# Table	of	Contents

# UNITED	STATES	SECURITIES	AND	EXCHANGE	COMMISSION

# Annual	Report	Pursuant	to	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934

# Commission	File	Number	1-11758

(Exact	name	of	Registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of incorporation	or	organization)

(Address	of	principal	executive	offices,

including	zip	code)

(I.R.S.	Employer	Identification	No.)

Title	of	each	class

# Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

Common	Stock,	$0.01	par	value

Depositary	Shares,	each	representing	1/1,000th	interest	in	a	share	of	Floating	Rate	Non-Cumulative	Preferred	Stock,	Series	A,	$0.01	par	value

6	1/ %	Capital	Securities	of	Morgan	Stanley	Capital	Trust	III	(and	Registrant's	guaranty	with	respect	thereto)

6	1/ %	Capital	Securities	of	Morgan	Stanley	Capital	Trust	IV	(and	Registrant's	guaranty	with	respect	thereto)

5	3/ %	Capital	Securities	of	Morgan	Stanley	Capital	Trust	V	(and	Registrant's	guaranty	with	respect	thereto)

6.60%	Capital	Securities	of	Morgan	Stanley	Capital	Trust	VI	(and	Registrant's	guaranty	with	respect	thereto)

6.60%	Capital	Securities	of	Morgan	Stanley	Capital	Trust	VII	(and	Registrant's	guaranty	with	respect	thereto)

6.45%	Capital	Securities	of	Morgan	Stanley	Capital	Trust	VIII	(and	Registrant's	guaranty	with	respect	thereto)

(Registrant's	telephone	number, including	area	code)

Name	of	exchange	on

which	registered

New	York	Stock	Exchange

NYSE	Arca,	Inc.

NYSE	Arca,	Inc. Morgan	Stanley	S&P	500	Crude	Oil	Linked	ETNs	due	July	1,	2031 NYSE	Arca,	Inc. Morgan	Stanley	Cushing ®	MLP	High	Income	Index	ETNs	due	March	21,	2031

Indicate	by	check	mark	if	Registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.	YES x	NO	¨

Indicate	by	check	mark	if	Registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	15(d)	of	the	Act.	YES ¨	NO	x

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

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

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of	Registrant's	knowledge,	in	definitive	proxy	or	information statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.	x

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

Large	Accelerated	Filer	x

Non-Accelerated	Filer	¨

Accelerated	Filer	¨

Smaller	reporting	company	¨

(Do	not	check	if	a	smaller	reporting	company)

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

As	of	June	29,	2012,	the	aggregate	market	value	of	the	common	stock	of	Registrant	held	by	non-affiliates	of	Registrant	was	approximately	$28,757,715,880.	This	calculation	does	not	reflect	a	determination	that	persons are	affiliates	for	any	other	purposes.

Documents	Incorporated	by	Reference: 	Portions	of	Registrant's	definitive	proxy	statement	for	its	2013	annual	meeting	of	shareholders	are	incorporated	by	reference	in	Part	III	of	this	Form	10-K.

# ANNUAL	REPORT	ON	FORM	10-K

# Forward-Looking	Statements

We	have	included	in	or	incorporated	by	reference	into	this	report,	and	from	time	to	time	may	make	in	our	public	filings,	press	releases	or	other	public	statements,	certain statements,	including	(without	limitation)	those	under	"Legal	Proceedings"	in	Part	I,	Item	3,	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results of	Operations"	in	Part	II,	Item	7	and	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk"	in	Part	II,	Item	7A,	that	may	constitute	"forward-looking	statements" within	the	meaning	of	the	safe	harbor	provisions	of	the	Private	Securities	Litigation	Reform	Act	of	1995.	In	addition,	our	management	may	make	forward-looking statements	to	analysts,	investors,	representatives	of	the	media	and	others.	These	forward-looking	statements	are	not	historical	facts	and	represent	only	our	beliefs regarding	future	events,	many	of	which,	by	their	nature,	are	inherently	uncertain	and	beyond	our	control.

The	nature	of	our	business	makes	predicting	the	future	trends	of	our	revenues,	expenses	and	net	income	difficult.	The	risks	and	uncertainties	involved	in	our	businesses could	affect	the	matters	referred	to	in	such	statements,	and	it	is	possible	that	our	actual	results	may	differ,	possibly	materially,	from	the	anticipated	results	indicated	in these	forward-looking	statements.	Important	factors	that	could	cause	actual	results	to	differ	from	those	in	the	forward-looking	statements	include	(without	limitation):

•the	effect	of	economic	and	political	conditions	and	geopolitical	events;

•the	effect	of	market	conditions,	particularly	in	the	global	equity,	fixed	income,	credit	and	commodities	markets,	including	corporate	and	mortgage	(commercial and	residential)	lending	and	commercial	real	estate	markets;

•the	impact	of	current,	pending	and	future	legislation	(including	the	Dodd-Frank	Wall	Street	Reform	and	Consumer	Protection	Act	(the	"Dodd-Frank	Act")),

regulation	(including	capital,	leverage	and	liquidity	requirements),	and	legal	actions	in	the	United	States	("U.S.")	and	worldwide;

•the	level	and	volatility	of	equity,	fixed	income	and	commodity	prices,	interest	rates,	currency	values	and	other	market	indices;

•the	availability	and	cost	of	both	credit	and	capital	as	well	as	the	credit	ratings	assigned	to	our	unsecured	short-term	and	long-term	debt;

•investor	sentiment	and	confidence	in	the	financial	markets;

•the	performance	of	our	acquisitions,	joint	ventures,	strategic	alliances	or	other	strategic	arrangements;

•	 our	reputation;

•inflation,	natural	disasters	and	acts	of	war	or	terrorism;

•the	actions	and	initiatives	of	current	and	potential	competitors	as	well	as	governments,	regulators	and	self-regulatory	organizations;

•the	effectiveness	of	our	risk	management	policies;

•technological	changes;	and

•	 other	risks	and	uncertainties	detailed	under	"Business—Competition"	and	"Business—Supervision	and	Regulation"	in	Part	I,	Item	1,	"Risk	Factors"	in	Part	I, Item	1A	and	elsewhere	throughout	this	report.

Accordingly,	you	are	cautioned	not	to	place	undue	reliance	on	forward-looking	statements,	which	speak	only	as	of	the	date	on	which	they	are	made.	We	undertake	no obligation	to	update	publicly	or	revise	any	forward-looking	statements	to	reflect	the	impact	of	circumstances	or	events	that	arise	after	the	dates	they	are	made,	whether as	a	result	of	new	information,	future	events	or	otherwise	except	as	required	by	applicable	law.	You	should,	however,	consult	further	disclosures	we	may	make	in	future filings	of	our	Annual	Reports	on	Form	10-K,	Quarterly	Reports	on	Form	10-Q	and	Current	Reports	on	Form	8-K	and	any	amendments	thereto	or	in	future	press	releases or	other	public	statements.

# Part	I

# Item	1. Business.

# Overview.

Morgan	Stanley	is	a	global	financial	services	firm	that,	through	its	subsidiaries	and	affiliates,	provides	its	products	and	services	to	a	large	and	diversified	group	of clients	and	customers,	including	corporations,	governments,	financial	institutions	and	individuals.	Morgan	Stanley	was	originally	incorporated	under	the	laws	of	the State	of	Delaware	in	1981,	and	its	predecessor	companies	date	back	to	1924.	The	Company	is	a	financial	holding	company	regulated	by	the	Board	of	Governors	of	the Federal	Reserve	System	(the	"Federal	Reserve")	under	the	Bank	Holding	Company	Act	of	1956,	as	amended	(the	"BHC	Act").	The	Company	conducts	its	business	from its	headquarters	in	and	around	New	York	City,	its	regional	offices	and	branches	throughout	the	U.S.	and	its	principal	offices	in	London,	Tokyo,	Hong	Kong	and	other world	financial	centers.	At	December	31,	2012,	the	Company	had	57,061	employees	worldwide.	Unless	the	context	otherwise	requires,	the	terms	"Morgan	Stanley,"	the "Company,"	"we,"	"us"	and	"our"	mean	Morgan	Stanley	and	its	consolidated	subsidiaries.

Financial	information	concerning	the	Company,	its	business	segments	and	geographic	regions	for	each	of	the	12	months	ended	December	31,	2012	("2012"), December	31,	2011	("2011")	and	December	31,	2010	("2010")	is	included	in	the	consolidated	financial	statements	and	the	notes	thereto	in	"Financial	Statements	and Supplementary	Data"	in	Part	II,	Item	8.

# Available	Information.

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

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

You	can	access	information	about	the	Company's	corporate	governance	at	www.morganstanley.com/about/company/governance.	The	Company's	Corporate	Governance webpage	includes	the	Company's	Amended	and	Restated	Certificate	of	Incorporation;	Amended	and	Restated	Bylaws;	charters	for	its	Audit	Committee;	Compensation, Management	Development	and	Succession	Committee;	Nominating	and	Governance	Committee;	Operations	and	Technology	Committee;	and	Risk	Committee; Corporate	Governance	Policies;	Policy	Regarding	Communication	with	the	Board	of	Directors;	Policy	Regarding	Director	Candidates	Recommended	by	Shareholders; Policy	Regarding	Corporate	Political	Contributions;	Policy	Regarding	Shareholder	Rights	Plan;	Code	of	Ethics	and	Business	Conduct;	Code	of	Conduct;	and	Integrity Hotline	information.

Morgan	Stanley's	Code	of	Ethics	and	Business	Conduct	applies	to	all	directors,	officers	and	employees,	including	its	Chief	Executive	Officer,	Chief	Financial	Officer and	Deputy	Chief	Financial	Officer	and	Controller.

The	Company	will	post	any	amendments	to	the	Code	of	Ethics	and	Business	Conduct	and	any	waivers	that	are	required	to	be	disclosed	by	the	rules	of	either	the	SEC	or the	New	York	Stock	Exchange	LLC	("NYSE")	on	its	internet	site.	You	can	request	a	copy	of	these	documents,	excluding	exhibits,	at	no	cost,	by	contacting	Investor Relations,	1585	Broadway,	New	York,	NY	10036	(212-761-4000).	The	information	on	the	Company's	internet	site	is	not	incorporated	by	reference	into	this	report.

# Business	Segments.

The	Company	is	a	global	financial	services	firm	that	maintains	significant	market	positions	in	each	of	its	business	segments—Institutional	Securities,	Global	Wealth Management	Group	and	Asset	Management.

# Institutional	Securities.

The	Company	provides	financial	advisory	and	capital-raising	services	to	a	diverse	group	of	corporate	and	other	institutional	clients	globally,	primarily	through	wholly owned	subsidiaries	that	include	Morgan	Stanley	&	Co.	LLC	("MS&Co."),	Morgan	Stanley	&	Co.	International	plc	and	Morgan	Stanley	Asia	Limited,	and	certain	joint venture	entities	that	include	Morgan	Stanley	MUFG	Securities	Co.,	Ltd.	("MSMS")	and	Mitsubishi	UFJ	Morgan	Stanley	Securities	Co.,	Ltd.	("MUMSS").	The Company,	primarily	through	these	entities,	also	conducts	sales	and	trading	activities	worldwide,	as	principal	and	agent,	and	provides	related	financing	services	on	behalf of	institutional	investors.

# Investment	Banking	and	Corporate	Lending	Activities.

Capital	Raising.				The	Company	manages	and	participates	in	public	offerings	and	private	placements	of	debt,	equity	and	other	securities	worldwide.	The	Company	is	a leading	underwriter	of	common	stock,	preferred	stock	and	other	equity-related	securities,	including	convertible	securities	and	American	Depositary	Receipts	("ADRs"). The	Company	is	also	a	leading	underwriter	of	fixed	income	securities,	including	investment	grade	debt,	non-investment	grade	instruments,	mortgage-related	and	other asset-backed	securities,	tax-exempt	securities	and	commercial	paper	and	other	short-term	securities.

Financial	Advisory	Services.				The	Company	provides	corporate	and	other	institutional	clients	globally	with	advisory	services	on	key	strategic	matters,	such	as	mergers and	acquisitions,	divestitures,	joint	ventures,	corporate	restructurings,	recapitalizations,	spin-offs,	exchange	offers	and	leveraged	buyouts	and	takeover	defenses	as	well as	shareholder	relations.	The	Company	also	provides	advice	concerning	rights	offerings,	dividend	policy,	valuations,	foreign	exchange	exposure,	financial	risk management	strategies	and	financial	planning.	In	addition,	the	Company	furnishes	advice	and	services	regarding	project	financings	and	provides	advisory	services	in connection	with	the	purchase,	sale,	leasing	and	financing	of	real	estate.

Corporate	Lending.				The	Company	provides	loans	or	lending	commitments,	including	bridge	financing,	to	select	corporate	clients	through	its	subsidiaries,	including Morgan	Stanley	Bank,	N.A	("MSBNA").	These	loans	and	lending	commitments	have	varying	terms;	may	be	senior	or	subordinated;	may	be	secured	or	unsecured;	are generally	contingent	upon	representations,	warranties	and	contractual	conditions	applicable	to	the	borrower,	and	may	be	syndicated,	traded	or	hedged	by	the	Company. The	borrowers	may	be	rated	investment	grade	or	non-investment	grade.

# Sales	and	Trading	Activities.

The	Company	conducts	sales,	trading,	financing	and	market-making	activities	on	securities	and	futures	exchanges	and	in	over-the-counter	("OTC")	markets	around	the world.	The	Company's	Institutional	Securities	sales	and	trading	activities	comprise	Equity	Trading;	Fixed	Income	and	Commodities;	Clients	and	Services;	Research;	and Investments.

Equity	Trading.				The	Company	acts	as	principal	(including	as	a	market-maker)	and	agent	in	executing	transactions	globally	in	equity	and	equity-related	products, including	common	stock,	ADRs,	global	depositary	receipts	and	exchange-traded	funds.

The	Company's	equity	derivatives	sales,	trading	and	market-making	activities	cover	equity-related	products	globally,	including	equity	swaps,	options,	warrants	and futures	overlying	individual	securities,	indices	and	baskets	of	securities	and	other	equity-related	products.	The	Company	also	issues	and	makes	a	principal	market	in equity-linked	products	to	institutional	and	individual	investors.

Fixed	Income	and	Commodities.				The	Company	trades,	invests	and	makes	markets	in	fixed	income	securities	and	related	products	globally,	including,	among	other products,	investment	and	non-investment	grade	corporate	debt,	distressed	debt,	bank	loans,	U.S.	and	other	sovereign	securities,	emerging	market	bonds	and	loans, convertible	bonds,	collateralized	debt	obligations,	credit,	currency,	interest	rate	and	other	fixed	income-linked	notes,	securities	issued	by	structured	investment	vehicles, mortgage-related	and	other	asset-backed	securities	and	real	estate-loan	products,	municipal	securities,	preferred	stock	and	commercial	paper,	money-market	and	other short-term	securities.	The	Company	is	a	primary	dealer	of	U.S.	federal	government	securities	and	a	member	of	the	selling	groups	that	distribute	various	U.S.	agency	and other	debt	securities.	The	Company	is	also	a	primary	dealer	or	market-maker	of	government	securities	in	numerous	European,	Asian	and	emerging	market	countries.

The	Company	trades,	invests	and	makes	markets	globally	in	listed	futures	and	OTC	cleared	and	uncleared	swaps,	forwards,	options	and	other	derivatives	referencing, among	other	things,	interest	rates,	currencies,	investment	grade	and	non-investment	grade	corporate	credits,	loans,	bonds,	U.S.	and	other	sovereign	securities,	emerging market	bonds	and	loans,	credit	indexes,	asset-backed	security	indexes,	property	indexes,	mortgage-related	and	other	asset-backed	securities	and	real	estate	loan	products.

The	Company	trades,	invests	and	makes	markets	in	major	foreign	currencies,	such	as	the	British	pound,	Canadian	dollar,	euro,	Japanese	yen	and	Swiss	franc,	as	well	as in	emerging	markets	currencies.	The	Company	trades	these	currencies	on	a	principal	basis	in	the	spot,	forward,	option	and	futures	markets.

Through	the	use	of	repurchase	and	reverse	repurchase	agreements,	the	Company	acts	as	an	intermediary	between	borrowers	and	lenders	of	short-term	funds	and provides	funding	for	various	inventory	positions.	The	Company	also	provides	financing	to	customers	for	commercial	and	residential	real	estate	loan	products	and	other securitizable	asset	classes.	In	addition,	the	Company	engages	in	principal	securities	lending	with	clients,	institutional	lenders	and	other	broker-dealers.

The	Company	advises	on	investment	and	liability	strategies	and	assists	corporations	in	their	debt	repurchases	and	tax	planning.	The	Company	structures	debt	securities, derivatives	and	other	instruments	with	risk/return	factors	designed	to	suit	client	objectives,	including	using	repackaged	asset	and	other	structured	vehicles	through	which clients	can	restructure	asset	portfolios	to	provide	liquidity	or	reconfigure	risk	profiles.

The	Company	trades,	invests	and	makes	markets	in	the	spot,	forward,	derivatives	and	futures	markets	in	several	commodities,	including	metals	(base	and	precious), agricultural	products,	crude	oil,	oil	products,	natural	gas,	electric	power,	emission	credits,	coal,	freight,	liquefied	natural	gas	and	related	products	and	indices.	The Company	trades	and	is	a	market-maker	in	exchange-traded	options	and	futures	and	OTC	options	and	swaps	on	commodities,	and	offers	counterparties	hedging	programs relating	to	production,	consumption,	reserve/inventory	management	and	structured	transactions,	including	energy-contract	securitizations	and	monetization.	The Company	is	an	electricity	power	marketer	in	the	U.S.	and	owns	electricity-generating	facilities	in	the	U.S.	and	Europe.

The	Company	owns	TransMontaigne	Inc.	and	its	subsidiaries,	a	group	of	companies	operating	in	the	refined	petroleum	products	marketing	and	distribution	business, and	owns	a	minority	interest	in	Heidmar	Holdings	LLC,	which	owns	a	group	of	companies	that	provide	international	marine	transportation	and	U.S.	marine	logistics services.

Clients	and	Services.				The	Company	provides	financing	services,	including	prime	brokerage,	which	offers,	among	other	services,	consolidated	clearance,	settlement, custody,	financing	and	portfolio	reporting	services	to	clients	trading	multiple	asset	classes.	In	addition,	the	Company's	institutional	distribution	and	sales	activities	are overseen	and	coordinated	through	Clients	and	Services.

Research.				The	Company's	research	department	("Research")	coordinates	globally	across	all	of	the	Company's	businesses	and	consists	of	economists,	strategists	and industry	analysts	who	engage	in	equity	and	fixed	income	research	activities	and	produce	reports	and	studies	on	the	U.S.	and	global	economy,	financial	markets,	portfolio strategy,	technical	market	analyses,	individual	companies	and	industry	developments.	Research	examines	worldwide	trends	covering	numerous	industries	and	individual companies,	the	majority	of	which	are	located	outside	the	U.S.;	provides	analysis	and	forecasts	relating	to	economic	and	monetary	developments	that	affect	matters	such as	interest	rates,	foreign	currencies,	securities,	derivatives	and	economic	trends;	and	provides	analytical	support	and	publishes	reports	on	asset-backed	securities	and	the markets	in	which	such	securities	are	traded	and	data	are	disseminated	to	investors	through	third-party	distributors,	proprietary	internet	sites	such	as	Client	Link 	and Matrix ,	and	the	Company's	global	representatives. sm sm

Investments.				The	Company	from	time	to	time	makes	investments	that	represent	business	facilitation	or	other	investing	activities.	Such	investments	are	typically strategic	investments	undertaken	by	the	Company	to	facilitate	core	business	activities.	From	time	to	time,	the	Company	may	also	make	investments	and	capital commitments	to	public	and	private	companies,	funds	and	other	entities.

The	Company	sponsors	and	manages	investment	vehicles	and	separate	accounts	for	clients	seeking	exposure	to	private	equity,	infrastructure,	mezzanine	lending	and	real estate-related	and	other	alternative	investments.	The	Company	may	also	invest	in	and	provide	capital	to	such	investment	vehicles.	See	also	"Asset	Management"	herein.

# Operations	and	Information	Technology.

The	Company's	Operations	and	Information	Technology	departments	provide	the	process	and	technology	platform	required	to	support	Institutional	Securities	sales	and trading	activity,	including	post-execution	trade	processing	and	related	internal	controls	over	activity	from	trade	entry	through	settlement	and	custody,	such	as	asset servicing.	This	is	done	for	listed	and	OTC	transactions	in	commodities,	equity	and	fixed	income	securities,	including	both	primary	and	secondary	trading,	as	well	as listed,	OTC	and	structured	derivatives	in	markets	around	the	world.	This	activity	is	undertaken	through	the	Company's	own	facilities,	through	membership	in	various clearing	and	settlement	organizations,	and	through	agreements	with	unaffiliated	third	parties.

# Global	Wealth	Management	Group.

The	Company's	Global	Wealth	Management	Group	business	segment,	which	includes	the	Company's	65%	interest	in	Morgan	Stanley	Smith	Barney	Holdings	LLC	(the "Wealth	Management	Joint	Venture"	or	"Wealth	Management	JV"),	provides	comprehensive	financial	services	to	clients	through	a	network	of	more	than	16,700	global representatives	in	712	locations	at	year-end.	As	of	December	31,	2012,	the	Company's	Global	Wealth	Management	Group	had	$1,776	billion	in	client	assets.

# Clients.

Global	Wealth	Management	Group	professionals	serve	individual	investors	and	small-to-medium	sized	businesses	and	institutions	with	an	emphasis	on	ultra	high	net worth,	high	net	worth	and	affluent	investors.	Global	representatives	are	located	in	branches	across	the	U.S.	and	provide	solutions	designed	to	accommodate	the individual	investment	objectives,	risk	tolerance	and	liquidity	needs	of	investors	residing	in	and	outside	the	U.S.	Call	centers	are	available	to	meet	the	needs	of	emerging affluent	clients.	Outside	of	the	U.S.,	Global	Wealth	Management	Group	has	offices	in	Australia,	Hong	Kong,	the	European	Union	("E.U."),	India,	the	Middle	East, Singapore	and	Switzerland.

# Products	and	Services.

The	Global	Wealth	Management	Group	provides	clients	with	a	comprehensive	array	of	financial	solutions,	including	products	and	services	from	the	Company,	Citigroup Inc.	("Citi")	and	third-party	providers,	such	as	insurance	companies	and	mutual	fund	families.	Global	Wealth	Management	Group	provides	brokerage	and	investment advisory	services	covering	various	types	of	investments,	including	equities,	options,	futures,	foreign	currencies,	precious	metals,	fixed	income	securities,	mutual	funds, structured	products,	alternative	investments,	unit	investment	trusts,	managed	futures,	separately	managed	accounts	and	mutual	fund	asset	allocation	programs.	Global Wealth	Management	Group	also	engages	in	fixed	income	principal	trading,	which	primarily	facilitates	clients'	trading	or	investments	in	such	securities.	In	addition, Global	Wealth	Management	Group	offers	education	savings	programs,	financial	and	wealth	planning	services,	and	annuity	and	other	insurance	products.

In	addition,	Global	Wealth	Management	Group	offers	its	clients	access	to	several	cash	management	services	through	various	banks	and	other	third	parties,	including deposits,	debit	cards,	electronic	bill	payments	and	check	writing,	as	well	as	lending	products	through	affiliates	such	as	Morgan	Stanley	Private	Bank,	National Association	("MS	Private	Bank")	and	MSBNA,	including	securities	based	lending,	mortgage	loans	and	home	equity	lines	of	credit.	Global	Wealth	Management	Group also	provides	trust	and	fiduciary	services,	offers	access	to	cash	management	and	commercial	credit	solutions	to	qualified	small-	and	medium-sized	businesses	in	the U.S.,	and	provides	individual	and	corporate	retirement	solutions,	including	individual	retirement	accounts	and	401(k)	plans	and	U.S.	and	global	stock	plan	services	to corporate	executives	and	businesses.

Global	Wealth	Management	Group	provides	clients	a	variety	of	ways	to	establish	a	relationship	and	conduct	business,	including	brokerage	accounts	with	transaction- based	pricing	and	investment	advisory	accounts	with	asset-based	fee	pricing.

The	operations	and	technology	supporting	the	Wealth	Management	Joint	Venture	is	provided	by	a	combination	of	the	Company	and	the	Wealth	Management	Joint Venture's	Operations	and	Information	Technology	departments.	Pursuant	to	contractual	agreements,	the	Company	and	the	Wealth	Management	Joint	Venture	perform various	broker-dealer	related	functions,	such	as	execution	and	clearing	of	brokerage	transactions,	margin	lending	and	custody	of	client	assets.	For	the	Company	and	the Wealth	Management	Joint	Venture,	these	activities	are	undertaken	through	their	own	facilities,	through	memberships	in	various	clearing	and	settlement	organizations, and	through	agreements	with	unaffiliated	third	parties.	Although	Citi	no	longer	provides	support	for	broker-dealer	related	clearing	functions,	Citi	continues	to	provide certain	other	services	and	systems	to	support	the	Global	Wealth	Management	Group	through	transition	services	agreements	with	the	Wealth	Management	Joint	Venture.

# Asset	Management.

The	Company's	Asset	Management	business	segment,	consisting	of	Merchant	Banking,	Traditional	Asset	Management	and	Real	Estate	Investing	activities,	is	one	of	the largest	global	investment	management	organizations	of	any	full-service	financial	services	firm	and	offers	clients	a	broad	array	of	equity,	fixed	income	and	alternative investments	and	merchant	banking	strategies.	Portfolio	managers	located	in	the	U.S.,	Europe	and	Asia	manage	investment	products	ranging	from	money	market	funds	to equity	and	fixed	income	strategies,	alternative	investment	and	merchant	banking	products	in	developed	and	emerging	markets	across	geographies	and	market	cap	ranges.

The	Company	offers	a	range	of	alternative	investment,	real	estate	investing	and	merchant	banking	products	for	institutional	investors	and	high	net	worth	individuals.	The Company's	alternative	investments	platform	includes	funds	of	hedge	funds,	funds	of	private	equity	and	real	estate	funds	and	portable	alpha	strategies.	The	Company's alternative	investments	platform	also	includes	minority	stakes	in	Lansdowne	Partners,	Avenue	Capital	Group	and

Traxis	Partners	LP.	The	Company's	real	estate	and	merchant	banking	businesses	include	its	real	estate	investing	business,	private	equity	funds,	corporate	mezzanine debt	investing	group	and	infrastructure	investing	group.	The	Company	typically	acts	as	general	partner	of,	and	investment	adviser	to,	its	alternative	investment,	real estate	and	merchant	banking	funds	and	typically	commits	to	invest	a	minority	of	the	capital	of	such	funds	with	subscribing	investors	contributing	the	majority.

# Institutional	Investors.

The	Company	provides	investment	management	strategies	and	products	to	institutional	investors	worldwide,	including	corporations,	pension	plans,	endowments, foundations,	sovereign	wealth	funds,	insurance	companies	and	banks	through	a	broad	range	of	pooled	vehicles	and	separate	accounts.	Additionally,	the	Company provides	sub-advisory	services	to	various	unaffiliated	financial	institutions	and	intermediaries.	A	Global	Sales	and	Client	Service	team	is	engaged	in	business development	and	relationship	management	for	consultants	to	help	serve	institutional	clients.

# Intermediary	Clients	and	Individual	Investors.

The	Company	offers	open-end	and	alternative	investment	funds	and	separately	managed	accounts	to	individual	investors	through	affiliated	and	unaffiliated	broker- dealers,	banks,	insurance	companies,	financial	planners	and	other	intermediaries.	Closed-end	funds	managed	by	the	Company	are	available	to	individual	investors through	affiliated	and	unaffiliated	broker-dealers.	The	Company	also	distributes	mutual	funds	through	numerous	retirement	plan	platforms.	Internationally,	the	Company distributes	traditional	investment	products	to	individuals	outside	the	U.S.	through	non-proprietary	distributors	and	distributes	alternative	investment	products	through affiliated	broker-dealers	and	banks.

The	Company's	Operations	and	Information	Technology	departments	provide	or	oversee	the	process	and	technology	platform	required	to	support	its	Asset	Management business	segment.	Support	activities	include	transfer	agency,	mutual	fund	accounting	and	administration,	transaction	processing	and	certain	fiduciary	services	on	behalf of	institutional,	intermediary	and	high	net	worth	clients.	These	activities	are	undertaken	through	the	Company's	own	facilities,	through	membership	in	various	clearing and	settlement	organizations,	and	through	agreements	with	unaffiliated	third	parties.

# Competition.

All	aspects	of	the	Company's	businesses	are	highly	competitive,	and	the	Company	expects	them	to	remain	so.	The	Company	competes	in	the	U.S.	and	globally	for clients,	market	share	and	human	talent	in	all	aspects	of	its	business	segments.	The	Company's	competitive	position	depends	on	its	reputation	and	the	quality	and consistency	of	its	long-term	investment	performance.	The	Company's	ability	to	sustain	or	improve	its	competitive	position	also	depends	substantially	on	its	ability	to continue	to	attract	and	retain	highly	qualified	employees	while	managing	compensation	and	other	costs.	The	Company	competes	with	commercial	banks,	brokerage firms,	insurance	companies,	electronic	trading	and	clearing	platforms,	financial	data	repositories,	sponsors	of	mutual	funds,	hedge	funds,	energy	companies	and	other companies	offering	financial	or	ancillary	services	in	the	U.S.,	globally	and	through	the	internet.	Over	time,	certain	sectors	of	the	financial	services	industry	have	become more	concentrated,	as	institutions	involved	in	a	broad	range	of	financial	services	have	left	businesses,	been	acquired	by	or	merged	into	other	firms	or	have	declared bankruptcy.	Such	changes	could	result	in	the	Company's	remaining	competitors	gaining	greater	capital	and	other	resources,	such	as	the	ability	to	offer	a	broader	range	of products	and	services	and	geographic	diversity,	or	new	competitors	may	emerge.	See	also	"—Supervision	and	Regulation"	below	and	"Risk	Factors"	in	Part	I,	Item	1A herein.

# Institutional	Securities	and	Global	Wealth	Management	Group.

The	Company's	competitive	position	for	its	Institutional	Securities	and	Global	Wealth	Management	Group	business	segments	depends	on	innovation,	execution capability	and	relative	pricing.	The	Company	competes	directly	in	the	U.S.	and	globally	with	other	securities	and	financial	services	firms	and	broker-dealers	and	with others	on	a	regional	or	product	basis.

The	Company's	ability	to	access	capital	at	competitive	rates	(which	is	generally	impacted	by	the	Company's	credit	ratings)	and	to	commit	capital	efficiently,	particularly in	its	capital-intensive	underwriting	and	sales,	trading,	financing	and	market-making	activities,	also	affects	its	competitive	position.	Corporate	clients	may	request	that the	Company	provide	loans	or	lending	commitments	in	connection	with	certain	investment	banking	activities	and	such	requests	are	expected	to	increase	in	the	future.

It	is	possible	that	competition	may	become	even	more	intense	as	the	Company	continues	to	compete	with	financial	institutions	that	may	be	larger,	or	better	capitalized, or	may	have	a	stronger	local	presence	and	longer	operating	history	in	certain	areas.	Many	of	these	firms	have	the	ability	to	offer	a	wide	range	of	products	and	services that	may	enhance	their	competitive	position	and	could	result	in	pricing	pressure	in	its	businesses.	The	complementary	trends	in	the	financial	services	industry	of consolidation	and	globalization	present,	among	other	things,	technological,	risk	management,	regulatory	and	other	infrastructure	challenges	that	require	effective resource	allocation	in	order	for	the	Company	to	remain	competitive.	In	addition,	the	Company's	business	is	subject	to	increased	regulation	in	the	U.S.	and	abroad,	while certain	of	its	competitors	may	be	subject	to	less	stringent	legal	and	regulatory	regimes	than	the	Company,	thereby	putting	the	Company	at	a	competitive	disadvantage.

The	Company	has	experienced	intense	price	competition	in	some	of	its	businesses	in	recent	years.	In	particular,	the	ability	to	execute	securities	trades	electronically	on exchanges	and	through	other	automated	trading	markets	has	increased	the	pressure	on	trading	commissions	or	comparable	fees.	The	trend	toward	direct	access	to automated,	electronic	markets	will	likely	increase	as	additional	markets	move	to	more	automated	trading	models.	It	is	possible	that	the	Company	will	experience competitive	pressures	in	these	and	other	areas	in	the	future	as	some	of	its	competitors	may	seek	to	obtain	market	share	by	reducing	prices	(in	the	form	of	commissions	or pricing).

Competition	in	the	asset	management	industry	is	affected	by	several	factors,	including	the	Company's	reputation,	investment	objectives,	quality	of	investment professionals,	performance	of	investment	strategies	or	product	offerings	relative	to	peers	and	an	appropriate	benchmark	index,	advertising	and	sales	promotion	efforts, fee	levels,	the	effectiveness	of	and	access	to	distribution	channels	and	investment	pipelines,	and	the	types	and	quality	of	products	offered.	The	Company's	alternative investment	products,	such	as	private	equity	funds,	real	estate	and	hedge	funds,	compete	with	similar	products	offered	by	both	alternative	and	traditional	asset	managers, who	may	be	subject	to	less	stringent	legal	and	regulatory	regimes	than	the	Company.

# Supervision	and	Regulation.

As	a	major	financial	services	firm,	the	Company	is	subject	to	extensive	regulation	by	U.S.	federal	and	state	regulatory	agencies	and	securities	exchanges	and	by regulators	and	exchanges	in	each	of	the	major	markets	where	it	conducts	its	business.	Moreover,	in	response	to	the	2007–2008	financial	crisis,	legislators	and	regulators, both	in	the	U.S.	and	around	the	world,	are	in	the	process	of	adopting	and	implementing	a	wide	range	of	reforms	that	will	result	in	major	changes	to	the	way	the	Company is	regulated	and	conducts	its	business.	It	will	take	time	for	the	comprehensive	effects	of	these	reforms	to	emerge	and	be	understood.

# Regulatory	Outlook.

The	Dodd-Frank	Act	was	enacted	on	July	21,	2010.	While	certain	portions	of	the	Dodd-Frank	Act	were	effective	immediately,	other	portions	will	be	effective	following extended	transition	periods	or	through	numerous	rulemakings	by	multiple	governmental	agencies,	and	only	a	portion	of	those	rulemakings	have	been	completed.	It remains	difficult	to	assess	fully	the	impact	that	the	Dodd-Frank	Act	will	have	on	the	Company	and	on	the	financial	services	industry	generally.	In	addition,	various international	developments,	such	as	the	adoption	of	risk-based	capital,	leverage	and	liquidity	standards	by	the	Basel	Committee	on	Banking	Supervision,	known	as "Basel	III,"	will	continue	to	impact	the	Company	in	the	coming	years.

It	is	likely	that	2013	and	subsequent	years	will	see	further	material	changes	in	the	way	major	financial	institutions	are	regulated	in	both	the	U.S.	and	other	markets	in which	the	Company	operates,	although	it	remains	difficult	to	predict	the	exact	impact	these	changes	will	have	on	the	Company's	business,	financial	condition,	results	of operations	and	cash	flows	for	a	particular	future	period.

# Financial	Holding	Company.

The	Company	has	operated	as	a	bank	holding	company	and	financial	holding	company	under	the	BHC	Act	since	September	2008.

# Consolidated	Supervision.

As	a	bank	holding	company,	the	Company	is	subject	to	comprehensive	consolidated	supervision,	regulation	and	examination	by	the	Federal	Reserve.	As	a	result	of	the Dodd-Frank	Act,	the	Federal	Reserve	also	gained	heightened	authority	to	examine,	prescribe	regulations	and	take	action	with	respect	to	all	of	the	Company's subsidiaries.	In	particular,	as	a	result	of	the	Dodd-Frank	Act,	the	Company	is,	or	will	become,	subject	to	(among	other	things)	significantly	revised	and	expanded regulation	and	supervision,	to	more	intensive	scrutiny	of	its	businesses	and	plans	for	expansion	of	those	businesses,	to	new	activities	limitations,	to	a	systemic	risk regime	which	will	impose	heightened	capital	and	liquidity	requirements,	to	new	restrictions	on	activities	and	investments	imposed	by	a	section	of	the	BHC	Act	added	by the	Dodd-Frank	Act	referred	to	as	the	"Volcker	Rule"	and	to	comprehensive	new	derivatives	regulation.	In	addition,	the	Consumer	Financial	Protection	Bureau	has primary	rulemaking,	enforcement	and	examination	authority	over	the	Company	and	its	subsidiaries	with	respect	to	federal	consumer	protection	laws,	to	the	extent applicable.

Scope	of	Permitted	Activities.					The	BHC	Act	provides	a	two-year	period	from	September	21,	2008,	the	date	that	the	Company	became	a	bank	holding	company,	for the	Company	to	conform	or	dispose	of	certain	nonconforming	activities	as	defined	by	the	BHC	Act.	Three	one-year	extensions	may	be	granted	by	the	Federal	Reserve upon	approval	of	the	Company's	application	for	each	extension.	The	Company	has	received	the	third	of	these	extensions	with	respect	to	certain	activities	relating	to	its real	estate	and	other	funds	businesses.	It	has	also	disposed	of	certain	nonconforming	assets	and	conformed	certain	activities	to	the	requirements	of	the	BHC	Act.	The Company	expects	to	have	conformed	or	sold	its	remaining	nonconforming	real	estate	fund	businesses	by	the	September	21,	2013	deadline	and	does	not	believe	that	such conformance	or	divestiture	will	have	a	material	adverse	impact	on	the	Company's	financial	condition.

In	addition,	the	Company	continues	to	engage	in	discussions	with	the	Federal	Reserve	regarding	its	commodities	activities,	as	the	BHC	Act	also	grandfathers	"activities related	to	the	trading,	sale	or	investment	in	commodities	and	underlying	physical	properties,"	provided	that	the	Company	was	engaged	in	"any	of	such	activities	as	of September	30,	1997	in	the	United	States"	and	provided	that	certain	other	conditions	that	are	within	the	Company's	reasonable	control	are	satisfied.	If	the	Federal Reserve	were	to	determine	that	any	of	the	Company's	commodities	activities	did	not	qualify	for	the	BHC	Act	grandfather	exemption,	then	the	Company	would	likely	be required	to	divest	any	such	activities	that	did	not	otherwise	conform	to	the	BHC	Act	by	the	end	of	any	extensions	of	the	grace	period.	At	this	time,	the	Company	does	not believe,	based	on	its	interpretation	of	applicable	law,	that	any	such	required	divestment	would	have	a	material	adverse	impact	on	its	financial	condition.

Activities	Restrictions	under	the	Volcker	Rule.				The	Volcker	Rule	will,	over	time,	prohibit	"banking	entities,"	including	the	Company	and	its	affiliates,	from	engaging in	"proprietary	trading,"	as	defined	by	the	regulators.	The	Volcker	Rule	will	also	require	banking	entities	to	either	restructure	or	unwind	certain	investments	and relationships	with	"hedge	funds,"	"private	equity	funds"	and	other	"similar	funds"	as	such	terms	are	defined	in	the	Volcker	Rule	and	by	the	regulators.

The	Volcker	Rule	became	effective	on	July	21,	2012.	However,	banking	entities	have	until	July	21,	2014	to	bring	all	of	their	activities	and	investments	into	conformance with	the	Volcker	Rule,	subject	to	possible	extensions.	U.S.	regulators	issued	proposed	rules	to	implement	the	Volcker	Rule	in	2011	and	have	not	yet	issued	final regulations.	There	remains	considerable	uncertainty	about	what	the	final	version	of	those	regulations	will	be	or	the	impact	they	may	have	on	our	businesses.	Even	after the	final	rules	are	issued,	there	may	be	continued	uncertainty	regarding	their	interpretation	and	impact	on	our	businesses.	The	Company	is	closely	monitoring	regulatory developments	related	to	the	Volcker	Rule,	and	when	the	regulations	are	final,	it	will	complete	a	review	of	its	relevant	activities	and	make	plans	to	implement	compliance with	the	Volcker	Rule.

The	Company	continues	to	review	its	private	equity	fund,	hedge	fund	and	trading	operations	in	relation	to	the	Volcker	Rule.	With	respect	to	the	"proprietary	trading" prohibition	of	the	Volcker	Rule,	as	of	January	1,	2013,	the	Company	has	divested	control	of	its	remaining	in-house	proprietary	quantitative	trading	unit,	Process-Driven Trading	("PDT").	For	the	year	ended	December	31,	2012,	PDT	did	not	have	a	material	impact	on	the	Company's	financial	condition,	results	of	operations	and	liquidity. The	Company	has	also	previously	exited	other	standalone	proprietary	trading	businesses	(defined	as	those	businesses	dedicated	solely	to	investing	the	Company's capital),	and	the	Company	is	continuing	to	liquidate	legacy	positions	related	to	those	businesses.

Capital	and	Liquidity	Standards.				The	Federal	Reserve	establishes	capital	requirements	for	the	Company	and	evaluates	its	compliance	with	such	capital	requirements. The	Office	of	the	Comptroller	of	the	Currency	(the	"OCC")	establishes	similar	capital	requirements	and	standards	for	the	Company's	national	bank	subsidiaries.	Under current	capital	requirements,	for	the	Company	to	remain	a	financial	holding	company,	its	national	bank	subsidiaries	must	qualify	as	"well	capitalized"	by	maintaining	a total	capital	ratio	(total	capital	to	risk-weighted	assets)	of	at	least	10%	and	a	Tier	1	capital	ratio	of	at	least	6%.	To	maintain	its	status	as	a	financial	holding	company,	the Company	is	also	required	to	be	"well	capitalized"	by	maintaining	these	capital	ratios.	The	Federal	Reserve	may	require	the	Company	and	its	peer	financial	holding companies	to	maintain	risk-based	and	leverage	capital	ratios	substantially	in	excess	of	mandated	minimum	levels,	depending	upon	general	economic	conditions	and	their particular	condition,	risk	profile	and	growth	plans.	In	addition,	under	the	Federal	Reserve's	leverage	capital	rules,	bank	holding	companies	that	have	implemented	the Federal	Reserve's	risk-based	capital	measure	for	market	risk,	such	as	the	Company,	are	subject	to	a	Tier	1	minimum	leverage	ratio	(Tier	1	capital	to	average	total consolidated	assets)	of	3%.

The	Company	calculates	its	capital	ratios	and	risk-weighted	assets	in	accordance	with	the	capital	adequacy	standards	for	financial	holding	companies	adopted	by	the Federal	Reserve.	These	standards	are	based	upon	a	framework	described	in	the	"International	Convergence	of	Capital	Measurement	and	Capital	Standards,"	July	1988, as	amended,	also	referred	to	as	Basel	I.	In	December	2007,	the	U.S.	banking	regulators	published	final	regulations	incorporating	the	Basel	II	Accord,	which	requires internationally	active	U.S.	banking	organizations,	as	well	as	certain	of	their	U.S.	bank	subsidiaries,	to	implement	Basel	II	standards	over	the	next	several	years.	In	July 2010,	the	Company	began	reporting	its	capital	adequacy	standards	on	a	parallel	basis	to	its	regulators	under	Basel	I	and	Basel	II	as	part	of	a	phased	implementation	of Basel	II.	On	January	1,	2013,	the	U.S.	banking	regulators'	rules	to	implement	the	Basel	Committee's	market	risk	capital	framework,	referred	to	as	"Basel	2.5,"	became effective.

In	December	2010,	the	Basel	Committee	reached	an	agreement	on	Basel	III.	In	June	2012,	the	U.S.	banking	regulators	proposed	rules	to	implement	many	aspects	of Basel	III	(the	"Basel	III	proposals").	The	U.S.	Basel	III	proposals	contain	new	capital	standards	that	raise	the	quality	of	capital,	strengthen	counterparty	credit	risk	capital requirements,	introduce	a	leverage	ratio	as	a	supplemental	measure	to	the	risk-based	ratio	and	replace	the	use	of

externally	developed	credit	ratings	with	alternatives	such	as	internally	developed	credit	ratings.	The	proposals	include	a	new	capital	conservation	buffer,	which	imposes a	common	equity	Tier	1	capital	requirement	above	the	new	minimum	that	can	be	depleted	under	stress,	and	could	result	in	restrictions	on	capital	distributions	and discretionary	bonuses	under	certain	circumstances.	The	proposals	also	provide	for	a	potential	countercyclical	buffer	which	regulators	can	activate	during	periods	of excessive	credit	growth	in	their	jurisdiction.	Although	the	U.S.	Basel	III	proposals	do	not	address	the	Basel	Committee's	new	additional	loss	absorbency	capital requirement	for	Global	Systemically	Important	Banks	("G-SIBs"),	such	as	the	Company,	the	U.S.	banking	regulators	indicated	that	guidance	on	the	implementation	of the	Basel	Committee's	G-SIB	capital	surcharge	in	the	U.S.	would	be	forthcoming.	In	November	2012,	the	Financial	Stability	Board	provisionally	assigned	the	Company a	capital	surcharge	of	1.5	percent	of	common	equity	Tier	1	capital	to	risk-weighted	assets	on	a	scale	of	1.0	percent	to	2.5	percent.	The	U.S.	Basel	III	proposals contemplate	that	the	new	capital	requirements	would	be	phased	in	over	several	years,	beginning	in	2013.	In	November	2012,	the	U.S.	banking	regulators	announced	that the	U.S.	Basel	III	proposals	would	not	become	effective	on	January	1,	2013.	The	announcement	did	not	specify	new	implementation	or	phase	in	dates	for	the	U.S.	Basel III	proposals.

In	June	2011,	the	U.S.	banking	regulators	published	final	regulations	implementing	a	provision	of	the	Dodd-Frank	Act	requiring	that	certain	institutions	supervised	by the	Federal	Reserve,	including	the	Company,	be	subject	to	minimum	capital	requirements	that	are	not	less	than	the	generally	applicable	risk-based	capital	requirements. Currently,	this	minimum	"capital	floor"	is	based	on	Basel	I.	The	U.S.	Basel	III	proposals	would	replace	the	current	Basel	I-based	"capital	floor"	with	a	standardized approach	that,	among	other	things,	modifies	the	existing	risk	weights	for	certain	types	of	asset	classes.

See	also	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operation—Liquidity	and	Capital	Resources—Regulatory	Requirements"	in Part	II,	Item	7	herein.

Capital	Planning,	Stress	Tests	and	Dividends.				Pursuant	to	the	Dodd-Frank	Act,	the	Federal	Reserve	has	adopted	new	capital	planning	and	stress	test	requirements	for large	bank	holding	companies,	including	the	Company.	Under	the	Federal	Reserve's	capital	plan	final	rule,	bank	holding	companies	with	$50	billion	or	more	of consolidated	assets,	such	as	the	Company,	must	submit	an	annual	capital	plan	to	the	Federal	Reserve,	taking	into	account	the	results	of	separate	stress	tests	designed	by the	bank	holding	company	and	the	Federal	Reserve.

The	capital	plan	must	include	a	description	of	all	planned	capital	actions	over	a	nine-quarter	planning	horizon,	including	any	issuance	of	a	debt	or	equity	capital instrument,	any	capital	distribution	(i.e.,	payments	of	dividends	or	stock	repurchases),	and	any	similar	action	that	the	Federal	Reserve	determines	could	impact	the	bank holding	company's	consolidated	capital.	The	capital	plan	must	include	a	discussion	of	how	the	bank	holding	company	will	maintain	capital	above	the	minimum regulatory	capital	ratios	and	above	a	Tier	1	common	ratio	of	5%,	and	serve	as	a	source	of	strength	to	its	subsidiary	U.S.	depository	institutions	under	supervisory	stress scenarios.	The	capital	plan	final	rule	requires	that	such	companies	receive	no	objection	from	the	Federal	Reserve	before	making	a	capital	distribution.	In	addition,	even with	an	approved	capital	plan,	the	bank	holding	company	must	seek	the	approval	of	the	Federal	Reserve	before	making	a	capital	distribution	if,	among	other	reasons,	the bank	holding	company	would	not	meet	its	regulatory	capital	requirements	after	making	the	proposed	capital	distribution.	In	addition	to	capital	planning	requirements, the	OCC,	the	Federal	Reserve	and	the	Federal	Deposit	Insurance	Corporation	("FDIC")	have	authority	to	prohibit	or	to	limit	the	payment	of	dividends	by	the	banking organizations	they	supervise,	including	the	Company,	MSBNA	and	MS	Private	Bank,	if,	in	the	banking	regulator's	opinion,	payment	of	a	dividend	would	constitute	an unsafe	or	unsound	practice	in	light	of	the	financial	condition	of	the	banking	organization.	All	of	these	policies	and	other	requirements	could	influence	the	Company's ability	to	pay	dividends,	or	require	it	to	provide	capital	assistance	to	MSBNA	or	MS	Private	Bank	under	circumstances	under	which	the	Company	would	not	otherwise decide	to	do	so.

The	Company	expects	that,	by	March	14,	2013,	the	Federal	Reserve	will	either	object	or	provide	a	notice	of	non-objection	to	the	Company's	2013	capital	plan	that	was submitted	to	the	Federal	Reserve	on	January	7,	2013.

In	October	2012,	the	Federal	Reserve	issued	its	stress	test	final	rule	as	required	by	the	Dodd-Frank	Act	that	requires	the	Company	to	conduct	semi-annual	company-run stress	tests.	Under	this	rule,	the	Company	is	required	to	publicly	disclose	the	summary	results	of	its	company-run	stress	tests	under	the	severely	adverse	economic

scenario.	The	rule	also	subjects	the	Company	to	an	annual	supervisory	stress	test	conducted	by	the	Federal	Reserve.	The	Federal	Reserve	has	announced	that	it	will,	by March	7,	2013,	publish	a	summary	of	the	supervisory	stress	test	results	of	each	company	subject	to	the	stress	test	final	rule,	including	the	Company.

The	Dodd-Frank	Act	also	requires	national	banks	and	federal	savings	associations	with	total	consolidated	assets	of	more	than	$10	billion	to	conduct	an	annual	stress	test. Beginning	in	2013,	the	implementing	regulation	requires	national	banks	with	more	than	$50	billion	in	average	total	consolidated	assets,	including	MSBNA,	to	conduct its	first	stress	test.	MSBNA	submitted	its	stress	test	results	to	the	OCC	and	the	Federal	Reserve	in	January	2013.

See	also	"—Capital	and	Liquidity	Standards"	above	and	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operation—Liquidity	and Capital	Resources—Regulatory	Requirements"	in	Part	II,	Item	7	herein.

Systemic	Risk	Regime.				The	Dodd-Frank	Act	established	a	new	regulatory	framework	applicable	to	financial	institutions	deemed	to	pose	systemic	risks.	Bank	holding companies	with	$50	billion	or	more	in	consolidated	assets,	such	as	the	Company,	became	automatically	subject	to	the	systemic	risk	regime	in	July	2010.	A	new oversight	body,	the	Financial	Stability	Oversight	Council	(the	"Council"),	can	recommend	prudential	standards,	reporting	and	disclosure	requirements	to	the	Federal Reserve	for	systemically	important	financial	institutions,	and	must	approve	any	finding	by	the	Federal	Reserve	that	a	financial	institution	poses	a	grave	threat	to financial	stability	and	must	undertake	mitigating	actions.	The	Council	is	also	empowered	to	designate	systemically	important	payment,	clearing	and	settlement	activities of	financial	institutions,	subjecting	them	to	prudential	supervision	and	regulation,	and,	assisted	by	the	new	Office	of	Financial	Research	within	the	U.S.	Department	of the	Treasury	("U.S.	Treasury")	(established	by	the	Dodd-Frank	Act),	can	gather	data	and	reports	from	financial	institutions,	including	the	Company.

Pursuant	to	the	Dodd-Frank	Act,	each	bank	holding	company	with	$50	billion	or	more	in	consolidated	assets	must	also	provide	to	the	Federal	Reserve	and	FDIC	an annual	plan	for	its	rapid	and	orderly	resolution	in	the	event	of	material	financial	distress.	The	Company	submitted	its	first	resolution	plan	to	the	Federal	Reserve	and FDIC	on	June	29,	2012.	In	addition,	the	Company's	principal	U.S.	bank	subsidiary,	MSBNA,	submitted	a	resolution	plan	for	its	rapid	and	orderly	resolution	in	the	event of	material	financial	distress	or	failure	on	June	29,	2012,	as	required	by	the	FDIC.

In	December	2011,	the	Federal	Reserve	issued	proposed	rules	to	implement	certain	requirements	of	the	Dodd-Frank	Act's	systemic	risk	regime.	Among	other provisions,	the	proposed	rules	would	require	bank	holding	companies	with	over	$50	billion	in	assets,	such	as	the	Company,	and	any	other	company	designated	by	the Council,	to	maintain	a	sufficient	quantity	of	highly	liquid	assets	to	survive	a	projected	30-day	liquidity	stress	event,	to	conduct	regular	liquidity	stress	tests,	and	to implement	various	liquidity	risk	management	requirements.	More	generally,	the	proposed	rules	would	require	institutions	to	comply	with	a	range	of	corporate governance	requirements,	such	as	establishment	of	a	risk	committee	of	the	board	of	directors	and	appointment	of	a	chief	risk	officer,	both	of	which	the	Company	already has.

