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; and investment activities.

Global Wealth Management Group, which includes the Company's 51% interest in Morgan Stanley Smith Barney Holdings LLC ("MSSB") (see Note 2 to the condensed consolidated financial statements), 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 and "Risk Factors" in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2008 (the "Form 10-K"), "Certain Factors Affecting Results of Operations" in Exhibit 99.1, Item 7 of the Company's Current Report on Form 8-K dated August 24, 2009 (the "Form 8-K"), "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Form 8-K and in the Company's 2009 Quarterly Reports on Form 10-Q and other items throughout the Form 10-K, Forms 10-Q and the Company's 2009 Current Reports on Form 8-K.

The Company's results of operations for the quarter and nine month periods ended September 30, 2009 and September 30, 2008 are discussed below.

Discontinued Operations.

MSCI. In May 2009, the Company divested all of its remaining ownership interest in MSCI Inc. ("MSCI"). The results of MSCI are reported as discontinued operations for all periods prior to the divestiture. The results of MSCI were formerly included in the continuing operations of the Institutional Securities business segment.

Crescent. In addition, discontinued operations in the quarter and nine month period ended September 30, 2008 include operating results and gains (losses) related to the disposition of certain properties previously owned by Crescent Real Estate Equities Limited Partnership ("Crescent"), a real estate subsidiary of the Company. The results of certain Crescent properties previously owned by the Company were formerly included in the Asset Management business segment.

See Note 20 to the condensed consolidated financial statements for additional information on discontinued operations.

[[Image Removed: LOGO]] 83

Recent Business Developments.

Retail Asset Management Business. On October 19, 2009, the Company announced as part of a restructuring of its Asset Management business segment a definitive agreement to sell its retail asset management business, including Van Kampen Investments, Inc. ("Van Kampen"), to Invesco Ltd. ("Invesco"). This transaction allows the Company to focus on its institutional client base, including corporations, pension plans, large intermediaries, foundations and endowments, sovereign wealth funds, and central banks, among others.

Under the terms of the definitive agreement, Invesco will purchase the Company's retail asset management business, operating under both the Morgan Stanley and Van Kampen brands, in a stock and cash transaction valued at $1.5 billion. The Company will receive a 9.4% minority interest in Invesco. The transaction, which has been approved by the Boards of Directors of both companies, is expected to close in mid-2010, subject to customary closing conditions, approval by the funds' boards of directors and their shareholders and regulatory approvals.

84 [[Image Removed: LOGO]]

Executive Summary.

Financial Information.



                                                     At or for the                  At or for the
                                                   Three Months Ended             Nine Months Ended
                                                     September 30,                  September 30,
                                                 2009(1)        2008(2)        2009(1)        2008(2)
Net revenues (dollars in millions):
Institutional Securities                        $   4,974       $ 16,043       $  9,538       $ 24,870
Global Wealth Management Group                      3,029          1,582          6,251          5,610
Asset Management                                      698            449          1,345          1,605
Intersegment Eliminations                             (26 )          (63 )         (102 )         (145 )

Consolidated net revenues                       $   8,675       $ 18,011       $ 17,032       $ 31,940

Consolidated net income (dollars in
millions)                                       $     793       $  8,171       $    636       $ 10,762
Net income (loss) applicable to
non-controlling interest (dollars in
millions)                                              36             20            (93 )           55

Net income applicable to Morgan Stanley
(dollars in millions)                           $     757       $  8,151       $    729       $ 10,707

Income (loss) from continuing operations
applicable to Morgan Stanley (dollars in
millions):
Institutional Securities                        $     857       $  7,898       $    889       $  9,421
Global Wealth Management Group                        105             12            254            777
Asset Management                                     (206 )         (209 )         (732 )         (416 )
Intersegment Eliminations                               1             (1 )            1              2

Income from continuing operations applicable
to Morgan Stanley                               $     757       $  7,700       $    412       $  9,784

Amounts applicable to Morgan Stanley
(dollars in millions):
Income from continuing operations applicable
to Morgan Stanley                               $     757       $  7,700       $    412       $  9,784
Gain from discontinued operations applicable
to Morgan Stanley, after tax                           -             451            317            923

Net income applicable to Morgan Stanley
(dollars in millions)                           $     757       $  8,151       $    729       $ 10,707

