UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

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MORGAN STANLEY

 


(Name of Registrant as Specified in Its Charter)

 

  


(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

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Notice of 2010 Annual Meeting of Shareholders

2000 Westchester Avenue

Purchase, New York

May 18, 2010, 9:00 a.m., local time

April 12, 20105, 2012

 

Fellow shareholder:

 

I cordially invite you to attend Morgan Stanley’s 20102012 annual meeting of shareholders to:

elect members of the Board of Directors;

ratify the appointment of Deloitte & Touche LLP as independent auditor;

consider a non-binding advisory votethat will be held on Tuesday, May 15, 2012 at our offices at 2000 Westchester Avenue, Purchase, New York. I hope that you will be able to approve executive compensation;attend.

approve the amendment of the 2007 Equity Incentive Compensation Plan;

consider five shareholder proposals; and

transact such other business as may properly come before the meeting.

 

Our BoardAt the annual meeting of Directors recommends that you vote“FOR”shareholders, we will consider the electionitems of directors, the ratification of the appointment of the auditor, the approval of the compensation of executives as disclosedbusiness discussed in thisour proxy statement and review significant strategic and other developments in the amendment oflast year.Your vote is very important. Whether or not you plan to attend the 2007 Equity Incentive Compensation Plan, and“AGAINST” the shareholder proposals.meeting, please vote promptly to ensure that your shares are represented.

 

We enclose our letter to shareholders, our proxy statement, our annual report on Form 10-K and a proxy card. Please submit your proxy. Thank you for your support of Morgan Stanley.

 

Very truly yours,

 

LOGO
James P. Gorman
Chairman and Chief Executive Officer


LOGO

1585 Broadway

New York, NY 10036

Notice of 2012 Annual Meeting of Shareholders


We are mailing this proxy statement and the accompanying proxy card to shareholders on or about April 6, 2012 in connection with the solicitation of proxies by our Board of Directors for the 2012 annual meeting of shareholders.

In this proxy statement, we refer to Morgan Stanley as the “Company,” “we,” “our” or “us” and the Board of Directors as the “Board.”

About Our Annual Meeting

Time and Date9:00 a.m. (Eastern time) on May 15, 2012

LOGO

LOGO

John J. Mack

Location
  

James P. GormanMorgan Stanley

2000 Westchester Avenue, Purchase, New York

ChairmanItems of Business

  

•    Elect the Board of Directors

•    Ratify the appointment of Deloitte & Touche LLP as independent auditor

•    Approve the amendment of the 2007 Equity Incentive Compensation Plan

•    Approve the amendment of the Directors’ Equity Capital Accumulation Plan

•    Approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution)

•   Transact such other business as may properly come before the meeting or any postponement or adjournment thereof

PresidentRecord DateMarch 19, 2012
AdmissionOnly record or beneficial owners of Morgan Stanley’s common stock or their proxies may attend the annual meeting in person. All shareholders must present photo identification, such as a driver’s license, and Chief Executive Officerbeneficial owners must also provide evidence of stock holdings, such as a recent brokerage account or bank statement.
Webcast

If you are unable to attend the meeting in person, you may listen to the meeting atwww.morganstanley.com/about/ir/index.html. Please go to our website prior to the annual meeting for details.
VotingIt is important that you vote all of your shares. You may vote over the Internet or by telephone. You may also submit a proxy card or voting instruction form if you receive one in the mail.
NoticeWe are mailing certain shareholders a Notice of Internet Availability of Proxy Materials (“Notice”) on or about April 5, 2012. The Notice informs those shareholders how to access this proxy statement and our Annual Report for the year ended December 31, 2011 through the Internet and how to vote online.

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 15, 2012: Our Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2011 are available free of charge on our website at www.morganstanley.com/2012ams.

By Order of the Board of Directors,
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Martin M. Cohen
Corporate Secretary
April 5, 2012


Table of Contents

 

Annual Meeting Information

1

Voting Information

1

LOGOItem 1—Election of Directors

  31

Director Selection and Nomination Process

1

Director Experience, Qualifications, Attributes and Skills

2

Director Nominees

2

Corporate Governance

  119

Corporate Governance DocumentsPolicies

  119

Director Independence

  1110

Director Attendance at Annual Meeting

12

Board Meetings and Committees

12

Board Leadership Structure and Role in Risk Oversight

  12

Board Leadership Structure

12

Board Role in Risk Oversight

13

Board Meetings and Committees

 14

Non-Management Director Meetings

  15

Director Attendance at Annual MeetingsCompensation

  1516

Shareholder Nominations for Director CandidatesRelated Person Transactions Policy

  1518

Certain Transactions

19

Beneficial Ownership of Company Common Stock

20

Executive Equity Ownership Commitment

20

Director Career Stock Unit Holding Requirement

20

Stock Ownership of Executive Officers and Directors

20

Principal Shareholders

22

Section 16(a) Beneficial Ownership Reporting Compliance

22

Executive Compensation

23

Compensation Governance

  1523

Consideration of Risk Matters in Determining Compensation

  17

Executive Equity Ownership Commitment

24
  18

Beneficial Ownership of Company Common Stock

19

Stock Ownership of Directors and Executive Officers

19

Principal Shareholders

20

Executive Compensation

21

Compensation Discussion and Analysis

  2126

Compensation, Management Development and Succession Committee Report

  3339

20092011 Summary Compensation Table

  3439

20092011 Grants of Plan-Based Awards Table

  3842

20092011 Outstanding Equity Awards at Fiscal Year EndYear-End Table

  3945

20092011 Option Exercises and Stock Vested Table

  4147

20092011 Pension Benefits Table

  4247

20092011 Nonqualified Deferred Compensation Table

  4449

Potential Payments Upon Termination or Change-in-Control

  4853

Director Compensation

51

LOGOItem 2—Ratification of Appointment of Morgan Stanley’s Independent Auditor

  5356

Independent Auditor’s FeesItem 3—Company Proposal to Amend the 2007 Equity Incentive Compensation Plan

  5359

Fund-Related FeesItem 4—Company Proposal to Amend the Directors’ Equity Capital Accumulation Plan

  5467

Audit Committee Report

55

LOGOItem  3—5—Company Proposal to Approve the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Resolution)

  5670

LOGOItem 4—Company Proposal to Amend 2007 Equity Incentive Compensation PlanInformation About the Annual Meeting

  58

Summary of the Plan as Proposed to Be Amended

60

Equity Compensation Plan Information

64

Shareholder Proposals

65


LOGOItem 5—Shareholder Proposal Regarding Special Shareowner Meetings

65

LOGOItem 6—Shareholder Proposal Regarding Executive Equity Holdings Requirement

67

LOGO Item 7—Shareholder Proposal Regarding Independent Chair

69

LOGOItem 8—Shareholder Proposal Regarding Report on Pay Disparity

 72

LOGOItem 9—Shareholder Proposal Regarding Recoupment of Management Bonuses

  73

Other Matters

75

Section 16(a) Beneficial Ownership Reporting Compliance

75

Certain Transactions

75

Related Person Transactions Policy

76

Other Business

  77

Shareholder Proposals for the 2011 Annual Meeting

75
  77

Cost of Soliciting Your Proxy

77

Shareholders Sharing an Address

78

Consent to Electronic Delivery of Annual Meeting Materials

78

Annex A: Morgan Stanley 2007 Equity Incentive Compensation Plan (As Proposed to be Amended)

  A-1

Annex B: Morgan Stanley Directors’ Equity Capital Accumulation Plan (As Proposed to be Amended)

B-1


Morgan Stanley

 

1585 Broadway

New York, New York 10036

 

April 12, 20105, 2012

 


Proxy Statement

 


 

We are sending you this proxy statement in connection with the solicitation of proxies by our Board of Directors for the 20102012 annual meeting of shareholders. We are mailing this proxy statement and the accompanying form of proxy to shareholders on or about April 13, 2010.6, 2012. In this proxy statement, we refer to Morgan Stanley as the “Company,” “we,” “our” or “us” and the Board of Directors as the “Board.” In December 2008, the Board approved a change in the Company’s fiscal year end from November 30 to December 31, beginning January 1, 2009. The period from December 1, 2008 to December 31, 2008 was a transition period (the December 2008 transition period). Whenever we refer to Morgan Stanley’s fiscal year prior to 2009, we mean the twelve-month period ending November 30 of the stated year. When we refer to 2009, 2010, or 2011, we mean the twelve-month period ending December 31 2009.of the stated year.

 

Annual Meeting Information

Date and Location.    We will hold the annual meeting on Tuesday, May 18, 2010 at 9:00 a.m., local time, at our offices at 2000 Westchester Avenue, Purchase, New York.

Admission.    Only record or beneficial owners of Morgan Stanley’s common stock or their proxies may attend the annual meeting in person. When you arrive at the annual meeting, you must present photo identification, such as a driver’s license. Beneficial owners must also provide evidence of stock holdings, such as a recent brokerage account or bank statement.

Electronic Access.    You may listen to the meeting at www.morganstanley.com/about/ir/index.html. Please go to our website prior to the annual meeting to register.

Voting Information

Record Date.    The record date for the annual meeting is March 22, 2010. You may vote all shares of Morgan Stanley’s common stock that you owned as of the close of business on that date. Each share of common stock entitles you to one vote on each matter voted on at the annual meeting. On the record date, 1,398,833,922 shares of common stock were outstanding. We need a majority of the shares of common stock outstanding on the record date represented, in person or by proxy, to hold the annual meeting.

Confidential Voting.    Our Amended and Restated Bylaws (Bylaws) provide that your vote is confidential and will not be disclosed to any officer, director or employee, except in certain limited circumstances such as when you request or consent to disclosure. Voting of the shares held in the Morgan Stanley 401(k) Plan and Morgan Stanley 401(k) Savings Plan (401(k) Plans) also is confidential.

Submitting Voting Instructions for Shares Held Through a Broker.    If you hold shares through a broker, follow the voting instructions you receive from your broker. If you want to vote in person at the annual meeting, you must obtain a legal proxy from your broker and present it at the annual meeting. If you do not submit voting instructions to your broker, your broker may still be permitted to vote your shares. New York Stock Exchange (NYSE) member brokers may vote your shares as described below.

Discretionary Items.    The ratification of the appointment of Morgan Stanley’s independent auditor and the non-binding advisory vote to approve the compensation of executives as disclosed in this proxy statement are “discretionary” items. NYSE member brokers that do not receive instructions from beneficial owners may vote

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on this proposal in the following manner: (1) Morgan Stanley’s subsidiaries, Morgan Stanley & Co. Incorporated (MS&Co.) and Morgan Stanley Smith Barney LLC (MSSB LLC), may vote uninstructed shares only in the same proportion as the votes cast by all other beneficial owners on the proposal; and (2) all other NYSE member brokers may vote uninstructed shares in their discretion.

Non-discretionary Items.    The election of directors, the Company’s proposal to amend the 2007 Equity Incentive Compensation Plan and the shareholder proposals are “non-discretionary” items. Accordingly, absent specific voting instructions from beneficial owners on these proposals, NYSE member brokers, including MS&Co. and MSSB LLC, may not vote on these proposals.

If you do not submit voting instructions and your broker does not have discretion to vote your shares on a matter, the broker will return the proxy card without voting (referred to as “broker non-votes”). Your shares will not be counted in determining the vote on that matter, but will be counted for purposes of determining the presence of a quorum.

Important Notice Regarding Director Elections.    Due to recent rule changes, the election of directors is no longer considered a discretionary item and your shares will remain unvoted for director elections if your broker does not receive instructions from you. If you hold your shares through a broker, it is critically important that you submit your voting instructions if you want your shares to count in the election of directors.

Submitting Voting Instructions for Shares Held in Your Name.    If you hold shares as a record holder, you may vote by submitting a proxy for your shares by mail, telephone or Internet as described on the proxy card. If you submit your proxy via the Internet, you may incur Internet access charges. Submitting your proxy will not limit your right to vote in person at the annual meeting. A properly completed and submitted proxy will be voted in accordance with your instructions, unless you subsequently revoke your proxy. If you submit a signed proxy card without indicating your voting instructions, the person voting the proxy will vote your shares according to the Board’s recommendations.

Submitting Voting Instructions for Shares Held in Employee Plans.    If you hold shares in, or have been awarded stock units under, certain employee plans, you will receive directions on how to submit your voting instructions. Shares held in the following employee plans also are subject to the following rules.

401(k) Plans, Employee Stock Purchase Plan (ESPP).    The Bank of New York Mellon (Mellon), the 401(k) Plans’ trustee, and Mellon Investor Services LLC (MIS), the ESPP administrator, as applicable, must receive your voting instructions for the common stock held on your behalf in these plans on or before May 13, 2010. If Mellon or MIS, as applicable, does not receive your voting instructions by that date, it will vote your shares (in the case of the 401(k) Plans, together with other unvoted, forfeited and unallocated shares in the 401(k) Plans) in the same proportion as the voting instructions that it receives from other participants in the applicable plan. On March 22, 2010, there were 48,569,945 shares in the 401(k) Plans and 5,995,162 shares in the ESPP.

Other Equity-Based Plans.    State Street Bank and Trust Company acts as trustee for a trust (Trust) that holds shares of common stock underlying stock units awarded to employees under several of Morgan Stanley’s equity-based plans. Employees allocated shares held in the Trust must submit their voting instructions for receipt by the trustee on or before May 13, 2010. If the trustee does not receive your instructions by that date, it will vote your shares, together with shares held in the Trust that are unallocated or held on behalf of former Morgan Stanley employees and employees in certain jurisdictions outside the United States, in the same proportion as the voting instructions that it receives for shares held in the Trust in connection with such plans. On March 22, 2010, 114,896,152 shares were held in the Trust in connection with such plans.

Revoking Your Proxy.    You can revoke your proxy at any time before your shares are voted by (1) delivering a written revocation notice prior to the annual meeting to Martin M. Cohen, Secretary, Morgan Stanley, 1585 Broadway, New York, New York 10036; (2) submitting a later proxy that we receive no later than the conclusion of voting at the annual meeting; or (3) voting in person at the annual meeting. Attending the annual meeting does not revoke your proxy unless you vote in person at the meeting.

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Votes Required to Elect Directors.    Each director will be elected by a majority of the votes cast with respect to such director. A “majority of the votes cast” means that the number of votes cast “for” a director exceeds the number of votes cast “against” that director. Under Delaware law, if the director is not elected at the annual meeting, the director will continue to serve on the Board as a “holdover director.” As required by the Company’s Bylaws, each director has submitted an irrevocable letter of resignation as director that becomes effective if he or she is not elected by the shareholders and the Board accepts the resignation. If a director is not elected, the Nominating and Governance Committee will consider the director’s resignation and recommend to the Board whether to accept or reject the resignation. The Board will decide whether to accept or reject the resignation and publicly disclose its decision, including the rationale behind the decision if it rejects the resignation, within 90 days after the election results are certified.

Votes Required to Adopt Other Proposals.    The ratification of Deloitte & Touche LLP’s appointment as independent auditor, the approval of the compensation of executives as disclosed in this proxy statement and the approval of the shareholder proposals each require the affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon. The approval of the amendment of the 2007 Equity Incentive Compensation Plan requires a majority of votes cast, provided that the total votes cast must represent a majority of the shares entitled to vote on the proposal.

“Abstaining” and “Broker Non-Votes.”    You may vote “abstain” for any nominee in the election of directors and on the other proposals. Shares voting “abstain” on any nominee for director will be excluded entirely from the vote and will have no effect on the election of directors. Shares voting “abstain” on the other proposals will be counted as present at the annual meeting for purposes of establishing the presence of a quorum and your abstention will have the effect of a vote against the proposal. In addition, failure to cast a vote or a broker non-vote can have the effect of a vote against the proposal to approve the amendment of the 2007 Equity Incentive Compensation Plan if such failure or broker non-vote results in the total number of votes cast on the proposal not representing over 50% of all shares of common stock entitled to vote on the proposal.

LOGOItem 1—Election of Directors

 

Director Selection and Nomination Process.    Process

Our Board currently has 13 directors. The Nominating and Governance Committee’s charter provides that the Committee is appointed by the Board of Directors to identify individuals qualified to become Board members and to recommend to the Board the director nominees at annual meetings of shareholders. In discharging its duties, the Nominating and Governance Committee’s charter provides that the Committeecommittee will actively seek and identify nominees for recommendation to the Board consistent with the Board membership criteria set forth in the Corporate Governance Policies. The Corporate Governance Policies, which provide that the Board values members who combinewho:

Combine a broad spectrum of experience and expertise with a reputation for integrity and that directors should haveintegrity;

Have experience in positions with a high degree of responsibility, beresponsibility;

Are leaders in the companies or institutions with which they are affiliated and be selected based uponaffiliated;

Can make contributions they can make to the Board and managementmanagement; and their ability to represent

Represent the interests of shareholders.

While the Board has not adopted a policy regarding diversity, the Morgan Stanley Corporate Governance Policies (Corporate Governance Policies) provide that the Board will take into account diversity of a director candidate’s perspectives, background and other relevant demographics. The Nominating and Governance Committee and Board may also determine specific skills and experience they are seeking in director candidates based on the needs of the Company at a specific time. In considering candidates for the Board, the Nominating and Governance Committee considers the entirety of each candidate’s credentials in the context of these criteria.

 

As set forth in its charter, theThe Nominating and Governance Committee may consider, director candidates proposed by shareholders and the Board has adopted a policy regarding, director candidates recommendedproposed by shareholders discussed under “Shareholder Nominations for Director Candidates” herein.(see “Corporate Governance Policies”). The Nominating and Governance Committee may also retain and terminate, in its sole discretion, a third party to assist in identifying director candidates or to assist in gathering information regarding a director candidate’s background and experience and to approve the fee that the Company pays for these services.experience. Members of the Nominating and Governance

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Committee, the Lead Director and other members of the Board interview potential director candidates as part of the selection process when evaluating new director candidates.

Pursuant to the terms of the Investor Agreement between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc. (MUFG) dated October 13, 2008, as amended and restated as of June 30, 2011 (Investor Agreement), Morgan Stanley agreed to take all lawful action to cause two of MUFG’s senior officers or directors to become members of Morgan Stanley’s Board. In March 2011, MUFG designated Mr. Masaaki Tanaka as a representative director under the Investor Agreement, and Mr. Tanaka was elected by shareholders at the 2011 annual meeting of shareholders. MUFG designated Mr. Ryosuke Tamakoshi as its second representative director under the Investor Agreement, and Mr. Tamakoshi was elected by the Board on July 20, 2011.

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Director Experience, Qualifications, Attributes and Skills

 

When the Board nominates directors for election at an annual meeting, it evaluates the experience, qualifications, attributes and skills that an individual director candidate contributes to the Board as a whole to assist the Board in discharging its duties. As part of the ongoing process to evaluate these attributes, the Board performs an annual self-evaluation and has adopted a Corporate Governance Policy that provides that the Board expects a director whose principal occupation or employer changes, or who changesexperiences other changed circumstances that could diminish his or her present job responsibilityeffectiveness as a director or otherwise be detrimental to the Company, to advise and to offer to tender his or her resignation for consideration by the Board.

 

The Company believes that an effective board consists of a diverse group of individuals who bring a variety of complementary skills. The Nominating and Governance Committee and Board consider these skills in the broader context of the Board’s overall composition, with a view toward constituting a board that has the best skill set and experience to oversee the Company’s business. Our directors have a combined wealth of leadership experience derived from extensive service guiding large, complex organizations as executive leaders or board members and in government and academia and possess substantive knowledge and skills applicable to our business, including experience in the following areas:

Regulatory

Public Accounting and Financial Reporting

Finance

Risk Management

Business Development

Operations

Strategic Planning

Management Development and Succession

Compensation

Corporate Governance

Public Policy

International Matters

Banking

Financial Services

The Nominating and Governance Committee regularly reviews the composition of the Board currentlyin light of the Company’s evolving business requirements and its assessment of the Board’s performance to ensure that the Board has fourteen (14) directors. the appropriate mix of skills needed for the broad set of challenges that it confronts.

Director Nominees

The Board stands for election at each annual meeting of shareholders. Each director holds office until his or her successor has been duly elected and qualified or the director’s earlier resignation, death or removal.

 

In connection with its 2008 issuance of Series B Non-Cumulative Non-Voting Perpetual Convertible Preferred Stock (Series B Preferred Stock) to Mitsubishi UFJ Financial Group, Inc. (MUFG), Morgan Stanley entered into an Investor Agreement with MUFG dated October 13, 2008 and amended as of October 27, 2008 (Investor Agreement), whereby Morgan Stanley agreed to take all lawful action to cause one of MUFG’s senior officers or directors to be a member of Morgan Stanley’s Board of Directors. Pursuant to the terms of the Investor Agreement, Mr. Nobuyuki Hirano was elected to the Board, effective March 10, 2009. Mr. Hirano subsequently was elected by shareholders at the 2009 annual meeting of shareholders.

In light of the Company’s conversion into a financial holding company, an executive officer of the Company recommended Mr. James H. Hance, Jr. as a potential director candidate to the Nominating and Governance Committee and to the committee’s third party director search firm given his extensive financial services background as described below. The Lead Director and other directors met or spoke with Mr. Hance. The Committee unanimously recommended to the Board that Mr. Hance be elected as a director, and the Board unanimously elected Mr. Hance, effective July 1, 2009. Mr. Charles E. Phillips, Jr. will not stand for re-election at this annual meeting of shareholders.

2010 Director Nominees.    The Board has nominated the thirteen (13)13 director nominees below for election at the 20102012 annual meeting of shareholders in accordance with the Corporate Governance Policies. Each nominee has indicated that he or she will serve if elected. We do not anticipate that any nominee will be unable or unwilling to stand for election, but if that happens, your proxy will be voted for another person nominated by the Board. On March 30, 2012, James H. Hance, Jr. notified the Company that he will not stand for re-election at the annual meeting of shareholders.

 

Below are descriptionsThe Nominating and Governance Committee’s third-party search firm and members of the experience, qualifications, attributes and skills of each of the Company’sBoard recommended Mr. Klaus Kleinfeld as a potential director nominees. The Company believes that an effective board consists of a diverse group of individuals who bring a variety of complementary skills thatcandidate to the Nominating and Governance Committee andCommittee. The Board consider inunanimously nominated Mr. Kleinfeld for election at the broader contextannual meeting of the Board’s overall composition, with a view toward constituting a board that has the best skill set and experience to oversee the Company’s business. As indicated below, our directors have a combined wealth of leadership experience derived from extensive service guiding large, complex organizations as executive leaders or board members and in government and academia. They have substantive knowledge and skills applicable to our business, including in the regulatory; public accounting and financial reporting; finance; risk management; business development; operations; strategic planning; management development, succession and compensation; corporate governance; public policy; international; banking; and financial services areas. The Nominating and Governance Committee regularly reviews the composition of the Board in light of Morgan Stanley’s evolving business requirements and its assessment of the Board’s performance to ensure that the Board has the appropriate mix of skills needed for the broad set of challenges that it confronts.shareholders.

 

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Roy J. Bostock (69).(71)

Director Since 2005

Professional Experience:

 Mr. Bostock has served as non-executive Vice Chairman of the Board of Delta Air Lines, Inc. since 2009 and Chairman of the Board of Yahoo! Inc. since 2008.

• He has served as a principal of Sealedge Investments, LLC, a diversified private investment company, since 2002.

• Mr. Bostock is Chairman Emeritus, and served as Chairman from 2002 to 2010, of the Partnership for a Drug-Free America from 2002 until 2010 and served as Chairman of the Committee for Economic Development from 2002 to 2005.

 He worked in the advertising agency business for 38 years beginning in 1964.

 Mr. Bostock was Chairman of B|Com3 Group, Inc., an advertising and marketing services firm that is now part of the Publicis Groupe S.A., from 2000 to 2001.

 He also served as Chairman and Chief Executive Officer of D’Arcy, Masius Benton & Bowles an advertising and marketing services firm, and its successor firm, The MacManus Group, Inc., a global communications services holding company, from 1990 to 2000, when The MacManus Group, Inc. merged with the Leo Burnett Company to form B|Com3 Group, Inc. in 2000,, and was President from 1986 to 1990 of D’Arcy, Masius Benton & Bowles.

Director since:    2005

 

Other current directorships:Current Directorships:    Delta Air Lines, Inc. (Non-Executive Vice Chairman) and Yahoo! Inc. (Non-Executive Chairman)Chairman; announced that he is not standing for re-election)

 

Other Directorships in the Past Five Years:    Northwest Airlines Corporation (prior to its merger with Delta Air Lines, Inc.)

Qualifications, Attributes and Skills:Mr. Bostock’s varied leadership positions, including as chief executive officer of advertising and marketing services firms and in connection with non-profit organizations and public company boards, brings to the Board the perspective of an experienced leader with strategic planning, operations and business development skills.

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Erskine B. Bowles (64).(66)

Director Since 2005

Professional Experience:

 Mr. Bowles has served asbeen President Emeritus of the University of North Carolina since 2006. In 2010, he was named2011 and served as President from 2006 through 2010.

• He served as Co-Chair of the National Commission on Fiscal Responsibility and Reform.Reform through 2010.

 Mr. Bowles has been a senior advisor at BDT Capital Partners LLC, a private investment firm, since 2012. He has been a senior advisor since 2001 and was Managing Director from 1999 to 2001 of Carousel Capital LLC, a private investment firm. He was also a partner at the private investment firm of Forstmann Little & Co. from 1999 to 2001. Mr. Bowles2001 and was a founder of Kitty Hawk Capital, a venture capital firm.

• He began his career in corporate finance at Morgan Stanley in 1969 and subsequently helped found and ultimately served as Chairman and Chief Executive Officer of Bowles Hollowell Connor & Co., an investment banking firm. He also was a founder of Kitty Hawk Capital, a venture capital firm.

 Mr. Bowles served as White House Chief of Staff from 1996 to 1998 and Deputy White House Chief of Staff from 1994 to 1995. He was head of the Small Business Administration from 1993 to 1994. Mr. Bowles also1994 and served as United Nations Under Secretary General, Deputy Special Envoy for Tsunami Recovery in 2005.

 

Director since:Other Current Directorships:    2005Belk Inc., Cousins Properties Incorporated, Facebook, Inc. and Norfolk Southern Corporation

 

Other current directorships:    Cousins Properties Incorporated

Other directorshipsDirectorships in the past five years:    Past Five Years:General Motors Corporation

 

Qualifications, Attributes and Skills:    Mr. Bowles brings to the Board his extensive experience in the financial services industry and academia as well as distinguished public service.

 

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Howard J. Davies (59).(61)

Director Since 2004

Professional Experience:

 Mr. Davies has served as a professor at SciencesPo, the Paris School of International Affairs since 2011.

• He is an external advisor to the Government Investment Corporation of Singapore and a member of the International Advisory Board of the China Securities Regulatory Commission.

• Mr. Davies served as Director of the London School of Economics and Political Science since 2003.from 2003 to 2011. He was Chairman of the U.K. Financial Services Authority, the U.K.’s financial regulator, from 1997 to 2003.

 Mr. Davies previously served as Deputy Governor of the Bank of England from 1995 to 1997. He was Director General of the Confederation of British Industry from 1992 to 1995 and Controller of the Audit Commission in the U.K. from 1987 to 1992. Mr. Davies

• He worked at McKinsey & Co. from 1982 to 1987 and was seconded to the Treasurer as Special Advisor to the Chancellor of the Exchequer. HeMr. Davies also previously worked at the U.K. Treasury and the Foreign and Commonwealth Office, including two years as Private Secretary to the British Ambassador in Paris.

Other Current Directorships:    Prudential plc

 

Director since:Qualifications, Attributes and Skills:        2004

Mr. Davies brings an international perspective to the Board as well as extensive financial regulatory, accounting and risk management experience from his years of accomplished public service.

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James P. Gorman (53)

Director Since 2010

  

James P. Gorman (51).Professional Experience:

• Mr. Gorman has served as Chairman of the Board since 2012, President and Chief Executive Officer of Morgan Stanley since 2010, and as Chairman of Morgan Stanley Smith Barney Holdings LLC since 2009.

 He was Co-President of Morgan Stanley from 2007 to 2009, Co-Head of Strategic Planning from 2007 to 2009 and President and Chief Operating Officer of the Global Wealth Management Group from 2006 to 2008.

 Mr. Gorman joined Merrill Lynch & Co., Inc. in 1999 and served in various positions including Chief Marketing Officer, Head of Corporate Acquisitions Strategy and Research in 2005 and President of the Global Private Client business from 2002 to 2005.

 Prior to joining Merrill Lynch, he was a senior partner at McKinsey & Co., serving in the firm’s financial services practice. Earlier in his career, Mr. Gorman was an attorney in Australia.

Director since:    2010

 

Other directorshipsDirectorships in the past five years:    Past Five Years:MSCI Inc.

 

Qualifications, Attributes and Skills:As Chief Executive Officer of the Company, Mr. Gorman is a proven leader with an established record as a strategic thinker backed by strong operating, business development and execution skills and brings an extensive understanding of Morgan Stanley’s businesses and decades of financial services experience.

 

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James H. Hance, Jr. (65).    Mr. Hance has served as a Senior Advisor at The Carlyle Group, a global private equity firm, since 2005, and was Chairman of Carlyle Capital Corporation Limited from 2006 to 2008. He joined Bank of America in 1987 as Executive Vice President and Chief Accounting Officer and served as Vice Chairman of Bank of America Corporation from 2004 to 2005, Vice Chairman and Chief Financial Officer from 1988 to 2004 and Director from 1999 to 2005. Prior to joining Bank of America, Mr. Hance worked at Price Waterhouse, an accounting firm, for 17 years.LOGO

Director since:    2009

Other current directorships:    Cousins Properties Incorporated, Duke Energy Corporation, Rayonier Corporation and Sprint Nextel Corporation (Non-Executive Chairman)

Other directorships in the past five years:    EnPro Industries, Inc. and Summit Properties Inc.

As a former senior executive of a commercial bank, Mr. Hance brings to the Board extensive public accounting and financial reporting, commercial banking, financial services, risk management and bank regulatory experience.

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Nobuyuki Hirano (58).    Mr. Hirano has served since 2009 as Managing Officer of MUFG, one of the world’s leading financial groups, and as Deputy President of The Bank of Tokyo-Mitsubishi UFJ, Ltd., the core commercial banking unit of MUFG. He served as Senior Managing Director from 2008 to 2009 and Managing Director from 2006 to 2008 of The Bank of Tokyo-Mitsubishi UFJ, Ltd. Mr. Hirano has held numerous senior-level positions in Japan and abroad with the financial group since joining The Mitsubishi Bank, Ltd. in 1974, including in the Corporate Planning Office and Corporate Banking Division of The Bank of Tokyo-Mitsubishi, Ltd.

Director since:    2009

Other current directorships:    The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Other directorships in the past five years:    Mitsubishi UFJ Financial Group, Inc. and The Bank of Tokyo-Mitsubishi, Ltd.

In his role as a senior officer at MUFG and its associated companies, Mr. Hirano brings to the Board global leadership as well as international banking, financial services, risk management and regulatory experience.

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C. Robert Kidder (65).(67)

Director Since 1993

Professional Experience:

 Mr. Kidder has served as Chairman and Chief Executive Officer of 3Stone Advisors LLC, a private investment firm, since 2006.from 2006 to 2011, and as non-executive Chairman of the Board of Chrysler Group LLC from 2009 to 2011.

 He was Principal at Stonehenge Partners, Inc., a private investment firm, from 2004 to 2006. Mr. Kidder served as President of Borden Capital, Inc., a company that provided financial and strategic advice to the Borden family of companies, from 2001 to 2003.

 He was Chairman of the Board from 1995 to 2004 and Chief Executive Officer from 1995 to 2002 of Borden Chemical, Inc. (formerly Borden, Inc.), a forest products and industrial chemicals company.

 Mr. Kidder was Chairman and Chief Executive Officer from 1991 to 1994 and President and Chief Executive Officer from 1988 to 1991 of Duracell International Inc. Prior to joining Duracell International Inc. in 1980, Mr. Kidder worked in planning and development at Dart Industries. He also previously worked at McKinsey & Co. as a general management consultant.

 

Director since:Other Current Directorships:    1993Merck & Co. Inc.

 

Other current directorships:Directorships in the Past Five Years:    Chrysler Group LLC and Schering-Plough Corporation (prior to its merger with Merck & Co. Inc. (formerly Schering-Plough Corporation) and Chrysler Group LLC (Non-Executive Chairman))

 

Other directorships in the past five years:    Qualifications, Attributes and Skills:Electronic Data Systems Corporation

Mr. Kidder brings to the Board extensive financial and senior executive experience, including in business development, operations and strategic planning, as well as a deep understanding of our Company, particularly in his capacity as Lead Director appointed by our independent directors.

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Klaus Kleinfeld (54)

Director Nominee

  

John J. Mack (65).Professional Experience:

 Mr. MackKleinfeld has beenserved as Chairman and CEO of Alcoa Inc., a producer and manager of primary aluminum, fabricated aluminum and alumina, since 2010.

• He served as President and CEO from 2008 to 2010 and President and Chief Operating Officer from 2007 through 2008 of Alcoa.

• Mr. Kleinfeld served for 20 years at Siemens AG from 1987 to 2007, including as CEO and President from 2005 to 2007, a member of the Managing Board of Directors of Morgan Stanley since 2005from 2004 to 2007, and wasas President and Chief Executive Officer from 2005 to 2009. He was Chairman of Pequot Capital Management in 2005. Mr. Mack was Co-Chief Executive Officer of Credit Suisse Group from 20032002 to 2004 and Executive Vice President Chief Executive Officer and Director of Credit Suisse First Boston from 2001 to 2004. He became President, Chief Operating Officer in 2001 of Siemens AG’s principal U.S. subsidiary, Siemens Corporation.

• He serves on the Brookings Institution Board of Trustees and Director of Morgan Stanley Dean Witter & Co. in 1997 and served in that position until 2001. Mr. Mack joined Morgan Stanley in 1972 in the bond department and served as head of the Worldwide Taxable Fixed Income Division from 1985 to 1992, becameis Chairman of the Operating Committee in 1992U.S.-Russia Business Council.

Other Current Directorships:    Alcoa, Inc. and became President in 1993.Bayer AG (Supervisory Board)

 

Director since:Other Directorships in the Past Five Years:    2005Siemens AG (Managing Board) and Citigroup Inc.

 

As the Company’s former Chief Executive OfficerQualifications, Attributes and current Chairman, Skills:    Mr. Mack’s over 35 years of service to the CompanyKleinfeld brings to the Board a unique understanding of Morgan Stanley’s businessesextensive international and the financial services industry as well as the perspective of an experienced leader.senior executive experience, including in business development, operations and strategic planning at multinational organizations.

 

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Donald T. Nicolaisen (65).(67)

Director Since 2006

Professional Experience:

 Mr. Nicolaisen was Chief Accountant for the U.S. Securities and Exchange Commission (SEC) from 2003 to 2005, where he served as the principal advisor to the SEC on accounting and auditing matters and was responsible for formulating and administering the accounting program and policies of the SEC.

 He was a partner of PricewaterhouseCoopers, an accounting firm, from 1978 to 2003 and first joined Price Waterhouse in 1967.

 Mr. Nicolaisen led Price Waterhouse’s national office for accounting and SEC services and its financial services practice and was responsible for auditing and providing risk management advice to large, complex multi-national corporations.

Director since:    2006

 

Other current directorships:Current Directorships:    MGIC Investment Corporation, Verizon Communications Inc. and Zurich Financial Services

 

Qualifications, Attributes and Skills:    Mr. Nicolaisen brings to the Board over 40 years of regulatory, public accounting and financial reporting, risk management and financial experience and the varied perspectives he has gained in the private sector as well as through distinguished service at the SEC.

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Charles H. Noski (57).    Mr. Noski served as Corporate Vice President and Chief Financial Officer from 2003 to 2005 and Director from 2002 to 2005 of Northrop Grumman Corporation. He was senior advisor to The Blackstone Group in 2003. Mr. Noski was Vice Chairman of the Board and Chief Financial Officer in 2002 and Senior Executive Vice President and Chief Financial Officer from 1999 to 2002 of AT&T Corp. He was President, Chief Operating Officer and Director of Hughes Electronics Corporation, then a publicly-traded subsidiary of General Motors Corporation in satellite and wireless communications, from 1997 to 1999, Vice Chairman from 1996 to 1999, Corporate Senior Vice President and Chief Financial Officer from 1992 to 1996 and Corporate Vice President and Controller from 1990 to 1992. Previously, Mr. Noski was a partner of Deloitte & Touche LLP, an accounting firm, for 17 years, and worked in audit, accounting and business consulting roles for clients in various industries, including financial services, and served as National Industry Director for the aerospace and defense industry.

 

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Other current directorships:    Air Products and Chemicals, Inc., Automatic Data Processing, Inc. and Microsoft Corporation

Other directorships in the past five years:    Northrop Grumman Corporation

Mr. Noski’s experience as a chief operating officer and chief financial officer, and roles in auditing, accounting and business consulting while a partner at a major accounting firm, brings extensive public accounting, financial reporting and risk management experience to the Board that is complemented by his business and leadership skills.

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Hutham S. Olayan (56).(58)

Director Since 2006

Professional Experience:

 Ms. Olayan has been a principal and director since 1981 of The Olayan Group, a private multinational enterprise that is a diversified global investor and operator of commercial and industrial businesses in Saudi Arabia.

 Ms. Olayan has been President and Chief Executive Officer of The Olayan Group’s U.S. operations for more than 20 years, overseeing all investment activity originating in the Americas.

 Ms. Olayan is a member of the International Advisory Board of The Blackstone Group and a former director of Equity International and a former director of Thermo Electron Corporation.

 

Director since:Qualifications, Attributes and Skills:    2006

Ms. Olayan’s extensive financial experience in the U.S. and internationally, including the Middle East, strengthens the Board’s global perspective.

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James W. Owens (66)

Director Since 2011

Professional Experience:

• Mr. Owens served as Chairman and Chief Executive Officer of Caterpillar Inc., a manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, from 2004 to 2010.

• He served as Vice Chairman of Caterpillar Inc. from 2003 to 2004 and as Group President from 1995 to 2003, responsible at various times for 13 of the company’s 25 divisions.

• Mr. Owens served at Caterpillar Inc. as Vice President and Chief Financial Officer from 1993 to 1995, Corporate Vice President and President of Solar Turbines Incorporated from 1990 to 1993, and managing director of P.T. Natra Raya, Caterpillar Inc.’s Indonesian joint venture, from 1987 to 1990.

• He held various managerial positions in the Accounting and Product Source Planning Departments from 1980 to 1987 and was chief economist of Caterpillar Overseas S.A. in Geneva, Switzerland from 1975 to 1980. Mr. Owens joined Caterpillar Inc. in 1972 as a corporate economist.

• He served on the President’s Economic Recovery Advisory Board from 2009 to 2011. Mr. Owens serves on the boards of the Peter G. Peterson Institute for International Economics and the Council on Foreign Relations and is a senior advisor at Kohlberg Kravis Roberts & Co.

Other Current Directorships:    Alcoa Inc. and International Business Machines Corporation

Other Directorships in the Past Five Years:    Caterpillar Inc.

Qualifications, Attributes and Skills:    Mr. Owens’ various leadership positions, including as Chief Executive Officer of a major global corporation, bring to the Board extensive management experience and economics expertise and strengthens the Board’s global perspective.

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O. Griffith Sexton (68)

Director Since 2005

  

O. Griffith Sexton (66).Professional Experience:

• Mr. Sexton has served as an adjunct professor at Columbia Business School since 1995 and visiting lecturer at Princeton University since 2000, teaching courses in corporate finance.

 He was an Advisory Director of Morgan Stanley from 1995 to 2008.

 Mr. Sexton joined Morgan Stanley in 1973 and was a Managing Director from 1985 to 1995, ultimately serving as Director of the Corporate Restructuring Group within the Advisory Services Department.

Director since:    2005

 

Other current directorships:Current Directorships:    Investor AB

 

Qualifications, Attributes and Skills:    Mr. Sexton brings to the Board extensive financial services, accounting and risk experience as well as substantive knowledge of Morgan Stanley’s businesses from his nearly 40 years of prior service at the Company.

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Ryosuke Tamakoshi (64)

Director Since 2011

Professional Experience:

•   Mr. Tamakoshi has served as a Senior Advisor of The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) since 2010.

•   Mr. Tamakoshi served as Chairman of MUFG from 2005 to 2010 and as Deputy Chairman of The Bank of Tokyo-Mitsubishi UFJ, Ltd. from 2006 to 2008. Before the merger between Mitsubishi Tokyo Financial Group and UFJ Holdings, Mr. Tamakoshi was President and Chief Executive Officer of UFJ Holdings, Inc. and also Chairman of UFJ Bank, Ltd.

•   Mr. Tamakoshi began his professional career at The Sanwa Bank, one of the legacy banks of BTMU, in 1970.

Other Directorships in the Past Five Years:    Mitsubishi UFJ Financial Group, Inc.

Qualifications, Attributes and Skills:    As a senior officer advisor to BTMU and as former Chairman of Mitsubishi UFJ Financial Group, Inc., Mr. Tamakoshi brings to the Board over 40 years of banking experience and international, risk management and strategic expertise.

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Masaaki Tanaka (59)

Director Since 2011

  

Professional Experience:

•   Mr. Tanaka has served as Resident Managing Officer for the United States for MUFG since June 2011 and has served as the Senior Managing Executive Officer and Chief Executive Officer for the Americas of BTMU since 2011.

•   He served as Managing Executive Officer and Chief Executive Officer for the Americas of BTMU from 2010 to 2011. In 2007, he was named a Managing Executive Officer of BTMU.

•   From 2007 to 2010, Mr. Tanaka was President and Chief Executive Officer of UnionBanCal Corporation and its primary subsidiary, Union Bank, N.A., where he continues to serve as a director.

•   Following the merger of The Bank of Tokyo-Mitsubishi, Ltd. (BTM) and UFJ Bank, Ltd., which created BTMU, Mr. Tanaka served as Executive Officer and General Manager of the Corporate Planning Division for the newly combined bank from 2006 to 2007.

•   From 1996 to 2005, Mr. Tanaka served in various capacities in the Corporate Planning Division of BTM and was Executive Officer and General Manager of the Corporate Banking Division with responsibility for relationships with leading corporations. He was also General Manager of the Corporate Business Development Division where he directed strategic planning and coordination of the company’s corporate banking business.

•   Mr. Tanaka began his professional career at the Mitsubishi Bank, a predecessor to BTMU, in 1977.

Other Current Directorships:    UnionBanCal Corporation

Qualifications, Attributes and Skills:    As a senior officer of BTMU and its associated companies, Mr. Tanaka brings to the Board over 35 years of banking experience and international, risk management and strategic expertise.

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Laura D. Tyson (62).(64)

Director Since 1997

Professional Experience:

   Dr. Tyson has served as the S. K. and Angela Chan Professor of Global Management since 2008 and served as Professor of Business Administration and Economics from 2007 to 2008 at the Walter A. Haas School of Business, University of California, at Berkeley.

   She was Dean of the London Business School from 2002 to 2006.

   Dr. Tyson was Dean from 1998 to 2001 and Class of 1939 Professor in Economics and Business Administration from 1997 to 1998 at the Walter A. Haas School of Business, University of California, Berkeley.

   She served as National Economic Advisor to the President and Chair of the President’s National Economic Council from 1995 to 1996 and as Chair of the White House Council of Economic Advisors from 1993 to 1995.

   Dr. Tyson was appointed in 2009 toserved on the President’s Economic Recovery Advisory Board.Board from 2009 to 2011 and was appointed in 2011 to the President’s Council on Jobs and Competitiveness.

•   She also serves on the Peter G. Peterson Institute of International Economics.

 

Director since:Other Current Directorships:    1997AT&T Inc., CBRE Group, Inc. and Silver Spring Networks, Inc.

 

Other current directorships:Directorships in the Past Five Years:    AT&T Inc. (formerly SBC Communications Inc.), CB Richard Ellis Group, Inc. and    Eastman Kodak Company

 

Qualifications, Attributes and Skills:    Dr. Tyson brings to the Board economics and public policy expertise and leadership skills from her positions in academia and through her distinguished public service.

 

Our Board unanimously recommends a vote “FOR” the election of all thirteen (13)director nominees. Proxies solicited by our Board will be voted “FOR” these nominees unless otherwise instructed.

 

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Corporate Governance

 

Morgan Stanley is committed to maintaining best-in-class governance practices and has implemented the following:

Shareholders who own at least 25% of common stock have the ability to call a special meeting of shareholders;

No supermajority vote requirements in our charter or bylaws;

All directors are elected annually by majority vote standard;

Our Board has a majority of independent directors;

Our Board has financial services experience and a diverse international background;

Lead independent director is appointed, and reviewed annually, by the other independent directors; and

Board policy favors committee chair and lead director rotation.

Corporate Governance Documents.Policies

Morgan Stanley has a corporate governance webpage atmorganstanley.com/about/company/governance that includes the “Company Information” link under the “About Morgan Stanley” link at www.morganstanley.com (www.morganstanley.com/about/company/governance/index.html).following:

 

Our Corporate Governance Policies (including our Director Independence Standards),

Code of Ethics and Business Conduct

Board Committee charters, Charters

Policy Regarding Communication by Shareholders and Other Interested Parties with the Board of Directors

Shareholders and other interested parties may contact any of our Company’s directors (including the Lead Director or non-management directors) by writing to them at Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036. Such communications will be handled in accordance with the procedures approved by the Company’s independent directors.

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Policy Regarding Director Candidates Recommended by Shareholders

Shareholders may submit recommendations for director candidates for consideration by the Nominating and Governance Committee at any time by sending the information set forth in the policy to the Nominating and Governance Committee, Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036. Under the policy, in order for director candidate recommendations to be considered for the 2013 annual meeting of shareholders, recommendations must be submitted in accordance with the policy by December 7, 2012.

Policy Regarding Corporate Political Contributions

Policy Regarding Shareholder Rights Plan information regarding

Information Regarding the Integrity Hotline and the Equity Ownership Commitment are available at our corporate governance webpage at www.morganstanley.com/about/company/governance/index.html and

Hard copies of these materials are available to any shareholder who requests them by writing to Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036.

 

Shareholders and other interested parties may contact any of our Company’s directors, the Lead Director, a committee of the Board, the Board’s non-employee directors as a group or the Board generally, by writing to them at Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036. Shareholder and interested party communications received in this manner will be handled in accordance with the procedures approved by the Company’s independent directors. The Board’s Policy Regarding Communication by Shareholders and Other Interested Parties with the Board of Directors is available at our corporate governance webpage at www.morganstanley.com/about/company/governance/index.html.

Director Independence.Independence

The Board has determined that Messrs. Bostock, Bowles, Davies, Hance, Kidder, Kleinfeld and Nicolaisen, Noski, Ms. Olayan, Messrs. PhillipsOwens and Sexton, and Dr.Ms. Tyson, and Mr. Hance, who is not standing for re-election, are independent in accordance with the Director Independence Standards established under our Corporate Governance Policies.

To assist the Board with its determination, the standards follow NYSENew York Stock Exchange (NYSE) rules and establish guidelines as to employment and commercial relationships that affect independence and categories of relationships that are not deemed material for purposes of director independence. Eleven (11)Ten of fourteen (14)13 of our current directors are independent. Upon the election of the current slate of director nominees, 10 of our 13 directors will be independent.

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In making its determination as to the independent directors, the Board reviewed relationships between Morgan Stanley and the directors, including:

RelationshipDirector(s)

Commercial relationshipsin the last three years between Morgan Stanley and entities where the directors are employees or executive officers, or their immediate family members are executive officers, that did not exceed the greater of $1 million or 2% of such other entity’s consolidated gross revenues in any of the last three years

Bostock, Davies, Kleinfeld, Olayan and Tyson

Ordinary course relationships arising from transactions on terms and conditions substantially similar to those with unaffiliated third parties between Morgan Stanley and entities where the directors or their immediate family members own equity of 5% or more of that entity

Bostock

Morgan Stanley’scontributions to charitable organizations where the directors or their immediate family members serve as officers, directors or trustees that did not exceed the greater of $100,000 or 1% of the organization’s consolidated gross revenues in the preceding year

Bostock, Bowles, Davies, Hance, Kidder, Kleinfeld, Olayan and Owens
Directors’utilization of Morgan Stanley products and services in the ordinary course of business on terms and conditions substantially similar to those provided to unaffiliated third partiesBostock, Hance, Kidder, Owens, Sexton and Tyson

In determining Mr. Bostock’s independence, the Board also considered the restructuring in January 2012 of the Company’s relationship with FrontPoint Partners LLC (FrontPoint), a former subsidiary within the Company’s Asset Management segment, of which Mr. Bostock’s son-in-law is Co-Chief Executive Officer and a significant equity owner. The Board considered that Mr. Bostock was not involved in any discussions or decisions regarding the restructuring; that the Company has ceased to have an equity interest in FrontPoint; Mr. Bostock’s son-in-law is no longer an employee of the Company as of March 1, 2011; and any future commercial activities with FrontPoint will be in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable services for unaffiliated third parties. The Board (other than Mr. Bostock) determined consistent with NYSE rules and based upon the facts and circumstances, that the relationship is immaterial to Mr. Bostock’s independence (see also “Certain Transactions” herein).

In determining Mr. Sexton’s independence, the Board (other than Mr. Sexton) considered that the Company provides Mr. Sexton with access to medical insurance, for which Mr. Sexton pays the full cost, and determined, consistent with NYSE rules and based upon the facts and circumstances, that the relationship is immaterial to Mr. Sexton’s independence.

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Director Attendance at Annual Meeting

The Company’s Corporate Governance Policies state that directors are expected to attend annual meetings of shareholders. All of the current directors who were on the Board at the time attended the 2011 annual meeting of shareholders. One of the 13 directors on the Board of Directors at the time of the 2011 annual meeting of shareholders was not standing for re-election and did not attend the meeting.

Board Meetings and Committees

Our Board met 15 times during 2011. Each director attended at least 75% of the total number of meetings of the Board and committees on which the director served that were held during 2011 while the director was a member. In addition to Board and committee meetings, our directors also discharge their duties through, among other things, informal group communications and discussions with the Lead Director, Chairman of the Board and Chief Executive Officer, members of senior management and others as appropriate regarding matters of interest.

The Company’s Corporate Governance Policies provide that non-management directors meet in executive sessions and that the Lead Director will preside over these executive sessions. The independent directors also meet in executive session at least once annually and the Lead Director presides over these executive sessions.

The Board’s standing committees, their membership and the number of meetings in 2011 are set forth below. Charters for each of our standing committees are available at our corporate governance webpage.

All members of the Audit Committee, the Compensation, Management Development and Succession Committee and the Nominating and Governance Committee satisfy the standards of independence applicable to members of such committees. All members of the Risk Committee and Operations and Technology Committee are non-employee directors and a majority of the Risk Committee members of such committees satisfy the independence requirements of the Company and the NYSE. In addition, the Board has determined that all members of the Audit Committee Messrs. Davies, Hance, Nicolaisen, Noski and Sexton, are “audit committee financial experts” within the meaning of current SEC rules.

 

In making its determination as to the independent directors, the Board reviewed relationships between Morgan Stanley and the directors, including commercial relationships in the last three years between Morgan Stanley and entities where the directors are employees or executive officers, or their immediate family members are executive officers, that did not exceed a certain amount of such other entity’s gross revenues in any year (Messrs. Bowles and Davies, Ms. Olayan, Mr. Phillips and Dr. Tyson); ordinary course relationships arising from transactions on terms and conditions substantially similar to those with unaffiliated third parties between Morgan Stanley and entities where the directors or their immediate family members own equity of 5% or more of that entity (Mr. Bostock and Ms. Olayan); Morgan Stanley’s contributions to charitable organizations where the directors or their immediate family members serve as officers, directors or trustees that did not exceed a certain amount of the organization’s annual charitable receipts in the preceding year (Messrs. Bostock, Bowles, Davies and Kidder, Ms. Olayan, Mr. Phillips and Dr. Tyson); and the directors’ utilization of Morgan Stanley products and services in the ordinary course of business on terms and conditions substantially similar to those provided to unaffiliated third parties (Messrs. Bostock, Hance, Kidder, Noski, Phillips and Sexton and Dr. Tyson).12

 

In determining Mr. Bostock’s independence, the Board also considered the employment of Mr. Bostock’s son-in-law by the Company’s Asset Management segment (see also “Other Matters—Certain Transactions” herein). This year the Board considered, among other things, that Mr. Bostock’s son-in-law has never been aLOGO


CommitteeCurrent MembersPrimary ResponsibilitiesMeetings
Held
in 2011

Audit

Donald T. Nicolaisen (Chair)

Howard J. Davies

James H. Hance, Jr.

O. Griffith Sexton

Oversees the integrity of the Company’s consolidated financial statements, compliance with legal and regulatory requirements and system of internal controls.10
Oversees risk management and risk assessment guidelines in coordination with the Board, Risk Committee and Operations and Technology Committee and reviews the major franchise, reputational, legal and compliance risk exposures of the Company.
Selects, determines the compensation of, evaluates and, when appropriate, replaces the independent auditor, and pre-approves audit and permitted non-audit services.
Oversees the qualifications and independence of the independent auditor and performance of the Company’s internal auditor and independent auditor.

After review, recommends to the Board the acceptance and inclusion of the annual audited consolidated financial statements in the Company’s Annual Report on Form 10-K.

Compensation,

Management

Development

and Succession

(CMDS)

Erskine B. Bowles (Chair)

C. Robert Kidder

Donald T. Nicolaisen

Hutham S. Olayan

Annually reviews and approves the corporate goals and objectives relevant to the compensation of the Chief Executive Officer and evaluates his performance in light of these goals and objectives.14
Determines the compensation of executive officers and other officers and employees as appropriate.
Administers the Company’s equity-based compensation plans.
Oversees plans for management development and succession.
Reviews and discusses the Compensation Discussion and Analysis with management and recommends to the Board its inclusion in the proxy statement.
Reviews the Company’s incentive compensation arrangements to help ensure that such arrangements are consistent with the safety and soundness of the Company and do not encourage excessive risk-taking, and are otherwise consistent with applicable related regulatory rules and guidance.

See “Compensation Governance” and “Consideration of Risk Matters in Determining Compensation” herein.

Nominating and

Governance

Laura D. Tyson (Chair)

Roy J. Bostock

C. Robert Kidder

James W. Owens

Identifies and recommends candidates for election to the Board.5
Recommends committee structure and membership.
Reviews annually the Company’s corporate governance policies.
Oversees the annual evaluation of the Lead Director, Board and its committees.

Reviews and approves related person transactions in accordance with the Company’s Related Person Transactions Policy.

Operations and

Technology*

Donald T. Nicolaisen (Chair)

Howard J. Davies

James H. Hance, Jr.

Ryosuke Tamokoshi

(effective July 20, 2011)

Oversees the Company’s operations and technology strategy and significant investments in support of such strategy.2

Oversees risk management and risk assessment guidelines and policies regarding operational risk.

Risk

Howard J. Davies (Chair)

Roy J. Bostock

James H. Hance, Jr.

Maasaki Tanaka

(effective May 18, 2011)

Oversees the Company’s risk governance structure.8
Oversees risk management and risk assessment guidelines and policies regarding market, credit, liquidity and funding risk.
Oversees risk tolerance, including risk tolerance levels and capital targets and limits.
Oversees the Company’s capital, liquidity and funding.
Oversees the performance of the Chief Risk Officer.

* The Operations and Technology Committee was established in 2011 and held its inaugural meeting in July 2011.

 

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member of the Company’s senior management and was awarded compensation in line with his position at Morgan Stanley and in comparison with market standards and that Mr. Bostock has no influence over the Asset Management business other than that possessed by any other Morgan Stanley non-employee director. The Board (other than Mr. Bostock) determined consistent with NYSE rules and based upon the facts and circumstances, that the relationship is immaterial to Mr. Bostock’s independence.13

 

In determining Mr. Sexton’s independence, the Board also considered the Company’s provision of medical insurance to Mr. Sexton (for which Mr. Sexton pays the full cost). The Board (other than Mr. Sexton) determined, consistent with NYSE rules and based upon the facts and circumstances, that the relationship is immaterial to Mr. Sexton’s independence.LOGO


Board Leadership Structure and Role in Risk Oversight.Oversight

 

Board Leadership Structure.    The Board is responsible for reviewing the Board’sCompany’s leadership structure. TheAs set forth in the Corporate Governance Policies, the Board believes that the Company and its shareholders are best served by maintaining the flexibility to have any individual serve as Chairman of the Board based on what is in the best interests of the Company at a given point in time, rather than mandating a particular leadership structure. In making this decision, the Board considers,taking into consideration, among other things, thethings:

The composition of the Board, theBoard;

The role of the Company’s independent Lead Director, theDirector;

The Company’s strong corporate governance practices, thepractices;

The Chief Executive Officer’s (CEO) working relationship with the Board,Board; and the

The challenges specific to the Company. Historically,

After a two-year transition period, Mr. Gorman assumed the positionsadditional role of Chief Executive Officer and Chairman were held by the same individual. As a result of Mr. Mack’s discussion with the Board about stepping down as Chief Executive Officer and as part of its ongoing review of the Board’s leadership structure and succession planning process, the Board in September 2009 determined that the positions of the Chief Executive Officer and Chairman should be held by two separate individuals. The Board elected John J. Mack, the Company’s former Chief Executive Officer, as Chairman of the Board, and James P. Gorman as the Company’s Chief Executive Officer, effective January 1, 2010.2012, replacing John J. Mack as Chairman upon his retirement from the Board. The Board has determined that the appointment of a strong independent Lead Director (as described below), together with a combined CEO and Chairman, serves the best interests of the Company and its shareholders. By serving in both positions, the CEO and Chairman is able to draw on his detailed knowledge of the Company to provide the Board, in coordination with the Lead Director, leadership in focusing its discussions and review of the Company’s strategy. In addition, a combined role of CEO and Chairman ensures that the Company presents its message and strategy to shareholders, employees and customers with a unified voice. The Board believes that it is in the best interest of the Company and its shareholders for Mr. Gorman to serve as Chairman and CEO at this time, considering the strong role of our independent Lead Director and other corporate governance practices providing independent oversight of management as set forth below.

 

In addition, the Company’sLead Director.    The Corporate Governance Policies provide for an independent and active Lead Director that is appointed, and reviewed annually, by the independent directors with clearly defined leadership authority and responsibilities. Our Lead Director, C. Robert Kidder, was appointed by our other independent directors in 2006 and has responsibilities including: (i) presiding

Presiding at all meetings of the Board at which the Chairman is not present; (ii) having

Having the authority to call, and lead, sessions composed only of non-management directors or independent directors; (iii) advising

Serving as liaison between the Chairman and the independent directors;

Advising the Chairman of the Board’s informational needs; (iv) approving

Approving the types and forms of information sent to the Board;

Approving Board meeting agendas and the schedule of Board meetings and requesting, if necessary, the inclusion of additional agenda items; and (v) making

Making himself available, if requested by major shareholders, for consultation and direct communication.

 

Independent Oversight of Management.    The Company’s Corporate Governancecorporate governance practices and policies ensure substantial independent oversight of management. For instance:

 

The Board has a substantial majority of independent and non-management directors. Ten out of the thirteen13 director nominees are independent as defined by the NYSE listing standards and the Company’s more stringent Corporate Governance Policies and eleven12 out of the thirteen13 director nominees are non-management directors. All of the Company’s directors are elected annually.