The	proposed	rules	would	also	limit	the	aggregate	exposure	of	each	bank	holding	company	with	over	$500	billion	in	assets,	such	as	the	Company,	and	each	company designated	by	the	Council,	to	each	other	such	institution	to	10%	of	the	aggregate	capital	and	surplus	of	each	institution,	and	limit	the	aggregate	exposure	of	such institutions	to	any	other	bank	holding	company	with	$50	billion	or	more	of	consolidated	assets	to	25%	of	each	institution's	aggregate	capital	and	surplus.	In	addition,	the proposed	rules	would	create	a	new	early	remediation	regime	to	address	financial	distress	or	material	management	weaknesses	determined	with	reference	to	four	levels	of early	remediation,	including	heightened	supervisory	review,	initial	remediation,	recovery,	and	resolution	assessment,	with	specific	limitations	and	requirements	tied	to each	level.

The	systemic	risk	regime	also	provides	that,	for	institutions	posing	a	grave	threat	to	U.S.	financial	stability,	the	Federal	Reserve,	upon	Council	vote,	must	limit	that institution's	ability	to	merge,	restrict	its	ability	to	offer	financial	products,	require	it	to	terminate	activities,	impose	conditions	on	activities	or,	as	a	last	resort,	require	it	to dispose	of	assets.	Upon	a	grave	threat	determination	by	the	Council,	the	Federal	Reserve	must	issue	rules	that	require	financial	institutions	subject	to	the	systemic	risk regime	to	maintain	a	debt-to-equity	ratio	of	no	more	than	15-to-1	if	the	Council	considers	it	necessary	to	mitigate	the	risk.	The	Federal	Reserve	also	has	the	ability	to establish	further	standards,	including	those	regarding	contingent	capital,	enhanced	public	disclosures,	and	limits	on	short-term	debt,	including	off-balance	sheet exposures.

See	also	"—Capital	and	Liquidity	Standards"	above	and	"—Orderly	Liquidation	Authority"	below.

Orderly	Liquidation	Authority.				Under	the	Dodd-Frank	Act,	financial	companies,	including	bank	holding	companies	such	as	the	Company	and	certain	covered subsidiaries,	can	be	subjected	to	a	new	orderly	liquidation	authority.	The	U.S.	Treasury	must	first	make	certain	extraordinary	financial	distress	and	systemic	risk determinations.	Absent	such	U.S.	Treasury	determinations,	the	Company	as	a	bank	holding	company	would	remain	subject	to	the	U.S.	Bankruptcy	Code.

The	orderly	liquidation	authority	went	into	effect	in	July	2010,	and	rulemaking	to	render	it	fully	operative	is	proceeding	in	stages,	with	some	implementing	regulations now	finalized	and	others	planned	but	not	yet	proposed.	If	the	Company	were	subjected	to	the	orderly	liquidation	authority,	the	FDIC	would	be	appointed	receiver,	which would	give	the	FDIC	considerable	rights	and	powers	that	it	must	exercise	with	the	goal	of	liquidating	and	winding	up	the	Company,	including	(i)	the	FDIC's	right	to assign	assets	and	liabilities	and	transfer	some	to	a	third	party	or	bridge	financial	company	without	the	need	for	creditor	consent	or	prior	court	review;	(ii)	the	ability	of the	FDIC	to	differentiate	among	creditors,	including	by	treating	junior	creditors	better	than	senior	creditors,	subject	to	a	minimum	recovery	right	to	receive	at	least	what they	would	have	received	in	bankruptcy	liquidation;	and	(iii)	the	broad	powers	given	the	FDIC	to	administer	the	claims	process	to	determine	which	creditor	receives what,	and	in	which	order,	from	assets	not	transferred	to	a	third	party	or	bridge	financial	institution.

# U.S.	Bank	Subsidiaries.

U.S.	Banking	Institutions.				MSBNA,	primarily	a	wholesale	commercial	bank,	offers	consumer	margin	lending	and	commercial	lending	services	in	addition	to	deposit products.	Certain	foreign	exchange	activities	are	also	conducted	in	MSBNA.	As	an	FDIC-insured	national	bank,	MSBNA	is	subject	to	supervision,	regulation	and examination	by	the	OCC.

MS	Private	Bank	offers	certain	mortgage	and	other	secured	lending	products	primarily	for	customers	of	its	affiliate	retail	broker-dealer,	Morgan	Stanley	Smith	Barney LLC	("MSSB	LLC").	MS	Private	Bank	also	offers	certain	deposit	products,	as	well	as	personal	trust	and	prime	brokerage	custody	services.	MS	Private	Bank	is	an FDIC-insured	national	bank	whose	activities	are	subject	to	supervision,	regulation	and	examination	by	the	OCC.

Effective	July	1,	2013,	the	lending	limits	applicable	to	the	Company's	U.S.	bank	subsidiaries	will	be	required	to	take	into	account	credit	exposure	from	derivative transactions,	securities	lending,	securities	borrowing	and	repurchase	and	reverse	repurchase	agreements	with	counterparties.

Prompt	Corrective	Action.				The	Federal	Deposit	Insurance	Corporation	Improvement	Act	of	1991	provides	a	framework	for	regulation	of	depository	institutions	and their	affiliates,	including	parent	holding	companies,	by	their	federal	banking	regulators.	Among	other	things,	it	requires	the	relevant	federal	banking	regulator	to	take "prompt	corrective	action"	("PCA")	with	respect	to	a	depository	institution	if	that	institution	does	not	meet	certain	capital	adequacy	standards.	Current	PCA	regulations generally	apply	only	to	insured	banks	and	thrifts	such	as	MSBNA	or	MS	Private	Bank	and	not	to	their	parent	holding	companies,	such	as	Morgan	Stanley.	The	Federal Reserve	is,	however,	subject	to	limitations,	authorized	to	take	appropriate	action	at	the	holding	company	level.	In	addition,	as	described	above,	under	the	systemic	risk regime,	the	Company	will	become	subject	to	an

early	remediation	protocol	in	the	event	of	financial	distress.	The	Dodd-Frank	Act	also	formalized	the	requirement	that	bank	holding	companies,	such	as	Morgan	Stanley, serve	as	a	source	of	strength	to	their	U.S.	bank	subsidiaries	in	the	event	such	subsidiaries	are	in	financial	distress.

Transactions	with	Affiliates.				The	Company's	U.S.	bank	subsidiaries	are	subject	to	Sections	23A	and	23B	of	the	Federal	Reserve	Act,	which	impose	restrictions	on	any extensions	of	credit	to,	purchase	of	assets	from,	and	certain	other	transactions	with,	any	affiliates.	These	restrictions	limit	the	total	amount	of	credit	exposure	that	they may	have	to	any	one	affiliate	and	to	all	affiliates,	as	well	as	collateral	requirements,	and	they	require	all	such	transactions	to	be	made	on	market	terms.	Effective	July 2012,	derivatives,	securities	borrowing	and	securities	lending	transactions	between	the	Company's	U.S.	bank	subsidiaries	and	their	affiliates	became	subject	to	these restrictions.	The	Federal	Reserve	has	indicated	that	it	will	propose	rulemaking	to	implement	these	restrictions.	These	reforms	will	place	limits	on	the	Company's	U.S. bank	subsidiaries'	ability	to	engage	in	derivatives,	repurchase	agreements	and	securities	lending	transactions	with	other	affiliates	of	the	Company.

In	addition,	the	Volcker	Rule	imposes	similar	restrictions	on	transactions	between	the	Company	or	any	of	its	affiliates	and	hedge	funds,	private	equity	funds	or	similar funds	for	which	the	banking	entity	serves	as	the	investment	manager,	investment	adviser	or	sponsor.

FDIC	Regulation.				An	FDIC–insured	depository	institution	is	generally	liable	for	any	loss	incurred	or	expected	to	be	incurred	by	the	FDIC	in	connection	with	the failure	of	an	insured	depository	institution	under	common	control	by	the	same	bank	holding	company.	As	FDIC-insured	depository	institutions,	MSBNA	and	MS Private	Bank	are	exposed	to	each	other's	losses.	In	addition,	both	institutions	are	exposed	to	changes	in	the	cost	of	FDIC	insurance.	In	2010,	the	FDIC	adopted	a restoration	plan	to	replenish	the	reserve	fund	over	a	multi-year	period.	Under	the	Dodd-Frank	Act,	some	of	the	restoration	must	be	paid	for	exclusively	by	large depository	institutions,	including	MSBNA,	and	assessments	are	calculated	using	a	new	methodology	that	generally	favors	banks	that	are	mostly	funded	by	deposits.

Broker-Dealer	Regulation.				The	Company's	primary	U.S.	broker-dealer	subsidiaries,	MS&Co.	and	MSSB	LLC,	are	registered	broker-dealers	with	the	SEC	and	in	all 50	states,	the	District	of	Columbia,	Puerto	Rico	and	the	U.S.	Virgin	Islands,	and	are	members	of	various	self-regulatory	organizations,	including	the	Financial	Industry Regulatory	Authority,	Inc.	("FINRA"),	and	various	securities	exchanges	and	clearing	organizations.	In	addition,	MS&Co.	and	MSSB	LLC	are	registered	investment advisers	with	the	SEC.	Broker-dealers	are	subject	to	laws	and	regulations	covering	all	aspects	of	the	securities	business,	including	sales	and	trading	practices,	securities offerings,	publication	of	research	reports,	use	of	customers'	funds	and	securities,	capital	structure,	recordkeeping	and	retention,	and	the	conduct	of	their	directors, officers,	representatives	and	other	associated	persons.	Broker-dealers	are	also	regulated	by	securities	administrators	in	those	states	where	they	do	business.	Violations	of the	laws	and	regulations	governing	a	broker-dealer's	actions	could	result	in	censures,	fines,	the	issuance	of	cease-and-desist	orders,	revocation	of	licenses	or registrations,	the	suspension	or	expulsion	from	the	securities	industry	of	such	broker-dealer	or	its	officers	or	employees,	or	other	similar	consequences	by	both	federal and	state	securities	administrators.

The	Dodd-Frank	Act	includes	various	provisions	that	affect	the	regulation	of	broker-dealer	sales	practices	and	customer	relationships.	For	example,	the	SEC	is authorized	to	adopt	a	fiduciary	duty	applicable	to	broker-dealers	when	providing	personalized	investment	advice	about	securities	to	retail	customers.	The	Dodd-Frank Act	also	created	a	new	category	of	regulation	for	"municipal	advisors,"	which	are	subject	to	a	fiduciary	duty	with	respect	to	certain	activities.	The	U.S.	Department	of Labor	is	considering	revisions	to	regulations	under	the	Employee	Retirement	Income	Security	Act	of	1974	that	could	subject	broker-dealers	to	a	fiduciary	duty	and prohibit	specified	transactions	for	a	wider	range	of	customer	interactions.	If	the	SEC	exercises	authority	provided	to	it	under	the	Dodd-Frank	Act	to	prohibit	or	limit	the use	of	mandatory	pre-dispute	arbitration	agreements	between	a	broker-dealer	and	its	customers,	it	may	materially	increase	the	Company's	litigation	costs.	These developments

may	impact	the	manner	in	which	affected	businesses	are	conducted,	decrease	profitability	and	increase	potential	liabilities.

Margin	lending	by	broker-dealers	is	regulated	by	the	Federal	Reserve's	restrictions	on	lending	in	connection	with	customer	and	proprietary	purchases	and	short	sales	of securities,	as	well	as	securities	borrowing	and	lending	activities.	Broker-dealers	are	also	subject	to	maintenance	and	other	margin	requirements	imposed	under	FINRA and	other	self-regulatory	organization	rules.	In	many	cases,	the	Company's	broker-dealer	subsidiaries'	margin	policies	are	more	stringent	than	these	rules.

As	registered	U.S.	broker-dealers,	certain	subsidiaries	of	the	Company	are	subject	to	the	SEC's	net	capital	rule	and	the	net	capital	requirements	of	various	exchanges, other	regulatory	authorities	and	self-regulatory	organizations.	Many	non-U.S.	regulatory	authorities	and	exchanges	also	have	rules	relating	to	capital	and,	in	some	cases, liquidity	requirements	that	apply	to	the	Company's	non-U.S.	broker-dealer	subsidiaries.	These	rules	are	generally	designed	to	measure	general	financial	integrity	and/or liquidity	and	require	that	at	least	a	minimum	amount	of	net	and/or	more	liquid	assets	be	maintained	by	the	subsidiary.	See	also	"—Financial	Holding	Company— Consolidated	Supervision"	and	"—Financial	Holding	Company—Capital	and	Liquidity	Standards"	above.	Rules	of	FINRA	and	other	self-regulatory	organizations	also impose	limitations	and	requirements	on	the	transfer	of	member	organizations'	assets.

Compliance	with	regulatory	capital	requirements	may	limit	the	Company's	operations	requiring	the	intensive	use	of	capital.	Such	requirements	restrict	the	Company's ability	to	withdraw	capital	from	its	broker-dealer	subsidiaries,	which	in	turn	may	limit	its	ability	to	pay	dividends,	repay	debt,	or	redeem	or	purchase	shares	of	its	own outstanding	stock.	Any	change	in	such	rules	or	the	imposition	of	new	rules	affecting	the	scope,	coverage,	calculation	or	amount	of	capital	requirements,	or	a	significant operating	loss	or	any	unusually	large	charge	against	capital,	could	adversely	affect	the	Company's	ability	to	pay	dividends	or	to	expand	or	maintain	present	business levels.	In	addition,	such	rules	may	require	the	Company	to	make	substantial	capital	infusions	into	one	or	more	of	its	broker-dealer	subsidiaries	in	order	for	such subsidiaries	to	comply	with	such	rules.

MS&Co.	and	MSSB	LLC	are	members	of	the	Securities	Investor	Protection	Corporation	("SIPC"),	which	provides	protection	for	customers	of	broker-dealers	against losses	in	the	event	of	the	insolvency	of	a	broker-dealer.	SIPC	protects	customers'	eligible	securities	held	by	a	member	broker-dealer	up	to	$500,000	per	customer	for	all accounts	in	the	same	capacity	subject	to	a	limitation	of	$250,000	for	claims	for	uninvested	cash	balances.	To	supplement	this	SIPC	coverage,	each	of	MS&Co.	and MSSB	LLC	have	purchased	additional	protection	for	the	benefit	of	their	customers	in	the	form	of	an	annual	policy	issued	by	certain	underwriters	and	various	insurance companies	that	provides	protection	for	each	eligible	customer	above	SIPC	limits	subject	to	an	aggregate	firmwide	cap	of	$1	billion	with	no	per	client	sublimit	for securities	and	a	$1.9	million	per	client	limit	for	the	cash	portion	of	any	remaining	shortfall.	As	noted	under	"—Financial	Holding	Company—Systemic	Risk	Regime" above,	the	Dodd-Frank	Act	contains	special	provisions	for	the	orderly	liquidation	of	covered	financial	institutions	(which	could	potentially	include	MS&Co.	and/or MSSB	LLC).	While	these	provisions	are	generally	intended	to	provide	customers	of	covered	broker-dealers	with	protections	at	least	as	beneficial	as	they	would	enjoy	in a	broker-dealer	liquidation	proceeding	under	the	Securities	Investor	Protection	Act,	the	details	and	implementation	of	such	protections	are	subject	to	further	rulemaking.

Over	the	past	few	years,	the	SEC	has	undertaken	a	review	of	a	wide	range	of	equity	market	structure	issues.	As	a	part	of	this	review,	the	SEC	has	adopted	new regulations	and	proposed	various	rules	regarding	market	transparency	and	stability.	A	new	short	sale	uptick	rule	that	limits	the	ability	to	sell	short	securities	that	have experienced	specified	price	declines	is	now	in	effect.	The	SEC	also	adopted	rules	requiring	broker-dealers	to	maintain	risk	management	controls	and	supervisory procedures	with	respect	to	providing	access	to	securities	markets,	which	became	fully	effective	in	2012.	In	July	2012,	the	SEC	adopted	a	consolidated	audit	trail	rule, which,	when	fully	implemented,	will	require	large	broker-dealers	to	report	into	one	consolidated	audit	trail	comprehensive	information	about	every	material	event	in	the lifecycle	of	every	quote,	order,	and	execution	in	all	exchange-listed	stocks	and	options.	It	is	possible	that	the	SEC	or	self-regulatory	organizations	could	propose	or	adopt additional	market	structure	rules	in	the	future.	The	provisions,	new	rules	and	proposals	discussed	above

could	result	in	increased	costs	and	could	otherwise	adversely	affect	trading	volumes	and	other	conditions	in	the	markets	in	which	we	operate.

Regulation	of	Futures	Activities	and	Certain	Commodities	Activities.				As	futures	commission	merchants,	MS&Co.	and	MSSB	LLC	are	subject	to	net	capital requirements	of,	and	their	activities	are	regulated	by,	the	U.S.	Commodity	Futures	Trading	Commission	(the	"CFTC")	and	various	commodity	futures	exchanges.	The Company's	futures	and	options-on-futures	also	are	regulated	by	the	National	Futures	Association	("NFA"),	a	registered	futures	association,	of	which	MS&Co.	and MSSB	LLC	and	certain	of	their	affiliates	are	members.	These	regulatory	requirements	address	obligations	related	to,	among	other	things,	the	segregation	of	customer funds	and	the	holding	apart	of	a	secured	amount,	the	use	of	customer	funds,	recordkeeping	and	reporting	obligations,	risk	disclosure	and	discretionary	trading.	MS&Co. and	MSSB	LLC	have	affiliates	that	are	registered	as	commodity	trading	advisors	and/or	commodity	pool	operators,	or	are	operating	under	certain	exemptions	from	such registration	pursuant	to	CFTC	rules	and	other	guidance.	Under	CFTC	and	NFA	rules,	commodity	trading	advisors	who	manage	accounts	and	are	registered	with	the NFA	must	distribute	disclosure	documents	and	maintain	specified	records	relating	to	their	activities,	and	clients	and	commodity	pool	operators	have	certain responsibilities	with	respect	to	each	pool	they	operate.	Violations	of	the	rules	of	the	CFTC,	the	NFA	or	the	commodity	exchanges	could	result	in	remedial	actions, including	fines,	registration	restrictions	or	terminations,	trading	prohibitions	or	revocations	of	commodity	exchange	memberships.

The	Company's	commodities	activities	are	subject	to	extensive	and	evolving	energy,	commodities,	environmental,	health	and	safety	and	other	governmental	laws	and regulations	in	the	U.S.	and	abroad.	Intensified	scrutiny	of	certain	energy	markets	by	U.S.	federal,	state	and	local	authorities	in	the	U.S.	and	abroad	and	by	the	public	has resulted	in	increased	regulatory	and	legal	enforcement	and	remedial	proceedings	involving	energy	companies,	including	those	engaged	in	power	generation	and	liquid hydrocarbons	trading.	Terminal	facilities	and	other	assets	relating	to	the	Company's	commodities	activities	also	are	subject	to	environmental	laws	both	in	the	U.S.	and abroad.	In	addition,	pipeline,	transport	and	terminal	operations	are	subject	to	state	laws	in	connection	with	the	cleanup	of	hazardous	substances	that	may	have	been released	at	properties	currently	or	previously	owned	or	operated	by	us	or	locations	to	which	we	have	sent	wastes	for	disposal.	See	also	"—Financial	Holding	Company— Scope	of	Permitted	Activities"	above.

Derivatives	Regulation.				Through	the	Dodd-Frank	Act,	the	Company	will	face	a	comprehensive	U.S.	regulatory	regime	for	its	activities	in	certain	OTC	derivatives.	The regulation	of	"swaps"	and	"security-based	swaps"	(collectively,	"Swaps")	in	the	U.S.	will	be	effected	and	implemented	through	the	CFTC,	SEC	and	other	agency regulations,	which	are	currently	being	adopted.

The	Dodd-Frank	Act	requires	central	clearing	of	certain	types	of	Swaps,	public	and	regulatory	reporting,	and	mandatory	trading	on	regulated	exchanges	or	execution facilities.	These	requirements	are	subject	to	some	exceptions	and	will	be	phased	in	over	time,	with	the	first	clearing	requirements	coming	into	effect	for	certain	swaps with	certain	counterparties	beginning	in	March	2013.	When	fully	implemented,	market	participants,	including	the	Company's	entities	engaging	in	Swaps,	will	have	to centrally	clear,	report	and	trade	on	an	exchange	or	execution	facility	certain	Swap	transactions	that	are	currently	uncleared,	not	reported	publicly	and	executed bilaterally.

The	Dodd-Frank	Act	also	requires	the	registration	of	"swap	dealers"	and	"major	swap	participants"	with	the	CFTC	and	"security-based	swap	dealers"	and	"major security-based	swap	participants"	with	the	SEC	(collectively,	"Swaps	Entities").	Certain	of	the	Company's	subsidiaries	have	registered	with	the	CFTC	as	swap	dealers and	in	the	future	additional	subsidiaries	may	register	with	the	CFTC	as	swap	dealers.	Certain	subsidiaries	of	the	Company	will	in	the	future	be	required	to	register	with the	SEC	as	security-based	swap	dealers.

Swaps	Entities	are	subject	to	a	comprehensive	regulatory	regime	with	new	obligations	for	the	Swaps	activities	for	which	they	are	registered,	including	new	capital requirements,	a	new	margin	regime	for	uncleared	Swaps	and	a	new	segregation	regime	for	collateral	of	counterparties	to	uncleared	Swaps.	Swaps	Entities	are	subject	to

additional	duties,	including,	among	others,	internal	and	external	business	conduct	and	documentation	standards	with	respect	to	their	Swaps	counterparties,	recordkeeping and	reporting.	Certain	subsidiaries	of	the	Company	will	be	or	are	also	subject	to	new	rules	under	the	Dodd-Frank	Act	regarding	segregation	of	customer	collateral	for cleared	transactions,	large	trader	reporting	regimes,	compensation	requirements	and	anti-fraud	and	anti-manipulation	requirements	related	to	activities	in	Swaps.

The	specific	parameters	of	these	requirements	for	Swaps	are	being	developed	through	CFTC,	SEC	and	bank	regulator	rulemakings.	While	some	of	these	requirements are	already	final	and	effective,	others	are	subject	to	further	rulemaking	or	deferred	compliance	dates.	In	particular,	the	CFTC,	SEC	and	the	banking	regulators	have proposed,	but	not	yet	adopted,	rules	regarding	margin	and	capital	requirements	for	Swaps	Entities.	Furthermore,	in	July	2012	and	again	in	February	2013,	the	Basel Committee	and	the	International	Organization	of	Securities	Commissions	released	a	consultative	document	proposing	margin	requirements	for	non-centrally-cleared derivatives.	The	full	impact	of	these	proposals	on	the	Company	will	not	be	known	with	certainty	until	the	rules	are	finalized.

Although	the	full	impact	of	U.S.	derivatives	regulation	on	the	Company	remains	unclear,	the	Company	will	face	increased	costs	and	regulatory	oversight	due	to	the registration	and	regulatory	requirements	indicated	above.	Complying	with	the	Swaps	rules	also	has	required,	and	will	in	the	future	require,	the	Company	to	restructure its	Swaps	businesses,	and	has	required,	and	will	in	the	future	require,	extensive	systems	and	personnel	changes,	and	raise	additional	potential	liabilities.	Compliance	with Swap-related	partially	finalized	regulatory	capital	requirements	may	require	the	Company	to	devote	more	capital	to	its	Swaps	business.	The	extraterritorial	impact	of	the rules	also	remains	unclear.

The	E.U.	and	other	non-U.S.	jurisdictions	are	in	the	process	of	adopting	and	implementing	legislation	emanating	from	the	G20	commitments	that	will	require,	among other	things,	the	central	clearing	of	certain	OTC	derivatives,	mandatory	reporting	of	derivatives	and	bilateral	risk	mitigation	procedures	for	non-cleared	trades.	It	is unclear	at	present	how	the	non-U.S.	and	U.S.	derivatives	regulatory	regimes	will	interact.

Non-U.S.	Regulation.				The	Company's	institutional	securities	businesses	also	are	regulated	extensively	by	non-U.S.	regulators,	including	governments,	securities exchanges,	commodity	exchanges,	self-regulatory	organizations,	central	banks	and	regulatory	bodies,	especially	in	those	jurisdictions	in	which	the	Company	maintains an	office.	Non-U.S.	policy	makers	and	regulators,	including	the	European	Commission	and	European	Supervisory	Authorities,	continue	to	propose	and	adopt	numerous market	reforms,	including	those	that	may	further	impact	the	structure	of	banks,	and	formulate	regulatory	standards	and	measures	that	will	be	of	relevance	and importance	to	the	Company's	European	operations.	Certain	Morgan	Stanley	subsidiaries	are	regulated	as	broker-dealers	under	the	laws	of	the	jurisdictions	in	which	they operate.	Subsidiaries	engaged	in	banking	and	trust	activities	outside	the	U.S.	are	regulated	by	various	government	agencies	in	the	particular	jurisdiction	where	they	are chartered,	incorporated	and/or	conduct	their	business	activity.	For	instance,	the	United	Kingdom	("U.K.")	Financial	Services	Authority	("FSA"),	which	is	expected	to	be replaced	by	the	Prudential	Regulatory	Authority	and	the	Financial	Conduct	Authority	on	April	1,	2013,	and	several	U.K.	securities	and	futures	exchanges,	including	the London	Stock	Exchange	and	Euronext.liffe,	regulate	the	Company's	activities	in	the	U.K.;	the	Bundesanstalt	für	Finanzdienstleistungsaufsicht	(the	Federal	Financial Supervisory	Authority)	and	the	Deutsche	Bôrse	AG	regulate	its	activities	in	the	Federal	Republic	of	Germany;	Eidgenôssische	Finanzmarktaufsicht	(the	Financial Market	Supervisory	Authority)	regulates	its	activities	in	Switzerland;	the	Financial	Services	Agency,	the	Bank	of	Japan,	the	Japanese	Securities	Dealers	Association	and several	Japanese	securities	and	futures	exchanges,	including	the	Tokyo	Stock	Exchange,	the	Osaka	Securities	Exchange	and	the	Tokyo	International	Financial	Futures Exchange,	regulate	its	activities	in	Japan;	the	Hong	Kong	Securities	and	Futures	Commission,	the	Hong	Kong	Monetary	Authority	and	the	Hong	Kong	Exchanges	and Clearing	Limited	regulate	its	operations	in	Hong	Kong;	and	the	Monetary	Authority	of	Singapore	and	the	Singapore	Exchange	Limited	regulate	its	business	in Singapore.

Many	of	the	subsidiaries	engaged	in	the	Company's	asset	management	activities	are	registered	as	investment	advisers	with	the	SEC.	Many	aspects	of	the	Company's asset	management	activities	are	subject	to	federal	and

state	laws	and	regulations	primarily	intended	to	benefit	the	investor	or	client.	These	laws	and	regulations	generally	grant	supervisory	agencies	and	bodies	broad administrative	powers,	including	the	power	to	limit	or	restrict	the	Company	from	carrying	on	its	asset	management	activities	in	the	event	that	it	fails	to	comply	with	such laws	and	regulations.	Sanctions	that	may	be	imposed	for	such	failure	include	the	suspension	of	individual	employees,	limitations	on	the	Company	engaging	in	various asset	management	activities	for	specified	periods	of	time	or	specified	types	of	clients,	the	revocation	of	registrations,	other	censures	and	significant	fines.	In	order	to facilitate	its	asset	management	business,	the	Company	owns	a	registered	U.S.	broker-dealer,	Morgan	Stanley	Distribution,	Inc.,	which	acts	as	distributor	to	the	Morgan Stanley	mutual	funds	and	as	placement	agent	to	certain	private	investment	funds	managed	by	the	Company's	asset	management	business	segment.	See	also	"— Institutional	Securities	and	Global	Wealth	Management	Group—Broker-Dealer	Regulation"	above.

As	a	result	of	the	passage	of	the	Dodd-Frank	Act,	the	Company's	asset	management	activities	will	be	subject	to	certain	additional	laws	and	regulations,	including,	but not	limited	to,	additional	reporting	and	recordkeeping	requirements	(including	with	respect	to	clients	that	are	private	funds),	restrictions	on	sponsoring	or	investing	in,	or maintaining	certain	other	relationships	with,	hedge	funds	and	private	equity	funds	under	the	Volcker	Rule	(subject	to	certain	limited	exceptions)	and	certain	rules	and regulations	regarding	trading	activities,	including	trading	in	derivatives	markets.	Many	of	these	new	requirements	may	increase	the	expenses	associated	with	the Company's	asset	management	activities	and/or	reduce	the	investment	returns	the	Company	is	able	to	generate	for	its	asset	management	clients.	Many	important	elements of	the	Dodd-Frank	Act	will	not	be	known	until	rulemaking	is	finalized	and	certain	final	regulations	are	adopted.	See	also	"—Financial	Holding	Company—Activities Restrictions	under	the	Volcker	Rule"	and	"—Institutional	Securities	and	Global	Wealth	Management	Group—Derivatives	Regulation"	above.

The	Company's	Asset	Management	business	is	also	regulated	outside	the	U.S.	For	example,	the	FSA	regulates	the	Company's	business	in	the	U.K.;	the	Financial Services	Agency	regulates	the	Company's	business	in	Japan;	the	Securities	and	Exchange	Board	of	India	regulates	the	Company's	business	in	India;	and	the	Monetary Authority	of	Singapore	regulates	the	Company's	business	in	Singapore.	European	and	local	regulators	are	proposing	additional	obligations	on	the	management	and marketing	of	funds	in	the	E.U.

# Anti-Money	Laundering	and	Economic	Sanctions.

The	Company's	Anti-Money	Laundering	("AML")	program	is	coordinated	on	an	enterprise-wide	basis.	In	the	U.S.,	for	example,	the	Bank	Secrecy	Act,	as	amended	by the	USA	PATRIOT	Act	of	2001,	imposes	significant	obligations	on	financial	institutions	to	detect	and	deter	money	laundering	and	terrorist	financing	activity,	including requiring	banks,	bank	holding	company	subsidiaries,	broker-dealers,	futures	commission	merchants,	and	mutual	funds	to	implement	AML	programs,	verify	the	identity of	customers	that	maintain	accounts,	and	monitor	and	report	suspicious	activity	to	appropriate	law	enforcement	or	regulatory	authorities.	Outside	the	U.S.,	applicable laws,	rules	and	regulations	similarly	require	designated	types	of	financial	institutions	to	implement	AML	programs.	The	Company	has	implemented	policies,	procedures and	internal	controls	that	are	designed	to	comply	with	all	applicable	AML	laws	and	regulations.	The	Company	has	also	implemented	policies,	procedures,	and	internal controls	that	are	designed	to	comply	with	the	regulations	and	economic	sanctions	programs	administered	by	the	U.S.	Treasury's	Office	of	Foreign	Assets	Control ("OFAC"),	which	enforces	economic	and	trade	sanctions	against	targeted	foreign	countries,	entities	and	individuals	based	on	external	threats	to	the	U.S.	foreign	policy, national	security,	or	economy;	by	other	governments;	or	by	global	or	regional	multilateral	organizations,	such	as	the	United	Nations	Security	Council	and	the	E.U.	as applicable.

# Anti-Corruption.

The	Company	is	subject	to	applicable	anti-corruption	laws,	such	as	the	U.S.	Foreign	Corrupt	Practices	Act	and	the	U.K.	Bribery	Act,	in	the	jurisdictions	in	which	it operates.	Anti-corruption	laws	generally	prohibit	offering,	promising,	giving,	or	authorizing	others	to	give	anything	of	value,	either	directly	or	indirectly,	to	a government	official	or	private	party	in	order	to	influence	official	action	or	otherwise	gain	an	unfair	business	advantage,	such	as	to	obtain	or	retain	business.	The Company	has	implemented	policies,	procedures,	and	internal	controls	that	are	designed	to	comply	with	such	laws,	rules	and	regulations.

# Protection	of	Client	Information.

Many	aspects	of	the	Company's	business	are	subject	to	legal	requirements	concerning	the	use	and	protection	of	certain	customer	information,	including	those	adopted pursuant	to	the	Gramm-Leach-Bliley	Act	and	the	Fair	and	Accurate	Credit	Transactions	Act	of	2003	in	the	U.S.,	the	E.U.	Data	Protection	Directive	and	various	laws	in Asia,	including	the	Japanese	Personal	Information	(Protection)	Law,	the	Hong	Kong	Personal	Data	(Protection)	Ordinance	and	the	Australian	Privacy	Act.	The	Company has	adopted	measures	designed	to	comply	with	these	and	related	applicable	requirements	in	all	relevant	jurisdictions.

# Research.

Both	U.S.	and	non-U.S.	regulators	continue	to	focus	on	research	conflicts	of	interest.	Research-related	regulations	have	been	implemented	in	many	jurisdictions.	New and	revised	requirements	resulting	from	these	regulations	and	the	global	research	settlement	with	U.S.	federal	and	state	regulators	(to	which	the	Company	is	a	party) have	necessitated	the	development	or	enhancement	of	corresponding	policies	and	procedures.

# Compensation	Practices	and	Other	Regulation.

The	Company's	compensation	practices	are	subject	to	oversight	by	the	Federal	Reserve.	In	particular,	the	Company	is	subject	to	the	Federal	Reserve's	guidance	that	is designed	to	help	ensure	that	incentive	compensation	paid	by	banking	organizations	does	not	encourage	imprudent	risk-taking	that	threatens	the	organizations'	safety	and soundness.	The	scope	and	content	of	the	Federal	Reserve's	policies	on	executive	compensation	are	continuing	to	develop	and	may	change	based	on	findings	from	its peer	review	process,	and	the	Company	expects	that	these	policies	will	evolve	over	a	number	of	years.

The	Company	is	subject	to	the	compensation-related	provisions	of	the	Dodd-Frank	Act,	which	may	impact	its	compensation	practices.	Pursuant	to	the	Dodd-Frank	Act, among	other	things,	federal	regulators,	including	the	Federal	Reserve,	must	prescribe	regulations	to	require	covered	financial	institutions,	including	the	Company,	to report	the	structures	of	all	of	their	incentive-based	compensation	arrangements	and	prohibit	incentive-based	payment	arrangements	that	encourage	inappropriate	risks	by providing	employees,	directors	or	principal	shareholders	with	compensation	that	is	excessive	or	that	could	lead	to	material	financial	loss	to	the	covered	financial institution.	In	April	2011,	seven	federal	agencies,	including	the	Federal	Reserve,	jointly	proposed	an	interagency	rule	implementing	this	requirement.	The	rule	has	not yet	been	finalized.	Further,	pursuant	to	the	Dodd-Frank	Act,	the	SEC	must	direct	listing	exchanges	to	require	companies	to	implement	policies	relating	to	disclosure	of incentive-based	compensation	that	is	based	on	publicly	reported	financial	information	and	the	clawback	of	such	compensation	from	current	or	former	executive	officers following	certain	accounting	restatements.

In	addition	to	the	guidelines	issued	by	the	Federal	Reserve	and	referenced	above,	the	Company's	compensation	practices	may	also	be	impacted	by	other	regulations promulgated	in	accordance	with	the	Financial	Stability	Board	compensation	principles	and	standards.	These	standards	are	to	be	implemented	by	local	regulators, including	in	the	U.K.,	where	the	remuneration	of	employees	of	certain	banks	is	governed	by	the	Remuneration	Code.

For	a	discussion	of	certain	risks	relating	to	the	Company's	regulatory	environment,	see	"Risk	Factors"	in	Part	I,	Item	1A	herein.

# Executive	Officers	of	Morgan	Stanley.

The	executive	officers	of	Morgan	Stanley	and	their	ages	and	titles	as	of	February	26,	2013	are	set	forth	below.	Business	experience	for	the	past	five	years	is	provided	in accordance	with	SEC	rules.

Gregory	J.	Fleming	(49).				Executive	Vice	President	(since	February	2010),	President	of	Asset	Management	(since	February	2010)	and	President	of	Global	Wealth Management	Group	of	Morgan	Stanley	(since	January	2011).	President	of	Research	of	Morgan	Stanley	(February	2010	to	January	2011).	Senior	Research	Scholar	at Yale	Law	School	and	Distinguished	Visiting	Fellow	of	the	Center	for	the	Study	of	Corporate	Law	at	Yale	Law	School	(January	2009	to	December	2009).	President	of Merrill	Lynch	&	Co.,	Inc.	("Merrill	Lynch")	(February	2008	to	January	2009).	Co-President	of	Merrill	Lynch	(May	2007	to	February	2008).	Executive	Vice	President and	Co-President	of	the	Global	Markets	and	Investment	Banking	Group	of	Merrill	Lynch	(August	2003	to	May	2007).

James	P.	Gorman	(54).				Chairman	of	the	Board	of	Directors	and	Chief	Executive	Officer	of	Morgan	Stanley	(since	January	2012).	President	and	Chief	Executive Officer	(January	2010	through	December	2011)	and	member	of	the	Board	of	Directors	(since	January	2010).	Co-President	(December	2007	to	December	2009)	and	Co- Head	of	Strategic	Planning	(October	2007	to	December	2009).	President	and	Chief	Operating	Officer	of	Global	Wealth	Management	Group	(February	2006	to	April 2008).

Eric	F.	Grossman	(46).				Executive	Vice	President	and	Chief	Legal	Officer	of	Morgan	Stanley	(since	January	2012).	Global	Head	of	Legal	(September	2010	to	January 2012).	Global	Head	of	Litigation	(January	2006	to	September	2010)	and	General	Counsel	of	the	Americas	(May	2009	to	September	2010).	General	Counsel	of	Global Wealth	Management	Group	(November	2008	to	June	2009)	and	General	Counsel	of	Morgan	Stanley	Wealth	Management	(June	2009	to	September	2010).	Partner	at	the law	firm	of	Davis	Polk	&	Wardwell	LLP	(June	2001	to	December	2005).

Keishi	Hotsuki	(50).				Chief	Risk	Officer	of	Morgan	Stanley	(since	May	2011).	Interim	Chief	Risk	Officer	(January	2011	to	May	2011)	and	Head	of	Market	Risk Department	(since	March	2008).	Director	of	Mitsubishi	UFJ	Morgan	Stanley	Securities	Co.,	Ltd.	(since	May	2010).	Global	Head	of	Market	Risk	Management	at	Merrill Lynch	(June	2005	to	September	2007).

Colm	Kelleher	(55).				Executive	Vice	President	(since	October	2007)	and	President	of	Institutional	Securities	(since	January	2013).	Co-President	of	Institutional Securities	of	Morgan	Stanley	(January	2010	to	December	2012).	Chief	Financial	Officer	and	Co-Head	of	Strategic	Planning	(October	2007	to	December	2009).	Head	of Global	Capital	Markets	(February	2006	to	October	2007).	Co-Head	of	Fixed	Income	Europe	(May	2004	to	February	2006).

Ruth	Porat	(55).				Executive	Vice	President	and	Chief	Financial	Officer	of	Morgan	Stanley	(since	January	2010).	Vice	Chairman	of	Investment	Banking	(September 2003	to	December	2009).	Global	Head	of	Financial	Institutions	Group	(September	2006	to	December	2009)	and	Chairman	of	the	Financial	Sponsors	Group	(July	2004 to	September	2006)	within	Investment	Banking.

James	A.	Rosenthal	(59).				Executive	Vice	President	and	Chief	Operating	Officer	of	Morgan	Stanley	(since	January	2011).	Head	of	Corporate	Strategy	(January	2010 to	May	2011).	Chief	Operating	Officer	of	Morgan	Stanley	Wealth	Management	(January	2010	to	August	2011).	Head	of	Firmwide	Technology	and	Operations	of Morgan	Stanley	(March	2008	to	January	2010).	Chief	Financial	Officer	of	Tishman	Speyer	(May	2006	to	March	2008).

# Liquidity	and	Funding	Risk.

Liquidity	and	funding	risk	refers	to	the	risk	that	we	will	be	unable	to	finance	our	operations	due	to	a	loss	of	access	to	the	capital	markets	or	difficulty	in	liquidating	our assets.	Liquidity	and	funding	risk	also	encompasses	our	ability	to	meet	our	financial	obligations	without	experiencing	significant	business	disruption	or	reputational damage	that	may	threaten	our	viability	as	a	going	concern.	For	more	information	on	how	we	monitor	and	manage	liquidity	and	funding	risk,	see	"Management's Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations—Liquidity	and	Capital	Resources"	in	Part	II,	Item	7	herein.

# Liquidity	is	essential	to	our	businesses	and	we	rely	on	external	sources	to	finance	a	significant	portion	of	our	operations.

Liquidity	is	essential	to	our	businesses.	Our	liquidity	could	be	negatively	affected	by	our	inability	to	raise	funding	in	the	long-term	or	short-term	debt	capital	markets	or our	inability	to	access	the	secured	lending	markets.	Factors	that	we	cannot	control,	such	as	disruption	of	the	financial	markets	or	negative	views	about	the	financial services	industry	generally,	including	concerns	regarding	the	European	sovereign	debt	crisis	or	fiscal	matters	in	the	U.S.,	could	impair	our	ability	to	raise	funding.	In addition,	our	ability	to	raise	funding	could	be	impaired	if	investors	or	lenders	develop	a	negative	perception	of	our	long-term	or	short-term	financial	prospects	due	to factors	such	as	if	we	were	to	incur	large	trading	losses,	are	downgraded	by	the	rating	agencies,	suffer	a	decline	in	the	level	of	our	business	activity,	or	if	regulatory authorities	take	significant	action	against	us,	or	we	discover	significant	employee	misconduct	or	illegal	activity.	If	we	are	unable	to	raise	funding	using	the	methods described	above,	we	would	likely	need	to	finance	or	liquidate	unencumbered	assets,	such	as	our	investment	and	trading	portfolios,	to	meet	maturing	liabilities.	We	may be	unable	to	sell	some	of	our	assets,	or	we	may	have	to	sell	assets	at	a	discount	from	market	value,	either	of	which	could	adversely	affect	our	results	of	operations,	cash flows	and	financial	condition.

Global	markets	and	economic	conditions	have	been	negatively	impacted	by	the	European	sovereign	debt	crisis.	The	continued	uncertainty	over	the	outcome	of	the	E.U. governments'	financial	support	programs	and	the	possibility	that	other	E.U.	member	states	may	experience	similar	financial	troubles	could	further	disrupt	global markets.	In	particular,	it	has	and	could	in	the	future	disrupt	equity	markets	and	result	in	volatile	bond	yields	on	the	sovereign	debt	of	E.U.	members.	These	factors,	or market	perceptions	concerning	such	matters,	could	have	an	adverse	effect	on	our	business,	financial	condition	and	liquidity.	In	particular,	in	connection	with	certain	of our	Institutional	Securities	business	segment	activities,	we	have	exposure	to	European	peripheral	countries,	which	are	defined	as	exposures	in	Greece,	Ireland,	Italy, Portugal	and	Spain	(the	"European	Peripherals").	At	December	31,	2012,	exposure	before	hedges	to	the	European	Peripherals	was	approximately	$7,590	million	and	net exposure	after	hedges	was	approximately	$6,346	million.	Exposure	includes	obligations	from	sovereign	governments,	corporations,	and	financial	institutions.	In addition,	at	December	31,	2012,	we	had	European	Peripherals	exposure	for	overnight	deposits	with	banks	of	approximately	$81	million.	See	"Quantitative	and Qualitative	Disclosure	about	Market	Risk—Credit	Risk—Country	Risk	Exposure—Select	European	Countries"	in	Part	II,	Item	7A	herein.

# Our	borrowing	costs	and	access	to	the	debt	capital	markets	depend	significantly	on	our	credit	ratings.

The	cost	and	availability	of	unsecured	financing	generally	are	impacted	by	our	short-term	and	long-term	credit	ratings.	The	rating	agencies	are	continuing	to	monitor certain	issuer	specific	factors	that	are	important	to	the	determination	of	our	credit	ratings	including	governance,	the	level	and	quality	of	earnings,	capital	adequacy, funding	and	liquidity,	risk	appetite	and	management,	asset	quality,	strategic	direction,	and	business	mix.	Additionally,	the	rating	agencies	will	look	at	other	industry- wide	factors	such	as	regulatory	or	legislative	changes,	macro-economic	environment,	and	perceived	levels	of	government	support,	and	it	is	possible	that	they	could downgrade	our	ratings	and	those	of	similar	institutions.	See	also	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operation—Liquidity and	Capital	Resources—Credit	Ratings"	in	Part	II,	Item	7	herein.

Our	credit	ratings	also	can	have	a	significant	impact	on	certain	trading	revenues,	particularly	in	those	businesses	where	longer	term	counterparty	performance	is	a	key consideration,	such	as	OTC	derivative	transactions,	including	credit	derivatives	and	interest	rate	swaps.	In	connection	with	certain	OTC	trading	agreements	and	certain other	agreements	associated	with	the	Institutional	Securities	business	segment,	we	may	be	required	to	provide	additional	collateral	to,	or	immediately	settle	any outstanding	liability	balance	with,	certain	counterparties	in	the	event	of	a	credit	ratings	downgrade.	Termination	of	our	trading	and	other	agreements	could	cause	us	to sustain	losses	and	impair	our	liquidity	by	requiring	us	to	find	other	sources	of	financing	or	to	make	significant	cash	payments	or	securities	movements.	Our	long-term credit	ratings	by	Moody's	Investor	Services,	Inc	("Moody's")	and	Standard	&	Poor's	Financial	Services	LLC	("S&P")	are	currently	at	different	levels	(commonly referred	to	as	"split	ratings").	At	December	31,	2012,	the	amounts	of	future	potential	collateral	amounts	that	could	be	called	by	counterparties	under	the	terms	of	such OTC	trading	agreements	and	other	agreements	in	the	event	of	a	downgrade	of	our	long-term	credit	rating	under	various	scenarios	for	Moody's	and	S&P	were	as	follows: $472	million	(Baa1	Moody's/BBB+	S&P);	$2,556	million	(Baa2	Moody's/BBB	S&P);	and	$3,574	million	(Baa3	Moody's/BBB-	S&P).	In	addition,	we	are	required	to pledge	additional	collateral	to	certain	exchanges	and	clearing	organizations	in	the	event	of	a	credit	rating	downgrade.	At	December	31,	2012,	the	increased	collateral requirement	at	certain	exchanges	and	clearing	organizations	under	various	scenarios	was	zero	(Baa1	Moody's/BBB+	S&P);	zero	(Baa2	Moody's/BBB	S&P);	and	$128 million	(Baa3	Moody's/BBB-	S&P).

# We	are	a	holding	company	and	depend	on	payments	from	our	subsidiaries.

The	parent	holding	company	depends	on	dividends,	distributions	and	other	payments	from	its	subsidiaries	to	fund	dividend	payments	and	to	fund	all	payments	on	its obligations,	including	debt	obligations.	Regulatory,	tax	restrictions	or	elections	and	other	legal	restrictions	may	limit	our	ability	to	transfer	funds	freely,	either	to	or	from our	subsidiaries.	In	particular,	many	of	our	subsidiaries,	including	our	broker-dealer	subsidiaries,	are	subject	to	laws,	regulations	and	self-regulatory	organization	rules that	authorize	regulatory	bodies	to	block	or	reduce	the	flow	of	funds	to	the	parent	holding	company,	or	that	prohibit	such	transfers	altogether	in	certain	circumstances. These	laws,	regulations	and	rules	may	hinder	our	ability	to	access	funds	that	we	may	need	to	make	payments	on	our	obligations.	Furthermore,	as	a	bank	holding company,	we	may	become	subject	to	a	prohibition	or	to	limitations	on	our	ability	to	pay	dividends	or	repurchase	our	stock.	The	OCC,	the	Federal	Reserve	and	the	FDIC have	the	authority,	and	under	certain	circumstances	the	duty,	to	prohibit	or	to	limit	the	payment	of	dividends	by	the	banking	organizations	they	supervise,	including	us and	our	bank	company	subsidiaries.

# Our	liquidity	and	financial	condition	have	in	the	past	been,	and	in	the	future	could	be,	adversely	affected	by	U.S.	and	international	markets	and	economic conditions.

Our	ability	to	raise	funding	in	the	long-term	or	short-term	debt	capital	markets	or	the	equity	markets,	or	to	access	secured	lending	markets,	has	in	the	past	been,	and could	in	the	future	be,	adversely	affected	by	conditions	in	the	U.S.	and	international	markets	and	economy.	Global	market	and	economic	conditions	have	been particularly	disrupted	and	volatile	in	the	last	several	years	and	continue	to	be,	including	as	a	result	of	the	European	sovereign	debt	crisis,	and	uncertainty	regarding	U.S. fiscal	matters.	In	particular,	our	cost	and	availability	of	funding	have	been,	and	may	in	the	future	be,	adversely	affected	by	illiquid	credit	markets	and	wider	credit spreads.	Continued	turbulence	in	the	U.S.,	the	E.U.	and	other	international	markets	and	economies	could	adversely	affect	our	liquidity	and	financial	condition	and	the willingness	of	certain	counterparties	and	customers	to	do	business	with	us.

# Market	Risk.

Market	risk	refers	to	the	risk	that	a	change	in	the	level	of	one	or	more	market	prices,	rates,	indices,	implied	volatilities	(the	price	volatility	of	the	underlying	instrument imputed	from	option	prices),	correlations	or	other	market	factors,	such	as	market	liquidity,	will	result	in	losses	for	a	position	or	portfolio.	For	more	information	on	how we	monitor	and	manage	market	risk,	see	"Quantitative	and	Qualitative	Disclosure	about	Market	Risk"	in	Part	II,	Item	7A	herein.

# Our	results	of	operations	may	be	materially	affected	by	market	fluctuations	and	by	global	and	economic	conditions	and	other	factors.

Our	results	of	operations	may	be	materially	affected	by	market	fluctuations	due	to	global	and	economic	conditions	and	other	factors.	Our	results	of	operations	in	the	past have	been,	and	in	the	future	may	continue	to	be,	materially	affected	by	many	factors,	including	the	effect	of	economic	and	political	conditions	and	geopolitical	events; the	effect	of	market	conditions,	particularly	in	the	global	equity,	fixed	income,	credit	and	commodities	markets,	including	corporate	and	mortgage	(commercial	and residential)	lending	and	commercial	real	estate	markets;	the	impact	of	current,	pending	and	future	legislation	(including	the	Dodd-Frank	Act),	regulation	(including capital,	leverage	and	liquidity	requirements),	and	legal	actions	in	the	U.S.	and	worldwide;	the	level	and	volatility	of	equity,	fixed	income	and	commodity	prices,	interest rates,	currency	values	and	other	market	indices;	the	availability	and	cost	of	both	credit	and	capital	as	well	as	the	credit	ratings	assigned	to	our	unsecured	short-term	and long-term	debt;	investor,	consumer	and	business	sentiment	and	confidence	in	the	financial	markets;	the	performance	of	our	acquisitions,	joint	ventures,	strategic alliances	or	other	strategic	arrangements	(including	the	Wealth	Management	Joint	Venture	and	with	Mitsubishi	UFJ	Financial	Group,	Inc.	("MUFG"));	our	reputation; inflation,	natural	disasters,	and	acts	of	war	or	terrorism;	the	actions	and	initiatives	of	current	and	potential	competitors,	as	well	as	governments,	regulators	and	self- regulatory	organizations;	the	effectiveness	of	our	risk	management	policies;	and	technological	changes;	or	a	combination	of	these	or	other	factors.	In	addition, legislative,	legal	and	regulatory	developments	related	to	our	businesses	are	likely	to	increase	costs,	thereby	affecting	results	of	operations.	These	factors	also	may	have an	adverse	impact	on	our	ability	to	achieve	our	strategic	objectives.

The	results	of	our	Institutional	Securities	business	segment,	particularly	results	relating	to	our	involvement	in	primary	and	secondary	markets	for	all	types	of	financial products,	are	subject	to	substantial	fluctuations	due	to	a	variety	of	factors,	such	as	those	enumerated	above	that	we	cannot	control	or	predict	with	great	certainty.	These fluctuations	impact	results	by	causing	variations	in	new	business	flows	and	in	the	fair	value	of	securities	and	other	financial	products.	Fluctuations	also	occur	due	to	the level	of	global	market	activity,	which,	among	other	things,	affects	the	size,	number	and	timing	of	investment	banking	client	assignments	and	transactions	and	the realization	of	returns	from	our	principal	investments.	During	periods	of	unfavorable	market	or	economic	conditions,	the	level	of	individual	investor	participation	in	the global	markets,	as	well	as	the	level	of	client	assets,	may	also	decrease,	which	would	negatively	impact	the	results	of	our	Global	Wealth	Management	Group	business segment.	In	addition,	fluctuations	in	global	market	activity	could	impact	the	flow	of	investment	capital	into	or	from	assets	under	management	or	supervision	and	the	way customers	allocate	capital	among	money	market,	equity,	fixed	income	or	other	investment	alternatives,	which	could	negatively	impact	our	Asset	Management	business segment.

# We	may	experience	declines	in	the	value	of	our	financial	instruments	and	other	losses	related	to	volatile	and	illiquid	market	conditions.

