-backed securities, including residential and commercial mortgage loans, and certain commercial whole loans.

During the quarter ended March 31, 2009, the Company reclassified approximately $2.3 billion of certain Corporate and other debt from Level 2 to Level 3. The reclassifications were primarily related to asset-backed securities and certain corporate loans. The reclassifications were due to a reduction in market price quotations for these or comparable instruments, or a lack of available broker quotes, such that unobservable inputs had to be utilized for the fair value measurement of these instruments. These unobservable inputs include, depending upon the position, assumptions to establish comparability to bonds, loans or swaps with observable price/spread levels, default recovery rates, forecasted credit losses and prepayment rates.

During the quarter ended March 31, 2009, the Company reclassified approximately $2.7 billion of certain Corporate and other debt from Level 3 to Level 2. These reclassifications primarily related to commercial mortgage-backed securities, subprime CDO and other subprime ABS securities. Their fair value was highly correlated with similar instruments in an observable market and, due to market deterioration, unobservable inputs were no longer deemed significant. In addition, certain corporate loans were reclassified as more liquidity re-entered the market and external prices and spread inputs for these instruments became observable.

Financial instruments owned—Net derivative and other contracts.    The net gains in Net derivative and other contracts were primarily driven by widening of credit spreads on underlying reference entities of single name credit default swaps.

During the quarter ended March 31, 2009, the Company reclassified approximately $9.6 billion of certain Derivatives and other contracts from Level 3 to Level 2. These reclassifications of certain Derivatives and other contracts were related to single name mortgage-related credit default swaps and credit default swaps on certain classes of CDOs. The primary reason for the reclassifications is that, due to market deterioration, unobservable inputs, such as correlation, for these derivative contracts were no longer deemed significant to the fair value measurement. In addition, certain corporate tranche-indexed credit default swaps were reclassified due to increased availability of transaction data, broker quotes and/or consensus pricing.

For further information on derivative instruments and hedging activities, see Note 7.

Financial instruments owned—Investments.    The net losses from investments were primarily related to investments associated with the Company’s real estate products and private equity portfolio.

Financial instruments sold, not yet purchased—Corporate and other debt.    During the quarter, the Company reclassified approximately $2.5 billion of certain Corporate and other debt from Level 3 to Level 2. These reclassifications primarily related to contracts referencing commercial mortgage-backed securities, subprime CDO and other subprime ABS securities. Their fair value was highly correlated with similar instruments in an observable market and, due to market deterioration, unobservable inputs were no longer deemed significant to the fair value measurement.

Other secured financings.    The net gains in Other secured financings were primarily due to net gains on liabilities resulting from securitizations recognized on balance sheet. These net gains are offset by net losses in Financial instruments owned—Corporate and other debt.

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(UNAUDITED)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2008

	Beginning Balance at December 31, 2007		Total Realized and Unrealized Gains or (Losses)(1)			Purchases, Sales, Other Settlements and Issuances, net			Net Transfers In and/or (Out) of Level 3			Ending Balance at March 31, 2008		Unrealized Gains or (Losses) for Level 3 Assets/ Liabilities Outstanding at March 31, 2008(2)
	(dollars in millions)
Assets
Financial instruments owned:
U.S. government and agency securities	$	622	$	63		$	(225	)	$	(22	)	$	438	$	33
Other sovereign government obligations		15		(2	)		(2	)		14			25		(3	)
Corporate and other debt		39,707		(3,580	)		1,306			808			38,241		(3,575	)
Corporate equities		1,717		(233	)		(15	)		78			1,547		(63	)
Net derivative and other contracts(3)		5,486		8,561			38			(1,336	)		12,749		7,747
Investments		12,758		(214	)		656			(1,334	)		11,866		(260	)
Securities received as collateral		71		—			(44	)		—			27		—
Intangible assets		3		1			—			—			4		1
Liabilities
Financial instruments sold, not yet purchased:
Corporate and other debt	$	717	$	(585	)	$	(392	)	$	(2	)	$	908	$	(625	)
Corporate equities		175		(116	)		256			(33	)		514		(153	)
Obligation to return securities received as collateral		71		—			(44	)		—			27		—
Other secured financings		6,160		146			1,193			34			7,241		146
Long-term borrowings		5,829		54			18			41			5,834		54

(1) Total realized and unrealized gains or (losses) are primarily included in Principal transactions—trading in the condensed consolidated statements of income except for $(214) million related to Financial instruments owned—investments, which is included in Principal transactions—investments.

(2) Amounts represent unrealized gains or (losses) for the quarter ended March 31, 2008 related to assets and liabilities still outstanding at March 31, 2008.

(3) Net derivative and other contracts represent Financial instruments owned—derivative and other contracts net of Financial instruments sold, not yet purchased—derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 7.

Financial instruments owned—Corporate and other debt.    The net losses from Corporate and other debt were primarily driven by certain mortgage-related products and by corporate loans and lending commitments.

During the quarter ended March 31, 2008, the Company reclassified certain Corporate and other debt from Level 2 to Level 3 because certain significant inputs for the fair value measurement became unobservable. These reclassifications included transfers primarily related to corporate loans and lending commitments.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Financial instruments owned—Net derivative and other contracts.    The net gains from Net derivative contracts were primarily driven by certain credit default swaps and other instruments associated with the Company’s credit products.

The Company reclassified certain OTC derivatives from Level 3 to Level 2. These reclassifications included transfers primarily related to corporate tranche-indexed credit default swaps as inputs became observable. The reclassifications were due to increased availability of transaction data and broker quotes.

For further information on derivative instruments and hedging activities, see Note 7.

Financial instruments owned—Investments.    The Company reclassified investments from Level 3 to Level 2 because certain significant inputs for the fair value measurement were identified and, therefore, became observable.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the One Month Ended December 31, 2008

	Beginning Balance at November 30, 2008		Total Realized and Unrealized Gains or (Losses)(1)			Purchases, Sales, Other Settlements and Issuances, net			Net Transfers In and/or (Out) of Level 3			Ending Balance at December 31, 2008		Unrealized Gains or (Losses) for Level 3 Assets/ Liabilities Outstanding at December 31, 2008(2)
	(dollars in millions)
Assets
Financial instruments owned:
U.S. government and agency securities	$	206	$	(3	)	$	(76	)	$	—		$	127	$	(5	)
Other sovereign government obligations		3		—			(1	)		(1	)		1		—
Corporate and other debt		34,460		(393	)		1,036			(185	)		34,918		(378	)
Corporate equities		907		(11	)		(3	)		83			976		(10	)
Net derivative and other contracts(3)		27,624		(2,040	)		(43	)		(2,159	)		23,382		(1,879	)
Investments		9,732		(169	)		149			(14	)		9,698		(158	)
Securities received as collateral		15		—			15			—			30		—
Intangible assets		220		(36	)		—			—			184		(36	)
Liabilities
Financial instruments sold, not yet purchased:
Corporate and other debt	$	3,943	$	(43	)	$	(140	)	$	(38	)	$	3,808	$	(63	)
Corporate equities		21		(20	)		(20	)		6			27		1
Obligation to return securities received as collateral		15		—			15			—			30		—
Other secured financings		5,747		(219	)		34			148			6,148		(219	)
Long-term borrowings		5,417		(52	)		4			—			5,473		(51	)

(1) Total realized and unrealized gains or (losses) are primarily included in Principal transactions—trading in the condensed consolidated statements of income except for $(169) million related to Financial instruments owned—investments, which is included in Principal transactions—investments.

(2) Amounts represent unrealized gains or (losses) for the one month period ended December 31, 2008 related to assets and liabilities still outstanding at December 31, 2008.

(3) Net derivative and other contracts represent Financial instruments owned—derivative and other contracts net of Financial instruments sold, not yet purchased—derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 7.

Financial instruments owned—Net derivative and other contracts.    The net losses in Net derivative and other contracts were primarily driven by tightening of credit spreads on underlying reference entities of certain basket credit default swaps, single name credit default swaps and corporate tranche-indexed credit default swaps.

The Company reclassified certain Net derivative contracts from Level 3 to Level 2. The reclassifications were primarily related to corporate tranche-indexed credit default swaps. The reclassifications were due to an increase in transaction data, available broker quotes and/or available consensus pricing, such that significant inputs for the fair value measurement were observable.

For further information on derivative instruments and hedging activities, see Note 7.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis.

Certain assets were measured at fair value on a non-recurring basis and are not included in the tables above. These assets may include certain loans, certain equity method investments, certain premises and equipment, certain intangible assets and certain real estate investments.

The following table presents, by caption on the condensed consolidated statement of financial position, the fair value hierarchy for those assets measured at fair value on a non-recurring basis for which the Company recognized an impairment charge for the quarter ended March 31, 2009.

	Carrying Value at March 31, 2009		Fair Value Measurements Using:						Total (Losses) for the Three Months Ended March 31, 2009(1)
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in millions)
Receivables—Other loans(2)	$	386	$	—	$	—	$	386	$	(98	)
Other investments(3)		163		—		—		163		(44	)
Premises, equipment and software costs(4)		8		—		—		8		(5	)
Intangible assets(5)		21		—		—		21		(6	)
Other assets(6)		226		—		—		226		(125	)
Total	$	804	$	—	$	—	$	804	$	(278	)

(1) Impairment losses are recorded within Other expenses in the condensed consolidated statement of income except for impairment losses related to Receivables—Other loans and Other investments, which are included in Other revenues.

(2) Loans held for investment with a carrying amount of $484 million were written down to their fair value of $386 million, resulting in an impairment charge of $98 million, calculated based upon the fair value of the collateral. The fair value of the collateral was determined using internal expected recovery models.

(3) Equity method investments with a carrying amount of $207 million were written down to their fair value of $163 million, resulting in an impairment charge of $44 million. Impairment losses recorded were determined primarily using discounted cash flow models.

(4) Equipment with a carrying value of $13 million was written down to their fair value of $8 million, resulting in an impairment charge of $5 million.

(5) Intangible assets other than goodwill with a carrying amount of $27 million were written down to fair value of $21 million, resulting in an impairment charge of $6 million, recorded within the Asset Management business segment (see Note 5).

(6) Buildings and property with a carrying amount of $351 million were written down to their fair value of $226 million, resulting in an impairment charge of $125 million. Fair values were generally determined using discounted cash flow models or third-party appraisals and valuations. This charge relates to the Asset Management business segment.

There were no liabilities measured at fair value on a non-recurring basis during the quarter ended March 31, 2009. In addition, there were no assets or liabilities measured at fair value on a non-recurring basis for which the Company recognized an impairment charge during the one month period ended December 31, 2008 and the quarter ended March 31, 2008.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Fair Value Option.

The following tables present net gains or (losses) due to changes in fair value for items measured at fair value pursuant to the fair value option election for the quarters ended March 31, 2009 and March 31, 2008 and the one month period ended December 31, 2008.

	Principal Transactions: Trading			Net Interest Revenue			Gains (Losses) Included in Net Revenues
	(dollars in millions)
Three Months Ended March 31, 2009
Commercial paper and other short-term borrowings	$	84		$	—		$	84
Deposits		(87	)		(92	)		(179	)
Long-term borrowings		(1,405	)		(140	)		(1,545	)
Three Months Ended March 31, 2008
Commercial paper and other short-term borrowings	$	(74	)	$	(4	)	$	(78	)
Deposits		4			(24	)		(20	)
Long-term borrowings		2,104			(168	)		1,936
One Month Ended December 31, 2008
Commercial paper and other short-term borrowings	$	(81	)	$	—		$	(81	)
Deposits		(120	)		(26	)		(146	)
Long-term borrowings		(1,597	)		(52	)		(1,649	)

In addition to the amounts in the above table, as discussed in Note 1, all of the instruments within Financial instruments owned or Financial instruments sold, not yet purchased are measured at fair value, either through the election of SFAS No. 159 or as required by other accounting pronouncements.

Borrowings and Deposits.

For the quarter ended March 31, 2009 and the one month period ended December 31, 2008, the estimated changes in the fair value of the Company’s short-term and long-term borrowings, including structured notes and junior subordinated debentures, for which the fair value option was elected that were attributable to changes in instrument-specific credit spreads were losses of approximately $1,636 million and $241 million, respectively. These losses were attributable to the tightening of the Company’s credit spreads and were determined based upon observations of the Company’s secondary bond market spreads. The remainder of changes in fair value of the short-term and long-term borrowings during the quarter ended March 31, 2009 and the one month period ended December 31, 2008 is attributable to changes in foreign currency exchange rates and interest rates and movements in the reference price or index for structured notes. For the quarter ended March 31, 2008, the estimated changes in the fair value of the Company’s short-term and long-term borrowings, including structured notes and junior subordinated debentures, for which the fair value option was elected that were attributable to changes in instrument-specific credit spreads were gains of approximately $1,891 million. The remainder of changes in fair value of the short-term and long-term borrowings during the quarter ended March 31, 2008 are attributable to changes in foreign currency exchange rates and interest rates and movements in the reference price or index for structured notes. For the quarters ended March 31, 2009 and March 31, 2008 and the one month period ended December 31, 2008, the estimated changes in the fair value of deposits for which the fair value option was elected that were attributable to changes in instrument-specific credit risk were immaterial. As of March 31, 2009, December 31, 2008 and November 30, 2008, the aggregate contractual principal amount of short-term and long-term debt instruments and deposits for which the fair value option was elected exceeded the

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

fair value of such instruments by approximately $4.6 billion, $5.7 billion and $7.5 billion, respectively. These amounts do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in the reference price or index.

Contingent Lending Commitments.

The estimated changes in the fair value of contingent lending commitments, included in Financial instruments sold, not yet purchased, for which the fair value option was elected that were attributable to changes in instrument-specific credit spreads were immaterial in the quarter ended March 31, 2009 and the one month period ended December 31, 2008. For the quarter ended March 31, 2008, the estimated changes in the fair value of contingent lending commitments for which the fair value option was elected that were attributable to changes in instrument-specific credit spreads were losses of approximately $156 million. See discussion below regarding changes in instrument-specific credit spreads related to loan assets.

Loans.

As of March 31, 2009, December 31, 2008 and November 30, 2008, the aggregate contractual principal amount of loans for which the fair value option was elected exceeded the fair value of such loans by approximately $30.7 billion, $31.0 billion and $30.5 billion, respectively. The aggregate fair value of loans that were 90 or more days past due as of March 31, 2009, December 31, 2008 and November 30, 2008 was $1.2 billion, $2.0 billion and $2.0 billion, respectively. The aggregate contractual principal amount of such loans 90 or more days past due exceeded their fair value by approximately $18.8 billion, $19.8 billion and $19.8 billion at March 31, 2009, December 31, 2008 and November 30, 2008, respectively. The majority of this difference between principal and fair value amounts emanates from the Company’s distressed debt trading business, which purchases distressed debt at amounts well below par.

For the quarters ended March 31, 2009 and March 31, 2008 and the one month period ended December 31, 2008, changes in the fair value of loans for which the fair value option was elected that were attributable to changes in instrument-specific credit spreads were losses of $349 million, $2,366 million and $498 million, respectively. Instrument-specific credit losses were determined by excluding the non-credit components of gains and losses, such as those due to changes in interest rates.

3. Collateralized Transactions.

Securities purchased under agreements to resell (“reverse repurchase agreements”) and Securities sold under agreements to repurchase (“repurchase agreements”), principally government and agency securities, are carried at the amounts at which the securities subsequently will be resold or reacquired as specified in the respective agreements; such amounts include accrued interest. Reverse repurchase agreements and repurchase agreements are presented on a net-by-counterparty basis, when appropriate. The Company’s policy is generally to take possession of securities purchased under agreements to resell. Securities borrowed and Securities loaned are carried at the amounts of cash collateral advanced and received in connection with the transactions. Other secured financings include the liabilities related to transfers of financial assets that are accounted for as financings rather than sales, consolidated variable interest entities where the Company is deemed to be the primary beneficiary, and certain equity-referenced securities and loans where in all instances these liabilities are payable solely from the cash flows of the related assets accounted for as Financial instruments owned (see Note 4).

The Company pledges its financial instruments owned to collateralize repurchase agreements and other securities financings. Pledged financial instruments that can be sold or repledged by the secured party are identified as Financial instruments owned (pledged to various parties) in the condensed consolidated statements of financial

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

condition. The carrying value and classification of financial instruments owned by the Company that have been loaned or pledged to counterparties where those counterparties do not have the right to sell or repledge the collateral were as follows:

	At March 31, 2009		At December 31, 2008		At November 30, 2008
	(dollars in millions)
Financial instruments owned:
U.S. government and agency securities	$	8,915	$	9,134	$	7,701
Other sovereign government obligations		3,308		2,570		626
Corporate and other debt		12,529		21,850		33,037
Corporate equities		3,543		4,388		5,726
Total	$	28,295	$	37,942	$	47,090

The Company enters into reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned transactions to, among other things, acquire securities to cover short positions and settle other securities obligations, to accommodate customers’ needs and to finance the Company’s inventory positions. The Company also engages in securities financing transactions for customers through margin lending. Under these agreements and transactions, the Company either receives or provides collateral, including U.S. government and agency securities, other sovereign government obligations, corporate and other debt, and corporate equities. The Company receives collateral in the form of securities in connection with reverse repurchase agreements, securities borrowed and derivative transactions, and customer margin loans. In many cases, the Company is permitted to sell or repledge these securities held as collateral and use the securities to secure repurchase agreements, to enter into securities lending and derivative transactions or for delivery to counterparties to cover short positions. At March 31, 2009, December 31, 2008 and November 30, 2008, the fair value of financial instruments received as collateral where the Company is permitted to sell or repledge the securities was $283 billion, $290 billion and $294 billion, respectively, and the fair value of the portion that had been sold or repledged was $191 billion, $214 billion and $227 billion, respectively.

The Company additionally receives securities as collateral in connection with certain securities for securities transactions in which the Company is the lender. In instances where the Company is permitted to sell or repledge these securities, the Company reports the fair value of the collateral received and the related obligation to return the collateral in the condensed consolidated statements of financial condition. At March 31, 2009, December 31, 2008 and November 30, 2008, $7 billion, $5 billion and $5 billion, respectively, were reported as Securities received as collateral and an Obligation to return securities received as collateral in the condensed consolidated statements of financial condition. Collateral received in connection with these transactions that was subsequently repledged was approximately $6 billion, $4 billion and $5 billion at March 31, 2009, December 31, 2008 and November 30, 2008, respectively.

The Company manages credit exposure arising from reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned transactions by, in appropriate circumstances, entering into master netting agreements and collateral arrangements with counterparties that provide the Company, in the event of a customer default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations. The Company also monitors the fair value of the underlying securities as compared with the related receivable or payable, including accrued interest, and, as necessary, requests additional collateral to ensure such transactions are adequately collateralized. Where deemed appropriate, the Company’s agreements with third parties specify its rights to request additional collateral. Customer receivables generated from margin lending activity are

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

collateralized by customer-owned securities held by the Company. For these transactions, adherence to the Company’s collateral policies significantly limits the Company’s credit exposure in the event of customer default. The Company may request additional margin collateral from customers, if appropriate, and, if necessary, may sell securities that have not been paid for or purchase securities sold but not delivered from customers.

At March 31, 2009, December 31, 2008 and November 30, 2008, cash and securities deposited with clearing organizations or segregated under federal and other regulations or requirements were as follows:

	March 31, 2009		December 31, 2008		November 30, 2008
	(dollars in millions)
Cash	$	23,094	$	24,039	$	25,446
Securities(1)		21,860		38,670		33,642
Total	$	44,954	$	62,709	$	59,088

(1) Securities deposited with clearing organizations or segregated under federal and other regulations or requirements are included in Federal funds sold and securities purchased under agreements to resell in the condensed consolidated statements of financial condition.

4. Securitization Activities and Variable Interest Entities.

Securitization Activities and Qualifying Special Purpose Entities.    

Securitization Activities.    In a securitization transaction, the Company transfers assets (generally commercial or residential mortgage loans or U.S. agency securities) to a special purpose entity (an “SPE”), sells to investors most of the beneficial interests, such as notes or certificates, issued by the SPE and in many cases retains other beneficial interests. In many securitization transactions involving commercial mortgage loans, the Company transfers a portion of the assets transferred to the SPE with unrelated parties transferring the remaining assets.

The purchase of the transferred assets by the SPE is financed through the sale of these interests. In some of these transactions, primarily involving residential mortgage loans in the U.S. and Europe and commercial mortgage loans in Europe, the Company serves as servicer for some or all of the transferred loans. In many securitizations, particularly involving residential mortgage loans, the Company also enters into derivative transactions, primarily interest rate swaps or interest rate caps, with the SPE.

In most of these transactions, the SPE meets the criteria to be a QSPE as provided by SFAS No. 140. The Company does not consolidate QSPEs if they meet certain criteria regarding the types of assets and derivatives they may hold, the activities in which they may engage and the range of discretion they may exercise in connection with the assets they hold. The determination of whether an SPE meets the criteria to be a QSPE requires considerable judgment, particularly in evaluating whether the permitted activities of the SPE are significantly limited and in determining whether derivatives held by the SPE are passive and not excessive.

The primary risk retained by the Company in connection with these transactions generally is limited to the beneficial interests issued by the SPE that are owned by the Company, with the risk highest on the most subordinate class of beneficial interests. These beneficial interests generally are included in Financial instruments owned—Corporate and other debt and are measured at fair value. The Company does not provide additional support in these transactions through contractual facilities, such as liquidity facilities, guarantees, or similar derivatives.

Although not obligated, the Company generally makes a market in the securities issued by SPEs in these transactions. In these market-making transactions, the Company offers to buy these securities from and sell these securities to investors. Securities purchased through these market-making activities are not included as retained interests. These beneficial interests generally are included in Financial instruments owned—Corporate and other debt securities and are measured at fair value.

33

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The Company enters into derivatives, generally interest rate swaps and interest rate caps with a senior payment priority in many securitization transactions. The risks associated with these and similar derivatives with SPEs are essentially the same as similar derivatives with non-SPE counterparties and are managed as part of the Company’s overall exposure.

For further information on derivative instruments and hedging activities, see Note 7.

QSPEs.    The following tables present information as of March 31, 2009 and December 31, 2008 regarding QSPEs to which the Company acting as principal, has transferred assets and received sales treatment, and QSPEs sponsored by the Company to which the Company has not transferred assets (dollars in millions):

	At March 31, 2009
	Residential Mortgage Loans		Commercial Mortgage Loans		U.S. Agency Collateralized Mortgage Obligations		Other
QSPE assets (unpaid principal balance)(1)	$	63,487	$	112,013	$	27,902	$	2,564
Retained interests (fair value):
Investment grade	$	344	$	354	$	11	$	—
Non-investment grade		74		171		—		—
Total retained interests (fair value)	$	418	$	525	$	11	$	—
Interests purchased in the secondary market (fair value):
Investment grade	$	81	$	187	$	—	$	17
Non-investment grade		38		5		—		12
Total interests purchased in the secondary market (fair value)	$	119	$	192	$	—	$	29
Derivatives (fair value)	$	397	$	503	$	—	$	1,197
Assets serviced (unpaid principal balance)		22,281		7,764		—		—

(1) Amount includes $57.3 billion of assets transferred to the QSPEs by unrelated transferors.

	At December 31, 2008
	Residential Mortgage Loans		Commercial Mortgage Loans		U.S. Agency Collateralized Mortgage Obligations		Other
QSPE assets (unpaid principal balance)(1)	$	65,344	$	112,557	$	28,380	$	2,684
Retained interests (fair value):
Investment grade	$	500	$	482	$	102	$	—
Non-investment grade		33		100		—		—
Total retained interests (fair value)	$	533	$	582	$	102	$	—
Interests purchased in the secondary market (fair value):
Investment grade	$	42	$	156	$	8	$	23
Non-investment grade		49		14		—		12
Total interests purchased in the secondary market (fair value)	$	91	$	170	$	8	$	35
Derivatives (fair value)	$	488	$	515	$	—	$	1,156
Assets serviced (unpaid principal balance)		23,211		8,196		—		—

(1) Amount includes $57.8 billion of assets transferred to the QSPEs by unrelated transferors.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Transferred assets are carried at fair value prior to securitization, and any changes in fair value are recognized in the condensed consolidated statements of income. The Company may act as underwriter of the beneficial interests issued by securitization vehicles. Underwriting net revenues are recognized in connection with these transactions. The Company may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are included in the condensed consolidated statements of financial condition at fair value. Any changes in the fair value of such retained interests are recognized in the condensed consolidated statements of income. Net gains at the time of securitization were not material during the quarter ended March 31, 2009 and the one month period ended December 31, 2008.

During the quarters ended March 31, 2009 and March 31, 2008, the Company received proceeds from new securitization transactions of $332 million and $3.8 billion, respectively. The Company did not receive any proceeds from new securitization transactions during the one month period ended December 31, 2008. During the quarters ended March 31, 2009 and March 31, 2008 and the one month period ended December 31, 2008, the Company received proceeds from cash flows from retained interests in securitization transactions of $236 million, $1.1 billion and $153 million, respectively.

The Company provides representations and warranties that certain assets transferred in securitization transactions conform to specific guidelines (see Note 8).

Mortgage Servicing Rights.    The Company may retain servicing rights to certain mortgage loans that are sold through its securitization activities. These transactions create an asset referred to as MSRs, which totaled approximately $159 million, $184 million and $220 million as of March 31, 2009, December 31, 2008 and November 30, 2008, respectively, and are included within Intangible assets and carried at fair value in the condensed consolidated statements of financial condition.

SPE Mortgage Servicing Activities.    The Company services residential mortgage loans in the U.S. and Europe and commercial mortgage loans in Europe owned by SPEs, including SPEs sponsored by the Company and SPEs not sponsored by the Company. Most of these SPEs meet the requirements for QSPEs. The Company generally holds retained interests in Company-sponsored QSPEs. In some cases, as part of its market making activities, the Company may own some beneficial interests issued by both Company-sponsored and non-Company sponsored SPEs.

The Company provides no credit support as part of its servicing activities. The Company is required to make servicing advances to the extent that it believes that such advances will be reimbursed. Reimbursement of servicing advances is a senior obligation of the SPE, senior to the most senior beneficial interests outstanding. Outstanding advances are included in Other assets and are recorded at cost. Advances as of March 31, 2009 and December 31, 2008 totaled approximately $2.5 billion and $2.4 billion, respectively, net of reserves of approximately $9 million and $10 million, respectively.

The following table presents information about the Company’s mortgage servicing activities for SPEs to which the Company transferred loans as of March 31, 2009 and December 31, 2008 (dollars in millions):

	At March 31, 2009
	Residential Mortgage QSPEs			Residential Mortgage Failed Sales			Commercial Mortgage QSPEs		Commercial Mortgage Consolidated SPEs
Assets serviced (unpaid principal balance)	$	22,281		$	858		$	7,764	$	2,310
Amounts past due 90 days or greater (unpaid principal balance)(1)	$	7,860		$	334		$	3	$	—
Percentage of amounts past due 90 days or greater		35.3	%		38.9	%		—		—
Credit losses	$	554		$	23		$	—	$	—

(1) Includes loans that are at least 90 days contractually delinquent, loans for which the borrower has filed for bankruptcy, loans in foreclosure and real estate owned.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

	At December 31, 2008
	Residential Mortgage QSPEs			Residential Mortgage Failed Sales			Commercial Mortgage QSPEs		Commercial Mortgage Consolidated SPEs
Assets serviced (unpaid principal balance)	$	23,211		$	890		$	8,196	$	2,349
Amounts past due 90 days or greater (unpaid principal balance)(1)	$	7,586		$	308		$	—	$	—
Percentage of amounts past due 90 days or greater		32.7	%		34.6	%		—		—
Credit losses	$	181		$	11		$	—	$	—

(1) Includes loans that are at least 90 days contractually delinquent, loans for which the borrower has filed for bankruptcy, loans in foreclosure and real estate owned.

The Company also serviced residential and commercial mortgage loans for SPEs sponsored by unrelated parties with unpaid principal balances totaling $24 billion and $25 billion as of March 31, 2009 and December 31, 2008, respectively.

Variable Interest Entities.    FIN 46R applies to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. QSPEs currently are not subject to the requirements of FIN 46R. The primary beneficiary of a VIE is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns or both, as a result of holding variable interests. The Company consolidates entities of which it is the primary beneficiary.

The Company is involved with various entities in the normal course of business that may be deemed to be VIEs. The Company’s variable interests in VIEs include debt and equity interests, commitments, guarantees and derivative instruments. The Company’s involvement with VIEs arises primarily from:

• Interests purchased in connection with market making and retained interests held as a result of securitization activities.

• Guarantees issued and residual interests retained in connection with municipal bond securitizations.

• Loans and investments made to VIEs that hold debt, equity, real estate or other assets.

• Derivatives entered into with variable interest entities.

• Structuring of credit-linked notes (“CLNs”) or other asset-repackaged notes designed to meet the investment objectives of clients.

• Other structured transactions designed to provide tax-efficient yields to the Company or its clients.

The Company determines whether it is the primary beneficiary of a VIE upon its initial involvement with the VIE. This determination is based upon an analysis of the design of the VIE, including the VIE’s structure and activities and the variable interests owned by the Company.

The Company reassesses whether it is the primary beneficiary of a VIE upon the occurrence of certain reconsideration events. If the Company’s initial assessment results in a determination that it is not the primary beneficiary of a VIE, then the Company reassesses this determination upon the occurrence of:

• Changes to the VIE’s governing documents or contractual arrangements in a manner that reallocates the obligation to absorb the expected losses or the right to receive the expected residual returns of the VIE between the current primary beneficiary and the other variable interest holders, including the Company.

• Acquisition by the Company of additional variable interests in the VIE.

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(UNAUDITED)

If the Company’s initial assessment results in a determination that it is the primary beneficiary, then the Company reassesses this determination upon the occurrence of:

• Changes to the VIE’s governing documents or contractual arrangements in a manner that reallocates the obligation to absorb the expected losses or the right to receive the expected residual returns of the VIE between the current primary beneficiary and the other variable interest holders, including the Company.

• A sale or disposition by the Company of all or part of its variable interests in the VIE to parties unrelated to the Company.

• The issuance of new variable interests by the VIE to parties unrelated to the Company.

Except for consolidated VIEs included in other structured financings in the tables below, the Company accounts for the assets held by the entities primarily in Financial instruments owned and the liabilities of the entities as Other secured financings in the condensed consolidated statements of financial condition. The Company includes assets held by consolidated VIEs included in other structured financings primarily in Receivables, Premises, equipment and software costs and Other assets and the liabilities primarily as Other liabilities and accrued expenses and Payables in the condensed consolidated statements of financial condition. Except for consolidated VIEs included in other structured financings, the assets and liabilities are measured at fair value, with changes in fair value reflected in earnings.

The assets owned by many consolidated VIEs cannot be removed unilaterally by the Company and are not generally available to the Company. The related liabilities issued by many consolidated VIEs are non-recourse to the Company. In certain other consolidated VIEs, the Company has the unilateral right to remove assets or provides additional recourse through derivatives such as total return swaps, guarantees or other forms of involvement.

The following tables present information as of March 31, 2009 and December 31, 2008 about VIEs which the Company consolidates (dollars in millions):

	At March 31, 2009
	Mortgage and Asset-backed Securitizations		Credit and Real Estate		Commodities Financing		Other Structured Financings		Total
VIE assets that the Company consolidates	$	3,255	$	3,358	$	773	$	1,020	$	8,406
VIE liabilities		1,739		826		693		230		3,488
Maximum exposure to loss:
Debt and equity interests	$	1,552	$	2,544	$	—	$	944	$	5,040
Derivatives and other contracts		461		3,230		1,141		—		4,832
Commitments and guarantees		—		—		—		332		332
Total maximum exposure to loss	$	2,013	$	5,774	$	1,141	$	1,276	$	10,204

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

	At December 31, 2008
	Mortgage and Asset-backed Securitizations		Credit and Real Estate		Commodities Financing		Other Structured Financings		Total
VIE assets that the Company consolidates	$	4,307	$	4,121	$	809	$	1,664	$	10,901
VIE liabilities		2,473		1,505		766		801		5,545
Maximum exposure to loss:
Debt and equity interests	$	1,834	$	2,605	$	—	$	882	$	5,321
Derivatives and other contracts		517		2,757		1,307		—		4,581
Commitments and guarantees		—		—		—		330		330
Total maximum exposure to loss	$	2,351	$	5,362	$	1,307	$	1,212	$	10,232

The following tables present information about non-consolidated VIEs in which the Company had significant variable interests or served as the sponsor and had any variable interest as of March 31, 2009 and December 31, 2008 (dollars in millions):

	At March 31, 2009
	Mortgage and Asset-backed Securitizations		Credit and Real Estate		Municipal Tender Option Bond Trusts		Other Structured Financings		Total
VIE assets that the Company does not consolidate	$	1,507	$	16,103	$	813	$	5,542	$	23,965
Maximum exposure to loss:
Debt and equity interests	$	62	$	3,732	$	172	$	897	$	4,863
Derivatives and other contracts		—		5,160		—		—		5,160
Commitments and guarantees		—		—		227		504		731
Total maximum exposure to loss	$	62	$	8,892	$	399	$	1,401	$	10,754
Carrying value of exposure to loss:
Debt and equity interests	$	62	$	3,732	$	172	$	720	$	4,686
Derivatives and other contracts		—		2,311		—		—		2,311
Commitments and guarantees		—		—		—		27		27
Total carrying value of exposure to loss	$	62	$	6,043	$	172	$	747	$	7,024

	At December 31, 2008
	Mortgage and Asset-backed Securitizations		Credit and Real Estate		Municipal Tender Option Bond Trusts		Other Structured Financings		Total
VIE assets that the Company does not consolidate	$	1,629	$	18,456	$	2,173	$	8,068	$	30,326
Maximum exposure to loss:
Debt and equity interests	$	38	$	4,420	$	1,145	$	880	$	6,483
Derivatives and other contracts		—		5,156		—		—		5,156
Commitments and guarantees		—		—		320		564		884
Total maximum exposure to loss	$	38	$	9,576	$	1,465	$	1,444	$	12,523
Carrying value of exposure to loss:
Debt and equity interests	$	38	$	4,420	$	1,145	$	703	$	6,306
Derivatives and other contracts		—		2,488		—		—		2,488
Commitments and guarantees		—		—		—		36		36
Total carrying value of exposure to loss	$	38	$	6,908	$	1,145	$	739	$	8,830

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The Company’s maximum exposure to loss often differs from the carrying value of the VIE’s assets. The maximum exposure to loss is dependent on the nature of the Company’s variable interest in the VIEs and is limited to the notional amounts of certain liquidity facilities, other credit support, total return swaps, written put options, and the fair value of certain other derivatives and investments the Company has made in the VIEs. Liabilities issued by VIEs generally are non-recourse to the Company. Where notional amounts are utilized in quantifying maximum exposure related to derivatives, such amounts do not reflect fair value writedowns already recorded by the Company.

The Company’s maximum exposure to loss does not include the offsetting benefit of any financial instruments that the Company may utilize to hedge these risks associated with the Company’s variable interests.

Municipal Tender Option Bond Trusts.    In a municipal tender option bond transaction, the Company, on behalf of a client, transfers a municipal bond to a trust. The trust issues short-term securities which the Company as the remarketing agent sells to investors. The client retains a residual interest. The short-term securities are supported by a liquidity facility pursuant to which the investors may put their short-term interests. In some programs, the Company provides this liquidity facility; in most programs, a third-party provider will provide such liquidity facility. The Company may purchase short-term securities in its role either as remarketing agent or liquidity provider. The client can generally terminate the transaction at any time. The liquidity provider can generally terminate the transaction upon the occurrence of certain events. When the transaction is terminated, the municipal bond is generally sold or returned to the client. Any losses suffered by the liquidity provider upon the sale of the bond are the responsibility of the client. This obligation generally is collateralized. In prior periods, the Company established trusts in connection with its proprietary trading activities and consolidated those trusts. As of March 31, 2009 and December 31, 2008, no proprietary trusts were outstanding.

Credit Protection Purchased Through CLNs.    In a CLN transaction, the Company transfers assets (generally high quality securities or money market investments) to an SPE, enters into a derivative transaction in which the SPE writes protection on an unrelated reference asset or group of assets through a credit default swap, a total return swap or similar instrument, and sells to investors the securities issued by the SPE. In some transactions, the Company may also enter into interest rate or currency swaps with the SPE. Upon the occurrence of a credit event related to the reference asset, the SPE will sell the collateral securities in order to make the payment to the Company. The Company is generally exposed to price changes on the collateral securities in the event of a credit event and subsequent sale. These transactions are designed to transfer the credit risk on the reference asset to investors. In some transactions, the assets and liabilities of the SPE are recognized in the Company’s condensed consolidated financial statements. In other transactions, the transfer of the collateral securities is accounted for as a sale of assets and the SPE is not consolidated. The structure of the transaction determines the accounting treatment.

The derivatives in CLN transactions consist of total return swaps, credit default swaps or similar contracts in which the Company has purchased protection on a reference asset or group of assets. Payments by the SPE are collateralized. The risks associated with these and similar derivatives with SPEs are essentially the same as similar derivatives with non-SPE counterparties and are managed as part of the Company’s overall exposure.

Other Structured Financings. The Company primarily invests in equity interests issued by entities that develop and own low income communities (including low income housing projects) and entities that construct and own facilities that will generate energy from renewable resources. The equity interests entitle the Company to its share of tax credits and tax losses generated by these projects. In addition, the Company has issued guarantees to investors in certain low-income housing funds. The guarantees are designed to return an

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(UNAUDITED)

investor’s contribution to a fund and the investor’s share of tax losses and tax credits expected to be generated by the fund. The Company is also involved with entities designed to provide tax-efficient yields to the Company or its clients.

Collateralized Loan and Debt Obligations. A collateralized loan obligation (“CLO”) or a CDO is a SPE that purchases a pool of assets, consisting of corporate loans, corporate bonds, asset-backed securities or synthetic exposures on similar assets through derivatives and issues multiple tranches of debt and equity securities to investors. In the Asset Management business segment, the Company manages CLOs with assets of $2.1 billion as of both March 31, 2009 and December 31, 2008 and receives a management fee for these services. Except for the management fee, the Company’s maximum exposure to loss on these managed CLOs is immaterial as of March 31, 2009 and December 31, 2008. The Company’s maximum exposure to other CLOs and CDOs is $3.3 billion and $3.4 billion as of March 31, 2009 and December 31, 2008, respectively, excluding the exposure to the assets transferred to Ascension, a wholly owned subsidiary of the Company (see Note 9).

Asset Management Investment Funds. The tables above do not include certain investments made by the Company held by entities qualifying for accounting purposes as investment companies.

Failed Sales.

In order to be treated as a sale of assets for accounting purposes, a transfer of financial assets must meet all of the criteria provided in SFAS No. 140. If the transfer fails to meet these criteria, that transfer is treated as a failed sale. In such case, the Company continues to recognize the assets in Financial instruments owned and the Company recognizes the associated liabilities in Other secured financings in the condensed consolidated statements of financial condition.

The assets transferred to many unconsolidated VIEs in transactions accounted for as failed sales cannot be removed unilaterally by the Company and are not generally available to the Company. The related liabilities issued by many unconsolidated VIEs are non-recourse to the Company. In certain other failed sale transactions, the Company has the unilateral right to remove assets or provides additional recourse through derivatives such as total return swaps, guarantees or other forms of involvement.

40

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The following tables present information about transfers of assets treated by the Company as secured financings as of March 31, 2009 and December 31, 2008 (dollars in millions):

	At March 31, 2009
	Residential Mortgage Loans		Commercial Mortgage Loans		Credit-Linked Notes		Other
Assets
Unpaid principal amount	$	420	$	2,391	$	1,190	$	1,862
Fair value		198		2,018		924		1,684
Other secured financings
Unpaid principal amount		239		2,265		1,119		1,847
Fair value		149		1,941		916		1,683

	At December 31, 2008
	Residential Mortgage Loans		Commercial Mortgage Loans		Credit-Linked Notes		Other
Assets
Unpaid principal amount	$	439	$	2,573	$	1,333	$	2,028
Fair value		227		2,245		1,144		1,814
Other secured financings
Unpaid principal amount		258		2,512		1,293		2,008
Fair value		175		2,208		1,134		1,810

5. Goodwill and Net Intangible Assets.

The Company tests goodwill for impairment on an annual basis and on an interim basis when certain events or circumstances exist. The Company tests for impairment at the reporting unit level, which are generally one level below its business segments. Goodwill impairment is determined by comparing the estimated fair value of a reporting unit with its respective book value. If the estimated fair value exceeds the book value, goodwill at the reporting unit level is not deemed to be impaired. If the estimated fair value is below book value, however, further analysis is required to determine the amount of the impairment. The estimated fair values of the reporting units are generally determined utilizing methodologies that incorporate price-to-book, price-to-earnings and assets under management multiples of certain comparable companies.

The Company completed its annual goodwill impairment testing as of June 1, 2008 and June 1, 2007, which did not result in any goodwill impairment. Due to continued deterioration in the financial markets, the Company performed interim impairment tests of goodwill in the one month period ended December 31, 2008 and in the first quarter of 2009, which did not result in impairment.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Changes in the carrying amount of the Company’s goodwill and intangible assets for the one month period ended December 31, 2008 and the quarter ended March 31, 2009 were as follows:

	Institutional Securities			Global Wealth Management Group		Asset Management		Total
	(dollars in millions)
Goodwill:
Balance at November 30, 2008	$	800		$	272	$	1,171	$	2,243
Foreign currency translation adjustments and other		13			—		—		13
Balance at December 31, 2008		813			272		1,171		2,256
Foreign currency translation adjustments and other		(14	)		—		—		(14	)
Goodwill disposed of during the period		(16	)		—		—		(16	)
Balance at March 31, 2009	$	783		$	272	$	1,171	$	2,226

	Institutional Securities			Asset Management			Total
	(dollars in millions)
Intangible Assets:
Amortizable intangible assets at November 30, 2008	$	334		$	393		$	727
Foreign currency translation adjustments and other		3			—			3
Amortization expense		(4	)		(4	)		(8	)
Amortizable intangible assets at December 31, 2008		333			389			722
Mortgage servicing rights (see Note 4)		184			—			184
Balance of intangible assets at December 31, 2008	$	517		$	389		$	906
Amortizable intangible assets at December 31, 2008	$	333		$	389		$	722
Foreign currency translation adjustments and other		(2	)		(3	)		(5	)
Intangible assets dispose d of during the period		(1	)		—			(1	)
Amortization expense		(8	)		(12	)		(20	)
Impairment losses		—			(6	)		(6	)
Amortizable intangible assets at March 31, 2009		322			368			690
Mortgage servicing rights (see Note 4)		159			—			159
Balance of intangible assets at March 31, 2009	$	481		$	368		$	849

6. Long-Term Borrowings.

The Company’s long-term borrowings included the following components:

	At March 31, 2009		At December 31, 2008		At November 30, 2008
	(dollars in millions)
Senior debt	$	167,473	$	165,181	$	148,959
Subordinated debt		4,199		4,342		4,212
Junior subordinated debentures		10,436		10,312		10,266
Total	$	182,108	$	179,835	$	163,437

During the quarter ended March 31, 2009 and the one month period ended December 31, 2008, the Company issued notes with a carrying value aggregating approximately $17 billion and $12 billion, respectively. The

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

amount for the quarter ended March 31, 2009 included non-U.S. dollar currency notes aggregating approximately $1 billion. During the quarter ended March 31, 2009 and the one month period ended December 31, 2008, $14.4 billion and $5.7 billion of notes were repaid, respectively.

The weighted average maturity of the Company’s long-term borrowings, based upon stated maturity dates, was approximately 5.8 years and 6.3 years as of March 31, 2009 and December 31, 2008, respectively.

As of March 31, 2009, certain of the Company’s subsidiaries were in default under third party real estate financings that are generally non-recourse (subject to limited guarantees) due to a breach of certain non-monetary covenants. Limited waivers of those covenants have been obtained from the lenders for the period effective March 31, 2009 and continuing through May 31, 2009.

Federal Deposit Insurance Corporation (“FDIC”) Temporary Liquidity Guarantee Program (“TLGP”).

As of March 31, 2009, the Company had commercial paper and long-term debt outstanding of $1.0 billion and $23.7 billion, respectively, under the TLGP. As of December 31, 2008, the Company had commercial paper and long-term debt outstanding of $6.4 billion and $9.8 billion, respectively, under the TLGP. These borrowings are senior unsecured debt obligations of the Company and guaranteed by the FDIC under the TLGP. The FDIC has concluded that the guarantee is backed by the full faith and credit of the U.S. government.

7. Derivative Instruments and Hedging Activities.

The Company trades, makes markets and takes proprietary positions globally in listed futures, OTC swaps, forwards, options and other derivatives referencing, among other things, interest rates, currencies, investment grade and non-investment grade corporate credits, loans, bonds, U.S. and other sovereign securities, emerging market bonds and loans, credit indices, asset-backed security indices, property indices, mortgage-related and other asset-backed securities and real estate loan products. The Company uses these instruments for trading, as well as for asset and liability management.

The Company manages its trading positions by employing a variety of risk mitigation strategies. These strategies include diversification of risk exposures and hedging. Hedging activities consist of the purchase or sale of positions in related securities and financial instruments, including a variety of derivative products (e.g., futures, forwards, swaps and options). The Company manages the market risk associated with its trading activities on a Company-wide basis, on a worldwide trading division level and on an individual product basis.

The Company incurs credit risk as a dealer in OTC derivatives. Credit risk with respect to derivative instruments arises from the failure of a counterparty to perform according to the terms of the contract. The Company’s exposure to credit risk at any point in time is represented by the fair value of the derivative contracts reported as assets. The fair value of a derivative represents the amount at which the derivative could be exchanged in an orderly transaction between market participants, and is further described in Notes 1 and 2 to the condensed consolidated financial statements.

In connection with its derivative activities, the Company may enter into master netting agreements and collateral arrangements with counterparties. These agreements provide the Company with the ability to offset a counterparty’s rights and obligations, request additional collateral when necessary or liquidate the collateral in the event of counterparty default.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The table below presents a summary by counterparty credit rating and remaining contract maturity of the fair value of OTC derivatives in a gain position at March 31, 2009. Fair value is presented in the final column net of collateral received (principally cash and U.S. government and agency securities):

OTC Derivative Products—Financial Instruments Owned (1)

	Years to Maturity								Cross-Maturity and Cash Collateral Netting(3)			Net Exposure Post-Cash Collateral		Net Exposure Post- Collateral
Credit Rating(2)	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
AAA	$	1,632	$	2,973	$	5,899	$	15,478	$	(11,364	)	$	14,618	$	13,931
AA		9,414		14,799		12,273		33,627		(56,980	)		13,133		11,898
A		9,269		8,577		9,868		20,057		(30,658	)		17,113		14,115
BBB		5,185		4,820		3,512		8,591		(10,297	)		11,811		9,925
Non-investment grade		5,793		5,743		4,792		9,457		(8,660	)		17,125		13,758
Total	$	31,293	$	36,912	$	36,344	$	87,210	$	(117,959	)	$	73,800	$	63,627

(1) Fair values shown represent the Company’s net exposure to counterparties related to the Company’s OTC derivative products. The table does not include listed derivatives and the effect of any related hedges utilized by the Company.

(2) Obligor credit ratings are determined by the Credit Risk Management Department using methodologies generally consistent with those employed by external rating agencies.

(3) Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within such maturity category, where appropriate. Cash collateral received is netted on a counterparty basis, provided legal right of offset exists.

Hedge Accounting.

The Company applies hedge accounting under SFAS No. 133 using various derivative financial instruments and non-U.S. dollar-denominated debt used to hedge interest rate and foreign exchange risk arising from assets and liabilities not held at fair value as part of asset liability management.

The Company’s hedges are designated and qualify for accounting purposes as one of the following types of hedges: hedges of changes in fair value of assets and liabilities due to the risk being hedged (fair value hedges), hedges of the variability of future cash flows from floating rate assets and liabilities due to the risk being hedged (cash flow hedges) and hedges of net investments in foreign operations whose functional currency is different from the reporting currency of the parent company (net investment hedges).

For all hedges where hedge accounting is being applied, effectiveness testing and other procedures to ensure the ongoing validity of the hedges are performed at least monthly.

Fair Value Hedges—Interest Rate Risk.    The Company’s designated fair value hedges consisted primarily of interest rate swaps designated as fair value hedges of changes in the benchmark interest rate of fixed rate borrowings, including both certificates of deposit and senior long-term borrowings. The Company uses regression analysis to perform an ongoing prospective and retrospective assessment of the effectiveness of these hedging relationships (i.e., the Company applies the “long-haul” method of hedge accounting). A hedging relationship is deemed effective if the fair values of the hedging instrument (derivative) and the hedged item

44

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

(debt liability) change inversely within a range of 80% to 125%. The Company considers the impact of valuation adjustments related to the Company’s own credit spreads and counterparty credit spreads to determine whether they would cause the hedging relationship to be ineffective.

For qualifying fair value hedges of benchmark interest rates, the changes in the fair value of the derivative and the changes in the fair value of the hedged liability provide offset of one another and, together with any resulting ineffectiveness, are recorded in Interest expense. When a derivative is de-designated as a hedge, any basis adjustment remaining on the hedged liability is amortized to Interest expense over the remaining life of the liability using the effective interest method.

Cash Flow Hedges.    The Company applies cash flow hedge accounting to interest rate swaps designated as hedges of the variability of future cash flows from floating rate liabilities due to the benchmark interest rate. The Company uses regression analysis to perform an ongoing prospective and retrospective assessment of the effectiveness of these hedging relationships. Changes in fair value of these interest rate swaps are recorded within Accumulated other comprehensive income (loss) in Shareholders’ equity, net of tax effects, to the extent they are effective. Amounts recorded to Accumulated other comprehensive income (loss) are then reclassified to Interest expense as interest on the hedged borrowings is recognized. Any ineffective portion of the change in fair value of these instruments is recorded in Interest expense. The amount of loss recorded in Accumulated other comprehensive income (loss) and reclassified to interest expense was immaterial for the quarter ended March 31, 2009.

In 2005, the Company de-designated interest rate swaps used to hedge variable rate long-term borrowings associated with a sold business and no longer accounts for them as cash flow hedges. Amounts in Accumulated other comprehensive income (loss) related to these interest rate swaps continue to be reclassified to Interest expense since the related borrowings remain outstanding.

Net Investment Hedges.    The Company utilizes forward foreign exchange contracts and non-U.S. dollar denominated debt to manage the currency exposure relating to its net investments in non-U.S. dollar functional currency operations. No hedge ineffectiveness is recognized in earnings since the notional amounts of the hedging instruments equal the portion of the investments being hedged, and, where forward contracts are used, the currencies being exchanged are the functional currencies of the parent and investee; where debt instruments are used as hedges, they are denominated in the functional currency of the investee. The gain or loss from revaluing hedges of net investments in foreign operations at the spot rate is deferred and reported within Accumulated other comprehensive income (loss) in Shareholders’ equity, net of tax effects. The forward points on the hedging instruments are recorded in Interest and dividend revenues.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The following table summarizes the fair value of derivative instruments designated as accounting hedges under SFAS No. 133, and the fair value of derivative instruments not designated as accounting hedges by type of derivative contract on a gross basis as of March 31, 2009. Fair values of derivative contracts in an asset position are included in Financial instruments owned—derivative and other contracts. Fair values of derivative contracts in a liability position are reflected in Financial instruments sold, not yet purchased—derivative and other contracts.

	Assets at March 31, 2009					Liabilities at March 31, 2009
	Fair Value			Notional		Fair Value			Notional
	(dollars in millions)
Derivatives designated as accounting hedges:
Interest rate contracts	$	6,569		$	67,397	$	99		$	3,008
Foreign exchange contracts		138			3,600		107			5,881
Total derivatives designated as accounting hedges		6,707			70,997		206			8,889
Debt instruments designated as net investment hedges(1)		—			—		3,824			3,824
Total derivatives and non-derivatives designated as accounting hedges		6,707			70,997		4,030			12,713
Derivatives not designated as accounting hedges (2):
Interest rate contracts		824,223			14,109,036		795,542			14,148,490
Credit contracts		448,708			3,197,224		415,221			3,080,401
Foreign exchange contracts		75,515			1,052,183		74,089			1,002,351
Equity contracts		71,250			509,917		72,731			536,775
Commodity contracts		108,640			861,790		106,317			668,405
Other		957			17,952		2,168			20,453
Total derivatives not designated as accounting hedges		1,529,293			19,748,102		1,466,068			19,456,875
Total derivatives	$	1,536,000		$	19,819,099	$	1,466,274		$	19,465,764
Cash collateral netting		(84,275	)		—		(39,610	)		—
Counterparty netting		(1,372,576	)		—		(1,372,576	)		—
Total derivatives	$	79,149		$	19,819,099	$	54,088		$	19,465,764

(1) The notional amount for foreign currency debt instruments designated as net investment hedges represents the principal amount at current exchange rates.

(2) Notional amounts include net notionals related to long and short futures contracts of $251 billion and $637 billion, respectively. The variation margin on these futures contracts (excluded from the table above) of $1,859 million and $89 million is included in Receivables—Brokers, dealers and clearing organizations and Payables—Brokers, dealers and clearing organizations, respectively, on the condensed consolidated statement of financial position.

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(UNAUDITED)

The following tables summarize the gains or losses reported on derivative instruments designated and qualifying as accounting hedges for the quarter ended March 31, 2009.

Derivatives Designated as Fair Value Hedges.

Product Type	Classification of Gains or (Losses)	Amount of Gains or (Losses) Recognized in Income on Derivatives		Amount of Gains or (Losses) Recognized in Income on Borrowings
	(dollars in millions)
Interest rate contracts(1)	Interest expense	$	(2,759)	$	2,690
Total		$	(2,759)	$	2,690

(1) A loss of $69 million was recognized in income related to hedge ineffectiveness.

Derivatives Designated as Net Investment Hedges.

Product Type	Amount of Gains or (Losses) Recognized in OCI (effective portion)(2)
	(dollars in millions)
Foreign exchange contracts(1)	$	230
Debt instruments		103
Total	$	333

(1) A gain of $9 million was recognized in income related to amounts excluded from hedge effectiveness testing.

(2) No gains or (losses) were reclassified from Other comprehensive income (“OCI”) into income during the quarter ended March 31, 2009.

Derivatives Designated as Cash Flow Hedges.

The amount of losses recognized in OCI (effective portion) and the amount of losses reclassified from OCI into income on interest rate contracts was not material for the quarter ended March 31, 2009.

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(UNAUDITED)

The table below summarizes gains or losses on derivative instruments not designated as accounting hedges for the quarter ended March 31, 2009:

Product Type	Amount of Gains or (Losses) Recognized in Income for the Three Months Ended March 31, 2009 (1)(2)
	(dollars in millions)
Interest rate contracts	$	(1,888	)
Credit contracts		2,557
Foreign exchange contracts		2,415
Equity contracts		(1,240	)
Commodity contracts		752
Other contracts		482
Total derivative instruments	$	3,078

(1) Gains or (losses) on derivative contracts not designated as hedges are primarily included in Principal transactions—trading.

(2) Gains or (losses) associated with derivative contracts that have physically settled are excluded from the table above. Gains or (losses) on these contracts are reflected with the associated cash instruments, which are also included in Principal transactions—trading.

The Company also has certain embedded derivatives that have been bifurcated from the related structured borrowings under SFAS No. 133. Such derivatives are classified in Long-term borrowings and had a net fair value of $293 million and a notional of $4,157 million. The Company recognized gains of $45 million related to changes in the fair value of its bifurcated embedded derivatives for the quarter ended March 31, 2009.

As of March 31, 2009, December 31, 2008 and November 30, 2008, the amount of payables in respect of cash collateral received that was netted against derivative assets was $84.3 billion, $88.5 billion and $76.0 billion, respectively. The amount of receivables in respect of cash collateral paid that was netted against derivative liabilities was $39.6 billion, $51.0 billion and $43.2 billion, respectively. Cash collateral receivables and payables of $1.0 billion and $58 million, respectively, as of March 31, 2009, $1.3 billion and $92 million, respectively, as of December 31, 2008, and $1.7 billion and $4 million, respectively, as of November 30, 2008, were not offset against certain contracts that did not meet the SFAS No. 133 definition of a derivative.

Credit-Risk-Related Contingencies.

In connection with certain OTC trading agreements, the Company may be required to provide additional collateral to certain counterparties in the event of a credit ratings downgrade. As of March 31, 2009, the aggregate fair value of derivative contracts that contain credit-risk-related contingent features that are in a net liability position totaled $30,402 million for which the Company has posted collateral of $24,074 million in the normal course of business. The amount of additional collateral that could be called by counterparties under the terms of collateral agreements in the event of a one-notch downgrade of the Company’s long-term credit rating was approximately $949 million. An additional amount of approximately $1,197 million could be called in the event of a two-notch downgrade. Of these amounts, $1,445 million relates to bilateral arrangements between the Company and other parties where upon the downgrade of one party, the downgraded party must deliver incremental collateral to the other party. These bilateral downgrade arrangements are a risk management tool used extensively by the Company as credit exposures are reduced if counterparties are downgraded.

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(UNAUDITED)

Credit Derivatives.

The Company enters into credit derivatives, principally through credit default swaps, under which it provides counterparties protection against the risk of default on a set of debt obligations issued by a specified reference entity or entities. A majority of the Company’s counterparties are banks, broker-dealers, insurance and other financial institutions, and monoline insurers. The table below summarizes certain information regarding protection sold through credit default swaps and credit-linked notes as of March 31, 2009:

	Protection Sold
	Maximum Potential Payout/Notional										Fair Value (Asset)/ Liability(1)
	Years to Maturity
Credit Ratings of the Reference Obligation	Less than 1		1-3		3-5		Over 5		Total
	(dollars in millions)
Single name credit default swaps:
AAA	$	1,061	$	2,440	$	9,969	$	34,736	$	48,206	$	3,998
AA		13,175		22,264		43,707		37,111		116,257		6,044
A		41,846		78,257		143,255		66,682		330,040		16,931
BBB		53,948		135,404		221,759		105,289		516,400		33,777
Non-investment grade		47,609		149,613		217,546		83,375		498,143		116,506
Total		157,639		387,978		636,236		327,193		1,509,046		177,256
Index and basket credit default swaps:
AAA		8,138		21,665		51,177		131,829		212,809		9,071
AA		27		4,079		19,147		4,032		27,285		2,031
A		1,188		2,001		32,613		43,703		79,505		7,100
BBB		13,477		99,614		301,610		227,307		642,008		37,742
Non-investment grade		33,331		145,113		277,518		166,018		621,980		165,684
Total		56,161		272,472		682,065		572,889		1,583,587		221,628
Total credit default swaps sold	$	213,800	$	660,450	$	1,318,301	$	900,082	$	3,092,633	$	398,884
Credit-linked notes(2)	$	240	$	310	$	2,035	$	2,027	$	4,612	$	(1,289	)

(1) Fair value amounts are shown on a gross basis prior to cash collateral or counterparty netting.

(2) Fair value amount shown represents the fair value of the hybrid instruments.