 

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The Board’s key standing committees are composed solely of non-management directors. The Audit Committee, the Compensation, Management Development and Succession Committee, and the Nominating and Governance Committee are each composed solely of independent directors. The Operations and Technology Committee and Risk Committee is comprisedconsist of a substantial majority of independent directors and includesinclude only non-management directors. The committees provide independent oversight of management.

 

The Board’s non-management directors meet regularly in executive session. At each regularly scheduled Board meeting, theThe non-management directors meet regularly in an executive session without Messrs. Gorman or Mackmanagement present and, consistent with the NYSE listing standards, at least annually, the independent directors meet in executive session. These sessions are chaired by the Lead Director.

 

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Board Role in Risk Oversight.    The Board has oversight for the Company’s enterprise risk management framework and is responsible for helping to ensure that the Company’s risks are managed in a sound manner. Historically,The committees discussed below assist the Board had authorized the Audit Committee, which is comprised solely of independent directors, to overseein its risk management. Effective January 1, 2010, theoversight. The Board established another standing committee, the Risk Committee, which is comprised solely of non-management directors, to assist the Board in the oversight of (i) theof:

The Company’s risk governance structure, (ii) thestructure;

The Company’s risk management and risk assessment guidelines and policies regarding market, credit and liquidity and funding risk, (iii) therisk;

The Company’s risk tolerance, including risk tolerance levels and capital targets and limits,limits;

The Company’s capital, liquidity and (iv) thefunding; and

The performance of the Chief Risk Officer.

The Audit Committee retains responsibility for oversight of certain aspects of risk management, including review of the major operational, franchise, reputational, legal and compliance risk exposures of the Company and the steps management has taken to monitor and control such exposure, as well as, in coordination with the Risk Committee and the Operations and Technology Committee, guidelines and policies that govern the process for risk assessment and risk management. The RiskOperations and Technology Committee has responsibility for oversight of operational risk. The Audit Committee, Operations and Technology Committee, Risk Committee and Chief Risk Officer report to the entire Board on a regular basis.

 

As discussed herein under “Consideration“Executive Compensation – Consideration of Risk Matters in Determining Compensation,” the Compensation, Management Development and Succession (CMDS) Committee works with the Chief Risk Officer and its independent compensation consultant to evaluate whether the Company’s compensation arrangements are consistent with the safety and soundness of the Company or encourage unnecessary or excessive risk-taking and whether any risks arising from the Company’s compensation arrangements are reasonably likely to have a material adverse effect on the Company.

 

The Board has also authorized the Firm Risk Committee, (FRC), a management committee appointed and chaired by the Chief Executive OfficerCEO that includes the most senior officers of the Company, including the Chief Risk Officer, Chief Legal Officer and Chief Financial Officer, to oversee the Company’s global risk management structure. The FRC’sFirm Risk Committee’s responsibilities include oversight of the Company’s risk management principles, procedures and limits and the monitoring of capital levels and material market, credit, liquidity and funding, legal, compliance, operational, franchise and regulatory risk matters, and other risks, as appropriate, and the steps management has taken to monitor and manage such risks. The Company’s risk management is further discussed in Part I,II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (20092011 (2011 Form 10-K).

 

* * * * *

Assessment of Leadership Structure and Risk Oversight.    The Board has determined that its leadership structure is appropriate for the Company. Mr. Mack’s priorGorman’s role as Chief Executive Officer,CEO, his existing relationship with the Board, his understanding of Morgan Stanley’s businesses, and his professional experience and leadership skills uniquely position him to serve as Chairman and CEO, while the Company’s Lead Director, Mr. Kidder, has proven

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effective at enhancing the overall independent functioning of the Board. The Board believes that the combination of the Chairman and CEO, the Lead Director and the Chairmen of the Audit, CMDS, Risk and Risk CommitteesOperations and Technology committees provide the appropriate leadership to help ensure effective risk oversight by the Board.

 

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Board Meetings and Committees.Director Compensation    Our Board met 26 times during the December 2008 transition period and 2009. Each director attended at least 75% of the total number of meetings of the Board and committees on which the director served that were held during the December 2008 transition period and 2009 while the director was a member. The Board’s standing committees include the following:

 

CommitteeCurrent MembersPrimary Responsibilities# of  Meetings
in Dec. 2008
and 2009*

Audit

The following table contains information with respect to the annual compensation (including deferred compensation) of our non-employee directors earned during 2011 with respect to his or her Board service.

Charles H. Noski (Chair) Howard J. Davies

James H. Hance, Jr.(1)

Donald T. Nicolaisen

O. Griffith Sexton

•   Oversees the integrity of the Company’s consolidated financial statements, compliance with legal and regulatory requirements, system of internal controls, and certain aspects of risk management, including review of major operational, franchise, reputational, legal and compliance risk exposures of the Company.

•   Selects, determines the compensation of, evaluates and, when appropriate, replaces the independent auditor, and pre-approves audit and permitted non-audit services.

•   Oversees the qualifications and independence of the independent auditor and performance of the Company’s internal auditor and independent auditor.

•   After review, recommends to the Board the acceptance and inclusion of the annual audited consolidated financial statements in the Company’s Annual Report on Form 10-K.

16

Compensation,

Management

Development and

Succession (CMDS)

Erskine B. Bowles (Chair)(2)

C. Robert Kidder

Donald T. Nicolaisen

Hutham S. Olayan(3)

•   Annually reviews and approves the corporate goals and objectives relevant to the compensation of the Chief Executive Officer (CEO) and evaluates his performance in light of these goals and objectives.

•   Determines the compensation of our executive officers and other officers as appropriate.

•   Administers our equity-based compensation plans.

•   Oversees plans for management development and succession.

•   Reviews and discusses the Compensation Discussion and Analysis with management and recommends to the Board its inclusion in the proxy statement.

12

Nominating and

Governance

Laura D. Tyson (Chair)

Roy J. Bostock

Charles E. Phillips, Jr.(4)

•   Identifies and recommends candidates for election to the Board.

•   Recommends committee structure and membership.

•   Establishes procedures for its oversight of the evaluation of the Board.

•   Recommends director compensation and benefits.

•   Reviews annually the Company’s corporate governance policies.

•   Reviews and approves related person transactions in accordance with the Company’s Related Person Transaction Policy.

5

Risk Committee(5)

Howard J. Davies (Chair)

Roy J. Bostock

James H. Hance, Jr.

Nobuyuki Hirano

•   Oversees the Company’s risk governance structure.

•   Oversees risk management and risk assessment guidelines and policies regarding market, credit, liquidity and funding risk.

•   Oversees risk tolerance, including risk tolerance levels and capital targets and limits.

•   Oversees the performance of the Chief Risk Officer.

N/A

 

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*In addition to Board and committee meetings, our directors also discharge their duties through, among other things, informal group communications and discussions with the Chairman, CEO, members of senior management and others as appropriate regarding matters of interest.

Director(1) 

Fees Earned or

Paid in Cash

($)(2)

  

Stock Awards

($)(3)(4)

  

Option Awards

($)(4)

  

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

  

All Other

Compensation

($)

  

Total

($)

 

Roy J. Bostock

  95,000    250,000    —      —      —      345,000  

Erskine B. Bowles

  95,000    250,000    —      —      —      345,000  

Howard J. Davies

  112,917    250,000    —      —      —      362,917  

James H. Hance, Jr.

  102,917    250,000    —      —      —      352,917  

C. Robert Kidder

  125,000    250,000    —      —      —      375,000  

Donald T. Nicolaisen

  117,917    250,000    —      —      —      367,917  

Hutham S. Olayan

  85,000    250,000    —      —      —      335,000  

James W. Owens

  77,917    333,333    —      —      —      411,250  

O. Griffith Sexton(5)

  87,083    250,000    —      —      —      337,083  

Laura D. Tyson

  95,000    250,000    —      —      —      345,000  

 

(1) Messrs. Tamakoshi and Tanaka and employee directors received no compensation during 2011 for Board service. No compensation information is included in the table for Mr. Hance joinedMack, the Audit Committee, effective January 1, 2010.Company’s 2011 Chairman of the Board, pursuant to SEC rules, because in 2011 he was an executive officer of the Company, other than a named executive officer, who did not receive any additional compensation for his services as a director.

 

(2) Mr.  Bowles was appointed as chairRepresents the portion of the CMDS Committee to replaceannual Board and Board committee retainers that was earned or deferred at the director’s election during 2011. Mr. Kidder, effectiveOwens joined the Board of Directors on January 1, 2010. Mr. Kidder remains2011 and, accordingly, his Board and committee retainers were prorated for service as described below. Cash retainers for service on the CMDS Committee.Board and a Board committee are paid semi-annually in arrears for the period beginning at the 2011 annual meeting of shareholders and concluding at the 2012 annual meeting of shareholders (the 2011 service period). Amounts in the table represent (i) cash retainers earned for a portion of the 2010 service period (January 1, 2011 to May 18, 2011, the date of the 2011 annual meeting of shareholders) paid or deferred on May 18, 2011, (ii) cash retainers earned for a portion of the 2011 service period (May 19, 2011 to November 18, 2011, the six-month anniversary of the 2011 annual meeting of shareholders) paid or deferred on November 18, 2011, and (iii) cash retainers earned for a portion of the 2011 service period (November 19, 2011 to December 31, 2011) payable on May 15, 2012, the date of the 2012 annual meeting of shareholders (or, if earlier, upon termination from the Board).

The annual Board retainer for the 2011 service period for each director is $75,000. In addition, the Lead Director, each of the Board committee chairs and each Board committee member receives additional annual retainers for the 2011 service period, as set forth in the following table. Retainers are prorated when a director joins the Board or a Board committee at any time other than at the annual meeting of shareholders (provided that no retainers are paid if the director is elected to the Board less than 60 days prior to the annual meeting). Directors do not receive meeting fees.

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  Retainer 

Lead Director (Mr. Kidder)

 $30,000  

    

    

Committee Chair


   

Audit Committee (Mr. Nicolaisen)*

 $25,000  

Compensation, Management Development and Succession Committee (Mr. Bowles)

 $20,000  

Nominating and Governance Committee (Dr. Tyson)

 $20,000  

Operations and Technology Committee (Mr. Nicolaisen)*

 $10,000  

Risk Committee (Mr. Davies)

 $20,000  
     

Committee Members


   

Audit Committee (Messrs. Davies, Hance and Sexton)*

 $10,000  

Compensation, Management Development and Succession Committee (Messrs. Kidder and Nicolaisen and Ms. Olayan)

 $10,000  

Nominating and Governance Committee (Messrs. Bostock, Kidder and Owens)

 $10,000  

Operations and Technology Committee (Messrs. Davies and Hance)*

 $10,000  

Risk Committee (Messrs. Bostock and Hance)

 $10,000  

*Effective as of May 17, 2011, Chair and member fees for the Audit Committee were each reduced by $5,000 and Chair and member fees of $10,000 were instituted for the Operations and Technology Committee.

Directors can elect to receive all or a portion of their retainers for the 2011 service period on a current basis in cash or shares of common stock or on a deferred basis in stock units under the Directors’ Equity Capital Accumulation Plan (DECAP). Directors receive dividend equivalents on stock units that are paid in the form of additional stock units. Messrs. Bostock, Davies, Hance, Kidder, Nicolaisen, Owens and Dr. Tyson received their retainers for the 2011 service period in cash on a current basis. Messrs. Bowles and Sexton and Ms. Olayan deferred their retainers for the 2011 service period into stock units (Elective Units). Elective Units are not subject to vesting or cancellation.

On May 18, 2011, the date of the 2011 annual meeting of shareholders, each of Messrs. Bowles and Sexton and Ms. Olayan received a number of Elective Units in lieu of the remaining 50% of his or her cash retainers earned for the 2010 service period that began on May 18, 2010, the date of the 2010 annual meeting of shareholders, and payable on such date determined by dividing the dollar value of such cash retainers by $24.3936, the volume-weighted average price of the common stock on the grant date.

On November 18, 2011, the six-month anniversary of the date of the 2011 annual meeting of shareholders, each of Messrs. Bowles and Sexton and Ms. Olayan received a number of Elective Units in lieu of the first 50% of his or her cash retainers earned for the 2011 service period and payable on such date determined by dividing the dollar value of such cash retainers by $14.2034, the volume-weighted average price of the common stock on the grant date.

 

(3) Ms.  Olayan concluded herRepresents the aggregate grant date fair value of the annual stock unit award for the 2011 service period and, with respect to Mr. Owens, a prorated initial stock unit award, granted during 2011 determined in accordance with the applicable accounting guidance for equity-based awards. The aggregate grant date fair value of annual stock units granted on May 18, 2011 for the 2011 service period is based on $24.3936, the volume-weighted average price of the common stock on the Nominatinggrant date. The aggregate grant date fair value of the initial stock units granted to Mr. Owens on February 1, 2011 is based on $29.8294, the volume-weighted average price of the common stock on the grant date. For further information on the valuation of these stock units, see notes 2 and Governance Committee20 to the consolidated financial statements included in the 2011 Form 10-K.

Under DECAP, directors receive an equity award upon initial election to the Board (provided that they are elected to the Board no less than 60 days prior to the annual meeting and joinedare not initially elected at the CMDS Committee, effective January 1, 2010.annual meeting) and an equity award annually thereafter on the date of the annual meeting of shareholders. The dollar value of the initial equity award is $250,000, prorated for service until the annual meeting. The dollar value of

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the annual equity award is $250,000. Initial and annual equity awards are granted in the form of 50% stock units that do not become payable until the director retires from the Board (Career Units) and 50% in the form of stock units payable on the first anniversary of grant (Current Units). Initial equity awards are fully vested upon grant. Annual equity awards are subject to monthly vesting until the one-year anniversary of the grant date. On May 18, 2011, the date of the 2011 annual meeting of shareholders, directors received their annual equity awards for the 2011 service period in the form of 10,248.59 stock units (determined by dividing $250,000 by $24.3936, and allocating 50% to Career Units and 50% to Current Units). With respect to Career Units, directors may elect to extend deferral beyond retirement from the Board, subject to specified limitations. With respect to Current Units, directors may choose to defer receipt of the shares underlying Current Units beyond the anniversary of grant and may choose the form of distribution (lump sum or installment payments).

 

(4) Mr.  Kidder will joinThe following table sets forth the Nominatingaggregate number of shares underlying DECAP stock units and Governance Committeestock options outstanding at December 31, 2011. The number of units set forth in the following table is rounded to replace Mr. Phillips, effective May 18, 2010.the nearest whole number of units.

Name    Stock Units (#)   Stock Options (#)(a) 

Roy J. Bostock

     35,904       

Erskine B. Bowles

     67,657       

Howard J. Davies

     42,173     7,049  

James H. Hance, Jr.

     18,732       

C. Robert Kidder

     50,926     33,273  

Donald T. Nicolaisen

     45,774       

Hutham S. Olayan

     60,979       

James W. Owens

     13,126       

O. Griffith Sexton

     60,009       

Laura D. Tyson

     25,459     25,847  

(a)

Directors were awarded stock options annually under DECAP until February 8, 2005, at which point stock option awards were discontinued. As of December 31, 2011, the outstanding stock options had no intrinsic value because the exercise price of each stock option was greater than $15.13, the closing price of the Company’s common stock on December 30, 2011.

 

(5)Mr. Sexton was an advisory director of the Company from May 1995 until September 2008 and was a full-time Company employee prior to becoming an advisory director. The Board establishedCompany provides Mr. Sexton with access to medical insurance, for which he pays the Risk Committee effective January 1, 2010.full cost.

Related Person Transactions Policy

 

Our Board has adopted a written charter for each ofRelated Person Transactions Policy (Policy) requiring the Audit Committee, CMDS Committee, Nominating and Governance Committee and Risk Committee setting forth the roles and responsibilities of each committee. The Audit Committee has adopted a written charter for its subcommittee, the Internal Audit Subcommittee, which assists the Audit Committee in the oversight of the Company’s internal audit department. The charters are available at our corporate governance website at www.morganstanley.com/about/company/governance/index.html. The reports of the Audit Committee and the CMDS Committee appear herein.

Non-Management Director Meetings.    The Company’s Corporate Governance Policies provide that non-management directors meet in executive sessions and that the Lead Director will preside over these executive sessions. If any non-management directors are not independent, then the independent directors will meet in executive session at least once annually and the Lead Director will preside over these executive sessions.

Director Attendance at Annual Meetings.    The Company’s Corporate Governance Policies state that directors are expected to attend annual meetings of shareholders. All of the current directors who were on the Board of Directors at the time attended the 2009 annual meeting of shareholders other than Mr. Phillips.

Shareholder Nominations for Director Candidates.    The Nominating and Governance Committee will consider director candidates recommended by shareholders and evaluates such candidates in the same manner as other candidates. The procedures to submit recommendations are described in the Policy Regarding Director Candidates Recommended by Shareholders, available at our corporate governance webpage at www.morganstanley.com/about/company/governance/index.html.

Shareholders of record complying with the notice procedures set forth below may make director recommendations for consideration by the Nominating and Governance Committee. Shareholders may make recommendations at any time, but recommendations for consideration as nominees at the annual meeting of shareholders must be received not less than 120 days before the first anniversary of the date that the proxy statement was released to shareholders in connection with the previous year’s annual meeting. Therefore, to submit a candidate for consideration for nominationapproval or ratification by the Nominating and Governance Committee atof transactions (including material amendments or modifications to existing transactions), where the 2011 annual meeting ofCompany is a participant, the transaction exceeds $120,000 and a related person (directors or director nominees, executive officers, 5% shareholders shareholders must have submitted the recommendation, in writing, by December 14, 2010. The written notice must demonstrate that it is being submitted by a shareholder of recordand immediate family members of the Company and include information about each proposed director candidate, including name, age, business address, principal occupation, principal qualifications and other relevant biographical information. In addition,foregoing) has a direct or indirect material interest. Under the shareholder must confirm hisPolicy, in determining whether to approve or her candidate’s consent to serve as a director. Shareholders must send recommendations toratify such Related Person Transactions, the Nominating and Governance Committee considers all relevant facts and circumstances, including, but not limited to: the terms and commercial reasonableness of the transaction; the size of the transaction; the materiality to, and interest of, the related person and the Company in the transaction; whether the transaction would, or would be perceived to, present an improper conflict of interest for the related person; and, if the related person is an independent director, the impact on the director’s independence. Certain Transactions are not subject to the Policy, including compensation of executive officers approved by the CMDS Committee and ordinary course commercial or financial services transactions between the Company and entity in which a related person has an interest if the transaction is made under terms and conditions and under circumstances substantially similar to those prevailing at the time for comparable transactions with unaffiliated third parties and the related person does not otherwise have a direct or indirect material interest in the transaction.

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Certain Transactions

Our subsidiaries may extend credit in the ordinary course of business to certain of our directors, officers and members of their immediate families. These extensions of credit may be in connection with margin loans, mortgage loans, credit card transactions, revolving lines of credit and other extensions of credit by our subsidiaries. The extensions of credit are made on substantially the same terms and conditions, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectability or present other unfavorable features.

Each of CIC, MUFG and State Street beneficially owns 5% or more of the outstanding shares of Morgan Stanley Suite D, 1585 Broadway, New York, New York 10036.common stock as reported under “Principal Shareholders.” During 2011, we engaged in transactions in the ordinary course of business with each of CIC, MUFG and State Street and certain of their respective affiliates, including investment banking, financial advisory, sales and trading, derivatives, investment management and other financial services transactions. Such transactions were on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties.

As part of the global strategic alliance between MUFG and the Company, on May 1, 2010, the Company and MUFG formed a joint venture in Japan of their respective investment banking and securities businesses by forming two joint venture companies. MUFG contributed the investment banking, wholesale and retail securities businesses conducted in Japan by Mitsubishi UFJ Securities Co., Ltd. into one of the joint venture entities named Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS). The Company contributed the investment banking operations conducted in Japan by its subsidiary, Morgan Stanley MUFG Securities Co., Ltd. (MSMS), formerly known as Morgan Stanley Japan Securities Co., Ltd., into MUMSS (MSMS, together with MUMSS, the “Joint Venture”). MSMS will continue its sales and trading and capital markets business conducted in Japan. Following the respective contributions to the Joint Venture and a cash payment of 23 billion yen ($247 million), from MUFG to the Company, the Company owns a 40% economic interest in the Joint Venture and MUFG owns a 60% economic interest in the Joint Venture. The Company holds a 40% voting interest and MUFG holds a 60% voting interest in MUMSS, while the Company holds a 51% voting interest and MUFG holds a 49% voting interest in MSMS. Other initiatives that are part of the Company’s global strategic alliance with MUFG include a loan marketing joint venture in the Americas, business referral arrangements in Asia, Europe, the Middle East and Africa, referral agreements for commodities transactions and a secondment arrangement of personnel between MUFG and the Company for the purpose of sharing best practices and expertise.

On June 30, 2011, pursuant to the terms of a transaction agreement entered into on April 21, 2011 by the Company and MUFG, all the outstanding shares of Series B Non-Cumulative Non-Voting Perpetual Convertible Preferred Stock (Series B Preferred Stock) held by MUFG were converted into 385,464,097 shares of the Company’s common stock, including approximately 75 million shares resulting from the adjustment to the conversion ratio pursuant to the transaction agreement.

In December 2006, a son-in-law of Mr. Bostock became an employee in the Company’s Asset Management business segment due to the Company’s acquisition of FrontPoint. On March 1, 2011, the Company restructured its relationship with FrontPoint. As a result of the transaction, the Company ceased to control FrontPoint and Mr. Bostock’s son-in-law ceased to be an employee of the Company. As part of the restructuring, the Company held common and preferred equity interests in FrontPoint (representing in total not more than a 24.9% equity interest). Subsequently, in January 2012 the Company further restructured its relationship with FrontPoint by exchanging all its equity interest in FrontPoint (which is now 100% owned by FrontPoint management, including Mr. Bostock’s son-in-law) for revenue shares in remaining funds and a share of any future FrontPoint asset sale proceeds. The Company continues not to control FrontPoint after the most recent restructuring.

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Beneficial Ownership of Company Common Stock

Executive Equity Ownership Commitment

Members of the Company’s Operating Committee are subject to an Equity Ownership Commitment that requires them to retain at least 75% of common stock and equity awards (less allowances for the payment of any option exercise price and taxes) made to them while they are on the Operating Committee. This commitment ties a portion of their net worth to the Company’s stock price and provides a continuing incentive for them to work towards superior long-term stock price performance. None of our executive officers have prearranged trading plans under SEC Rule 10b5-1. Executive officers also are prohibited from engaging in hedging strategies or selling short or trading derivatives involving Morgan Stanley securities.

Director Career Stock Unit Holding Requirement

As indicated under “Director Compensation,” our independent directors receive an equity award upon initial election to Board and an annual equity award thereafter of $250,000 (prorated in the case of the initial award) as part of their director compensation. 50% of each equity award granted to our independent directors does not become payable until the director retires from the Board (and may be deferred beyond retirement at the director’s election), which fosters a long-term ownership view.

Stock Ownership of Executive Officers and Directors

We encourage our directors, executive officers and employees to own our common stock; owning our common stock aligns their interests with those of shareholders.

The following table sets forth the beneficial ownership of common stock as of February 29, 2012 by our Chief Executive Officer and the other executive officers named in the “2011 Summary Compensation Table” (the named executive officers or NEOs), directors, and director nominees, and by all our directors and executive officers as of February 29, 2012, as a group. As of February 29, 2012, none of the common stock beneficially owned by our directors and NEOs was pledged.

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   Common Stock Beneficially Owned as of February 29, 2012 
    
Name  Shares(1)
     Underlying
Stock  Units(2)
     

Subject to

Stock Options
Exercisable within
60 days

     Total(2)(3)
 

NAMED EXECUTIVE OFFICERS

                          

James P. Gorman

   310,713       867,921       553,333       1,731,967  

Ruth Porat

   474,683       355,366       115,857       945,906  

Gregory J. Fleming

   123,098       419,682       20,224       563,004  

Colm Kelleher

   53,486       440,062       268,202       761,750  

Paul J. Taubman

   550,706       732,206       299,147       1,582,059  
    

DIRECTORS

                          

Roy J. Bostock

   43,572       35,998              79,570  

Erskine B. Bowles

   1,000       67,833              68,833  

Howard J. Davies

   9,260       42,283       7,049       58,592  

James H. Hance, Jr.

   28,325       18,781              47,106  

C. Robert Kidder

   70,452       51,059       33,273       154,784  

Klaus Kleinfeld(4)

                          

Donald T. Nicolaisen

   4,704       41,176              45,880  

Hutham S. Olayan

   8,000       61,138              69,138  

James W. Owens

   5,000       13,160              18,160  

O. Griffith Sexton

   633,934       60,165              694,099  

Ryosuke Tamakoshi(5)

                          

Masaaki Tanaka(5)

                          

Laura D. Tyson

   32,154       25,525       25,847       83,526  
                           
ALL DIRECTORS AND EXECUTIVE OFFICERS AS OF FEBRUARY 29, 2012 AS A GROUP (20 PERSONS)   2,446,657       3,774,022       1,388,965       7,609,644  

(1)Each director, NEO and executive officer has sole voting and investment power with respect to his or her shares, except as follows: Mr. Gorman’s beneficial ownership includes 200,000 shares held in a grantor retained annuity trust for which he and his spouse are co-trustees, 600 shares held in a Uniform Gifts to Minors Act account for which Mr. Gorman is custodian and for which he disclaims beneficial ownership, and 500 shares held in a Uniform Transfer to Minors Act account for which Mr. Gorman’s spouse is custodian and for which he disclaims beneficial ownership; Mr. Taubman’s beneficial ownership includes 1,585 shares held by his spouse; Mr. Bostock’s beneficial ownership includes 1,775 shares held by his spouse; and Mr. Bowles’ beneficial ownership includes 1,000 shares held in a trust revocable by Mr. Bowles on 30 days’ notice.

(2) Shares of common stock held in a trust (Trust) corresponding to restricted stock units (RSUs). Directors and executive officers may direct the voting of the shares corresponding to their RSUs. Voting by executive officers is subject to the provisions of the Trust, as described in “Information About the Annual Meeting – How Do I Submit Voting Instructions for Shares Held in Employee Plans?” Excludes performance stock units (PSUs) because executive officers may not direct the voting of their PSUs.

(3) Each NEO and director beneficially owned less than 1% of the shares of common stock outstanding. All executive officers and directors as a group as of February 29, 2012 beneficially owned less than 1% of the common stock outstanding.

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(4) If elected to the Board at the 2012 annual meeting of shareholders, Mr. Kleinfeld, as a non-employee director, will receive an annual equity award under DECAP in the amount of $250,000. See “Director SelectionCompensation” for further details regarding our director compensation arrangements.

(5) Messrs. Tamakoshi and Nomination Process” above for moreTanaka were elected to the Board pursuant to the Investor Agreement. See “Principal Shareholders” regarding MUFG’s beneficial ownership of Company common stock.

Principal Shareholders

The following table contains information regarding Board membership criteria.the only persons we know of that beneficially own more than 5% of our common stock.

  

Shares of Common Stock

Beneficially Owned

Name and Address Number     Percent(1)   

China Investment Corporation (CIC)(2)

New Poly Plaza, No. 1 Chaoyangmen Beidajie

Dongcheng District, Beijing 100010,

People’s Republic of China

 

  150,782,379       7.6  

Mitsubishi UFJ Financial Group, Inc.(3)

7-1, Marunouchi 2-chome

Chiyoda-ku, Tokyo 100-8330, Japan

 

  435,452,411       22.0  

State Street Corporation (State Street)(4)

225 Franklin Street, Boston, MA 02110

 

  165,720,173       8.4  

(1) Percentages based upon the number of shares of common stock outstanding as of the record date, March 19, 2012, and the beneficial ownership of the principal shareholders as reported in SEC filings in notes 2-5 below.

(2) Based on the Schedule 13G filed on February 13, 2012 by CIC and Harvest Investment Corporation. The Schedule 13G discloses that CIC had shared dispositive and shared voting power with respect to all beneficially owned shares reported.

(3) Based on the amended Schedule 13D filed on July 1, 2011 by MUFG. The amended Schedule 13D discloses that MUFG had sole dispositive and sole voting power with respect to the beneficially owned shares reported, including 3,435,259 shares held solely in a fiduciary capacity by certain affiliates of MUFG as the trustee of trust accounts or the manager of investment funds, other investment vehicles and managed accounts as of May 31, 2011 for which MUFG disclaims beneficial ownership.

(4) Based on the Schedule 13G filed on February 13, 2012 by State Street and State Street Bank and Trust Company, each acting in various fiduciary and other capacities. The Schedule 13G discloses that State Street had shared dispositive power as to 165,720,173 shares and shared voting power as to 165,299,432 shares; that 134,818,439 shares beneficially owned by State Street Bank and Trust Company, a subsidiary of State Street, are held as trustee and investment manager on behalf of the Trust; and that State Street and State Street Bank and Trust Company disclaimed beneficial ownership of all shares reported in the Schedule 13G, except in their fiduciary capacity under the Employee Retirement Income Security Act of 1974. State Street Bank and Trust Company acts as a trustee for the Trust that holds shares of common stock underlying stock units awarded to employees under several of the Company’s equity-based plans. See “Information About the Annual Meeting.”

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and certain of our officers to file reports with the SEC indicating their holdings of, and transactions in, our equity securities. The Company believes that, during 2011, our reporting persons complied with all Section 16(a) filing requirements, except that MUFG filed a late Form 4 to report the conversion to common stock of all of its shares of Series B Preferred Stock that had previously been reported by MUFG in a timely manner in an amendment to its Schedule 13D.

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Executive Compensation

 

Compensation Governance.Governance

The CMDS Committee currently consists of four (4) directors, including our Lead Director, all of whom are independent members of the Board under the NYSE listing standards and the independence requirements of the Company. The CMDS Committee operates under a written charter adopted by

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the Board. As noted in the table above, theThe CMDS Committee is responsible for reviewing and approving annually all compensation awarded to the Company’s executive officers, including the Chairman of the Board, the CEO and other executive officers named in the “Summary Compensation Table” (named executive officers or NEOs).NEOs. In addition, the CMDS Committee administers the Company’s equity incentive plans, including reviewing and approving equity grants to executive officers. Information on the CMDS Committee’s processes, procedures and analysis of NEO compensation for 20092011 is addressed in the “Compensation Discussion and Analysis” (CD&A).

 

The CMDS Committee actively engages in its duties and follows procedures intended to ensure excellence in compensation governance, including those described below:

 

Retains its own independent compensation consultant to provide advice to the CMDS Committee on executive compensation matters. The independent compensation consultant generally attends all CMDS Committee meetings, reports directly to the CMDS Committee Chair and regularly meets with the CMDS Committee without management present. In addition, the Chair of the CMDS Committee regularly speaks with the CMDS Committee’s compensation consultant, without management, outside of the CMDS Committee meetings.

 

Regularly reviews the competitive environment and the design and structure of the Company’s compensation programs to ensure that they are consistent with and support our compensation objectives.

 

Regularly reviews the Company’s achievements with respect to predetermined performance priorities and strategic goals and evaluates executive performance in light of such achievements.

 

Regularly reviews legislative and regulatory developments affecting compensation in the U.S. and globally.

Annually reviews the Company’s incentive compensation arrangements to help ensure that such arrangements are consistent with the safety and soundness of the Company and do not encourage excessive risk-taking, and are otherwise consistent with applicable related regulatory rules and guidance.

Grants senior executive annual incentive compensation after a comprehensive review and evaluation of Company, business unit and individual performance for the fiscal year both on a year-over-year basis and as compared to our key competitors.

 

Oversees plans for management development and succession.

 

Regularly meets throughout the year and regularly meets in executive session without the presence of management or its compensation consultant.

 

Receives materials for meetings in advance, and the Chair of the CMDS Committee participates in premeetingspre-meetings with management to review the agendas and materials.

 

Regularly reports on its meetings to the Board.

 

ToAs mentioned above, to perform its duties, the CMDS Committee retains the services of a qualified and independent compensation consultant that possesses the necessary skill, experience and resources to meet the CMDS Committee’s needs and that has no relationship with the Company that would interfere with its ability to provide independent advice. The CMDS Committee has selected Hay Group as its compensation consultant. Hay Group has also been retained by the Nominating and Governance Committee to provide consulting services on Board compensation. Other than the consulting services that it provides to the CMDS and Nominating and Governance Committees, Hay Group currently provides no services to the Company or its executive officers. Hay Group assists the CMDS Committee in collecting and evaluating external market data regarding executive compensation and performance and advises the CMDS Committee on developing trends and best practices in executive compensation and equity and incentive plan design.

 

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The Company’s Human Resources Departmentdepartment acts as a liaison between the CMDS Committee and Hay Group and also prepares materials for the CMDS Committee’s use in making compensation decisions. Separately, Human Resources may itself engage third-party compensation consultants to assist in the development of compensation data and analyze potential compensation structures to inform and facilitate the CMDS Committee’s deliberations.

 

The principal compensation plans and arrangements applicable to our NEOs are described in the CD&A and the tables in the “Executive Compensation” section. The CMDS Committee may delegate the administration of these plans as appropriate, including to executive officers of the Company and members of the Company’s Human

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Resources department. The CMDS Committee may also create subcommittees with authority to act on its behalf. Significant delegations made by the CMDS Committee include the following:

 

The CMDS Committee has delegated to the Equity Awards Committee (which consists of the CEO) the CMDS Committee’sChief Executive Officer) its authority to make special new hire and retention equity awards; however, this delegation of authority does not extend to awards to our executive officers and certain other senior executives of the Company. Awards granted by the Equity Awards Committee are subject to a share limit imposed by the CMDS Committee and individual awards are reported to the CMDS Committee on a regular basis.

 

The CMDS Committee has delegated to the Chief Operating Officer the CMDS Committee’sits authority to administer the Company’s cash-based nonqualified deferred compensation plans, including the Morgan Stanley Compensation Incentive Plan (discussed in the CD&A); however, the CMDS Committee has sole authority relating to grants of cash-based nonqualified deferred compensation plan awards to, or amendments to such awards held by, executive officers and certain other senior executives, material amendments to any such plans or awards, and the decision to implement certain of these plans in the future.

 

Our executive officers do not engage directly with the CMDS Committee in setting the amount or form of executive officer compensation. However, as discussed in the CD&A, as part of the annual performance review for our executive officers other than the CEO,Chief Executive Officer, the CMDS Committee considers our CEO’sChief Executive Officer’s assessment of each executive officer’s individual performance, as well as the performance of the Company and our CEO’sChief Executive Officer’s compensation recommendations for each executive officer, other than himself.

 

Annual year-end equity and cash-based long-term incentive awards are typically granted by the CMDS Committee after the end of our fiscalthe year. This schedule coincides with the time when year-end financial results are available and the CMDS Committee can evaluate individual and Company performance as described in the CD&A. Special equity and cash-based long-term incentive awards are generally approved on a monthly basis; however, they may be granted at any time, as deemed necessary for new hires, promotions, recognition or retention purposes. We do not coordinate or time the release of material information around our grant dates in order to affect the value of compensation.

 

On September 10, 2009, the Company announced that Mr. Gorman would become Chief Executive Officer effective January 1, 2010 and Mr. Mack would continue to serve as Chairman of the Board. This announcement followed a detailed succession planning process, which occurred during the prior 18 months and was conducted by the CMDS Committee, with oversight by the entire Board. The CMDS Committee, in conjunction with the entire Board, established criteria for the next Chief Executive Officer and retained a consultant to review potential outside candidates and evaluated accomplished internal candidates. The Board oversaw a thorough, deliberate and successful succession process that led to the election of, and seamless transition to, our new CEO, Mr. Gorman, a proven leader with an established record as a strategic thinker backed by strong operating, business development and execution skills who brings an extensive understanding of Morgan Stanley’s businesses and decades of financial services experience.

Consideration of Risk Matters in Determining Compensation.Compensation    The

Beginning in 2009, the CMDS Committee has worked with the Company’s Chief Risk Officer and the CMDS Committee’s independent compensation consultant to evaluate whether the Company’s compensation arrangements encourage unnecessary or excessive risk-taking and whether risks arising from the Company’s compensation arrangements are reasonably likely to have a material adverse effect on the Company. Morgan Stanley is a financial institution that engages in significant trading and capital market activities that are subject to market and other risks. The Company employs risk management practices, including trading limits, marking-to-market positions, stress testing and employment of models. The Company believes in pay for performancepay-for-performance and as a result also evaluates its compensation programs to recognize these risks.

 

Prior to meeting with the CMDS Committee,In 2011, the Chief Risk Officer had a series of interactive and detailed working sessions with representatives from the Firm’sCompany’s Human Resources, Financial Control Group and Legal departments to evaluate each

 

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compensation program across each of the Company’s major areas – Institutional Securities, InvestmentAsset Management, Global Wealth Management and Company/Infrastructure. These working sessions were intended to identify whether there were any material risks to the Company arising from such compensation programs, including those programs in which our NEOs participate. The review covered numerous programs, including equity- and cash-based deferred compensation programs, discretionary bonus programs and performance-based formulaic bonus programs. The working group reviewed a number of factors, including the eligibility;eligibility, form of payment;payment, applicable performance measures; vesting;measures, vesting, clawback, holdback and cancellation provisions;provisions and governance and oversight aspects of each program.

 

Following this thorough review,In 2011, the Chief Risk Officer concluded that Morgan Stanley’s current compensation programs do not incentincentivize employees to take unnecessary or excessive risk and that such programs do not create risks that are reasonably likely to have a material adverse effect on the Company. The following are among the factors considered in making his determination:

 

Our balance of fixed compensation and discretionary compensation;

 

Our balance between short-term and long-term incentives;

 

Our mandatory deferrals into both equity-based and cash-based long-term incentive programs;

 

theThe governance procedures followed in making compensation decisions;decisions, including our rigorous up-front risk adjustment process for assessing performance based on financial, capital and risk metrics;

 

our equity retention policy; and

The risk-mitigating features of our awards, such as cancellation, holdback and clawback provisions.provisions; and

Our equity retention requirements.

 

The Chief Risk Officer and the Global Head of Human Resources then reviewed these arrangements, along with the analyses and findings of the Chief Risk Officer, with the CMDS Committee and its independent compensation consultant. TheBefore compensation decisions for 2011 were approved, the Chief Risk Officer again met with the Global Head of Human Resources and the CMDS Committee before compensation decisions for 2009 were approved, to reviewreviewed the final compensation programs pursuant to which 20092011 compensation would be paid.paid and confirmed his conclusions with the CMDS Committee. It is the intentionintended that going forward, the Chief Risk Officer will continue to evaluate any new incentive arrangements for the NEOs and material arrangements for other employees, and report periodically to the CMDS Committee.Committee and be involved in the design and assessment of our incentive arrangements to the extent appropriate or required under applicable law.

 

In addition to the foregoing, the CMDS Committee regularly reviews with the Chief Executive Equity Ownership Commitment.    Executive officers, includingOfficer, Chief Risk Officer and senior management the Chairman ofCompany’s controls regarding the Board,year-end compensation process. These controls are structured to help eliminate incentives for excessive risk taking and have been designed to be consistent with the Federal Reserve Board’s principles for safety and soundness. For 2011, such controls included:

Redesigning the process for sizing the year-end incentive compensation pool to more fully consider risk-adjusted returns, compliance with risk limits and the market and competitive environment;

Implementing a new process to allocate the incentive compensation pool among business areas to take into account the businesses’ returns on certain financial, capital and risk metrics;

For more senior-level employees, generally increasing the level of year-end deferrals subject to multi-year clawback and cancellation provisions; and

As described more fully in the CD&A, expanding clawback provisions to apply to both deferred equity and deferred cash awards; increasing the accountability of compensation managers for executing clawback and cancellation provisions, with a focus on employee risk-taking; and implementing a rigorous review process by the independent control functions of potential clawback and cancellation situations. Clawback provisions provide for the forfeiture of an award upon, among other members of senior management who are membersthings, the employee’s violation of the Company’s Operating Committee are subject to an Equity Ownership Commitment that requires them to retain at least 75% of common stockrisk policies and equity awards (less allowances for the payment of any option exercise price and taxes) made to them while they are on the Operating Committee (or for the Chairman, while he was on the Operating Committee and while Chairman). This commitment ties a portion of their net worth to the Company’s stock price and provides a continuing incentive for them to work towards superior long-term stock price performance. None of our executive officers have prearranged trading plans under SEC Rule 10b5-1.standards.

 

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Beneficial Ownership of Company Common Stock25

 

Stock Ownership of Directors and Executive Officers.    We encourage our directors, officers and employees to own our common stock; owning our common stock aligns their interests with your interests as shareholders. All executive officers, including the NEOs, are subject to the Equity Ownership Commitment described above. Executive officers also may not engage in hedging strategies or sell short or trade derivatives involving Morgan Stanley securities.

The following table sets forth the beneficial ownership of common stock as of December 31, 2009 by each of our directors and NEOs, and by all our directors and executive officers as of December 31, 2009, as a group. As of December 31, 2009, none of the common stock beneficially owned by our directors and NEOs was pledged.

   Common Stock Beneficially Owned as of December 31, 2009
 
Name  Shares(1)    Underlying
Stock  Units(2)(3)
    

Subject to

Stock Options
Exercisable within
60 days(4)

    Total(3)(5)

NAMED EXECUTIVE OFFICERS

                  

John J. Mack

  1,589,432    1,367,342    849,154    3,805,928

Colm Kelleher

  60,558    217,283    248,057    525,898

Walid A. Chammah

  5,481    664,025    700,543    1,370,049

Kenneth M. deRegt

  343    54,086    156,788    211,217

James P. Gorman

  124,203    507,237    411,758    1,043,198
    

DIRECTORS

                  

Roy J. Bostock

  28,695    30,735    —      59,430

Erskine B. Bowles

  1,000    39,957    —      40,957

Howard J. Davies

  2,000    30,787    7,049    39,836

James H. Hance, Jr.

  23,649    3,655    —      27,304

Nobuyuki Hirano(6)

  —      —      —      —  

C. Robert Kidder

  65,776    35,300    55,832    156,908

Donald T. Nicolaisen

  —      25,610    —      25,610

Charles H. Noski

  —      42,339    —      42,339

Hutham S. Olayan

  —      34,258    —      34,258

Charles E. Phillips, Jr.

  14,420    12,740    —      27,160

O. Griffith Sexton

  633,868    33,107    —      666,975

Laura D. Tyson

  27,478    10,267    46,090    83,835
    
ALL DIRECTORS AND EXECUTIVE OFFICERS AS OF DECEMBER 31, 2009 AS A GROUP (20 PERSONS)  2,719,918    3,734,091    2,571,736    9,025,745

(1)Each director, NEO and executive officer has sole voting and investment power with respect to his or her shares, except as follows: Mr. Mack’s beneficial ownership includes 536,400 shares held in grantor retained annuity trusts for which his spouse is the sole trustee; Mr. Gorman’s beneficial ownership includes 20,000 shares held in a grantor retained annuity trust for which he and his spouse are co-trustees; Mr. Bostock’s beneficial ownership includes 1,775 shares held by his spouse; and Mr. Bowles’ shares are held in a trust revocable by Mr. Bowles on 30 days notice.

(2) Shares of common stock held in the Trust corresponding to stock units. Directors and executive officers may direct the voting of the shares corresponding to their stock units. Voting by executive officers is subject to the provisions of the Trust described in “Voting Information – Submitting Voting Instructions for Shares Held in Your Name.”

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(3) Excludes stock units granted on January 21, 2010 to the NEOs for services in 2009. The following table lists the number of stock units awarded to each NEO for 2009. These restricted stock unit (RSU) and performance stock unit (PSU) awards are described in greater detail in the CD&A.

Name  

January 2010 Stock Unit Awards

(#)

  RSUs  PSUs

John J. Mack 

       —         —  

Colm Kelleher

  103,824  80,521.00

Walid A. Chammah

  128,335  96,861.40

Kenneth M. deRegt

  78,757  63,871.75

James P. Gorman

  194,590  97,295.47

(4) See the “Outstanding Equity Awards at Fiscal Year End Table” for additional information regarding stock options held by the NEOs as of December 31, 2009.

(5) Each NEO and director beneficially owned less than 1% of the shares of common stock outstanding. All executive officers and directors as a group as of December 31, 2009 beneficially owned less than 1% of the common stock outstanding.

(6) Mr. Hirano was elected to the Board pursuant to the Investor Agreement. See “Principal Shareholders” regarding MUFG’s beneficial ownership of Company common stock.

Principal Shareholders.    The following table contains information regarding the only persons we know of that beneficially own more than 5% of our common stock.

  

Shares of Common Stock

Beneficially Owned

Name and Address Number    Percent   

Mitsubishi UFJ Financial Group, Inc.(1)

7-1, Marunouchi 2-chome

Chiyoda-ku, Tokyo 100-8330, Japan

 357,017,088   ��20.9  
  

State Street Corporation (State Street)(2)

225 Franklin Street, Boston, MA 02110

 150,349,759    11.1  
  

FMR LLC(3)

82 Devonshire Street, Boston, MA 02109

 89,568,077    6.589  
  

BlackRock, Inc. (BlackRock)(4)

40 East 52nd Street

New York, NY 10022

 73,558,367    5.41  

(1) Based on the number of outstanding shares of common stock of the Company as of January 31, 2010 (as reported in the 2009 Form 10-K) and MUFG’s beneficial ownership (as reported in a Schedule 13D Information Statement on October 23, 2008, as amended on October 30, 2008, May 22, 2009, June 11, 2009 and April 1, 2010) of 357,017,088 shares of common stock consisting of (1) 310,464,033 shares of common stock, assuming conversion of 7,839,209 shares of Series B Preferred Stock issued to MUFG on October 13, 2008, based on an initial conversion rate of 39.604 shares of common stock for each share of preferred stock representing an initial conversion rate of $25.25 per share of common stock; (2) 29,375,000 shares of common stock in connection with the Company’s registered public offering announced on May 7, 2009; and (3) 17,178,055 shares of common stock in connection with the Company’s registered public offering announced on June 2, 2009. This information assumes that MUFG has not disposed of any shares of common stock that it purchased in the Company’s registered public offerings during 2009. In addition, this information does not include 16,207,331 shares of common stock held by certain affiliates of MUFG as of March 23, 2010 in a fiduciary capacity as the trustee of trust accounts or as the manager of investment funds, other investment vehicles and managed accounts; MUFG has disclaimed beneficial ownership of such shares.

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(2) Based on a review of the Schedule 13G Information Statement filed on February 12, 2010 by State Street and its subsidiaries, acting in various fiduciary and other capacities. The Schedule 13G discloses that State Street had shared voting power as to 150,051,005 shares and shared dispositive power as to 150,349,759 shares; that 99,424,373 of the 135,472,888 shares beneficially owned by State Street Bank and Trust Company, a subsidiary of State Street, are held as trustee and investment manager on behalf of the Trust; and that State Street disclaimed beneficial ownership of all shares reported in the Schedule 13G. The Schedule 13G discloses that the percentage of ownership reported therein was based upon the shares of common stock reported as issued and outstanding in our Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.

(3) Based on a review of the Schedule 13G Information Statement filed on February 16, 2010 by FMR LLC, Edward C. Johnson 3d and Fidelity Management & Research Company (Fidelity), a wholly-owned subsidiary of FMR LLC. Certain of the shares listed above are beneficially owned by FMR LLC subsidiaries and related entities. The Schedule 13G discloses that members of the Johnson family may be deemed to form a controlling group with respect to FMR LLC and that FMR LLC, Edward C. Johnson 3d and Fidelity, and their respective affiliates, have had sole voting power as to 12,654,279 shares and sole dispositive power as to 89,568,077 shares.

(4) Based on a review of the Schedule 13G Information Statement filed on January 29, 2010 by BlackRock. The Schedule 13G discloses that BlackRock completed its acquisition of Barclays Global Investors, NA and certain of its affiliates as of December 1, 2009 and that substantially all of such entities are now included as subsidiaries of BlackRock for purposes of the Schedule 13G. The Schedule 13G discloses that as of December 31, 2009, BlackRock had sole dispositive and sole voting power with respect to all beneficially owned shares reported therein.

Executive Compensation

Compensation Discussion and Analysis.Analysis

This Compensation Discussion and Analysis (CD&A)CD&A describes how the CMDS Committee considered the Company’s executive compensation objectives and policiesapproach; its business strategy and analyzesCompany and individual performance against this strategy; and the CMDS Committee’sother material factors that guide our executive compensation program, to arrive at 2011 compensation decisions on NEO compensation in 2009.for our NEOs: Mr. Gorman, our CEO, Ms. Porat, our Chief Financial Officer, Mr. Fleming, our President of Asset Management and Global Wealth Management, and Messrs. Kelleher and Taubman, our Co-Presidents of Institutional Securities. The CD&A is organized intocomprised of four sections:

 

   Page:

I.      Executive Summary

  2126

II.     Compensation Program for 2009

22

III.     Compensation Objectives and Strategy

  27

III.   Compensation Program for 2011

28

IV.   20092011 Compensation Process and Decisions

  2832

 

I.Executive Summary

 

The financial services industry and the global economy have experienced an exceptional period of turmoil, shock and change during theIn recent economic crisis. The adverse market conditions fundamentally reshaped the competitive landscape and led to unprecedented governmental involvement in support of the financial sector, including the Company’s participation in the Troubled Asset Relief Program (TARP), which obligations the Company repaid in mid-2009.

years, Morgan Stanley understands evolving concerns in the new environment in which it is operating with respect to compensation and has made significant changes including numerous changes to how it pays – and seeks to retain and motivate – its people. The CMDS Committee evaluated our executive compensation program in response to the lasting impact of the global financial crisis on the industry. For 2011, Morgan Stanley has continued to refine the way we pay our executives, consistent with global regulatory principles, evolving best practices consideringand the Company’s risk policies – and reflecting shareholder input, and, in light of recent events, industry best practices, regulatory guidance, the Company’s performance and the widerbroader economic environment – so that a significantly greater portion of total compensation is “at-risk,” subject to clawback and fundamentally restructured year-endtied to long-term Company performance. We believe these changes advance our goals of delivering pay-for-performance, attracting and retaining top talent and encouraging responsible risk-taking in a way that is aligned with the long-term interests of the Company’s shareholders. Furthermore, our compensation decisions for 2011 demonstrate our focus on long-term profitability and our commitment to balancing adequate returns for shareholders with appropriate rewards to retain and motivate top talent throughout economic cycles.

In 2011, Morgan Stanley made significant progress by addressing a number of outstanding strategic and legacy issues – including the conversion of MUFG’s preferred investment into common stock and the comprehensive settlement with MBIA – and achieved market share gains across our institutional businesses, as well as significant net flows into our Global Wealth Management and Asset Management platforms. While the Company made progress toward many of our key performance priorities, the Company did not fully meet all of our priorities for the year – which is reflected in the 2011 compensation decisions.

Pay-for-performance continues to be the core of our compensation program: our executives are held accountable for the Company’s employees. This included reducing the portionperformance as their total compensation is directly impacted by this performance and a significant component of bonuses paid in cash and increasing the portion ofexecutive compensation that is deferred, creating at-risk performance stock units (PSUs) tied to specific performance metrics over a three-year performance for senior executives and instituting a strengthened “clawback” provision.

period. Consistent with itsour pay-for-performance philosophy, the CMDSCompany implemented the following changes to our 2011 compensation:

We reduced Mr. Gorman’s compensation for 2011 by 25% from 2010 to $10,500,000, reflecting the fact that the Company did not fully meet certain 2011 performance priorities.

We paid no cash bonus to members of the Company’s Operating Committee (for 2011, our eight most senior executives, including the NEOs) and instead delivered 100% of year-end compensation in 2009 also moveddeferred long-term incentive awards subject to market and cancellation risk over a three-year period.

We redesigned our “at-risk” performance stock unit program, which only delivers value if the Company meets specific performance targets after three years, to further away from anmoderate risk-taking incentives while continuing to incent performance.

We expanded our “clawback” provisions to apply to all long-term incentive compensation and enhanced our processes for preventing, investigating and addressing circumstances (such as poor risk outcomes, significant losses and improper employee behavior) that could require clawback or cancellation of previously awarded compensation, as well as adjustments to current year compensation.

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Furthermore, and consistent with our long-standing objective of aligning executive compensation program focused largely on annual incentive awards toward one that is better

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balanced between fixed, short-term and long-term compensation. Awards are now more firmly tiedwith shareholder interests, for 2011 we continued to future performance, and risk management is now a more integrated part of compensation determinations. Withdeliver a significant portion of executives’the NEOs’ incentive compensation paid in equity executivesawards. In addition, all NEOs must retain 75% of the after-tax shares they receive as compensation and are subject to market riskprohibited from hedging any shares of Company common stock. As a result, each of our NEOs is one of our long-term shareholders with the same interests as our other shareholders. The NEOs’ beneficial ownership of Company common stock as of February 29, 2012 is set forth in the table “Stock Ownership of Executive Officers and their interests are aligned with shareholders.Directors.”

 

These measures build upon previous years’ efforts to refine our compensation program. For example, in 2010, we reduced Mr. Gorman’s compensation as CEO from 2009 levels when he served as Co-President and increased the portion of year-end compensation delivered in deferred long-term incentive awards instead of cash bonus. In 2009, whilewe introduced a multi-year performance program and increased our focus on up-front risk adjustment of compensation. In 2008, Morgan Stanley delivered a strong operating performance across many of its businesses, revenues were significantly reduced bywas the narrowing of the Company’s credit spreads (a positive trend)first major U.S. bank to enact “clawback” provisions and the resulting non-cash negative accounting impact. This had the effect of increasing the compensation-to-revenue ratio for the yearwe continue to a historically high level, despite the fact that firm-wide per capita compensation was at its lowest level in the past seven years. The Company believes that this ratio was an anomaly in 2009 and does not expect this ratio to be at this level again.enhance these provisions.

 

II.Compensation Program for 2009

A.Executive Compensation Strategy for 2009.    Morgan Stanley recognized the environment in which it operates, and adopted a number of changes to its compensation practices in 2009 that build on the compensation reforms announced last year and that are in accordance with the Company’s continuing commitment to balanced, long-term performance-based compensation, as highlighted below.

We reduced the portion of bonuses paid in cash and increased the portion of bonuses paid with deferred long-term awards subject to market and cancellation risk.    In 2009, the portion of NEO compensation paid in cash was substantially reduced and the portion paid in deferred compensation was substantially increased. Mr. Gorman received his entire year-end bonus in deferred compensation. For other NEOs, the portion of incentive compensation paid in deferred compensation was increased to 72%, up from 36% in fiscal 2008. Of the deferred compensation, 20% was paid in at-risk PSUs and the remainder was paid in equal parts restricted stock units (RSUs) and deferred cash-based awards under the Morgan Stanley Compensation Incentive Program (MSCIP). A higher portion of the 2009 bonus was paid in equity, compared to 2008, further aligning a significant portion of our NEO’s compensation with shareholders’ interests by tying it directly to the Company’s stock price. These long-term incentive awards continue to be subject to the Company’s cancellation and clawback provisions, as described below.

We introduced new “at-risk” performance-based stock units.    For 2009, the Company for the first time granted senior executives at-risk PSUs that deliver value only if the Company, after three years, meets objective performance targets. The Company was one of the first of its peers in the U.S. to incorporate performance units as part of their NEOs’ year-end bonus, and not as an additional component of compensation. The targets for the at-risk PSUs include return on average common equity over the three-year period and relative stock price performance over the same period. To the extent the Company does not achieve the performance targets set by the CMDS Committee at the time of grant, the NEOs will not receive shares under this program. The NEOs received 20% of their bonus in these PSUs, except for Mr. Mack. Details of this new long-term compensation program are outlined below.

Mr. Mack did not receive a 2009 bonus; Mr. Gorman’s bonus was paid only in deferred compensation.    For 2009, Chairman and former CEO John J. Mack recommended to the CMDS Committee that he receive no year-end bonus, given the unique operating environment and government support for the industry this past year. Mr. Mack also received no year-end incentive compensation for 2008 or 2007. CEO James P. Gorman recommended to the CMDS Committee that he be paid no cash bonus for 2009, and the CMDS Committee decided that the 2009 year-end award for Mr. Gorman would be paid only in deferred compensation. Mr. Gorman received no year-end incentive compensation for 2008.

We enhanced our “clawback” provision.    Morgan Stanley was the first major U.S. bank to enact a clawback that exceeded TARP requirements for a portion of year-end compensation in 2008. This clawback provision was further enhanced in 2009 to explicitly cover situations where there is (i) a substantial loss on a trading position or other holding or (ii) any loss on a trading position where an employee operated outside the risk parameters applicable to the trading position or other holding if, in either case, such position was a

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factor in that employee’s compensation determination. This provision applies to the deferred cash-based awards made to the NEOs under MSCIP.

We improved the balance between fixed and variable pay.    Base salaries for the NEOs, other than for Mr. Mack, were increased in 2009 in order to move away from a compensation program dominantly focused on annual incentives and toward one that is balanced between fixed and variable compensation. The adjustments were also designed to raise base salary levels that were below several of our peer companies.

We increased our focus on risk-adjusted compensation.    As described below, the CMDS Committee worked with the Company’s Chief Risk Officer and the CMDS Committee’s independent consultant in reviewing the Company’s compensation arrangements, including for the NEOs, to help ensure that the arrangements do not encourage unnecessary or excessive risk-taking that threatens the Company’s value or gives rise to risk that could have a material adverse effect on the Company.

B.New “At Risk” Performance-Based Compensation Program for 2009.    The CMDS Committee, in response to shareholder feedback, approved an at-risk PSU program under the Company’s 2007 Equity Incentive Compensation Plan. This program ties executive compensation to the Company’s long-term financial performance and further reinforces the NEOs’ accountability for the Company’s future financial and strategic goals by tying a greater portion of compensation directly to certain of the Company’s core financial metrics – return on equity and total shareholder return. Under this program, PSUs granted in 2010 will vest and convert to shares of Company common stock in 2013 only if the Company achieves predetermined performance goals over the next three years. Participants will receive no portion of the award if the minimum performance targets are not met. As with other equity compensation, shares received upon conversion of these PSUs will be subject to the 75% stock ownership commitment for senior executives. Grants under the program were made to the NEOs who received a bonus for 2009. The amounts granted to the NEOs – which constituted 20% of their total bonus – are provided below under “2009 Compensation Decisions.” The PSUs will not provide for voting rights before they are converted to Company stock. The awards will receive dividend equivalents in cash which will accumulate and pay out, if at all, when the underlying shares are paid to the NEOs based on the number of underlying shares actually earned.

The at-risk PSUs will be tied directly to the Company’s long-term core financial metrics – specifically:

1.One-half of the target PSU award will be based on the Company’s return on average common shareholders’ equity (average ROE) over the three-year performance period.    Average ROE will exclude the impact of debt-related credit spreads – representing the change in fair value of certain short-term and long-term borrowings, including structured notes and subordinated debentures, accounted for under the fair value option – that is included in net income and is attributable to changes in the Company’s own debt-related credit spreads.The number of at-risk PSUs ultimately earned will be determined by multiplying one-half of the target award by the multiplier according to the following grid:

MS 3-Year Average ROE*  Multiplier

18% or more

  2.00

12%

  1.00

7.5%

  0.25

less than 7.5%

  0.00

*If average ROE is between two of the thresholds noted above, the number of PSUs earned will be determined by straight-line interpolation between the two thresholds.

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2.The other half of the award will be based on the Company’s total shareholder return (TSR) relative to the TSR of the members of the Comparison Group over the three-year period.    The number of at-risk PSUs ultimately earned will be determined by multiplying one-half of the target award by the multiplier according to the following grid:

MS TSR Rank  Multiplier

1

  2.00

2

  1.75

3

  1.50

4

  1.25

5

  1.00

6

  0.75

7

  0.50

8

  0.25

9

  0.00

10

  0.00

*If the composition of the Comparison Group is affected by a corporate event, the grid will be adjusted based on the number of members of the Comparison Group remaining at the end of the performance period.