Market	volatility,	illiquid	market	conditions	and	disruptions	in	the	credit	markets	have	made	it	extremely	difficult	to	value	certain	of	our	securities,	particularly	during periods	of	market	displacement.	Subsequent	valuations,	in	light	of	factors	then	prevailing,	may	result	in	significant	changes	in	the	values	of	these	securities	in	future periods.	In	addition,	at	the	time	of	any	sales	and	settlements	of	these	securities,	the	price	we	ultimately	realize	will	depend	on	the	demand	and	liquidity	in	the	market	at that	time	and	may	be	materially	lower	than	their	current	fair	value.	Any	of	these	factors	could	cause	a	decline	in	the	value	of	our	securities	portfolio,	which	may	have	an adverse	effect	on	our	results	of	operations	in	future	periods.

In	addition,	financial	markets	are	susceptible	to	severe	events	evidenced	by	rapid	depreciation	in	asset	values	accompanied	by	a	reduction	in	asset	liquidity.	Under	these extreme	conditions,	hedging	and	other	risk	management	strategies	may	not	be	as	effective	at	mitigating	trading	losses	as	they	would	be	under	more	normal	market conditions.	Moreover,	under	these	conditions	market	participants	are	particularly	exposed	to	trading	strategies	employed	by	many	market	participants	simultaneously and	on	a	large	scale,	such	as	crowded	trades.

Our	risk	management	and	monitoring	processes	seek	to	quantify	and	mitigate	risk	to	more	extreme	market	moves.	However,	severe	market	events	have	historically	been difficult	to	predict,	as	seen	in	the	last	several	years,	and	we	could	realize	significant	losses	if	extreme	market	events	were	to	occur.

# Holding	large	and	concentrated	positions	may	expose	us	to	losses.

Concentration	of	risk	may	reduce	revenues	or	result	in	losses	in	our	market-making,	investing,	block	trading,	underwriting	and	lending	businesses	in	the	event	of unfavorable	market	movements.	We	commit	substantial	amounts	of	capital	to	these	businesses,	which	often	results	in	our	taking	large	positions	in	the	securities	of,	or making	large	loans	to,	a	particular	issuer	or	issuers	in	a	particular	industry,	country	or	region.

# We	have	incurred,	and	may	continue	to	incur,	significant	losses	in	the	real	estate	sector.

We	finance	and	acquire	principal	positions	in	a	number	of	real	estate	and	real	estate-related	products	for	our	own	account,	for	investment	vehicles	managed	by	affiliates in	which	we	also	may	have	a	significant	investment,	for	separate	accounts	managed	by	affiliates	and	for	major	participants	in	the	commercial	and	residential	real	estate markets.

We	also	originate	loans	secured	by	commercial	and	residential	properties.	Further,	we	securitize	and	trade	in	a	wide	range	of	commercial	and	residential	real	estate	and real	estate-related	whole	loans,	mortgages	and	other	real	estate	and	commercial	assets	and	products,	including	residential	and	commercial	mortgage-backed	securities. These	businesses	have	been,	and	may	continue	to	be,	adversely	affected	by	the	downturn	in	the	real	estate	sector.	In	connection	with	these	activities,	we	have	provided, or	otherwise	agreed	to	be	responsible	for,	certain	representations	and	warranties.	Under	certain	circumstances,	we	may	be	required	to	repurchase	such	assets	or	make other	payments	related	to	such	assets	if	such	representations	and	warranties	were	breached.	Between	2004	and	December	31,	2012,	we	sponsored	approximately	$148 billion	of	residential	mortgage-backed	securities	("RMBS")	primarily	containing	U.S.	residential	loans.	Of	that	amount,	we	made	representations	and	warranties concerning	approximately	$47	billion	of	loans	and	agreed	to	be	responsible	for	the	representations	and	warranties	made	by	third-party	sellers,	many	of	which	are	now insolvent,	on	approximately	$21	billion	of	loans.	At	December	31,	2012,	the	current	unpaid	principal	balance	("UPB")	for	all	the	residential	assets	subject	to	such representations	and	warranties	was	approximately	$20.1	billion	and	the	cumulative	losses	associated	with	U.S.	RMBS	were	approximately	$12.3	billion.	We	did	not make,	or	otherwise	agree	to	be	responsible,	for	the	representations	and	warranties	made	by	third	party	sellers	on	approximately	$80	billion	of	residential	loans	that	we securitized	during	that	time	period.	We	have	not	sponsored	any	U.S.	RMBS	transactions	since	2007.

We	have	also	made	representations	and	warranties	in	connection	with	our	role	as	an	originator	of	certain	commercial	mortgage	loans	that	we	securitized	in	commercial mortgage-backed	securities	("CMBS").	Between	2004	and	December	31,	2012,	we	originated	approximately	$45	billion	and	$21	billion	of	U.S.	and	non-U.S. commercial	mortgage	loans,	respectively,	that	were	placed	into	CMBS	sponsored	by	us.	At	December	31,	2012,	the	current	UPB	for	all	U.S.	commercial	mortgage	loans subject	to	such	representations	and	warranties	was	$33.2	billion.	At	December	31,	2012,	the	current	UPB	when	known	for	all	non-U.S.	commercial	mortgage	loans, subject	to	such	representations	and	warranties	was	approximately	$6.3	billion	and	the	UPB	at	the	time	of	sale	when	the	current	UPB	is	not	known	was	$0.4	billion.

Over	the	last	several	years,	the	level	of	litigation	and	investigatory	activity	focused	on	residential	mortgage	and	credit	crisis-related	matters	has	increased	materially	in the	financial	services	industry.	As	a	result,	we	have	been	and	expect	that	we	may	continue	to	become,	the	subject	of	increased	claims	for	damages	and	other	relief regarding	residential	mortgages	and	related	securities	in	the	future.	We	continue	to	monitor	our	real	estate-related	activities	in	order	to	manage	our	exposures	and potential	liability	from	these	markets	and	businesses.	See	"Legal	Proceedings—Residential	Mortgage	and	Credit	Crisis	Related	Matters"	in	Part	I,	Item	3	herein.

# Credit	Risk.

Credit	risk	refers	to	the	risk	of	loss	arising	when	a	borrower,	counterparty	or	issuer	does	not	meet	its	financial	obligations.	For	more	information	on	how	we	monitor	and manage	credit	risk,	see	"Quantitative	and	Qualitative	Disclosure	about	Market	Risk—Risk	Management—Credit	Risk"	in	Part	II,	Item	7A	herein.

# We	are	exposed	to	the	risk	that	third	parties	that	are	indebted	to	us	will	not	perform	their	obligations.

We	incur	significant	credit	risk	exposure	through	the	Institutional	Securities	business	segment.	This	risk	may	arise	from	a	variety	of	business	activities,	including	but	not limited	to	entering	into	swap	or	other	derivative	contracts	under	which	counterparties	have	obligations	to	make	payments	to	us;	extending	credit	to	clients	through various	lending	commitments;	providing	short	or	long-term	funding	that	is	secured	by	physical	or	financial	collateral	whose	value	may	at	times	be	insufficient	to	fully cover	the	loan	repayment	amount;	posting	margin	and/or	collateral	to	clearing	houses,	clearing	agencies,	exchanges,	banks,	securities	firms	and	other	financial counterparties;	and	investing	and	trading	in	securities	and	loan	pools	whereby	the	value	of	these	assets	may	fluctuate	based	on	realized	or	expected	defaults	on	the underlying	obligations	or	loans.

We	also	incur	credit	risk	in	the	Global	Wealth	Management	Group	business	segment	lending	to	individual	investors,	including,	but	not	limited	to,	margin	and	non- purpose	loans	collateralized	by	securities,	residential	mortgage	loans	and	home	equity	lines	of	credit.

While	we	believe	current	valuations	and	reserves	adequately	address	our	perceived	levels	of	risk,	there	is	a	possibility	that	continued	difficult	economic	conditions	may further	negatively	impact	our	clients	and	our	current	credit	exposures.	In	addition,	as	a	clearing	member	firm,	we	finance	our	customer	positions	and	we	could	be	held responsible	for	the	defaults	or	misconduct	of	our	customers.	Although	we	regularly	review	our	credit	exposures,	default	risk	may	arise	from	events	or	circumstances	that are	difficult	to	detect	or	foresee.

# A	default	by	another	large	financial	institution	could	adversely	affect	financial	markets	generally.

The	commercial	soundness	of	many	financial	institutions	may	be	closely	interrelated	as	a	result	of	credit,	trading,	clearing	or	other	relationships	between	the	institutions. As	a	result,	concerns	about,	or	a	default	or	threatened	default	by,	one	institution	could	lead	to	significant	market-wide	liquidity	and	credit	problems,	losses	or	defaults	by other	institutions.	This	is	sometimes	referred	to	as	"systemic	risk"	and	may	adversely	affect	financial	intermediaries,	such	as	clearing	agencies,	clearing	houses,	banks, securities	firms	and	exchanges,	with	which	we	interact	on	a	daily	basis,	and	therefore	could	adversely	affect	us.	See	also	"Systemic	Risk	Regime"	under	"Business— Supervision	and	Regulation—Financial	Holding	Company"	in	Part	I,	Item	1	herein.

# Operational	Risk.

Operational	risk	refers	to	the	risk	of	financial	or	other	loss,	or	potential	damage	to	a	firm's	reputation,	resulting	from	inadequate	or	failed	internal	processes,	people, resources	and	systems	or	from	external	events	(e.g.,	fraud,	legal	and	compliance	risks	or	damage	to	physical	assets).	We	may	incur	operational	risk	across	the	full	scope of	our	business	activities,	including	revenue-generating	activities	(e.g.,	sales	and	trading)	and	control	groups	(e.g.,	information	technology	and	trade	processing).	Legal, regulatory	and	compliance	risk	is	included	in	the	scope	of	operational	risk	and	is	discussed	below	under	"Legal,	Regulatory	and	Compliance	Risk."	For	more information	on	how	we	monitor	and	manage	operational	risk,	see	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk—Risk	Management—Operational	Risk" in	Part	II,	Item	7A	herein.

# We	are	subject	to	operational	risk	that	could	adversely	affect	our	businesses.

Our	businesses	are	highly	dependent	on	our	ability	to	process,	on	a	daily	basis,	a	large	number	of	transactions	across	numerous	and	diverse	markets	in	many	currencies. In	general,	the	transactions	we	process	are	increasingly	complex.	We	perform	the	functions	required	to	operate	our	different	businesses	either	by	ourselves	or	through agreements	with	third	parties.	We	rely	on	the	ability	of	our	employees,	our	internal	systems	and	systems	at	technology	centers	operated	by	unaffiliated	third	parties	to process	a	high	volume	of	transactions.

We	also	face	the	risk	of	operational	failure	or	termination	of	any	of	the	clearing	agents,	exchanges,	clearing	houses	or	other	financial	intermediaries	we	use	to	facilitate our	securities	transactions.	In	the	event	of	a	breakdown	or	improper	operation	of	our	or	a	third	party's	systems	or	improper	or	unauthorized	action	by	third	parties	or	our employees,	we	could	suffer	financial	loss,	an	impairment	to	our	liquidity,	a	disruption	of	our	businesses,	regulatory	sanctions	or	damage	to	our	reputation.

Our	operations	rely	on	the	secure	processing,	storage	and	transmission	of	confidential	and	other	information	in	our	computer	systems.	Like	other	financial	services	firms, we	have	been	and	continue	to	be	subject	to	unauthorized	access,	mishandling	or	misuse,	computer	viruses	or	malware,	cyber	attacks	and	other	events.	Events	such	as these	could	have	a	security	impact	on	our	systems	and	jeopardize	our	or	our	clients'	or	counterparties'	personal,	confidential,	proprietary	or	other	information	processed and	stored	in,	and	transmitted	through,	our	computer	systems.	Furthermore,	such	events	could	cause	interruptions	or	malfunctions	in	our,	our	clients',	our counterparties'	or	third	parties'	operations,	which	could	result	in	reputational	damage,	litigation	or	regulatory	fines	or	penalties	not	covered	by	insurance	maintained	by us,	and	adversely	affect	our	business,	financial	condition	or	results	of	operations.

Despite	the	business	contingency	plans	we	have	in	place,	our	ability	to	conduct	business	may	be	adversely	affected	by	a	disruption	in	the	infrastructure	that	supports	our business	and	the	communities	where	we	are	located.	This	may	include	a	disruption	involving	physical	site	access,	terrorist	activities,	disease	pandemics,	catastrophic events,	electrical,	environmental,	communications	or	other	services	we	use,	our	employees	or	third	parties	with	whom	we	conduct	business.

# Legal,	Regulatory	and	Compliance	Risk.

Legal,	regulatory	and	compliance	risk	includes	the	risk	of	exposure	to	fines,	penalties,	judgments,	damages	and/or	settlements	in	connection	with	regulatory	or	legal actions	as	a	result	of	non-compliance	with	applicable	legal	or	regulatory	requirements	and	standards	or	litigation.	Legal,	regulatory	and	compliance	risk	also	includes contractual	and	commercial	risk	such	as	the	risk	that	a	counterparty's	performance	obligations	will	be	unenforceable.	In	today's	environment	of	rapid	and	possibly transformational	regulatory	change,	we	also	view	regulatory	change	as	a	component	of	legal,	regulatory	and	compliance	risk.	For	more	information	on	how	we	monitor and	manage	legal,	regulatory	and	compliance	risk,	see	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk—Risk	Management—Legal,	Regulatory	and Compliance	Risk"	in	Part	II,	Item	7A	herein.

# The	financial	services	industry	is	subject	to	extensive	regulation,	which	is	undergoing	major	changes	that	will	impact	our	business.

Like	other	major	financial	services	firms,	we	are	subject	to	extensive	regulation	by	U.S.	federal	and	state	regulatory	agencies	and	securities	exchanges	and	by	regulators and	exchanges	in	each	of	the	major	markets	where	we	conduct	our	business.	These	laws	and	regulations	significantly	affect	the	way	we	do	business,	and	can	restrict	the scope	of	our	existing	businesses	and	limit	our	ability	to	expand	our	product	offerings	and	pursue	certain	investments.

In	response	to	the	financial	crisis,	legislators	and	regulators,	both	in	the	U.S.	and	worldwide,	have	adopted,	or	are	currently	considering	enacting,	financial	market reforms	that	have	resulted	and	could	result	in	major	changes	to	the	way	our	global	operations	are	regulated.	In	particular,	as	a	result	of	the	Dodd-Frank	Act,	we	are,	or will	become,	subject	to	(among	other	things)	significantly	revised	and	expanded	regulation	and	supervision,	to	more	intensive	scrutiny	of	our	businesses	and	any	plans for	expansion	of	those	businesses,	to	new	activities	limitations,	to	a	systemic	risk	regime	that	will	impose	heightened	capital	and	liquidity	requirements	to	new restrictions	on	activities	and	investments	imposed	by	the	Volcker	Rule,	and	to	comprehensive	new	derivatives	regulation.	While	certain	portions	of	the	Dodd-Frank	Act were	effective	immediately,	other	portions	will	be	effective	following	extended	transition	periods	or	through	numerous	rule	makings	by	multiple	government	agencies, and	only	a	portion	of	those	rulemakings	have	been	completed.	Many	of	the	changes	required	by	the	Dodd-Frank	Act	could	in	the	future	materially	impact	the profitability	of	our	businesses	and	the	value	of	assets	we	hold,	expose	us	to

additional	costs,	require	changes	to	business	practices	or	force	us	to	discontinue	businesses,	adversely	affect	our	ability	to	pay	dividends,	or	require	us	to	raise	capital, including	in	ways	that	may	adversely	impact	our	shareholders	or	creditors.	While	there	continues	to	be	uncertainty	about	the	full	impact	of	these	changes,	we	do	know that	the	Company	will	be	subject	to	a	more	complex	regulatory	framework,	and	will	incur	costs	to	comply	with	new	requirements	as	well	as	to	monitor	for	compliance	in the	future.

For	example,	the	Volcker	Rule	provision	of	the	Dodd-Frank	Act	will	have	an	impact	on	us,	including	potentially	limiting	various	aspects	of	our	business.	Although	the Volcker	Rule	became	effective	on	July	21,	2012,	compliance	is	not	required	until	July	21,	2014,	subject	to	possible	extensions.	U.S.	regulators	issued	proposed regulations	to	implement	the	Volcker	Rule	in	2011	but	have	not	yet	issued	final	regulations.	There	remains	considerable	uncertainty	about	what	the	final	version	of those	regulations	will	be	or	the	impact	they	may	have	on	our	businesses.	Even	after	the	final	rules	are	issued,	there	may	be	continued	uncertainty	regarding	their interpretation	and	impact	on	our	businesses.	We	are	closely	monitoring	regulatory	developments	related	to	the	Volcker	Rule,	and	when	the	regulations	are	final,	we	will complete	a	review	of	our	relevant	activities	and	make	plans	to	implement	compliance	with	the	Volcker	Rule.

# The	financial	services	industry	faces	substantial	litigation	and	is	subject	to	regulatory	investigations,	and	we	may	face	damage	to	our	reputation	and	legal	liability.

As	a	global	financial	services	firm,	we	face	the	risk	of	investigations	and	proceedings	by	governmental	and	self-regulatory	organizations	in	all	countries	in	which	we conduct	our	business.	Interventions	by	authorities	may	result	in	adverse	judgments,	settlements,	fines,	penalties,	injunctions	or	other	relief.	In	addition	to	the	monetary consequences,	these	measures	could,	for	example,	impact	our	ability	to	engage	in,	or	impose	limitations	on,	certain	of	our	businesses.	The	number	of	these investigations	and	proceedings,	as	well	as	the	amount	of	penalties	and	fines	sought,	has	increased	substantially	in	recent	years	with	regard	to	many	firms	in	the	financial services	industry,	including	us.	Significant	regulatory	action	against	us	could	materially	adversely	affect	our	business,	financial	condition	or	results	of	operations	or cause	us	significant	reputational	harm,	which	could	seriously	harm	our	business.	The	Dodd-Frank	Act	also	provides	compensation	to	whistleblowers	who	present	the SEC	or	CFTC	with	information	related	to	securities	or	commodities	laws	violations	that	leads	to	a	successful	enforcement	action.	As	a	result	of	this	compensation,	it	is possible	we	could	face	an	increased	number	of	investigations	by	the	SEC	or	CFTC.

We	have	been	named,	from	time	to	time,	as	a	defendant	in	various	legal	actions,	including	arbitrations,	class	actions,	and	other	litigation,	as	well	as	investigations	or proceedings	brought	by	regulatory	agencies,	arising	in	connection	with	our	activities	as	a	global	diversified	financial	services	institution.	Certain	of	the	actual	or threatened	legal	or	regulatory	actions	include	claims	for	substantial	compensatory	and/or	punitive	damages,	claims	for	indeterminate	amounts	of	damages,	or	may	result in	penalties,	fines,	or	other	results	adverse	to	us.	In	some	cases,	the	issuers	that	would	otherwise	be	the	primary	defendants	in	such	cases	are	bankrupt	or	in	financial distress.	Like	any	large	corporation,	we	are	also	subject	to	risk	from	potential	employee	misconduct,	including	non-compliance	with	policies	and	improper	use	or disclosure	of	confidential	information.

Substantial	legal	liability	could	materially	adversely	affect	our	business,	financial	condition	or	results	of	operations	or	cause	us	significant	reputational	harm,	which could	seriously	harm	our	business.	For	example,	recently,	the	level	of	litigation	activity	focused	on	residential	mortgage	and	credit	crisis	related	matters	has	increased materially	in	the	financial	services	industry.	As	a	result,	we	have	been	and	expect	that	we	may	continue	to	become,	the	subject	of	increased	claims	for	damages	and	other relief	regarding	residential	mortgages	and	related	securities	in	the	future	and	there	can	be	no	assurance	that	additional	material	losses	will	not	be	incurred	from residential	mortgage	claims	that	have	not	yet	been	notified	to	us	or	are	not	yet	determined	to	be	material.	For	more	information	regarding	legal	proceedings	in	which	we are	involved	see	"Legal	Proceedings"	in	Part	I,	Item	3	herein.

# Our	business,	financial	condition	and	results	of	operations	could	be	adversely	affected	by	governmental	fiscal	and	monetary	policies.

We	are	affected	by	fiscal	and	monetary	policies	adopted	by	regulatory	authorities	and	bodies	of	the	U.S.	and	other	governments.	For	example,	the	actions	of	the	Federal Reserve	and	international	central	banking	authorities	directly	impact	our	cost	of	funds	for	lending,	capital	raising	and	investment	activities	and	may	impact	the	value	of financial	instruments	we	hold.	In	addition,	such	changes	in	monetary	policy	may	affect	the	credit	quality	of	our	customers.	Changes	in	domestic	and	international monetary	policy	are	beyond	our	control	and	difficult	to	predict.

# Our	commodities	activities	subject	us	to	extensive	regulation,	potential	catastrophic	events	and	environmental	risks	and	regulation	that	may	expose	us	to	significant costs	and	liabilities.

In	connection	with	the	commodities	activities	in	our	Institutional	Securities	business	segment,	we	engage	in	the	production,	storage,	transportation,	marketing	and trading	of	several	commodities,	including	metals	(base	and	precious),	agricultural	products,	crude	oil,	oil	products,	natural	gas,	electric	power,	emission	credits,	coal, freight,	liquefied	natural	gas	and	related	products	and	indices.	In	addition,	we	are	an	electricity	power	marketer	in	the	U.S.	and	own	electricity	generating	facilities	in	the U.S.	and	Europe;	we	own	TransMontaigne	Inc.	and	its	subsidiaries,	a	group	of	companies	operating	in	the	refined	petroleum	products	marketing	and	distribution business;	and	we	own	a	minority	interest	in	Heidmar	Holdings	LLC,	which	owns	a	group	of	companies	that	provide	international	marine	transportation	and	U.S.	marine logistics	services.	As	a	result	of	these	activities,	we	are	subject	to	extensive	and	evolving	energy,	commodities,	environmental,	health	and	safety	and	other	governmental laws	and	regulations.	In	addition,	liability	may	be	incurred	without	regard	to	fault	under	certain	environmental	laws	and	regulations	for	the	remediation	of	contaminated areas.	Further,	through	these	activities	we	are	exposed	to	regulatory,	physical	and	certain	indirect	risks	associated	with	climate	change.	Our	commodities	business	also exposes	us	to	the	risk	of	unforeseen	and	catastrophic	events,	including	natural	disasters,	leaks,	spills,	explosions,	release	of	toxic	substances,	fires,	accidents	on	land	and at	sea,	wars,	and	terrorist	attacks	that	could	result	in	personal	injuries,	loss	of	life,	property	damage,	and	suspension	of	operations.

Although	we	have	attempted	to	mitigate	our	pollution	and	other	environmental	risks	by,	among	other	measures,	adopting	appropriate	policies	and	procedures	for	power plant	operations,	monitoring	the	quality	of	petroleum	storage	facilities	and	transport	vessels	and	implementing	emergency	response	programs,	these	actions	may	not prove	adequate	to	address	every	contingency.	In	addition,	insurance	covering	some	of	these	risks	may	not	be	available,	and	the	proceeds,	if	any,	from	insurance	recovery may	not	be	adequate	to	cover	liabilities	with	respect	to	particular	incidents.	As	a	result,	our	financial	condition,	results	of	operations	and	cash	flows	may	be	adversely affected	by	these	events.

We	continue	to	engage	in	discussions	with	the	Federal	Reserve	regarding	our	commodities	activities,	as	the	BHC	Act	provides	a	grandfather	exemption	for	"activities related	to	the	trading,	sale	or	investment	in	commodities	and	underlying	physical	properties,"	provided	that	we	were	engaged	in	"any	of	such	activities	as	of September	30,	1997	in	the	United	States"	and	provided	that	certain	other	conditions	that	are	within	our	reasonable	control	are	satisfied.	If	the	Federal	Reserve	were	to determine	that	any	of	our	commodities	activities	did	not	qualify	for	the	BHC	Act	grandfather	exemption,	then	we	would	likely	be	required	to	divest	any	such	activities that	did	not	otherwise	conform	to	the	BHC	Act	by	the	end	of	any	extensions	of	the	grace	period.	See	also	"Scope	of	Permitted	Activities"	under	"Business—Supervision and	Regulation"	in	Part	I,	Item	1	herein.

We	also	expect	the	other	laws	and	regulations	affecting	our	commodities	business	to	increase	in	both	scope	and	complexity.	During	the	past	several	years,	intensified scrutiny	of	certain	energy	markets	by	federal,	state	and	local	authorities	in	the	U.S.	and	abroad	and	the	public	has	resulted	in	increased	regulatory	and	legal	enforcement, litigation	and	remedial	proceedings	involving	companies	engaged	in	the	activities	in	which	we	are	engaged.	For	example,	the	U.S.	and	the	E.U.	have	increased	their focus	on	the	energy	markets	which	has	resulted	in	increased	regulation	of	companies	participating	in	the	energy	markets,	including	those	engaged	in	power	generation and

liquid	hydrocarbons	trading.	In	addition,	new	regulation	of	OTC	derivatives	markets	in	the	U.S.	and	similar	legislation	proposed	or	adopted	abroad	will	impose significant	new	costs	and	impose	new	requirements	on	our	commodities	derivatives	activities.	We	may	incur	substantial	costs	or	loss	of	revenue	in	complying	with current	or	future	laws	and	regulations	and	our	overall	businesses	and	reputation	may	be	adversely	affected	by	the	current	legal	environment.	In	addition,	failure	to comply	with	these	laws	and	regulations	may	result	in	substantial	civil	and	criminal	fines	and	penalties.

# A	failure	to	address	conflicts	of	interest	appropriately	could	adversely	affect	our	businesses	and	reputation.

As	a	global	financial	services	firm	that	provides	products	and	services	to	a	large	and	diversified	group	of	clients,	including	corporations,	governments,	financial institutions	and	individuals,	we	face	potential	conflicts	of	interest	in	the	normal	course	of	business.	For	example,	potential	conflicts	can	occur	when	there	is	a	divergence of	interests	between	us	and	a	client,	among	clients,	or	between	an	employee	on	the	one	hand	and	us	or	a	client	on	the	other.	We	have	policies,	procedures	and	controls that	are	designed	to	address	potential	conflicts	of	interest.	However,	identifying	and	mitigating	potential	conflicts	of	interest	can	be	complex	and	challenging,	and	can become	the	focus	of	media	and	regulatory	scrutiny.	Indeed,	actions	that	merely	appear	to	create	a	conflict	can	put	our	reputation	at	risk	even	if	the	likelihood	of	an	actual conflict	has	been	mitigated.	It	is	possible	that	potential	conflicts	could	give	rise	to	litigation	or	enforcement	actions,	which	may	lead	to	our	clients	being	less	willing	to enter	into	transactions	in	which	a	conflict	may	occur	and	could	adversely	affect	our	businesses	and	reputation.

Our	regulators	have	the	ability	to	scrutinize	our	activities	for	potential	conflicts	of	interest,	including	through	detailed	examinations	of	specific	transactions.	In	addition, our	status	as	a	bank	holding	company	supervised	by	the	Federal	Reserve	subjects	us	to	direct	Federal	Reserve	scrutiny	with	respect	to	transactions	between	our	U.S. bank	subsidiaries	and	their	affiliates.

# Risk	Management.

# Our	hedging	strategies	and	other	risk	management	techniques	may	not	be	fully	effective	in	mitigating	our	risk	exposure	in	all	market	environments	or	against	all types	of	risk.

We	have	devoted	significant	resources	to	develop	our	risk	management	policies	and	procedures	and	expect	to	continue	to	do	so	in	the	future.	Nonetheless,	our	hedging strategies	and	other	risk	management	techniques	may	not	be	fully	effective	in	mitigating	our	risk	exposure	in	all	market	environments	or	against	all	types	of	risk, including	risks	that	are	unidentified	or	unanticipated.	Some	of	our	methods	of	managing	risk	are	based	upon	our	use	of	observed	historical	market	behavior.	As	a	result, these	methods	may	not	predict	future	risk	exposures,	which	could	be	significantly	greater	than	the	historical	measures	indicate.	For	example,	market	conditions	over	the last	several	years	have	involved	unprecedented	dislocations	and	highlight	the	limitations	inherent	in	using	historical	information	to	manage	risk.	Management	of	market, credit,	liquidity,	operational,	legal,	regulatory	and	compliance	risks	requires,	among	other	things,	policies	and	procedures	to	record	properly	and	verify	a	large	number	of transactions	and	events,	and	these	policies	and	procedures	may	not	be	fully	effective.	Our	trading	risk	management	strategies	and	techniques	also	seek	to	balance	our ability	to	profit	from	trading	positions	with	our	exposure	to	potential	losses.	While	we	employ	a	broad	and	diversified	set	of	risk	monitoring	and	risk	mitigation techniques,	those	techniques	and	the	judgments	that	accompany	their	application	cannot	anticipate	every	economic	and	financial	outcome	or	the	timing	of	such outcomes.	We	may,	therefore,	incur	losses	in	the	course	of	our	trading	activities.	For	more	information	on	how	we	monitor	and	manage	market	and	certain	other	risks, see	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk—Risk	Management—Market	Risk"	in	Part	II,	Item	7A	herein.

# Competitive	Environment.

# We	face	strong	competition	from	other	financial	services	firms,	which	could	lead	to	pricing	pressures	that	could	materially	adversely	affect	our	revenue	and profitability.

The	financial	services	industry	and	all	aspects	of	our	businesses	are	intensely	competitive,	and	we	expect	them	to	remain	so.	We	compete	with	commercial	banks, brokerage	firms,	insurance	companies,	electronic	trading	and	clearing	platforms,	financial	data	repositories,	sponsors	of	mutual	funds,	hedge	funds,	energy	companies and	other	companies	offering	financial	or	ancillary	services	in	the	U.S.,	globally	and	through	the	internet.	We	compete	on	the	basis	of	several	factors,	including transaction	execution,	capital	or	access	to	capital,	products	and	services,	innovation,	reputation,	risk	appetite	and	price.	Over	time,	certain	sectors	of	the	financial	services industry	have	become	more	concentrated,	as	institutions	involved	in	a	broad	range	of	financial	services	have	left	businesses,	been	acquired	by	or	merged	into	other	firms or	have	declared	bankruptcy.	Such	changes	could	result	in	our	remaining	competitors	gaining	greater	capital	and	other	resources,	such	as	the	ability	to	offer	a	broader range	of	products	and	services	and	geographic	diversity,	or	new	competitors	may	emerge.	We	have	experienced	and	may	continue	to	experience	pricing	pressures	as	a result	of	these	factors	and	as	some	of	our	competitors	seek	to	obtain	market	share	by	reducing	prices.	In	addition,	certain	of	our	competitors	may	be	subject	to	different, and	in	some	cases,	less	stringent,	legal	and	regulatory	regimes,	than	we	are,	thereby	putting	us	at	a	competitive	disadvantage.	For	more	information	regarding	the competitive	environment	in	which	we	operate,	see	"Business—Competition"	and	"Business—Supervision	and	Regulation"	in	Part	I,	Item	1	herein.

# Automated	trading	markets	may	adversely	affect	our	business	and	may	increase	competition.

We	have	experienced	intense	price	competition	in	some	of	our	businesses	in	recent	years.	In	particular,	the	ability	to	execute	securities	trades	electronically	on	exchanges and	through	other	automated	trading	markets	has	increased	the	pressure	on	trading	commissions	or	comparable	fees.	The	trend	toward	direct	access	to	automated, electronic	markets	will	likely	continue	and	will	likely	increase	as	additional	markets	move	to	more	automated	trading	models.	We	have	experienced	and	it	is	likely	that we	will	continue	to	experience	competitive	pressures	in	these	and	other	areas	in	the	future	as	some	of	our	competitors	may	seek	to	obtain	market	share	by	reducing prices.

# Our	ability	to	retain	and	attract	qualified	employees	is	critical	to	the	success	of	our	business	and	the	failure	to	do	so	may	materially	adversely	affect	our performance.

Our	people	are	our	most	important	resource	and	competition	for	qualified	employees	is	intense.	In	order	to	attract	and	retain	qualified	employees,	we	must	compensate such	employees	at	market	levels.	Typically,	those	levels	have	caused	employee	compensation	to	be	our	greatest	expense	as	compensation	is	highly	variable	and	changes based	on	business	and	individual	performance	and	market	conditions.	If	we	are	unable	to	continue	to	attract	and	retain	highly	qualified	employees,	or	do	so	at	rates necessary	to	maintain	our	competitive	position,	or	if	compensation	costs	required	to	attract	and	retain	employees	become	more	expensive,	our	performance,	including our	competitive	position,	could	be	materially	adversely	affected.	The	financial	industry	has	and	may	continue	to	experience	more	stringent	regulation	of	employee compensation,	including	limitations	relating	to	incentive-based	compensation,	clawback	requirements	and	special	taxation,	which	could	have	an	adverse	effect	on	our ability	to	hire	or	retain	the	most	qualified	employees.

# International	Risk.

# We	are	subject	to	numerous	political,	economic,	legal,	operational,	franchise	and	other	risks	as	a	result	of	our	international	operations	which	could	adversely impact	our	businesses	in	many	ways.

We	are	subject	to	political,	economic,	legal,	tax,	operational,	franchise	and	other	risks	that	are	inherent	in	operating	in	many	countries,	including	risks	of	possible nationalization,	expropriation,	price	controls,	capital	controls,	exchange	controls,	increased	taxes	and	levies	and	other	restrictive	governmental	actions,	as	well	as	the

outbreak	of	hostilities	or	political	and	governmental	instability.	In	many	countries,	the	laws	and	regulations	applicable	to	the	securities	and	financial	services	industries are	uncertain	and	evolving,	and	it	may	be	difficult	for	us	to	determine	the	exact	requirements	of	local	laws	in	every	market.	Our	inability	to	remain	in	compliance	with local	laws	in	a	particular	market	could	have	a	significant	and	negative	effect	not	only	on	our	business	in	that	market	but	also	on	our	reputation	generally.	We	are	also subject	to	the	enhanced	risk	that	transactions	we	structure	might	not	be	legally	enforceable	in	all	cases.

Various	emerging	market	countries	have	experienced	severe	political,	economic	and	financial	disruptions,	including	significant	devaluations	of	their	currencies,	defaults or	potential	defaults	on	sovereign	debt,	capital	and	currency	exchange	controls,	high	rates	of	inflation	and	low	or	negative	growth	rates	in	their	economies.	Crime	and corruption,	as	well	as	issues	of	security	and	personal	safety,	also	exist	in	certain	of	these	countries.	These	conditions	could	adversely	impact	our	businesses	and	increase volatility	in	financial	markets	generally.

The	emergence	of	a	disease	pandemic	or	other	widespread	health	emergency,	or	concerns	over	the	possibility	of	such	an	emergency	as	well	as	natural	disasters,	terrorist activities	or	military	actions,	could	create	economic	and	financial	disruptions	in	emerging	markets	and	other	areas	throughout	the	world,	and	could	lead	to	operational difficulties	(including	travel	limitations)	that	could	impair	our	ability	to	manage	our	businesses	around	the	world.

As	a	U.S.	company,	we	are	required	to	comply	with	the	economic	sanctions	and	embargo	programs	administered	by	OFAC	and	similar	multi-national	bodies	and governmental	agencies	worldwide,	as	well	as	applicable	anti-corruption	laws	in	the	jurisdictions	in	which	we	operate.	A	violation	of	a	sanction,	embargo	program,	or anti-corruption	law,	could	subject	us,	and	individual	employees,	to	a	regulatory	enforcement	action	as	well	as	significant	civil	and	criminal	penalties.

# Acquisition	and	Joint	Venture	Risk.

# We	may	be	unable	to	fully	capture	the	expected	value	from	acquisitions,	joint	ventures,	minority	stakes	and	strategic	alliances.

In	connection	with	past	or	future	acquisitions,	joint	ventures	(including	the	Wealth	Management	Joint	Venture)	or	strategic	alliances	(including	with	MUFG),	we	face numerous	risks	and	uncertainties	combining	or	integrating	the	relevant	businesses	and	systems,	including	the	need	to	combine	accounting	and	data	processing	systems and	management	controls	and	to	integrate	relationships	with	clients,	trading	counterparties	and	business	partners.	In	the	case	of	joint	ventures	and	minority	stakes,	we	are subject	to	additional	risks	and	uncertainties	because	we	may	be	dependent	upon,	and	subject	to	liability,	losses	or	reputational	damage	relating	to,	systems,	controls	and personnel	that	are	not	under	our	control.

For	example,	the	ownership	arrangements	relating	to	the	Company's	joint	venture	in	Japan	with	MUFG	of	their	respective	investment	banking	and	securities	businesses are	complex.	MUFG	and	the	Company	have	integrated	their	respective	Japanese	securities	businesses	by	forming	two	joint	venture	companies,	MUMSS	and MSMS.	See	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations—Other	Matters—Japanese	Securities	Joint	Venture"	in	Part	II, Item	7	herein.

In	addition,	conflicts	or	disagreements	between	us	and	any	of	our	joint	venture	partners	may	negatively	impact	the	benefits	to	be	achieved	by	the	relevant	joint	venture.

There	is	no	assurance	that	any	of	our	acquisitions	will	be	successfully	integrated	or	yield	all	of	the	positive	benefits	anticipated.	If	we	are	not	able	to	integrate successfully	our	past	and	future	acquisitions,	there	is	a	risk	that	our	results	of	operations,	financial	condition	and	cash	flows	may	be	materially	and	adversely	affected.

Certain	of	our	business	initiatives,	including	expansions	of	existing	businesses,	may	bring	us	into	contact,	directly	or	indirectly,	with	individuals	and	entities	that	are	not within	our	traditional	client	and	counterparty	base	and	may	expose	us	to	new	asset	classes	and	new	markets.	These	business	activities	expose	us	to	new	and 30

enhanced	risks,	greater	regulatory	scrutiny	of	these	activities,	increased	credit-related,	sovereign	and	operational	risks,	and	reputational	concerns	regarding	the	manner	in which	these	assets	are	being	operated	or	held.

For	more	information	regarding	the	regulatory	environment	in	which	we	operate,	see	also	"Business—Supervision	and	Regulation"	in	Part	I,	Item	1	herein.

# Item	1B.				Unresolved	Staff	Comments.

The	Company,	like	other	well-known	seasoned	issuers,	from	time	to	time	receives	written	comments	from	the	staff	of	the	SEC	regarding	its	periodic	or	current	reports under	the	Exchange	Act.	There	are	no	comments	that	remain	unresolved	that	the	Company	received	not	less	than	180	days	before	the	end	of	the	year	to	which	this	report relates	that	the	Company	believes	are	material.

The	Company	and	its	subsidiaries	have	offices,	operations	and	data	centers	located	around	the	world.	The	Company's	properties	that	are	not	owned	are	leased	on	terms and	for	durations	that	are	reflective	of	commercial	standards	in	the	communities	where	these	properties	are	located.	The	Company	believes	the	facilities	it	owns	or occupies	are	adequate	for	the	purposes	for	which	they	are	currently	used	and	are	well	maintained.	The	Company's	principal	offices	consist	of	the	following	properties:

| Location | Owned/<br>Leased | Lease	Expiration | Approximate	Square		Footage<br>as	of	December	31,	2012(A) |
| :--- | :--- | :--- | :--- |
| U.S.\tLocations |  |  |  |
| 1585\tBroadway | Owned | N/A | 1,346,500\tsquare\tfeet |
| New\tYork,\tNew\tYork |  |  |  |
| (Global\tHeadquarters\tand\tInstitutional\tSecurities\tHeadquarters) |  |  |  |
| 2000\tWestchester\tAvenue | Owned | N/A | 597,400\tsquare\tfeet |
| Purchase,\tNew\tYork |  |  |  |
| (Global\tWealth\tManagement\tGroup\tHeadquarters) |  |  |  |
| 522\tFifth\tAvenue | Owned | N/A | 581,250\tsquare\tfeet |
| New\tYork,\tNew\tYork |  |  |  |
| (Asset\tManagement\tHeadquarters) |  |  |  |
| New\tYork,\tNew\tYork | Leased | 2013\t–\t2029 | 2,579,400\tsquare\tfeet |
| (Several\tlocations) |  |  |  |
| Brooklyn,\tNew\tYork | Leased | 2013\t–\t2023 | 478,850\tsquare\tfeet |
| (Several\tlocations) |  |  |  |
| Jersey\tCity,\tNew\tJersey | Leased | 2013\t–\t2014 | 479,550\tsquare\tfeet |
| (Several\tlocations) |  |  |  |
| International\tLocations |  |  |  |
| 20\tBank\tStreet | Leased | 2038 | 546,500\tsquare\tfeet |
| London |  |  |  |
| (London\tHeadquarters) |  |  |  |
| Canary\tWharf | Leased(B) | 2036 | 625,950\tsquare\tfeet |
| London |  |  |  |
| (Several\tlocations) |  |  |  |
| 1\tAustin\tRoad\tWest | Leased | 2019 | 572,600\tsquare\tfeet |
| Kowloon |  |  |  |
| (Hong\tKong\tHeadquarters) |  |  |  |
| Sapporo's\tYebisu\tGarden\tPlace | Leased | 2013(C) | 302,000\tsquare\tfeet |

(A) The	indicated	total	aggregate	square	footage	leased	does	not	include	space	occupied	by	Morgan	Stanley	branch	offices.

(B) The	Company	holds	the	freehold	interest	in	the	land	and	building.

(C) Option	to	return	any	amount	of	space	up	to	the	full	space	with	six	months	prior	notice.

# Item	3.				Legal	Proceedings.

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

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

The	Company	contests	liability	and/or	the	amount	of	damages	as	appropriate	in	each	pending	matter.	Where	available	information	indicates	that	it	is	probable	a	liability had	been	incurred	at	the	date	of	the	consolidated	financial	statements	and	the	Company	can	reasonably	estimate	the	amount	of	that	loss,	the	Company	accrues	the estimated	loss	by	a	charge	to	income.

In	many	proceedings,	however,	it	is	inherently	difficult	to	determine	whether	any	loss	is	probable	or	even	possible	or	to	estimate	the	amount	of	any	loss.	The	Company cannot	predict	with	certainty	if,	how	or	when	such	proceedings	will	be	resolved	or	what	the	eventual	settlement,	fine,	penalty	or	other	relief,	if	any,	may	be,	particularly for	proceedings	that	are	in	their	early	stages	of	development	or	where	plaintiffs	seek	substantial	or	indeterminate	damages.	Numerous	issues	may	need	to	be	resolved, including	through	potentially	lengthy	discovery	and	determination	of	important	factual	matters,	determination	of	issues	related	to	class	certification	and	the	calculation of	damages,	and	by	addressing	novel	or	unsettled	legal	questions	relevant	to	the	proceedings	in	question,	before	a	loss	or	additional	loss	or	range	of	loss	or	additional	loss can	be	reasonably	estimated	for	any	proceeding.	Subject	to	the	foregoing,	the	Company	believes,	based	on	current	knowledge	and	after	consultation	with	counsel,	that the	outcome	of	such	proceedings	will	not	have	a	material	adverse	effect	on	the	consolidated	financial	condition	of	the	Company,	although	the	outcome	of	such proceedings	could	be	material	to	the	Company's	operating	results	and	cash	flows	for	a	particular	period	depending	on,	among	other	things,	the	level	of	the	Company's revenues	or	income	for	such	period.

Over	the	last	several	years,	the	level	of	litigation	and	investigatory	activity	focused	on	residential	mortgage	and	credit	crisis	related	matters	has	increased	materially	in the	financial	services	industry.	As	a	result,	the	Company	expects	that	it	may	become	the	subject	of	increased	claims	for	damages	and	other	relief	regarding	residential mortgages	and	related	securities	in	the	future	and,	while	the	Company	has	identified	below	certain	proceedings	that	the	Company	believes	to	be	material,	individually	or collectively,	there	can	be	no	assurance	that	additional	material	losses	will	not	be	incurred	from	residential	mortgage	claims	that	have	not	yet	been	notified	to	the Company	or	are	not	yet	determined	to	be	material.

# Residential	Mortgage	and	Credit	Crisis	Related	Matters.

Regulatory	and	Governmental	Matters.				The	Company	is	responding	to	subpoenas	and	requests	for	information	from	certain	regulatory	and	governmental	entities concerning	the	origination,	financing,	purchase,	securitization	and	servicing	of	subprime	and	non-subprime	residential	mortgages	and	related	matters	such	as	residential mortgage	backed	securities	("RMBS"),	collateralized	debt	obligations	("CDOs"),	structured	investment	vehicles	("SIVs")	and	credit	default	swaps	backed	by	or referencing	mortgage	pass-through	certificates.	These	matters	include,	but	are	not	limited	to,	investigations	related	to	the	Company's	due	diligence	on	the	loans	that	it purchased	for	securitization,	the	Company's	communications	with	ratings	agencies,	the	Company's	disclosures	to	investors,	and	the	Company's	handling	of	servicing and	foreclosure	related	issues.

Class	Actions.				Beginning	in	December	2007,	several	purported	class	action	complaints	were	filed	in	the	United	States	District	Court	for	the	Southern	District	of	New York	(the	"SDNY")	asserting	claims	on	behalf	of	participants	in	the	Company's	401(k)	plan	and	employee	stock	ownership	plan	against	the	Company	and	other	parties, including	certain	present	and	former	directors	and	officers,	under	the	Employee	Retirement	Income	Security	Act	of	1974	("ERISA").	In	February	2008,	these	actions were	consolidated	in	a	single	proceeding,	styled	In	re	Morgan	Stanley	ERISA	Litigation.	The	consolidated	complaint	relates	in	large	part	to	the	Company's	subprime	and other	mortgage	related	losses,	but	also	includes	allegations	regarding	the	Company's	disclosures,	internal	controls,	accounting	and	other	matters.	The	consolidated complaint	alleges,	among	other	things,	that	the	Company's	common	stock	was	not	a	prudent	investment	and	that	risks	associated	with	its	common	stock	and	its financial	condition	were	not	adequately	disclosed.	Plaintiffs	are	seeking,	among	other	relief,	class	certification,	unspecified	compensatory	damages,	costs,	interest	and fees.	On	March	26,	2012,	defendants	filed	a	renewed	motion	to	dismiss	the	complaint.

On	March	16,	2011,	a	purported	class	action,	styled	Coulter	v.	Morgan	Stanley	&	Co.	Incorporated	et	al.,	was	filed	in	the	SDNY	asserting	claims	on	behalf	of participants	in	the	Company's	401(k)	plan	and	employee	stock	ownership	plan	against	the	Company	and	certain	current	and	former	officers	and	directors	for	breach	of fiduciary	duties	under	ERISA.	The	complaint	alleges,	among	other	things,	that	defendants	knew	or	should	have	known	that	from	January	2,	2008	to	December	31,	2008, the	plans'	investment	in	Company	stock	was	imprudent	given	the	extraordinary	risks	faced	by	the	Company	and	its	common	stock	during	that	period.	Plaintiffs	are seeking,	among	other	relief,	class	certification,	unspecified	compensatory	damages,	costs,	interest	and	fees.	On	July	20,	2011,	plaintiffs	filed	an	amended	complaint	and on	October	28,	2011,	defendants	filed	a	motion	to	dismiss	the	amended	complaint.

On	February	12,	2008,	a	purported	class	action,	styled	Joel	Stratte-McClure,	et	al.	v.	Morgan	Stanley,	et	al.,	was	filed	in	the	SDNY	against	the	Company	and	certain present	and	former	executives	asserting	claims	on	behalf	of	a	purported	class	of	persons	and	entities	who	purchased	shares	of	the	Company's	common	stock	during	the period	June	20,	2007	to	December	19,	2007	and	who	suffered	damages	as	a	result	of	such	purchases.	The	allegations	in	the	amended	complaint	related	in	large	part	to	the Company's	subprime	and	other	mortgage	related	losses,	but	also	included	allegations	regarding	the	Company's	disclosures,	internal	controls,	accounting	and	other matters.	On	August	8,	2011,	defendants	filed	a	motion	to	dismiss	the	second	amended	complaint,	which	was	granted	on	January	18,	2013.	On	February	14,	2013,	the plaintiffs	filed	a	notice	of	appeal	in	the	United	States	Court	of	Appeals	for	the	Second	Circuit	(the	"Second	Circuit").

On	May	7,	2009,	the	Company	was	named	as	a	defendant	in	a	purported	class	action	lawsuit	brought	under	Sections	11,	12	and	15	of	the	Securities	Act	of	1933,	as amended	(the	"Securities	Act"),	which	is	now	styled	In	re	Morgan	Stanley	Mortgage	Pass-Through	Certificate	Litigation	and	is	pending	in	the	SDNY.	The	third amended	complaint,	filed	on	September	30,	2011,	alleges,	among	other	things,	that	the	registration	statements	and	offering	documents	related	to	the	offerings	of	certain mortgage	pass-through	certificates	in	2006	contained	false	and	misleading	information	concerning	the	pools	of	residential	loans	that	backed	these	securitizations.	The plaintiffs	seek,	among	other	relief,	class	certification,	unspecified	compensatory	and	rescissionary	damages,	costs,	interest	and	fees.	On	January	11,	2013,	the	court granted	plaintiffs'	motion	for	reconsideration	which	sought	to	expand	the	offerings	at	issue	in	the	litigation	based	on	recent	precedent	from	the	Second	Circuit.	On January	31,	2013,	plaintiffs	filed	a	fourth	amended	complaint,	in	which	they	purport	to	represent	investors	who	purchased	approximately	$7.82	billion	in	mortgage	pass- through	certificates	issued	in	2006	by	14	trusts.

Beginning	in	2007,	the	Company	was	named	as	a	defendant	in	several	putative	class	action	lawsuits	brought	under	Sections	11	and	12	of	the	Securities	Act,	related	to	its role	as	a	member	of	the	syndicates	that	underwrote	offerings	of	securities	and	mortgage	pass-through	certificates	for	certain	non-Morgan	Stanley	related	entities	that have	been	exposed	to	subprime	and	other	mortgage-related	losses.	The	plaintiffs	in	these	actions	allege,	among	other	things,	that	the	registration	statements	and	offering documents	for	the	offerings	at	issue	contained	material	misstatements	or	omissions	related	to	the	extent	to	which	the	issuers	were	exposed	to	subprime	and	other mortgage-related	risks	and	other	matters	and	seek	various	forms	of	relief	including	class	certification,

unspecified	compensatory	and	rescissionary	damages,	costs,	interest	and	fees.	The	Company's	exposure	to	potential	losses	in	these	cases	may	be	impacted	by	various factors	including,	among	other	things,	the	financial	condition	of	the	entities	that	issued	or	sponsored	the	securities	and	mortgage	pass-through	certificates	at	issue,	the principal	amount	of	the	offerings	underwritten	by	the	Company,	the	financial	condition	of	co-defendants	and	the	willingness	and	ability	of	the	issuers	(or	their	affiliates) to	indemnify	the	underwriter	defendants.	Some	of	these	cases,	including	In	re:	Lehman	Brothers	Equity/Debt	Securities	Litigation	and	In	re	IndyMac	Mortgage-Backed Securities	Litigation,	relate	to	issuers	or	sponsors	(or	their	affiliates)	that	have	filed	for	bankruptcy	or	have	been	placed	into	receivership.

In	re:	Lehman	Brothers	Equity/Debt	Securities	Litigation	is	pending	in	the	SDNY	and	relates	to	several	offerings	of	debt	and	equity	securities	issued	by	Lehman Brothers	Holdings	Inc.	during	2007	and	2008.	The	Company	underwrote	approximately	$232	million	of	the	principal	amount	of	the	offerings	at	issue.	A	group	of underwriter	defendants,	including	the	Company,	settled	the	main	litigation	on	December	2,	2012.	The	underwriter	defendants,	including	the	Company,	continue	to defend	claims	by	investors	who	opted	out	of	the	settlement	or	who	purchased	securities	not	covered	by	the	settlement.

In	re	IndyMac	Mortgage-Backed	Securities	Litigation	is	pending	in	the	SDNY	and	relates	to	offerings	of	mortgage	pass-through	certificates	issued	by	seven	trusts sponsored	by	affiliates	of	IndyMac	Bancorp	during	2006	and	2007.	On	June	21,	2010,	the	court	granted	in	part	and	denied	in	part	the	underwriter	defendants'	motion	to dismiss	the	amended	consolidated	class	action	complaint.	The	Company	underwrote	approximately	$46	million	of	the	principal	amount	of	the	offerings	currently	at issue.	In	July	2011,	certain	putative	additional	plaintiffs	appealed	the	court's	June	2011	order	denying	the	motion	to	add	them	as	additional	plaintiffs	as	to	the	Company. The	Company	is	opposing	the	appeals.	On	August	17,	2012,	the	court	granted	class	certification.	On	October	12,	2012,	the	plaintiffs	filed	a	motion	seeking	to	expand	the offerings	at	issue	in	the	litigation,	relying	on	recent	precedent	from	the	Second	Circuit.	Defendants	have	opposed	the	motion.	If	the	motion	is	granted	and	the	offerings are	included	in	the	class	that	is	certified,	the	principal	amount	of	the	offerings	underwritten	by	the	Company	at	issue	in	the	litigation	will	be	approximately	$1.68	billion.