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(UNAUDITED)

The table below summarizes certain information regarding protection sold through credit default swaps and credit-linked notes as of December 31, 2008:

	Protection Sold
	Maximum Potential Payout/Notional										Fair Value (Asset)/ Liability(1)
	Years to Maturity
Credit Ratings of the Reference Obligation	Less than 1		1-3		3-5		Over 5		Total
	(dollars in millions)
Single name credit default swaps:
AAA	$	1,946	$	3,593	$	12,766	$	37,166	$	55,471	$	4,438
AA		13,450		24,897		54,308		42,355		135,010		5,757
A		45,097		81,279		156,888		72,690		355,954		20,044
BBB		54,823		142,528		250,621		117,869		565,841		51,920
Non-investment grade		47,658		144,926		231,793		86,798		511,175		119,669
Total		162,974		397,223		706,376		356,878		1,623,451		201,828
Index and basket credit default swaps:
AAA		2,989		24,821		68,390		146,105		242,305		10,936
AA		1,435		5,684		4,683		8,073		19,875		1,128
A		12,986		11,289		28,885		30,757		83,917		4,069
BBB		10,914		127,933		443,710		273,851		856,408		46,282
Non-investment grade		34,497		211,359		341,364		176,557		763,777		166,474
Total		62,821		381,086		887,032		635,343		1,966,282		228,889
Total credit default swaps sold	$	225,795	$	778,309	$	1,593,408	$	992,221	$	3,589,733	$	430,717
Credit-linked notes(2)	$	706	$	610	$	2,401	$	2,145	$	5,862	$	(1,423	)

(1) Fair value amounts are shown on a gross basis prior to cash collateral or counterparty netting.

(2) Fair value amount shown represents the fair value of the hybrid instruments.

Single Name Credit Default Swaps.    A credit default swap protects the buyer against the loss of principal on a bond or loan in case of a default by the issuer. The protection buyer pays a periodic premium (generally quarterly) over the life of the contract and is protected for the period. The Company in turn will have to perform under a credit default swap if a credit event as defined under the contract occurs. Typical credit events include bankruptcy, dissolution or insolvency of the referenced entity, failure to pay and restructuring of the obligations of the referenced entity. In order to provide an indication of the current payment status or performance risk of the credit default swaps, the external credit ratings, primarily Moody’s credit ratings, of the underlying reference entity of the credit default swaps are disclosed.

Index and Basket Credit Default Swaps.    Index and basket credit default swaps are credit default swaps that reference multiple names through underlying baskets or portfolios of single name credit default swaps. Generally, in the event of a default on one of the underlying names, the Company will have to pay a pro rata portion of the total notional amount of the credit default index or basket contract. In order to provide an indication of the current payment status or performance risk of these credit default swaps, the weighted average external credit ratings, primarily Moody’s credit ratings, of the underlying reference entities comprising the basket or index were calculated and disclosed.

The Company also enters into index and basket credit default swaps where the credit protection provided is based upon the application of tranching techniques. In tranched transactions, the credit risk of an index or basket is

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(UNAUDITED)

separated into various portions of the capital structure, with different levels of subordination. The most junior tranches cover initial defaults, and once losses exceed the notional of the tranche, they are passed on to the next most senior tranche in the capital structure. As external credit ratings are not always available for tranched indices and baskets, credit ratings were determined based upon an internal methodology.

Credit Protection Sold Through CLNs.    The Company has invested in CLNs, which are hybrid instruments containing embedded derivatives, in which credit protection has been sold to the issuer of the note. If there is a credit event of a reference entity underlying the CLN, the principal balance of the note may not be repaid in full to the Company.

Purchased Credit Protection.    For single name credit default swaps and non-tranched index and basket credit default swaps, the Company has purchased protection with a notional amount of approximately $2.2 trillion and $2.7 trillion as of March 31, 2009 and December 31, 2008, respectively, compared with a notional amount of approximately $2.5 trillion and $3.0 trillion, as of March 31, 2009 and December 31, 2008, respectively, of credit protection sold with identical underlying reference obligations. In order to identify purchased protection with the same underlying, the notional amount for individual reference obligations within non-tranched indices and baskets was determined on a pro rata basis and matched off against single name and non-tranched index and basket credit default swaps where credit protection was sold with identical underlying reference obligations. The Company may also purchase credit protection to economically hedge loans and lending commitments. In total, not considering whether the underlying reference obligations are identical, the Company has purchased credit protection of $3.2 trillion with a positive fair value of $432 billion compared with $3.1 trillion of credit protection sold with a negative fair value of $399 billion as of March 31, 2009. In total, not considering whether the underlying reference obligations are identical, the Company has purchased credit protection of $3.7 trillion with a positive fair value of $463 billion compared with $3.6 trillion of credit protection sold with a negative fair value of $430 billion as of December 31, 2008.

The purchase of credit protection does not represent the sole manner in which the Company risk manages its exposure to credit derivatives. The Company manages its exposure to these derivative contracts through a variety of risk mitigation strategies, which include managing the credit and correlation risk across single name, non-tranched indices and baskets, tranched indices and baskets, and cash positions. Aggregate market risk limits have been established for credit derivatives, and market risk measures are routinely monitored against these limits. The Company may also recover amounts on the underlying reference obligation delivered to the Company under credit default swaps where credit protection was sold.

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(UNAUDITED)

8.    Commitments, Guarantees and Contingencies.

Commitments.

The Company’s commitments associated with outstanding letters of credit and other financial guarantees obtained to satisfy collateral requirements, investment activities, corporate lending and financing arrangements, mortgage lending and margin lending as of March 31, 2009 and December 31, 2008 are summarized below by period of expiration. Since commitments associated with these instruments may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements:

	Years to Maturity								Total at March 31, 2009
	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
Letters of credit and other financial guarantees obtained to satisfy collateral requirements	$	1,152	$	—	$	—	$	1	$	1,153
Investment activities		1,050		424		159		1,071		2,704
Primary lending commitments(1)(2)		8,397		13,958		17,559		854		40,768
Secondary lending commitments(1)		32		107		89		29		257
Commitments for secured lending transactions		828		1,032		2,041		—		3,901
Forward starting reverse repurchase agreements(3)		33,126		—		—		—		33,126
Commercial and residential mortgage-related commitments(1)		2,240		—		—		—		2,240
Underwriting commitments		409		—		—		—		409
Other commitments		815		2		2		—		819
Total	$	48,049	$	15,523	$	19,850	$	1,955	$	85,377

(1) These commitments are recorded at fair value within Financial instruments owned and Financial instruments sold, not yet purchased in the condensed consolidated statements of financial condition (see Note 2).

(2) This amount includes commitments to asset-backed commercial paper conduits of $587 million as of March 31, 2009, of which $579 million have maturities of less than one year and $8 million of which have maturities of three to five years.

(3) The Company enters into forward starting securities purchased under agreements to resell (agreements that have a trade date as of or prior to March 31, 2009 and settle subsequent to period-end) that are primarily secured by collateral from U.S. government agency securities and other sovereign government obligations. These agreements primarily settle within three business days, and as of March 31, 2009, $29.3 billion of the $33.1 billion settled within three business days.

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(UNAUDITED)

	Years to Maturity								Total at December 31, 2008
	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
Letters of credit and other financial guarantees obtained to satisfy collateral requirements	$	1,983	$	27	$	—	$	7	$	2,017
Investment activities		1,662		411		164		1,059		3,296
Primary lending commitments(1)(2)		10,523		12,231		19,536		1,616		43,906
Secondary lending commitments(1)		57		101		202		58		418
Commitments for secured lending transactions		1,202		1,000		1,658		15		3,875
Forward starting reverse repurchase agreements(3)		33,252		—		—		—		33,252
Commercial and residential mortgage-related commitments(1)		2,735		—		—		—		2,735
Underwriting commitments		244		—		—		—		244
Other commitments(4)		1,902		2		—		—		1,904
Total	$	53,560	$	13,772	$	21,560	$	2,755	$	91,647

(1) These commitments are recorded at fair value within Financial instruments owned and Financial instruments sold, not yet purchased in the condensed consolidated statements of financial condition (see Note 2).

(2) This amount includes commitments to asset-backed commercial paper conduits of $589 million as of December 31, 2008, of which $581 million have maturities of less than one year and $8 million of which have maturities of three to five years.

(3) The Company enters into forward starting securities purchased under agreements to resell (agreements that have a trade date as of or prior to December 31, 2008 and settle subsequent to period-end) that are primarily secured by collateral from U.S. government agency securities and other sovereign government obligations. These agreements primarily settle within three business days, and as of December 31, 2008, $32.4 billion of the $33.3 billion settled within three business days.

(4) This amount includes binding commitments to enter into margin-lending transactions of $1.1 billion as of December 31, 2008 in connection with the Company’s Institutional Securities business segment.

For further description of these commitments, refer to Note 9 to the consolidated financial statements for the fiscal year ended November 30, 2008 included in the Form 10-K.

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Guarantees.

The table below summarizes certain information regarding the Company’s obligations under guarantee arrangements as of March 31, 2009:

	Maximum Potential Payout/Notional										Carrying Amount (Asset)/ Liability		Collateral/ Recourse
	Years to Maturity
Type of Guarantee	Less than 1		1-3		3-5		Over 5		Total
	(dollars in millions)
Credit derivative contracts(1)(2)	$	213,800	$	660,450	$	1,318,301	$	900,082	$	3,092,633	$	398,884	$	—
Non-credit derivative contracts(1)		650,499		372,961		192,662		239,568		1,455,690		138,060		—
Standby letters of credit and other financial guarantees issued(3)		567		1,360		1,691		4,663		8,281		151		4,902
Market value guarantees		—		—		—		635		635		27		131
Liquidity facilities		3,334		780		261		46		4,421		23		4,325
General partner guarantees		28		212		30		153		423		29		—
Auction rate security guarantees		118		—		—		—		118		6		—

(1) Carrying amount of derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting. For further information on derivative contracts, see Note 7.

(2) For further information on credit derivatives, see Note 7.

(3) Approximately $2.0 billion of standby letters of credit are also reflected in the “Commitments” table above in primary and secondary lending commitments.

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The table below summarizes certain information regarding the Company’s obligations under guarantee arrangements as of December 31, 2008:

	Maximum Potential Payout/Notional										Carrying Amount (Asset)/ Liability		Collateral/ Recourse
	Years to Maturity
Type of Guarantee	Less than 1		1-3		3-5		Over 5		Total
	(dollars in millions)
Credit derivative contracts(1)(2)	$	225,795	$	778,309	$	1,593,408	$	992,221	$	3,589,733	$	430,717	$	—
Non-credit derivative contracts(1)		684,432		385,734		195,419		274,652		1,540,237		145,609		—
Standby letters of credit and other financial guarantees issued(3)		779		1,964		1,817		4,418		8,978		78		4,787
Market value guarantees		—		—		—		645		645		36		134
Liquidity facilities		3,152		698		188		376		4,414		25		3,741
General partner guarantees		54		198		33		150		435		29		—
Auction rate security guarantees		1,747		—		—		—		1,747		40		—

(1) Carrying amount of derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting. For further information on derivative contracts, see Note 7.

(2) For further information on credit derivatives, see Note 7.

(3) Approximately $2.0 billion of standby letters of credit are also reflected in the “Commitments” table above in primary and secondary lending commitments.

For further description of the above guarantee arrangements, refer to Note 9 to the consolidated financial statements for the fiscal year ended November 30, 2008 included in the Form 10-K.

The Company has obligations under certain guarantee arrangements, including contracts and indemnification agreements that contingently require a guarantor to make payments to the guaranteed party based on changes in an underlying measure (such as an interest or foreign exchange rate, security or commodity price, an index or the occurrence or non-occurrence of a specified event) related to an asset, liability or equity security of a guaranteed party. Also included as guarantees are contracts that contingently require the guarantor to make payments to the guaranteed party based on another entity’s failure to perform under an agreement, as well as indirect guarantees of the indebtedness of others.

Other Guarantees and Indemnities.

In the normal course of business, the Company provides guarantees and indemnifications in a variety of commercial transactions. These provisions generally are standard contractual terms. Certain of these guarantees and indemnifications are described below.

• Trust Preferred Securities.    The Company has established Morgan Stanley Trusts for the limited purpose of issuing trust preferred securities to third parties and lending the proceeds to the Company in exchange for junior subordinated debentures. The Company has directly guaranteed the repayment of the trust preferred securities to the holders thereof to the extent that the Company has made payments to a Morgan Stanley Trust on the junior subordinated debentures. In the event that the Company does not make

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(UNAUDITED)

payments to a Morgan Stanley Trust, holders of such series of trust preferred securities would not be able to rely upon the guarantee for payment of those amounts. The Company has not recorded any liability in the condensed consolidated financial statements for these guarantees and believes that the occurrence of any events (i.e., non-performance on the part of the paying agent) that would trigger payments under these contracts is remote. See Note 11 to the consolidated financial statements for the fiscal year ended November 30, 2008 included in the Form 10-K for details on the Company’s junior subordinated debentures.

• Indemnities.    The Company provides standard indemnities to counterparties for certain contingent exposures and taxes, including U.S. and foreign withholding taxes, on interest and other payments made on derivatives, securities and stock lending transactions, certain annuity products and other financial arrangements. These indemnity payments could be required based on a change in the tax laws or change in interpretation of applicable tax rulings or a change in factual circumstances. Certain contracts contain provisions that enable the Company to terminate the agreement upon the occurrence of such events. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. The Company has not recorded any contingent liability in the condensed consolidated financial statements for these indemnifications and believes that the occurrence of any events that would trigger payments under these contracts is remote.

• Exchange/Clearinghouse Member Guarantees.    The Company is a member of various U.S. and non-U.S. exchanges and clearinghouses that trade and clear securities and/or derivative contracts. Associated with its membership, the Company may be required to pay a proportionate share of the financial obligations of another member who may default on its obligations to the exchange or the clearinghouse. While the rules governing different exchange or clearinghouse memberships vary, in general the Company’s guarantee obligations would arise only if the exchange or clearinghouse had previously exhausted its resources. The maximum potential payout under these membership agreements cannot be estimated. The Company has not recorded any contingent liability in the condensed consolidated financial statements for these agreements and believes that any potential requirement to make payments under these agreements is remote.

• Guarantees on Securitized Asset and Whole Loan Sales.    As part of the Company’s Institutional Securities securitization and related activities, the Company provides representations and warranties that certain assets transferred in securitization transactions or sold as whole loans conform to specified guidelines. The Company may be required to repurchase such assets or indemnify the purchaser against losses if the assets do not meet certain conforming guidelines. Due diligence is performed by the Company to ensure that asset guideline qualifications are met, and, to the extent the Company has acquired such assets from other parties, the Company seeks to obtain its own representations and warranties regarding the assets. In many securitization transactions, some, but not all, of the original asset sellers provide the representations and warranties directly to the purchaser, and the Company makes representations and warranties only with respect to other assets. The maximum potential amount of future payments the Company could be required to make would be equal to the current outstanding balances of assets transferred by the Company that are subject to its representations and warranties. Since 2004, the Company has sold as whole loans residential mortgage loans with an unpaid principal balance of approximately $31 billion at the time of sale. As of March 31, 2009, the Company has provided a contingent liability of $119 million in the condensed consolidated financial statements for representations and warranties and reimbursement agreements made in connection with whole loan sales. This liability is based on the Company’s recent experience with such claims and its expectation for future claims. The Company has not provided any contingent liability in the condensed consolidated financial statements for

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(UNAUDITED)

representations and warranties made in connection with securitization transactions, and it believes that the probability of any payments under those arrangements is remote.

Also, in connection with originations of residential mortgage loans under the Company’s FlexSource^® program, the Company may permit borrowers to pledge marketable securities as collateral instead of requiring cash down payments for the purchase of the underlying residential property. Upon sale of the residential mortgage loans, the Company may provide a surety bond that reimburses the purchasers for shortfalls in the borrowers’ securities accounts up to certain limits if the collateral maintained in the securities accounts (along with the associated real estate collateral) is insufficient to cover losses that purchasers experience as a result of defaults by borrowers on the underlying residential mortgage loans. The Company requires the borrowers to meet daily collateral calls to ensure the marketable securities pledged in lieu of a cash down payment are sufficient. At March 31, 2009, December 31, 2008 and November 30, 2008, the maximum potential amount of future payments the Company may be required to make under its surety bond was $107 million, $115 million and $114 million, respectively. The Company has not recorded any contingent liability in the condensed consolidated financial statements for these representations and warranties and reimbursement agreements and believes that the probability of any payments under these arrangements is remote.

• Merger and Acquisition Guarantees.    The Company may, from time to time, in its role as investment banking advisor be required to provide guarantees in connection with certain European merger and acquisition transactions. If required by the regulating authorities, the Company provides a guarantee that the acquirer in the merger and acquisition transaction has or will have sufficient funds to complete the transaction and would then be required to make the acquisition payments in the event the acquirer’s funds are insufficient at the completion date of the transaction. These arrangements generally cover the time frame from the transaction offer date to its closing date and, therefore, are generally short term in nature. The maximum potential amount of future payments that the Company could be required to make cannot be estimated. The Company believes the likelihood of any payment by the Company under these arrangements is remote given the level of the Company’s due diligence associated with its role as investment banking advisor.

In the ordinary course of business, the Company guarantees the debt and/or certain trading obligations (including obligations associated with derivatives, foreign exchange contracts and the settlement of physical commodities) of certain subsidiaries. These guarantees generally are entity or product specific and are required by investors or trading counterparties. The activities of the subsidiaries covered by these guarantees (including any related debt or trading obligations) are included in the Company’s condensed consolidated financial statements.

Contingencies.

Legal.    In the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the issuers that would otherwise be the primary defendants in such cases are bankrupt or are in financial distress.

The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company’s business, including, among other matters, accounting and operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

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(UNAUDITED)

The Company contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict with certainty the loss or range of loss, if any, related to such matters; how or if such matters will be resolved; when they will ultimately be resolved; or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the condensed consolidated financial condition of the Company, although the outcome of such matters could be material to the Company’s operating results and cash flows for a particular future period, depending on, among other things, the level of the Company’s revenues, income or cash flows for such period. Legal reserves have been established in accordance with SFAS No. 5, “Accounting for Contingencies” (“SFAS No. 5”). Once established, reserves are adjusted when there is more information available or when an event occurs requiring a change.

9. Regulatory Requirements.

Morgan Stanley.    In September 2008, the Company became a financial holding company subject to the regulation and oversight of the Fed. The Fed establishes capital requirements for the Company, including well- capitalized standards, and evaluates the Company’s compliance with such capital requirements. The OCC establishes similar capital requirements and standards for the Company’s national bank, Morgan Stanley Bank, N.A. Prior to September 2008, the Company was a consolidated supervised entity (“CSE”) as defined by the SEC and subject to SEC regulation.

As of March 31, 2009, as well as for future dates, the Company calculates its capital ratios and risk-weighted assets (“RWAs”) in accordance with the capital adequacy standards for financial holding companies adopted by the Fed. These standards are based upon a framework described in the “International Convergence of Capital Measurement and Capital Standards,” July 1988, as amended, also referred to as Basel I. During fiscal 2008, the Company calculated capital requirements on a consolidated basis in accordance with the Revised Framework, dated June 2004 (the Basel II Accord) as interpreted by the SEC. The Basel II Accord is designed to be a risk-based capital adequacy approach, which allows for the use of internal estimates of risk components to calculate regulatory capital. In December 2007, the U.S. banking regulators published a final Basel II Accord that requires internationally active banking organizations, as well as certain of its U.S. bank subsidiaries, to implement Basel II standards over the next several years. The Company will be required to implement these Basel II standards since becoming a financial holding company in September 2008.

As of March 31, 2009, the Company was in compliance with Basel I capital requirements with ratios of Tier 1 capital to RWAs of 16.7% and total capital to RWAs of 18.2% (6% and 10% being well-capitalized for regulatory purposes, respectively). In addition financial holding companies are also subject to a Tier 1 leverage ratio (5% being well-capitalized for regulatory purposes) as defined by the Fed. The Company calculated its Tier 1 leverage ratio as Tier 1 capital divided by adjusted average total assets (which reflects adjustments for disallowed goodwill, certain intangible assets and deferred tax assets). The adjusted average total assets are derived using weekly balances for the calendar quarter. This ratio as of March 31, 2009 was 7.1%.

During March 2009, the Fed decided to delay, until March 31, 2011, the effective date of new capital requirements for financial holding companies that were scheduled to take effect on March 31, 2009. The new capital requirements limit the aggregate amount of cumulative perpetual preferred stock, trust preferred securities

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(UNAUDITED)

and minority interest in the equity accounts of most consolidated subsidiaries (collectively restricted core capital elements) included in the Tier 1 capital of financial holding companies. In addition, the new capital requirements require financial holding companies to deduct goodwill from the sum of core capital elements in calculating the amount of restricted capital that would be included in Tier 1 capital. The new rules would limit restricted core capital elements included in the Tier 1 capital of a financial holding company to 25% of the sum of core capital elements including restricted core capital elements, net of goodwill less any associated deferred tax liability. In addition, internationally active financial holding companies would be subject to further limitations by restricting the amount of restricted core capital elements, other than qualifying mandatory convertible preferred securities, included in Tier 1 capital to 15% of the sum of core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability.

The following table summarizes the capital measures for the Company at March 31, 2009 (dollars in millions):

	Balance		Ratio
Tier 1 capital	$	48,085	16.7	%
Total capital		52,354	18.2	%
Risk-weighted assets		288,262	—
Adjusted average assets		677,856	—
Tier 1 leverage		—	7.1	%

The Company’s Significant U.S. Bank Operating Subsidiaries.    The Company’s U.S. bank operating subsidiaries are subject to various regulatory capital requirements as administered by U.S. federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional, discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s U.S. bank operating subsidiaries’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company’s U.S. bank operating subsidiaries must meet specific capital guidelines that involve quantitative measures of the Company’s U.S. bank operating subsidiaries’ assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

As of March 31, 2009, the Company’s U.S. bank operating subsidiaries meet all capital adequacy requirements to which they are subject.

As of March 31, 2009, the Company’s U.S. bank operating subsidiaries exceeded all regulatorily mandated and targeted minimum regulatory capital requirements to be well-capitalized. There are no conditions or events that management believes have changed the Company’s U.S. bank operating subsidiaries’ category.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The table below sets forth the U.S. bank subsidiaries capital as of March 31, 2009.

At March 31, 2009	Amount		Ratio
	(dollars in millions)
Total Capital (to RWAs):
Morgan Stanley Bank, N.A.	$	7,559	16.7	%
Morgan Stanley Trust	$	405	29.0	%
Tier I Capital (to RWAs):
Morgan Stanley Bank, N.A.	$	5,998	13.3	%
Morgan Stanley Trust	$	405	29.0	%
Leverage Ratio:
Morgan Stanley Bank, N.A.	$	5,998	9.7	%
Morgan Stanley Trust	$	405	6.2	%

Under regulatory capital requirements adopted by the U.S. federal banking agencies, U.S. depository institutions, in order to be considered well capitalized, must maintain a capital ratio of Tier 1 capital to risk-based assets of 6%, a ratio of total capital to risk-based assets of 10%, and a ratio of Tier 1 capital to average book assets (leverage ratio) of 5%. Each U.S. depository institution subsidiary of the Company must be well capitalized in order for the Company to continue to qualify as a financial holding company and to continue to engage in the broadest range of financial activities permitted to financial holding companies. As of March 31, 2009, the Company’s three U.S. depository institutions maintained capital at levels in excess of the universally mandated well capitalized levels. These subsidiary depository institutions maintain capital at levels sufficiently in excess of the “well capitalized” requirements to address any additional capital needs and requirements identified by the federal banking regulators.

MS&Co. and Other Broker-Dealers.    MS&Co. is a registered broker-dealer and registered futures commission merchant and, accordingly, is subject to the minimum net capital requirements of the SEC, the Financial Industry Regulatory Authority and the Commodity Futures Trading Commission. MS&Co. has consistently operated in excess of these requirements. MS&Co.’s net capital totaled $11,505 million and $9,216 million at March 31, 2009 and December 31, 2008, respectively, which exceeded the amount required by $10,675 million and $8,366 million, respectively. MSIP, a London-based broker-dealer subsidiary, is subject to the capital requirements of the Financial Services Authority, and MSJS, a Tokyo-based broker-dealer subsidiary, is subject to the capital requirements of the Financial Services Agency. MSIP and MSJS consistently operated in excess of their respective regulatory capital requirements.

MS&Co. is required to hold tentative net capital in excess of $1 billion and net capital in excess of $500 million in accordance with the market and credit risk standards of Appendix E of Rule 15c3-1. MS&Co. is also required to notify the SEC in the event that its tentative net capital is less than $5 billion. As of March 31, 2009, MS&Co. had tentative net capital in excess of the minimum and the notification requirements.

Other Regulated Subsidiaries.    Certain other U.S. and non-U.S. subsidiaries are subject to various securities, commodities and banking regulations, and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. These subsidiaries have consistently operated in excess of their local capital adequacy requirements.

Morgan Stanley Derivative Products Inc. (“MSDP”), which is a triple-A rated derivative products subsidiary, maintains certain operating restrictions that have been reviewed by various rating agencies. MSDP is operated

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(UNAUDITED)

such that creditors of the Company should not expect to have any claims on the assets of MSDP, unless and until the obligations to its own creditors are satisfied in full. Creditors of MSDP should not expect to have any claims on the assets of the Company or any of its affiliates, other than the respective assets of MSDP.

During the second quarter of fiscal 2008, Morgan Stanley Senior Funding, Inc. (“MSSF”), which provides loans or lending commitments (including bridge financing) to selected corporate clients, transferred certain loans to Ascension Loan Vehicle, LLC (“Ascension”). MSSF and Ascension are both wholly owned subsidiaries of the Company. MSSF transferred such loans so that they could be securitized and, in turn, made eligible to be pledged with the Fed. Certain of the securitized interests in Ascension were transferred to Morgan Stanley Darica Funding, LLC (“MSDF”), a wholly owned subsidiary of the Company, during the third quarter of fiscal 2008. Ascension and MSDF, which are special purpose vehicle subsidiaries of the Company, maintain certain operating restrictions that have been reviewed by various rating agencies. Ascension and MSDF are structured as separate legal entities and operated such that creditors of the Company or any affiliate of the Company, including MSSF, but excluding Ascension and MSDF, should not reasonably expect to have any claims on the assets of Ascension and MSDF, respectively. Such assets include loans that have been sold, and participation interests that have been granted, by MSSF to Ascension in an aggregate approximate amount of $2.0 billion as of December 31, 2008 and $1.6 billion as of March 31, 2009. Such amounts may increase or decrease. Securitized interests in Ascension were transferred to MSDF in the aggregate approximate amount of $460 million during fiscal 2008 and no additional securitized interests were transferred in the one month period ended December 31, 2008 and the quarter ended March 31, 2009. Creditors of Ascension and MSDF should not reasonably expect to have any claims on the assets of the Company or any of its affiliates, including MSSF, other than the assets of Ascension and MSDF, respectively.

10. Total Equity.

Shareholders’ Equity.

Treasury Shares.    During the quarters ended March 31, 2009 and March 31, 2008 and the one month period ended December 31, 2008, the Company did not purchase any of its common stock through the capital management share repurchase program.

China Investment Corporation Investment.    In December 2007, the Company sold Equity Units that included contracts to purchase Company common stock to a wholly owned subsidiary of CIC for approximately $5,579 million. CIC’s ownership in the Company’s common stock, including the number of shares of common stock to be received by CIC upon settlement of the stock purchase contracts, will be 9.9% or less of the Company’s total shares outstanding based on the total shares that were outstanding on November 30, 2007. CIC is a passive financial investor and has no special rights of ownership nor a role in the management of the Company. A substantial portion of the investment proceeds was treated as Tier 1 capital for regulatory capital purposes.

For a more detailed summary of the Equity Units, including the junior subordinated debentures issued to support trust common and trust preferred securities and the stock purchase contracts, refer to Note 11 to the consolidated financial statements for the fiscal year ended November 30, 2008 included in the Form 10-K.

Prior to the Company’s sale to Mitsubishi UFJ Financial Group, Inc. (“MUFG”) of certain preferred stock for an aggregate purchase price of $9 billion on October 13, 2008 (“MUFG Transaction”), the impact of the Equity Units was reflected in the Company’s earnings per diluted common share using the treasury stock method, as defined by SFAS No. 128, “Earnings Per Share” (“SFAS No. 128”). There was no dilutive impact for the quarter ended March 31, 2008.

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MORGAN STANLEY

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(UNAUDITED)

Effective October 13, 2008, as a result of the adjustment to the Equity Units due to the MUFG Transaction, the Equity Units are now deemed to be “participating securities” in accordance with EITF Issue 03-6, in that the Equity Units have the ability to participate in any dividends the Company declares on common shares above $0.27 per share during any quarterly reporting period via an increase in the number of common shares to be delivered upon settlement of the stock purchase contracts. During the first quarter of 2009, no dividends above $0.27 per share were declared.

The Equity Units do not share in any losses of the Company for purposes of calculating earnings per share. Therefore, if the Company incurs a loss in any reporting period, losses will not be allocated to the Equity Units in the earnings per share calculation.

In addition, as required by the U.S. Department of Treasury’s (the “U.S. Treasury”) Troubled Asset Relief Program (“TARP”) and Capital Purchase Program (“CPP”), the Company may not declare or pay any cash dividends on its common stock other than regular quarterly cash dividends of not more than $0.27 without the consent of the U.S. Treasury.

See Note 1 for further discussion on the two-class method and Note 11 for the dilutive impact for the quarter ended March 31, 2009.

Preferred Stock.

The Company’s preferred stock outstanding consisted of the following (dollars in millions):

	Dividend Rate (Annual)		Shares Outstanding	Liquidation Preference per Share		Convertible to Morgan Stanley Shares	Carrying Value
Series							At March 31, 2009		At December 31, 2008		At November 30, 2008
							(dollars in millions)
A	N/A	(1)	44,000	$	25,000	—	$	1,100	$	1,100	$	1,100
B	10.00	%	7,839,209		1,000	310,464,033		8,100		8,100		8,100
C	10.00	%	1,160,791		1,000	—		900		900		900
D	5.00	%(2)	10,000,000		1,000	—		9,108		9,068		9,055
Total							$	19,208	$	19,168	$	19,155

(1) The Series A Preferred Stock pays a non-cumulative dividend, as and if declared by the Board of Directors of the Company, in cash, at a rate per annum equal to the greater of (1) the three-month U.S. dollar LIBOR plus 0.70% or (2) 4%.

(2) The Series D Preferred Stock pays a compounding cumulative dividend, in cash, at the rate of 5% per annum for the first five years, and 9% thereafter on the liquidation preference of $1,000 per share.

For further information on the Company’s preferred stock and warrant, refer to Note 11 to the consolidated financial statements for the fiscal year ended November 30, 2008 included in the Form 10-K.

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(UNAUDITED)

11. Earnings per Common Share.

Basic EPS is computed by dividing income available to Morgan Stanley common shareholders by the weighted average number of common shares outstanding for the period. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied either the explicit vesting terms or retirement-eligible requirements. Diluted EPS reflects the assumed conversion of all dilutive securities. The Company calculates earnings per share using the two-class method as defined in EITF 03-6 (see Note 1) and applies FSP EITF 03-6-1. The following table presents the calculation of basic and diluted EPS (in millions, except for per share data):

	Three Months Ended March 31,						One Month Ended December 31, 2008
	2009			2008
Basic EPS:
Net income (loss) applicable to Morgan Stanley	$	(177	)	$	1,413		$	(1,288	)
Less: Preferred dividends (Series A Preferred Stock)		(11	)		(14	)		(15	)
Less: Preferred dividends (Series B Preferred Stock)		(196	)		—			(200	)
Less: Preferred dividends (Series C Preferred Stock)		(29	)		—			(30	)
Less: Preferred dividends (Series D Preferred Stock)		(125	)		—			(63	)
Less: Amortization of issuance discount for Series D Preferred Stock		(40	)		—			(13	)
Less: Allocation of earnings to unvested restricted stock units(1)		—			(88	)		(15	)
Net income (loss) applicable to Morgan Stanley common shareholders	$	(578	)	$	1,311		$	(1,624	)
Weighted average common shares outstanding		1,012			1,034			1,002
Earnings (losses) per basic common share	$	(0.57	)	$	1.27		$	(1.62	)
Diluted EPS:
Net income (loss) applicable to Morgan Stanley common shareholders	$	(578	)	$	1,311		$	(1,624	)
Weighted average common shares outstanding		1,012			1,034			1,002
Effect of dilutive securities:
Stock options and restricted stock units(1)		—			5			—
Weighted average common shares outstanding and common stock equivalents		1,012			1,039			1,002
Earnings (losses) per diluted common share	$	(0.57	)	$	1.26		$	(1.62	)

(1) Under FSP EITF 03-6-1, the restricted stock units participate in all of the earnings of the Company in the computation of basic EPS, and therefore, the restricted stock units are not included as incremental shares in the fully diluted calculation.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

The following securities were considered antidilutive and, therefore, were excluded from the computation of diluted EPS:

	Three Months Ended March 31,		One Month Ended December 31, 2008
Number of Antidilutive Securities Outstanding at End of Period:	2009	2008
	(shares in millions)
Stock options	88	79	99
Restricted stock units(1)	68	70	72
Equity Units(2)	116	116	116
CPP Warrant	65	—	65
MUFG Convertible preferred stock	311	—	311
Total	648	265	663

(1) Under FSP EITF 03-6-1, the restricted stock units participate in all of the earnings of the Company in the computation of basic EPS, and therefore, the restricted stock units are not included as incremental shares in the fully diluted calculation.

(2) Since the CIC Equity Units participate in substantially all of the earnings of the Company (i.e., any earnings above $0.27 per quarter) in basic earnings per share (assuming a full distribution of earnings of the Company), the CIC Equity Units generally would not be included as incremental shares in the fully diluted calculation.

12. Interest and Dividends and Interest Expense.

Details of Interest income and Interest expense were as follows (in millions):

	Three Months Ended March 31,				One Month Ended December 31, 2008
	2009		2008
Interest and dividends(1):
Financial instruments owned(2)	$	1,568	$	2,876	$	555
Receivables from other loans		88		262		15
Interest bearing deposits with banks		113		456		19
Federal funds sold and securities purchased under agreements to resell and securities borrowed		444		4,739		382
Other		311		4,379		174
Total Interest and dividends revenues	$	2,524	$	12,712	$	1,145
Interest expense(1):
Commercial paper and other short-term borrowings	$	37	$	232	$	35
Deposits		150		238		53
Long-term debt		1,472		2,173		584
Securities sold under agreements to repurchase and securities loaned		463		4,510		360
Other		253		4,643		(15	)
Total Interest expense	$	2,375	$	11,796	$	1,017
Net interest and dividends revenues	$	149	$	916	$	128

(1) Interest income and expense and dividend income are recorded within the condensed consolidated statements of income depending on the nature of the instrument and related market conventions. When interest and dividends are included as a component of the instrument’s fair value, interest and dividends are included within Principal transactions—trading revenues or Principal transactions—investment revenues. Otherwise, they are included within Interest and dividends income or Interest expense.

(2) Interest expense on Financial instruments sold, not yet purchased is reported as a reduction of Interest and dividends revenues.

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(UNAUDITED)

13. Other Revenues.

Details of Other revenues were as follows (in millions):

	Three Months Ended March 31,				One Month Ended December 31, 2008
	2009		2008
Morgan Stanley Wealth Management S.V., S.A.U.(1)	$	—	$	733	$	—
Other		432		282		238
Total	$	432	$	1,015	$	238

(1) Amount relates to the sale of Morgan Stanley Wealth Management S.V., S.A.U. in the quarter ended March 31, 2008.

14. Employee Benefit Plans.

The Company maintains various pension and benefit plans for eligible employees.

The components of the Company’s net periodic benefit expense for its pension and postretirement plans were as follows:

	Three Months Ended March 31,						One Month Ended December 31, 2008
	2009			2008
	(dollars in millions)
Service cost, benefits earned during the period	$	32		$	28		$	9
Interest cost on projected benefit obligation		40			37			13
Expected return on plan assets		(30	)		(33	)		(10	)
Net amortization of prior service costs		(3	)		(2	)		(1	)
Net amortization of actuarial loss		11			8			—
Net periodic benefit expense	$	50		$	38		$	11

15. Income Taxes.

The Company is under continuous examination by the Internal Revenue Service (the “IRS”) and other tax authorities in certain countries, such as Japan and the United Kingdom (the “U.K.”), and states in which the Company has significant business operations, such as New York. The IRS and Japanese tax authorities are expected to conclude the field work portion of their respective examinations during 2009. During 2009, the Company expects to come to conclusion with the U.K. tax authorities on issues through tax year 2007, including those in appeals. The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions resulting from these and subsequent years’ examinations. The Company has established unrecognized tax benefits that the Company believes are adequate in relation to the potential for additional assessments. Once established, the Company adjusts unrecognized tax benefits only when more information is available or when an event occurs necessitating a change. The Company believes that the resolution of tax matters will not have a material effect on the condensed consolidated statements of financial condition of the Company, although a resolution could have a material impact on the Company’s condensed consolidated statements of income for a particular future period and on the Company’s effective income tax rate for any period in which such resolution occurs.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

It is reasonably possible that significant changes in the gross balance of unrecognized tax benefits may occur within the next twelve months. At this time, however, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits and impact on the effective tax rate over the next twelve months.

16.    Segment and Geographic Information.

The Company structures its segments primarily based upon the nature of the financial products and services provided to customers and the Company’s management organization. The Company provides a wide range of financial products and services to its customers in each of its business segments: Institutional Securities, Global Wealth Management Group and Asset Management. For further discussion of the Company’s business segments, see Note 1.

Revenues and expenses directly associated with each respective segment are included in determining their operating results. Other revenues and expenses that are not directly attributable to a particular segment are allocated based upon the Company’s allocation methodologies, generally based on each segment’s respective net revenues, non-interest expenses or other relevant measures.

As a result of treating certain intersegment transactions as transactions with external parties, the Company includes an Intersegment Eliminations category to reconcile the business segment results to the Company’s consolidated results. Income before taxes in Intersegment Eliminations primarily represents the effect of timing differences associated with the revenue and expense recognition of commissions paid by the Asset Management business segment to the Global Wealth Management Group business segment associated with sales of certain products and the related compensation costs paid to the Global Wealth Management Group business segment’s global representatives.

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MORGAN STANLEY

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(UNAUDITED)

Selected financial information for the Company’s business segments is presented below:

Three Months Ended March 31, 2009	Institutional Securities			Global Wealth Management Group		Asset Management			Intersegment Eliminations			Total
	(dollars in millions)
Total non-interest revenues	$	1,691		$	1,112	$	135		$	(45	)	$	2,893
Net interest		5			187		(63	)		20			149
Net revenues	$	1,696		$	1,299	$	72		$	(25	)	$	3,042
Income (loss) before income taxes	$	(447	)	$	119	$	(559	)	$	2		$	(885	)
(Benefit from) provision for income taxes		(601	)		46		(141	)		1			(695	)
Net income (loss)	$	154		$	73	$	(418	)	$	1		$	(190	)
Net (loss) applicable to non-controlling interests	$	(13	)	$	—	$	—		$	—		$	(13	)
Net income (loss) applicable to Morgan Stanley	$	167		$	73	$	(418	)	$	1		$	(177	)
Three Months Ended March 31, 2008	Institutional Securities			Global Wealth Management Group		Asset Management			Intersegment Eliminations			Total
	(dollars in millions)
Total non-interest revenues	$	4,349		$	2,115	$	593		$	(56	)	$	7,001
Net interest		702			218		(19	)		15			916
Net revenues	$	5,051		$	2,333	$	574		$	(41	)	$	7,917
Income (loss) before income taxes	$	1,197		$	949	$	(112	)	$	4		$	2,038
Provision for (benefit from) income taxes		288			356		(40	)		2			606
Net income (loss)	$	909		$	593	$	(72	)	$	2		$	1,432
Net income applicable to non-controlling interests	$	19		$	—	$	—		$	—		$	19
Net income (loss) applicable to Morgan Stanley	$	890		$	593	$	(72	)	$	2		$	1,413
One Month Ended December 31, 2008	Institutional Securities			Global Wealth Management Group		Asset Management			Intersegment Eliminations			Total
	(dollars in millions)
Total non-interest revenues	$	(1,406	)	$	358	$	136		$	(21	)	$	(933	)
Net interest		86			51		(15	)		6			128
Net revenues	$	(1,320	)	$	409	$	121		$	(15	)	$	(805	)
(Loss) income before income taxes	$	(2,018	)	$	118	$	(110	)	$	1		$	(2,009	)
Provision for (benefit from) income taxes		(728	)		45		(42	)		1			(724	)
Net income (loss)	$	(1,290	)	$	73	$	(68	)	$	—		$	(1,285	)
Net income applicable to non-controlling interests	$	3		$	—	$	—		$	—		$	3
Net income (loss) applicable to Morgan Stanley	$	(1,293	)	$	73	$	(68	)	$	—		$	(1,288	)

67

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

Net Interest	Institutional Securities		Global Wealth Management Group		Asset Management			Intersegment Eliminations			Total
	(dollars in millions)
Three Months Ended March 31, 2009
Interest and dividends	$	2,295	$	226	$	9		$	(6	)	$	2,524
Interest expense		2,290		39		72			(26	)		2,375
Net interest	$	5	$	187	$	(63	)	$	20		$	149
Three Months Ended March 31, 2008
Interest and dividends	$	12,423	$	294	$	6		$	(11	)	$	12,712
Interest expense		11,721		76		25			(26	)		11,796
Net interest	$	702	$	218	$	(19	)	$	15		$	916
One Month Ended December 31, 2008
Interest and dividends	$	1,069	$	66	$	12		$	(2	)	$	1,145
Interest expense		983		15		27			(8	)		1,017
Net interest	$	86	$	51	$	(15	)	$	6		$	128

Total Assets(1)	Institutional Securities		Global Wealth Management Group		Asset Management		Total
	(dollars in millions)
At March 31, 2009	$	592,017	$	22,923	$	11,083	$	626,023
At December 31, 2008	$	639,866	$	24,273	$	12,625	$	676,764
At November 30, 2008	$	623,299	$	22,586	$	13,150	$	659,035

(1) Corporate assets have been fully allocated to the Company’s business segments.

The Company operates in both U.S. and non-U.S. markets. The Company’s non-U.S. business activities are principally conducted through European and Asian locations. The following table presents selected income statement information and the total assets of the Company’s operations by geographic area. The net revenues and total assets disclosed in the following table reflect the regional view of the Company’s consolidated net revenues and total assets, on a managed basis, based on the following methodology:

• Institutional Securities: advisory and equity underwriting—client location, debt underwriting—revenue recording location, sales and trading—trading desk location.

• Global Wealth Management Group: global representative coverage location.

• Asset Management: client location, except for merchant banking business, which is based on asset location.

	Three Months Ended March 31,				One Month Ended December 31, 2008
Net revenues	2009		2008
	(dollars in millions)
Americas	$	2,722	$	2,561	$	(610	)
Europe, Middle East, and Africa		70		4,137		(240	)
Asia		250		1,219		45
Total	$	3,042	$	7,917	$	(805	)

68

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

17.    Joint Ventures.

Japan Securities Joint Venture.    On March 26, 2009, Mitsubishi UFJ Financial Group, Inc. (“MUFG”) and the Company announced that they have signed a memorandum of understanding (“MOU”) to form a securities joint venture combining Mitsubishi UFJ Securities Co., Ltd. and Morgan Stanley Japan Securities Co., Ltd.

The proposed joint venture will integrate the two firms’ Japanese securities businesses into the third largest brokerage franchise in Japan.

Upon closing, the two securities businesses will operate as a single firm, with MUFG owning a 60% stake and the Company owning a 40% stake. The joint venture will have five representative directors, comprising three from MUFG and two from the Company. The allocation of the remaining board seats will reflect the ownership structure.

Both parties will work to conclude definitive agreements regarding the joint venture with a targeted closing date prior to the end of March 2010 and the joint venture is subject to regulatory approvals and other customary closing conditions.

Morgan Stanley Smith Barney Joint Venture.    On January 13, 2009, the Company and Citigroup Inc. (“Citi”) announced they had reached a definitive agreement to combine the Company’s Global Wealth Management Group and Citi’s Smith Barney in the U.S., Quilter in the U.K., and Smith Barney Australia into a new joint venture to be called Morgan Stanley Smith Barney. Initially, the Company will own 51%, and Citi will own 49% of the joint venture, after the contribution of the respective businesses to the joint venture and the Company’s payment of $2.7 billion to Citi. The Company will appoint four directors to the joint venture’s board and Citi will appoint two directors. After year three, the Company and Citi will have various purchase and sales rights with respect to the joint venture interest. The transaction is expected to close in the third quarter of 2009 or sooner and is subject to regulatory approvals and other customary closing conditions. The Company expects to include the accounts of the joint venture in its condensed consolidated financial statements upon closing.

69

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

18.    Transition Period Financial Information.

	One Month Ended December 31,
	2008			2007
	(dollars in millions, except share and per share data)
Income Statement Data:
Net revenues	$	(805	)	$	3,026
Income (loss) before income taxes	$	(2,009	)	$	954
(Benefit from) provision for income taxes		(724	)		323
Net income (loss)	$	(1,285	)	$	631
Net income (loss) applicable to non-controlling interest	$	3		$	5
Net income (loss) applicable to Morgan Stanley	$	(1,288	)	$	626
Per Share Data:
Earnings (losses) per basic common share	$	(1.62	)	$	0.58
Earnings (losses) per diluted common share	$	(1.62	)	$	0.57
Average common shares outstanding:
Basic		1,002,058,928			1,001,916,565
Diluted		1,002,058,928			1,014,454,968
Balance Sheet Data:
Total assets	$	676,764		$	1,097,021
Total capital		208,008			198,210
Long-term borrowings		179,835			199,459
Total Morgan Stanley shareholders’ equity		48,753			31,777
Non-controlling interests		703			1,571
Total equity		49,456			33,348

19.    Subsequent Event.

On April 22, 2009, the Company announced a reduction in the quarterly common stock dividend rate from $0.27 per share to $0.05 per share. Additionally, due to the change in the Company’s fiscal year end to December, the Company declared a $0.016667 dividend per common share covering the period from December 1, 2008 through December 31, 2008. The total dividend of $0.066667 per common share covering the four month period from December 1, 2008 to March 31, 2009 is payable on May 15, 2009 to shareholders of record on April 30, 2009. The Company expects to enhance its capital position by an estimated annualized amount of approximately $1 billion through this reduction in the common stock dividend rate.

70

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Morgan Stanley:

We have reviewed the accompanying condensed consolidated statement of financial condition of Morgan Stanley and subsidiaries (the “Company”) as of March 31, 2009 and December 31, 2008, the related condensed consolidated statements of income, comprehensive income, cash flows and changes in total equity for the three-month periods ended March 31, 2009 and March 31, 2008, and the related condensed consolidated statements of income, comprehensive income, cash flows and changes in total equity for the one month ended December 31, 2008. These interim financial statements are the responsibility of the management of the Company.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition of the Company as of November 30, 2008, and the related consolidated statements of income, comprehensive income, cash flows and changes in shareholders’ equity for the fiscal year then ended (not presented herein) included in Morgan Stanley’s Annual Report on Form 10-K; and in our report dated January 28, 2009, which report contains an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” and SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115,” an explanatory paragraph relating to the adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” and an explanatory paragraph relating to the adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial condition as of November 30, 2008 is fairly stated, in all material respects, in relation to the consolidated statement of financial condition from which it has been derived.

As discussed in Note 1 to the condensed consolidated interim financial statements, the Company changed its fiscal year-end from November 30 to December 31 and recasted prior interim financial statements to a calendar year basis.

As discussed in Note 1 to the condensed consolidated interim financial statements, effective January 1, 2009, the Company adopted SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51.”

As discussed in Note 1 and in Note 11 to the condensed consolidated interim financial statements, effective January 1, 2009, the Company adopted FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.”

/s/    Deloitte & Touche LLP

New York, New York

May 7, 2009

71

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction.

Morgan Stanley (or the “Company”) is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Global Wealth Management Group and Asset Management. The Company, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. A summary of the activities of each of the business segments is as follows.

Institutional Securities includes capital raising; financial advisory services, including advice on mergers and acquisitions, restructurings, real estate and project finance; corporate lending; sales, trading, financing and market-making activities in equity and fixed income securities and related products, including foreign exchange and commodities; benchmark indices and risk management analytics; and investment activities.

Global Wealth Management Group provides brokerage and investment advisory services covering various investment alternatives; financial and wealth planning services; annuity and other insurance products; credit and other lending products; cash management services; retirement services; and trust and fiduciary services.

Asset Management provides global asset management products and services in equity, fixed income, alternative investments, which includes hedge funds and funds of funds, and merchant banking, which includes real estate, private equity and infrastructure, to institutional and retail clients through proprietary and third-party distribution channels. Asset Management also engages in investment activities.

The discussion of the Company’s results of operations below may contain forward-looking statements. These statements, which reflect management’s beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect the Company’s future results, please see “Forward-Looking Statements” immediately preceding Part I, Item 1, “Competition” and “Supervision and Regulation” in Part I, Item 1, “Risk Factors” in Part I, Item 1A and “Certain Factors Affecting Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008 (the “Form 10-K”) and the Company’s 2009 Current Reports on Form 8-K.

The Company’s results of operations for the quarters ended March 31, 2009 and March 31, 2008 (see “Change in Fiscal Year End” herein) and the one month period ended December 31, 2008 are discussed below.

Change in Fiscal Year End.

On December 16, 2008, the Board of Directors of the Company approved a change in the Company’s fiscal year end from November 30 to December 31 of each year. This change to the calendar year reporting cycle began January 1, 2009. As a result of the change, the Company had a one month transition period in December 2008. The unaudited results for the one month period ended December 31, 2008 are included in this report. The Company has also included selected unaudited results for the one month period ended December 31, 2007 for comparative purposes in Note 18 to the condensed consolidated financial statements. The audited results for the one month period ended December 31, 2008 will be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

In addition, the results for the quarter ended March 31, 2009 are compared with the results of the quarter ended March 31, 2008, which have been recast on a calendar basis due to the change in the Company’s fiscal year end from November 30 to December 31.

Recent Business Developments.

Japan Securities Joint Venture.    On March 26, 2009, Mitsubishi UFJ Financial Group, Inc. (“MUFG”) and the Company announced that they have signed a memorandum of understanding (“MOU”) to form a securities joint venture combining Mitsubishi UFJ Securities Co., Ltd. and Morgan Stanley Japan Securities Co., Ltd.

72

The proposed joint venture will integrate the two firms’ Japanese securities businesses into the third largest brokerage franchise in Japan.

Upon closing, the two securities businesses will operate as a single firm, with MUFG owning a 60% stake and the Company owning a 40% stake. The joint venture will have five representative directors, comprising three from MUFG and two from the Company. The allocation of the remaining board seats will reflect the ownership structure.

Both parties will work to conclude definitive agreements regarding the joint venture with a targeted closing date prior to the end of March 2010 and the joint venture is subject to regulatory approvals and other customary closing conditions.

Morgan Stanley Smith Barney Joint Venture.    On January 13, 2009, the Company and Citigroup Inc. (“Citi”) announced they had reached a definitive agreement to combine the Company’s Global Wealth Management Group and Citi’s Smith Barney in the U.S., Quilter in the U.K., and Smith Barney Australia into a new joint venture to be called Morgan Stanley Smith Barney. Initially, the Company will own 51%, and Citi will own 49% of the joint venture, after the contribution of the respective businesses to the joint venture and the Company’s payment of $2.7 billion to Citi. The Company will appoint four directors to the joint venture’s board and Citi will appoint two directors. After year three, the Company and Citi will have various purchase and sales rights with respect to the joint venture interest. The transaction is expected to close in the third quarter of 2009 or sooner and is subject to regulatory approvals and other customary closing conditions.

73

Executive Summary.

Financial Information.

	At or for the Three Months Ended March 31,						At or for the One Month Ended December 31, 2008
	2009			2008
Net revenues (dollars in millions):
Institutional Securities	$	1,696		$	5,051		$	(1,320	)
Global Wealth Management Group		1,299			2,333			409
Asset Management		72			574			121
Intersegment Eliminations		(25	)		(41	)		(15	)
Consolidated net revenues	$	3,042		$	7,917		$	(805	)
Consolidated net income (loss) (dollars in millions)	$	(190	)	$	1,432		$	(1,285	)
Net income (loss) applicable to non-controlling interest (dollars in millions)	$	(13	)	$	19		$	3
Net income (loss) applicable to Morgan Stanley (dollars in millions):
Institutional Securities	$	167		$	890		$	(1,293	)
Global Wealth Management Group		73			593			73
Asset Management		(418	)		(72	)		(68	)
Intersegment Eliminations		1			2			—
Net income (loss) applicable to Morgan Stanley	$	(177	)	$	1,413		$	(1,288	)
(Loss) earnings applicable to Morgan Stanley common shareholders (dollars in millions)	$	(578	)	$	1,311		$	(1,624	)
(Loss) earnings per basic common share(1)	$	(0.57	)	$	1.27		$	(1.62	)
(Loss) earnings per diluted common share(1)	$	(0.57	)	$	1.26		$	(1.62	)
Regional net revenues (dollars in millions)(2):
Americas	$	2,722		$	2,561		$	(610	)
Europe, Middle East and Africa		70			4,137			(240	)
Asia		250			1,219			45
Consolidated net revenues	$	3,042		$	7,917		$	(805	)
Statistical Data.
Average common equity (dollars in billions)(3):
Institutional Securities	$	20.7			24.3		$	21.0
Global Wealth Management Group		1.3			1.5			1.3
Asset Management		3.4			3.6			3.4
Unallocated capital		4.2			2.5			4.9
Consolidated average common equity	$	29.6		$	31.9		$	30.6
Return on average common equity(3):
Consolidated		N/M			18	%		N/M
Institutional Securities		2	%		14	%		N/M
Global Wealth Management Group		20	%		N/M			61	%
Asset Management		N/M			N/M			N/M
Book value per common share(4)	$	27.10		$	29.70		$	27.53
Tangible common equity(5)	$	26,399		$	29,212		$	26,607

74

Statistical Data—(Continued).

	At or for the Three Months Ended March 31,						At or for the One Month Ended December 31, 2008
	2009			2008
Tangible common equity to tangible assets ratio(5)		4.2	%		2.6	%		3.9	%
Tangible common equity to risk-weighted assets ratio(6)		9.2	%		N/A			N/A
Effective income tax rate(7)		78.5	%		29.7	%		36.0	%
Worldwide employees		44,241			46,768			46,430
Average liquidity (dollars in billions)(8):
Parent company liquidity	$	61		$	69		$	64
Bank and other subsidiary liquidity		84			52			78
Total liquidity	$	145		$	121		$	142
Capital ratios at March 31, 2009(9):
Total capital ratio		18.2	%		N/A			N/A
Tier 1 capital ratio		16.7	%		N/A			N/A
Tier 1 leverage ratio		7.1	%		N/A			N/A
Consolidated assets under management or supervision by asset class (dollars in billions):
Equity(10)	$	177		$	307		$	197
Fixed income(10)		175			244			189
Alternatives(11)		42			72			50
Private equity		4			3			4
Infrastructure		4			3			4
Real estate		24			37			34
Subtotal		426			666			478
Unit trusts		8			14			9
Other(10)		36			52			40
Total assets under management or supervision(12)		470			732			527
Share of minority interest assets(13)		5			7			6
Total	$	475		$	739		$	533
Institutional Securities:
Pre-tax profit margin(14)		N/M			23	%		N/M
Global Wealth Management Group:
Global representatives		8,148			8,271			8,356
Annualized net revenue per global representative (dollars in thousands)(15)	$	630		$	772		$	585
Assets by client segment (dollars in billions):
$10 million or more	$	148		$	223		$	155
$1 million to $10 million		187			258			196
Subtotal $1 million or more		335			481			351
$100,000 to $1 million		147			173			155
Less than $100,000		21			22			22
Client assets excluding corporate and other accounts		503			676			528
Corporate and other accounts		22			30			22
Total client assets	$	525		$	706		$	550

75

Statistical Data—(Continued).

	At or for the Three Months Ended March 31,						At or for the One Month Ended December 31, 2008
	2009			2008
Fee-based assets as a percentage of total client assets		24	%		26	%		25	%
Client assets per global representative (dollars in millions)(16)	$	64		$	85		$	66
Bank deposits (dollars in billions)(17)	$	47		$	33		$	39
Pre-tax profit margin(14)		9	%		41	%		29	%
Asset Management:
Assets under management or supervision (dollars in billions)(18)	$	356		$	575		$	404
Percent of fund assets in top half of Lipper rankings(19)		51	%		41	%		55	%
Pre-tax profit margin(14)		N/M			N/M			N/M

N/M – Not Meaningful.

N/A  – Not Applicable.

(1) For the calculation of basic and diluted EPS, see Note 11 to the condensed consolidated financial statements.

(2) Regional net revenues reflect the regional view of the Company’s consolidated net revenues, on a managed basis, based on the following methodology:

Institutional Securities: advisory and equity underwriting—client location; debt underwriting—revenue recording location; sales and trading—trading desk location. Global Wealth Management Group: global representative location. Asset Management: client location, except for the merchant banking business, which is based on asset location.

(3) The computation of average common equity for each business segment is based upon an economic capital framework that estimates the amount of equity capital required to support the businesses over a wide range of market environments while simultaneously satisfying regulatory, rating agency and investor requirements. The economic capital framework will evolve over time in response to changes in the business and regulatory environment and to incorporate enhancements in modeling techniques. The effective tax rates used in the computation of segment return on average common equity were determined on a separate entity basis.

(4) Book value per common share equals common shareholders’ equity of $29,314 million at March 31, 2009, $32,877 million at March 31, 2008 and $29,585 million at December 31, 2008, divided by common shares outstanding of 1,082 million at March 31, 2009, 1,107 million at March 31, 2008 and 1,074 million at December 31, 2008.

(5) Tangible common equity equals common shareholders’ equity less goodwill and net intangible assets excluding mortgage servicing rights. Tangible common equity to tangible assets ratio equals tangible common equity divided by tangible assets (total assets less goodwill and net intangible assets excluding mortgage servicing rights).

(6) Tangible common equity to risk-weighted assets ratio equals tangible common equity divided by total risk-weighted assets of $288,262 million.

(7) The effective tax rate for the quarter ended March 31, 2009 includes a tax benefit of $331 million, or $0.33 per diluted share, resulting from the cost of anticipated repatriation of non-U.S. earnings at lower than previously estimated tax rates. Excluding this benefit, the annual effective tax rate in the quarter ended March 31, 2009 would have been 41.1%.

(8) For a discussion of average liquidity, see “Liquidity and Capital Resources—Liquidity Management Policies—Liquidity Reserves” herein.

(9) For a discussion of capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein.

(10) Equity and fixed income amounts include assets under management or supervision associated with the Asset Management and Global Wealth Management Group business segments. Other amounts include assets under management or supervision associated with the Global Wealth Management Group business segment.