The Comparison Group for this purpose includes: Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS AG and Wells Fargo & Company. This group represents the primary competitors in the Company’s lines of business, as well as the companies which compete with the Company for talent globally.

Except as described below, the at-risk PSUs will vest and convert following the end of the performance period only to the extent the foregoing performance measures are achieved. To the extent that an NEO voluntarily terminates his employment with the Company prior to January 1, 2013 (the scheduled vesting date), other than due to full career retirement, none of the units will vest and the entire award will be forfeited. If, prior to January 1, 2013, an NEO’s employment is involuntarily terminated (absent a cancellation event) or is terminated due to a disability, a pro rata portion of the at-risk PSUs will vest and convert to shares following the conclusion of the performance period once the CMDS Committee certifies to the performance. Similarly, if an NEO’s employment terminates due to full career retirement (defined in a similar manner as for purposes of the NEO’s 2009 year-end equity awards) during the first half of the performance period and the NEO does not engage in competitive activity (except for Mr. Gorman if he resigns for good reason), a pro rata portion of the at-risk PSUs will vest and convert to shares following the conclusion of the performance period once the CMDS Committee certifies to the performance. If an NEO’s employment terminates due to full career retirement during the second half of the performance period and the NEO does not engage in competitive activity (except in the case of Mr. Gorman if he resigns for good reason), the full award will vest and convert to shares following the conclusion of the performance period once the CMDS Committee certifies to the performance. In the event of a change in control of the Company, performance will be measured through the last day of the Company’s quarter preceding the change in control.

The at-risk PSUs remain subject to cancellation upon certain events until conversion. If, after payment of the PSUs, the CMDS Committee determines that the performance certified by the CMDS Committee was based on materially inaccurate financial statements, then such number of shares (or cash equivalent if the shares were transferred) shall be subject to clawback by the Company.

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C.Compensation Components and Design.    The following table outlines the compensation and benefits elements provided to the Company’s NEOs for 2009.

Compensation ElementDescriptionOther Features and Comments

1. Base Salary

Reflects the executive’s experience and level of responsibility. Is intended to be competitive with salaries for comparable positions at competitors.Reviewed annually and subject to change, if, among other reasons, the executive’s responsibilities change materially or there are changes in the competitive market environment.

2. Incentive Compensation

General Comments; Mix of Cash and Long-Term Incentives

For 2009, incentive compensation was comprised of cash bonus (other than for Messrs. Mack and Gorman), equity and MSCIP long-term incentive awards. The CMDS Committee approved a tiered incentive compensation formula for NEOs weighted toward long-term incentives. NEOs received approximately 72% of incentive compensation as a long-term incentive award, of which 20% was PSUs and the remainder was in equal parts RSUs and MSCIP awards.In determining the 2009 formula for long-term incentive awards, the CMDS Committee considered a number of factors, including the environment and the Company’s pay-for-performance philosophy, and substantially increased the share of compensation that is deferred.

a.     Equity Awards- PSUs

At-risk PSUs awarded to NEOs are earned if predetermined performance goals are achieved over a three-year period. Awards are tied directly to the Company’s long-term performance.

2009 equity and MSCIP awards are generally cancelable upon termination of employment if the NEO leaves the Company to join a competitor. As a result, the cost of leaving the Company to go to a competitor can be significant to the NEO. Similarly, a competitor who wants to recruit the NEO would incur a significant cost if it were to agree to replace the NEO’s canceled awards. Other cancellation provisions of 2009 awards include termination for cause, disclosure of proprietary information and solicitation of employees or clients.

NEOs’ year-end RSUs and MSCIP awards are considered vested upon grant and are subject to cancellation provisions. Awards are payable, and cancellation provisions lift, 50% two years after the grant and 50% three years after the grant. PSUs vest and pay out after a three-year performance period, based on achievement of pre-established targets. RSUs accumulate dividend equivalents that only pay if and when the underlying units convert to shares.

Shares received upon conversion are subject to the equity ownership commitment described above. Shares acquired from at-risk PSUs are subject to clawback if payment is based on materially inaccurate financial statements. MSCIP awards include the clawback provision described above.

b.     Equity Awards- RSUs

Other than the PSUs, the balance of the 2009 equity award was awarded in the form of RSUs.

c.      MSCIP Awards

These awards are cash-based deferred compensation awards, part of our mandatory long-term incentive program that offer participants the ability to notionally invest their awards in a range of notional investments, including cash-equivalents, funds that track the performance and characteristics of broad fixed income and equity market indices, passively-managed funds that track the performance of more specialized market segments, and actively-managed funds. Participants are unsecured general creditors of the Company with respect to their MSCIP balances.

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Compensation ElementDescriptionOther Features and Comments

3. Voluntary Deferred Compensation Programs

The Company offers voluntary programs intended to provide employees with financial planning opportunities that are generally consistent with those offered by competitors. No Company contributions are made to these programs. Participants are unsecured general creditors of the Company with respect to their balances.NEOs may defer a portion of their cash bonus on the same terms and conditions as other eligible employees. The programs in which the NEOs participate are described under the “Nonqualified Deferred Compensation Table.”

4. Pension and Retirement

The Company provides retirement benefits to its employees based on work jurisdiction. For example, in the U.S., this includes a tax-qualified 401(k) plan, a pension plan for eligible employees hired before July 1, 2007 and a retirement contribution to the 401(k) plan for such employees not eligible for the pension plan. Long-serving NEOs may also be eligible to participate in the Company’s global Supplemental Executive Retirement and Excess Plan (the SEREP).

The SEREP was originally intended to compensate for the limitations imposed by the Internal Revenue Service on qualified pension plan benefits and eligible pay and to help attract mid-career hires by compensating them for lost defined-benefit pension benefits as a result of leaving another firm.

We believe our current retirement and savings plans serve an important role in attracting senior executives, and that the grandfathering provisions under the pension plan and SEREP continue to help retain eligible executives.

When it was determined that SEREP benefits were no longer needed to remain competitive, the SEREP was generally closed to new participants.

Company contributions to defined contribution plans for NEOs are disclosed in the “All Other Compensation” column in the “Summary Compensation Table.”

Pension arrangements for NEOs are described under the “Pension Benefits Table.”

5. Health and Insurance Benefits

All NEOs participate in Company-sponsored health and insurance benefit programs available in the relevant jurisdiction.In the U.S., higher-paid employees pay more to participate in the Company’s medical plan.

6. Personal Benefits

The Company provides limited personal benefits to certain of our NEOs. We believe these benefits are necessary for competitive and security reasons.

Mr. Mack entered into an aircraft time-share agreement with the Company in 2009 and, since entering into such agreement, has fully reimbursed the Company for the incremental cost of his personal use of the Company aircraft. Mr. Gorman entered into a similar arrangement as of January 1, 2010. The Company’s Board-approved policy authorizes the Chairman and the CEO to use Company aircraft when traveling by air.

Any personal benefits provided to NEOs are discussed under the “Summary Compensation Table.”

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Compensation ElementDescriptionOther Features and Comments

7. Severance

NEOs are not contractually entitled to cash severance payments upon termination of employment, except with respect to prorated compensation due upon Mr. Mack’s death or disability (described in “Potential Payments Upon Termination or Change-in-Control”).Upon retirement, NEOs may be eligible to participate in retiree medical coverage under the Morgan Stanley Medical Plan on the same basis as other retired employees.

III.Compensation Objectives and Strategy

 

In order to attract and retain the industry’s top talent and build long-term value for shareholders, Morgan Stanley’s executive compensation program is designed to meetachieve four key objectives:

Attract and Retain Top Talent.    The Company competes for talent globally with commercial banks, brokerage firms, hedge funds and other companies offering financial services. The CMDS Committee determines executive compensation, in part, by monitoring competitive pay levels and structures and making sure our executive compensation programs are competitive across the industry. As part of the Company’s effort to retain top talent, our long-term incentive awards include payment and cancellation provisions to protect the Company’s interests and to encourage executives not to leave the Company for a competitor.

 

 

Deliver Pay-for-Performance.    The core of our executive compensation program emphasizes variable incentive compensation that is clearly and appropriately linked to Company and individual performance. This approach encourages executives to balance increasing financial performance and shareholder value over the year with achievement of the Company’s long-term strategic priorities. It is also designed to reward superior individual performance and promote a shared long-term view among our executive team.

 

 

Attract and Retain Top Talent.    The Company competes for talent globally with investment banks, commercial banks, brokerage firms, hedge funds and other companies offering financial services, and the Company’s ability to sustain or improve its position in this highly competitive environment depends substantially on its ability to continue to attract and retain the most highly qualified employees. To serve as one reference point in determining compensation, the CMDS Committee monitors competitive pay levels and structures within the industry. As part of the Company’s effort to be competitive in retaining top talent, our long-term incentive awards include payment, cancellation and clawback provisions to protect the Company’s interests and to encourage executives not to leave the Company for a competitor.

Align Executive Compensation with Shareholders’ Interests.    The Company delivers a significant portion of long-term incentive compensation in equity awards to align employee interests to increased shareholder value. As an employee’s compensation and responsibilities increase, a greater percentagewith those of his or her incentive compensation, relative to other employees, is delivered as long-term incentive awards, rather than as an immediate cash bonus based on annual results.shareholders. The CMDS Committee believes that linking incentive compensation to Company results over the year and delivering it partiallyprimarily as deferred long-term incentive awards that are subject to market and cancellation risk over the course of several years helps motivate executives to achieve both short- and long-term financial and strategic goals. In addition, executive officers and members of the Company’s Operating Committee (our most senior executives), including the NEOs, are required to retain at least 75% of the common stock and equity awards received whileafter-tax shares they serve on the Committee (less allowances for any option exercise price and taxes).receive as compensation. Executives are also prohibited from engaging in hedging strategies, selling short or trading derivatives with Company securities. These policies tie a significant portion of our executive officers’ compensation directly to the Company’s stock price. For 2009, the CMDS Committee substantially increased the percentage of total NEO compensation paid with long-term incentive awards, as described above. Further, 20% of any above-base compensation paid to the NEOs was in the form of at-risk PSUs, which only deliver value if the Company, after three years, meets specific performance targets, including average ROE levels and relative stock performance over the three-year period.

 

 

Evaluate Risk-taking and Compensation Arrangements.Mitigate Excessive Risk-taking.    The CMDS Committee works withis advised by the Company’s Chief Risk Officer and the CMDS Committee’s independent compensation consultant to help ensure that the structure and design of compensation arrangements do not encourage unnecessary andor excessive risk-taking that threatens the Company’s interests or gives rise to risk that could have a material adverse effect on the Company. The CMDS Committee, together with the Chief Risk Officer, evaluated Morgan Stanley’s current compensation programs and considered the Chief Risk Officer’s determination that such programs do not encourage this kind ofsuch behavior, due in part toto: (i) our (i) balance of fixed compensation and discretionary short-compensation; (ii) our balance between short-term and long-term incentive compensation, (ii) use ofincentives; (iii) our mandatory deferrals into both equity-based and cash-based long-term incentive programs, (iii) equity retention policy andprograms; (iv) awards that include cancellation and clawback provisions.the procedures followed in making incentive

 

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compensation decisions, including our rigorous up-front risk adjustment process for assessing performance, based on financial, capital and risk metrics; (v) the risk-mitigating features of our awards, such as cancellation, holdback and clawback provisions; and (vi) our equity retention requirements. The CMDS Committee, along with its consultant and the Chief Risk Officer, will continue to review the Company’s compensation programs to ensure they are consistent with evolving best practices, applicable legal and regulatory standards and the Company’s risk policies.

 

III.Compensation Program for 2011

A.Compensation Program Highlights.

IV.Mr. Gorman’s compensation for 2011 was down 25% from 2010.    Despite the progress the Company achieved in executing its strategy in 2011 under his leadership, Mr. Gorman’s compensation for 2011 was 25% below the level of the prior year, reflecting the fact that the Company did not fully meet certain financial priorities for the year. Compensation for the remaining members of the Operating Committee was also down significantly on average from 2010 levels.

Members of the Company’s Operating Committee, including each NEO, received no cash bonus for 2011. Instead, 100% of year-end compensation was paid with deferred long-term incentive awards, which are subject to market and cancellation risk over a three-year period.    Members of the Operating Committee in 2011 received 100% of their year-end compensation in deferred long-term incentive awards. Deferred compensation for the NEOs was comprised of “at-risk” PSUs, RSUs and deferred cash-based awards under the Morgan Stanley Compensation Incentive Program (MSCIP). A meaningful portion of the 2011 year-end compensation for NEOs was paid in equity, further aligning a significant portion of their compensation with shareholders’ interests by tying it directly to the Company’s stock price. These long-term incentive awards continue to be subject to the Company’s cancellation and clawback provisions, as described below, over a three-year period.

We redesigned our “at-risk” PSUs program to further moderate risk-taking incentives while continuing to incent performance.    For the third consecutive year, the Company granted 20% of each NEO’s 2011 year-end incentive compensation in “at-risk” PSUs that deliver value only if the Company, after the full three-year performance period, achieves objective performance goals with respect to return on average common shareholders’ equity (ROE) and relative total shareholder return (TSR). In order to better align the PSU program for 2011 with principles of balanced risk-taking, the maximum payout has been reduced from two times the target award to 1.5 times the target award to provide for a less leveraged payout range and the performance target for the average ROE portion of the award was reduced to better reflect the current operating environment. In addition, the TSR portion of the award was modified to provide for a comparison to an industry index rather than a small group of peer companies. By reducing the payout leverage, setting a challenging but achievable goal and removing the volatility of a small peer group, the program is more balanced and less likely to encourage executives to take excessive risk in order to achieve payouts.

We expanded our “clawback” provisions to apply to all long-term incentive compensation.    In 2008, Morgan Stanley implemented a clawback for a substantial portion of year-end compensation. For 2011, the clawback was expanded to apply to each NEO’s RSUs, in addition to each NEO’s PSUs and deferred cash-based awards. The clawback can be triggered with respect to RSUs, PSUs and deferred cash-based awards if an individual’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the Company’s consolidated financial results or constitutes a violation of the Company’s risk policies and standards, whether such action results in a favorable or unfavorable impact to the Company’s consolidated financial results. The PSUs are also subject to clawback following payment if the CMDS Committee determines that the payout was based on materially inaccurate financial statements or other performance metric criteria. The deferred cash-based awards are also subject to clawback if an individual’s act or omission causes, or is reasonably expected to cause, a substantial financial loss on a trading strategy, investment, commitment or other holding originating either in the current year or in any prior year and such trading strategy, investment, commitment or other holding was a factor in his or her award determination. In addition to these clawback provisions, our long-term incentive awards provide for cancellation if the

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employee engages in conduct that constitutes “cause” (defined as any act or omission that constitutes a breach of obligations to the Company, which includes, among other things, failure to comply with our compliance, ethics or risk management standards and failure or refusal to perform satisfactorily any duties reasonably required, including supervisory or management duties).

We enhanced our processes for preventing, investigating and addressing circumstances such as poor risk outcomes, significant losses and improper employee behavior that could require clawback or cancellation of previously awarded compensation, as well as adjustments to current year compensation.    In 2011, the Company’s independent control functions implemented an enhanced, robust review process for identifying and evaluating situations occurring throughout the course of the year that could require clawback or cancellation of previously awarded compensation, as well as adjustments to current year compensation. Clawbacks of previously awarded compensation are reviewed with a committee of senior management quarterly and reported to the CMDS Committee on a regular basis. In addition, the CMDS Committee adopted a global incentive compensation discretion policy that sets forth standards for exercise of managerial discretion in year-end incentive compensation decisions and specifically provides that all managers must consider whether an employee effectively managed and supervised the risk control practices of his or her employee reports during the performance year.

B.“At-Risk” Performance-Based Compensation Program.    In 2009, the CMDS Committee, in response to shareholder feedback, approved an “at-risk” PSU program under the Company’s 2007 Equity Incentive Compensation Plan. Like the PSU programs approved by the CMDS Committee for 2009 and 2010, the 2011 PSU program ties a meaningful portion of each NEO’s compensation to the Company’s long-term financial performance and reinforces the NEOs’ accountability for the Company’s future financial and strategic goals by linking the ultimate payout to two core financial metrics of the Company – return on average common shareholders’ equity and relative total shareholder return over a three-year performance period.

Under this program, PSUs granted in 2012 for 2011 performance will vest and convert to shares of Company common stock in 2015 only if the Company achieves predetermined performance goals over the three-year performance period. Participants will receive no portion of the award if the minimum performance goals are not met. The amounts granted to the NEOs – which constituted 20% of their 2011 year-end incentive compensation – are provided below under Section IV.C “2011 Compensation Decisions.”

The 2011 “at-risk” PSUs are tied directly to the Company’s long-term core financial metrics – specifically:

1.2009One-half of the target PSU award is based on the Company’s average ROE over the three-year performance period.    The number of “at-risk” PSUs ultimately earned will be determined by multiplying one-half of the target award by a multiplier as follows:

MS AVERAGE ROE*  Multiplier

12% or more

  1.50

10%

  1.00

6%

  0.50

Less than 6%

  0.00

* If ROE is between two of the thresholds noted in the table, the number of PSUs earned will be determined by straight-line interpolation between the two thresholds. ROE, for this purpose, excludes (a) the impact of the fluctuation in the Company’s credit spreads and other credit factors (“Debt-Related Credit Spreads”) on certain of the Company’s borrowings that are accounted for at fair value, (b) gains or losses associated with the sale of specified businesses, (c) specified goodwill impairments, (d) any gain or loss, including accruals, associated with specified legal settlements relating to business activities conducted prior to January 1, 2011, and (e) specified cumulative catch-up adjustments resulting from changes in accounting principles that are not applied on a full retrospective basis.

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2.The other half of the award is based on the Company’s TSR over the three-year period (MS TSR) relative to the TSR of the S&P Financial Sectors Index over the three-year period (Index Group TSR).    The number of “at-risk” PSUs ultimately earned will be determined by comparing the MS TSR to the Index Group TSR and multiplying one-half of the target award by a multiplier as follows:

MS TSR vs. Index Group TSR*Multiplier

Above

Up to 1.50

Equal

1.00

Below

Down to 0.00

* Each 1% difference (positive or negative) in MS TSR as compared to the Index Group TSR results in a corresponding 1% (positive or negative) adjustment to the multiplier of 1.00.

The “at-risk” PSUs remain subject to cancellation upon certain events until conversion. If, after payment of the PSUs, the CMDS Committee determines that the performance certified by the CMDS Committee was based on materially inaccurate financial statements, then such number of shares (or cash equivalent if the shares were transferred) will be subject to clawback by the Company.

C.Compensation Program Components and Design.    The following chart provides a brief summary of the principal elements of the Company’s executive compensation program for 2011.*

Compensation ElementDescriptionOther Features and Comments

1. Base Salary

An executive’s base salary reflects the executive’s experience and level of responsibility and is intended to be competitive with salaries for comparable positions at competitors.Base salaries are reviewed periodically and subject to change, for, among other reasons, a change in the executive’s responsibilities or competitive market environment. The CMDS Committee reviewed the NEOs’ base salaries in January 2012 and made no changes from 2011 levels.

2. Incentive Compensation

Mix of Cash and Long-Term Incentives

For 2011, incentive compensation consisted of equity and MSCIP long-term incentive awards. NEOs received no cash bonus and instead received 100% of year-end incentive compensation in a mix of PSUs, RSUs and MSCIP deferred cash-based awards.In determining the 2011 deferral for long-term incentive awards, the CMDS Committee considered a number of factors, including the business environment, the Company’s pay-for-performance philosophy and global regulatory principles. As a result, the portion of compensation that was awarded to NEOs on a deferred basis was increased to 100%.

a.     Equity Awards – PSUs

“At-risk” PSUs awarded to NEOs vest and pay out after a three-year performance period, with the number of PSUs ultimately earned determined by the Company’s performance against predetermined goals. PSUs accumulate dividend equivalents that are paid only to the extent the underlying units convert to shares. PSUs do not provide for voting rights before they convert to shares.

With the exception of Mr. Fleming’s award, 2011 year-end RSUs are considered vested upon grant; however, these RSUs are subject to cancellation provisions, including upon termination of employment if the NEO leaves the Company to join a competitor.

2011 PSUs and MSCIP awards are subject to vesting and, until vested, are generally cancelable upon termination of employment other than by the Company without cause. As a result, the cost of leaving the Company to go to a competitor can be significant to an NEO. Similarly, a competitor who wants to recruit the NEO would incur a significant cost if it were to agree to replace the NEO’s canceled awards.

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Compensation ElementDescriptionOther Features and Comments

b.     Equity Awards –RSUs

RSUs align employee interests with those of shareholders and convert to shares, and cancellation provisions lift, over the three years following grant. NEOs receive dividend equivalents with respect to the RSUs in the form of additional RSUs, which are subject to the same vesting, cancellation and payment provisions as the RSUs to which dividend equivalents relate. RSUs provide for voting rights.In addition to competition, other cancellation events for 2011 awards include clawback, conduct constituting cause, disclosure of proprietary information and solicitation of employees or clients.

c.      MSCIP Deferred Cash-Based Awards

These deferred cash-based awards offer participants the ability to notionally invest their awards in certain reference investments. MSCIP awards are payable, and cancellation provisions lift, over the two years following grant. Participants are unsecured general creditors of the Company with respect to their MSCIP balances.

3. Voluntary Deferred Compensation Programs

Historically, the Company offered voluntary programs intended to provide employees with financial planning opportunities generally consistent with those offered by competitors. No Company contributions were made to these programs. Participants are unsecured general creditors of the Company with respect to their balances.The Company did not offer voluntary deferred compensation programs to the NEOs for 2011. The programs in which the NEOs participate with respect to prior year compensation are described under the “2011 Nonqualified Deferred Compensation Table.”

4. Pension and Retirement

Our current retirement and savings plans serve an important role in attracting and retaining senior executives. Company-provided retirement benefits in the U.S. include tax-qualified 401(k) plans and a frozen pension plan (the Employees Retirement Plan (ERP)) for eligible employees hired before July 1, 2007. Effective after December 31, 2010, no further benefit accruals will occur under the ERP. Long-serving NEOs may also be eligible to participate in the Company’s global Supplemental Executive Retirement and Excess Plan (SEREP).

The SEREP was originally intended to compensate for the limitations imposed by the Internal Revenue Service on qualified pension plan benefits and eligible pay. When it was determined that SEREP benefits were no longer needed to remain competitive, the SEREP was generally closed to new participants.

Company contributions to savings plans for NEOs are disclosed in the “2011 Summary Compensation Table.” Pension arrangements for NEOs are described under the “2011 Pension Benefits Table.”

5. Health and Insurance Benefits

All NEOs are eligible to participate in Company-sponsored health and insurance benefit programs available in the relevant jurisdiction.In the U.S., higher-paid employees pay more to participate in the Company’s medical plan.

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Compensation ElementDescriptionOther Features and Comments

6. Personal Benefits

The Company provides limited personal benefits to certain of our NEOs. We believe these benefits are necessary for competitive reasons.

The Company’s Board-approved policy authorizes the Chief Executive Officer to use the Company’s aircraft. For personal travel, Mr. Gorman entered into an aircraft time-share agreement with the Company as of January 1, 2010 and, since entering into such agreement, has fully reimbursed the Company for the incremental cost of his personal use of the Company’s aircraft.

Personal benefits provided to NEOs are discussed under the “2011 Summary Compensation Table.”

7. Severance

NEOs are not contractually entitled to cash severance payments upon termination of employment.Upon retirement, NEOs may be eligible to participate in retiree medical coverage under the Morgan Stanley Medical Plan on the same basis as other retired employees.

* Mr. Kelleher is considered to be “Code Staff” as defined by the U.K. Financial Services Authority (FSA) for 2011 and, accordingly, his long-term incentive compensation awards differ from those granted to other NEOs as prescribed by the FSA and as described in Section IV.C.

IV.2011 Compensation Process and Decisions

The 2011 incentive compensation of the NEOs was determined at the discretion of the CMDS Committee after consideration of performance against priorities established by the Committee at the beginning of the year, as well as compensation expense considerations, competitor compensation data, relative pay considerations and such other considerations set forth in Section IV.A. The pre-established performance priorities are non-formulaic in nature, do not require specific performance targets or preset goals to be met prior to the awarding of compensation and are not assigned any specific weighting. To the extent the performance priorities were a factor in the CMDS Committee’s determination of compensation of the CEO and other NEOs, they are discussed in Section IV.B below.

 

A.Factors Considered in 20092011 Compensation Decisions

 

Performance Priorities and Metrics.    At the beginning of 2009,2011, in consultation with the full Board, the CMDS Committee approved specific performance priorities representing qualitative and/or quantitative measures in twofive key areas: (1) Company financial performanceperformance; (2) business development; (3) financial and (2) client, productoperating risk management; (4) international businesses and business development.alliance with MUFG; and (5) culture and stakeholder engagement.

 

 1.Company financial performance.    The CMDS Committee establishedapproved the following Company-wide financial performance criteriapriorities, which at the time they were approved, reflected the measures primarily focused upon in light of the then-current market conditions:

 

Absolute returns, as measured by return on equity;

 

Relative returns, as measured by return on equity and total shareholder return relative to a comparison group;

 

Absolute value, as measured by tangible book value; and

Absolute capital efficiency,Capital strength, as measured by the Company’s leverage ratio.Tier 1 capital ratio; and

Credit rating, as measured by the current rating assigned by the major rating agencies and outlook.

 

For 2009,2011, the Company’s comparison group for purposes of setting the financial performance priorities included: Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank of New York Mellon Corp.,AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., State Street Corp.UBS AG and Wells Fargo & Company. At the time the performance priorities were established, the Company was one of the original participants in TARP, along with these seven banks and, therefore, determined to use these banks as its core competitor group for this purpose.

 

 2.

Client, product and businessBusiness development.    The CMDS Committee set qualitative prioritiesPriorities were approved for each of our primary business units.unit related to business development, client franchise and products. For Institutional Securities, they were client developmentit was the attainment of top

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rankings in advisory and equity underwriting, and market-share improvement for both Fixed Income and Equity Sales and Trading. For the Global Wealth Management Group, it was the continued integration of the Morgan Stanley Smith Barney (MSSB) joint venture as measured by the technology platform conversion, pre-tax profit margin, net new assets and net fee-based asset flows. For Asset Management, it was the continued refocusing of the business around core strengths, performance against investment benchmarks, and net new flows.

3.Financial and operating risk management.    Priorities included the further strengthening of risk management and controls, compliance with risk policies and execution on internal initiatives. The Committee also set objectives for investments in IT projects and processes that helped the Company improve productivity, manage risks and control costs.

4.International businesses and MUFG alliance.    For the growth of the Company’s international businesses, a 2011 priority was progress in increasing the international revenue mix. With respect to the Company’s alliance with MUFG, priorities included executing on the Japan securities joint venture and growing non-Japan activities, as measured by market share data in global mergersadvisory and acquisitions, equity and fixed incomesecurities underwriting and secondary market trading. For Global Wealth Management, they were productivity, profitability and retention. For Asset Management, they were achievement of asset flows and assets under management. Messrs. Mack, Chammah and Gorman are the NEOs who have responsibilities that directly affect these business units. To the extent the overall progress made with respect to these priorities was considered in determining their 2009 compensation, it is described under “CEO Performance” and “Other Executive Performance” under “B. Evaluating Company and Individual Performance,” below.businesses.

 

Market Data and Review.    Throughout the year, the CMDS Committee reviewed analyses of competitors’ pay levels, including historical compensation data and consultant estimates of competitors’ 2009 compensation. This information considered by the CMDS Committee was either prepared or validated by its independent compensation consultant. The CMDS Committee did not target NEO compensation at a certain range compared to any peer group. The CMDS Committee also reviewed and discussed trends regarding executive compensation with its compensation consultant. In part, as a result of the information reviewed, the base salaries of the NEOs, other than Mr. Mack, were increased and the portion of compensation awarded in the form of long-term incentives was also increased.

 

Relative Pay Considerations5.

.    Culture and stakeholder engagement.At year-end, the CMDS Committee reviewed the relative differences between the compensation    The 2011 objectives for the NEOsCompany’s culture and other executive officersstakeholder engagement related to the development of a strong leadership team that embodies the “One Firm” Morgan Stanley culture, as measured by a Board assessment of its leadership and the culture it set for the Company, and the Company’s efforts to strengthen external relationships with key constituencies, as measured by a Board assessment of the Company as compared to similar differences in 2008.Company’s reputation and its relationship and constructive dialogues with its clients, shareholders and regulators.

 

Compensation Expense Considerations.    Prior to determining individual NEO incentive compensation, the CMDS Committee reviewed and considered the relationship between Company performance, total compensation expense (which includes fixed compensation costs such as base salaries, benefits and commissions) and incentive compensation as a subset of overall compensation expense. As discussed above, whileThe CMDS Committee approved an incentive compensation program for 2011 that met the Company delivered a strong operating performance across manyCommittee’s objective of its businesses in 2009, revenues were significantly reduced by the narrowing of thebalancing adequate returns for shareholders with appropriate rewards to retain and motivate top talent.

 

28Market Data and Review.    The CMDS Committee uses comparison groups to understand market practices and trends and to evaluate the competitiveness of our compensation programs. Throughout the year, the CMDS Committee reviewed analyses of our competitors’ pay levels, including historical compensation data obtained from analyses of public filings and compensation surveys conducted by consultants on an unattributed basis, and compensation plan design. Our comparison group consists of companies that either directly compete with us for business and/or talent or are global organizations with scope, size or other characteristics similar to the Company’s. Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS AG and Wells Fargo & Company are the companies that we consider for purposes of compensation for the CEO, CFO and other functional heads of our business. The market compensation information considered by the CMDS Committee is either prepared or validated by its independent compensation consultant. The CMDS Committee does not target NEO compensation at a certain range compared to any comparison group. Rather, the CMDS Committee uses this information to better understand the market and to inform our focus on pay-for-performance. The CMDS Committee also reviews and discusses trends regarding executive compensation with its compensation consultant.

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Company’s credit spreads. This hadRelative Pay Considerations.    We place importance on the effectpay relationships among members of increasingour Operating Committee because we view our Operating Committee members as highly talented executives capable of rotating among the compensation-to-revenue ratioleadership positions of our businesses and key functions. Our goal is always to be in a position to appoint our most senior executives from within our Company and to incent our people to aspire to senior executive roles. At year-end, the CMDS Committee reviewed the relative differences between the compensation for the year, despiteCEO and other NEOs and the fact that firm-wide per capitaNEOs and other members of the Operating Committee. Consideration is also given to the year-over-year change in compensation was at its lowest levelfor the CEO and NEOs relative to changes in the past seven years.aggregate bonus pool and other executives in similar business areas.

 

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Input and Recommendations from the CEO,Chief Executive Officer, Independent Directors and CMDS Committee’s Independent Consultant.    All of our NEOs participated in our “360 degree” feedback process as part of their individual performance evaluations. Our Global Head of Human Resources discussed with the CMDS Committee the results of this process for our CEO, as well as Mr. Gorman’s business and individual accomplishments during the year. At the end of the year, Mr. MackGorman presented the CMDS Committee with a performance assessment and compensation recommendations for each NEO other than himself. The CMDS Committee reviewed these recommendations with itsthe Committee’s independent compensation consultant to assess whether they were reasonable compared with the market for executive talent and determined year-end compensation for NEOsmet in executive session. Thesession to discuss the performance of our CEO and the other NEOs and to determine their year-end compensation. In addition, the CMDS Committee also considered input on NEO compensation from the other independent directors. The CMDS Committee also reviewed a report of Mr. Mack’s business and individual accomplishments during the year.

 

Legislative Guidance.Global Regulatory Principles.    Guidance issuedThe Company’s compensation practices are subject to oversight by our regulators in the United StatesU.S. and outside ofinternationally. Throughout 2011, senior management briefed the United StatesCMDS Committee on relevant regulatory developments in respect of compensation, including with regard to the mix of long-term incentive compensation and the portion of compensation that should be deferred for certain populations, was considered by the CMDS Committee in making its compensation decisions.as well as principles of balanced risk-taking. For example, the U.K. Financial Services Authority (FSA) requiredBoard of Governors of the U.S. Federal Reserve System (the Federal Reserve), together with other U.S. federal banking regulators, issued final guidance in June 2010 to help ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the safety and soundness of the organization, and in 2011 the Federal Reserve continued to develop its policies on compensation during its ongoing review of incentive compensation policies and practices of the Company and other banking organizations. In addition, the FSA prescribed the deferred compensation structure, including minimum deferral rates and the portion of incentive compensation granted as equity awards, for certain executives and employees working in the United Kingdom. In many cases, particularly at the most senior levels, the deferral rate established by the CMDS Committee for the eligible population was higher than that prescribed by the FSA. In this case, the higher deferral rate was applied for the impacted employees,U.K, including Mr. Chammah.Kelleher.

 

Applicable Rules.“Say on Pay” Vote in 2011.    As previously disclosed, at the 2011 annual meeting of shareholders, in alignment with the recommendations of the Board, a significant majority of our shareholders who voted on the matter approved, by advisory resolution, the compensation of the Company’s executives as disclosed in the Company’s 2011 proxy statement (the 2011 “say on pay” vote) and approved an advisory vote to hold an annual advisory vote on the compensation of executives as disclosed in the proxy statement. The CMDS Committee believes that an annual advisory vote on executive compensation is consistent with our long-standing practice of seeking the views of, and engaging in discussions with, our shareholders on corporate governance matters and our executive compensation philosophy, policies and practices. In that regard, and in anticipation of the 2011 “say on pay” vote, Company management solicited feedback from our shareholders and from proxy advisory services on the Company’s 2010 compensation program and conveyed the feedback received to the CMDS Committee. Following the 2011 annual meeting of shareholders, the CMDS Committee considered the impact thatresults of the 2011 “say on pay” vote, as well as the insights gained from our dialogue with shareholders, in determining 2011 compensation. The changes to the 2011 compensation program described in Sections I and III.A of this CD&A reflect the CMDS Committee’s evaluation of the vote results and dialogue, as well as the CMDS Committee’s and the Company’s participation in TARP had on its position relatingongoing efforts to improve our executive compensation program and the quality of our executive compensation disclosures.

Tax Deductibility under Section 162(m) of the Internal Revenue Code.    Section 162(m) of the Internal Revenue Code (Section 162(m)) limits the deductibility of compensation for certain executive officers (other than the CFO)Chief Financial Officer) that is more than $1 million, unless the compensation qualifies as “performance-based.” While our policy, in general, is to preserve the tax deductibility of compensation for executive officers covered under Section 162(m), the CMDS Committee nevertheless may authorize awards or payments that might not be deductible if it believes they are in the best interests of the Company and its shareholders and individuals may receive non-deductible payments resulting from awards made prior to becoming an executive officer. To qualify as “performance-based” compensation, the award must be based on objective, pre-established performance criteria approved by shareholders. Historically, the Company’sThis formula has imposedimposes a cap of 0.5% of our adjusted pre-tax earnings on “performance-based” compensation paid to designated executives who may be subject to the Section 162(m) limit. Early in 2009, prior to repayment of our TARP obligation, when the CMDS Committee was considering approving the application of the formula to 2009 compensation, it was clear that at least a portion, if not all, of the compensation earned by our senior executive officers, even if “performance-based,” would not be deductible due to limitations under TARP. Accordingly, the Company did not approve the application of the formula for 2009 compensation.

 

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B.Evaluating Company and Individual Performance*

 

The CMDS Committee evaluated 20092011 performance on a year-over-year basis with respect to financial and other factors. For purposes of this evaluation,factors, including the CMDS Committee compared 2009 performance to our performance in 2008 on a calendar year basis. The CMDS Committee reviewed financial metrics such as profitability, absolute and relative returns and growth in revenues. Due to significant improvementpriorities established earlier in the Company’s credit spreads on certain of its long-term debt (debt-related credit spreads), net revenues in 2009 were reduced substantially by the related non-cash negative accounting impact. That contrasts with 2008 when deteriorating spreads resulted in the accounting value of our debt being reduced and our revenues increased. The CMDS Committee considered this impact when reviewing performance for both 2008 and 2009.

year. The CMDS Committee specifically considered the following factors in determining NEO incentive compensation:

 

 

Company Financial Performance.    In December 2009, the CFO2011, management reviewed the Company’s year-over-year estimated financial performance for 20092011 with the CMDS Committee. Before finalizing compensation decisions, the CMDS Committee reviewed the Company’s final financial results, including the following:

 

The Company ranked second amonghad net revenues for 2011 of $32.4 billion, up 3% from 2010, and income from continuing operations of $1.26 per diluted share. Excluding the comparison group (definedimpact of the Company’s Debt-Related Credit Spreads on borrowings that are accounted for at fair value, revenues were $28.7 billion, down 11%. Operating results were adversely impacted by strategic actions that the Company undertook over the course of the year to strengthen capital and liquidity. These included the conversion of MUFG’s preferred shares into common stock, which resulted in IV.A. above)a negative adjustment in the calculation of basic and fully diluted earnings per share of approximately $1.7 billion, as well as a comprehensive settlement with respect to Total Shareholder Return;MBIA that resulted in a pre-tax loss of $1.7 billion.

As a result of the aforementioned strategic actions undertaken by the Company, Morgan Stanley significantly enhanced its common equity, liquidity and capital levels. As of December 31, the Company’s Tier 1 capital ratio under Basel I was 16.6% and its Tier 1 common ratio was 13.0%.

 

The Company hadInstitutional Securities Business reported net revenues for 2009 of $23.3$17.2 billion, up 28%6% from 2008. Core2010. Investment Banking net revenues excludingwere $4.2 billion, down 2% from 2010, as lower underwriting revenues were partially offset by increased advisory revenues, yet the negativeCompany maintained its leading positions in several important areas. Net revenues in Equity Sales and Trading were $6.8 billion, up 40% from 2010 reflecting, among other things, strength in derivatives, our electronic platform and positive revenue of $619 million related to the impact of the debt-related credit spreads,widening of the Company’s Debt-Related Credit Spreads on borrowings that are accounted for at fair value. Fixed Income and commodities sales and trading net revenues were $7.5 billion, up 123%27% from 2008;

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The Institutional Securities business delivered2010 reflecting, among other things, high levels of market volatility and client activity in interest rate and currency products and positive revenues of $12.8$3.1 billion up 15% from 2008. Revenues, excludingrelated to the negative impact of the debt-relatedwidening of the Company’s Debt-Related Credit Spreads on borrowings that are accounted for at fair value, partly offset by the impact of a stressed credit spreads, were up over 200% from 2008;environment and the loss related to the MBIA settlement.

 

The Global Wealth Management businessGroup delivered net revenues of $9.4$13.4 billion, up 53%6% from 2008, primarily reflecting2010 – driven by higher asset management and net interest revenues. Pre-tax profit margin increased modestly to 10% from 9% a year earlier. Net fee-based asset flows were $42.5 billion, up 30% from 2010, and net new assets increased by $36 billion.

The Asset Management business had net revenues related toof $1.9 billion, down from $2.7 billion in 2010, as higher results in Traditional Asset Management were offset by lower gains on principal investments in the joint venture with Smith Barney.Merchant Banking and Real Estate Investing business. Assets under management or supervision were $287 billion, up 6% from 2010, and 75% of our Long-Only strategies outperformed their benchmarks on a 3-, 5- and 10-year basis.

 

The Company’s return on average common equity from continuing operations was 3.9%, which was below the ROE performance priority for 2011 and was an important performance measure considered by the CMDS Committee considered the financial results, excluding the negative impact of the debt-related credit spreads as appropriate, since the narrowing of such spreads is a positive factor in our business in the long-term as it reflects the market’s increased confidence in the Company. The narrowing of such spreads provides the Company with the ability to access debt markets at improved economic rates.Committee.


* A detailed analysis of the Company’s financial and operational performance for 20092011 is contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the 20092011 Form 10-K. Pre-tax profit margin and the pro forma Tier 1 common ratio under the proposed Basel III capital framework are non-GAAP financial measures that the Company considers useful measures for the Company and investors to assess operating performance and capital adequacy. For further information regarding these measures, please see pages 49, 50 and 53 of the 2011 Form 10-K.

 

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CEOChief Executive Officer Performance.    The Committee evaluated Mr. Mack’s strong leadership throughout an extraordinarily challenging year, as discussed below. Despite Mr. Mack’s exceptional leadership during the year, he recommendedIn addition to the CMDS Committee that he not receive a bonus forCompany’s financial performance outlined above as well as progress against the third yearother performance priorities identified in a row andSection IV.A, the CMDS Committee respectedCommittee’s evaluation of Mr. Gorman’s performance as Chief Executive Officer included his decision. Mr. Mack’s2011 accomplishments, included:which consisted of the following:

 

Substantially Improved Results for 2009:    Mr. Mack’s focus on carefully navigating the challenging market and strengthening Morgan Stanley’s industry-leading client franchise positioned the Company to deliver substantially improved results across many of the Company’s businesses. Excluding the impact of debt-related credit spreads, the Company’s revenues at a firm-wide level grew 123% from 2008, andStrengthening the Institutional Securities Business:    Mr. Gorman’s focus on reinforcing the Company’s leadership in Investment Banking was evidenced by revenue share gains and Global Wealth Managementtop-tier positions on industry league tables in global completed and announced M&A, global IPOs and global Equity underwriting. Mr. Gorman also continued to execute on the Company’s strategic plan to build out the Sales and Trading business units also showed strongby realizing revenue growthshare gains in 2009.both Equity and Fixed Income. In addition, Mr. Gorman continued to focus on internal initiatives to strengthen relationships and services for clients.

 

Successful CEO Succession:Working withDriving Final Stages of the BoardIntegration of Directors,MSSB:    Under Mr. Mack helped to drive a very thorough, deliberate and successful succession process that led to the election of, and seamless transition to, our new CEO, Mr. Gorman.

Taking Prudent Steps to Enable Morgan Stanley to Cope with the Financial Crisis:    Mr. Mack was instrumental in taking action to secure necessary capital and liquidity, while repaying TARP funds and positioning the Company’s emergence from the financial crisis. Among other things, under Mr. Mack’sGorman’s leadership, the Company continued to aggressively manage its risk exposuresadvance the integration of MSSB, which included the initial rollout of a new technology platform. The integration of all 17,000 U.S. financial advisors onto a single operating platform is an important step in our plan to ensure that all clients are offered our full range of capabilities, improve margins, increase productivity and strengthen our risk management function, substantially lowerreduce costs. Additionally, the Company’s leverage position and take strategic actions to further diversify our business mix – most notably,Global Wealth Management Group realized the Morgan Stanley Smith Barneyhighest net managed money flows since the inception of the MSSB joint venture.

 

ForgingContinued Repositioning and ClosingRevitalization of Asset Management to Drive Performance:     Mr. Gorman continued to refocus Asset Management on realizing the Morgan Stanley Smith Barney Joint Venture:    Mr. Mack committed Morgan Stanleycompetitive advantages within its institutional businesses. During 2011 Asset Management attracted positive net flows of $25.8 billion and delivered solid investment performance to take the actions necessary to form the new joint venture with Smith Barney, which closed ahead of schedule and which created an industry-leading wealth management franchise with more than 18,000 high-quality financial advisors and $1.6 trillion in client assets as of the end of 2009.its clients.

 

RestructuringExecuting key strategic actions to strengthen capital and Repositioningliquidity and position the Asset Management BusinessCompany for Basel III:    :    Under Mr. Mack’sGorman’s leadership, the Company has made important progresseffected a conversion of MUFG’s Series B preferred stock to common shares, which resulted in restructuring and repositioning the asset management business for long-term success, including arranging for the sale of our retail asset management business to Invesco Ltd. Limiting our ownership stake in this transaction to approximately 10% allows the Company to focus on institutional asset management while still participating to an extentincrease in the upside ofCompany’s Tier 1 common ratio. Mr. Gorman also fulfilled a stronger combined retail company.key priority through a comprehensive settlement with MBIA, which terminated outstanding credit default swap protection purchased from MBIA on commercial mortgage backed securities – thereby reducing risk-weighted assets and increasing the Company’s 2012 pro forma Tier 1 common ratio under the proposed Basel III capital framework. The Company also increased its global liquidity reserve to $182 billion at year-end.

 

Working Closely with Regulators, Public Officials and Industry Leaders:    Throughout the course of the credit crisis, Mr. Mack wasDeepening the Company’s point personStrategic Alliance with MUFG:    Mr. Gorman strengthened the federal government, includingCompany’s relationship with MUFG, negotiating the U.S. Treasuryconversion of MUFG’s preferred stake into common equity and enhancing the Federal Reserve as well as other regulators. Mr. Mack worked to facilitate transparency and to stabilize Morgan Stanley as it worked through the crisis.loan marketing joint venture.

 

Repayment of TARPFostering Employee Engagement and Affirming Company Values:    :    BecauseMr. Gorman communicated with employees at all levels of the new capital raised, risk reductionorganization on a regular basis to discuss the Company’s views and other strategic measures implemented over the past year understrategy on a variety of business matters. Under Mr. Mack’sGorman’s leadership, the Company was ableredoubled its commitment to repay its TARP obligations, while strengthening our balance sheetexpressing a cohesive vision of the Company’s values and capital and liquidity positions.culture to the global workforce. Mr. Gorman also completed a successful transition to Chairman of the Board of Directors upon the retirement of John Mack.

 

30Positioning the Company’s Businesses for Regulatory Developments:    Mr. Gorman continued to pursue a strategy of positioning the Company for financial regulatory developments. Mr. Gorman continued to pursue a model consistent with the legislative changes emanating from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), including reallocating capital and the balance sheet away from proprietary businesses and reinvesting in client businesses, which will help position the Company to deliver more predictable, higher-quality revenues in the new regulatory environment.

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Other Executive Performance.    TheIn determining the compensation of other NEOs, the CMDS Committee weighed the Company’s overall financial performance and, as applicable, business unit performance, and evaluated each of the other NEO’s individual contributions to the Company’s accomplishmentsprogress against the other performance priorities identified in determining their compensation, including, for our NEOs with responsibilities that directly affect our primary business units, with regard to the progress made on the client, product and business development priorities of such unitsSection IV.A, as described below:

 

Mr. Gorman, Co-PresidentMs. Porat, Executive Vice President and Chief Financial Officer:    :    The CMDS Committee considered Mr. Gorman’s effortsevaluated Ms. Porat’s role in leadingimproving financial controls and managing related operational risk. The Committee also assessed Ms. Porat’s leadership in further enhancing the formationCompany’s liquidity position, diversifying funding, advancing its strong capital position and driving expense management through the Office of Re-engineering. Additionally, the new joint venture with Citigroup, creating an industry-leading wealth management franchise as described above. Morgan Stanley Smith Barney is an important step forward as the Company builds its wealth management franchise, providing Morgan Stanley with the opportunity to further diversify its overall business mix, expanding its presence in this less capital-intense, higher margin, higher ROE business; realize substantial scale economies and cost synergies; capitalize on our capabilities of each of the Morgan Stanley and Smith Barney wealth management platforms; and increase its distribution network for capital markets and asset management products. The CMDS Committee also considered several key milestones achieved in 2009 inevaluated Ms. Porat’s regular communications with investors, regulators and analysts throughout the Morgan Stanley Smith Barney integration that exceeded initial targets, including with respectyear to the identification of more than $1.1 billion in potential cost synergies and a less than 2% attrition rate for the top two quintile financial advisors. The CMDS Committee also evaluated Mr. Gorman’s role during 2009 in driving the restructuring of the asset management business. This effort included providing greater clarity and focus onexplain the Company’s broad institutional client base, that included selling the retail asset management business including Van Kampen, to Invesco Ltd.initiatives and implementing a strategic outsourcing partnership with State Street for portions of the Company’s operations and technology platform. Mr. Gorman also played an important role in building relationships with key institutional and corporate clients.strategy.

 

Mr. Chammah, Co-PresidentFleming, Executive Vice President and President of Asset Management and Global Wealth Management:    :    The Committee considered progress made on the continuing integration of the MSSB joint venture, which is on track for completion in 2012. Under Mr. Fleming, the business proceeded on pace with the integration of a new technology platform for financial advisors, and increased fee-based asset flows and net new assets – both the highest since the inception of the joint venture. Within Asset Management, the CMDS Committee evaluatedassessed Mr. Chammah’sFleming’s role in restructuringdelivering solid investment performance and increasing flows while repositioning the Institutional Securities business to maintain and re-align its industry-leading client franchises consistent with the current environment. Despite challenging market conditions, the Institutional Securities business delivered revenues of $12.8 billion, up 15% from 2008. Revenues, excluding the negative impact of the debt-related credit spreads, were up over 200% from 2008. Strong investment banking results included underwriting revenues that were up 61% from the prior year and a #1 ranking in global announced and completed M&A. Sales & Trading revenues were up 17% from 2008, and excluding the debt-related credit spreads, were up more than five-fold from the prior year. Mr. Chammah also led the effort, along with Mr. Mack and other members of the Institutional Securities leadership team, to build out the client flow businesses and shift resources to businesses with the potential for more attractive risk-adjusted returns. This included hiring more than 350 professionals in the Company’s sales and trading business, includingaround key senior leaders across fixed income, equities and prime brokerage, to build deeper and broader relationships with Morgan Stanley’s clients.strengths.

 

Mr. Kelleher, Chief Financial OfficerExecutive Vice President and Co-President of Institutional Securities::    The CMDS Committee evaluated Mr. Kelleher’s role in prudently and proactively managing the Company’s capital and liquidity and overseeing the reduction of risk and its balance sheet, which allowed the Company to repay its TARP obligation and still maintainbuilding a strong balance sheetmanagement team in the Sales and capital and liquidity positions. It also noted Mr. Kelleher’s contribution toTrading business, as well as expanding client relationship initiatives. Additionally, the progress on the Company’s implementation of enhanced systems to facilitate the allocation of economic capital and measure returns on a risk-adjusted basis. The CMDS Committee also considered Mr. Kelleher’s continuedrole in increasing the Company’s presence in Europe and substantial efforts to communicate candidlythe business’s efficient use of capital and balance sheet. Under Mr. Kelleher’s leadership, Equity Sales and Trading had a very strong year, driven by revenue share gains in cash financing and derivatives; Fixed Income Sales and Trading also increased revenue share (excluding DVA and the impact of the MBIA settlement), with analystscontributions from focus areas such as interest rates and investors throughout the year, particularly during periods of extreme market turbulence.currencies.

 

Mr. deRegt, Chief Risk OfficerTaubman, Executive Vice President and Co-President of Institutional Securities::    The CMDS Committee evaluatedconsidered the strong performance of the Investment Banking business under Mr. deRegt’s key roleTaubman’s leadership, including gains in aggressively managingrevenue share and continued strength of the Company’s risk exposures, including his assistanceInvestment Banking franchise, as evidenced by the Company ranking #1 in helpingglobal completed M&A, #2 in global IPOs, global Equity and global announced M&A in 2011.* The Company continues to reduce legacy exposures,be the underwriter of choice for equity and strengthening our risk management function. Under Mr. deRegt’s leadership, risk polices, procedures, systems, limitsinitial public offerings and stress testing were enhanced and 100 new people were added to the Company’s risk management function, further evidencing the critical role of this function to the Company.has established a leading market position in acquisition finance. The CMDS Committee also considered Mr. deRegt’s criticalTaubman’s leadership role in the joint venture with regulators in connection with the Company’s transition to a financial holding companyMUFG and his increased staturecontinuing efforts to strengthen client relationships.

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within the organization, reporting to the CEO (and, effective January 1, 2010, to the Risk Committee) and becoming a member of our new Operating Committee. In addition, the CMDS Committee considered Mr. deRegt’s new role in assisting the CMDS Committee with the evaluation of the Company’s compensation programs from a risk perspective.

 

C.20092011 Compensation Decisions

 

The CMDS Committee’s compensation determinationsawards for the NEOs for 2009 were2011 are set forth in the following table. The CMDS Committee granted 2011 incentive compensation for the NEOs in a mix of PSUs, RSUs and MSCIP deferred cash-based awards that is weighted toward equity, consistent with our long-standing objective of aligning executive compensation with shareholder interests. For Mr. Gorman, 72% of the incentive compensation was delivered in equity-based awards and 28% of the incentive compensation was delivered in MSCIP awards. For each other NEO, other than Mr. Kelleher, 60% of the incentive compensation was delivered in equity-based awards and 40% of the incentive compensation was delivered in MSCIP awards. For Mr. Kelleher, as follows:prescribed by the FSA, 50% of the incentive compensation was delivered in equity awards and 50% of the incentive compensation was delivered in MSCIP awards.


*Source: Thomson Reuters – for the period of January 1, 2011 to December 31, 2011 as of January 3, 2012.

 

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The table below shows how the CMDS Committee viewed its compensation decisions for 2011 but is not a replacement for the disclosure required in the “2011 Summary Compensation Table.”

  Mr. Gorman  Ms. Porat  Mr. Fleming  Mr. Kelleher  Mr. Taubman 

Fixed cash compensation:

                    

Base salary

 $800,000   $750,000   $750,000   $785,910(1)  $750,000  

Annual incentive award:

                    

Cash bonus

 $0   $0   $0   $0   $0  

Long-term incentive award:(2)

                    

PSUs(3)(4)

 $1,940,000   $1,600,000   $1,700,000   $1,692,818   $1,700,000  

RSUs(4)(5)

 $5,044,000   $3,200,000   $3,400,000   $2,539,227   $3,400,000  

MSCIP award(6)

 $2,716,000   $3,200,000   $3,400,000   $4,232,045   $3,400,000  
  


 


 


 


 


Total Reward:

 $10,500,000   $8,750,000   $9,250,000   $9,250,000   $9,250,000  

Base Salary.    The base salaries, in U.S. dollars, for Messrs. Mack, Kelleher, Chammah, deRegt and Gorman were $800,000, $628,476, $719,347, $634,932 and $734,247, respectively.(1) Mr. Chammah’sKelleher’s base salary was £459,247£490,000 and Mr. Kelleher’s was £401,233. The amount of British pounds sterling was converted to U.S. dollars using the 20092011 average of daily spot rates of £1 to $1.5664.$1.6039.

 

Incentive Compensation.    As indicated above, Mr. Mack did not receive any bonus and, therefore, none of the following components, for 2009.(2)

Cash Bonus.    Mr. Gorman did not receive a cash bonus for 2009. Messrs. Kelleher, Chammah and deRegt received $3,355,746, $3,834,922 and $2,873,014, respectively. Mr. Kelleher’s cash bonus was paid in British pounds sterlinglong-term incentive compensation awards differ from those granted to other NEOs as prescribed by the FSA. Among other differences described in the amountnotes below, the long-term incentive awards granted to Mr. Kelleher include a malus provision that allows for cancellation or reduction of £2,142,382. Mr. Chammah’s cash bonus was paid partly in British pounds sterling in the amount of £874,287 and partly in U.S. dollars in the amount of $2,465,471. With respect to the portions paid in British pounds sterling, the amount of U.S. dollars was converted to British pounds sterling using the 2009 average of daily spot rates of $1 to £.6384.

At-Risk Performance Stock Units.    For the first time,his award if the Company granted senior executives at-riskor the relevant business unit suffers a material failure of risk management.

(3) PSUs that only deliver value if the Company after three years, meets objectivespecific performance targets, as described above. Togoals, including ROE and relative TSR, over the extent the Company does not achieve the minimumthree-year performance targets set by the CMDS Committee at the time of grant, the NEOs will not receive shares under this program. The NEOs received 20% of their bonusperiod. PSUs granted for 2011 performance are payable in, these PSUs. The target at-risk PSU awards for Messrs. Kelleher, Chammah, deRegt and Gorman were $2,361,246, $2,840,422, $1,873,014 and $2,853,151, respectively.subject to cancellation until, January 2015. These values reflect the number calculated by multiplying the target number of PSUs awarded by $29.3246,$18.159, the volume-weighted average price of the Company’s common stock on the grant date, January 21, 2010.20, 2012.

 

MSCIP(4) The following table lists the target number of PSUs and Restricted Stock Units.    The remainderthe number of RSUs granted to each NEO:

  Mr. Gorman  Ms. Porat  Mr. Fleming  Mr. Kelleher  Mr. Taubman 

Target PSUs

  106,834.08    88,110.58    93,617.49    93,221.98    93,617.49  

RSUs

  277,768    176,221    187,234    139,832    187,234  

(5) With the NEOs’ bonus was paid in equal parts cash-based deferred compensation awards under MSCIP and RSUs, each in an amount of: $3,044,619, $3,763,383, $2,309,520 and $5,706,301, for Messrs. Kelleher, Chammah, deRegt and Gorman, respectively. As stated above, the cash-based deferred compensation awards under MSCIP are subject to a clawback provision,exception of Mr. Fleming’s award, which was further enhanced in 2009. Among other events,considered vested on February 8, 2012 (the date on which he became retirement-eligible under the 2009 clawback provision explicitly covers situations where there is (i) a substantial loss on a trading position or other holding or (ii) any loss on a trading position or holding where an employee operated outsideaward terms), the risk parameters applicable2011 RSUs granted to the trading position or other holding, if, in either case, such position was a factor in that employee’s compensation determination. TheNEOs are considered vested upon grant. With the exception of Mr. Kelleher’s award, the RSUs are payable, and subject to cancellation provisions until two years after the grantthey are scheduled to convert to shares on February 2, 2014 for 50% of the award and three years after the grantFebruary 2, 2015 for the remaining 50%remainder of the award. Mr. Kelleher’s RSU award is scheduled to be distributed in three equal annual installments on each of February 2, 2013, 2014 and 2015, and the distributed shares will be subject to transfer restrictions for an additional six months following distribution. The number of RSUs awarded was determined by dividing the dollar value of the award by $29.3246,$18.159, the volume-weighted average price of the Company’s common stock on the grant date, January 21, 2010,20, 2012, and rounding down to the nearest whole number. Fractional shares were paid in cash to the NEOs.

 

32(6) With the exception of Mr. Kelleher’s award, the 2011 MSCIP award is scheduled to vest and be distributed, and cancellation provisions lift, according to the following schedule: 50% on November 30, 2012 and the remaining balance on November 30, 2013. Mr. Kelleher’s 2011 MSCIP award is considered vested upon grant and is scheduled to be distributed, and cancellation provisions are scheduled to lift, according to the following schedule: 1/3 on February 2, 2013, 1/2 of the remaining balance on February 2, 2014 and the remaining balance on February 2, 2015.

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Compensation, Management Development and Succession Committee Report.Report

 

We, the Compensation, Management Development and Succession Committee of the Board of Directors of Morgan Stanley, have reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on such review and discussions, we have recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 20092011 filed with the SEC.

 

Respectfully submitted,

 

Erskine B. Bowles, Chair

C. Robert Kidder Chair (through December 31, 2009)

Erskine B. Bowles

Donald T. Nicolaisen

Hutham S. Olayan

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2011 Summary Compensation Table.Table

The following table summarizes the compensation of our named executive officers in the format specified by the SEC. Our NEOs are our 2009 Chief Executive Officer, 2009 Chief Financial Officer and the three other most highly compensated executive officers as determined by their total compensation for the year ended December 31, 20092011 set forth in the table below, excluding, in accordance with SEC rules, the amount in the column captioned “Change in Pension Value and Nonqualified Deferred Compensation Earnings.”