Luther,	et	al.	v.	Countrywide	Financial	Corporation,	et	al.,	pending	in	the	Superior	Court	of	the	State	of	California,	was	filed	on	November	14,	2007	and	involves	claims related	to	the	Company's	role	as	an	underwriter	of	various	residential	mortgage	backed	securities	offerings	issued	by	affiliates	of	Countrywide	Financial	Corporation. The	amended	complaint	includes	allegations	that	the	registration	statements	and	the	offering	documents	contained	false	and	misleading	statements	about	the	residential mortgage	loans	backing	the	securities.	The	Company	underwrote	approximately	$6.3	billion	of	the	principal	amount	of	the	offerings	at	issue.	On	December	19,	2011, defendants	moved	to	dismiss	the	complaint.	In	February	2012,	defendants	moved	to	stay	the	case	pending	resolution	of	a	securities	class	action	brought	by	the	same plaintiffs,	styled	Maine	State	Retirement	System	v.	Countrywide	Financial	Corporation,	et	al.,	in	the	United	States	District	Court	for	the	Central	District	of	California.	In June	2012,	the	defendants	removed	the	case	to	the	United	States	District	Court	for	the	Central	District	of	California.	The	motion	to	remand	the	matter	was	denied	in August	2012.

Other	Litigation.				On	August	25,	2008,	the	Company	and	two	ratings	agencies	were	named	as	defendants	in	a	purported	class	action	related	to	securities	issued	by	a SIV	called	Cheyne	Finance	PLC	and	Cheyne	Finance	LLC	(together,	the	"Cheyne	SIV").	The	case	is	styled	Abu	Dhabi	Commercial	Bank,	et	al.	v.	Morgan	Stanley	& Co.	Inc.,	et	al.	and	is	pending	in	the	SDNY.	The	complaint	alleges,	among	other	things,	that	the	ratings	assigned	to	the	securities	issued	by	the	SIV	were	false	and misleading,	including	because	the	ratings	did	not	accurately	reflect	the	risks	associated	with	the	subprime	RMBS	held	by	the	SIV.	The	plaintiffs	currently	assert allegations	of	aiding	and	abetting	fraud	and	negligent	misrepresentation	relating	to	approximately	$852	million	of	securities	issued	by	the	Cheyne	SIV.	The	plaintiffs' motion	for	class	certification	was	denied	in	June	2010.	The	court	denied	the	Company's	motion	for	summary	judgment	on	the	aiding	and	abetting	fraud	claim	in	August 2012.	The	Company's	motion	for	summary	judgment	on	the	negligent	misrepresentation	claim,	filed	on	November	30,	2012,	is	pending.	The	court	has	set	a	trial	date	of May	6,	2013.	There	are	currently	14	named	plaintiffs	in	the	action	claiming	damages	of	approximately	$638	million,	as	well	as	punitive	damages.

On	December	14,	2009,	Central	Mortgage	Company	("CMC")	filed	a	complaint	against	the	Company,	in	a	matter	styled	Central	Mortgage	Company	v.	Morgan	Stanley Mortgage	Capital	Holdings	LLC,	pending	in	the	Court	of	Chancery	of	the	State	of	Delaware.	The	complaint	alleged	that	that	Morgan	Stanley	Mortgage	Capital	Holdings LLC	improperly	refused	to	repurchase	certain	mortgage	loans	that	CMC,	as	servicer,	was	required	to	repurchase	from	the	Federal	Home	Loan	Mortgage	Corporation ("Freddie	Mac")	and	the	Federal	National	Mortgage	Association	("Fannie	Mae").	On	November	4,	2011,	CMC	filed	an	amended	complaint	adding	claims	related	to	its purchase	of	servicing	rights	in	connection	with	approximately	$4.1	billion	of	residential	loans	deposited	into	RMBS	trusts	sponsored	by	the	Company.	The	amended complaint	asserts	claims	for	breach	of	contract,	quasi-contract,	equitable	and	tort	claims	and	seeks	compensatory	damages	and	equitable	remedies,	including	rescission, injunctive	relief,	damages,	restitution	and	disgorgement.	On	August	7,	2012,	the	court	granted	in	part	the	Company's	motion	to	dismiss	the	amended	complaint.

On	December	23,	2009,	the	Federal	Home	Loan	Bank	of	Seattle	filed	a	complaint	against	the	Company	and	another	defendant	in	the	Superior	Court	of	the	State	of Washington,	styled	Federal	Home	Loan	Bank	of	Seattle	v.	Morgan	Stanley	&	Co.	Inc.,	et	al.	The	amended	complaint,	filed	on	September	28,	2010,	alleges	that defendants	made	untrue	statements	and	material	omissions	in	the	sale	to	plaintiff	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	sold	to	plaintiff	by	the	Company	was	approximately	$233	million.	The	complaint	raises	claims under	the	Washington	State	Securities	Act	and	seeks,	among	other	things,	to	rescind	the	plaintiff's	purchase	of	such	certificates.	On	October	18,	2010,	defendants	filed	a motion	to	dismiss	the	action.	By	orders	dated	June	23,	2011	and	July	18,	2011,	the	court	denied	defendants'	omnibus	motion	to	dismiss	plaintiff's	amended	complaint and	on	August	15,	2011,	the	court	denied	the	Company's	individual	motion	to	dismiss	the	amended	complaint.

On	March	15,	2010,	the	Federal	Home	Loan	Bank	of	San	Francisco	filed	two	complaints	against	the	Company	and	other	defendants	in	the	Superior	Court	of	the	State	of California.	These	actions	are	styled	Federal	Home	Loan	Bank	of	San	Francisco	v.	Credit	Suisse	Securities	(USA)	LLC,	et	al.,	and	Federal	Home	Loan	Bank	of San	Francisco	v.	Deutsche	Bank	Securities	Inc.	et	al.,	respectively.	Amended	complaints	were	filed	on	June	10,	2010.	The	amended	complaints	allege	that	defendants made	untrue	statements	and	material	omissions	in	connection	with	the	sale	to	plaintiff	of	a	number	of	mortgage	pass-through	certificates	backed	by	securitization	trusts containing	residential	mortgage	loans.	The	amount	of	certificates	allegedly	sold	to	plaintiff	by	the	Company	in	these	cases	was	approximately	$704	million	and	$276 million,	respectively.	The	complaints	raise	claims	under	both	the	federal	securities	laws	and	California	law	and	seek,	among	other	things,	to	rescind	the	plaintiff's purchase	of	such	certificates.	On	July	29,	2011	and	September	8,	2011,	the	court	presiding	over	both	actions	sustained	defendants'	demurrers	with	respect	to	claims brought	under	the	Securities	Act,	and	overruled	defendants'	demurrers	with	respect	to	all	other	claims.

On	June	10,	2010,	the	Company	was	named	as	a	new	defendant	in	a	pre-existing	action	related	to	securities	issued	by	a	SIV	called	Rhinebridge	PLC	and	Rhinebridge LLC	(together,	the	"Rhinebridge	SIV").	The	case	is	styled	King	County,	Washington,	et	al.	v.	IKB	Deutsche	Industriebank	AG,	et	al.	and	is	pending	in	the	SDNY	before the	same	judge	presiding	over	the	litigation	concerning	the	Cheyne	SIV,	described	above.	The	complaint	alleges,	among	other	things,	that	the	ratings	assigned	to	the securities	issued	by	the	SIV	were	false	and	misleading,	including	because	the	ratings	did	not	accurately	reflect	the	risks	associated	with	the	subprime	RMBS	held	by	the SIV.	The	court	dismissed	plaintiffs'	claims	for	breach	of	fiduciary	duty	and	negligence	on	May	4,	2012.	On	September	7,	2012,	the	Company	moved	for	summary judgment	with	respect	to	the	remaining	claims	for	fraud,	negligent	misrepresentation	and	aiding	and	abetting	fraud.	On	January	3,	2013,	the	court	granted	the	motion	for summary	judgment	with	respect	to	the	fraud	and	negligent	misrepresentation	claims	and	denied	it	with	respect	to	the	aiding	and	abetting	fraud	claim.	The	two	named plaintiffs	claim	approximately	$65	million	in	lost	principal	and	interest,	as	well	as	punitive	damages.

On	July	9,	2010	and	February	11,	2011,	Cambridge	Place	Investment	Management	Inc.	filed	two	separate	complaints	against	the	Company	and	other	defendants	in	the Superior	Court	of	the	Commonwealth	of	Massachusetts,	both	styled	Cambridge	Place	Investment	Management	Inc.	v.	Morgan	Stanley	&	Co.,	Inc.,	et

al.	The	complaints	assert	claims	on	behalf	of	certain	clients	of	plaintiff's	affiliates	and	allege	that	defendants	made	untrue	statements	and	material	omissions	in	the	sale of	a	number	of	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	issued by	the	Company	or	sold	to	plaintiff's	affiliates'	clients	by	the	Company	in	the	two	matters	was	approximately	$344	million.	The	complaints	raise	claims	under	the Massachusetts	Uniform	Securities	Act	and	seek,	among	other	things,	to	rescind	the	plaintiff's	purchase	of	such	certificates.	On	October	14,	2011,	plaintiffs	filed	an amended	complaint	in	each	action.	On	November	22,	2011,	defendants	filed	a	motion	to	dismiss	the	amended	complaints.	On	March	12,	2012,	the	court	denied defendants'	motion	to	dismiss	with	respect	to	plaintiff's	standing	to	bring	suit.	Defendants	sought	interlocutory	appeal	from	that	decision	on	April	11,	2012.	On	April	26, 2012,	defendants	filed	a	second	motion	to	dismiss	for	failure	to	state	a	claim	upon	which	relief	can	be	granted,	which	the	court	denied,	in	substantial	part,	on	October	2, 2012.

On	July	15,	2010,	The	Charles	Schwab	Corp.	filed	a	complaint	against	the	Company	and	other	defendants	in	the	Superior	Court	of	the	State	of	California,	styled	The Charles	Schwab	Corp.	v.	BNP	Paribas	Securities	Corp.,	et	al.	The	complaint	alleges	that	defendants	made	untrue	statements	and	material	omissions	in	the	sale	to	one	of plaintiff's	subsidiaries	of	a	number	of	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of certificates	allegedly	sold	to	plaintiff's	subsidiary	by	the	Company	was	approximately	$180	million.	The	complaint	raises	claims	under	both	the	federal	securities	laws and	California	law	and	seeks,	among	other	things,	to	rescind	the	plaintiff's	purchase	of	such	certificates.	Plaintiff	filed	an	amended	complaint	on	August	2,	2010.	On September	22,	2011,	defendants	filed	demurrers	to	the	amended	complaint.	On	October	13,	2011,	plaintiff	voluntarily	dismissed	its	claims	brought	under	the	Securities Act.	On	January	27,	2012,	the	court,	in	a	ruling	from	the	bench,	substantially	overruled	defendants'	demurrers.	On	March	5,	2012,	the	plaintiff	filed	a	second	amended complaint.	On	April	10,	2012,	the	Company	filed	a	demurrer	to	certain	causes	of	action	in	the	second	amended	complaint,	which	the	court	overruled	on	July	24,	2012.

On	July	15,	2010,	China	Development	Industrial	Bank	("CDIB")	filed	a	complaint	against	the	Company,	which	is	styled	China	Development	Industrial	Bank	v.	Morgan Stanley	&	Co.	Incorporated	and	is	pending	in	the	Supreme	Court	of	the	State	of	New	York,	New	York	County	("Supreme	Court	of	NY,	NY	County").	The	Complaint relates	to	a	$275	million	credit	default	swap	referencing	the	super	senior	portion	of	the	STACK	2006-1	CDO.	The	complaint	asserts	claims	for	common	law	fraud, fraudulent	inducement	and	fraudulent	concealment	and	alleges	that	the	Company	misrepresented	the	risks	of	the	STACK	2006-1	CDO	to	CDIB,	and	that	the	Company knew	that	the	assets	backing	the	CDO	were	of	poor	quality	when	it	entered	into	the	credit	default	swap	with	CDIB.	The	complaint	seeks	compensatory	damages	related to	the	approximately	$228	million	that	CDIB	alleges	it	has	already	lost	under	the	credit	default	swap,	rescission	of	CDIB's	obligation	to	pay	an	additional	$12	million, punitive	damages,	equitable	relief,	fees	and	costs.	On	September	30,	2010,	the	Company	filed	a	motion	to	dismiss	the	complaint.	On	February	28,	2011,	the	Court denied	the	Company's	motion	to	dismiss	the	complaint.	On	July	7,	2011,	the	appellate	court	affirmed	the	lower	court's	decision	denying	the	Company's	motion	to dismiss.

On	October	15,	2010,	the	Federal	Home	Loan	Bank	of	Chicago	filed	two	complaints	against	the	Company	and	other	defendants.	One	was	filed	in	the	Circuit	Court	of the	State	of	Illinois	styled	Federal	Home	Loan	Bank	of	Chicago	v.	Bank	of	America	Funding	Corporation	et	al.	The	other	was	filed	in	the	Superior	Court	of	the	State	of California,	styled	Federal	Home	Loan	Bank	of	Chicago	v.	Bank	of	America	Securities	LLC,	et	al.	The	complaints	allege	that	defendants	made	untrue	statements	and material	omissions	in	the	sale	to	plaintiff	of	a	number	of	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage loans.	The	total	amount	of	certificates	allegedly	sold	to	plaintiff	by	the	Company	in	the	two	actions	was	approximately	$203	million	and	$75	million	respectively.	The complaint	filed	in	Illinois	raises	claims	under	Illinois	law.	The	complaint	filed	in	California	raises	claims	under	the	federal	securities	laws,	Illinois	law	and	California law.	Both	complaints	seek,	among	other	things,	to	rescind	the	plaintiff's	purchase	of	such	certificates.	On	March	24,	2011,	the	court	presiding	over	Federal	Home	Loan Bank	of	Chicago	v.	Bank	of	America	Funding	Corporation	et	al.	granted	plaintiff	leave	to	file	an	amended	complaint.	On	May	27,	2011,

defendants	filed	a	motion	to	dismiss	the	amended	complaint,	which	motion	was	denied	on	September	19,	2012.	The	Company	filed	its	answer	on	December	21,	2012. On	September	15,	2011,	plaintiff	filed	an	amended	complaint	in	Federal	Home	Loan	Bank	of	Chicago	v.	Bank	of	America	Securities	LLC,	et	al.	On	December	1,	2011, defendants	filed	a	demurrer	to	the	amended	complaint	on	statute	of	limitations	and	statute	of	repose	grounds,	which	demurrer	was	overruled	on	June	28,	2012.	On August	31,	2012,	defendants	filed	demurrers	on	the	merits	of	the	complaint.

On	April	20,	2011,	the	Federal	Home	Loan	Bank	of	Boston	filed	a	complaint	against	the	Company	and	other	defendants	in	the	Superior	Court	of	the	Commonwealth	of Massachusetts	styled	Federal	Home	Loan	Bank	of	Boston	v.	Ally	Financial,	Inc.	F/K/A	GMAC	LLC	et	al.	An	amended	complaint	was	filed	on	June	19,	2012	and	alleges that	defendants	made	untrue	statements	and	material	omissions	in	the	sale	to	plaintiff	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	issued	by	the	Company	or	sold	to	plaintiff	by	the	Company	was	approximately	$550 million.	The	amended	complaint	raises	claims	under	the	Massachusetts	Uniform	Securities	Act,	the	Massachusetts	consumer	protection	act	and	common	law	and	seeks, among	other	things,	to	rescind	the	plaintiff's	purchase	of	such	certificates.	On	May	26,	2011,	defendants	removed	the	case	to	the	United	States	District	Court	for	the District	of	Massachusetts.	On	October	11,	2012,	defendants	filed	motions	to	dismiss	the	amended	complaint.

On	July	5,	2011,	Allstate	Insurance	Company	and	certain	of	its	affiliated	entities	filed	a	complaint	against	the	Company	in	the	Supreme	Court	of	NY,	NY	County styled	Allstate	Insurance	Company,	et	al.	v.	Morgan	Stanley,	et	al.	An	amended	complaint	was	filed	on	September	9,	2011	and	alleges	that	defendants	made	untrue statements	and	material	omissions	in	the	sale	to	plaintiff	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage loans.	The	total	amount	of	certificates	allegedly	issued	and/or	sold	to	plaintiffs	by	the	Company	was	approximately	$104	million.	The	complaint	raises	common	law claims	of	fraud,	fraudulent	inducement,	aiding	and	abetting	fraud	and	negligent	misrepresentation	and	seeks,	among	other	things,	compensatory	and/or	rescissionary damages	associated	with	plaintiffs'	purchases	of	such	certificates.	On	October	14,	2011,	defendants	filed	a	motion	to	dismiss	the	amended	complaint.

On	July	18,	2011,	the	Western	and	Southern	Life	Insurance	Company	and	certain	affiliated	companies	filed	a	complaint	against	the	Company	and	other	defendants in	the	Court	of	Common	Pleas	in	Ohio,	styled	Western	and	Southern	Life	Insurance	Company,	et	al.	v.	Morgan	Stanley	Mortgage	Capital	Inc.,	et	al.	An	amended complaint	was	filed	on	April	2,	2012	and	alleges	that	defendants	made	untrue	statements	and	material	omissions	in	the	sale	to	plaintiffs	of	certain	mortgage	pass-through certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	amount	of	the	certificates	allegedly	sold	to	plaintiffs	by	the	Company	was approximately	$153	million.	The	amended	complaint	raises	claims	under	the	Ohio	Securities	Act,	federal	securities	laws,	and	common	law	and	seeks,	among	other things,	to	rescind	the	plaintiffs'	purchases	of	such	certificates.	On	May	21,	2012,	the	Company	filed	a	motion	to	dismiss	the	amended	complaint,	which	motion	was denied	on	August	3,	2012.	Trial	is	currently	scheduled	to	begin	in	November	2013.

On	September	2,	2011,	the	Federal	Housing	Finance	Agency	("FHFA"),	as	conservator	for	Fannie	Mae	and	Freddie	Mac,	filed	17	complaints	against	numerous	financial services	companies,	including	the	Company.	A	complaint	against	the	Company	and	other	defendants	was	filed	in	the	Supreme	Court	of	NY,	NY	County,	styled	Federal Housing	Finance	Agency,	as	Conservator	v.	Morgan	Stanley	et	al.	The	complaint	alleges	that	defendants	made	untrue	statements	and	material	omissions	in	connection with	the	sale	to	Fannie	Mae	and	Freddie	Mac	of	residential	mortgage	pass-through	certificates	with	an	original	unpaid	balance	of	approximately	$11	billion.	The complaint	raises	claims	under	federal	and	state	securities	laws	and	common	law	and	seeks,	among	other	things,	rescission	and	compensatory	and	punitive	damages.	On September	26,	2011,	defendants	removed	the	action	to	the	SDNY	and	on	October	26,	2011,	the	FHFA	moved	to	remand	the	action	back	to	the	Supreme	Court	of	NY, NY	County.	On	May	11,	2012,	plaintiff	withdrew	its	motion	to	remand.	On	July	13,	2012,	the	Company	filed	a	motion	to	dismiss	the	complaint,	which	motion	was denied	in	large	part	on	November	19,	2012.	Trial	is	currently	scheduled	to	begin	in	January	2015.

On	September	2,	2011,	the	FHFA,	as	conservator	for	Freddie	Mac,	also	filed	a	complaint	against	the	Company	and	other	defendants	in	the	Supreme	Court	of	NY,	NY County,	styled	Federal	Housing	Finance	Agency,	as	Conservator	v.	General	Electric	Company	et	al.	The	complaint	alleged	that	defendants	made	untrue	statements	and material	omissions	in	connection	with	the	sale	to	Freddie	Mac	of	residential	mortgage	pass-through	certificates	with	an	original	unpaid	balance	of	approximately	$549 million.	The	complaint	raised	claims	under	federal	and	state	securities	laws	and	common	law	and	sought,	among	other	things,	rescission	and	compensatory	and	punitive damages.	On	October	6,	2011,	defendants	removed	the	action	to	the	SDNY.	On	January	22,	2013,	the	plaintiff	voluntarily	dismissed	the	action	with	prejudice	as	to	all defendants.

On	November	4,	2011,	the	Federal	Deposit	Insurance	Corporation	("FDIC"),	as	receiver	for	Franklin	Bank	S.S.B,	filed	two	complaints	against	the	Company	in	the District	Court	of	the	State	of	Texas.	Each	was	styled	Federal	Deposit	Insurance	Corporation,	as	Receiver	for	Franklin	Bank	S.S.B	v.	Morgan	Stanley	&	Company	LLC F/K/A	Morgan	Stanley	&	Co.	Inc.	and	alleged	that	the	Company	made	untrue	statements	and	material	omissions	in	connection	with	the	sale	to	plaintiff	of	mortgage	pass- through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	amount	of	certificates	allegedly	underwritten	and	sold	to	plaintiff	by	the Company	in	these	cases	was	approximately	$67	million	and	$35	million,	respectively.	The	complaints	each	raised	claims	under	both	federal	securities	law	and	the	Texas Securities	Act	and	each	seeks,	among	other	things,	compensatory	damages	associated	with	plaintiff's	purchase	of	such	certificates.	On	March	20,	2012,	the	Company filed	answers	to	the	complaints	in	both	cases.	On	June	13,	2012,	the	Company	removed	the	cases	to	the	United	States	District	Court	for	the	Southern	District	of	Texas. On	June	21,	2012,	the	Company	moved	to	transfer	the	action	to	the	SDNY.	On	November	27,	2012,	the	court	granted	the	plaintiff's	motion	to	remand	the	action	to Texas	state	court	and	denied	the	Company's	motion	to	transfer	the	case	to	New	York.	On	January	10,	2013,	the	Company	filed	a	motion	for	summary	judgment	and special	exceptions	with	respect	to	plaintiff's	claims.	On	February	6,	2013,	the	FDIC	filed	an	amended	consolidated	complaint.

On	January	20,	2012,	Sealink	Funding	Limited	filed	a	complaint	against	the	Company	in	the	Supreme	Court	of	NY,	NY	County,	styled	Sealink	Funding	Limited	v. Morgan	Stanley,	et	al.	Plaintiff	purports	to	be	the	assignee	of	claims	of	certain	special	purpose	vehicles	("SPVs")	formerly	sponsored	by	SachsenLB	Europe.	An amended	complaint	was	filed	on	May	21,	2012	and	alleges	that	defendants	made	untrue	statements	and	material	omissions	in	the	sale	to	the	SPVs	of	certain	mortgage pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	issued	by	the	Company	and/or sold	by	the	Company	was	approximately	$507	million.	The	amended	complaint	raises	common	law	claims	of	fraud,	fraudulent	inducement,	and	aiding	and	abetting fraud	and	seeks,	among	other	things,	compensatory	and/or	rescissionary	damages	as	well	as	punitive	damages	associated	with	plaintiffs'	purchases	of	such	certificates. On	September	7,	2012,	the	Company	filed	a	motion	to	dismiss	the	amended	complaint.

On	January	25,	2012,	Dexia	SA/NV	and	certain	of	its	affiliated	entities	filed	a	complaint	against	the	Company	in	the	Supreme	Court	of	NY,	NY	County	styled	Dexia SA/NV	et	al.	v.	Morgan	Stanley,	et	al.	An	amended	complaint	was	filed	on	May	24,	2012	and	alleges	that	defendants	made	untrue	statements	and	material	omissions	in the	sale	to	plaintiffs	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates allegedly	issued	by	the	Company	and/or	sold	to	plaintiffs	by	the	Company	was	approximately	$626	million.	The	amended	complaint	raises	common	law	claims	of fraud,	fraudulent	inducement,	and	aiding	and	abetting	fraud	and	seeks,	among	other	things,	compensatory	and/or	rescissionary	damages	as	well	as	punitive	damages associated	with	plaintiffs'	purchases	of	such	certificates.	On	August	10,	2012,	the	Company	filed	a	motion	to	dismiss	the	amended	complaint.

On	January	25,	2012,	Bayerische	Landesbank,	New	York	Branch	filed	a	complaint	against	the	Company	in	the	Supreme	Court	of	NY,	NY	County	styled	Bayerische Landesbank,	New	York	Branch	v.	Morgan	Stanley,	et	al.	An	amended	complaint	was	filed	on	May	24,	2012	and	alleges	that	defendants	made	untrue	statements	and material	omissions	in	the	sale	to	plaintiff	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total amount	of	certificates	allegedly	issued	by	the	Company	and/or	sold	to	plaintiff	by	the	Company	was	approximately	$411	million.	The	amended	complaint	raises common

law	claims	of	fraud,	fraudulent	inducement,	and	aiding	and	abetting	fraud	and	seeks,	among	other	things,	compensatory	and/or	rescissionary	damages	as	well	as	punitive damages	associated	with	plaintiffs'	purchases	of	such	certificates.	On	July	27,	2012,	the	Company	filed	a	motion	to	dismiss	the	amended	complaint.

On	April	25,	2012,	The	Prudential	Insurance	Company	of	America	and	certain	affiliates	filed	a	complaint	against	the	Company	and	certain	affiliates	in	the	Superior Court	of	the	State	of	New	Jersey	styled	The	Prudential	Insurance	Company	of	America,	et	al.	v.	Morgan	Stanley,	et	al.	The	complaint	alleges	that	defendants	made untrue	statements	and	material	omissions	in	connection	with	the	sale	to	plaintiffs	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	sponsored,	underwritten	and/or	sold	by	the	Company	is	approximately	$1	billion.	The	complaint raises	claims	under	the	New	Jersey	Uniform	Securities	Law,	as	well	as	common	law	claims	of	negligent	misrepresentation,	fraud	and	tortious	interference	with	contract and	seeks,	among	other	things,	compensatory	damages,	punitive	damages,	rescission	and	rescissionary	damages	associated	with	plaintiffs'	purchases	of	such	certificates. On	October	16,	2012,	plaintiffs	filed	an	amended	complaint	which,	among	other	things,	increases	the	total	amount	of	the	certificates	at	issue	by	approximately	$80 million,	adds	causes	of	action	for	fraudulent	inducement,	equitable	fraud,	aiding	and	abetting	fraud,	and	violations	of	the	New	Jersey	RICO	statute,	and	includes	a	claim for	treble	damages.	On	January	23,	2013,	defendants	filed	a	motion	to	dismiss	the	amended	complaint.

On	April	25,	2012,	Metropolitan	Life	Insurance	Company	and	certain	affiliates	filed	a	complaint	against	the	Company	and	certain	affiliates	in	the	Supreme	Court	of	NY, NY	County	styled	Metropolitan	Life	Insurance	Company,	et	al.	v.	Morgan	Stanley,	et	al.	An	amended	complaint	was	filed	on	June	29,	2012	and	alleges	that	defendants made	untrue	statements	and	material	omissions	in	the	sale	to	plaintiffs	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential mortgage	loans.	The	total	amount	of	certificates	allegedly	sponsored,	underwritten	and/or	sold	by	the	Company	was	approximately	$758	million.	The	amended	complaint raises	common	law	claims	of	fraud,	fraudulent	inducement,	and	aiding	and	abetting	fraud	and	seeks,	among	other	things,	rescission,	compensatory	and/or	rescissionary damages,	as	well	as	punitive	damages,	associated	with	plaintiffs'	purchases	of	such	certificates.	On	September	21,	2012,	the	Company	filed	a	motion	to	dismiss	the amended	complaint.

On	August	7,	2012,	U.S.	Bank,	in	its	capacity	as	Trustee,	filed	a	complaint	on	behalf	of	Morgan	Stanley	Mortgage	Loan	Trust	2006-4SL	and	Mortgage	Pass-Through Certificates,	Series	2006-4SL	(together,	the	"Trust")	against	the	Company.	The	matter	is	styled	Morgan	Stanley	Mortgage	Loan	Trust	2006-4SL,	et	al.	v.	Morgan Stanley	Mortgage	Capital	Inc.	and	is	pending	in	the	Supreme	Court	of	NY,	NY	County.	The	complaint	asserts	claims	for	breach	of	contract	and	alleges,	among	other things,	that	the	loans	in	the	Trust,	which	had	an	original	principal	balance	of	approximately	$303	million,	breached	various	representations	and	warranties.	The complaint	seeks,	among	other	relief,	rescission	of	the	mortgage	loan	purchase	agreement	underlying	the	transaction,	specific	performance	and	unspecified	damages	and interest.	On	October	8,	2012,	the	Company	filed	a	motion	to	dismiss	the	complaint.

On	August	8,	2012,	U.S.	Bank,	in	its	capacity	as	Trustee,	filed	a	complaint	on	behalf	of	Morgan	Stanley	Mortgage	Loan	Trust	2006-14SL,	Mortgage	Pass-Through Certificates,	Series	2006-14SL,	Morgan	Stanley	Mortgage	Loan	Trust	2007-4SL	and	Mortgage	Pass-Through	Certificates,	Series	2007-4SL	against	the	Company.	The complaint	is	styled	Morgan	Stanley	Mortgage	Loan	Trust	2006-14SL,	et	al.	v.	Morgan	Stanley	Mortgage	Capital	Holdings	LLC,	as	successor	in	interest	to	Morgan Stanley	Mortgage	Capital	Inc.	and	is	pending	in	the	Supreme	Court	of	NY,	NY	County.	The	complaint	asserts	claims	for	breach	of	contract	and	alleges,	among	other things,	that	the	loans	in	the	trusts,	which	had	original	principal	balances	of	approximately	$354	million	and	$305	million	respectively,	breached	various	representations and	warranties.	The	complaint	seeks,	among	other	relief,	rescission	of	the	mortgage	loan	purchase	agreements	underlying	the	transactions,	specific	performance	and unspecified	damages	and	interest.	On	October	9,	2012,	the	Company	filed	a	motion	to	dismiss	the	complaint.

On	August	10,	2012,	the	FDIC,	as	receiver	for	Colonial	Bank,	filed	two	complaints	against	the	Company	in	the	Circuit	Court	of	Montgomery,	Alabama.	The	first	action is	styled	Federal	Deposit	Insurance	Corporation	as

Receiver	for	Colonial	Bank	v.	Citigroup	Mortgage	Loan	Trust	Inc.	et	al.	and	alleges	that	the	Company	made	untrue	statements	and	material	omissions	in	connection with	the	sale	to	Colonial	Bank	of	a	mortgage	pass-through	certificate	backed	by	a	securitization	trust	containing	residential	mortgage	loans.	The	total	amount	of	the certificate	allegedly	sponsored,	underwritten	and/or	sold	by	the	Company	to	Colonial	Bank	was	approximately	$65	million.	On	September	12,	2012,	defendants removed	the	case	to	the	United	States	District	Court	for	the	Middle	District	of	Alabama,	and	on	October	12,	2012,	plaintiff	moved	to	remand	the	case	to	state	court.	The second	action	is	styled	Federal	Deposit	Insurance	Corporation	as	Receiver	for	Colonial	Bank	v.	Countrywide	Securities	Corporation	et	al.	and	alleges	that	the	Company made	untrue	statements	and	material	omissions	in	connection	with	the	sale	to	Colonial	Bank	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	sponsored,	underwritten	and/or	sold	by	the	Company	to	Colonial	Bank	was approximately	$144	million.	On	September	10,	2012,	defendants	removed	the	case	to	the	United	States	District	Court	for	the	Middle	District	of	Alabama,	and	on September	21,	2012,	the	United	States	Judicial	Panel	on	Multidistrict	Litigation	transferred	the	action	to	the	United	States	District	Court	for	the	Central	District	of California.	On	October	11,	2012,	plaintiff	moved	to	remand	the	case	back	to	state	court,	which	motion	was	denied	on	December	7,	2012.	Defendants	filed	a	motion	to dismiss	on	January	22,	2013.	The	complaints	each	raise	claims	under	federal	securities	law	and	the	Alabama	Securities	Act	and	each	seeks,	among	other	things, compensatory	damages	associated	with	Colonial	Bank's	purchase	of	such	certificates.

On	September	28,	2012,	U.S.	Bank,	in	its	capacity	as	Trustee,	filed	a	complaint	on	behalf	of	Morgan	Stanley	Mortgage	Loan	Trust	2006-13ARX	against	the	Company styled	Morgan	Stanley	Mortgage	Loan	Trust	2006-13ARX	v.	Morgan	Stanley	Mortgage	Capital	Holdings	LLC,	as	successor	in	interest	to	Morgan	Stanley	Mortgage Capital	Inc.,	pending	in	the	Supreme	Court	of	NY,	NY	County.	U.S.	Bank	filed	an	amended	complaint	on	January	17,	2013,	which	asserts	claims	for	breach	of	contract and	alleges,	among	other	things,	that	the	loans	in	the	trust,	which	had	an	original	principal	balance	of	approximately	$609	million,	breached	various	representations	and warranties.	The	amended	complaint	seeks,	among	other	relief,	declaratory	judgment	relief,	specific	performance	and	unspecified	damages	and	interest.

On	October	5,	2012,	a	complaint	was	filed	against	the	Company	and	others	in	the	Supreme	Court	of	NY,	NY	County,	styled	Phoenix	Light	SF	Limited	et	al	v.	J.P. Morgan	Securities	LLC	et	al.	The	complaint	alleges	that	defendants	made	untrue	statements	and	material	omissions	in	the	sale	to	plaintiffs,	or	their	assignors,	of	certain mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	issued	by	the Company	and/or	sold	to	plaintiffs	or	their	assignors	by	the	Company	was	approximately	$344	million.	The	complaint	raises	common	law	claims	of	fraud,	fraudulent inducement,	aiding	and	abetting	fraud,	negligent	misrepresentation	and	rescission	based	on	mutual	mistake	and	seeks,	among	other	things,	compensatory	damages, punitive	damages	or	alternatively	rescission	or	rescissionary	damages	associated	with	the	purchase	of	such	certificates.	The	Company	filed	a	motion	to	dismiss	the complaint	on	December	14,	2012.

On	May	1,	2012,	Asset	Management	Fund	d/b/a	AMF	Funds	and	certain	of	its	affiliated	funds	filed	a	summons	with	notice	against	the	Company	in	the	Supreme	Court of	NY,	NY	County,	styled	Asset	Management	Fund	d/b/a	AMF	Funds	et	al	v.	Morgan	Stanley	et	al.	The	notice	alleges	that	defendants	made	material	misrepresentations and	omissions	in	the	sale	to	plaintiffs	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount of	certificates	allegedly	sponsored,	underwritten	and/or	sold	by	the	Company	to	plaintiffs	was	approximately	$122	million.	The	notice	identifies	causes	of	action	against the	Company	for,	among	other	things,	common-law	fraud,	fraudulent	inducement,	aiding	and	abetting	fraud,	and	negligent	misrepresentation.	The	notice	identifies	the relief	sought	to	include,	among	other	things,	monetary	damages,	punitive	damages	and	rescission.	Plaintiffs	filed	their	complaint	on	October	22,	2012.	On	December	3, 2012,	the	Company	filed	a	motion	to	dismiss	the	complaint.

On	November	16,	2012,	IKB	International	S.A.	and	an	affiliate	filed	a	summons	with	notice	against	the	Company	and	certain	affiliates	in	the	Supreme	Court	of	NY,	NY County,	styled	IKB	International	S.A.	In

Liquidation	v.	Morgan	Stanley	et	al.	The	notice	alleges	that	defendants	made	material	misrepresentations	and	omissions	in	the	sale	to	plaintiff	of	certain	mortgage	pass- through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	sponsored,	underwritten	and/or	sold by	the	Company	to	plaintiff	was	approximately	$147	million.	The	notice	identifies	causes	of	action	against	the	Company	for,	among	other	things,	common	law	fraud, fraudulent	inducement,	aiding	and	abetting	fraud,	and	negligent	misrepresentation	as	well	as	contract	claims.	The	notice	identifies	the	relief	sought	to	include,	among other	things,	monetary	damages,	punitive	damages,	and	rescission.

On	November	21,	2012,	Deutsche	Zentral	Genossenshaftsbank	AG	and	an	affiliate	filed	a	summons	with	notice	against	the	Company	and	certain	affiliates	in	the Supreme	Court	of	NY,	NY	County,	styled	Deutsche	Zentral	Genossenshaftsbank	AG,	New	York	Branch,	d/b/a	DZ	Bank	AG	New	York	Branch	v.	Morgan	Stanley	et al.	The	notice	alleges	that	defendants	made	material	misrepresentations	and	omissions	in	the	sale	to	plaintiff	of	certain	mortgage	pass-through	certificates	backed	by securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	sponsored,	underwritten	and/or	sold	by	the	Company	to	plaintiff	was approximately	$694	million.	The	notice	identifies	causes	of	action	against	the	Company	for,	among	other	things,	common	law	fraud,	fraudulent	inducement,	aiding	and abetting	fraud,	and	negligent	misrepresentation	as	well	as	contract	claims.	The	notice	identifies	the	relief	sought	to	include,	among	other	things,	monetary	damages, punitive	damages,	and	rescission.

On	November	28,	2012,	Stichting	Pensioenfonds	ABP	filed	a	complaint	against	the	Company	in	the	Supreme	Court	of	NY,	NY	County	styled	Stichting	Pensioenfonds ABP.	v.	Morgan	Stanley,	et	al.	The	complaint	alleges	that	defendants	made	untrue	statements	and	material	omissions	in	the	sale	to	plaintiff	of	an	unspecified	amount	of certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	complaint	raises	common	law	claims	of fraud,	fraudulent	inducement,	aiding	and	abetting	fraud	and	seeks,	among	other	things,	compensatory	and/or	rescissionary	damages	associated	with	plaintiff's	purchases of	such	certificates.	On	February	8,	2013,	the	Company	filed	a	motion	to	dismiss	the	complaint.

On	December	14,	2012,	Royal	Park	Investments	SA/NV	filed	a	complaint	against	the	Company,	certain	affiliates,	and	other	defendants	in	the	Supreme	Court	of	NY,	NY County,	styled	Royal	Park	Investments	SA/NV	v.	Merrill	Lynch	et	al.	The	complaint	alleges	that	defendants	made	material	misrepresentations	and	omissions	in	the	sale to	plaintiff	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly sponsored,	underwritten	and/or	sold	by	the	Company	to	plaintiff	was	approximately	$628	million.	The	complaint	raises	common	law	claims	of	fraud,	fraudulent inducement,	negligent	misrepresentation,	aiding	and	abetting	fraud,	and	rescission	and	seeks,	among	other	things,	compensatory	and	punitive	damages.

On	January	10,	2013,	U.S.	Bank,	in	its	capacity	as	Trustee,	filed	a	complaint	on	behalf	of	Morgan	Stanley	Mortgage	Loan	Trust	2006-10SL	and	Mortgage	Pass-Through Certificates,	Series	2006-10SL	against	the	Company.	The	complaint	is	styled	Morgan	Stanley	Mortgage	Loan	Trust	2006-10SL,	et	al.	v.	Morgan	Stanley	Mortgage Capital	Holdings	LLC,	as	successor	in	interest	to	Morgan	Stanley	Mortgage	Capital	Inc.	and	is	pending	in	the	Supreme	Court	of	NY,	NY	County.	The	complaint	asserts claims	for	breach	of	contract	and	alleges,	among	other	things,	that	the	loans	in	the	trust,	which	had	an	original	principal	balance	of	approximately	$300	million,	breached various	representations	and	warranties.	The	complaint	seeks,	among	other	relief,	an	order	requiring	the	Company	to	comply	with	the	loan	breach	remedy	procedures	in the	transaction	documents,	unspecified	damages,	and	interest.

On	January	25,	2013,	the	FHFA	filed	a	summons	with	notice	on	behalf	of	the	Trustee	of	the	Morgan	Stanley	ABS	Capital	I	Inc.	Trust,	Series	2007-NC1,	against	the Company.	The	matter	is	styled	Federal	Housing	Finance	Agency,	as	Conservator	for	the	Federal	Home	Loan	Mortgage	Corporation,	on	behalf	of	the	Trustee	of	the Morgan	Stanley	ABS	Capital	I	Inc.	Trust,	Series	007-NC1	v.	Morgan	Stanley	ABS	Capital	I	Inc.	and	is	pending	in	the	Supreme	Court	of	NY,	NY	County.	The	notice asserts	claims	for	breach	of	contract	and	alleges,	among	other	things,	that	the	loans	in	the	Trust,	which	had	an	original	principal	balance	of	approximately	$1.25	billion,

breached	various	representations	and	warranties.	The	notice	seeks,	among	other	relief,	specific	performance	of	the	loan	breach	remedy	procedures	in	the	transaction documents,	unspecified	damages,	and	interest.

On	January	30,	2013,	U.S.	Bank,	in	its	capacity	as	Trustee,	filed	a	summons	with	notice	on	behalf	of	Morgan	Stanley	Mortgage	Loan	Trust	2007-2AX	against	the Company.	The	matter	is	styled	Morgan	Stanley	Mortgage	Loan	Trust	2007-2AX,	by	U.S.	Bank	National	Association,	solely	in	its	capacity	as	Trustee	v.	Morgan	Stanley Mortgage	Capital	Holdings	LLC,	as	successor-by-merger	to	Morgan	Stanley	Mortgage	Capital	Inc.,	and	Greenpoint	Mortgage	Funding,	Inc.	and	is	pending	in	the Supreme	Court	of	NY,	NY	County.	The	notice	asserts	claims	for	breach	of	contract	and	alleges,	among	other	things,	that	the	loans	in	the	Trust,	which	had	an	original principal	balance	of	approximately	$650	million,	breached	various	representations	and	warranties.	The	complaint	seeks,	among	other	relief,	specific	performance	of	the loan	breach	remedy	procedures	in	the	transaction	documents,	unspecified	damages,	and	interest.

On	August	24,	2012,	HSH	Nordbank	AG	and	certain	affiliates	filed	a	summons	with	notice	against	the	Company,	certain	affiliates,	and	other	defendants	in	the	Supreme Court	of	NY,	NY	County,	styled	HSH	Nordbank	AG	et	al.	v.	Morgan	Stanley	et	al.	The	notice	alleges	that	defendants	made	material	misrepresentations	and	omissions in	the	sale	to	plaintiffs	of	certain	mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates allegedly	sponsored,	underwritten	and/or	sold	by	the	Company	to	plaintiff	was	approximately	$524	million.	The	notice	identifies	causes	of	action	against	the	Company for,	among	other	things,	common	law	fraud,	fraudulent	inducement,	aiding	and	abetting	fraud,	and	negligent	misrepresentation.	The	notice	identifies	the	relief	sought	to include,	among	other	things,	monetary	damages,	punitive	damages,	and	rescission.	An	amended	summons	with	notice	was	filed	on	November	28,	2012.

On	August	29,	2012,	Bank	Hapoalim	B.M.	filed	a	summons	with	notice	against	the	Company	and	certain	affiliates	in	the	Supreme	Court	of	NY,	NY	County,	styled Bank	Hapoalim	B.M.	v.	Morgan	Stanley	et	al.	The	notice	alleges	that	defendants	made	material	misrepresentations	and	omissions	in	the	sale	to	plaintiff	of	certain mortgage	pass-through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	sponsored, underwritten	and/or	sold	by	the	Company	to	plaintiff	was	approximately	$141	million.	The	notice	identifies	causes	of	action	against	the	Company	for,	among	other things,	common	law	fraud,	fraudulent	inducement,	aiding	and	abetting	fraud,	and	negligent	misrepresentation.	The	notice	identifies	the	relief	sought	to	include,	among other	things,	monetary	damages,	punitive	damages,	and	rescission.	An	amended	summons	with	notice	was	filed	on	December	4,	2012.

Other	Matters.				On	a	case-by-case	basis	the	Company	has	entered	into	agreements	to	toll	the	statute	of	limitations	applicable	to	potential	civil	claims	related	to	RMBS, CDOs	and	other	mortgage-related	products	and	services	when	the	Company	has	concluded	that	it	is	in	its	interest	to	do	so.

On	October	18,	2011,	the	Company	received	a	letter	from	Gibbs	&	Bruns	LLP	(the	"Law	Firm"),	which	is	purportedly	representing	a	group	of	investment	advisers	and holders	of	mortgage	pass-through	certificates	issued	by	RMBS	trusts	that	were	sponsored	or	underwritten	by	the	Company.	The	letter	asserted	that	the	Law	Firm's	clients collectively	hold	25%	or	more	of	the	voting	rights	in	17	RMBS	trusts	sponsored	or	underwritten	by	the	Company	and	that	these	trusts	have	an	aggregate	outstanding balance	exceeding	$6	billion.	The	letter	alleged	generally	that	large	numbers	of	mortgages	in	these	trusts	were	sold	or	deposited	into	the	trusts	based	on	false	and/or fraudulent	representations	and	warranties	by	the	mortgage	originators,	sellers	and/or	depositors.	The	letter	also	alleged	generally	that	there	is	evidence	suggesting	that	the Company	has	failed	prudently	to	service	mortgage	loans	in	these	trusts.	On	January	31,	2012,	the	Law	Firm	announced	that	its	clients	hold	over	25%	of	the	voting	rights in	69	RMBS	trusts	securing	over	$25	billion	of	RMBS	sponsored	or	underwritten	by	the	Company,	and	that	its	clients	had	issued	instructions	to	the	trustees	of	these trusts	to	open	investigations	into	allegedly	ineligible	mortgages	held	by	these	trusts.	The	Law	Firm's	press	release	also	indicated	that	the	Law	Firm's	clients	anticipate that	they	may	provide	additional	instructions	to	the	trustees,	as	needed,	to	further	the	investigations.	On	September	19,	2012,	the	Company	received	two	purported Notices	of	Non-Performance	from	the	Law	Firm	purportedly	on	behalf	of	the	holders	of	significant	voting	rights	in	various	trusts	securing	over	$28	billion	of	residential mortgage	backed	securities	sponsored	or	underwritten	by	the	Company.	The	Notice	purports

to	identify	certain	covenants	in	Pooling	and	Servicing	Agreements	("PSAs")	that	the	holders	allege	that	the	Servicer	and	Master	Servicer	failed	to	perform,	and	alleges that	each	of	these	failures	has	materially	affected	the	rights	of	certificate	holders	and	constitutes	an	ongoing	event	of	default	under	the	relevant	PSAs.	On	November	2, 2012,	the	Company	responded	to	the	letters,	denying	the	allegations	therein.

On	April	2,	2012,	the	Company	entered	into	a	Consent	Order	(the	"Order")	with	the	Board	of	Governors	of	the	Federal	Reserve	System	(the	"Federal	Reserve")	relating to	the	servicing	of	residential	mortgage	loans.	The	terms	of	the	Order	are	substantially	similar	and,	in	many	respects,	identical	to	the	orders	entered	into	with	the	Federal Reserve	by	other	large	U.S.	financial	institutions.	The	Order,	which	is	available	on	the	Federal	Reserve's	website,	sets	forth	various	allegations	of	improper	conduct	in servicing	by	Saxon,	requires	that	the	Company	and	its	affiliates	cease	and	desist	such	conduct,	and	requires	that	the	Company,	and	its	Board	of	Directors	and	affiliates, take	various	affirmative	steps.	The	Order	requires	(i)	the	Company	to	engage	an	independent	third-party	consultant	to	conduct	a	review	of	certain	foreclosure	actions	or proceedings	that	occurred	or	were	pending	between	January	1,	2009	and	December	31,	2010;	(ii)	the	adoption	of	policies	and	procedures	related	to	management	of	third parties	used	to	outsource	residential	mortgage	servicing,	loss	mitigation	or	foreclosure;	(iii)	a	"validation	report"	from	an	independent	third-party	consultant	regarding compliance	with	the	Order	for	the	first	year;	and	(iv)	submission	of	quarterly	progress	reports	as	to	compliance	with	the	Order	by	the	Company's	the	Board	of	Directors. The	Order	also	provides	that	the	Company	will	be	responsible	for	the	payment	of	any	civil	money	penalties	or	compensatory	payments	assessed	by	the	Federal	Reserve related	to	such	alleged	conduct,	which	penalties	or	payments	have	not	yet	been	determined.	On	January	15,	2013,	the	Company	entered	into	a	settlement	with	the	Federal Reserve	which	resulted	in	the	early	termination	of	the	foreclosure	review	process	required	by	the	Order	and,	in	its	place,	the	Company	agreed	to	pay	into	a	settlement fund	and	to	pay	additional	funds	for	borrower	relief	efforts.	The	Federal	Reserve	has	reserved	the	ability	to	impose	civil	monetary	penalties	on	Saxon.

# Commercial	Mortgage	Related	Matter.

On	January	25,	2011,	the	Company	was	named	as	a	defendant	in	The	Bank	of	New	York	Mellon	Trust,	National	Association	v.	Morgan	Stanley	Mortgage	Capital,	Inc.,	a litigation	pending	in	the	SDNY.	The	suit,	brought	by	the	trustee	of	a	series	of	commercial	mortgage	pass-through	certificates,	alleges	that	the	Company	breached	certain representations	and	warranties	with	respect	to	an	$81	million	commercial	mortgage	loan	that	was	originated	and	transferred	to	the	trust	by	the	Company.	The	complaint seeks,	among	other	things,	to	have	the	Company	repurchase	the	loan	and	pay	additional	monetary	damages.	On	June	27,	2011,	the	court	denied	the	Company's	motion to	dismiss,	but	directed	the	filing	of	an	amended	complaint.	On	July	29,	2011,	the	Company	filed	its	answer	to	the	first	amended	complaint.	On	September	21,	2012,	the Company	and	plaintiff	filed	motions	for	summary	judgment.

# Item	4.				Mine	Safety	Disclosures

Not	applicable.

# Part	II

# Item	5. Market	for	Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases	of	Equity	Securities.

Morgan	Stanley's	common	stock	trades	on	the	NYSE	under	the	symbol	"MS."	As	of	February	20,	2013,	the	Company	had	84,577	holders	of	record;	however,	the Company	believes	the	number	of	beneficial	owners	of	common	stock	exceeds	this	number.

The	table	below	sets	forth,	for	each	of	the	last	eight	quarters,	the	low	and	high	sales	prices	per	share	of	the	Company's	common	stock	as	reported	by	Bloomberg Financial	Markets	and	the	amount	of	any	cash	dividends	per	share	of	the	Company's	common	stock	declared	by	its	Board	of	Directors	for	such	quarter.

|  | Low<br>Sale	Price | High<br>Sale	Price | Dividends |
| :--- | :--- | :--- | :--- |
| 2012: |  |  |  |
| Fourth\tQuarter | $13.49 | $19.45 | $0.05 |
| Third\tQuarter | $12.29 | $18.50 | $0.05 |
| Second\tQuarter | $12.26 | $20.05 | $0.05 |
| First\tQuarter | $13.49 | $21.19 | $0.05 |
| 2011: |  |  |  |
| Fourth\tQuarter | $11.58 | $19.67 | $0.05 |
| Third\tQuarter | $12.49 | $24.46 | $0.05 |
| Second\tQuarter | $21.76 | $28.24 | $0.05 |
| First\tQuarter | $26.70 | $31.04 | $0.05 |

The	table	below	sets	forth	the	information	with	respect	to	purchases	made	by	or	on	behalf	of	the	Company	of	its	common	stock	during	the	fourth	quarter	of	the	year ended	December	31,	2012.

# Issuer	Purchases	of	Equity	Securities

(dollars	in	millions,	except	per	share	amounts)

| Period | Total<br>Number<br>of<br>Shares<br>Purchased | Average<br>Price<br>Paid	Per<br>Share | Total	Number	of<br>Shares	Purchased<br>As	Part	of	Publicly<br>Announced	Plans<br>or	Programs(C) | Value	of	Shares<br>that	May	Yet	Be<br>Purchased	Under<br>the	Plans	or<br>Programs |
| :--- | :--- | :--- | :--- | :--- |
| Month\t#1\t(October\t1,\t2012—October\t31,\t2012) |  |  |  |  |
| Share\tRepurchase\tProgram(A) | — | — | — | $1,560 |
| Employee\tTransactions(B) | \t120,413 | $17.32 | — | — |
| Month\t#2\t(November\t1,\t2012—November\t30,\t2012) |  |  |  |  |
| Share\tRepurchase\tProgram(A) | — | — | — | $1,560 |
| Employee\tTransactions(B) | 57,617 | $16.96 | — | — |
| Month\t#3\t(December\t1,\t2012—December\t31,\t2012) |  |  |  |  |
| Share\tRepurchase\tProgram(A) | — | — | — | $1,560 |
| Employee\tTransactions(B) | \t124,389 | $17.93 | — | — |
| Total |  |  |  |  |
| Share\tRepurchase\tProgram(A) | — | — | — | $1,560 |
| Employee\tTransactions(B) | \t302,419 | $17.50 | — | — |

(A) On	December	19,	2006,	the	Company	announced	that	its	Board	of	Directors	authorized	the	repurchase	of	up	to	$6	billion	of	the	Company's	outstanding	stock	under	a	share	repurchase	program	(the	"Share Repurchase	Program").	The	Share	Repurchase	Program	is	a	program	for	capital	management	purposes	that	considers,	among	other	things,	business	segment	capital	needs,	as	well	as	equity-based	compensation	and benefit	plan	requirements.	The	Share	Repurchase	Program	has	no	set	expiration	or	termination	date.	Share	repurchases	by	the	Company	are	subject	to	regulatory	approval.