Earnings (loss) applicable to Morgan Stanley
common shareholders (dollars in millions)       $     498       $  7,684       $ (1,301 )     $ 10,030

Earnings per basic common share:
Income (loss) from continuing operations        $    0.39       $   6.97       $  (1.41 )     $   8.82
Gain from discontinued operations(3)                   -            0.41           0.28           0.84

Earnings (loss) per basic common share(4)       $    0.39       $   7.38       $  (1.13 )     $   9.66

Earnings per diluted common share:
Income (loss) from continuing operations        $    0.38       $   6.97       $  (1.41 )     $   8.80
Gain from discontinued operations(3)                   -            0.41           0.28           0.83

Earnings (loss) per diluted common share(4)     $    0.38       $   7.38       $  (1.13 )     $   9.63

Regional net revenues (dollars in
millions)(5):
Americas                                        $   6,373       $  8,359       $ 13,718       $ 14,666
Europe, Middle East and Africa                      1,631          8,414          1,719         13,895
Asia                                                  671          1,238          1,595          3,379

Consolidated net revenues                       $   8,675       $ 18,011       $ 17,032       $ 31,940

[[Image Removed: LOGO]] 85

Statistical Data.



                                                   At or for the                  At or for the
                                                 Three Months Ended             Nine Months Ended
                                                   September 30,                  September 30,
                                               2009(1)        2008(2)        2009(1)        2008(2)
Average common equity (dollars in
billions)(6):
Institutional Securities                      $    16.7       $   22.7       $   18.4       $   23.0
Global Wealth Management Group                      7.4            1.5            3.8            1.4
Asset Management                                    2.9            4.2            3.2            3.9
Unallocated capital                                 9.7            7.4            7.6            5.1

Total from continuing operations                   36.7           35.8           33.0           33.4
Discontinued operations                              -             0.3            0.2            0.4

Consolidated average common equity            $    36.7       $   36.1       $   33.2       $   33.8

Return on average common equity(6):
Consolidated                                          6 %          N/M            N/M            N/M
Institutional Securities                             19 %          N/M              4 %          N/M
Global Wealth Management Group                        5 %            3 %            8 %          N/M
Asset Management                                    N/M            N/M            N/M            N/M
Book value per common share(7)                $   27.05       $  38.13       $  27.05       $  38.13
Tangible common equity(8)                     $  28,850       $ 36,754       $ 28,850       $ 36,754
Tangible book value per common share(9)       $   21.23       $  34.61       $  21.23       $  34.61
Tangible common equity to risk-weighted
assets ratio(10)                                    9.6 %          N/A            9.6 %          N/A
Effective income tax rate from continuing
operations(11)                                     34.7 %         27.8 %        197.1 %         27.7 %

Worldwide employees(12)                          62,004         46,321         62,004         46,321

Average liquidity (dollars in
billions)(13):
Parent company liquidity                      $      58       $     72       $     60       $     74
Bank and other subsidiary liquidity                  97             90             92             72

Total liquidity                               $     155       $    162       $    152       $    146

Capital ratios at September 30, 2009(14):
Total capital ratio                                16.5 %          N/A           16.5 %          N/A
Tier 1 capital ratio                               15.4 %          N/A           15.4 %          N/A
Tier 1 leverage ratio                               6.2 %          N/A            6.2 %          N/A
Tier 1 common ratio                                 8.2 %          N/A            8.2 %          N/A
Consolidated assets under management or
supervision by asset class (dollars in
billions):
Equity(15)                                    $     386       $    254       $    386       $    254
Fixed income(15)                                    212            208            212            208
Alternatives(16)                                     53             67             53             67
Private equity                                        4              3              4              3
Infrastructure                                        4              4              4              4
Real estate                                          15             35             15             35

Subtotal                                            674            571            674            571
Unit trusts                                          12             11             12             11
Other(15)                                            57             48             57             48

Total assets under management or
supervision(17)                                     743            630            743            630
Share of non-controlling interest
assets(18)                                            6              7              6              7

Total                                         $     749       $    637       $    749       $    637

86 [[Image Removed: LOGO]]

Statistical Data-(Continued).