Pursuant to recently amended SEC rules, the following table is required to include for a particular year only those stock awards and option awards grantedduring the year, rather than awards grantedafter year-end that were awarded for performance in that year. Our year-end equity awards relating to servicesperformance in a year are made shortly after year-end. Therefore,compensation in the table includes not only non-equity compensation earned for services in the applicable year but, in the case of stock awards and option awards, compensation earned for performance in prior years but granted in the years (or during the December 2008 transition period) reported in the table.A summary of the CMDS Committee’s decisions on the compensation awarded to our NEOs for 2011 performance (which, in accordance with SEC rules, are in large part not reflected in the Summary Compensation Table) can be found in the CD&A.

 

2009 Summary Compensation Table
Name and Principal
Position
 Year(1)  

Salary

($)(2)

  

Bonus

($)(3)

  

Stock

Awards

($)(4)(5)

  

Option

Awards

($)(5)

  

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

($)(6)

  

All Other

Compensation

($)(7)

  Total ($) 
James P. Gorman  2011    800,000    2,716,011    5,942,777    3,499,996    13,272    9,800    12,981,856  
President and Chief  2010    800,000    3,880,000    10,167,949    —      331,688    6,100    15,185,737  

Executive Officer

 

  2009    734,247    5,706,301    —      —      49,372    6,100    6,496,020  
Ruth Porat  2011    750,000    3,200,003    5,667,083    1,499,993    265,285    14,927    11,397,291  

Executive Vice President and

Chief Financial Officer

 

  2010    750,000    3,700,000    6,911,340    —      342,985    6,100    11,710,425  
Gregory J. Fleming*  2011    750,000    3,400,018    5,360,760    499,992    —      —      10,010,770  

Executive Vice President and President of Asset Management

and Global Wealth Management

 

  2010    673,558(8)   3,500,000    9,000,000    —      —      75,000    13,248,558  
Colm Kelleher  2011    785,910(9)   4,232,063    6,275,274    1,499,993    257,217    754,852    13,805,309  

Executive Vice President and

Co-President of Institutional

Securities

 

  2010    757,316    4,097,074    6,737,046    —      539,527    1,231,667    13,362,630  
  2009    628,476    6,400,365    —      —      56,821    2,411,959    9,497,621  
                                
Paul J. Taubman  2011    750,000    3,400,018    6,279,760    1,499,993    686,726    13,116    12,629,613  
Executive Vice President and Co-President of Institutional Securities                                

 

Name and Principal
Position*
 Year(1)  

Salary

($)(2)

  

Bonus

($)(3)

  

Stock

Awards

($)(4)(5)

  

Option

Awards

($)(4)(6)

  

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

($)(7)

  

All Other

Compensation

($)(8)

  Total ($)

John J. Mack 

 2009     800,000(9)   —  (10)    —     —      310,425    139,241    1,249,666
Chairman and Chief Executive Officer Dec. 2008   67,945   —     —     —     572,953   32,527   673,425
 2008   800,000    —  (10)  —      —     —     435,097   1,235,097
  2007   800,000    —  (10)   36,179,923(10)  4,031,395(10)  391,844   399,153   41,802,315
     

Colm Kelleher

 2009    628,476(11)  6,400,365(12)  —     —     56,821   2,411,959   9,497,621
Chief Financial Officer Dec. 2008    27,775(11)  —     706,864   —     329,578   61,630   1,125,847
 2008   322,903   3,970,219   4,430,553   —     176,634   2,200,303   11,100,612
  2007   339,603   6,929,843   2,456,633   2,767,300   170,100   1,780,738   14,444,217
     

Walid A. Chammah

 2009    719,347(11)   7,598,305(13)  —     —     482,245   1,222,072   10,021,969

Co-President

 Dec. 2008    41,031(11)  —     —     —     242,498   55,457   338,986
  2008   322,903    —  (10)  8,834,808(10)  —     12,898   823,608   9,994,217
     

Kenneth M. deRegt

 2009   634,932   5,182,534   —     —     44,949   6,100   5,868,515

Chief Risk Officer

                       
     

James P. Gorman

 2009   734,247   5,706,301   —     —     49,372   6,100   6,496,020

Co-President

                       

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* OnEffective January 1, 2010,13, 2011, Mr. GormanFleming became President and Chief Executive Officer. At such time, Mr. Mack ceased to be Chief Executive Officer, but continues as Chairman of the BoardGlobal Wealth Management Group in addition to his being Executive Vice President and President of the Company. On January 1, 2010, Mr. Kelleher became Co-President of Institutional Securities and Mr. Chammah became Chairman and Chief Executive Officer of Morgan Stanley International.Asset Management.

 

(1)For Ms. Porat and Mr. Chammah,Fleming, compensation is not shown for fiscal 20072009 because he wasthey were not a named executive officer in fiscal 2007.officers during that period. For Messrs. deRegt and Gorman,Mr. Taubman, compensation is not shown for the December 2008 transition period, fiscal 20082009 or fiscal 20072010 because they werehe was not namedan executive officersofficer in such periods.2009 and he was not a NEO in 2010.

 

(2)Includes elective deferrals to the Company’s employee benefit plans.

 

(3) Includes elective deferrals to the Company’s employee benefit plans. For 2009, includes 2009The NEOs received no annual cash bonus amounts paid in February 2010 andfor 2011. For 2011, represents deferred cash amounts awarded in January 20102012 under MSCIP for performance in 2009:

Name  

2009 Cash Bonus

($)

  

2009 MSCIP Award

($)

  

Total

($)

John J. Mack 

           —             —             —  

Colm Kelleher

  3,355,746  3,044,619  6,400,365

Walid A. Chammah

  3,834,922  3,763,383  7,598,305

Kenneth M. deRegt

  2,873,014  2,309,520  5,182,534

James P. Gorman

           —    5,706,301  5,706,301

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The 20092011 and cash paid in January 2012 in lieu of a grant of a fractional RSU (with such cash payment equal to: $11 for Mr. Gorman; $3 for Ms. Porat; and $18 for each of Messrs. Fleming, Kelleher and Taubman). With the exception of Mr. Kelleher’s award, the 2011 MSCIP awards are scheduled to be distributed according to the following schedule: 50% on February 2,November 30, 2012 and 50%the remaining balance on November 30, 2013. Mr. Kelleher’s 2011 MSCIP award is scheduled to be distributed according to the following schedule: 1/3 on February 2, 2013, 1/2 of the remaining balance on February 2, 2014 and the remaining balance on February 2, 2015. 2011 MSCIP awards are subject to cancellation and clawback. For further details on MSCIP awards, see the CD&A.

No cash bonuses were awarded with respect to the December 2008 transition period.

 

(4) For 2011, consists of RSUs granted on January 21, 2011 for performance in 2010 and PSUs granted on January 21, 2011 for performance in 2010 that are subject to satisfaction of predetermined performance goals over a three-year performance period.

(5)Represents aggregate grant date fair value forof awards grantedduring the applicable period determined in accordance with the applicable accounting guidance for equity-based awards. Therefore, values disclosed for RSUs and stock options in the table include the values forof awards granted during the applicable period for the prior year’s service. Also, for this reason,NEOs do not realize the “Option Awards” column for fiscal 2007 includes values, even though novalue of equity-based awards until the awards are settled or exercised. The actual value that a NEO will realize from these awards is determined by future Company performance and share price, and may be higher or lower than the amounts indicated in the table.

The following table lists the aggregate grant date fair value of stock options were awardedunit awards granted to the NEOs for performance during fiscal 2007.

(5)2011. The aggregate grant date fair value of RSUs included in the table is based on the volume-weighted average price of the common stock on the grant date, as determined in accordance with applicable accounting guidance for equity-based awards. The aggregate grant date fair value of PSUs included in the table is based on the probable outcome of the performance conditions as of the grant date, consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under the applicable accounting guidance for equity-based awards. The value of the PSUs on the grant date based on the volume-weighted average price of the common stock on the grant date and assuming that the highest level of performance conditions will be achieved is $3,880,000 for Mr. Gorman; $3,700,000 for Ms. Porat; $3,500,000 for Mr. Fleming; $4,097,073 for Mr. Kelleher; and $4,100,000 for Mr. Taubman.

   Stock Unit Awards Granted During 2011 for Performance in 2010 ($)

Name

  RSUs  PSUs  Total

James P. Gorman

  3,879,978    2,062,799    5,942,777  

Ruth Porat

  3,699,981    1,967,102    5,667,083  

Gregory J. Fleming

  3,499,988    1,860,772    5,360,760  

Colm Kelleher

  4,097,068    2,178,206    6,275,274  

Paul J. Taubman

  4,099,998    2,179,762    6,279,760  

The aggregate grant date fair value of the stock options granted to the NEOs during 2011 is based on the Black-Scholes value of a stock option on the grant date, as determined in accordance with applicable accounting guidance for equity-based awards. For further information on the valuation of the Company’s RSUs, PSUs and stock options, see notenotes 2 and 20 to the consolidated financial statements included in the 20092011 Form 10-K. No RSUs were awarded to the NEOs with respect to the December 2008 transition period.

 

(6)No stock options were awarded to the NEOs with respect to 2009, the December 2008 transition period, fiscal 2008 or fiscal 2007. Stock options were awarded in fiscal 2007 for performance in fiscal 2006. The value set forth in the table for Messrs. Mack and Kelleher related to stock options for fiscal 2007 represents:

The aggregate grant date fair value of stock options granted in fiscal 2007, as determined in accordance with the applicable accounting guidance for equity-based awards.

The incremental fair value, computed in accordance with the applicable accounting guidance for equity-based awards, with respect to the equitable adjustment of outstanding stock options to reflect the spin-off of Discover Financial Services in 2007.

For further information on the Company’s accounting for stock-based compensation and for the assumptions used to value the Company’s stock options, see notes 2 and 18 to the consolidated financial statements included in the 2009 Form 10-K.40

 

As of December 31, 2009, all outstanding Company stock options held by our NEOs had no intrinsic value because the exercise price of each stock option was greater than $29.60, the closing price of the Company’s common stock on December 31, 2009.LOGO


(7)(6) The following table lists the change in pension value and the amount of any above-market earnings on nonqualified deferred compensation plans for the NEOs for 2009 and, as applicable, the December 2008 transition period. Negative amounts included below are reflected as having zero value in the Summary Compensation Table.2011.

 

Name 

2009

Change in Pension Value

($)(a)

 

December 2008
Change in Pension Value

($)(a)

 

2009 Above-Market

Earnings on
Nonqualifed Deferred
Compensation

($)(b)

 

December 2008 Above-
Market Earnings on
Nonqualifed Deferred
Compensation

($)(b)

 

2011

Change in Pension Value

($)(a)

 

2011 Above-Market

Earnings on
Nonqualified
Deferred
Compensation

($)(b)

 

Total

($)

John J. Mack

 (135,682) 572,953 310,425  —  

James P. Gorman

   13,272            —       13,272  

Ruth Porat

 244,678   20,607   265,285  

Gregory J. Fleming

          —              —              —    

Colm Kelleher

 (134,267) 329,578   56,821  —   257,217            —     257,217  

Walid A. Chammah

 193,242 242,498 289,003  —  

Kenneth M. deRegt

   36,209            —  (c)     8,740      —  (c)

James P. Gorman

   11,359            —  (c)   38,013      —  (c)

Paul J. Taubman

 673,936   12,790   686,726  

 

(a)

The “2009 Change in Pension Value” and “December 2008“2011 Change in Pension Value” equals the aggregate increase from December 31, 20082010 to December 31, 2009 and November 30, 2008 to December 31, 2008, respectively,2011 in the actuarially determined present value of the accumulated benefit under the Company-sponsored defined benefit pension plans during the measurement period. Mr. MackEmployees experienced a decreasean increase in the present value of histheir accumulated benefits from December 31, 20082010 to December 31, 20092011 primarily due to: (1) the increaseto a decrease in the discount rates described below (2) the changeand, in the applicable mortality

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tables described belowcase of Mr. Taubman, changes in base salary and (3) the loss of the early retirement subsidy as he attained age 65. Mr. Kelleher experienced a decrease in the present value of his accumulated benefits under the SEREP primarily due to the improved investment performance of his defined contribution account under the U.K. Pension Plan, which offsets the SEREP. See the “Pension Benefits Table.” Changes in present value also reflect the effect of an additional month or year as applicable, of pension accrual.credited service in the SEREP. The present valuevalues at December 31, 2009 is2011 are based on Pension Protection Act (PPA) generational annuitant mortality tables and discount rates of 4.65% for the ERP, 4.66% for the Excess Plan component and 4.54% for the SERP component of the SEREP. The present values at December 31, 2010 are based on PPA generational annuitant mortality tables and discount rates of 6.05%5.59% for the Morgan Stanley Employees Retirement Plan (ERP) and 6.06% and 5.95%ERP, 5.54% for the SEREP. The present values at December 31, 2008Excess Plan component and 5.32% for ERP and SEREP are based on a 5.87% discount rate and the RP-2000 White Collar Combined Mortality Table projected to 2015 with Scale AA, for Males and Females. The present values at November 30, 2008 are based on a 7.52% discount rate andSERP component of the RP-2000 White Collar Combined Mortality Table projected to 2015 with Scale AA, for Males and Females. Present values are determined using an interest-only discount before retirement.SEREP. Post-retirement discounts are based on interest and mortality. For each plan, the assumed benefit commencement date is the earliest age at which the executiveNEO can receive unreduced benefits under that plan or current age, if greater. Mr. Fleming does not have a value shown because he is not eligible for any of the Company-sponsored defined benefit plans.

 

(b)

The “Above-Market Earnings on NonqualifedNonqualified Deferred Compensation” for 2009 and the December 2008 transition period2011 equals the aggregate increase, if any, in the value of the NEOs’ accounts under the Company’s nonqualified deferred compensation plans at December 31, 20092011 (without giving effect to any distributions made during 2009)2011) from January 1, 2009December 31, 2010 that are attributable to above-market earnings and at December 31, 2008 (without giving effect to any distributions made during December 2008) from December 1, 2008 that are attributable to above-market earnings, respectively.earnings. Above-market earnings represent the difference between market interest rates determined pursuant to SEC rules and the earnings credited on deferred compensation.

 

(c)

Messrs. deRegt and Gorman were not named executive officers in the December 2008 transition period.

(8)(7)The “All Other Compensation” column for 2009 and the December 2008 transition period2011 includes (a) contributions made by the Company under our qualified defined contribution plans with respect to each such period and (b) perquisites and other personal benefits, as detailed below. Perquisites are valued based on the aggregate incremental cost to the Company. Any of the perquisites and other personal benefits listed below but not separately quantified do not individually exceed the greater of $25,000 or 10% of the total amount of all perquisites received by the NEO. In addition, our NEOs may participate on the same terms and conditions as other investors in investment funds that we may form and manage primarily for client investment, except that we may waive or lower applicable fees and charges for our employees.

 

(a)

For each of Mr. Gorman, Ms. Porat and Mr. Taubman, the Company’s 401(k) matching contribution of $9,800 for 2011 was allocated to the Morgan Stanley Stock Fund. Ms. Porat and Mr. Taubman each received a transition contribution in the Company’s 401(k) Plan for 2011 of $5,127 and $3,316, respectively. The Company contributionscontribution to the Morgan Stanley U.K. Group Pension Plan for Mr. Kelleher during 2009 and the December 2008 transition period2011 totaled £33,000 ($51,690) and £2,750 ($4,088), respectively.52,929). The amount of British pounds sterling was converted to U.S. dollars using the 20092011 average of daily spot rates of £1 to $1.5664 and the December 2008 average of daily spot rates of £1 to $1.4865, respectively. For each of Messrs. Mack, deRegt and Gorman, the Company’s 401(k) matching contribution for 2009 was $6,100 and was allocated to the Morgan Stanley stock fund.$1.6039.

 

(b)

Prior to his repatriation from New York to London in May 2011, Mr. Mack entered into an aircraft time-sharing agreement with the Company in 2009 and since entering into such agreement has fully reimbursed the Company for the cost of his personal use of the Company aircraft upKelleher was covered by Morgan Stanley’s overseas assignment policy, which is designed to the maximum amount permitted by federal aviation regulations, which, in 2009, allowed Mr. Mack to reimburse all incremental costs incurred since entering into the time-sharing agreement. The Company’s Board-approved policy authorizes the Chairman to use the Company aircraft when traveling by air whenever feasible. Mr. Mack’s amounts disclosed in this Summary Compensation Table for 2009 and the December 2008 transition period include $127,491 and $32,124, respectively, reflecting Mr. Mack’s personal use of Company aircraft prior to entering into the time-sharing agreement. The value of personal use of Company aircraft includes variable costs incurred in connection with personal flight activity, and does not include fixed costs of owning and operating the Company aircraft. The value was calculated for 2009 and the December 2008 transition period based on the incremental cost of personal travel, including: landing, parking and flight planning expenses; crew travel expenses; supplies and catering; aircraft fuel and oil expenses per hour of flight; maintenance, parts and external labor per hour of flight; and customs,eliminate any financial detriment or gain

 

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foreign permits and similar fees. Thefrom the overseas assignment. Mr. Kelleher’s amounts reported for both 2009 and the December 2008 transition period also include amountsinclude: (a) $522,850 related to security providedhis overseas assignment and his entitlements under the policy, including housing expenses, expatriate equalization payments related to Mr. Mack, based on actualtaxes, financial advisory and tax planning services, reimbursement for educational costs and personalcost-of-living adjustments, (b) $165,560 related to housing and other benefits following his repatriation and (c) the costs relating to use of a Company-furnished car.car service.

 

(8)Mr. Kelleher is covered by Morgan Stanley’s overseas assignment policy, which is designed to eliminate any financial detriment or gainFleming’s annualized base salary of $750,000 for 2010 was prorated for service from the overseas assignment. Mr. Kelleher’s amounts include $2,360,269February 8, 2010, his employment commencement date, in 2009 and $57,542 in the December 2008 transition period related toaccordance with his overseas assignment and his entitlements under the policy, including housing expenses, expatriate equalization payments related to taxes, financial advisory and tax planning services, reimbursement for educational costs and cost-of-living adjustments.

Mr. Chammah is covered by a modified expatriate packageemployment offer letter with Morgan Stanley regarding his transfer to the UK. Mr. Chammah’s amounts include $684,390 for 2009 (converted from British pounds sterling to U.S. dollars using the 2009 average of daily spot rates of £1 to $1.5664) and $54,930 for December 2008 (converted from British pounds sterling to U.S. dollars using the December 2008 average of daily spot rates of £1 to $1.4865) related to his modified expatriate package. The amounts reported for both periods also include amounts related to personal use of a Company-furnished car. The amount reported for 2009 also includes financial advisory and tax planning services, personal use of Company aircraft and an estimated expatriate equalization payment of $487,000 related to taxes. The estimated expatriate equalization payment is only an estimate based on the most recent information available and the cost to the Company, may ultimately differ from the amount disclosed herein.dated February 3, 2010.

 

(9) Mr. Mack’s employment agreement provides that his annual base salary cannot be less than $775,000, the base salary provided to our CEO who immediately preceded him.

(10)Mr. Mack did not receive any bonus for 2009, fiscal 2008 or fiscal 2007 and Messrs. Chammah and Gorman did not receive any bonus for fiscal 2008. For Mr. Mack, the amounts in the Stock Awards and Option Awards columns for fiscal 2007 relate to equity awards granted with respect to fiscal 2006 performance (and with respect to the Option Awards column, amounts related to an equitable adjustment of outstanding options as described in footnote 6 above).

(11)Mr. Kelleher’s base salary was £401,233£490,000 for 2009 and £18,685 for the December 2008 transition period and Mr. Chammah’s base salary was £459,247 for 2009 and £27,603 for the December 2008 transition period.2011. The amount of British pounds sterling was converted to U.S. dollars using the 20092011 average of daily spot rates of £1 to $1.5664$1.6039. Mr. Kelleher’s base salary was also £490,000 for 2010 and December 2008 daily spot rates of £12009. Differences in base salary reported in the table are due to $1.4865, as applicable.currency fluctuations.

 

(12)Mr. Kelleher’s 2009 cash bonus paid in February 2010 was $3,355,746, and was paid in British pounds sterling in the amount of £2,142,382. The amount of U.S. dollars was converted to British pounds sterling using the 2009 average of daily spot rates of $1 to £.6384.

(13)Mr. Chammah’s 2009 cash bonus paid in February 2010 was $3,834,922, a portion of which was paid in British pounds sterling in the amount of £874,287 and a portion of which was paid in U.S. dollars in the amount of $2,465,471. With respect to the portion paid in British pounds sterling, the amount of U.S. dollars was converted to British pounds sterling using the 2009 average of daily spot rates of $1 to £.6384.

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2011 Grants of Plan-Based Awards Table.Table(1)

The following table sets forth information with respect to the RSUs, PSUs and stock options granted under the Morgan Stanley 2007 Equity Incentive Compensation Plan to the applicable NEOs during the December 2008 transition periodin January 2011 for fiscal 20082010 performance. No equity awards were granted to our NEOs during 2009. The table does not include equity awards granted to our NEOs in January 20102012 for performance in 2009.2011.

 

2009 Grants of Plan-Based Awards Table(1)

Name 

Grant Date

(mm/dd/
yyyy)

 Estimated Future Payouts
Under
Equity Incentive Plan
Awards(2)
 

All Other Stock

Awards: Number of

Shares of Stock or

Units

(#)(3)

 

All Other
Option

Awards:
Number of

Securities

Underlying

Options

(#)(4)

 

Exercise or Base

Price of

Option Awards

($/Sh)(5)

 

Grant Date
Fair

Value of
Stock

and
Option

Awards

($)(6)

  

Threshold

(#)

 

Target

(#)

 Maximum
(#)
    

James P. Gorman

 1/21/2011 0 64,904.87 129,809.74           —             —             —              2,062,799
  1/21/2011 —             —             —   129,809           —             —              3,879,978
  

1/21/2011

 

 —             —             —             —   424,731 30.01             3,499,996

Ruth Porat

 1/21/2011 0 61,893.82 123,787.64           —             —             —              1,967,102
  1/21/2011 —             —             —   123,787           —             —              3,699,981
  

1/21/2011

 

 —             —             —             —   182,027 30.01             1,499,993

Gregory J. Fleming

 1/21/2011 0 58,548.21 117,096.42           —             —             —              1,860,772
  1/21/2011 —             —             —   117,096           —             —              3,499,988
  

1/21/2011

 

 —             —             —             —   60,675 30.01             499,992

Colm Kelleher

 1/21/2011 0 68,536.08 137,072.16           —             —             —              2,178,206
  1/21/2011 —             —             —   137,072           —             —              4,097,068
  

1/21/2011

 

 —             —             —             —   182,027 30.01             1,499,993

Paul J. Taubman

 1/21/2011 0 68,585.04 137,170.08           —             —             —              2,179,762
  1/21/2011 —             —             —   137,170           —             —              4,099,998
  

1/21/2011

 

 —              —              —              —   182,027 30.01              1,499,993

 

Name Period  Grant Date
(mm/dd/yyyy)
  

All Other Stock

Awards: Number of

Shares of Stock or Units

(#)(2)

  

All Other Option

Awards: Number of

Securities Underlying

Options

  

Exercise or Base

Price of

Option Awards

($/Sh)

  

Grant Date Fair

Value of Stock

and Option

Awards

($)(3)

 

John J. Mack

 2009   —     —     —     —     —    
  Dec 2008   —     —     —     —     —    
      

Colm Kelleher

 2009   —     —     —     —     —    
  Dec 2008   12/18/2008   41,997   —     —     706,864  
      

Walid A. Chammah

 2009   —     —     —     —     —    
  Dec 2008   —     —     —     —     —    
      

Kenneth M. deRegt

 2009   —     —     —     —     —    
      

James P. Gorman

 2009   —     —     —     —     —    
                   

(1)The awardPSU awards included in this table was previously disclosed in the table that appears in the CD&A of the 2009 proxy statement and isare also disclosed in the “Stock Awards” column of the “Summary“2011 Summary Compensation Table,Table” and the “2011 Outstanding Equity Awards at Fiscal Year-End Table.The RSU awards included in this table are also disclosed in the “Option“Stock Awards” column of the “2011 Summary Compensation Table” and, except with respect to Mr. Fleming, the “2011 Option Exercises and Stock Vested Table,”Table” and the “Nonqualified“2011 Nonqualified Deferred Compensation Table”Table.” With respect to Mr. Fleming, the RSU award included in this proxy statement.table is also disclosed in the “2011 Outstanding Equity Awards at Fiscal Year-End Table.” The stock option awards included in this table are also disclosed in the “Option Awards” column of the “2011 Summary Compensation Table” and the “2011 Outstanding Equity Awards at Fiscal Year-End Table.” The PSUs and RSUs were granted under the Morgan Stanley 2007 Equity Incentive Compensation Plan. The stock options were granted under the Morgan Stanley Employees’ Equity Accumulation Plan.

 

(2)The PSUs are scheduled to vest and convert to shares in 2014 only if the Company satisfies predetermined performance goals over the three-year performance period that began on January 1, 2011 and ends on

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December 31, 2013. One-half of the target PSU award will be based on the Company’s ROE over the three-year performance period. The other half of the award will be based on the Company’s TSR relative to the TSR of the members of the Comparison Group (Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS AG and Wells Fargo & Company) over the three-year period.

The number of “at-risk” PSUs ultimately earned will be determined by multiplying one-half of the target award by the multipliers according to the following grids:

MS ROE*  Multiplier
18% or more  2.00
12%  1.00
less than 7.5%  0.00

*If ROE is between two of the thresholds noted above, the number of PSUs earned will be determined by straight-line interpolation between the two thresholds. ROE, for this purpose, excludes the impact of the fluctuation in the Company’s Debt-Related Credit Spreads on certain of the Company’s borrowings that are accounted for at fair value. The return for each of the first, second and third years during the three-year performance period are weighted 20%, 30% and 50%, respectively.

MS TSR Rank*  Multiplier
1  2.00
5  1.00
9 or 10  0.00

*If the TSR rank is between two of the thresholds noted above, the number of PSUs earned will be determined by straight-line interpolation between the two thresholds. If the composition of the Comparison Group is affected by a corporate event, the grid will be adjusted based on the number of members of the Comparison Group remaining at the end of the performance period.

Each NEO is entitled to receive cash dividend equivalents on the PSUs, subject to the same vesting, cancellation and payment provisions as the underlying PSUs. NEOs may not direct the vote of the shares underlying the PSUs. The PSUs are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. If, after payment of the PSUs, the CMDS Committee determines that the performance certified by the CMDS Committee was based on materially inaccurate financial statements or other performance metric criteria, then such number of shares (or cash equivalent if the shares were transferred) shall be subject to clawback by the Company. For further details on cancellation of awards, see “Potential Payments Upon Termination or Change-in-Control.”

(3)The RSUs are scheduled to convert to shares according to the following schedule: 50% in 2011on February 2, 2013 and 50% in 2012. Theon February 2, 2014, and each NEO is entitled to receive dividend equivalents on the RSUs, which are paid currently and may be paid in cash, shares of our common stock, or a combination thereof, at the Company’s discretion. The NEO may direct the vote of the shares underlying the RSUs. The NEOother than Mr. Fleming is retirement-eligible under the award terms at grant and, therefore, the awards are considered vested at grant; however,grant. Mr. Fleming is retirement-eligible under the award terms as of February 8, 2012. All RSUs are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. For further details on cancellation of awards, see “Potential Payments Upon Termination or Change-in-Control.” Each NEO is entitled to receive cash dividend equivalents on the RSUs, subject to the same vesting, cancellation and payment provisions as the underlying RSUs and may direct the vote of the shares underlying the RSUs. Effective as of January 1, 2012, in lieu of cash dividend equivalents, the NEOs will receive dividend equivalents in the form of additional RSUs, subject to the same vesting, cancellation and payment provisions as the underlying RSUs.

 

(3)(4)The stock options become exercisable in three equal annual installments on each of February 2, 2012, 2013 and 2014 and expire on the seventh anniversary of grant. Each NEO other than Mr. Fleming is retirement-eligible under the award terms as of the anniversary of the grant date and, therefore, the awards were considered vested on such date. Mr. Fleming is retirement-eligible under the award terms as of February 8, 2012. All stock options are subject to cancellation if a cancellation event occurs at any time prior to the scheduled exercisability date. For further details on cancellation of awards, see “Potential Payments Upon Termination or Change-in-Control.”

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(5)The stock options were granted with an exercise price equal to $30.01, the closing price of the Company’s common stock on the grant date.

(6)Represents the aggregate grant date fair value, in accordance with the applicable accounting guidance for equity-based awards, of the RSUs.RSUs, PSUs and stock options. The aggregate grant date fair value of the RSUs granted on January 21, 2011 is based on $16.8313,$29.8899, the volume-weighted average price of the common stock on the grant date. The aggregate grant date fair value of the stock options granted on January 21, 2011 is based on the Black-Scholes value of a stock option on the grant date, as determined in accordance with applicable accounting guidance for equity-based awards. The aggregate grant date fair value of PSUs is based on the probable outcome of the performance conditions as of January 21, 2011, consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of such date under the applicable accounting guidance for equity-based awards. NEOs do not realize the value of equity-based awards until the awards are settled or exercised. The actual value that a NEO will realize from these awards is determined by future Company performance and share price, and may be higher or lower than the amounts indicated in the table. In particular, with respect to the PSUs, a NEO may ultimately earn up to two times the target number of units (maximum), or nothing (threshold), based on the Company’s performance over the three-year performance period. Based on the Company’s actual performance through December 31, 2011, a NEO would have earned only 12.5% of the target number of units. For further information on the valuation of the Company’s RSUs, PSUs and stock options, see notenotes 2 and 20 to the consolidated financial statements included in the 20092011 Form 10-K.

 

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2011 Outstanding Equity Awards at Fiscal Year End Table.Year-End Table

The following table discloses the number of shares covered by unexercised stock options and unvested RSUs and PSUs held by our NEOs on December 31, 2009. Each2011. With the exception of Mr. Fleming, as of December 31, 2011, each NEO is retirement-eligible under his or her RSU award terms and, therefore, all of his or her outstanding RSU awards are considered vested and, in accordance with SEC rules, are not included in this table. Outstanding vested RSUs held by the NEOs on December 31, 20092011 are disclosed in the “Nonqualified“2011 Nonqualified Deferred Compensation Table.”As of December 31, 2009,2011, the stock options held by the NEOs had no intrinsic value because the exercise price of each stock option was greater than $29.60,$15.13, the closing price of the Company’s common stock on December 31, 2009.30, 2011.

 

2009 Outstanding Equity Awards at Fiscal Year End Table
    Option Awards  Stock Awards 
Name      

Number of
Securities
Underlying
Unexercised
Options (#)

Exercisable(1)(2)

  

Number of
Securities
Underlying
Unexercised
Options (#)

Unexercisable
(1)

  Option
Exercise
Price
($)(2)
  

Option
Expiration
Date

(mm/dd/

yyyy)

  Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)(3)
  Market
Value of
Shares
or
Units of
Stock
That
Have
Not
Vested
($)(3)
  Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)(4)
  Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)(4)
 

James P. Gorman

  354,986    —      51.7552    2/17/2016    —      —      162,200.34    2,454,091  
     56,772    —      66.7260    12/12/2016                  
     —      424,731    30.0100    1/21/2018                  
  
 


 


         


 


 


 


  

Total 

 

  411,758    424,731                    162,200.34    2,454,091  

Ruth Porat

  13,466    —      48.5345    1/2/2012    —      —      144,354.74    2,184,087  
     11,699    —      36.2209    1/2/2013                  
     19,746    —      47.1909    1/2/2014                  
     23,737    —      66.7260    12/12/2016                  
     —      182,027    30.0100    1/21/2018                  
  
 


 


         


 


 


 


  

Total 

 

  68,648    182,027            —      —      144,354.74    2,184,087  

Gregory J. Fleming

 

  —      60,675    30.0100    1/21/2018    340,590    5,153,127    58,548.21    885,834  

Colm Kelleher

  22,775    —      36.2209    12/2/2012    —      —      149,057.08    2,255,234  
     40,201    —      47.1909    12/2/2013                  
     144,551    —      66.7260    12/12/2016                  
     —      182,027    30.0100    1/21/2018                  
  
 


 


         


 


 


 


  

Total 

 

  207,527    182,027            —      —      149,057.08    2,255,234  

Paul J. Taubman

  47,686    —      48.5345    1/2/2012    —      —      167,244.55    2,530,410  
     56,941    —      36.2209    1/2/2013                  
     65,160    —      47.1909    1/2/2014                  
     116,371    —      66.7260    12/12/2016                  
     —      182,027    30.0100    1/21/2018                  
  
 


 


         


 


 


 


  

Total 

  286,158    182,027            —      —      167,244.55    2,530,410  

 

       Option Awards

   Stock Awards

  
  Name    

Number of
Securities
Underlying
Unexercised
Options (#)

Exercisable(1)

  

Number of
Securities
Underlying
Unexercised
Options (#)

Unexercisable(1)

  Option
Exercise
Price
($)(2)
  

Option
Expiration
Date

(mm/dd/yyyy)

   Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
  Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)
  

John J. Mack

  325,664  —    51.1836  1/2/2010     —    —    
       313,238  —    55.6085  1/2/2011          
       105,126  105,126  66.7260  12/12/2016          
  
    
  
               
  

Total

    744,028  105,126               
  

Colm Kelleher

               —    —    
       13,429  —    55.6085  12/2/2010          
       27,101  —    48.5345  12/2/2011          
       22,775  —    36.2209  12/2/2012          
       40,201  —    47.1909  12/2/2013          
       72,275  72,276  66.7260  12/12/2016          
  
    
  
               
  

Total

    175,781  72,276               
  

Walid A. Chammah

  35,349  —    51.1836  1/2/2010    —    —    
       27,985  —    55.6085  1/2/2011          
       63,355  —    48.5345  1/2/2012          
       70,036  —    48.1891  1/2/2012          
       276,705  —    40.6569  1/2/2012          
       74,542  —    36.2209  1/2/2013          
       88,999  —    47.1909  1/2/2014          
       31,786  31,786  66.7260  12/12/2016          
  
    
  
               
  

Total

    668,757  31,786               
  

Kenneth M. deRegt

  156,788  —    51.1836  1/2/2010    —    —    
  
    
  
               
  

Total

    156,788  —                 
  

James P. Gorman

  354,986  —    51.7552  2/17/2016    —    —    
       28,386  28,386  66.7260  12/12/2016          
  
    
  
               
  

Total

    383,372  28,386               
                          

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(1) The stock option awards in this table all of whichvested and are vested, becameexercisable, or will vest and become exercisable, as shown in the following table:follows:

 

Option
Expiration Date

(mm/dd/yyyy)

  ExerciseVesting Schedule

1/2/2010

75% of the award became exercisable on 1/2/2000. The remaining 25% became exercisable on 1/2/2005. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2005.

12/2/2010

100% of the award became exercisable on 1/2/2003. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2006.

1/2/2011

12/2/2011

100% of the award became exercisable on 1/2/2004. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2007.

1/2/2012

  

With respect to Mr. Chammah’s award of 63,355 stock options, 100% of the award became exercisable on 1/2/2004. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2007.

 

With respect to Mr. Chammah’s award of 70,036 stock options, 100% of the award became exercisable on 1/2/2005. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2007.

With respect to Mr. Chammah’s award of 276,705 stock options, the award became exercisable in three equal installments on 1/2/2003, 1/2/2004 and 1/2/2005. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2007.

12/2/2012

  

100% of the award became exercisable on 1/2/2005. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2008.

1/2/2013

  

100% of the award became exercisable on 1/2/2005. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2008.

12/2/2013

  

50% of the award became exercisable on 1/2/2006 and 50% of the award became exercisable on 1/2/2007. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2009.

1/2/2014

  

50% of the award became exercisable on 1/2/2006 and 50% of the award became exercisable on 1/2/2007. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2009.

2/17/2016

  

60% of the award became exercisable on 2/17/2006 and 40% of the award became exercisable on 2/16/2007.

12/12/2016

  

50% of the award became exercisable on 1/2/2009 and 50% of the award became exercisable on 1/2/2010. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2010.

1/21/2018

Exercisable in three equal installments on each of 2/2/2012, 2/2/2013 and 2/2/2014.

 

(2)Stock options were granted with an exercise price equal to the fair market value of the Company’s common stock on the date of grant and, with the exception of the stock options that are scheduled to expire on January 21, 2018, were subsequently equitably adjusted to reflect the spin-off of Discover Financial Services.Services in 2007.

 

40(3)Mr. Fleming is retirement-eligible under the award terms as of February 8, 2012 and, therefore, the awards are considered vested as of that date. The RSUs set forth in the table for Mr. Fleming are scheduled to convert to shares as follows: 110,079 on February 8, 2012; 113,415 on February 8, 2013; and 58,548 on each of February 2, 2013 and February 2, 2014. The market value of the RSUs is based on $15.13, the closing price of the Company’s common stock on December 30, 2011.

(4)The number of PSUs reflects the grant of the target number of units, although the senior executive may ultimately earn up to two times the target number of units, or nothing, based on the Company’s performance over the applicable three-year performance period. The PSUs included in this table were granted to the NEOs for performance in 2009 (with the number of 2009 PSUs granted to each NEO as follows: 97,295.47 to Mr. Gorman; 82,460.92 to Ms. Porat; 80,521 to Mr. Kelleher; and 98,659.51 to Mr. Taubman) and 2010 (with the number of 2010 PSUs granted to each NEO as follows: 64,904.87 to Mr. Gorman; 61,893.82 to Ms. Porat; 58,548.21 to Mr. Fleming; 68,536.08 to Mr. Kelleher; and 68,585.04 to Mr. Taubman) and are scheduled to vest and convert to shares in 2013 and 2014, respectively, only if the Company satisfies predetermined performance goals over the applicable three-year performance period (see footnote 2 of the “2011 Grants of Plan-Based Awards Table”). The market value of the PSUs is based on $15.13, the closing price of the Company’s common stock on December 30, 2011.

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2011 Option Exercises and Stock Vested Table.Table

The following table contains information about RSUs held by the applicable NEOs that vested during 2011. With the December 2008 transition period. No RSUs held by the NEOs vested during 2009 and no stock options were exercised during 2009 or the December 2008 transition period. Equity awards granted for fiscal 2008 performance are reported below because they were granted during the December 2008 transition period, and are considered vested at grant. Theseexception of Mr. Fleming’s award, these RSUs are also disclosed in the “Stock Awards” column of the “Summary“2011 Summary Compensation Table,” the “Grants“2011 Grants of Plan-Based Awards Table” and the “Nonqualified“2011 Nonqualified Deferred Compensation Table.” The table does not include equity awardsPSUs granted in January 2011 for 2010 for performance in 2009.because the vesting of such awards is subject to the Company’s satisfaction of predetermined performance goals over a three-year performance period.

 

2009 Option Exercises and Stock Vested Table

     Option Awards

  Stock Awards

   Option Awards   Stock Awards    
Name  Period  

Number of

Shares Acquired
on Exercise

(#)

  

Value Realized on

Exercise ($)

  

Number of

Shares Acquired

on Vesting

(#)(1)

  

Value Realized on

Vesting ($)(2)

   

Number of

Shares Acquired
on Exercise

(#)

   

Value Realized on

Exercise ($)

   

Number of

Shares Acquired

on Vesting

(#)(1)

   

Value Realized on

Vesting ($)(2)

    

John J. Mack

  2009    —    —      —    —   
Dec 2008   —    —     —    —   
  

James P. Gorman

   —       —       129,809    $3,879,978     

Ruth Porat

   —       —       123,787    $3,699,981     

Gregory J. Fleming

   —       —       110,079    $3,290,250     

Colm Kelleher

  2009   —    —     —    —      —       —       137,072    $4,097,068     
Dec 2008   —    —     41,997  706,864 
  

Walid A. Chammah

  2009   —    —     —    —   
Dec 2008   —    —     —    —   
  

Kenneth M. deRegt

  2009   —    —     —    —   
  

James P. Gorman

  2009   —    —     —    —   

Paul J. Taubman

   —       —       137,170    $4,099,998     

 

(1) ConsistsOther than with respect to Mr. Fleming, consists of RSUs that were granted on December 18, 2008January 21, 2011 for fiscal 20082010 performance. The RSUs are scheduled to convert to shares according to the following schedule: 50% in 2011 and 50% in 2012. The NEO is retirement-eligible under the award terms and, therefore, the awards are considered vested at grant; however, these RSUs remain subject to cancellation until the scheduled conversion date and the underlying shares have not yet been delivered. For further details on these RSUs, including the cancellationterms of awards,the deferral, see “Potential Payments Upon Termination or Change-in-Control.note 3 to the “2011 Grants of Plan-Based Awards Table. With respect to Mr. Fleming, consists of RSUs that were granted on February 8, 2010, in accordance with his employment offer letter with the Company, that vested in accordance with their terms on February 8, 2011.

 

(2) The value realized represents the aggregate grant date fair value, in accordance with the applicable accounting guidance for equity-based awards, of the RSUs. The aggregate grant date fair value of the RSUs is based on $16.8313,$29.8899, the volume-weighted average price of the common stock on the grant date.date or vesting date, as applicable.

 

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2011 Pension Benefits Table.Table

The table below discloses the present value of accumulated benefits payable to each of the NEOs and the years of service credited to each NEO under the Company’s defined benefit retirement plans as of December 31, 2009.2011.

 

2009 Pension Benefits Table

Name Plan Name(1) 

Number of

Years

Credited

Service

  

Retirement

Age for Full

Benefits

  

Present Value of

Accumulated

Benefit ($)(2)

  

Payments

During Last

Fiscal Year ($)

  Plan Name(1) 

Number of

Years

Credited

Service

  

Retirement

Age for Full

Benefits

  

Present Value of

Accumulated

Benefit ($)(2)

  

Payments

During Last

Fiscal Year ($)

 

John J. Mack

 

Morgan Stanley Employees Retirement Plan

 32   65    1,263,275    —   

James P. Gorman

 

Morgan Stanley Employees Retirement Plan

  4    65    62,511    —    

Ruth Porat

 

Morgan Stanley Employees Retirement Plan

  20    65    343,622    —    
 

Morgan Stanley Supplemental Executive Retirement and Excess Plan

  35(3)    65   3,241,420   —    

Morgan Stanley Supplemental Executive

Retirement and Excess Plan

 

  

22

 

  

  

60

 

  

  

1,124,620

 

  

  

—  

 

  

   

Gregory J. Fleming(3)

 

              —    

Colm Kelleher

 

Morgan Stanley U.K. Group Pension Plan

  7(4)  60   118,902   —    

Morgan Stanley U.K. Group Pension Plan(4)

  7    60    132,851    —    
 

Morgan Stanley Supplemental Executive Retirement and Excess Plan

 20   60   537,912   —    

Morgan Stanley Supplemental Executive

Retirement and Excess Plan

 

  

22

 

  

  

60

 

  

  

866,211

 

  

  

—  

 

  

Paul J. Taubman

 

Morgan Stanley Employees Retirement Plan

  25    65    371,185    —    
    

Morgan Stanley Supplemental Executive

Retirement and Excess Plan

  26    60    1,310,058    —    

Walid A. Chammah

 

Morgan Stanley Employees Retirement Plan

 15   65   217,858   —   
 

Morgan Stanley Supplemental Executive Retirement and Excess Plan

 16   60   1,007,109   —   
   

Kenneth M. deRegt

 

Morgan Stanley Employees Retirement Plan

 21   60   360,405   —   
 

Morgan Stanley Supplemental Executive Retirement and Excess Plan

 22   60   827,288   —   
   

James P. Gorman

 

Morgan Stanley Employees Retirement Plan

 3(5)  65   31,820   —   

 

(1) Benefits under the SEREP are shown even if the eligibility requirements (i.e., grandfathered group, age 55, five years of service, and age plus service totals at least 65) have not been met as of the current date. See the discussion under “Supplemental Executive Retirement and Excess Plan” following this table.

 

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(2)The present value at December 31, 20092011 is based on PPA generational annuitant mortality tables and discount rates of 6.05%4.65% for the ERP, 4.66% for the Excess Plan component and 6.06% and 5.95%4.54% for the SERP component of the SEREP. Present values are determined using an interest-only discount before retirement. Post-retirement discounts are based on interest and mortality. The assumed benefit commencement date is the earliest age at which the executive can receive unreduced benefits or current age, if greater.

 

(3)Under the terms Mr. Fleming is not eligible for any of the Company’s employment agreement with Mr. Mack, for purposes of determining Credited Service under the SEREP, Mr. Mack is treated as if he had not terminated employment with the Company in 2001. This adjustment adds four years to Mr. Mack’s otherwise calculated Credited Service. The maximum number of years of Credited Service under the SEREP is 35. The present value of theCompany-sponsored defined benefit that results from the additional years of Credited Service is $379,482. This amount is included in his Present Value of Accumulated Benefits shown in this table.plans.

 

(4)Mr. Kelleher participates in the Morgan Stanley U.K. Group Pension Plan (U.K. Pension Plan), a defined contribution plan that provided defined benefit pension accruals until October 1, 1996. As of October 1, 1996, Mr. Kelleher’s accrued defined benefit under the U.K. Pension Plan was converted to an account balance, the value of which is £55,940£82,831 ($106,254)132,851) as of December 31, 2009.2011. If the value of the account balance relating to the pre-October 1996 portion of Mr. Kelleher’s U.K. Pension Plan benefit, adjusted for investment experience until the payment date, is greater than the value of the guaranteed minimum pension under the U.K. Pension Plan, no defined benefit pension is payable. If the value of the guaranteed minimum pension, determined in accordance with U.K. laws, is greater than the value of the adjusted account balance, the guaranteed minimum pension is payable, in addition to any defined contribution amount payable for the period after September 30, 1996. Mr. Kelleher had seven years of credited service in the U.K Pension Plan at the time his accrued benefit was converted to an account balance. The amount shown in the table for Mr. Kelleher does not include defined

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contribution benefits that were accrued after September 30, 1996. The amount of British pounds sterling was converted to U.S. dollars using the 20092011 average of daily spot rates of £1 to $1.5664.

(5) Mr. Gorman will not be vested in the ERP until completion of five years of vesting service.$1.6039.

 

The following is a description of the material terms with respect to each of the plans referenced in the table above.

 

Employees Retirement Plan

 

Substantially all of the U.S. employees of the Company and its U.S. affiliates hired before July 1, 2007, other than certain employees in the Company’s mortgage business, arewere covered after one year of service by the ERP, a non-contributory, defined benefit pension plan that is qualified under Section 401(a) of the Internal Revenue Code. Annual benefits are equal to 1% of eligible earnings plus 0.5% of eligible earnings in excess of Social Security covered compensation for each year of service. Eligible earnings generally include all taxable compensation, other than certain equity-based and nonrecurring amounts, up to $170,000 per year. ERP participants who, as of January 1, 2004, had age plus service equal to at least 65 and who had been credited with five years of service, receive benefits determined under the ERP’s pre-2004 benefit formula, if greater. Pre-2004 benefits equal 1.15% of final average salary, plus 0.35% of final average salary in excess of Social Security covered compensation, in each case multiplied by Credited Service up to 35 years, where final average salary is base salary, up to specified limits set forth inEffective after December 31, 2010, the ERP for the highest paid 60 consecutive months of the last 120 months of service.was frozen and no further benefit accruals will occur. Benefits are generally payable as an annuity at age 65 (or earlier, subject to certain reductions in the amounts payable). Under the pre-2004 provisions of the ERP, benefits are payable in full at age 60 and reduced 4% per year for retirement between ages 55 and 60 for employees who retire after age 55 with ten years of service. TheBefore the ERP was closedfrozen, annual benefits were equal to new1% of eligible earnings plus 0.5% of eligible earnings in excess of Social Security covered compensation for each year of service. Eligible earnings generally included all taxable compensation, other than certain equity-based and nonrecurring amounts, up to $170,000 per year. ERP participants effective Julywho, as of January 1, 2007,2004, had age plus service equal to at least 65 and who had been credited with five years of service, received benefits determined under the ERP’s pre-2004 benefit formula, if greater. Pre-2004 benefits equaled 1.15% of final average salary, plus 0.35% of final average salary in excess of Social Security covered compensation, in each case multiplied by Credited Service up to 35 years, where final average salary was replaced by a retirement contributionbase salary, up to the Company’s 401(k) Plan. Messrs. Mack, Chammah, deRegt and Gorman participatedspecified limits set forth in the ERP, during 2009.for the highest paid 60 consecutive months of the last 120 months of service. Mr. Mack is eligible for retirement under the ERP.Gorman, Ms. Porat and Mr. Chammah is eligible for early retirement underTaubman have accrued benefits in the ERP.

 

Supplemental Executive Retirement and Excess Plan

 

Messrs. Mack, Kelleher, deRegt and Chammah participate in the SEREP. The SEREP is an unfunded, nonqualified plan. Credited serviceService is counted starting from the first day of the month after the hire date, except that for certain excess benefits Credited Service begins after one year of service. The SEREP provides benefits not otherwise provided under the ERP formula because of limits in the ERP or Internal Revenue Code on eligible pay and benefits,benefits. The SEREP also provides certain grandfathered benefits not otherwise payable under the ERP and supplemental retirement income (unreduced at age 60) for eligible employees after offsetting other Company-provided pension benefits, and pension benefits provided by former employers.employers and, effective for calendar years after 2010, adjusted to take into account a portion of 401(k) contributions. The supplemental benefit, before offsets,

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equals 20% of final average salary plus 2% of final average salary per year after five years (up to 50% cumulatively) plus 1% of final average salary per year after 25 years (up to 60% cumulatively), where final average salary is base salary for the highest paid 60 consecutive months of the last 120 months of service, up to a maximum annual benefit payable of $140,000 at age 60, reduced by 4% per year for payments beginning before age 60. For Mr. Kelleher, the value of his supplemental benefit will vary based on the investment performance of his defined contribution account under the U.K. Pension Plan, which offsets this benefit. The SEREP was restricted effective January 1, 2004 to allow only “grandfathered” employees who as of that date met certain eligibility criteria to benefit from the plan. Grandfathering in this plan was provided to all similarly situated eligible employees and may be provided to other employees with the approval of the CMDS Committee. Benefits may be paid in various actuarially equivalent forms of annuity. Other than for small balances, no lump sums are available under this plan. Ms. Porat and Messrs. Kelleher and Taubman participate in the SEREP.

 

U.K. Group Pension Plan

 

Mr. Kelleher is a U.K.-benefits-eligible NEO who participates in the U.K. Pension Plan. As described further in note 4 to the “Pension Benefits Table,” the U.K. Pension Plan is a defined contribution plan that provided defined benefit accruals until 1996. The guaranteed minimum pension payable under the U.K. Pension Plan is determined in accordance with U.K. laws.

 

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2011 Nonqualified Deferred Compensation Table.Table

The following table contains information with respect to the participation of the NEOs in the Company’s unfunded cash nonqualified deferred compensation plans that provide for the deferral of compensation on a basis that is not tax-qualified, as well as with respect to RSUs granted to the NEOs that are vested but have not yet converted to shares of Morgan Stanley common stock. The table does not include information with respect to the NEOs’ equity awards or MSCIP awards granted in January 2010 for performance in 2009. The values of the 2009 MSCIP awards are included in the “Bonus” column to the “Summary Compensation Table” and note 3 thereto.

 

In addition to the Company equity plans, each NEO participated in one or more of seven cash nonqualified deferred compensation plans as of December 31, 2009: MSCIP,2011: the Notional Leveraged Co-Investment Plan (LCIP), the Select Employees’ Capital Accumulation Program (SECAP), the Pre-Tax Incentive Program (PTIP)Plan (CAP), the Key Employee Private Equity Recognition Plan (KEPER), the Notional Leveraged Co-Investment Plan (LCIP), MSCIP, the Pre-Tax Incentive Program (PTIP), the Select Employees’ Capital Accumulation Plan (CAP)Program (SECAP) and the Owners’ and Select Earners’ Program (OSEP)Strategic Equity Incentive Plan (SEIP). The NEOs participate in the plans on the same terms and conditions as other similarly situated employees. These terms and conditions are described below following the notes to the table. Employees can no longer makeCAP, KEPER, LCIP, PTIP and SEIP are closed to new participants and contributions under PTIP, KEPER, CAP and OSEP.SECAP was not offered to the NEOs for 2011.

 

2009 Nonqualified Deferred Compensation Table49

 

Name Fiscal
Period
  

Executive

Contributions

in Last FY

($)(1)

  

Registrant

Contributions

in Last FY

($)

 

Aggregate

Earnings

in Last FY

($)(2)

  

Aggregate

Withdrawals/

Distributions
($)(3)

  

Aggregate

Balance

at Last FYE

($)(4)

 

John J. Mack

                 

CAP

 Dec. 2008   —             —   —     —     29,513  
  2009   —     —   14,907   —     44,420  

KEPER

 Dec. 2008   —     —   (327 —     309,285  
  2009   —     —   (25,521 29,259   254,505  

OSEP

 Dec. 2008   —     —   15,890   —     1,751,002  
  2009   —     —   210,120   —     1,961,122  

PTIP

 Dec. 2008   —     —   (90,912 —     3,873,675  
  2009   —     —   809,820   —     4,683,495  

RSUs(5)

 Dec. 2008   —     —   1,463,056   —     21,269,005  
  2009   —     —   15,706,247   597,118   36,378,134  

 

 

 
 

 

 

Total

 Dec. 2008   —     —   1,387,707   —     27,232,480  
  2009   —     —   16,715,573   626,377   43,321,676  
      

Colm Kelleher

                 

CAP

 Dec. 2008   —     —   —     —     13,321  
  2009   —     —   (1,788 —     11,533  

LCIP

 Dec. 2008   —     —   (208,860 —     1,263,784  
  2009   —     —   (5,922 —     1,257,862  

MSCIP

 Dec. 2008   1,060,316   —   —     —     1,060,316  
  2009   —     —   407   —     1,060,723  

RSUs(5)

 Dec. 2008   706,864   —   342,322   —     4,976,465  
  2009   —       3,893,747   3,089,398   5,780,814  

 

 

 
 

 

 

Total

 Dec. 2008   1,767,180   —   133,462   —     7,313,886  
  2009   —     —   3,886,444   3,089,398   8,110,932  
      

Walid A. Chammah

                 

CAP(6)

 Dec. 2008   —     —   —     —     30,033  
  2009   —     —   (2,676 —     27,357  

LCIP

 Dec. 2008   —     —   (109,834 —     849,846  
  2009   —     —   90,756   —     940,602  

PTIP

 Dec. 2008   —     —   (83,816 —     2,186,491  
  2009   —     —   167,861   —     2,354,352  

RSUs(5)

 Dec. 2008   —     —   710,507   —     10,328,909  
  2009   —     —   7,627,456   289,980   17,666,385  

SECAP

 Dec. 2008   —     —   (29,363 —     765,987  
  2009   —     —   58,806   —     824,793  

 

 

 
 

 

 

Total

 Dec. 2008   —     —   487,494   —     14,161,266  
  2009   —       7,942,203   289,980   21,813,489  

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Name Fiscal
Period
  

Executive

Contributions

in Last FY

($)(1)

  

Registrant

Contributions

in Last FY

($)

  

Aggregate

Earnings in

Last FY

($)(2)

  

Aggregate

Withdrawals/

Distributions
($)(3)

  

Aggregate

Balance at

Last FYE

($)(4)

   

Executive

Contributions

in Last FY

($)(1)

  

Registrant

Contributions

in Last FY

($)

   

Aggregate

Earnings

in Last FY

($)(2)

  

Aggregate

Withdrawals/

Distributions
($)(3)

  

Aggregate

Balance

at Last FYE

($)(4)

 
 

Kenneth M. deRegt

           

CAP

 2009             —               —     14,073   —     80,588  

James P. Gorman

             

LCIP

   —      —       (32,088)    —      1,171,476    

MSCIP

 2009   —     —     306   —     796,806     2,328,000      —       18,009    1,172,314      7,331,080    

OSEP

 2009   —     —     191,952   —     1,876,610  

PTIP

 2009   —     —     29,274   —     4,561,598  

RSUs(5)

         2009   —     —     621,269   23,619   1,438,958     3,879,978      —       (8,473,617)    72,143      10,440,962    

 

 

 

 

 

 

  


 


  


 


 


Total

 2009   —     —     856,874   23,619   8,754,560     6,207,978      —       (8,487,696)    1,244,457      18,943,518    

Ruth Porat

             

CAP

   —      —       (15)    —      7,082    

KEPER

   —      —       1,214    2,486      10,049    

LCIP

   —      —       20,208    —      20,208    

MSCIP

   2,220,000      —       (102,280)    1,685,399      4,777,302    

PTIP

   —      —       (86,680)    —      477,316    

RSUs(5)

   3,699,981      —       (3,445,078)    3,332,006      4,332,927    

SEIP

   —      —       (1,828)    —      72,952    
   


 


  


 


 


James P. Gorman

           

Total

   5,919,981      —       (3,614,459)    5,019,891      9,697,836    

Gregory J. Fleming

             

MSCIP

   2,100,000      —       1,803    1,050,743      1,051,060    

Colm Kelleher

             

CAP

   —      —       27    —      11,024    

LCIP

 2009   —     —     81,198     841,498     —      —       (6,948)    —      1,792,127    

MSCIP

   2,458,244      —       27,788    1,237,902      5,354,262    

RSUs(5)

 2009   —     —     6,513,684   2,831,282   13,495,040     4,097,068      —       (4,648,781)    1,322,926      5,668,201    

 

 

 

 

 

 

  


 


  


 


 


Total

 2009   —     —     6,594,882   2,831,282   14,336,538     6,555,312      —       (4,627,914)    2,560,828      12,825,614    

Paul J. Taubman

             

CAP

   —      —       (659)    —      29,005    

KEPER

   —      —       38,838    79,561      321,564    

LCIP

   —      —       149,063    —      3,544,994    

MSCIP

   2,460,000      —       111,437    1,239,948      6,809,467    

PTIP

   —      —       11,400    —      1,256,198    

RSUs(5)

   4,099,998      —       (8,345,655)    80,932      10,242,723    

SECAP

   —      —       45,736    —      5,039,626    

SEIP

   —      —       (564)    —      24,702    

  


 


  


 


 


Total

   6,559,998      —       (7,990,404)    1,400,441      27,268,279    

 

(1)RepresentsRSU contributions of fiscal 2008 compensation, including equity awards and MSCIPrepresent RSU awards granted in December 2008January 2011 for fiscal 20082010 performance that are considered vested at grant but are subject to cancellation until the scheduled conversion ordates of such awards in 2013 and 2014. MSCIP contributions represent MSCIP awards granted in January 2011 for 2010 performance that are subject to vesting and cancellation until the scheduled payment dates of such awards in 2011 and 2012. TheOther than with respect to Mr. Taubman, the MSCIP awards reported in this table are also reported as part of the 2010 bonus in the “Summary“2011 Summary Compensation Table” for fiscal 2008.Table.” The value of the RSUs in this column (which are also reportedincluded in the “Stock Awards” column of the “Summary“2011 Summary Compensation Table” (forfor 2011, the December 2008 transition period), the “Grants“2011 Grants of Plan-Based Awards Table” and the “Option“2011 Option Exercises and Stock Vested Table” of this proxy statement)) is based on $16.8313, the aggregate grant date fair value of the awards. Messrs. Mack, Chammah and Gorman did not receive a bonus with respect to fiscal 2008.RSUs based on $29.8899, the volume-weighted average price of the common stock on the grant date.