(B) Includes:	(1)	shares	delivered	or	attested	in	satisfaction	of	the	exercise	price	and/or	tax	withholding	obligations	by	holders	of	employee	and	director	stock	options	(granted	under	employee	and	director	stock compensation	plans)	who	exercised	options;	(2)	shares	withheld,	delivered	or	attested	(under	the	terms	of	grants	under	employee	and	director	stock	compensation	plans)	to	offset	tax	withholding	obligations	that occur	upon	vesting	and	release	of	restricted	shares;	(3)	shares	withheld,	delivered	and	attested	(under	the	terms	of	grants	under	employee	and	director	stock	compensation	plans)	to	offset	tax	withholding obligations	that	occur	upon	the	delivery	of	outstanding	shares	underlying	restricted	stock	units;	and	(4)	shares	withheld,	delivered	and	attested	(under	the	terms	of	grants	under	employee	and	director	stock compensation	plans)	to	offset	the	cash	payment	for	fractional	shares.	The	Company's	employee	and	director	stock	compensation	plans	provide	that	the	value	of	the	shares	withheld,	delivered	or	attested,	shall	be valued	using	the	fair	market	value	of	the	Company's	common	stock	on	the	date	the	relevant	transaction	occurs,	using	a	valuation	methodology	established	by	the	Company.

(C) Share	purchases	under	publicly	announced	programs	are	made	pursuant	to	open-market	purchases,	Rule	10b5-1	plans	or	privately	negotiated	transactions	(including	with	employee	benefit	plans)	as	market conditions	warrant	and	at	prices	the	Company	deems	appropriate.

Stock	performance	graph.	The	following	graph	compares	the	cumulative	total	shareholder	return	(rounded	to	the	nearest	whole	dollar)	of	the	Company's	common stock,	the	S&P	500	Stock	Index	("S&P	500")	and	the	S&P	500	Financials	Index	("S5FINL")	for	the	last	five	years.	The	graph	assumes	a	$100	investment	at	the	closing price	on	December	30,	2007	and	reinvestment	of	dividends	on	the	respective	dividend	payment	dates	without	commissions.	This	graph	does	not	forecast	future performance	of	the	Company's	common	stock.

|  | MS | S&amp;P	500 | S5FINL |
| :--- | :--- | :--- | :--- |
| 12/31/2007 | $100.00 | $100.00 | $100.00 |
| 12/31/2008 | $31.25 | $63.00 | $44.73 |
| 12/31/2009 | $58.73 | $79.67 | $52.44 |
| 12/31/2010 | $54.39 | $91.68 | $58.82 |
| 12/30/2011 | $30.50 | $93.61 | $48.81 |
| 12/31/2012 | $39.01 | $108.59 | $62.92 |

# Selected	Financial	Data.

# MORGAN	STANLEY

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

|  |  |  |  |  | Fiscal | December	31, |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2012 | 2011 | 2010 | 2009(1)(2) | 2008 | 2008(2) |
| Income\tStatement\tData: |  |  |  |  |  |  |
| Revenues: |  |  |  |  |  |  |
| Investment\tbanking | $4,758 | $4,991 | $5,122\t\t\t $ | 5,020 | $4,057 | $196 |
| Principal\ttransactions: |  |  |  |  |  |  |
| Trading | 6,991 | 12,384 | 9,393 | 7,722 | 6,071 | (1,493) |
| Investments | 742 | 573 | 1,825 | (1,034) | (3,888) | (205) |
| Commissions\tand\tfees | 4,257 | 5,347 | 4,913 | 4,212 | 4,443 | 213 |
| Asset\tmanagement,\tdistribution\tand\tadministration\tfees | 9,008 | 8,410 | 7,843 | 5,802 | 4,839 | 292 |
| Other | 555 | 175 | 1,236 | 671 | 3,836 | 105 |
| Total\tnon-interest\trevenues | 26,311 | 31,880 | 30,332 | 22,393 | 19,358 | (892) |
| Interest\tincome | 5,725 | 7,258 | 7,305 | 7,472 | 38,928 | 1,089 |
| Interest\texpense | 5,924 | 6,902 | 6,407 | 6,680 | 36,216 | 1,137 |
| Net\tinterest | (199) | 356 | 898 | 792 | 2,712 | (48) |
| Net\trevenues | 26,112 | 32,236 | 31,230 | 23,185 | 22,070 | (940) |
| Non-interest\texpenses: |  |  |  |  |  |  |
| Compensation\tand\tbenefits | 15,622 | 16,333 | 15,866 | 14,295 | 11,759 | 578 |
| Other | 9,975 | 9,804 | 9,166 | 7,762 | 8,901 | 473 |
| Total\tnon-interest\texpenses | 25,597 | 26,137 | 25,032 | 22,057 | 20,660 | 1,051 |
| Income\t(loss)\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 515 | 6,099 | 6,198 | 1,128 | 1,410 | (1,991) |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | (239) | 1,410 | 743 | (299) | 128 | (722) |
| Income\t(loss)\tfrom\tcontinuing\toperations | 754 | 4,689 | 5,455 | 1,427 | 1,282 | (1,269) |
| Discontinued\toperations(3): |  |  |  |  |  |  |
| Gain\t(loss)\tfrom\tdiscontinued\toperations | (43) | (160) | 610 | (111) | 848 | (18) |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | (5) | (116) | 363 | (90) | 352 | (2) |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (38) | (44) | 247 | (21) | 496 | (16) |
| Net\tincome\t(loss) | 716 | 4,645 | 5,702 | 1,406 | 1,778 | (1,285) |
| Net\tincome\tapplicable\tto\tredeemable\tnoncontrolling\tinterests | 124 | — | — | — | — | — |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 524 | 535 | 999 | 60 | 71 | 3 |
| Net\tincome\t(loss)\tapplicable\tto\tMorgan\tStanley | $68 | $4,110 | $4,703\t\t\t $ | 1,346 | $1,707 | $(1,288) |
| Earnings\t(loss)\tapplicable\tto\tMorgan\tStanley\tcommon\tshareholders(4) | $(30) | $2,067 | $3,594\t\t\t $ | (907) | $1,495 | $(1,624) |
| Amounts\tapplicable\tto\tMorgan\tStanley: |  |  |  |  |  |  |
| Income\t(loss)\tfrom\tcontinuing\toperations | $135 | $4,161 | $4,469\t\t\t $ | 1,390 | $1,249 | $(1,269) |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (67) | (51) | 234 | (44) | 458 | (19) |
| Net\tincome\t(loss)\tapplicable\tto\tMorgan\tStanley | $68 | $4,110 | $4,703\t\t\t $ | 1,346 | $1,707 | $(1,288) |

|  | 2012 | 2011 | 2010 | 2009(1)(2) | Fiscal	2008 | 2008(2) |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Per\tShare\tData: |  |  |  |  |  |  |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare(5): |  |  |  |  |  |  |
| Income\t(loss)\tfrom\tcontinuing\toperations | $0.02 | $1.28 | $2.48 | $(0.73) | $1.04 | $(1.60) |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (0.04) | (0.03) | 0.16 | (0.04) | 0.41 | (0.02) |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare | $(0.02) | $1.25 | $2.64 | $(0.77) | $1.45 | $(1.62) |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare(5): |  |  |  |  |  |  |
| Income\t(loss)\tfrom\tcontinuing\toperations | $0.02 | $1.26 | $2.45 | $(0.73) | $0.99 | $(1.60) |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (0.04) | (0.03) | 0.18 | (0.04) | 0.40 | (0.02) |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare | $(0.02) | $1.23 | $2.63 | $(0.77) | $1.39 | $(1.62) |
| Book\tvalue\tper\tcommon\tshare(6) | $30.70 | $31.42 | $31.49 | $27.26 | $30.24 | $27.53 |
| Dividends\tdeclared\tper\tcommon\tshare | $0.20 | $0.20 | $0.20 | $0.17 | $1.08 | $0.27 |
| Balance\tSheet\tand\tOther\tOperating\tData: |  |  |  |  |  |  |
| Total\tassets | $780,960 | $749,898 | $807,698 | $771,462 | $659,035 | $676,764 |
| Total\tcapital(7) | 206,377 | 211,201 | 222,757 | 213,974 | 192,297 | 208,008 |
| Long-term\tborrowings(7) | 144,268 | 149,152 | 165,546 | 167,286 | 141,466 | 159,255 |
| Morgan\tStanley\tshareholders'\tequity | 62,109 | 62,049 | 57,211 | 46,688 | 50,831 | 48,753 |
| Return\ton\taverage\tcommon\tequity(8) | N/M | 3.8% | 9.0% | N/M | 4.9% | N/M |
| Average\tcommon\tshares\toutstanding(4): |  |  |  |  |  |  |
| Basic | \t 1,885,774,276 | \t 1,654,708,640 | \t 1,361,670,938 | \t 1,185,414,871 | \t 1,028,180,275 | \t 1,002,058,928 |
| Diluted | \t 1,918,811,270 | \t 1,675,271,669 | \t 1,411,268,971 | \t 1,185,414,871 | \t 1,073,496,349 | \t 1,002,058,928 |

N/M—Not	Meaningful.

(1) Information	includes	Morgan	Stanley	Smith	Barney	Holdings	LLC	effective	May	31,	2009	(see	Note	3	to	the	consolidated	financial	statements).

(2) On	December	16,	2008,	the	Board	of	Directors	of	the	Company	approved	a	change	in	the	Company's	fiscal	year-end	from	November	30	to	December	31	of	each	year.	This	change	to	the	calendar	year	reporting cycle	began	January	1,	2009.	As	a	result	of	the	change,	the	Company	had	a	one-month	transition	period	in	December	2008.

(3) Prior-period	amounts	have	been	recast	for	discontinued	operations.	See	Notes	1	and	25	to	the	consolidated	financial	statements	for	information	on	discontinued	operations.

(4) Amounts	shown	are	used	to	calculate	earnings	per	basic	and	diluted	common	share.

(5) For	the	calculation	of	basic	and	diluted	earnings	per	common	share,	see	Note	16	to	the	consolidated	financial	statements.

(7) These	amounts	exclude	the	current	portion	of	long-term	borrowings	and	include	junior	subordinated	debt	issued	to	capital	trusts.

(8) The	calculation	of	return	on	average	common	equity	uses	net	income	applicable	to	Morgan	Stanley	less	preferred	dividends	as	a	percentage	of	average	common	equity.	The	return	on	average	common	equity	is	a non-generally	accepted	accounting	principle	financial	measure	that	the	Company	considers	to	be	a	useful	measure	to	the	Company	and	investors	to	assess	operating	performance.

# Item	7. Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations.

# Introduction.

Morgan	Stanley,	a	financial	holding	company,	is	a	global	financial	services	firm	that	maintains	significant	market	positions	in	each	of	its	business	segments— Institutional	Securities,	Global	Wealth	Management	Group	and	Asset	Management.	The	Company,	through	its	subsidiaries	and	affiliates,	provides	a	wide	variety	of products	and	services	to	a	large	and	diversified	group	of	clients	and	customers,	including	corporations,	governments,	financial	institutions	and	individuals.	Unless	the context	otherwise	requires,	the	terms	"Morgan	Stanley,"	or	the	"Company,"	mean	Morgan	Stanley	(the	"Parent")	together	with	its	consolidated	subsidiaries.

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

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

Global	Wealth	Management	Group,	which	includes	the	Company's	65%	interest	in	Morgan	Stanley	Smith	Barney	Holdings	LLC	(the	"Wealth	Management	Joint Venture"	or	"Wealth	Management	JV"),	provides	brokerage	and	investment	advisory	services	to	individual	investors	and	small-to-medium	sized	businesses	and institutions	covering	various	investment	alternatives;	financial	and	wealth	planning	services;	annuity	and	other	insurance	products;	credit	and	other	lending products;	cash	management	services;	retirement	services;	and	trust	and	fiduciary	services	and	engages	in	fixed	income	principal	trading,	which	primarily facilitates	clients'	trading	or	investments	in	such	securities.

Asset	Management	provides	a	broad	array	of	investment	strategies	that	span	the	risk/return	spectrum	across	geographies,	asset	classes	and	public	and	private markets	to	a	diverse	group	of	clients	across	the	institutional	and	intermediary	channels	as	well	as	high	net	worth	clients.

See	Notes	1	and	25	to	the	consolidated	financial	statements	for	a	discussion	of	the	Company's	discontinued	operations.

The	results	of	operations	in	the	past	have	been,	and	in	the	future	may	continue	to	be,	materially	affected	by	many	factors,	including	the	effect	of	economic	and	political conditions	and	geopolitical	events;	the	effect	of	market	conditions,	particularly	in	the	global	equity,	fixed	income,	credit	and	commodities	markets,	including	corporate and	mortgage	(commercial	and	residential)	lending	and	commercial	real	estate	markets;	the	impact	of	current,	pending	and	future	legislation	(including	the	Dodd-Frank Wall	Street	Reform	and	Consumer	Protection	Act	(the	"Dodd-Frank	Act")),	regulation	(including	capital,	leverage	and	liquidity	requirements),	and	legal	actions	in	the United	States	of	America	("U.S.")	and	worldwide;	the	level	and	volatility	of	equity,	fixed	income,	and	commodity	prices	and	interest	rates,	currency	values	and	other market	indices;	the	availability	and	cost	of	both	credit	and	capital	as	well	as	the	credit	ratings	assigned	to	the	Company's	unsecured	short-term	and	long-term	debt; investor,	consumer	and	business	sentiment	and	confidence	in	the	financial	markets;	the	performance	of	the	Company's	acquisitions,	joint	ventures,	strategic	alliances	or other	strategic	arrangements	(including	the	Wealth	Management	JV	and	with	Mitsubishi	UFJ	Financial	Group,	Inc.	("MUFG"));	the	Company's	reputation;	inflation, natural	disasters	and	acts	of	war	or	terrorism;	the	actions	and	initiatives	of	current	and	potential	competitors	as	well	as	governments,	regulators	and	self-regulatory organizations;	the	effectiveness	of	the	Company's	risk	management	policies;	and	technological	changes;	or	a	combination	of	these	or	other	factors.	In	addition, legislative,	legal	and	regulatory	developments	related	to	the	Company's	businesses	are	likely	to	increase	costs,	thereby	affecting	results	of	operations.	These	factors	also may	have	an	adverse	impact	on	the	Company's	ability	to	achieve	its	strategic	objectives.	For	a	further	discussion	of	these	and	other	important	factors	that	could	affect the	Company's	business,	see	"Business—Competition"	and	"Business—Supervision	and	Regulation"	in	Part	I,	Item	1,	and	"Risk	Factors"	in	Part	I,	Item	1A,	and	"Other Matters"	herein.

The	discussion	of	the	Company's	results	of	operations	below	may	contain	forward-looking	statements.	These	statements,	which	reflect	management's	beliefs	and expectations,	are	subject	to	risks	and	uncertainties	that	may	cause	actual	results	to	differ	materially.	For	a	discussion	of	the	risks	and	uncertainties	that	may	affect	the Company's	future	results,	please	see	"Forward-Looking	Statements"	immediately	preceding	"Business—Competition"	and	"Business—Supervision	and	Regulation"	in Part	I,	Item	1,	"Risk	Factors"	in	Part	I,	Item	1A,	and	"Executive	Summary—Significant	Items"	and	"Other	Matters"	herein.

# Executive	Summary.

# Financial	Information	and	Statistical	Data	(dollars	in	millions,	except	where	noted	and	per	share	amounts).

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Net\trevenues: |  |  |  |
| Institutional\tSecurities | $10,553 | $17,175 | $16,129 |
| Global\tWealth\tManagement\tGroup | \t 13,516 | \t 13,289 | \t 12,519 |
| Asset\tManagement | 2,219 | 1,887 | 2,685 |
| Intersegment\tEliminations | (176) | (115) | (103) |
| Consolidated\tnet\trevenues | $26,112 | $32,236 | $31,230 |
| Net\tincome | $716 | $4,645 | $5,702 |
| Net\tincome\tapplicable\tto\tredeemable\tnoncontrolling\tinterests(1) | 124 | — | — |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests(1) | 524 | 535 | 999 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | $68 | $4,110 | $4,703 |
| Income\t(loss)\tfrom\tcontinuing\toperations\tapplicable\tto\tMorgan\tStanley: |  |  |  |
| Institutional\tSecurities | $(796) | $3,468 | $3,762 |
| Global\tWealth\tManagement\tGroup | 799 | 658 | 514 |
| Asset\tManagement | 136 | 35 | 205 |
| Intersegment\tEliminations | (4) | — | (12) |
| Income\tfrom\tcontinuing\toperations\tapplicable\tto\tMorgan\tStanley | $135 | $4,161 | $4,469 |
| Amounts\tapplicable\tto\tMorgan\tStanley: |  |  |  |
| Income\tfrom\tcontinuing\toperations\tapplicable\tto\tMorgan\tStanley | $135 | $4,161 | $4,469 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations\tapplicable\tto\tMorgan\tStanley(2) | (67) | (51) | 234 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | $68 | $4,110 | $4,703 |
| Earnings\t(loss)\tapplicable\tto\tMorgan\tStanley\tcommon\tshareholders | $(30) | $2,067 | $3,594 |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $0.02 | $1.28 | $2.48 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations(2) | (0.04) | (0.03) | 0.16 |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare(3) | $(0.02) | $1.25 | $2.64 |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $0.02 | $1.26 | $2.45 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations(2) | (0.04) | (0.03) | 0.18 |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare(3) | $(0.02) | $1.23 | $2.63 |
| Regional\tnet\trevenues: |  |  |  |
| Americas | $20,200 | $22,306 | $21,452 |
| Europe,\tMiddle\tEast\tand\tAfrica | 3,078 | 6,619 | 5,458 |
| Asia | 2,834 | 3,311 | 4,320 |
| Net\trevenues | $26,112 | $32,236 | $31,230 |

# Financial	Information	and	Statistical	Data	(dollars	in	millions,	except	where	noted	and	per	share	amounts)—(Continued).

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Average\tcommon\tequity\t(dollars\tin\tbillions): |  |  |  |
| Institutional\tSecurities | $29.0 | $32.7 | $17.7 |
| Global\tWealth\tManagement\tGroup | 13.3 | 13.2 | 6.8 |
| Asset\tManagement | 2.4 | 2.6 | 2.1 |
| Parent\tcapital | 16.1 | 5.9 | 15.5 |
| Total\tfrom\tcontinuing\toperations | 60.8 | 54.4 | 42.1 |
| Discontinued\toperations | — | — | 0.3 |
| Consolidated\taverage\tcommon\tequity | $60.8 | $54.4 | $42.4 |
| Return\ton\taverage\tcommon\tequity(4): |  |  |  |
| Institutional\tSecurities | N/M | 5% | 19% |
| Global\tWealth\tManagement\tGroup | 6% | 3% | 7% |
| Asset\tManagement | 5% | N/M | 8% |
| Consolidated | N/M | 4% | 9% |
| Book\tvalue\tper\tcommon\tshare(5) | $30.70 | $31.42 | $31.49 |
| Tangible\tcommon\tequity(6) | $53,014 | $53,850 | $40,667 |
| Return\ton\taverage\ttangible\tcommon\tequity(7) | 0.1% | 4.5% | 10.2% |
| Tangible\tbook\tvalue\tper\tcommon\tshare(8) | $26.86 | $27.95 | $26.90 |
| Effective\tincome\ttax\trate\tfrom\tcontinuing\toperations(9) | (46.4)% | 23.1% | 12.0% |
| Worldwide\temployees\tat\tDecember\t31,\t2012,\t2011\tand\t2010 | 57,061 | 61,546 | 62,156 |
| Global\tliquidity\treserve\theld\tby\tthe\tbank\tand\tnon-bank\tlegal\tentities\tat\tDecember\t31,\t2012,\t2011\tand |  |  |  |
| 2010\t(dollars\tin\tbillions)(10) | $182 | $182 | $171 |
| Average\tglobal\tliquidity\treserve\t(dollars\tin\tbillions)(10): |  |  |  |
| Bank\tlegal\tentities | $63 | $64 | $63 |
| Non-bank\tlegal\tentities | 113 | 113 | 96 |
| Total\tglobal\tliquidity\treserve | $176 | $177 | $159 |
| Long-term\tborrowings\tat\tDecember\t31,\t2012,\t2011\tand\t2010 | $169,571 | $184,234 | $192,457 |
| Maturities\tof\tlong-term\tborrowings\tat\tDecember\t31,\t2012,\t2011\tand\t2010\t(next\t12\tmonths) | $25,303 | $35,082 | $26,911 |
| Capital\tratios\tat\tDecember\t31,\t2012,\t2011\tand\t2010(11): |  |  |  |
| Total\tcapital\tratio | 18.5% | 17.5% | 16.0% |
| Tier\t1\tcommon\tcapital\tratio | 14.6% | 12.6% | 10.2% |
| Tier\t1\tcapital\tratio | 17.7% | 16.2% | 15.5% |
| Tier\t1\tleverage\tratio | 7.1% | 6.6% | 6.6% |
| Consolidated\tassets\tunder\tmanagement\tor\tsupervision\tat\tDecember\t31,\t2012,\t2011,\t2010\t(dollars\tin |  |  |  |
| billions)(12): |  |  |  |
| Asset\tManagement(13) | $338 | $287 | $272 |
| Global\tWealth\tManagement\tGroup(14) | 563 | 482 | 466 |
| Total | $901 | $769 | $738 |

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Institutional\tSecurities: |  |  |  |
| Pre-tax\tprofit\tmargin(15) | N/M | 27% | 27% |
| Global\tWealth\tManagement\tGroup: |  |  |  |
| Global\trepresentatives\tat\tDecember\t2012,\t2011\tand\t2010(14) | \t 16,780 | \t 17,512 | \t 18,333 |
| Annualized\trevenues\tper\tglobal\trepresentative\t(dollars\tin\tthousands)(14)(16) | $793 | $741 | $683 |
| Assets\tby\tclient\tsegment\tat\tDecember\t31,\t2012,\t2011\tand\t2010\t(dollars\tin\tbillions)(14): |  |  |  |
| $10\tmillion\tor\tmore | $584 | $508 | $520 |
| $1\tmillion\tto\t$10\tmillion | 724 | 704 | 702 |
| Subtotal\t$1\tmillion\tor\tmore | 1,308 | 1,212 | 1,222 |
| $100,000\tto\t$1\tmillion | 422 | 383 | 394 |
| Less\tthan\t$100,000 | 46 | 42 | 41 |
| Total\tclient\tassets | $1,776 | $1,637 | $1,657 |
| Fee-based\tclient\tassets\tas\ta\tpercentage\tof\ttotal\tclient\tassets(14)(17) | 32% | 30% | 28% |
| Client\tassets\tper\tglobal\trepresentative(14)(18) | $106 | $93 | $90 |
| Global\tfee-based\tclient\tasset\tflows\t(dollars\tin\tbillions)(14)(19) | $24.0 | $41.6 | $31.9 |
| Bank\tdeposits\tat\tDecember\t31,\t2012,\t2011\tand\t2010\t(dollars\tin\tbillions)(20) | $131 | $111 | $113 |
| Global\tretail\tlocations\tat\tDecember\t2012,\t2011\tand\t2010(14) | 712 | 753 | 840 |
| Pre-tax\tprofit\tmargin(15) | 12% | 9% | 9% |
| Asset\tManagement: |  |  |  |
| Pre-tax\tprofit\tmargin(15) | 27% | 13% | 27% |
| Selected\tManagement\tFinancial\tMeasures—Non-GAAP(21): |  |  |  |
| Net\trevenues,\texcluding\tDVA(22)—Non-GAAP | $30,514 | $28,555 | $32,103 |
| Income\tfrom\tcontinuing\toperations\tapplicable\tto\tMorgan\tStanley,\texcluding\tDVA(22)—Non-GAAP | $3,253 | $1,886 | $5,003 |
| Income\t(loss)\tper\tdiluted\tcommon\tshare\tfrom\tcontinuing\toperations,\texcluding\tDVA(22)—Non-GAAP | $1.64 | $(0.08) | $2.75 |

(1) See	Notes	2	and	3	to	the	consolidated	financial	statements	for	information	on	redeemable	and	nonredeemable	noncontrolling	interests.

(2) See	Notes	1	and	25	to	the	consolidated	financial	statements	for	information	on	discontinued	operations.

(3) For	the	calculation	of	basic	and	diluted	earnings	per	share	("EPS"),	see	Note	16	to	the	consolidated	financial	statements.

(4) The	calculation	of	each	business	segment's	return	on	average	common	equity	uses	income	from	continuing	operations	applicable	to	Morgan	Stanley	less	preferred	dividends	as	a	percentage	of	each	business segment's	average	common	equity.	The	return	on	average	common	equity	is	a	non-generally	accepted	accounting	principle	("non-GAAP")	financial	measure	that	the	Company	considers	to	be	a	useful	measure	to the	Company	and	investors	to	assess	operating	performance.	The	computation	of	average	common	equity	for	each	business	segment	is	determined	using	the	Company's	Required	Capital	framework	("Required Capital	Framework"),	an	internal	capital	adequacy	measure	(see	"Liquidity	and	Capital	Resources—Regulatory	Requirements—Required	Capital"	herein).	The	effective	tax	rates	used	in	the	computation	of business	segment	return	on	average	common	equity	were	determined	on	a	separate	legal	entity	basis.

(5) Book	value	per	common	share	equals	common	shareholders'	equity	of	$60,601	million	at	December	31,	2012,	$60,541	million	at	December	31,	2011	and	$47,614	million	at	December	31,	2010	divided	by common	shares	outstanding	of	1,974	million	at	December	31,	2012,	1,927	million	at	December	30,	2011	and	1,512	million	at	December	31,	2010.	Book	value	per	common	share	in	2011	was	reduced	by approximately	$2.61	per	share	as	a	result	of	the	MUFG	stock	conversion	(see	"Significant	Items—MUFG	Stock	Conversion"	herein).	Book	value	per	common	share	in	2010	included	a	benefit	of	approximately $1.40	per	share	due	to	the	issuance	of	116	million	shares	of	common	stock	in	2010	corresponding	to	the	mandatory	redemption	of	the	junior	subordinated	debentures	underlying	$5.6	billion	of	equity	units	(see "Other	Matters—Redemption	of	CIC	Equity	Units	and	Issuance	of	Common	Stock"	herein).

(6) Tangible	common	equity	is	a	non-GAAP	financial	measure	that	the	Company	considers	to	be	a	useful	measure	that	the	Company	and	investors	use	to	assess	capital	adequacy.	For	a	discussion	of	tangible	common equity,	see	"Liquidity	and	Capital	Resources—The	Balance	Sheet"	herein.

(7) Return	on	average	tangible	common	equity	is	a	non-GAAP	financial	measure	that	the	Company	considers	to	be	a	useful	measure	that	the	Company	and	investors	use	to	assess	capital	adequacy.	The	calculation	of return	on	average	tangible	common	equity	uses	income	from	continuing	operations	applicable	to	Morgan	Stanley	less	preferred	dividends	as	a	percentage	of	average	tangible	common	equity.

(8) Tangible	book	value	per	common	share	is	a	non-GAAP	financial	measure	that	the	Company	considers	to	be	a	useful	measure	that	the	Company	and	investors	use	to	assess	capital	adequacy.	Tangible	book	value per	common	share	equals	tangible	common	equity	divided	by	period-end	common	shares	outstanding.

(9) For	a	discussion	of	the	effective	income	tax	rate,	see	"Overview	of	2012	Financial	Results"	and	"Significant	Items—Income	Tax	Items"	herein.

(10) For	a	discussion	of	Global	Liquidity	Reserve	and	average	liquidity,	see	"Liquidity	and	Capital	Resources—Liquidity	Risk	Management	Framework—Global	Liquidity	Reserve"	herein.

(11) The	Company's	December	31,	2011	Tier	1	common	capital	ratio,	Tier	1	capital	ratio	and	Total	capital	ratio	were	each	reduced	by	approximately	30	basis	points	and	Tier	1	leverage	ratio	was	reduced	by approximately	20	basis	points	due	to	an	approximate	$1.2	billion	deferred	tax	asset	disallowance	adjustment,	which	resulted	in	a	reduction	to	the	Company's	Tier	1	common	capital,	Tier	1	capital,	Total	capital, risk-weighted	assets	("RWAs")	and	adjusted	average	assets	by	such	amount.

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

(13) Amounts	exclude	the	Asset	Management	business	segment's	proportionate	share	of	assets	managed	by	entities	in	which	it	owns	a	minority	stake.

(14) Prior-period	amounts	have	been	recast	to	exclude	Quilter	&	Co.	Ltd.	("Quilter").	See	Notes	1	and	25	to	the	consolidated	financial	statements	for	information	on	discontinued	operations.

(15) Pre-tax	profit	margin	is	a	non-GAAP	financial	measure	that	the	Company	considers	to	be	a	useful	measure	that	the	Company	and	investors	use	to	assess	operating	performance.	Percentages	represent	income	from continuing	operations	before	income	taxes	as	a	percentage	of	net	revenues.

(16) Annualized	revenues	per	global	representative	equal	Global	Wealth	Management	Group	business	segment's	annualized	revenues	divided	by	average	global	representative	headcount.

(17) Fee-based	client	assets	represent	the	amount	of	assets	in	client	accounts	where	the	basis	of	payment	for	services	is	a	fee	calculated	on	those	assets.

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

(19) Global	fee-based	client	asset	flows	represent	the	net	asset	flows,	excluding	interest	and	dividends,	in	client	accounts	where	the	basis	of	payment	for	services	is	a	fee	calculated	on	those	assets.

(20) Approximately	$72	billion,	$56	billion	and	$55	billion	of	the	bank	deposit	balances	at	December	31,	2012,	2011	and	2010,	respectively,	are	held	at	Company-affiliated	depositories	with	the	remainder	held	at Citigroup,	Inc.	("Citi")	affiliated	depositories.	These	deposit	balances	are	held	at	certain	of	the	Company's	Federal	Deposit	Insurance	Corporation	(the	"FDIC")	insured	depository	institutions	for	the	benefit	of	the Company's	clients	through	their	accounts.	For	additional	information	regarding	the	Company's	deposits,	see	Note	10	to	the	consolidated	financial	statements	and	"Liquidity	and	Capital	Resources—Funding Management—Deposits"	herein.

(21) From	time	to	time,	the	Company	may	disclose	certain	"non-GAAP	financial	measures"	in	the	course	of	its	earnings	releases,	earnings	conference	calls,	financial	presentations	and	otherwise.	For	these	purposes, "GAAP"	refers	to	generally	accepted	accounting	principles	in	the	United	States.	The	Securities	and	Exchange	Commission	("SEC")	defines	a	"non-GAAP	financial	measure"	as	a	numerical	measure	of	historical	or future	financial	performance,	financial	positions,	or	cash	flows	that	excludes	or	includes	amounts	or	is	subject	to	adjustments	that	effectively	exclude,	or	include,	amounts	from	the	most	directly	comparable measure	calculated	and	presented	in	accordance	with	GAAP.	Non-GAAP	financial	measures	disclosed	by	the	Company	are	provided	as	additional	information	to	investors	in	order	to	provide	them	with	further transparency	about,	or	an	alternative	method	for	assessing,	our	financial	condition	and	operating	results.	These	measures	are	not	in	accordance	with,	or	a	substitute	for,	GAAP,	and	may	be	different	from	or inconsistent	with	non-GAAP	financial	measures	used	by	other	companies.	Whenever	the	Company	refers	to	a	non-GAAP	financial	measure,	the	Company	will	also	generally	present	the	most	directly	comparable financial	measure	calculated	and	presented	in	accordance	with	GAAP,	along	with	a	reconciliation	of	the	differences	between	the	non-GAAP	financial	measure	and	the	GAAP	financial	measure.

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Reconciliation\tof\tSelected\tManagement\tFinancial\tMeasures\tfrom\ta\tNon-GAAP\tto\ta\tGAAP\tBasis\t(dollars\tin\tmillions,\texcept\tper\tshare\tamounts): |  |  |  |
| Net\trevenues |  |  |  |
| Net\trevenues—Non-GAAP | $ 30,514 | $ 28,555 | $32,103 |
| Impact\tof\tDVA | (4,402) | 3,681 | (873) |
| Net\trevenues—GAAP | $ 26,112 | $ 32,236 | $31,230 |
| Income\tfrom\tcontinuing\toperations\tapplicable\tto\tMorgan\tStanley |  |  |  |
| Income\tapplicable\tto\tMorgan\tStanley—Non-GAAP | $3,253 | $1,886 | $5,003 |
| Impact\tof\tDVA | (3,118) | 2,275 | (534) |
| Income\tapplicable\tto\tMorgan\tStanley—GAAP | $135 | $4,161 | $4,469 |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare |  |  |  |
| Income\t(loss)\tper\tdiluted\tcommon\tshare\tfrom\tcontinuing\toperations—Non-GAAP | $1.64 | $(0.08) | $2.75 |
| Impact\tof\tDVA | (1.62) | 1.34 | (0.30) |
| Income\t(loss)\tper\tdiluted\tcommon\tshare\tfrom\tcontinuing\toperations—GAAP | $0.02 | $1.26 | $2.45 |
| Average\tdiluted\tshares—Non-GAAP\t(in\tmillions) | 1,919 | 1,655 | 1,722 |
| Impact\tof\tDVA\t(in\tmillions) | — | 20 | (311) |
| Average\tdiluted\tshares—GAAP\t(in\tmillions) | 1,919 | 1,675 | 1,411 |

(22) Debt	Valuation	Adjustment	("DVA")	represents	the	change	in	the	fair	value	of	certain	of	the	Company's	long-term	and	short-term	borrowings	resulting	from	the	fluctuation	in	the	Company's	credit	spreads	and other	credit	factors.

# Global	Market	and	Economic	Conditions.

During	2012,	global	market	and	economic	conditions	improved	modestly	as	European	policymakers	became	more	aggressive	in	combating	the	region's	debt	crisis	and central	bankers	around	the	globe	took	a	number	of	actions	to	stimulate	the	economic	recovery.	Despite	these	improvements,	global	market	and	economic	conditions	in 2012	were	challenged	by	concerns	about	the	ongoing	European	sovereign	debt	crisis,	the	U.S.	"fiscal	cliff"	(i.e.,	the	combination	of	expiring	tax	cuts	and	spending	cuts on	or	after	January	1,	2013),	the	U.S.	federal	debt	ceiling	and	its	potential	adverse	impact	on	the	U.S.	economy,	and	slowing	economic	growth	in	emerging	markets.

In	the	U.S.,	major	equity	market	indices	ended	2012	higher	compared	with	the	beginning	of	the	year,	primarily	due	to	improved	investor	confidence.	The	U.S.	economy continued	its	moderate	growth	pace	in	2012,	although	the	growth	in	economic	activity	paused	in	the	fourth	quarter	as	uncertainty	about	fiscal	policy	slowed	business	and government	spending.	Conditions	in	the	labor	market	improved	modestly	as	the	unemployment	rate	decreased	to	7.8%	at	December	31,	2012	from	8.5%	at	December	31, 2011.	Housing	market	conditions	continued	to	improve	in	2012,	but	investments	in	commercial	real	estate	projects	remained	challenged.	Consumer	spending	and business	investments	improved	during	2012,	while	consumer	price	inflation	remained	relatively	low.	Oil	prices	declined	in	2012	driven	by	concerns	about	the	global economy.	The	Federal	Open	Market	Committee	("FOMC")	of	the	Board	of	Governors	of	the	Federal	Reserve	System	(the	"Federal	Reserve")	kept	key	interest	rates	at historically	low	levels	and,	at	December	31,	2012,	the	federal	funds	target	rate	was	between	zero	and	0.25%,	and	the	discount	rate	was	0.75%.	The	FOMC	announced	in December	of	2012	that	key	interest	rates	will	likely	remain	at	historically	low	levels	until	the	unemployment	rate	falls	to	6.5%	or	lower,	as	long	as	inflation	forecasts remain	near	a	2%	target.	To	lower	long-term	interest	rates	and	to	support	economic	growth,	during	2012	the	FOMC	continued	to	purchase	U.S.	Treasury	securities	with maturities	between	six	and	30	years	and	sell	an	equal	amount	of	U.S.	Treasury	securities	with	maturities	of	three	years	or	less.	In	September	of	2012,	the	FOMC launched	a	new	program	to	buy	additional	agency	mortgage-backed	securities	every	month	until	the	job	market	improves.	Although	the	U.S.	President	signed	into	law	a bill	on	January	2,	2013	to	ameliorate	the	"fiscal	cliff"	crisis,	the	U.S.	economy	continued	to	be	challenged	by	the	need	to	raise	the	U.S.	federal	debt	ceiling	and	reduce government	spending.

In	Europe,	major	equity	market	indices	ended	2012	higher	compared	with	the	beginning	of	the	year,	primarily	due	to	investors'	optimism	about	Europe's	progress	in addressing	its	sovereign	debt	crisis,	especially	in	Greece,	Ireland,	Italy,	Portugal	and	Spain	(the	"European	Peripherals"),	and	the	sovereign	debt	exposures	in	the European	banking	system.	In	euro-area,	gross	domestic	product	declined	in	2012	and	the	unemployment	rate	increased	to	11.7%	at	December	31,	2012	from	10.6%	at December	31,	2011.	At	December	31,	2012,	the	European	Central	Bank's	("ECB")	benchmark	interest	rate	was	0.75%.	The	Bank	of	England's	("BOE")	benchmark interest	rate	was	0.5%	and	was	unchanged	from	a	year	ago.	To	inject	further	monetary	stimulus	into	the	economy	in	the	United	Kingdom	("U.K."),	the	BOE	increased the	size	of	its	quantitative	easing	program	on	two	separate	occasions	in	2012.	In	2012,	the	ECB	conducted	its	second	three-year	refinancing	operation	and	widened	the pool	of	eligible	collateral	for	refinancing	operations	to	ease	funding	conditions	for	euro-area	banks.	In	addition,	European	Union	leaders	agreed	on	a	new	bailout	and debt-restructuring	agreement	designed	to	reduce	Greece's	debt	and	reached	another	agreement	to	ease	the	recapitalization	of	struggling	European	banks.	In	September 2012,	the	ECB	outlined	the	details	of	a	plan	to	buy	euro-area	government	bonds	and	reiterated	its	pledge	to	preserve	the	euro.	In	December	2012,	European	Union finance	ministers	reached	an	agreement	to	bring	many	of	the	continent's	banks	under	a	single	supervisor.	Despite	these	actions,	several	major	rating	agencies downgraded	the	credit	ratings	for	some	euro-zone	countries,	and	some	European	Union	member	countries,	such	as	Italy	and	Spain,	entered	into	a	technical	recession (two	consecutive	quarters	of	negative	change	in	gross	domestic	product)	in	2012.

In	Asia,	major	equity	market	indices	ended	2012	higher	compared	with	the	beginning	of	the	year.	Japan's	economy	entered	into	a	technical	recession	in	2012.	To	revive its	economy	and	overcome	deflation,	the	Bank	of	Japan	increased	the	size	of	its	quantitative	easing	program	four	times	during	2012,	and	the	Japanese	government

approved	a	$116	billion	economic	stimulus	package	in	January	of	2013.	Japan's	benchmark	interest	rate	remained	within	a	range	of	zero	to	0.1%	in	2012.	China's economic	growth	decelerated	in	2012	as	import	and	export	growth	slowed	after	global	economic	turmoil	impacted	consumption.	To	stimulate	the	Chinese	economy,	the People's	Bank	of	China	cut	its	bank	reserve	requirement	by	0.5%	on	two	separate	occasions	in	2012	and	lowered	its	one-year	benchmark	lending	rate	by	0.25%	to 6.31%	and	0.31%	to	6.00%	in	June	and	July	of	2012,	respectively.

# Overview	of	2012	Financial	Results.

Consolidated	Results.				The	Company	recorded	net	income	applicable	to	Morgan	Stanley	of	$68	million	on	net	revenues	of	$26,112	million	in	2012	compared	with	net income	applicable	to	Morgan	Stanley	of	$4,110	million	on	net	revenues	of	$32,236	million	in	2011.

Net	revenues	in	2012	included	negative	revenues	of	$4,402	million	due	to	the	impact	of	DVA	compared	with	positive	revenues	of	$3,681	million	in	2011.	Results	for 2011	also	included	the	comprehensive	settlement	with	MBIA	Insurance	Corporation	("MBIA"),	which	resulted	in	a	pre-tax	loss	of	approximately	$1.7	billion.	See "Executive	Summary—Significant	Items—Monoline	Insurers"	herein.	Non-interest	expenses	decreased	2%	to	$25,597	million	in	2012	compared	with	$26,137	million in	2011.	Compensation	expenses	decreased	4%	to	$15,622	million	in	2012	compared	with	$16,333	million	in	2011.	Non-compensation	expenses	increased	2%	to	$9,975 million	in	2012,	primarily	due	to	increased	litigation	costs	reported	in	the	Institutional	Securities	business	segment	and	non-recurring	expenses	primarily	associated	with the	Morgan	Stanley	Wealth	Management	integration.

Diluted	EPS	and	diluted	EPS	from	continuing	operations	were	$(0.02)	and	$0.02	in	2012,	respectively,	compared	with	$1.23	and	$1.26,	respectively,	in	2011.	The earnings	per	share	calculation	for	2011	included	a	negative	adjustment	of	approximately	$1.7	billion,	or	$0.98	per	diluted	share	(calculated	using	1.79	billion	diluted average	shares	outstanding	under	the	if-converted	method),	related	to	the	conversion	of	MUFG's	outstanding	Series	B	Non-Cumulative	Non-Voting	Perpetual Convertible	Preferred	Stock	("Series	B	Preferred	Stock")	into	the	Company's	common	stock.	See	"Executive	Summary—Significant	Items—MUFG	Stock	Conversion" herein.

Excluding	the	impact	of	DVA,	net	revenues	were	$30,514	million	and	diluted	EPS	from	continuing	operations	were	$1.64	per	share	in	2012,	compared	with	$28,555 million	and	$(0.08)	per	share,	respectively,	in	2011.

The	Company's	effective	tax	rate	from	continuing	operations	was	a	benefit	of	46.4%	for	2012.	The	effective	tax	rate	included	an	aggregate	net	tax	benefit	of	$142 million	consisting	of	a	discrete	benefit	and	an	out-of-period	tax	provision.	Excluding	this	net	tax	benefit,	the	effective	tax	rate	from	continuing	operations	in	2012	would have	been	a	benefit	of	18.8%.	The	effective	tax	rate	is	reflective	of	the	tax	benefits	associated	with	DVA	losses	in	2012.

The	results	of	Quilter,	the	Company's	retail	wealth	management	business	in	the	U.K.	(reported	in	the	Global	Wealth	Management	Group	business	segment)	and	Saxon,	a provider	of	servicing	and	subservicing	of	residential	mortgage	loans	(reported	in	the	Institutional	Securities	business	segment),	are	presented	as	discontinued	operations for	all	periods	presented.	During	2012,	the	Company	completed	the	sale	of	Quilter,	resulting	in	a	pre-tax	gain	of	$108	million.	In	addition,	the	sale	of	Saxon's	assets	was substantially	completed	in	the	second	quarter	of	2012.	Discontinued	operations	in	2012	also	include	a	provision	of	approximately	$115	million	related	to	a	settlement with	the	Federal	Reserve	concerning	the	independent	foreclosure	review	related	to	Saxon.	Discontinued	operations	were	a	gain	(loss)	of	$(43)	million,	$(160)	million and	$610	million	in	2012,	2011	and	2010,	respectively.

Institutional	Securities.				Loss	from	continuing	operations	before	taxes	was	$1,671	million	in	2012	compared	with	income	from	continuing	operations	before	taxes	of $4,591	million	in	2011.	Net	revenues	for	2012	were	$10,553	million	compared	with	$17,175	million	in	2011.	The	results	in	2012	included	negative	revenues	of

$4,402	million	due	to	the	impact	of	DVA	compared	with	positive	revenues	of	$3,681	million	in	2011.	Investment	banking	revenues	for	2012	decreased	7%	to	$3,929 million	from	2011,	reflecting	lower	revenues	from	advisory	and	equity	underwriting	transactions,	partially	offset	by	higher	revenues	from	fixed	income	underwriting transactions.	The	following	sales	and	trading	net	revenues	results	exclude	the	impact	of	DVA.	The	presentation	of	net	revenues	excluding	the	impact	of	DVA	is	a	non- GAAP	financial	measure	that	the	Company	considers	useful	for	the	Company	and	investors	to	allow	further	comparability	of	period-to-period	operating	performance. See	"Business	Segments—Institutional	Securities—Sales	and	Trading	Net	Revenues"	for	more	information.	Equity	sales	and	trading	net	revenues,	excluding	the	impact of	DVA,	of	$5,477	million	decreased	11%	from	2011,	reflecting	lower	revenues	in	the	cash	business	as	a	result	of	lower	volumes.	Excluding	the	impact	of	DVA,	fixed income	and	commodities	sales	and	trading	net	revenues	were	$5,630	million	in	2012,	an	increase	of	27%	from	2011,	primarily	reflecting	higher	results	in	interest	rate, foreign	exchange	and	credit	products,	including	higher	levels	of	client	activity	in	securitized	products	and	the	impact	of	the	MBIA	settlement	in	2011.	Other	sales	and trading	net	losses	were	$495	million	in	2012	compared	with	net	losses	of	$1,327	million	in	2011.	Results	primarily	consisted	of	certain	activities	associated	with	the Company's	lending	activities,	gains	(losses)	on	economic	hedges	related	to	the	Company's	long-term	debt,	costs	related	to	the	amount	of	liquidity	held	("negative carry")	and	revenues	related	to	hedge	accounting	on	certain	derivative	contracts.	Other	revenues	of	$195	million	were	recognized	in	2012	compared	with	other	losses	of $241	million	in	2011.	Results	for	2012	included	income	of	$152	million,	arising	from	the	Company's	40%	stake	in	Mitsubishi	UFJ	Morgan	Stanley	Securities	Co.,	Ltd. ("MUMSS")	(see	"Significant	Items—Japanese	Securities	Joint	Venture"	herein),	compared	with	a	pre-tax	loss	of	$783	million	in	2011.	Non-interest	expenses	decreased 3%	to	$12,224	million	in	2012.	Compensation	and	benefits	expenses	in	2012	were	$6,653	million	compared	with	$7,199	million	in	2011.	Non-compensation	expenses were	$5,571	million	compared	with	$5,385	million	in	2011.

Global	Wealth	Management	Group.				Income	from	continuing	operations	before	taxes	was	$1,600	million	in	2012	compared	with	$1,255	million	in	2011.	Net	revenues were	$13,516	million	in	2012	compared	with	$13,289	million	in	2011.	Transactional	revenues,	consisting	of	Commissions	and	fees,	Principal	transactions—Trading	and Investment	banking	decreased	7%	to	$4,290	million	from	2011.	Principal	transactions—Trading	revenues	increased	7%	to	$1,193	million	in	2012	from	2011,	primarily due	to	gains	related	to	investments	associated	with	certain	employee	deferred	compensation	plans	and	higher	revenues	from	structured	notes	and	corporate	bonds transactions,	partially	offset	by	lower	revenues	from	municipal	securities,	corporate	equity	securities,	government	securities	and	foreign	exchange	transactions. Commissions	and	fees	revenues	decreased	17%	to	$2,261	million	in	2012	from	2011,	primarily	due	to	lower	client	activity.	Investment	banking	revenues	increased	11% to	$836	million	in	2012	from	2011,	primarily	due	to	higher	revenues	from	closed-end	funds	and	higher	fixed	income	underwriting.	Asset	management,	distribution	and administration	fees	increased	7%	to	$7,288	million	in	2012	from	2011,	primarily	due	to	higher	fee-based	revenues,	and	higher	revenues	from	annuities	and	the	bank deposit	program	held	at	Citi	depositories.	Net	interest	increased	9%	to	$1,612	million	in	2012	from	2011,	primarily	resulting	from	higher	revenues	from	the	bank deposit	program,	interest	on	the	available	for	sale	portfolio	and	secured	financing	activities.	Non-interest	expenses	decreased	1%	to	$11,916	million	in	2012	from	2011, primarily	reflecting	a	decrease	in	compensation	expenses,	partially	offset	by	non-recurring	expenses,	primarily	associated	with	the	Morgan	Stanley	Wealth	Management integration.	Total	client	asset	balances	were	$1,776	billion	at	December	31,	2012	and	client	assets	in	fee-based	accounts	were	$573	billion,	or	32%	of	total	client	assets. Global	fee-based	client	asset	flows	for	2012	were	$24.0	billion	compared	with	$41.6	billion	in	2011.

Asset	Management.				Income	from	continuing	operations	before	taxes	was	$590	million	in	2012	compared	with	$253	million	in	2011.	Net	revenues	were	$2,219	million in	2012	compared	with	$1,887	million	in	2011.	The	increase	in	net	revenues	included	net	investment	gains	in	the	Company's	Merchant	Banking,	Traditional	Asset Management	and	Real	Estate	Investing	businesses,	as	well	as	net	investment	gains	associated	with	certain	consolidated	real	estate	funds	sponsored	by	the	Company. Non-interest	expenses	were	$1,629	million	in	2012	compared	with	$1,634	million	in	2011.	Compensation	and	benefits	expenses	decreased	1%	to	$841	million	in	2012.

# Significant	Items.

Wealth	Management	JV.				On	September	17,	2012,	the	Company	completed	the	purchase	from	Citi	of	an	additional	14%	stake	in	the	Wealth	Management	JV	for	$1.89 billion.	On	September	25,	2012,	the	Company	announced	that	its	U.S.	Wealth	Management	business	was	rebranded	to	Morgan	Stanley	Wealth	Management.	The Company	incurred	$173	million	of	non-recurring	costs	associated	with	the	Morgan	Stanley	Wealth	Management	integration	and	the	additional	14%	purchase	of	the Wealth	Management	JV	in	2012.	See	Note	3	to	the	consolidated	financial	statements	for	further	information.

Litigation	costs.				During	2012,	the	Company	incurred	increased	litigation	expenses	of	approximately	$280	million	within	the	Institutional	Securities	business	segment, which	is	included	in	Other	non-interest	expenses	in	the	consolidated	statement	of	income.

Severance	costs.				During	2012	and	2011,	the	Company	incurred	severance	costs	of	approximately	$350	million	and	$195	million,	respectively,	which	is	included	in Compensation	and	benefits	expenses	in	the	consolidated	statement	of	income.

Corporate	Lending.				The	Company	recorded	the	following	amounts	primarily	associated	with	loans	and	lending	commitments	within	the	Institutional	Securities business	segment	(see	"Business	Segments—Institutional	Securities"	herein):

| Gains	(losses)	on	loans	and	lending	commitments | $1,650 | $(699) | $327 |
| :--- | :--- | :--- | :--- |
| Gains\t(losses)\ton\thedges | (910) | 68 | (669) |
| Total\tOther\tsales\tand\ttrading\trevenues | $740 | $(631) | $(342) |
| Other\trevenues: |  |  |  |
| Provision\tfor\tloan\tlosses(1) | $(85) | $(6) | $ — |
| Losses\ton\tloans\theld\tfor\tsale | (54) | \t — | \t — |
| Total\tOther\trevenues | $(139) | $(6) | $ — |
| Other\texpenses:\tProvision\tfor\tunfunded\tcommitments(1) | (71) | (18) | \t — |
| Total | $530 | $(655) | $(342) |

(1) The	increases	for	2012	were	primarily	driven	by	enhancements	to	the	estimate	for	the	inherent	losses	for	and	growth	in	the	Company's	held	for	investment	portfolio.

Japanese	Securities	Joint	Venture.				During	2012,	2011	and	2010,	the	Company	recorded	income	(loss)	of	$152	million,	$(783)	million	and	$(62)	million,	respectively, within	Other	revenues	in	the	consolidated	statements	of	income,	arising	from	the	Company's	40%	stake	in	MUMSS	(see	Note	24	to	the	consolidated	financial statements).	See	"Other	Matters—Japanese	Securities	Joint	Venture"	herein	for	further	information.

Income	Tax	Items.				In	2012,	the	Company	recognized	an	aggregate	net	tax	benefit	of	$142	million.	This	included	a	discrete	benefit	of	approximately	$299	million related	to	the	remeasurement	of	reserves	and	related	interest	associated	with	either	the	expiration	of	the	applicable	statute	of	limitations	or	new	information	regarding	the status	of	certain	Internal	Revenue	Service	examinations.	The	Company	also	recognized	an	aggregate	out-of-period	net	tax	provision	of	approximately	$157	million,	to adjust	the	overstatement	of	deferred	tax	assets	associated	with	partnership	investments,	principally	in	the	Company's	Asset	Management	business	segment	and repatriated	earnings	of	foreign	subsidiaries	recorded	in	prior	years.	Subsequent	to	the	release	of	the	Company's	fourth	quarter	earnings	on	January	18,	2013,	additional adjustments	to	deferred	tax	accounts	primarily	associated	with	partnership	investments	were	identified	that	aggregate	a	net	tax	benefit	of	$87	million,	of	which $69	million	was	considered	to	be	out-of-period.	Accordingly,	the	$226	million	out-of-period	net	tax	provision	for	2012

originally	disclosed	in	the	Company's	earnings	release	while	a	comprehensive	review	of	the	Company's	deferred	tax	accounts	continued,	has	been	adjusted	to	$157 million	as	reflected	above.	The	Company	completed	the	comprehensive	review	of	its	deferred	tax	accounts	in	February	2013.	The	Company	has	evaluated	the	effects	of the	understatement	of	the	income	tax	provision	both	qualitatively	and	quantitatively	and	concluded	that	it	did	not	have	a	material	impact	on	any	prior	annual	or	quarterly consolidated	financial	statements.