                                                   At or for the                     At or for the
                                                 Three Months Ended                Nine Months Ended
                                                   September 30,                     September 30,
                                              2009(1)          2008(2)          2009(1)         2008(2)
Institutional Securities:
Pre-tax profit margin(19)                            26 %            69 %              5 %            52 %

Global Wealth Management Group:
Global representatives                           18,160           8,588           18,160           8,588
Annualized net revenue per global
representative (dollars in
thousands)(20)                               $      662        $    750        $     661        $    773
Assets by client segment (dollars in
billions):
$10 million or more                          $      438        $    190        $     438        $    190
$1 million to $10 million                           620             241              620             241

Subtotal $1 million or more                       1,058             431            1,058             431
$100,000 to $1 million                              420             188              420             188
Less than $100,000                                   54              28               54              28

Total client assets                          $    1,532        $    647        $   1,532        $    647

Fee-based assets as a percentage of
total client assets                                  24 %            26 %             24 %            26 %
Client assets per global representative
(dollars in millions)(21)                    $       84        $     75        $      84        $     75
Bank deposits (dollars in billions)(22)      $      110        $     34        $     110        $     34
Pre-tax profit margin(19)                             9 %           N/M                5 %            22 %

Asset Management:
Assets under management or supervision
(dollars in billions)(18)                    $      386        $    483        $     386        $    483
Percent of fund assets in top half of
Lipper rankings(23)                                  72 %            54 %             72 %            54 %
Pre-tax profit margin(19)                           N/M             N/M              N/M             N/M

N/M - Not Meaningful.

N/A - Not Applicable.

(1) Information includes MSSB effective from May 31, 2009 (see Note 2 to the condensed consolidated financial statements).

(2) Certain prior-period information has been reclassified to conform to the current period's presentation.

(3) Amounts include operating results and gains on secondary offerings related to MSCI and operating results and gains (losses) related to the disposition of certain properties previously owned by Crescent.

(4) For the calculation of basic and diluted earnings per common share ("EPS"), see Note 12 to the condensed consolidated financial statements.

(5) Regional net revenues in Europe, Middle East and Africa were negatively impacted by the tightening of the Company's credit spreads resulting from the increase in fair value of certain of the Company's long-term and short-term borrowings, primarily structured notes, in the quarter and nine month periods ended September 30, 2009. The prior periods were positively impacted by the widening of the Company's credit spreads resulting from the decrease in fair value of such borrowings. 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.

(6) 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. Economic capital is assigned to each business segment based on a regulatory capital framework plus additional capital for stress losses. Economic capital requirements are met by regulatory Tier 1 equity (including shareholders' equity, certain preferred stock, eligible hybrid capital instruments, non-controlling interests and deductions of certain goodwill, intangible assets, net deferred tax assets and debt valuation adjustment), subject to regulatory limits. 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 business segment return on average common equity were determined on a separate entity basis.

(7) Book value per common share equals common shareholders' equity of $36,752 million as of September 30, 2009 and $40,492 million as of September 30, 2008, divided by common shares outstanding of 1,359 million as of September 30, 2009 and 1,062 million as of September 30, 2008.

[[Image Removed: LOGO]] 87

(9) Tangible book value per common share equals tangible common equity divided by period end common shares outstanding.

(10) Tangible common equity to risk-weighted assets ratio equals tangible common equity divided by total risk-weighted assets of $299,416 million.

(11) The effective tax rate for the nine month period ended September 30, 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 nine month period ended September 30, 2009 would have been 91.0%.

(12) Worldwide employees as of September 30, 2009 include additional worldwide employees contributed by Citigroup Inc. ("Citi") related to MSSB.

(13) For a discussion of average liquidity, see "Liquidity and Capital Resources-Liquidity Management Policies-Liquidity Reserves" herein.

(14) For a discussion of total capital ratio, Tier 1 capital ratio and Tier 1 leverage ratio, see "Liquidity and Capital Resources-Regulatory Requirements" herein. For a discussion of Tier 1 common ratio, see "Liquidity and Capital Resources-The Balance Sheet" herein.

(15) 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.

(16) 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.

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

(18) Amounts represent Asset Management's proportional share of assets managed by entities in which it owns a non-controlling interest.

(19) Percentages represent income from continuing operations before income taxes as a percentage of net revenues.