 

(2)With respect to our cash-based nonqualified deferred compensation plans, (A) for the December 2008 transition period, represents the change in (i) the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2008, without giving effect to any withdrawals or distributions, compared to (ii) the sum of the balance of the NEO’s account reflected on the Company’s books and records at November 30, 2008 and the value of any contributions made during December 2008 and (B) for 2009, represents the change in (i) the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2009,2011, without giving effect to any withdrawals or distributions, compared to (ii) the sum of the balance of the NEO’s account reflected on the Company’s books and records at December 31, 20082010 and the value of any contributions made during 2009. In both cases, includes2011. Includes any nonqualified deferred compensation earnings that are disclosed in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the “Summary“2011 Summary Compensation Table” for the December 2008 transition period and 2009 respectively, as applicable,2011 and described in note 76 thereto.

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With respect to the RSUs, (A) for the December 2008 transition period, represents (i) the change in the average of the high and low prices of the Company’s common stock on December 31, 2008, without giving effect to any withdrawals or distributions, as compared to November 30, 2008, and (B) for 2009, represents the change in average high and low prices of the Company’s common stock on December 31, 20092011 (or, if applicable, the earlier distribution date), without giving effect to any withdrawals or distributions, as compared to December 31, 2008,2010 (or, if applicable, the later contribution date), as well as (ii) the amount of the vested cash dividend equivalent rights credited in 20092011 with respect to the RSUs, which,award (which, for the RSUs set forth in this table,granted prior to 2010, are paid to the RSU holder at the time dividends are paid to holders of the Company’s common stock.stock and, for the RSUs granted in 2010 and 2011, are paid to the award holder at the time that the underlying award converts to shares, subject to the same cancellation provisions as the underlying award).

 

(3)Represents distributions from our cash-based nonqualified deferred compensation plans and RSU conversions based on the average of the high and low prices of the Company’s common stock on the conversion date and, with respect to the RSUs, also represents amounts paid on RSUs during 20092011 pursuant to dividend equivalent rights.

 

(4) With respect to our cash-based nonqualified deferred compensation plans, represents the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2008 and December 31, 2009, as applicable,2011, and with respect to the RSUs, represents the number of vested units held by the NEO on December 31, 2008 and December 31, 2009, as applicable,2011, multiplied by the average of the high and low prices of the Company’s common stock on such date.December 30, 2011, as well as the amount of the vested deferred cash dividend equivalent rights held with respect to the RSUs. All amounts deferred by ana NEO in prior years have been reported in the Summary Compensation Tables in our previously filed proxy statements in the year earned (or with respect to equity awards, granted) to the extent he or she was ana NEO for that year for purposes of the SEC’s executive compensation disclosure.disclosure rules.

 

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(5) The RSUs disclosed in this table include awards that areas of December 31, 2011 had vested, but havehad not reached their scheduled conversion date and remainremained subject to cancellation, as well as those awards that havehad reached their scheduled conversion date, but are beingwere deferred until the NEO’s separation from service to preserve the Company’s tax deductibility of the award, in accordance with the terms of the award.

(6) Mr. Chammah has participated in CAP prior to the beginning of the December 2008 transition period.

 

The following is a description of the material terms with respect to contributions, earnings and distributions applicable to each of the seven cash nonqualified deferred compensation plans and the RSUs referenced in the table above.

 

Morgan Stanley Compensation IncentiveCapital Accumulation Plan (MSCIP)

 

A portionUnder CAP, participants were granted a number of the NEOs’ fiscal 2008 and 2009 year-end long-term incentiveunits based on their level of compensation was mandatorily deferred into MSCIP. MSCIP offers participants the abilityin excess of base salary. The plan has been closed to notionally invest their award in a range of notional investments, including cash-equivalents, funds that track the performance and characteristics of broad fixed income and equity market indices, passively-managed funds that track the performance of more specialized market segments, and actively-managed funds. Participants may reallocate such balances periodically, as determined by the plan administrator.new contributions since 1998. Earnings on MSCIP awardsunits are based on notional interests in investment earnings and interest on risk capital investments selected by the performanceCompany. Participants generally receive plan distributions after dividends, distributions of these notionalcapital, liquidation proceeds or other distributions are paid from the underlying investments. Until MSCIP awards reach

Key Employee Private Equity Recognition Plan

Under KEPER, participants were permitted to defer a portion of their scheduled distribution date, theycash bonus. The plan has been closed to new contributions since 2001. Contributions to KEPER are notionally invested by the Company in reference investments. Such reference investments may include investments made by Company-sponsored private equity funds, investments made by private equity funds sponsored by third parties in which the Company has acquired or will acquire a limited partner or similar interest, and investments in private equity securities that the Company makes for its own account. Distributions are made to participants following the realization of any proceeds in respect of any investment. The amounts contributed by a participant plus any earnings on participant contributions under the program remain subject to cancellation as well as clawback by the Company, which, for awards granted in December 2008, can be triggered if an individual engages in conduct detrimental to the Company, such as causing the need for a restatement of financial results, a significant financial loss or other reputational harm to the Company or one of its businesses.under specified circumstances.

 

Notional Leveraged Co-Investment Plan (LCIP)

 

Under LCIP, permits each participant toparticipants may allocate a portion of the participant’stheir long-term incentive compensation to the plan. LCIP is closed to new participants and has not been offered since 2008. For each of fiscal 2006, fiscal 2007 and fiscal 2008, participants were permitted to allocate up to 40% of their long-term incentive compensation to LCIP. None of the NEOs participated in LCIP with respect to fiscal 2008 compensation. LCIP was not offered for 2009.

 

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The Company may make a notional investment in an amount equal to a multiple of each participant’s contribution (for each of fiscal 2006, fiscal 2007 and fiscal 2008, this multiple was two; however, for fiscal 2008, participants could elect to forgo the notional investment). Contributions are notionally invested by the Company in reference investments, which may include the Company’s proprietary investment funds, “funds of funds” that include Company proprietary investment funds and third-party investment funds, and other third-party investment funds. All amounts contributed by a participant plus any earnings on participant contributions and the Company notional investment are subject to cancellation under specified circumstances until three years after deferral. Participants generally are entitled to receive distributions in respect of their contributions plus any earnings on their contributions and on the Company notional investment on the third anniversary of grant and the tenth anniversary of grant, based on the valuation of the notional investments and any realizations of those investments prior to the scheduled distribution date. Participant distributions under LCIP are offset by the Company notional investment, excluding any earnings thereon.

 

Select Employees’ Capital Accumulation Program (SECAP)Morgan Stanley Compensation Incentive Plan

 

Under SECAP, participants are permitted to deferBeginning with fiscal 2008 year-end compensation, a portion of their cash bonus or commissions for one or more fiscal years.the NEOs’ year-end long-term incentive compensation was mandatorily deferred into MSCIP. Earnings on SECAP contributionsMSCIP awards are based on the performance of notional investments available under the plan and selected by the participants. Participants can generally electmay reallocate such balances periodically, as determined by the commencementplan administrator. Until MSCIP awards reach their scheduled distribution date, for distributions of their contributions and earnings and the number of annual installments over which to receive distributions (generally, one to ten years),they are subject to earlier distribution on deathcancellation and clawback by the Company. The cancellation and clawback events applicable to MSCIP awards held by our NEOs are described below in “Potential Payments Upon Termination or termination of employment. No distributions may begin later than the January 2 following the year in which the participant attains age 65.Change-in-Control.”

 

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Pre-Tax Incentive Program (PTIP)

 

Under PTIP, participants were permitted to defer a portion of their cash bonus or commissions for one or more fiscal years. The plan has been closed to new contributions since 2003. Earnings on PTIP contributions are based on the performance of notional investments available under the plan and selected by the participants. Participants could generally elect the commencement date for distributions of their contributions and earnings and the number of annual installments over which to receive distributions (generally, 5, 10, 15 or 20 years). Subject to earlier distribution on death or termination of employment due to disability, no distributions may begin prior to the attainment of age 55, and no distribution may begin prior to termination of employment.

 

Key Employee Private Equity Recognition Plan (KEPER)Select Employees’ Capital Accumulation Program

 

Under KEPER,SECAP, participants were permitted to defer a portion of their cash bonus. The plan has been closed to new contributions since 2001. Contributions to KEPER are notionally invested by the Company in reference investments. Such reference investments may include investments made by Company-sponsored private equity funds, investments made by private equity funds sponsored by third parties in which the Company has acquired or will acquire a limited partner or similar interest, and investments in private equity securities that the Company makes for its own account. Distributions are made to participants following the realization of any proceeds in respect of any investment. The amounts contributed by a participant plus any earnings on participant contributions under the program remain subject to cancellation under specified circumstances.

Capital Accumulation Plan (CAP)

Under CAP, participants were granted a number of units based on their level of compensation in excess of base salary. The plan has been closed to new contributions since 1998. Earnings on units are based on notional interests in investment earnings and interest on risk capital investments selected by the Company. Participants generally receive plan distributions after dividends, distributions of capital, liquidation proceeds or other distributions are paid from the underlying investments.

Owners and Select Earners Program (OSEP)

Under OSEP, participants were permitted to defer a portion of their cash bonus or commissions for one or more fiscal years. Earnings on SECAP contributions are based on the performance of notional investments available under the plan and selected by the participants. Participants can generally elect the commencement date for distributions of their contributions and earnings and the number of annual installments over which to be earned eachreceive distributions (generally, one to ten years), subject to earlier distribution on death or termination of employment. No distributions may begin later than January 2 following the year duringin which the participant attains age 65.

Strategic Equity Incentive Plan

Under SEIP, participants were granted notional points to compensate them for their contributions to the growth and profits of the Company. SEIP points entitle a four-year period commencing with 1983.participant to a pro-rata share of earnings based on the performance of notional risk capital investments selected by the Company. SEIP points were awarded for performance years 1999, 2000 and 2001. The plan has been closed to new contributionsparticipants since 1986. Amounts contributed to OSEP are credited with earnings based on a fixed rate2001. The final distribution in respect of returnSEIP points awarded for 1999 was made in 2010 and the last remaining distribution in respect of either 11% or 12% (depending on the year of deferral), compounded annually. Provided that the participant has terminated employment, distributionsSEIP points awarded for 2000 and 2001 will be made on either the participant’s attainment of age 65 or, if the participant elects, prior to the attainment of age 65 but no earlier than the attainment of age 55. Participants generally receive plan distributions in 15 annual installments.2012.

 

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RSUs

 

RSUs may be granted under the Morgan Stanley 2007 Equity Incentive Compensation Plan or any other Company equity plan as determined by the CMDS Committee. Each RSU constitutes a contingent and unsecured promise of the Company to pay the holder one share of Company common stock on the conversion date of the RSU. The NEOs are retirement-eligible under the terms of the outstanding RSUs and, therefore, the awardsincluded in this table are considered vested; however, the RSUs are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. RSUs granted in 2012 are subject to clawback, as well as cancellation, prior to the scheduled conversion date. The cancellation and clawback events applicable to RSUs held by our NEOs are described belowin the CD&A and in “Potential Payments Upon Termination or Change-in-Control.Change-in-Control,Further, in accordance with the terms of the award, the Company has delayed the conversion of certain RSUs past the scheduled conversion date to preserve the Company’s tax deductibility of the award, with conversion to occur in connection with the NEO’s separation from service.as applicable.

 

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Potential Payments Upon Termination or Change-in-Control.Change-in-Control

This section describes and quantifies the benefits and compensation to which each NEO would have been entitled under our existing plans and arrangements if his or her employment had terminated or if the Company had undergone a change in control,change-in-control, in each case on December 31, 2009.2011. The section does not include any awards granted to our NEOs in January 2012 for performance in 2011, as such awards were not outstanding, and the NEOs were not entitled to such awards, as of December 31, 2011. For purposes of valuing any equity awards, we have assumed a per share value of $29.60,$15.13, the closing price of the Company’s common stock on December 31, 2009.30, 2011.

 

I.General Policies

 

Except as described below with respect to entitlements for Mr. Mack upon his death or disability, ourOur NEOs are not entitled to cash severance payments upon any termination of employment. Further, except as described below with respect to Mr. Mack, upon termination, our NEOsemployment, but they are entitled to receive health and welfare benefits that are generally available to all salaried employees, such as accrued vacation pay and death, disability and post-retirement welfare benefits. Our NEOs are not entitled to special or enhanced termination benefits under our pension and nonqualified deferred compensation plans as compared to other employees.

 

Following termination of employment, the NEOs are entitled to amounts, to the extent vested, due under the terms of our pension arrangements, as described in the “Pension“2011 Pension Benefits Table.”Table” and accompanying narrative. Further, upon a termination of employment, NEOs are entitled to the nonqualified deferred compensation amounts, to the extent vested, reported in the “2011 Nonqualified Deferred Compensation Table” pursuant to the terms of the arrangements, reported in the “Nonqualified Deferred Compensation Table” andas described in the accompanying narrative. Our NEOs are not entitled to special or enhanced termination benefits under our pension and nonqualified deferred compensation plans as compared to other employees.

 

Neither Mr. Kelleher nor Mr. ChammahEven if a NEO is entitledconsidered vested in a long-term incentive award reported in the “2011 Nonqualified Deferred Compensation Table,” the award may be subject to any specialcancellation through the distribution date of such award in the event the NEO engages in a cancellation event or, enhanced benefits or payments under his overseas assignment arrangement or modified expatriate package, respectively, asif applicable, a result ofclawback event occurs.

In general, a cancellation event with respect to such vested long-term incentive awards and the awards described in the table below includes: engaging in competitive activity during a specified period following a voluntary termination of employment (other than following a Good Reason termination for Mr. Gorman’s 2009 and 2010 year-end awards); a termination for cause, a later determination that the NEO’s employment could have been terminated for cause or changeengaging in control on December 31, 2009. Under Mr. Kelleher’s overseas assignment arrangement, executive compensation items arecause whether or not subject to tax equalization afteremployment has been terminated; improper disclosure of the Company’s proprietary information; solicitation of Company employees, clients or customers during employment or within a specified period following termination of employment; the making of unauthorized comments regarding the Company; resignation of employment without providing the Company advance notice within a specified period; or, for 2009 and 2010 year-end awards, the failure or refusal following termination of employment (including a termination following a change in control), in which case he will become responsible for all actual taxes on this income.

II.Outstanding Equity, MSCIP and LCIP Awards

A.Termination of Employment.    Each NEO is considered retirement-eligible for purposes of all outstanding equity and MSCIP awards and LCIP interests held by him and therefore is not required to perform future services to earn such awards. Outstanding RSUs, MSCIP awards and LCIP interests are reported in the “Nonqualified Deferred Compensation Table.”

Restricted Stock Units.    Excluding any special terms relating to certain new-hire awards described below, following an NEO’s termination of employment, RSUs will convert to shares of common stock on the scheduled conversion date and will remain subject to cancellation conditions until conversion, except that RSUs will convert and cancellation provisions will lapse immediately upon an NEO’s death, a qualifying termination (defined below) (for awards granted to our NEOs on or following December 20, 2007), or the commencement of work for a governmental employer if continuing to hold Morgan Stanley equity awards would result in a conflict of interest or ethical or legal violation (provided that the NEO must repayto cooperate with or assist the Company for the value of the shares delivered if he engages in an event that would have resulted in cancellation of the RSUs had they not accelerated). Any RSUs that did not convert on schedule, but instead are currently deferred to preserve the Company’s tax deduction under Section 162(m) of the Internal Revenue Code (the Code) will convert on a termination of employment (subject to delay in payment if required under Section 409A of the Code).

With respect to certain new hire RSUs granted to Mr. Gorman in connection with his joininginvestigations, regulatory matters, lawsuits or arbitrations in which the Company, following a resignation with good reason (as defined in his employment arrangement and summarized below), an involuntary termination without cause or termination as a result of disability, the RSUs will convert to shares of common stock on their scheduled conversion dates, but any cancellation restrictions will cease to apply following such a termination.NEO may have pertinent information.

 

Stock Options.    All outstanding stock options held by our NEOs were exercisable and no longer subject to transfer or cancelation restrictions as of December 31, 2009, except with respect to 50% of

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the stock options granted on December 12, 2006 as part of fiscal 2006 compensation, which became exercisable and with respect to which the remaining transfer and cancelation provisions lifted on January 2, 2010. No outstanding stock options had intrinsic value as of December 31, 2009, as the exercise price of the stock options was in all cases greater than the closing share price of our common stock on such date. Generally, following an NEO’s termination of employment, stock options remain exercisable until their normal expiration date (except for the special stock option awards granted to Mr. Chammah, which expire 90 days following a termination of employment).

MSCIP Awards.    Similar to the RSUs described above, following an NEO’s termination of employment, MSCIP awards will be distributed on the scheduled payment date and will remain subject to cancellation conditions (including clawback) until payment, except payment of MSCIP awards will be accelerated upon the same circumstances as described above for RSUs.

LCIP Interests.    Following an NEO’s termination of employment, LCIP interests will be distributed on the scheduled distribution dates (generally, the third anniversary of grant (the first distribution date) and the tenth anniversary of grant (the second distribution date)) and will remain subject to cancellation until the first distribution date; provided that, similar to RSUs, LCIP interests will pay out immediately upon an NEO’s death, upon the commencement of work for a governmental employer (as described above) or, for interests other than those granted with respect to fiscal 2006, upon a qualifying termination.

B.Cancellation.    For our NEOs, a cancellation event generally includes: engaging in competitive activity during a specified period following a voluntary termination of employment; a termination for cause or a later determination that the NEO’s employment could have been terminated for cause (or for fiscal 2008 awards, engaging in cause whether or not employment has been terminated); improper disclosure of the Company’s proprietary information; solicitation of Company employees, clients or customers during employment or within a specified period following termination of employment; the making of unauthorized comments regarding the Company; or resignation of employment without providing the Company advance notice within a specified period (except that the advance notice cancellation event does not apply with respect to Mr. Mack and certain of Mr. Gorman’s new hire awards in the case of termination with good reason as defined in their respective employment arrangements). MSCIP awards also include a provision for clawback by the Company, which can be triggered if an individual engages in conduct detrimental to the Company, such as causing the need for a restatement of financial results, a significant financial loss or other reputational harm to the Company or one of its businesses.

C.Change in Control or Change in Ownership.    RSUs and stock options awarded to our NEOs on or prior to December 12, 2006 (the grant date for fiscal 2006 awards) and LCIP interests granted with respect to fiscal 2006 include provisions regarding “change in control” and “change in ownership,” as such terms are defined in the applicable award certificates. Generally, a “change in ownership” is a more significant change in the share ownership or composition of the board than a “change in control.” A change in control would not result in accelerated payment of RSUs or LCIP interests and any applicable cancellation provisions would continue to apply, but unexercisable stock options would become exercisable upon a change in control (with transfer restrictions and cancellation provisions remaining in effect until the applicable transfer restriction date). Upon a change in ownership, RSUs (other than those RSUs deferred under Section 162(m) of the Code) would convert immediately, LCIP interests would be distributed, unexercisable stock options would become exercisable and cancellation provisions and transfer restrictions would no longer apply.

RSUs and LCIP interests granted on or after December 20, 2007 (the grant date for fiscal 2007 awards) and MSCIP awards provide for early conversion or payment upon a “qualifying termination.” A “qualifying termination” is a termination within 18 months of a change in control as a result of (i) the Company terminating the NEO’s employment under circumstances not involving any cancellation event, (ii) the NEO resigning from employment due to a materially adverse alteration in his position or in the nature or status of his responsibilities from those in effect immediately prior to the change in control, or (iii) the Company requiring the NEO’s principal place of employment to be located more than 75 miles from his current

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principal location. The definition of “change in control” for these purposes is similar to the “change in ownership” definition applicable to the RSUs and LCIP interests described above.

Each of Messrs. Mack and Gorman is party to a written agreement with the Company pursuant to which, if it is determined that any payments made to him in connection with a change in control of the Company would be subject to an excise tax under Section 4999 of the Code, he would be entitled to receive an additional payment to restore him to the after-tax position that he would have been in if the tax had not been imposed. For purposes of determining whether Messrs. Mack and Gorman would have been entitled to an additional payment due to a change in control as of December 31, 2009, we made the following assumptions: (i) all RSUs, MSCIP and LCIP awards become payable, (ii) outstanding stock options become exercisable, and (iii) all cancellation provisions and transfer restrictions lift. Calculations to estimate the excise tax due under the Code are complex and reflect a number of assumptions. For purposes of our calculation, we assumed an excise tax rate of 20% and an individual tax rate of 45%. Based on these assumptions, neither Mr. Mack nor Mr. Gorman would have been entitled to an additional payment.

III.Potential Payments for Certain NEOs

Mr. Mack’s employment agreement provides that upon a termination of his employment due to his death or disability during the employment term (ending on June 30, 2010), he (or his beneficiaries) will be entitled to a cash payment equal to his prior year’s annualized total compensation, prorated to reflect his length of service during the year of death or disability, less the base salary he received during the year of his termination. Since Mr. Mack did not receive a bonus for fiscal 2008, neither he nor his beneficiaries would have been entitled to any cash payment under this provision of his agreement assuming such a termination of employment on December 31, 2009. “Disability” generally means Mr. Mack’s inability to perform his duties on a full-time basis for six consecutive months as a result of incapacity due to mental or physical illness.

Pursuant to the terms of Mr. Mack’s employment agreement, on termination of Mr. Mack’s employment by the Company without cause or by him for good reason (as such terms are defined in his employment agreement), Mr. Mack and his eligible dependents are entitled to continued medical and dental benefits until June 30, 2010 as if he remained an active employee. Assuming such a termination occurred on December 31, 2009, the incremental value of these medical and dental benefits (over the benefits provided to employees generally) would have been $747.

“Good reason,” as defined in each of Messrs. Mack’s and Gorman’s employment arrangements, generally means a material change or reduction in the NEO’s duties or responsibilities, any diminution in the NEO’s title or reporting relationship, the Company’s breach of its obligations to provide payments or benefits underthrough the applicable arrangement, requiringscheduled payment date of such awards, which can be triggered if an individual takes, or omits to take, any action (including with respect to supervisory responsibilities) that causes the NEO to be based atneed for a locationrestatement of financial results, a significant financial loss or other than the Company’s headquarters, a purported termination of the NEO’s employment other than as expressly permitted by the agreement, or the failure of any successorreputational harm to the Company or one of its businesses, or if the Company determines that there has been a substantial loss on a trading position, investment, commitment or other holding or a loss on a trading position, investment, commitment or other holding where the NEO operated outside the applicable risk parameters or profile, and in either case, such position, investment, commitment or other holding was a factor in the award determination.

Further, shares resulting from the conversion of the PSUs are subject to assume and performclawback by the employment arrangement and, for Mr. Mack only, a failure to reelect himCompany in the event the Company’s achievement of the specified goals was based on materially inaccurate financial statements or other performance metric criteria.

In addition to the Board; provided that, in each case, the NEO must provide notice to the Company of the circumstances constituting good reason and the Company has the right to cure such circumstances within 30 business days.

IV.Notice and Non-Solicitation Agreements

Ascancellation events described in the CD&A,above, each NEO is party to a Notice and Non-Solicitation Agreement that provides for injunctive relief and cancellation of any equity or other incentive awards granted with respect to fiscal 2005 and thereafter, whether or not vested, in the event that the NEO does not provide 180 days’ advance notice prior to a resignation from employment (except, in the case of Mr. Mack and certain of Mr. Gorman’s new hire awards, with respect to a termination for good reason) or in the event that the NEO improperly solicits our employees, clients or customers during employment and for 180 days following termination of employment.

 

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Director Compensation

II.Amounts Vesting upon a Termination of Employment/Change-in-Control

 

The following table contains information withWith respect to the annual compensation (including deferred compensation)unvested outstanding long-term incentive awards held by the NEOs, each NEO would be entitled to the following amounts in the event of our non-employee directors paid during 2009 and the December 2008 transition period. Except as noted below, the compensation disclosed in this table for 2009 represents each director’s compensation with respect to hisa termination of employment, or her Board service for the period beginning at the 2009 annual meetingchange-in-control of shareholders and concluding at the 2010 annual meeting of shareholders (2009 service). For the period reported below, the Company, paid its non-employee directors promptly after its 2009 annual meetingon December 31, 2011, subject to no cancellation event or clawback event occurring through the distribution date of shareholders for 2009 service. Mr. Hirano and employee directors receive no compensation for Board service.such award, as applicable.

 

2009 Director Compensation Table

Director Fiscal
Period
  

Fees Earned or

Paid in Cash

($)(1)

  

Stock Awards

($)(2)(3)

  

Option Awards

($)(3)

 

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

 

All Other

Compensation

($)

 

Total

($)

Roy J. Bostock

 2009   85,000   250,000   —   —   —   335,000
 Dec. 2008   —     —     —   —   —   —  

Erskine B. Bowles

 2009   85,000   250,000   —   —   —   335,000
 Dec. 2008   —     —     —   —   —   —  

Howard J. Davies

 2009   90,000   250,000   —   —   —   340,000
 Dec. 2008   —     —     —   —   —   —  

James H. Hance, Jr.

 2009   62,500(4)  208,333(4)  —   —   —   270,833
 Dec. 2008   —     —     —   —   —   —  

C. Robert Kidder

 2009   125,000   250,000   —   —   —   375,000
 Dec. 2008   —     —     —   —   —   —  

Donald T. Nicolaisen

 2009   100,000   250,000   —   —   —   350,000
 Dec. 2008   —     —     —   —   —   —  

Charles H. Noski

 2009   105,000   250,000   —   —   —   355,000
 Dec. 2008   —     —     —   —   —   —  

Hutham S. Olayan

 2009   85,000   250,000   —   —   —   335,000
 Dec. 2008   —     —     —   —   —   —  

Charles E. Phillips, Jr.

 2009   85,000   250,000   —   —   —   335,000
 Dec. 2008   —     —     —   —   —   —  

O. Griffith Sexton(5)

 2009   90,000   250,000   —   —   —   340,000
 Dec. 2008   6,250(6)  —     —   —   —   6,250

Laura D. Tyson

 2009   95,000   250,000   —   —   —   345,000
 Dec. 2008   —     —     —   —   —   —  

    Termination Reason/    

Change-in-Control

 Name Value of
Unvested
RSUs and
related
dividend
equivalents(1)
   Value of Unvested
PSUs and related
dividend equivalents(2)
   Value of
Unvested Stock
Options(3)
   Value of
Unvested MSCIP
Awards(4)
Involuntary Termination (other than for cause or a cancellation event)/Termination Due to Disability/ Qualifying Termination(5) James P. Gorman —     $230,257   $0   $1,181,584
 

Ruth Porat

 —     $199,540   $0   $1,142,416
 

Gregory J. Fleming

 $5,254,769   $37,329   $0   $1,051,060
 

Colm Kelleher

 —     $200,009   $0   $1,247,690
 

Paul J. Taubman

 —     $235,252   $0   $1,177,672

Retirement/Voluntary

Termination(6)

 James P. Gorman —     $230,257   forfeit   forfeit
 

Ruth Porat

 —     $199,540   forfeit   forfeit
 Gregory J. Fleming forfeit   forfeit   forfeit   forfeit
 

Colm Kelleher

 —     $200,009   forfeit   forfeit
  Paul J. Taubman —     $235,252   forfeit   forfeit

Good Reason

Termination(7)

 James P. Gorman —     $230,257   forfeit   $1,181,584
 

Gregory J. Fleming

 $3,459,687   forfeit   forfeit   forfeit
Termination Due to
Death/ Governmental Service Termination(8)
 James P. Gorman —     $188,875   $0   $1,181,584
 Ruth Porat —     $160,077   $0   $1,142,416
 

Gregory J. Fleming

 $5,254,769   $0   $0   $1,051,060
 Colm Kelleher —     $156,311   $0   $1,247,690
  

Paul J. Taubman

 —     $191,523   $0   $1,177,672

Change-in-Control

(for PSUs, with a termination of employment)(9)

 James P. Gorman —     $230,257   —     —  
 

Ruth Porat

 —     $199,540   —     —  
 Gregory J. Fleming $3,459,687   $37,329   —     —  
 

Colm Kelleher

 —     $200,009   —     —  
  Paul J. Taubman —     $235,252   —     —  

 

(1) For 2009, represents annual Board and Board Committee retainers paid in cash during 2009 or deferred at the director’s election. Retainers are prorated when a director joins the Board or a Board Committee at any timeAs of December 31, 2011, our NEOs, other than at the annual meeting of shareholders (provided that no retainers are paid if the director is elected to the Board less than 60 days prior to the annual meeting). Directors do not receive meeting fees. The annual Board retainerMr. Fleming, were considered retirement-eligible for each director is $75,000. In addition, the Lead Director, each of the Board Committee chairs and each Board Committee member receives additional annual retainers, as follows:

   Retainer(a)

Lead Director (Mr. Kidder)

  $30,000

Committee Chair(b)


   

Audit Committee (Mr. Noski)

  $30,000

Compensation, Management Development and Succession Committee (Mr. Kidder)

  $20,000

Nominating and Governance Committee (Dr. Tyson)

  $20,000

Committee Members(c)


   

Audit Committee member (Messrs. Davies, Nicolaisen and Sexton)

  $15,000

Compensation, Management Development and Succession Committee member (Messrs. Bowles and Nicolaisen)

  $10,000

Nominating and Governance Committee member (Messrs. Bostock and Phillips and Ms. Olayan)

  $10,000

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(a)

On January 20, 2010, the Board approved Committee Chair and Committee member retainers for the Risk Committee of $20,000 and $10,000, respectively.

(b)

Effective January 1, 2010, Mr. Bowles became Chair of the CMDS Committee.

(c)

Mr. Hance joined the Audit Committee effective January 1, 2010. Ms. Olayan concluded her service on the Nominating and Governance Committee and joined the CMDS Committee effective January 1, 2010.

Under the Directors’ Equity Capital Accumulation Plan (DECAP), directors could elect to receive all or a portionpurposes of their retainers for 2009 service on a current or deferred basis, in cash, deferred cash accounts, shares of common stock or stock units. Directors receive interest credits on amounts held in deferred cash accountsoutstanding RSU awards and related dividend equivalents on stock units that(which are paidset forth in the form of additional stock units. Messrs. Bostock, Davies, Hance, Kidder, Nicolaisen“2011 Nonqualified Deferred Compensation Table”) and Phillips and Dr. Tyson received their retainerstherefore, the NEOs are considered vested in cash on a current basis. Mr. Sexton deferred his retainers into a deferred cash account. Messrs. Bowles and Noski and Ms. Olayan deferred their retainers into elective stock units.such awards.

 

On November 16, 2009, the Board amended DECAP to provide for cash retainers to be paid on a retroactive basis, such that the amounts paid for service on the Board and a Board Committee for 2010 and future years will be paid semi-annually in arrears, with the final payment occurring on the date of the annual meeting of shareholders on which the annual service period is concluded (or in a pro-rated amount upon termination from the Board prior to the end of the annual service period). The Board also amended DECAP to eliminate the option to defer cash retainers into deferred cash accounts.54

 

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(2) RepresentsPursuant to the aggregate grant date fair value of mandatory stock units and shares of common stock granted to our directors. The Company accounts for stock-based compensation in accordance with the applicable accounting guidance for equity-based awards. The aggregate grant date fair value of stock units granted on April 29, 2009 for 2009 service is based on $22.4899, the volume-weighted average priceterms of the common stock onPSU awards, amounts set forth in this column with respect to (a) the grant date. For further information on the valuation of these stock units, see note 2 to the consolidated financial statements included in the 2009 Form 10-K.

On April 29, 2009,NEO’s death or governmental service termination reflect Company performance through September 30, 2011 (the quarter ending simultaneously with or before the date of such termination for which the 2009 annual meetingCompany’s earnings information had been released as of shareholders, eachthe date of Messrs. Bowlestermination) and Noski and Ms. Olayan received(b) a change-in-control of the Company reflect Company performance through December 31, 2011 (the quarter ending simultaneously with the effective date of the change-in-control). Amounts set forth in this column for all other terminations of employment as of December 31, 2011 assume the Company’s performance through the applicable three-year performance period mirror its performance through December 31, 2011. Where applicable, amounts reflect a pro-rata reduction in the number of elective stock units in lieu of his or her cash retainers determined by dividing the dollar value of his or her retainers listed in the “Fees Earned or Paid in Cash” column for the respective director by $22.4899, the volume-weighted average price of the common stock on the grant date. (These amounts are listed in the “Fees Earned or Paid in Cash” column for the respective directors.)

Under DECAP, directors receive a prorated equity award upon initial electionPSUs otherwise payable given Company performance due to the Board (provided that they are elected to the Board no less than 60 daysNEO’s termination of employment prior to the annual meeting) and an equity award annually thereafter on the date of the annual meeting of shareholders. The dollar value of the annual equity award is $250,000, and the award for 2009 service was granted in the form of 50% mandatory stock units that do not become payable until the director retires from the Board and 50% shares of common stock that the director could receive currently or elect to defer into elective stock units. With the exception of Messrs. Kidder and Phillips and Dr. Tyson, all directors deferred their shares of common stock into elective stock units. On April 29, 2009, the date of the 2009 annual meeting of shareholders, Messrs. Kidder and Phillips and Dr. Tyson received their equity awards in the form of 5,558 whole shares of common stock (plus $1.12 in lieu of a fractional share) and 5,558 stock units (determined by dividing $250,000 by $22.4899, and allocating 50% to shares and 50% to stock units). Each other director received the equity award in the form of 11,116 stock units (determined by dividing $250,000 by $22.4899, and allocating 100% to stock units). With respect to mandatory stock units, directors may elect to extend deferral beyond retirement from the Board, subject to certain limitations. With respect to elective stock units, directors may choose the time and form of distribution (lump sum or installment payments). Stock units granted under DECAP for 2009 service are not subject toapplicable scheduled vesting or cancellation.date.

 

The Board also amended DECAP on November 16, 2009 to provide that the 50% of the annual equity award previously granted in the form of shares of Morgan Stanley common stock would instead be granted in the form of stock units, subject to monthly vesting until the one-year anniversary of the grant date. Directors are eligible to defer the receipt of the shares underlying such units beyond the anniversary of grant.

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(3) The following table sets forth the aggregate number of shares underlying DECAP stock units andNo outstanding stock options outstanding atheld by the NEOs had intrinsic value as of December 31, 2009. The number2011, as the exercise price of units set forththe stock options was in all cases greater than $15.13, the following table is rounded toclosing price of the nearest whole number of units.Company’s common stock on December 30, 2011.

Name    Stock Units (#)    Stock Options  (#)(a)

Roy J. Bostock

    30,735    —  

Erskine B. Bowles

    39,957    —  

Howard J. Davies

    30,787    7,049

James H. Hance, Jr.

    3,655    —  

C. Robert Kidder

    35,300    55,832

Donald T. Nicolaisen

    25,610    —  

Charles H. Noski

    42,339    —  

Hutham S. Olayan

    34,258    —  

Charles E. Phillips, Jr.

    12,740    —  

O. Griffith Sexton

    33,107    —  

Laura D. Tyson

    10,267    46,090

(a)

Directors were awarded stock options annually under DECAP until February 8, 2005, at which point stock option awards were discontinued. As of December 31, 2009, the outstanding stock options had no intrinsic value because the exercise price of each stock option was greater than $29.60, the closing price of the Company’s common stock on December 31, 2009.

 

(4) RepresentsAs of December 31, 2011, our NEOs, other than Mr. Hance’s prorated Board retainer and initial stock award receivedFleming, were considered retirement-eligible for his joiningpurposes of the Board in July 2009. Mr. Hance elected to receive his Board retainer in cash on a current basis and received his initial stock awardoutstanding MSCIP awards set forth in the form of 3,649 stock units“2011 Nonqualified Deferred Compensation Table,” other than with respect to the 2010 year-end MSCIP awards, and 3,649 whole shares of common stock (plus $5.59therefore the NEOs are considered vested in lieu of a fractional share) (determined by dividing $208,333 by $28.5451,such awards. Amounts set forth in this column reflect the volume-weighted average pricevalue of the common stock on August 1, 2009, the grant date, and allocating 50% to shares and 50% to stock units).NEOs’ 2010 year-end MSCIP awards.

 

(5)Mr. Sexton was Amounts set forth in this row will generally be paid on the scheduled distribution dates, subject to cancellation and clawback provisions, as applicable; provided that, amounts set forth in this row with respect to RSU and MSCIP awards that are payable in connection with a qualifying termination will be paid upon such termination. Unvested options will vest upon such termination and will generally expire on (a) February 2, 2016 upon an advisory directorinvoluntary termination of employment or qualifying termination or (b) on the expiration date in connection with a termination due to disability. For purposes of the RSUs, stock options and MSCIP awards set forth in this row, a “qualifying termination” is a termination within 18 months of a change-in-control as a result of (i) the Company terminating the NEO’s employment under circumstances not involving any cancellation event, (ii) the NEO resigning from May 1995 until September 2008 and wasemployment due to a full-time Company employeematerially adverse alteration in his or her position or in the nature or status of his or her responsibilities from those in effect immediately prior to becomingthe change-in-control or (iii) the Company requiring the NEO’s principal place of employment to be located more than 75 miles from his or her current principal location. For this purpose, the definition of “change-in-control” generally means a significant change in the share ownership or composition of the Board. The PSUs set forth in this row do not include an advisory director. The Company provides Mr. Sextonaccelerated vesting and/or payment provision in connection with access to medical insurance, for which he pays the full cost.a qualifying termination.

 

(6)Represents Amounts set forth in this row will be paid on schedule, subject to cancellation.

(7) Other than with respect to Messrs. Gorman and Fleming, no NEO is a party to an arrangement with the prorated retainer receivedCompany providing for accelerated vesting or other benefits upon a termination of employment for Good Reason. Amounts set forth in this row will be paid on schedule, subject to cancellation and clawback provisions, as applicable (provided that, following a Good Reason termination, the competitive activity cancellation event does not apply to Mr. Gorman’s awards set forth in this row). “Good Reason,” with respect to Mr. Gorman, generally means a material change or reduction in his duties or responsibilities, including a failure to reelect him to the Board, any diminution in his title or reporting relationship, the Company’s breach of its obligations to provide payments or benefits under the applicable compensation arrangement or requiring Mr. Gorman to be based at a location other than the Company’s headquarters. “Good Reason,” with respect to Mr. Fleming, generally means a reduction in base salary, a failure to honor the terms of his award, a material diminution in his duties, titles, responsibilities or reporting relationship or interference with his carrying out of his duties or material failure to make available resources required for him to effectively carry out his duties, the assignment of materially inconsistent duties or those which materially impair his ability to function in his current role, a relocation of the Company’s headquarters or his principal office greater than 25 miles or a material breach by Mr. Sextonthe Company of any material agreement between him and the Company.

(8) Amounts set forth in this row with respect to RSUs and PSUs will be paid upon such termination and the amounts set forth with respect to PSUs reflect Company performance through September 30, 2011. Unvested

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options will vest and remain exercisable through the expiration date (in connection with the NEO’s death) or the 90-day period following termination (in connection with a governmental service termination). In exchange for the accelerated vesting and payment of the amounts set forth in this row with respect to a governmental service termination, the NEO must sign an agreement requiring the NEO to repay the Company the value of the awards that are distributed or exercised in connection with such termination if the NEO engages in any activity that would have resulted in the cancellation of such awards had the distribution or vesting of the awards not been accelerated.

(9) Pursuant to the terms of the PSUs, in the event of a change-in-control of the Company on December 1, 2008 for service31, 2011, the performance period would have ended on December 31, 2011; however, in general, the Audit Committee beginningNEO must remain employed by the Company through the applicable scheduled vesting date to not be subject to a pro-rata reduction in the number of shares payable with respect to the PSUs. For purposes of quantifying the value of PSUs to which the NEO would have been entitled upon a change-in-control on December 1, 2008.31, 2011, amounts set forth in this row with respect to the PSUs assume that each NEO terminated employment on December 31, 2011 (due to either a disability or an involuntary termination of employment other than in connection with a cancellation event), and therefore, the value reflects a pro-rata reduction in the number of PSUs otherwise payable where applicable. Amounts set forth in this row will be paid on schedule, subject to cancellation.

III.Change-in-Control

Mr. Gorman’s employment arrangement with the Company, dated August 16, 2005, provides that if it is determined that any payments made to him in connection with a change-in-control of the Company would be subject to an excise tax under Section 4999 of the Internal Revenue Code, he would be entitled to receive an additional payment to restore him to the after-tax position that he would have been in if the tax had not been imposed. Calculations to estimate the excise tax due under the Internal Revenue Code are complex and reflect a number of assumptions. For purposes of determining whether Mr. Gorman would have been entitled to an additional payment due to a change-in-control as of December 31, 2011, the following assumptions were made: (i) all RSUs, MSCIP and LCIP awards and the applicable pro-rata portion of PSUs became payable, (ii) all cancellation provisions and transfer restrictions lift, (iii) an excise tax rate of 20% and (iv) an individual tax rate of 45%. Based on these assumptions, Mr. Gorman would not have been entitled to an additional payment.

 

LOGO Item 2—Ratification of Appointment of Morgan Stanley’s Independent Auditor

 

The Audit Committee appointed Deloitte & Touche LLP (Deloitte & Touche) as independent auditor for the year endedending December 31, 20102012 and presents this selection to the shareholders for ratification. Deloitte & Touche will audit our consolidated financial statements that will be included in the Annual Report on Form 10-K for the year endedending December 31, 20102012 and will perform other permissible, pre-approved services. The Audit Committee preapproves all audit and permitted non-audit services that Deloitte & Touche performs for the Company.

 

Independent Auditor’s Fees.The following table summarizes the aggregate fees (including related expenses; $ in millions) for professional services provided by Deloitte & Touche related to 2009, the December 2008 transition period2011 and fiscal 2008.2010.

 

  2009

  December 2008

  Fiscal 2008

  2011  2010

Audit Fees(1)

  $48.9  $5.0  $44.5   $43.4    $43.4 

Audit-Related Fees(2)

   6.9   —     6.4    8.5     6.5 

Tax Fees(3)

   0.8   —     0.9    1.3     1.3 

All Other Fees

   —     —     —      —       —   
  

  

  

   


   


Total

  $56.6  $5.0  $51.8   $53.2    $51.2 
  

  

  

 

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(1) Audit Fees services include: the audit of our consolidated financial statements included in the Company’s Annual Report on Form 10-K and reviews of the interim condensed consolidated financial statements included in our quarterly reports on Form 10-Q; services attendant to, or required by, statute or regulation; comfort letters, consents and other services related to SEC and other regulatory filings; and audits of subsidiary financial statements; and recasting of the fiscal 2008 interim condensed consolidated financial statements and other auditing services in connection with the Company’s change in year-end. Audit Fees services for December 2008 include the audit of our consolidated financial statements included in the Company’s Annual Report on Form 10-K and review of the interim condensed consolidated financial statements with respect to the December 2008 transition period.statements.

 

(2) Audit-Related Fees services include: due diligence associated with mergers and acquisitions or dispositions of operating businesses or entities; data verification and agreed-upon procedures related to asset securitizations; assessment and testing of internal controls and risk management processes beyond the level required as part of the consolidated audit; statutory audits and financial audit services provided relating to investment products offered by Morgan Stanley, where Morgan Stanley incurs the audit fee in conjunction with the investment management services it provides; audits of employee benefit plans; agreed upon procedures engagements; regulatory matters; and attest services in connection with debt covenants.

 

(3) Tax Fees services include: U.S. federal, state and local income and non-income tax planning and advice; non-U.S. income and non-income tax planning and advice; non-U.S. income and non-income tax compliance; and transfer pricing documentation.

 

Fund-Related Fees.    Morgan Stanley offers registered money market, equity, fixed income and alternative funds, and other funds (collectively, Funds). Deloitte & Touche provides audit, audit-related and tax services to certain of these Funds. The aggregate fees for such services are summarized in the following table ($ in millions).

 

  December 2008
and 2009

  Fiscal 2008

  2011  2010

Audit Fees

  $6.5  $7.2   $3.8     $5.8 

Audit-Related Fees

   0.5   0.1    0     2.2 

Tax Fees

   2.1   1.3    3.3     2.3 

 

A Deloitte & Touche representative will attend the annual meeting to respond to your questions and will have the opportunity to make a statement. If shareholders do not ratify the appointment, the Audit Committee will reconsider it.

 

In connection with Morgan Stanley’s acquisition of a controlling interest in Morgan Stanley Smith Barney (MSSB), Citigroup Inc. (Citi) has represented to us that MSSB is not material to Citi and Deloitte & Touche has represented that it is not required to be independent of Citi in accordance with Rule 2-01 of Regulation S-X under the Securities Act of 1933, as amended.

Our Board unanimously recommends a vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor. Proxies solicited by the Board will be voted “FOR” this ratification unless otherwise instructed.

 

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Audit Committee Report.Report    The Audit Committee operates under a written charter adopted by the Board. The charter is available at http://www.morganstanley.com/about/company/governance/auditcc.html.

The Audit Committee’s current charter provides that the Audit Committee is responsible for the oversight of the integrity of the Company’s consolidated financial statements, the Company’s system of internal control over financial reporting, certain aspects of the Company’s risk management as described in the charter, the qualifications and independence of the Company’s independent registered public accounting firm (independent auditor), the performance of the Company’s internal auditor and independent auditor, and the Company’s compliance with legal and regulatory requirements.1 We have the sole authority and responsibility to appoint, compensate, evaluate and, when appropriate, replace the Company’s independent auditor. The Board has determined that each Audit Committee member is independent under applicable independence standards of the NYSE and the Securities Exchange Act of 1934, as amended, and is an audit committee financial expert within the meaning of current SEC rules.

 

The Audit Committee serves in an oversight capacity and is not part of the Company’s managerial or operational decision-making process. Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United StatesU.S. (GAAP) and for the report on the Company’s internal control over

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financial reporting. The Company’s independent auditor, Deloitte & Touche, is responsible for auditing those financial statements and expressing an opinion as to their conformity with GAAP and expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Our responsibility is to oversee the financial reporting process and to review and discuss management’s report on the Company’s internal control over financial reporting. We rely, without independent verification, on the information provided to us and on the representations made by management, the internal auditor and the independent auditor.

 

We held 16 meetings during the December 2008 transition period and 2009. The Audit Committee, among other things:

 

Reviewed and discussed the Company’s quarterly earnings releases, Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, including the consolidated financial statements;

 

Reviewed and discussed the Company’s policies and procedures for risk assessment and risk management and the major risk exposures of the Company and its business units, as appropriate;1

Reviewed the major franchise, reputational, legal and compliance risk exposures and the guidelines and policies that govern the process for risk assessment and risk management, including coordinating with the Risk Committee and the Operations and Technology Committee;

 

Reviewed and discussed the plan and the scope of the work of the internal auditor for the December 2008 transition period and 20092011 and summaries of the significant reports to management by the internal auditor;

 

Reviewed and discussed the plan and scope of work of the independent auditor for the December 2008 transition period and 2009;2011;

 

Reviewed and discussed reports from management on the Company’s policies regarding applicable legal and regulatory requirements; and

 

Met with Deloitte & Touche, the internal auditor and Company management in executive sessions.

 

We reviewed and discussed with management, the internal auditor and Deloitte & Touche: the audited consolidated financial statements for the December 2008 transition period and 2009,2011, the critical accounting policies that are set forth in the Company’s Annual Report on Form 10-K, management’s annual report on the Company’s internal control over financial reporting and Deloitte & Touche’s opinion on the effectiveness of the Company’s internal control over financial reporting.


1 The Board established a Risk Committee effective January 1, 2010. The responsibilities of the Risk Committee are discussed under “Board Meetings and Committees” herein. The Audit Committee retains responsibility for oversight of certain aspects of risk management as described in its charter, including review of major operational, franchise, reputational, legal and compliance risk exposures of the Company and guidelines and policies that govern the process for risk assessment and risk exposure.

 

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We discussed with Deloitte & Touche matters that independent registered public accounting firms must discuss with audit committees under generally accepted auditing standards and standards of the Public Company Accounting Oversight Board (PCAOB), including, among other things, matters related to the conduct of the audit of the Company’s consolidated financial statements and the matters required to be discussed by Auditing Standards AU Section 380 (Communication with Audit Committees) as adopted by the PCAOB in Rule 3200T. This review included a discussion with management and the independent auditor of the quality (not merely the acceptability) of the Company’s accounting principles, the reasonableness of significant estimates and judgments, and the disclosures in the Company’s consolidated financial statements, including the disclosures relating to critical accounting policies.

 

Deloitte & Touche also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence and represented that it is independent from the Company. We discussed with Deloitte & Touche their independence from the Company, and considered if services they provided to the Company beyond those rendered in connection with their audit of the Company’s consolidated financial statements, reviews of the Company’s interim condensed consolidated financial statements included in its Quarterly Reports on Form 10-Q, and their opinion on the effectiveness of the Company’s internal control over financial reporting were compatible with maintaining their independence. We also reviewed and pre-approved, among other things, the audit, audit-related and tax services performed by Deloitte & Touche. We received regular updates on the amount of fees and scope of audit, audit-related and tax services provided.

 

Based on our review and the meetings, discussions and reports discussed above, and subject to the limitations on our role and responsibilities referred to above and in the Audit Committee charter, we recommended to the Board

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that the Company’s audited consolidated financial statements for the December 2008 transition period and 20092011 be included in the Company’s Annual Report on Form 10-K. We also selected Deloitte & Touche as the Company’s independent auditor for the year endedending December 31, 20102012 and are presenting the selection to the shareholders for ratification.

 

Respectfully submitted,

 

Charles H. Noski,Donald T. Nicolaisen, Chair

Howard J. Davies

James H. Hance, Jr.*

Donald T. Nicolaisen

O. Griffith Sexton

 

* Mr. Hance joined the Audit Committee effective January 1, 2010.

LOGO Item 3—Company Proposal to Approve Compensation of Executives as Disclosed inAmend the Proxy Statement (Non-Binding Advisory Resolution)

OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL. The Board welcomes and values the input of its shareholders – and has put in place a number of effective mechanisms for shareholders to communicate with directors. This year, in light of the heightened interest in executive compensation, the Company is providing its shareholders with the opportunity to cast an advisory vote on the 2009 compensation of the Company’s executives named in the Summary Compensation Table herein pursuant to the rules of the SEC and as summarized below. Accordingly, the Company is submitting to shareholders the following resolution for vote by shareholders:

“Resolved, that the shareholders approve the compensation of the Company’s executives named in the Summary Compensation Table, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis and the accompanying compensation tables and related narrative in this proxy statement).”

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Morgan Stanley has over the past two years fundamentally restructured the way it pays its employees, consistent with regulatory guidance and reflecting input from shareholders, so that a significantly greater portion of total compensation is now at-risk, subject to clawback and tied to long-term Company performance. We have significantly increased the portion of pay that is deferred and paid in equity, and reduced the portion paid in cash. We believe these changes advance our goals of attracting and retaining top talent, delivering pay for performance and encouraging responsible risk-taking in a way that is aligned with the long-term interests of the Company’s shareholders.

The Compensation Discussion and Analysis of this proxy statement describes the Company’s executive compensation program and the decisions made by the CMDS Committee in 2009 in more detail. Highlights of the program include the following:

For 2009, Chairman and former CEO John J. Mack did not receive any year-end incentive compensation. Mr. Mack also received no year-end incentive compensation for 2008 or 2007.

CEO James P. Gorman recommended to the CMDS Committee that he be paid no cash bonus for 2009. His year-end award was paid only in deferred compensation. Mr. Gorman received no year-end incentive compensation for 2008.

We reduced the portion of bonuses paid in cash and increased the portion of bonuses paid with deferred long-term awards subject to market and cancellation risk.

We introduced new “at-risk” performance stock units for the first time, which deliver value only if the Company, after three years, meets objective performance targets, including return on average common equity levels and relative stock performance over a three-year period.

We were the first major U.S. bank to enact a clawback that exceeded TARP requirements for a portion of year-end compensation in 2008. We enhanced this clawback in 2009 to explicitly cover situations where there is (i) a substantial loss on a trading position or other holding, or (ii) any loss on a trading position where an employee operated outside the risk parameters applicable to the trading position or other holding if, in either case, such position was a factor in that employee’s compensation determination. In addition, awards may also be cancelled for failure to comply with the Company’s compliance, ethics or risk management standards.

Although, as an advisory vote, this proposal is not binding upon the Company or the Board, the CMDS Committee, which is comprised solely of independent directors and is responsible for making decisions regarding the amount and form of compensation paid to the Company’s senior executives, will carefully consider the shareholder vote on this matter, along with all other expressions of shareholder views it receives on specific policies and desirable actions.

To help ensure that the range of shareholder views are well understood by the Board – in a way that a simple “yes” or “no” vote does not allow – the Company also encourages shareholders to use any of a number of direct communication mechanisms to effectively raise specific issues or concerns with regard to our executive compensation practices. 

Our Board unanimously recommends that you vote “FOR” this proposal. Proxies solicited by the Board will be voted “FOR” this proposal unless otherwise instructed.

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LOGO Item 4—Company Proposal to Amend 2007 Equity Incentive Compensation Plan

 

Our 2007 Equity Incentive Compensation Plan (the Plan)(EICP) was approved by shareholders on April 10, 2007. Upon recommendation of the Compensation, Management Development and Succession (CMDS)CMDS Committee, on March 22, 2012, the Board has adopted an amendment to the PlanEICP to increase the number of shares of common stock available to be granted under the PlanEICP by 3850 million shares and to extend the term of the EICP for an additional five years, subject to shareholder approval at the annual meeting of shareholders. This represents approximately 2.7%2.5% of the common shares of the Company outstanding as of March 22, 2010.January 31, 2012. Under New York Stock ExchangeNYSE rules, the amendment of the PlanEICP will not be effective if our shareholders do not approve it.

 

Consistent with regulatory requirements and guidance, the CompanyMorgan Stanley pays a significant portion of incentive compensation as equity awards.awards, which aligns the interests of the Company’s employees with those of its shareholders. In addition,recent years, the Company delivershas fundamentally restructured the way it pays its employees and has more closely tied compensation to the Company’s long-term financial performance by paying a significant portion of year-end compensation in the form of deferred awards and significantly reducing the portion of year-end compensation paid as a cash bonus. Furthermore, for the third year, the Company has paid senior executives a substantial portion of their incentive compensation in “at-risk” performance stock units that only deliver value if the Company meets specific performance targets after three years. Given the significant portion of incentive compensation paid as equity awards, to a larger employee base as a result of the thousands of employees who joined as part of the Morgan Stanley Smith Barney (MSSB) joint venture. As a result,which is consistent with regulatory guidance and best practices, the relatively small number of available shares under the Plan isEICP will not expected to be sufficient for grants that would be made over the next year until the 20112013 annual meeting of shareholders.

 

As of January 31, 2010,2012, the Company had approximately 1614 million shares available for future stock unit and restricted stock awards to employees, which includesinclude available shares under the PlanEICP as well as a relatively small number of available shares under the Company’s legacy equity plans. This number does not include approximately 7 million shares available for grants of stock options, which the Company has not issued since 2006, and 2 million shares available under the Morgan Stanley 2009 Replacement Equity Incentive Compensation Plan for Morgan Stanley Smith Barney Employees, which was adopted in connection with the MSSB joint venture and is limited to employment inducement awards as described below under “Equity Compensation Plan Information”.

If the PlanEICP amendment is approved, the Company expects to have sufficient shares for grants to be made over the next year and to return to shareholders to request approval of additional shares at the 2013 annual meeting of shareholders in 2011.shareholders.

 

OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE AMENDMENT OF THE PLANEICPOur Board believes that this proposal is in the best interest of our shareholders and supports this proposal for the following reasons, as discussed more fully below:

 

Consistent with regulatory requirements and guidance and industry best practices,In recent years, Morgan Stanley has significantly increased the portion of pay that is deferred and paid ina significant portion of deferred compensation is granted as equity and reduced the portion paid in cash.awards. Additional shares are needed to continue this equity-based approach, which provides employees with long-term incentives that are aligned with shareholder interests.

Our work force has grown by 40% as a result of the MSSB joint venture,interests and which will require additional shares for annual equity awards.is consistent with regulatory guidance and best practices.

 

As of January 31, 2010,2012, the Company has fewer than 16had approximately 13 million shares available under the Plan,EICP, and if the amendment of the PlanEICP is not approved, the Company will be compelled to increase significantly the cash-based component of employee compensation.

 

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If the amendment of the PlanEICP is not approved, the Company will lose a critical tool for recruiting, retaining and motivating employees. It would thus be at a severe competitive disadvantage in attracting and retaining talent.

 

The terms of our Plan, ofEICP, our annual equity awards and of our employee policies are all designed to protect shareholder interests and encourage employees to focus on the long-term success of the Company.

 

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Consistent with regulatory requirements and guidance and industry best practices,In recent years, Morgan Stanley has fundamentally restructured the way it pays its employees and has more closely tied compensation to the Company’s long-term financial performance.    Morgan Stanley has significantly increased the portion of pay that is deferred and, paid in equity, and reduced thefor 2011, continued to grant a meaningful portion paid in cash.    In 2009, Operating Committee members received approximately 75% of year-end pay in deferred compensation up from 42% in 2008. Company-wide, approximately 14,000 employees receivedas equity awards as partto a broad group of their annual compensation in 2009.employees. Of approximately 42 millionthe shares underlying annual equity awards granted as part of 20092011 incentive compensation, less than 2%3% were granted to our named executive officers.NEOs.

 

Further,In addition, for the first time,third year, we are paying senior executives in new “at risk”“at-risk” performance stock units from our equity planEICP that only deliver value if the Company meets specific performance targets after three years.years. That means our senior executives have to earn these “at risk”“at-risk” performance stock units twice and will get nothingnot receive a payout on these performance stock units if they dothe Company does not meet the specified ROE and relative shareholder return targets in place. We were the first U.S. bank to institute a clawback provision in 2008 – and we strengthened that clawback during 2009.Further, given the unique operating environment and government support for the industry this past year, Chairman John Mack did not receive any bonus in 2009. CEO James Gorman received no cash bonus and 100% of his incentive pay was comprised of deferred compensation.

Morgan Stanley’s workforce has grown by approximately 19,000 employees – about 40% – as a result of the MSSB joint venture in 2009.    This transaction, which created the leading network of financial advisors with $1.5 trillion in client assets, is going to play an increasingly important role in the Company’s growth and profitability.TSR targets.

 

If shareholders do not approve the amendment of the Plan,EICP, the Company will be compelled to increase the cash-based portion of total compensation. This is contrary to regulatory guidance and requirements and will reduce the alignment of employee and shareholder interests.    Since the adoptionAs part of the Plan in 2007, an average of2011 year-end compensation process, approximately 4553 million shares underlying equity awards were granted annually as part of incentive compensation.granted. As of January 31, 2010,2012, the Company had approximately 1614 million shares available for future employee stock unit and restricted stock awards under the PlanEICP and the Company’s legacy equity plans, which is not expected to be sufficient for the period until the next annual meeting of shareholders in 2011.2013. Equity awards at Morgan Stanley are delivered as a component of – not in addition to – an employee’s total year-end incentive compensation and, thus, protect the interests of shareholders. If the amendment is not approved, the Company would be required to increase the portion of bonus paid in cash, which is not consistent with the Company’s pay philosophy and the principles set forth by regulators.

 

The Company would be at a severe competitive disadvantage in attracting and retaining talent if the amendment of the PlanEICP is not approved, as equity awards are a critical recruitment and retention tool.    The Company operates in an intensely competitive environment and our success is closely correlated with recruiting and retaining talented employees and a strong management team. A competitive compensation program that includes equity awards is therefore essential to the Company’s long-term performance. Our Board believes that equity awards are necessary to attract and retain highly talented employees. The Company would be at a severe competitive disadvantage if it could not compensate its employees using equity awards. If our shareholders do not approve the amendment of the Plan,EICP, our retention and recruiting efforts would be compromised due to the loss of equity as a form of compensation for employees.

 

The terms of our annual equity awards, of our employee policies and of our PlanEICP are all designed to protect shareholder interests and encourage employees to focus on the long-term success of the Company.