In	2011,	the	Company	recognized	a	discrete	tax	benefit	of	$447	million	from	the	remeasurement	of	a	deferred	tax	asset	and	the	reversal	of	a	related	valuation	allowance. The	deferred	tax	asset	and	valuation	allowance	were	recognized	in	income	from	discontinued	operations	in	2010	in	connection	with	the	recognition	of	a	$1.2	billion	loss due	to	writedowns	and	related	costs	following	the	Company's	commitment	to	a	plan	to	dispose	of	Revel	Entertainment	Group,	LLC	("Revel").	The	Company	recorded the	valuation	allowance	because	the	Company	did	not	believe	it	was	more	likely	than	not	that	it	would	have	sufficient	future	net	capital	gain	to	realize	the	benefit	of	the expected	capital	loss	to	be	recognized	upon	the	disposal	of	Revel.	During	the	quarter	ended	March	31,	2011,	the	disposal	of	Revel	was	restructured	as	a	tax-free	like	kind exchange	and	the	disposal	was	completed.	The	restructured	transaction	changed	the	character	of	the	future	taxable	loss	to	ordinary.	The	Company	reversed	the	valuation allowance	because	the	Company	believes	it	is	more	likely	than	not	that	it	will	have	sufficient	future	ordinary	taxable	income	to	recognize	the	recorded	deferred	tax	asset. In	accordance	with	the	applicable	accounting	literature,	this	reversal	of	a	previously	established	valuation	allowance	due	to	a	change	in	circumstances	was	recognized	in income	from	continuing	operations	during	the	quarter	ended	March	31,	2011.	Additionally,	in	2011	the	Company	recognized	a	discrete	tax	benefit	of	$137	million related	to	the	reversal	of	U.S.	deferred	tax	liabilities	associated	with	prior	years'	undistributed	earnings	of	certain	non-U.S.	subsidiaries	that	were	determined	to	be indefinitely	reinvested	abroad	and	a	discrete	tax	cost	of	$100	million	related	to	the	remeasurement	of	Japan	deferred	tax	assets	as	a	result	of	a	decrease	in	the	local statutory	income	tax	rates	starting	in	2012.

U.K.	Matters.				In	July	2011,	the	U.K.	government	enacted	legislation	imposing	a	bank	levy	on	relevant	liabilities	and	equities	at	December	31,	2011	on	the consolidated	balance	sheets	of	banks	and	banking	groups	operating	in	the	U.K.	The	Company	accrued	a	levy	charge	of	approximately	$14	million	and	$59	million	for 2012	and	2011,	respectively.	The	levy	was	not	deductible	for	U.K.	corporation	tax	purposes.	During	2010,	the	Company	recognized	a	charge	of	approximately	$272 million	in	Compensation	and	benefits	expense	relating	to	the	U.K.	government's	payroll	tax	on	discretionary	above-base	compensation.

Monoline	Insurers.				The	results	for	2011	included	losses	of	$1,838	million	related	to	the	Company's	counterparty	credit	exposures	to	Monoline	Insurers	("Monolines"), principally	MBIA,	compared	with	losses	of	$865	million	in	2010.

During	2011,	the	Company	announced	a	comprehensive	settlement	with	MBIA.	The	settlement	terminated	outstanding	credit	default	swap	("CDS")	protection purchased	from	MBIA	on	commercial	mortgage-backed	securities	("CMBS")	and	resolved	pending	litigation	between	the	two	parties	for	consideration	of	a	net	cash payment	to	the	Company.	The	loss	on	the	settlement,	which	was	recorded	as	a	reduction	to	fixed	income	and	commodities	revenue,	approximated	$1.7	billion.	The settlement	had	the	effect	of	significantly	reducing	RWAs	under	the	Basel	Committee's	proposed	Basel	III	framework,	thereby	increasing	the	pro	forma	Tier	1	common ratio	under	Basel	III,	a	non-GAAP	financial	measure,	by	approximately	75	basis	points	by	December	31,	2012	(see	"Liquidity	and	Capital	Resources—Regulatory Requirements"	herein).	Under	current	Basel	I	standards,	the	Tier	1	common	ratio	was	reduced	by	approximately	20	basis	points.

MUFG	Stock	Conversion.				On	June	30,	2011,	the	Company's	outstanding	Series	B	Preferred	Stock	owned	by	MUFG	with	a	face	value	of	$7.8	billion	(carrying	value $8.1	billion)	and	a	10%	dividend	was	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.	As	a	result	of	the	adjustment	to	the	conversion	ratio,	the	Company	incurred	a	one-time,	non- cash	negative	adjustment	of	approximately	$1.7	billion	in	its	calculation	of	basic	and	diluted	earnings	per	share	during	2011.

European	Peripheral	Countries.				On	December	22,	2011,	the	Company	entered	into	agreements	to	restructure					certain	derivative	transactions	that	decreased	its exposure	to	the	European	Peripherals.	As	a	result,	the	Company's	results	included	interest	rate	product	revenues	of	approximately	$600	million	related	primarily	to	the release	of	credit	valuation	adjustments	associated	with	the	transactions,	reported	within	Principal	transactions—Trading	in	the	consolidated	statement	of	income.

Huaxin	Securities	Joint	Venture.				In	June	2011,	the	Company	and	Huaxin	Securities	Co.,	Ltd.	("Huaxin	Securities")	(also	known	as	China	Fortune	Securities	Co.,	Ltd.) jointly	announced	the	operational	commencement	of	their	securities	joint	venture	in	China.	During	2011,	the	Company	recorded	initial	costs	of	$130	million	related	to the	formation	of	this	joint	venture	in	Other	expenses	in	the	consolidated	statement	of	income.

OIS	Fair	Value	Measurement.				In	the	fourth	quarter	of	2010,	the	Company	began	using	the	overnight	indexed	swap	("OIS")	curve	as	an	input	to	value	its	collateralized interest	rate	derivative	contracts.	At	December	31,	2011	and	December	31,	2012,	substantially	all	of	the	Company's	collateralized	derivative	contracts	were	valued	using the	OIS	curve.	The	Company	recognized	a	pre-tax	gain	of	approximately	$176	million	in	the	fourth	quarter	of	2010	in	Principal	transactions—Trading	upon	the	initial application	of	the	OIS	curve.	During	the	fourth	quarter	of	2011,	the	Company	recognized	a	pre-tax	loss	of	approximately	$108	million	in	Principal	transactions—Trading upon	application	of	the	OIS	curve	to	certain	additional	fixed	income	products	within	the	Institutional	Securities	business	segment.	Previously,	the	Company	discounted these	contracts	based	on	the	London	Interbank	Offered	Rate	("LIBOR").

Goodwill	and	Intangibles.				Impairment	charges	related	to	goodwill	and	intangible	assets	were	$201	million	in	2010.	These	impairment	charges	included	$193	million related	to	FrontPoint	Partners	LLC	("FrontPoint").	See	"Business	Segments–Asset	Management"	for	further	information.

Mortgage-Related	Trading.				The	Company	recorded	mortgage-related	trading	gains	primarily	related	to	commercial	mortgage-backed	securities,	U.S.	subprime mortgage	proprietary	trading	exposures	and	non-subprime	residential	mortgages	of	$1.2	billion	in	2010.

Settlement	with	DFS.				On	June	30,	2007,	the	Company	completed	the	spin-off	of	its	business	segment	Discover	Financial	Services	("DFS")	to	its	shareholders.	On February	11,	2010,	DFS	paid	the	Company	$775	million	in	complete	satisfaction	of	its	obligations	to	the	Company	regarding	the	sharing	of	proceeds	from	a	lawsuit against	Visa	and	MasterCard.	The	payment	was	recorded	as	a	gain	in	discontinued	operations	in	the	consolidated	statement	of	income	for	2010.

Gain	on	Sale	of	Noncontrolling	Interest.				In	connection	with	the	transaction	between	the	Company	and	MUFG	to	form	a	joint	venture	in	Japan,	the	Company	recorded an	after-tax	gain	of	$731	million	from	the	sale	of	a	noncontrolling	interest	in	its	Japanese	institutional	securities	business.	This	gain	was	recorded	in	Paid-in	capital	in	the Company's	consolidated	statements	of	financial	condition	at	December	31,	2010	and	changes	in	total	equity	for	2010.	See	"Other	Matters—Japanese	Securities	Joint Venture"	herein	for	further	information.

Gain	on	Sale	of	Retail	Asset	Management.				On	June	1,	2010,	the	Company	completed	the	sale	of	substantially	all					of	its	retail	asset	management	business	("Retail Asset	Management"),	including	Van	Kampen	Investments,	Inc.	("Van	Kampen"),	to	Invesco	Ltd.	("Invesco").	The	Company	received	$800	million	in	cash	and approximately	30.9	million	shares	of	Invesco	stock	upon	sale,	resulting	in	a	cumulative	after-tax	gain	of	$718	million,	of	which	$8	million,	$28	million	and	$570	million were	recorded	in	2012,	2011	and	2010,	respectively.	The	remaining	gain,	representing	tax	basis	benefits,	was	recorded	in	the	quarter	ended	December	31,	2009.	The results	of	Retail	Asset	Management	are	reported	as	discontinued	operations	within	the	Asset	Management	business	segment	for	all	periods	presented	through	the	date	of sale.	The	Company	recorded	the	30.9	million	shares	as	securities	available	for	sale	and	subsequently	sold	the	shares	in	the	fourth	quarter	of	2010,	resulting	in	a	realized gain	of	approximately	$102	million	reported	within	Other	revenues	in	the	consolidated	statement	of	income	for	2010.

Sale	of	Stake	in	CICC.				In	December	2010,	the	Company	completed	the	sale	of	its	34.3%	stake	in	China	International	Capital	Corporation	("CICC")	for	a	pre-tax	gain of	approximately	$668	million,	which	is	included	within	Other	revenues	in	the	consolidated	statements	of	income	for	2010.	See	Note	24	to	the	consolidated	financial statements.

Substantially	all	of	the	Company's	operating	revenues	and	operating	expenses	are	allocated	to	its	business	segments.	Certain	revenues	and	expenses	have	been	allocated to	each	business	segment,	generally	in	proportion	to	its	respective	net	revenues,	non-interest	expenses	or	other	relevant	measures.

As	a	result	of	treating	certain	intersegment	transactions	as	transactions	with	external	parties,	the	Company	includes	an	Intersegment	Eliminations	category	to	reconcile the	business	segment	results	to	the	Company's	consolidated	results.	Intersegment	Eliminations	also	reflect	the	effect	of	fees	paid	by	the	Institutional	Securities	business segment	to	the	Global	Wealth	Management	Group	business	segment	related	to	the	bank	deposit	program.	Losses	from	continuing	operations	before	income	taxes recorded	in	Intersegment	Eliminations	were	$4	million	and	$15	million	in	2012	and	2010,	respectively.	The	Company	did	not	recognize	any	Intersegment	Eliminations gains	or	losses	in	2011.

# Net	Revenues.

Principal	Transactions—Trading.				Principal	transactions—Trading	revenues	include	revenues	from	customers'	purchases	and	sales	of	financial	instruments	in	which the	Company	acts	as	a	market	maker	and	gains	and	losses	on	the	Company's	related	positions.	Principal	transactions—Trading	revenues	include	the	realized	gains	and losses	from	sales	of	cash	instruments	and	derivative	settlements,	unrealized	gains	and	losses	from	ongoing	fair	value	changes	of	the	Company's	positions	related	to market-making	activities,	and	gains	and	losses	related	to	investments	associated	with	certain	employee	deferred	compensation	plans.	In	many	markets,	the	realized	and unrealized	gains	and	losses	from	the	purchase	and	sale	transactions	will	include	any	spreads	between	bids	and	offers.	Certain	fees	received	on	loans	carried	at	fair	value and	dividends	from	equity	securities	are	also	recorded	in	this	line	item	since	they	relate	to	market-making	positions.	Commissions	received	for	purchasing	and	selling listed	equity	securities	and	options	are	recorded	separately	in	the	Commissions	and	fees	line	item.	Other	cash	and	derivative	instruments	typically	do	not	have	fees associated	with	them,	and	fees	for	related	services	would	be	recorded	in	Commissions	and	fees.

The	Company	often	invests	directly,	as	a	principal,	in	investments	or	other	financial	instruments	to	economically	hedge	its	obligations	under	its	deferred	compensation plans.	Changes	in	value	of	such	investments	made	by	the	Company	are	recorded	in	Principal	transactions—Trading	and	Principal	transactions—Investments.	Expenses associated	with	the	related	deferred	compensation	plans	are	recorded	in	Compensation	and	benefits.	Compensation	expense	is	calculated	based	on	the	notional	value	of the	award	granted,	adjusted	for	upward	and	downward	changes	in	fair	value	of	the	referenced	investment	and	is	recognized	ratably	over	the	prescribed	vesting	period	for the	award.	Generally,	changes	in	compensation	expense	resulting	from	changes	in	fair	value	of	the	referenced	investment	will	be	offset	by	changes	in	fair	value	of investments	made	by	the	Company.	However,	there	may	be	a	timing	difference	between	the	immediate	revenue	recognition	of	gains	and	losses	on	the	Company's investments	and	the	deferred	recognition	of	the	related	compensation	expense	over	the	vesting	period.

Principal	Transactions—Investments.				The	Company's	investments	generally	are	held	for	long-term	appreciation	and	generally	are	subject	to	significant	sales restrictions.	Estimates	of	the	fair	value	of	the	investments	may	involve	significant	judgment	and	may	fluctuate	significantly	over	time	in	light	of	business,	market, economic	and	financial	conditions	generally	or	in	relation	to	specific	transactions.	In	some	cases,	such	investments	are	required	or	are	a	necessary	part	of	offering	other products.	The	revenues	recorded	are	the	result	of	realized	gains	and	losses	from	sales	and	unrealized	gains	and	losses	from	ongoing	fair	value	changes	of	the	Company's holdings	as	well	as	from	investments	associated	with	certain	employee	deferred	compensation	plans

(as	mentioned	in	the	paragraph	above).	Typically,	there	are	no	fee	revenues	from	these	investments.	The	sales	restrictions	on	the	investments	relate	primarily	to redemption	and	withdrawal	restrictions	on	investments	in	real	estate	funds,	hedge	funds	and	private	equity	funds,	which	include	investments	made	in	connection	with certain	employee	deferred	compensation	plans	(see	Note	4	to	the	consolidated	financial	statements).	Restrictions	on	interests	in	exchanges	and	clearinghouses	generally include	a	requirement	to	hold	those	interests	for	the	period	of	time	that	the	Company	is	clearing	trades	on	that	exchange	or	clearinghouse.	Additionally,	there	are	certain principal	investments	related	to	assets	held	by	consolidated	real	estate	funds,	which	are	primarily	related	to	holders	of	noncontrolling	interests.

Commissions	and	Fees.				Commission	and	fee	revenues	primarily	arise	from	agency	transactions	in	listed	and	over-the-counter	("OTC")	equity	securities,	services related	to	sales	and	trading	activities,	and	sales	of	mutual	funds,	futures,	insurance	products	and	options.

Asset	Management,	Distribution	and	Administration	Fees.				Asset	management,	distribution	and	administration	fees	include	fees	associated	with	the	management	and supervision	of	assets,	account	services	and	administration,	performance-based	fees	relating	to	certain	funds,	separately	managed	accounts,	shareholder	servicing	and	the distribution	of	certain	open-ended	mutual	funds.

Asset	management,	distribution	and	administration	fees	in	the	Global	Wealth	Management	Group	business	segment	also	include	revenues	from	individual	investors electing	a	fee-based	pricing	arrangement	and	fees	for	investment	management.	Mutual	fund	distribution	fees	in	the	Global	Wealth	Management	Group	business	segment are	based	on	either	the	average	daily	fund	net	asset	balances	or	average	daily	aggregate	net	fund	sales	and	are	affected	by	changes	in	the	overall	level	and	mix	of	assets under	management	or	supervision.

Asset	management	fees	in	the	Asset	Management	business	segment	arise	from	investment	management	services	the	Company	provides	to	investment	vehicles	pursuant to	various	contractual	arrangements.	The	Company	receives	fees	primarily	based	upon	mutual	fund	daily	average	net	assets	or	based	on	monthly	or	quarterly	invested equity	for	other	vehicles.	Performance-based	fees	in	the	Asset	Management	business	segment	are	earned	on	certain	funds	as	a	percentage	of	appreciation	earned	by	those funds	and,	in	certain	cases,	are	based	upon	the	achievement	of	performance	criteria.	These	fees	are	normally	earned	annually	and	are	recognized	on	a	monthly	or quarterly	basis.

Net	Interest.				Interest	income	and	Interest	expense	are	a	function	of	the	level	and	mix	of	total	assets	and	liabilities,	including	financial	instruments	owned	and	financial instruments	sold,	not	yet	purchased,	securities	available	for	sale,	securities	borrowed	or	purchased	under	agreements	to	resell,	securities	loaned	or	sold	under	agreements to	repurchase,	loans,	deposits,	commercial	paper	and	other	short-term	borrowings,	long-term	borrowings,	trading	strategies,	customer	activity	in	the	Company's	prime brokerage	business,	and	the	prevailing	level,	term	structure	and	volatility	of	interest	rates.	Certain	Securities	purchased	under	agreements	to	resell	("reverse	repurchase agreements")	and	Securities	sold	under	agreements	to	repurchase	("repurchase	agreements")	and	Securities	borrowed	and	Securities	loaned	transactions	may	be	entered into	with	different	customers	using	the	same	underlying	securities,	thereby	generating	a	spread	between	the	interest	revenue	on	the	reverse	repurchase	agreements	or securities	borrowed	transactions	and	the	interest	expense	on	the	repurchase	agreements	or	securities	loaned	transactions.

# Market	Making.

As	a	market	maker,	the	Company	stands	ready	to	buy,	sell	or	otherwise	transact	with	customers	under	a	variety	of	market	conditions	and	provide	firm	or	indicative	prices in	response	to	customer	requests.	The	Company's	liquidity	obligations	can	be	explicit	and	obligatory	in	some	cases,	and	in	others,	customers	expect	the	Company	to	be willing	to	transact	with	them.	In	order	to	most	effectively	fulfill	its	market-making	function,	the	Company	engages	in	activities,	across	all	of	its	trading	businesses,	that include,	but	are	not	limited	to:	(i)	taking	positions	in	anticipation	of,	and	in	response	to,	customer	demand	to	buy	or	sell	and—depending	on	the	liquidity	of	the	relevant market	and	the	size	of	the	position—holding	those	positions	for	a	period	of	time;	(ii)	managing	and	assuming	basis	risk	(risk	associated	with	imperfect	hedging)	between customized	customer	risks	and	the	standardized	products	available	in	the	market	to	hedge	those	risks;	(iii)	building,	maintaining	and	rebalancing	inventory,	through trades	with	other	market	participants,	and	engaging	in	accumulation	activities	to	accommodate	anticipated	customer	demand;	(iv)	trading	in	the	market	to	remain	current on	pricing	and	trends;	and	(v)	engaging	in	other	activities	to	provide	efficiency	and	liquidity	for	markets.	Interest	income	and	expense	are	also	impacted	by	market- making	activities	as	debt	securities	held	by	the	Company	earn	interest	and	securities	are	loaned,	borrowed,	sold	with	agreement	to	repurchase	and	purchased	with agreement	to	resell.

# INCOME	STATEMENT	INFORMATION

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Revenues: |  |  |  |
| Investment\tbanking | $3,929 | $4,228 | $4,295 |
| Principal\ttransactions: |  |  |  |
| Trading | 5,853 | \t 11,294 | 8,142 |
| Investments | 219 | 239 | 809 |
| Commissions\tand\tfees | 1,999 | 2,611 | 2,274 |
| Asset\tmanagement,\tdistribution\tand\tadministration\tfees | 144 | 124 | 104 |
| Other | 195 | (241) | 731 |
| Total\tnon-interest\trevenues | \t 12,339 | \t 18,255 | \t 16,355 |
| Interest\tincome | 4,128 | 5,740 | 5,910 |
| Interest\texpense | 5,914 | 6,820 | 6,136 |
| Net\tinterest | (1,786) | (1,080) | (226) |
| Net\trevenues | \t 10,553 | \t 17,175 | \t 16,129 |
| Compensation\tand\tbenefits | 6,653 | 7,199 | 6,966 |
| Non-compensation\texpenses | 5,571 | 5,385 | 4,798 |
| Total\tnon-interest\texpenses | \t 12,224 | \t 12,584 | \t 11,764 |
| Income\t(loss)\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | (1,671) | 4,591 | 4,365 |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | (1,065) | 879 | 313 |
| Income\t(loss)\tfrom\tcontinuing\toperations | (606) | 3,712 | 4,052 |
| Discontinued\toperations: |  |  |  |
| Income\t(loss)\tfrom\tdiscontinued\toperations | (154) | (205) | (1,203) |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | (35) | (106) | 13 |
| Net\tgains\t(losses)\ton\tdiscontinued\toperations | (119) | (99) | (1,216) |
| Net\tincome\t(loss) | (725) | 3,613 | 2,836 |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 194 | 244 | 290 |
| Net\tincome\t(loss)\tapplicable\tto\tMorgan\tStanley | $(919) | $3,369 | $2,546 |
| Amounts\tapplicable\tto\tMorgan\tStanley: |  |  |  |
| Income\t(loss)\tfrom\tcontinuing\toperations | $(796) | $3,468 | $3,762 |
| Net\tgains\t(losses)\tfrom\tdiscontinued\toperations | (123) | (99) | (1,216) |
| Net\tincome\t(loss)\tapplicable\tto\tMorgan\tStanley | $(919) | $3,369 | $2,546 |

# Supplemental	Financial	Information.

Investment	Banking.				Investment	banking	revenues	are	composed	of	fees	from	advisory	services	and	revenues	from	the	underwriting	of	securities	offerings	and syndication	of	loans,	net	of	syndication	expenses.

Investment	banking	revenues	were	as	follows:

The	following	table	presents	the	Company's	volumes	of	announced	and	completed	mergers	and	acquisitions,	equity	and	equity-related	offerings,	and	fixed	income offerings:

(1) Source:	Thomson	Reuters,	data	at	January	16,	2013.	Announced	and	completed	mergers	and	acquisitions	volumes	are	based	on	full	credit	to	each	of	the	advisors	in	a	transaction.	Equity	and	equity-related	offerings and	fixed	income	offerings	are	based	on	full	credit	for	single	book	managers	and	equal	credit	for	joint	book	managers.	Transaction	volumes	may	not	be	indicative	of	net	revenues	in	a	given	period.	In	addition,

transaction	volumes	for	prior	periods	may	vary	from	amounts	previously	reported	due	to	the	subsequent	withdrawal	or	change	in	the	value	of	a	transaction.

(2) Amounts	include	transactions	of	$100	million	or	more.	Announced	mergers	and	acquisitions	exclude	terminated	transactions.

(3) Amounts	include	Rule	144A	and	public	common	stock,	convertible	and	rights	offerings.

(4) Amounts	include	non-convertible	preferred	stock,	mortgage-backed	and	asset-backed	securities	and	taxable	municipal	debt.	Amounts	also	include	publicly	registered	and	Rule	144A	issues.	Amounts	exclude leveraged	loans	and	self-led	issuances.

# Sales	and	Trading	Net	Revenues.

Sales	and	trading	net	revenues	are	composed	of	Principal	transactions—Trading	revenues;	Commissions	and	fees;	Asset	management,	distribution	and	administration fees;	and	Net	interest	revenues	(expenses).	See	"Business	Segments—Net	Revenues"	herein	for	further	information	about	what	is	included	in	the	above-referenced components	of	sales	and	trading	revenues.	In	assessing	the	profitability	of	its	sales	and	trading	activities,	the	Company	views	these	net	revenues	in	the	aggregate.	In addition,	decisions	relating	to	principal	transactions	are	based	on	an	overall	review	of	aggregate	revenues	and	costs	associated	with	each	transaction	or	series	of transactions.	This	review	includes,	among	other	things,	an	assessment	of	the	potential	gain	or	loss	associated	with	a	transaction,	including	any	associated	commissions and	fees,	dividends,	the	interest	income	or	expense	associated	with	financing	or	hedging	the	Company's	positions,	and	other	related	expenses.	See	Note	12	to	the consolidated	financial	statements	for	further	information	related	to	gains	(losses)	on	derivative	instruments.

Sales	and	trading	net	revenues	were	as	follows:

|  | 2012 | 2011(1) | 2010(1) |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Principal\ttransactions—Trading | $5,853 | $11,294 | $8,142 |
| Commissions\tand\tfees | 1,999 | 2,611 | 2,274 |
| Asset\tmanagement,\tdistribution\tand\tadministration\tfees | 144 | 124 | 104 |
| Net\tinterest | (1,786) | (1,080) | (226) |
| Total\tsales\tand\ttrading\tnet\trevenues | $6,210 | $12,949 | $10,294 |

(1) All	prior-year	amounts	have	been	reclassified	to	conform	to	the	current	year's	presentation.	For	further	information,	see	Notes	1	and	25	to	the	consolidated	financial	statements.

Sales	and	trading	net	revenues	by	business	were	as	follows:

|  | 2012 | 2011(1) | 2010(1) |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Equity | $4,347 | $6,770 | $4,840 |
| Fixed\tincome\tand\tcommodities | \t 2,358 | 7,506 | 5,895 |
| Other(2) | (495) | (1,327) | (441) |
| Total\tsales\tand\ttrading\tnet\trevenues | $6,210 | $12,949 | $10,294 |

(2) Other	sales	and	trading	net	revenues	include	net	gains	(losses)	from	certain	loans	and	lending	commitments	and	related	hedges	associated	with	the	Company's	lending	activities,	net	gains	(losses)	on	economic hedges	related	to	the	Company's	long-term	debt	and	net	losses	associated	with	costs	related	to	negative	carry.

The	following	sales	and	trading	net	revenues	results	exclude	the	impact	of	DVA	(see	footnote	1	in	the	following	table).	The	reconciliation	of	sales	and	trading,	including equity	sales	and	trading	and	fixed	income	and	commodities	sales	and	trading	net	revenues,	from	a	non-GAAP	to	a	GAAP	basis	is	as	follows:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Total\tsales\tand\ttrading\tnet\trevenues—non-GAAP(1) | $10,612 | $9,268 | $11,118 |
| Impact\tof\tDVA | (4,402) | 3,681 | (824) |
| Total\tsales\tand\ttrading\tnet\trevenues | $6,210 | $12,949 | $10,294 |
| Equity\tsales\tand\ttrading\tnet\trevenues—non-GAAP(1) | $5,477 | $6,151 | $4,961 |
| Impact\tof\tDVA | (1,130) | 619 | (121) |
| Equity\tsales\tand\ttrading\tnet\trevenues | $4,347 | $6,770 | $4,840 |
| Fixed\tincome\tand\tcommodities\tsales\tand\ttrading\tnet\trevenues |  |  |  |
| —non-GAAP(1) | $5,630 | $4,444 | $6,598 |
| Impact\tof\tDVA | (3,272) | 3,062 | (703) |
| Fixed\tincome\tand\tcommodities\tsales\tand\ttrading\tnet\trevenues | $2,358 | $7,506 | $5,895 |

(1) Sales	and	trading	net	revenues,	including	fixed	income	and	commodities	and	equity	sales	and	trading	net	revenues	that	exclude	the	impact	of	DVA,	are	non-GAAP	financial	measures	that	the	Company	considers useful	for	the	Company	and	investors	to	allow	further	comparability	of	period-to-period	operating	performance.

Investment	Banking.					Investment	banking	revenues	in	2012	decreased	7%	from	2011,	reflecting	lower	revenues	from	advisory	and	equity	underwriting	transactions, partially	offset	by	higher	revenues	from	fixed	income	underwriting	transactions.	Advisory	revenues	from	merger,	acquisition	and	restructuring	transactions	were	$1,369 million	in	2012,	a	decrease	of	21%	from	2011,	reflecting	lower	completed	market	volumes.	Overall,	underwriting	revenues	of	$2,560	million	increased	3%	from	2011. Fixed	income	underwriting	revenues	were	$1,669	million	in	2012,	an	increase	of	23%	from	2011,	reflecting	increased	bond	issuance	volumes.	Equity	underwriting revenues	decreased	21%	to	$891	million	in	2012,	reflecting	lower	levels	of	market	activity.

Sales	and	Trading	Net	Revenues.					Total	sales	and	trading	net	revenues	decreased	to	$6,210	million	in	2012	from	$12,949	million	in	2011,	reflecting	lower	revenues	in fixed	income	and	commodities	sales	and	trading	net	revenues	and	equity	sales	and	trading	net	revenues,	partially	offset	by	lower	losses	in	other	sales	and	trading	net revenues.

Equity.				Equity	sales	and	trading	net	revenues	decreased	36%	to	$4,347	million	in	2012	from	2011.	The	results	in	equity	sales	and	trading	net	revenues	included negative	revenue	in	2012	of	$1,130	million	due	to	the	impact	of	DVA	compared	with	positive	revenue	of	$619	million	in	2011	due	to	the	impact	of	DVA.	Equity	sales and	trading	net	revenues,	excluding	the	impact	of	DVA,	in	2012	decreased	11%	from	2011,	reflecting	lower	revenues	in	the	cash	business,	as	a	result	of	lower	volumes.

In	2012,	equity	sales	and	trading	net	revenues	also	reflected	gains	of	$68	million	related	to	changes	in	the	fair	value	of	net	derivative	contracts	attributable	to	the tightening	of	counterparties'	CDS	spreads	and	other	credit	factors	compared	with	losses	of	$38	million	in	2011	due	to	the	widening	of	such	spreads	and	other	credit factors.	The	Company	also	recorded	losses	of	$243	million	in	2012	related	to	changes	in	the	fair	value	of	net	derivative	contracts	attributable	to	the	tightening	of	the Company's	CDS	spreads	and	other	credit	factors	compared	with	gains	of	$182	million	in	2011	due	to	the	widening	of	such	spreads	and	other	credit	factors.	The	gains and	losses	on	CDS	spreads	and	other	credit	factors	include	gains	and	losses	on	related	hedging	instruments.

Fixed	Income	and	Commodities.				Fixed	income	and	commodities	sales	and	trading	net	revenues	were	$2,358	million	in	2012	compared	with	net	revenues	of	$7,506 million	in	2011.	Results	in	2012	included	negative	revenue	of	$3,272	million	due	to	the	impact	of	DVA,	compared	with	positive	revenue	of	$3,062	million	in	2011	due to	the	impact	of	DVA.	Fixed	income	net	revenues,	excluding	the	impact	of	DVA,	in	2012	increased	34%	over	2011,	reflecting	higher	results	in	interest	rate,	foreign exchange	and	credit	products,	including	higher	levels	of	client	activity	in	securitized	products,	with	results	in	2011	being	negatively	impacted	by	losses	of	$1,838	million from	Monolines,	including	a	loss	approximating	$1.7	billion	in	the	fourth	quarter	of	2011	from	the	Company's	comprehensive	settlement	with	MBIA	(see	"Executive Summary—Significant	Items—Monoline	Insurers"	herein	for	further	information).	The	results	in	2011	also	included	interest	rate	product	revenues	of	approximately $600	million,	primarily	related	to	the	release	of	credit	valuation	adjustments	upon	the	restructuring	of	certain	derivative	transactions	that	decreased	the	Company's exposure	to	the	European	Peripherals	(see	"Executive	Summary—Significant	Items—European	Peripheral	Countries"	herein	for	further	information).	Commodity	net revenues,	excluding	the	impact	of	DVA,	decreased	20%	in	2012	due	to	a	difficult	market	environment.	Results	in	the	fourth	quarter	of	2011	included	a	loss	of approximately	$108	million	upon	application	of	the	OIS	curve	to	certain	fixed	income	products	(see	"Executive	Summary—Significant	Items—OIS	Fair	Value Measurement"	herein	and	Note	4	to	the	consolidated	financial	statements).

In	2012,	fixed	income	and	commodities	sales	and	trading	net	revenues	reflected	net	losses	of	$128	million	related	to	changes	in	the	fair	value	of	net	derivative	contracts attributable	to	the	widening	of	counterparties'	CDS	spreads	and	other	credit	factors	compared	with	losses	of	$1,249	million,	including	Monolines,	in	2011.	The Company	also	recorded	losses	of	$482	million	in	2012	related	to	changes	in	the	fair	value	of	net	derivative	contracts	attributable	to	the	tightening	of	the	Company's	CDS spreads	and	other	credit	factors	compared	with	gains	of	$746	million	in	2011	due	to	the	widening	of	such	spreads	and	other	credit	factors.	The	gains	and	losses	on	CDS spreads	and	other	factors	include	gains	and	losses	on	related	hedging	instruments.

Other.				In	addition	to	the	equity	and	fixed	income	and	commodities	sales	and	trading	net	revenues	discussed	above,	sales	and	trading	net	revenues	included	other trading	revenues,	consisting	of	certain	activities	associated	with	the	Company's	lending	activities,	gains	(losses)	on	economic	hedges	related	to	the	Company's	long- term	debt,	costs	related	to	negative	carry	and	revenues	related	to	hedge	accounting	on	certain	derivative	contracts.	The	fair	value	measurement	of	loans	and	lending commitments	takes	into	account	fee	income	that	is	considered	an	attribute	of	the	contract.	The	valuation	of	these	commitments	could	change	in	future	periods	depending on,	among	other	things,	the	extent	that	they	are	renegotiated	or	repriced	or	if	the	associated	acquisition	transaction	does	not	occur.	During	2011,	in	accordance	with	its risk	management	practices,	the	Company	began	accounting	for	certain	new	loans	and	lending	commitments	as	held	for	investment.	Mark-to-market	valuations	were	not recorded	for	these	loans	and	lending	commitments,	but	they	were	evaluated	for	collectability	and	an	allowance	for	credit	losses	was	recorded.	Effective	April	1,	2012, the	Company	began	accounting	for	all	new	corporate	loans	and	lending	commitments	as	either	held	for	investment	or	held	for	sale.	This	corporate	lending	portfolio

has	grown,	and	the	Company	expects	this	trend	to	continue.	See	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk—Credit	Risk"	in	Part	II,	Item	7A,	herein.

Other	sales	and	trading	net	losses	were	$495	million	in	2012	compared	with	net	losses	of	$1,327	million	in	2011.	The	results	in	both	years	included	losses	related	to negative	carry.	The	2012	results	also	included	losses	on	economic	hedges	related	to	the	Company's	long-term	debt	compared	with	gains	in	2011.	Results	in	2012	were partially	offset	by	net	gains	of	$740	million	associated	with	loans	and	lending	commitments	(mark-to-market	valuations	and	realized	gains	of	$1,650	million	and	losses on	related	hedges	of	$910	million).	Results	in	2011	included	net	losses	of	approximately	$631	million	associated	with	loans	and	lending	commitments	(mark-to-market valuations	and	realized	losses	of	approximately	$699	million	and	gains	on	related	hedges	of	approximately	$68	million).	The	results	in	2012	also	included	net	investment gains	in	the	Company's	deferred	compensation	and	co-investment	plans	compared	with	net	losses	in	2011.

Net	Interest.	Net	interest	expense	increased	to	$1,786	million	in	2012	from	net	interest	expense	of	$1,080	million	in	2011,	primarily	due	to	lower	revenues	from securities	purchased	under	agreements	to	resell	and	securities	borrowed	transactions.

Principal	Transactions—Investments.				See	"Business	Segments—Net	Revenues"	herein	for	further	information	on	what	is	included	in	Principal	transactions— Investments.

Principal	transactions	net	investment	gains	of	$219	million	were	recognized	in	2012	compared	with	net	investment	gains	of	$239	million	in	2011.	The	gains	in	2012	and 2011	primarily	included	mark-to-market	gains	on	principal	investments	in	real	estate	funds	and	net	gains	from	investments	associated	with	the	Company's	deferred compensation	and	co-investment	plans.

Other.					Other	revenues	of	$195	million	were	recognized	in	2012	compared	with	other	losses	of	$241	million	in	2011.	The	results	in	2012	included	income	of	$152 million,	arising	from	the	Company's	40%	stake	in	MUMSS.	The	results	in	2011	included	pre-tax	losses	of	$783	million	arising	from	the	Company's	40%	stake	in MUMSS	(see	"Executive	Summary—Significant	Items—Japanese	Securities	Joint	Venture"	herein).	The	gains	in	2012	were	partially	offset	by	increases	in	the	provision for	loan	losses.	The	results	in	both	periods	also	included	gains	from	the	Company's	retirement	of	certain	of	its	debt.

Non-interest	Expenses.				Non-interest	expenses	decreased	3%	in	2012.	The	decrease	was	due	to	lower	compensation	expenses,	partially	offset	by	higher	non- compensation	expenses.	Compensation	and	benefits	expenses	decreased	8%	in	2012,	in	part	due	to	lower	net	revenues,	excluding	DVA	and	the	comprehensive settlement	with	MBIA,	and	were	partially	offset	by	severance	expenses	related	to	reductions	in	force	during	the	year.	Non-compensation	expenses	increased	3%	in	2012, compared	with	2011.	Brokerage,	clearing	and	exchange	expenses	decreased	9%	in	2012,	primarily	due	to	lower	volumes	of	activity.	Information	processing	and communications	expense	increased	6%	in	2012,	primarily	due	to	ongoing	investments	in	technology.	Professional	services	expenses	increased	22%	in	2012,	primarily due	to	higher	legal	and	regulatory	costs	and	consulting	expenses.	Other	expenses	increased	5%	in	2012.	The	results	in	2012	included	increased	litigation	costs	of approximately	$280	million	and	a	higher	provision	for	unfunded	loan	commitments.	The	results	in	2011	included	the	initial	costs	of	$130	million	associated	with	Morgan Stanley	Huaxin	Securities	Company	Limited	(see	"Executive	Summary—Significant	Items—Huaxin	Securities	Joint	Venture"	herein	for	further	information).	The results	in	2011	also	included	a	charge	of	$59	million	due	to	the	bank	levy	on	relevant	liabilities	and	equities	on	the	consolidated	balance	sheets	of	"U.K.	Banking Groups"	at	December	31,	2011	as	defined	under	the	bank	levy	legislation	enacted	by	the	U.K	government	in	July	2011	(see	"Executive	Summary—Significant	Items— U.K.	Matters"	herein	for	further	information).

Investment	Banking.				Investment	banking	revenues	in	2011	decreased	2%	from	2010,	reflecting	lower	revenues	from	equity	and	fixed	income	underwriting transactions,	partially	offset	by	higher	advisory	revenues.

Overall,	underwriting	revenues	of	$2,491	million	decreased	12%	from	2010,	reflecting	lower	levels	of	market	activity.	Investment	banking	revenues	were	also	impacted by	the	contribution	in	2010	of	the	majority	of	the	Company's	Japanese	investment	banking	business	as	a	result	of	a	transaction	with	MUFG	(see	"Other	Matters—

Japanese	Securities	Joint	Venture"	herein).	Equity	underwriting	revenues	decreased	22%	to	$1,132	million	in	2011.	Fixed	income	underwriting	revenues	decreased	1% to	$1,359	million	in	2011.	Advisory	revenues	from	merger,	acquisition	and	restructuring	transactions	were	$1,737	million	in	2011,	an	increase	of	18%	from	2010, reflecting	higher	levels	of	completed	activity.

Sales	and	Trading	Net	Revenues.					Total	sales	and	trading	net	revenues	increased	to	$12,949	million	in	2011	from	$10,294	million	in	2010,	reflecting	higher	equity and	fixed	income	and	commodities	sales	and	trading	net	revenues,	partially	offset	by	higher	losses	in	other	sales	and	trading	net	revenues.

Equity.				Equity	sales	and	trading	net	revenues	increased	40%	to	$6,770	million	in	2011	from	2010,	primarily	due	to	higher	revenues	in	the	derivatives	business,	the Company's	electronic	trading	platform	and	prime	brokerage.	The	increase	in	the	derivatives	business	and	the	Company's	electronic	trading	platform	primarily	reflected higher	levels	of	client	activity.	The	increase	in	prime	brokerage	net	revenues	was	primarily	due	to	higher	average	client	balances.	The	results	in	equity	sales	and	trading net	revenues	also	included	positive	revenue	in	2011	of	$619	million	due	to	the	impact	of	DVA	compared	with	negative	revenue	of	$121	million	in	2010	due	to	the	impact of	DVA.

In	2011,	equity	sales	and	trading	net	revenues	also	reflected	losses	of	$38	million	related	to	changes	in	the	fair	value	of	net	derivative	contracts	attributable	to	the widening	of	counterparties'	CDS	spreads	and	other	credit	factors	compared	with	gains	of	$20	million	in	2010	due	to	the	tightening	of	counterparties'	CDS	spreads	and other	credit	factors.	The	Company	also	recorded	gains	of	$182	million	in	2011	related	to	changes	in	the	fair	value	of	net	derivative	contracts	attributable	to	the	widening of	the	Company's	CDS	spreads	and	other	credit	factors	compared	with	gains	of	$32	million	in	2010.	The	gains	and	losses	on	CDS	spreads	and	other	factors	include gains	and	losses	on	related	hedging	instruments.

Fixed	Income	and	Commodities.				Fixed	income	and	commodities	sales	and	trading	net	revenues	increased	27%	to	$7,506	million	in	2011	from	$5,895	million	in	2010. Results	in	2011	included	positive	revenue	of	$3,062	million	due	to	the	impact	of	DVA,	compared	with	negative	revenues	of	$703	million	in	2010	due	to	the	impact	of DVA.	Fixed	income	and	commodities	sales	and	trading	net	revenues,	excluding	the	impact	of	DVA,	in	2011	decreased	33%	over	2010.	Fixed	income	revenues, excluding	DVA,	in	2011	decreased	30%	over	2010.	Results	in	2011	were	negatively	impacted	by	losses	of	$1,838	million	from	Monolines	compared	with	losses	of	$865 million	in	2010.	On	December	13,	2011,	the	Company	announced	a	comprehensive	settlement	with	MBIA.	The	loss	on	the	settlement	was	approximately	$1.7	billion	in the	fourth	quarter	of	2011	(see	"Executive	Summary—Significant	Items—Monoline	Insurers"	herein	for	further	information).	The	results	in	2011	also	reflected	lower revenues	in	credit	products	due	to	the	stressed	credit	environment	and	lower	revenues	in	currency	products,	partially	offset	by	higher	revenues	in	interest	rate	products due	to	higher	levels	of	market	volatility	and	client	activity	and	approximately	$600	million	primarily	related	to	the	release	of	credit	valuation	adjustments	upon	the restructuring	of	certain	derivative	transactions	that	decreased	the	Company's	exposure	to	the	European	Peripherals	(see	"Executive	Summary—Significant	Items— European	Peripheral	Countries"	herein	for	further	information).	Commodity	revenues,	excluding	DVA,	decreased	18%	in	2011,	primarily	due	to	lower	levels	of	client activity,	including	structured	transactions.	Results	in	the	fourth	quarter	of	2011	included	a	loss	of	approximately	$108	million	upon	application	of	the	OIS	curve	to certain	fixed	income	products.	Results	in	2010	included	a	gain	of	approximately	$123	million	related	to	a	change	in	the	fair	value	measurement	methodology	to	use	the OIS	curve	as	an	input	to	value	substantially	all	collateralized	interest	rate	derivative	contracts	(see	"Executive	Summary—Significant	Items—OIS	Fair	Value Measurement"	herein	and	Note	4	to	the	consolidated	financial	statements).

In	2011,	fixed	income	and	commodities	sales	and	trading	net	revenues	reflected	net	losses	of	$1,249	million	related	to	changes	in	the	fair	value	of	net	derivative contracts	attributable	to	the	widening	of	counterparties'	CDS

spreads	and	other	credit	factors	compared	with	losses	of	$717	million	in	2010.	The	Company	also	recorded	gains	of	$746	million	in	2011	related	to	changes	in	the	fair value	of	net	derivative	contracts	attributable	to	the	widening	of	the	Company's	CDS	spreads	and	other	credit	factors	compared	with	gains	of	$443	million	in	2010.	The gains	and	losses	on	CDS	spreads	and	other	factors	include	gains	and	losses	on	related	hedging	instruments.

Other.					In	2011,	other	sales	and	trading	net	revenues	reflected	a	net	loss	of	$1,327	million	compared	with	a	net	loss	of	$441	million	in	2010.	Results	in	2011	included net	losses	of	$631	million	associated	with	loans	and	lending	commitments	(mark-to-market	valuations	and	realized	losses	of	$699	million	and	gains	on	related	hedges	of $68	million).	The	results	in	2011	included	higher	net	losses	related	to	negative	carry.	Results	in	2010	also	included	a	gain	of	approximately	$53	million	related	to	the	OIS curve	fair	value	methodology	referred	to	above	(see	"Executive	Summary—Significant	Items—OIS	Fair	Value	Measurement"	and	Note	4	to	the	consolidated	financial statements).

Net	Interest.					Net	interest	expense	increased	to	$1,080	million	in	2011	from	$226	million	in	2010,	primarily	due	to	higher	interest	expenses	that	resulted	from	increased interest	rates	associated	with	the	Company's	long-term	borrowings	and	stock	lending	transactions.

Principal	Transactions—Investments.				Principal	transaction	net	investment	gains	of	$239	million	were	recognized	in	2011	compared	with	net	investment	gains	of $809	million	in	2010.	Results	in	both	periods	reflected	gains	in	principal	investments	in	real	estate	funds	and	investments	associated	with	certain	employee	deferred compensation	plans	and	co-investment	plans.	The	results	for	2010	also	reflected	a	gain	of	$313	million	on	a	principal	investment	held	by	a	consolidated	investment partnership,	which	was	sold	in	2010.	The	portion	of	the	gain	related	to	third-party	investors	amounted	to	$183	million	and	was	recorded	in	the	net	income	applicable	to noncontrolling	interests	in	the	consolidated	statement	of	income.

Other.				Other	losses	of	$241	million	were	recognized	in	2011	compared	with	other	revenues	of	$731	million	in	2010.	The	results	in	2011	primarily	included	pre-tax losses	of	approximately	$783	million	arising	from	the	Company's	40%	stake	in	MUMSS	(see	"Executive	Summary—Significant	Items—Japanese	Securities	Joint Venture"	herein),	partially	offset	by	gains	from	the	Company's	retirement	of	its	long-term	debt.	Results	in	2010	included	a	pre-tax	gain	of	$668	million	from	the	sale	of the	Company's	investment	in	CICC,	partially	offset	by	pre-tax	losses	of	approximately	$62	million	arising	from	the	Company's	40%	stake	in	MUMSS.

Non-interest	Expenses.				Non-interest	expenses	increased	7%	in	2011.	The	increase	was	due	to	higher	compensation	expenses	and	higher	non-compensation	expenses. Compensation	and	benefits	expenses	increased	3%	in	2011.	Compensation	and	benefits	expenses	in	2010	included	a	non-recurring	charge	of	approximately	$269	million related	to	the	U.K.	government's	payroll	tax	on	discretionary	above-base	compensation	in	2010.	Brokerage,	clearing	and	exchange	fees	increased	14%	in	2011, primarily	due	to	higher	levels	of	business	activity.	Information	processing	and	communications	expenses	increased	13%	in	2011,	primarily	due	to	ongoing	investments	in technology.	Professional	services	expenses	decreased	9%	in	2011,	primarily	due	to	lower	legal	fees	and	consulting	expenses.	Other	expenses	increased	43%	in	2011, primarily	due	to	the	initial	costs	of	$130	million	associated	with	Morgan	Stanley	Huaxin	Securities	Company	Limited	and	a	charge	of	$59	million	due	to	the	U.K.	bank levy	(see	"Executive	Summary—Significant	Items—U.K.	Matters"	herein	for	further	information).	Other	expenses	in	2010	included	$102.7	million	related	to	the Assurance	of	Discontinuance	between	the	Company	and	the	Office	of	the	Attorney	General	for	the	Commonwealth	of	Massachusetts	("Massachusetts	OAG")	to	resolve the	Massachusetts	OAG's	investigation	of	the	Company's	financing,	purchase	and	securitization	of	certain	subprime	residential	mortgages.

# Income	Tax	Items.

In	2012,	the	Company	recognized	in	income	from	continuing	operations	a	net	tax	benefit	of	approximately	$249	million	attributable	to	the	Institutional	Securities business	segment.	This	included	a	discrete	benefit	of	approximately	$299	million	related	to	the	remeasurement	of	reserves	and	related	interest	associated	with	either

the	expiration	of	the	applicable	statute	of	limitations	or	new	information	regarding	the	status	of	certain	Internal	Revenue	Service	examinations.	Additionally,	in	2012, the	Company	recognized	an	out-of-period	net	tax	provision	of	approximately	$50	million	primarily	related	to	the	overstatement	of	deferred	tax	assets	associated	with repatriated	earnings	of	foreign	subsidiaries	recorded	in	prior	years.	The	Company	has	evaluated	the	effects	of	the	understatement	of	the	income	tax	provision	both qualitatively	and	quantitatively,	and	concluded	that	it	did	not	have	a	material	impact	on	any	prior	annual	or	quarterly	consolidated	financial	statements.

# Discontinued	Operations.

On	October	24,	2011,	the	Company	announced	that	it	had	reached	an	agreement	to	sell	Saxon,	a	provider	of	servicing	and	subservicing	of	residential	mortgage	loans,	to Ocwen	Financial	Corporation.	Accordingly,	the	results	of	Saxon	are	reported	as	discontinued	operations	within	the	Institutional	Securities	business	segment	for	all periods	presented.	The	transaction	with	Ocwen,	which	was	restructured	as	a	sale	of	Saxon's	assets	during	the	first	quarter	of	2012,	was	substantially	completed	in	the second	quarter	of	2012.	The	remaining	operations	of	Saxon	were	substantially	wound	down	during	the	year.	The	net	loss	from	discontinued	operations	in	2012	includes a	provision	of	approximately	$115	million	related	to	a	settlement	with	the	Federal	Reserve	concerning	the	independent	foreclosure	review	related	to	Saxon.	The Company	expects	to	incur	incremental	wind-down	costs	in	future	periods.

On	February	17,	2011,	the	Company	completed	the	sale	of	Revel.	The	sale	price	approximated	the	carrying	value	of	Revel	at	the	time	of	disposal	and,	accordingly,	the Company	did	not	recognize	any	pre-tax	gain	or	loss	on	the	sale.	The	results	of	Revel	are	reported	as	discontinued	operations	within	the	Institutional	Securities	business segment	for	all	periods	presented	through	the	date	of	sale.	Results	for	2010	included	losses	of	approximately	$1.2	billion	in	connection	with	writedowns	and	related	costs of	such	disposition.	For	further	information	on	Revel,	see	"Executive	Summary—Significant	Items—Income	Tax	Items"	herein.

In	the	third	quarter	of	2010,	the	Company	completed	the	disposal	of	CityMortgage	Bank	("CMB"),	a	Moscow-based	mortgage	bank.	The	results	of	CMB	are	reported	as discontinued	operations	for	all	periods	presented	through	the	date	of	sale	within	the	Institutional	Securities	business	segment.

For	further	information,	see	Notes	1	and	25	to	the	consolidated	financial	statements.

# Nonredeemable	Noncontrolling	Interests.

Nonredeemable	noncontrolling	interests	primarily	relate	to	Morgan	Stanley	MUFG	Securities	Co.,	Ltd.	("MSMS")	(see	Note	2	to	the	consolidated	financial	statements for	further	information).