(11) Amounts reported for Alternatives reflect the Company’s invested equity in those funds and include a range of alternative investment products such as hedge funds, funds of hedge funds and funds of private equity funds.

(12) Revenues and expenses associated with these assets are included in the Company’s Asset Management and Global Wealth Management Group business segments.

(13) Amounts represent Asset Management’s proportional share of assets managed by entities in which it owns a minority interest.

(14) Percentages represent income before income taxes as a percentage of net revenues.

(15) Annualized net revenue per global representative for the three month periods ended March 31, 2009 and March 31, 2008 equals Global Wealth Management Group’s net revenues (excluding the sale of Morgan Stanley Wealth Management S.V., S.A.U. for the three months ended March 31, 2008) divided by the quarterly average global representative headcount for the three month periods ended March 31, 2009 and March 31, 2008, respectively. Annualized net revenues per global representative for the one month period ended December 31, 2008 equals Global Wealth Management Group’s net revenues divided by the monthly average global representative headcount for the one month period ended December 31, 2008.

(16) Client assets per global representative equal total period-end client assets divided by period-end global representative headcount.

(17) Bank deposits are held at certain of the Company’s Federal Deposit Insurance Corporation (the “FDIC”) insured depository institutions for the benefit of retail clients through their accounts.

(18) Amounts include Asset Management’s proportional share of assets managed by entities in which it owns a minority interest.

(19) Source: Lipper, one-year performance excluding money market funds as of March 31, 2009, March 31, 2008 and December 31, 2008, respectively.

76

Global Market and Economic Conditions.

The severe downturn in global market and economic conditions that occurred during 2008 continued through March 31, 2009. In the U.S, market and economic conditions remained challenged by the contraction of credit and continued to spread deeper into broader asset classes and spanned even further into global capital markets. Equity markets were adversely impacted by lower corporate earnings, the challenging conditions in the credit markets and the lingering uncertainty that froze credit markets in the fourth quarter of 2008. Economic activity in the U.S. was adversely impacted by declines in consumer spending, business investment and the downturn in the commercial and residential real estate market. The unemployment rate increased to 8.5% at March 31, 2009 from 7.2% at December 31, 2008 and 6.8% at November 30, 2008. The Federal Open Market Committee (the “FOMC”) left key interest rates at historically low levels and at March 31, 2009, the federal funds rate was 0.25% and the discount rate was 0.50%. The FOMC also announced a quantitative easing policy in which the FOMC would purchase securities with the objective of improving conditions within the credit markets by increasing the quantity of money.

In Europe, market and economic conditions continued to be challenged by adverse economic developments, including lower exports, especially in Germany. During the quarter, major European equity market indices were lower as the adverse market events that began in the U.S. spread globally and continued to impact European markets. The euro area unemployment rate increased to 8.9% at March 2009 from 8.2% at December 2008. In December 2008, the European Central Bank (“ECB”) lowered its benchmark interest rate by 0.75% to 2.50% and during the quarter it lowered its benchmark interest rate by an additional 1.00% to 1.50%. In December 2008, the Bank of England (“BOE”) lowered its benchmark interest rate by 1.00% to 2.00% and during the quarter it lowered its benchmark interest rate by an additional 1.50% to 0.50%. The BOE also announced a quantitative easing policy in which the BOE would purchase securities, including U.K. Government Gilts, with the objective of increasing the money supply. In April 2009, the ECB lowered its benchmark interest rate by 0.25% to a record low 1.25% and the BOE maintained its benchmark interest rate at 0.50%.

In Asia, economic and market conditions were also adversely impacted by the severe downturn in the global economy, the adverse developments in global credit markets and the decline in exports in both China and Japan. Despite lower exports, China’s economy continued to benefit from domestic demand for capital projects. During the quarter, equity markets in China were higher, while Japanese equity markets ended the quarter lower. The Bank of Japan (“BOJ”) also announced a quantitative easing policy in which the BOJ would purchase securities with the objective of increasing liquidity and reducing the reliance on short-term funding by providing longer term funding via Japanese government bond purchases.

Overview of the Quarter ended March 31, 2009 Financial Results.

The Company recorded a net loss applicable to Morgan Stanley of $177 million during the quarter ended March 31, 2009 compared with net income applicable to Morgan Stanley of $1,413 million in the quarter ended March 31, 2008. Net revenues (total revenues less interest expense) decreased 62% to $3,042 million in the quarter ended March 31, 2009. Non-interest expenses decreased 33% to $3,927 million from the prior year period, primarily due to lower compensation costs. Compensation and benefits expense decreased 46%, primarily reflecting lower incentive-based compensation accruals due to lower net revenues. Non-compensation expenses decreased 9% reflecting lower levels of business activity and the Company’s initiatives to reduce costs. Diluted earnings per share were $(0.57) in the quarter ended March 31, 2009 compared with $1.26 in the prior year period.

The Company’s effective tax rate for the current quarter was 78.5%. The results for the quarter ended March 31, 2009 included a tax benefit of $331 million, or $0.33 per diluted share, resulting from the cost of anticipated repatriation of non-U.S. earnings at lower than previously estimated tax rates. Excluding this benefit, the annual effective tax rate in the quarter ended March 31, 2009 would have been 41.1%, up from 29.7% a year ago. The increase in the rate primarily reflected the change in the geographic mix of earnings and the anticipated use of domestic tax credits on a full-year basis. On April 22, 2009, the Company announced a reduction in the quarterly common stock dividend rate from $0.27 per share to $0.05 per share. The Company plans to enhance capital in an estimated annual amount of approximately $1 billion by this reduction in the common stock dividend rate.

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During the quarter ended March 31, 2009, the Company declared preferred stock dividends of $361 million.

The results for the quarter ended March 31, 2008 included a pre-tax gain of $708 million related to the sale of Morgan Stanley Wealth Management S.V., S.A.U. (“MSWM S.V.”).

Institutional Securities.    Institutional Securities recorded a loss before income taxes of $434 million in the quarter ended March 31, 2009 compared with income before income taxes of $1,178 million in the quarter ended March 31, 2008. Net revenues decreased 66% to $1,696 million. The decrease in net revenues primarily reflected lower equity and fixed income sales and trading results, primarily due to losses resulting from the tightening of credit spreads on the Company’s borrowings for which the fair value option was elected, lower net revenues from prime brokerage, derivative products and equity cash products, partially offset by higher net revenues from interest rate and credit products and commodities. The decrease was also due to higher net losses from limited partnership investments in real estate funds and lower results in investment banking. Non-interest expenses decreased 45% to $2,130 million, primarily due to lower compensation costs. Non-compensation expenses decreased 26%, primarily due to lower levels of business activity.

Investment banking revenues decreased 4% to $812 million from the prior year period, primarily reflecting lower revenues from equity underwriting. Advisory fees from merger, acquisition and restructuring transactions were $411 million, an increase of 2% from the comparable period of 2008 despite the challenging market environment. Equity underwriting revenues decreased 19% to $155 million in the quarter ended March 31, 2009, reflecting lower levels of market activity. Fixed income underwriting revenues decreased 2% to $246 million in the quarter ended March 31, 2009.

Equity sales and trading revenues decreased 74% to $877 million. The first quarter of 2009 reflected lower net revenues from derivative products and equity cash products, primarily reflecting reduced levels of client activity. In addition, lower average prime brokerage client balances contributed to the decline in revenues during the quarter. Equity sales and trading were also negatively impacted by approximately $0.5 billion from the tightening of the Company’s credit spreads on certain long-term and short-term borrowings accounted for at fair value. Fixed income sales and trading revenues were $1,294 million, 47% lower than the first quarter of 2008. Fixed income sales and trading were also negatively impacted by losses of approximately $1.0 billion from the tightening of the Company’s credit spreads on certain long-term and short-term borrowings that are accounted for at fair value, as compared with gains of approximately $1.0 billion in the prior year period. The decrease was partly offset by higher net revenues from interest rate and credit products and commodities. Strong results in interest rates and credit products, primarily reflecting higher levels of customer flow and market volatility, were partly offset by a significant decline in emerging markets resulting from credit exposure to certain Eastern European counterparties. Commodity revenues increased in the quarter ended March 31, 2009, primarily due to higher revenues from oil liquids, electricity and natural gas, reflecting continued market volatility and strong customer flow. The first quarter of 2009 also reflected lower losses in mortgage loan products.

In the first quarter of 2009, other sales and trading losses of $808 million primarily resulted from net mark-to-market losses of $0.4 billion on loans and lending commitments, largely related to “event driven” lending to non-investment grade companies and write-downs of $0.2 billion related to mortgage-related securities portfolios in the Company’s domestic subsidiary banks.

Principal transaction net investment losses of $791 million were recognized in the quarter ended March 31, 2009 as compared with net investment losses of $272 million in the quarter ended March 31, 2008. The losses were primarily related to net realized and unrealized losses from the Company’s limited partnership investments in real estate funds and investments that benefit certain employee deferred compensation and co-investment plans, and other principal investments.

Global Wealth Management Group.    Global Wealth Management Group recorded income before income taxes of $119 million compared with $949 million in the quarter ended March 31, 2008. Net revenues decreased 44% from the prior year period. The quarter ended March 31, 2008 included revenues of $720 million related to the

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sale of MSWM S.V., the Spanish onshore mass affluent wealth management business. Excluding the sale of MSWM S.V., net revenues decreased 19% from the prior year period. The decrease was primarily related to lower revenues from asset management, distribution and administration fees, lower commission revenues and lower investment banking revenues, partially offset by higher revenues from principal transactions trading activities. Investment banking revenues were lower primarily due to a decline in underwriting revenues. Commissions were lower primarily due to lower client activity. The decline in asset management revenues primarily reflected lower client asset balances in fee-based accounts. Client assets in fee-based accounts decreased 33% from the prior year period to $124 billion and decreased as a percentage of total client assets to 24% compared with 26% as of March 31, 2008. In addition, total client assets decreased to $525 billion as of March 31, 2009 from $706 billion as of March 31, 2008, primarily due to market depreciation.

Total non-interest expenses were $1,180 million, a 15% decrease from the prior year period. Compensation and benefits expense decreased 19% in the quarter ended March 31, 2009, primarily reflecting lower incentive-based compensation accruals due to lower net revenues. Excluding compensation and benefits expense, non-interest expenses decreased 1% in the quarter ended March 31, 2009, primarily due to a lower level of business activity, partially offset by integration costs for the Morgan Stanley Smith Barney joint venture.

Asset Management.    Asset Management recorded losses before income taxes of $559 million in the quarter ended March 31, 2009 compared with losses before income taxes of $112 million in the quarter ended March 31, 2008. Net revenues of $72 million decreased 87% from the prior year. The decrease in the quarter ended March 31, 2009 reflected principal transaction net investment losses of $467 million compared with losses of $239 million in the prior year period. The losses in the quarter ended March 31, 2009 primarily related to net investment losses associated with the Company’s merchant banking business, which includes the real estate, private equity and infrastructure businesses, and losses associated with certain investments for the benefit of the Company’s employee deferred compensation and co-investment plans. The decrease in the quarter ended March 31, 2009 was also due to lower asset management, distribution and administration fees, primarily due to lower fund management and administration fees reflecting a decrease in assets under management. Assets under management or supervision within Asset Management of $356 billion were down $219 billion, or 38%, from March 31, 2008, primarily reflecting decreases in equity and fixed income products resulting from market depreciation and net outflows. Non-interest expenses decreased 8% from the prior year to $631 million. Compensation and benefits expense decreased primarily due to lower net revenues and losses associated with principal investments for the benefit of the Company’s employee deferred compensation and co-investment plans. The decrease in non-interest expenses was also due to lower levels of business activity, partially offset by operating costs and an impairment charge of $131 million related to Crescent Real Estate Equities Limited Partnership (“Crescent”).

Overview of the one month period ended December 31, 2008 Financial Results

The Company recorded a net loss applicable to Morgan Stanley of $1,288 million in the one month period ended December 31, 2008 compared with net income of $665 million in the one month period ended December 31, 2007. Net revenues (total revenues less interest expense) decreased to $(805) million, primarily due to sales and trading losses in the Institutional Securities business segment. Non-interest expenses decreased 42% to $1,204 million, primarily due to lower compensation costs. Compensation and benefits expense decreased 58%, primarily reflecting lower incentive-based compensation accruals due to lower net revenues in the Institutional Securities business segment. Diluted earnings (loss) per share in the one month period ended December 31, 2008 were $(1.62) compared with $0.60 in the one month period ended December 31, 2007.

The Company’s effective tax rate from continuing operations was 36% in the one month period ended December 31, 2008 compared with 30% in the one month period ended December 31, 2007. The increase in the effective rate primarily reflected a change in the geographic mix of earnings and a lower level of earnings.

See “Institutional Securities”, “Global Wealth Management Group” and “Asset Management” herein for a description of segment results.

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Certain Factors Affecting Results of Operations.

The Company’s results of operations may be materially affected by market fluctuations and by economic factors. In addition, results of operations in the past have been, and in the future may continue to be, materially affected by many factors of a global nature, including political and economic conditions and geopolitical events; the effect of market conditions, particularly in the global equity, fixed income and credit markets, including corporate and mortgage (commercial and residential) lending; the level and volatility of equity prices, commodity prices and interest rates, currency values and other market indices; the availability and cost of both credit and capital as well as the credit ratings assigned to the Company’s unsecured short-term and long-term debt; investor sentiment and confidence in the financial markets; the Company’s reputation; the actions and initiatives of current and potential competitors; and the impact of current, pending and future legislation, regulation, and technological changes in the U.S. and worldwide. Such factors also may have an impact on the Company’s ability to achieve its strategic objectives on a global basis. For a further discussion of these and other important factors that could affect the Company’s business, see “Competition” and “Supervision and Regulation” in Part I, Item 1 and “Risk Factors” in Part I, Item 1A of the Form 10-K.

The following items significantly affected the Company’s results in the quarters ended March 31, 2009 and March 31, 2008.

Morgan Stanley Debt.    Net revenues reflected losses of approximately $1.6 billion in the quarter ended March 31, 2009 from the tightening of the Company’s credit spreads on certain long-term and short-term borrowings, including structured notes and junior subordinated debentures, that are accounted for at fair value.

In addition, in the quarter ended March 31, 2009, the Company recorded gains of approximately $250 million from repurchasing its debt in the open market and mark-to-market gains of approximately $70 million on certain swaps previously designated as hedges of a portion of the Company’s long-term debt. These swaps were no longer considered hedges once the related debt was repurchased by the Company (i.e., the swaps were “de-designated” as hedges). During the period the swaps were hedging the debt, changes in fair value of these instruments were generally offset by adjustments to the basis of the debt being hedged.

Net revenues reflected gains of approximately $1.8 billion in the quarter ended March 31, 2008 from the widening of the Company’s credit spreads on such borrowings.

Real Estate Investments.    The Company recognized losses in real estate of approximately $1.0 billion in the quarter ended March 31, 2009 that were recorded in the Institutional Securities ($0.5 billion) and Asset Management ($0.5 billion) business segments. Losses in the Institutional Securities business segment related to net realized and unrealized losses from the Company’s limited partnership investments in real estate funds and are reflected in Principal transaction net investment revenues in the consolidated statement of income. Losses in the Asset Management business segment related to net realized and unrealized losses from real estate investments in the Company’s merchant banking business and are primarily reflected in Principal transaction net investment revenues. Losses also included an impairment charge of $131 million related to Crescent, which is reflected in Other expenses in the consolidated statement of income.

The Company recognized losses on investments in real estate of approximately $150 million in the quarter ended March 31, 2008 included in the Asset Management business segment and approximately $60 million in the Institutional Securities business segment.

See “Other Matters—Real Estate-Related Positions” herein for further information.

Corporate Lending.    The results for the quarter ended March 31, 2009 included net losses of approximately $0.4 billion (negative mark-to-market valuations and realized losses of approximately $0.3 billion and net losses on related hedges of approximately $0.1 billion) associated with loans and lending commitments largely related to “event-driven” lending to non-investment grade companies.

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The results for the quarter ended March 31, 2008 included net losses of approximately $1.3 billion (negative mark-to-market valuations of approximately $2.4 billion and gains on related hedges of approximately $1.1 billion) associated with loans and lending commitments largely related to certain “event-driven” lending to non-investment grade companies.

Income Tax Benefit.    The Company recognized a tax benefit of $331 million in the quarter ended March 31, 2009, or $0.33 per diluted share, resulting from the cost of anticipated repatriation of non-U.S. earnings at lower than previously estimated tax rates.

Mortgage-Related Trading.    In the quarter ended March 31, 2009, the Company recorded mortgage-related gains of approximately $0.1 billion. The $0.1 billion included gains on commercial mortgage-backed securities and commercial whole loan positions of approximately $0.6 billion, partially offset by losses on U.S. subprime mortgage proprietary trading exposures of $0.3 billion and losses on non-subprime residential mortgages of approximately $0.2 billion. See “Other Matters—Real Estate-Related Positions” herein for information relating to the Company’s mortgage-related trading exposures.

In the quarter ended March 31, 2008, the Company recorded mortgage-related losses of approximately $0.3 billion. The $0.3 billion included losses on non-subprime residential mortgages of approximately $1.0 billion, partially offset by gains on commercial mortgage-backed securities and commercial whole loan positions of approximately $0.4 billion and gains on U.S. subprime mortgage proprietary trading exposures of $0.3 billion. See “Other Matters—Real Estate-Related Positions” herein for information relating to the Company’s mortgage-related trading exposures.

Structured Investment Vehicles.    The Company recognized gains of $43 million in the quarter ended March 31, 2009 compared with losses of $69 million in the quarter ended March 31, 2008 related to securities issued by structured investment vehicles (“SIVs”) included in the Company’s condensed consolidated statements of financial condition (see “Asset Management” herein).

Monoline Insurers.    Monoline insurers (“Monolines”) provide credit enhancement to capital markets transactions. The quarter ended March 31, 2009 included gains of $12 million related to Monoline exposures as compared with losses of $880 million in the quarter ended March 31, 2008. The current credit environment continued to affect the capacity of such financial guarantors. The Company’s direct exposure to Monolines is limited to bonds that are insured by Monolines and to derivative contracts with a Monoline as counterparty. The Company’s exposure to Monolines as of March 31, 2009 consisted primarily of asset-backed securities (“ABS”) bonds of approximately $450 million in the Subsidiary Banks’ portfolio that are collateralized primarily by first and second lien subprime mortgages enhanced by financial guarantees, $2.8 billion in insured municipal bond securities and approximately $2.0 billion in net counterparty exposure (gross exposure of approximately $8.3 billion net of cumulative credit valuation adjustments of approximately $4.5 billion and net of hedges). The Company’s hedging program for Monoline risk includes the use of transactions that effectively mitigate certain market risk components of existing underlying transactions with the Monolines. Net exposure is defined as potential loss to the Company over a period of time in an event of 100% default of a monoline insurer, assuming zero recovery. The increase in the Company’s exposure to Monolines reflects positioning around the current credit environment affecting the Monolines, including taking into consideration credit spread sensitivities and recovery rates.

Sale of Subsidiary.    Results for the quarter ended March 31, 2008 included a pre-tax gain of $708 million related to the sale of MSWM S.V.

Business Segments.

Substantially all of the Company’s operating revenues and operating expenses can be directly attributed to its business segments. Certain revenues and expenses have been allocated to each business segment, generally in proportion to its respective revenues or other relevant measures.

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As a result of treating certain intersegment transactions as transactions with external parties, the Company includes an Intersegment Eliminations category to reconcile the segment results to the Company’s consolidated results. Income before taxes in Intersegment Eliminations represents the effect of timing differences associated with the revenue and expense recognition of commissions paid by the Asset Management business segment to the Global Wealth Management Group business segment associated with sales of certain products and the related compensation costs paid to the Global Wealth Management Group business segment’s global representatives. Income (loss) before income taxes recorded in Intersegment Eliminations was $2 million and $4 million in the quarters ended March 31, 2009 and March 31, 2008, respectively, and $1 million in the one month period ended December 31, 2008.

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INSTITUTIONAL SECURITIES

INCOME STATEMENT INFORMATION

	Three Months Ended March 31,						One Month Ended December 31, 2008
	2009			2008
	(dollars in millions)
Revenues:
Investment banking	$	812		$	842		$	177
Principal transactions:
Trading		846			2,668			(1,685	)
Investments		(791	)		(272	)		(158	)
Commissions		512			916			129
Asset management, distribution and administration fees		26			35			8
Other		286			160			123
Total non-interest revenues		1,691			4,349			(1,406	)
Interest and dividends		2,295			12,423			1,069
Interest expense		2,290			11,721			983
Net interest		5			702			86
Net revenues		1,696			5,051			(1,320	)
Total non-interest expenses(1)		2,130			3,873			701
Income (loss) before income taxes(1)		(434	)		1,178			(2,021	)
(Benefit from) provision for income taxes		(601	)		288			(728	)
Net income (loss) applicable to Morgan Stanley	$	167		$	890		$	(1,293	)

(1) Amounts include elimination of income (loss) applicable to non-controlling interests for the quarters ended March 31, 2009 and March 31, 2008 and the one month period ended December 31, 2008 of $(13) million, $19 million and $3 million, respectively.

Three Months Ended March 31, 2009 Compared with the Three Months Ended March 31, 2008

Investment Banking.    Investment banking revenues for the quarter ended March 31, 2009 decreased 4% from the comparable period of 2008, primarily reflecting lower revenues from equity underwriting. Advisory fees from merger, acquisition and restructuring transactions were $411 million, an increase of 2% from the comparable period of 2008 despite the challenging market environment. Equity underwriting revenues decreased 19% to $155 million in the quarter ended March 31, 2009, reflecting lower levels of market activity. Fixed income underwriting revenues decreased 2% to $246 million in the quarter ended March 31, 2009.

At March 31, 2009, the backlog for investment banking transactions was down compared with the fourth quarter of 2008. The backlog of investment banking transactions is subject to the risk that transactions may not be completed due to challenging or unforeseen economic and market conditions, adverse developments regarding one of the parties to the transactions, a failure to obtain required regulatory approval or a decision on the part of the parties involved not to pursue a transaction.

Sales and Trading Revenues.    Sales and trading revenues are composed of principal transaction trading revenues, commissions and net interest revenues (expenses). In assessing the profitability of its sales and trading activities, the Company views principal trading, commissions and net interest revenues (expenses) in the aggregate. In addition, decisions relating to principal transactions are based on an overall review of aggregate revenues and costs associated with each transaction or series of transactions. This review includes, among other things, an assessment of the potential gain or loss associated with a transaction, including any associated commissions, dividends, the interest income or expense associated with financing or hedging the Company’s positions, and other related expenses.

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Total sales and trading revenues decreased 68% in the quarter ended March 31, 2009 from the comparable period of 2008.

Sales and trading revenues can also be analyzed as follows:

	Three Months Ended March 31,						One Month Period Ended December 31, 2008(1)
	2009(1)			2008(1)
	(dollars in millions)
Equity	$	877		$	3,414		$	(20	)
Fixed income		1,294			2,422			(2,095	)
Other		(808	)		(1,550	)		645
Total sales and trading revenues	$	1,363		$	4,286		$	(1,470	)

(1) Amounts include Principal transactions—trading, Commissions and Net interest revenues (expenses). Other sales and trading net revenues primarily include net losses from loans and lending commitments and related hedges associated with the Company’s lending and other corporate activities.

Equity Sales and Trading Revenues.    Equity sales and trading revenues decreased 74% to $877 million. The first quarter of 2009 reflected lower net revenues from prime brokerage, derivative products and equity cash products. Lower average prime brokerage client balances contributed to the decline in revenues during the quarter. The decrease in derivatives and equity cash products primarily reflected lower levels of client activity. Equity sales and trading revenues were also impacted by the tightening of the Company’s credit spreads on financial instruments that are accounted for at fair value, including, but not limited to, those for which the fair value option was elected pursuant to SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”) on December 1, 2006 (see Note 2 to the condensed consolidated financial statements). Equity sales and trading revenues reflected losses of approximately $0.5 billion in the quarter ended March 31, 2009 due to the tightening of the Company’s credit spreads resulting from the increase in the fair value of certain of the Company’s long-term and short-term borrowings, primarily structured notes, for which the fair value option was elected. The first quarter of 2008 benefited by approximately $0.8 billion due to the widening of the Company’s credit spreads on such borrowings.

In the quarters ended March 31, 2009 and March 31, 2008, equity sales and trading revenues also reflected unrealized losses related to changes in the fair value of net derivative contracts attributable to the widening of the counterparties’ credit default spreads. The Company also recorded unrealized losses in the quarter ended March 31, 2009 related to changes in the fair value of net derivative contracts attributable to the tightening of the Company’s credit default swap spreads compared with unrealized gains in the quarter ended March 31, 2008. The unrealized losses and gains were immaterial in both quarters and do not reflect any gains or losses on related non-derivative hedging instruments.

Fixed Income Sales and Trading Revenues.    Fixed income sales and trading revenues were $1,294 million, 47% lower than the first quarter of 2008. The current quarter reflected losses of approximately $1.0 billion from the tightening of the Company’s credit spreads resulting from the increase in the fair value of certain of the Company’s long-term and short-term borrowings, primarily structured notes, for which the fair value option was elected. The first quarter of 2008 benefited by approximately $1.0 billion due to the widening of the Company’s credit spreads on such borrowings.

Interest rate, currency and credit products revenues increased 11% in the quarter ended March 31, 2009. The first quarter of 2009 reflected higher net revenues from interest rate and credit products and commodities. Strong results in interest rates and credit products primarily due to higher levels of customer flow and market volatility were partly offset by credit-related losses of approximately $460 million resulting from exposure to certain Eastern European counterparties. Commodity revenues increased 3% in the quarter ended March 31, 2009, primarily due to higher revenues from oil liquids and electricity and natural gas, reflecting continued market volatility and strong customer flow. The first quarter of 2009 also reflected lower losses in mortgage loan products.

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In the quarter ended March 31, 2009, fixed income sales and trading revenues reflected unrealized losses of approximately $552 million related to changes in the fair value of net derivative contracts attributable to the widening of the counterparties’ credit default spreads compared with unrealized losses of $1.2 billion in the quarter ended March 31, 2008. The Company also recorded unrealized losses of approximately $341 million in the quarter ended March 31, 2009, related to changes in the fair value of net derivative contracts attributable to the tightening of the Company’s credit default swap spreads compared with unrealized gains of approximately $695 million in the quarter ended March 31, 2008. The unrealized losses and gains do not reflect any gains or losses on related non-derivative hedging instruments.

Other Sales and Trading Revenues.    Sales and trading revenues included other trading revenues, consisting primarily of certain activities associated with the Company’s corporate lending activities. In the quarter ended March 31, 2009, other sales and trading losses were $808 million compared with losses of $1,550 million in the quarter ended March 31, 2008. Included in the $808 million were net losses of approximately $0.4 billion (negative mark-to-market valuations and realized losses of approximately $0.3 billion and losses on related hedges of approximately $0.1 billion) associated with loans and lending commitments largely related to certain “event-driven” lending to non-investment grade companies. Included in the $1,550 million in the quarter ended March 31, 2008 were net losses of approximately $1.3 billion (negative mark-to-market valuations of approximately $2.4 billion and gains on related hedges of approximately $1.1 billion) associated with loans and lending commitments largely related to certain “event-driven” lending to non-investment grade companies. The results during the quarter ended March 31, 2009 also included writedowns of securities of approximately $0.2 billion in the Company’s Subsidiary Banks compared with writedowns of securities of approximately $0.3 billion in the quarter ended March 31, 2008. For further information, see “Other Matters—Real Estate-Related Positions—U.S. Subprime Mortgage-Related Exposures” herein.

Principal Transactions—Investments.    Principal transaction net investment losses of $791 million were recognized in the quarter ended March 31, 2009 as compared with net investment losses of $272 million in the quarter ended March 31, 2008. The losses in both periods were primarily related to net realized and unrealized losses from the Company’s limited partnership investments in real estate funds and investments that benefit certain employee deferred compensation and co-investment plans and other principal investments.

Other.    Other revenues increased 79% in the quarter ended March 31, 2009, primarily due to the Company’s repurchase of debt, partially offset by an impairment charge on certain loans.

Non-Interest Expenses.    Non-interest expenses decreased 45% in the quarter ended March 31, 2009, primarily due to lower compensation and benefits expense. Compensation and benefits expense decreased 56% in the quarter ended March 31, 2009, primarily reflecting lower incentive-based compensation accruals due to a challenging market environment. Excluding compensation and benefits expense, non-interest expenses decreased 26% in the quarter ended March 31, 2009, primarily due to lower levels of business activity and the Company’s initiatives to reduce costs. Occupancy and equipment expense increased 27% in the quarter ended March 31, 2009, primarily due to higher depreciation expense on property and equipment and higher costs associated with exiting certain property lease agreements. Brokerage, clearing and exchange fees decreased approximately 42%, primarily due to decreased equity and fixed income trading activity. Marketing and business development expenses decreased approximately 44%, primarily due to lower levels of business activity. Professional services expense decreased 18% in the quarter ended March 31, 2009, primarily due to lower consulting and recruiting fees. Other expenses decreased 50% in the quarter ended March 31, 2009, primarily resulting from lower levels of business activity and lower litigation costs.

One Month Ended December 31, 2008 Compared with the One Month Ended December 31, 2007

Institutional Securities recorded losses before income taxes of $2,021 million in the one month period ended December 31, 2008 compared with income before income taxes of $914 million in the one month period ended December 31, 2007. Net revenues were $(1,320) million in the one month period ended December 31, 2008 compared with $2,335 million in the one month period ended December 31, 2007. Net revenues in the one month

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period ended December 31, 2008 reflected sales and trading losses as compared with sales and trading revenues in the prior year period. Non-interest expenses decreased 51% to $701 million, primarily due to lower compensation and benefits expenses reflecting lower net revenues. Non-compensation expenses decreased 2%.

Investment banking revenues decreased 45% to $177 million in the one month period ended December 31, 2008 from the prior year period due to lower revenues from advisory fees and underwriting transactions, reflecting lower levels of market activity. Advisory fees from merger, acquisition and restructuring transactions were $68 million, a decrease of 58% from the prior year period. Underwriting revenues decreased 33% from the prior year period to $109 million.

Equity sales and trading losses were $20 million in the one month period ended December 31, 2008, compared with revenues of $922 million in the one month period ended December 31, 2007. Results in the one month period ended December 31, 2008 reflected lower revenues from equity cash and derivative products and prime brokerage. Equity sales and trading losses also included approximately $75 million losses from the tightening of the Company’s credit spreads on certain long-term and short-term borrowings accounted for at fair value. Fixed income sales and trading losses were $2,095 million in the one month period ended December 31, 2008 compared with revenues of $938 million in the one month period ended December 31, 2007. Results in the one month period ended December 31, 2008 reflected losses in interest rate, credit and currency products where continued dislocation in the credit markets contributed to the losses. In addition, fixed income sales and trading included approximately $175 million losses from the tightening of the Company’s credit spreads on certain long-term and short-term borrowings that are accounted for at fair value.

In the one month period ended December 31, 2008, other sales and trading gains of approximately $645 million primarily reflected mark-to-market gains on loans and lending commitments and related hedges. The one month period ended December 31, 2008 also included writedowns related to mortgage-related securities portfolios in the Company’s domestic subsidiary banks.

Principal transaction net investment losses of $158 million were recognized in the one month period ended December 31, 2008 compared with net investment gains of $25 million in the one month period ended December 31, 2007. The losses in the one month period ended December 31, 2008 were primarily related to net realized and unrealized losses from the Company’s limited partnership investments in real estate funds and investments that benefit certain employee deferred compensation and co-investment plans, and other principal investments.

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GLOBAL WEALTH MANAGEMENT GROUP

INCOME STATEMENT INFORMATION

	Three Months Ended March 31,						One Month Ended December 31, 2008
	2009			2008
	(dollars in millions)
Revenues:
Investment banking	$	61		$	110		$	21
Principal transactions:
Trading		246			189			54
Investments		(14	)		(5	)		(4	)
Commissions		262			355			89
Asset management, distribution and administration fees		511			691			183
Other		46			775			15
Total non-interest revenues		1,112			2,115			358
Interest and dividends		226			294			66
Interest expense		39			76			15
Net interest		187			218			51
Net revenues		1,299			2,333			409
Total non-interest expenses		1,180			1,384			291
Income before income taxes		119			949			118
Provision for income taxes		46			356			45
Net income applicable to Morgan Stanley	$	73		$	593		$	73

Three Months Ended March 31, 2009 Compared with the Three Months Ended March 31, 2008

Investment Banking.    Investment banking revenues decreased 45% in the quarter ended March 31, 2009, primarily due to lower underwriting activity across fixed income, equity and unit trust products.

Principal Transactions—Trading.    Principal transaction trading revenues increased 30% in the quarter ended March 31, 2009, primarily due to higher revenues from municipal and corporate fixed income securities, partially offset by lower revenues from government securities and derivative products.

Principal Transactions—Investments.    Principal transaction net investment losses were $14 million in the quarter ended March 31, 2009 compared with net investment losses of $5 million in the quarter ended March 31, 2008. The results in both periods primarily reflected net losses associated with investments that benefit certain employee deferred compensation plans.

Commissions.    Commission revenues decreased 26% in the quarter ended March 31, 2009, reflecting lower client activity.

Asset Management, Distribution and Administration Fees.    Asset management, distribution and administration fees decreased 26% in the quarter ended March 31, 2009, primarily due to lower client asset balances in fee-based accounts.

Client assets in fee-based accounts decreased 33% to $124 billion as of March 31, 2009 and represented 24% of total client assets compared with 26% as of March 31, 2008.

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Total client asset balances decreased to $525 billion as of March 31, 2009 from $706 billion as of March 31, 2008, primarily due to asset depreciation. Client asset balances in households with assets greater than $1 million decreased to $335 billion as of March 31, 2009 from $481 billion at March 31, 2008.

Other.    Other revenues were $46 million in the quarter ended March 31, 2009 compared with $775 million in the quarter ended March 31, 2008. The quarter ended March 31, 2008 included $733 million related to the sale of MSWM S.V., the Spanish onshore mass affluent wealth management business.

Net Interest.    Net interest revenues decreased 14% in the quarter ended March 31, 2009, primarily reflecting a decline in customer margin loan balances, partially offset by increased customer account balances in the bank deposit program. Balances in the bank deposit program rose to $46.8 billion as of March 31, 2009 from $33.4 billion as of March 31, 2008.

Non-Interest Expenses.    Non-interest expenses decreased 15% in the quarter ended March 31, 2009, primarily reflecting a decrease in compensation and benefits expense. The current quarter included integration costs of approximately $39 million for the Morgan Stanley Smith Barney joint venture. Compensation and benefits expense decreased 19% in the quarter ended March 31, 2009, primarily reflecting lower incentive-based compensation accruals due to lower net revenues. Excluding compensation and benefits expense, non-interest expenses decreased 1% in the quarter ended March 31, 2009. Marketing and business development expense decreased 18% in the quarter ended March 31, 2009, primarily due to lower levels of business activity. Professional services expense increased 17% in the quarter ended March 31, 2009, primarily due to costs for the Morgan Stanley Smith Barney joint venture. Other expenses decreased 8% in the quarter ended March 31, 2009, primarily resulting from a lower level of business activity, partially offset by higher FDIC insurance premiums related to the bank deposit program.

One Month Ended December 31, 2008 Compared with the One Month Ended December 31, 2007

Global Wealth Management Group recorded income before income taxes of $118 million in the one month period ended December 31, 2008 compared with $103 million in the one month period ended December 31, 2007. The one month period ended December 31, 2008 included a reversal of a portion of the accrual of approximately $70 million related to the auction rate securities (“ARS”) repurchase program. Net revenues were $409 million, a 24% decrease over a year ago, primarily related to lower asset management, distribution and administration fees, lower commissions and lower investment banking fees. Client assets in fee-based accounts decreased 31% from a year ago to $138 billion and decreased as a percentage of total client assets to 25% from last year’s 27%. In addition, total client assets decreased to $550 billion, down 27% from December 31, 2007, primarily due to weakened market conditions.

Total non-interest expenses were $291 million in the one month period ended December 31, 2008, a 34% decrease from the prior period. Compensation and benefits expenses were $247 million, a 21% decrease from the prior year period, primarily reflecting lower revenues. Non-compensation costs decreased 65%, primarily due to a reversal of a portion of the accrual of approximately $70 million related to the ARS repurchase program.

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ASSET MANAGEMENT

INCOME STATEMENT INFORMATION

	Three Months Ended March 31,						One Month Ended December 31, 2008
	2009			2008
	(dollars in millions)
Revenues:
Investment banking	$	13		$	26		$	3
Principal transactions:
Trading		(1	)		(62	)		(82	)
Investments		(467	)		(239	)		(43	)
Commissions		2			4			1
Asset management, distribution and administration fees		487			790			157
Other		101			74			100
Total non-interest revenues		135			593			136
Interest and dividends		9			6			12
Interest expense		72			25			27
Net interest		(63	)		(19	)		(15	)
Net revenues		72			574			121
Total non-interest expenses		631			686			231
Loss before income taxes		(559	)		(112	)		(110	)
Benefit from income taxes		(141	)		(40	)		(42	)
Net loss applicable from Morgan Stanley	$	(418	)	$	(72	)	$	(68	)

Three Months Ended March 31, 2009 Compared with the Three Months Ended March 31, 2008

Investment Banking.    Investment banking revenues decreased 50% in the quarter ended March 31, 2009 compared with the quarter ended March 31, 2008, primarily reflecting lower revenues from real estate products.

Principal Transactions—Trading.    In the quarter ended March 31, 2009, the Company recognized a loss of $1 million compared with a loss of $62 million in the quarter ended March 31, 2008. Trading results in the quarter ended March 31, 2009 reflected gains of $43 million related to SIVs held on the Company’s condensed consolidated statements of financial condition compared with losses of $69 million a year ago. The gain of $43 million in the first quarter ended March 31, 2009 was primarily offset by net losses from hedges on certain investments and long-term debt.

SIVs are unconsolidated entities that issue various capital notes and debt instruments to fund the purchase of assets. While the Company does not sponsor or serve as asset manager to any unconsolidated SIVs, the Company does serve as investment advisor to certain unconsolidated money market funds (“Funds”) that have investments in securities issued by SIVs. In the second half of 2007 and during 2008, widespread illiquidity in the commercial paper markets led to market value declines and rating agency downgrades of many securities issued by SIVs, some of which were held by the Funds. As a result, the Company purchased at amortized cost approximately $1.1 billion of such securities during 2007 and 2008, of which $51 million were purchased in the quarter ended March 31, 2008. The carrying value of the purchased securities still held by the Company as of March 31, 2009 was $123 million. Such positions are reflected at fair value and are presented in Financial instruments owned—Corporate and other debt in the condensed consolidated statements of financial condition. The Funds no longer have investments in securities issued by SIVs as of March 31, 2009 compared with $3.2 billion as of March 31, 2008. The Company has no obligation to purchase any additional securities from the Funds in the future.

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Principal Transactions—Investments.    Principal transaction net investment losses of $467 million were recognized in the quarter ended March 31, 2009 as compared with losses of $239 million in the quarter ended March 31, 2008. The results in both periods were primarily related to net investment losses associated with the Company’s merchant banking business, including real estate and private equity investments, and losses associated with certain investments for the benefit of the Company’s employee deferred compensation and co-investment plans. The prior year period included net investment losses associated with the Company’s real estate products, including those associated with deferred compensation and co-investment plans and alternative investments, partially offset by investment gains in the Company’s private equity portfolio.

Asset Management, Distribution and Administration Fees.    Asset management, distribution and administration fees decreased 38% in the quarter ended March 31, 2009 compared with the quarter ended March 31, 2008. The decrease in the quarter primarily reflected lower fund management and administration fees reflecting a decrease in assets under management.

Asset Management’s period-end and average assets under management or supervision were as follows:

	At March 31,				At December 31, 2008		Average for the Three Months Ended March 31,				Average for the One Month Ended December 31, 2008
	2009		2008				2009		2008
	(dollars in billions)
Assets under management or supervision by distribution channel:
Morgan Stanley Retail and Intermediary	$	41	$	74	$	45	$	42	$	76	$	46
Van Kampen Retail and Intermediary		77		133		85		79		139		85
Retail money markets		25		35		29		27		33		29
Total Americas Retail		143		242		159		148		248		160
U.S. Institutional		74		123		89		81		124		89
Institutional money markets		47		77		53		51		73		53
Non-U.S.		87		126		97		90		128		94
Total assets under management or supervision		351		568		398		370		573		396
Share of minority interest assets(1)		5		7		6		6		7		6
Total	$	356	$	575	$	404	$	376	$	580	$	402
Assets under management or supervision by asset class:
Equity	$	125	$	226	$	139	$	127	$	239	$	137
Fixed income		144		213		158		152		208		159
Alternatives(2)		42		72		50		44		69		49
Unit trust		8		14		9		8		14		9
Total core asset management		319		525		356		331		530		354
Private equity		4		3		4		4		3		4
Infrastructure		4		3		4		4		3		4
Real estate		24		37		34		31		37		34
Total merchant banking		32		43		42		39		43		42
Total assets under management or supervision		351		568		398		370		573		396
Share of minority interest assets(1)		5		7		6		6		7		6
Total	$	356	$	575	$	404	$	376	$	580	$	402

(1) Amounts represent Asset Management’s proportional share of assets managed by entities in which it owns a minority interest.

(2) The alternatives asset class includes a range of investment products such as hedge funds, funds of hedge funds and funds of private equity funds.

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Activity in Asset Management’s assets under management or supervision for the quarters ended March 31, 2009 and March 31, 2008 and the one month period ended December 31, 2008 were as follows:

	Three Months Ended March 31,						One Month Ended December 31, 2008
	2009			2008
	(dollars in millions)
Balance at beginning of period	$	404		$	590		$	399
Net flows by distribution channel:
Morgan Stanley Retail and Intermediary		(2	)		—			(1	)
Van Kampen Retail and Intermediary		(2	)		(3	)		(1	)
Retail money markets		(5	)		3			(1	)
Total Americas Retail		(9	)		—			(3	)
U.S. Institutional		(4	)		2			(3	)
Institutional money markets		(5	)		9			1
Non-U.S.		(3	)		—			1
Total net flows		(21	)		11			(4	)
Net market (depreciation)/appreciation		(26	)		(26	)		9
Total net (decrease)/increase		(47	)		(15	)		5
Net decrease in share of minority interest assets(1)		(1	)		—			—
Balance at end of period	$	356		$	575		$	404

(1) Amount represents Asset Management’s proportional share of assets managed by entities in which it owns a minority interest.

Net flows in the quarter ended March 31, 2009 were associated with negative outflows across all distribution channels partially reflecting a high level of customer outflows that was experienced within the industry. The Company’s decline in assets under management included net customer outflows of $86.3 billion since March 31, 2008, primarily in the Company’s money market and long-term fixed income funds.

Other.    Other revenues increased 36% in the quarter ended March 31, 2009 compared with the quarter ended March 31, 2008. The results in the quarter ended March 31, 2009 were primarily due to revenues associated with Crescent. Other revenues also included a $39 million impairment on certain equity method investments owned by Crescent. See “Other Matters—Real Estate-Related Positions—Real Estate Analysis” herein for further discussion. The results in the quarter ended March 31, 2008 included higher revenues associated with Lansdowne Partners, a London-based investment manager in which the Company has a minority interest.

Non-Interest Expenses.    Non-interest expenses decreased 8% in the quarter ended March 31, 2009, primarily reflecting a decrease in compensation and benefits expense, partially offset by higher operating costs and an impairment charge of $131 million associated with Crescent. Compensation and benefits expense decreased 55% in the quarter ended March 31, 2009, primarily reflecting lower net revenues, including losses associated with principal investments for the benefit of the Company’s employee deferred compensation and co-investment plans. Excluding compensation and benefits expense, non-interest expenses increased 37% in the quarter ended March 31, 2009. Brokerage, clearing and exchange fees decreased 50% in the quarter ended March 31, 2009, primarily due to lower fee sharing expenses. Marketing and business development expense decreased 50% in the quarter ended March 31, 2009, primarily due to lower levels of business activity. Professional services expense decreased 16% in the quarter ended March 31, 2009, primarily due to lower sub-advisory fees, sub-transfer agent fees and consulting fees. Other expenses increased by $222 million to $271 million, primarily due to Crescent operating costs and the $131 million impairment charge noted above.

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One Month Ended December 31, 2008 Compared with the One Month Ended December 31, 2007

Asset Management recorded losses before income taxes of $110 million in the one month period ended December 31, 2008 compared with losses before income taxes of $68 million in the one month period ended December 31, 2007. Net revenues of $121 million decreased 26% from the prior period. The decrease in the one month period ended December 31, 2008 primarily reflected lower asset management, distribution and administration fees of $138 million, partially offset by Crescent operating revenue of $96 million and lower losses related to securities issued by SIVs of $84 million, compared with $119 million in the one month period ended December 31, 2007. Assets under management or supervision within Asset Management of $404 billion were down $186 billion, or 31%, from $590 billion as of December 31, 2007, primarily reflecting decreases in equity and fixed income products resulting from market depreciation and net outflows. Non-interest expenses decreased $1 million to $231 million primarily due to lower compensation and benefits expense, partially offset by expenses related to Crescent. Compensation and benefits expense decreased 48% primarily reflecting lower revenues and reduced headcount.

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Other Matters.

The following matters are discussed in the Company’s notes to the condensed consolidated financial statements. For further information on these matters, please see the applicable note:

	Note
Accounting Developments:
Dividends on Share-Based Payment Awards	1
Transfers of Financial Assets and Repurchase Financing Transactions	1
Determination of the Useful Life of Intangible Assets	1
Instruments Indexed to an Entity’s Own Stock	1
Transfers of Financial Assets and Extinguishment of Liabilities and Consolidation of Variable Interest Entities	1
Disclosures about Postretirement Benefit Plan Assets	1
Guidance and Disclosures on Fair Value Measurements	1
Income Taxes	15
Joint Ventures	17

Real Estate-Related Positions.

Overview.    The Company has real estate exposure to:

• non-subprime residential mortgages, a category which includes prime, Alt-A, European and Asian residential mortgage loans, residential mortgage-backed securities bonds (“RMBS”) and derivatives referencing such mortgages or mortgage-backed securities;

• commercial whole loans, commercial mortgage-backed securities (“CMBS”) and related derivatives;

• U.S. subprime mortgage-related trading positions consisting of U.S. asset-backed securities (“ABS”), collateralized debt obligation (“CDO”) securities, investments in subprime loans and derivatives referencing subprime mortgages or subprime mortgage-backed securities; and

• real estate properties and real estate investor funds.

The Company continues to monitor its real estate-related and lending-related positions in order to manage its exposures to these markets and businesses. As market conditions continue to evolve, the fair value of these positions could further deteriorate.

See “Management’s Discussion and Analysis of Financing Condition and Results of Operations—Other Matters—Real Estate-Related Positions” in Part II, Item 7 of the Form 10-K for further information.

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The following tables provide a summary of the Company’s non-subprime residential, commercial and U.S. subprime mortgage-related exposures as of and for the quarter ended March 31, 2009 and as of and for the one month period ended December 31, 2008. The Company utilizes various methods of evaluating risk in its trading and other portfolios, including monitoring its Net Exposure. Net Exposure is defined as potential loss to the Company over a period of time in an event of 100% default of the referenced loan, assuming zero recovery. Positive net exposure amounts indicate potential loss (long position) in a default scenario. Negative net exposure amounts indicate potential gain (short position) in a default scenario. Net Exposure does not take into consideration the risk of counterparty default such that actual losses could exceed the amount of Net Exposure. See “Quantitative and Qualitative Disclosures about Market Risk—Credit Risk” in Part II, Item 7A of the Form 10-K for a further description of how credit risk is monitored. For a further discussion of the Company’s risk management policies and procedures see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management” in Part II, Item 7A of the Form 10-K.

Non-subprime Residential Mortgage-Related Exposures.

	Statement of Financial Condition March 31, 2009(1)		Statement of Financial Condition December 31, 2008(1)		Profit and (Loss) Three Months Ended March 31, 2009			Profit and (Loss) One Month Ended December 31, 2008		Net Exposure March 31, 2009(2)			Net Exposure December 31, 2008(2)
	(dollars in billions)
Residential loans(3)	$	2.6	$	2.7	$	(0.1	)	$	0.1	$	2.6		$	2.7
RMBS bonds(3)		1.8		2.5		—			—		1.8			2.5
RMBS-backed warehouse lines		0.1		0.1		—			—		0.1			0.1
RMBS swaps(4)		0.3		—		(0.1	)		—		(0.5	)		(0.4	)
Other secured financings(5)		0.9		1.4		—			—		—			—
Total residential non-subprime	$	5.7	$	6.7	$	(0.2	)	$	0.1	$	4.0		$	4.9

(1) Statement of financial condition amounts are presented on a net asset/liability basis and do not take into account any netting of cash collateral against these positions. As of March 31, 2009, the $5.7 billion is reflected in the Company’s condensed consolidated statement of financial condition: Financial instruments owned of $5.7 billion. As of December 31, 2008, the $6.7 billion is reflected in the Company’s condensed consolidated statement of financial condition as Financial instruments owned of $7.0 billion and Financial instruments sold, not yet purchased of $0.3 billion.

(2) Regional distribution of Net Exposure was 52% U.S., 35% Europe and 13% Asia as of March 31, 2009 and 51% U.S., 37% Europe and 12% Asia as of December 31, 2008.

(3) Gross and net exposure on residential loans and RMBS bonds was split 50% and 52% Alt-A/near prime and 50% and 48% prime underlying collateral, respectively. Gross and net exposure of U.S. Alt-A residential loans and bonds was $1.2 billion and $1.6 billion as of March 31, 2009 and December 31, 2008, respectively.

(4) Amounts represent both hedges and directional positioning. These positions included credit default and super senior CDO swaps.

(5) Amounts represent assets recorded under certain provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS No. 140”), and Financial Accounting Standards Board (“FASB”) Interpretation No. 46, as revised (“FIN 46R”), “Consolidation of Variable Interest Entities,” that function as collateral for an offsetting amount of non-recourse debt to third parties. Any retained interests in these transactions are reflected in RMBS bonds.

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Commercial Mortgage-Related Exposures.

	Statement of Financial Condition March 31, 2009(1)		Statement of Financial Condition December 31, 2008(1)		Profit and (Loss) Three Months Ended March 31, 2009			Profit and (Loss) One Month Ended December 31, 2008			Net Exposure March 31, 2009			Net Exposure December 31, 2008
	(dollars in billions)
CMBS bonds	$	3.7	$	4.3	$	(0.5	)	$	0.1		$	3.7		$	4.3
CMBS-backed warehouse lines(2)		1.0		1.3		(0.1	)		—			1.4			1.8
Commercial loans(2)(3)		2.9		3.3		(0.3	)		0.1			3.1			3.6
CMBS swaps(4)		7.1		4.7		1.5			(0.4	)		(4.2	)		(6.3	)
Other secured financings(5)		3.3		4.5		—			—			—			—
Total CMBS/Commercial whole loan exposure(6)	$	18.0	$	18.1	$	0.6		$	(0.2	)	$	4.0		$	3.4

(1) Statement of financial condition amounts are presented on a net asset/liability basis and do not take into account any netting of cash collateral against these positions. As of March 31, 2009, the $18.0 billion is reflected in the Company’s condensed consolidated statement of financial condition: Financial instruments owned of $21.0 billion, Receivables: Other Loans of $1.0 billion and Financial instruments sold, not yet purchased of $4.0 billion. As of December 31, 2008, the $18.1 billion is reflected in the Company’s condensed consolidated statement of financial condition as follows: Financial instruments owned of $26.4 billion, Receivables: Other Loans of $1.3 billion and Financial instruments sold, not yet purchased of $9.6 billion.

(2) Amounts include unfunded loan commitments.

(3) Composition of commercial loans was 68% senior and 32% mezzanine as of March 31, 2009 and 66% senior and 34% mezzanine as of December 31, 2008.

(4) Amounts represent both hedges and directional positioning. Amounts include credit default, super senior CDOs, index and total rate-of-return swaps.

(5) Amounts represent assets recorded under certain provisions of SFAS No. 140 and FIN 46R that function as collateral for an offsetting amount of non-recourse debt to third parties. Any retained interests in these transactions are reflected in CMBS bonds.

(6) Regional distribution of Net Exposure of the long positions (i.e., CMBS bonds, commercial loans and warehouse lines) was 56% U.S., 20% Europe and 24% Asia as of March 31, 2009 and 56% U.S., 20% Europe and 24% Asia as of December 31, 2008.

U.S. Subprime Mortgage-Related Exposures.

	Statement of Financial Condition March 31, 2009(1)			Statement of Financial Condition December 31, 2008(1)			Profit and (Loss) Three Months Ended March 31, 2009			Profit and (Loss) One Month Ended December 31, 2008			Net Exposure March 31, 2009			Net Exposure December 31, 2008
	(dollars in billions)
ABS CDO super senior mezzanine	$	(0.9	)	$	(3.4	)	$	(0.1	)	$	—		$	—		$	(0.1	)
ABS bonds(2)		2.4			3.4			(0.2	)		(0.1	)		2.4			3.4
ABS loans		0.1			0.2			—			—			0.1			0.2
ABS swaps(3)		8.9			11.3			—			(0.2	)		(1.4	)		(1.6	)
Total ABS subprime exposure	$	10.5		$	11.5		$	(0.3	)	$	(0.3	)	$	1.1		$	1.9

(1) Statement of financial condition amounts are presented on a net asset/liability basis and do not take into account any netting of cash collateral against these positions. In addition, these amounts reflect counterparty netting to the extent that there are positions with the same counterparty that are subprime-related; they do not reflect any counterparty netting to the extent that there are positions with the same counterparty that are not subprime related. As of March 31, 2009, the $10.5 billion is reflected in the Company’s condensed consolidated statement of financial condition as follows: Financial instruments owned of $19.5 billion and Financial instruments sold, not yet purchased of $9.0 billion. As of December 31, 2008, the $11.5 billion is reflected in the Company’s condensed consolidated statement of financial condition: Financial instruments owned of $20.4 billion and Financial instruments sold, not yet purchased of $8.9 billion.

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(2) Includes subprime securities held by the investment portfolios of Morgan Stanley Bank N.A. and Morgan Stanley Trust FSB (collectively, the “Subsidiary Banks”). The securities in the Subsidiary Banks’ portfolios are part of the Company’s overall Treasury liquidity management portfolio. The market value of the Subsidiary Banks’ subprime-related securities, most of which are investment grade-rated residential mortgage-backed securities, was $1.8 billion at March 31, 2009 and $2.5 billion at December 31, 2008. For the three months ended March 31, 2009, these positions incurred losses of $0.3 billion. For the one month period ended December 31, 2008, these positions incurred losses of $85 million.

(3) Amounts represent both hedges and directional positioning. These positions include ABS and ABS CDO credit default swaps.

Real Estate Analysis.

Real Estate Investor Funds.    The Company acts as the general partner for various real estate funds and also invests in certain of these funds as a limited partner.

Crescent and Other Consolidated Interests.    The assets of Crescent primarily include office buildings, investments in resorts and residential developments in select markets across the U.S. (the “Crescent properties”). The Company will continue to evaluate the Crescent properties and position them for sale as opportunities arise. The Company also holds other consolidated interests related to private equity investments.

Real Estate Investments.    The Company’s real estate investments as of March 31, 2009 and as of December 31, 2008 are shown below. Such amounts exclude investments that benefit certain employee deferred compensation and co-investment plans.

	Statement of Financial Condition March 31, 2009		Statement of Financial Condition December 31, 2008		Loss Three Months Ended March 31, 2009			Loss One Month Ended December 31, 2008
	(dollars in billions)
Crescent and other consolidated interests(1)(2)(3)	$	3.7	$	3.8	$	(0.3	)	$	—
Real estate funds		1.0		1.0		(0.6	)		(0.1	)
Real estate bridge financing		0.1		0.2		(0.1	)		—
Infrastructure fund		0.1		0.1		—			—
Total(4)	$	4.9	$	5.1	$	(1.0	)	$	(0.1	)

(1) Represents gross investment assets of consolidated subsidiaries which are subject to non-recourse debt of $2.5 billion provided by third party lenders.

(2) Consolidated statement of income amounts directly related to investments held by consolidated subsidiaries are condensed in this presentation and include principal transactions, net operating revenues and expenses and impairment charges.

(3) As of March 31, 2009, certain of the Company’s subsidiaries were in default under third party real estate financings that are generally non-recourse (subject to limited guarantees) due to a breach of certain non-monetary covenants. Limited waivers of those covenants have been obtained from the lenders for the period effective March 31, 2009 and continuing through May 31, 2009.

(4) The Company has contractual capital commitments, guarantees and counterparty arrangements with respect to these investments of $1.9 billion as of March 31, 2009. Additionally, the terms of an unsecured operating capital facility of $0.2 billion is being discussed with one of the Funds.

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Critical Accounting Policies.

The Company’s condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which requires the Company to make estimates and assumptions (see Note 1 to the condensed consolidated financial statements). The Company believes that of its significant accounting policies (see Note 2 to the consolidated financial statements for the fiscal year ended November 30, 2008 in the Form 10-K), the following involve a higher degree of judgment and complexity.

Fair Value.

Financial Instruments Measured at Fair Value.    A significant number of the Company’s financial instruments are carried at fair value with changes in fair value recognized in earnings each period. The Company makes estimates regarding valuation of assets and liabilities measured at fair value in preparing the condensed consolidated financial statements. These assets and liabilities include but are not limited to:

• Financial instruments owned and Financial instruments sold, not yet purchased;

• Securities received as collateral and Obligation to return securities received as collateral;

• Certain Commercial paper and other short-term borrowings, primarily structured notes;

• Certain Deposits;

• Other secured financings; and

• Certain Long-term borrowings, primarily structured notes and certain junior subordinated debentures.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. A hierarchy for inputs is used in measuring fair value that maximizes the use of observable prices and inputs and minimizes the use of unobservable prices and inputs by requiring that the relevant observable inputs be used when available. The hierarchy is broken down into three levels, wherein Level 1 uses observable prices in active markets, and Level 3 consists of valuation techniques that incorporate significant unobservable inputs and therefore require the greatest use of judgment. In periods of market dislocation, such as those experienced in the first quarter of 2009, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or Level 2 to Level 3. In addition, a continued downturn in market conditions could lead to further declines in the valuation of many instruments. For further information on the fair value definition, Level 1, Level 2, Level 3 and related valuation techniques, see Notes 1 and 2 to the condensed consolidated financial statements.

The Company’s Level 3 assets before the impact of cash collateral and counterparty netting across the levels of the fair value hierarchy were $67.4 billion, $83.6 billion and $86.4 billion as of March 31, 2009, December 31, 2008 and November 30, 2008, respectively, and represented approximately 25%, 29% and 30% as of March 31, 2009, December 31, 2008 and November 30, 2008, respectively, of the assets measured at fair value (11%, 12% and 13% of total assets as of March 31, 2009, December 31, 2008 and November 30, 2008, respectively). Level 3 liabilities before the impact of cash collateral and counterparty netting across the levels of the fair value hierarchy were $21.4 billion, $29.8 billion and $28.4 billion as of March 31, 2009, December 31, 2008 and November 30, 2008, respectively, and represented approximately 13%, 17% and 16%, respectively, of the Company’s liabilities measured at fair value.

