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.

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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.

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Executive Summary.

Financial Information.



                                                       At or for the               At or for the
                                                    Three Months Ended            One Month Ended
                                                         March 31,                 December 31,
                                                    2009            2008               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

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Statistical Data-(Continued).



                                                      At or for the                 At or for the
                                                    Three Months Ended             One Month Ended
                                                        March 31,                   December 31,
                                                   2009             2008                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

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Statistical Data-(Continued).



                                                      At or for the                 At or for the
                                                   Three Months Ended              One Month Ended
                                                        March 31,                   December 31,
                                                 2009              2008                 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.

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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 . . .