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Revenues: |  |  |  |
| Investment\tbanking | $836 | $750 | $827 |
| Principal\ttransactions: |  |  |  |
| Trading | 1,193 | 1,119 | 1,305 |
| Investments | 10 | 4 | 19 |
| Commissions\tand\tfees | 2,261 | 2,737 | 2,642 |
| Asset\tmanagement,\tdistribution\tand\tadministration\tfees | 7,288 | 6,792 | 6,273 |
| Other | 316 | 410 | 337 |
| Total\tnon-interest\trevenues | \t 11,904 | \t 11,812 | \t 11,403 |
| Interest\tincome | 2,015 | 1,863 | 1,581 |
| Interest\texpense | 403 | 386 | 465 |
| Net\tinterest | 1,612 | 1,477 | 1,116 |
| Net\trevenues | \t 13,516 | \t 13,289 | \t 12,519 |
| Compensation\tand\tbenefits | 8,128 | 8,286 | 7,791 |
| Non-compensation\texpenses | 3,788 | 3,748 | 3,598 |
| Total\tnon-interest\texpenses | \t 11,916 | \t 12,034 | \t 11,389 |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 1,600 | 1,255 | 1,130 |
| Provision\tfor\tincome\ttaxes | 559 | 458 | 328 |
| Income\tfrom\tcontinuing\toperations | 1,041 | 797 | 802 |
| Discontinued\toperations: |  |  |  |
| Income\tfrom\tdiscontinued\toperations | 94 | 21 | 26 |
| Provision\tfor\tincome\ttaxes | 26 | 7 | 8 |
| Net\tgain\tfrom\tdiscontinued\toperations | 68 | 14 | 18 |
| Net\tincome | 1,109 | 811 | 820 |
| Net\tincome\tapplicable\tto\tredeemable\tnoncontrolling\tinterests | 124 | — | — |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 143 | 146 | 301 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | $842 | $665 | $519 |
| Amounts\tapplicable\tto\tMorgan\tStanley: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $799 | $658 | $514 |
| Net\tgain\tfrom\tdiscontinued\toperations | 43 | 7 | 5 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | $842 | $665 | $519 |

Net	Revenues.				Global	Wealth	Management	Group	business	segment's	net	revenues	are	composed	of	Transactional,	Asset	management,	Net	interest	and	Other revenues.	Transactional	revenues	include	Investment	banking,	Principal	transactions—Trading,	and	Commissions	and	fees.	Asset	management	revenues	include	Asset management,	distribution	and	administration	fees,	and	fees	related	to	the	bank	deposit	program.	Net	interest	revenues	include	net	interest	revenues	related	to	the	bank deposit	program,	interest	on	securities	available	for	sale

and	all	other	net	interest	revenues.	Other	revenues	include	revenues	from	available	for	sale	securities,	customer	account	services	fees,	other	miscellaneous	revenues	and revenues	from	Principal	transactions—Investments.

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Revenues: |  |  |  |
| Transactional | $4,290 | $4,606 | $4,774 |
| Asset\tmanagement | 7,288 | 6,792 | 6,273 |
| Net\tinterest | 1,612 | 1,477 | 1,116 |
| Other | 326 | 414 | 356 |
| Net\trevenues | $13,516 | $13,289 | $12,519 |

Wealth	Management	JV.				During	2012,	the	Company	completed	the	purchase	of	an	additional	14%	stake	in	the	Wealth	Management	JV	from	Citi	for	$1.89	billion, increasing	the	Company's	interest	from	51%	to	65%.	Prior	to	September	17,	2012,	Citi's	results	related	to	its	49%	interest	were	reported	in	net	income	(loss)	applicable to	nonredeemable	noncontrolling	interests.	Due	to	the	terms	of	the	revised	agreement	with	Citi,	subsequent	to	the	purchase	of	the	additional	14%	stake,	Citi's	results related	to	the	35%	interest	are	reported	in	net	income	(loss)	applicable	to	redeemable	noncontrolling	interests.	See	Note	13	to	the	consolidated	financial	statements	for further	information.

On	September	25,	2012,	the	Company	announced	that	its	U.S.	Wealth	Management	business	was	rebranded	to	Morgan	Stanley	Wealth	Management.

See	Note	3	to	the	consolidated	financial	statements	for	further	information.

# Transactional.

Investment	Banking.				Global	Wealth	Management	Group	business	segment's	investment	banking	revenues	includes	revenues	from	the	distribution	of	equity	and	fixed income	securities,	including	initial	public	offerings,	secondary	offerings,	closed-end	funds	and	unit	trusts.	Investment	banking	revenues	increased	11%	to	$836	million	in 2012	from	2011,	primarily	due	to	higher	revenues	from	closed-end	funds	and	higher	fixed	income	underwriting.

Principal	Transactions—Trading.				Principal	transactions—Trading	include	revenues	from	customers'	purchases	and	sales	of	financial	instruments	in	which	the Company	acts	as	principal	and	gains	and	losses	on	the	Company's	inventory	positions,	which	are	held	primarily	to	facilitate	customer	transactions	and	gains	and	losses associated	with	certain	employee	deferred	compensation	plans.	Principal	transactions—Trading	revenues	increased	7%	to	$1,193	million	in	2012	from	2011,	primarily due	to	gains	related	to	investments	associated	with	certain	employee	deferred	compensation	plans	and	higher	revenues	from	structured	notes	and	corporate	bonds transactions,	partially	offset	by	lower	revenue	from	municipal	securities,	corporate	equity	securities,	government	securities	and	foreign	exchange	transactions.

Commissions	and	Fees.				Commissions	and	fees	revenues	primarily	arise	from	agency	transactions	in	listed	and	OTC	equity	securities	and	sales	of	mutual	funds, futures,	insurance	products	and	options.	Commissions	and	fees	revenues	decreased	17%	to	$2,261	million	in	2012	from	2011,	primarily	due	to	lower	client	activity.

Asset	Management,	Distribution	and	Administration	Fees.				See	"Business	Segments—Net	Revenues"	herein	for	information	about	the	composition	of	Asset management,	distribution	and	administration	fees.

Asset	management,	distribution	and	administration	fees	increased	7%	to	$7,288	million	in	2012	from	2011,	primarily	due	to	higher	fee-based	revenues,	and	higher revenues	from	annuities	and	the	bank	deposit	program	held	at	Citi	depositories.	The	referral	fees	for	deposits	placed	with	Citi	affiliated	depository	institutions	were	$383 million	and	$255	million	in	2012	and	2011,	respectively.

Balances	in	the	bank	deposit	program	increased	to	$130.8	billion	at	December	31,	2012	from	$110.6	billion	at	December	31,	2011.	Deposits	held	by	Company-affiliated FDIC-insured	depository	institutions	were	$71.7	billion	at	December	31,	2012	and	$56.3	billion	at	December	31,	2011.

Client	assets	in	fee-based	accounts	increased	to	$573	billion	and	represented	32%	of	total	client	assets	at	December	31,	2012	compared	with	$485	billion	and	30%	at December	31,	2011,	respectively.	Total	client	asset	balances	increased	to	$1,776	billion	at	December	31,	2012	from	$1,637	billion	at	December	31,	2011,	primarily	due to	the	impact	of	market	conditions	and	net	new	asset	inflows.	Client	asset	balances	in	households	with	assets	greater	than	$1	million	increased	to	$1,308	billion	at December	31,	2012	from	$1,212	billion	at	December	31,	2011.	Global	fee-based	client	asset	flows	for	2012	were	$24.0	billion	compared	with	$41.6	billion	in	2011.

# Net	Interest.

Interest	income	and	Interest	expense	are	a	function	of	the	level	and	mix	of	total	assets	and	liabilities,	including	customer	bank	deposits	and	margin	loans	and	securities borrowed	and	securities	loaned	transactions.

Net	interest	increased	9%	to	$1,612	million	in	2012	from	2011,	primarily	resulting	from	higher	revenues	from	the	bank	deposit	program,	interest	on	the	available	for sale	portfolio	and	secured	financing	activities.

# Other.

Other.				Other	revenues	were	$316	million	in	2012,	a	decrease	of	23%	from	2011,	primarily	due	to	lower	gains	on	sales	of	securities	available	for	sale.

Non-interest	Expenses.				Non-interest	expenses	decreased	1%	in	2012	from	2011.	Compensation	and	benefits	expenses	decreased	2%	from	2011,	primarily	due	to lower	compensable	revenues,	partially	offset	by	higher	expenses	associated	with	certain	employee	deferred	compensation	plans.	Non-compensation	expenses	increased 1%	in	2012	from	2011.	Information	processing	and	communications	expenses	increased	6%	in	2012,	primarily	due	to	higher	telecommunications	and	data	storage	costs. Marketing	and	business	development	expenses	increased	6%	from	2011,	primarily	due	to	higher	costs	associated	with	advertising	and	infrastructure,	partially	offset	by lower	costs	associated	with	conferences	and	seminars.	Other	expenses	increased	5%	in	2012,	primarily	due	to	non-recurring	costs	related	to	Morgan	Stanley	Wealth Management	integration	(see	"Executive	Summary—Significant	Items—Wealth	Management	JV"	herein).	Professional	services	expenses	decreased	8%	in	2012	from 2011,	primarily	due	to	lower	technology	consulting	costs.

Investment	Banking.				Investment	banking	revenues	decreased	9%	in	2011	from	2010,	primarily	due	to	lower	equity	and	fixed	income	underwriting	activities.

Principal	Transactions—Trading.				Principal	transactions—Trading	revenues	decreased	14%	in	2011	from	2010,	primarily	due	to	losses	related	to	investments associated	with	certain	employee	deferred	compensation	plans,	lower	revenues	from	corporate	equity	and	fixed	income	securities,	government	securities	and	structured notes,	partially	offset	by	higher	revenues	from	municipal	securities,	derivatives	and	unit	trusts.

Commissions	and	Fees.				Commissions	and	fees	revenues	increased	4%	in	2011	from	2010,	primarily	due	to	higher	client	activity.

Asset	Management,	Distribution	and	Administration	Fees.				Asset	management,	distribution	and	administration	fees	increased	8%	in	2011	from	2010,	primarily	due	to higher	fee-based	revenues,	partially	offset	by	lower	revenues	as	a	result	of	the	change	in	classification	of	the	fees	generated	by	the	bank	deposit	program.

From	June	2009	until	April	1,	2010,	revenues	in	the	bank	deposit	program	were	primarily	included	in	Asset	management,	distribution	and	administration	fees.	Beginning on	April	1,	2010,	revenues	in	the	bank	deposit	program	held	at	the	Company's	U.S.	depository	institutions	were	recorded	as	Interest	income	due	to	renegotiations	of	the revenue	sharing	agreement	as	part	of	the	Global	Wealth	Management	Group	business	segment's	retail	banking	strategy.	The	Global	Wealth	Management	Group	business segment	continues	to	earn	referral	fees	for	deposits	placed	with	Citi	affiliated	depository	institutions,	and	these	fees	continue	to	be	recorded	in	Asset	management, distribution	and	administration	fees	until	the	legacy	Smith	Barney	deposits	are	migrated	to	the	Company's	U.S.	depository	institutions.	The	referral	fees	for	deposits	were $255	million	and	$382	million	in	2011	and	2010,	respectively.

Client	assets	in	fee-based	accounts	increased	to	$485	billion	and	represented	30%	of	total	client	assets	at	December	31,	2011	compared	with	$460	billion	and	28%	at December	31,	2010,	respectively.	Total	client	asset	balances	decreased	to	$1,637	billion	at	December	31,	2011	from	$1,657	billion	at	December	31,	2010,	primarily	due to	the	impact	of	weakened	market	conditions,	partially	offset	by	an	increase	in	net	new	assets.	Client	asset	balances	in	households	with	assets	greater	than	$1	million decreased	to	$1,212	billion	at	December	31,	2011	from	$1,222	billion	at	December	31,	2010.	Global	fee-based	asset	net	inflows	for	2011	were	$41.6	billion	compared with	$31.9	billion	in	2010.

Net	interest	increased	32%	in	2011	from	2010,	primarily	resulting	from	an	increase	in	Interest	income	due	to	interest	on	the	securities	available	for	sale	portfolio	and mortgages	and	the	change	in	classification	of	the	fees	generated	by	the	bank	deposit	program	noted	above.

Principal	Transactions—Investments.				Principal	transaction	net	investment	gains	were	$4	million	in	2011	compared	with	net	investment	gains	of	$19	million	in	2010. The	decrease	in	2011	primarily	reflected	losses	related	to	investments	associated	with	certain	employee	deferred	compensation	plans	compared	with	such	investments	in the	prior	year.

Other.				Other	revenues	were	$410	million	in	2011,	an	increase	of	22%	from	2010,	primarily	due	to	gains	on	sales	of	securities	available	for	sale.

Non-interest	Expenses.				Non-interest	expenses	increased	6%	in	2011	from	2010.	Compensation	and	benefits	expenses	increased	6%	in	2011	from	2010,	primarily reflecting	higher	net	revenues	and	support	services-related	compensation,	partially	offset	by	lower	expenses	associated	with	certain	employee	deferred	compensation plans.	Non-compensation	expenses	increased	4%	in	2011	from	2010.	In	2011,	marketing	and	business	development	expenses	increased	13%	from	2010,	primarily	due	to higher	costs	associated	with	conferences	and	seminars.	Professional	services	expenses	increased	14%	in	2011	from	2010,	primarily	due	to	increased	technology

consulting	costs	and	legal	fees.	Information	processing	and	communications	expenses	increased	10%	in	2011	from	2010,	primarily	due	to	higher	telecommunications and	data	storage	costs.	Occupancy	and	equipment	expenses	decreased	5%	in	2011	from	2010,	primarily	due	to	lower	infrastructure	costs	and	continued	branch consolidation.

On	April	2,	2012,	the	Company	completed	the	sale	of	Quilter,	its	retail	wealth	management	business	in	the	U.K.,	resulting	in	a	pre-tax	gain	of	$108	million	in	2012	in the	Global	Wealth	Management	Group	business	segment.	The	results	of	Quilter	are	reported	as	discontinued	operations	for	all	periods	presented.	See	Notes	1	and	25	to the	consolidated	financial	statements.

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Revenues: |  |  |  |
| Investment\tbanking | $17 | $13 | $20 |
| Principal\ttransactions: |  |  |  |
| Trading | (45) | (22) | (49) |
| Investments | 513 | 330 | 996 |
| Asset\tmanagement,\tdistribution\tand\tadministration\tfees | \t 1,703 | \t 1,582 | \t 1,630 |
| Other | 55 | 25 | 164 |
| Total\tnon-interest\trevenues | \t 2,243 | \t 1,928 | \t 2,761 |
| Interest\tincome | 10 | 10 | 22 |
| Interest\texpense | 34 | 51 | 98 |
| Net\tinterest | (24) | (41) | (76) |
| Net\trevenues | \t 2,219 | \t 1,887 | \t 2,685 |
| Compensation\tand\tbenefits | 841 | 848 | \t 1,108 |
| Non-compensation\texpenses | 788 | 786 | 859 |
| Total\tnon-interest\texpenses | \t 1,629 | \t 1,634 | \t 1,967 |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 590 | 253 | 718 |
| Provision\tfor\tincome\ttaxes | 267 | 73 | 105 |
| Income\tfrom\tcontinuing\toperations | 323 | 180 | 613 |
| Discontinued\toperations: |  |  |  |
| Gain\tfrom\tdiscontinued\toperations | 13 | 24 | 999 |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | 4 | (17) | 335 |
| Net\tgain\tfrom\tdiscontinued\toperations | 9 | 41 | 664 |
| Net\tincome | 332 | 221 | \t 1,277 |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 187 | 145 | 408 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | $145 | $76 | $869 |
| Amounts\tapplicable\tto\tMorgan\tStanley: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $136 | $35 | $205 |
| Net\tgain\tfrom\tdiscontinued\toperations | 9 | 41 | 664 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | $145 | $76 | $869 |

# Statistical	Data.

The	Asset	Management	business	segment's	period-end	and	average	assets	under	management	or	supervision	was	as	follows:

|  | December	31, | December	31, |  | Average	for |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2012 | 2011 | 2012 | 2011 | 2010 |
|  |  | (dollars\tin\tbillions) | (dollars\tin\tbillions) |  |  |
| Assets\tunder\tmanagement\tor\tsupervision\tby\tasset\tclass: |  |  |  |  |  |
| Traditional\tAsset\tManagement: |  |  |  |  |  |
| Equity | $120 | $104 | $114 | $112 | $97 |
| Fixed\tincome | 62 | 57 | 59 | 60 | 60 |
| Liquidity | \t 100 | 74 | 87 | 66 | 53 |
| Alternatives(1) | 27 | 25 | 26 | 18 | 17 |
| Total\tTraditional\tAsset\tManagement | \t 309 | \t 260 | \t 286 | \t 256 | \t 227 |
| Real\tEstate\tInvesting | 20 | 18 | 19 | 17 | 15 |
| Merchant\tBanking: |  |  |  |  |  |
| Private\tEquity | 9 | 9 | 9 | 9 | 9 |
| FrontPoint(2) | \t — | \t — | \t — | 1 | 7 |
| Total\tMerchant\tBanking | 9 | 9 | 9 | 10 | 16 |
| Total\tassets\tunder\tmanagement\tor\tsupervision | $338 | $287 | $314 | $283 | $258 |
| Share\tof\tminority\tstake\tassets(2)(3) | $5 | $6 | $5 | $7 | $7 |

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

(2) On	March	1,	2011,	the	Company	and	the	principals	of	FrontPoint	completed	a	transaction	whereby	FrontPoint	senior	management	and	portfolio	managers	own	a	majority	equity	stake	in	FrontPoint,	and	the Company	retains	a	minority	stake.	At	December	31,	2011,	the	assets	under	management	attributed	to	FrontPoint	are	represented	within	the	share	of	minority	stake	assets.

(3) Amounts	represent	the	Asset	Management	business	segment's	proportional	share	of	assets	managed	by	entities	in	which	it	owns	a	minority	stake.

Activity	in	the	Asset	Management	business	segment's	assets	under	management	or	supervision	during	2012,	2011	and	2010	was	as	follows:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tbillions) |  |
| Balance\tat\tbeginning\tof\tperiod | $287 | $272 | $259 |
| Net\tflows\tby\tasset\tclass: |  |  |  |
| Traditional\tAsset\tManagement: |  |  |  |
| Equity | (2) | 4 | \t — |
| Fixed\tincome(1) | (1) | (6) | \t — |
| Liquidity | 26 | 20 | (6) |
| Alternatives(2) | 1 | 8 | \t — |
| Total\tTraditional\tAsset\tManagement | 24 | 26 | (6) |
| Real\tEstate\tInvesting | 1 | 1 | 2 |
| Merchant\tBanking: |  |  |  |
| FrontPoint(3) | \t — | (1) | (2) |
| Total\tMerchant\tBanking | \t — | (1) | (2) |
| Total\tnet\tflows | 25 | 26 | (6) |
| Net\tmarket\tappreciation\t(depreciation) | 26 | (7) | 19 |
| Decrease\tdue\tto\tFrontPoint\ttransaction | \t — | (4) | \t — |
| Total\tnet\tincrease | 51 | 15 | 13 |
| Balance\tat\tend\tof\tperiod | $338 | $287 | $272 |

(1) Fixed	income	outflows	for	2011	include	$1.3	billion	due	to	the	revised	treatment	of	assets	under	management	previously	reported	as	a	net	flow.

(3) The	amount	in	2011	includes	two	months	of	net	flows	related	to	FrontPoint,	whereas	2010	includes	twelve	months	of	net	flows	related	to	FrontPoint.

Investment	Banking.				The	Asset	Management	business	segment	generates	investment	banking	revenues	primarily	from	the	placement	of	investments	in	real	estate	and merchant	banking	funds.

Principal	Transactions—Trading.				See	"Business	Segments—Net	Revenues"	herein	for	further	information	on	what	is	included	in	Principal	transactions—Trading.

In	2012,	the	Company	recognized	losses	of	$45	million	compared	with	losses	of	$22	million	in	2011.	Trading	results	in	2012	primarily	reflected	losses	related	to	certain consolidated	real	estate	funds	sponsored	by	the	Company,	as	well	as	losses	on	hedges	on	certain	investments.	Trading	results	in	2011	primarily	reflected	losses	related	to certain	investments	associated	with	the	Company's	employee	deferred	compensation	and	co-investment	plans	and	certain	consolidated	real	estate	funds	sponsored	by	the Company.

Principal	Transactions—Investments.				Real	estate	and	private	equity	investments	generally	are	held	for	long-term	appreciation	and	generally	are	subject	to	significant sales	restrictions.	Estimates	of	the	fair	value	of	the	investments	involve	significant	judgment	and	may	fluctuate	significantly	over	time	in	light	of	business,	market, economic	and	financial	conditions	generally	or	in	relation	to	specific	transactions.

The	Company	recorded	principal	transactions	net	investment	gains	of	$513	million	in	2012	compared	with	gains	of	$330	million	in	2011.	The	increase	in	2012	was primarily	related	to	higher	net	gains	in	the	Company's	Merchant	Banking	business,	as	well	as	higher	net	investment	gains	associated	with	certain	consolidated	real	estate funds	sponsored	by	the	Company.

Asset	Management,	Distribution	and	Administration	Fees.				Asset	management,	distribution	and	administration	fees	include	revenues	generated	from	the	management and	supervision	of	assets,	performance-based	fees	relating	to	certain	funds,	and	separately	managed	accounts	and	fees	relating	to	the	distribution	of	certain	open-ended mutual	funds.	Asset	management	fees	arise	from	investment	management	services	the	Company	provides	to	investment	vehicles	pursuant	to	various	contractual arrangements.	The	Company	receives	fees	primarily	based	upon	mutual	fund	daily	average	net	assets	or	based	on	monthly	or	quarterly	invested	equity	for	other	vehicles. Performance-based	fees	are	earned	on	certain	funds	as	a	percentage	of	appreciation	earned	by	those	funds	and,	in	certain	cases,	are	based	upon	the	achievement	of performance	criteria.	These	fees	are	normally	earned	annually	and	are	recognized	on	a	monthly	or	quarterly	basis.

Asset	management,	distribution	and	administration	fees	increased	8%	to	$1,703	million	in	2012.	The	increase	in	2012	primarily	reflected	higher	management	and administration	revenues	and	higher	performance	fees.

The	Company's	assets	under	management	increased	$51	billion	from	$287	billion	at	December	31,	2011	to	$338	billion	at	December	31,	2012,	reflecting	$26	billion	in market	appreciation	and	net	customer	inflows	of	$25	billion	primarily	in	the	Company's	liquidity	funds.	In	2011,	net	inflows	of	$26	billion	primarily	reflected	the	sweep of	Morgan	Stanley	Wealth	Management	client	cash	balances	of	approximately	$19	billion	into	Morgan	Stanley	managed	liquidity	funds	and	inflows	of	$8	billion	into alternatives	funds,	partially	offset	by	outflows	of	$6	billion	in	fixed	income	products.

Other.				Other	revenues	were	$55	million	in	2012	as	compared	with	$25	million	in	2011.	The	results	in	2012	included	gains	associated	with	the	expiration	of	a	lending facility	to	a	real	estate	fund	sponsored	by	the	Company.	The	results	in	2012	also	included	lower	revenues	associated	with	the	Company's	minority	investments	in Avenue	Capital	Group	("Avenue"),	a	New	York-based	investment	manager,	and	Lansdowne	Partners	("Lansdowne"),	a	London-based	investment	manager.	The	results in	2011	were	partially	offset	by	a	$27	million	writedown	in	the	Company's	minority	investment	in	FrontPoint.

Non-interest	Expenses.				Non-interest	expenses	were	$1,629	million	in	2012	as	compared	with	$1,634	million	in	2011.	Compensation	and	benefits	expenses	decreased 1%	in	2012.	Non-compensation	expenses	were	relatively	unchanged	in	2012	compared	with	2011.

Investment	Banking.				Investment	banking	revenues	decreased	in	2011	from	2010,	primarily	reflecting	lower	revenues	from	infrastructure	products.

Principal	Transactions—Trading.				In	2011,	the	Company	recognized	losses	of	$22	million	compared	with	losses	of	$49	million	in	2010.	Trading	results	in	2011 primarily	reflected	losses	related	to	certain	investments	associated	with	the	Company's	employee	deferred	compensation	and	co-investment	plans	and	certain consolidated	real	estate	funds	sponsored	by	the	Company.	Trading	results	in	2010	primarily	included	losses	from	hedges	on	certain	investments	and	long-term	debt. Trading	results	in	2010	also	included	$25	million	related	to	contributions	to	money	market	funds.

Principal	Transactions—Investments.				The	Company	recorded	principal	transactions	net	investment	gains	of	$330	million	in	2011	compared	with	gains	of	$996 million	in	2010.	The	decrease	in	2011	was	primarily	related	to	lower	net	gains	in	the	Company's	Merchant	Banking	and	Traditional	Asset	Management	businesses, including	certain	investments	associated	with	the	Company's	employee	deferred	compensation	and	co-investment	plans,	as	well	as	lower	net	investment	gains associated	with	certain	consolidated	real	estate	funds	sponsored	by	the	Company.

Asset	Management,	Distribution	and	Administration	Fees.				Asset	management,	distribution	and	administration	fees	decreased	3%	to	$1,582	million	in	2011.	The decrease	in	2011	primarily	reflected	lower	performance	fees	and	lower	fund	management	and	administration	fees,	primarily	due	to	the	absence	of	FrontPoint	for	ten months	of	the	current	year,	partially	offset	by	an	increase	in	revenues	associated	with	higher	average	assets	under	management.

The	Company's	assets	under	management	increased	$15	billion	from	$272	billion	at	December	31,	2010	to	$287	billion	at	December	31,	2011,	reflecting	net	customer inflows.	The	Company	recorded	net	customer	inflows	of	$26	billion	in	2011	compared	with	net	outflows	of	$6	billion	in	2010.	The	increase	in	flows	for	2011	primarily reflected	the	sweep	of	Morgan	Stanley	Wealth	Management	client	cash	balances	of	approximately	$19	billion	into	Morgan	Stanley	managed	liquidity	funds	and	inflows of	$8	billion	into	alternatives	funds,	partially	offset	by	outflows	of	$6	billion	in	fixed	income	products.

Other.				Other	revenues	were	$25	million	in	2011	as	compared	with	$164	million	in	2010.	The	results	in	2011	included	revenues	associated	with	the	Company's minority	investments	in	Lansdowne	and	Avenue,	partially	offset	by	a	$27	million	writedown	in	the	Company's	minority	investment	in	FrontPoint.	The	results	in	2010 primarily	reflected	revenues	associated	with	these	minority	stakes	and	a	pre-tax	gain	of	approximately	$96	million	from	the	sale	of	the	Company's	investment	in	Invesco (see	Note	19	to	the	consolidated	financial	statements).	The	results	in	2010	also	reflected	gains	associated	with	the	reduction	of	a	lending	facility	to	a	real	estate	fund sponsored	by	the	Company	and	impairment	charges	of	$126	million	related	to	FrontPoint.

Non-interest	Expenses.				Non-interest	expenses	decreased	17%	in	2011	from	2010,	primarily	reflecting	a	decrease	in	compensation	expenses.	Compensation	and benefits	expenses	decreased	23%	in	2011	from	2010,	primarily	due	to	the	absence	of	FrontPoint	for	ten	months	of	the	current	year	and	decreases	associated	with	lower net	revenues.	Non-compensation	expenses	decreased	8%	in	2011	compared	with	the	prior	year,	as	the	prior	year	included	intangible	asset	impairment	charges	of	$67 million	related	to	certain	FrontPoint	management	contracts.

In	2012,	the	Company	recognized	in	income	from	continuing	operations	an	out-of-period	net	tax	provision	of	approximately	$107	million,	attributable	to	the	Asset Management	business	segment,	primarily	related	to	the	overstatement	of	deferred	tax	assets	associated	with	partnership	investments	in	prior	years.	The	Company	has evaluated	the	effects	of	the	understatement	of	the	income	tax	provision	both	qualitatively	and	quantitatively	and	concluded	that	it	did	not	have	a	material	impact	on	any prior	annual	or	quarterly	consolidated	financial	statements.

On	June	1,	2010,	the	Company	completed	the	sale	of	Retail	Asset	Management,	including	Van	Kampen,	to	Invesco.	The	Company	recorded	a	cumulative	after-tax	gain of	$718	million,	of	which	$8	million,	$28	million	and	$570	million	were	recorded	in	2012,	2011	and	2010,	respectively.	The	results	of	Retail	Asset	Management	are reported	as	discontinued	operations	within	the	Asset	Management	business	segment	for	all	periods	presented.	See	"Executive	Summary—Significant	Items—Gain	on Sale	of	Retail	Asset	Management"	for	further	information.

In	the	fourth	quarter	of	2011,	the	Company	classified	a	real	estate	property	management	company	as	held	for	sale	within	the	Asset	Management	business	segment.	The transaction	closed	during	the	first	quarter	of	2012.	The	results	of	this	company	are	reported	as	discontinued	operations	for	all	periods	presented.

In	the	third	quarter	of	2010,	the	Company	completed	a	disposal	of	a	real	estate	property	within	the	Asset	Management	business	segment.	The	results	related	to	this property	are	reported	as	discontinued	operations	for	all	periods	presented	through	the	date	of	sale.

For	further	information	on	discontinued	operations,	see	Notes	1	and	25	to	the	consolidated	financial	statements.

Nonredeemable	noncontrolling	interests	are	primarily	related	to	the	consolidation	of	certain	real	estate	funds	sponsored	by	the	Company.	Principal	investment	gains associated	with	these	consolidated	funds	were	$225	million,	$180	million	and	$444	million	in	2012,	2011	and	2010,	respectively.

# Accounting	Developments.

# Disclosures	about	Offsetting	Assets	and	Liabilities.

In	December	2011,	the	Financial	Accounting	Standards	Board	("FASB")	issued	an	accounting	update	that	creates	new	disclosure	requirements	requiring	entities	to disclose	both	gross	and	net	information	for	derivatives	and	other	financial	instruments	that	are	either	offset	in	the	statement	of	financial	condition	or	subject	to	an enforceable	master	netting	arrangement	or	similar	arrangement.

In	January	2013,	the	FASB	issued	an	accounting	update	that	clarified	the	intended	scope	of	the	new	balance	sheet	offsetting	disclosures	to	derivatives,	repurchase agreements,	and	securities	lending	transactions	to	the	extent	that	they	are	either	offset	in	the	financial	statements	or	subject	to	an	enforceable	master	netting	arrangement or	similar	agreement.

These	disclosure	requirements	are	effective	for	the	Company	beginning	on	or	after	January	1,	2013.	Since	these	amended	principles	require	only	additional	disclosures concerning	offsetting	and	related	arrangements,	adoption	will	not	affect	the	Company's	consolidated	statements	of	income	or	financial	condition.

# Other	Matters.

# Real	Estate.

The	Company	acts	as	the	general	partner	for	various	real	estate	funds	and	also	invests	in	certain	of	these	funds	as	a	limited	partner.	The	Company's	real	estate investments	at	December	31,	2012	and	December	31,	2011	are	described	below.	Such	amounts	exclude	investments	associated	with	certain	employee	deferred compensation	and	co-investment	plans.

At	December	31,	2012	and	December	31,	2011,	the	consolidated	statements	of	financial	condition	included	amounts	representing	real	estate	investment	assets	of consolidated	subsidiaries	of	approximately	$2.2	billion	and	$2.0	billion,	respectively,	including	noncontrolling	interests	of	approximately	$1.8	billion	and	$1.6	billion, respectively,	for	a	net	amount	of	$0.4	billion	in	both	periods.	This	net	presentation	is	a	non-GAAP	financial	measure	that	the	Company	considers	to	be	a	useful	measure for	the	Company	and	investors	to	use	in	assessing	the	Company's	net	exposure.	In	addition,	the	Company	has	contractual	capital	commitments,	guarantees,	lending facilities	and	counterparty	arrangements	with	respect	to	real	estate	investments	of	$0.5	billion	at	December	31,	2012.

In	addition	to	the	Company's	real	estate	investments,	the	Company	engages	in	various	real	estate-related	activities,	including	origination	of	loans	secured	by	commercial and	residential	properties.	The	Company	also	securitizes	and	trades	in	a	wide	range	of	commercial	and	residential	real	estate	and	real	estate-related	whole	loans, mortgages	and	other	real	estate.	In	connection	with	these	activities,	the	Company	has	provided,	or	otherwise	agreed	to	be	responsible	for,	representations	and	warranties. Under	certain	circumstances,	the	Company	may	be	required	to	repurchase	such	assets	or	make	other	payments	related	to	such	assets	if	such	representations	and warranties	were	breached.	The	Company	continues	to	monitor	its	real	estate-related	activities	in	order	to	manage	its	exposures	and	potential	liability	from	these	markets and	businesses.	See	"Legal	Proceedings—Residential	Mortgage	and	Credit	Crisis	Related	Matters"	in	Part	I,	Item	3,	herein	and	Note	13	to	the	consolidated	financial statements	for	further	information.

# Japanese	Securities	Joint	Venture.

On	May	1,	2010,	the	Company	and	MUFG	formed	a	joint	venture	in	Japan	of	their	respective	investment	banking	and	securities	businesses.	MUFG	and	the	Company have	integrated	their	respective	Japanese	securities	companies	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	MUMSS.	The

Company	contributed	the	investment	banking	operations	conducted	in	Japan	by	its	subsidiary	MSMS,	formerly	known	as	Morgan	Stanley	Japan	Securities	Co.,	Ltd., into	MUMSS	(MSMS,	together	with	MUMSS,	the	"Joint	Venture").	MSMS	has	continued	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.	The	Company	continues	to	consolidate	MSMS	in	its	consolidated	financial	statements	and,	commencing	on	May	1,	2010,	accounted	for	its interest	in	MUMSS	as	an	equity	method	investment	within	the	Institutional	Securities	business	segment.	During	2012,	2011	and	2010,	the	Company	recorded	income (loss)	of	$152	million,	$(783)	million	and	$(62)	million,	respectively,	within	Other	revenues	in	the	consolidated	statements	of	income,	arising	from	the	Company's	40% stake	in	MUMSS.

In	order	to	enhance	the	risk	management	at	MUMSS,	during	2011,	the	Company	entered	into	a	transaction	with	MUMSS	whereby	the	risk	associated	with	the	fixed income	trading	positions	that	previously	caused	the	majority	of	the	aforementioned	MUMSS	losses	in	2011	was	transferred	to	MSMS.	In	return	for	entering	into	the transaction,	the	Company	received	total	consideration	of	$659	million,	which	represented	the	estimated	fair	value	of	the	fixed	income	trading	positions	transferred.

To	the	extent	that	losses	incurred	by	MUMSS	result	in	a	requirement	to	restore	its	capital,	MUFG	is	solely	responsible	for	providing	this	additional	capital	to	a	minimum level,	and	the	Company	is	not	obligated	to	contribute	additional	capital	to	MUMSS.	Because	of	losses	incurred	by	MUMSS,	MUFG	contributed	approximately	$370 million	and	$259	million	of	capital	to	MUMSS	on	April	22,	2011	and	November	24,	2011,	respectively.	The	MUFG	capital	injection	improved	the	capital	base	and restored	the	capital	adequacy	ratio	of	MUMSS	in	each	case.	As	a	result	of	the	capital	injections,	during	2011,	the	Company	recorded	increases	of	approximately	$251 million	in	the	carrying	amount	of	the	equity	method	investment	in	MUMSS,	reflecting	the	Company's	40%	share	of	the	increases	in	the	net	asset	value	of	MUMSS,	and increases	in	the	Company's	Paid-in	capital	of	approximately	$146	million	(after-tax).

To	the	extent	that	MUMSS	is	required	to	increase	its	capital	level	due	to	factors	other	than	losses,	such	as	changes	in	regulatory	requirements,	both	MUFG	and	the Company	are	required	to	contribute	the	necessary	capital	based	upon	their	economic	interest	as	set	forth	above.	In	this	context,	the	Company	contributed	$129	million and	MUFG	contributed	$195	million	of	additional	proportionate	capital	investments	on	November	24,	2011	to	meet	an	anticipated	change	in	regulatory	capital requirements	of	MUMSS.

See	Note	24	to	the	consolidated	financial	statements	and	"Executive	Summary—Significant	Items—Japanese	Securities	Joint	Venture"	herein	for	further	information.

# Defined	Benefit	Pension	and	Other	Postretirement	Plans.

Expense.				The	Company	recognizes	the	compensation	cost	of	an	employee's	pension	benefits	(including	prior-service	cost)	over	the	employee's	estimated	service period.	This	process	involves	making	certain	estimates	and	assumptions,	including	the	discount	rate	and	the	expected	long-term	rate	of	return	on	plan	assets.	On	June	1, 2010,	the	defined	benefit	pension	plan	that	is	qualified	under	Section	401(a)	of	the	Internal	Revenue	Code	(the	"U.S.	Qualified	Plan")	was	amended	to	cease	future benefit	accruals	after	December	31,	2010.	Any	benefits	earned	by	participants	under	the	U.S.	Qualified	Plan	at	December	31,	2010	were	preserved	and	will	be	payable based	on	the	U.S.	Qualified	Plan's	provisions.	Net	periodic	pension	expense	for	U.S.	and	non-U.S.	plans	was	$99	million,	$72	million	and	$96	million	for	2012,	2011 and	2010,	respectively.

Contributions.				The	Company	made	contributions	of	$42	million,	$57	million	and	$72	million	to	its	U.S.	and	non-U.S.	defined	benefit	pension	plans	in	2012,	2011	and 2010,	respectively.	These	contributions	were	funded	with	cash	from	operations.

The	Company	determines	the	amount	of	its	pension	contributions	to	its	funded	plans	by	considering	several	factors,	including	the	level	of	plan	assets	relative	to	plan liabilities,	the	types	of	assets	in	which	the	plans	are	invested,	expected	plan	liquidity	needs	and	expected	future	contribution	requirements.	The	Company's	policy	is	to fund	at	least	the	amounts	sufficient	to	meet	minimum	funding	requirements	under	applicable	employee	benefit	and	tax	laws	(for	example,	in	the	U.S.,	the	minimum required	contribution	under	the	Employee	Retirement	Income	Security	Act	of	1974,	or	"ERISA").	At	December	31,	2012,	December	31,	2011	and	December	31,	2010, there	were	no	minimum	required	ERISA	contributions	for	the	U.S.	Qualified	Plan.	No	contributions	were	made	to	the	U.S.	Qualified	Plan	for	2012,	2011	and	2010.

See	Note	21	to	the	consolidated	financial	statements	for	more	information	on	the	Company's	defined	benefit	pension	and	postretirement	plans.

# American	Taxpayer	Relief	Act.

On	January	2,	2013,	the	U.S.	President	signed	into	law	the	American	Taxpayer	Relief	Act	of	2012	(the	"Act").	Among	other	things,	the	Act	extends	with	retroactive effect	to	January	1,	2012	a	provision	of	U.S.	tax	law	that	defers	the	imposition	of	tax	on	certain	active	financial	services	income	of	certain	foreign	subsidiaries	earned outside	of	the	U.S.	until	such	income	is	repatriated	to	the	United	States	as	a	dividend.	As	enactment	of	the	Act	was	not	completed	until	2013,	the	provisions	of	the	Act that	benefit	the	Company's	2012	tax	position	will	not	be	recognized	until	2013.	Accordingly,	the	Company	will	record	an	approximate	$80	million	benefit	attributable	to the	Act's	retroactive	extension	of	these	provisions	as	part	of	income	taxes	from	continuing	operations	in	the	quarter	ending	March	31,	2013.	Further,	while	the	Company estimates	a	similar	amount	of	benefit	related	to	2013	activities,	the	overall	financial	impact	to	the	Company	will	depend	upon	the	actual	level,	composition,	and geographic	mix	of	earnings.	The	current	year	effective	tax	rate	would	have	been	a	benefit	of	62.1%	had	the	Act	been	enacted	in	2012.

It	is	likely	that	2013	and	subsequent	years	will	see	further	material	changes	in	the	way	major	financial	institutions	are	regulated	in	both	the	U.S.	and	other	markets	in which	the	Company	operates,	although	it	remains	difficult	to	predict	the	exact	impact	these	changes	will	have	on	the	Company's	business,	financial	condition,	results	of operations	and	cash	flows	for	a	particular	future	period.	See	also	"Business—Supervision	and	Regulation"	in	Part	I,	Item	1	herein.

# Critical	Accounting	Policies.

The	Company's	consolidated	financial	statements	are	prepared	in	accordance	with	accounting	principles	generally	accepted	in	the	U.S.,	which	require	the	Company	to make	estimates	and	assumptions	(see	Note	1	to	the	consolidated	financial	statements).	The	Company	believes	that	of	its	significant	accounting	policies	(see	Note	2	to the	consolidated	financial	statements),	the	following	policies	involve	a	higher	degree	of	judgment	and	complexity.

# Fair	Value.

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

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

•	 Securities	available	for	sale;

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

•	 Certain	Securities	purchased	under	agreements	to	resell;

•	 Certain	Deposits;

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

•	 Certain	Securities	sold	under	agreements	to	repurchase;

•	 Certain	Other	secured	financings;	and

•	 Certain	Long-term	borrowings,	primarily	structured	notes.

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

In	determining	fair	value,	the	Company	uses	various	valuation	approaches.	A	hierarchy	for	inputs	is	used	in	measuring	fair	value	that	maximizes	the	use	of	observable prices	and	inputs	and	minimizes	the	use	of	unobservable	prices	and	inputs	by	requiring	that	the	relevant	observable	inputs	be	used	when	available.	The	hierarchy	is broken	down	into	three	levels,	wherein	Level	1	uses	observable	prices	in	active	markets,	and	Level	3	consists	of	valuation	techniques	that	incorporate	significant unobservable	inputs	and,	therefore,	require	the	greatest	use	of	judgment.	In	periods	of	market	disruption,	the	observability	of	prices	and	inputs	may	be	reduced	for	many instruments.	This	condition	could	cause	an	instrument	to	be	recategorized	from	Level	1	to	Level	2	or	Level	2	to	Level	3.	In	addition,	a	downturn	in	market	conditions could	lead	to	declines	in	the	valuation	of	many	instruments.	For	further	information	on	the	valuation	process,	fair	value	definition,	Level	1,	Level	2,	Level	3	and	related valuation	techniques,	and	quantitative	information	about	and	sensitivity	of	significant	unobservable	inputs	used	in	Level	3	fair	value	measurements,	see	Notes	2	and	4	to the	consolidated	financial	statements.

Level	3	Assets	and	Liabilities.				The	Company's	Level	3	assets	before	the	impact	of	cash	collateral	and	counterparty	netting	across	the	levels	of	the	fair	value	hierarchy were	$20.4	billion	and	$32.5	billion	at	December	31,	2012	and	December	31,	2011,	respectively,	and	represented	approximately	6%	and	10%	at	December	31,	2012	and December	31,	2011,	respectively,	of	the	assets	measured	at	fair	value	(approximately	3%	and	4%,	respectively,	of	total	assets	at	December	31,	2012	and	December	31, 2011).	Level	3	liabilities	before	the	impact	of	cash	collateral	and	counterparty	netting	across	the	levels	of	the	fair	value	hierarchy	were	$7.7	billion	and	$11.2	billion	at December	31,	2012	and	December	31,	2011,	respectively,	and	represented	approximately	4%	and	6%,	respectively,	of	the	Company's	liabilities	measured	at	fair	value. See	Note	4	to	the	consolidated	financial	statements	for	further	information	about	changes	in	Level	3	assets	and	liabilities.

Assets	and	Liabilities	Measured	at	Fair	Value	on	a	Non-recurring	Basis.				At	December	31,	2012,	certain	of	the	Company's	assets	were	measured	at	fair	value	on	a non-recurring	basis,	primarily	relating	to	loans,	other	investments,	premises,	equipment	and	software	costs,	and	intangible	assets.	The	Company	incurs	losses	or	gains for	any	adjustments	of	these	assets	to	fair	value.	A	downturn	in	market	conditions	could	result	in	impairment	charges	in	future	periods.

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

See	Note	4	to	the	consolidated	financial	statements	for	further	information	on	assets	and	liabilities	that	are	measured	at	fair	value	on	a	non-recurring	basis.

Fair	Value	Control	Processes.				The	Company	employs	control	processes	to	validate	the	fair	value	of	its	financial	instruments,	including	those	derived	from	pricing models.	These	control	processes	are	designed	to	ensure	that	the	values	used	for	financial	reporting	are	based	on	observable	inputs	wherever	possible.	In	the	event	that observable	inputs	are	not	available,	the	control	processes	are	designed	to	assure	that	the	valuation	approach	utilized	is	appropriate	and	consistently	applied	and	that	the assumptions	are	reasonable.

See	Note	2	to	the	consolidated	financial	statements	for	additional	information	regarding	the	Company's	valuation	policies,	processes	and	procedures.

# Goodwill	and	Intangible	Assets.

Goodwill.				The	Company	tests	goodwill	for	impairment	on	an	annual	basis	on	July	1	and	on	an	interim	basis	when	certain	events	or	circumstances	exist.	The	Company tests	for	impairment	at	the	reporting	unit	level,	which	is	generally	at	the	level	of	or	one	level	below	its	business	segments.	Goodwill	no	longer	retains	its	association	with a	particular	acquisition	once	it	has	been	assigned	to	a	reporting	unit.	As	such,	all	of	the	activities	of	a	reporting	unit,	whether	acquired	or	organically	developed,	are available	to	support	the	value	of	the	goodwill.	For	both	the	annual	and	interim	tests,	the	Company	has	the	option	to	first	assess	qualitative	factors	to	determine	whether the	existence	of	events	or	circumstances	leads	to	a	determination	that	it	is	more	likely	than	not	that	the	fair	value	of	a	reporting	unit	is	less	than	its	carrying	amount.	If after	assessing	the	totality	of	events	or	circumstances,	the	Company	determines	it	is	more	likely	than	not	that	the	fair	value	of	a	reporting	unit	is	greater	than	its	carrying amount,	then	performing	the	two-step	impairment	test	is	not	required.	However,	if	the	Company	concludes	otherwise,	then	it	is	required	to	perform	the	first	step	of	the two-step	impairment	test.	Goodwill	impairment	is	determined	by	comparing	the	estimated	fair	value	of	a	reporting	unit	with	its	respective	carrying	value.	If	the estimated	fair	value	exceeds	the	carrying	value,	goodwill	at	the	reporting	unit	level	is	not	deemed	to	be	impaired.	If	the	estimated	fair	value	is	below	carrying	value, however,	further	analysis	is	required	to	determine	the	amount	of	the	impairment.	Additionally,	if	the	carrying	value	of	a	reporting	unit	is	zero	or	a	negative	value	and	it	is determined	that	it	is	more	likely	than	not	the	goodwill	is	impaired,	further	analysis	is	required.	The	estimated	fair	values	of	the	reporting	units	are	derived	based	on valuation	techniques	the	Company	believes	market	participants	would	use	for	each	of	the	reporting	units.	The	estimated	fair	values	are	generally	determined	utilizing methodologies	that	incorporate	price-to-book,	price-to-earnings	and	assets	under	management	multiples	of	certain	comparable	companies.	The	Company	also	utilizes	a discounted	cash	flow	methodology	for	certain	reporting	units.	At	December	31,	2012	and	December	31,	2011,	each	of	the	Company's	reporting	units	with	goodwill	had a	fair	value	that	was	substantially	in	excess	of	its	carrying	value.

Intangible	Assets.				Amortizable	intangible	assets	are	amortized	over	their	estimated	useful	lives	and	are	reviewed	for	impairment	on	an	interim	basis	when	certain events	or	circumstances	exist.	For	amortizable	intangible	assets,	an	impairment	exists	when	the	carrying	amount	of	the	intangible	asset	exceeds	its	fair	value.	An impairment	loss	will	be	recognized	only	if	the	carrying	amount	of	the	intangible	asset	is	not	recoverable	and	exceeds	its	fair	value.	The	carrying	amount	of	the	intangible asset	is	not	recoverable	if	it	exceeds	the	sum	of	the	expected	undiscounted	cash	flows.

Indefinite-lived	intangible	assets	are	not	amortized	but	are	reviewed	annually	(or	more	frequently	when	certain	events	or	circumstances	exist)	for	impairment.	For indefinite-lived	intangible	assets,	an	impairment	exists	when	the	carrying	amount	exceeds	its	fair	value.

For	both	goodwill	and	intangible	assets,	to	the	extent	an	impairment	loss	is	recognized,	the	loss	establishes	the	new	cost	basis	of	the	asset.	Subsequent	reversal	of impairment	losses	is	not	permitted.	For	amortizable	intangible	assets,	the	new	cost	basis	is	amortized	over	the	remaining	useful	life	of	that	asset.	Adverse	market	or economic	events	could	result	in	impairment	charges	in	future	periods.

See	Notes	4	and	9	to	the	consolidated	financial	statements	for	additional	information	about	goodwill	and	intangible	assets.

# Legal	and	Regulatory	Contingencies.

In	the	normal	course	of	business,	the	Company	has	been	named,	from	time	to	time,	as	a	defendant	in	various	legal	actions,	including	arbitrations,	class	actions	and	other litigation,	arising	in	connection	with	its	activities	as	a	global	diversified	financial	services	institution.

Certain	of	the	actual	or	threatened	legal	actions	include	claims	for	substantial	compensatory	and/or	punitive	damages	or	claims	for	indeterminate	amounts	of	damages.	In some	cases,	the	entities	that	would	otherwise	be	the	primary	defendants	in	such	cases	are	bankrupt	or	in	financial	distress.

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

Accruals	for	litigation	and	regulatory	proceedings	are	generally	determined	on	a	case-by-case	basis.	Where	available	information	indicates	that	it	is	probable	a	liability had	been	incurred	at	the	date	of	the	consolidated	financial	statements	and	the	Company	can	reasonably	estimate	the	amount	of	that	loss,	the	Company	accrues	the estimated	loss	by	a	charge	to	income.	In	many	proceedings,	however,	it	is	inherently	difficult	to	determine	whether	any	loss	is	probable	or	even	possible	or	to	estimate the	amount	of	any	loss.	For	certain	legal	proceedings,	the	Company	can	estimate	possible	losses,	additional	losses,	ranges	of	loss	or	ranges	of	additional	loss	in	excess	of amounts	accrued.	For	certain	other	legal	proceedings,	the	Company	cannot	reasonably	estimate	such	losses,	particularly	for	proceedings	that	are	in	their	early	stages	of development	or	where	plaintiffs	seek	substantial	or	indeterminate	damages.	Numerous	issues	may	need	to	be	resolved,	including	through	potentially	lengthy	discovery and	determination	of	important	factual	matters,	and	by	addressing	novel	or	unsettled	legal	questions	relevant	to	the	proceedings	in	question,	before	a	loss	or	additional loss	or	range	of	loss	or	additional	loss	can	be	reasonably	estimated	for	any	proceeding.

Significant	judgment	is	required	in	deciding	when	and	if	to	make	these	accruals	and	the	actual	cost	of	a	legal	claim	or	regulatory	fine/penalty	may	ultimately	be materially	different	from	the	recorded	accruals.

See	Note	13	to	the	consolidated	financial	statements	for	additional	information	on	legal	proceedings.

# Income	Taxes.

The	Company	is	subject	to	the	income	tax	laws	of	the	U.S.,	its	states	and	municipalities	and	those	of	the	foreign	jurisdictions	in	which	the	Company	has	significant business	operations.	These	tax	laws	are	complex	and	subject	to	different	interpretations	by	the	taxpayer	and	the	relevant	governmental	taxing	authorities.	The	Company must	make	judgments	and	interpretations	about	the	application	of	these	inherently	complex	tax	laws	when	determining	the	provision	for	income	taxes	and	must	also make	estimates	about	when	certain	items	affect	taxable	income	in	the	various	tax	jurisdictions.	Disputes	over	interpretations	of	the	tax	laws	may	be	settled	with	the taxing	authority

upon	examination	or	audit.	The	Company	periodically	evaluates	the	likelihood	of	assessments	in	each	taxing	jurisdiction	resulting	from	current	and	subsequent	years' examinations,	and	unrecognized	tax	benefits	related	to	potential	losses	that	may	arise	from	tax	audits	are	established	in	accordance	with	the	guidance	on	accounting	for unrecognized	tax	benefits.	Once	established,	unrecognized	tax	benefits	are	adjusted	when	there	is	more	information	available	or	when	an	event	occurs	requiring	a change.

The	Company's	provision	for	income	taxes	is	composed	of	current	and	deferred	taxes.	Current	income	taxes	approximate	taxes	to	be	paid	or	refunded	for	the	current period.	The	Company's	deferred	income	taxes	reflect	the	net	tax	effects	of	temporary	differences	between	the	financial	reporting	and	tax	bases	of	assets	and	liabilities and	are	measured	using	the	applicable	enacted	tax	rates	and	laws	that	will	be	in	effect	when	such	differences	are	expected	to	reverse.	The	Company's	deferred	tax balances	also	include	deferred	assets	related	to	tax	attributes	carryforwards,	such	as	net	operating	losses	and	tax	credits	that	will	be	realized	through	reduction	of	future tax	liabilities	and,	in	some	cases,	are	subject	to	expiration	if	not	utilized	within	certain	periods.	The	Company	performs	regular	reviews	to	ascertain	whether	deferred	tax assets	are	realizable.	These	reviews	include	management's	estimates	and	assumptions	regarding	future	taxable	income	and	incorporate	various	tax	planning	strategies, including	strategies	that	may	be	available	to	utilize	net	operating	losses	before	they	expire.	Once	the	deferred	tax	asset	balances	have	been	determined,	the	Company may	record	a	valuation	allowance	against	the	deferred	tax	asset	balances	to	reflect	the	amount	of	these	balances	(net	of	valuation	allowance)	that	the	Company	estimates it	is	more	likely	than	not	to	realize	at	a	future	date.	Both	current	and	deferred	income	taxes	could	reflect	adjustments	related	to	the	Company's	unrecognized	tax	benefits.