During the quarter ended March 31, 2009, the Company reclassified approximately $2.3 billion of certain Corporate and other debt from Level 2 to Level 3. The reclassifications were primarily related to asset-backed securities and certain corporate loans. The reclassifications were due to a reduction in market price quotations for

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these or comparable instruments, or a lack of available broker quotes, such that unobservable inputs had to be utilized for the fair value measurement of these instruments. These unobservable inputs include, depending upon the position, assumptions to establish comparability to bonds, loans or swaps with observable price/spread levels, default recovery rates, forecasted credit losses and prepayment rates. During the quarter ended March 31, 2009, the Company reclassified approximately $2.7 billion of certain Corporate and other debt from Level 3 to Level 2. These reclassifications primarily related to commercial mortgage-backed securities, subprime CDO and other subprime ABS securities. Their fair value was highly correlated with similar instruments in an observable market and, due to market deterioration, unobservable inputs were no longer deemed significant to the fair value measurement. In addition, corporate loans were reclassified as more liquidity re-entered the market and external prices and spread inputs for these instruments became observable. During the quarter ended March 31, 2009 and the one month period ended December 31, 2008, the Company reclassified approximately $9.6 billion and $3.0 billion, respectively, of certain Derivatives and other contracts from Level 3 to Level 2. The reclassifications of certain Derivatives and other contracts in both periods were primarily related to single name, mortgage-related and tranche-indexed credit default swaps. Unobservable Level 3 inputs for these derivative contracts were no longer deemed significant to the fair value measurement due to market deterioration.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis.    Certain of the Company’s assets were measured at fair value on a non-recurring basis. The Company incurs impairment charges for any writedowns of these assets to fair value. A continued downturn in market conditions could result in impairment charges in future periods.

For assets and liabilities measured at fair value on a non-recurring basis, fair value is determined by using various valuation approaches. The same hierarchy as described above, which maximizes the use of observable inputs and minimizes the use of unobservable inputs, by generally requiring that the observable inputs be used when available, is used in measuring fair value for these items.

For further information on financial assets and liabilities that are measured at fair value on a recurring and non-recurring basis, see Note 2 to the condensed consolidated financial statements.

Fair Value Control Processes.    The Company employs control processes to validate the fair value of its financial instruments, including those derived from pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. These control processes include reviews of the pricing model’s theoretical soundness and appropriateness by Company personnel with relevant expertise who are independent from the trading desks. Additionally, groups independent from the trading divisions within the Financial Control, Market Risk and Credit Risk Departments participate in the review and validation of the fair values generated from pricing models, as appropriate. Where a pricing model is used to determine fair value, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model.

Consistent with market practice, the Company has individually negotiated agreements with certain counterparties to exchange collateral (“margining”) based on the level of fair values of the derivative contracts they have executed. Through this margining process, one party or both parties to a derivative contract provides the other party with information about the fair value of the derivative contract to calculate the amount of collateral required. This sharing of fair value information provides additional support of the Company’s recorded fair value for the relevant OTC derivative products. For certain OTC derivative products, the Company, along with other market participants, contributes derivative pricing information to aggregation services that synthesize the data and make it accessible to subscribers. This information is then used to evaluate the fair value of these OTC derivative products. For more information regarding the Company’s risk management practices, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management” in Part II, Item 7A of the Form 10-K.

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Legal, Regulatory and Tax Contingencies.

In the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the issuers that would otherwise be the primary defendants in such cases are bankrupt or in financial distress.

The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company’s business, including, among other matters, accounting and operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

Reserves for litigation and regulatory proceedings are generally determined on a case-by-case basis and represent an estimate of probable losses after considering, among other factors, the progress of each case, prior experience and the experience of others in similar cases, and the opinions and views of internal and external legal counsel. Given the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict with certainty the loss or range of loss, if any, related to such matters, how such matters will be resolved, when they will ultimately be resolved or what the eventual settlement, fine, penalty or other relief, if any, might be.

The Company is subject to the income and indirect tax laws of the U.S., its states and municipalities and those of the foreign jurisdictions in which the Company has significant business operations. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. The Company must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes and the expense for indirect taxes and must also make estimates about when in the future certain items affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be settled with the taxing authority upon examination or audit. The Company regularly assesses the likelihood of assessments in each of the taxing jurisdictions resulting from current and subsequent years’ examinations, and tax reserves are established as appropriate.

The Company establishes reserves for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be estimated in accordance with SFAS No. 5. The Company establishes reserves for potential losses that may arise out of tax audits in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). Once established, reserves are adjusted when there is more information available or when an event occurs requiring a change. Significant judgment is required in making these estimates, and the actual cost of a legal claim, tax assessment or regulatory fine/penalty may ultimately be materially different from the recorded reserves, if any.

See Notes 8 and 15 to the condensed consolidated financial statements for additional information on legal proceedings and tax examinations.

Special Purpose Entities and Variable Interest Entities.

The Company’s involvement with special purpose entities (“SPEs”) consists primarily of the following:

• Transferring financial assets into SPEs;

• Acting as an underwriter of beneficial interests issued by securitization vehicles;

• Holding one or more classes of securities issued by, or making loans to or investments in SPEs that hold debt, equity, real estate or other assets;

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• Purchasing and selling (in both a market-making and a proprietary-trading capacity) securities issued by SPEs/VIEs, whether such vehicles are sponsored by the Company or not;

• Entering into derivative transactions with SPEs (whether or not sponsored by the Company);

• Providing warehouse financing to CDOs and CLOs;

• Entering into derivative agreements with non-SPEs whose value is derived from securities issued by SPEs;

• Servicing assets held by SPEs or holding servicing rights related to assets held by SPEs that are serviced by others under subservicing arrangements;

• Serving as an asset manager to various investment funds that may invest in securities that are backed, in whole or in part, by SPEs; and

• Structuring and/or investing in other structured transactions designed to provide enhanced, tax-efficient yields to the Company or its clients.

The Company engages in securitization activities related to commercial and residential mortgage loans, U.S. agency collateralized mortgage obligations, corporate bonds and loans, municipal bonds and other types of financial instruments. The Company’s involvement with SPEs is discussed further in Note 4 to the condensed consolidated financial statements.

In most cases, these SPEs are deemed for accounting purposes to be variable interest entities (“VIEs”). Unless a VIE is determined to be a QSPE (see Note 1 to the condensed consolidated financial statements), the Company is required to perform an analysis of each VIE at the date upon which the Company becomes involved with it to determine whether the Company is the primary beneficiary of the VIE, in which case the Company must consolidate the VIE. QSPEs are not consolidated.

In addition, the Company serves as an investment advisor to unconsolidated money market and other funds.

The Company reassesses whether it is the primary beneficiary of a VIE upon the occurrence of certain reconsideration events. If the Company’s initial assessment results in a determination that it is not the primary beneficiary of a VIE, then the Company reassesses this determination upon the occurrence of:

• Changes to the VIE’s governing documents or contractual arrangements in a manner that reallocates the obligation to absorb the expected losses or the right to receive the expected residual returns of the VIE between the current primary beneficiary and the other variable interest holders, including the Company.

• Acquisition by the Company of additional variable interests in the VIE.

If the Company’s initial assessment results in a determination that it is the primary beneficiary, then the Company reassesses this determination upon the occurrence of:

• Changes to the VIE’s governing documents or contractual arrangements in a manner that reallocates the obligation to absorb the expected losses or the right to receive the expected residual returns of the VIE between the current primary beneficiary and the other variable interest holders, including the Company.

• A sale or disposition by the Company of all or part of its variable interests in the VIE to parties unrelated to the Company.

• The issuance of new variable interests by the VIE to parties unrelated to the Company.

The determination of whether an SPE meets the accounting requirements of a QSPE requires significant judgment, particularly in evaluating whether the permitted activities of the SPE are significantly limited and in determining whether derivatives held by the SPE are passive and nonexcessive. In addition, the analysis involved in determining whether an entity is a VIE, and in determining the primary beneficiary of a VIE, requires significant judgment (see Notes 1 and 4 to the condensed consolidated financial statements).

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Liquidity and Capital Resources.

The Company’s senior management establishes the liquidity and capital policies of the Company. Through various risk and control committees, the Company’s senior management reviews business performance relative to these policies, monitors the availability of alternative sources of financing, and oversees the liquidity and interest rate and currency sensitivity of the Company’s asset and liability position. The Company’s Treasury Department and other control groups assist in evaluating, monitoring and controlling the impact that the Company’s business activities have on its condensed consolidated statements of financial condition, liquidity and capital structure.

During the fourth quarter of fiscal 2008 the Company became a financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) and gained additional access to various government lending programs and facilities including the Commercial Paper Funding Facility (“CPFF”), the Temporary Liquidity Guarantee Program (“TLGP”), the Term Securities Lending Facility (“TSLF”) and the Primary Dealer Credit Facility (“PDCF”) (for a further discussion about these lending programs and facilities, see “Funding Management Policies-Secured Financing” herein). During the quarter ended March 31, 2009 and the one month period ended December 31, 2008, the Company continued to access the debt markets through some of the government lending programs and facilities.

The Balance Sheet.

The Company actively monitors and evaluates the composition and size of its balance sheet. A substantial portion of the Company’s total assets consists of liquid marketable securities and short-term receivables arising principally from Institutional Securities sales and trading activities. The liquid nature of these assets provides the Company with flexibility in managing the size of its balance sheet.

The Company’s total assets decreased to $626,023 million as of March 31, 2009, from $676,764 million as of December 31, 2008. The decrease was primarily due to decreases in interest bearing deposits with banks and financial instruments owned—derivative contracts, corporate equities and corporate and other debt.

The Company’s total assets increased to $676,764 million as of December 31, 2008, from $659,035 million as of November 30, 2008. The increase was primarily due to increases in securities purchased under agreements to resell, securities borrowed and financial instruments owned—U.S. government and agency securities and corporate equities, partially offset by decreases in financial instruments owned—derivative and other contracts.

Within the sales and trading related assets and liabilities are transactions attributable to securities financing activities. As of March 31, 2009, securities financing assets and liabilities were $269 billion and $204 billion, respectively. As of December 31, 2008, securities financing assets and liabilities were $269 billion and $236 billion, respectively. Securities financing transactions include repurchase and resale agreements, securities borrowed and loaned transactions, securities received as collateral and obligation to return securities received, customer receivables/payables and related segregated customer cash.

Securities financing assets and liabilities also include matched book transactions with minimal market, credit and/or liquidity risk. Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions. The customer receivable portion of the securities financing transactions includes customer margin loans, collateralized by customer owned securities, and customer cash, which is segregated, according to regulatory requirements. The customer payable portion of the securities financing transactions primarily includes customer payables to the Company’s prime brokerage clients. The Company’s risk exposure on these transactions is mitigated by collateral maintenance policies that limit the Company’s credit exposure to customers. Included within securities financing assets was $7 billion and $5 billion as of March 31, 2009 and December 31, 2008, respectively, recorded under certain provisions of SFAS No. 140 which represented equal and offsetting assets and liabilities for fully collateralized non-cash loan transactions.

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The Company uses the balance sheet leverage ratio, tangible common equity (“TCE”) to tangible asset ratio, TCE to risk weighted assets ratio, the Tier 1 leverage ratio and risk based capital ratios (see “Regulatory Requirements” herein) as indicators of capital adequacy when viewed in the context of the Company’s overall liquidity and capital policies.

The following table sets forth the Company’s total assets and leverage ratios as of March 31, 2009, December 31, 2008 and November 30, 2008 and for average balances during the quarter ended March 31, 2009:

	Balance at									Average Balance(1)
	(dollars in millions, except ratio data)
	March 31, 2009			December 31, 2008			November 30, 2008			For the Three Months Ended March 31, 2009
Total assets	$	626,023		$	676,764		$	659,035		$	685,943
Less: Goodwill and net intangible assets(2)		(2,916	)		(2,978	)		(2,970	)		(2,944	)
Tangible assets	$	623,107		$	673,786		$	656,065		$	682,999
Common equity	$	29,314		$	29,585		$	31,676		$	29,644
Preferred equity		19,208			19,168			19,155			19,188
Morgan Stanley shareholders’ equity		48,522			48,753			50,831			48,832
Junior subordinated debentures issued to capital trusts		10,436			10,312			10,266			10,389
Subtotal		58,958			59,065			61,097			59,221
Less: Goodwill and net intangible assets(2)		(2,916	)		(2,978	)		(2,970	)		(2,944	)
Tangible Morgan Stanley shareholders’ equity	$	56,042		$	56,087		$	58,127		$	56,277
Common equity	$	29,314		$	29,585		$	31,676		$	29,644
Less: Goodwill and net intangible assets(2)		(2,916	)		(2,978	)		(2,970	)		(2,944	)
Tangible common equity(3)	$	26,398		$	26,607		$	28,706		$	26,700
Leverage ratio(4)		11.2x			12.1x			11.3x			12.2x
Tangible common equity/Tangible assets		4.2	%		3.9	%		4.4	%		3.9	%
Tangible common equity/risk weighted assets(5)		9.2	%		N/A			N/A			N/A

N/A The Company began calculating its risk weighted assets under Basel I as of March 31, 2009.

(1) The Company calculates its average balances based upon weekly amounts, except where weekly balances are unavailable, month-end balances are used.

(2) Goodwill and net intangible assets exclude mortgage servicing rights.

(3) Tangible common equity equals common equity less goodwill and net intangible assets.

(4) Leverage ratio equals total assets divided by tangible Morgan Stanley shareholders’ equity.

(5) For discussion of risk weighted assets, see “Regulatory Requirements” herein.

Activity in the Quarter Ended March 31, 2009 and the One Month Period Ended December 31, 2008.

The Company’s total capital consists of shareholders’ equity, long-term borrowings (debt obligations scheduled to mature in more than 12 months) and junior subordinated debt issued to capital trusts. As of March 31, 2009, total capital was $210,663 million, an increase of $18,366 million from November 30, 2008. As of December 31, 2008, total capital was $208,008 million, an increase of $15,711 million from November 30, 2008.

During the quarter ended March 31, 2009, the Company issued notes with a carrying value at period-end aggregating approximately $17 billion, including non-U.S. dollar currency notes aggregating approximately $1 billion. In connection with the note issuances, the Company generally enters into certain transactions to obtain floating interest rates based primarily on short-term London Interbank Offered Rates (“LIBOR”) trading levels. The weighted average maturity of the Company’s long-term borrowings, based upon stated maturity dates, was approximately 5.8 years at March 31, 2009.

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During the one month period ended December 31, 2008, the Company issued notes with a carrying value aggregating approximately $12 billion. In connection with the note issuances, the Company generally enters into certain transactions to obtain floating interest rates based primarily on short-term LIBOR trading levels. The weighted average maturity of the Company’s long-term borrowings, based upon stated maturity dates, was approximately 6.3 years at December 31, 2008.

As of March 31, 2009 and December 31, 2008, the aggregate outstanding principal amount of the Company’s senior indebtedness (as defined in the Company’s senior debt indentures) was approximately $166 billion and $172 billion, respectively (including guaranteed obligations of the indebtedness of subsidiaries).

Capital Purchase Program.

The Company was part of the initial group of financial institutions participating in the Troubled Asset Relief Capital Purchase Program (“CPP”), and on October 26, 2008 entered into a Securities Purchase Agreement—Standard Terms with the U.S. Treasury pursuant to which, among other things, the Company sold to the U.S. Treasury for an aggregate purchase price of $10 billion, 10 million shares of Series D Fixed Rate Cumulative Perpetual Preferred Stock of the Company (the “Series D Preferred Stock”) and a warrant to purchase up to 65,245,759 shares of common stock of the Company at an exercise price of $22.99 per share (see Note 10 to the condensed consolidated financial statements).

The Series D Preferred Stock qualifies as Tier 1 capital and ranks senior to the Company’s common shares and pari passu, which is at an equal level in the capital structure, with the Company’s existing preferred shares, other than preferred shares which by their terms rank junior to any other existing preferred shares. The Series D Preferred Stock pays a compounding cumulative dividend rate of 5% per annum for the first five years and will reset to a rate of 9% per annum after year five. The Series D Preferred Stock is non-voting, other than class voting rights on matters that could adversely affect the Series D Preferred Stock. The Series D Preferred Stock may be redeemed by the Company at par after three years following the issue date. Prior to the end of three years, the Series D Preferred Stock may be repurchased by the Company, subject to regulatory approval. The U.S. Treasury may also transfer the Series D Preferred Stock and/or the warrant to a third party at any time. The number of shares to be delivered upon settlement of the warrant will be reduced by 50% if the Company receives aggregate gross proceeds of at least 100% of the aggregate Liquidation Preference of the Series D Preferred Stock ($10 billion) from one or more qualified equity offerings prior to December 31, 2009.

Equity Capital Management Policies.

The Company’s senior management views equity capital as an important source of financial strength. The Company actively manages its consolidated equity capital position based upon, among other things, business opportunities, capital availability and rates of return together with internal capital policies, regulatory requirements and rating agency guidelines and, therefore, in the future may expand or contract its equity capital base to address the changing needs of its businesses. The Company attempts to maintain total equity, on a consolidated basis, at least equal to the sum of its operating subsidiaries’ equity.

As of March 31, 2009, the Company’s equity capital (which includes shareholders’ equity and junior subordinated debentures issued to capital trusts) was $58,958 million, a decrease of $2,139 million from November 30, 2008, primarily due to lower retained earnings resulting from losses recognized in the quarter ended March 31, 2009.

As of December 31, 2008, the Company’s equity capital (which includes shareholders’ equity and junior subordinated debentures issued to capital trusts) was $59,065 million, a decrease of $2,032 million from November 30, 2008, primarily due to lower retained earnings and Paid-in capital.

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In December 2006, the Company announced that its Board of Directors had authorized the repurchase of up to $6 billion of the Company’s outstanding common stock. This share repurchase authorization replaced the Company’s previous repurchase authorizations with one repurchase program for capital management purposes that will consider, among other things, business segment capital needs as well as equity-based compensation and benefit plan requirements. As of March 31, 2009 and December 31, 2008, the Company had approximately $1.6 billion remaining under its current share repurchase authorization. During the quarter ended March 31, 2009 and the one month period ended December 31, 2008, the Company did not repurchase common stock as part of its capital management share repurchase program (see also “Unregistered Sales of Equity Securities and Use of Proceeds” in Part II, Item 2). As a condition under the CPP, the Company’s share repurchases are currently limited to purchases in connection with the administration of any employee benefit plan, consistent with past practices, including purchases to offset share dilution in connection with any such plans. This restriction is effective until October 2011 or until the U.S. Treasury no longer owns any of the Company’s preferred shares issued under the CPP.

The Board of Directors determines the declaration and payment of the common dividend on a quarterly basis. On April 22, 2009, the Company announced a reduction in the quarterly common stock dividend rate from $0.27 per share to $0.05 per share. Additionally, due to the change in the Company’s fiscal year end to December, the Company declared a $0.016667 dividend per common share covering the period from December 1, 2008 through December 31, 2008. The total dividend of $0.066667 per common share covering the four month period from December 1, 2008 to March 31, 2009 is payable on May 15, 2009 to shareholders of record on April 30, 2009. The Company expects to enhance its capital position by an estimated annualized amount of approximately $1 billion through this reduction in the common stock dividend rate. As part of its participation in the CPP, the Company agreed that it would not, without the U.S. Treasury’s consent, increase the dividend on its common stock above $0.27 per share as long as any preferred stock issued under the CPP remains outstanding until the third anniversary of the investment or until the U.S. Treasury has transferred all of the preferred stock it purchased under the CPP to third parties.

In addition, pursuant to the terms of the CPP investment, the Company is prohibited from paying any dividend with respect to shares of common stock, other junior securities or preferred stock ranking pari passu with the Series D Preferred Stock or repurchasing or redeeming any shares of the Company’s common shares, other junior securities or preferred stock ranking pari passu with the Series D Preferred Stock in any quarter unless all accrued and unpaid dividends are paid on the Series D Preferred Stock for all past dividend periods (including the latest completed dividend period), subject to certain limited exceptions.

In March 2009, the Company declared a quarterly dividend of $250.00 per share of Series A Floating Rate Non-Cumulative Preferred Stock (represented by depositary shares, each representing 1/1,000th interest in a share of preferred stock and each having a dividend of $0.25); a quarterly dividend of $25.00 per share of perpetual Fixed Rate Non-Cumulative Convertible Preferred Stock, Series B; a quarterly dividend of $25.00 per share of perpetual Fixed Rate Non-Cumulative Preferred Stock, Series C; and a quarterly dividend of $12.50 per share of perpetual Fixed Rate Cumulative Preferred Stock, Series D.

Economic Capital.

The Company’s economic capital framework estimates the amount of equity capital required to support the businesses over a wide range of market environments while simultaneously satisfying regulatory, rating agency and investor requirements. The framework will evolve over time in response to changes in the business and regulatory environment and to incorporate enhancements in modeling techniques.

Economic capital is assigned to each business segment and sub-allocated to product lines. Each business segment is capitalized as if it were an independent operating entity. This process is intended to align equity capital with the risks in each business in order to allow senior management to evaluate returns on a risk-adjusted basis (such as return on equity and shareholder value added).

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Economic capital is based on regulatory capital plus additional capital for stress losses. The Company assesses stress loss capital across various dimensions of market, credit, business and operational risks. Economic capital requirements are met by regulatory Tier 1 capital. For a further discussion of the Company’s Tier 1 capital see “Regulatory Requirements” herein. The difference between the Company’s Tier 1 capital and aggregate economic capital requirements denotes the Company’s unallocated capital position.

The following table presents the Company’s allocated average Tier 1 capital (“economic capital”) and average common equity for the quarter ended March 31, 2009 and the quarter ended December 31, 2008:

	Three Months Ended March 31, 2009				Three Months Ended December 31, 2008
	Average Tier 1 capital		Average common equity		Average Tier 1 capital		Average common equity
	(dollars in billions)
Institutional Securities	$	23.7	$	20.7	$	23.8	$	22.3
Global Wealth Management Group		1.7		1.3		1.9		1.4
Asset Management		3.4		3.4		3.8		3.8
Unallocated capital		19.3		4.2		18.4		6.7
Total	$	48.1	$	29.6	$	47.9	$	34.2

The Company generally uses available unallocated capital for organic growth, additional acquisitions and other capital needs, including repurchases of common stock where permitted under the terms of the CPP while maintaining adequate capital ratios. For a discussion of risk-based capital ratios, see “Regulatory Requirements” herein.

Liquidity and Funding Management Policies.

The primary goal of the Company’s liquidity management and funding activities is to ensure adequate funding over a wide range of market environments. Given the mix of the Company’s business activities, funding requirements are fulfilled through a diversified range of secured and unsecured financing.

The Company’s liquidity and funding risk management policies are designed to mitigate the potential risk that the Company may be unable to access adequate financing to service its financial obligations without material franchise or business impact. The key objectives of the liquidity and funding risk management framework are to support the successful execution of the Company’s business strategies while ensuring sufficient liquidity through the business cycle and during periods of stressed market conditions.

Liquidity Management Policies.

The principal elements of the Company’s liquidity management framework are the Contingency Funding Plan (“CFP”) and Liquidity Reserves. Comprehensive financing guidelines (secured funding, long-term funding strategy, surplus capacity, diversification and staggered maturities) support the Company’s target liquidity profile.

Contingency Funding Plan.    The Contingency Funding Plan is the Company’s primary liquidity risk management tool. The CFP models a potential, prolonged liquidity contraction over a one-year time period and sets forth a course of action to effectively manage a liquidity event. The CFP and liquidity risk exposures are evaluated on an on-going basis and reported to the Firm Risk Committee and other appropriate risk committees.

The Company’s CFP model incorporates scenarios with a wide range of potential cash outflows during a liquidity stress event, including, but not limited to, the following: (i) repayment of all unsecured debt maturing within one year

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and no incremental unsecured debt issuance; (ii) maturity roll-off of outstanding letters of credit with no further issuance and replacement with cash collateral; (iii) return of unsecured securities borrowed and any cash raised against these securities; (iv) additional collateral that would be required by counterparties in the event of a two-notch long-term credit ratings downgrade; (v) higher haircuts on or lower availability of secured funding, similar to a stressed cash capital approach; (vi) client cash withdrawals; (vii) drawdowns on unfunded commitments provided to third parties; and (viii) discretionary unsecured debt buybacks.

The CFP is produced on a parent and major subsidiary level to capture specific cash requirements and cash availability at various legal entities. The CFP assumes that the parent company does not have access to cash that may be held at certain subsidiaries due to regulatory, legal or tax constraints.

Liquidity Reserves.    The Company seeks to maintain target liquidity reserves that are sized to cover daily funding needs and meet strategic liquidity targets as outlined in the CFP. These liquidity reserves are held in the form of cash deposits with banks and pools of central bank eligible unencumbered securities. The parent company liquidity reserve is managed globally and consists of overnight cash deposits and unencumbered U.S. and European government bonds, agencies and agency pass throughs. The Company believes that diversifying the form in which its liquidity reserves (cash and securities) are maintained enhances its ability to quickly and efficiently source funding in a stressed environment. The Company’s funding requirements and target liquidity reserves may vary based on changes to the level and composition of its balance sheet, timing of specific transactions, client financing activity, market conditions and seasonal factors.

On March 31, 2009 and December 31, 2008, the parent liquidity reserve was $59 billion and $64 billion, respectively, and the total Company liquidity reserve was $152 billion and $147 billion, respectively. For the quarter ended March 31, 2009 and the one month period ended December 31, 2008, the average parent liquidity reserve was $61 billion and $64 billion, respectively, and the average total Company liquidity reserve was $145 billion and $142 billion, respectively.

Committed Credit Facilities.

At March 31, 2009, the Company maintained a $5 billion senior revolving credit agreement with a group of banks to support general liquidity needs, which consisted of three separate tranches: a U.S. dollar tranche; a Japanese yen tranche; and a multicurrency tranche available in both Euro and the British pound, all of which exist with the Company as borrower. At March 31, 2009 and December 31, 2008, no borrowings were outstanding under the credit agreement. The credit agreement expired on April 16, 2009 and was not renewed.

Capital Covenants.

In October 2006 and April 2007, the Company executed replacement capital covenants in connection with offerings by Morgan Stanley Capital Trust VII and Morgan Stanley Capital Trust VIII (the “Capital Securities”). Under the terms of the replacement capital covenants, the Company has agreed, for the benefit of certain specified holders of debt, to limitations on its ability to redeem or repurchase any of the Capital Securities for specified periods of time. For a complete description of the Capital Securities and the terms of the replacement capital covenants, see the Company’s Current Reports on Form 8-K dated October 12, 2006 and April 26, 2007.

Funding Management Policies.

The Company’s funding management policies are designed to provide for financings that are executed in a manner that reduces the risk of disruption to the Company’s operations. The Company pursues a strategy of diversification of secured and unsecured funding sources (by product, by investor and by region) and attempts to ensure that the tenor of the Company’s liabilities equals or exceeds the expected holding period of the assets being financed. Maturities of financings are designed to manage exposure to refinancing risk in any one period.

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The Company funds its balance sheet on a global basis through diverse sources. These sources may include the Company’s equity capital, long-term debt, repurchase agreements, securities lending, deposits, commercial paper, letters of credit and lines of credit. The Company has active financing programs for both standard and structured products in the U.S., European and Asian markets, targeting global investors and currencies such as the U.S. dollar, Euro, British pound, Australian dollar and Japanese yen.

Secured Financing.    A substantial portion of the Company’s total assets consists of liquid marketable securities and short-term receivables arising principally from its Institutional Securities sales and trading activities. The liquid nature of these assets provides the Company with flexibility in financing these assets with collateralized borrowings.

The Company’s goal is to achieve an optimal mix of secured and unsecured funding through appropriate use of collateralized borrowings. The Institutional Securities business segment emphasizes the use of collateralized short-term borrowings to limit the growth of short-term unsecured funding, which is generally more subject to disruption during periods of financial stress. As part of this effort, the Institutional Securities business segment continually seeks to expand its global secured borrowing capacity.

In addition, the Company, through several of its subsidiaries, maintains funded and unfunded committed credit facilities to support various businesses, including the collateralized commercial and residential mortgage whole loan, derivative contracts, warehouse lending, emerging market loan, structured product, corporate loan, investment banking and prime brokerage businesses.

On March 11, 2008, the Fed announced an expansion of its securities lending program to promote liquidity in the financing markets for Treasury securities and other collateral. Under the TSLF, the Fed will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (“MBS”), and non-agency AAA/Aaa-rated private-label residential MBS. In September 2008, the Fed changed the TSLF from a monthly to a weekly competitive auction.

On March 16, 2008, the Fed announced that the Federal Reserve Bank of New York (the “New York Fed”) has been granted the authority to establish a PDCF. The PDCF provides overnight funding to primary dealers in exchange for a specified range of collateral. The Company may at times use the PDCF as an additional source of secured funding for its regular business operations. In September 2008, the New York Fed expanded the schedule of collateral acceptable under the PDCF.

In September 2008, the Company became a financial holding company under the BHC Act. Additionally, the Fed authorized the New York Fed to extend credit to the Company’s U.S. broker-dealer subsidiary against all types of collateral that may be pledged at the Fed’s Primary Credit Facility for depository institutions or at the PDCF. The Fed also authorized the New York Fed to extend credit to the Company’s London-based broker-dealer subsidiary against collateral that would be eligible to be pledged at the PDCF.

Unsecured Financing.    The Company views long-term debt and deposits as stable sources of funding for core inventories and illiquid assets. Securities inventories not financed by secured funding sources and the majority of current assets are financed with a combination of short-term funding, floating rate long-term debt or fixed rate long-term debt swapped to a floating rate and deposits. The Company uses derivative products (primarily interest rate, currency and equity swaps) to assist in asset and liability management and to hedge interest rate risk (see Note 8 to the consolidated financial statements for the fiscal year ended November 30, 2008 included in the Form 10-K).

Temporary Liquidity Guarantee Program.    In October 2008, the Secretary of the U.S. Treasury invoked the systemic risk exception of the FDIC Improvement Act of 1991 and the FDIC announced the TLGP.

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Based on the Final Rule adopted on November 21, 2008, the TLGP provides a guarantee, through the earlier of maturity or June 30, 2012, of certain senior unsecured debt issued by participating Eligible Entities (including the Company) between October 14, 2008 and June 30, 2009. Effective March 23, 2009, the FDIC adopted an Interim Rule that extends the expiration of the FDIC guarantee on debt issued by certain issuers (including the Company) on or after April 1, 2009 to December 31, 2012. The maximum amount of FDIC-guaranteed debt a participating Eligible Entity (including the Company) may have outstanding is 125% of the entity’s senior unsecured debt that was outstanding as of September 30, 2008 that was scheduled to mature on or before June 30, 2009. The ability of certain eligible entities (including the Company) to issue guaranteed debt under this program is, under the Interim Rule described above, scheduled to expire on October 31, 2009. As of March 31, 2009 and December 31, 2008, the Company had $24.7 billion and $16.2 billion, respectively, of senior unsecured debt outstanding under the TLGP.

Short-Term Borrowings.    The Company’s unsecured short-term borrowings may consist of commercial paper, bank loans, bank notes and structured notes with maturities of twelve months or less at issuance.

The table below summarizes the Company’s short-term unsecured borrowings:

	At March 31, 2009		At December 31, 2008		At November 30, 2008
	(dollars in millions)
Commercial paper	$	1,031	$	7,388	$	6,744
Other short-term borrowings		2,380		2,714		3,739
Total	$	3,411	$	10,102	$	10,483

Commercial Paper Funding Facility.    On October 7, 2008, the Fed announced the creation of the CPFF, a facility that complements the Fed’s existing credit facilities to help provide liquidity to term funding markets. The CPFF provides a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle that purchases three-month unsecured and asset-backed commercial paper directly from eligible issuers. The CPFF is intended to improve liquidity in short-term funding markets and thereby increase the availability of credit for businesses and households. The CPFF finances only highly rated, U.S. dollar-denominated, three-month commercial paper. On October 27, 2008, the CPFF began funding purchases of commercial paper. On March 31, 2009, the Company had no commercial paper outstanding under the CPFF program.

Deposits.    The Company’s bank subsidiaries’ funding sources include bank deposit sweeps, federal funds purchased, certificates of deposit, money market deposit accounts, commercial paper and Federal Home Loan Bank advances.

Deposits were as follows:

	At March 31, 2009		At December 31, 2008		At November 30, 2008
	(dollars in millions)
Savings and demand deposits	$	49,127	$	41,226	$	36,673
Time deposits(1)		10,795		10,129		6,082
Total	$	59,922	$	51,355	$	42,755

(1) Certain time deposit accounts are carried at fair value under the fair value option (see Note 2 to the condensed consolidated financial statements).

Deposits increased during the quarter ended March 31, 2009 as consistent with the Company’s ongoing strategy to enhance its stable funding profile.

On October 3, 2008, under the Emergency Economic Stabilization Act of 2008, the FDIC temporarily raised the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. This increased coverage lasts through December 31, 2009 and is in effect for Morgan Stanley’s two U.S. depository institutions.

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Additionally, under the Final Rule implementing the TLGP, the FDIC provides unlimited deposit insurance through December 31, 2009, for certain transaction accounts at FDIC-insured participating institutions. The Company has elected for its FDIC-insured subsidiaries to participate in the account guarantee of the TLGP.

Long-Term Borrowings.    The Company uses a variety of long-term debt funding sources to generate liquidity, taking into consideration the results of the CFP and cash capital requirements. In addition, the issuance of long-term debt allows the Company to reduce reliance on short-term credit sensitive instruments (e.g., commercial paper and other unsecured short-term borrowings). Financing transactions are generally structured to ensure staggered maturities, thereby mitigating refinancing risk, and to maximize investor diversification through sales to global institutional and retail clients. Availability and cost of financing to the Company can vary depending on market conditions, the volume of certain trading and lending activities, the Company’s credit ratings and the overall availability of credit.

During the quarter ended March 31, 2009 and the one month period ended December 31, 2008, the Company’s long-term financing strategy was driven, in part, by its continued focus on improving its balance sheet strength (evaluated through enhanced capital and liquidity positions). As a result, for the quarter ended March 31, 2009 and the one month period ended December 31, 2008, a principal amount of approximately $18 billion and $12 billion, respectively, of unsecured debt was issued.

The Company may from time to time engage in various transactions in the credit markets (including, for example, debt repurchases) which it believes are in the best interests of the Company and its investors. Maturities and debt repurchases during the quarter ended March 31, 2009 and the one month period ended December 31, 2008 were $14.4 billion and $5.7 billion, respectively, in aggregate.

Long-term borrowings as of March 31, 2009 consisted of the following (dollars in millions):

	U.S. Dollar		Non-U.S. Dollar		At March 31, 2009
Due in 2009	$	6,428	$	5,262	$	11,690
Due in 2010		19,726		5,535		25,261
Due in 2011		16,820		8,366		25,186
Due in 2012		22,305		14,434		36,739
Thereafter		42,906		40,326		83,232
Total	$	108,185	$	73,923	$	182,108

Credit Ratings.

The Company relies on external sources to finance a significant portion of its day-to-day operations. The cost and availability of financing generally are dependent on the Company’s short-term and long-term credit ratings. In addition, the Company’s debt ratings can have a significant impact on certain trading revenues, particularly in those businesses where longer term counterparty performance is critical, such as OTC derivative transactions, including credit derivatives and interest rate swaps. Factors that are important to the determination of the Company’s credit ratings include the level and quality of earnings, capital adequacy, liquidity, risk appetite and management, asset quality, business mix, and perceived levels of government support.

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In connection with certain OTC trading agreements and certain other agreements associated with the Institutional Securities business segment, the Company may be required to provide additional collateral to certain counterparties in the event of a credit ratings downgrade. As of March 31, 2009 and December 31, 2008, the amount of additional collateral that could be called by counterparties under the terms of collateral agreements in the event of a one-notch downgrade of the Company’s long-term credit rating was approximately $1,761.9 million and $1,696.4 million, respectively. An additional amount of approximately $1,196.9 million and $1,897.6 million as of March 31, 2009 and December 31, 2008, respectively, could be called in the event of a two-notch downgrade. Of these amounts, $1,444.9 million and $1,750.3 million as of March 31, 2009 and December 31, 2008, respectively, relate to bilateral arrangements between the Company and other parties where upon the downgrade of one party, the downgraded party must deliver incremental collateral to the other. These bilateral downgrade arrangements are a risk management tool used extensively by the Company as credit exposures are reduced if counterparties are downgraded.

As of April 30, 2009, the Company’s and Morgan Stanley Bank, N.A.’s senior unsecured ratings were as set forth below. The Company does not intend to disclose any future revisions to, or withdrawals of, the ratings, except in its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

	Company			Morgan Stanley Bank, N.A.
	Short-Term Debt	Long-Term Debt	Rating Outlook	Short-Term Debt	Long-Term Debt	Rating Outlook
Dominion Bond Rating Service Limited	R-1 (middle)	A (high)	Negative	—	—	—
Fitch Ratings	F1	A	Stable	F1	A+	Stable
Moody’s Investors Service	P-1	A2	Negative	P-1	A1	Negative
Rating and Investment Information, Inc.	a-1	A+	Negative	—	—	—
Standard & Poor’s	A-1	A	Negative	A-1	A+	Negative

Commitments.

The Company’s commitments associated with outstanding letters of credit and other financial guarantees obtained to satisfy collateral requirements, investment activities, corporate lending and financing arrangements, mortgage lending and margin lending as of March 31, 2009 and December 31, 2008 are summarized below by period of expiration. Since commitments associated with these instruments may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements:

	Years to Maturity								Total at March 31, 2009
	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
Letters of credit and other financial guarantees obtained to satisfy collateral requirements	$	1,152	$	—	$	—	$	1	$	1,153
Investment activities		1,050		424		159		1,071		2,704
Primary lending commitments(1)(2)		8,397		13,958		17,559		854		40,768
Secondary lending commitments(1)		32		107		89		29		257
Commitments for secured lending transactions		828		1,032		2,041		—		3,901
Forward starting reverse repurchase agreements(3)		33,126		—		—		—		33,126
Commercial and residential mortgage-related commitments(1)		2,240		—		—		—		2,240
Underwriting commitments		409		—		—		—		409
Other commitments		815		2		2		—		819
Total	$	48,049	$	15,523	$	19,850	$	1,955	$	85,377

(1) These commitments are recorded at fair value within Financial instruments owned and Financial instruments sold, not yet purchased in the condensed consolidated statements of financial condition (see Note 2 to the condensed consolidated financial statements).

(2) This amount includes commitments to asset-backed commercial paper conduits of $587 million as of March 31, 2009, of which $579 million have maturities of less than one year and $8 million of which have maturities of three to five years.

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(3) The Company enters into forward starting securities purchased under agreements to resell (agreements that have a trade date as of or prior to March 31, 2009 and settle subsequent to period-end) that are primarily secured by collateral from U.S. government agency securities and other sovereign government obligations. These agreements primarily settle within three business days and as of March 31, 2009, $29.3 billion of the $33.1 billion settled with three business days.

	Years to Maturity								Total at December 31, 2008
	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
Letters of credit and other financial guarantees obtained to satisfy collateral requirements	$	1,983	$	27	$	—	$	7	$	2,017
Investment activities		1,662		411		164		1,059		3,296
Primary lending commitments(1)(2)		10,523		12,231		19,536		1,616		43,906
Secondary lending commitments(1)		57		101		202		58		418
Commitments for secured lending transactions		1,202		1,000		1,658		15		3,875
Forward starting reverse repurchase agreements(3)		33,252		—		—		—		33,252
Commercial and residential mortgage-related commitments(1)		2,735		—		—		—		2,735
Underwriting commitments		244		—		—		—		244
Other commitments(4)		1,902		2		—		—		1,904
Total	$	53,560	$	13,772	$	21,560	$	2,755	$	91,647

(1) These commitments are recorded at fair value within Financial instruments owned and Financial instruments sold, not yet purchased in the condensed consolidated statements of financial condition (see Note 2 to the condensed consolidated financial statements).

(2) This amount includes commitments to asset-backed commercial paper conduits of $589 million as of December 31, 2008, of which $581 million have maturities of less than one year and $8 million of which have maturities of three to five years.

(3) The Company enters into forward starting securities purchased under agreements to resell (agreements that have a trade date as of or prior to December 31, 2008 and settle subsequent to period-end) that are primarily secured by collateral from U.S. government agency securities and other sovereign government obligations. These agreements primarily settle within three business days, and as of December 31, 2008, $32.4 billion of the $33.3 billion settled within three business days.

(4) This amount includes binding commitments to enter into margin-lending transactions of $1.1 billion as of December 31, 2008 in connection with the Company’s Institutional Securities business segment.

Regulatory Requirements.

In September 2008, the Company became a financial holding company under the Bank Holding Company Act subject to the regulation and oversight of the Fed. The Fed establishes capital requirements for the Company, including well-capitalized standards, and evaluates the Company’s compliance with such capital requirements (see “Supervision and Regulation—Financial Holding Company” in Part I of the Form 10-K). The Office of the Comptroller of the Currency establishes similar capital requirements and standards for the Company’s national bank, Morgan Stanley Bank, N.A. Prior to September 2008, the Company was a consolidated supervised entity as defined by the SEC and subject to SEC regulation.

As of March 31, 2009, as well as for future dates, the Company calculates its capital ratios and risk-weighted assets (“RWAs”) in accordance with the capital adequacy standards for financial holding companies adopted by the Fed. These standards are based upon a framework described in the “International Convergence of Capital Measurement and Capital Standards,” July 1988, as amended, also referred to as Basel I. During fiscal 2008, the Company calculated capital requirements on a consolidated basis in accordance with the Revised Framework, dated June 2004 (the Basel II Accord) as interpreted by the SEC. The Basel II Accord is designed to be a risk-based capital adequacy approach, which allows for the use of internal estimates of risk components to calculate regulatory capital. In December 2007, the U.S. banking regulators published a final Basel II Accord that requires internationally active banking organizations, as well as certain of its U.S. bank subsidiaries, to implement Basel II standards over the next several years. The Company will be required to implement these Basel II standards since becoming a financial holding company in September 2008.

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As of March 31, 2009, the Company was in compliance with Basel I capital requirements with ratios of Tier 1 capital to RWAs of 16.7% and total capital to RWAs of 18.2% (6% and 10% being well-capitalized for regulatory purposes, respectively). In addition, financial holding companies are also subject to a Tier 1 leverage ratio (5% being well-capitalized for regulatory purposes) as defined by the Fed. The Company calculated its Tier 1 leverage ratio as Tier 1 capital divided by adjusted average total assets (which reflects adjustments for disallowed goodwill, certain intangible assets and deferred tax assets). The adjusted average total assets are derived using weekly balances for the quarter ended March 31, 2009. This ratio as of March 31, 2009 was 7.1%.

During March 2009, the Fed decided to delay, until March 31, 2011, the effective date of new capital requirements for financial holding companies that were scheduled to take effect on March 31, 2009. The new capital requirements limit the aggregate amount of cumulative perpetual preferred stock, trust preferred securities and minority interest in the equity accounts of most consolidated subsidiaries (collectively restricted core capital elements) included in the Tier 1 capital of financial holding companies. In addition, the new capital requirements require financial holding companies to deduct goodwill from the sum of core capital elements in calculating the amount of restricted capital that would be included in Tier 1 capital. The new rules would limit restricted core capital elements included in the Tier 1 capital of a financial holding company to 25% of the sum of core capital elements including restricted core capital elements, net of goodwill less any associated deferred tax liability. In addition, internationally active financial holding companies would be subject to further limitations by restricting the amount of restricted core capital elements, other than qualifying mandatory convertible preferred securities, included in Tier 1 capital to 15% of the sum of core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability.

The following table reconciles the Company’s total shareholders’ equity to Tier 1 and Total Capital as defined by the regulations issued by the Fed and presents the Company’s consolidated capital ratios as of March 31, 2009 (dollars in millions):

Allowable Capital
Tier 1 capital:
Common shareholders’ equity	$	29,314
Qualifying preferred stock		19,208
Qualifying mandatorily convertible trust preferred securities		5,572
Qualifying restricted core capital elements		5,460
Less: Goodwill		(2,226	)
Less: Non-servicing intangible assets		(689	)
Less: Net deferred tax assets		(5,172	)
Less: Debt valuation adjustment		(2,881	)
Other deductions		(501	)
Total Tier 1 capital		48,085
Tier 2 capital:
Other components of allowable capital:
Qualifying subordinated debt		4,118
Other qualifying amounts		151
Total Tier 2 capital		4,269
Total allowable capital	$	52,354
Total Risk-Weighted Assets	$	288,262
Capital Ratios
Total capital ratio		18.2	%
Tier 1 capital ratio		16.7	%

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Total allowable capital is comprised of Tier 1 and Tier 2 capital. Tier 1 capital consists predominately of common shareholders’ equity as well as qualifying preferred stock (including cumulative preferred stock issued to the U.S. Department of the Treasury and non-cumulative preferred stock), trust preferred securities mandatorily convertible to common equity and qualifying restricted core capital elements (including other junior subordinated debt issued to trusts and non-controlling interests) less goodwill, non-servicing intangible assets (excluding mortgage servicing rights), net deferred tax assets (recoverable in excess of one year) and debt valuation adjustment (“DVA”). DVA represents the cumulative change in fair value of certain of the Company’s borrowings (for which the fair value option was elected) that was attributable to changes in instrument-specific credit spreads and is included in retained earnings. For a further discussion of fair value see Note 2 to the condensed consolidated financial statements. Tier 2 capital consists principally of qualifying subordinated debt.

As of March 31, 2009, the Company calculated its RWAs in accordance with the regulatory capital requirements of the Fed which is consistent with guidelines described under Basel I. RWAs reflect both on and off balance sheet risk of the Company. The market risk capital calculations will evolve over time as the Company enhances its risk management methodology and incorporates improvements in modeling techniques while maintaining compliance with the regulatory requirements and interpretations.

Market RWAs reflect capital charges attributable to the risk of loss resulting from adverse changes in market prices and other factors. For a further discussion of the Company’s market risks and Value-at-Risk model, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management” in Part II, Item 7A of the Form 10-K. Market RWAs incorporate three components: Systematic risk, Specific risk, and Incremental Default risk (“IDR”). Systematic and Specific risk charges are computed using either a Standardized Approach (applying a fixed percentage to the fair value of the assets) or the Company’s Value-at-Risk model. Capital charges related to IDR are calculated using an IDR model that estimates the loss due to sudden default events affecting traded financial instruments at a 99.9% confidence level. The Company’s market risk models have received an initial approval from the Fed for use through calendar year 2009.

Credit RWAs reflect capital charges attributable to the risk of loss arising from a borrower or counterparty failing to meet its financial obligations. For a further discussion of the Company’s credit risks, see “Quantitative and Qualitative Disclosures about Market Risk—Credit Risk” in Part II, Item 7A of the Form 10-K and in Item 3 herein. Credit RWAs are determined using Basel I regulatory capital guidelines for U.S. banking organizations issued by the Fed.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market Risk.

The Company uses Value-at-Risk (“VaR”) as one of a range of risk management tools. VaR values should be interpreted in light of the method’s strengths and limitations, which include, but are not limited to: historical changes in market risk factors may not be accurate predictors of future market conditions; VaR estimates represent a one-day measurement and do not reflect the risk of positions that cannot be liquidated or hedged in one day; and VaR estimates may not fully incorporate the risk of more extreme market events that are outsized relative to observed historical market behavior or reflect the historical distribution of results beyond the 95% confidence interval. A small proportion of market risk generated by trading positions is not included in VaR, and the modeling of the risk characteristics of some positions relies upon approximations that, under certain circumstances, could produce significantly different VaR results from those produced using more precise measures. For a further discussion of the Company’s VaR methodology and its limitations, and the Company’s risk management policies and control structure, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management” in Part II, Item 7A of the Form 10-K.

The tables below present the following: the Company’s Aggregate, Trading and Non-trading VaR (see Table 1 below); the Company’s quarterly and one month period average, high, and low Trading VaR (see Table 2 below); and the VaR statistics that would result if the Company were to adopt alternative parameters for its calculations, such as the reported confidence level (95% vs. 99%) for the VaR statistic or a shorter historical time series (four years vs. one year) of market data upon which it bases its simulations (see Table 3 below). Aggregate VaR also incorporates certain non-trading risks, including (a) the interest rate risk generated by funding liabilities related to institutional trading positions, (b) public company equity positions recorded as investments by the Company and (c) corporate loan exposures that are awaiting distribution to the market. Investments made by the Company that are not publicly traded are not reflected in the VaR results presented below. Aggregate VaR also excludes the credit spread risk generated by the Company’s funding liabilities and the interest rate risk associated with approximately $7.8 billion and $7.7 billion of certain funding liabilities primarily related to fixed and other non-trading assets as of March 31, 2009 and December 31, 2008, respectively. The credit spread risk sensitivity of the Company’s mark-to-market funding liabilities corresponded to an increase in value of approximately $11 million for each +1 basis point widening in the Company’s credit spread level as of both March 31, 2009 and December 31, 2008.

The table below presents 95%/one-day VaR for each of the Company’s primary risk exposures and on an aggregate basis as of March 31, 2009, December 31, 2008 and November 30, 2008.

Table 1: 95% Total VaR	Aggregate (Trading and Non-trading)						Trading						Non-trading
	95%/One-Day VaR at						95%/One-Day VaR at						95%/One-Day VaR at
Primary Market Risk Category	March 31, 2009		December 31, 2008		November 30, 2008		March 31, 2009		December 31, 2008		November 30, 2008		March 31, 2009		December 31, 2008		November 30, 2008
	(dollars in millions)
Interest rate and credit spread	$	143	$	135	$	127	$	103	$	109	$	98	$	104	$	68	$	67
Equity price		41		15		23		24		15		23		24		3		4
Foreign exchange rate		13		11		14		13		11		14		1		1		2
Commodity price		20		36		23		20		36		23		—		—		—
Subtotal		217		197		187		160		171		158		129		72		73
Less diversification benefit(1)		81		53		52		53		54		54		29		4		6
Total VaR	$	136	$	144	$	135	$	107	$	117	$	104	$	100	$	68	$	67

(1) Diversification benefit equals the difference between Total VaR and the sum of the VaRs for the four risk categories. This benefit arises because the simulated one-day losses for each of the four primary market risk categories occur on different days; similar diversification benefits also are taken into account within each category.

The Company’s Aggregate VaR at March 31, 2009 was $136 million compared with $144 million and $135 million at December 31, 2008 and November 30, 2008, respectively. The decrease in Aggregate VaR at

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period-end was driven primarily by a decrease in commodity price VaR and an increase in the diversification benefit between risk categories, and was partially offset by increases in interest rate and credit spread and equity price VaR.

The Company’s Trading VaR as of March 31, 2009 was $107 million compared with $117 million and $104 million as of December 31, 2008 and November 30, 2008, respectively. The decrease in Trading VaR from December 31, 2008 was driven primarily by decreases in commodity price VaR and interest rate and credit spread VaR, partially offset by an increase in equity price VaR.

Non-trading VaR as of March 31, 2009 increased to $100 million from $68 million and $67 million as of December 31, 2008 and November 30, 2008, respectively, primarily due to higher credit spread levels and increased credit spread volatility.

The Company views average Trading VaR over a period of time as more representative of trends in the business than VaR at any single point in time. Table 2 below, which presents the high, low and average 95%/one-day Trading VaR during the quarters ended March 31, 2009 and November 30, 2008 and the one month period ended December 31, 2008, represents substantially all of the Company’s trading activities. Certain market risks included in the period-end Aggregate VaR discussed above are excluded from these measures (e.g., equity price risk in public company equity positions recorded as principal investments by the Company and certain funding liabilities related to trading positions).

Average Trading VaR for the quarter ended March 31, 2009 increased to $115 million from $113 million and $98 million for the one month period ended December 31, 2008 and quarter ended November 30, 2008, respectively. The increase from the quarter ended November 30, 2008 was driven primarily by an increase in interest rate and credit spread VaR. Average Total VaR for the quarter ended March 31, 2009 remained essentially unchanged at $142 million compared to $143 million for the one month period ended December 31, 2008 and increased from $119 million for quarter ended November 30, 2008. The increase in interest rate and credit spread VaR from the quarter ended November 30, 2008 was predominately driven by increased volatility in interest rate and credit spread sensitive products, especially for positions that reference mortgage-backed securities. Average Non-trading VaR for the quarter ended March 31, 2009 increased to $83 million from $73 million and $60 million for the one month period ended December 31, 2008 and quarter ended November 30, 2008, respectively, driven primarily by higher credit spread levels and increased credit spread volatility.

Table 2: 95% High/Low/ Average Trading and Non-Trading VaR	Daily 95%/One-Day VaR for the Quarter Ended March 31, 2009						Daily 95%/One-Day VaR for the One Month Period Ended December 31, 2008						Daily 95%/One-Day VaR for the Quarter Ended November 30, 2008
Primary Market Risk Category	High		Low		Average		High		Low		Average		High		Low		Average
	(dollars in millions)
Interest rate and credit spread	$	119	$	94	$	107	$	121	$	95	$	107	$	101	$	69	$	85
Equity price		27		14		19		27		14		18		35		17		27
Foreign exchange rate		20		7		12		16		11		13		29		12		19
Commodity price		38		20		26		37		24		31		35		22		27
Trading VaR		127		102		115		121		102		113		114		84		98
Non-trading VaR		111		58		83		81		67		73		78		50		60
Total VaR		181		119		142		152		131		143		138		112		119

VaR Statistics under Varying Assumptions.

VaR statistics are not readily comparable across firms because of differences in the breadth of products included in each firm’s VaR model, in the statistical assumptions made when simulating changes in market factors, and in the methods used to approximate portfolio revaluations under the simulated market conditions. These differences

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can result in materially different VaR estimates for similar portfolios. As a result, VaR statistics are more reliable and relevant when used as indicators of trends in risk taking within a firm rather than as a basis for inferring differences in risk taking across firms. Table 3 below presents the VaR statistics that would result if the Company were to adopt alternative parameters for its calculations, such as the reported confidence level (95% versus 99%) for the VaR statistic or a shorter historical time series (four years versus one year) for market data upon which it bases its simulations:

Table 3: Average 95% and 99% Trading VaR with Four-Year/One-Year Historical Time Series	Average 95%/One-Day VaR for the Quarter Ended March 31, 2009				Average 99%/One-Day VaR for the Quarter Ended March 31, 2009
Primary Market Risk Category	Four-Year Factor History		One-Year Factor History		Four-Year Factor History		One-Year Factor History
	(dollars in millions)
Interest rate and credit spread	$	107	$	123	$	244	$	216
Equity price		19		24		31		38
Foreign exchange rate		12		18		22		31
Commodity price		26		39		53		78
Trading VaR		115		137		248		227

	Average 95%/One-Day VaR for the One Month Period Ended December 31, 2008				Average 99%/One-Day VaR for the One Month Period Ended December 31, 2008
Primary Market Risk Category	Four-Year Factor History		One-Year Factor History		Four-Year Factor History		One-Year Factor History
	(dollars in millions)
Interest rate and credit spread	$	107	$	142	$	269	$	302
Equity price		18		20		27		30
Foreign exchange rate		13		16		19		22
Commodity price		31		43		54		64
Trading VaR		113		147		269		285

In addition, if the Company were to report Trading VaR (using a four-year historical time series) with respect to a 10-day holding period, the Company’s 95% and 99% Average Trading VaR for the quarter ended March 31, 2009 would have been $363 million and $783 million, respectively. If the Company were to report Trading VaR (using a four-year historical time series) with respect to a 10-day holding period, the Company’s 95% and 99% Average Trading VaR for the one month period ended December 31, 2008 would have been $357 million and $852 million, respectively.

Distribution of VaR Statistics and Net Revenues for the quarter ended March 31, 2009 and the one month ended December 31, 2008.

As shown in Table 2 above, the Company’s average 95%/one-day Trading VaR for the quarter ended March 31, 2009 was $115 million. The histogram below presents the distribution of the Company’s daily 95%/one-day Trading VaR for the quarter ended March 31, 2009. The most frequently occurring value was between $118 million and $121 million, while for approximately 86% of trading days during the quarter, VaR ranged between $106 million and $121 million.

As shown in Table 2 above, the Company’s average 95%/one-day Trading VaR for the one month ended December 31, 2008 was $113 million. The histogram below presents the distribution of the Company’s daily 95%/one-day Trading VaR for the one month ended December 31, 2008. The most frequently occurring value was between $115 million and $118 million, while for approximately 70% of trading days during the one month period ended March 31, 2009, VaR ranged between $109 million and $118 million.

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117

One method of evaluating the reasonableness of the Company’s VaR model as a measure of the Company’s potential volatility of net revenue is to compare the VaR with actual trading revenue. Assuming no intra-day trading, for a 95%/one-day VaR, the expected number of times that trading losses should exceed VaR during the year is 13, and, in general, if trading losses were to exceed VaR more than 21 times in a year, the accuracy of the VaR model could be questioned. Accordingly, the Company evaluates the reasonableness of its VaR model by comparing the potential declines in portfolio values generated by the model with actual trading results. For days where losses exceed the 95% or 99% VaR statistic, the Company examines the drivers of trading losses to evaluate the VaR model’s accuracy relative to realized trading results.

Over the longer term, trading losses are expected to exceed VaR an average of three times per quarter at the 95% confidence level. The Company bases its VaR calculations on the long term (or unconditional) distribution, and therefore evaluates its risk from a longer term perspective, which avoids understating risk during periods of relatively lower volatility in the market. The Company incurred daily trading losses in excess of the 95%/one-day Trading VaR on one day during the quarter ended March 31, 2009 and on three days during the month ended December 31, 2008.

The histograms below show the distribution of daily net trading revenue during the quarter ended March 31, 2009 and the one month period ended December 31, 2008 for the Company’s trading businesses (including net interest and non-agency commissions but excluding certain non-trading revenues such as primary, fee-based and prime brokerage revenue credited to the trading businesses). During the quarter ended March 31, 2009 and the one month period ended December 31, 2008, the Company experienced net trading losses on 15 days and 14 days, respectively.

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Credit Risk.

For a further discussion of the Company’s credit risks, see “Quantitative and Qualitative Disclosures about Market Risk—Credit Risk” in Part II, Item 7A of the Form 10-K.

Credit Exposure—Corporate Lending.    In connection with certain of its Institutional Securities business activities, the Company provides loans or lending commitments (including bridge financing) to selected clients. Such loans and commitments can generally be classified as either “event-driven” or “relationship-driven.”

“Event-driven” loans and lending commitments refer to activities associated with a particular event or transaction, such as to support client merger, acquisition or recapitalization transactions. The commitments associated with these “event-driven” activities may not be indicative of the Company’s actual funding requirements since funding is contingent upon a proposed transaction being completed. In addition, the borrower may not fully utilize the commitment or the Company’s portion of the commitment may be reduced through the syndication process. The borrower’s ability to draw on the commitment is also subject to certain terms and conditions, among other factors. The borrowers of “event-driven” lending transactions may be investment grade or non-investment grade. The Company risk manages its exposures in connection with “event-driven” transactions through various means, including syndication, distribution and/or hedging.