 

The vesting and payment provisions of annual equity awards are determined by the CMDS Committee determinesand are designed to encourage employees to focus on the vesting, payment and cancellation provisionslong-term success of the Company because employees typically cannot fully monetize annual equity awards. Annual awards until three years after grant. For example, RSUs granted for 20092011 generally vest no sooner than 50% after two years, with the remaining 50% vesting after three years (with exceptionsand generally convert to stock on the scheduled vesting dates. Furthermore, annual equity awards generally are subject to cancellation for, retirement-eligibleamong other things, engaging in competitive activity, termination for cause, violating the Company’s compliance, ethics or risk management standards, soliciting clients or employees who retire or leaveand misuse of proprietary information.

In 2011, the Company expanded its clawback provision to pursueapply to equity awards, in addition to deferred cash-based awards. The clawback provision ensures that 2011 year-end compensation granted under the EICP can be canceled if an individual engages in conduct (including with respect to direct supervisory responsibilities) detrimental to the Company, including causing a non-competitive endeavor, a change in controlrestatement of the Company’s consolidated financial results or violating the Company’s risk policies and certain terminations of employment);standards.

 

59As described above, the Company is paying senior executives in “at-risk” PSUs that only deliver value if the Company meets specific performance targets after three years. That means our senior executives will not

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receive a payout on these performance stock units generally convert to stock onif the scheduled vesting dates (stock units convert early upon deathCompany does not meet the ROE and certain terminations of employment). These terms are designed to encourage employees to focus on the long-term successrelative TSR targets in place. If, after payment of the Company because employees typically cannot fully monetize annual equity awards for three years after grant. Furthermore, these awards generally arePSUs, the CMDS Committee determines that the performance was based on materially inaccurate financial statements or other performance metric criteria, then the shares paid will be subject to cancellation for, among other things, engaging in competitive activity, termination for cause, soliciting clientsclawback by the Company. The PSUs and RSUs align the interests of executives and shareholders while not encouraging unnecessary or employees, and misuse of proprietary information.excessive risk-taking.

 

The Chairman of the Board and membersMembers of the Company’s Operating Committee are subject to anEquity Ownership Commitment policy that requires that they retain at least 75% of common stock and equity awards (less allowances for the payment of any option exercise price and taxes) made to them while they are on the Company’s Operating Committee. This commitment ties a portion of their net worth to the Company’s stock price and provides a continuing incentive for them to work towards superior long-term stock performance. Executives are also prohibited from engaging in hedging strategies, selling short or trading derivatives with the Company securities. In addition, all Management Committee members, as a condition to receiving annual equity or other incentive awards, signeda notice and non-solicitation agreement that generally requires, among other things, Management Committee members to provide the Company with 180 days advance notice of their resignation and not to solicit certain clients, customers or Company employees within 180 days following their termination of employment. Failure to comply with the agreement generally results in cancellation of their equity or other incentive awards granted for fiscal 2005 and subsequent years.

 

ThePlan prohibits the repricing of stock options and stock appreciation rights (other than an equitable adjustment in connection with a corporate transaction)and the grant of stock option restoration rights (i.e., the right to an automatic grant of a new stock option upon exercise of a stock option without payment of additional consideration in excess of the exercise price of the underlying stock option).

The EICP prohibits the repricing of stock options and stock appreciation rights (other than an equitable adjustment in connection with a corporate transaction) and the grant of stock option restoration rights (i.e., the right to an automatic grant of a new stock option upon exercise of a stock option without payment of additional consideration in excess of the exercise price of the underlying stock option).

 

Our Board unanimously recommends that you voteFOR this proposal. Proxies solicited by the Board will be votedFOR this proposal unless otherwise instructed.

 

Summary of the PlanEICP as Proposed to Be Amended.    A copy of the PlanEICP as proposed to be amended is attached to this proxy statement as Annex A and the following summary is qualified in its entirety by reference thereto. Other than the amendment to the number of shares available under the PlanEICP and the extension of the term of the EICP for which we are seeking shareholder approval, the PlanEICP terms remain unchanged. The capitalized terms not otherwise defined in this summary shall has the meaning assigned to them in the EICP.

 

Purposes and Eligibility.    The primary purposes of the PlanEICP are to attract, retain and motivate employees, to compensate them for their contributions to our growth and profits and to encourage them to own shares of our common stock.stock to align their interests with those of shareholders. The PlanEICP authorizes the issuance of awards (Awards) to all officers, other employees (including newly hired employees) and consultants of the Company, non-employee directors of our subsidiaries and employees and consultants of joint ventures, partnerships or similar business organizations in which we or one of our subsidiaries has an equity or similar interest (Eligible Individuals). As of December 31, 2009,2011, there were approximately 61,00062,000 Eligible Individuals who were employees of the Company and its subsidiaries.

 

Administration.    The CMDS Committee will administer the Plan,EICP, select the Eligible Individuals who receive Awards (Participants) and determine the form and terms of the Awards, including any vesting, exercisability, payment or other restrictions. Subject to certain limitations, the CMDS Committee may delegate some or all of its authority to one or more administrators (e.g.(e.g., one or more CMDS Committee members or one or more of our officers).

 

Shares Available Under the PlanEICP.    The total number of shares of common stock that may be delivered pursuant to Awards will be 163248 million (of(which takes into account the proposed 50 million share increase), of which approximately 109185 million were already granted as of January 31, 2010),2012, subject to adjustment forpursuant to the EICP’s share recycling (described below). The number of shares available under the Plan will be equitably adjustedcounting rules as described below and to reflect certain transactions. Shares delivered under the Plan

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EICP may be either treasury shares or newly issued shares. In addition to the overall limit, the PlanEICP limits the number of shares of common stock that may be subject to stock option and stock appreciation right (SAR) awards in any single year.

 

Share RecyclingCounting Rules.    When the CMDS Committee grants an Award, the full number of shares subject to the Award is charged against the number of shares that remain available for delivery pursuant to Awards. After grant, the number of shares subject to any portion of an Award that is canceled or that expires without having

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been settled in shares, or that is settled through the delivery of consideration other than shares, will be available for new Awards. If shares are tendered or withheld to pay the exercise price of an Award or to satisfy a tax withholding obligation, those tendered or withheld shares will be available for new Awards. Awards granted upon assumption of, or in substitution for, outstanding awards previously granted by, or held by employees of, a company or other entity or business acquired (directly or indirectly) by the Company or with which the Company combines are not counted against the number of shares of common stock available for delivery pursuant to Awards and are not subject to the individual limit on stock options and SARs.

 

Awards GenerallyGenerally..

 

Form of Awards.    The PlanEICP authorizes the following Awards: (i) restricted stock Awards consisting of one or more shares of common stock granted or sold to a Participant; (ii) stock unit Awards settled in one or more shares of common stock or, as authorized by the CMDS Committee, an amount in cash based on the fair market value of shares of common stock; (iii) stock option Awards consisting of the right to purchase at a specified exercise price a number of shares of common stock determined by the CMDS Committee; (iv) SARs consisting of the grant of a right to receive upon exercise of such right, in cash or common stock (or a combination thereof) as determined by the CMDS Committee, an amount equal to the increase in the fair market value of a share of common stock over the specified exercise price; and (v) other forms of equity-based or equity-related Awards whichthat the CMDS Committee determines to be consistent with the purposes of the PlanEICP (Other Awards). Awards under the PlanEICP may, inat the discretion of the CMDS Committee, be made in substitution in whole or in part for cash or other compensation payable to an Eligible Individual.

 

Dividends and Distributions.    If we pay any dividend or make any distribution to holders of our common stock, the CMDS Committee may in its discretion authorize payments (which may be in cash, common stock (including restricted stock) or stock units or a combination thereof) with respect to the shares of common stock corresponding to an Award, or may authorize appropriate adjustments to outstanding Awards, to reflect the dividend or distribution. The CMDS Committee may make any such payments subject to vesting, deferral, restrictions on transfer or other conditions.

Dividends and Distributions.    If we pay any dividend or make any distribution to holders of our common stock, the CMDS Committee may in its discretion authorize payments (which may be in cash, common stock (including restricted stock) or stock units or a combination thereof) with respect to the shares of common stock corresponding to an Award, or may authorize appropriate adjustments to outstanding Awards, to reflect the dividend or distribution. The CMDS Committee may make any such payments subject to vesting, deferral, restrictions on transfer or other conditions. Dividends are not paid on stock options or SARs.

 

Restricted Stock and Stock Units.    Restricted shares awarded or sold to a Participant are outstanding shares of common stock that the CMDS Committee may subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances. Each stock unit awarded to a Participant will correspondcorresponds to one share of common stock.stock and the CMDS Committee may subject the award to vesting requirements or cancellation under specified circumstances. Upon satisfaction of the terms and conditions of the Award, a stock unit Award, applicable stock units will be payable, at the discretion of the CMDS Committee, in common stock or in cash equal to the fair market value on the payment date of one share of common stock. As a holder of stock units, a Participant will have only the rights of a general unsecured creditor of the Company. A Participant will not be a shareholder with respect to the shares underlying stock units unless and until the stock units convert to shares of common stock.

 

Stock Options and SARsSARs..

 

 

General.    Stock options may be either nonqualified stock options or incentive stock options (ISOs). Upon satisfaction of the conditions tofor exercisability, a Participant may exercise a stock option and receive the number of shares of common stock in respect of which the stock option is exercised. Upon satisfaction of the

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conditions tofor payment, each SAR will entitle a Participant to an amount, if any, equal to the amount by which the fair market value of a share of common stock on the date of exercise exceeds the SAR exercise price. At the discretion of the CMDS Committee, SARs may be payable in common stock, cash or a combination thereof.

 

Exercise Price.    The exercise price of stock options and SARs awarded under the PlanEICP may not be less than 100% of the fair market value of one share of common stock on the award date; however, the exercise price per share of a stock option or SAR that is granted in substitution for an award previously granted by an entity acquired by the Company or with which the Company combines may be less than the fair market value per share on the award date if such substitution complies with applicable laws and regulations.

 

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Prohibition on Repricing of Stock Options and SARs.    The CMDS Committee may not “reprice” any stock option or SAR, unless the repricing occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. An equitable adjustment to reflect a corporate transaction is not a prohibited repricing.

 

Prohibition on Restoration Option Grants.    The terms of a stock option may not provide for a new stock option to be granted, automatically and without payment of additional consideration in excess of the exercise price of the underlying stock option, to a Participant upon exercise of the stock option.

 

Individual Limit on Stock Options and SARs.The maximum number of shares of common stock that may be subject to stock options or SARs granted to or elected by a Participant in any fiscal year will be 2,000,000 shares. This limitation does not apply to shares of common stock subject to stock options or SARs granted to a Participant pursuant to any performance formula approved by the Company’s shareholders pursuant to Section 162(m).

 

Maximum Term on Stock Options and SARs.    No stock option or SAR may have an expiration date that is later than the tenth anniversary of the Award date.

 

 

ISO Limit.The full number of shares of common stock available for delivery under the PlanEICP may be delivered pursuant to ISOs, except that in calculating the number of shares that remain available for ISOs, certain share recyclingcounting provisions will not apply.

 

Other Awards.    The CMDS Committee may establish the terms and provisions of other forms of equity-based or equity-related Awards not described above that the CMDS Committee determines to be consistent with the purpose of the PlanEICP and the interests of the Company.

 

Awards to Section 162(m) Participants.    Except for grants of stock options and SARs, which are counted against the individual limit described above, all Awards to a Participant who is designated by the CMDS Committee as an individual whose compensation may be subject to the limit on deductible compensation imposed by Section 162(m) will be made pursuant to a performance formula or performance goals approved by the Company’s shareholders pursuant to Section 162(m).

 

Transferability.    Unless otherwise permitted by the CMDS Committee, no Award will be transferable other than by will or by the laws of descent and distribution. During the lifetime of a Participant, an ISO will be exercisable only by the Participant.

 

Amendment and Termination.    The Board or the CMDS Committee may modify, amend, suspend or terminate the PlanEICP in whole or in part at any time and may modify or amend the terms and conditions of any outstanding Award. However, no modification, amendment, suspension or termination may materially adversely affect a Participant’s rights with respect to any Award previously made without that Participant’s consent, except that the CMDS Committee may at any time, without a Participant’s consent, amend or modify the PlanEICP or any Award under the PlanEICP to comply with law, accounting standards, regulatory guidance or other legal requirements. The CMDS Committee may create subplans as may be necessary or advisable to comply with non-U.S. legal or regulatory provisions. Notwithstanding the foregoing, neither the Board nor the CMDS Committee may

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accelerate the payment or settlement of any Award that constitutes a deferral of compensation for purposes of Section 409A of the Internal Revenue Code except to the extent the acceleration would not result in a Participant incurring interest or additional tax under Section 409A.

 

Term.    No Awards may be made more than five years after the date of shareholder approval of the Plan.May 15, 2017.

 

Section 162(m) of the Internal Revenue Code.    Section 162(m) limits the federal income tax deduction for compensation paid to the Chief Executive Officer and the three other most highly compensated executive officers (other than the Chief Financial Officer) of a publicly held corporation to $1 million per fiscal year, with exceptions for certain performance-based compensation. Such performance-based compensation may consist of awards determined by the CMDS Committee under a formula approved by the Company’s shareholders. Our shareholders approved the formula currently used by the CMDS Committee at our annual meeting on March 22,

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2001. The Company is not seeking to change the current formula. Awards of stock options or SARs determined by the CMDS Committee under the PlanEICP will also qualify for the performance-based compensation exception to Section 162(m).

 

PlanEICP Benefits.    Awards under the PlanEICP will be authorized by the CMDS Committee in its sole discretion. Therefore, it is not possible to determine the benefits or amounts that will be received by any particular employees or group of employees in the future or that would have been received in 20092011 had the amendment of the PlanEICP then been in effect.

 

U.S. Federal Income Tax Consequences.The following is a general summary as of the date of this proxy statement of the U.S. federal income tax consequences associated with the EICP. The federal tax laws are complex and subject to change and the tax consequences for any Participant will depend on his or her individual circumstances.

 

 

Stock Units.    A Participant who receives stock units will be taxed at ordinary income tax rates on the then fair market value of the shares of common stock distributed at the time of settlement of the stock units and a corresponding deduction will be allowable to the Company at that time (subject to Section 162(m)). The Participant’s tax basis in the shares will equal the amount taxed as ordinary income, and on subsequent disposition the Participant will realize long-term or short-term capital gain or loss.

 

 

Restricted Stock.    A Participant who is awarded restricted stock will not be taxed at the time an Award is granted unless the Participant makes the special election with the Internal Revenue Service pursuant to Section 83(b) of the Internal Revenue Code as discussed below. Upon lapse of the risk of forfeiture or restrictions on transferability applicable to the shares comprising the Award, the Participant will be taxed at ordinary income tax rates on the then fair market value of the shares. The Company is required to withhold tax on the amount of income so recognized, and a deduction corresponding to the amount of income recognized will be allowable to the Company (subject to Section 162(m)). The Participant’s tax basis in the shares will be equal to the ordinary income so recognized. Upon subsequent disposition of the shares, the Participant will realize long-term or short-term capital gain or loss.

 

Pursuant to Section 83(b) of the Internal Revenue Code, the Participant may elect within 30 days of receipt of the Award to be taxed at ordinary income tax rates on the fair market value of the shares comprising such Award at the time of Award (determined without regard to any restrictions which may lapse) less any amount paid for the shares. In that case, the Participant will acquire a tax basis in the shares equal to the ordinary income recognized by the Participant at the time of Award. No tax will be payable upon the lapse or release of the restrictions or at the time the shares first become transferable, and any gain or loss upon subsequent disposition will be a capital gain or loss. In the event of a forfeiture of shares of common stock with respect to which a Participant previously made a Section 83(b) election, the Participant will generally not be entitled to a loss deduction.

 

 

Nonqualified Stock Options.    The grant of a nonqualified stock option will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will

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recognize ordinary income in an amount equal to the excess of the fair market value of the shares of common stock purchased over the exercise price, and a tax deduction is allowable to the Company equal to the amount of such income (subject to Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of a nonqualified stock option generally would be taxed as either long-term or short-term capital gain or loss, (long-term or short-term, depending upon the holding period of the shares sold).sold. Certain additional rules apply if the exercise price for an option is paid in shares previously owned by the Participant.

 

ISOs.    Upon the grant or exercise of an ISO within the meaning of Section 422 of the Internal Revenue Code, no income will be realized by the Participant for federal income tax purposes and the Company will not be entitled to any deduction. However, the excess of the fair market value of the shares of common stock as of the date of exercise over the exercise price will constitute an adjustment to taxable income for purposes of the alternative minimum tax. If the shares are not disposed of within the one-year period beginning on the date of the transfer of such shares to the Participant or within the two-year period beginning on the date of grant of the stock option, any profit realized by the Participant upon the disposition of such shares will be taxed as long-term capital gain and no deduction will be allowed to the Company. If the shares are disposed of within the one-year period from the date of transfer of such shares to the Participant or within the two-year period from the date of grant of the stock option, the excess of the fair market value of the shares on the date of exercise or, if less, the fair market value on the date of disposition, over the exercise price will be taxable as ordinary income to the Participant at the time of disposition, and a corresponding deduction will be allowable to the Company. Certain additional rules apply if the exercise price for a stock option is paid in shares previously owned by the Participant.

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if less, the fair market value on the date of disposition, over the exercise price will be taxable as ordinary income to the Participant at the time of disposition, and a corresponding deduction will be allowable to the Company. Certain additional rules apply if the exercise price for a stock option is paid in shares previously owned by the Participant.

 

SARs.    The grant of SARs will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will recognize ordinary income in an amount equal to the then fair market value of the shares of common stock or cash distributed to the Participant. The Company is entitled to a tax deduction equal to the amount of such income (subject to Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of SARs generally would be taxed as long-term or short-term capital gain or loss, (long-term or short-term, depending upon the holding period of the shares sold).sold.

 

Equity Compensation Plan Information.    The following table provides information about stock options outstanding awards and shares of common stock available for future awards under all of Morgan Stanley’s equity compensation plans as of December 31, 2009. 2011. Morgan Stanley has not made any grants of common stock outside of its equity compensation plans.

The following information is intended to update and supplement the table and, we believe, is useful for a better understanding of “Item 4–3 – Company Proposal to Amend the 2007 Equity Incentive Compensation Plan”: asPlan.” As of January 31, 20102012 (i) the number of shares available for grant under allthe Company’s plans that can be used for the purpose of granting annual employee equity compensation plansawards was 26approximately 20.9 million with only 1614.2 million available for future stock unit and restricted stock awards; (ii) the number of outstanding full value awards (including restricted stock units and performance stock units at target) was 118approximately 139 million; (iii) the number of outstanding stock options was 73approximately 45 million; (iv) the weighted average exercise price of outstanding stock options was $51.15;$48.1021; and (v) the weighted average remaining life of outstanding stock options was 3.32.807 years. Morgan Stanley has not made any grants of common stock outside of its equity compensation plans.

 

   (a)  (b)  (c) 

Plan Category


  Number of securities to be issued
upon exercise of
outstanding options, warrants
and rights


  Weighted-average exercise
price of outstanding options,
warrants and rights


  Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))


 

Equity compensation plans approved by security holders

  81,879,016  $51.2924  104,404,699(1) 

Equity compensation plans not approved by security holders

  —     —    2,291,661(2) 

Total

  81,879,016  $51.2924  106,696,360(3) 

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(a)(b)(c)

Plan Category


Number of securities to be issued
upon exercise of
outstanding options, warrants
and rights(1)


Weighted-average exercise
price of outstanding options,
warrants and rights


Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))


Equity compensation plans approved by security holders

166,608,366$48.1475(2)105,015,765(3)

Equity compensation plans not approved by security holders

5,164,453—  2,765,629(4)

Total

171,772,819$48.1475(2)107,781,394(5)

 

(1) Includes outstanding stock option, restricted stock unit and performance stock unit awards. The number of outstanding performance stock unit awards is based on the target number of units granted to senior executives, although the executive may ultimately earn up to two times the target number of such units, or nothing, based on the Company’s performance over the three-year performance period.

(2) Reflects the weighted-average exercise price with respect to outstanding stock options and does not take into account outstanding restricted stock units and performance stock units, which do not provide for an exercise price.

(3) Includes the following:

 

(a)

39,245,08239,182,870 shares available under the Morgan Stanley Employee Stock Purchase Plan (ESPP). Pursuant to this plan, which is qualified under Section 423 of the Internal Revenue Code, eligible employees maywere permitted to purchase shares of common stock at a discount to market price through regular payroll deduction. The CMDS Committee approved the discontinuation of the ESPP, effective June 1, 2009, such that no further contributions to the plan will be permitted following such date, until such time as the CMDS Committee determines to recommence contributions under the plan.

 

(b)

57,034,16557,882,803 shares available under the 2007 Equity Incentive Compensation Plan (EICP)EICP (without taking into account the proposed amendment to the EICP). Awards may consist of stock options, stock appreciation rights, restricted stock, restricted stock units to be settled by the delivery of shares of common stock (or the value thereof), performance-based units, other awards that are valued by reference to or otherwise based on the fair market value of common stock, and other equity-based or equity-related awards approved by the CMDS Committee.

 

(c)

7,388,6707,422,279 shares available under the Employee Equity Accumulation Plan (EEAP), which includes 565,892722,292 shares available for awards of restricted stock and restricted stock units. Awards may consist of stock options, stock appreciation rights, restricted stock, restricted stock units to be settled by the delivery of shares of common stock (or the value thereof), other awards that are valued by reference to or otherwise

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based on the fair market value of common stock, and other equity-based or equity-related awards approved by the CMDS Committee.

 

(d)

351,101355,243 shares available under the Tax Deferred Equity Participation Plan (TDEPP). Awards consist of restricted stock units, which are settled by the delivery of shares of common stock.

 

(e)

385,681172,570 shares available under DECAP (without taking into account the Directors’ Equity Capital Accumulation Plan (DECAP)proposed amendment to DECAP, as described in Item 4 of this proxy statement). This plan provides for periodic awards of shares of common stock and stock units to non-employee directors and also allows non-employee directors to defer the cash fees they earn fromfor services as a director in the form of stock units.

 

(2)(4) Includes the following: 22,957 shares available under the Branch Manager Compensation Plan (BMCP), 13,239 shares available under the Financial Advisor and Investment Representative Compensation Plan (FAIRCP), and 2,255,4652,729,433 shares available under the Morgan Stanley 2009 Replacement Equity Incentive Compensation Plan for Morgan Stanley Smith Barney Employees (REICP). No awards were outstanding under the BMCP as of December 31, 2011. The material features of these plans are described below.

 

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(3)(5) As of December 31, 2009,2011, approximately 64,810,13265.7 million shares were available under the Company’s plans that cancould be used for the purpose of granting annual employee equity awards (EICP, EEAP, TDEPP, BMCP and FAIRCP). Approximately 42,218,77153 million shares were granted in January 20102012 as part of 20092011 employee incentive compensation (which, for the PSUs granted to senior executives, reflects the grant of the target number of units, although the senior executive may ultimately earn up to two1.5 times the target number, or nothing, based on the Company’s performance over the three-year performance period).

 

The material features of Morgan Stanley’s equity compensation plans that have not been approved by shareholders under SEC rules (BMCP, FAIRCP and REICP) are described below. The following descriptions do not purport to be complete and are qualified in their entirety by reference to the plan documents. Effective December 31, 2011, the BMCP and FAIRCP were terminated and no shares remain available for issuance under these plans after such date. All plans throughunder which awards may currently be grantedwere available for grant in 2011 are included as exhibits to the 20092011 Form 10-K.

 

BMCP.    Branch managers in the Global Wealth Management Group arewere eligible to receive awards under BMCP. Awards under BMCP may consist of cash awards, restricted stock and restricted stock units to be settled by the delivery of shares of common stock.

 

FAIRCP.    Financial advisors and investment representatives in the Global Wealth Management Group arewere eligible to receive awards under FAIRCP. Awards under FAIRCP may consist of cash awards, restricted stock and restricted stock units to be settled by the delivery of shares of common stock.

 

REICP.    The REICP was adopted in connection with the MSSB joint venture and without stockholder approval pursuant to the employment inducement award exception under the New York Stock ExchangeNYSE Corporate Governance Listing Standards. The equity awards granted pursuant to the REICP are limited to awards to induce certain Citigroup Inc. employees to join the new MSSB joint venture by replacing the value of Citigroup awards that were forfeited in connection with the employees’ transfer of employment to MSSB. Awards under the REICP may be made in the form of restricted stock units, stock appreciation rights, stock options and restricted stock and other forms of stock-based awards.

 

Shareholder ProposalsItem 4—Company Proposal to Amend the Directors’ Equity Capital Accumulation Plan

The Company sets forth below five shareholder proposals and the proponents’ supporting statements. The Board and the Company accept no responsibility for the text of these proposals and supporting statements. The Board’s voting recommendation immediately follows each proposal. The Board recommends that you vote against each of the five shareholder proposals. A proposal may be voted on at the annual meeting only if properly presented by the shareholder proponent or the proponent’s qualified representative.

LOGO Item 5—Shareholder Proposal Regarding Special Shareowner Meetings

Emil Rossi, P.O. Box 249, Boonville, CA 95415, owner of approximately 4,000 shares of common stock, has notified Morgan Stanley that he intends to present the following proposal at the annual meeting.

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RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each applicable governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call a special shareowner meeting. This includes multiple shareowners combining their holdings to equal the 10%-of-outstanding common threshold. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners but not to management and/or the board.

A special meeting allows shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. If shareowners cannot call a special meeting investor returns may suffer. Shareowners should have the ability to call a special meeting when a matter merits prompt attention. This proposal does not impact our board’s current power to call a special meeting.

This proposal topic won more than 49%-support at our 2009 annual meeting and proposals often win higher votes at subsequent elections. Our 49%-support may be more impressive since large shareholders owning 22% and 13% respectively of our stock may have voted in lockstep against this proposal topic.

This proposal topic won more than 60% support the following companies in 2009: CVS Caremark (CVS), Sprint Nextel (S), Safeway (SWY), Motorola (MOT) and R. R. Donnelley (RRD). William Steiner and Nick Rossi sponsored these proposals.

The merit of this Special Shareowner Meetings proposal should also be considered in the context of the need for improvement in our company’s 2009 reported corporate governance status:

John Mack was designated a “Flagged (Problem) Director” by The Corporate Librarywww.thecorporatelibrary.com, an independent investment research firm, due to his NYSE board service during “Dick” Grasso’s tenure. “Dick” Grasso’s tenure was highlighted by his scandalous $190 million exit payment.

The Corporate Library rated our company “High Concern” in executive pay. Robert Kidder, our Lead Director and also the Chairman of our executive pay committee, had 16-years director tenure—independence concern. Our directors served on these five boards rated “D” or “F” by The Corporate Library: Robert Kidder, Schering-Plough (SGP); Charles Phillips, Oracle (ORCL) and Viacom (VIA); Donald Nicolaisen, Verizon (VZ) and James Hance, Sprint Nextel (S).

We had no shareholder right to cumulative voting, to act by written consent, to cast a simple majority vote to change our bylaws or to vote on executive pay. Shareholder proposals to address all or some of these topics have received majority votes at other companies and would be excellent topics for our next annual meeting.

The above concerns show there is need for improvement. Please encourage our board to respond positively to this proposal: Special Shareowner Meetings -Yes on 5.

 

OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “AGAINST” THIS PROPOSAL“FOR” THE AMENDMENT OF THE DIRECTORS’ EQUITY CAPITAL ACCUMULATION PLAN.    The Board believes that this proposal is not in the best interest of shareholders and opposes this proposal for the reasons discussed below.

 

The Directors’ Equity Capital Accumulation Plan (DECAP) was initially approved by shareholders on April 19, 1996 and reapproved by shareholders on March 19, 2002. On March 22, 2012, the Board adopted an amendment to DECAP to increase the number of shares of common stock available to be granted under DECAP by 750,000 shares, subject to shareholder approval at the annual meeting of shareholders. This represents approximately 0.04% of the common shares of the Company outstanding as of January 31, 2012.

The purpose of DECAP is to promote the long-term growth and financial success of the Company by attracting, motivating and retaining non-employee directors of outstanding ability and to more closely align the interests of the non-employee directors with those of Company shareholders. DECAP provides for equity awards in the form of restricted stock units (Stock Units) and the deferral of annual retainers by our non-employee directors into Stock Units. Our shareholders already haveindependent non-employee directors receive a vast majority of their compensation in the form of annual equity awards under DECAP, all of which are subject to pro-rata vesting over the one-year period following grant and half of which are not payable until the director retires from the Board.

The objective of the amendment is to continue to promote the purpose of DECAP by preserving our ability to call a special meeting of shareholders.    In March 2010, our Board amended the Company’s amended and restated Bylaws (Bylaws)grant Stock Units to provide that owners of at least 25% of the Company’s common stock (excluding shares as to which the holder wouldnon-employee directors under DECAP. This amendment will not have the right to vote or has transferredchange any of the economic consequences of ownership) may call a special meeting of shareholders. In light of this amendment, we believe that the adoption of this proposal is unnecessary.benefits or awards available to non-employee directors under DECAP.

 

Special meetings are costly, time-consuming and impose other significant burdens on the Company.    The Board believes that allowing owners of at least 25% of our common stock to call a special meeting strikes the right balance between, on the one hand, providing an important right to owners of a significant portion of our common stock while, on the other hand, avoiding unnecessary, burdensome and costly special meetings called by a small minority of shareholders to advance their own interests. The Board believes that lowering the threshold in67

 

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If the Bylaws for shareholdersamendment to call a special meeting from 25% to 10% would be disruptive to our Company’s operations, require significant attention from our Board and management and impose substantial administrative and financial burdens on the Company. Specifically, the Board believes itDECAP is in the best interests ofapproved, the Company and its shareholders to hold a special meeting only if requested by the owners of a significant portion of our common stock because:

Preparing for special meetings would require considerable attention from senior management, diverting them from managing our operations and executing our business strategy.

Holding these special meetings also would require the preparation and distribution of proxy materials, together with the solicitation and tabulation of votes, resulting in significant legal, printing and distribution costs for the Company.

Allowing any 10% holder(s) of our common stock, regardless of whether they actually maintained that level of economic and voting interest,expects to have an unlimited ability to call special meetings at any time andsufficient shares for any purpose would encourage them to use this costly mechanism to serve their narrow interests, without providing any corresponding benefit to Morgan Stanley and our shareholders as a whole.

The Company’s existing governance practices and policies already ensure that our Board is fully accountable to our shareholders.    In addition togrants made over the ability of owners of at least 25% of our common stock to call a special meeting, the Company has the following governance practices and policies:

All of the Company’s directors are elected annually under a majority voting standard.    Over the past three years, the Board as a whole has been elected by an average of over 94% of the votes cast.

We provide ample opportunity for our shareholders to raise appropriate matters at our annual meetings.    Indeed, shareholders have frequently used our annual meetings to make proposals through the proxy rules, or to communicate their concerns by raising issues from the floor of the meeting.

The Company’s amended and restated certificate of incorporation does not include any super-majority vote provisions.    All Company and shareholder proposals are subject to simple majority standards.

Our Board maintains open lines of communication with our shareholders throughout the year.    The Board has adopted a policy regarding shareholder communications, which is available on the Company’s website, and is committed to adopting and following corporate governance best practices in this area.

The Company’s governance practices and policies already protect shareholder interests and certain important matters must be submitted to shareholder vote.    The rules governing companies listed on the NYSE and incorporated under Delaware law already require us to submit certain matters to a vote of shareholders for approval – either at a special meeting called by the Company or at our annual meeting. These matters include mergers, large share issuances and the adoption of equity-based compensation plans. Given the right of shareholders to call a special meeting that is already in place and that certain important matters must be submitted to shareholder vote, the Board does not believe that it is necessary or advisable to lower the threshold required to call a special meeting of shareholders from 25% to 10%.next five years.

 

Our Board unanimously recommends that you voteAGAINSTFOR this proposal. Proxies solicited by the Board will be votedAGAINSTFOR this proposal unless otherwise instructed.

 

LOGOItem 6—Shareholder Proposal Regarding Executive Equity Holdings RequirementSummary of DECAP as Proposed to Be Amended.    A copy of DECAP as proposed to be amended is attached to this proxy statement as Annex B and the following summary is qualified in its entirety by reference thereto. Other than the amendment to the number of shares available under DECAP for which we are seeking shareholder approval, the terms of DECAP remain unchanged. The capitalized terms not otherwise defined in this summary shall have the meaning assigned to them in DECAP.

 

Purpose and Eligibility.The American Federationpurpose of LaborDECAP is to promote the long-term growth and Congressfinancial success of Industrial Organizations, 815 Sixteenth Street, N.W.the Company by attracting, motivating and retaining non-employee directors of outstanding ability and assisting the Company in promoting a greater identity of interest between the Company’s non-employee directors and its stockholders. Only non-employee directors may participate in DECAP. Currently, there are 10 non-employee directors eligible to participate in DECAP. Employee directors are not eligible to participate in DECAP. If all of the director nominees, including the new director nominee, are elected at the 2012 annual meeting of shareholders, there will be 10 non-employee directors eligible to participate in DECAP.

Administration.DECAP is administered by the Board through its Nominating and Governance Committee.

Shares subject to DECAP.    As of January 31, 2012, and without taking into account the proposed amendment to the plan, approximately 172,570 shares remained available for issuance under DECAP (subject to adjustment in accordance with DECAP). The Board approved an amendment to increase the shares reserved under DECAP to ensure that the Company will be able to continue awarding Stock Units to non-employee directors as provided under DECAP. If the amendment is approved by shareholders, the additional 750,000 shares will be available for issuance under DECAP. If the amendment is not approved by shareholders, the Company will not be able to continue awarding Stock Units to non-employee directors under DECAP once the remaining shares have been used.

Terms of Initial and Annual Equity Awards.    Under DECAP, non-employee directors receive an equity award upon initial election to the Board (provided that they are elected to the Board no less than 60 days prior to the next annual meeting of shareholders and are not elected at an annual meeting of shareholders) and an annual equity award thereafter granted on the date of the annual meeting of shareholders. The number of Stock Units granted pursuant to initial and annual equity awards is determined by dividing the dollar amount of the applicable award by the volume-weighted average price of a share of Company common stock on the grant date. Non-employee directors receive dividend equivalents on Stock Units that are paid in the form of additional Stock Units.

Initial Equity Awards.    The dollar value of the initial equity award is currently $250,000, prorated for the months of service between the month the director is initially elected to the Board and the next annual meeting of shareholders. The initial equity award is granted in Stock Units on the first day of the calendar month following the month in which the non-employee director becomes a member of the Board. The number of Stock Units comprising the initial equity award is determined based on the volume-weighted average price of a share of Company common stock on the grant date. Initial equity awards are fully vested upon grant.

Annual Equity Awards.    The dollar value of the annual equity award, which is granted in Stock Units each year on the date of such year’s annual meeting of shareholders, is currently $250,000. The number of Stock Units comprising the annual equity award is determined based on the volume-weighted average price of a share of Company common stock on the grant date. Annual equity awards are subject to monthly vesting until the one-year anniversary of the grant date, provided that all of the director’s unvested Stock Units will fully vest upon the director’s termination of service from the Board due to death, Disability or a Governmental Service Resignation.

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Distribution and Deferral of Equity Awards.    Initial and annual equity awards are granted 50% in the form of Stock Units that do not become payable until the non-employee director retires from the Board (Career Units) and 50% in the form of Stock Units payable on the first anniversary of grant (Current Units). Subject to certain limitations, non-employee directors may elect to extend deferral of Career Units beyond retirement from the Board and to defer receipt of the shares underlying Current Units beyond the anniversary of grant. Non-employee directors may choose the form of distribution (lump sum or annual installments) of their Stock Units.

Terms of Cash Awards.    As described more fully in “Director Compensation,” each non-employee director receives an annual cash retainer for Board service as well as additional cash retainers for acting as a lead director, a committee chair or a committee member of each of the Audit, CMDS, Nominating & Governance, Operations and Technology and Risk committees, as applicable. Non-employee directors can elect to receive all or a portion of their cash retainers on a current basis in cash or in shares of Morgan Stanley common stock or on a deferred basis in Stock Units, which are granted under DECAP. These Stock Units are granted on the date the cash retainer would have otherwise been paid, with the number of such Stock Units granted determined based on the amount of the cash retainer that is deferred and the volume-weighted average price of a share of Company common stock on the date of grant. Subject to certain limitations, non-employee directors may choose the distribution date and the form of distribution (lump sum or annual installments) of their Stock Units.

Terms of Option Awards.    Prior to February 8, 2005, non-employee directors were awarded nonqualified stock options (Options) annually under DECAP. Each Option was granted with an exercise price equal to the fair market value of Company stock on the grant date. Options were vested upon grant and scheduled to expire 10 years after the grant date. If a director’s service terminates by reason of Disability, Normal Retirement or death, each Option held by such director remains exercisable until the original expiration date. If a director’s service terminates for any other reason (except for Cause), Washington, D.C. 20006, ownereach Option held by such director remains exercisable until the earlier of approximately 1,02890 days after the termination date and the expiration date of the Option. If a director is terminated for Cause, all Options will be forfeited and will no longer be exercisable. As of February 8, 2005, Options were no longer awarded under DECAP.

Limitations on Transfer.Awards granted under DECAP generally may not be sold, transferred, pledged, assigned or otherwise conveyed by non-employee directors. The non-employee directors have no rights as a stockholder of the Company by reason of any Stock Unit or Option until stock underlying such award has been issued to such director.

Amendments and Termination.    The Board or the Nominating and Governance Committee may suspend or terminate DECAP at any time, in whole or in part, provided that no such suspension or termination may adversely affect the rights of the non-employee directors with respect to outstanding awards. The Board or the Nominating and Governance Committee may also amend and modify DECAP; provided, however, that no such amendment or modification may materially impair a non-employee director’s rights in any outstanding award without his or her consent.

U.S. Federal Income Tax Consequences.    The following is a general summary as of the date of this proxy statement of the U.S. federal income tax consequences associated with DECAP. The federal tax laws are complex and subject to change and the tax consequences for any participant will depend on his or her individual circumstances.

Non-employee directors will realize taxable income, and the Company will be entitled to a tax deduction when the shares underlying the Stock Units are delivered to the non-employee director. The amount of taxable income realized will be equal to the fair market value of the shares on the date the underlying shares are scheduled to be delivered to the non-employee director. Generally a director does not recognize taxable income, and the Company is not entitled to a deduction, upon the grant of an Option. Upon the exercise of an Option, the director recognizes ordinary income equal to the excess of the fair market value of the shares of common stock has notified Morgan Stanley that it intendsacquired over the Option exercise price and the Company is generally entitled to presenta deduction equal to the following proposal and related supporting statement at the annual meeting.compensation

 

RESOLVED: The Stockholders of Morgan Stanley (the “Company”) request that the Board of Directors (the “Board”) adopt a policy requiring a five-year lock-up period for senior executives’ equity incentive awards. During this lock-up period, senior executives may redeem or sell one-fifth of their equity incentive awards in69

 

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eachtaxable to the director as ordinary income. The amount of such excess is generally determined by reference to the fair market value of our common stock on the date of exercise. Although compensation income is normally subject to federal income, Social Security and employment tax withholding, such withholding is generally not required for directors participating in DECAP since they are not employees of the five years. This lock-up period will begin to run after all performance requirements to earn the awards have been met and will continue even if the executive is no longer employed.

This policy will apply in addition to any other equity holding requirements that our Board has established for senior executives. This policy will not apply to existing contracts but should cover new contracts and extensionsCompany or replacements of existing contracts.an affiliate.

 

Supporting StatementAmended Plan Benefits.    The following table sets forth the dollar value of the Stock Units that will be awarded to the eligible non-employee directors under DECAP in 2012. The amounts set forth in the table below do not reflect cash retainers payable for the 2012 service period beginning on the date of the 2012 annual meeting of shareholders that may be voluntarily deferred by the non-employee directors into Stock Units pursuant to the terms of DECAP, as such information is not yet determinable. Further, future awards under DECAP beyond 2012 are not determinable at this time.

 

Non-Employee Director Group                


Dollar Value ($)

Number of Units

Stock Units

$2,632,500(1)(2)

We believe the impact

(1) If all of the recent financial crisis was exacerbated by skewed incentive compensation programs that spurred executivesdirector nominees are elected to the Board at the 2012 annual meeting of financial companiesshareholders, 10 non-employee directors would be eligible to assume excessive risk for short-term illusory gains. In our view, these flawed compensation practices enabled executives to cash out hundredsreceive an annual equity award (with an initial dollar value of millions$250,000) granted in the form of dollars in compensation whenStock Units on the going was good and not forfeit any money when their companies imploded.

In June 2009, Treasury Secretary Timothy Geithner urged that “Companies should seek to pay top executives in ways that are tightly aligned with the long-term value and soundnessdate of the firm.” Goldman Sachs CEO Lloyd Blankfein has proposed paying executives2012 annual meeting of shareholders. The dollar amount reported in deferred equity and requiring them to hold much of it until retirement, and banning guaranteed multi-year bonuses.

A 2009 study, “America’s Bailout Barons,” by the Institute for Policy Studies found that CEOs at 20 banks that received funds fromtable also includes the Troubled Asset Relief Program (“TARP”) were paid 37% more in 2008 than the average pay for CEOsinitial value of the S&P 500 companies. Indeed, our Company was a TARP participant. NowStock Units that our Company has repaidwill be granted on the TARP funds, we are concerned that our Company may unduly reward executives for short-term performance. Our proposal seeks to link executive pay with long-term performance by ensuring an appropriate holding period for equity incentive awards. This compensation approach has been promoted by Professors Lucian Bebchukdate of the Harvard Law School and Jesse Fried2012 annual meeting of shareholders to the three eligible non-employee directors who voluntarily deferred the second 50% of the UC Berkeley Schoolcash retainers they earned for the 2011 service period (that began on the date of Law, authorsthe 2011 annual meeting of“Pay Without Performance: The Unfulfilled Promise of Executive Compensation.” shareholders) into Stock Units.

 

“When an executive’s options or shares vest, one-fifth(2) The number of them could become unblocked, andStock Units that will be awarded to the executive would subsequently10 eligible non-employee directors under DECAP in 2012 is not yet determinable. Under DECAP, the actual number of Stock Units that will be freegranted to cash them out, in eachthe non-employee directors pursuant to the equity awards described above will be determined by dividing the dollar amount of the subsequent five years,” they wrote inapplicable award by the volume-weighted average price of a June 16, 2009 op-ed inThe Wall Street Journal.share of Company common stock on the grant date (the date of the 2012 annual meeting of shareholders).

 

We recognize that ourEquity Compensation Plan Information.    See “Item 3 — Company has adopted stockholding requirementsProposal to Amend the 2007 Equity Incentive Compensation Plan” for certain executives. Our proposal enhances these requirements by requiring senior executives to hold theirinformation about outstanding stock options, restricted stock units and performance stock units, and shares of common stock available for future awards under all of Morgan Stanley’s equity incentive awards over a suitable period commensurate with long-term performance even if they have departed from the Company.compensation plans (including DECAP) as of December 31, 2011.

 

We urge youItem 5—Company Proposal to vote FOR this proposal.Approve the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Resolution)

 

OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “AGAINST”“FOR” THIS PROPOSAL.    The Board believes that this proposal is not in the best interest of shareholders and opposes this proposal for the reasons discussed below.

 

The Company’s existing stock ownership commitment policy for senior executives requires a longer holding period, in practice, than that outlined inAt our 2011 annual meeting of shareholders, the proposal.    UnderCompany submitted non-binding advisory votes to our shareholders to approve our executive compensation (Say on Pay) and to determine the Company’s current policy, the Chairman of the Board and membersfrequency of the Company’s Operating Committee, which includefuture Say on Pay votes (Say When on Pay), as required by the Company’s most senior officers, are required to retain at least 75%Dodd-Frank Act. Consistent with the advisory Say When on Pay vote of the common stock they receive pursuant to all Company equity awards (including options, restricted stock units and performance stock units) made to them while in these roles (less allowances for any option exercise price and taxes). The proposal seeks to havemajority of votes cast by our shareholders at the 2011 annual meeting of shareholders, the Company adoptintends to submit an equity holding policy that would allow these executives to sell 100% of the equity they receive after a five-year period –even if they remainannual advisory vote on the Operating Committee. The Company’s existing stock ownership commitment policy requires a longer holding period in practice, because it only allows these executives to sell 25% of the net equity they receive for as long as they are on the Operating Committee, which may be significantly longer than five years.

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The Company’s current equity ownership policies and compensation programs already encourage a focus on long-term Company performance in a way that meets or exceeds the objectives of the proposal.    The Board agrees that meaningful equity ownership by executive officers serves the critical purpose of aligning their long-term interests with those of the Company’s shareholders. In fact,named executive officers until the next advisory Say When on Pay vote.

Accordingly, as describedrequired by section 14A of the Securities Exchange Act, the Company is submitting to shareholders the following resolution for vote:

“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the CD&A herein, we have fundamentallyCompany’s proxy statement for the 2012 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis and the accompanying compensation tables and related narrative).”

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In recent years, Morgan Stanley has significantly restructured our executive compensation program in response to the lasting impact on the industry from the global financial crisis. For 2011, Morgan Stanley has continued to refine the way we pay our employees –executives, consistent with global regulatory requirements and guidance and industryprinciples, evolving best practices and the Company’s risk policies – and reflecting shareholder input, the Company’s performance and the broader economic environment – so that a significantly greater portion of total compensation is now at-risk,“at-risk,” subject to clawback and tied to long-term Company performance. In addition toWe believe these changes advance our goals of delivering pay-for-performance, attracting and retaining top talent and encouraging responsible risk-taking in a way that is aligned with the stock ownership commitment policy, the structurelong-term interests of the Company’s equityshareholders.

Shareholders are urged to read the CD&A, which discusses in detail how our compensation policies and procedures implement our compensation philosophy. Highlights of our 2011 compensation program is designedinclude the following:

Mr. Gorman’s compensation for 2011 was down 25% from 2010.    Despite the Company’s improved performance and the progress achieved in executing its strategy in 2011 under his leadership, Mr. Gorman’s compensation for 2011 was 25% below the level of 2010, reflecting the fact that the Company did not fully meet certain financial priorities for the year. Compensation for the remaining NEOs was also down significantly on average from 2010 levels.

No NEO received a year-end cash bonus for 2011.    We paid no cash bonuses to the NEOs for 2011 and instead delivered 100% of the NEOs’ year-end compensation in the form of deferred long-term incentive awards. These long-term incentive awards, comprised of “at-risk” PSUs, RSUs and deferred cash-based awards under MSCIP, are subject to market risk and cancellation and clawback provisions over a three-year period.

A significant portion of year-end compensation was granted under our redesigned “at-risk” PSU program.    Consistent with the past two years, a significant portion of year-end compensation was granted in the form of “at-risk” PSUs that deliver value only if the Company, after the full three-year performance period, achieves objective performance goals with respect to return on average common shareholders’ equity and relative total shareholder return. The PSU program was redesigned in 2011 to further moderate risk-taking incentives while continuing to incentivize performance by reducing the payout leverage, setting goals to be challenging but achievable in the current operating environment and modifying the comparison group to remove the volatility of a small peer group.

Our “clawback” provision was expanded to apply to all year-end compensation.    Our clawback provision was expanded to apply to each NEO’s RSUs, in addition to each NEO’s PSUs and deferred cash-based awards. The clawback provision ensures that year-end compensation can be canceled if an individual engages in conduct (including with respect to direct supervisory responsibilities) detrimental to the Company, including causing a restatement of the Company’s consolidated financial results or violating the Company’s risk policies and standards. The deferred cash-based awards are also subject to clawback if an individual causes, or is reasonably expected to cause, a substantial financial loss on a trading strategy, investment, commitment or other holding and such trading strategy, investment, commitment or other holding was a factor in his or her award determination. PSUs are also subject to clawback following payment if the CMDS Committee determines that the payout was based on materially inaccurate financial statements or other performance metric criteria.

We enhanced our review process to determine whether to clawback or cancel previously awarded compensation as well as to adjust current year compensation.    The Company implemented an enhanced, robust review process for identifying and evaluating situations occurring throughout the course of the year that could require clawback or cancellation of previously awarded compensation as well as adjustments to current year compensation.

These foregoing measures build upon our previous years’ efforts to provide senior executives with an incentive to managereform compensation. For example, in 2010, we reduced Mr. Gorman’s compensation as CEO from 2009 levels when he served as Co-President and increased the Company from the perspective of shareholders with an equity stake in the business. A significant portion of senior executiveyear-end compensation is composeddelivered in deferred long-term incentive awards instead of equity awards that are tied to long-term performance metrics and have multi-year vesting schedules, as well as mandatorily deferred compensation. So, the Company’s current policies already meet or exceed the objectives of the proposal.cash bonus. In

 

In 2009 the Companysubstantially increased the ratio of executive compensation that is deferred. For example, the average deferral for Operating Committee members rose from 42% in 2008 to approximately 75% in 2009 and for Managing Directors, the average deferral rose from 32% to 54%.71

 

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2009, we introduced a multi-year performance program and increased our focus on up-front risk adjustment of compensation. In 2008, Morgan Stanley’s restricted stock units typically convert into shares over a three-year periodStanley was the first major U.S. bank to enact clawback provisions and we continue to the extent they are vested prior to conversion, remain subject to cancellation for certain prohibited activities. The value realized upon conversion ofenhance these restricted stock units isdirectly tied to the long-term appreciation of the Company’s stock price from the date of grant of the units, which clearly links the interests of senior executives and shareholders.provisions.

 

Further, underAlthough the Company’s new performance stock units, shares willonly be paid to participants if certain pre-established goals, including with respect to total shareholder return, are achieved over a three-year performance period. To the extent that any performance stock units are earned after the end of the performance period, the value of such units will dependvote on the stock price at the time of payment, and will remain subject to clawback if paymentthis proposal is made based on materially inaccurate financial statements.

To the extent any shares are received by a member of the Operating Committee upon the conversion of his or her restricted stock units or performance stock units,such shares are subject to the 75% stock ownership commitment while he or she is on the Operating Committee.

As described in the CD&A herein,not binding, the CMDS Committee, worked withwhich is comprised solely of independent directors and is responsible for making decisions regarding the amount and form of compensation paid to the Company’s Chief Risk Officer andsenior executives, will carefully consider the Committee’s independent consultant in reviewing the Company’s compensation arrangements, including for our senior officers, toshareholder vote on this matter.

To helpensure that the arrangements dorange of shareholder views are well understood by the Board – in a way that a simple “for” or “against” vote does not encourage unnecessary or excessive risk-taking that threatensallow – the Company’s interests or gives riseCompany also encourages shareholders to risk that could haveuse any of a material adverse effect on the Company.

The Board believes that the Company’s current stock ownership guidelines and compensation structure provide a balanced approachnumber of available direct communication mechanisms to aligning the long-term interest of its executive officerseffectively raise specific items with other shareholders by requiring executives to own meaningful levels of the Company’s stock over extended periods of time.The Company’s policies and programs result in executives realizing increased value from their equity compensationonly if the Company’s stock price both increases and sustains its growth over time. Therefore, we do not believe that the restrictions in the proposal are necessary or otherwise provide a meaningful additionregard to our existingexecutive compensation practices.

 

Our Board unanimously recommends that you voteAGAINSTFOR this proposal. Proxies solicited by the Board will be votedAGAINSTFOR this proposal unless otherwise instructed.

 

LOGO Item 7—Shareholder Proposal Regarding Independent ChairInformation About the Annual Meeting

 

Laborers National Pension Fund, 14140 Midway Road, Suite 105, Dallas, Texas 75244, ownerWhy Did I Receive a One-Page Notice regarding the Internet Availability of approximately 26,400Proxy Materials?

Pursuant to SEC rules, we are mailing to certain of our shareholders a Notice about the availability of proxy materials on the Internet instead of paper copies of the proxy materials. This process allows us to expedite our shareholders’ receipt of proxy materials, lower the costs of distribution and reduce the environmental impact of our annual meeting. All stockholders receiving the Notice will have the ability to access the proxy materials and vote over the Internet.It is important that you submit your vote. Instructions on how to access the proxy materials over the Internet or to request a paper copy of the proxy materials may be found in the Notice. The Notice is not a proxy card and cannot be returned to submit your vote. You must follow the instructions on the Notice to vote your shares.

Who Can Vote at the Annual Meeting?

You may vote all shares of Morgan Stanley’s common stock that you owned as of the close of business on March 19, 2012, the record date for the determination of shareholders entitled to notice of, and to vote at, the annual meeting. Each share of common stock entitles you to one vote on each matter voted on at the annual meeting. On the record date, 1,978,423,580 shares of common stock has notified Morgan Stanley that it intendswere outstanding. We need a majority of the shares of common stock outstanding on the record date, represented in person or by proxy, to present the following proposal and related supporting statement athold the annual meeting.

 

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RESOLVED: That stockholders of Morgan Stanley (“Morgan Stanley” or “the Company”) ask the board of directors to adopt a policy that the board’s chairman be an independent director who has not previously served as an executive officer of Morgan Stanley. The policy should be implemented so as not to violate any contractual obligation. The policy should also specify (a) how to select a new independent chairman if a current chairman ceases to be independent during the time between annual meetings of shareholders; and (b) that compliance with the policy is excused if no independent director is available and willing to serve as chairman.

SUPPORTING STATEMENT

ItWhat is the responsibility ofQuorum to Hold the Board of Directors to protect shareholders’ long-term interests by providing independent oversight of management, including the Chief Executive Officer (CEO), in directing the corporation’s business and affairs. Currently at our Company, Mr. John Mack is the Chairman of the Board who until recently also served as CEO. We believe that this current scheme may not adequately protect shareholders.

Shareholders of Morgan Stanley require an independent leader to ensure that management acts strictly in the best interests of the Company. By setting agendas, priorities and procedures, the position of Chairman is critical in shaping the work of the Board of Directors. Accordingly, we believe that having an independent director serve as chairman can help ensure the objective functioning of an effective Board.

As a long-term shareholder of our Company, we believe that ensuring that the Chairman of the Board of our Company is independent, will enhance Board leadership at Morgan Stanley, and protect shareholders from future management actions that can harm shareholders. Other corporate governance experts agree. As a Commission of The Conference Board stated in a 2003 report, “The ultimate responsibility for good corporate governance rests with the board of directors. Only a strong, diligent and independent board of directors that understands the key issues, provides wise counsel and asks management the tough questions is capable of ensuring that the interests of shareowners as well as other constituencies are being properly served.”

We believe that the recent wave of corporate scandals demonstrates that no matter how many independent directors there are on the Board, that Board is less able to provide independent oversight of the officers if the Chairman of that Board is also the current or former CEO of the Company.

We, therefore, urge shareholders to vote FOR this proposal.

OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “AGAINST” THIS PROPOSAL.    The Board believes that this proposal is not in the best interest of shareholders and opposes this proposal for the reasons discussed below.

The Board should not be constrained by an inflexible, formal requirement that the Chairman be an independent director who has not previously served as an executive officer.    The Board believes that adopting a policy to restrict the Board’s discretion in selecting the Chairman would deprive the Board of the ability to select the most qualified and appropriate individual to lead the Board as Chairman at any given time. The Company and its shareholders are best served by maintaining the flexibility to haveany individual serve as Chairman of the Board, based on the best interests of the Company and current circumstances, rather than mandating a particular leadership structure. Indeed, under our current Board structure, we now have a separate Chairman (John J. Mack) and Chief Executive Officer (James P. Gorman).

In selecting a Chairman the Board considers, among other things, the composition of the Board, the role of our Lead Director, Morgan Stanley’s strong governance practices, the Chief Executive Officer’s working relationship with the Board, and the challenges specific to Morgan Stanley. Given Mr. Mack’s prior role as Chief Executive Officer, his existing relationship with the Board, his deep understanding of Morgan Stanley’s businesses, and his strong track record of professional experience and leadership, the Board strongly believes it is in the best interest of shareholders for Mr. Mack to hold the role of Chairman of Morgan Stanley.

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The Board believes there is already significant independent oversight of management.    Our Corporate Governance practices and policies already ensure substantial independent oversight of management. For instance:

We have a strong and independent Lead Director.    Our Corporate Governance Policies provide for an independent and active Lead Director with clearly defined leadership authority and responsibilities. Our Lead Director, C. Robert Kidder, was appointed by our other independent directors in 2006 and has responsibilities including: (i) presiding at all meetings of the Board at which the Chairman is not present; (ii) having the authority to call, and lead, sessions composed only of non-management directors or independent directors; (iii) advising the Chairman of the Board’s informational needs; (iv) approving Board meeting agendas and the schedule of Board meetings and requesting, if necessary, the inclusion of additional agenda items; and (v) making himself available, if requested by major shareholders, for consultation and direct communication. We believe that as Lead Director, Mr. Kidder has been effective at enhancing the overall independent functioning of the Board.

We have a substantial majority of independent and non-management directors.    Ten out of the thirteen director nominees are independent as defined by the NYSE listing standards and our more stringent Corporate Governance Policies and eleven out of the thirteen director nominees are non-management directors. All of our directors are elected annually.

Our key standing committees are composed solely of independent directors.    The Audit Committee, the CMDS Committee, and the Nominating and Governance Committee are each composed solely of independent directors and provide independent oversight of management. The Risk Committee is comprised of a substantial majority of independent directors and includes only non-management directors. In addition, the Audit and CMDS Committees meet in executive session at all meetings.

Our non-management directors meet regularly in executive session.    At each regularly scheduled Board meeting, the non-management directors meet in an executive session without Messrs. Gorman or Mack present and, consistent with the NYSE listing standards, at least annually, the independent directors meet in executive session. These sessions are chaired by the Lead Director.

Morgan Stanley has a strong corporate governance structure that ensures independent Board discussion and evaluation of, and communication with, senior management.    Our Corporate Governance Policies and Board committee charters provide a strong framework for independent board discussion, and for evaluation of, and communication with, senior management. Board members have complete and open access to senior members of management and other employees of the Company. In addition, the Board believes that the attendance of key executive officers at Board meetings augments the meeting process. To that end, the Company’s senior management attend all regularly scheduled Board meetings. Other officers of the Company who, in the Board’s opinion, can assist with its deliberations and provide critical insights and analysis are also invited to attend our Board meetings. The Board believes that the candor and objectivity of the Board’s deliberations are not affected by whether its Chairman is independent or a member of management. The strength of our corporate governance structure is such that the Chairman’s former service as an executive officer of the Company does not in any way limit the Board’s oversight of the effectiveness of management but in fact provides over three decades of experience and insight into Morgan Stanley’s business, which are invaluable in these times of unprecedented change.

Our Board unanimously recommends that you vote “AGAINST” this proposal. Proxies solicited by the Board will be voted “AGAINST” this proposal unless otherwise instructed.

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LOGO Item 8—Shareholder Proposal Regarding Report on Pay Disparity

Elizabeth Phillips, 1035 Forest Avenue, Wilmette, IL 60091, owner of approximately 250 shares of common stock, has notified Morgan Stanley that she intends to present the following proposal at the annual meeting.

RESOLVED: shareholders request the Board’s Compensation Committee initiate a review of our company’s executive compensation policies and make available, upon request, a summary report of that review by October 1, 2010 (omitting confidential information and processed at a reasonable cost). We request that the report include:

1.A comparison of the total compensation package of senior executives and our employees’ median wage in the United States in July 2000, July 2004 & July 2009.

2.An analysis of changes in the relative size of the gap and an analysis and rationale justifying this trend.