(20) Annualized net revenue per global representative for the three and nine month periods ended September 30, 2009 and September 30, 2008 equals Global Wealth Management Group's net revenues (excluding the sale of Morgan Stanley Wealth Management S.V., S.A.U. ("MSWM S.V.") for the three and nine month periods ended September 30, 2008) divided by the quarterly weighted average global representative headcount for the three and nine month periods ended September 30, 2009 and September 30, 2008, respectively.

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

(22) Approximately $52 billion of the bank deposit balances as of September 30, 2009 and $34 billion as of September 30, 2008 are attributable to the Company's interest in MSSB. These deposit balances 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.

(23) Source: Lipper, one-year performance excluding money market funds as of September 30, 2009 and September 30, 2008, respectively.

Global Market and Economic Conditions.

During the quarter ended September 30, 2009, global market and economic conditions improved and global capital markets began to recover from the severe downturn that occurred during the Fall of 2008.

In the U.S., economic conditions improved, liquidity began to return to the fixed income markets, the initial public offering market reopened and the securitization market began to reopen, while the real estate markets continued to be adversely impacted. During the quarter and nine month period ended September 30, 2009, major U.S. equity market indices rose, as compared with the beginning of the quarter and the year, primarily due to better than expected corporate earnings and investor confidence in an economic recovery. Consumer spending, household balance sheets and business fixed investments remained challenged. The unemployment rate increased to 9.8% at September 30, 2009 from 7.2% at December 31, 2008. The Federal Open Market Committee kept its interest rates at historically low levels and at September 30, 2009, the federal funds target rate was between zero and 0.25% and the discount rate was 0.50%.

In Europe, during the quarter and nine month period ended September 30, 2009, major European equity market indices improved, as compared with the beginning of the quarter and the year. Economic conditions, however, continued to be challenged by adverse economic developments that began in the Fall of 2008. The euro area unemployment rate increased to 9.7% at September 2009 from 8.2% at December 2008. During the first half of 2009, the European Central Bank ("ECB") lowered its benchmark interest rate by 1.50% to a record low of 1.00% and during the quarter ended September 30, 2009, the ECB left its benchmark interest rate unchanged. During the first half of 2009, the Bank of England ("BOE") lowered its benchmark interest rate by 1.50% to 0.50% and during

88 [[Image Removed: LOGO]]

the quarter ended September 30, 2009, the BOE left its benchmark interest rate unchanged. During the nine month period ended September 30, 2009, the BOE pursued 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 Asia, during the quarter and nine month period ended September 30, 2009, economic conditions continued to be challenged by adverse economic developments that began in the Fall of 2008, including a decline in exports in both China and Japan. Despite lower exports, China's economy continued to benefit from domestic demand for capital projects. Equity markets in China were lower in the quarter, while higher in the nine month period ended September 30, 2009. Japanese equity markets were higher in both the quarter and nine month period ended September 30, 2009, as compared with the beginning of the quarter and the year. During the nine month period ended September 30, 2009, the Bank of Japan ("BOJ") pursued a quantitative easing policy in which the BOJ would purchase securities with the objective of increasing liquidity and reducing the reliance on short-term liquidity by providing longer term liquidity via Japanese government bond purchases.

Overview of the Quarter and Nine Month Period ended September 30, 2009 Financial Results.

The Company recorded net income applicable to Morgan Stanley of $757 million for the quarter ended September 30, 2009 compared with net income applicable to Morgan Stanley of $8,151 million in the quarter ended September 30, 2008. Comparisons of the current quarter results with prior periods are impacted by three months results of MSSB, which closed on May 31, 2009. The current quarter included losses of $0.9 billion related to the tightening of the Company's credit spreads on certain long-term and short-term borrowings accounted for at fair value. The prior year quarter included gains of $9.7 billion related to the widening of the Company's credit spreads on certain long-term and short-term borrowings accounted for at fair value. Diluted EPS were $0.38 in the quarter ended September 30, 2009 compared with $7.38 in the prior year period. Diluted EPS from continuing operations were $0.38 in the current quarter compared with $6.97 in the prior year period.

Net revenues (total revenues less interest expense) decreased 52% to $8,675 million in the quarter ended September 30, 2009. The quarter ended September 30, 2009 included losses of $0.9 billion from the tightening of the Company's credit spreads on certain long-term and short-term borrowings accounted for at fair . . .