“Relationship-driven” loans and lending commitments are generally made to expand business relationships with select clients. The commitments associated with “relationship-driven” activities may not be indicative of the Company’s actual funding requirements, as the commitment may expire unused or the borrower may not fully utilize the commitment. The borrowers of “relationship-driven” lending transactions may be investment grade or non-investment grade. The Company may hedge its exposures in connection with “relationship-driven” transactions.

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The following tables present information about the Company’s corporate funded loans and lending commitments as of March 31, 2009 and December 31, 2008. The “total corporate lending exposure” column includes both lending commitments and funded loans. Funded loans represent loans that have been drawn by the borrower and that were outstanding as of March 31, 2009 and December 31, 2008. Lending commitments represent legally binding obligations to provide funding to clients as of March 31, 2009 and December 31, 2008 for both “relationship-driven” and “event-driven” lending transactions. As discussed above, these loans and lending commitments have varying terms, may be senior or subordinated, may be secured or unsecured, are generally contingent upon representations, warranties and contractual conditions applicable to the borrower, and may be syndicated, traded or hedged by the Company.

As of March 31, 2009 and December 31, 2008, the aggregate amount of investment grade loans was $7.1 billion and $7.4 billion, respectively, and the aggregate amount of non-investment grade loans was $9.7 billion and $9.4 billion, respectively. As of March 31, 2009 and December 31, 2008, the aggregate amount of lending commitments outstanding was $40.8 billion and $43.9 billion, respectively. In connection with these corporate lending activities (which include corporate funded loans and lending commitments), the Company had hedges (which include “single name,” “sector” and “index” hedges) with a notional amount of $34.1 billion and $35.7 billion at March 31, 2009 and December 31, 2008, respectively.

The tables below show the Company’s credit exposure from its corporate lending positions and lending commitments as of March 31, 2009 and December 31, 2008. Since commitments associated with these business activities may expire unused, they do not necessarily reflect the actual future cash funding requirements:

Corporate Lending Commitments and Funded Loans at March 31, 2009

	Years to Maturity								Total Corporate Lending Exposure(2)		Corporate Funded Loans		Total Corporate Lending Commitments
Credit Rating(1)	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
AAA	$	465	$	114	$	854	$	—	$	1,433	$	—	$	1,433
AA		2,433		1,039		2,842		73		6,387		—		6,387
A		3,825		4,337		5,193		69		13,424		1,702		11,722
BBB		2,105		10,092		8,280		255		20,732		5,389		15,343
Investment grade		8,828		15,582		17,169		397		41,976		7,091		34,885
Non-investment grade		1,721		3,576		4,642		5,684		15,623		9,740		5,883
Total	$	10,549	$	19,158	$	21,811	$	6,081	$	57,599	$	16,831	$	40,768

(1) Obligor credit ratings are determined by the Credit Risk Management Department using methodologies generally consistent with those employed by external rating agencies.

(2) Total corporate lending exposure includes both lending commitments and funded loans, which are at fair value. Amounts exclude approximately $34 billion of notional amount of hedges.

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Corporate Lending Commitments and Funded Loans at December 31, 2008

	Years to Maturity								Total Corporate Lending Exposure(2)		Corporate Funded Loans		Total Corporate Lending Commitments
Credit Rating(1)	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
AAA	$	842	$	114	$	1,374	$	—	$	2,330	$	67	$	2,263
AA		2,685		718		3,321		73		6,797		33		6,764
A		4,899		5,321		5,892		69		16,181		2,291		13,890
BBB		2,745		7,722		8,299		255		19,021		5,037		13,984
Investment grade		11,171		13,875		18,886		397		44,329		7,428		36,901
Non-investment grade		1,144		3,433		5,301		6,516		16,394		9,389		7,005
Total	$	12,315	$	17,308	$	24,187	$	6,913	$	60,723	$	16,817	$	43,906

(1) Obligor credit ratings are determined by the Credit Risk Management Department using methodologies generally consistent with those employed by external rating agencies.

(2) Total corporate lending exposure includes both lending commitments and funded loans, which are at fair value. Amounts exclude approximately $36 billion of notional amount of hedges.

“Event-driven” Loans and Lending Commitments as of March 31, 2009 and December 31, 2008.

Included in the total corporate lending exposure amounts in the table above as of March 31, 2009 is “event-driven” exposure of $6.9 billion comprised of funded loans of $3.9 billion and lending commitments of $3.0 billion. Included in the $6.9 billion of “event-driven” exposure as of March 31, 2009 were $4.2 billion of loans and lending commitments to non-investment grade borrowers that were closed.

Included in the total corporate lending exposure amounts in the table above as of December 31, 2008 is “event-driven” exposure of $9.3 billion comprised of funded loans of $3.4 billion and lending commitments of $5.9 billion. Included in the $9.3 billion of “event-driven” exposure as of December 31, 2008 were $5.0 billion of loans and lending commitments to non-investment grade borrowers that were closed.

Activity associated with the corporate “event-driven” lending exposure during the quarter ended March 31, 2009 and the one month period ended December 31, 2008 were as follows (dollars in millions):

“Event-driven” lending exposures at November 30, 2008	$	9,439
Closed commitments		1,316
Net reductions, primarily through distributions		(1,318	)
Mark-to-market adjustments		(110	)
“Event-driven” lending exposures at December 31, 2008	$	9,327
Withdrawn commitments		(267	)
Net reductions, primarily through distributions		(1,882	)
Mark-to-market adjustments		(258	)
“Event-driven” lending exposures at March 31, 2009	$	6,920

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Credit Exposure—Derivatives.    The tables below present a summary by counterparty credit rating and remaining contract maturity of the fair value of OTC derivatives in a gain position at March 31, 2009 and December 31, 2008. Fair value is presented in the final column net of collateral received (principally cash and U.S. government and agency securities):

OTC Derivative Products—Financial Instruments Owned at March 31, 2009(1)

	Years to Maturity								Cross- Maturity and Cash Collateral Netting(3)			Net Exposure Post-Cash Collateral		Net Exposure Post- Collateral
Credit Rating(2)	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
AAA	$	1,632	$	2,973	$	5,899	$	15,478	$	(11,364	)	$	14,618	$	13,931
AA		9,414		14,799		12,273		33,627		(56,980	)		13,133		11,898
A		9,269		8,577		9,868		20,057		(30,658	)		17,113		14,115
BBB		5,185		4,820		3,512		8,591		(10,297	)		11,811		9,925
Non-investment grade		5,793		5,743		4,792		9,457		(8,660	)		17,125		13,758
Total	$	31,293	$	36,912	$	36,344	$	87,210	$	(117,959	)	$	73,800	$	63,627

(1) Fair values shown represent the Company’s net exposure to counterparties related to the Company’s OTC derivative products. The table does not include listed derivatives and the effect of any related hedges utilized by the Company. The table also excludes fair values corresponding to other credit exposures, such as those arising from the Company’s lending activities.

(2) Obligor credit ratings are determined by the Credit Risk Management Department using methodologies generally consistent with those employed by external rating agencies.

(3) Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within such maturity category, where appropriate. Cash collateral received is netted on a counterparty basis, provided legal right of offset exists.

OTC Derivative Products—Financial Instruments Owned at December 31, 2008(1)

	Years to Maturity								Cross- Maturity and Cash Collateral Netting(3)			Net Exposure Post-Cash Collateral		Net Exposure Post- Collateral
Credit Rating(2)	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
AAA	$	1,928	$	3,588	$	6,235	$	16,623	$	(11,060	)	$	17,314	$	15,849
AA		10,447		13,133		16,589		40,423		(63,498	)		17,094		15,018
A		7,150		7,514		7,805		21,752		(31,025	)		13,196		12,034
BBB		4,666		7,414		4,980		8,614		(6,571	)		19,103		14,101
Non-investment grade		8,219		8,163		5,416		7,341		(12,597	)		16,542		12,131
Total	$	32,410	$	39,812	$	41,025	$	94,753	$	(124,751	)	$	83,249	$	69,133

(1) Fair values shown represent the Company’s net exposure to counterparties related to the Company’s OTC derivative products. The table does not include listed derivatives and the effect of any related hedges utilized by the Company. The table also excludes fair values corresponding to other credit exposures, such as those arising from the Company’s lending activities.

(2) Obligor credit ratings are determined by the Credit Risk Management Department using methodologies generally consistent with those employed by external rating agencies.

(3) Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within such maturity category, where appropriate. Cash collateral received is netted on a counterparty basis, provided legal right of offset exists.

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The following tables summarize the fair values of the Company’s OTC derivative products recorded in Financial instruments owned and Financial instruments sold, not yet purchased by product category and maturity as of March 31, 2009, including on a net basis, where applicable, reflecting the fair value of related non-cash collateral for financial instruments owned:

OTC Derivative Products—Financial Instruments Owned at March 31, 2009

	Years to Maturity								Cross- Maturity and Cash Collateral Netting(1)			Net Exposure Post-Cash Collateral		Net Exposure Post- Collateral
Product Type	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
Interest rate and currency swaps, interest rate options, credit derivatives and other fixed income securities contracts	$	10,842	$	24,492	$	32,749	$	84,574	$	(103,328	)	$	49,329	$	43,976
Foreign exchange forward contracts and options		5,376		1,554		224		47		(2,548	)		4,653		4,102
Equity securities contracts (including equity swaps, warrants and options)		3,467		1,447		488		970		(4,340	)		2,032		1,048
Commodity forwards, options and swaps		11,608		9,419		2,883		1,619		(7,743	)		17,786		14,501
Total	$	31,293	$	36,912	$	36,344	$	87,210	$	(117,959	)	$	73,800	$	63,627

(1) Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity and product categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within the maturity category, where appropriate. Cash collateral received is netted on a counterparty basis, provided legal right of offset exists.

OTC Derivative Products—Financial Instruments Sold, Not Yet Purchased at March 31, 2009(1)

	Years to Maturity								Cross-Maturity and Cash Collateral Netting(2)			Total
Product Type	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
Interest rate and currency swaps, interest rate options, credit derivatives and other fixed income securities contracts	$	6,565	$	15,298	$	22,283	$	40,603	$	(57,753	)	$	26,996
Foreign exchange forward contracts and options		3,656		1,167		292		102		(1,638	)		3,579
Equity securities contracts (including equity swaps, warrants and options)		1,456		4,290		1,820		1,755		(5,910	)		3,411
Commodity forwards, options and swaps		9,530		6,007		2,105		930		(7,806	)		10,766
Total	$	21,207	$	26,762	$	26,500	$	43,390	$	(73,107	)	$	44,752

(1) Since these amounts are liabilities of the Company, they do not result in credit exposures.

(2) Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity and product categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within the maturity category, where appropriate. Cash collateral paid is netted on a counterparty basis, provided legal right of offset exists.

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The following tables summarize the fair values of the Company’s OTC derivative products recorded in Financial instruments owned and Financial instruments sold, not yet purchased by product category and maturity as of December 31, 2008, including on a net basis, where applicable, reflecting the fair value of related non-cash collateral for financial instruments owned:

OTC Derivative Products—Financial Instruments Owned at December 31, 2008

	Years to Maturity								Cross- Maturity and Cash Collateral Netting(1)			Net Exposure Post-Cash Collateral		Net Exposure Post- Collateral
Product Type	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
Interest rate and currency swaps, interest rate options, credit derivatives and other fixed income securities contracts	$	8,914	$	22,965	$	36,497	$	91,468	$	(107,667	)	$	52,177	$	45,841
Foreign exchange forward contracts and options		8,465		2,363		320		68		(3,882	)		7,334		6,409
Equity securities contracts (including equity swaps, warrants and options)		4,333		2,059		606		1,088		(4,991	)		3,095		1,365
Commodity forwards, options and swaps		10,698		12,425		3,602		2,129		(8,211	)		20,643		15,518
Total	$	32,410	$	39,812	$	41,025	$	94,753	$	(124,751	)	$	83,249	$	69,133

(1) Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity and product categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within the maturity category, where appropriate. Cash collateral received is netted on a counterparty basis, provided legal right of offset exists.

OTC Derivative Products—Financial Instruments Sold, Not Yet Purchased at December 31, 2008(1)

	Years to Maturity								Cross-Maturity and Cash Collateral Netting(2)			Total
Product Type	Less than 1		1-3		3-5		Over 5
	(dollars in millions)
Interest rate and currency swaps, interest rate options, credit derivatives and other fixed income securities contracts	$	8,547	$	17,356	$	24,777	$	55,237	$	(69,985	)	$	35,932
Foreign exchange forward contracts and options		7,355		1,660		377		159		(3,110	)		6,441
Equity securities contracts (including equity swaps, warrants and options)		2,661		3,446		1,685		1,858		(6,149	)		3,501
Commodity forwards, options and swaps		7,764		10,283		2,321		1,082		(8,302	)		13,148
Total	$	26,327	$	32,745	$	29,160	$	58,336	$	(87,546	)	$	59,022

(1) Since these amounts are liabilities of the Company, they do not result in credit exposures.

(2) Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity and product categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within the maturity category, where appropriate. Cash collateral paid is netted on a counterparty basis, provided legal right of offset exists.

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The Company’s derivatives (both listed and OTC), on a net of counterparty and cash collateral basis, as of March 31, 2009, December 31, 2008 and November 30, 2008 are summarized in the table below, showing the fair value of the related assets and liabilities by product category:

	At March 31, 2009				At December 31, 2008				At November 30, 2008
Product Type	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
	(dollars in millions)
Interest rate and currency swaps, interest rate options, credit derivatives and other fixed income securities contracts	$	49,417	$	27,263	$	52,391	$	36,146	$	55,247	$	32,421
Foreign exchange forward contracts and options		4,653		3,454		7,334		6,425		11,284		11,272
Equity securities contracts (including equity swaps, warrants and options)		7,107		7,733		8,738		8,920		14,523		14,560
Commodity forwards, options and swaps		17,972		15,638		20,955		17,063		18,712		15,268
Total	$	79,149	$	54,088	$	89,418	$	68,554	$	99,766	$	73,521

Each category of derivative products in the above tables includes a variety of instruments, which can differ substantially in their characteristics. Instruments in each category can be denominated in U.S. dollars or in one or more non-U.S. currencies.

The Company determines the fair values recorded in the above tables using various pricing models. For a discussion of fair value as it affects the condensed consolidated financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in Part I, Item 2 and Notes 1 and 2 to the condensed consolidated financial statements.

Country Exposure.    As of March 31, 2009 and December 31, 2008, primarily based on the domicile of the counterparty, approximately 8% of the Company’s credit exposure (for credit exposure arising from corporate loans and lending commitments as discussed above and current exposure arising from the Company’s OTC derivatives contracts) was to emerging markets, and no one emerging market country accounted for more than 3% and 2%, respectively, of the Company’s credit exposure.

The Company defines emerging markets to include generally all countries that are not members of the Organization for Economic Co-operation and Development and includes as well the Czech Republic, Hungary, Korea, Mexico, Poland, the Slovak Republic and Turkey but excludes countries rated AA and Aa2 or above by Standard & Poor’s and Moody’s Investors Service, respectively.

The following tables show the Company’s percentage of credit exposure from its primary corporate loans and lending commitments and OTC derivative products by country as of March 31, 2009 and December 31, 2008:

	Corporate Lending Exposure
Country	At March 31, 2009		At December 31, 2008
United States	67	%	68	%
United Kingdom	7		7
Germany	5		5
Other	21		20
Total	100	%	100	%

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	OTC Derivative Products
Country	At March 31, 2009		At December 31, 2008
United States	36	%	35	%
Cayman Islands	13		10
United Kingdom	8		9
Italy	5		6
France	4		3
United Arab Emirates	4		3
Germany	3		3
Jersey	3		3
Ireland	3		2
Japan	2		3
Other	19		23
Total	100	%	100	%

Industry Exposure.    As of March 31, 2009, the Company’s material credit exposure (for credit exposure arising from corporate loans and lending commitments as discussed above and current exposure arising from the Company’s OTC derivatives contracts) was to entities engaged in the following industries: financial institutions, utilities, sovereign, insurance, consumer-related entities, telecommunications and transportation. As of December 31, 2008, the Company’s material credit exposure was to entities engaged in the following industries: financial institutions, utilities, sovereign, insurance, transportation, telecommunications and consumer-related entities.

The following tables show the Company’s percentage of credit exposure from its primary corporate loans and lending commitments and OTC derivative products by industry as of March 31, 2009 and December 31, 2008:

	Corporate Lending Exposure
Industry	At March 31, 2009		At December 31, 2008
Utilities-related	14	%	13	%
Telecommunications	10		11
Consumer-related entities	10		10
Financial institutions	10		10
Technology-related industries	8		8
General industrials	7		7
Media-related entities	6		7
Healthcare-related entities	5		5
Energy-related entities	5		5
Other	25		24
Total	100	%	100	%

	OTC Derivative Products
Industry	At March 31, 2009		At December 31, 2008
Financial institutions	39	%	38	%
Sovereign entities	17		15
Insurance	15		13
Transportation-related entities	7		11
Utilities-related entities	7		6
Other	15		17
Total	100	%	100	%

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Item 4. Controls and Procedures.

Under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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FINANCIAL DATA SUPPLEMENT (Unaudited)

Average Balances and Interest Rates and Net Interest Revenue

	Three Months Ended March 31, 2009
	Average Balance(1)		Interest		Annualized Average Rate
	(dollars in millions)
Assets
Interest earning assets:
Financial instruments owned(2)	$	175,625	$	1,568	3.6	%
Receivables from other loans		6,443		88	5.5
Interest bearing deposits with banks		80,366		113	0.6
Federal funds sold and securities purchased under agreements to resell and securities borrowed		224,589		444	0.8
Other		36,735		311	3.4
Total interest earning assets	$	523,758	$	2,524	2.0	%
Non-interest earning assets		162,185
Total assets	$	685,943
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Commercial paper and other short-term borrowings	$	4,915	$	37	3.1	%
Deposits		55,503		150	1.1
Long-term debt		176,850		1,472	3.4
Financial instruments sold, not yet purchased(2)		53,144		—	—
Securities sold under agreements to repurchase and securities loaned		130,817		463	1.4
Other		118,046		253	0.9
Total interest bearing liabilities	$	539,275	$	2,375	1.8	%
Non-interest bearing liabilities and shareholders’ equity		146,668
Total liabilities and shareholders’ equity	$	685,943
Net interest revenues and net interest rate spread			$	149	0.2	%

(1) The Company calculates its average balances based upon weekly amounts, except where weekly balances are unavailable, month-end balances are used.

(2) Interest expense on Financial instruments sold, not yet purchased is reported as a reduction of Interest and dividends revenues.

128

Part II—Other Information

Item 1. Legal Proceedings

In addition to the matters described in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008 (the “Form 10-K”) and those described below, in the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the issuers that would otherwise be the primary defendants in such cases are bankrupt or in financial distress.

The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company’s business, including, among other matters, accounting and operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

The Company contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such matters could be material to the Company’s operating results and cash flows for a particular future period, depending on, among other things, the level of the Company’s revenues or income for such period.

The following developments have occurred with respect to certain matters previously reported in the Form 10-K.

IPO Allocation Matters.

On April 2, 2009, the parties to In re Initial Public Offering Securities Litigation filed a stipulation and agreement of settlement and a motion for preliminary approval of settlement in the U.S. District Court for the Southern District of New York (the “SDNY”).

On March 12, 2009, the U.S. District Court for the Western District of Washington (the “Western District of Washington”) granted motions to dismiss the shareholder derivative actions consolidated as In re Section 16(b) Litigation. In 30 of the cases, the Western District of Washington granted the issuer defendants’ motion to dismiss, without prejudice, for lack of standing based on the inadequacy of plaintiff’s pre-litigation demand to the issuers. In the remaining 24 cases, the Western District of Washington granted the underwriter defendants’ motion to dismiss, with prejudice, based on statute-of-limitations grounds. On March 31, 2009, plaintiffs filed a notice of appeal with respect to each case.

Residential Mortgage-related Matters.

The Company has been named as a defendant in several additional putative class action lawsuits brought under Sections 11 and 12 of the Securities Act of 1933, as amended (the “Securities Act”), related to its role as a member of the syndicates that underwrote offerings of securities and mortgage pass through certificates for certain entities that have been exposed to subprime and other mortgage-related losses. In addition to the entities described in the Form 10-K, these putative class actions now include lawsuits related to the following entities: (i) Wells Fargo Asset Securities Corporation, pending in the U.S. District Court for the Northern District of California; (ii) General Electric Co., pending in the SDNY; (iii) Federal Home Loan Mortgage Company, pending in the SDNY; (iv) Prudential Financial, Inc., pending in the U.S. District Court for the District of New

129

Jersey; (v) Deutsche Bank AG, pending in the SDNY; (vi) Barclays Bank PLC, pending in the SDNY; (vii) Regions Financial Corporation, pending in the SDNY; and (viii) ING Groep NV, pending in the SDNY. The plaintiffs in these actions allege, among other things, that the registration statements and offering documents for the offerings at issue contained various material misstatements or omissions related to the extent to which the issuers were exposed to subprime and other mortgage related risks and other matters and seek various forms of relief, including class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. These cases are generally at an early stage and the Company’s exposure to potential losses in these cases and those cases described in the Form 10-K may be impacted by various factors including, among other things, the financial condition of the entities that issued the securities and mortgage pass through certificates at issue, the financial condition of co-defendants and the willingness and ability of the issuers to indemnify the underwriter defendants.

On December 8, 2008, the Company and the other underwriter defendants moved to dismiss the consolidated amended complaint in In Re Washington Mutual, Inc. Securities Litigation, pending in the Western District of Washington. Plaintiffs are asserting Securities Act claims on behalf of a purported class and allege, among other things, that there were materially false and misleading statements in the registration statements and other offering documents related to several offerings of debt and equity securities issued by Washington Mutual, Inc. between August 2006 and December 2007, and are seeking, among other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. The Company underwrote approximately $1.6 billion of the principal amount of the offerings at issue.

On February 9, 2009, the United States Judicial Panel on Multidistrict Litigation issued an order transferring the putative class actions against the Company and other financial institutions related to their role as alleged underwriters for securities issued by Lehman Brothers Holdings Inc. (“Lehman”), previously pending in the United States District Courts for the Western and Eastern Districts of Arkansas and the Eastern District of New York, to the SDNY, where they have been consolidated with other securities claims in the SDNY under the caption In re: Lehman Brothers Equity/Debt Securities Litigation. Plaintiffs are asserting Securities Act claims on behalf of a purported class and allege, among other things, that the registration statements and offering documents for certain Lehman offerings in 2007 and 2008 contained false and misleading statements and seek, among other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. On April 27, 2009, the Company and the other underwriter defendants moved to dismiss these claims. The Company underwrote over $200 million of the principal amount of the offerings at issue.

On March 4, 2009, the Company and the other underwriter defendants removed a case styled IBEW Local 103 v. IndyMac MBS, Inc., from the Superior Court of California in Los Angeles to the U.S. District Court for the Central District of California (“CDC”). This case relates to the offerings of mortgage pass through certificates issued by seven trusts sponsored by affiliates of IndyMac Bancorp during 2006 and 2007. Plaintiffs are asserting Securities Act claims on behalf of a purported class and allege, among other things, that the registration statements and offering documents contained false and misleading information concerning the pools of residential loans backing these securitizations, and are seeking, among other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. The Company underwrote over $2.4 billion of the principal amount of the offerings at issue.

On January 23, 2009, the CDC ordered that Joel Stratte-McClure, et al. v. Morgan Stanley, et al., be transferred to the SDNY, where it is currently pending. Subject to certain exclusions, the amended complaint in this action seeks, among other relief, unspecified compensatory damages on behalf of a purported class of persons and entities who purchased shares of the Company’s stock during the period June 20, 2007 to December 19, 2007 and who suffered damages as a result of such purchases. On April 27, 2009, the Company filed a motion to dismiss the amended complaint.

On March 6, 2009, the CDC ordered that the case styled Public Employees’ Retirement System of Mississippi v. Morgan Stanley, et al. be transferred to the SDNY, where it is currently pending. Plaintiffs allege, among other things, that the registration statements and offering documents related to the offerings of over $8 billion in

130

mortgage pass through certificates in 2006 contained false and misleading information concerning the pools of residential loans that backed these securitizations, and are seeking, among other relief, unspecified compensatory and rescissionary damages, costs, interest and fees.

Auction Rate Securities Matters.

The plaintiffs in Jamail v. Morgan Stanley, et al, Bartholomew v. Morgan Stanley et al., and Miller v. Morgan Stanley & Co. Incorporated voluntarily dismissed each complaint without prejudice on February 13, February 27, and March 2, 2009, respectively.

On February 2, 2009, the consolidated shareholder derivative complaint, now styled In re Morgan Stanley & Co. Inc. Auction Rate Securities Derivative Litigation, was filed in the SDNY. On March 23, 2009, defendants filed a motion to dismiss the consolidated complaint.

China Matter.

As previously disclosed in the Company’s Current Report on Form 8-K dated February 9, 2009, the Company uncovered actions initiated by an employee based in China in an overseas real estate subsidiary that appear to have violated the Foreign Corrupt Practices Act. The Company terminated the employee, reported the activity to appropriate authorities and is continuing to investigate the matter.

Item 1A. Risk Factors

For a discussion of the risk factors affecting the Company, see “Risk Factors” in Part I, Item 1A of the Form 10-K.

131

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the one month period ended December 31, 2008 and quarterly period ended March 31, 2009.

Issuer Purchases of Equity Securities

(dollars in millions, except per share amounts)

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (C)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1 (December 1, 2008—December 31, 2008)
Share Repurchase Program (A)	—		N/A	—	$	1,560
Employee Transactions (B)	180,161	$	16.07	N/A		N/A
Month #2 (January 1, 2009—January 31, 2009)
Share Repurchase Program (A)	—		N/A	—	$	1,560
Employee Transactions (B)	360,504	$	19.89	N/A		N/A
Month #3 (February 1, 2009—February 28, 2009)
Share Repurchase Program (A)	—		N/A	—	$	1,560
Employee Transactions (B)	154,237	$	20.45	N/A		N/A
Month #4 (March 1, 2009—March 31, 2009)
Share Repurchase Program (A)	—		N/A	—	$	1,560
Employee Transactions (B)	176,660	$	21.99	N/A		N/A
Total
Share Repurchase Program (A)	—		N/A	—	$	1,560
Employee Transactions (B)	871,562	$	19.62	N/A		N/A

(A) On December 19, 2006, the Company announced that its Board of Directors authorized the repurchase of up to $6 billion of the Company’s outstanding stock under a new share repurchase program (the “Share Repurchase Program”). The Share Repurchase Program is a program for capital management purposes that considers, among other things, business segment capital needs, as well as equity-based compensation and benefit plan requirements. The Share Repurchase Program has no set expiration or termination date.

(B) Includes: (1) shares delivered or attested in satisfaction of the exercise price and/or tax withholding obligations by holders of employee and director stock options (granted under employee and director stock compensation plans) who exercised options; (2) shares withheld, delivered or attested (under the terms of grants under employee and director stock compensation plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares; and (3) shares withheld, delivered and attested (under the terms of grants under employee and director stock compensation plans) to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying restricted stock units. The Company’s employee and director stock compensation plans provide that the value of the shares withheld, delivered or attested shall be valued using the fair market value of the Company common stock on the date the relevant transaction occurs, using a valuation methodology established by the Company.

(C) Share purchases under publicly announced programs are made pursuant to open-market purchases, Rule 10b5-1 plans or privately negotiated transactions (including with employee benefit plans) as market conditions warrant and at prices the Company deems appropriate. In addition, share purchases under such programs are in compliance with CPP restrictions. For more information see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Equity Capital Management Policies” in Part I, Item 2 herein.

Item 4. Submission of Matters to a Vote of Security Holders

Information regarding the submission of matters to a vote of security holders under Item 8.01 of the Company’s Current Report on Form 8-K dated February 9, 2009 is incorporated by reference herein.

Item 6. Exhibits

An exhibit index has been filed as part of this Report on Page E-1.

132

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MORGAN STANLEY (Registrant)
By:	/S/ COLM KELLEHER
	Colm Kelleher Executive Vice President and Chief Financial Officer
By:	/S/ PAUL C. WIRTH
	Paul C. Wirth Controller and Principal Accounting Officer

Date: May 7, 2009

133

EXHIBIT INDEX

MORGAN STANLEY

Quarter Ended March 31, 2009

Exhibit No.	Description
4	Fifth Supplemental Senior Indenture dated as of April 1, 2009 between Morgan Stanley and The Bank of New York Mellon, as trustee (Supplemental to Senior Indenture dated November 1, 2004).
10.1	Amendment to Morgan Stanley 401(k) Plan, dated as of March 27, 2009.
10.2	Morgan Stanley Supplemental Executive Retirement and Excess Plan, amended and restated effective December 31, 2008.
10.3	Second Amended and Restated Employment Agreement dated as of December 16, 2008 between Morgan Stanley and John J. Mack.
10.4	Aircraft Time Sharing Agreement dated as of March 10, 2009 by and between Morgan Stanley Management Services II, Inc. and John J. Mack.
10.5	Amendment, dated as of December 16, 2008, to the agreement dated as of July 21, 2005, between Morgan Stanley and Thomas R. Nides, as subsequently amended on February 8, 2008.
10.6	Amendment, dated as of December 16, 2008, to the agreement between Morgan Stanley and Gary G. Lynch dated as of July 18, 2005, as subsequently amended on February 8, 2008.
10.7	Memorandum dated as of August 21, 2007 to Walid Chammah regarding Relocation from United States to London Office.
10.8	Form of Award Certificate for Discretionary Retention Awards of Stock Units.
10.9	Form of Award Certificate under the Morgan Stanley Compensation Incentive Plan.
11	Statement Re: Computation of Earnings Per Common Share (The calculation of per share earnings is in Part I, Item 1, Note 11 to the Condensed Consolidated Financial Statements (Earnings per Share) and is omitted in accordance with Section (b)(11) of Item 601 of Regulation S-K).
12	Statement Re: Computation of Ratio of Earnings to Fixed Charges and Computation of Earnings to Fixed Charges and Preferred Stock Dividends.
15	Letter of awareness from Deloitte & Touche LLP, dated May 7, 2009, concerning unaudited interim financial information.
31.1	Rule 13a-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a) Certification of Chief Financial Officer.
32.1	Section 1350 Certification of Chief Executive Officer.
32.2	Section 1350 Certification of Chief Financial Officer.

E-1

EX-4

EXHIBIT 4

FIFTH SUPPLEMENTAL SENIOR INDENTURE

BETWEEN

MORGAN STANLEY

AND

THE BANK OF NEW YORK MELLON

as successor to JPMorgan Chase Bank, N.A. (formerly known as JPMorgan Chase Bank), Trustee

Dated as of April 1, 2009

SUPPLEMENTAL TO SENIOR INDENTURE DATED NOVEMBER 1, 2004.

THIS FIFTH SUPPLEMENTAL SENIOR INDENTURE dated as of April 1, 2009 between MORGAN STANLEY, a Delaware corporation (the “Issuer”), and THE BANK OF NEW YORK MELLON as successor to JPMorgan Chase Bank, N.A. (formerly known as JPMorgan Chase Bank), as trustee (the “Trustee”).

W I T N E S S E T H :

WHEREAS, the Issuer and the Trustee are parties to that certain Senior Indenture dated as of November 1, 2004 (the “Indenture”);

WHEREAS, on November 21, 2008, the Federal Deposit Insurance Corporation (“FDIC”) issued its Final Rule, 12 C.F.R. Part 370 (the “Rule”), establishing the FDIC’s Temporary Liquidity Guarantee Program;

WHEREAS, the Issuer has entered into a master agreement by and between the Issuer and the FDIC, dated November 26, 2008 (the “FDIC Master Agreement”), pursuant to which the FDIC agreed to guarantee payments with respect to certain Securities that are eligible for such guarantee under the Rule (the “Guaranteed Securities”) and the Issuer agreed to reimburse and make whole the FDIC;

WHEREAS, pursuant to the FDIC Master Agreement, the Issuer agreed to incorporate into the Indenture governing any of its Guaranteed Securities certain provisions set out in the FDIC Master Agreement and incorporated such provisions into the Indenture by entering into the Fourth Supplemental Senior Indenture dated as of December 1, 2008 with the Trustee (the “Fourth Supplemental Senior Indenture”);

WHEREAS, the FDIC on February 27, 2009 adopted an interim rule (the “February 27, 2009 Interim Rule”) that extended the FDIC’s guarantee under the Temporary Liquidity Guarantee Program to cover certain issuances of mandatory convertible debt and on March 17, 2009 adopted an interim rule (the “March 17, 2009 Interim Rule”) that, among other things, extended the period during which entities participating in the Temporary Liquidity Guarantee Program may issue Guaranteed Securities and extended the expiration date of the guarantee for certain Guaranteed Securities (the February 27, 2009 Interim Rule became effective on February 27, 2009 and the March 17, 2009 Interim Rule became effective on March 23, 2009);

WHEREAS, the Issuer desires to incorporate into the Indenture the changes to the Rule contained in the February 27, 2009 Interim Rule and the March 17, 2009 Interim Rule by amending and restating Section 13.01 and Section 13.02(b) of the Indenture pursuant to this Fifth Supplemental Senior Indenture;

WHEREAS, Section 8.01 of the Indenture provides that, without the consent of the Holders of any Securities, the Issuer, when authorized by a resolution of its Board of Directors, and the Trustee may enter into indentures supplemental to the Indenture for the purpose of, among other things, making any provision as the Issuer may deem necessary and desirable; provided that no such action shall adversely affect the interests of the Holders of the Securities;

2

WHEREAS, the entry into this Fifth Supplemental Senior Indenture by the parties hereto is in all respects authorized by the provisions of the Indenture; and

WHEREAS, all things necessary to make this Fifth Supplemental Senior Indenture a valid indenture and agreement according to its terms have been done;

NOW, THEREFORE:

In consideration of the premises and the purchases of the Securities by the holders thereof, the Issuer and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders from time to time of Guaranteed Securities, as follows:

ARTICLE 1

Section 1.01. The Indenture is hereby amended by amending and restating Section 13.01, which was added to the Indenture by the Fourth Supplemental Senior Indenture, to read in its entirety as follows:

“Section 13.01. Acknowledgement of the FDIC’s Debt Guarantee Program. The parties to this Indenture acknowledge that the Issuer has not opted out of the debt guarantee program (the “Debt Guarantee Program”) established by the Federal Deposit Insurance Corporation (“FDIC”) under its Temporary Liquidity Guarantee Program on November 21, 2008 pursuant to the FDIC’s Final Rule, 12 C.F.R. Part 370 (as amended and as may be further amended or supplemented from time to time, the “Rule”). The Debt Guarantee Program applies to any Securities issued on or after October 14, 2008 through October 31, 2009 (or any later date hereafter designated by the FDIC) that constitute unsecured senior debt, as defined in the Rule and as to which the Issuer has not duly made an opt-out election in accordance with Section 370.3(g) of the Rule (the “Guaranteed Securities”). With respect to each Guaranteed Security, the Debt Guarantee Program applies for the period from October 14, 2008 to (i) in the case of any Guaranteed Security issued prior to April 1, 2009, the earliest of the date such Guaranteed Security matures pursuant to the terms thereof, the mandatory conversion date if such Guaranteed Security were issued as mandatory convertible debt under the Rule, and June 30, 2012, or (ii) in the case of any Guaranteed Security issued on or after April 1, 2009, the earliest of the date such Guaranteed Security matures pursuant to the terms thereof, the mandatory conversion date if such Guaranteed Security were issued as mandatory convertible debt under the Rule, and December 31, 2012 (or any later date hereafter designated by the FDIC) (the “Effective Period”). As a result, this debt is guaranteed under the FDIC Temporary Liquidity Guarantee Program and is backed by the full faith and credit of the United States. The details of the FDIC guarantee are provided in the FDIC’s regulations, 12 CFR Part 370, and at the FDIC’s website, www.fdic.gov/tlgp. The expiration date of the FDIC’s guarantee is the earlier of the maturity date of this debt or June 30, 2012*.

* The expiration date of the FDIC guarantee will be: (i) in the case of mandatory convertible debt issued prior to April 1, 2009, the earlier of the mandatory conversion date or June 30, 2012; (ii) in the case of other senior unsecured debt issued prior to April 1, 2009, the earlier of the maturity date of the debt or June 30, 2012; (iii) in the case of mandatory convertible debt issued on or after April 1, 2009, the earlier of the mandatory conversion date or December 31, 2012 (or any later date hereafter designated by the FDIC); and (iv) in the case of other senior unsecured debt issued on or after April 1, 2009, the earlier of the maturity date of the debt or December 31, 2012 (or any later date hereafter designated by the FDIC).

3

The security certificate, note or other instrument evidencing each Guaranteed Security shall bear a legend, upon which the Representative (as defined below) shall be entitled to conclusively rely, to the effect that such security certificate, note or other instrument is guaranteed by the FDIC under the Debt Guarantee Program.”

Section 1.02. The Indenture is hereby amended by amending and restating Section 13.02(b), which was added to the Indenture by the Fourth Supplemental Senior Indenture, to read in its entirety as follows:

“(b) Upon an uncured failure by the Issuer to make a timely payment of principal or interest under any Guaranteed Securities (including, with respect to any Guaranteed Securities that are mandatory convertible debt, any failure to make timely delivery of common shares or cash or any other property deliverable with respect to the principal amount of any such Guaranteed Securities on the applicable mandatory conversion date) (a “Payment Default”), the Representative, on behalf of all Holders of such Guaranteed Securities that are represented by the Representative, shall submit to the FDIC a demand for payment by the FDIC of such unpaid principal and interest (including, with respect to any Guaranteed Securities that are mandatory convertible debt, of the principal of such Guaranteed Securities or other cash amounts, if any, due under the terms of such Guaranteed Securities on the applicable mandatory conversion date, in each case upon such failure to make timely delivery of common shares or cash or any other deliverable property on such mandatory conversion date), together with proof of such claim and such other documentation as may be required by the FDIC under the Rule (i) in the case of any Payment Default prior to the final maturity, redemption or mandatory conversion date of such Guaranteed Securities, on the earlier of the date that the applicable cure period ends (or if such date is not a Business Day, the immediately succeeding Business Day) and 60 days following such Payment Default and (ii) in the case of any Payment Default on the final maturity date, a redemption date or mandatory conversion date for such Guaranteed Securities, on such final maturity date, redemption date or mandatory conversion date (or if such date is not a Business Day, the immediately succeeding Business Day).”

4

ARTICLE 2

Miscellaneous Provisions

Section 2.01. Further Assurances. The Issuer will, upon request by the Trustee, execute and deliver such further instruments and do such further acts as may reasonably be necessary or proper to carry out more effectively the purposes of this Fifth Supplemental Senior Indenture.

Section 2.02. Other Terms of Indenture. Except insofar as herein otherwise expressly provided, all provisions, terms and conditions of the Indenture are in all respects ratified and confirmed and shall remain in full force and effect.

Section 2.03. Terms Defined. All terms defined elsewhere in the Indenture shall have the same meanings when used herein.

Section 2.04. Governing Law. This Fifth Supplemental Senior Indenture shall be deemed to be a contract under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of such State, except as may otherwise be required by mandatory provisions of law.

Section 2.05. Counterparts. This Fifth Supplemental Senior Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument.

Section 2.06. Responsibility of the Trustee. The recitals contained herein shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Fifth Supplemental Senior Indenture.

5

IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental Senior Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of April 1, 2009.

MORGAN STANLEY
By:	/s/ David S. Russo
	Name: David S. Russo
	Title: Assistant Treasurer

Attest: 

By:	/s/ W. Gary Beeson
	Name: W. Gary Beeson
	Title: Assistant Secretary and Counsel

THE BANK OF NEW YORK MELLON, TRUSTEE
By:
	Name:
	Title:

Attest:

By:
	Name:
	Title:

6

STATE OF NEW YORK	)
	) ss.:
COUNTY OF NEW YORK	)

On this 6^th day of April 2009 before me personally came David S. Russo to me personally known, who, being by me duly sworn, did depose and say that [he][she] resides at Hoboken, NJ; that [he][she] is a Assistant Treasurer of Morgan Stanley, one of the corporations described in and which executed the above instrument; and that [he][she] signed [his][her] name thereto by authority of the Board of Directors of said corporation.

[NOTARIAL SEAL]

/s/ Cindy S. Buckholz

Notary Public

CINDY S. BUCKHOLZ

Notary Public, State of New York

No. 01BU6030825

Qualified in Bronx County

Certificate Filed in New York County

Commission Expires 9/20/09                

IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental Senior Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of April 1, 2009.

MORGAN STANLEY
By:
	Name:
	Title:

Attest:

By:
	Name:
	Title:

THE BANK OF NEW YORK MELLON, TRUSTEE
By:	/s/ Kimberly Davidson
	Name: Kimberly Davidson
	Title:   Vice President

Attest:

By:	/s/ Mary Miselis
	Name: Mary Miselis
	Title:   Vice President

6

STATE OF NEW YORK	)
	) ss.:
COUNTY OF NEW YORK	)

On this 6^th day of April 2009 before me personally came Kimberly Davidson to me personally known, who, being by me duly sworn, did depose and say that [he][she] resides at Brooklin, NY; that [he][she] is a Vice President of The Bank of New York Mellon, one of the corporations described in and which executed the above instrument; and that [he][she] signed [his][her] name thereto by authority of the Board of Directors of said corporation.

[NOTARIAL SEAL]

/s/ Carlos R. Luciano

Notary Public

CARLOS R. LUCIANO

Notary Public, State of New York

No. 41-4765897

Qualified in Queens County

Commission Expires April 30, 2010

EX-10.1

EXHIBIT 10.1

AMENDMENT TO

401(k) PLAN

Morgan Stanley & Co. Incorporated (the “Corporation”) hereby amends the Morgan Stanley 401(k) Plan (the “401(k) Plan”) as follows:

1. Effective January 1, 2009, Section 10(b)(i), Forfeitures, shall be amended by deleting the second sentence thereof and inserting the following in lieu thereof:

“Notwithstanding the foregoing, if a Participant who terminates employment shall subsequently be rehired before incurring five consecutive One Year Breaks, the amount so forfeited shall be restored to such Participant’s Accounts without adjustment for income, gains or losses as provided herein. If the Participant is rehired before incurring a One Year Break, his Accounts shall be restored as soon as administratively feasible after his return to employment with the Company. If the Participant is rehired after incurring a One Year Break, but before incurring five consecutive One Year Breaks, his Accounts shall be restored as soon as administratively feasible after the date he is credited with one Year of Service after his return to employment with the Company. All such restorations shall be made from forfeitures arising in the Plan Year in which the restoration occurs and, to the extent necessary, from a special Company contribution which shall be made for that purpose.”

2. Effective March 31, 2009, Appendix B of the 401(k) Plan, Morgan Stanley Participating Companies, shall be amended by adding the following paragraph to the end of the FrontPoint Partners LLC and FrontPoint Management Inc. subsection thereof:

“The FrontPoint Partners LLC 401(k) Savings Plan (the “FrontPoint Plan”) shall be merged with and into the Plan effective on March 31, 2009. The contributions, benefits and other rights of Participants in the FrontPoint Plan with respect to the period prior to such merger are determined under the terms of the FrontPoint Plan as in effect prior to its merger with the Plan. Any person who was covered under the FrontPoint Plan prior to its merger with the Plan and who was entitled to benefits under the provisions of the FrontPoint Plan as in effect prior to its merger with the Plan shall continue to be entitled to the same amount of accrued benefits without change under the Plan, and such benefits under the provisions of the FrontPoint Plan shall vest in accordance with the provisions of the FrontPoint Plan in effect immediately prior to such merger or, if sooner, in accordance with the provisions of this Plan; provided, however, that effective on March 31, 2009 for benefits with

annuity starting dates beginning on or after March 31, 2009, the forms of distribution (including for these purposes, the time, manner and medium of distribution) available with respect to such accrued benefits shall be the forms of distribution available under the otherwise applicable provisions of the Morgan Stanley 401(k) Plan (plus any other forms of distribution that were available under the FrontPoint Plan immediately prior to March 31, 2009 and that may not be eliminated under Code section 411(d)(6)).”

* * * * * * * * *

IN WITNESS WHEREOF, the Corporation has caused this Amendment to be executed on its behalf as of this 27^thday of March, 2009.

MORGAN STANLEY & CO. INCORPORATED
By:	/s/ KAREN JAMESLEY
Title:	Global Head of Human Resources

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EX-10.2

EXHIBIT 10.2

MORGAN STANLEY

SUPPLEMENTAL EXECUTIVE RETIREMENT AND EXCESS PLAN

EFFECTIVE JANUARY 1, 1986

AS AMENDED AND RESTATED EFFECTIVE DECEMBER 31, 2008.

I. Purpose of Plan

The Supplemental Executive Retirement and Excess Plan, formerly known as the Supplemental Executive Retirement Plan (the “Plan”) is an unfunded plan maintained by Morgan Stanley (the “Corporation”) for the purposes of (A) supplementing the retirement benefits of certain employees who are Managing Directors or Principals or Executive Directors of the Firm or previously held the title of Managing Director or Principal or Executive Director of the Firm and (B) providing additional retirement benefits to certain key employees who participate in the Pension Plan, based on the benefit formula that applied generally under the Pension Plan with respect to such employees prior to January 1, 2004. The Plan is not a plan intended to be qualified under Code Section 401.

This December 31, 2008 restatement of the Plan reflects the merger of the Morgan Stanley & Co. Incorporated Excess Benefit Plan (“Excess Plan”) with and into this Plan. Effective as of December 31, 2008, all benefits under the Excess Plan are transferred to this Plan and governed by the terms of this Plan. This December 31, 2008 restatement of the Plan also includes changes to comply with the requirements of Code Section 409A and related regulatory guidance.

This December 31, 2008 restatement of the Plan applies to Participants employed by the Firm after December 31, 2008. In addition, this restatement applies to Participants who terminated employment on or before December 31, 2008 and have undistributed benefits under the Plan on that date. Special provisions applicable to such Participants are set forth in Appendix E to the Plan.

II. Definitions and Assumptions

The following words and phrases as used herein shall have the following meanings unless a different meaning is plainly required by the context. Capitalized terms used herein which are defined in the Pension Plan and are not otherwise defined herein shall have the meanings specified in the Pension Plan.

A. “Actuarial Equivalent” shall mean the following:

(i) For determinations made prior to July 1, 1996, (X) subject to clause (Y) of this Paragraph II(A)(i), a benefit of equivalent value which shall be determined based on (a) the Participant’s (and, where applicable, the beneficiary’s) age as of the Participant’s Benefit Commencement Date; (b) a mortality table equal to the 1983 Group Annuity Mortality Table; and (c) an investment rate of six percent (6%) compounded annually; and (Y) in the case of a lump sum, an amount equivalent to the present value, as of the Participant’s Benefit Commencement Date, of the Participant’s benefit payable as of the Participant’s Benefit Commencement Date in the form of a single life annuity based on (a) the age of the Participant as of his or her Benefit Commencement Date; (b) the mortality tables described in clause (X)(b) of this Paragraph II(A)(i), and (c) an investment rate equal to the Pension Benefit Guaranty Corporation single employer plan termination immediate annuity interest rate in effect as of the second calendar month prior to the Participant’s Benefit Commencement Date; and

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(ii) For determinations made after June 30, 1996, and before January 1, 2004, using those assumptions as to rate of interest and the mortality tables which are in effect from time to time for purposes of determining the actuarial equivalent under the Pension Plan in substantially similar situations and for substantially similar purposes; provided, however, that in no event shall the Actuarial Equivalent for a given form of payment for any Participant’s SERP Benefit be less than the Actuarial Equivalent of such form of payment on June 30, 1996 for Participants terminated prior to July 1, 1996, based upon Actuarial Equivalent determined in accordance with Paragraph II(A)(i) above.

(iii) Effective January 1, 2004, adjustments with respect to a Participant’s SERP Benefit shall be made with reference to the factors that apply for purposes of benefits accrued after 2003, other than lump sums, under Exhibit A of the Pension Plan. Effective December 31, 2008, adjustments made with respect to a Participant’s Excess Benefit also shall be made with reference to such factors. For these purposes, any amendment to the Pension Plan after December 31, 2008, that amends or alters such factors in Exhibit A shall be disregarded. In addition, the Plan Administrator may periodically review and update the factors used in making such adjustments to ensure such factors produce actuarially equivalent life annuities for purposes of Code Section 409A and Treas. Reg. § 1.409A-2(b)(2)(ii) (or any successor provision).

(iv) Notwithstanding the foregoing, lump sums shall be calculated as set forth in Paragraph VI(E) and Appendix E.

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B. “Annuity Starting Date” shall mean the first day of the month following the later of (i) the date of the Participant’s Separation from Service and (ii) the date the Participant attains age 55, or such other date as may be specified in Appendix E.

C. “Authorized Absence” shall mean absence authorized by the Firm without loss of employment status, including absence on account of illness, business of the Firm, vacation and leave of absence, including leave of absence for military or governmental service, whether or not salary shall be paid during such absence. Any person who ceases to be an employee receiving compensation from the Firm but remains in the employment of the Firm shall be deemed for all purposes of the Plan to be on Authorized Absence without salary until such employment terminates or he again receives compensation from the Firm.

D. “Benefit” shall mean a Participant’s SERP Benefit and/or Excess Benefit, as applicable.

E. “Benefit Commencement Date” shall mean the date on which a Participant’s (or in the event of the Participant’s death, a beneficiary’s) benefit under the Plan commences to be paid. Effective December 31, 2008, a Participant’s Benefit Commencement Date shall be the date specified in Paragraph VI(A) or Appendix E.

F. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

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G. “Credited Service,” for purposes of determining a Participant’s SERP Benefit, shall be computed as follows:

(i) Credited Service shall mean the sum of all periods of a Participant’s employment by the Firm commencing from the first day of the month following the Participant’s date of hire or rehire. Subject to clause (ii) below, Credited Service shall also include (a) any period during which the Participant was a partner in Morgan Stanley & Co., and (b) any period of Authorized Absence.

(ii) In computing Credited Service, a Participant’s Credited Service shall be deemed to terminate on the earliest of:

(a) the date of the Participant’s Separation from Service, or

(b) the first anniversary of the first date of a period in which the Participant remains absent from service (with or without pay) for any reason other than Separation from Service or Authorized Absence, such as vacation, holiday, sickness or leave of absence.

(iii) The Credited Service of any individual described in any provision of Appendix C to the Plan shall be limited as set forth therein.

(iv) For periods prior to December 31, 2008, except as may otherwise be provided in Appendix E, a Participant’s Credited Service shall be determined under the rules then set forth in the Plan.

H. “Election Period” shall mean the period specified by the Plan Administrator immediately following a Participant’s Separation from Service or such other period as may be specified by the Plan Administrator, provided that in all events such Election Period shall end prior to the Benefit Commencement Date.

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I. “Excess Benefit” shall mean the benefit described in Paragraph V.

J. “Final Average Salary” shall mean a Participant’s average annual Salary during his or her 60 highest paid consecutive months (excluding months for which he or she received no Salary) during the final 120 months (or such lesser period as is equal to his or her Credited Service) of his or her Credited Service preceding his or her Separation from Service or other termination of Credited Service.

K. “Firm” shall mean the Corporation, its subsidiaries and affiliates; provided, that effective May 31, 1997, the term “Firm” shall not include subsidiaries and affiliates of Dean Witter, Discover & Co., as in existence prior to its merger with the Corporation, and their subsidiaries and affiliates; and provided further, that effective January 1, 1999, the term “Firm” shall not include Morgan Stanley International Incorporated (“MSII”) to the extent of MSII employees primarily servicing business units and/or cost centers of subsidiaries of the former Dean Witter, Discover & Co., determined immediately prior to its merger with Morgan Stanley Group Inc. and no employment in such an excluded position shall count as “Credited Service” under the Plan, except as specifically provided in Appendix C. The determination of whether an entity is considered a part of the “Firm” for purposes of the Plan shall be made by the Plan Administrator.

L. “Participant” shall mean an individual who has met the requirements for participation under Paragraph III(A) and/or Paragraph III(B).

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M. “Pension Plan” shall mean the Morgan Stanley Employees Retirement Plan, as amended from time to time. References to sections of the Pension Plan shall, unless otherwise specified, include successor provisions in the Pension Plan.

N. “Salary” shall mean a Participant’s regular fixed base compensation earned for any period, whether or not paid during such period.

O. “Separation from Service” or “Separated from Service” shall mean a Participant’s “separation from service” as defined under Code Section 409A and Treas. Reg. § 1.409A-1(h) (or any successor provision). For this purpose, a Participant shall have a Separation from Service if the Participant ceases to be an employee of the Firm entity that employs the Participant and all persons with whom such entity would be considered a single employer under Code Section 414(b) or (c). A Participant shall have a Separation from Service if it is reasonably anticipated that no further services shall be performed by the Participant, or that the level of services the Participant shall perform shall permanently decrease to no more than 20 percent of the average level of services performed by the Participant over the immediately preceding 36-month period (or the Participant’s full period of service, if the Participant has been performing services for less than 36 months).

P. “SERP Benefit” shall mean the benefit described in Paragraph IV. A Participant’s SERP Benefit as of any specified date shall mean the amount computed in Paragraph IV(A), limited, if applicable, as described in Paragraph IV(B), and reduced by the SERP Offsets described in Paragraph IV(C). In no event shall a SERP Benefit be payable to or with respect to a Participant who has a Separation from Service for any reason before reaching age 55, except as otherwise provided in Paragraph XIII.

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Q. “SERP Offset” shall mean any benefit described in Paragraph IV(C)(i).

R. “Specified Employee” shall mean a Participant who is a “specified employee” within the meaning of Code Section 409A and Treas. Reg. § 1.409A-1(i) (or successor provisions) on the date of his or her Separation from Service, as determined in accordance with the policies applicable with respect to Morgan Stanley’s U.S. executive compensation plans.

S. “Surviving Domestic Partner” or “Domestic Partner” means the same or opposite sex domestic partner of a Participant, provided that the domestic partner relationship meets the requirements set forth in the summary plan description for the Morgan Stanley Health and Welfare Benefits Plan, and provided further that, with respect to any death benefit payable under Paragraph VI(C)(i) of the Plan, the Participant and domestic partner have been lawfully married or registered as domestic partners, as determined by the Plan Administrator, throughout the one-year period ending on the date of the Participant’s death.

T. “Surviving Spouse” or “Spouse” shall mean the lawfully married spouse or surviving spouse of a Participant, provided that, with respect to any death benefit payable under Paragraph VI(C)(i) of the Plan, the Participant and spouse have been lawfully married, as determined by the Plan Administrator, throughout the one-year period ending on the date of the Participant’s death.

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III. Participation in the Plan

A. Participation Requirements for SERP Benefits

Each employee who holds or has previously held the title of Managing Director, Principal or Executive Director of the Firm shall become a Participant who is eligible for a SERP Benefit under Paragraph IV upon the satisfaction of all of the following requirements while actively employed by the Firm: (i) completion of five years of Credited Service, which service need not have been rendered while a Managing Director, Principal or Executive Director of the Firm, (ii) attainment of age 55, and (iii) the sum of Credited Service and age expressed in years and fractions thereof (determined using the number of full months of age or Credited Service) at least equals 65 years. Notwithstanding the foregoing, (a) only persons who have held the title of Managing Director, Principal or Executive Director of the Firm prior to September 1, 2002 shall be eligible to become a Participant under this provision and (b) persons who are not Participants as of January 1, 2004 may become Participants under this provision on or after January 1, 2004 only if (1) they meet the foregoing requirements of this provision, and (2) either (I) the sum of their Credited Service and age, each as of January 1, 2004, equals 60 and they have at least 5 years of Credited Service as of January 1, 2004 or (II) the sum of their Credited Service and age, each as of January 1, 2004, equals 59 and they have attained age 40 and have at least 10 years of Credited Service, each as of January 1, 2004.

B. Participation Requirements for Excess Benefits

Each employee of Morgan Stanley & Co. Incorporated or any affiliate who is a Member participating in the Pension Plan shall become a Participant who is eligible for an Excess Benefit under Paragraph V whenever (i) such employee’s benefits under the Pension Plan, computed without taking into consideration the limitations on benefits contained in Section 10

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of the Pension Plan or Code Section 415 or any successor or comparable provisions, exceed the maximum annual benefits to which the employee is entitled under the Pension Plan, taking into account such limitations or (ii) the employee’s salary from his or her employer exceeds the limit on salaries contained in the definition of “Salary” in Exhibit A to the Pension Plan or Code Section 401(a)(17). Notwithstanding the foregoing, (a) only persons who have an Excess Benefit on December 31, 2003 may be Participants under this provision on or after January 1, 2004 and (b) persons who are described in clause (a) of this sentence may continue to accrue an Excess Benefit after January 1, 2004 only if (1) the sum of their Period of Service as an Employee and age, each as of January 1, 2004, equals 60 and (2) they have a Period of Service as an Employee of at least 5 years as of January 1, 2004 and (3) their rate of base pay is above $170,000 as of January 1, 2004.

C. Exclusions

Notwithstanding anything in the foregoing to the contrary, any person who is (i) classified by the Firm as a “leased employee” who provides services to the Firm (including, without limitation, a leased employee as defined in Code Section 414(n)), an independent contractor or a consultant or (ii) a provider of services to the Firm pursuant to a contractual arrangement, such as a “PAL”, either with that person or with a third party, other than one specifically providing for an employment relationship with the Firm, shall not be eligible to become a Participant until the later of the date, if any, on which he becomes an employee who is not classified as a leased employee, independent contractor, consultant or a provider of services to the Firm and is employed in a job classification that is eligible for participation in the Plan as

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determined by the Firm. If any person excluded as an employee pursuant to the preceding clauses (i) and (ii) shall be determined by a court or a federal, state or local regulatory or administrative authority to have served as a common law employee of the Firm, such determination shall not alter this exclusion as an employee for purposes of this Plan.

IV. SERP Benefits

The amount of the SERP Benefit payable to a Participant who has met the participation requirements under Paragraph III(A) (and is not excluded from participation under Paragraph III(C) or Appendix C) shall be determined as set forth in this Paragraph IV.