3.An evaluation of whether our senior executive compensation packages (including, but not limited to, options, benefits, perks, loans and retirement agreements) are “excessive” and should be modified to be kept within reasonable boundaries.

4.An explanation of whether sizable layoffs or the level of pay of our lowest paid workers should result in an adjustment of senior executive pay to “more reasonable and justifiable levels” and whether Morgan Stanley should monitor this comparison going forward.

OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “AGAINST” THIS PROPOSAL.    The Board believes that this proposal is not in the best interest of shareholders and opposes this proposal for the reasons discussed below.

The Company views its compensation decisions for all employees, both executive and non-executive, in the aggregate, with a focus on motivating performance at all levels that fosters long-term and sustainable growth at the Company.    The Company values the important contributions made by all of its approximately 61,000 employees and is committed to paying all employees fairly in accordance with their job responsibilities and performance, as well as market and competitive considerations. Compensation levels for employees are determined through a multi-dimensional process that includes review of Company financial and strategic goals, as well as internal and external benchmarks, with extensive consideration given to attracting and retaining the best talent. In light of the independence of the CMDS Committee and its role in determining all aspects of executive officer compensation and the process currently in place to determine compensation for other employees, the Board does not believe that the review and the reports sought in the proposal would provide any reasonable benefit or additional value or information to the Company’s shareholders – particularly in light of the possible financial and resource burden the Company would bear in undertaking the evaluations and producing the reports requested.

The Company already carefully and thoroughly evaluates compensation decisions for all employees.    The Company works diligently, and in partnership with the Board’s independent CMDS Committee with regard to executive officer compensation, to set employee and executive compensation commensurate with each individual’s position and the need for the Company to attract, recruit and retain the best individuals at all levels to foster growth at the Company.

The CMDS Committee, which is comprised entirely of independent directors, reviews and approves annually all compensation – amount, form and design – awarded to the Company’s executive officers. The CMDS Committee also oversees the equity and nonqualified deferred compensation arrangements in which executives and non-executive employees participate. In designing compensation for the Company’s executive officers, the CMDS Committee focuses on performance. As described in the CD&A above, at the beginning of each year, in consultation with the Board, the CMDS Committee approves specific performance priorities. Prior to finalizing compensation, the CMDS Committee considers a number of factors, including progress towards these performance priorities, as well as individual performance, relevant compensation data of peers and

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internal relative pay considerations. In order to better align the compensation received by executive officers with our pay-for-performance goals, executive officers, beginning in 2009, also receive a portion of their compensation in at-risk performance stock units that only pay out if certain pre-established performance targets are met after a three-year performance period. The CMDS Committee also engages an independent compensation consultant that attends its meetings and provides advice to the CMDS Committee on executive compensation matters.

In light of the unprecedented economic environment and government support for the financial services industry, our Chairman and former CEO John Mack did not receive any year-end incentive compensation for the third year in a row. Furthermore, after receiving no year-end incentive compensation in 2008, CEO James Gorman was paid no cash bonus in 2009 and received his year-end award only in deferred compensation.

In designing compensation for the Company’s non-executive employees, the focus is also on performance. Other than employees who are compensated through a formulaic performance-based structure, our full-time eligible employees receive the same components of pay received by our executive officers: cash, equity-based compensation and cash-based deferred compensation. As compensation and responsibilities increase, a greater percentage of an employee’s incentive compensation, relative to other employees, is delivered as long-term awards and a greater portion of his or her compensation is deferred.

The Board believes that the compensation information disclosed in the annual proxy statement, which includes a detailed discussion of our compensation goals and methods, provides information that is more meaningful for shareholders than the analysis that is requested by this proposal.    The Company annually provides a thorough discussion of its executive compensation design and philosophy in its proxy statement, which allows shareholders to review its practices. The Company also provides additional information about its corporate governance practices on its publicly available website. The Board maintains open lines of communication with the Company’s shareholders throughout the year, pursuant to the Company’s policy regarding shareholder communications, and is committed to adopting and following corporate governance best practices in this area. The Board believes that the additional reports sought by the proposal would not provide additional information to shareholders and would instead be a costly waste of corporate resources.

Our Board unanimously recommends that you vote “AGAINST” this proposal. Proxies solicited by the Board will be voted “AGAINST” this proposal unless otherwise instructed.

LOGOItem 9—Shareholder Proposal Regarding Recoupment of Management Bonuses

SEIU Master Trust, 11 Dupont Circle, N.W, Ste. 900, Washington, DC 20036, owner of approximately 13,400 shares of common stock, has notified Morgan Stanley that it intends to present the following proposal and related supporting statement at the annual meeting.

RESOLVED, that shareholders of Morgan Stanley (“Morgan Stanley”) urge the board of directors to adopt a policy that the board will review, and determine whether to seek recoupment of, bonuses and other incentive compensation (or appropriate portions thereof) paid to senior executives in the previous five years based on financial or operating metric(s) (“Compensation Metrics”) that have (a) been materially reduced as the result of a restatement of financial results or (b) been determined by the board to have been materially unsustainable, as shown by subsequent impairment charges, asset writedowns or other similar developments affecting the Compensation Metrics.

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SUPPORTING STATEMENT

As long-term shareholders, we favor compensation policies that will focus senior executives on the creation of sustainable value. In our view, compensation practices, especially at financial firms, fostered a short-term mentality and contributed to the excessive risk-taking that led to the financial crisis. Specifically, we believe that, as Harvard Professor Lucian Bebchuk has stated, “The ability to take a large amount of compensation based on short-term results off the table provides executives with powerful incentives to seek short-term gains even when they come at the expense of long-term value, say, by creating latent risks of implosion later on.” (Testimony Before House Committee on Financial Services, June 11, 2009)

To address that problem this proposal asks Morgan Stanley’s board to adopt a policy that Morgan Stanley will seek to recoup compensation paid on any Compensation Metric that is later “reversed”, either because of a material restatement of the financials or because performance on the Compensation Metric turns out to have been materially unsustainable in the five years after the compensation was paid. The proposal gives the board discretion to define materiality as well as to decide how the policy will be incorporated into Morgan Stanley’s compensation programs.

We believe that a clawback policy like the one described in this proposal will benefit Morgan Stanley and its shareholders. Morgan Stanley recently adopted a clawback policy implemented through a newly-adopted compensation plan. That policy only applies, however, if an individual “engages in conduct detrimental to the Company, such as causing the need for a restatement of financial results, a significant financial loss, or other reputational harm to the Company or one of its businesses.” (See 2009 Proxy Statement) Morgan Stanley has repaid its TARP funds and thus is no longer subject to the clawback requirement imposed on companies still operating under TARP.Meeting?

 

The policy we propose would be broader than Morgan Stanley’s policy, as it would provide for recoupmentholders of compensation even when the recipient did not himself or herself engage in misconduct. In our view, compensation paid on achievements that turned out to be illusory should be returned regardless of an individual’s own culpability.

We urge shareholders to vote FOR this proposal.

OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “AGAINST” THIS PROPOSAL.     The Board believes that this proposal is not in the best interest of shareholders and opposes this proposal for the reasons discussed below.

The Company’s existing tools to recoup employee compensation are broader than those suggested by the proposal, which only focus on “financial or operating metrics.”    The Company was the first major U.S. bank to enact a clawback for a portion of year-end compensation in 2008, and further enhanced its clawback ability in 2009. The Company includes clawback provisions in both its performance stock units and deferred cash-based awards granted as partmajority of the annual incentive compensation of senior executives and other employees.

In 2009, the clawback provision in the Company’s deferred cash-based awards was enhanced to cover situations where there is (i) a substantial loss on a trading position or other holding or (ii) any loss on a trading position where an employee operated outside the risk parameters applicable to the trading position or other holding if, in either case, such position was a factor in that employee’s compensation determination. In addition, deferred cash-based awards may also be cancelled for failure to comply with the Company’s compliance, ethics or risk management standards. These requirements include a range of employee conduct that could be detrimental to the Company, and are not only confined to the Company’s financial and operating performance.

Furthermore, shares acquired pursuant to the Company’s performance stock unit awards are paid out only if certain objective financial performance targets are met. If payment is made based on materially inaccurate financial statements, they are subject to clawback, even after they have been paid out. This trigger is not

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dependent upon a finding that the recipient engaged in misconduct, but is directly tied to the achievement of financial metrics – which meets a primary goal of the proposal. In addition, all incentive compensation awards are subject to cancellation, if an employee engages in certain detrimental conduct, including the misuse of confidential and proprietary information, engaging in conduct that constitutes “cause” under the Company’s incentive programs or failing to provide appropriate notice in connection with a resignation of employment.

The Company’s compensation programs also already meet another objective of the proposal by tying compensation to long-term performance through such features as long-term performance-based awards and mandatory deferral.    The Board recognizes that incentivizing senior executives to create long-term shareholder value at the Company is a critical element in structuring executive compensation. In 2009, the Company made fundamental changes to its compensation structure to further tie pay to long-term performance by increasing the portion of year-end compensation that is deferred and through the use of long-term performance-based equity awards. Further, risk management is now a more integrated part of compensation determinations, which helps to ensure that the structure and design of compensation arrangements do not encourage unnecessary and excessive risk-taking on the part of senior executives.

In order to reinforce accountability, the Company in 2009 began paying a portion of senior executives’ compensation as long-term performance-based stock units (PSUs) that focus a greater portion of total compensation on long-term results rather than a one-year performance period. Under the program, shares must be earned based on Company performance with respect to core financial metrics on both an absolute basis and relative basis over a three-year period, as established by the CMDS Committee prior to grant and described in the CD&A above. If performance does not meet predetermined standards, executives will receive no compensation under this program.

Also in 2009, the Company increased the portion of year-end compensation that is deferred to further align compensation with Morgan Stanley’s long-term success. The mandatory compensation deferral rate for Operating Committee members was approximately 75% in 2009, up from 42% in 2008. The value realized upon conversion of the portion of incentive compensation paid in restricted stock units (and for senior executives, PSUs) is based upon appreciation of the Company’s stock price from the date of grant of the units, which clearly links the interests of senior executives and shareholders.

The Board believes the Company’s current tools for recouping employee pay and compensation structure provide a balanced and effective approach to aligning the long-term interest of its executive officers with other shareholders by appropriately motivating senior executives, and therefore does not consider the policy advocated by the proposal necessary or otherwise additive to our existing compensation programs and structure.

Our Board unanimously recommends that you vote “AGAINST” this proposal. Proxies solicited by the Board will be voted “AGAINST” this proposal unless otherwise instructed.

Other Matters

Section 16(a) Beneficial Ownership Reporting Compliance.    Section 16(a) of the Securities Exchange Act of 1934 requires our directors and certain of our officers to file reports with the SEC indicating their holdings of, and transactions in, our equity securities. The Company believes that, during 2009, our reporting persons complied with all Section 16(a) filing requirements.

Certain Transactions.    Our subsidiaries may extend credit in the ordinary course of business to certain of our directors, officers and members of their immediate families. These extensions of credit may be in connection with margin loans, mortgage loans, credit card transactions, revolving lines of credit and other extensions of credit by our subsidiaries. The extensions of credit are made on substantially the same terms and conditions, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectability or present other unfavorable features.

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Each of BlackRock, FMR, MUFG and State Street beneficially owns 5% or morevoting power of the outstanding shares of Morgan Stanley common stock, as reported under “Principal Shareholders” herein. During 2009, we engagedrepresented in transactions in the ordinary course of business with each of BlackRock, FMR, MUFG and State Street and certain of their respective affiliates. Such transactions were on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties.

On October 13, 2008, Morgan Stanley issued to MUFG 7,839,209 shares of Series B Non-Cumulative Non-Voting Perpetual Convertible Preferred Stock and 1,160,791 shares of Series C Non-Cumulative Non-Voting Perpetual Preferred Stock for an aggregate purchase price of $9 billion as part ofperson or by proxy, constitute a global strategic alliance between MUFG and the Company. During 2009, the Company issued common stock of approximately $6.9 billion in two registered public offerings. MUFG elected to participate in both offerings and in one of the offerings funded its purchase of 29,375,000 shares of our common stock (for an aggregate purchase price of $705 million) with the proceeds of the Company’s repurchase of 640,909 shares of the Series C Preferred Stock. On March 30, 2010, the Company and MUFG entered into definitive agreements formalizing their previously announced intention to form a joint venture in Japan of their respective investment banking and securities businesses. MUFG and the Company will integrate their respective Japanese securities companies by forming two joint venture companies. MUFG will contribute the wholesale and retail securities businesses conducted in Japan by its subsidiary Mitsubishi UFJ Securities Co., Ltd. into one of the joint venture entities which will be named Mitsubishi UFJ Morgan Stanley Securities, Co., Ltd. (“MUMSS”). The Company will contribute the investment banking operations conducted in Japan by its subsidiary, Morgan Stanley Japan Securities Co., Ltd. (“MSJS”), into MUMSS and will contribute the sales and trading and capital markets business conducted in Japan by MSJS into a second joint venture entity which will be called Morgan Stanley MUFG Securities, Co., Ltd. (“MSMS” and, together with MUMSS, the “Joint Venture”). Following the respective contributions to the Joint Venture and a cash payment of 26 billion yen from MUFG to the Company at closing of the transaction (subject to certain post-closing cash adjustments), the Company will own a 40% economic interest in the Joint Venture and MUFG will own a 60% economic interest in the Joint Venture. The Company will hold a 40% voting interest and MUFG will hold a 60% voting interest in MUMSS, while the Company will hold a 51% voting interest and MUFG will hold a 49% voting interest in MSMS. The transaction is expected to close on May 1, 2010, subject to customary closing conditions. Other initiatives that have been announced as part of the Company’s global strategic alliance with MUFG include a loan marketing joint venture in the Americas, business referral arrangements in Asia, Europe, the Middle East and Africa, a referral agreement for commodities transactions executed outside of Japan and a secondment arrangement of personnel between MUFG and the Companyquorum for the purposeannual meeting of sharing best practices and expertise.

In December 2006,stockholders. Broker non-votes are counted for purposes of determining whether a son-in-law of Mr. Bostock became an employee of the Company’s Asset Management segment due to the Company’s acquisition of FrontPoint. The acquisition was a small acquisition for the Company, but important in helping to develop the alternative asset management business within Asset Management. As part of the acquisition, key employees of FrontPoint were granted retention awards in 2006 that were paid only if the employee remained employed with the Company through April 30, 2009. Mr. Bostock’s son-in-law received approximately $3.6 million in 2009 in connection with his 2006 retention award. Mr. Bostock was not involved in any discussions or decisions regarding such retention award or his son-in-law’s compensation in subsequent years. Mr. Bostock’s son-in-law’s compensation for the December 2008 one-month transition period and 2009 was approximately $1.7 million in cash with the balance in equal parts cash-based deferred compensation awards and RSUs, each in the amount of $861,000. The non-cash awards have vesting, cancellation and clawback features similar to those described in the CD&A herein.quorum is present.

 

Related Person Transactions Policy.    Our Board has adopted a written Related Person Transactions Policy (the Policy) governing the approval of related person transactions. For purposes of the Policy, a Related Person Transaction generally means (1) a Transaction with the Company in which the amount involved exceeds $120,000 in any fiscal year and a Related Person has a direct or indirect material interest and (2) any material amendments or modifications to such a Transaction. The Policy follows the SEC’s definitions of the terms Immediate Family Member, Related Person and Transaction. Under the Policy, the Company Law Department,Is My Vote Confidential?

 

76Our Amended and Restated Bylaws (Bylaws) provide that your vote is confidential and will not be disclosed to any officer, director or employee, except in certain limited circumstances such as when you request or consent to disclosure. Voting of the shares held in the Morgan Stanley 401(k) Plan and the Morgan Stanley 401(k) Savings Plan (401(k) Plans) also is confidential.

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How Do I Submit Voting Instructions for Shares Held Through a Broker?

If you hold shares through a broker, follow the voting instructions you receive from your broker. If you want to vote in consultationperson at the annual meeting, you must obtain a legal proxy from your broker and present it at the annual meeting. If you do not submit voting instructions to your broker, your broker may still be permitted to vote your shares in certain cases.

NYSE member brokers may vote your shares as described below.

Non-discretionary Items.All items, other than the ratification of the appointment of Morgan Stanley’s independent auditor, are “non-discretionary” items. It is critically important that you submit your voting instructions if you want your shares to count for non-discretionary items.    Your shares will remain unvoted for such items if your NYSE member broker, including Morgan Stanley & Co. Incorporated (MS&Co.) and Morgan Stanley Smith Barney LLC (MSSB LLC), does not receive voting instructions from you.

Discretionary Item.    The ratification of the appointment of Morgan Stanley’s independent auditor is a “discretionary” item. NYSE member brokers that do not receive instructions from beneficial owners may vote on this proposal in the following manner: (1) Morgan Stanley’s subsidiaries, MS&Co. and MSSB LLC, may vote uninstructed shares only in the same proportion as the votes cast by all other beneficial owners on the proposal; and (2) all other NYSE member brokers may vote uninstructed shares in their discretion.

If you do not submit voting instructions, the broker will submit a proxy for your shares voting discretionary items, but will not vote non-discretionary items. This results in a “broker non-vote” for non-discretionary items.

How Do I Submit Voting Instructions for Shares Held in My Name?

If you hold shares as a record shareholder, you may vote by submitting a proxy for your shares by mail, telephone or the Internet as described on the proxy card. If you submit your proxy via the Internet, you may incur Internet access charges. Submitting your proxy will not limit your right to vote in person at the annual meeting. A properly completed and submitted proxy will be voted in accordance with your instructions, unless you subsequently revoke your proxy. If you submit a signed proxy card without indicating your voting instructions, the CLO and outside counsel at times, reviews potential Related Person Transactionsperson voting the proxy will vote your shares according to determine if theythe Board’s recommendations.

How Do I Submit Voting Instructions for Shares Held in Employee Plans?

If you hold shares in, or have been awarded stock units under, certain employee plans, you will separately receive directions on how to submit your voting instructions. Shares held in the following employee plans also are subject to review under the Policy and/or disclosure is required under SECfollowing rules. If it is determined

401(k) Plans.    The Northern Trust Company (Northern Trust), the 401(k) Plans’ trustee, must receive your voting instructions for the common stock held on your behalf in these plans on or before May 10, 2012. If Northern Trust does not receive your voting instructions by that date, it will vote your shares together with other unvoted, forfeited and unallocated shares in the 401(k) Plans in the same proportion as the voting instructions that it receives from other participants in the applicable plan. On March 19, 2012, there were 55,671,685 shares in the 401(k) Plans.

Other Equity-Based Plans.    State Street Bank and Trust Company acts as trustee for the Trust that holds shares of common stock underlying stock units awarded to employees under several of Morgan Stanley’s equity-based plans. Employees allocated shares held in the Trust must submit their voting instructions for receipt by the trustee on or before May 10, 2012. If the trustee does not receive your instructions by that date, it will vote your shares, together with shares held in the Trust that are unallocated or held on behalf of former Morgan Stanley employees and employees in certain jurisdictions outside the U.S., in the same proportion as the voting instructions that it receives for shares held in the Trust in connection with such plans. On March 19, 2012, 129,713,486 shares were held in the Trust in connection with such plans.

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How Can I Revoke My Proxy?

You can revoke your proxy at any time before your shares are voted by (1) the proposed Transaction constitutesdelivering a Related Person Transaction or (2) it would be beneficial to further review the Transaction under the Policy, then the Transaction is referredwritten revocation notice prior to the CEO and the CLO or the Nominating and Governance Committee as applicable. Any such Transaction will be referred for approval or ratification to: (1) the CEO and the CLO, if it involves an executive officer (or their Immediate Family Members), otherannual meeting to Martin M. Cohen, Corporate Secretary, Morgan Stanley, 1585 Broadway, Suite C, New York, New York 10036; (2) submitting a later proxy that we receive no later than the CEO, Chairman orconclusion of voting at the CLO; (2) to the CEO, if it involves the CLO (or his Immediate Family Members);annual meeting; or (3) tovoting in person at the Nominating and Governance Committee,annual meeting. Attending the annual meeting does not revoke your proxy unless you vote in person at the meeting.

What Vote Is Required And How Will My Votes Be Counted?

ProposalBoard’s
Recommendation
Vote Required to
Adopt Proposal

Effect of

Abstentions

Effect of “Broker
Non-Votes”

Election of

Directors

FORMajority of votes cast (for and against) with respect to such director*No EffectNo effect

Ratification of

Appointment of Auditor

FORThe affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon (for, against and abstain)Vote AgainstNot applicable

Amendment of 2007 Equity Incentive

Compensation Plan

FORMajority of votes cast (for, against and abstain), provided that the total votes cast must represent a majority of the shares entitled to vote on the proposalVote AgainstNo effect

Amendment of

Directors’ Equity

Capital

Accumulation Plan

FORMajority of votes cast (for, against and abstain), provided that the total votes cast must represent a majority of the shares entitled to vote on the proposalVote AgainstNo effect

Non-Binding

Advisory Vote to Approve Executive

Compensation

FORThe affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon (for, against and abstain)Vote AgainstNo effect

* Under Delaware law, if it involves a 5% stockholder, a director does not receive a majority of votes cast in an uncontested election, the director nominee,will continue to serve on the Chairman or the CEO (or their Immediate Family Members). In determining whether to approve a Related Person Transaction, the applicable reviewer considers, among other things, the commercial reasonableness of the proposed Transaction, the benefit to the Company, whether the Transaction would impair the independence of a director, if applicable, and whether the Transaction would, or would be perceived to, present an improper conflict of interest for the Related Person. All determinations by the CEO and the CLO are reported to the Nominating and Governance Committee at its next meeting. Certain Transactions are deemed not to be Related Person Transactions under the Policy, including Transactions where the Related Person has a relationship solely as a director or employee or holds less than 5% of the equity interests in a publicly traded company or less than 10% of the equity interests in a private entity; compensation arrangements of executive officers (other than an individual who is an Immediate Family Member of a Related Person) if such arrangements have been approved by the CMDS Committee, and corporate-sponsored investment opportunities approved by the CMDS Committee; director compensation arrangements approved by the Board; interests arising solely from holdings of common stock if all holders receive the same benefit on a pro rata basis; rates determined by competitive bid and products and services purchased on terms offered to unaffiliated third parties; and indemnification payments and payments under directors’ and officers’ indemnification insurance policies or payments made pursuantBoard. Pursuant to the Bylaws, each director has submitted an irrevocable letter of resignation that becomes effective, contingent on the Board’s acceptance, if the director does not receive a majority of votes cast. If a director does not receive a majority of votes cast, the Board will make a determination to accept or Certificate of Incorporationreject the resignation and publicly disclose its decision within 90 days after the certification of the Company or any of its subsidiaries or pursuant to any policy, agreement or instrument. The Nominating and Governance Committee has authority to oversee the Policy and to amend it from time to time.election results.

 

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Other Business.Business

We do not know of any other matters that may be presented for action at the meeting other than those described in this proxy statement. If any other matter is properly brought before the meeting, the proxy holders will vote on such matter in their discretion.

How Can I Submit a Shareholder Proposal or Nominate a Director for the 2013 Annual Meeting?

 

Shareholder Proposals for the 2011 Annual Meeting.Shareholders intending to present a proposal at the 20112013 annual meeting and have it included in our proxy statement for that meeting must submit the proposal in writing to Martin M. Cohen, Corporate Secretary, 1585 Broadway, Suite C, New York, New York 10036. We must receive the proposal no later than December 14, 2010.7, 2012.

 

Shareholders intending to present a proposal at the 20112013 annual meeting, but not to include the proposal in our proxy statement, or to nominate a person for election as a director, must comply with the requirements set forth in our Bylaws. The Bylaws require, among other things, that our Corporate Secretary receive written notice from the record shareholder of intent to present such proposal or nomination no more than 120 days and no less than 90 days prior to the anniversary of the preceding year’s annual meeting. Therefore, the Company must receive notice of such a proposal or nomination for the 20112013 annual meeting no earlier than January 18, 201115, 2013 and no later than February 17, 2011.14, 2013. The notice must contain the information required by the Bylaws, a copy of which is available atwww.morganstanley.com/about/company/governance/index.html or upon request to our Corporate Secretary.

 

CostWhat Are the Costs of Soliciting Your Proxy.Proxies for the Annual Meeting?

We will pay the expenses for the preparation of the proxy materials and the solicitation by the Board of your proxy. Our directors, officers and employees, who will receive no additional compensation for soliciting, and D.F. King & Co., Inc. (D.F. King) may solicit your proxy, in person or by telephone, mail, facsimile or other means of communication. We will pay D.F. King fees not exceeding $20,000,$22,000, plus expenses. We will also reimburse brokers, including MS&Co., MSSB LLC and other nominees, for costs they incur mailing proxy materials.

What if I Share an Address with Another Shareholder?

 

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Shareholders Sharing an Address.    Consistent with notices sent to record shareholders sharing a single address, weWe are sending only one annual report and proxy statement to thatrecord shareholders sharing an address unless we received contrary instructions from any shareholder at that address. This “householding” practice“Householding” reduces our printing and postage costs. ShareholdersRecord shareholders may request or discontinue householding, or may request a separate copy of the annual report or proxy statement as follows:

Record shareholders wishing to discontinue or begin householding or any record shareholder residing at a householded address wanting to request delivery of a copy of the annual report or proxy statement, should contactby contacting our transfer agent, BNY MellonComputershare Shareowner Services LLC, at 1-800-622-2393(800) 622-2393 (U.S.), (201) 680-6578 (outside the U.S.) or www.bnymellon.com/shareowner or may write to them c/o BNY Mellon Shareowner Services at P.O. Box 358015, Pittsburgh, PA 15252-8015.

Shareholders owning their shares through a bank, broker or other holder of record who wishmay request to either discontinue or begin householding should contactby contacting their record holder. Any householded shareholder may request prompt delivery of a copy of the annual report or proxy statement by contacting us at (212) 762-8131 or may write to us at Investor Relations, 1585 Broadway, New York, NY 10036.

 

How Can I Consent to Electronic Delivery of Annual Meeting Materials.Materials?

This proxy statement and the annual report are available on our website atwww.morganstanley.com/2010ams.2012ams. You can save the Company postage and printing expense by consenting to access these documents over the Internet. If you consent, you will receive notice next year when these documents are available with instructions on how to view them and submit voting instructions. If you are a record shareholder, of record, you may sign up for this service through Investor Service DirectServiceDirect at www.bnymellon.com/shareowner/isd. If you hold your shares through a bank, broker or other holder of record, contact the record holder for information regarding electronic delivery of materials. Your consent to electronic delivery will remain in effect until you revoke it. If you choose electronic delivery, you may incur costs, such as cable, telephone and Internet access charges, for which you will be responsible.

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 18, 2010: Our proxy statement and our 10-K annual report for the year ended December 31, 2009 are available free of charge on our website at www.morganstanley.com/2010ams.

 

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Annex A

 

MORGAN STANLEY

 

2007 EQUITY INCENTIVE COMPENSATION PLAN

(As Proposed to be Amended)

 

1.    Purpose.The primary purposes of the Morgan Stanley 2007 Equity Incentive Compensation Plan are to attract, retain and motivate employees, to compensate them for their contributions to the growth and profits of the Company and to encourage them to own Morgan Stanley Stock.

 

2.    Definitions.Except as otherwise provided in an applicable Award Document, the following capitalized terms shall have the meanings indicated below for purposes of the Plan and any Award:

 

Administrator” means the individual or individuals to whom the Committee delegates authority under the Plan in accordance with Section 5(b).

 

Award” means any award of Restricted Stock, Stock Units, Options, SARs or Other Awards (or any combination thereof) made under and pursuant to the terms of the Plan.

 

Award Date” means the date specified in a Participant’s Award Document as the grant date of the Award.

 

Award Document” means a written document (including in electronic form) that sets forth the terms and conditions of an Award. Award Documents shall be authorized in accordance with Section 12(e).

 

Board” means the Board of Directors of Morgan Stanley.

 

Code” means the Internal Revenue Code of 1986, as amended, and the applicable rulings, regulations and guidance thereunder.

 

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 to administer the Plan or to have authority with respect to the Plan, or any subcommittee appointed by such Committee.

 

Company” means Morgan Stanley and all of its Subsidiaries.

 

Eligible Individuals” means the individuals described in Section 6 who are eligible for Awards.

 

Employee Trust” means any trust established or maintained by the Company in connection with an employee benefit plan (including the Plan) under which current and former employees of the Company constitute the principal beneficiaries.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the applicable rulings and regulations thereunder.

 

Fair Market Value” means, with respect to a Share, the fair market value thereof as of the relevant date of determination, as determined in accordance with a valuation methodology approved by the Committee.

 

Incentive Stock Option” means an Option that is intended to qualify for special federal income tax treatment pursuant to Sections 421 and 422 of the Code, as now constituted or subsequently amended, or pursuant to a successor provision of the Code, and which is so designated in the applicable Award Document.

 

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Morgan Stanley” means Morgan Stanley, a Delaware corporation.

 

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Option” or “Stock Option” means a right, granted to a Participant pursuant to Section 9, to purchase one Share.

 

Other Award” means any other form of award authorized under Section 11 of the Plan, including any such Other Award the receipt of which was elected pursuant to Section 12(a).

 

Participant” means an individual to whom an Award has been made.

 

Plan” means the Morgan Stanley 2007 Equity Incentive Compensation Plan, as amended from time to time in accordance with Section 15(e) below.

 

Restricted Stock” means Shares granted or sold to a Participant pursuant to Section 7.

 

SAR” means a right, granted to a Participant pursuant to Section 10, to receive upon exercise of such right, in cash or Shares (or a combination thereof) as authorized by the Committee, an amount equal to the increase in the Fair Market Value of one Share over a specified exercise price.

 

Section 162(m) Participant” means, for a given fiscal year of Morgan Stanley, any Participant designated by the Committee as a Participant whose compensation may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code (or any successor provisions thereto).

 

Section 162(m) Performance Goals” means the performance formula that was approved by Morgan Stanley’s stockholders on March 22, 2001 or any other performance formula or performance goals approved by Morgan Stanley’s stockholders pursuant to Section 162(m) of the Code (or any successor provisions thereto).

 

Section 409A” means Section 409A of the Code (or any successor provisions thereto).

 

Shares” means shares of Stock.

 

Stock” means the common stock, par value $0.01 per share, of Morgan Stanley.

 

Stock Unit” means a right, granted to a Participant pursuant to Section 8, to receive one Share or an amount in cash equal to the Fair Market Value of one Share, as authorized by the Committee.

 

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 Committee designates as a Subsidiary for purposes of the Plan.

 

Substitute Awards” means Awards granted upon assumption of, or in substitution for, outstanding awards previously granted by, or held by employees of, a company or other entity or business acquired (directly or indirectly) by Morgan Stanley or with which Morgan Stanley combines.

 

3.    Effective Date and Term of Plan.

 

(a)Effective Date.    The Plan shall become effective upon its adoption by the Board, subject to its approval by Morgan Stanley’s stockholders. Prior to such stockholder approval, the Committee may grant Awards conditioned on stockholder approval, but no Shares may be issued or delivered pursuant to any such Award until Morgan Stanley’s stockholders have approved the Plan. If such stockholder approval is not obtained

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at or before the first annual meeting of stockholders to occur after the adoption of the Plan by the Board, the Plan and any Awards made thereunder shall terminateab initio and be of no further force and effect.

 

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(b)Term of Plan.No Awards may be made under the Plan after the date that is five years from the date of shareholder approval.May 15, 2017.

 

4.    Stock Subject to Plan.

 

(a)Overall Plan Limit.    The total number of Shares that may be delivered pursuant to Awards shall be 163,000,000248,000,000 as calculated pursuant to Section 4(c). The number of Shares available for delivery under the Plan shall be adjusted as provided in Section 4(b). Shares delivered under the Plan may be authorized but unissued shares or treasury shares that Morgan Stanley acquires in the open market, in private transactions or otherwise.

 

(b)Adjustments for Certain Transactions.    In the event of a stock split, reverse stock split, stock dividend, recapitalization, reorganization, merger, consolidation, extraordinary dividend or distribution, split-up, spin-off, combination, reclassification or exchange of shares, warrants or rights offering to purchase Stock at a price substantially below Fair Market Value or other change in corporate structure or any other event that affects Morgan Stanley’s capitalization, the Committee shall equitably adjust (i) the number and kind of shares authorized for delivery under the Plan, including the maximum number of Shares available for Awards of Options or SARs as provided in Section 4(d) and the maximum number of Incentive Stock Options as provided in Section 4(e), and (ii) the number and kind of shares subject to any outstanding Award and the exercise or purchase price per share, if any, under any outstanding Award. In the discretion of the Committee, such an adjustment may take the form of a cash payment to a Participant. The Committee shall make all such adjustments, and its determination as to what adjustments shall be made, and the extent thereof, shall be final. Unless the Committee determines otherwise, such adjusted Awards shall be subject to the same vesting schedule and restrictions to which the underlying Award is subject.

 

(c)Calculation of Shares Available for Delivery.    In calculating the number of Shares that remain available for delivery pursuant to Awards at any time, the following rules shall apply (subject to the limitation in Section 4(e)):

 

1. The number of Shares available for delivery shall be reduced by the number of Shares subject to an Award and, in the case of an Award that is not denominated in Shares, the number of Shares actually delivered upon payment or settlement of the Award.

 

2. The number of Shares tendered (by actual delivery or attestation) or withheld from an Award to pay the exercise price of the Award or to satisfy any tax withholding obligation or liability of a Participant shall be added back to the number of Shares available for delivery pursuant to Awards.

 

3. The number of Shares in respect of any portion of an Award that is canceled or that expires without having been paid or settled by the Company shall be added back to the number of Shares available for delivery pursuant to Awards to the extent such Shares were counted against the Shares available for delivery pursuant to clause (1).

 

4. If an Award is settled or paid by the Company in whole or in part through the delivery of consideration other than Shares, or by delivery of fewer than the full number of Shares that was counted against the Shares available for delivery pursuant to clause (1), there shall be added back to the number of Shares available for delivery pursuant to Awards the excess of the number of Shares that had been so counted over the number of Shares (if any) actually delivered upon payment or settlement of the Award.

 

5. Any Shares underlying Substitute Awards shall not be counted against the number of Shares available for delivery pursuant to Awards and shall not be subject to Section 4(d).

 

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(d)Individual Limit on Options and SARs.    The maximum number of Shares that may be subject to Options or SARs granted to or elected by a Participant in any fiscal year shall be 2,000,000 Shares. The limitation imposed by this Section 4(d) shall not include Options or SARs granted to a Participant pursuant to Section 162(m) Performance Goals.

 

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(e)ISO Limit.    The full number of Shares available for delivery under the Plan may be delivered pursuant to Incentive Stock Options, except that in calculating the number of Shares that remain available for Awards of Incentive Stock Options the rules set forth in Section 4(c) shall not apply to the extent not permitted by Section 422 of the Code.

 

5.    Administration.

 

(a)Committee Authority Generally.    The Committee shall administer the Plan and shall have full power and authority to make all determinations under the Plan, subject to the express provisions hereof, including without limitation: (i) to select Participants from among the Eligible Individuals; (ii) to make Awards; (iii) to determine the number of Shares subject to each Award or the cash amount payable in connection with an Award; (iv) to establish the terms and conditions of each Award, including, without limitation, those related to vesting, cancellation, payment, exercisability, and the effect, if any, of certain events on a Participant’s Awards, such as the Participant’s termination of employment with the Company; (v) to specify and approve the provisions of the Award Documents delivered to Participants in connection with their Awards; (vi) to construe and interpret any Award Document delivered under the Plan; (vii) to prescribe, amend and rescind rules and procedures relating to the Plan; (viii) to make all determinations necessary or advisable in administering the Plan and Awards, including without limitation determinations as to whether (and if so as of what date) a Participant has commenced, or has experienced a termination of, employment;provided,however, that to the extent full or partial payment of any Award that constitutes a deferral of compensation subject to Section 409A is made upon or as a result of a Participant’s termination of employment, the Participant will be considered to have experienced a termination of employment if, and only if, the Participant has experienced a separation from service with the Participant’s employer for purposes of Section 409A; (ix) to vary the terms of Awards to take account of securities law and other legal or regulatory requirements of jurisdictions in which Participants work or reside or to procure favorable tax treatment for Participants; and (x) to formulate such procedures as it considers to be necessary or advisable for the administration of the Plan.

 

(b)Delegation.    To the extent not prohibited by applicable laws or rules of the New York Stock Exchange, the Committee may from time to time delegate some or all of its authority under the Plan to one or more Administrators consisting of one or more members of the Committee as a subcommittee or subcommittees thereof or of one or more members of the Board who are not members of the Committee or one or more officers of the Company (or of any combination of such persons). Any such delegation shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation or thereafter. The Committee may at any time rescind all or part of the authority delegated to an Administrator or appoint a new Administrator. At all times, an Administrator appointed under this Section 5(b) shall serve in such capacity at the pleasure of the Committee. Any action undertaken by an Administrator in accordance with the Committee’s delegation of authority shall have the same force and effect as if undertaken directly by the Committee, and any reference in the Plan to the Committee shall, to the extent consistent with the terms and limitations of such delegation, be deemed to include a reference to an Administrator.

 

(c)Authority to Construe and Interpret.    The Committee shall have full power and authority, subject to the express provisions hereof, to construe and interpret the Plan.

 

(d)Committee Discretion.    All of the Committee’s determinations in carrying out, administering, construing and interpreting the Plan shall be made or taken in its sole discretion and shall be final, binding and conclusive for all purposes and upon all persons. In the event of any disagreement between the Committee and an Administrator, the Committee’s determination on such matter shall be final and binding on all interested persons, including any Administrator. The Committee’s determinations under the Plan need not be uniform and may be

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made by it selectively among persons who receive, or are eligible to receive, Awards under the Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Documents, as to the persons receiving Awards under the Plan, and the terms and provisions of Awards under the Plan.

 

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(e)No Liability.    Subject to applicable law: (i) no member of the Committee or any Administrator shall be liable for anything whatsoever in connection with the exercise of authority under the Plan or the administration of the Plan except such person’s own willful misconduct; (ii) under no circumstances shall any member of the Committee or any Administrator be liable for any act or omission of any other member of the Committee or an Administrator; and (iii) in the performance of its functions with respect to the Plan, the Committee and an Administrator shall be entitled to rely upon information and advice furnished by the Company’s officers, the Company’s accountants, the Company’s counsel and any other party the Committee or the Administrator deems necessary, and no member of the Committee or any Administrator shall be liable for any action taken or not taken in good faith reliance upon any such advice.

 

6.    Eligibility.Eligible Individuals shall include all officers, other employees (including prospective employees) and consultants of, and other persons who perform services for, the Company, non-employee directors of Subsidiaries and employees and consultants of joint ventures, partnerships or similar business organizations in which Morgan Stanley or a Subsidiary has an equity or similar interest. Any Award made to a prospective employee shall be conditioned upon, and effective not earlier than, such person’s becoming an employee. Members of the Board who are not Company employees will not be eligible to receive Awards under the Plan. An individual’s status as an Administrator will not affect his or her eligibility to receive Awards under the Plan.

 

7.    Restricted Stock.An Award of Restricted Stock shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Document. Restricted Stock may, among other things, be subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances.

 

8.    Stock Units.An Award of Stock Units shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Document. Each Stock Unit awarded to a Participant shall correspond to one Share. Upon satisfaction of the terms and conditions of the Award, a Stock Unit will be payable, at the discretion of the Committee, in Stock or in cash equal to the Fair Market Value on the payment date of one Share. As a holder of Stock Units, a Participant shall have only the rights of a general unsecured creditor of Morgan Stanley. A Participant shall not be a stockholder with respect to the Shares underlying Stock Units unless and until the Stock Units convert to Shares. Stock Units may, among other things, be subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances.

 

9.    Options.

 

(a)Options Generally.    An Award of Options shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Document. The Committee shall establish (or shall authorize the method for establishing) the exercise price of all Options awarded under the Plan, except that the exercise price of an Option shall not be less than 100% of the Fair Market Value of one Share on the Award Date. Notwithstanding the foregoing, the exercise price of an Option that is a Substitute Award may be less than the Fair Market Value per Share on the Award Date, provided that such substitution complies with applicable laws and regulations, including the listing requirements of the New York Stock Exchange and Section 409A or Section 424, as applicable, of the Code. Upon satisfaction of the conditions to exercisability of the Award, a Participant shall be entitled to exercise the Options included in the Award and to have delivered, upon Morgan Stanley’s receipt of payment of the exercise price and completion of any other

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conditions or procedures specified by Morgan Stanley, the number of Shares in respect of which the Options shall have been exercised. Options may be either nonqualified stock options or Incentive Stock Options. Options and the Shares acquired upon exercise of Options may, among other things, be subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances.

 

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(b)Prohibition on Restoration Option Grants.    Anything in the Plan to the contrary notwithstanding, the terms of an Option shall not provide that a new Option will be granted, automatically and without additional consideration in excess of the exercise price of the underlying Option, to a Participant upon exercise of the Option.

 

(c)Prohibition on Repricing of Options and SARs.    Anything in the Plan to the contrary notwithstanding, the Committee may not reprice any Option or SAR. “Reprice” means any action that constitutes a “repricing” under the rules of the New York Stock Exchange.

 

(d)Payment of Exercise Price.    Subject to the provisions of the applicable Award Document and to the extent authorized by rules and procedures of Morgan Stanley from time to time, the exercise price of the Option may be paid in cash, by actual delivery or attestation to ownership of freely transferable Shares already owned by the person exercising the Option, or by such other means as Morgan Stanley may authorize.

 

(e)Maximum Term on Stock Options and SARs.    No Option or SAR shall have an expiration date that is later than the tenth anniversary of the Award Date thereof.

 

10.    SARs.An Award of SARs shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Document. The Committee shall establish (or shall authorize the method for establishing) the exercise price of all SARs awarded under the Plan, except that the exercise price of a SAR shall not be less than 100% of the Fair Market Value of one Share on the Award Date. Notwithstanding the foregoing, the exercise price of any SAR that is a Substitute Award may be less than the Fair Market Value of one Share on the Award Date, subject to the same conditions set forth in Section 9(a) for Options that are Substitute Awards. Upon satisfaction of the conditions to the payment of the Award, each SAR shall entitle a Participant to an amount, if any, equal to the Fair Market Value of one Share on the date of exercise over the SAR exercise price specified in the applicable Award Document. At the discretion of the Committee, payments to a Participant upon exercise of an SAR may be made in Shares, cash or a combination thereof. SARs and the Shares that may be acquired upon exercise of SARs may, among other things, be subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances.

 

11.    Other Awards.The Committee shall have the authority to establish the terms and provisions of other forms of equity-based or equity-related Awards (such terms and provisions to be specified in the applicable Award Document) not described above that the Committee determines to be consistent with the purpose of the Plan and the interests of the Company, which Awards may provide for (i) cash or Stock payments based in whole or in part on the value or future value of Stock or on any amount that Morgan Stanley pays as dividends or otherwise distributes with respect to Stock, (ii) the acquisition or future acquisition of Stock, (iii) cash or Stock payments (including payment of dividend equivalents in cash or Stock) based on one or more criteria determined by the Committee unrelated to the value of Stock, or (iv) any combination of the foregoing. Awards pursuant to this Section 11 may, among other things, be made subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances.

 

12.    General Terms and Provisions.

 

(a)Awards in General.    Awards may, in the discretion of the Committee, be made in substitution in whole or in part for cash or other compensation payable to an Eligible Individual. In accordance with rules and procedures authorized by the Committee, an Eligible Individual may elect one form of Award in lieu of any other form of Award, or may elect to receive an Award in lieu of all or part of any compensation that otherwise might

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have been paid to such Eligible Individual;provided,however, that any such election shall not require the Committee to make any Award to such Eligible Individual. Any such substitute or elective Awards shall have terms and conditions consistent with the provisions of the Plan applicable to such Award. Awards may be granted in tandem with, or independent of, other Awards. The grant, vesting or payment of an Award may, among other things, be conditioned on the attainment of performance objectives, including without limitation objectives based in whole or in part on net income, pre-tax income, return on equity, earnings per share, total shareholder return or book value per share.

 

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(b)Discretionary Awards.    All grants of Awards and deliveries of Shares, cash or other property under the Plan shall constitute a special discretionary incentive payment to the Participant and shall not be required to be taken into account in computing the amount of salary, wages or other compensation of the Participant for the purpose of determining any contributions to or any benefits under any pension, retirement, profit-sharing, bonus, life insurance, severance or other benefit plan of the Company or other benefits from the Company or under any agreement with the Participant, unless Morgan Stanley specifically provides otherwise.

 

(c)Dividends and Distributions.    If Morgan Stanley pays any dividend or makes any distribution to holders of Stock, the Committee may in its discretion authorize payments (which may be in cash, Stock (including Restricted Stock) or Stock Units or a combination thereof) with respect to the Shares corresponding to an Award, or may authorize appropriate adjustments to outstanding Awards, to reflect such dividend or distribution. The Committee may make any such payments subject to vesting, deferral, restrictions on transfer or other conditions. Any determination by the Committee with respect to a Participant’s entitlement to receive any amounts related to dividends or distributions to holders of Stock, as well as the terms and conditions of such entitlement, if any, will be part of the terms and conditions of the Award, and will be included in the Award Document for such Award.

 

(d)Deferrals.    In accordance with the procedures authorized by, and subject to the approval of, the Committee, Participants may be given the opportunity to defer the payment or settlement of an Award to one or more dates selected by the Participant. To the extent an Award constitutes a deferral of compensation subject to Section 409A, the Committee shall set forth in writing (which may be in electronic form), on or before the date the applicable deferral election is required to be irrevocable in order to meet the requirements of Section 409A, the conditions under which such election may be made.

 

(e)Award Documentation and Award Terms.    The terms and conditions of an Award shall be set forth in an Award Document authorized by the Committee. The Award Document shall include any vesting, exercisability, payment and other restrictions applicable to an Award (which may include, without limitation, the effects of termination of employment, cancellation of the Award under specified circumstances, restrictions on transfer or provision for mandatory resale to the Company).

 

(f)Awards to Section 162(m) Participants.    Except for Options and SARs the shares underlying which are counted against the individual limit set forth in Section 4(d), all Awards to Section 162(m) Participants shall be made pursuant to the attainment of Section 162(m) Performance Goals as certified by the Committee in accordance with the requirements of Section 162(m) of the Code. Without any further action by the Board or the Committee, this Section 12(f) shall cease to apply on the effective date of the repeal of Section 162(m) of the Code (and any successor provision thereto).

 

13.    Certain Restrictions.

 

(a)Stockholder Rights.    No Participant (or other persons having rights pursuant to an Award) shall have any of the rights of a stockholder of Morgan Stanley with respect to Shares subject to an Award until the delivery of the Shares, which shall be effected by entry of the Participant’s (or other person’s) name in the share register of Morgan Stanley or by such other procedure as may be authorized by Morgan Stanley. Except as otherwise provided in Section 4(b) or 12(c), no adjustments shall be made for dividends or distributions on, or other events

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relating to, Shares subject to an Award for which the record date is prior to the date such Shares are delivered. Notwithstanding the foregoing, the terms of an Employee Trust may authorize some or all Participants to give voting or tendering instructions to the trustee thereof in respect of Shares that are held in such Employee Trust and are subject to Awards. Except for the risk of cancellation and the restrictions on transfer that may apply to certain Shares (including restrictions relating to any dividends or other rights) or as otherwise set forth in the applicable Award Document, the Participant shall be the beneficial owner of any Shares delivered to the Participant in connection with an Award and, upon such delivery shall be entitled to all rights of ownership, including, without limitation, the right to vote the Shares and to receive cash dividends or other dividends (whether in Shares, other securities or other property) thereon.

 

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(b)Transferability.    No Award granted under the Plan shall be transferable, whether voluntarily or involuntarily, other than by will or by the laws of descent and distribution; provided that, except with respect to Incentive Stock Options, the Committee may permit transfers on such terms and conditions as it shall determine. During the lifetime of a Participant to whom Incentive Stock Options were awarded, such Incentive Stock Options shall be exercisable only by the Participant.

 

14.    Representation; Compliance with Law.The Committee may condition the grant, exercise, settlement or retention of any Award on the Participant making any representations required in the applicable Award Document. Each Award shall also be conditioned upon the making of any filings and the receipt of any consents or authorizations required to comply with, or required to be obtained under, applicable law.

 

15.    Miscellaneous Provisions.

 

(a)Satisfaction of Obligations.    As a condition to the making or retention of any Award, the vesting, exercise or payment of any Award or the lapse of any restrictions pertaining thereto, Morgan Stanley may require a Participant to pay such sum to the Company as may be necessary to discharge the Company’s obligations with respect to any taxes, assessments or other governmental charges (including FICA and other social security or similar tax) imposed on property or income received by a Participant pursuant to the Award or to satisfy any obligation that the Participant owes to the Company. In accordance with rules and procedures authorized by Morgan Stanley, (i) such payment may be in the form of cash or other property, including the tender of previously owned Shares, and (ii) in satisfaction of such taxes, assessments or other governmental charges or, exclusively in the case of an Award that does not constitute a deferral of compensation subject to Section 409A, of other obligations that a Participant owes to the Company, Morgan Stanley may make available for delivery a lesser number of Shares in payment or settlement of an Award, may withhold from any payment or distribution of an Award or may enter into any other suitable arrangements to satisfy such withholding or other obligation. To the extent an Award constitutes a deferral of compensation subject to Section 409A, the Company may not offset from the payment of such Award amounts that a Participant owes to the Company with respect to any such other obligation except to the extent such offset is not prohibited by Section 409A and would not cause a Participant to recognize income for United States federal income tax purposes prior to the time of payment of the Award or to incur interest or additional tax under Section 409A.

 

(b)No Right to Continued Employment.    Neither the Plan nor any Award shall give rise to any right on the part of any Participant to continue in the employ of the Company.

 

(c)Headings.    The headings of sections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of the Plan.

 

(d)Governing Law.    The Plan and all rights hereunder shall be construed in accordance with and governed by 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.

 

(e)Amendments and Termination.    The Board or Committee may modify, amend, suspend or terminate the Plan in whole or in part at any time and may modify or amend the terms and conditions of any outstanding

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Award (including by amending or supplementing the relevant Award Document at any time);provided, however, that no such modification, amendment, suspension or termination shall, without a Participant’s consent, materially adversely affect that Participant’s rights with respect to any Award previously made; and provided, further, that the Committee shall have the right at any time, without a Participant’s consent and whether or not the Participant’s rights are materially adversely affected thereby, to amend or modify the Plan or any Award under the Plan in any manner that the Committee considers necessary or advisable to comply with any law, regulation, ruling, judicial decision, accounting standards, regulatory guidance or other legal requirement. Notwithstanding the preceding sentence, neither the Board nor the Committee may accelerate the payment or settlement of any Award, including, without limitation, any Award subject to a prior deferral election, that

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constitutes a deferral of compensation for purposes of Section 409A except to the extent such acceleration would not result in the Participant incurring interest or additional tax under Section 409A. No amendment to the Plan may render any Board member who is not a Company employee eligible to receive an Award at any time while such member is serving on the Board. To the extent required by applicable law or the rules of the New York Stock Exchange, amendments to the Plan shall not be effective unless they are approved by Morgan Stanley’s stockholders.

 

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Annex B

MORGAN STANLEY

DIRECTORS’ EQUITY CAPITAL ACCUMULATION PLAN

(As Proposed to be Amended)

Section 1.    Purpose

Morgan Stanley, a Delaware corporation (the “Company”), hereby adopts the Morgan Stanley Directors’ Equity Capital Accumulation Plan (the “Plan”). The purpose of the Plan is to promote the long-term growth and financial success of the Company by attracting, motivating and retaining non-employee directors of outstanding ability and assisting the Company in promoting a greater identity of interest between the Company’s non-employee directors and its stockholders.

Capitalized terms used herein without definition have the meanings ascribed thereto in Section 24.

Section 2.    Eligibility

Only directors of the Company who are not employees of the Company or any affiliate of the Company (the “Eligible Directors”) shall participate in the Plan.

Section 3.    Plan Operation

(a)    Administration.    Other than as provided in Section 5(c)(v), the Plan requires no discretionary action by any administrative body with regard to any transaction under the Plan. To the extent, if any, that questions of administration arise, these shall be resolved by the Board. The Board may, in its discretion, delegate to the Chief Financial Officer, the Chief Legal Officer, the Secretary of the Company or to one or more officers of the Company any or all authority and responsibility to act pursuant to the Plan. All references to the “Plan Administrators” in the Plan shall refer to the Board, or the Chief Financial Officer, the Chief Legal Officer, the Secretary or to one or more officers of the Company if the Board has delegated its authority pursuant to this Section 3(a). The determination of the Plan Administrators on all matters within their authority relating to the Plan shall be conclusive.

(b)    No Liability.    The Plan Administrators shall not be liable for any action or determination made in good faith with respect to the Plan or any award hereunder, and the Company shall indemnify and hold harmless the Plan Administrators from all losses and expenses (including reasonable attorneys’ fees) arising from the assertion or judicial determination of any such liability.

Section 4.    Shares of Stock Subject to the Plan

(a)    Stock.    Awards under the Plan shall relate to shares of Stock.

(b)    Shares Available for Awards.    Subject to Section 4(c) (relating to adjustments upon changes in capitalization), as of any date, the total number of shares of Stock with respect to which awards may be granted under the Plan shall be equal to the excess (if any) of (i) 2,450,000 shares over (ii) the sum of (A) the number of shares subject to outstanding awards granted under the Plan and (B) the number of shares previously issued pursuant to the Plan. In accordance with (and without limitation upon) the preceding sentence, shares of Stock covered by awards granted under the Plan that are canceled or expire unexercised shall again become available for awards under the Plan. Shares of Stock that shall be issuable pursuant to the awards granted under the Plan shall be authorized and unissued shares, treasury shares or shares of Stock purchased by, or on behalf of, the Company in open-market transactions.

(c)    Adjustments.    In the event of any merger, reorganization, recapitalization, consolidation, sale or other distribution of substantially all of the assets of the Company, any stock dividend, split, spin-off, split-up, split-off, distribution of cash, securities or other property by the Company, or other change in the Company’s

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corporate structure affecting the Stock, then the following shall be automatically adjusted in order to prevent dilution or enlargement of the benefits or potential benefits intended to be awarded under the Plan:

(i) the aggregate number of shares of Stock reserved for issuance under the Plan;

(ii) the number of shares of Stock subject to outstanding awards;

(iii) the number of Stock Units credited pursuant to Section 6 and Section 9 of the Plan;

(iv) the per share purchase price of Stock subject to any stock options granted pursuant to the Plan; and

(v) the number of shares to be granted pursuant to any other automatic awards that may be provided for under the Plan in the future.

(d)    Types of Award.    The Company’s stockholders originally approved the Plan on April 19, 1996, and approved amendments to the Plan on March 19, 2002. The types of award authorized by the stockholders under the Plan are Director Stock, Stock Units, shares of Stock awarded at an Eligible Director’s election pursuant to Section 11 and stock options.

Section 5.    Stock Options

(a) Effective as of February 8, 2005 (the “Stock Option Transition Date”), no additional stock options will be awarded under the Plan.

(b) Section 5(a) shall not impair the rights of any person in any stock option that was awarded under the Plan prior to the Stock Option Transition Date. All such stock options shall remain subject to the terms and conditions applicable thereto.

(c) The following terms and conditions apply to stock options issued under the Plan, including without limitation all stock options issued prior to the Stock Option Transition Date:

(i)    Nontransferability.    No stock option granted pursuant to the Plan shall be sold, assigned or otherwise transferred by an Eligible Director other than by will or the laws of descent or distribution and any such stock option may be exercised during the Eligible Director’s lifetime only by such Eligible Director.

(ii)    Limitation on Exercise.    No stock option granted pursuant to this Plan may be exercised for a period of six (6) months from the date such stock option was granted.

(iii)    Effect of Termination.

(A) If an Eligible Director’s service as a director of the Company terminates for a reason other than for Cause, then any stock option granted to such Eligible Director shall remain exercisable following the date of such Eligible Director’s termination of service in accordance with the following provisions:

(a)    Disability, Normal Retirement or Death. If service terminates by reason of Disability, Normal Retirement or death, until the expiration date of the stock option.

(b)     Other.    If service terminates for any other reason (except for Cause), until the earlier of 90 days after the termination date and the expiration date of the stock option.

(B) If an Eligible Director is terminated for Cause, all stock options granted under the Plan to such Eligible Director shall be canceled and shall no longer be exercisable, effective on the date of such Eligible Director’s termination for Cause.

(iv)    Expiration Date of Stock Options.    All stock options granted under the Plan shall expire on the tenth anniversary of the date on which they are granted.

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(v)    Extension of Exercisability.    Notwithstanding any other provision hereof, the Board shall have the authority, in its discretion, to amend any outstanding stock option granted pursuant to the Plan to extend the exercisability thereof;provided,however, that no such amendment shall cause such stock option to remain exercisable beyond its original expiration date.

(d) Notwithstanding Section 5(a), stock options remain one of the types of award that the stockholders of the Company have authorized for the Plan, and Section 5(a) shall not impair the authority of the Board under Section 15 to amend the Plan in the future to provide for awards of stock options without obtaining additional stockholder approval.

Section 6.    Initial and Annual Awards

(a)    Initial Awards.    On the first day of the calendar month following the month in which any person becomes an Eligible Director, otherwise than by reason of being elected to the Board at an Annual Meeting, such Eligible Director shall be entitled to receive a number of Initial Stock Units obtained by dividing (x) $250,000 prorated for service during the period beginning on the first day of the calendar month during which such person becomes an Eligible Director until the last day of the calendar month immediately preceding the calendar month during which the first anniversary of the immediately preceding Annual Meeting will occur by (y) the Fair Market Value of a share of Stock on the first day of the calendar month following the month in which such person becomes an Eligible Director;provided, however, that if such a person is elected, appointed or otherwise becomes an Eligible Director less than 60 days prior to the Annual Meeting in any year, then such Eligible Director shall not receive Initial Stock Units pursuant to this Section 6(a). 50% of the Initial Stock Units awarded to an Eligible Director pursuant to this Section 6(a) shall be credited to the Eligible Director’s Career Stock Unit Account and the remaining 50% of the Initial Stock Units shall be credited to the Eligible Director’s Current Stock Unit Account.

(b)    Subsequent Awards.    As of the date of each Annual Meeting, each Eligible Director, including, without limitation, any Eligible Director who becomes a member of the Board by reason of being elected to the Board at such Annual Meeting, shall be entitled to receive a number of Annual Stock Units obtained by dividing $250,000 by the Fair Market Value of a share of Stock on the date of such Annual Meeting;provided, that such Eligible Director shall continue to serve as a director of the Company after such Annual Meeting. 50% of the Annual Stock Units awarded to an Eligible Director pursuant to this Section 6(b) shall be credited to the Eligible Director’s Career Stock Unit Account and the remaining 50% of the Annual Stock Units shall be credited to the Eligible Director’s Current Stock Unit Account. Annual Stock Units and Initial Stock Units credited to the Eligible Director’s Career Stock Unit Account pursuant to this Section 6(b) or pursuant to Section 6(a) above are referred to as “Career Stock Units”.

(c)    Limitation on Transfer.    Any Director Stock awarded under the Plan may not be sold, transferred, pledged, assigned or otherwise conveyed by an Eligible Director for a period of six (6) months from the date such Director Stock is awarded. Neither Annual Stock Units nor Initial Stock Units may be sold, transferred, pledged, assigned or otherwise conveyed by an Eligible Director. The shares delivered upon conversion of Annual Stock Units and Initial Stock Units will not be subject to any transfer restrictions, other than those that may arise under the securities laws or the Company’s policies.