A. SERP Benefit Formula

A Participant whose rights to benefits had vested under the Supplemental Executive Retirement Plan in effect prior to January 1, 1986 (the “Prior Plan”) is entitled to a single life annuity in an annual amount equal to the greater of the amounts described in subparagraphs (i) and (ii) below. A Participant whose rights to benefits had not vested under the Prior Plan or who was not entitled to participate in the Prior Plan shall be entitled to a single life annuity in the annual amount computed under subparagraph (ii) below:

(i) The amount which would have been payable under the Prior Plan if the Participant had retired on December 31, 1985, based on the Participant’s Credited Service and Final Average Salary as of December 31, 1985, which amount shall be the sum of:

(a) 40% of his or her Final Average Salary, plus

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(b) 2/12% of his or her Final Average Salary for each month of Credited Service in excess of 60 months (up to a cumulative total of 50% of Final Average Salary at 10 years of Credited Service), plus

(c) 1/12% of his or her Final Average Salary for each month of Credited Service in excess of 300 months (up to a cumulative total of 60% of Final Average Salary at 35 years of Credited Service);

(ii) An amount, based on the Participant’s Final Average Salary and Credited Service as of the date of such Participant’s Separation from Service, determined as follows:

(a) 20% of his or her Final Average Salary, plus

(b) 2/12% of Final Average Salary for each completed month of Credited Service in excess of 60 months (up to a cumulative total of 50% of Final Average Salary at 20 years of Credited Service), plus

(c) 1/12% of Final Average Salary for each completed month of Credited Service in excess of 300 months (up to a cumulative total of 60% of Final Average Salary at 35 years of Credited Service).

B. Maximum Benefits

Notwithstanding any other provisions of this Paragraph IV to the contrary, the annual benefit to which a Participant whose date of retirement is later than December 31, 1985 is entitled under Paragraph IV(A)(ii) shall in no event exceed US$140,000 (or in the case of a Participant whose date of retirement is in 1988, US$137,813; in the case of a Participant whose

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date of retirement is in 1987, US$131,250; and in the case of a Participant whose date of retirement is in 1986, US$125,000). The amount of the benefit to which a Participant is entitled under Paragraph IV(A)(ii), limited, if applicable, by the dollar amount set forth above, shall be determined as of the Participant’s Annuity Starting Date. The benefit payable under Paragraph IV(A)(i) shall not be limited by this provision.

C. SERP Offsets

(i) The benefit to which a Participant is entitled under Paragraph IV(A), limited, if applicable, as described in Paragraph IV(B), shall be reduced by the following benefits (each, a “SERP Offset”):

(a) Any Excess Benefits which the Participant is entitled to receive under Paragraph V;

(b) Any benefits which the Participant is entitled to receive under the Dean Witter Reynolds Inc. Supplemental Pension Plan, calculated as of December 31, 2008;

(c) Any pension benefits which the Participant is entitled to receive under the terms of any qualified defined benefit pension plan or money purchase pension plan maintained by the Firm, such as the Pension Plan, or any other qualified pension or retirement plan that replaces any such plan;

(d) Any pension benefits which the Participant is entitled to receive under the terms of any defined benefit or money purchase pension plan established by a former employer (or affiliate of a former employer) of the Participant, whether or not such employer or affiliate is affiliated with the Firm, calculated as of December 31, 2008;

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(e) Any benefits which the Participant is entitled to receive under the terms of any other pension or retirement plan that acts as the primary retirement plan of an employer (including a division of an employer), provided that such plan is a “qualified employer plan” or “broad-based foreign retirement plan” for purposes of Code Section 409A and Treas. Reg. §§1.409A-1(a)(2)) and §1.409A-1(a)(3)(v) (or successor provisions); and

(f) Any Retirement Contributions made on behalf of the Participant under the Morgan Stanley 401(k) Plan.

(ii) The amount of any reduction for a SERP Offset shall be calculated based on payment of both the benefit under this Paragraph IV and the SERP Offset as a single life annuity commencing at the Participant’s Annuity Starting Date. If a SERP Offset is not payable as a single life annuity commencing at the Participant’s Annuity Starting Date, the reduction shall be based on the Actuarial Equivalent of such SERP Offset, determined as if such SERP Offset were to be paid as a single life annuity commencing at the Participant’s Annuity Starting Date. The amount of any reduction for a SERP Offset shall be determined by including any interest of the Participant in the SERP Offset that has been previously distributed or otherwise permissibly alienated or assigned, for example, pursuant to a qualified domestic relations order under Code Section 414(p).

(iii) Except as provided in Paragraph IV(C)(i)(f) above, a Participant’s benefit under Paragraph IV(A) shall not be reduced by benefits payable under any defined contribution plan (other than a money purchase plan), including any benefits to which the Participant is entitled under the Morgan Stanley 401(k) Plan, the Shumagco Profit Sharing Plan or the Morgan

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Stanley International Profit Sharing Scheme. A Participant’s benefit under Paragraph IV(A) also shall not be reduced by any benefits, including benefits under any plan described in Paragraph IV(C)(i) above, to the extent attributable to the Participant’s own contributions or discretionary supplemental contributions made by the Firm on the Participant’s behalf.

D. Reductions for Early Payment

If payment of a Participant’s SERP Benefit commences as a result of the Participant’s Separation from Service at or after age 60, the SERP Benefit will not be reduced for early payment. If payment of a Participant’s SERP Benefit commences as a result of the Participant’s Separation from Service at any time at or after age 55 but before age 60, the benefit under Paragraph IV(A) and, if applicable, the dollar limitation under Paragraph IV(B), shall be reduced by 4/12% for each month that the Participant’s Annuity Starting Date precedes the date on which the Participant attains age 60.

E. Currency Conversions

(i) Any compensation or SERP Offset paid in a foreign currency shall be converted into U.S. dollars for the purpose of computing a Participant’s SERP Benefit in such manner as the Plan Administrator may from time to time determine.

(ii) If a Participant’s SERP Benefit is to be paid in a currency other than U.S. dollars, the amount of the SERP Benefit computed in U.S. dollars shall be converted into such foreign currency at the Participant’s Annuity Starting Date in such manner as the Plan Administrator may determine, and the amount payable to the Participant in such foreign currency as so determined shall remain in effect thereafter with respect to all payments to the Participant under the Plan.

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V. Excess Benefits

A. Calculation of Excess Benefits

The amount of the Excess Benefit payable to a Participant who has met the participation requirements under Paragraph III(B) (and is not excluded from participation under Paragraph III(C) or Appendix C) equals the excess of (i) the annual amount payable under the Pension Plan to such Participant, determined as if such Participant is a Grandfathered MS Participant (regardless of whether such Participant actually is a Grandfathered MS Participant) and determined without regard to the limitations on salary and benefits described in Section 10 of the Pension Plan or Code Sections 401(a)(17) and 415 or any successor or comparable provisions, over (ii) the maximum annual benefits to which such Participant is entitled under the Pension Plan, taking into account the terms of the Pension Plan (as they actually apply to the Participant) and such limitations. A Participant’s Excess Benefit shall be calculated as of the Participant’s Annuity Starting Date, based on the Code Section 415 limitation in effect under the Pension Plan with respect to the Participant and assuming that distribution of the Participant’s benefit under the Pension Plan commences in the form of a single life annuity at the Participant’s Annuity Starting Date. Notwithstanding the foregoing, effective December 31, 2004, in determining the amount of a Participant’s Excess Benefit, the early retirement reduction factors that apply for purposes of benefits accrued on and after December 31, 2004 under Exhibit A of the Pension Plan shall apply, without regard to the special reduction provision for certain Grandfathered MS Participants set forth in Section 4.4(d) of Exhibit A to the Pension Plan.

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For purposes of determining a Participant’s Excess Benefit, any limitation on compensation (or any similar term) applicable with respect to the SERP Benefits of any group of employees under Appendix C of the Plan also shall apply to such group’s Excess Benefits under the Plan.

If any benefit payment to a Participant or beneficiary under the Pension Plan is reduced pursuant to a qualified domestic relations order under Code Section 414(p), the Excess Benefit payable on account of such participant or beneficiary shall be determined without regard to such reduction.

VI. Timing and Form of Payment

A. Timing of Payment

Except as provided in Appendix E, payment of a Participant’s Benefit shall commence on the later of (i) the first day of the third month following the date of the Participant’s Separation from Service or, in the case of a Participant who is a Specified Employee, the first day of the seventh month following the date of the Participant’s Separation from Service and (ii) the first day of the month following the date the Participant reaches age 55.

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B. Form of Payment

(i) A Participant’s normal form of payment under the Plan shall be determined as follows:

(a) In the case of a Participant who, at the Annuity Starting Date, does not have a Spouse or Domestic Partner, the normal form of payment shall be a single life annuity providing a monthly benefit to the Participant for life equal to 1/12 of the annual amount determined under Paragraph IV and/or Paragraph V, as applicable.

(b) In the case of a Participant who, at the Annuity Starting Date, has a Spouse or Domestic Partner, the normal form of payment shall be a 100% joint and survivor annuity that is the Actuarial Equivalent of a single life annuity providing for a reduced monthly benefit to the Participant for life and, upon the Participant’s death after monthly payments begin, a monthly amount equal to the Participant’s reduced monthly benefit continued to the Participant’s Spouse or Domestic Partner (if then living) for his or her life.

(ii) Notwithstanding the foregoing, a Participant may elect to have the Actuarial Equivalent of his or her Benefit paid in any form available with respect to such Participant under the Pension Plan that qualifies as a “life annuity” for purposes of Code Section 409A and Treas. Reg. § 1.409A-2(b)(2)(ii) (or successor provisions), including (a) a single life annuity, (b) a 50%, 75% or 100% joint and survivor annuity, or (c) a five or ten year term certain and life annuity, as further described in the Pension Plan. A Participant may elect different forms of payment for his or her Benefit under this Plan and benefit under the Pension Plan, but if a Participant is receiving both a SERP Benefit and Excess Benefit under this Plan, the Participant must elect the same form of payment and, if applicable, the same joint annuitant or beneficiary for each such benefit.

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(iii) A Participant must make the payment election described in clause (ii) above by filing the prescribed form(s) with the Plan Administrator during the Election Period and shall not be permitted to change or revoke any such election, including any designation of a joint annuitant, after the end of the Election Period. In the case of a married Participant, spousal consent shall not be required for any such election, including the selection of a joint annuitant or beneficiary other than the spouse, except as may be required by law.

(iv) If a Participant has elected or is entitled to receive payment of his or her Benefit in the form of a 50%, 75% or 100% joint and survivor annuity and the Participant’s joint annuitant dies before the later of the end of the Election Period or the Participant’s Annuity Starting Date, any payment election shall be void and the Participant shall be deemed to have elected a single life annuity, unless the Participant elects another form of payment or designates a new joint annuitant before the later of the above dates. If a Participant is receiving or scheduled to receive his or her Benefit in the form of a 50%, 75% or 100% joint and survivor annuity and the Participant’s joint annuitant dies at any time after the later of the end of the Election Period or the Participant’s Annuity Starting Date, the Participant shall receive a reduced annuity for his or her lifetime and no payments shall be made after the Participant’s death.

(v) If a Participant has elected to receive payment of his or her Benefit in the form of a five or ten year term certain and life annuity and the Participant’s beneficiary dies before the later of the end of the Election Period or the Participant’s Annuity Starting Date, the payment election shall be void and the Participant shall be deemed to have elected a single life annuity, unless the Participant elects another form of payment or designates a new beneficiary

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before the later of the above dates. If a Participant is receiving or scheduled to receive his or her Benefit in the form of a five or ten year term certain and life annuity and the Participant’s beneficiary dies at any time after the later of the end of the Election Period or the Participant’s Annuity Starting Date, the Participant shall receive payment in the elected form for his or her lifetime and, in the event of the Participant’s death before the guaranteed number of payments have been made, the remainder of the payments shall be paid to the Participant’s estate. The rules set forth in Section 7(f) of the Pension Plan (as in effect on December 31, 2008) regarding the recipient of the payment of a term certain and life annuity following the death of the Participant and/or the Participant’s beneficiary after the Participant’s Annuity Starting Date shall also apply for purposes of this Plan.

C. Death of Participant.

(i) In the event that a Participant who is entitled to a SERP Benefit and/or Excess Benefit dies at any time before his or her Annuity Starting Date, notwithstanding any payment election previously made by the Participant, the Surviving Spouse or Surviving Domestic Partner of the Participant shall receive a benefit equal to the benefit which would have been paid to such Surviving Spouse or Surviving Domestic Partner if the Participant had separated from service and commenced receiving payment of his or her benefit in the form of a 100% joint and survivor annuity in accordance with Paragraph VI(B)(i)(b) above (with the Surviving Spouse or Surviving Domestic Partner as joint annuitant) as of the later of the day before the Participant died or the date the Participant attained, or would have attained, age 55. Payments shall commence to the Surviving Spouse or Surviving Domestic Partner on the Benefit

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Commencement Date (i.e., in general, on the later of (i) the first day of the third month following the date of the Participant’s Separation from Service or, in the case of a Participant who is a Specified Employee, the first day of the seventh month following the date of the Participant’s Separation from Service and (ii) the first day of the month following the date the Participant attained, or would have attained, age 55). If a Participant who dies before his or her Annuity Starting Date does not have a Surviving Spouse or Surviving Domestic Partner, notwithstanding any payment election previously made by the Participant, no benefit shall be paid under the Plan with respect to such Participant.

(ii) If a Participant dies at any time on or after his or her Annuity Starting Date, any survivor benefit payable with respect to the Participant shall be based on the form in which the Participant’s Benefit was being paid prior to his or her death or was scheduled to be paid based on the Participant’s payment election or, if none, the applicable normal form under
Paragraph VI(B)(i).

D. Retroactive Payments

Notwithstanding anything in the foregoing to the contrary, in the case of a Participant or beneficiary whose Benefit Commencement Date under Paragraph VI(A) is the first day of the third or seventh month following the date of the Participant’s Separation from Service, the first payment made to the Participant or beneficiary shall include an additional amount equal to the sum of all monthly payments that would have been paid to the Participant or beneficiary had payments commenced on the Annuity Starting Date, without interest.

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E. Lump Sum Payment of Small Benefits

Notwithstanding anything in the foregoing to the contrary, the present value of a Participant’s Benefit, calculated as of the first day of the month following a Participant’s Separation from Service based on the factors used to calculate lump sums under Appendix A of Exhibit A to the Pension Plan, plus interest through the payment date set forth below at the same interest rate as that used to calculate the present value of the Benefit, shall be paid to the Participant or beneficiary in a single lump sum on the first day of the third month following the date of the Participant’s Separation from Service or, in the case of a Participant who is a Specified Employee, the first day of the seventh month following the date of the Participant’s Separation from Service, if such amount (including interest) is not greater than the applicable dollar amount under Code Section 402(g)(1)(B) as in effect on the payment date and all other requirements under Treas. Reg. § 1.409A-3(j)(4)(v) (or any successor provision) have been met.

F. Reemployment

If a Participant who is receiving payment or scheduled to receive payment on account of Separation from Service is reemployed by the Firm, payments shall be made to the Participant as scheduled without regard to his or her reemployment. Any new Benefit earned by the Participant following his or her reemployment shall be paid following the Participant’s subsequent Separation from Service in accordance with the foregoing provisions of this Paragraph VI, reduced by the Actuarial Equivalent of any Benefit previously paid to the Participant.

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G. Suspension or Forfeiture of Benefits

At the Plan Administrator’s discretion, payment of a Participant’s Benefit may be suspended or forfeited in the event that a Participant enters into competition with Morgan Stanley, provided, however, that any such suspension or forfeiture shall be consistent with the rules under Code Section 409A.

H. Early Payment of Benefits. The Plan Administrator, in its sole discretion, may authorize early payment of all or a portion of a Participant’s Benefit to the extent permitted by Treas. Reg. § 1.409A-3(j)(4)(vi) (or any successor provision). Pursuant to that provision, payment may be accelerated to pay any Federal Insurance Contributions Act (FICA) tax imposed on compensation deferred under the Plan, to pay any federal, state, local or foreign income tax imposed as a result of payment of the FICA tax amount, and to pay the additional income tax attributable to the pyramiding wages and taxes. The total payment may not exceed the aggregate FICA tax amount and the income tax withholding related to such FICA tax amount.

VII. Administration of the Plan

The Plan Administrator designated in the Pension Plan shall administer the Plan, provided, however that the person or persons to whom authority over claims and appeals under the Pension Plan have been assigned (the “Claims Authorities”) shall have authority over claims and appeals under this Plan. The Plan Administrator and Claims Authorities shall have authority over claims and appeals under this Plan, shall have the same rights, responsibilities and authority under this Plan as are assigned to them under the Pension Plan, the relevant provisions of which are incorporated herein by this reference. Interpretations of the Plan Administrator and the

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Claims Authorities shall be conclusive and binding on all persons. The Plan is intended to comply with the requirements of Code Section 409A and shall be administered and interpreted accordingly. Any claim for benefits must be made by the claimant no later than the time prescribed by Treas. Reg. § 1.409A-3(g) (or any successor provision). If a claimant’s claim or appeal is approved, any resulting payment of benefits will be made no later than the time prescribed for payment of benefits by Treas. Reg. § 1.409A-3(g) (or any successor provision).

VIII. Funding of Benefits

No Participant shall have or accrue any property interest whatsoever in any specific assets of the Firm by virtue of the Plan or any Benefit payable hereunder. Neither the Plan nor any Benefit payable hereunder shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Firm (or any entity included in the Firm) and a Participant or any other person.

IX. Amendment and Termination of Plan

It is expected that the Plan will be continued indefinitely, but the Plan may be terminated at any time by the Board of Directors of Morgan Stanley, including in the event the Pension Plan is terminated. If the Plan is terminated, the Board of Directors of Morgan Stanley may authorize early payment of Benefits to Participants and beneficiaries to the extent consistent with the requirements of Treas. Reg. § 1.409A-3(j)(4)(ix) (or any successor provision). The Plan also may be amended at any time by the Board of Directors of Morgan Stanley with respect to any present or future Participants. The Board of Directors has delegated its authority to amend the Plan to the Board of Directors of Morgan Stanley & Co. Incorporated (or its delegate).

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X. Effective Date

The effective date of this amendment and restatement is December 31, 2008.

XI. Governing Law

This Plan shall be construed in accordance with and governed by the laws of the State of New York and, when applicable, the laws of the United States of America.

XII. Inalienability of Rights and Interests.

No benefit payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge or security interest and any such attempted action shall be void. No such benefit or interest shall in any manner be liable for or subject to debts, contracts, liabilities, engagements or torts of any Participant, former Participant or beneficiary. If any Participant, former Participant or beneficiary shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge, or create a security interest in, any benefit payable under the Plan or interest in any assets in relation to the Plan, then, to the extent permitted by law, subject to the requirements of Code Section 409A, the Plan Administrator in its discretion may hold or apply such benefit or interest or any part thereof to or for the benefit of such Participant, former Participant or beneficiary, his or her spouse, children, blood relatives or other dependents or any of them in such manner and such proportion as the Plan Administrator may consider proper.

XIII. Management Committee Members.

Notwithstanding any provision in this Plan to the contrary, in the event that an employment, termination or similar agreement approved by the Compensation, Management

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Development and Succession Committee of the Board of Directors of Morgan Stanley applies to an individual who is, was or will be a member of the Management Committee, the terms of the Plan, including eligibility, participation and amount of benefits, shall be applied with respect to such individual by taking into account such provisions of such employment, termination or similar agreement as shall explicitly refer to this Plan, provided that no such agreement shall alter the timing or form of payment of any Participant’s Benefit as set forth in Paragraph VI of the Plan.

MORGAN STANLEY
By:	/s/ Karen Jamesley
Title:	Global Head of Human Resources

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EX-10.3

EXHIBIT 10.3

SECOND AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) by and between Morgan Stanley (the “Company”), and John J. Mack (the “Executive”) dated as of December 16, 2008 amends and restates the original employment agreement entered into by and between the Company and the Executive on June 30, 2005 and amended as of September 20, 2005, December 13, 2005 and February 13, 2006.

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to employ the Executive as the Company’s Chief Executive Officer and to have the Executive become Chairman and a member of the Board;

WHEREAS, the Company desires to enter into an agreement embodying the terms of such employment and service; and

WHEREAS, the Executive desires to enter into this Agreement and to accept such employment and service, subject to the terms and provisions of this Agreement;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a “Party” and together the “Parties”) agree as follows:

1. Effective Date. The “Effective Date” shall mean June 30, 2005.

2. Employment Period. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the fifth anniversary thereof (the “Employment Period”).

3. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive shall serve as the Chairman of the Board and Chief Executive Officer of the Company, with such authority, duties and responsibilities as are commensurate with such positions, reporting directly to the Board, and (B) the Executive’s principal location of employment shall be at the principal headquarters of the Company; provided, that the Executive may be required under reasonable business circumstances to travel outside of such location in connection with performing his duties under this Agreement. In addition, the Company shall cause the Executive to be appointed as a member of the Board as of the Effective Date, and following such date, the Executive shall remain on the Board, subject to Section 4(g), and shall perform his duties as a director of the Company conscientiously and faithfully.

(ii) The Executive agrees that during the Employment Period, he shall devote substantially all of his business time, energies and talents to serving as the Company’s Chairman of the Board and Chief Executive Officer, perform his duties conscientiously and faithfully subject to the reasonable and lawful directions of the Board, and in accordance with each of the Company’s corporate governance and ethics guidelines, conflict of interests policies and code of conduct (collectively, the “Company Policies”) applicable to all Company employees or senior executives generally. During the Employment Period, it shall not be a violation of this Agreement for the Executive, subject to the requirements of Section 8, to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures or fulfill speaking engagements and (C) manage personal investments, so long as such activities do not materially interfere with the performance of the Executive’s responsibilities as the Chief Executive Officer or as Chairman or a director of the Board in accordance with this Agreement.

(b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annualized base salary (“Annual Base Salary”) of not less than the individual who served as Chief Executive Officer of the Company immediately prior to the Executive (the “Prior CEO”), payable pursuant to the Company’s normal payroll practices. During the Employment Period, the current Annual Base Salary shall be reviewed for increase only (and once increased shall never be decreased) at such time as the salaries of senior executives of the Company are reviewed generally, provided that, the Executive’s first such review shall occur no earlier than fiscal year 2006.

(ii) Annual Bonus. For each fiscal year completed during the Employment Period, the Executive shall be eligible to receive an annual bonus (“Annual Bonus”) on terms and conditions and based upon performance targets that are established by the Compensation, Management Development and Succession Committee of the Board or its successor (the “Committee”), provided that in no event shall such terms and conditions or performance targets be less favorable to the Executive than to senior executives of the Company generally.

(iii) Long-Term Incentive Compensation. For each fiscal year completed during the Employment Period, the Executive shall be eligible to receive long-term incentive compensation (“Long-Term Incentive Compensation”, and together with Annual Base Salary and Annual Bonus, “Total Compensation”) on terms and conditions no less favorable to the Executive than (x) members of the Operating Committee of the Company (the “ Operating Committee”) generally and (y) the terms and conditions of the Equity Incentive Compensation Plan, 2004 Discretionary Retention Awards Award Certificate (the “2004 EICP”); provided that for purposes of the Long-Term Incentive Compensation (other than the Special RSU Grant (as

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defined below)), the Executive shall be treated as if the Executive had been continuously employed by the Company and had not terminated employment with the Company in January 2001; provided, further, that the Executive shall not be so treated in the event that prior to the first anniversary of the Effective Date the Executive is terminated for Cause (as defined below). The proportion of Total Compensation provided to the Executive as Annual Base Salary, Annual Bonus and Long-Term Incentive Compensation, respectively, for each of fiscal years 2005 and 2006 shall be substantially similar to the proportion of Total Compensation provided as Annual Base Salary, Annual Bonus and Long-Term Incentive Compensation, respectively, to members of the Operating Committee generally.

(iv) Special RSU Grant. As soon as practicable following the Effective Date, the Executive shall be granted a special one-time grant of 500,000 restricted stock units based on shares of the Company’s common stock (the “Special RSU Grant”). Twenty percent of the Special RSU Grant shall vest, and the underlying shares shall be delivered, on the first anniversary of the Effective Date, 20 percent of the Special RSU Grant shall vest, and the underlying shares shall be delivered, on each of the second, third, fourth and fifth anniversaries of the Effective Date. Except as specifically set forth herein, the Special RSU Grant shall have the same terms and conditions as grants of restricted stock units under the 2004 EICP. In no event shall the Special RSU Grant be considered part of the Executive’s Total Compensation.

(v) Retirement Benefits. During the Employment Period, the Executive shall be eligible to participate in any qualified or nonqualified deferred compensation, pension, and retirement plans maintained by the Company applicable to senior executives of the Company generally, in each case, as amended from time to time, provided that for all purposes of such plans, the Executive shall be treated as if the Executive had been continuously employed by the Company and had not terminated employment with the Company in January 2001, provided, further, that the Executive shall not be so treated in the event that prior to the first anniversary of the Effective Date the Executive is terminated for Cause.

(vi) Other Benefits. During the Employment Period, the Executive shall be entitled to participate in all welfare, perquisites, fringe benefit, and other benefit plans, practices, policies and programs, as may be in effect from time to time, for senior executives of the Company generally, provided that, during the Employment Period, the Executive shall receive perquisites no less favorable than those provided to the Prior CEO, including, without limitation, use of the Company’s aircraft and use of a car and driver. In addition, following the Executive’s retirement or any termination of his employment, the Executive shall be entitled to retiree health benefits pursuant to the retiree health plans, practices, programs and policies of the Company (or under programs providing the same benefits), and for purposes of determining the amount of the Executive’s contributions and benefits under such plans, practices, programs and policies, the Executive shall be treated as if the Executive had been continuously employed by the Company and had not terminated employment with the Company in January 2001 (the “Executive’s Retiree Health Benefits”), provided, that the Executive shall not be entitled to the Executive’s Retiree Health Benefits in the event that prior to the first anniversary of the Effective Date the Executive is terminated for Cause.

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(vii) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for business expenses incurred by the Executive in accordance with the Company’s policies, as may be in effect from time to time, for its senior executives generally.

(viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the Company’s policies, as may be in effect from time to time, for its senior executives generally, provided that for purposes of determining the Executive’s vacation benefits, the Executive shall be treated as if the Executive had been continuously employed by the Company and had not terminated employment with the Company in January 2001.

(ix) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and shall be provided with secretarial and administrative assistance, as is provided generally to other senior executives of the Company.

(c) Other Entities. The Executive agrees to serve, without additional compensation, as an officer and director for each of the Company’s subsidiaries, partnerships, joint ventures, limited liability companies and other affiliates, including entities in which the Company has a significant investment (collectively, the Company and such entities, the “Affiliated Group”), as determined by the Company, provided, that such service does not materially interfere with the Executive’s performance of his duties and responsibilities as the Chairman of the Board and Chief Executive Officer of the Company. As used in this Agreement, the term “affiliates” shall include any entity controlled by, controlling, or under common control with the Company.

4. Termination of Employment. (a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. In the event a Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), the Company may provide the Executive with written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30-day period after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall mean the inability of the Executive to perform his duties with the Company on a full-time basis for six consecutive months as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a licensed

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physician mutually selected by (i) the Company or its insurers and (ii) the Executive or the Executive’s legal representative. If the Parties cannot agree on a licensed physician, each Party shall select a licensed physician and the two physicians shall select a third who shall be the approved licensed physician for this purpose.

(b) Cause. The Company may terminate the Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the continued failure of the Executive to perform substantially the Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), for a period of 10 days after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or

(ii) the willful engaging by the Executive in illegal or fraudulent conduct or gross misconduct which, in each case, is materially and demonstrably injurious to the Company, or either of their respective reputations or to any clients or customers of the Company, or

(iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto, or

(iv) a violation in any material respect of any Company Policies applicable to the Executive which is materially and demonstrably injurious to the Company, if such breach is not cured within 30 business days following receipt of a notice of such breach, or

(v) a material breach by the Executive of Section 8 of this Agreement, if such breach is not cured within 30 business days following receipt of a notice of such breach.

For purposes of this provision, no act or failure to act on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company or was done or omitted to be done with reckless disregard to the consequences. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to

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the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive is guilty of the conduct constituting Cause and specifying the particulars thereof in detail.

(c) Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean, in the absence of a written consent of the Executive:

(i) the assignment to the Executive of any duties materially inconsistent with the Executive’s duties or responsibilities, or any other material action by the Company which is materially inconsistent with or materially reduces such duties or responsibilities; or

(ii) any diminution in Executive’s title or reporting relationship as contemplated by Section 3(a) of this Agreement; or

(iii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement; provided that Executive’s receipt of 100% of his Annual Bonus in respect of fiscal year 2005 in the form of equity compensation under the Equity Incentive Compensation Plan shall not constitute Good Reason; or

(iv) the Company’s requiring the Executive’s principal office to be based at any office or location other than that provided in Section 3(a) of this Agreement; or

(v) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(vi) any failure to elect or reelect the Executive to the Board; or

(vii) any failure by the Company to cause any successor to all or substantially all or a substantial portion of its business and/or assets to assume expressly and agree to perform this Agreement in accordance with Section 9(b).

Notwithstanding the foregoing, the Executive shall not be considered to have Good Reason to terminate this Agreement unless and until he gives the Company written notice of the circumstances constituting the Good Reason within 90 days of the initial existence of such circumstances, and the Company fails to have cured such circumstances within 30 business days of receipt of such notice.

(d) Voluntary Termination. The Executive may voluntarily terminate his employment without Good Reason.

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(e) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other Party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(f) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be (but in the case of a termination by the Executive for Good Reason, the Date of Termination shall not be earlier than the last day of the Company’s cure period provided for in Section 4(c)), (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, or if the Executive voluntarily resigns without Good Reason, the date on which the terminating Party notifies the other Party of such termination, (iii) if the Executive’s employment is terminated by reason of death, the date of death of the Executive or (iv) if the Executive’s employment is terminated by the Company due to Disability, the Disability Effective Date.

(g) Resignation from All Positions. Notwithstanding any other provision of this Agreement, upon the termination of the Executive’s employment for any reason, unless otherwise requested by the Board, the Executive shall immediately resign from all positions that he holds or has ever held with the Company and any other member of the Affiliated Group (and with any other entities with respect to which the Company has requested the Executive to perform services), including, without limitation, the Board and all boards of directors of any member of the Affiliated Group. The Executive hereby agrees to execute any and all documentation to effectuate such resignations upon request by the Company, but he shall be treated for all purposes as having so resigned upon termination of his employment, regardless of when or whether he executes any such documentation.

(h) Definitions. Notwithstanding the terms of any employee benefit plan, program or arrangement under which the Executive is a participant, the definitions of “Cause”, “Good Reason” and “Disability” set forth in this Section 4 shall apply to the Executive’s termination of employment under such plans, programs or arrangements.

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5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause. If, during the Employment Period, the Company shall terminate the Executive’s employment other than for Cause, death or Disability or the Executive shall terminate employment for Good Reason:

(i) the Company shall pay to the Executive in a lump-sum cash payment as soon as practicable, and in no event later than the first regularly scheduled payroll date, after the Date of Termination the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid.

(ii) notwithstanding the terms of any incentive plan, program or arrangement, any and all unvested stock options, restricted stock units (including the Special RSU Grant and the Long-Term Incentive Compensation) and other equity or equity-based awards shall immediately vest as of the Date of Termination, provided that such awards shall continue to be governed by any applicable forfeiture provisions in accordance with the terms thereof.

(iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement (other than any severance plan, program, policy or practice or contract or agreement) of the Company and its affiliates in accordance with the terms and normal procedures of each such plan, program, policy or practice, as modified by this Agreement, based on accrued benefits through the Date of Termination (such amounts and benefits, the “Other Benefits”).

(iv) until the later of (x) the fifth anniversary of the Effective Date or (y) the first anniversary of the Date of Termination, in addition to the Retiree Medical Benefits, the Company shall continue to provide medical and dental benefits to Executive and his eligible dependents as if the Executive remained an active employee of the Company. The applicable period of health benefit continuation under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) shall begin on the Date of Termination. Any benefits provided to the Executive during any taxable year of the Executive pursuant to this Section 5(a)(iv) shall not affect the benefits to be provided in any other taxable year.

Except with respect to payments and benefits under Sections 5(a)(i) and 5(a)(iii), all payments and benefits to be provided under Section 5(a)(ii) shall be subject to the Executive’s execution and non-revocation of a mutual release substantially in the form attached hereto as Exhibit A, and the Company shall have no obligation to continue to pay or provide the benefits specified in Section 5(a)(iv) unless the Executive shall have executed such a mutual release and such release shall have become irrevocable within 60 days following the Date of Termination; provided, however, that the Executive’s obligation to execute such release shall be subject to the

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Company’s execution and delivery to the Executive of such release in favor of the Executive. For purposes of this Section 5, if the Date of Termination occurs prior to the date that the Committee determines the amount of the Executive’s Annual Bonus or Long-Term Incentive Compensation in respect of fiscal year 2005, the amount of the Executive’s Total Compensation (on an annualized basis) shall be determined in the discretion of the Committee, such that such Annual Bonus and Long-Term Incentive Compensation shall be consistent with the annual bonus and long-term incentive compensation in respect of fiscal year 2005 for other members of the Operating Committee generally.

(b) Cause; Other than for Good Reason. If the Executive’s employment shall be terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay or provide to the Executive the Executive’s Retiree Health Benefits (subject to the provisions of Section 3(b)(vi)), an amount equal to the amount set forth in Section 5(a)(i), and the timely payment or provision of the Other Benefits, in each case to the extent theretofore unpaid.

(c) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than the obligation to pay or provide to the Executive’s beneficiaries the Executive’s Retiree Health Benefits (if applicable), the timely payment or provision of the Other Benefits, including any applicable life insurance benefits, and (i) the amount specified in Section 5(a)(i) plus (ii) the excess of (1) the product of (x) the Executive’s annualized Total Compensation for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365, over (2) the Annual Base Salary to the extent paid for the year that includes the Date of Termination (the amounts in Sections 5(c)(i) and (ii), the “Accrued Obligations”). The Company shall make the payment specified in Section 5(c)(ii) as soon as practicable, and in any event within 60 days, after the Executive’s death.

For purposes of determining the Executive’s annualized Total Compensation in respect of any fiscal year for which Long-Term Incentive Compensation was awarded in a form other than restricted stock units, restricted stock or cash, the value of such award shall be determined by the Committee in its good faith discretion.

(d) Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than the obligation to pay or provide to the Executive the Executive’s Retiree Health Benefits, the Accrued Obligations, and the timely payment or provision of Other Benefits, including any applicable disability benefits. The Company shall make payment of the portion of the Accrued Obligations specified in Section 5(c)(ii) as soon as practicable, and in any event within 60 days, after the Disability Effective Date.

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(e) Relationship with Restrictive Covenant Agreement. (i) Should there be any inconsistency between the provisions in this Agreement (including any provisions incorporated by reference) and the provisions in the agreement dated November 22, 2005 relating to the notice period and restrictive covenants applicable to the Executive (the “Restrictive Covenant Agreement”)¹ as such provisions relate to the time period for the provision of advance written notice of termination by either the Company or by the Executive or the duration of any non-solicitation covenant, the provisions of the Restrictive Covenant Agreement shall prevail and, notwithstanding any provision of Section 3(b)(iii), said provisions of the Restrictive Covenant Agreement may be incorporated into equity-based awards under the Company’s equity compensation plans in respect of fiscal year 2005 or granted at any time in the future; provided, however, that if the Executive terminates his employment for Good Reason under this Agreement, then the Executive will not be required for any purpose to provide 180 days advance written notice (provided that the Executive otherwise complies with the provisions of Sections 4(c), 4(e) and 4(f)).

(ii) Should there be any inconsistency between the provisions in this Agreement and the provisions in the Restrictive Covenant Agreement as such provisions relate to the definition of “Cause” and the consequences of the termination of the Executive’s employment without “Cause”, the provisions of this Agreement shall prevail.

6. Non-Exclusivity of Rights. Except as specifically provided otherwise, nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company, or any of its subsidiaries for which the Executive is otherwise eligible, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or its subsidiaries. Notwithstanding the foregoing, if the Executive receives payments and benefits pursuant to Section 5(a) of this Agreement, the Executive shall not be entitled to any severance pay or benefits under any severance plan, program or policy of the Company and the Affiliated Companies, unless otherwise specifically provided therein in a specific reference to this Agreement. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

¹ For ease of reference only, the form of Restrictive Covenant Agreement which Mr. Mack executed is attached hereto as Appendix 1.

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7. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced as a result of a mitigation duty whether or not the Executive obtains other employment.

8. Covenants.

(a) Confidential Information. The Executive shall hold in a fiduciary capacity for benefit of the Affiliated Group, all secret or confidential information, knowledge or data relating to the Affiliated Group and its businesses (including, without limitation, any proprietary and not publicly available information concerning any processes, methods, trade secrets, research or secret data, costs, names of users or purchasers of their respective products or services, business methods, operating procedures or programs or methods of promotion and sale) that the Executive has obtained or obtains during the Executive’s employment by the Affiliated Group that is not public knowledge (other than as a result of the Executive’s violation of this Section 8(a)) (“Confidential Information”). For the purposes of this Section 8(a), information shall not be deemed to be publicly available merely because it is embraced by general disclosures or because individual features or combinations thereof are publicly available. The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executive’s employment with the Affiliated Group, except with prior written consent of the Company, or as otherwise required by law or legal process or as such disclosure or use may be required in the course of the Executive performing his duties and responsibilities as the President and Chief Executive Officer of the Company. Notwithstanding the foregoing provisions, if the Executive is required to disclose any such confidential or proprietary information pursuant to applicable law or a subpoena or court order, the Executive shall promptly notify the Company in writing of any such requirement so that the Company or the appropriate member of the Affiliated Group may seek an appropriate protective order or other appropriate remedy or waive compliance with the provisions hereof. The Executive shall reasonably cooperate with the Affiliated Group to obtain such a protective order or other remedy. If such order or other remedy is not obtained prior to the time the Executive is required to make the disclosure, or the Company waives compliance with the provisions hereof, the Executive shall disclose only that portion of the confidential or proprietary information which he is advised by counsel that he is legally required to so disclose. All records, files, memoranda, reports, customer lists, drawings, plans, documents and the like that the Executive uses, prepares or comes into contact with during the course of the Executive’s employment shall remain the sole property of the Company and/or the Affiliated Group, as applicable, and shall be turned over to the Company upon termination of the Executive’s employment.

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(b) Remedies. The Executive acknowledges and agrees that the terms of Section 8: (i) are reasonable in light of all of the circumstances, (ii) are sufficiently limited to protect the legitimate interests of the Company and its subsidiaries, (iii) impose no undue hardship on the Executive and (iv) are not injurious to the public. The Executive further acknowledges and agrees that (x) the Executive’s breach of the provisions of Section 8 will cause the Company irreparable harm, which cannot be adequately compensated by money damages, and (y) if the Company elects to prevent the Executive from breaching such provisions by obtaining an injunction against the Executive, there is a reasonable probability of the Company’s eventual success on the merits. The Executive consents and agrees that if the Executive commits any such breach or threatens to commit any breach, the Company shall be entitled to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage, in addition to, and not in lieu of, such other remedies as may be available to the Company for such breach, including the recovery of money damages. The Parties further acknowledge and agree that the provisions of Section 11(a) below are accurate and necessary because (A) this Agreement is entered into in the State of New York, (B) as of the Effective Date, New York will have a substantial relationship to the Parties and to this transaction, (C) as of the Effective Date, New York will be the headquarters state of the Company, which has operations nationwide and has a compelling interest in having its employees treated uniformly within the United States, (D) the use of New York law provides certainty to the Parties in any covenant litigation in the United States, and (E) enforcement of the provision of this Section 8 would not violate any fundamental public policy of New York or any other jurisdiction. If any of the provisions of Section 8 are determined to be wholly or partially unenforceable, the Executive hereby agrees that this Agreement or any provision hereof may be reformed so that it is enforceable to the maximum extent permitted by law. If any of the provisions of this Section 8 are determined to be wholly or partially unenforceable in any jurisdiction, such determination shall not be a bar to or in any way diminish the Company’s right to enforce any such covenant in any other jurisdiction.

9. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(b) No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all or a substantial portion of the assets of the Company; provided, however, that the assignee or transferee is the successor to all or substantially all or a substantial portion of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this

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Agreement, either contractually or as a matter of law. The Company shall cause any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all or a substantial portion of its business and/or assets to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

10. Additional Payment. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any Payment would be subject to the Excise Tax, then the Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount such that, after payment by the Executive of all taxes (and any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The Company’s obligation to make Gross-Up Payments under this Section 10 shall not be conditioned upon the Executive’s termination of employment.

(b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm as may be agreed to by the Company and the Executive (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Company to the Executive within 5 days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the “Underpayment”), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 10(c) and the Executive thereafter is required to make a payment of any

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Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. The Executive shall notify the Company no later than 10 days after having made such payment of Excise Tax, the Accounting Firm shall provide its calculation of such Underpayment within 15 business days of the receipt of such notice from the Executive, and the Company shall pay the Underpayment within 5 days of the receipt of the Accounting Firm’s determination.

(c) The Executive shall notify the Company in writing no later than 10 days after making any payment to the United States Treasury that would entitle the Executive to a Gross-Up Payment. In addition, the Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable, but no later than 10 business days after the Executive is informed in writing of such claim. Notice given by the Executive pursuant to this Section 10(c) shall constitute notice for purposes of Section 10(b) that there has been a Payment. The Executive shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole

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discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either pay the tax claimed to the appropriate taxing authority on behalf of the Executive and direct the Executive to sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company pays such claim and directs the Executive to sue for a refund, the Company shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties) imposed with respect to such payment or with respect to any imputed income in connection with such payment; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by the Executive of a Gross-Up Payment or payment by the Company of an amount on the Executive’s behalf pursuant to Section 10(c), the Executive becomes entitled to receive any refund with respect to the Excise Tax to which such Gross-Up Payment relates or with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 10(c), if applicable) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after payment by the Company of an amount on the Executive’s behalf pursuant to Section 10(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then the amount of such payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

(e) Notwithstanding any other provision of this Section 10, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the Executive, all or any portion of any Gross-Up Payment, and the Executive hereby consents to such withholding.

(f) Definitions. The following terms shall have the following meanings for purposes of this Section 10.

(i) “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

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(ii) A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise.

11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. The Parties hereto irrevocably agree to submit to the jurisdiction and venue of the courts of the State of New York, in any action or proceeding brought with respect to or in connection with this Agreement. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the Parties hereto or their respective successors and legal representatives.

(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other Party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

At the most recent address on file for the Executive at the Company.

With a copy to:

William Zabel, Esq.

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY 10022

If to the Company:

1585 Broadway

New York, NY 10036

Attention: Chief Legal Officer

or to such other address as either Party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

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(d) Notwithstanding any other provision of this Agreement, the Company may withhold from any amounts payable or benefits provided under this Agreement any Federal, state, and local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) Notwithstanding any other provision of this Agreement, if at the time of the Executive’s “separation from service” (as defined in Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder (together with Section 409A of the Code, the “409A Regulations”)) he is a “specified employee” (as defined in the 409A Regulations), then to the extent that any payments or benefits owed to the Executive under this Agreement upon his separation from service constitute an amount of deferred compensation for purposes of the 409A Regulations, the Executive will not be entitled to such payments or benefits until the earlier of (i) the first business day following the date that is six months after the date of the Executive’s separation from service for any reason, other than as a result of the Executive’s death or (ii) the date of the Executive’s death or (iii) any earlier date that does not result in any additional tax or interest to the Executive under the 409A Regulations. In addition, if any provision of this Agreement would subject the Executive to any additional tax or interest under the 409A Regulations, then the Company shall reform such provision; provided that the Company shall (x) maintain, to the maximum extent practicable, the original intent of the applicable provision without subjecting the Executive to such additional tax or interest and (y) not incur any additional compensation expense as a result of such reformation.

(f) Notwithstanding any other provision in this Agreement, to the extent that the Special RSU Grant, any other Long-Term Incentive Compensation Grant or any other cash or equity compensation award granted to the Executive does not constitute “performance-based compensation” for purposes of Section 162(m) of the Code, settlement of such award may be deferred in accordance with the Company’s policy applicable to the deferral and payment of equity-based awards for purposes of Section 162(m) of the Code; provided, however, that in the event that the Executive dies prior to the lapse of such deferral period, payment will be made as soon as administratively practicable, and in any event within 60 days, after the Executive’s death. For the avoidance of doubt, the deferral of such equity-based awards shall not affect the Executive’s vested right to receive such equity-based awards upon the lapse of such deferral period.

(g) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(h) From and after the Effective Date, this Agreement shall supersede any other agreements between the Parties with respect to the subject matter hereof, other than the Executive’s letter to the Company, dated October 24, 2008, regarding the compensation requirements of the Capital Purchase Program under the Troubled Asset Relief Program.

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written.

      /s/ John J. Mack

John J. Mack

MORGAN STANLEY

/s/ Karen C. Jamesley

By:    Karen C. Jamesley

Title: Global Head of Human Resources

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EXHIBIT A

Form of Release

(a) In consideration for the payment of the severance described in the Executive’s amended and restated employment agreement with the Company, dated as of September __, 2005, as amended and clarified from time to time (the “Employment Agreement”), the Executive for himself, and for his heirs, administrators, representatives, executors, successors and assigns (collectively “Releasers”) does hereby irrevocably and unconditionally release, acquit and forever discharge the Company, its subsidiaries, affiliates and divisions and their respective, current and former, trustees, officers, directors, partners, shareholders, agents, employees, consultants, independent contractors and representatives, including without limitation all persons acting by, through under or in concert with any of them (collectively, “Releasees”), and each of them from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys’ fees and costs) of any nature whatsoever, known or unknown, whether in law or equity and whether arising under federal, state or local law and in particular including any claim for discrimination based upon race, color, ethnicity, sex, age (including the Age Discrimination in Employment Act of 1967), national origin, religion, disability, or any other unlawful criterion or circumstance, which the Executive and Releasers had, now have, or may have in the future against each or any of the Releasees (collectively “Executive/Releaser Actions”) from the beginning of the world until the date hereof.

(b) The Executive acknowledges that: (i) this entire Release is written in a manner calculated to be understood by him; (ii) he has been advised to consult with an attorney before executing this Release; (iii) he was given a period of twenty-one days within which to consider this Release; and (iv) to the extent he executes this Release before the expiration of the twenty-one day period, he does so knowingly and voluntarily and only after consulting his attorney. The Executive shall have the right to cancel and revoke this Release by delivering notice to the Company pursuant to the notice provision of Section 11 of the Employment Agreement prior to the expiration of the seven-day period following the date hereof, and the severance benefits under the Employment Agreement shall not become effective, and no payments or benefits shall be made or provided thereunder, until the day after the expiration of such seven-day period (the “Revocation Date”). Upon such revocation, this Release and the severance provisions of the Employment Agreement shall be null and void and of no further force or effect.

(c) For and in consideration of the obligations upon Executive as set forth in the Employment Agreement, and for other good and valuable consideration, the Company hereby (on its own behalf and that of the Company’s affiliates and subsidiaries (collectively, with the Company, the “Affiliated Entities”), the divisions and predecessors and successors of the Affiliated Entities and the directors and officers of the company in their capacity as such (collectively, the “Releasing Entities”) releases Executive and his heirs, executors, successors

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and assigns (the “Executive Released Parties”) and each of them from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys’ fees and costs) of any nature whatsoever, known or unknown, whether in law or equity and whether arising under federal, state or local law, which the Company and the Affiliated Entities had, now have, or may have in the future against each or any of the Executive Released Parties from the beginning of the world until the date hereof.

(d) Notwithstanding anything herein to the contrary, the sole matters to which the Release do not apply are: (i) the Executive’s rights of indemnification and directors and officers liability insurance coverage to which he was entitled immediately prior to                      with regard to his service as an officer of the Company; (ii) the Executive’s rights under any tax-qualified pension or claims for accrued vested benefits under any other employee benefit plan, policy or arrangement maintained by the Company or under COBRA; or (iii) the Executive’s rights under Sections 5, 7 and 10 of the Employment Agreement which are intended to survive termination of employment.

(e) This Release is the complete understanding between the Executive and the Company in respect of the subject matter of this Release and supersedes all prior agreements relating to the same subject matter. The Executive has not relied upon any representations, promises or agreements of any kind except those set forth herein in signing this Release.

(f) In the event that any provision of this Release should be held to be invalid or unenforceable, each and all of the other provisions of this Release shall remain in full force and effect. If any provision of this Release is found to be invalid or unenforceable, such provision shall be modified as necessary to permit this Release to be upheld and enforced to the maximum extent permitted by law.

(g) This Release is to be governed and enforced under the laws of the State of New York (except to the extent that New York conflicts of law rules would call for the application of the law of another jurisdiction).

(h) This Release inures to the benefit of the Company and its successors and assigns and the Executive and its legal representatives.

EXECUTIVE

COMPANY

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Appendix 1

Restrictive Covenant Agreement

AGREEMENT

Morgan Stanley, including its subsidiaries, affiliates, and related companies (hereinafter “Morgan Stanley” or the “Firm”), believes that there are certain fundamental employment terms and conditions for Managing Directors² and Executive Directors that are essential to protect the Firm’s business interests, client and employee relationships, and confidential information. These terms and conditions serve a number of important goals which, given your position with the Firm, you are uniquely positioned to advance. The goals include (i) promoting the continuity of our workforce, (ii) providing the Firm, as well as the Firm’s clients and customers and other employees, with a smooth transition of business, responsibilities, and business relationships in the event you terminate your employment with the Firm, (iii) ensuring that you continue to fulfill your obligations to the Firm during your employment, (iv) protecting Morgan Stanley’s confidential business information, trade secrets, customer lists and other proprietary information to which you have had and will in the future have access, and (v) maintaining Morgan Stanley’s customer and employee relationships and goodwill worldwide (collectively, the “Business Interests”).

As a Managing Director or Executive Director of Morgan Stanley, you may be eligible to receive equity-based awards under the Firm’s equity compensation plans (each an “Equity Award”³), in the Firm’s sole discretion. Equity Awards are granted to encourage continued employment, to protect the Firm’s global Business Interests, and to align the recipient’s interests with the interests of the Firm. In furtherance of these goals, and in addition to any eligibility requirements set forth in applicable equity compensation plans, your eligibility for any Equity Award, whether in respect of fiscal year 2005 or granted at any time in the future, is conditioned upon your agreement to the terms and conditions of this Agreement, including those set forth below in paragraphs A-D (the “Terms and Conditions”). Nothing in this Agreement is intended to obligate the Firm to grant you an Equity Award in respect of fiscal year 2005 or at any time in the future, inasmuch as the grant of Equity Awards will continue to be in the Firm’s sole discretion.

² References to “Managing Director” include Executive Vice Presidents and Senior Vice Presidents of Discover Financial Services.

³ In addition to equity-based awards, if any, granted under the Equity Incentive Compensation Plan (or any successor thereto), Equity Awards shall also include awards, if any, granted to eligible Asset Management employees pursuant to the Investment Management Deferred Compensation Plan (the “IMDCP”).

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A. Notice Period Prior to Termination

You agree that in the event you decide to resign your employment for any reason (a “Resignation”), you will provide advance written notice of your Resignation to your immediate manager, and that the period of notice that you will provide shall be determined by your officer level at the time of your Resignation (this period of notice, along with the Firm’s period of notice described below, the “Notice Period”).

• If you are an Executive Director at the time of your Resignation, your Notice Period will be 60 days;

• If you are a Managing Director at the time of your Resignation, your Notice Period will be 90 days;

• If you are a member of the Management Committee at the time of your Resignation, your Notice Period will be 180 days.

In the event of the termination of your employment by the Firm for any reason other than for Cause (as defined in the most recent Equity Award granted prior to the date of such termination and/or as provided below), the Firm, in its discretion, will either provide you with (i) notice of your termination equal to the applicable Notice Period or (ii) payment in lieu of such Notice Period (or, where notice has previously been given in accordance with clause (i) above, payment in lieu of the remainder of such Notice Period), subject, in the case of clause (ii), to your execution, delivery and non-revocation of a release in a form satisfactory to the Firm.

During the Notice Period (provided that you are not paid in lieu of your Notice Period in the event of the termination of your employment by the Firm), you will remain an employee of Morgan Stanley and will continue to be paid your base salary and be eligible for welfare and qualified retirement plan benefits applicable to you. However, you will generally not be eligible to receive Above Base Compensation (i.e., a bonus) if you decide to leave the Firm. If you give or receive notice of termination of your employment with the Firm, please consult the Human Resources Department for more information.

As an employee during the Notice Period, you will be expected to undertake such duties and responsibilities as are assigned to you by Morgan Stanley, including duties to assist Morgan Stanley with your transition from the Firm and maintaining the Firm’s business, business relationships, and goodwill. In addition, as an employee you will continue to be bound by all fiduciary duties and obligations owed to Morgan Stanley and required to comply with all Firm policies and the Code of Conduct, as amended from time to time (the “Code of Conduct”). The Firm reserves the right to put you on paid leave (i.e., base salary and welfare and qualified retirement plan benefits continuance) and to suspend any of your duties and powers and to relocate your office for all or part of your Notice Period.

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Subject to the applicable Notice Period that the Firm has undertaken to provide to the extent required above, this Agreement does not create a contract for employment for any specified duration or in any way limit Morgan Stanley’s right to terminate your employment as an at-will employee or otherwise modify the At-Will Employment Policy on the Human Resources Department’s policy website. Nor does it alter your right to terminate your employment at will, subject to the applicable Notice Period.

B. Non-Solicitation of Clients and Customers

The relationship between the Firm and its clients and customers, and prospective clients and customers, constitutes a valuable asset of Morgan Stanley and may not be converted to your own use, or for the use of any third party. Accordingly, you agree that during your employment, including during your Notice Period, and during your Client Non-Solicitation Period (as defined in the immediately subsequent sentence), you will not, directly or indirectly (through any person, corporation, partnership or other business entity of any kind), solicit or entice away or in any manner attempt to persuade any client or customer, or prospective client or customer, of Morgan Stanley (i) to discontinue or diminish his, her or its relationship or prospective relationship with the Firm or (ii) to otherwise provide his, her or its business to any person, corporation, partnership or other business entity which engages in any line of business in which Morgan Stanley is engaged (other than Morgan Stanley). The “Client Non-Solicitation Period” means:

• If you are an Executive Director or a Managing Director at the time of your Resignation, 90 days after the termination of your employment;

• If you are a member of the Management Committee at the time of your Resignation, 180 days after the termination of your employment.

The restrictions in this paragraph shall apply only to clients or customers, or prospective clients or customers, that you worked for on an actual or prospective project or assignment during the Notice Period or the period of 180 days preceding your notice of Resignation.

C. No Hire or Solicitation of Employees

The employees of Morgan Stanley are one of its most important assets, and the Firm wishes to protect its interest in retaining valuable employees. Accordingly, you agree that during your employment, including during your Notice Period, and for 180 days after the termination of your employment, you will not directly or indirectly in any capacity (including through any

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person, corporation, partnership or other business entity of any kind), hire or solicit, recruit, induce, entice, influence, or encourage any Morgan Stanley employee to leave the Firm or become hired or engaged by another firm. The restrictions in this paragraph shall apply only to employees with whom you worked or had professional or business contact, or who worked in or with your business unit, during the Notice Period or the period of 180 days preceding your notice of Resignation.

D. Confidentiality Obligations

You acknowledge that you have agreed to abide by the obligations of confidentiality as set forth in the Firm’s Code of Conduct, including those obligations that extend beyond your period of employment with Morgan Stanley.

****

Morgan Stanley reserves the right to waive all or part of the Terms and Conditions under appropriate circumstances, in its sole discretion. Any such waiver must be in writing and signed by a Managing or Executive Director in the Human Resources Department.

Please note that this Agreement constitutes a variation to certain of your terms and conditions of employment. All other terms and conditions of your employment will remain in full force and effect. Through your acceptance of this Agreement, as well as in consideration for your continued employment and any promotion that you may receive and the Firm’s undertaking to provide you with notice or payment in lieu of your Notice Period if it terminates your employment for any reason other than for Cause and your acceptance of future compensation, including incentive compensation, you acknowledge that the Terms and Conditions, which will be operative worldwide, are reasonable and necessary to protect Morgan Stanley’s global Business Interests. You further acknowledge that any breach or threatened breach of any of the Terms and Conditions will cause immeasurable and irreparable damage to Morgan Stanley. Accordingly, you agree that if you do not comply or threaten not to comply with the Terms and Conditions, damages will not be an adequate remedy for any breach committed by you and, therefore, Morgan Stanley will be entitled to injunctive relief or specific performance in a state or federal court in the County of New York to the fullest extent permissible by law. In addition, failure to comply with the Terms and Conditions will result in immediate cancellation of any vested and unvested portions of any Equity Award that may be granted to you, in the Firm’s sole discretion, in respect of fiscal year 2005 or at any time in the future, and Morgan Stanley may seek additional damages.

The Terms and Conditions shall be deemed to be part of the applicable equity compensation plans of the Firm and of the IMDCP and part of the terms and conditions of all Equity Awards, if any, granted to you in respect of fiscal year 2005 or at any time in the future during your employment with Morgan Stanley.

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This Agreement shall be governed by the laws of the State of New York without regard to any conflicts or choice of law principles; provided, however, that any Equity Awards, and the terms and conditions of this Agreement applicable to such Equity Awards, shall be governed by New York law or as otherwise provided in the most recent applicable Equity Award granted prior to the occurrence or event giving rise to the application of this provision. In any dispute relating to or concerning this agreement, the parties agree to submit such dispute to a state or federal court in the County of New York and submit to the exclusive jurisdiction of such court except to the extent that you and Morgan Stanley are obligated to arbitrate disputes pursuant to any individual agreement with the Firm and/or the rules and regulations of any applicable regulatory body, in which case such obligation shall not be deemed to preclude Morgan Stanley from seeking injunctive relief as provided in this Agreement.

In the event any provision in this Agreement should be held invalid, illegal or unenforceable by a state or federal court in the County of New York or an appropriate tribunal of competent jurisdiction in any respect, neither party will be required to comply with such provision for so long as the provision is held to be invalid, illegal or unenforceable, but the validity, legality, and enforceability of the remaining provisions contained in this Agreement shall not in any way be affected or impaired by the illegality, invalidity or unenforceability of such provision. You agree that a state or federal court in the County of New York or an appropriate tribunal of competent jurisdiction may reform any invalid, illegal or unenforceable provisions to the extent necessary to make them valid and enforceable. It is also understood and agreed that the invalidity of a particular provision in a particular jurisdiction shall not, in and of itself, affect the validity of such provision in any other jurisdiction. Morgan Stanley agrees that to the extent any provision hereof is contrary to applicable law, it will not seek to enforce such provision.

The Firm appreciates your continued contributions and your demonstrated commitment to the Firm’s Business Interests set forth above.

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Employee Acknowledgement

I have read and understand this Agreement. I recognize and agree that it creates binding obligations and sets forth terms and conditions of my continued employment with the Firm.

Please affirm your agreement and acceptance by typing I AGREE and your employee identification number (“EIN”) in the boxes below, and then clicking SUBMIT. Upon a successful submission, you will be sent an e-mail confirmation. Please note that the deadline for your successful submission is November 30, 2005. Your agreement will go into effect on December 1, 2005.

Acceptance EIN

SUBMIT

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EX-10.4

EXHIBIT 10.4

AIRCRAFT TIME SHARING AGREEMENT

This Agreement is made and entered into as of the 10^th day of March 2009 by and between Morgan Stanley Management Services II, Inc., a corporation organized and existing under the laws of the State of Delaware (“MSMSII”), and John J. Mack (“User”).

WITNESSETH:

WHEREAS, MSMSII is the operator of the aircraft listed on Schedule A hereto, as amended from time to time (collectively, the “Aircraft”); and

WHEREAS, MSMSII has the right and lawful authority to enter into time sharing agreements, as provided in §91.501 of the Federal Aviation Regulations (“FARs”); and

WHEREAS, from time to time, User may desire to lease the Aircraft, with flight crew, from MSMSII for User’s personal travel at User’s discretion on a time-sharing basis in accordance with §91.501 of the FARs; and

WHEREAS, MSMSII has agreed to make the Aircraft, with flight crew, available to User for User’s personal travel on a non-exclusive time-sharing basis in accordance with §91.501 of the FARs; and

WHEREAS, this Agreement sets forth the understanding of the parties as to the terms under which MSMSII will provide User with the use, on a non-exclusive time-sharing basis, of the Aircraft.

NOW THEREFORE, in consideration of the mutual covenants herein set forth, the parties agree as follows:

1. Provision of Aircraft and Crew. Subject to Aircraft availability, MSMSII agrees to provide the Aircraft and flight crew to User on a time sharing basis in accordance with the provisions of §§ 91.501(b)(6), 91.501(c)(1) and 91.501(d) of the FARs. MSMSII shall provide, at its sole expense, qualified flight crew for all flight operations under this Agreement. If MSMSII is no longer the operator of any of the Aircraft, Schedule A shall be amended to delete any reference to such Aircraft and this Agreement shall be terminated as to such Aircraft but shall remain in full force and effect with respect to each of the other Aircraft, if any. No such termination shall affect any of the rights and obligations of the parties accrued or incurred prior to such termination. If MSMSII becomes the operator of any aircraft not listed on Schedule A hereto, Schedule A shall be modified to include such Aircraft, and thereafter this Agreement shall remain in full force and effect with respect to such Aircraft and each of the other Aircraft, if any.

2. Term. The term of this Agreement (the “Term”) shall commence on the date hereof and shall continue until terminated by either party on written notice to the other party. This Agreement shall terminate immediately in the event that User is no longer an employee or director of Morgan Stanley or any of its affiliates. Notwithstanding the foregoing, any provisions directly or indirectly related to User’s payment obligations for flights completed prior to the date of termination shall survive the termination of this Agreement.

3. Reimbursement of Expenses. For each flight conducted under this Agreement, User shall pay MSMSII an amount (as determined by MSMSII) equal to the actual expenses of operating such flight, not to exceed the sum of the following expenses as permitted pursuant to FAR 91.501(d):

(a) Fuel, oil, lubricants, and other additives;

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(b) Travel expenses of the crew, including food, lodging, and ground transportation;

(c) Hangar and tie-down costs away from the Aircraft’s base of operation;

(d) Insurance obtained for the specific flight;

(e) Landing fees, airport taxes, and similar assessments;

(f) Customs, foreign permit, and similar fees directly related to the flight;

(g) In-flight food and beverages;

(h) Passenger ground transportation;

(i) Flight planning and weather contract services; and

(j) An additional charge equal to one hundred percent (100%) of the expenses listed in subsection (a) above.

4. Invoicing and Payment. All payments to be made to MSMSII by User hereunder shall be paid in the manner set forth in this Section 4. MSMSII will pay, or cause to be paid, all expenses related to the operation of the Aircraft hereunder in the ordinary course. As soon as practicable after the end of each calendar quarter during the Term, MSMSII shall provide or cause to be provided to User an invoice showing all personal use of the Aircraft by User pursuant to this Agreement during that quarter and a complete accounting detailing all amounts payable by User pursuant to Section 3 for that quarter (plus applicable domestic or international air transportation excise taxes, and any other fees, taxes or charges assessed on passengers by and remitted to a government agency or airport authority). User shall pay all amounts due under the invoice not later than 30 days after receipt thereof. In the event MSMSII has not received supplier invoices for reimbursable charges relating to such flight prior to such invoicing, MSMSII shall issue supplemental invoice(s) for such charge(s) to User, and User shall pay each supplemental invoice within 30 days after receipt thereof.

5. Flight Requests. User will provide the designated representatives of MSMSII with flight requests for User’s personal travel to be undertaken pursuant to this Agreement and proposed flight schedules as far in advance of User’s desired departure as possible and in accordance with all reasonable policies established by MSMSII. Flight requests shall be in a form, whether oral or written, mutually convenient to and agreed upon by the parties. MSMSII shall have sole and exclusive authority over the scheduling of the Aircraft. MSMSII shall not be liable to User or any other person for loss, injury, or damage occasioned by the delay or failure to furnish the Aircraft and crew pursuant to this Agreement for any reason. In addition to requested schedules and departure times, User shall provide at least the following information for each proposed flight reasonably in advance of the desired departure time as required by MSMSII or its flight crew:

(a) departure point;

(b) destination;

(c) date and time of flight;

(d) number and identity of anticipated passengers;

(e) nature and extent of luggage and/or cargo expected to be carried;

(f) date and time of return flight, if any; and

(g) any other information concerning the proposed flight that may be pertinent to or required by MSMSII or its flight crew.

Subject to Aircraft and crew availability, MSMSII shall use its good faith efforts, consistent with its approved policies, to accommodate User’s needs, avoid conflicts in scheduling and enable User to enjoy the benefits of this Agreement. Although every good faith effort shall be made to avoid its occurrence, any flights scheduled under this Agreement are subject to cancellation by either party without incurring liability to the other party. In the event of a cancellation, the canceling party shall provide the maximum notice reasonably practicable.

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6. Operational Authority and Control. MSMSII shall be responsible for the physical and technical operation of the Aircraft and the safe performance of all flights under this Agreement, and shall retain full authority and control, including exclusive operational control and exclusive possession, command and control of the Aircraft for all flights under this Agreement. MSMSII shall furnish at its expense a fully qualified flight crew with appropriate credentials to conduct each flight undertaken under this Agreement and included on the insurance policies that MSMSII is required to maintain hereunder. In accordance with applicable FARs, the qualified flight crew provided by MSMSII will exercise all required and/or appropriate duties and responsibilities in regard to the safety of each flight conducted hereunder. The pilot-in-command shall have absolute discretion in all matters concerning the preparation of the Aircraft for flight and the flight itself, the load carried and its distribution, the decision whether or not a flight shall be undertaken, the route to be flown, the place where landings shall be made, and all other matters relating to operation of the Aircraft. User specifically agrees that the flight crew shall have final and complete authority to delay or cancel any flight for any reason or condition that in the sole judgment of the pilot-in-command could compromise the safety of the flight, and to take any other action that in the sole judgment of the pilot-in-command is necessitated by considerations of safety. No such action of the pilot-in-command shall create or support any liability to User or any other person for loss, injury, damage or delay. MSMSII’s operation of the Aircraft hereunder shall be strictly within the guidelines and policies established by MSMSII and FAR Part 91.

7. Aircraft Maintenance. MSMSII shall, at its own expense, cause the Aircraft to be inspected, maintained, serviced, repaired, overhauled, and tested in accordance with FAR Part 91 so that the Aircraft will remain in good operating condition and in a condition consistent with its airworthiness certification and shall take such requirements into account in scheduling the Aircraft hereunder. Performance of maintenance, preventive maintenance or inspection shall not be delayed or postponed for the purpose of scheduling the Aircraft unless such maintenance or inspection can safely be conducted at a later time in compliance with applicable laws, regulations and requirements, and such delay or postponement is consistent with the sound discretion of the pilot-in-command. In the event that any non-standard maintenance is required during the term and will interfere with User’s requested or scheduled flights, MSMSII, or MSMSII’s pilot-in-command, shall notify User of the maintenance required, the effect on the ability to comply with User’s requested or scheduled flights and the manner in which the parties will proceed with the performance of such maintenance and conduct of such flight(s). In no event shall MSMSII be liable to User or any other person for loss, injury or damage occasioned by the delay or failure to furnish the Aircraft under this Agreement, whether or not maintenance- related.

8. Insurance. MSMSII, at its expense, will maintain or cause to be maintained in full force and effect throughout the Term of this Agreement (i) comprehensive aircraft and liability insurance against bodily injury and property damage claims, including, without limitation, contractual liability, in respect of the Aircraft in such amount as is customarily maintained by prudent operators of similar aircraft, but in no event less than $300,000,000 for each single occurrence; and (ii) hull insurance for the full replacement cost of the Aircraft. Such policies shall (A) name User as an additional insured; (B) provide that in respect of the interests of User in such policies, the insurance shall not be invalidated by any action or inaction of MSMSII, regardless of any breach or violation of any warranties, declarations or conditions contained in such policies or otherwise binding on MSMSII; (C) include provisions whereby the insurer(s) irrevocably and unconditionally waive all rights of subrogation they may have or acquire against User; (D) permit the use of the Aircraft by MSMSII for compensation or hire to the extent necessary to perform its obligations under this Agreement; and (E) include a cross-liability clause to the effect that such insurance, except for the limits of liability, shall operate to give User the same protection as if there were a separate policy issued to him.

MSMSII shall use reasonable commercial efforts to provide such additional insurance for specific flights under this Agreement as User may request in writing. User acknowledges that any trips scheduled to the European Union may require MSMSII to purchase additional insurance to comply with applicable regulations. The cost of all flight-specific insurance shall be borne by User as provided in Section 3(d).

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9. Use of Aircraft. User warrants that:

(i) He will use the Aircraft under this Agreement for and only for his own account, including the carriage of his guests, and will not use the Aircraft for the purpose of providing transportation of passengers or cargo for compensation or hire or for common carriage;

(ii) He will not permit any lien, security interest or other charge or encumbrance to attach against the Aircraft as a result of his actions or inactions, and shall not attempt to convey, mortgage, assign, lease or in any way alienate the Aircraft or MSMSII’s rights hereunder or create any kind of lien or security interest involving the Aircraft or do anything or take any action that might mature into such a lien; and

(iii) During the Term of this Agreement, he will abide by and conform to all such laws, governmental and airport orders, rules, and regulations as shall from time to time be in effect relating in any way to the operation or use of the Aircraft by the lessee under a time sharing arrangement and all applicable policies of MSMSII.

10. Limitation of Liability. NEITHER MSMSII (NOR ITS AFFILIATES) MAKES, HAS MADE OR SHALL BE DEEMED TO MAKE OR HAVE MADE ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO ANY AIRCRAFT TO BE USED HEREUNDER OR ANY ENGINE OR COMPONENT THEREOF INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, AIRWORTHINESS, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT OR TITLE.

IN NO EVENT SHALL MSMSII OR ITS AFFILIATES BE LIABLE FOR OR HAVE ANY DUTY FOR INDEMNIFICATION OR CONTRIBUTION TO USER, HIS EMPLOYEES, AGENTS OR GUESTS FOR ANY CLAIMED INDIRECT, SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES, REGARDLESS OF WHETHER IT KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGE, LOSS OR EXPENSE. The provisions of this Section 10 shall survive the termination or expiration of this Agreement.

11. Base of Operations. For purposes of this Agreement, the base of operation of the Aircraft is Westchester County Airport, White Plains, New York; provided, that such base may be changed at MSMSII’s sole discretion upon notice from MSMSII to User.

12. Notices and Communications. All notices and other communications under this Agreement shall be in writing (except as permitted in Section 5) and shall be given (and shall be deemed to have been duly given upon receipt or refusal to accept receipt) by personal delivery, by telefax (with a simultaneous confirmation copy sent by first class mail properly addressed and postage prepaid), or by a reputable overnight courier service, addressed as follows:

If to MSMSII:	Morgan Stanley Management Services II, Inc.
	[redacted]
If to User:	John J. Mack
	[redacted]

or to such other person or address as either party may from time to time designate in writing to the other party.

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13. Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to its subject matter, and there are no representations, warranties, rights, obligations, liabilities, conditions, covenants, or agreements relating to such subject matter that are not expressly set forth herein. There are no third-party beneficiaries of this Agreement.

14. Further Acts. MSMSII and User shall from time to time perform such other and further acts and execute such other and further instruments as may be required by law or may be reasonably necessary (i) to carry out the intent and purpose of this Agreement, and (ii) to establish, maintain and protect the respective rights and remedies of the other party.

15. Successors and Assigns. User shall not have the right to assign, transfer or pledge this Agreement. This Agreement shall be binding on the parties hereto and their respective heirs, executors, administrators, successors and assigns, and shall inure to the benefit of the parties hereto, and, except as otherwise provided herein, their respective heirs, executors, administrators, other legal representatives, successors and permitted assigns.

16. Taxes. User shall be responsible for paying, and MSMSII shall be responsible for collecting from User and paying over to the appropriate authorities, all applicable Federal excise taxes imposed under IRC §4261 and all sales, use and other excise taxes imposed by any authority in connection with the use of the Aircraft by User hereunder.

17. Governing Law and Consent to Jurisdiction. This Agreement shall be governed by the laws of the State of New York without regard to its choice of law principles, other than Section 5-1401 and Section 5-1402 of the New York General Obligations Law. The parties hereby consent and agree to submit to the exclusive jurisdiction and venue of any state or federal court in New York, New York in any proceedings hereunder, and each hereby waives any objection to any such proceedings based on improper venue or forum non-conveniens or similar principles. The parties hereto hereby further consent and agree to the exercise of such personal jurisdiction over them by such courts with respect to any such proceedings, waive any objection to the assertion or exercise of such jurisdiction and consent to process being served in any such proceedings in the manner provided for the giving of notices hereunder.

18. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions shall not be affected or impaired.

19. Amendment or Modification. This Agreement may be amended, modified or terminated only in writing duly executed by the parties hereto.

20. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement, binding on all the parties

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notwithstanding that all the parties are not signatories to the same counterpart. Each party may transmit its signature by facsimile, and any faxed counterpart of this Agreement shall have the same force and effect as a manually-executed original.

21. Truth-in-Leasing Compliance. MSMSII, on behalf of User, shall (i) deliver a copy of this Agreement to the Aircraft Registration Branch, Technical Section, of the FAA in Oklahoma City within 24 hours of its execution; (ii) notify the appropriate Flight Standards District Office at least 48 hours prior to the first flight under this Agreement of the registration number of the Aircraft, and the location of the airport of departure and departure time for such flight; and (iii) carry a copy of this Agreement onboard the Aircraft at all times when the Aircraft is being operated under this Agreement.

22. TRUTH IN LEASING STATEMENT PURSUANT TO SECTION 91.23 OF THE FEDERAL AVIATION REGULATIONS:

(a) MSMSII CERTIFIES THAT EACH OF THE AIRCRAFT HAS BEEN INSPECTED AND MAINTAINED DURING THE 12-MONTH PERIOD PRECEDING THE DATE OF THIS AGREEMENT (OR SUCH SHORTER PERIOD AS MSMSII SHALL HAVE POSSESSED THE AIRCRAFT) IN ACCORDANCE WITH THE PROVISIONS OF PART 91 OF THE FEDERAL AVIATION REGULATIONS. EACH OF THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED IN COMPLIANCE WITH THE MAINTENANCE AND INSPECTION REQUIREMENTS FOR ALL OPERATIONS TO BE CONDUCTED UNDER THIS AGREEMENT.

(B) MSMSII AGREES, CERTIFIES AND ACKNOWLEDGES, AS EVIDENCED BY ITS SIGNATURE BELOW, THAT WHENEVER ANY OF THE AIRCRAFT IS OPERATED UNDER THIS AGREEMENT, MSMSII SHALL BE KNOWN AS, CONSIDERED, AND SHALL IN FACT BE THE OPERATOR OF THE AIRCRAFT, AND THAT MSMSII UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.

(C) THE PARTIES UNDERSTAND THAT AN EXPLANATION OF FACTORS AND PERTINENT FEDERAL AVIATION REGULATIONS BEARING ON OPERATIONAL CONTROL CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. The persons signing below warrant their authority to sign.

Morgan Stanley Management Services II, Inc.		USER: John J. Mack
By:	/s/ Jessica Gorman Taylor	/s/ John J. Mack
Name:	Jessica Gorman Taylor
Title:	Authorized Signatory

A legible copy of this Agreement shall be kept in the Aircraft for all operations conducted hereunder.

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SCHEDULE A

Two Gulfstream Aerospace G-V aircraft bearing Federal Aviation Administration Registration Numbers [redacted] and [redacted] and Manufacturer’s Serial Numbers [redacted] and [redacted], respectively, together with engines and components installed therein.

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EX-10.5

EXHIBIT 10.5

December 16, 2008

Dear Tom,

This letter confirms the understanding between you and Morgan Stanley (the “Company”) regarding certain amendments to be made to your offer letter with the Company dated July 21, 2005, as subsequently amended (the “Offer Letter”) to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). As we have discussed, Section 409A is a provision of the US tax code that restricts the timing of payments and benefits constituting nonqualified deferred compensation. Regulations issued under Section 409A require documentary compliance for all nonqualified deferred compensation arrangements by December 31, 2008.

• Any payment relating to any stock unit award that is granted to you (other than your Incoming Units) that is scheduled to be paid when you are an executive officer of Morgan Stanley and is not deemed to be granted pursuant to performance criteria and therefore not deductible to the Firm, may be deferred until and paid upon your “Separation from Service”. For purposes of your Offer Letter, Separation from Service shall mean a “separation from service” as determined under Section 409A using the default provisions thereunder.

• Notwithstanding anything to the contrary in your Offer Letter, in the event that you are a “specified employee” at the time of your “Separation from Service”, to the extent required to comply with Section 409A, payments relating to your stock units described above and any other payments to which you are entitled upon a termination of your employment, shall be deferred until the earlier of the first business day following the date that is six months after your Separation from Service and the date of your death. “Specified Employee” shall mean a “specified employee” as defined in Section 409A of the Code and determined in accordance with Firm policy.

• Any Gross-Up Payment to which you are entitled under your Offer Letter shall be paid to you as soon as practicable after you pay the related Excise Tax and in no event later than the end of the calendar year following the calendar year in which you remit such Excise Tax.

Any capitalized terms not defined herein shall have the meaning assigned to them in your Offer Letter. For the avoidance of doubt, none of the foregoing will constitute Good Reason and all other terms of your Offer Letter and Incoming Units shall remain in full force and effect.

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We ask that you confirm your acceptance of the foregoing by signing and dating this letter in the area designated below and returning this letter to me.

/s/ Karen C. Jamesley

By:    Karen C. Jamesley

Title: Global Head of Human Resources

Confirmed and Agreed to:

/s/ Thomas R. Nides

By:    Thomas R. Nides

Title: Chief Administrative Officer

Date: December 16, 2008

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EX-10.6

EXHIBIT 10.6

December 16, 2008

Dear Gary,

This letter confirms the understanding between you and Morgan Stanley (the “Company”) regarding certain amendments to be made to your offer letter with the Company dated July 18, 2005, as subsequently amended (the “Offer Letter”) to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). As we have discussed, Section 409A is a provision of the US tax code that restricts the timing of payments and benefits constituting nonqualified deferred compensation. Regulations issued under Section 409A require documentary compliance for all nonqualified deferred compensation arrangements by December 31, 2008.

• Any payment relating to any stock unit award that is granted to you (other than your Offset Units) that is scheduled to be paid when you are an executive officer of Morgan Stanley and is not deemed to be granted pursuant to performance criteria and therefore not deductible to the Firm, may be deferred until and paid upon your “Separation from Service”. For purposes of your Offer Letter, Separation from Service shall mean a “separation from service” as determined under Section 409A using the default provisions thereunder.

• Notwithstanding anything to the contrary in your Offer Letter, in the event that you are a “specified employee” at the time of your “Separation from Service”, to the extent required to comply with Section 409A, payments relating to your stock units described above and any other payments to which you are entitled upon a termination of your employment, shall be deferred until the earlier of the first business day following the date that is six months after your Separation from Service and the date of your death. “Specified Employee” shall mean a “specified employee” as defined in Section 409A of the Code and determined in accordance with Firm policy.

• Any Gross-Up Payment to which you are entitled under your Offer Letter shall be paid to you as soon as practicable after you pay the related Excise Tax and in no event later than the end of the calendar year following the calendar year in which you remit such Excise Tax.

Any capitalized terms not defined herein shall have the meaning assigned to them in your Offer Letter. For the avoidance of doubt, none of the foregoing will constitute Good Reason and all other terms of your Offer Letter and Offset Units shall remain in full force and effect.

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We ask that you confirm your acceptance of the foregoing by signing and dating this letter in the area designated below and returning this letter to me.

/s/ Karen C. Jamesley

By:    Karen C. Jamesley

Title: Global Head of Human Resources

Confirmed and Agreed to:

/s/ Gary G. Lynch

By:    Gary G. Lynch

Title: Chief Legal Officer

Date: December 16, 2008

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EX-10.7

EXHIBIT 10.7

TO:	Walid Chammah	DATE:	August 21, 2007
FROM:	[redacted]	DEPT.:	HR Service Centre

SUBJECT:  RELOCATION FROM THE UNITED STATES TO LONDON OFFICE AS A LOCAL EMPLOYEE

This package has been designed to assist you in your move from New York to a local position in London. This memorandum should be read in conjunction with the enclosed Employee Handbook, which together form the terms and conditions of your employment with Morgan Stanley. With effect from your date of transfer, you will cease to be employed under your current employment terms and conditions, and your employment will be subject to UK law. Please confirm your acceptance of this package by signing and completing the enclosed acceptance form.

Your HR Coverage Officer contact in London is [redacted]

Compensation and Benefits

Base Salary: You will receive an annualised base salary of £170,000, pro-rated from your transfer date and paid in monthly instalments on the 26th of each month into your UK bank account net of tax under the PAYE system. Please contact your London HR Coverage Officer for details of banking arrangements in the UK. Before you can be paid on the UK Payroll, you must sign and return to London Payroll [redacted] a Form P46. A copy of the form will be sent to you via the internal mail.

Above Base Compensation: Your above base compensation will be determined in US Dollars and converted to your local currency for payment, or you may choose to receive the net payment in US dollars. You will be sent details of how to make your election via e-mail within two weeks of your date of transfer. This email will outline the various methods available to you for payment of your US dollar-determined bonus. You have 28 days to make your election after receipt of the email.

Benefits: If you are a US citizen or green-card holder, you have the option of continued enrolment in the US Benefit Program or participation in the UK Benefit Programme. A note is attached providing a comparison of the US and UK Benefit Programmes. You should review this note and make your decision within one month of your transfer date by completing the enclosed Benefits Election form. If we do not receive notification of your choice, you will be retained in the US Benefit Program.

If you are not a US citizen or do not hold a green card, you will be enrolled in the UK Benefit Programme. If you have a green card but have not notified the firm you will be enrolled in the UK Benefit Programme unless you provide appropriate confirmation. Therefore, we recommend that you complete the enclosed Election form.

Housing: The Firm will pay the actual rental amount up to your allowance. The housing cost will be paid directly to the landlord quarterly in advance by the London office.

Your housing allowance will be £8,000 per week.

Holiday Entitlement: Please refer to the Employee Handbook for details of your holiday entitlement. This will be pro-rated in your year of transfer. Any leave accrued in your previous office may be transferred to London but you should refer to the Employee Handbook for details of how much leave may be carried forward to subsequent years.

Working Time Directive: On October 1, 1998, the provisions of the Working Time Regulations 1998 (‘the Regulations’) came into effect. A copy of Morgan Stanley’s Working Time Policy which explains the detailed provisions of the Regulations is attached. In addition, a copy of the Policy is posted on the Human Resources Europe Home Page on MS Today. In short, you are entitled, under the Regulations, to work no more than a weekly limit of 48 hours, averaged over consecutive 17 weekly periods. However, the Regulations permit you to agree to work more hours than are contained within this average limit from time to time.

It is the Firm’s practice to write to ask if you will consent to work such hours additional over 48 hours per week as may be required of you, in order to carry out the duties associated with your contract of employment. Please refer to the attached memorandum for details.

Compliance: The Financial Services Authority (FSA) is the Firm’s lead Regulator in the United Kingdom. All employees of Morgan Stanley UK Limited who, as part of their duties, advise clients, commit the Firm’s capital in transactions, engage in corporate finance activities or work in related business areas (such as Research) are required to be registered with the FSA and must agree in writing to be bound by and be subject to such of the FSA’s Rules as the FSA may prescribe. Please ensure that you familiarise yourself with the accompanying documentation by reviewing the FSA Memorandum and completing the FSA Registration Questionnaire. The questionnaire must be returned to your Human Resources Coverage Officer in London.

Criminal Record Checking (FSA regulated roles only): As part of our screening process, please complete the Criminal Records Disclosure Application form in black ink, following the enclosed Guidance Notes carefully, and bring with you when you visit the Security Office in person to have your passport (or other proof of necessary documentation to work in the UK) checked.

You will also be required to bring proof of identity (passport, ID Card, HM Forces ID, Driver’s Licence etc) and proof of most recent permanent residential address (utility bill, credit card bill, bank statement etc) to Security as part of the Criminal Records checking process. Note that the outcome of your Criminal Record check will be sent to the address you provide. Please note that your FSA registration (see below) will be delayed if your CRB form is not submitted three weeks prior to joining.

Relocation Package:

All relocation benefits must be utilised within 6 months of transfer with the exception of tax preparation assistance. Please note that if you terminate from the Firm within 12 months of your transfer, some or all of the relocation benefits may be repayable.

• Taxes: Employees who transfer internationally may find that their tax situation becomes more complex in the years following the transfer. Employees are responsible for ensuring that any necessary US and UK tax returns are filed and tax balances due are paid on a timely basis. The Firm will engage PricewaterhouseCoopers (PwC) to prepare your UK and US Federal (and State where required) tax returns. Reasonable fees associated with these services will be borne by the Firm.

• Relocation Allowance: You will receive a miscellaneous relocation allowance of one month’s base salary to a maximum of £3,300 plus 25% of one month’s capped base salary for each accompanying family member to an overall maximum of £6,600. Miscellaneous expenses would include the purchase of small household appliances, curtain and carpet refitting, driving license fees, etc. Your net relocation allowance based on a family size of six will be £6,600.

Please note that you must return a signed Employee Profile and Acceptance Form, which is enclosed, to [redacted] in London Human Resources in order to receive the allowance. Upon receipt of the signed form the allowance will be paid to you in approximately 14 working days.

• Travel Expenses at Time of Transfer: You and your family will be reimbursed for customary and reasonable transportation expenses for travel to London including airfare in business class and transportation to and from airports. Please use job number [redacted] and your new location cost centre when booking your flight.

• Transportation of Household Goods: You will be entitled to one surface shipment of household goods to the maximum capacity of a 40 foot container (approx. 10,000 lbs.) In addition, for urgently required goods the Firm will pay for one air shipment of personal effects to a maximum of 500 lbs, plus an additional 100 lbs for each accompanying family member. Please contact [redacted] to make the necessary arrangements.

For details of Morgan Stanley’s policy on the shipment of goods, please refer to the attached guidelines.

• Auto Loss Reimbursement: The Firm provides reimbursement of all or part of the loss on disposition of an automobile for up to two cars per household. The loss is calculated as the differential between the retail sale value as quoted by “Kelley Blue Book” (www.kbb.com) and your actual sale price. The maximum amount reimbursable per car is USD 4,000 or 25% of the retail sale value, whichever is the lower.

• Relocation Expenses: All relocation expenses must be submitted on a properly completed relocation expense form, copies of which are enclosed. Completed forms should be submitted to the HR Service Centre, Edinburgh for authorisation. Expenses are reimbursed in sterling by Accounts Payable by direct deposit to your UK bank account within approximately 14 working days of receipt (bank account notification form enclosed which should be sent directly to Accounts Payable).

Incomplete expense forms will be returned and employees are expected to retain copies of the form and receipts. Expenses should be submitted within 60 days or you will need to obtain Managing Director sign-off in addition to Human Resources authorisation.

Expenses for new hires can only be reimbursed once you have joined the Firm. Current employees can submit pre-transfer expenses via International Services in the home office on the appropriate home office relocation expense form if preferred.

• Tax Effects of Relocation Benefits: To the extent the total exceeds £8,000, your reimbursed relocation expenses and your relocation allowance will be considered taxable income in the UK. However, the Firm will meet the tax costs arising directly with the UK tax authorities and you need take no further action in this regard. The Firm will also reimburse you for any additional US income tax liability resulting from relocation related payments. Please forward a copy of your US tax return to [redacted] to enable the reimbursement to be calculated.

If you have any questions regarding your transfer, please contact [redacted]

cc: [redacted]

encs: Employee Handbook

Employee Profile and Acceptance Form

Bank Account Notification Form (Accounts Payable)

Benefits Comparison & Election Form

CRB Disclosure Application Form

CRB Guidance Notes for completing the Disclosure Application

Disclosure Application form – Continuation Sheet

FSA Registration & Memo

Form P46 & Guidance Notes

International Relocation Policy

National Insurance Registration

Relocation Expense Forms

Working Time Directive Memorandum

EX-10.8

EXHIBIT 10.8

MORGAN STANLEY

2007 EQUITY INCENTIVE COMPENSATION PLAN

[FISCAL YEAR] DISCRETIONARY RETENTION

AWARDS

AWARD CERTIFICATE FOR STOCK UNITS

TABLE OF CONTENTS FOR AWARD CERTIFICATE

1.	Stock units generally	3
2.	Vesting schedule and conversion	3
3.	Special provision for certain employees	4
4.	Dividend equivalent payments	5
5.	Death, Disability and Full Career Retirement	5
6.	Involuntary termination by the Firm	6
7.	Governmental Service	6
8.	Qualifying Termination	7
9.	Specified employees	7
10.	Cancellation of awards under certain circumstances	7
11.	Tax and other withholding obligations	9
12.	Obligations you owe to the Firm	10
13.	Nontransferability	10
14.	Designation of a beneficiary	10
15.	Ownership and possession	11
16.	Securities law compliance matters	11
17.	Compliance with laws and regulation	12
18.	No entitlements	12
19.	Consents under local law	13
20.	Award modification	13
21.	Governing law	13
22.	Defined terms	13

MORGAN STANLEY

[FISCAL YEAR] DISCRETIONARY RETENTION AWARDS

AWARD CERTIFICATE FOR STOCK UNITS

FISCAL YEAR [            ]

Morgan Stanley has awarded you retention stock units as part of your discretionary long-term incentive compensation for services provided during Fiscal Year [            ] and as an incentive for you to remain in Employment and provide services to the Firm through the Scheduled Vesting Dates. This Award Certificate sets forth the general terms and conditions of your Fiscal Year [            ] stock unit award. The number of stock units in your award has been communicated to you independently.

If you are employed outside the United States, you will also receive an “International Supplement” that contains supplemental terms and conditions for your Fiscal Year [            ] stock unit award. You should read this Award Certificate in conjunction with the International Supplement, if applicable, in order to understand the terms and conditions of your stock unit award.

Your stock unit award is made pursuant to the Plan. References to “stock units” in this Award Certificate mean only those stock units included in your Fiscal Year [            ] stock unit award, and the terms and conditions herein apply only to such award. If you receive any other award under the Plan or another equity compensation plan, it will be governed by the terms and conditions of the applicable award documentation, which may be different from those herein.

The purpose of the stock unit award is, among other things, to align your interests with the interests of the Firm and Morgan Stanley’s stockholders, to reward you for your continued Employment and service to the Firm in the future and your compliance with the Firm’s policies (including the Code of Conduct), to protect the Firm’s interests in non-public, confidential and/or proprietary information, products, trade secrets, customer relationships, and other legitimate business interests, and to ensure an orderly transition of responsibilities. In view of these purposes, you will earn each portion of your Fiscal Year [            ] stock unit award only if you (1) remain in continuous Employment through the applicable Scheduled Vesting Date and (2) do not engage in any activity that is a cancellation event set forth in Section 10(c) below. Therefore, even if your award has vested, you will have no right to your award if a cancellation event occurs under the circumstances set forth in Section 10(c) below. You will be required to provide Morgan Stanley with such written certification or other evidence as Morgan Stanley deems appropriate, from time to time in its sole discretion, to confirm that no cancellation event has occurred. If you fail to provide such certification or evidence, Morgan Stanley will cancel your award. Under Morgan Stanley’s current policy, upon a termination of Employment and, if applicable, during a specified period of time prior to each Scheduled Conversion Date thereafter,

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you will be required to certify on the Morgan Stanley Executive Compensation website at [website redacted] that no cancellation event has occurred. In the event such certification is not timely made, Morgan Stanley will cancel your award. It is your responsibility to provide the Executive Compensation Department with your up-to-date contact information.

Capitalized terms used in this Award Certificate that are not defined in the text have the meanings set forth in Section 22 below. Capitalized terms used in this Award Certificate that are not defined in the text or in Section 22 below have the meanings set forth in the Plan.

1. Stock units generally.

Each of your stock units corresponds to one share of Morgan Stanley common stock. A stock unit constitutes a contingent and unsecured promise of Morgan Stanley to pay you one share of Morgan Stanley common stock on the conversion date for the stock unit. As the holder of stock units, you have only the rights of a general unsecured creditor of Morgan Stanley. You will not be a stockholder with respect to the shares of Morgan Stanley common stock corresponding to your stock units unless and until your stock units convert to shares.

2. Vesting schedule and conversion.

(a) Vesting schedule. Except as otherwise provided in this Award Certificate, your stock units will vest according to the following schedule: (i) 50% of your stock units will vest on the First Scheduled Vesting Date and (ii) the remaining 50% of your stock units will vest on the Second Scheduled Vesting Date.¹ Any fractional stock units resulting from the application of the vesting schedule will be aggregated and will vest on the Second Scheduled Vesting Date. Except as otherwise provided in this Award Certificate, each portion of your stock units will vest only if you continue to provide future services to the Firm by remaining in continuous Employment through the applicable Scheduled Vesting Date and providing value added services to the Firm during this timeframe. The special vesting terms set forth in Sections 5, 6, 7 and 8 of this Award Certificate apply (i) if your Employment terminates by reason of your death or Disability, (ii) upon your Full Career Retirement, (iii) if the Firm terminates your employment in an involuntary termination under the circumstances described in Section 6, (iv) upon a Governmental Service Termination or (v) upon a Qualifying Termination. Vested stock units remain subject to the cancellation and withholding provisions set forth in this Award Certificate.

(b) Conversion. Except as otherwise provided in this Award Certificate, (i) 50% of your stock units will, to the extent vested, convert to shares of Morgan Stanley common stock on the First Scheduled Conversion Date and (ii) the remaining 50% of your stock units will, to the extent vested, convert to shares of Morgan Stanley common stock on the Second

¹ The vesting schedule presented in this form of Award Certificate is indicative. The vesting schedule applicable to awards may vary.

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Scheduled Conversion Date.² The special conversion provisions set forth in Sections 5(a), 5(b), 7 and 8 of this Award Certificate apply (i) if your Employment terminates by reason of your death or you die after termination of your Employment, (ii) upon your Governmental Service Termination or your employment at a Governmental Employer following your termination of employment with the Firm under circumstances set forth in Section 7(b), or (iii) upon a Qualifying Termination.

The shares delivered upon conversion of stock units pursuant to this Section 2(b) will not be subject to any transfer restrictions, other than those that may arise under the securities laws or the Firm’s policies, or to cancellation under the circumstances set forth in Section 10(c).

(c) Accelerated conversion. Morgan Stanley shall have no right to accelerate the conversion of any of your stock units, except to the extent that such acceleration is not prohibited by Section 409A and would not result in your being required to recognize income for United States federal income tax purposes before your stock units convert to shares of Morgan Stanley common stock or your incurring additional tax or interest under Section 409A. If any stock units are converted to shares of Morgan Stanley common stock prior to the applicable Scheduled Conversion Date pursuant to this Section 2(c), these shares may not be transferable and may remain subject to applicable vesting, cancellation and withholding provisions, as determined by Morgan Stanley.

(d) Rule of construction for timing of conversion. Whenever this Award Certificate provides for your stock units to convert to shares on the First Scheduled Conversion Date or the Second Scheduled Conversion Date or upon a different specified event or date, such conversion will be considered to have been timely made, and neither you nor any of your beneficiaries or your estate shall have any claim against the Firm for damages based on an acceleration of the conversion of your stock units pursuant to Section 2(c) or a delay in conversion of your stock units to shares (or delivery of such shares following conversion), and the Firm shall have no liability to you (or to any of your beneficiaries or your estate) in respect of any such acceleration or delay, as long as conversion is made by December 31 of the year in which occurs the applicable Scheduled Conversion Date or such other specified event or date or, if later, by the 15th day of the third calendar month following such specified event or date.

3. Special provision for certain employees.

Notwithstanding the other provisions of this Award Certificate, if Morgan Stanley considers you to be one of its executive officers at the time provided for the conversion of your vested stock units and determines that your compensation may not be fully deductible by virtue of Section 162(m) of the Internal Revenue Code, Morgan Stanley shall delay payment of the nondeductible portion of your compensation, including delaying conversion and payment of the stock units to the extent nondeductible, unless the Committee, in its sole discretion, determines not to delay such payment. This delay will continue until your “Separation from Service” under Section 409A, and your vested stock units will convert to Morgan Stanley common stock upon your Separation from Service.

² The conversion schedule presented in this form of Award Certificate is indicative. The conversion schedule applicable to awards may vary.

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4. Dividend equivalent payments.

Until your stock units convert to shares, if Morgan Stanley pays a regular or ordinary dividend on its common stock, you will be paid a dividend equivalent for your vested and unvested stock units. The decision to pay a dividend and, if so, the amount of any such dividend, is determined by Morgan Stanley in its sole discretion. No dividend equivalents will be paid to you on any canceled stock units.

Morgan Stanley will decide on the form of payment and may pay dividend equivalents in shares of Morgan Stanley common stock, in cash or in a combination thereof. Morgan Stanley will pay the dividend equivalent when it pays the corresponding dividend on its common stock.

Because dividend equivalent payments are considered part of your compensation for income tax purposes, they will be subject to applicable tax and other withholding obligations.

5. Death, Disability and Full Career Retirement.

The following special vesting and payment terms apply to your stock units:

(a) Death during Employment. If your Employment terminates due to death, all of your unvested stock units will vest on the date of your death. Your stock units will convert to shares of Morgan Stanley common stock and be delivered to the beneficiary you have designated pursuant to Section 14 or the legal representative of your estate, as applicable, upon your death, provided that your estate or beneficiary notifies the Firm of your death within 60 days following your death.

After your death, the cancellation provisions set forth in Section 10(c) will no longer apply, and the shares delivered upon conversion of stock units pursuant to this Section 5(a) will not be subject to any transfer restrictions (other than those that may arise under the securities laws or the Firm’s policies).

(a) Death after termination of Employment. If you die after the termination of your Employment but prior to the applicable Scheduled Conversion Date, any vested stock units that you held at the time of your death will convert to shares of Morgan Stanley common stock and be delivered to the beneficiary you have designated pursuant to Section 14 or the legal representative of your estate, as applicable, upon your death, provided that your estate or beneficiary notifies the Firm of your death within 60 days following your death.

After your death, the cancellation provisions set forth in Section 10(c) will no longer apply, and the shares delivered upon conversion of stock units pursuant to this Section 5(b) will not be subject to any transfer restrictions (other than those that may arise under the securities laws or the Firm’s policies).

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(c) Disability or Full Career Retirement. If your Employment terminates due to Disability or in a Full Career Retirement, all of your unvested stock units will vest on the date your Employment terminates. Your stock units will convert to shares of Morgan Stanley common stock on the applicable Scheduled Conversion Date. The cancellation and withholding provisions set forth in this Award Certificate will continue to apply until the applicable Scheduled Conversion Date.

6. Involuntary termination by the Firm.

If the Firm terminates your employment under circumstances not involving any cancellation event set forth in Section 10(c), your unvested stock units will vest on the date your employment with the Firm terminates and your stock units will convert to shares of Morgan Stanley common stock on the applicable Scheduled Conversion Date, provided that you sign an agreement and release satisfactory to the Firm. If you do not sign an agreement and release satisfactory to the Firm in connection with your involuntary termination as described in this Section 6, any stock units that were unvested immediately prior to your termination shall be canceled. The cancellation and withholding provisions set forth in this Award Certificate will continue to apply until the applicable Scheduled Conversion Date.

7. Governmental Service.

(a) General treatment of awards upon Governmental Service Termination. If your Employment terminates in a Governmental Service Termination and not involving a cancellation event set forth in Section 10(c), then, provided that you sign an agreement satisfactory to the Firm relating to your obligations pursuant to Section 7(c), all of your unvested stock units will vest on the date of your Governmental Service Termination. Your vested stock units will convert to shares of Morgan Stanley common stock on the date of your Governmental Service Termination.

(b) General treatment of vested awards upon acceptance of employment at a Governmental Employer following termination of Employment. If your Employment terminates other than in a Governmental Service Termination and not involving a cancellation event set forth in Section 10(c) and, following your termination of Employment, you accept employment with a Governmental Employer, then, provided that you sign an agreement satisfactory to the Firm relating to your obligations pursuant to Section 7(c), all of your outstanding vested stock units will convert to shares of Morgan Stanley common stock upon your commencement of such employment, provided you present the Firm with satisfactory evidence demonstrating that as a result of such employment the divestiture of your continued interest in Morgan Stanley equity awards or continued ownership of Morgan Stanley common stock is reasonably necessary to avoid the violation of U.S. federal, state or local or foreign ethics law or conflicts of interest law applicable to you at such Governmental Employer.

(c) Repayment obligation. If you engage in any activity constituting a cancellation event set forth in Section 10(c) within the applicable period of time that would have resulted in cancellation of all or a portion of your stock units (had they not converted to shares pursuant to Sections 7(a) or 7(b) above), you will be required to pay to Morgan Stanley an amount equal to the number of stock units that would have been canceled upon the occurrence of

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such cancellation event multiplied by the fair market value, determined using a valuation methodology established by Morgan Stanley, of Morgan Stanley common stock on the date your stock units converted to shares of Morgan Stanley common stock, plus interest on such amount at the average rate of interest Morgan Stanley paid to borrow money from financial institutions during the period from the date of such conversion through the date preceding the payment date.

8. Qualifying Termination.

If your employment terminates in a Qualifying Termination, all of your unvested stock units will vest, cancellation provisions will lapse, and, subject to Section 9, your stock units will convert to shares of Morgan Stanley common stock upon your Qualifying Termination.

9. Specified employees.

Notwithstanding any other terms of this Award Certificate, if Morgan Stanley considers you to be one of its “specified employees” as defined in Section 409A at the time of your Separation from Service, any conversion of your stock units that otherwise would occur upon your Separation from Service (including, without limitation, stock units whose conversion was delayed due to Section 162(m) of the Internal Revenue Code, as provided in Section 3, and stock units payable upon your Qualifying Termination, as provided in Section 8) will be delayed until the first business day following the date that is six months after your Separation from Service; provided, however, that in the event that your death, your Governmental Service Termination or your employment at a Governmental Employer following your termination of employment with the Firm under circumstances set forth in Section 7(b) occurs at any time after the Date of the Award, payment will be made in accordance with Section 5(a), 5(b), or 7, as applicable.

10. Cancellation of awards under certain circumstances.

(a) Cancellation of unvested awards. Your unvested stock units will be canceled if your Employment terminates for any reason other than death, Disability, a Full Career Retirement, an involuntary termination by the Firm described in Section 6, a Governmental Service Termination or a Qualifying Termination.

(b) General treatment of vested awards. Except as otherwise provided in this Award Certificate, your vested stock units will convert to shares of Morgan Stanley common stock on the applicable Scheduled Conversion Date. The cancellation and withholding provisions set forth in this Award Certificate will continue to apply until the applicable Scheduled Conversion Date.

(c) Cancellation of awards under certain circumstances. The cancellation events set forth in this Section 10(c) are designed, among other things, to incentivize compliance with the Firm’s policies (including the Code of Conduct), to protect the Firm’s interests in non-public, confidential and/or proprietary information, products, trade secrets, customer relationships, and other legitimate business interests, and to ensure an orderly transition of responsibilities. This Section 10(c) shall apply notwithstanding any other terms of this Award Certificate (except where sections in this Award Certificate specifically provide that the cancellation events set forth in this Section 10(c) no longer apply).

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Your stock units, even if vested, are not earned until the applicable Scheduled Conversion Date and, unless prohibited by applicable law, will be canceled prior to the applicable Scheduled Conversion Date in any of the circumstances set forth below in Section 10(c)(1) or (2). Although you will become the beneficial owner of shares underlying your stock units following conversion of your stock units, the Firm may retain custody of your shares following conversion of your stock units pending any investigation or other review that impacts the determination as to whether the stock units are cancellable under the circumstances set forth below and, in such an instance, the shares underlying such stock units shall be forfeited in the event the Firm determines that the stock units were cancellable under the circumstances set forth below.

(1) Competitive Activity. If you engage in Competitive Activity following the voluntary termination of your Employment in a termination that satisfies the definition of a Full Career Retirement, the following shall apply, subject to applicable law:

(i) If your Competitive Activity occurs before the First Scheduled Vesting Date, then all of your stock units will be canceled immediately.

(ii) If your Competitive Activity occurs on or after the First Scheduled Vesting Date but before the Second Scheduled Vesting Date, then the 50% of your stock units that are scheduled to convert on the Second Scheduled Conversion Date will be canceled immediately.

(2) Other Events. If any of the following events occur at any time before the applicable Scheduled Conversion Date, all of your stock units (whether or not vested), will be canceled immediately, subject to applicable law:

(i) Your Employment is terminated for Cause or you engage in conduct constituting Cause (whether or not your Employment has been terminated as of the applicable Scheduled Conversion Date);

(ii) Following the termination of your Employment, the Firm determines that your Employment could have been terminated for Cause (for these purposes, “Cause” will be determined without giving consideration to any “cure” period included in the definition of “Cause”);

(iii) You disclose Confidential and Proprietary Information to any unauthorized person outside the Firm, or use or attempt to use Confidential and Proprietary Information other than in connection with the business of the Firm; or you fail to comply with your obligations (either during or after your Employment) under the Firm’s Code of Conduct (and any applicable supplements), or otherwise existing between you and the Firm, relating to Confidential and Proprietary Information or an assignment, procurement or enforcement of rights in Confidential and Proprietary Information;

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(iv) You engage in a Wrongful Solicitation;

(v) You make any Unauthorized Comments; or

(vi) You resign from your employment with the Firm without having provided the Firm prior written notice of your resignation at least:

(A) 180 days before the date on which your employment with the Firm terminates if you are a member of the Management Committee at the time of notice of your resignation;

(B) 90 days before the date on which your employment with the Firm terminates if clause (A) of this Section 10(c)(2)(vi) does not apply to you and you are a Managing Director (or equivalent title) at the time of notice of your resignation;

(C) 60 days before the date on which your employment with the Firm terminates if you are an Executive Director (or equivalent title) at the time of notice of your resignation; and

(D) 30 days before the date on which your employment with the Firm terminates if none of clauses (A) through (C) of this Section 10(c)(2)(vi) apply to you at the time of notice of your resignation.

11. Tax and other withholding obligations.

Any vesting, whether on a Scheduled Vesting Date or some other date, or conversion of a stock unit award shall be subject to the Firm’s withholding of all required United States federal, state, local and foreign income and employment/payroll taxes (including Federal Insurance Contributions Act taxes). You authorize the Firm to withhold such taxes from any payroll or other payment or compensation to you and to take such other action as the Firm may deem advisable to enable it and you to satisfy obligations for the payment of withholding taxes and other tax obligations, assessments, or other governmental charges, whether of the United States or any other jurisdiction, relating to the vesting or conversion of your stock units. However, the Firm may not deduct or withhold such sum from any payroll or any other payment or compensation, except to the extent it is not prohibited by Section 409A and would not cause you to recognize income for United States federal income tax purposes before your stock units convert to shares of Morgan Stanley common stock or to incur interest or additional tax under Section 409A.

Pursuant to rules and procedures that Morgan Stanley establishes, you may elect to satisfy the tax or other withholding obligations arising upon conversion of your stock units by having Morgan Stanley withhold shares of Morgan Stanley common stock in an amount

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sufficient to satisfy the tax or other withholding obligations. Shares withheld will be valued using the fair market value of Morgan Stanley common stock on the date your stock units convert (or such other appropriate date determined by Morgan Stanley based on local legal, tax or accounting rules and practices) using a valuation methodology established by Morgan Stanley. In order to comply with applicable accounting standards or the Firm’s policies in effect from time to time, Morgan Stanley may limit the amount of shares that you may have withheld.

12. Obligations you owe to the Firm.

Morgan Stanley may not withhold shares upon conversion of stock units, and may not withhold the payment of dividend equivalents on your stock units or subject dividend equivalents to deferral, to satisfy obligations that you owe to the Firm except (i) to the extent authorized under Sections 4 or 11, relating to tax and other withholding obligations or, otherwise, (ii) to the extent such withholding is not prohibited by Section 409A and would not cause you to recognize income for United States federal income tax purposes before your stock units convert to shares of Morgan Stanley common stock or to incur additional tax or interest under Section 409A.

Morgan Stanley’s determination of any amount that you owe the Firm shall be conclusive. The fair market value of Morgan Stanley common stock for purposes of the foregoing provisions shall be determined using a valuation methodology established by Morgan Stanley.

13. Nontransferability.

You may not sell, pledge, hypothecate, assign or otherwise transfer your stock units, other than as provided in Section 14 (which allows you to designate a beneficiary or beneficiaries in the event of your death) or by will or the laws of descent and distribution. This prohibition includes any assignment or other transfer that purports to occur by operation of law or otherwise. During your lifetime, payments relating to the stock units will be made only to you.

Your personal representatives, heirs, legatees, beneficiaries, successors and assigns, and those of Morgan Stanley, shall all be bound by, and shall benefit from, the terms and conditions of your award.

14. Designation of a beneficiary.

You may make a designation of beneficiary or beneficiaries to receive all or part of the shares to be delivered under this Award Certificate in the event of your death. To make a beneficiary designation, you must complete and submit the Beneficiary Designation form on the Executive Compensation website at [website redacted].

Any shares that become deliverable upon your death, and as to which a designation of beneficiary is not in effect, will be distributed to your estate.

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If you previously filed a designation of beneficiary form for your equity awards with the Executive Compensation Department, such form will also apply to the stock units included in this award. You may replace or revoke your beneficiary designation at any time. If there is any question as to the legal right of any beneficiary to receive shares under this award, Morgan Stanley may determine in its sole discretion to deliver the shares in question to your estate. Morgan Stanley’s determination shall be binding and conclusive on all persons and it will have no further liability to anyone with respect to such shares.

15. Ownership and possession.

(a) Generally. Generally, you will not have any rights as a stockholder in the shares of Morgan Stanley common stock corresponding to your stock units prior to conversion of your stock units.

Prior to conversion of your stock units, however, you will receive dividend equivalent payments, as set forth in Section 4 of this Award Certificate. In addition, if Morgan Stanley contributes shares of Morgan Stanley common stock corresponding to your stock units to a grantor trust it has established, you may be permitted to direct the trustee how to vote the shares in the trust corresponding to your stock units. Voting rights, if any, are governed by the terms of the grantor trust and Morgan Stanley may amend any such voting rights, in its sole discretion, at any time. Morgan Stanley is under no obligation to contribute shares corresponding to stock units to a trust. If Morgan Stanley elects not to contribute shares corresponding to your stock units to a trust, you will not have voting rights with respect to shares corresponding to your stock units until your stock units convert to shares.

(b) Following conversion. Subject to Section 10(c), following conversion of your stock units you will be the beneficial owner of the shares of Morgan Stanley common stock issued to you, and you will be entitled to all rights of ownership, including voting rights and the right to receive cash or stock dividends or other distributions paid on the shares.

(c) Custody of shares. Morgan Stanley may maintain possession of the shares subject to your award until such time as your shares are no longer subject to restrictions on transfer.

16. Securities law compliance matters.

Morgan Stanley may affix a legend to any stock certificates representing shares of Morgan Stanley common stock issued upon conversion of your stock units (and any stock certificates that may subsequently be issued in substitution for the original certificates). The legend will read substantially as follows:

THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE WERE ISSUED PURSUANT TO THE MORGAN STANLEY 2007 EQUITY INCENTIVE COMPENSATION PLAN AND ARE SUBJECT TO THE TERMS AND CONDITIONS THEREOF AND OF AN AWARD CERTIFICATE FOR STOCK UNITS AND ANY SUPPLEMENT THERETO.

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THE SECURITIES REPRESENTED BY THIS STOCK CERTIFICATE MAY BE SUBJECT TO RESTRICTIONS ON TRANSFER BY VIRTUE OF THE SECURITIES ACT OF 1933.

COPIES OF THE PLAN, THE AWARD CERTIFICATE FOR STOCK UNITS AND ANY SUPPLEMENT THERETO ARE AVAILABLE THROUGH THE EXECUTIVE COMPENSATION DEPARTMENT.

Morgan Stanley may advise the transfer agent to place a stop order against such shares if it determines that such an order is necessary or advisable.

17. Compliance with laws and regulation.

Any sale, assignment, transfer, pledge, mortgage, encumbrance or other disposition of shares issued upon conversion of your stock units (whether directly or indirectly, whether or not for value, and whether or not voluntary) must be made in compliance with any applicable constitution, rule, regulation or policy of any of the exchanges or associations or other institutions with which the Firm or a Related Employer has membership or other privileges, and any applicable law or applicable rule or regulation of any governmental agency, self-regulatory organization or state or federal regulatory body.

18. No entitlements.

(a) No right to continued Employment. This stock unit award is not an employment agreement, and nothing in this Award Certificate, the International Supplement, if applicable, or the Plan shall alter your status as an “at-will” employee of the Firm or your employment status at a Related Employer. None of this Award Certificate, the International Supplement, if applicable, or the Plan shall be construed as guaranteeing your employment by the Firm or a Related Employer, or as giving you any right to continue in the employ of the Firm or a Related Employer, during any period (including without limitation the period between the Date of the Award and any of the First Scheduled Vesting Date, the Second Scheduled Vesting Date, the First Scheduled Conversion Date, the Second Scheduled Conversion Date, or any portion of any of these periods), nor shall they be construed as giving you any right to be reemployed by the Firm or a Related Employer following any termination of Employment.

(b) No right to future awards. This award, and all other awards of stock units and other equity-based awards, are discretionary. This award does not confer on you any right or entitlement to receive another award of stock units or any other equity-based award at any time in the future or in respect of any future period.

(c) No effect on future employment compensation. Morgan Stanley has made this award to you in its sole discretion. This award does not confer on you any right or entitlement to receive compensation in any specific amount for any future fiscal year, and does not diminish in any way the Firm’s discretion to determine the amount, if any, of your compensation. This award is not part of your base salary or wages and will not be taken into account in determining any other employment-related rights you may have, such as rights to pension or severance pay.

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19. Consents under local law.

Your award is conditioned upon the making of all filings and the receipt of all consents or authorizations required to comply with, or required to be obtained under, applicable local law.

20. Award modification.

Morgan Stanley reserves the right to modify or amend unilaterally the terms and conditions of your stock units, without first asking your consent, or to waive any terms and conditions that operate in favor of Morgan Stanley. These amendments may include (but are not limited to) changes that Morgan Stanley considers necessary or advisable as a result of changes in any, or the adoption of any new, Legal Requirement. Morgan Stanley may not modify your stock units in a manner that would materially impair your rights in your stock units without your consent; provided, however, that Morgan Stanley may, but is not required to, without your consent, amend or modify your stock units in any manner that Morgan Stanley considers necessary or advisable (i) to comply with any Legal Requirement, (ii) to ensure that your stock units do not result in an excise or other supplemental tax on the Firm or on you under any Legal Requirement, or (iii) to ensure that your stock units are not subject to United States federal, state or local income tax or any equivalent taxes in territories outside the United States prior to conversion of your stock units to shares or delivery of such shares following conversion. Morgan Stanley will notify you of any amendment of your stock units that affects your rights. Any amendment or waiver of a provision of this Award Certificate (other than any amendment or waiver applicable to all recipients generally), which amendment or waiver operates in your favor or confers a benefit on you, must be in writing and signed by the Global Head of Human Resources or the Chief Administrative Officer (or if such positions no longer exist, by the holder of an equivalent position) to be effective.

21. Governing law.

This Award Certificate and the related legal relations between you and Morgan Stanley will be governed by and construed in accordance with the laws of the State of New York, without regard to any conflicts or choice of law, rule or principle that might otherwise refer the interpretation of the award to the substantive law of another jurisdiction.

22. Defined terms.

For purposes of this Award Certificate, the following terms shall have the meanings set forth below:

(a) “Board” means the Board of Directors of Morgan Stanley.

(b) “Cause” means:

(1) any act or omission which constitutes a breach of your obligations to the Firm (including, without limitation, your failure to comply with any notice or non-solicitation restrictions that may be applicable to you) or your failure or refusal to

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perform satisfactorily any duties reasonably required of you, which breach, failure or refusal (if susceptible to cure) is not corrected (other than failure to correct by reason of your incapacity due to physical or mental illness) within ten (10) business days after written notification thereof to you by the Firm;

(2) your commission of any dishonest or fraudulent act, or any other act or omission, which has caused or may reasonably be expected to cause injury to the interest or business reputation of the Firm; or

(3) your violation of any securities, commodities or banking laws, any rules or regulations issued pursuant to such laws, or rules or regulations of any securities or commodities exchange or association of which the Firm is a member or of any policy of the Firm relating to compliance with any of the foregoing.

(c) A “Change in Control” shall be deemed to have occurred if any of the following conditions shall have been satisfied:

(1) any one person or more than one person acting as a group (as determined under Section 409A), other than (A) any employee plan established by Morgan Stanley or any of its Subsidiaries, (B) Morgan Stanley or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a corporation owned, directly or indirectly, by stockholders of Morgan Stanley in substantially the same proportions as their ownership of Morgan Stanley, is or becomes, during any 12-month period, the beneficial owner, directly or indirectly, of securities of Morgan Stanley (not including in the securities beneficially owned by such person(s) any securities acquired directly from Morgan Stanley or its affiliates other than in connection with the acquisition by Morgan Stanley or its affiliates of a business) representing 50% or more of the total voting power of the stock of Morgan Stanley; provided, however, that the provisions of this subsection (1) are not intended to apply to or include as a Change in Control any transaction that is specifically excepted from the definition of Change in Control under subsection (3) below;

(2) a change in the composition of the Board such that, during any 12-month period, the individuals who, as of the beginning of such period, constitute the Board (the “Existing Board”) cease for any reason to constitute at least 50% of the Board; provided, however, that any individual becoming a member of the Board subsequent to the beginning of such period whose election, or nomination for election by Morgan Stanley’s stockholders, was approved by a vote of at least a majority of the directors immediately prior to the date of such appointment or election shall be considered as though such individual were a member of the Existing Board;

(3) the consummation of a merger or consolidation of Morgan Stanley with any other corporation or other entity, or the issuance of voting securities in connection with a merger or consolidation of Morgan Stanley (or any direct or indirect subsidiary of Morgan Stanley) pursuant to applicable stock exchange requirements; provided that immediately following such merger or consolidation the voting securities of

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Morgan Stanley outstanding immediately prior thereto do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity of such merger or consolidation or parent entity thereof) 50% or more of the total voting power of Morgan Stanley stock (or if Morgan Stanley is not the surviving entity of such merger or consolidation, 50% or more of the total voting power of the stock of such surviving entity or parent entity thereof); and provided further that a merger or consolidation effected to implement a recapitalization of Morgan Stanley (or similar transaction) in which no person (as determined under Section 409A) is or becomes the beneficial owner, directly or indirectly, of securities of Morgan Stanley (not including in the securities beneficially owned by such person any securities acquired directly from Morgan Stanley or its affiliates other than in connection with the acquisition by Morgan Stanley or its affiliates of a business) representing 50% or more of either the then outstanding shares of Morgan Stanley common stock or the combined voting power of Morgan Stanley’s then outstanding voting securities shall not be considered a Change in Control; or

(4) the complete liquidation of Morgan Stanley or the sale or disposition by Morgan Stanley of all or substantially all of Morgan Stanley’s assets in which any one person or more than one person acting as a group (as determined under Section 409A) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from Morgan Stanley that have a total gross fair market value equal to more than 50% of the total gross fair market value of all of the assets of Morgan Stanley immediately prior to such acquisition or acquisitions.