(d)    No Effect on Prior Initial Awards or Prior Subsequent Awards.    The provisions of this Section 6 apply to all Initial Awards and Subsequent Awards made on or after the Stock Unit Transition Date. Nothing herein shall alter the grants of Initial Awards and Subsequent Awards made prior to the Stock Unit Transition Date.

Section 7.    Vesting Schedule

(a)    Initial Stock Units.    The Initial Stock Units shall be fully vested upon grant.

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(b)    Annual Stock Units.    The Annual Stock Units shall vest in 12 substantially equal installments on the last day of each month beginning with the calendar month during which Annual Meeting is held, assuming that the Eligible Director continues to serve as a director of the Company through the last day of the relevant month.

Section 8.    Death, Disability and Governmental Service

(a)    Death or Disability.    All of an Eligible Director’s unvested Stock Units will vest in full as of the date of the Eligible Director’s termination of service on the Board due to death or Disability. Notwithstanding any election made by an Eligible Director on any Deferral Election Form or any other provision of the Plan, in the event of such Eligible Director’s death, all amounts credited to such Eligible Director’s Cash Account, Current Stock Unit Account and Career Stock Unit Account, and any Deferred Amount that has not yet been credited to such Eligible Director’s Cash Account or Current Stock Unit Account, will be paid in a lump sum to the Eligible Director’s beneficiary (or if no beneficiary has been designated, to such Eligible Director’s estate) upon the Eligible Director’s death, provided that such beneficiary or the legal representative of such Eligible Director’s estate, as applicable, notifies the Company of the Eligible Director’s death within 60 days following death. Following an Eligible Director’s termination of service on the Board due to Disability, distributions under the Plan will be made as provided in Section 9(e) or Section 9(f), as applicable.

(b)    Governmental Service Resignation.    Notwithstanding any election made by an Eligible Director on any Deferral Form, if an Eligible Director resigns as a director of the Company as a result of accepting employment at a governmental department or agency, self-regulatory agency or other public service employer (a “Governmental Employer”) (such resignation is referred to herein as a “Governmental Service Resignation”), then (i) if the Eligible Director provides the Company with satisfactory evidence demonstrating that as a result of such employment, the divestiture of his or her continued interest in Company equity awards or continued ownership of 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 the Eligible Director at such Governmental Employer, all of an Eligible Director’s unvested Stock Units will vest in full as of the date of the Eligible Director’s Governmental Service Resignation, all amounts credited to the Eligible Director’s Current Stock Unit Account and Career Stock Unit Account will be distributed in a lump sum in accordance with Section 9(h), and all transfer restrictions will lift on shares of Director Stock held by the Eligible Director, on the date of such Governmental Service Resignation, and (ii) if the Eligible Director provides the Company with satisfactory evidence demonstrating that as a result of such employment, the divestiture of the Eligible Director’s continued interest in his or her Cash Account 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 the Eligible Director at such Governmental Employer, all amounts credited to the Eligible Director’s Cash Account will be distributed in a lump sum on the date of such Governmental Service Resignation.

(c)    Governmental Service following Resignation.    Notwithstanding any election made by an Eligible Director on any Deferral Form, if, following Eligible Director’s Service Termination Date, the Eligible Director accepts employment with a Governmental Employer, then (i) upon providing the Company with satisfactory evidence demonstrating that as a result of such employment the divestiture of the Eligible Director’s continued interest in Company equity awards or continued ownership of 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 the Eligible Director at such Governmental Employer, all amounts credited to the Eligible Director’s Current Stock Unit Account and Career Stock Unit Account will be distributed in a lump sum in accordance with Section 9(h), and all transfer restrictions will lift on shares of Director Stock held by the Director, on the date on which the Eligible Director provides the Company with such satisfactory evidence, and (ii) if the Eligible Director provides the Company with satisfactory evidence demonstrating that as a result of such employment, the divestiture of the Eligible Director’s continued interest in his or her Cash Account 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 the Eligible Director at such Governmental Employer, all amounts credited to the Eligible Director’s Cash Account will be distributed in a lump sum on the date on which the Eligible Director provides the Company with such satisfactory evidence.

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Section 9.    Deferral Elections and Distributions

(a)    Deferral of Retainers.    An Eligible Director may make a Deferral Election to defer receipt of all or part of such Eligible Director’s Retainers for a given service period. An Eligible Director may make such a Deferral Election by submitting a Deferral Election Form to the Secretary, indicating:

(i) the Deferred Amount or a percentage of such Retainer to be deferred;

(ii) the Distribution Commencement Date, in accordance with Section 9(e); and

(iii) whether distributions are to be made in a lump sum or installments, in accordance with Section 9(g).

Deferral Election Forms must be submitted prior to the start of the calendar year during which the services giving rise to such Retainer to be deferred begin;provided,however, that in the case of an Eligible Director who is newly elected or appointed to the Board, such Eligible Director’s Deferral Election Form relating to the Retainer earned during the service period commencing on the date of such election or appointment may be submitted within 30 days after the date of such election or appointment. In all cases, a Deferral Election Form shall be effective only with respect to Retainers that are earned after the Deferral Election is made. An Eligible Director may make only one Deferral Election covering Retainers to be earned during a given service period (so that an Eligible Director may not, for example, make one Deferral Election relating to the Annual Retainer and a different Deferral Election relating to a Committee Retainer). Deferral Elections (including indications on the Deferral Election Form as to Distribution Commencement Date and form of distributions), once made, shall be irrevocable. Notwithstanding the foregoing, a Deferral Election may be superseded with respect to future deferrals of an Eligible Director’s Retainers by submitting a new Deferral Election Form to the Secretary, in which case such new Deferral Election shall be effective starting with the Retainer earned in the service period that begins in the calendar year following the calendar year in which such new Deferral Election Form is submitted.

(b)    Crediting of Deferrals of Retainers.    Deferrals of an Eligible Director’s Retainers shall be allocated to a Current Stock Unit Account. As of each Retainer Payment Date, the Company shall credit the Eligible Director’s Current Stock Unit Account with a number of Elective Stock Units determined by dividing (X) the Deferred Amount of Retainers that otherwise would be paid in cash on such Retainer Payment Date by (Y) the Fair Market Value of a share of Stock on such Retainer Payment Date.

(c)    Deferrals of Current Stock Units.    An Eligible Director may make a Deferral Election to defer receipt of the Current Stock Units to be earned for a given service period by submitting a Deferral Election Form to the Secretary indicating:

(i) the Distribution Commencement Date, in accordance with Section 9(e); and

(ii) whether distributions are to be made in a lump sum or installments, in accordance with Section 9(g).

A Deferral Election pursuant to this Section 9(c) must relate to all Current Stock Units to be earned by an Eligible Director during a given service period. Deferral Election Forms must be submitted prior to the start of the calendar year during which the services giving rise to such Current Stock Units to be deferred begin;provided,however, that in the case of an Eligible Director who is newly elected or appointed to the Board, such Eligible Director’s Deferral Election Form relating to the Current Stock Units earned during the service period commencing on the date of such election or appointment (that is, 50% of the Eligible Director’s Initial Stock Units) may be submitted within 30 days after the date of such election or appointment. In all cases, a Deferral Election Form shall be effective only with respect to Current Stock Units that are earned after the Deferral Election is made. Deferral Elections (including indications on the Deferral Election Form as to Distribution Commencement Date and form of distributions), once made, shall be irrevocable. Notwithstanding the foregoing, a Deferral Election may be superseded with respect to future deferrals of an Eligible Director’s Current Stock

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Units by submitting a new Deferral Election Form to the Secretary, in which case such new Deferral Election shall be effective starting with the Current Stock Units earned in the service period that begins in the calendar year following the calendar year in which such new Deferral Election Form is submitted.

(d)    Deferrals of Career Stock Units.    An Eligible Director may elect to defer receipt of the Career Stock Units to be earned for a given service period by submitting a Deferral Election Form to the Secretary indicating:

(i) the Distribution Commencement Date for such Career Stock Unit Account, in accordance with Section 9(f); and

(ii) whether distributions are to be made in a lump sum or installments, in accordance with Section 9(g).

A Deferral Election pursuant to this Section 9(d) must relate to all Career Stock Units to be earned by an Eligible Director during a given service period. Deferral Election Forms must be submitted prior to the start of the calendar year during which the services giving rise to such Career Stock Units to be deferred begin;provided,however, that in the case of an Eligible Director who is newly elected or appointed to the Board, such Eligible Director’s Deferral Election Form relating to the Career Stock Units earned during the service period commencing on the date of such election or appointment (that is, 50% of the Eligible Director’s Initial Stock Units) may be submitted within 30 days after the date of such election or appointment. In all cases, a Deferral Election Form shall be effective only with respect to the Career Stock Units that are earned after the Deferral Election is made. Deferral Elections (including indications on the Deferral Election Form as to Distribution Commencement Date and form of distributions), once made, shall be irrevocable. Notwithstanding the foregoing, a Deferral Election relating to Career Stock Units may be superseded with respect to future deferrals by submitting a new Deferral Election Form to the Secretary, in which case such new Deferral Election shall be effective starting with the Career Stock Units earned in the service period that begins in the calendar year following the calendar year in which such new Deferral Election Form is submitted.

(e)    Distribution Commencement Date for Current Stock Unit Account.    Each Eligible Director shall designate on the Deferral Election Form one of the following dates as a Distribution Commencement Date with respect to amounts credited to the Current Stock Unit Account thereafter:

(i) such Eligible Director’s Service Termination Date;

(ii) the earlier of (x) a calendar year specified by such Eligible Director (which, if the Deferral Election relates to Elective Stock Units, shall not be earlier than the calendar year following the year in which occurs the final Retainer Payment Date of the relevant Deferred Amount and, if the Deferral Election relates to Current Stock Units, shall not be earlier than the calendar year following the year in which occurs the first anniversary of the date of grant of the relevant Current Stock Units) and (y) the fifth calendar year following the year in which the Eligible Director’s Service Termination Date occurs; or

(iii) the earlier to occur of (i) or (ii)(x).

For the avoidance of doubt, it is noted that an Eligible Director who submits separate Deferral Elections for Retainers and Current Stock Units to be earned during a given service period may designate a separate Distribution Commencement Date for each deferral. Distributions from an Eligible Director’s Current Stock Unit Account in respect of Current Stock Units as to which an Eligible Director has not made a Deferral Election will be made, subject to the other provisions of this Plan, on the first anniversary of the date of grant.

(f)    Distribution Commencement Date for Career Stock Unit Account.    Notwithstanding any provision to the contrary in this Plan or any Deferral Election Form, no amounts credited to an Eligible Director’s Career Stock Unit Account shall be distributed prior to such Eligible Director’s Service Termination Date. Each Eligible Director may designate on the Deferral Election Form for such Eligible Director’s Career Stock Unit Account one of the following dates as a Distribution Commencement Date with respect to amounts credited to the Career Stock Unit Account:

(i) such Eligible Director’s Service Termination Date; or

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(ii) any of the second through fifth calendar years following the year in which the Eligible Director’s Service Termination Date occurs.

Distributions from an Eligible Director’s Career Stock Unit Account in respect of Career Stock Units as to which an Eligible Director has not made a Deferral Election will be made, subject to the other provisions of this Plan, on the Eligible Director’s Service Termination Date.

(g)    Distribution Method.    An Eligible Director shall state on each Deferral Election Form whether distributions that are subject to such Deferral Election Form shall be made in:

(i) a lump sum; or

(ii) no more than 10 annual installments.

Where an Eligible Director’s Distribution Commencement Date is such Eligible Director’s Service Termination Date, the lump sum or first annual installment, as applicable, will be paid upon the Eligible Director’s Service Termination Date. The amount to be distributed in any installment pursuant to a specific Deferral Election Form shall be determined by dividing the number of Stock Units in the Career Stock Unit Account or Current Stock Unit Account, as the case may be, that are subject to such Deferral Election Form by the number of remaining installments. If an Eligible Director receives a distribution on an installment basis, undistributed Deferred Amounts shall remain subject to the provisions of this Section 9.

(h)    Form of Distributions.    All distributions from the Cash Account shall be paid in cash. Distributions made from the Current Stock Unit Account and the Career Stock Unit Account shall be for a number of whole shares of Stock equal to the number of whole Stock Units to be distributed and cash in lieu of any fractional share (determined by using the Fair Market Value of a share of Stock on the date on which such distributions are distributed).

(i)    Dividend Equivalents.    If there are Stock Units in an Eligible Director’s Current Stock Unit Account or Career Stock Unit Account on a dividend record date with respect to the Company’s Stock, the Current Stock Unit Account or Career Stock Unit Account, as applicable, shall be credited, on the dividend payment date for such dividend record date, with an additional number of Stock Units (“Dividend Equivalents”) equal to:

(i) the cash dividend paid on one share of Stock; multiplied by

(ii) the number of Stock Units in such Account on such dividend record date; with the product of (i) and (ii) divided by

(iii) the Fair Market Value of a share of Stock on the dividend payment date.

Dividend Equivalents credited in respect of Stock Units subject to vesting shall be fully vested upon grant.

(j)    No Effect on Prior Deferral Elections.    The provisions of this Section 9 apply to all Deferral Elections made on or after the Stock Unit Transition Date. Nothing herein shall alter the terms of effective Deferral Elections made prior to the Stock Unit Transition Date.

(k)    Date of Payment.    Unless the Plan Administrator determines otherwise, whenever a Deferral Election specifies a calendar year for payment of all or a portion of a Deferred Amount, such payment shall be made on January 2 of the specified calendar year.

(l)    Rule of Construction for Timing of Payment.    Whenever a Deferral Election or the Plan provides for payment upon a specified event or date, such payment will be considered to have been timely made, and neither the Eligible Director nor any of his or her beneficiaries or estate shall have any claim against the Company for damages based on a delay in payment, and the Firm shall have no liability to the Eligible Director (or to any of

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his or her beneficiaries or estate) in respect of any such delay, as long as payment is made by December 31 of the year in which occurs the applicable specified event or date or, if later, by the 15th day of the third calendar month following such specified event or date.

(m)    Deferral of Meeting Fees.    As of the Stock Option Transition Date, the Company does not pay Meeting Fees. In the event that the Company determines in the future to pay Meeting Fees to Eligible Directors, and in the case of Meeting Fees deferred prior to the Stock Option Transition Date, the provisions of this Section 9 relating to elective deferrals of Retainers, and the provisions of Section 11 relating to Stock Elections, shall apply to such Meeting Fees mutatis mutandis;provided,however, that any Deferred Amount resulting from deferral of all or part of an Eligible Director’s Meeting Fees (other than Meeting Fees for meetings of the Board or any committee thereof held on the date of an Annual Meeting) will initially be credited to the Cash Account as of the date on which the Eligible Director becomes entitled to payment of the Meeting Fees, shall thereafter be credited with Interest Equivalents as calculated under this Section 9(m) (such Deferred Amount as increased by such Interest Equivalents being the “Adjusted Deferred Amount”) and will thereafter be debited from the Cash Account and credited to the Eligible Director’s Current Stock Unit Account as of the date of the next Annual Meeting following the date of such meeting (or, if the Eligible Director’s service on the Board terminates prior to the next Annual Meeting following the date of such meeting, as of the first business day following his or her Service Termination Date), with the number of Stock Units credited to the Current Stock Unit Account being the amount obtained by dividing (i) the relevant Adjusted Deferred Amount by (ii) the Fair Market Value of a share of Stock on the date of such Annual Meeting or the Service Termination Date, as applicable. As of the last day of each fiscal quarter and the Eligible Director’s Service Termination Date, the Eligible Director’s Cash Account will be credited with an Interest Equivalent equal to (i) the Rate of Interest, multiplied by (ii) the Average Daily Cash Balance, multiplied by (iii) the number of days during the fiscal quarter or other period during which such Cash Account had a positive balance, divided by (iv) 365.

Section 10.    Designation of Beneficiaries

An Eligible Director may designate one or more beneficiaries to receive any distributions under the Plan upon the Eligible Director’s death, and may change such designation at any time by submitting a new beneficiary designation form to the Secretary.

Section 11.    Election to Receive Stock

(a)    Election.    An Eligible Director may make a Stock Election to receive all or part of any or all of such Eligible Director’s Retainers in shares of Stock by submitting a Stock Election Form to the Secretary indicating the Stock Amount. A Stock Election Form shall be effective only with respect to Retainers payable after the date on which the Secretary receives the Stock Election Form. Each Stock Election, once made, shall be irrevocable. Notwithstanding the foregoing, a Stock Election may be superseded with respect to future payments of an Eligible Director’s Retainers by submitting a new Stock Election Form to the Secretary.

(b)    Payment in Stock.    As of each Retainer Payment Date, an Eligible Director who has made a Stock Election will receive, in lieu of the Retainer elected to be received in Stock, a whole number of shares of Stock (but not fractional shares) determined by dividing:

(i) the amount of the Retainer that is payable to the Eligible Director on the applicable Retainer Payment Date and is subject to a Stock Election; by

(ii) the Fair Market Value of a share of Stock on such Retainer Payment Date.

In no circumstances shall an Eligible Director be entitled to receive, or shall the Company have any obligation to issue to the Eligible Director, any fractional share of Stock. In lieu of any fractional share of Stock, the Eligible Director shall be entitled to receive, and the Company shall be obligated to pay to such Eligible Director, cash equal to the value of any fractional share of Stock (determined by using the Fair Market Value of a share of Stock on such Retainer Payment Date).

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Section 12.    Fair Market Value

Fair Market Value” shall mean, with respect to each share of Stock for any day:

(a) if the Stock is listed for trading on the New York Stock Exchange, (i) the volume weighted average price of the Stock, reflecting composite trading between 9:30 a.m. and 4:00 p.m. (Eastern time) on such date, as reported by the Bloomberg Professional Service on the MS Equity Volume at Price page under the “VWAP” field, at 4:00 p.m. on such date, rounded up to the nearest whole cent, or, if not so reported, as reported by another third party source to which the Company has access on such date, or if no such reported sale of the Stock shall have occurred on such date, on the most recent date on which such a reported sale occurred; or (ii) if the volume weighted average price is not available from a third party source to which the Company has access on such date or on the most recent date on which a reported sale occurred, “Fair Market Value” will be the average of the high and low prices of the Stock as reported on the Consolidated Transaction Reporting System on such date, or if no such reported sale of the Stock shall have occurred on such date, on the most recent date on which such a reported sale occurred; or

(b) if the Stock is not so listed, but is listed on another national securities exchange, the closing price, regular way, of the Stock on such exchange, rounded up to the nearest whole cent, on which the largest number of shares of Stock have been traded in the aggregate on the preceding twenty trading days, or, if no such reported sale of the Stock shall have occurred on such date on such exchange, on the most recent date on which such a reported sale occurred on such exchange, or

(c) if the Stock is not listed for trading on a national securities exchange, the average of the closing bid and asked prices as reported by the National Association of Securities Dealers, rounded up to the nearest whole cent, or, if no such prices shall have been so reported for such date, on the most recent date for which such prices were so reported.

Section 13.    Issuance of Stock

(a)    Restrictions on Transferability.    All shares of Stock delivered under the Plan shall be subject to such stop-transfer orders and other restrictions as the Company may deem advisable or legally necessary under any laws, statutes, rules, regulations and other legal requirements, including, without limitation, those of any stock exchange upon which the Stock is then listed and any applicable federal, state or foreign securities law.

(b)    Compliance with Laws.    Anything to the contrary herein notwithstanding, the Company shall not be required to issue any shares of Stock under the Plan if, in the opinion of legal counsel to the Company, the issuance and delivery of such shares would constitute a violation by the Eligible Director or the Company of any applicable law or regulation of any governmental authority, including, without limitation, federal and state securities laws, or the regulations of any stock exchanges on which the Company’s securities may then be listed.

Section 14.    Withholding Taxes

The Company may require as a condition of delivery of any shares of Stock that the Eligible Director remit (i) in cash, (ii) by tendering (or attesting to the ownership of) shares of Stock that the Company determines will not result in unfavorable accounting treatment or (iii) by the Company withholding shares of Stock, an amount sufficient to satisfy all foreign, federal, state, local and other governmental withholding tax requirements relating thereto (if any) and, exclusively in the case of an award that does not constitute a deferral of compensation subject to Section 409A, any or all indebtedness or other obligation of the Eligible Director to the Company or any of its subsidiaries. In the case of any award that constitutes a deferral of compensation subject to Section 409A, the Company may not withhold shares of Stock to satisfy obligations that an Eligible Director owes to the Company or any of its subsidiaries other than with respect to taxes or other governmental charges imposed on amounts received by the Eligible Director pursuant to such award, except to the extent such withholding is not prohibited by Section 409A and would not cause the Eligible Director to recognize income for

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United States federal income tax purposes prior to the time of payment of the award or to incur interest or additional tax under Section 409A. Any shares tendered or withheld pursuant to this Section 14 will be valued at Fair Market Value on the relevant payment or exercise date, as applicable.

Section 15.    Plan Amendments and Termination

The Board may suspend or terminate the Plan at any time, in whole or in part. Termination of the Plan shall not adversely affect the rights of Eligible Directors in Career Stock Unit Accounts, Cash Accounts and Current Stock Unit Accounts outstanding at the time of termination. Notwithstanding any termination of the Plan, distributions to Eligible Directors in respect of their Career Stock Unit Accounts, Cash Accounts and Current Stock Unit Accounts shall be made at the times and in the manner provided herein.

The Board may also alter, amend or modify the Plan at any time. These amendments may include (but are not limited to) changes that the Board considers necessary or advisable as a result of changes in, or the adoption or interpretation of, any law, regulation, ruling, judicial decision or accounting standards (collectively, “Legal Requirements”). The Board may not amend or modify the Plan in a manner that would materially impair an Eligible Director’s rights in any Career Stock Unit Account, Cash Account or Current Stock Unit Account without the Eligible Director’s consent;provided,however, that the Board may, without an Eligible Director’s consent, amend or modify the Plan in any manner that it considers necessary or advisable to comply with any Legal Requirement or to ensure that amounts credited to an Eligible Director’s Career Stock Unit Account, Cash Account or Current Stock Unit Account are not subject to federal, state or local income tax prior to payment.

Notwithstanding the foregoing, if any provision of this Plan would, in the reasonable, good faith judgment of the Company, result in or likely result in the imposition on any Eligible Director or any other person of any tax, interest or penalty under Section 409A, the Company may reform this Plan or any provision hereof, without the consent of any Eligible Director, in the manner that the Company reasonably and in good faith determines to be necessary or advisable to avoid the imposition of such tax, interest or penalty;provided,however, that any such reformation shall, to the maximum extent the Company reasonably and in good faith determines to be possible, retain the economic and tax benefits to the Eligible Directors hereunder while not materially increasing the cost to the Company of providing such benefits to the Eligible Directors.

The Board may delegate to the Plan Administrator its authority under this Section 15 to amend any provision of the Plan for which approval by the Board (or a committee thereof) is not required under applicable law or the rules of any national securities exchange on which the Stock is traded.

Section 16.    Listing, Registration and Legal Compliance

If the Plan Administrators shall at any time determine that any Consent (as hereinafter defined) is necessary or desirable as a condition of, or in connection with, the granting of any award under the Plan, the issuance or purchase of shares or other rights hereunder or the taking of any other action hereunder (each such action being hereinafter referred to as a “Plan Action”), then such Plan Action shall not be taken, in whole or in part, unless and until such Consent shall have been effected or obtained. The term “Consent” as used herein with respect to any Plan Action means (i) the listing, registrations or qualifications in respect thereof upon any securities exchange or under any foreign, federal, state or local law, rule or regulation, (ii) any and all consents, clearances and approvals in respect of a Plan Action by any governmental or other regulatory bodies, or (iii) any and all written agreements and representations by an Eligible Director with respect to the disposition of Stock or with respect to any other matter, which the Plan Administrators shall deem necessary or desirable in order to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made.

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Section 17.    Right Reserved

Nothing in the Plan shall confer upon any Eligible Director the right to continue as a director of the Company or affect any right that the Company or any Eligible Director may have to terminate the service of such Eligible Director.

Section 18.    Rights as a Stockholder

Except as otherwise provided by the terms of any applicable Benefit Plan Trust, an Eligible Director shall not, by reason of any stock option, Director Stock, Stock Unit or Stock Amount, have any rights as a stockholder of the Company until Stock has been issued to such Eligible Director.

Section 19.    Unfunded Plan

The Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any Eligible Director or other person. To the extent any person holds any rights by virtue of a pending grant or deferral under the Plan, such rights shall be no greater than the rights of an unsecured general creditor of the Company. Notwithstanding the foregoing, the Company may (but shall not be obligated to) contribute shares of Stock corresponding to Stock Units to a Benefit Plan Trust, provided that the principal and income of any such Benefit Plan Trust shall be subject to the claims of general creditors of the Company. The Company may amend the terms of any Benefit Plan Trust as applicable to any one or more Eligible Directors in order to procure favorable tax treatment for such Eligible Director(s) or to comply with the laws applicable in any non-U.S. jurisdiction.

Section 20.    Governing Law

The Plan is deemed adopted, made and delivered in New York and shall be governed by the laws of the State of New York applicable to agreements made and to be performed entirely within such state.

Section 21.    Severability

If any part of the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of the Plan not declared to be unlawful or invalid. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner that will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.

Section 22.    Notices

All notices and other communications hereunder shall be given in writing and shall be deemed given when personally delivered against receipt or five days after having been mailed by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: (a) if to the Company: Morgan Stanley, 1585 Broadway, New York, New York 10036, Attention: Corporate Secretary; and (b) if to an Eligible Director, at the Eligible Director’s principal residential address last furnished to the Company. Either party may, by notice, change the address to which notice to such party is to be given.

Section 23.    Section Headings

The Section headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said Sections.

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Section 24.    Definitions

As used in the Plan, the following terms shall have the meanings indicated below:

Account” means Cash Account, Career Stock Unit Account or Current Stock Unit Account, as applicable.

Adjusted Deferred Amount” has the meaning set forth in Section 9(m).

Annual Meeting” means an annual meeting of the Company’s stockholders.

Annual Retainer” means a cash retainer for services as a member of the Board.

Annual Stock Units” means the Stock Units awarded to an Eligible Director pursuant to Section 6(b).

Average Daily Cash Balance” means the sum of the daily balances for a Cash Account for any quarter or shorter period for which the calculation is made, divided by the number of days on which a positive balance existed in such Cash Account.

Benefit Plan Trust” means any trust established by the Company under which Eligible Directors, or Eligible Directors and participants in designated employee benefit plans of the Company, constitute the principal beneficiaries.

Board” means the board of directors of the Company.

Career Stock Unit Account” means a bookkeeping account to which Initial Stock Units and Annual Stock Units are credited pursuant to Section 6(a) and Section 6(b).

Career Stock Units” has the meaning set forth in Section 6(b).

Cash Account” means a bookkeeping account to which Meeting Fees are credited pursuant to Section 9(m) or which had a positive balance as of the Stock Unit Transition Date.

Cause” means, with respect to any Eligible Director, termination of service on the Board on account of any act of (A) fraud or intentional misrepresentation, or (B) embezzlement, misappropriation or conversion of assets or opportunities of the Company or any affiliate.

Committee Retainer” means a cash retainer for services as a member or chair of any committee of the Board.

Company” has the meaning set forth in Section 1.

Consent” has the meaning set forth in Section 16.

Current Stock Unit Account” means a bookkeeping account to which Deferred Amounts are credited pursuant to Section 6(a), Section 6(b) or Section 9(b).

Current Stock Units” means Annual Stock Units and Initial Stock Units credited to the Eligible Director’s Current Stock Unit Account pursuant to Section 6(a) or Section 6(b).

Deferral Election” means a deferral election by an Eligible Director made with respect to any Retainers, Director Stock, Initial Stock Units and/or Annual Stock Units.

Deferral Election Form” means an election form submitted by an Eligible Director to the Secretary with respect to any Retainers, Director Stock, or Stock Units.

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Deferred Amount” means any amount, in dollars, of Retainers, Initial Stock Units and/or Annual Stock Units that an Eligible Director elects to defer, as indicated on the relevant Deferral Election Form.

Director Stock” means shares of Stock awarded to an Eligible Director for service on the Board. As of the Stock Unit Transition Date, no additional Director Stock will be awarded under the Plan, but Director Stock remains one of the types of award that the stockholders of the Company have authorized for the Plan, and nothing herein shall impair the authority of the Board under Section 15 to amend the Plan in the future to provide for awards of Director Stock without obtaining additional stockholder approval.

Disability” means a “permanent and total disability” as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.

Distribution Commencement Date” means the date that an Eligible Director elects as the date on which distribution of Deferred Amounts should begin, as indicated on the relevant Deferral Election Form.

Dividend Equivalents” has the meaning set forth in Section 9(i).

Elective Stock Units” means Stock Units that an Eligible Director elects to receive in lieu of Retainers pursuant to Section 9(a).

Eligible Directors” has the meaning set forth in Section 2.

Fair Market Value” has the meaning set forth in Section 12.

Governmental Employer” has the meaning set forth in Section 8(b).

Governmental Service Resignation” has the meaning set forth in Section 8(b).

Initial Awards” means any awards made to an Eligible Director pursuant to Section 6(a), including any predecessor version thereof.

Initial Stock Units” means the Stock Units awarded to an Eligible Director pursuant to Section 6(a).

Interest Equivalent” means an additional amount to be credited to a Cash Account calculated in accordance with Section 9(m).

Lead Director Retainer” means a cash retainer for services as the lead director of the Board.

Meeting Fees” means fees (if any) payable to an Eligible Director for participation in meetings of the Board or any committee thereof.

Normal Retirement” means the termination of service on the Board for retirement at or after attaining age 65, other than for Cause, Disability or death.

Plan” has the meaning set forth in Section 1.

Rate of Interest” means the time weighted average interest rate paid by the Company for a quarter, or such shorter period from the end of the preceding quarter to an Eligible Director’s Service Termination Date, to institutions from which it borrows funds.

Retainer” means the Annual Retainer, the Committee Retainer and/or the Lead Director Retainer, as applicable.

Retainer Payment Date” means, with respect to any Retainer, the date as of which an Eligible Director becomes entitled to payment of Retainer.

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Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended, and the rules, regulations and guidance thereunder (or any successor provisions thereto).

Service Termination Date” means the date of an Eligible Director’s termination of service on the Board or such later date as constitutes the Eligible Director’s separation from service with the Company for purposes of Section 409A.

Stock” means the Company’s common stock, par value $0.01 per share, and any other shares into which such stock shall thereafter be changed by reason of any merger, reorganization, recapitalization, consolidation, split-up, combination of shares or similar event as set forth in and in accordance with Section 4.

Stock Amount” means the percentage of the Retainers that an Eligible Director elects to have paid in Stock, as indicated on the relevant Stock Election Form.

Stock Election” means an election by an Eligible Director to receive all or a portion of the Eligible Director’s Retainers in shares of Stock.

Stock Election Form” means the election form submitted by an Eligible Director to the Secretary as provided in Section 11(a).

Stock Option Transition Date” has the meaning set forth in Section 5(a).

Stock Unit Transition Date” means November 16, 2009.

Stock Units” means Initial Stock Units, Annual Stock Units and/or Elective Stock Units, as applicable.

Subsequent Awards” means any awards made to an Eligible Director pursuant to Section 6(b), including any predecessor version thereof.

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Morgan Stanley’s Board recommends a vote “FOR” the nominees listed below:

1. Election of DirectorsFOR AGAINST ABSTAINFOR AGAINST ABSTAIN
01 Roy J. Bostock¨¨¨08 Hutham S. Olayan¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
02 Erskine B. Bowles¨¨¨09 James W. Owens¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
03 Howard J. Davies¨¨¨10 O. Griffith Sexton¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
04 James P. Gorman¨¨¨11 Ryosuke Tamakoshi¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
05 C. Robert Kidder¨¨¨12 Masaaki Tanaka¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
06 Klaus Kleinfeld¨¨¨13 Laura D. Tyson¨¨¨
FOR AGAINST ABSTAIN
07 Donald T. Nicolaisen¨¨¨

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MARK VOTES  

AS SHOWN       

USING BLACK  

OR BLUE INK    

x

Morgan Stanley’s Board recommends a vote “FOR” Proposals 2 through 5 below:

2.

To ratify the appointment of Deloitte & Touche LLP as independent auditor

FOR AGAINST ABSTAIN

¨¨¨

3.

To amend the 2007 Equity Incentive Compensation Plan

FOR AGAINST ABSTAIN

¨¨¨

4.

To amend the Directors’ Equity Capital Accumulation Plan

FOR AGAINST ABSTAIN

¨¨¨

5.To approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution)

FOR AGAINST ABSTAIN

¨¨¨

 

MORGAN STANLEY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

FOR THE 2010 ANNUAL MEETING OF SHAREHOLDERS, MAY 18, 2010

The undersigned hereby appoints Gary G. Lynch, Thomas R. Nides and Martin M. Cohen, and each of them,

attorneys and proxies, with full power of substitution, to represent and to vote on behalf of the undersigned all

of the shares of common stock of Morgan Stanley that the undersigned is entitled in any capacity to vote if

personally present at the 2010 Annual Meeting of Shareholders to be held on May 18, 2010, and at any

adjournments or postponements thereof, in accordance with the instructions set forth on the reverse and with

the same effect as though the undersigned were present in person and voting such shares. The proxies are

authorized in their discretion to vote for the election of a person to the Board of Directors if any nominee named

herein becomes unable to serve or for good cause will not serve, upon all matters incident to the conduct of the

meeting, and upon such other business as may properly come before the meeting.

PLEASE SUBMIT YOUR PROXY BY PHONE OR BY INTERNET,

OR RETURN THIS PROXY CARD AFTER SIGNING AND DATING IT.

THIS PROXY WILL BE VOTED AS DIRECTED. IF THIS PROXY IS SIGNED, BUT NO

DIRECTION IS MADE, IT WILL BE VOTED IN ACCORDANCE WITH THE

RECOMMENDATION OF MORGAN STANLEY’S BOARD OF DIRECTORS.

At the meeting, we plan to:

elect members of the Board of Directors;

ratify the appointment of Deloitte & Touche LLP as independent auditor;

approve compensation of executives as disclosed in the proxy statement (non-binding advisory resolution);

approve the amendment of the 2007 Equity Incentive Compensation Plan;

consider five shareholder proposals; and

transact such other business as may properly come before the meeting.

Please help the Company reduce costs – submit your proxy by internet or telephone. If you share an address with other

shareholders, you can avoid receiving multiple copies of annual meeting materials and help the Company reduce costs by

consenting to householding. The Company can further reduce costs if you agree to receive future versions of our Proxy Statement

and Annual Report on Form 10-K electronically over the internet. You can view or print a copy of our annual meeting materials at

www.morganstanley.com/2010ams. You can request a copy of these materials, or get more information regarding electronic

delivery and householding, by contacting our transfer agent, BNY Mellon Shareowner Services, at 800-622-2393 or

www.bnymellon.com/shareowner.

Notice of 2010 Morgan Stanley Annual Meeting of Shareholders

2000 Westchester Avenue, Purchase, New York 10577

May 18, 2010, 9 a.m., local time

MS 001


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DETACH HERE IF YOU ARE SUBMITTING BY MAIL _ _

Morgan Stanley’s Board recommends a vote “FOR” the nominees listed below:

, 201Dated 0 Co-owner (if any) Signature

1. Election of Directors

06 Nobuyuki Hirano

05 James H. Hance, Jr.

04 James P. Gorman

03 Howard J. Davies

02 Erskine B. Bowles

01 Roy J. Bostock

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

Morgan Stanley’s Board recommends a vote “FOR” Proposals 2, 3 and 4 below:

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

3. To approve compensation of executives as disclosed in

the proxy statement (non-binding advisory resolution)

4. To amend the 2007 Equity Incentive Compensation

Plan

Morgan Stanley’s Board recommends a vote “AGAINST” Proposals 5 through 9 below:

Signature


Sign exactly as imprinted (do not print). If shares are held jointly, EACH holder should sign. Executors, administrators, trustees, guardians and others signing in a representative capacity

should indicate the capacity in which they sign. An authorized officer signing on behalf of a corporation should indicate the name of the corporation and the officer’s title.

IMPORTANTDated , 2012    Signature   Co-owner (if any) Signature 

YOUR PROXY MUST BE RECEIVED

é  é  DETACH HERE IF YOU ARE SUBMITTING BY THE CLOSE OF THE POLLSMAILé  é

ON MAY 18, 2010

1. INTERNET. Go to www.proxyvoting.com/ms. Follow the instructions.

2. TELEPHONE. Using a touch-tone phone, call 1-866-540-5760 (in the U.S.) or 201-680-6599

(outside the U.S.). Follow the instructions.

3. MAIL. Date, sign and return the card in the enclosed envelope.

IMPORTANT

YOUR PROXY MUST BE RECEIVED BY THE CLOSE OF THE POLLS
ON MAY 15, 2012

1.

INTERNET.Go to www.proxyvoting.com/ms. Follow the instructions.

2.

TELEPHONE.Using a touch-tone phone, call 1-866-540-5760 (in the U.S.) or 201- 680- 6599
(outside the U. S.). Follow the instructions.

3.

MAIL.Date, sign and return the card in the enclosed envelope.

Morgan Stanley

MS 001

MARK VOTES

AS SHOWN

USING BLACK

OR BLUE INK X

5. Shareholder proposal regarding

special shareowner meetings

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

11 Hutham S. Olayan

10 Charles H. Noski

09 Donald T. Nicolaisen

08 John J. Mack

07 C. Robert Kidder

12 O. Griffith Sexton

9. Shareholder proposal regarding

recoupment of management bonuses

8. Shareholder proposal regarding

report on pay disparity

7. Shareholder proposal regarding

independent chair

6. Shareholder proposal regarding

executive equity holdings requirement

2. To ratify the appointment of Deloitte & Touche LLP

as independent auditor

13 Laura D. Tyson

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN


LOGOMORGAN STANLEY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

FOR THE 2012 ANNUAL MEETING OF SHAREHOLDERS, MAY 15, 2012

 

The undersigned hereby appoints Eric F. Grossman, James A. Rosenthal and Martin M. Cohen, and each of them, attorneys and proxies, with full power of substitution, to represent and to vote on behalf of the undersigned all of the shares of common stock of Morgan Stanley that the undersigned is entitled in any capacity to vote if personally present at the 2012 Annual Meeting of Shareholders to be held on May 15, 2012, and at any adjournments or postponements thereof, in accordance with the instructions set forth on the reverse side of this proxy card and with the same effect as though the undersigned were present in person and voting such shares. Each of the proxies is authorized in his discretion to vote for the election of a person to the Board of Directors if any nominee named herein becomes unable to serve or for good cause will not serve, upon all matters incident to the conduct of the meeting, and upon such other business as may properly come before the meeting.

PLEASE SUBMIT YOUR PROXY BY PHONE OR BY INTERNET,

OR RETURN THIS PROXY CARD AFTER SIGNING AND DATING IT.

THIS PROXY WILL BE VOTED AS DIRECTED. IF THIS PROXY IS SIGNED, BUT NO

DIRECTION IS MADE, IT WILL BE VOTED IN ACCORDANCE WITH THE

RECOMMENDATION OF MORGAN STANLEY’S BOARD OF DIRECTORS.

MORGAN STANLEY 2010 VOTING INSTRUCTION FORM FOR BENEFIT PLAN PARTICIPANTS

I hereby direct the following to vote, in person or by proxy, all of the shares of Morgan Stanley common stock in my account(s) at the 2010 Annual Meeting of

Shareholders to be held on May 18, 2010, and at any and all adjournments or postponements thereof, as indicated on the reverse, and, in its (or the proxies’)

discretion, for the election of a person to the Board of Directors if any nominee named herein becomes unable to serve or for good cause will not serve, upon all

matters incident to the conduct of the meeting, and upon such other business as may properly come before the meeting.

The Bank of New York Mellon (Mellon), as trustee under the Morgan Stanley 401(k) Plan and Morgan Stanley 401(k) Savings Plan, and Mellon Investor

Services LLC (MIS) as administrator of the Employee Stock Purchase Plan. I understand that, (A) if I sign, date, and return this card, Mellon or MIS, as

applicable, will vote or grant proxies in accordance with the Board of Directors’ recommendation as to each proposal for which I do not give voting

instructions, (B) Mellon or MIS, as applicable, will vote or grant proxies for all undirected (other than pursuant to clause (A)) and/or forfeited shares

in each of these plans, as applicable, in the same respective proportion as the shares of all participants in each respective plan who have timely

delivered properly executed voting instructions, and (C) Mellon or MIS, as applicable, will hold my voting instructions in confidence to the extent

required by applicable law or regulations or the governing instrument.

State Street Bank and Trust Company, as trustee under a trust agreement (Trust), in connection with the 1995 and 2007 Equity Incentive Compensation Plans,

the Employees’ Equity Accumulation Plan, the Tax Deferred Equity Participation Plan, the Branch Manager Compensation Plan and the Financial Advisor and

Investment Representative Compensation Plan. I understand that, subject to the Trust’s terms, (A) if I sign, date and return this card, State Street will

vote in accordance with the Board of Directors’ recommendation as to each proposal for which I do not give voting instructions and (B) State Street

will vote with respect to all shares held in the Trust in connection with these plans for which no proper instructions are received (other than

pursuant to clause (A)) in the same proportion as the shares held in connection with these plans for which it has received proper instructions.

The Bank of New York Mellon (Mellon), as custodian for stock held on behalf of certain current and former Morgan Stanley employees and directors.

I understand that, (A) if I sign, date and return this card, Mellon will vote or grant proxies in accordance with the Board of Directors’

recommendation as to each proposal for which I do not give voting instructions, (B) if I do not sign, date and return this card, Mellon will not vote

or grant proxies with respect to my shares and (C) Mellon will hold my voting instructions in confidence to the extent required by law.

State Street Bank and Trust Company, as trustee under the Trust, in connection with the Directors’ Equity Capital Accumulation Plan. I understand that,

subject to the Trust’s terms, (A) if I do not sign, date and return this card, State Street will not vote or grant proxies with respect to my shares, and

(B) if I sign, date and return this card, State Street will vote (i) in accordance with the Board of Directors’ recommendations as to each proposal

for which I do not give voting instructions and (ii) in its discretion, after due consideration, on all other matters that may properly come before the

meeting.

EES Trustees Limited (EES), as trustee under a trust deed (UK Trust), in connection with the Morgan Stanley International Profit Sharing Scheme and the

Morgan Stanley UK Group Profit Sharing Plan. I understand that, subject to the UK Trust’s terms, (A) I must sign, date and return this card in order

for EES to vote or grant proxies with respect to my shares, and (B) if I sign, date and return this card, EES will vote or grant proxies in accordance

with the Board of Directors’ recommendations as to each proposal for which I do not give voting instructions and in its discretion on all other

matters that may properly come before the meeting.

Equiniti Share Plan Trustees Limited, as trustee under a trust deed (UK SOP Trust), in connection with the Morgan Stanley UK Share Ownership Plan.

I understand that, subject to the UK SOP Trust’s terms, (A) I must sign, date and return this card in order for Equiniti to vote or grant proxies with

respect to my shares, and (B) if I sign, date and return this card, Equiniti will vote or grant proxies in accordance with the Board of Directors’

recommendations as to each proposal for which I do not give voting instructions and in its discretion on all other matters that may properly come

before the meeting.

Voting instructions must be received by 11:59 P.M. (EDT) on May 13, 2010 for shares to be voted in accordance with your instructions.

Notice of 2012 Morgan Stanley Annual Meeting of Shareholders

2000 Westchester Avenue, Purchase, New York 10577

May 15, 2012, 9 a.m., local time

At the meeting, we plan to:

elect members of the Board of Directors;

ratify the appointment of Deloitte & Touche LLP as independent auditor;

approve the amendment of the 2007 Equity Incentive Compensation Plan;

approve the amendment of the Directors’ Equity Capital Accumulation Plan;

approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution);

approve the amendment of the 2007 Equity Incentive Compensation Plan;

consider five shareholder proposals; and

transact such other business as may properly come before the meeting.

ToPlease help the Company reduce costs – submit your proxy by internet or telephone. If you share an address with other shareholders, you can avoid receiving multiple copies of annual meeting materials and help the Company reduce costs by consenting to householding. The Company can further reduce costs if you agree to receive future versions of our Proxy Statement and Annual Report on Form 10-K electronically over the internet. You can view or print a copy of our Proxy Statement or Annual Report on Form 10-K, go to

annual meeting materials atwww.morganstanley.com/2010ams. 2012ams.You maycan request a copy of any of these materials by calling 1-212-762-8131.

The shares for which you provide voting instructions with this card include your Morgan Stanley 401(k) Plancontacting our proxy solicitor, D.F. King & Co., Inc. at 800-290-6429 (in the U.S.) or 212-269-5550 (outside the U.S.). For more information regarding electronic delivery and Morgan

Stanley 401(k) Savings Plan shares, if any. However, if you want to provide voting instructions for your shares in these plans

differently from your other plan shares, call 1-201-830-7660 to request separate voting instruction forms for these shares.

If you also hold shares in a brokerage accounthouseholding, contact our transfer agent, Computershare Shareowner Services LLC, at 800-622-2393 or in your own name, you also will receive a separate proxy card or voting

instruction form for those shares. Please be sure to provide voting instructions for these shares separately from (and in

addition to) your employee plan shares. Be sure to follow the voting instructions on each card.

Notice of 2010 Morgan Stanley Annual Meeting of Shareholders

2000 Westchester Avenue, Purchase, New York 10577

May 18, 2010, 9 a.m., local timewww.bnymellon.com/shareowner.

MS 002001


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DETACH HERE IF YOU ARE SUBMITTING BY MAIL _ _

, 2010 Signature201Signature Dated 2

Sign exactly as imprinted (do not print). Executors, administrators, trustees, guardians and others signing in a representative capacity should indicate the capacity in which they sign.

IMPORTANT

YOUR INSTRUCTIONS MUST BE RECEIVED BY

11:59 P.M. (EDT) ON MAY 13, 201010, 2012

1. INTERNET. Go to www.proxyvoting.com/ms2. Follow the instructions.

2. TELEPHONE. Using a touch-tone phone, call 1-866-540-5760 (in the U.S.) or 201-680-6599

(outside the U.S.). Follow the instructions.

3. MAIL. Date, sign and return the voting instruction form in the enclosed envelope.

Please help the Company reduce costs—submit your voting instructions by internet or telephone.

Morgan Stanley

MS 002

MARK VOTES

AS SHOWN

USING BLACK

OR BLUE INK Morgan Stanley’s Board recommends a vote “FOR” the nominees listed below: X

1. Election of Directors

06 Nobuyuki Hirano

05 James H. Hance, Jr.

04 James P. Gorman

03 Howard J. Davies

02 Erskine B. Bowles

01 Roy J. Bostock

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

Morgan Stanley’s Board recommends a vote “FOR” Proposals 2, 3 and 4 below:

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

3. To approve compensation of executives as disclosed in

the proxy statement (non-binding advisory resolution)

4. To amend the 2007 Equity Incentive Compensation

Plan

Morgan Stanley’s Board recommends a vote “AGAINST” Proposals 5 through 9 below:

5. Shareholder proposal regarding

special shareowner meetings

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

11 Hutham S. Olayan

10 Charles H. Noski

09 Donald T. Nicolaisen

08 John J. Mack

07 C. Robert Kidder

12 O. Griffith Sexton

9. Shareholder proposal regarding

recoupment of management bonuses

8. Shareholder proposal regarding

report on pay disparity

7. Shareholder proposal regarding

independent chair

6. Shareholder proposal regarding

executive equity holdings requirement

2. To ratify the appointment of Deloitte & Touche LLP

as independent auditor

13 Laura D. Tyson

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

Morgan Stanley’s Board recommends a vote “FOR” Proposals 2 through 5 below:

04 James P. Gorman 11 Ryosuke Tamakoshi

10 O. Griffith Sexton

09 James W. Owens

08 Hutham S. Olayan

07 Donald T. Nicolaisen

12 Masaaki Tanaka

13 Laura D. Tyson

5. To approve the compensation of executives as

disclosed in the proxy statement (non-binding

advisory resolution)

3. To amend the 2007 Equity Incentive Compensation

Plan

2. To ratify the appointment of Deloitte & Touche LLP

as independent auditor

4 To amend the Directors’ Equity Capital Accumulation

Plan

FOR AGAINST ABSTAIN

06 Klaus Kleinfeld

05 C. Robert Kidder

7996A Morgan Stanley LotB_03 3/30/12 2:54 PM Page 1


LOGO

LOGO

MORGAN STANLEY 2012 VOTING INSTRUCTION FORM FOR BENEFIT PLAN PARTICIPANTS

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

FOR THE 2010 ANNUAL MEETING OF SHAREHOLDERS, MAY 18, 2010

The undersignedI hereby appoints Gary G. Lynch, Thomas R. Nides and Martin M. Cohen, and each of them,

attorneys and proxies with full power of substitution, to represent anddirect the following to vote, on behalf of the undersignedin person or by proxy, all

of the shares of Morgan Stanley common stock of Morgan Stanley that the undersigned is entitled in any capacity to vote if

personally presentmy account(s) at the 20102012 Annual Meeting of

Shareholders to be held on May 18, 201015, 2012, and at any

and all adjournments or postponements thereof, in accordance with the instructions set forthas indicated on the reverse side of this voting instruction

form, and, with

in its (or the same effect as though the undersigned were present in person and voting such shares. The proxies are

authorized in theirproxies’) discretion, to vote for the election of a person to the Board of Directors if any nominee

named herein becomes unable to serve or for

good cause will not serve, upon all matters incident to the

conduct of the meeting, and upon such other business as may properly come before the meeting.

PLEASE RETURN THIS PROXY CARD AFTER SIGNING AND DATING IT.The Northern Trust Company (Northern Trust), as trustee under the Morgan Stanley 401(k) Plan and Morgan Stanley 401(k) Savings Plan. I understand that

THIS PROXY WILL BE VOTED AS DIRECTED. IF THIS PROXY IS SIGNED, BUT NO DIRECTION IS(A) if I sign, date, and return this form, Northern Trust will vote or grant proxies in accordance with the Board of Directors’ recommendation as to

MADE, IT WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF MORGANeach proposal for which I do not give voting instructions, (B) Northern Trust will vote or grant proxies for all undirected (other than pursuant to

STANLEY’S BOARD OF DIRECTORS.clause (A)) and/or forfeited shares in each of these plans, as applicable, in the same respective proportion as the shares of all participants in each

MS 003

respective plan who have timely delivered properly executed voting instructions, unless to do so would be inconsistent with Northern Trust’s


LOGOduties, and (C) Northern Trust will hold my voting instructions in confidence to the extent required by applicable law or regulations or the

governing instrument.

DETACH HERE IF YOU ARE SUBMITTING BY MAIL _ _State Street Bank and Trust Company, as trustee under a trust agreement (Trust), in connection with the 1995 and 2007 Equity Incentive Compensation Plans,

the 2009 Replacement Equity Incentive Compensation Plan for Morgan Stanley Smith Barney Employees, the Employees’ Equity Accumulation Plan, the Tax

Deferred Equity Participation Plan, the Branch Manager Compensation Plan and the Financial Advisor and Investment Representative Compensation Plan. I

understand that, subject to the Trust’s terms, (A) if I sign, date and return this form, State Street will vote in accordance with the Board of Directors’

recommendation as to each proposal for which I do not give voting instructions, (B) State Street will vote with respect to all shares held in the

Trust in connection with these plans for which no proper instructions are received (other than pursuant to clause (A)) in the same proportion as

the shares held in connection with these plans for which it has received proper instructions, and (C) State Street will vote in its discretion, after

due consideration, on all other matters that may properly come before the meeting.

The Bank of New York Mellon (Mellon), 2010 Dated Signature Co-owner (if any) Signatureas custodian for stock held on behalf of certain current and former Morgan Stanley employees and directors. I

understand that, (A) if I sign, date and return this form, Mellon will vote or grant proxies in accordance with the Board of Directors’ recommendation

as to each proposal for which I do not give voting instructions, (B) if I do not sign, date and return this form, Mellon will not vote or grant proxies

with respect to my shares, and (C) Mellon will hold my voting instructions in confidence to the extent required by law.

State Street Bank and Trust Company, as trustee under the Trust, in connection with the Directors’ Equity Capital Accumulation Plan. I understand that,

subject to the Trust’s terms, (A) if I do not sign, date and return this form, State Street will not vote or grant proxies with respect to my shares, and

(B) if I sign, date and return this form, State Street will vote (i) in accordance with the Board of Directors’ recommendation as to each proposal for

which I do not give voting instructions and (ii) in its discretion, after due consideration, on all other matters that may properly come before the

meeting.

EES Trustees Limited (EES), as trustee under a trust deed (UK Trust), in connection with the Morgan Stanley International Profit Sharing Scheme and the

Morgan Stanley UK Group Profit Sharing Plan. I understand that, subject to the UK Trust’s terms, (A) I must sign, date and return this form in order

for EES to vote or grant proxies with respect to my shares, and (B) if I sign, date and return this form, EES will vote or grant proxies in accordance

with the Board of Directors’ recommendation as to each proposal for which I do not give voting instructions and in its discretion on all other

matters that may properly come before the meeting.

Equiniti Share Plan Trustees Limited, as trustee under a trust deed (UK SOP Trust), in connection with the Morgan Stanley UK Share Ownership Plan.

I understand that, subject to the UK SOP Trust’s terms, (A) I must sign, date and return this form in order for Equiniti to vote or grant proxies with

respect to my shares, and (B) if I sign, date and return this form, Equiniti will vote or grant proxies in accordance with the Board of Directors’

recommendation as to each proposal for which I do not give voting instructions and in its discretion on all other matters that may properly come

before the meeting.

Voting instructions must be received by 11:59 P.M. (EDT) on May 10, 2012 for shares to be voted in accordance with your instructions.

At the meeting, we plan to:

elect members of the Board of Directors;

ratify the appointment of Deloitte & Touche LLP as independent auditor;

approve the amendment of the 2007 Equity Incentive Compensation Plan;

approve the amendment of the Directors’ Equity Capital Accumulation Plan;

approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution); and

transact such other business as may properly come before the meeting.

To view or print a copy of our Proxy Statement or Annual Report on Form 10-K, go to

www.morganstanley.com/2012 ams. You may request a copy of any of these documents by calling 1-212-762-8131.

The shares for which you provide voting instructions with this form include your Morgan Stanley 401(k) Plan and Morgan

Stanley 401(k) Savings Plan shares, if any. However, if you want to provide voting instructions for your shares in these plans

differently from your other plan shares, call 1-212-296-7767 to request separate voting instruction forms for these shares.

If you also hold shares in a brokerage account or in your own name, you also will receive a separate proxy card or voting

instruction form for those shares. Please be sure to provide voting instructions for these shares separately from (and in

addition to) your employee plan shares. Be sure to follow the voting instructions on each form.

Notice of 2012 Morgan Stanley Annual Meeting of Shareholders

2000 Westchester Avenue, Purchase, New York 10577

May 15, 2012, 9 a.m., local time

MS 003002

MARK VOTES7996A Morgan Stanley LotB_03 3/30/12 2:54 PM Page 2


Morgan Stanley’s Board recommends a vote “FOR” the nominees listed below:

1. Election of DirectorsFOR AGAINST ABSTAINFOR AGAINST ABSTAIN
01 Roy J. Bostock¨¨¨08 Hutham S. Olayan¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
02 Erskine B. Bowles¨¨¨09 James W. Owens¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
03 Howard J. Davies¨¨¨10 O. Griffith Sexton¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
04 James P. Gorman¨¨¨11 Ryosuke Tamakoshi¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
05 C. Robert Kidder¨¨¨12 Masaaki Tanaka¨¨¨
FOR AGAINST ABSTAINFOR AGAINST ABSTAIN
06 Klaus Kleinfeld¨¨¨13 Laura D. Tyson¨¨¨
FOR AGAINST ABSTAIN
07 Donald T. Nicolaisen¨¨¨


MARK VOTES  

AS SHOWN

USING BLACK  

OR BLUE INK    

x

Morgan Stanley’s Board recommends a vote “FOR” Proposals 2 through 5 below:

2.

To ratify the appointment of Deloitte & Touche LLP as independent auditor

FOR AGAINST ABSTAIN

¨¨¨

3.

To amend the 2007 Equity Incentive Compensation Plan

FOR AGAINST ABSTAIN

¨¨¨

4.

To amend the Directors’ Equity Capital Accumulation Plan

FOR AGAINST ABSTAIN

¨¨¨

5.To approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution)

FOR AGAINST ABSTAIN

¨¨¨

USING BLACK

OR BLUE INK X


Sign exactly as imprinted (do not print). If shares are held jointly, EACH holder should sign. Executors, administrators, trustees, guardians and others signing in a representative capacity

should indicate the capacity in which they sign. An authorized officer signing on behalf of a corporation should indicate the name of the corporation and the officer’s title.

Morgan Stanley’s Board recommends a vote “FOR” the nominees listed below:Dated , 2012    Signature    Co-owner (if any) Signature 

1. Election of Directors

06 Nobuyuki Hirano

05 James H. Hance, Jr.é  é    DETACH HERE IF YOU ARE SUBMITTING BY MAILé    é

04 James P. Gorman

03 Howard J. Davies

02 Erskine B. Bowles

01 Roy J. Bostock

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

Morgan Stanley’s Board recommends a vote “FOR” Proposals 2, 3 and 4 below:Stanley

FOR AGAINST ABSTAINMS 003

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN


MORGAN STANLEY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

FOR THE 2012 ANNUAL MEETING OF SHAREHOLDERS, MAY 15, 2012

The undersigned hereby appoints Eric F. Grossman, James A. Rosenthal and Martin M. Cohen, and each of them, attorneys and proxies with full power of substitution, to represent and to vote on behalf of the undersigned all of the shares of common stock of Morgan Stanley that the undersigned is entitled in any capacity to vote if personally present at the 2012 Annual Meeting of Shareholders to be held on May 15, 2012, and at any adjournments or postponements thereof, in accordance with the instructions set forth on the reverse side of this proxy card and with the same effect as though the undersigned were present in person and voting such shares. Each of the proxies is authorized in his discretion to vote for the election of a person to the Board of Directors if any nominee named herein becomes unable to serve or for good cause will not serve, upon all matters incident to the conduct of the meeting, and upon such other business as may properly come before the meeting.

PLEASE RETURN THIS PROXY CARD AFTER SIGNING AND DATING IT.

THIS PROXY WILL BE VOTED AS DIRECTED. IF THIS PROXY IS SIGNED, BUT NO DIRECTION IS

MADE, IT WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF MORGAN

STANLEY’S BOARD OF DIRECTORS.

MS 003

3. To approve compensation of executives as disclosed in

the proxy statement (non-binding advisory resolution)

4. To amend the 2007 Equity Incentive Compensation

Plan

Morgan Stanley’s Board recommends a vote “AGAINST” Proposals 5 through 9 below:

5. Shareholder proposal regarding

special shareowner meetings

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

11 Hutham S. Olayan

10 Charles H. Noski

09 Donald T. Nicolaisen

08 John J. Mack

07 C. Robert Kidder

12 O. Griffith Sexton

9. Shareholder proposal regarding

recoupment of management bonuses

8. Shareholder proposal regarding

report on pay disparity

7. Shareholder proposal regarding

independent chair

6. Shareholder proposal regarding

executive equity holdings requirement

2. To ratify the appointment of Deloitte & Touche LLP

as independent auditor

13 Laura D. Tyson

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN

FOR AGAINST ABSTAIN