Notwithstanding the foregoing, (1) no Change in Control shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of Morgan Stanley common stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns substantially all of the assets of Morgan Stanley immediately prior to such transaction or series of transactions and (2) no event or circumstances described in any of clauses (1) through (4) above shall constitute a Change in Control unless such event or circumstances also constitute a change in the ownership or effective control of Morgan Stanley, or in the ownership of a substantial portion of Morgan Stanley’s assets, as defined in Section 409A and the regulations and guidance thereunder. In addition, no Change in Control shall be deemed to have occurred upon the acquisition of additional control of Morgan Stanley by any one person or more than one person acting as a group that is considered to effectively control Morgan Stanley.

For purposes of the provisions of this Award Certificate, terms used in the definition of a Change in Control shall be as defined or interpreted pursuant to Section 409A.

(d) “Committee” means the Compensation, Management Development and Succession Committee of the Board, any successor committee thereto or any other committee of the Board appointed by the Board with the powers of the Committee under the Plan, or any subcommittee appointed by such Committee.

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(e) “Competitive Activity” means:

(1) becoming, or entering into any arrangement as, an employee, officer, partner, member, proprietor, director, independent contractor, consultant, advisor, representative or agent of, or serving in any similar position or capacity with, a Competitor, where you will be responsible for providing, or managing or supervising others who are providing, services (x) that are similar or substantially related to the services that you provided to the Firm, or (y) that you had direct or indirect managerial or supervisory responsibility for at the Firm, or (z) that call for the application of the same or similar specialized knowledge or skills as those utilized by you in your services for the Firm, in each such case, at any time during the year preceding the termination of your employment with the Firm; or

(2) either alone or in concert with others, forming, or acquiring a 5% or greater equity ownership, voting interest or profit participation in, a Competitor.

(f) “Competitor” means any corporation, partnership or other entity that is engaged in any activity, or that owns a significant interest in any corporation, partnership or other entity, that competes with any business activity the Firm engages in, or that you reasonably knew or should have known that the Firm was planning to engage in, at the time of the termination of your Employment.

(g) “Confidential and Proprietary Information” means any information that is classified as confidential in the Firm’s Global Policy on Confidential Information or that may have intrinsic value to the Firm, the Firm’s clients or other parties with which the Firm has a relationship, or that may provide the Firm with a competitive advantage, including, without limitation, any trade secrets; inventions (whether or not patentable); formulas; flow charts; computer programs; access codes or other systems of information; algorithms; technology and business processes; business, product or marketing plans; sales and other forecasts; financial information; client lists or other intellectual property; information relating to compensation and benefits; and public information that becomes proprietary as a result of the Firm’s compilation of that information for use in its business, provided that such Confidential and Proprietary Information does not include any information which is available for use by the general public or is generally available for use within the relevant business or industry other than as a result of your action. Confidential and Proprietary Information may be in any medium or form, including, without limitation, physical documents, computer files or discs, videotapes, audiotapes, and oral communications.

(h) “Date of the Award” means [insert grant date, which typically will coincide approximately with the end of the fiscal year in respect of which the award is made].

(i) “Disability” means any condition that would qualify for a benefit under any group long-term disability plan maintained by the Firm and applicable to you.

(j) “Employed” and “Employment” refer to employment with the Firm and/or Related Employment.

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(k) “Equity Awards Committee” means a committee consisting of one or more members of the Board to whom the Committee has delegated authority to make equity compensation awards to employees of the Firm.

(l) The “Firm” means Morgan Stanley (including any successor thereto) together with its subsidiaries and affiliates. For purposes of the definitions of “Cause,” “Confidential and Proprietary Information,” “Unauthorized Comments” and “Wrongful Solicitation” set forth in this Award Certificate, references to the “Firm” shall refer severally to the Firm as defined in the preceding sentence and your Related Employer, if any. For purposes of the cancellation provisions set forth in this Award Certificate relating to disclosure or use of Confidential and Proprietary Information, references to the “Firm” shall refer to the Firm as defined in the second preceding sentence or your Related Employer, as applicable.

(m) “First Scheduled Conversion Date” means a date during [second year following the Date of the Award] selected by the Committee, the Chief Administrative Officer or the Equity Awards Committee.

(n) “First Scheduled Vesting Date” means [second anniversary of January 2 following the Date of the Award].

(o) “Fiscal Year [            ]” means Morgan Stanley’s fiscal year beginning on [            ]and ending on [            ].

(p) “Full Career Retirement” means the termination of your Employment by you or by the Firm for any reason other than under circumstances involving any cancellation event described in Section 10(c), and other than due to your death or Disability, a Governmental Service Termination or pursuant to a Qualifying Termination, on or after the date on which:

(1) you have attained age 50 and completed at least 12 years of service as a [            ]³ or equivalent officer title; or

(2) you have attained age 50 and completed at least 15 years of service as an officer of the Firm at the level of [            ]⁴ or above; or

(3) you have completed at least 20 years of service with the Firm; or

(4) you have attained age 55 and have completed at least 5 years of service with the Firm and the sum of your age and years of service equals or exceeds 65.⁵

For the purposes of the foregoing definition, service with the Firm will include any period of service with the following entities and any of their predecessors:

(i) AB Asesores (“ABS”) prior to its acquisition by the Firm (provided that only years of service as a partner of ABS shall count towards years of service as an officer);

³ Specified officer title(s) in one or more specified business units.

⁴ Specified officer title(s) in one or more specified business units.

⁵ Age and service conditions specified in clauses (1) through (4) may vary from year to year.

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(ii) Morgan Stanley Group Inc. and its subsidiaries (“MS Group”) prior to the merger with and into Dean Witter, Discover & Co.;

(iii) Miller Anderson & Sherrerd, L.L.P. prior to its acquisition by MS Group;

(iv) Van Kampen Investments Inc. and its subsidiaries prior to its acquisition by MS Group;

(v) FrontPoint Partners LLC and its subsidiaries prior to its acquisition by the Firm; and

(vi) Dean Witter, Discover & Co. and its subsidiaries (“DWD”) prior to the merger of Morgan Stanley Group Inc. with and into Dean Witter, Discover & Co.;

provided that, in the case of an employee who has transferred employment from DWD to MS Group or vice versa, a former employee of DWD will receive credit for employment with DWD only if he or she transferred directly from DWD to Morgan Stanley & Co. Incorporated or its affiliates subsequent to February 5, 1997, and a former employee of MS Group will receive credit for employment with MS Group only if he or she transferred directly from MS Group to Morgan Stanley DW Inc. or its affiliates subsequent to February 5, 1997.

(q) “Governmental Employer” means a governmental department or agency, self-regulatory agency or other public service employer.

(r) “Governmental Service Termination” means the termination of your Employment due to your commencement of employment at a Governmental Employer; provided that you have presented the Firm with satisfactory evidence demonstrating that as a result of such new employment, the divestiture of your continued interest in Morgan Stanley equity awards or continued ownership of Morgan Stanley common stock is reasonably necessary to avoid the violation of U.S. federal, state or local or foreign ethics law or conflicts of interest law applicable to you at such Governmental Employer.

(s) “Internal Revenue Code” means the United States Internal Revenue Code of 1986, as amended, and the rules, regulations and guidance thereunder.

(t) “Legal Requirement” means any law, regulation, ruling, judicial decision, accounting standard, regulatory guidance or other legal requirement.

(u) “Management Committee” means the Morgan Stanley Management Committee and any successor or equivalent committee.

(v) “Plan” means the 2007 Equity Incentive Compensation Plan, as amended.

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(w) “Qualifying Termination” means your Separation from Service within eighteen (18) months following a Change in Control under either of the following circumstances: (a) the Firm terminates your employment under circumstances not involving any cancellation event; or (b) you resign from the Firm due to (i) a materially adverse alteration in your position or in the nature or status of your responsibilities from those in effect immediately prior to the Change in Control, as determined by the Committee or its delegees, or (ii) the Firm requiring your principal place of employment to be located more than 75 miles from the location where you were principally employed at the time of the Change in Control (except for required travel on the Firm’s business to an extent substantially consistent with your business travel obligations in the ordinary course of business prior to the Change in Control).

(y) “Related Employment” means your employment with an employer other than the Firm (such employer, herein referred to as a “Related Employer”), provided that: (i) you undertake such employment at the written request or with the written consent of Morgan Stanley’s Global Head of Human Resources (or if such position no longer exists, the holder of an equivalent position); (ii) immediately prior to undertaking such employment you were an employee of the Firm or were engaged in Related Employment (as defined herein); and (iii) such employment is recognized by the Firm in its discretion as Related Employment; and, provided further that the Firm may (1) determine at any time in its sole discretion that employment that was recognized by the Firm as Related Employment no longer qualifies as Related Employment, and (2) condition the designation and benefits of Related Employment on such terms and conditions as the Firm may determine in its sole discretion. The designation of employment as Related Employment does not give rise to an employment relationship between you and the Firm, or otherwise modify your and the Firm’s respective rights and obligations.

(z) “Scheduled Conversion Date” means the First Scheduled Conversion Date and/or the Second Scheduled Conversion Date, as the context requires.

(aa) “Scheduled Vesting Date” means the First Scheduled Vesting Date and/or the Second Scheduled Vesting Date, as the context requires.

(bb) “Second Scheduled Conversion Date” means a date during [third year following the Date of the Award] selected by the Committee, the Chief Administrative Officer or the Equity Awards Committee.

(cc) “Second Scheduled Vesting Date” means [third anniversary of January 2 following the Date of the Award].

(dd) “Section 409A” means Section 409A of the Internal Revenue Code.

(ee) “Separation from Service” means a separation from service with the Firm for purposes of Section 409A determined using the default provisions set forth in Treasury Regulation §1.409A-1(h) or any successor regulation thereto. For purposes of this definition, Morgan Stanley’s subsidiaries and affiliates include (and are limited to) any corporation that is in the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as Morgan Stanley and any trade or business that is under common control with Morgan Stanley (within the meaning of Section 414(c) of the Internal Revenue Code), determined in each case in accordance with the default provisions set forth in Treasury Regulation §1.409A-1(h)(3).

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(ff) You will be deemed to have made “Unauthorized Comments” about the Firm if, while Employed or following the termination of your Employment, you make, directly or indirectly, any negative, derogatory or disparaging comment, whether written, oral or in electronic format, to any reporter, author, producer or similar person or entity or to any general public media in any form (including, without limitation, books, articles or writings of any other kind, as well as film, videotape, audio tape, computer/Internet format or any other medium) that concerns directly or indirectly the Firm, its business or operations, or any of its current or former agents, employees, officers, directors, customers or clients.

(gg) A “Wrongful Solicitation” occurs upon either of the following events:

(1) while Employed, including during any notice period applicable to you in connection with the termination of your Employment, or within 180 days after the termination of your Employment, directly or indirectly in any capacity (including through any person, corporation, partnership or other business entity of any kind), you hire or solicit, recruit, induce, entice, influence or encourage any Firm employee to leave the Firm or become hired or engaged by another firm; provided, however, that this clause shall apply only to employees with whom you worked or had professional or business contact, or who worked in or with your business unit, during any notice period applicable to you in connection with the termination of your Employment or during the 180 days preceding notice of the termination of your Employment; or

(2) while Employed, including during any notice period applicable to you in connection with the termination of your Employment, or within 90 days (180 days if you are a member of the Management Committee at the time of notice of termination) after the termination of your Employment, directly or indirectly in any capacity (including through any person, corporation, partnership or other business entity of any kind), you solicit or entice away or in any manner attempt to persuade any client or customer, or prospective client or customer, of the Firm (i) to discontinue or diminish his, her or its relationship or prospective relationship with the Firm or (ii) to otherwise provide his, her or its business to any person, corporation, partnership or other business entity which engages in any line of business in which the Firm is engaged (other than the Firm); provided, however, that this clause shall apply only to clients or customers, or prospective clients or customers, that you worked for on an actual or prospective project or assignment during any notice period applicable to you in connection with the termination of your Employment or during the 180 days preceding notice of the termination of your Employment.

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IN WITNESS WHEREOF, Morgan Stanley has duly executed and delivered this Award Certificate as of the Date of the Award.

MORGAN STANLEY

/s/

[Name]

[Title]

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EX-10.9

EXHIBIT 10.9

MORGAN STANLEY

MORGAN STANLEY COMPENSATION INCENTIVE PLAN

[FISCAL YEAR] DISCRETIONARY RETENTION AWARDS

AWARD CERTIFICATE

TABLE OF CONTENTS FOR AWARD CERTIFICATE

1.	Your award generally	3
2.	Vesting schedule and payment	3
3.	Special provision for certain employees	5
4.	Death, Disability and Full Career Retirement	5
5.	Involuntary termination by the Firm	6
6.	Governmental Service	6
7.	Qualifying Termination	7
8.	Specified employees	7
9.	Cancellation of Applicable Account Value under certain circumstances	7
10.	Tax and other withholding obligations	9
11.	Obligations you owe to the Firm	10
12.	Nontransferability	10
13.	Designation of a Beneficiary	10
14.	No entitlements	11
15.	Consents under local law	11
16.	Award modification	11
17.	Governing law	12
18.	Defined terms	12

MORGAN STANLEY

MORGAN STANLEY COMPENSATION INCENTIVE PLAN

[FISCAL YEAR] DISCRETIONARY RETENTION AWARDS

AWARD CERTIFICATE

FISCAL YEAR [    ]

Morgan Stanley has awarded you an award under the Morgan Stanley Compensation Incentive Plan (the “Plan”) as part of your discretionary long-term incentive compensation for services provided during Fiscal Year [            ] and as an incentive for you to remain in Employment and provide services to the Firm through the Scheduled Vesting Dates. This Award Certificate sets forth the general terms and conditions of your Fiscal Year [            ] award under the Plan. The initial value of your award has been communicated to you independently.

If you are employed outside the United States, you will also receive an “International Supplement” that contains supplemental terms and conditions for your Fiscal Year [            ] Award. References herein to your Award Certificate shall include the International Supplement, if applicable. You should read this Award Certificate in conjunction with the International Supplement, if applicable, and the Plan in order to understand the terms and conditions of your award.

Your award is made pursuant to the Plan. References to Applicable Account Value in this Award Certificate mean only the Applicable Account Value related to your Fiscal Year [            ] Award under the Plan, and the terms and conditions herein apply only to such award. If you receive any other award under the Plan or another incentive compensation plan, it will be governed by the terms and conditions of the applicable award documentation, which may be different from those herein.

The purpose of the Fiscal Year [            ] Award is, among other things, to facilitate the allocation of a portion of your discretionary above-base compensation for Fiscal Year [            ] to the notional investment opportunities afforded by the Plan, to reward you for your continued Employment and service to the Firm in the future and your compliance with the Firm’s policies (including the Code of Conduct), to protect the Firm’s interests in non-public, confidential and/or proprietary information, products, trade secrets, customer relationships, and other legitimate business interests, and to ensure an orderly transition of responsibilities. In view of these purposes, you will earn each portion of your Fiscal Year [            ] Award only if you (1) remain in continuous Employment through the applicable Scheduled Vesting Date and (2) do not engage in any activity that is a cancellation event set forth in Section 9(c) below. Therefore, even if your award has vested, you will have no right to your award if a cancellation event occurs under the circumstances set forth in Section 9(c) below. You will be required to provide Morgan Stanley with such written certification or other evidence as Morgan Stanley deems appropriate, from

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time to time in its sole discretion, to confirm that no cancellation event has occurred. If you fail to provide such certification or evidence, Morgan Stanley will cancel your award. Under Morgan Stanley’s current policy, upon a termination of Employment and, if applicable, during a specified period of time prior to each Scheduled Distribution Date thereafter, you will be required to certify on the Morgan Stanley Executive Compensation website at [website redacted] that no cancellation event has occurred. In the event such certification is not timely made, Morgan Stanley will cancel your award. It is your responsibility to provide the Executive Compensation Department with your up-to-date contact information.

Capitalized terms used in this Award Certificate that are not defined in the text have the meanings set forth in Section 18 below. Capitalized terms used in this Award Certificate that are not defined in the text or in Section 18 below have the meanings set forth in the Plan.

1. Your award generally.

(a) Applicable Account Value. This Award Certificate uses the term “Applicable Account Value” to refer to your Fiscal Year [            ] Award under the Plan and the notional return (positive or negative) thereon based on the performance of the Notional Investments to which your Account is notionally allocated. If you received another award under the Plan for Fiscal Year [            ] or a prior Fiscal Year, or your receive an award under the Plan for a future Fiscal Year, your total Account Value under the Plan will include the Applicable Account Value of your Fiscal Year [            ] Award and the applicable Account Value of your other award(s) for Fiscal Year [            ] and for any future or prior Fiscal Year(s).

(b) Notional allocation of account. The notional allocation of your Applicable Account Value is subject to the ultimate discretion of the Firm and is made exclusively for the purpose of determining your Applicable Account Value from time to time in accordance with the Plan. You may notionally allocate your Applicable Account Value to any one fund, or any combination of funds, offered as Notional Investments under the Plan.

2. Vesting schedule and payment.

(a) Vesting schedule. Except as otherwise provided in this Award Certificate, your Applicable Account Value will vest according to the following schedule: (i) 50% of your Applicable Account Value will vest on the First Scheduled Vesting Date and (ii) the remaining portion of your Applicable Account Value will vest on the Second Scheduled Vesting Date.¹ Except as otherwise provided in this Award Certificate, each portion of your Applicable Account Value will vest only if you continue to provide future services to the Firm by remaining in continuous Employment through the applicable Scheduled Vesting Date and providing value added services to the Firm during this timeframe. The special vesting terms set forth in Sections 4, 5, 6 and 7 of this Award Certificate apply (i) if your Employment terminates by reason of your

¹ The vesting schedule presented in this form of Award Certificate is indicative. The vesting schedule applicable to awards may vary.

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death or Disability or upon your Full Career Retirement, (ii) if the Firm terminates your employment in an involuntary termination under the circumstances described in Section 5, (iii) upon a Governmental Service Termination or (iv) upon a Qualifying Termination. The vested portion of your Applicable Account Value remains subject to the cancellation and withholding provisions set forth in this Award Certificate.

(b) Payment. Except as otherwise provided in this Award Certificate, (i) 50% of your Applicable Account Value will, to the extent vested, be paid in cash (minus applicable tax and other withholding liabilities) on the First Scheduled Distribution Date and (ii) the remaining portion of your Applicable Account Value will, to the extent vested, be paid in cash (minus applicable tax and other withholding liabilities) on the Second Scheduled Distribution Date.² The special payment provisions set forth in Sections 4(a), 4(b), 6 and 7 of this Award Certificate apply (i) if your Employment terminates by reason of your death or you die after termination of your Employment, (ii) upon your Governmental Service Termination or your employment at a Governmental Employer following your termination of employment with the Firm under circumstances set forth in Section 6(b), or (iii) upon a Qualifying Termination.

(c) Accelerated payment. Morgan Stanley shall have no right to accelerate the payment of any portion of your Applicable Account Value, except to the extent that such acceleration is not prohibited by Section 409A and would not result in your being required to recognize income for United States federal income tax purposes prior to the distribution of your Applicable Account Value or your incurring additional tax or interest under Section 409A. If any portion of your Applicable Account Value is paid prior to the applicable Scheduled Distribution Date pursuant to this Section 2(c), Morgan Stanley may condition such payment on your agreement that if you engage in any activity constituting a cancellation event set forth in Section 9(c) within the applicable period of time that would have resulted in cancellation of all or a portion of your Applicable Account Value (had it not been paid pursuant to this Section 9(c)), you will be required to repay to Morgan Stanley an amount equal to the payment you received (before taking account of any withholding) in respect of the portion of your Applicable Account Value that would have been canceled upon the occurrence of such cancellation event, plus interest on such amount at the average rate of interest Morgan Stanley paid to borrow money from financial institutions during the period from the date such portion of your Applicable Account Value was paid through the date preceding the repayment date.

(d) Rule of construction for timing of payment. Whenever this Award Certificate provides for all or a portion of your Applicable Account Value to be paid on the First Scheduled Distribution Date or the Second Scheduled Distribution Date or upon a different specified event or date, such payment will be considered to have been timely made, and neither you nor any of your Beneficiaries or your estate shall have any claim against the Firm for damages based on an acceleration of the payment of your Applicable Account Value pursuant to Section 2(c) or a delay in the payment of your Applicable Account Value, and the Firm shall have no liability to you (or to any of your Beneficiaries or your estate) in respect of any such

² The payment schedule presented in this form of Award Certificate is indicative. The payment schedule applicable to awards may vary.

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acceleration or delay, as long as payment is made by December 31 of the year in which occurs the applicable Scheduled Distribution Date or such other specified event or date or, if later, by the 15th day of the third calendar month following such specified event or date.

3. Special provision for certain employees.

Notwithstanding the other provisions of this Award Certificate, if Morgan Stanley considers you to be one of its executive officers at the time provided for the payment of the vested portion of your Applicable Account Value and determines that your compensation may not be fully deductible by virtue of Section 162(m) of the Internal Revenue Code, Morgan Stanley shall delay payment of the nondeductible portion of your compensation, including delaying payment of your Applicable Account Value to the extent nondeductible, unless the Administrator, in its sole discretion, determines not to delay such payment. This delay will continue until your “Separation from Service” under Section 409A, and your vested Applicable Account Value will be paid upon your Separation from Service.

4. Death, Disability and Full Career Retirement.

The following special vesting and payment terms apply to your award:

(a) Death during Employment. If your Employment terminates due to death, any unvested portion of your Applicable Account Value will vest on the date of your death. Your Applicable Account Value will be paid to the Beneficiary you have designated pursuant to Section 13 of the Plan or the legal representative of your estate, as applicable, upon your death, provided that your estate or Beneficiary notifies the Firm of your death within 60 days following your death. After your death, the cancellation provisions set forth in Section 9(c) will no longer apply.

(b) Death after termination of Employment. If you die after the termination of your Employment but prior to an applicable Scheduled Distribution Date, the vested portion of your Applicable Account Value that you held at the time of your death will be paid to the Beneficiary you have designated pursuant to Section 13 or the legal representative of your estate, as applicable, upon your death, provided that your estate or Beneficiary notifies the Firm of your death within 60 days following your death. After your death, the cancellation provisions set forth in Section 9(c) will no longer apply.

(c) Disability or Full Career Retirement. If your Employment terminates due to Disability or in a Full Career Retirement, any unvested portion of your Applicable Account Value will vest on the date your Employment terminates. Your Applicable Account Value will be paid on the applicable Scheduled Distribution Date. The cancellation and withholding provisions set forth in this Award Certificate will continue to apply until the applicable Scheduled Distribution Date.

5. Involuntary termination by the Firm.

If the Firm terminates your employment under circumstances not involving any cancellation event set forth in Section 9(c), any unvested portion of your Applicable Account

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Value will vest on the date your employment with the Firm terminates and your Applicable Account Value will be paid on the applicable Scheduled Distribution Date, provided that you sign an agreement and release satisfactory to the Firm. If you do not sign an agreement and release satisfactory to the Firm in connection with your involuntary termination as described in this Section 5, any portion of your Applicable Account Value that was unvested immediately prior to your termination shall be canceled. The cancellation and withholding provisions set forth in this Award Certificate will continue to apply until the applicable Scheduled Distribution Date.

6. Governmental Service.

(a) General treatment of awards upon Governmental Service Termination. If your Employment terminates in a Governmental Service Termination and not involving a cancellation event set forth in Section 9(c), then, provided that you sign an agreement satisfactory to the Firm relating to your obligations pursuant to Section 6(c), any unvested portion of your Applicable Account Value will vest on the date of your Governmental Service Termination. Your vested Applicable Account Value will be paid on the date of your Governmental Service Termination.

(b) General treatment of vested awards upon acceptance of employment at a Governmental Employer following termination of Employment. If your Employment terminates other than in a Governmental Service Termination and not involving a cancellation event set forth in Section 9(c) and, following your termination of Employment, you accept employment with a Governmental Employer, then, provided that you sign an agreement satisfactory to the Firm relating to your obligations pursuant to Section 6(c), the vested portion of your Applicable Account Value will be paid upon your commencement of such employment, provided you present the Firm with satisfactory evidence demonstrating that as a result of such employment the divestiture of your continued interest in your Applicable Account Value is reasonably necessary to avoid the violation of U.S. federal, state or local or foreign ethics law or conflicts of interest law applicable to you at such Governmental Employer.

(c) Repayment obligation. If you engage in any activity constituting a cancellation event set forth in Section 9(c) within the applicable period of time that would have resulted in cancellation of all or a portion of your Applicable Account Value (had it not been paid pursuant to Sections 6(a) or 6(b) above), you will be required to repay to Morgan Stanley the amount distributed to you pursuant to Sections 6(a) or 6(b) above (before taking account of any withholding), plus interest on such amount at the average rate of interest Morgan Stanley paid to borrow money from financial institutions during the period from the date of such payment through the date preceding the repayment date.

7. Qualifying Termination.

If your employment terminates in a Qualifying Termination, any unvested portion of your Applicable Account Value will vest, cancellation provisions will lapse, and, subject to Section 8, your Applicable Account Value will be paid upon your Qualifying Termination.

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8. Specified employees.

Notwithstanding any other terms of this Award Certificate, if Morgan Stanley considers you to be one of its “specified employees” as defined in Section 409A at the time of your Separation from Service, payment of any portion of your Applicable Account Value that otherwise would be made upon your Separation from Service (including, without limitation, any payments that were delayed due to Section 162(m) of the Internal Revenue Code, as provided in Section 3, and any portion of your Applicable Account Value payable upon your Qualifying Termination, as provided in Section 7) will be delayed until the first business day following the date that is six months after your Separation from Service; provided, however, that in the event that your death, your Governmental Service Termination or your employment at a Governmental Employer following your termination of employment with the Firm under circumstances set forth in Section 6(b) occurs at any time after the Date of the Award, payment will be made in accordance with Section 4(a), 4(b), or 6, as applicable.

9. Cancellation of Applicable Account Value under certain circumstances.

(a) Cancellation of unvested Applicable Account Value. Any unvested portion of your Applicable Account Value will be canceled if your Employment terminates for any reason other than death, Disability, a Full Career Retirement, an involuntary termination by the Firm described in Section 5, a Governmental Service Termination or a Qualifying Termination.

(b) General treatment of vested Applicable Account Value. Except as otherwise provided in this Award Certificate, the vested portion of your Applicable Account Value will be paid on the applicable Scheduled Distribution Date. The cancellation and withholding provisions set forth in this Award Certificate will continue to apply until the applicable Scheduled Distribution Date.

(c) Cancellation of Applicable Account Value under certain circumstances. The cancellation events set forth in this Section 9(c) are designed, among other things, to incentivize compliance with the Firm’s policies (including the Code of Conduct), to protect the Firm’s interests in non-public, confidential and/or proprietary information, products, trade secrets, customer relationships, and other legitimate business interests, and to ensure an orderly transition of responsibilities. This Section 9(c) shall apply notwithstanding any other terms of this Award Certificate (except where sections in this Award Certificate specifically provide that the cancellation events set forth in this Section 9(c) no longer apply).

Your Applicable Account Value, even if vested, is not earned until the applicable Scheduled Distribution Date and, unless prohibited by applicable law, will be canceled prior to the applicable Scheduled Distribution Date in any of the circumstances set forth below in Section 9(c)(1) or (2). The Firm may retain custody of your Applicable Account Value following a Scheduled Distribution Date pending any investigation or other review that impacts the determination as to whether your Applicable Account Value is cancellable under the circumstances set forth below and, in such an instance, your Applicable Account Value shall be forfeited in the event the Firm determines that the Applicable Account Value was cancellable under the circumstances set forth below.

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(1) Competitive Activity. If you engage in Competitive Activity following the voluntary termination of your Employment in a termination that satisfies the definition of a Full Career Retirement, the following shall apply, subject to applicable law:

(i) If your Competitive Activity occurs before the First Scheduled Vesting Date, then your entire Applicable Account Value will be canceled immediately.

(ii) If your Competitive Activity occurs on or after the First Scheduled Vesting Date but before the Second Scheduled Vesting Date, then the 50% of your Applicable Account Value that is scheduled to be paid on the Second Scheduled Distribution date will be canceled immediately.

(2) Other Events. If any of the following events occur at any time before the applicable Scheduled Distribution Date, your entire Applicable Account Value (whether or not vested), will be canceled immediately, subject to applicable law:

(i) Your Employment is terminated for Cause or you engage in conduct constituting Cause (whether or not your Employment has been terminated as of the applicable Scheduled Distribution Date);

(ii) Following the termination of your Employment, the Firm determines that your Employment could have been terminated for Cause (for these purposes, “Cause” will be determined without giving consideration to any “cure” period included in the definition of “Cause”);

(iii) You disclose Confidential and Proprietary Information to any unauthorized person outside the Firm, or use or attempt to use Confidential and Proprietary Information other than in connection with the business of the Firm; or you fail to comply with your obligations (either during or after your Employment) under the Firm’s Code of Conduct (and any applicable supplements), or otherwise existing between you and the Firm, relating to Confidential and Proprietary Information or an assignment, procurement or enforcement of rights in Confidential and Proprietary Information;

(iv) You engage in a Wrongful Solicitation;

(v) You make any Unauthorized Comments;

(vi) You resign from your employment with the Firm without having provided the Firm prior written notice of your resignation at least:

(A) 180 days before the date on which your employment with the Firm terminates if you are a member of the Management Committee at the time of notice of your resignation;

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(B) 90 days before the date on which your employment with the Firm terminates if clause (A) of this Section 9(c)(2)(vi) does not apply to you and you are a Managing Director (or equivalent title) at the time of notice of your resignation;

(C) 60 days before the date on which your employment with the Firm terminates if you are an Executive Director (or equivalent title) at the time of notice of your resignation; and

(D) 30 days before the date on which your employment with the Firm terminates if none of clauses (A) through (C) of this Section 9(c)(2)(vi) apply to you at the time of notice of your resignation; or

(vii) You take any action, or you omit to take any action, where such action or omission:

(A) causes or contributes to the need for a material restatement of the Firm’s financial results; or

(B) causes or is reasonably expected to cause injury to the interest or business reputation of the Firm or of a business area for which you have or had responsibility, including a material financial loss suffered by the Firm or such business area.

10. Tax and other withholding obligations.

Any vesting, whether on a Scheduled Vesting Date or some other date, or payment of your Applicable Account Value shall be subject to the Firm’s withholding of all required United States federal, state, local and foreign income and employment/payroll taxes (including Federal Insurance Contributions Act taxes). You authorize the Firm to withhold such taxes from any payroll or other payment or compensation to you and to take such other action as the Firm may deem advisable to enable it and you to satisfy obligations for the payment of withholding taxes and other tax obligations, assessments, or other governmental charges, whether of the United States or any other jurisdiction, relating to the vesting or payment of your Applicable Account Value. However, the Firm may not deduct or withhold such sum from any payroll or any other payment or compensation, except to the extent it is not prohibited by Section 409A and would not cause you to recognize income for United States federal income tax purposes before your Applicable Account Value is paid or to incur additional tax or interest under Section 409A or to incur interest or additional tax under Section 409A.

11. Obligations you owe to the Firm.

Morgan Stanley may not withhold amounts from payment of your Applicable Account Value to satisfy obligations that you owe to the Firm except (i) to the extent authorized

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under Section 10, relating to tax and other withholding obligations or, otherwise, (ii) to the extent such withholding is not prohibited by Section 409A and would not cause you to recognize income for United States federal income tax purposes before your Applicable Account Value is paid or to incur additional tax or interest under Section 409A. Morgan Stanley’s determination of any amount that you owe the Firm shall be conclusive.

12. Nontransferability.

You may not sell, pledge, hypothecate, assign or otherwise transfer your Applicable Account Value, other than as provided in Section 13 (which allows you to designate a Beneficiary or Beneficiaries in the event of your death) or by will or the laws of descent and distribution. This prohibition includes any assignment or other transfer that purports to occur by operation of law or otherwise. During your lifetime, payments relating to your Applicable Account Value will be made only to you.

Your personal representatives, heirs, legatees, beneficiaries, successors and assigns, and those of Morgan Stanley, shall all be bound by, and shall benefit from, the terms and conditions of your Fiscal Year [            ] Award.

13. Designation of a Beneficiary.

You may make a designation of Beneficiary or Beneficiaries to receive all or part of the Applicable Account Value to be paid under this Award Certificate in the event of your death. To make a Beneficiary designation, you must complete and submit the Beneficiary Designation form on the Executive Compensation website at [website redacted].

Once you file a designation of Beneficiary form for your award(s) under the Plan with the Executive Compensation Department, such form will apply to all of your awards under the Plan, including your Applicable Account Value. You may replace or revoke your Beneficiary designation at any time. If there is any question as to the legal right of any Beneficiary to receive payment of your Applicable Account Value, Morgan Stanley may determine in its sole discretion to pay your Applicable Account Value to your estate. Morgan Stanley’s determination shall be binding and conclusive on all persons and it will have no further liability to anyone with respect to such Applicable Account Value.

14. No entitlements.

(a) No right to continued Employment. This Fiscal Year [            ] Award is not an employment agreement, and nothing in this Award Certificate, the International Supplement, if applicable, or the Plan shall alter your status as an “at-will” employee of the Firm or your employment status at a Related Employer. None of this Award Certificate, the International Supplement, if applicable, or the Plan shall be construed as guaranteeing your employment by the Firm or a Related Employer, or as giving you any right to continue in the employ of the Firm or a Related Employer, during any period (including without limitation the period between the Date of the Award and any of the First Scheduled Vesting Date, the Second Scheduled Vesting Date, the First Scheduled Distribution Date, the Second Scheduled Distribution Date, or any portion of any of these periods), nor shall they be construed as giving you any right to be reemployed by the Firm or a Related Employer following any termination of Employment.

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(b) No right to future awards. This award, and all other awards under the Plan, are discretionary. This award does not confer on you any right or entitlement to receive another award under the Plan or any other award under any other incentive compensation plan of Morgan Stanley at any time in the future or in respect of any future period.

(c) No effect on future employment compensation. Morgan Stanley has made this award to you in its sole discretion. This award does not confer on you any right or entitlement to receive compensation in any specific amount for any future fiscal year, and does not diminish in any way the Firm’s discretion to determine the amount, if any, of your compensation. This award is not part of your base salary or wages and will not be taken into account in determining any other employment-related rights you may have, such as rights to pension or severance pay.

15. Consents under local law.

Your award is conditioned upon the making of all filings and the receipt of all consents or authorizations required to comply with, or required to be obtained under, applicable local law.

16. Award modification.

Morgan Stanley reserves the right to modify or amend unilaterally the terms and conditions of this Award Certificate, without first asking your consent, or to waive any terms and conditions that operate in favor of Morgan Stanley. These amendments may include (but are not limited to) changes that Morgan Stanley considers necessary or advisable as a result of changes in any, or the adoption of any new, Legal Requirement. Notwithstanding anything to the contrary in any Descriptive Materials, Morgan Stanley may not amend or modify this Award Certificate in a manner that would materially impair your rights, if any, in your Account without your consent; provided, however, that Morgan Stanley may, but is not required to, without your consent, amend or modify this Award Certificate in any manner that Morgan Stanley considers necessary or advisable (i) to comply with any Legal Requirement, (ii) to ensure that your award or Account Value does not result in an excise or other supplemental tax on the Firm or on you under any Legal Requirement, or (iii) to ensure that your Account Value is not subject to United States federal, state or local income tax or any equivalent taxes in territories outside the United States prior to payment. Morgan Stanley will notify you of any amendment of this Award Certificate that affects your rights. Any amendment or waiver of a provision of this Award Certificate (other than any amendment or waiver applicable to all Participants generally), which amendment or waiver operates in your favor or confers a benefit on you, must be in writing and signed by the Global Head of Human Resources or the Chief Administrative Officer (or if such positions no longer exist, by the holder of an equivalent position) to be effective.

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17. Governing law.

This Award Certificate and the related legal relations between you and Morgan Stanley will be governed by and construed in accordance with the laws of the State of New York, without regard to any conflicts or choice of law, rule or principle that might otherwise refer the interpretation of the award to the substantive law of another jurisdiction.

18. Defined terms.

For purposes of this Award Certificate, the following terms shall have the meanings set forth below:

(a) “Board” means the Board of Directors of Morgan Stanley.

(b) “Cause” means:

(1) any act or omission which constitutes a breach of your obligations to the Firm (including, without limitation, your failure to comply with any notice or non-solicitation restrictions that may be applicable to you) or your failure or refusal to perform satisfactorily any duties reasonably required of you, which breach, failure or refusal (if susceptible to cure) is not corrected (other than failure to correct by reason of your incapacity due to physical or mental illness) within ten (10) business days after written notification thereof to you by the Firm;

(2) your commission of any dishonest or fraudulent act, or any other act or omission, which has caused or may reasonably be expected to cause injury to the interest or business reputation of the Firm; or

(3) your violation of any securities, commodities or banking laws, any rules or regulations issued pursuant to such laws, or rules or regulations of any securities or commodities exchange or association of which the Firm is a member or of any policy of the Firm relating to compliance with any of the foregoing.

(c) A “Change in Control” shall be deemed to have occurred if any of the following conditions shall have been satisfied:

(1) any one person or more than one person acting as a group (as determined under Section 409A), other than (A) any employee plan established by Morgan Stanley or any of its Subsidiaries, (B) Morgan Stanley or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a corporation owned, directly or indirectly, by stockholders of Morgan Stanley in substantially the same proportions as their ownership of Morgan Stanley, is or becomes, during any 12-month period, the beneficial owner, directly or indirectly, of securities of Morgan Stanley (not including in the securities beneficially owned by such person(s) any securities acquired directly from Morgan Stanley or its affiliates other than in connection with the acquisition by Morgan Stanley or its affiliates of a business) representing 50% or

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more of the total voting power of the stock of Morgan Stanley; provided, however, that the provisions of this subsection (1) are not intended to apply to or include as a Change in Control any transaction that is specifically excepted from the definition of Change in Control under subsection (3) below;

(2) a change in the composition of the Board such that, during any 12-month period, the individuals who, as of the beginning of such period, constitute the Board (the “Existing Board”) cease for any reason to constitute at least 50% of the Board; provided, however, that any individual becoming a member of the Board subsequent to the beginning of such period whose election, or nomination for election by Morgan Stanley’s stockholders, was approved by a vote of at least a majority of the directors immediately prior to the date of such appointment or election shall be considered as though such individual were a member of the Existing Board;

(3) the consummation of a merger or consolidation of Morgan Stanley with any other corporation or other entity, or the issuance of voting securities in connection with a merger or consolidation of Morgan Stanley (or any direct or indirect subsidiary of Morgan Stanley) pursuant to applicable stock exchange requirements; provided that immediately following such merger or consolidation the voting securities of Morgan Stanley outstanding immediately prior thereto do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity of such merger or consolidation or parent entity thereof) 50% or more of the total voting power of Morgan Stanley stock (or if Morgan Stanley is not the surviving entity of such merger or consolidation, 50% or more of the total voting power of the stock of such surviving entity or parent entity thereof); and provided further that a merger or consolidation effected to implement a recapitalization of Morgan Stanley (or similar transaction) in which no person (as determined under Section 409A) is or becomes the beneficial owner, directly or indirectly, of securities of Morgan Stanley (not including in the securities beneficially owned by such person any securities acquired directly from Morgan Stanley or its affiliates other than in connection with the acquisition by Morgan Stanley or its affiliates of a business) representing 50% or more of either the then outstanding shares of Morgan Stanley common stock or the combined voting power of Morgan Stanley’s then outstanding voting securities shall not be considered a Change in Control; or

(4) the complete liquidation of Morgan Stanley or the sale or disposition by Morgan Stanley of all or substantially all of Morgan Stanley’s assets in which any one person or more than one person acting as a group (as determined under Section 409A) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from Morgan Stanley that have a total gross fair market value equal to more than 50% of the total gross fair market value of all of the assets of Morgan Stanley immediately prior to such acquisition or acquisitions.

Notwithstanding the foregoing, (1) no Change in Control shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of Morgan Stanley common stock immediately prior to such

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transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns substantially all of the assets of Morgan Stanley immediately prior to such transaction or series of transactions and (2) no event or circumstances described in any of clauses (1) through (4) above shall constitute a Change in Control unless such event or circumstances also constitute a change in the ownership or effective control of Morgan Stanley, or in the ownership of a substantial portion of Morgan Stanley’s assets, as defined in Section 409A and the regulations and guidance thereunder. In addition, no Change in Control shall be deemed to have occurred upon the acquisition of additional control of Morgan Stanley by any one person or more than one person acting as a group that is considered to effectively control Morgan Stanley.

For purposes of the provisions of this Award Certificate, terms used in the definition of a Change in Control shall be as defined or interpreted pursuant to Section 409A.

(d) “Competitive Activity” means:

(1) becoming, or entering into any arrangement as, an employee, officer, partner, member, proprietor, director, independent contractor, consultant, advisor, representative or agent of, or serving in any similar position or capacity with, a Competitor, where you will be responsible for providing, or managing or supervising others who are providing, services (x) that are similar or substantially related to the services that you provided to the Firm, or (y) that you had direct or indirect managerial or supervisory responsibility for at the Firm, or (z) that call for the application of the same or similar specialized knowledge or skills as those utilized by you in your services for the Firm, in each such case, at any time during the year preceding the termination of your employment with the Firm; or

(2) either alone or in concert with others, forming, or acquiring a 5% or greater equity ownership, voting interest or profit participation in, a Competitor.

(e) “Competitor” means any corporation, partnership or other entity that is engaged in any activity, or that owns a significant interest in any corporation, partnership or other entity, that competes with any business activity the Firm engages in, or that you reasonably knew or should have known that the Firm was planning to engage in, at the time of the termination of your Employment.

(f) “Confidential and Proprietary Information” means any information that is classified as confidential in the Firm’s Global Policy on Confidential Information or that may have intrinsic value to the Firm, the Firm’s clients or other parties with which the Firm has a relationship, or that may provide the Firm with a competitive advantage, including, without limitation, any trade secrets; inventions (whether or not patentable); formulas; flow charts; computer programs; access codes or other systems of information; algorithms; technology and business processes; business, product or marketing plans; sales and other forecasts; financial information; client lists or other intellectual property; information relating to compensation and benefits; and public information that becomes proprietary as a result of the Firm’s compilation of that information for use in its business, provided that such Confidential and Proprietary Information does not include any information which is available for use by the general public or

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is generally available for use within the relevant business or industry other than as a result of your action. Confidential and Proprietary Information may be in any medium or form, including, without limitation, physical documents, computer files or discs, videotapes, audiotapes, and oral communications.

(g) “Date of the Award” means [insert grant date, which typically will coincide approximately with the end of the fiscal year in respect of which the award is made].

(h) “Disability” means any condition that would qualify for a benefit under any group long-term disability plan maintained by the Firm and applicable to you.

(i) “Employed” and “Employment” refer to employment with the Firm and/or Related Employment.

(j) The “Firm” means Morgan Stanley (including any successor thereto) together with its subsidiaries and affiliates. For purposes of the definitions of “Cause,” “Confidential and Proprietary Information,” “Unauthorized Comments” and “Wrongful Solicitation” set forth in this Award Certificate, references to the “Firm” shall refer severally to the Firm as defined in the preceding sentence and your Related Employer, if any. For purposes of the cancellation provisions set forth in this Award Certificate relating to disclosure or use of Confidential and Proprietary Information, references to the “Firm” shall refer to the Firm as defined in the second preceding sentence or your Related Employer, as applicable.

(k) “First Scheduled Distribution Date” means [second anniversary of January 2 following the Date of the Award].

(l) “First Scheduled Vesting Date” means [second anniversary of January 2 following the Date of the Award].

(m) “Fiscal Year [            ]” means Morgan Stanley’s fiscal year beginning on [            ] and ending on [            ].

(n) “Fiscal Year [            ] Award” means the initial value of the Fiscal Year [            ] incentive award that is granted to you under the Plan.

(o) “Full Career Retirement” means the termination of your Employment by you or by the Firm for any reason other than under circumstances involving any cancellation event described in Section 9(c), and other than due to your death or Disability, a Governmental Service Termination or pursuant to a Qualifying Termination, on or after the date on which:

(1) you have attained age 50 and completed at least 12 years of service as a [            ]³ or equivalent officer title; or

³ Specified officer title(s) in one or more specified business units.

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(2) you have attained age 50 and completed at least 15 years of service as an officer of the Firm at the level of [            ]⁴ or above; or

(3) you have completed at least 20 years of service with the Firm; or

(4) you have attained age 55 and have completed at least 5 years of service with the Firm and the sum of your age and years of service equals or exceeds 65.⁵

For the purposes of the foregoing definition, service with the Firm will include any period of service with the following entities and any of their predecessors:

(i) AB Asesores (“ABS”) prior to its acquisition by the Firm (provided that only years of service as a partner of ABS shall count towards years of service as an officer);

(ii) Morgan Stanley Group Inc. and its subsidiaries (“MS Group”) prior to the merger with and into Dean Witter, Discover & Co.;

(iii) Miller Anderson & Sherrerd, L.L.P. prior to its acquisition by MS Group;

(iv) Van Kampen Investments Inc. and its subsidiaries prior to its acquisition by MS Group;

(v) FrontPoint Partners LLC and its subsidiaries prior to its acquisition by the Firm; and

(vi) Dean Witter, Discover & Co. and its subsidiaries (“DWD”) prior to the merger of Morgan Stanley Group Inc. with and into Dean Witter, Discover & Co.;

provided that, in the case of an employee who has transferred employment from DWD to MS Group or vice versa, a former employee of DWD will receive credit for employment with DWD only if he or she transferred directly from DWD to Morgan Stanley & Co. Incorporated or its affiliates subsequent to February 5, 1997, and a former employee of MS Group will receive credit for employment with MS Group only if he or she transferred directly from MS Group to Morgan Stanley DW Inc. or its affiliates subsequent to February 5, 1997.

(p) “Governmental Employer” means a governmental department or agency, self-regulatory agency or other public service employer.

(q) “Governmental Service Termination” means the termination of your Employment due to your commencement of employment at a Governmental Employer; provided

⁴ Specified officer title(s) in one or more specified business units.

⁵ Age and service conditions specified in clauses (1) through (4) may vary from year to year.

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that you have presented the Firm with satisfactory evidence demonstrating that as a result of such new employment, the divestiture of your continued interest in Morgan Stanley awards (including awards settled in cash) is reasonably necessary to avoid the violation of U.S. federal, state or local or foreign ethics law or conflicts of interest law applicable to you at such Governmental Employer.

(r) “Internal Revenue Code” means the United States Internal Revenue Code of 1986, as amended, and the rules, regulations and guidance thereunder.

(s) “Management Committee” means the Morgan Stanley Management Committee and any successor or equivalent committee.

(t) “Qualifying Termination” means your Separation from Service within eighteen (18) months following a Change in Control under either of the following circumstances: (a) the Firm terminates your employment under circumstances not involving any cancellation event; or (b) you resign from the Firm due to (i) a materially adverse alteration in your position or in the nature or status of your responsibilities from those in effect immediately prior to the Change in Control, as determined by the Administrator, or (ii) the Firm requiring your principal place of employment to be located more than 75 miles from the location where you were principally employed at the time of the Change in Control (except for required travel on the Firm’s business to an extent substantially consistent with your business travel obligations in the ordinary course of business prior to the Change in Control).

(v) “Related Employment” means your employment with an employer other than the Firm (such employer, herein referred to as a “Related Employer”), provided that: (i) you undertake such employment at the written request or with the written consent of Morgan Stanley’s Global Head of Human Resources (or if such position no longer exists, the holder of an equivalent position); (ii) immediately prior to undertaking such employment you were an employee of the Firm or were engaged in Related Employment (as defined herein); and (iii) such employment is recognized by the Firm in its discretion as Related Employment; and, provided further that the Firm may (1) determine at any time in its sole discretion that employment that was recognized by the Firm as Related Employment no longer qualifies as Related Employment, and (2) condition the designation and benefits of Related Employment on such terms and conditions as the Firm may determine in its sole discretion. The designation of employment as Related Employment does not give rise to an employment relationship between you and the Firm, or otherwise modify your and the Firm’s respective rights and obligations.

(w) “Scheduled Distribution Date” means the First Scheduled Distribution Date and/or the Second Scheduled Distribution Date, as the context requires.

(x) “Scheduled Vesting Date” means the First Scheduled Vesting Date and/or the Second Scheduled Vesting Date, as the context requires.

(y) “Second Scheduled Distribution Date” means [third anniversary of January 2 following the Date of the Award].

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(z) “Second Scheduled Vesting Date” means [third anniversary of January 2 following the Date of the Award].

(aa) “Section 409A” means Section 409A of the Internal Revenue Code.

(bb) “Separation from Service” means a separation from service with the Firm for purposes of Section 409A determined using the default provisions set forth in Treasury Regulation §1.409A-1(h) or any successor regulation thereto. For purposes of this definition, Morgan Stanley’s subsidiaries and affiliates include (and are limited to) any corporation that is in the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as Morgan Stanley and any trade or business that is under common control with Morgan Stanley (within the meaning of Section 414(c) of the Internal Revenue Code), determined in each case in accordance with the default provisions set forth in Treasury Regulation §1.409A-1(h)(3).

(cc) “Subsidiary” means (i) a corporation or other entity with respect to which Morgan Stanley, directly or indirectly, has the power, whether through the ownership of voting securities, by contract or otherwise, to elect at least a majority of the members of such corporation’s board of directors or analogous governing body, or (ii) any other corporation or other entity in which Morgan Stanley, directly or indirectly, has an equity or similar interest and which the Administrator designates as a Subsidiary for purposes of the Plan.

(dd) You will be deemed to have made “Unauthorized Comments” about the Firm if, while Employed or following the termination of your Employment, you make, directly or indirectly, any negative, derogatory or disparaging comment, whether written, oral or in electronic format, to any reporter, author, producer or similar person or entity or to any general public media in any form (including, without limitation, books, articles or writings of any other kind, as well as film, videotape, audio tape, computer/Internet format or any other medium) that concerns directly or indirectly the Firm, its business or operations, or any of its current or former agents, employees, officers, directors, customers or clients.

(ee) A “Wrongful Solicitation” occurs upon either of the following events:

(1) while Employed, including during any notice period applicable to you in connection with the termination of your Employment, or within 180 days after the termination of your Employment, directly or indirectly in any capacity (including through any person, corporation, partnership or other business entity of any kind), you hire or solicit, recruit, induce, entice, influence or encourage any Firm employee to leave the Firm or become hired or engaged by another firm; provided, however, that this clause shall apply only to employees with whom you worked or had professional or business contact, or who worked in or with your business unit, during any notice period applicable to you in connection with the termination of your Employment or during the 180 days preceding notice of the termination of your Employment; or

(2) while Employed, including during any notice period applicable to you in connection with the termination of your Employment, or within 90 days (180 days if you are a member of the Management Committee at the time of notice of termination)

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after the termination of your Employment, directly or indirectly in any capacity (including through any person, corporation, partnership or other business entity of any kind), you solicit or entice away or in any manner attempt to persuade any client or customer, or prospective client or customer, of the Firm (i) to discontinue or diminish his, her or its relationship or prospective relationship with the Firm or (ii) to otherwise provide his, her or its business to any person, corporation, partnership or other business entity which engages in any line of business in which the Firm is engaged (other than the Firm); provided, however, that this clause shall apply only to clients or customers, or prospective clients or customers, that you worked for on an actual or prospective project or assignment during any notice period applicable to you in connection with the termination of your Employment or during the 180 days preceding notice of the termination of your Employment.

IN WITNESS WHEREOF, Morgan Stanley has duly executed and delivered this Award Certificate as of the Date of the Award.

MORGAN STANLEY

/s/

[Name]

[Title]

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EX-12

Exhibit 12

Morgan Stanley

Ratio of Earnings to Fixed Charges

and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends

(dollars in millions)

	Three Months Ended					One Month Ended			Fiscal Year
	March 31, 2009			March 31, 2008		December 31, 2008			2008		2007(1)		2006(1)		2005(1)		2004(1)
Ratio of Earnings to Fixed Charges
Earnings:
Income (loss) before income taxes (2)	$	(885	)	$	2,038	$	(2,009	)	$	2,216	$	3,354	$	9,049	$	6,005	$	5,189
Add: Fixed charges, net		2,431			11,850		1,037			37,752		57,519		41,069		23,757		14,133
Income (loss) before income taxes and fixed charges, net	$	1,546		$	13,888	$	(972	)	$	39,968	$	60,873	$	50,118	$	29,762	$	19,322
Fixed Charges:
Total interest expense	$	2,375		$	11,796	$	1,017		$	37,523	$	57,302	$	40,897	$	23,552	$	13,977
Interest factor in rents		55			53		20			228		217		172		205		156
Dividends on preferred securities subject to mandatory redemption		—			—		—			—		—		—		—		45
Total fixed charges	$	2,430		$	11,849	$	1,037		$	37,751	$	57,519	$	41,069	$	23,757	$	14,178
Ratio of earnings to fixed charges		*			1.2		*			1.1		1.1		1.2		1.3		1.4
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
Earnings:
Income (loss) before income taxes (2)	$	(885	)	$	2,038	$	(2,009	)	$	2,216	$	3,354	$	9,049	$	6,005	$	5,189
Add: Fixed charges, net		2,431			11,850		1,037			37,752		57,519		41,069		23,757		14,133
Income (loss) before income taxes and fixed charges, net	$	1,546		$	13,888	$	(972	)	$	39,968	$	60,873	$	50,118	$	29,762	$	19,322
Fixed Charges:
Total interest expense	$	2,375		$	11,796	$	1,017		$	37,523	$	57,302	$	40,897	$	23,552	$	13,977
Interest factor in rents		55			53		20			228		217		172		205		156
Dividends on preferred securities subject to mandatory redemption		—			—		—			—		—		—		—		45
Preferred stock dividends		1,679			20		481			138		90		27		—		—
Total fixed charges and preferred stock dividends	$	4,109		$	11,869	$	1,518		$	37,889	$	57,609	$	41,096	$	23,757	$	14,178
Ratio of earnings to fixed charges and preferred stock dividends		*			1.2		*			1.1		1.1		1.2		1.3		1.4

(1) Certain prior-period information has been reclassified to conform to the current year's presentation. Effective January 1, 2009, the Company adopted SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements,” which requires retroactive application to prior periods.

(2) Income (loss) before income taxes does not include dividends on preferred securities subject to mandatory redemption, gain/(loss) on discontinued operations and cumulative effect of accounting change (net).

“Fixed charges” consist of interest cost, including interest on deposit, dividends on preferred securities subject to mandatory redemption, and that portion of rent expense estimated to be representative of the interest factor.

The preferred stock dividend amounts represent pre-tax earnings required to cover dividends on preferred stock.

* The earnings for the three months ended March 31, 2009 and for the one month ended December 31, 2008 were inadequate to cover total fixed charges and total fixed charges and preferred stock dividends.

The coverage deficiencies for total fixed charges for the three months ended March 31, 2009 and for the one month ended December 31, 2008 were $885 million and $2,009 million, respectively.

The coverage deficiencies for total fixed charges and preferred stock dividends for the three months ended March 31, 2009 and for the one month ended December 31, 2008 were $2,563 million and $2,490 million, respectively.

EX-15

Exhibit 15

To the Board of Directors and Shareholders of Morgan Stanley:

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim condensed consolidated financial information of Morgan Stanley and subsidiaries as of March 31, 2009 and December 31, 2008 and for the three-month periods ended March 31, 2009 and March 31, 2008, and for the one month ended December 31, 2008, and have issued our report dated May 7, 2009 (which report included explanatory paragraphs regarding Morgan Stanley’s change in fiscal year-end from November 30 to December 31 and the recasting of prior interim financial statements to a calendar year basis and the adoption of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” and the adoption of FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.”) As indicated in such report, because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, is incorporated by reference in the following Registration Statements of Morgan Stanley:

Filed on Form S-3:

Registration Statement No. 33-57202

Registration Statement No. 33-60734

Registration Statement No. 33-89748

Registration Statement No. 33-92172

Registration Statement No. 333-07947

Registration Statement No. 333-27881

Registration Statement No. 333-27893

Registration Statement No. 333-27919

Registration Statement No. 333-46403

Registration Statement No. 333-46935

Registration Statement No. 333-76111

Registration Statement No. 333-75289

Registration Statement No. 333-34392

Registration Statement No. 333-47576

Registration Statement No. 333-83616

Registration Statement No. 333-106789

Registration Statement No. 333-117752

Registration Statement No. 333-129243

Registration Statement No. 333-131266

Registration Statement No. 333-155622

Registration Statement No. 333-156423

Filed on Form S-4:

Registration Statement No. 333-25003

Filed on Form S-8:

Registration Statement No. 33-63024

Registration Statement No. 33-63026

Registration Statement No. 33-78038

Registration Statement No. 33-79516

Registration Statement No. 33-82240

Registration Statement No. 33-82242

Registration Statement No. 33-82244

Registration Statement No. 333-04212

Registration Statement No. 333-28141

Registration Statement No. 333-28263

Registration Statement No. 333-62869

Registration Statement No. 333-78081

Registration Statement No. 333-95303

Registration Statement No. 333-85148

Registration Statement No. 333-85150

Registration Statement No. 333-108223

Registration Statement No. 333-142874

Registration Statement No. 333-146954

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statements prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP

New York, New York

May 7, 2009

EX-31.1

EXHIBIT 31.1

Certification

I, John J. Mack, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Morgan Stanley (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2009

/s/ JOHN J. MACK

John J. Mack

Chairman of the Board and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification

I, Colm Kelleher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Morgan Stanley (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2009

/s/ COLM KELLEHER

Colm Kelleher

Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report of Morgan Stanley (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2009, as filed with the Securities and Exchange Commission (the “Report”), I, John J. Mack, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ JOHN J. MACK

John J. Mack

Chairman of the Board and

Chief Executive Officer

Dated: May 7, 2009

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report of Morgan Stanley (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2009, as filed with the Securities and Exchange Commission (the “Report”), I, Colm Kelleher, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ COLM KELLEHER

Colm Kelleher

Executive Vice President and

Chief Financial Officer

Dated: May 7, 2009