Significant	judgment	is	required	in	estimating	the	consolidated	provision	for	(benefit	from)	income	taxes,	current	and	deferred	tax	balances	(including	valuation allowance,	if	any),	accrued	interest	or	penalties	and	uncertain	tax	positions.	Revisions	in	our	estimates	and/or	the	actual	costs	of	a	tax	assessment	may	ultimately	be materially	different	from	the	recorded	accruals	and	unrecognized	tax	benefits,	if	any.

See	Note	22	to	the	consolidated	financial	statements	for	additional	information	on	our	provision	for	income	taxes,	related	income	tax	assets	and	liabilities	and	tax examinations.

# Liquidity	and	Capital	Resources.

The	Company's	senior	management	establishes	the	liquidity	and	capital	policies	of	the	Company.	Through	various	risk	and	control	committees,	the	Company's	senior management	reviews	business	performance	relative	to	these	policies,	monitors	the	availability	of	alternative	sources	of	financing,	and	oversees	the	liquidity	and	interest rate	and	currency	sensitivity	of	the	Company's	asset	and	liability	position.	The	Company's	Treasury	Department,	Firm	Risk	Committee,	Asset	and	Liability Management	Committee	and	other	control	groups	assist	in	evaluating,	monitoring	and	controlling	the	impact	that	the	Company's	business	activities	have	on	its consolidated	statements	of	financial	condition,	liquidity	and	capital	structure.	Liquidity	and	capital	matters	are	reported	regularly	to	the	Board's	Risk	Committee.

# The	Balance	Sheet.

The	Company	monitors	and	evaluates	the	composition	and	size	of	its	balance	sheet	on	a	regular	basis.	The	Company's	balance	sheet	management	process	includes quarterly	planning,	business	specific	limits,	monitoring	of	business	specific	usage	versus	limits,	key	metrics	and	new	business	impact	assessments.

The	Company	establishes	balance	sheet	limits	at	the	consolidated,	business	segment	and	business	unit	levels.	The	Company	monitors	balance	sheet	usage	versus	limits and	variances	resulting	from	business	activity	or	market	fluctuations	are	reviewed.	On	a	regular	basis,	the	Company	reviews	current	performance	versus	limits	and assesses	the	need	to	re-allocate	limits	based	on	business	unit	needs.	The	Company	also	monitors	key	metrics,	including	asset	and	liability	size,	composition	of	the balance	sheet,	limit	utilization	and	capital	usage.

The	tables	below	summarize	total	assets	for	the	Company's	business	segments	at	December	31,	2012	and	December	31,	2011:

|  |  | At	December	31,	2012 |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Institutional\nSecurities | Global\tWealth\nManagement\nGroup | Asset\nManagement | Total |
|  |  | (dollars\tin\tmillions) |  |  |
| Assets |  |  |  |  |
| Cash\tand\tcash\tequivalents(1) | $32,350 | $13,734 | $820 | $46,904 |
| Cash\tdeposited\twith\tclearing\torganizations\tor\tsegregated\tunder\tfederal\tand\tother\tregulations\tor |  |  |  |  |
| requirements(2) | 23,068 | 7,902 | — | 30,970 |
| Financial\tinstruments\towned: |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities | 53,238 | 777 | — | 54,015 |
| Other\tsovereign\tgovernment\tobligations | 41,695 | 1,467 | — | 43,162 |
| Corporate\tand\tother\tdebt | 47,889 | 1,268 | — | 49,157 |
| Corporate\tequities | 69,371 | 55 | 1 | 69,427 |
| Derivatives\tand\tother\tcontracts | 35,762 | 225 | 210 | 36,197 |
| Investments | 4,018 | 106 | 4,222 | 8,346 |
| Physical\tcommodities | 7,296 | 3 | — | 7,299 |
| Total\tfinancial\tinstruments\towned | 259,269 | 3,901 | 4,433 | 267,603 |
| Securities\tavailable\tfor\tsale | — | 39,869 | — | 39,869 |
| Securities\treceived\tas\tcollateral(2) | 14,278 | — | — | 14,278 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell(2) | 120,488 | 13,924 | — | 134,412 |
| Securities\tborrowed(2) | 121,302 | 399 | — | 121,701 |
| Receivables: |  |  |  |  |
| Customers(2) | 28,044 | 18,156 | (3) | 46,197 |
| Brokers,\tdealers\tand\tclearing\torganizations | 6,274 | 1,019 | 42 | 7,335 |
| Fees,\tinterest\tand\tother | 2,374 | 7,656 | 726 | 10,756 |
| Loans | 11,748 | 17,298 | — | 29,046 |
| Other\tassets(3) | 19,657 | 10,904 | 1,328 | 31,889 |
| Total\tassets(4) | $\t638,852 | $\t134,762 | $\t7,346 | $\t780,960 |

|  |  | At	December	31,	2011 |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Institutional\nSecurities | Global\tWealth\nManagement\nGroup | Asset\nManagement | Total |
|  |  | (dollars\tin\tmillions) |  |  |
| Assets |  |  |  |  |
| Cash\tand\tcash\tequivalents(1) | $35,288 | $11,253 | $771 | $47,312 |
| Cash\tdeposited\twith\tclearing\torganizations\tor\tsegregated\tunder\tfederal\tand\tother\tregulations\tor |  |  |  |  |
| requirements(2) | 22,390 | 7,064 | — | 29,454 |
| Financial\tinstruments\towned: |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities | 62,818 | 631 | — | 63,449 |
| Other\tsovereign\tgovernment\tobligations | 29,056 | 3 | — | 29,059 |
| Corporate\tand\tother\tdebt | 67,925 | 998 | — | 68,923 |
| Corporate\tequities | 47,937 | 28 | 1 | 47,966 |
| Derivatives\tand\tother\tcontracts | 47,624 | 219 | 221 | 48,064 |
| Investments | 4,165 | 123 | 3,907 | 8,195 |
| Physical\tcommodities | 9,693 | 4 | — | 9,697 |
| Total\tfinancial\tinstruments\towned | 269,218 | 2,006 | 4,129 | \t 275,353 |
| Securities\tavailable\tfor\tsale | — | 30,495 | — | 30,495 |
| Securities\treceived\tas\tcollateral(2) | 11,651 | — | — | 11,651 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements |  |  |  |  |
| to\tresell(2) | 116,819 | 13,336 | — | \t 130,155 |
| Securities\tborrowed(2) | 126,573 | 501 | — | \t 127,074 |
| Receivables: |  |  |  |  |
| Customers(2) | 27,558 | 6,418 | 1 | 33,977 |
| Brokers,\tdealers\tand\tclearing\torganizations | 4,935 | 283 | 30 | 5,248 |
| Fees,\tinterest\tand\tother | 1,663 | 7,134 | 647 | 9,444 |
| Loans | 3,867 | 11,477 | 25 | 15,369 |
| Other\tassets(3) | 21,494 | 11,460 | 1,412 | 34,366 |
| Total\tassets(4) | $641,456 | $101,427 | $7,015 | $749,898 |

(1) Cash	and	cash	equivalents	include	Cash	and	due	from	banks	and	Interest	bearing	deposits	with	banks.

(2) These	assets	are	included	in	secured	financing	assets	(see	"Secured	Financing"	herein).

(3) Other	assets	include	Other	investments;	Premises,	equipment	and	software	costs;	Goodwill;	Intangible	assets;	and	Other	assets.

(4) Total	assets	include	Global	Liquidity	Reserves	of	$182	billion	at	both	December	31,	2012	and	December	31,	2011.

A	substantial	portion	of	the	Company's	total	assets	consists	of	liquid	marketable	securities	and	short-term	receivables	arising	principally	from	sales	and	trading	activities in	the	Institutional	Securities	business	segment.	The	liquid	nature	of	these	assets	provides	the	Company	with	flexibility	in	managing	the	size	of	its	balance	sheet.	The Company's	total	assets	increased	to	$780,960	million	at	December	31,	2012	from	$749,898	million	at	December	31,	2011.	The	increase	in	total	assets	was	primarily	due to	an	increase	in	Financial	instruments—Corporate	equities	and	Other	sovereign	government	obligations,	Loans,	Receivables	from	customers	and	Securities	available for	sale,	partially	offset	by	a	decrease	in	Financial	instruments	owned—Corporate	and	other	debt,	Derivatives	and	other	contracts,	and	U.S.	government	and	agency securities.

The	Company's	assets	and	liabilities	are	primarily	related	to	transactions	attributable	to	sales	and	trading	and	securities	financing	activities.	At	December	31,	2012, securities	financing	assets	and	liabilities	were	$348	billion	and	$300	billion,	respectively.	At	December	31,	2011,	securities	financing	assets	and	liabilities	were	$332 billion	and	$268	billion,	respectively.	Securities	financing	transactions	include	cash	deposited	with	clearing	organizations	or	segregated	under	federal	and	other regulations	or	requirements,	repurchase	and	resale

agreements,	securities	borrowed	and	loaned	transactions,	securities	received	as	collateral	and	obligation	to	return	securities	received	and	customer	receivables	and payables.	Securities	borrowed	or	purchased	under	agreements	to	resell	and	securities	loaned	or	sold	under	agreements	to	repurchase	are	treated	as	collateralized financings	(see	Notes	2	and	6	to	the	consolidated	financial	statements).	Securities	sold	under	agreements	to	repurchase	and	Securities	loaned	were	$160	billion	at December	31,	2012	and	averaged	$161	billion	during	2012.	Securities	purchased	under	agreements	to	resell	and	Securities	borrowed	were	$256	billion	at	December	31, 2012	and	averaged	$281	billion	during	2012.

Securities	financing	assets	and	liabilities	also	include	matched	book	transactions	with	minimal	market,	credit	and/or	liquidity	risk.	Matched	book	transactions accommodate	customers,	as	well	as	obtain	securities	for	the	settlement	and	financing	of	inventory	positions.	The	customer	receivable	portion	of	the	securities	financing transactions	includes	customer	margin	loans,	collateralized	by	customer-owned	securities,	and	customer	cash,	which	is	segregated	in	accordance	with	regulatory requirements.	The	customer	payable	portion	of	the	securities	financing	transactions	primarily	includes	customer	payables	to	the	Company's	prime	brokerage	customers. The	Company's	risk	exposure	on	these	transactions	is	mitigated	by	collateral	maintenance	policies	that	limit	the	Company's	credit	exposure	to	customers.	Included within	securities	financing	assets	were	$14	billion	and	$12	billion	at	December	31,	2012	and	December	31,	2011,	respectively,	recorded	in	accordance	with	accounting guidance	for	the	transfer	of	financial	assets	that	represented	offsetting	assets	and	liabilities	for	fully	collateralized	non-cash	loan	transactions.

# Liquidity	Risk	Management	Framework.

The	primary	goal	of	the	Company's	liquidity	risk	management	framework	is	to	ensure	that	the	Company	has	access	to	adequate	funding	across	a	wide	range	of	market conditions.	The	framework	is	designed	to	enable	the	Company	to	fulfill	its	financial	obligations	and	support	the	execution	of	the	Company's	business	strategies.

The	following	principles	guide	the	Company's	liquidity	risk	management	framework:

•	 Sufficient	liquid	assets	should	be	maintained	to	cover	maturing	liabilities	and	other	planned	and	contingent	outflows;

•	 Maturity	profile	of	assets	and	liabilities	should	be	aligned,	with	limited	reliance	on	short-term	funding;

•	 Source,	counterparty,	currency,	region,	and	term	of	funding	should	be	diversified;	and

•	 Limited	access	to	funding	should	be	anticipated	through	the	Contingency	Funding	Plan	("CFP").

The	core	components	of	the	Company's	liquidity	risk	management	framework	are	the	CFP,	Liquidity	Stress	Tests	and	the	Global	Liquidity	Reserve	(as	defined	below), which	support	the	Company's	target	liquidity	profile.

# Contingency	Funding	Plan.

The	Company's	CFP	describes	the	data	and	information	flows,	limits,	targets,	operating	environment	indicators,	escalation	procedures,	roles	and	responsibilities,	and available	mitigating	actions	in	the	event	of	a	liquidity	stress.	The	CFP	also	sets	forth	the	principal	elements	of	the	Company's	liquidity	stress	testing	which	identifies stress	events	of	different	severity	and	duration,	assesses	current	funding	sources	and	uses	and	establishes	a	plan	for	monitoring	and	managing	a	potential	liquidity	stress event.

# Liquidity	Stress	Tests.

The	Company	uses	Liquidity	Stress	Tests	to	model	liquidity	outflows	across	multiple	scenarios	over	a	range	of	time	horizons.	These	scenarios	contain	various combinations	of	idiosyncratic	and	systemic	stress	events.

The	assumptions	underpinning	the	Liquidity	Stress	Tests	include,	but	are	not	limited	to,	the	following:

•	 No	government	support;

•	 No	access	to	equity	and	unsecured	debt	markets;

•	 Repayment	of	all	unsecured	debt	maturing	within	the	stress	horizon;

•	 Higher	haircuts	and	significantly	lower	availability	of	secured	funding;

•	 Additional	collateral	that	would	be	required	by	trading	counterparties	and	certain	exchanges	and	clearing	organizations	related	to	multi-notch	credit	rating downgrades;

•	 Additional	collateral	that	would	be	required	due	to	collateral	substitutions,	collateral	disputes	and	uncalled	collateral;

•	 Discretionary	unsecured	debt	buybacks;

•	 Drawdowns	on	unfunded	commitments	provided	to	third	parties;

•	 Client	cash	withdrawals	and	reduction	in	customer	short	positions	that	fund	long	positions;

•	 Limited	access	to	the	foreign	exchange	swap	markets;

•	 Return	of	securities	borrowed	on	an	uncollateralized	basis;	and

•	 Maturity	roll-off	of	outstanding	letters	of	credit	with	no	further	issuance.

The	Liquidity	Stress	Tests	are	produced	for	the	Parent	and	major	operating	subsidiaries,	as	well	as	at	major	currency	levels,	to	capture	specific	cash	requirements	and cash	availability	across	the	Company.	The	Liquidity	Stress	Tests	assume	that	subsidiaries	will	use	their	own	liquidity	first	to	fund	their	obligations	before	drawing liquidity	from	the	Parent.	The	Parent	will	support	its	subsidiaries	and	will	not	have	access	to	subsidiaries'	liquidity	reserves	that	are	subject	to	any	regulatory,	legal	or	tax constraints.

At	December	31,	2012,	the	Company	maintained	sufficient	liquidity	to	meet	current	and	contingent	funding	obligations	as	modeled	in	its	Liquidity	Stress	Tests.

# Global	Liquidity	Reserve.

The	Company	maintains	sufficient	liquidity	reserves	("Global	Liquidity	Reserve")	to	cover	daily	funding	needs	and	meet	strategic	liquidity	targets	sized	by	the	CFP	and Liquidity	Stress	Tests.	The	size	of	the	Global	Liquidity	Reserve	is	actively	managed	by	the	Company.	The	following	components	are	considered	in	sizing	the	Global Liquidity	Reserve:	unsecured	debt	maturity	profile,	balance	sheet	size	and	composition,	funding	needs	in	a	stressed	environment	inclusive	of	contingent	cash	outflows and	collateral	requirements	and	additional	reserve,	which	is	primarily	a	discretionary	surplus	based	on	the	Company's	risk	tolerance	and	is	subject	to	change	dependent on	market	and	firm-specific	events.

The	Global	Liquidity	Reserve	is	held	within	the	Parent	and	major	operating	subsidiaries.	The	Global	Liquidity	Reserve	is	composed	of	diversified	cash	and	cash equivalents	and	highly	liquid	unencumbered	securities.	Eligible	unencumbered	securities	include	U.S.	government	securities,	U.S.	agency	securities,	U.S.	agency mortgage-backed	securities,	FDIC-guaranteed	corporate	debt,	non-U.S.	government	securities	and	other	highly	liquid	investment	grade	securities.

# Global	Liquidity	Reserve	by	Type	of	Investment.

The	table	below	summarizes	the	Company's	Global	Liquidity	Reserve	by	type	of	investment:

(1) Non-U.S.	sovereign	obligations	are	composed	of	unencumbered	German,	French,	Dutch,	U.K.,	Brazilian	and	Japanese	government	obligations.

The	ability	to	monetize	assets	during	the	start	of	a	liquidity	crisis	is	critical.	The	Company	believes	that	the	assets	held	in	the	Global	Liquidity	Reserve	can	be	monetized within	five	business	days	in	a	stressed	environment	given	the	highly	liquid	and	diversified	nature	of	the	reserves.	The	currency	profile	of	the	Global	Liquidity	Reserve	is consistent	with	the	CFP	and	Liquidity	Stress	Tests.	In	addition	to	the	Global	Liquidity	Reserve,	the	Company	has	other	cash	and	cash	equivalents	and	other unencumbered	assets	that	are	available	for	monetization	that	are	not	included	in	the	balances	in	the	table	above.

# Global	Liquidity	Reserve	Held	by	Bank	and	Non-Bank	Legal	Entities.

The	table	below	summarizes	the	Global	Liquidity	Reserve	held	by	bank	and	non-bank	legal	entities:

|  | At	December	31,<br>2012 |  | Average	Balance(1)<br>2012 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tbillions) |  |
| Bank\tlegal\tentities: |  |  |  |
| Domestic | $66 |  | $57 |
| Foreign | 5 |  | 6 |
| Total\tBank\tlegal\tentities | 71 |  | 63 |
| Non-Bank\tlegal\tentities: |  |  |  |
| Domestic | 81 |  | 83 |
| Foreign | 30 |  | 30 |
| Total\tNon-Bank\tlegal\tentities | 111 |  | 113 |
| Total | $182 |  | $176 |

(1) The	Company	calculates	the	average	Global	Liquidity	Reserve	based	upon	daily	amounts.

The	Company	is	exposed	to	intra-day	settlement	risk	in	connection	with	liquidity	provided	to	its	major	broker-dealer	subsidiaries	for	intra-day	clearing	and	settlement	of its	securities	and	financing	activity.

# Funding	Management.

The	Company	manages	its	funding	in	a	manner	that	reduces	the	risk	of	disruption	to	the	Company's	operations.	The	Company	pursues	a	strategy	of	diversification	of secured	and	unsecured	funding	sources	(by	product,	by	investor	and	by	region)	and	attempts	to	ensure	that	the	tenor	of	the	Company's	liabilities	equals	or	exceeds	the expected	holding	period	of	the	assets	being	financed.

The	Company	funds	its	balance	sheet	on	a	global	basis	through	diverse	sources.	These	sources	may	include	the	Company's	equity	capital,	long-term	debt,	repurchase agreements,	securities	lending,	deposits,	commercial	paper,	letters	of	credit	and	lines	of	credit.	The	Company	has	active	financing	programs	for	both	standard	and structured	products	targeting	global	investors	and	currencies.

Secured	Financing.				A	substantial	portion	of	the	Company's	total	assets	consists	of	liquid	marketable	securities	and	short-term	collateralized	receivables	arising principally	from	its	Institutional	Securities	business	segment's	sales	and	trading	activities.	The	liquid	nature	of	these	assets	provides	the	Company	with	flexibility	in funding	these	assets	with	secured	financing.	The	Company's	goal	is	to	achieve	an	optimal	mix	of	durable	secured	and	unsecured	financing.	Secured	financing investors	principally	focus	on	the	quality	of	the	eligible	collateral	posted.	Accordingly,	the	Company	actively	manages	its	secured	financing	book	based	on	the	quality	of the	assets	being	funded.

The	Company	utilizes	shorter-term	secured	financing	only	for	highly	liquid	assets	and	has	established	longer	tenor	limits	for	less	liquid	asset	classes,	for	which	funding may	be	at	risk	in	the	event	of	a	market	disruption.	The	Company	defines	highly	liquid	assets	as	that	which	is	consistent	with	the	standards	of	the	Global	Liquidity Reserve,	and	less	liquid	assets	as	that	which	does	not	meet	those	standards.	At	December	31,	2012,	the	weighted	average	maturity	of	the	Company's	secured	financing against	less	liquid	assets	was	greater	than	120	days.	To	further	minimize	the	refinancing	risk	of	secured	financing	for	less	liquid	assets,	the	Company	has	established concentration	limits	to	diversify	its	investor	base	and	reduce	the	amount	of	monthly	maturities	for	secured	financing	of	less	liquid	assets.	Furthermore,	the	Company obtains	spare	capacity,	or	term	secured	funding	liabilities	in	excess	of	less	liquid	inventory,	as	an	additional	risk	mitigant	to	replace	maturing	trades	in	the	event	that secured	financing	markets	or	our	ability	to	access	them	become	limited.	Finally,	in	addition	to	the	above	risk	management	framework,	the	Company	holds	a	portion	of its	Global	Liquidity	Reserve	against	the	potential	disruption	to	its	secured	financing	capabilities.

Unsecured	Financing.				The	Company	views	long-term	debt	and	deposits	as	stable	sources	of	funding.	Unencumbered	securities	and	non-security	assets	are	financed with	a	combination	of	long-	and	short-term	debt	and	deposits.	The	Company's	unsecured	financings	include	structured	borrowings,	whose	payments	and	redemption values	are	based	on	the	performance	of	certain	underlying	assets,	including	equity,	credit,	foreign	exchange,	interest	rates	and	commodities.	When	appropriate,	the Company	may	use	derivative	products	to	conduct	asset	and	liability	management	and	to	make	adjustments	to	the	Company's	interest	rate	risk	profile	(see	Note	12	to	the consolidated	financial	statements).

Short-Term	Borrowings.				The	Company's	unsecured	short-term	borrowings	consist	of	commercial	paper,	bank	loans,	bank	notes	and	structured	notes	with	maturities of	12	months	or	less	at	issuance.

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

|  | At<br>December	31,<br>2012 | At<br>December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Commercial\tpaper(1) | $306 | $978 |
| Other\tshort-term\tborrowings | 1,832 | 1,865 |
| Total | $2,138 | $2,843 |

(1) At	December	31,	2011,	the	majority	of	the	commercial	paper	balance	was	issued	as	part	of	client	transactions	and	was	not	used	for	the	Company's	general	funding	purposes.	During	2012,	the	client	transactions matured,	and	the	remaining	balance	at	December	31,	2012	was	used	for	the	Company's	general	funding	purposes.

Deposits.				The	Company's	bank	subsidiaries'	funding	sources	include	time	deposits,	money	market	deposit	accounts,	demand	deposit	accounts,	repurchase	agreements, federal	funds	purchased,	commercial	paper	and	Federal	Home	Loan	Bank	advances.	The	vast	majority	of	deposits	in	Morgan	Stanley	Bank,	N.A.	and	Morgan	Stanley Private	Bank,	National	Association	(the	"Subsidiary	Banks")	are	sourced	from	the	Company's	retail	brokerage	accounts	and	are	considered	to	have	stable,	low-cost funding	characteristics.	The	increase	in	deposits	includes	the	inflows	from	the	additional	14%	stake	in	the	Wealth	Management	JV	in	2012	(see	"Executive	Summary— Significant	Items—Wealth	Management	JV"	herein).

# Deposits	were	as	follows:

|  | At | At |
| :--- | :--- | :--- |
|  | December\t31, | December\t31, |
|  | 2012(1) | 2011(1) |
|  | (dollars\tin\tmillions) |  |
| Savings\tand\tdemand\tdeposits(2) | $80,058 | $63,029 |
| Time\tdeposits(3) | 3,208 | 2,633 |
| Total | $83,266 | $65,662 |

(1) Total	deposits	subject	to	FDIC	insurance	at	December	31,	2012	and	December	31,	2011	were	$62	billion	and	$52	billion,	respectively.

(3) Certain	time	deposit	accounts	are	carried	at	fair	value	under	the	fair	value	option	(see	Note	4	to	the	consolidated	financial	statements).

Long-Term	Borrowings.				The	Company	believes	that	accessing	debt	investors	through	multiple	distribution	channels	helps	ensure	consistent	access	to	the	unsecured markets.	In	addition,	the	issuance	of	long-term	debt	allows	the	Company	to	reduce	reliance	on	short-term	credit	sensitive	instruments	(e.g.,	commercial	paper	and	other unsecured	short-term	borrowings).	Long-term	borrowings	are	generally	structured	to	ensure	staggered	maturities,	thereby	mitigating	refinancing	risk,	and	to	maximize investor	diversification	through	sales	to	global	institutional	and	retail	clients	across	regions,	currencies	and	product	types.	Availability	and	cost	of	financing	to	the Company	can	vary	depending	on	market	conditions,	the	volume	of	certain	trading	and	lending	activities,	the	Company's	credit	ratings	and	the	overall	availability	of credit.

The	Company	may	from	time	to	time	engage	in	various	transactions	in	the	credit	markets	(including,	for	example,	debt	retirements)	that	it	believes	are	in	the	best interests	of	the	Company	and	its	investors.

Long-term	borrowings	at	December	31,	2012	consisted	of	the	following:

|  | Parent | Subsidiaries | Total |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Due\tin\t2013 | $23,805 | $1,498 | $25,303 |
| Due\tin\t2014 | 20,770 | 981 | 21,751 |
| Due\tin\t2015 | 20,200 | 4,453 | 24,653 |
| Due\tin\t2016 | 18,210 | 1,774 | 19,984 |
| Due\tin\t2017 | 26,291 | 1,846 | 28,137 |
| Thereafter | 47,997 | 1,746 | 49,743 |
| Total | $157,273 | $12,298 | $169,571 |

# Long-Term	Borrowing	Activity	in	2012.

During	2012,	the	Company	issued	and	reissued	notes	with	a	principal	amount	of	approximately	$24	billion.	In	connection	with	the	note	issuances,	the	Company generally	enters	into	certain	transactions	to	obtain	floating	interest	rates	based	primarily	on	short-term	LIBOR	trading	levels.	The	weighted	average	maturity	of	the Company's	long-term	borrowings,	based	upon	stated	maturity	dates,	was	approximately	5.3	years	at	December	31,	2012.	During	2012,	approximately	$43	billion	in aggregate	long-term	borrowings	matured	or	were	retired.	On	February	25,	2013,	the	Company	issued	$4.5	billion	in	senior	unsecured	debt.

The	Company	issued	$2.0	billion	of	10	year	subordinated	debt	in	October	2012.	This	issuance	represented	the	Company's	first	subordinated	debt	issuance	since	2004.

At	December	31,	2012,	the	aggregate	outstanding	carrying	amount	of	the	Company's	senior	indebtedness	was	approximately	$158	billion	(including	guaranteed obligations	of	the	indebtedness	of	subsidiaries)	compared	with	$176	billion	at	December	31,	2011.	The	decrease	in	the	amount	of	senior	indebtedness	was	primarily	due to	repayments	of	notes,	net	of	new	issuances	in	long-term	borrowings.

# Credit	Ratings.

The	Company	relies	on	external	sources	to	finance	a	significant	portion	of	its	day-to-day	operations.	The	cost	and	availability	of	financing	generally	is	impacted	by	the Company's	credit	ratings.	In	addition,	the	Company's	credit	ratings	can	have	an	impact	on	certain	trading	revenues,	particularly	in	those	businesses	where	longer	term counterparty	performance	is	a	key	consideration,	such	as	OTC	derivative	transactions,	including	credit	derivatives	and	interest	rate	swaps.	Issuer-specific	factors	that	are important	to	the	determination	of	the	Company's	credit	ratings	include	governance,	the	level	and	quality	of	earnings,	capital	adequacy,	funding	and	liquidity,	risk appetite	and	management,	asset	quality,	strategic	direction	and	business	mix.	Additionally,	the	agencies	will	look	at	other	industry-wide	factors	such	as	regulatory	or legislative	changes,	macro-economic	environment	and	perceived	levels	of	government	support.

The	rating	agencies	have	stated	that	they	currently	incorporate	various	degrees	of	credit	rating	uplift	from	external	sources	of	potential	support,	as	well	as	perceived government	support	of	systemically	important	banks,	including	the	credit	ratings	of	the	Company.	Rating	agencies	continue	to	monitor	the	progress	of	U.S.	financial reform	legislation	to	assess	whether	the	possibility	of	extraordinary	government	support	for	the	financial	system	in	any	future	financial	crises	is	negatively	impacted. Legislative	and	rulemaking	outcomes	may	lead	to	reduced	uplift	assumptions	for	U.S.	banks	and	thereby	place	downward	pressure	on	credit	ratings.	At	the	same	time, proposed	U.S.	financial	reform	legislation	and	attendant	rulemaking	also	have	positive	implications	for	credit	ratings	such	as	higher	standards	for	capital	and	liquidity levels.	The	net	result	on	credit	ratings	and	the	timing	of	any	change	in	rating	agency	assumptions	on	support	is	currently	uncertain.

At	January	31,	2013,	the	Parent's	and	Morgan	Stanley	Bank,	N.A.'s	senior	unsecured	ratings	were	as	set	forth	below:

(1) On	June	21,	2012,	Moody's	Investor	Services,	Inc.	("Moody's")	downgraded	the	ratings	of	15	banks	on	review	for	downgrade	in	the	context	of	a	broad	review	of	global	banks	with	capital	markets	operations.	The Parent's	long-	and	short-term	debt	ratings	were	lowered	two	notches	to	Baa1/P-2	from	A2/P-1,	and	Morgan	Stanley	Bank,	N.A.'s	long-	and	short-term	debt	ratings	were	lowered	to	A3/P-2	from	A1/P-1.	A Negative	outlook	was	assigned	to	the	Parent,	and	a	Stable	outlook	was	assigned	to	Morgan	Stanley	Bank,	N.A.

(2) On	May	14,	2012,	Rating	and	Investment	Information,	Inc.	downgraded	the	Parent's	long-term	rating	one	notch	to	A	from	A+.

In	connection	with	certain	OTC	trading	agreements	and	certain	other	agreements	where	the	Company	is	a	liquidity	provider	to	certain	financing	vehicles	associated	with the	Institutional	Securities	business	segment,	the	Company	may	be	required	to	provide	additional	collateral	or	immediately	settle	any	outstanding	liability	balances	with certain	counterparties	or	pledge	additional	collateral	to	certain	exchanges	and	clearing	organizations	in	the	event	of	a	future	credit	rating	downgrade	irrespective	of whether	the	company	is	in	a	net	asset	or	liability	position.

As	noted	in	the	table	above,	the	long-term	credit	ratings	on	the	Company	by	Moody's	and	Standard	&	Poor's	Financial	Services	LLC	("S&P")	are	currently	at	different levels	(commonly	referred	to	as	"split	ratings").	The	table	below	shows	the	future	potential	collateral	amounts	that	could	be	called	by	counterparties	or	exchanges	and clearing	organizations	in	the	event	of	the	following	credit	rating	scenarios	for	Moody's	and	S&P	at	December	31,	2012:

|  | OTC | Other | Clearing |
| :--- | :--- | :--- | :--- |
| Company\tRating\tScenario\t(Moody's/S&amp;P) | Agreements | Agreements | Organizations |
|  |  | (dollars\tin\tmillions) |  |
| Baa1/BBB+ | $472 | $— | $— |
| Baa2/BBB | $2,556 | $— | $— |
| Baa3/BBB- | $3,248 | $326 | $128 |

While	certain	aspects	of	a	credit	ratings	downgrade	are	quantifiable	pursuant	to	contractual	provisions,	the	impact	it	will	have	on	the	Company's	business	and	results	of operation	in	future	periods	is	inherently	uncertain	and	will	depend	on	a	number	of	interrelated	factors,	including,	among	others,	the	magnitude	of	the	downgrade, individual	client	behavior	and	future	mitigating	actions	the	Company	may	take.	The	liquidity	impact	of	additional	collateral	requirements	is	included	in	the	Company's Liquidity	Stress	Tests.

# Capital	Management.

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

At	December	31,	2012,	the	Company	had	approximately	$1.6	billion	remaining	under	its	current	share	repurchase	program	out	of	the	$6	billion	authorized	by	the	Board of	Directors	in	December	2006.	The	share	repurchase	program	is	for	capital	management	purposes	and	considers,	among	other	things,	business	segment	capital	needs	as well	as	equity-based	compensation	and	benefit	plan	requirements.	Share	repurchases	by	the	Company	are	subject	to	regulatory	approval.	During	2012,	the	Company	did not	repurchase	common	stock	as	part	of	its	capital	management	share	repurchase	program	(see	also	"Market	for	Registrant's	Common	Equity,	Related	Stockholder Matters	and	Issuer	Purchases	of	Equity	Securities"	in	Part	II,	Item	5).

The	Board	of	Directors	determines	the	declaration	and	payment	of	dividends	on	a	quarterly	basis.	In	January	2013,	the	Company	announced	that	its	Board	of	Directors declared	a	quarterly	dividend	per	common	share	of	$0.05.	In	December	2012,	the	Company	also	announced	that	the	Board	of	Directors	declared	a	quarterly	dividend	of $255.56	per	share	of	Series	A	Floating	Rate	Non-Cumulative	Preferred	Stock	(represented	by	depositary	shares,	each	representing	1/1,000th	interest	in	a	share	of preferred	stock	and	each	having	a	dividend	of	$0.25556)	and	a	quarterly	dividend	of	$25.00	per	share	of	Series	C	Non-Cumulative	Non-Voting	Perpetual	Preferred Stock.

The	following	table	sets	forth	the	Company's	tangible	common	equity	at	December	31,	2012	and	December	31,	2011	and	average	balances	during	2012:

|  | 2012 | 2011 | 2012 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Common\tequity | $ 60,601 | $ 60,541 | $60,828 |
| Preferred\tequity | 1,508 | 1,508 | 1,508 |
| Morgan\tStanley\tshareholders'\tequity | 62,109 | 62,049 | 62,336 |
| Junior\tsubordinated\tdebentures\tissued\tto\tcapital\ttrusts | 4,827 | 4,853 | 4,836 |
| Less:\tGoodwill\tand\tnet\tintangible\tassets(2) | (7,587) | (6,691) | (6,935) |
| Tangible\tMorgan\tStanley\tshareholders'\tequity | $ 59,349 | $ 60,211 | $60,237 |
| Common\tequity | $ 60,601 | $ 60,541 | $60,828 |
| Less:\tGoodwill\tand\tnet\tintangible\tassets(2) | (7,587) | (6,691) | (6,935) |
| Tangible\tcommon\tequity(3) | $ 53,014 | $ 53,850 | $53,893 |

(1) The	Company	calculates	its	average	balances	based	upon	month-end	balances.

(2) The	goodwill	and	net	intangible	assets	deduction	exclude	mortgage	servicing	rights	(net	of	disallowable	mortgage	servicing	rights)	of	$6	million	and	$120	million	at	December	31,	2012	and	December	31,	2011, respectively,	and	include	only	the	Company's	share	of	the	Wealth	Management	JV's	goodwill	and	intangible	assets	(see	"Executive	Summary—Significant	Items—Wealth	Management	JV"	herein	for	further information).

(3) Tangible	common	equity,	a	non-GAAP	financial	measure,	equals	common	equity	less	goodwill	and	net	intangible	assets	as	defined	above.	The	Company	views	tangible	common	equity	as	a	useful	measure	to investors	because	it	is	a	commonly	utilized	metric	and	reflects	the	common	equity	deployed	in	the	Company's	businesses.

# Capital	Covenants.

In	October	2006	and	April	2007,	the	Company	executed	replacement	capital	covenants	in	connection	with	offerings	by	Morgan	Stanley	Capital	Trust	VII	and	Morgan Stanley	Capital	Trust	VIII	(the	"Capital	Securities"),	which	become	effective	after	the	scheduled	redemption	date	in	2046.	Under	the	terms	of	the	replacement	capital covenants,	the	Company	has	agreed,	for	the	benefit	of	certain	specified	holders	of	debt,	to	limitations	on	its	ability	to	redeem	or	repurchase	any	of	the	Capital	Securities for	specified	periods	of	time.	For	a	complete	description	of	the	Capital	Securities	and	the	terms	of	the	replacement	capital	covenants,	see	the	Company's	Current	Reports on	Form	8-K	dated	October	12,	2006	and	April	26,	2007.

# Regulatory	Requirements.

# Capital.

The	Company	is	a	financial	holding	company	under	the	Bank	Holding	Company	Act	of	1956,	as	amended,	and	is	subject	to	the	regulation	and	oversight	of	the	Federal Reserve.	The	Federal	Reserve	establishes	capital	requirements	for	the	Company,	including	well-capitalized	standards,	and	evaluates	the	Company's	compliance	with such	capital	requirements.	The	Office	of	the	Comptroller	of	the	Currency	("OCC")	establishes	similar	capital	requirements	and	standards	for	the	Subsidiary	Banks.

The	Company	calculates	its	capital	ratios	and	RWAs	in	accordance	with	the	capital	adequacy	standards	for	financial	holding	companies	adopted	by	the	Federal	Reserve. These	standards	are	based	upon	a	framework	described	in	the	"International	Convergence	of	Capital	Measurement	and	Capital	Standards,"	July	1988,	as	amended,	also referred	to	as	Basel	I.	RWAs	reflect	both	on	and	off-balance	sheet	risk	of	the	Company.	The	risk	capital	calculations	will	evolve	over	time	as	the	Company	enhances	its risk	management	methodology	and	incorporates	improvements	in	modeling	techniques	while	maintaining	compliance	with	the	regulatory	requirements	and interpretations.

Market	RWAs	reflect	capital	charges	attributable	to	the	risk	of	loss	resulting	from	adverse	changes	in	market	prices	and	other	factors.	For	a	further	discussion	of	the Company's	market	risks	and	Value-at-Risk	("VaR")	model,	see	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk"	in	Part	II,	Item	7A	herein.	Market	RWAs incorporate	two	components:	general	risk	and	specific	risk.	General	and	specific	risk	charges	are	computed	using	either	the	Company's	VaR	model	or	Standardized Approach	in	accordance	with	regulatory	requirements.

Credit	RWAs	reflect	capital	charges	attributable	to	the	risk	of	loss	arising	from	a	borrower	or	counterparty	failing	to	meet	its	financial	obligations.	For	a	further discussion	of	the	Company's	credit	risks,	see	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk"	in	Part	II,	Item	7A	herein.

Total	allowable	capital	is	composed	of	Tier	1	capital,	which	includes	Tier	1	common	capital,	and	Tier	2	capital.	Under	the	Federal	Reserve's	final	rules	regarding	capital plans,	Tier	1	common	capital	is	calculated	as	Tier	1	capital	less	non-common	elements	in	Tier	1	capital.	Non-common	elements	include	perpetual	preferred	stock	and related	surplus,	minority	interests	in	subsidiaries,	trust	preferred	securities	and	mandatory	convertible	preferred	securities.	Tier	1	capital	consists	predominantly	of common	shareholders'	equity	as	well	as	qualifying	preferred	stock	and	qualifying	restricted	core	capital	elements	(qualifying	trust	preferred	securities	and noncontrolling	interests)	less	goodwill,	non-servicing	intangible	assets	(excluding	allowable	mortgage	servicing	rights),	net	deferred	tax	assets	(recoverable	in	excess	of one	year),	an	after-tax	debt	valuation	adjustment	and	certain	other	deductions,	including	equity	investments.	The	debt	valuation	adjustment	in	the	below	table	represents the	cumulative	change	in	fair	value	of	certain	long-term	and	short-term	borrowings	that	was	attributable	to	the	Company's	own	instrument-specific	credit	spreads	and	is included	in	retained	earnings.	For	a	further	discussion	of	fair	value,	see	Note	4	to	the	consolidated	financial	statements.

At	December	31,	2012,	the	Company	was	in	compliance	with	Basel	I	capital	requirements	with	ratios	of	Tier	1	capital	to	RWAs	of	17.7%	and	total	capital	to	RWAs	of 18.5%	(6%	and	10%	being	well-capitalized	for	regulatory	purposes,	respectively).	The	total	capital	to	RWAs	ratio	reflects	an	increase	of	approximately	65	basis	points that	is	the	result	of	a	$2	billion	subordinated	debt	issuance	by	the	Company	in	October	2012.	See	"Long-Term	Borrowing	Activity	in	2012"	for	the	detail	of	the subordinated	debt	issuance.	The	ratio	of	Tier	1	common	capital	to	RWAs	was	14.6%	(5%	being	the	minimum	under	the	Federal	Reserve's	Comprehensive	Capital Analysis	and	Review	("CCAR")	framework).	Financial	holding	companies	are	subject	to	a	Tier	1	leverage	ratio	as	defined	by	the	Federal	Reserve.	The	Company calculated	its	Tier	1	leverage	ratio	as	Tier	1	capital	divided	by	adjusted	average	total	assets	(which	reflects	adjustments	for	disallowed	goodwill,	certain	intangible assets,	deferred	tax	assets	and	financial	and	non-financial	equity	investments).	The	adjusted	average	total	assets	are	derived	using	weekly	balances	for	the	year.	At December	31,	2012,	the	Company	was	in	compliance	with	this	leverage	restriction	with	a	Tier	1	leverage	ratio	of	7.1%	(5%	being	well-capitalized	for	regulatory purposes).

The	following	table	reconciles	the	Company's	total	shareholders'	equity	to	Tier	1	common,	Tier	1,	Tier	2	and	Total	allowable	capital	as	defined	by	the	regulations issued	by	the	Federal	Reserve	and	presents	the	Company's	consolidated	capital	ratios	at	December	31,	2012	and	December	31,	2011:

|  | At<br>December	31,<br>2012 | At<br>December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Allowable\tcapital |  |  |
| Common\tshareholders'\tequity | $60,601 | $60,541 |
| Less:\tGoodwill | (6,650) | (6,686) |
| Less:\tNon-servicing\tintangible\tassets | (3,777) | (4,165) |
| Less:\tNet\tdeferred\ttax\tassets(1) | (4,785) | (6,098) |
| Less:\tAfter-tax\tdebt\tvaluation\tadjustment | 823 | (2,296) |
| Other\tdeductions | (1,418) | (1,511) |
| Tier\t1\tcommon\tcapital(1)(2) | 44,794 | 39,785 |
| Qualifying\tpreferred\tstock | 1,508 | 1,508 |
| Qualifying\trestricted\tcore\tcapital\telements | 8,058 | 9,821 |
| Tier\t1\tcapital(1) | 54,360 | 51,114 |
| Qualifying\tsubordinated\tdebt\tand\trestricted\tcore\tcapital\telements | 2,783 | 4,546 |
| Other\tqualifying\tamounts | 197 | 17 |
| Other\tdeductions | (714) | (721) |
| Tier\t2\tcapital | 2,266 | 3,842 |
| Total\tallowable\tcapital(1) | $56,626 | $54,956 |
| Total\trisk-weighted\tassets(1) | $306,746 | $314,817 |
| Capital\tratios |  |  |
| Total\tcapital\tratio(1) | 18.5% | 17.5% |
| Tier\t1\tcommon\tcapital\tratio(1)(2) | 14.6% | 12.6% |
| Tier\t1\tcapital\tratio(1) | 17.7% | 16.2% |
| Tier\t1\tleverage\tratio(1) | 7.1% | 6.6% |

(1) The	Company's	December	31,	2011	Tier	1	common	capital	ratio,	Tier	1	capital	ratio	and	Total	capital	ratio	were	each	reduced	by	approximately	30	basis	points,	and	Tier	1	leverage	ratio	was	reduced	by approximately	20	basis	points	due	to	an	approximate	$1.2	billion	deferred	tax	asset	disallowance	adjustment,	which	resulted	in	a	reduction	to	the	Company's	Tier	1	common	capital,	Tier	1	capital,	Total	capital, RWAs	and	adjusted	average	assets	by	such	amount.

(2) Tier	1	common	capital	ratio	equals	Tier	1	common	capital	divided	by	RWAs.	On	December	30,	2011,	the	Federal	Reserve	formalized	regulatory	definitions	for	Tier	1	common	capital	and	Tier	1	common	capital ratio.	The	Federal	Reserve	defined	Tier	1	common	capital	as	Tier	1	capital	less	non-common	elements	in	Tier	1	capital,	including	perpetual	preferred	stock	and	related	surplus,	minority	interest	in	subsidiaries,	trust preferred	securities	and	mandatory	convertible	preferred	securities.	Previously,	the	Company's	definition	of	Tier	1	common	capital	included	all	of	the	items	noted	in	the	Federal	Reserve's	definition,	but	it	also included	an	adjustment	for	the	portion	of	goodwill	and	non-servicing	intangible	assets	associated	with	the	Wealth	Management	JV's	noncontrolling	interests	(i.e.,	Citi's	share	of	the	Wealth	Management	JV's goodwill	and	intangibles).	The	Company's	conformance	to	the	Federal	Reserve's	definition	under	the	final	rule	reduced	its	Tier	1	common	capital	and	Tier	1	common	ratio	by	approximately	$4.2	billion	and	132 basis	points,	respectively,	at	December	31,	2011.

In	November	2011	the	Federal	Reserve	issued	the	final	rule	regarding	capital	plans,	which	requires	large	bank	holding	companies	such	as	the	Company	to	submit	capital plans	on	an	annual	basis	in	order	for	the	Federal	Reserve	to	assess	the	companies'	systems	and	processes	that	incorporate	forward-looking	projections	of	revenues	and losses	to	monitor	and	maintain	their	internal	capital	adequacy.	The	rule	also	requires	that	such	companies	receive	no	objection	from	the	Federal	Reserve	before	making	a capital	action.	The	Company	received	no

objection	to	its	2012	capital	plan,	including	the	acquisition	of	an	additional	14%	of	the	Wealth	Management	JV,	which	was	completed	in	September	2012,	and	ongoing payment	of	current	common	and	preferred	dividends.

The	Dodd-Frank	Act	imposes	stress	test	requirements	on	large	bank	holding	companies,	including	the	Company.	In	October	2012,	the	Federal	Reserve	issued	its	stress test	final	rule	as	required	by	the	Dodd-Frank	Act	that	requires	the	Company	to	conduct	semi-annual	company-run	stress	tests.	The	Company	is	required	to	publicly disclose	the	summary	results	of	its	company-run	stress	tests	under	the	severely	adverse	economic	scenario.	The	rule	also	subjects	the	Company	to	an	annual	supervisory stress	test	conducted	by	the	Federal	Reserve.	The	Federal	Reserve	has	announced	that	it	will,	by	March	7,	2013	publish	a	summary	of	the	supervisory	stress	test	results of	each	company	subject	to	the	final	rule,	including	the	Company.	In	November	2012,	the	Federal	Reserve	issued	instructions	regarding	the	2013	CCAR	process	to	the 19	bank	holding	companies,	including	the	Company,	that	became	subject	to	the	Federal	Reserve's	final	rule	on	November	15,	2012.	The	2013	CCAR	instructions described	how	the	Federal	Reserve's	CCAR	capital	planning	process	would	be	integrated	with	the	stress	test	requirements	in	the	Dodd-Frank	Act.	The	Company submitted	its	2013	capital	plan	to	the	Federal	Reserve	in	January	2013.

The	Dodd-Frank	Act	also	requires	national	banks	and	federal	savings	associations	with	total	consolidated	assets	of	more	than	$10	billion	to	conduct	an	annual	stress	test. Beginning	in	2013,	the	regulation	requires	national	banks	with	more	than	$50	billion	in	average	total	consolidated	assets,	including	Morgan	Stanley	Bank,	N.A. ("MSBNA"),	to	conduct	its	first	stress	test.	MSBNA	submitted	its	stress	test	results	to	the	OCC	and	the	Federal	Reserve	in	January	2013.

The	Company's	public	disclosure	of	the	results	of	the	stress	tests	is	required	to	include,	with	respect	to	the	severely	adverse	scenario,	any	changes	in	regulatory	capital ratios	of	the	Company	and	MSBNA	and	an	explanation	of	the	most	significant	causes	for	the	changes	in	regulatory	capital	ratios.

In	December	2007,	the	U.S.	banking	regulators	published	final	regulations	incorporating	the	Basel	II	Accord,	which	requires	internationally	active	U.S.	banking organizations,	as	well	as	certain	of	their	U.S.	bank	subsidiaries,	to	implement	Basel	II	standards	over	the	next	several	years.	In	July	2010,	the	Company	began	reporting its	capital	adequacy	standards	on	a	parallel	basis	to	its	regulators	under	Basel	I	and	Basel	II	as	part	of	a	phased	implementation	of	Basel	II.

In	June	2012,	the	U.S.	banking	regulators	issued	final	rules	that	implement	the	Basel	Committee's	revised	market	risk	framework,	referred	to	as	"Basel	2.5,"	which increases	capital	requirements	for	securitizations	and	correlation	trading	within	the	Company's	trading	book.	On	January	1,	2013,	the	U.S.	banking	regulators'	rules	to implement	Basel	2.5	became	effective.	The	Company's	risk-weighted	assets	will	increase	under	the	Basel	2.5	guidelines,	and	if	such	rules	were	applied	as	of	December 31,	2012,	they	would	have	decreased	the	Company's	Tier	1	common	capital	ratio	by	approximately	400	basis	points.	The	estimates	are	subject	to	risks	and	uncertainties that	may	cause	actual	results	to	differ	materially.	For	a	discussion	of	risks	and	uncertainties	that	may	affect	the	Company,	see	"Risk	Factors"	in	Part	I	Item	1A	herein.

In	December	2010,	the	Basel	Committee	reached	an	agreement	on	Basel	III.	In	June	2012,	the	U.S.	banking	regulators	proposed	rules	to	implement	many	aspects	of Basel	III	(the	"U.S.	Basel	III	proposals").

The	U.S.	Basel	III	proposals	contain	new	capital	standards	that	raise	the	quality	of	capital,	strengthen	counterparty	credit	risk	capital	requirements,	introduce	a	leverage ratio	as	a	supplemental	measure	to	the	risk-based	ratio	and	replace	the	use	of	externally	developed	credit	ratings	with	alternatives	such	as	internally	developed	credit ratings.	The	proposals	include	a	new	capital	conservation	buffer,	which	imposes	a	common	equity	Tier	1	capital	requirement	above	the	new	minimum	that	can	be depleted	under	stress,	and	could	result	in	restrictions	on	capital	distributions	and	discretionary	bonuses	under	certain	circumstances.	The	proposals	also	provide	for	a potential	countercyclical	buffer	which	regulators	can	activate	during	periods	of	excessive	credit	growth	in	their	jurisdiction.	Although	the	U.S.	Basel	III	proposals	do	not address	the	Basel	Committee's	new

additional	loss	absorbency	capital	requirement	for	Global	Systemically	Important	Banks	("G-SIBs"),	such	as	the	Company,	the	U.S.	banking	regulators	indicated	that guidance	on	the	implementation	of	the	Basel	Committee's	G-SIB	capital	surcharge	in	the	United	States	would	be	forthcoming.	In	November	2012,	the	Financial Stability	Board	provisionally	assigned	the	Company	a	capital	surcharge	of	1.5	percent	of	common	equity	Tier	1	capital	to	RWA	on	a	scale	of	1.0	percent	to	2.5	percent. The	Financial	Stability	Board	stated	that	it	intends	to	update	the	G-SIB	list	annually	based	on	new	data.	The	U.S.	Basel	III	proposals	also	propose	amendments	to	the advanced	approaches	risk-based	capital	rule	that	change	certain	aspects	of	the	treatment	of	counterparty	credit	risk	under	the	Basel	II	framework	and	replace	the	use	of externally	developed	credit	ratings	with	proposed	alternatives	such	as	internally	developed	credit	ratings.	The	U.S.	Basel	III	proposals	contemplate	that	the	new	capital requirements	would	be	phased	in	over	several	years,	beginning	in	2013.	In	November	2012,	the	U.S.	banking	regulators	announced	that	the	U.S.	Basel	III	proposals would	not	become	effective	on	January	1,	2013.	The	announcement	did	not	specify	new	implementation	or	phase-in	dates	for	the	U.S.	Basel	III	proposals.

Pursuant	to	provisions	of	the	Dodd-Frank	Act,	over	time,	trust	preferred	securities	that	meet	Tier	2	capital	eligibility	criteria	will	no	longer	qualify	as	Tier	1	capital	but will	qualify	only	as	Tier	2	capital.	This	change	in	regulatory	capital	treatment	will	be	phased	in	incrementally	during	a	transition	period	that	started	on	January	1,	2013 and	will	end	on	January	1,	2016.	This	provision	of	the	Dodd-Frank	Act	accelerates	the	phasing	out	of	trust	preferred	securities	provided	in	Basel	III.

The	Company	estimates	its	RWAs	based	on	a	preliminary	analysis	of	the	Basel	III	guidelines	published	to	date	and	other	factors.	The	Company	estimates	its	pro	forma Tier	1	common	capital	ratio	under	Basel	III	to	be	approximately	9.5%	as	of	December	31,	2012.	This	is	a	preliminary	estimate	assuming	relevant	advanced	approach regulatory	model	approvals	and	may	change	based	on	final	rules	to	be	issued	by	the	Federal	Reserve.	If	the	Company	does	not	receive	such	model	approvals,	this	could have	a	significant	impact	on	the	Company's	estimates.	In	addition,	our	estimate	may	not	be	comparable	with	that	of	other	financial	services	firms	given	the	final	rules have	not	been	issued	and	our	estimate	may	be	calculated	differently	from	other	financial	services	firms.	The	pro	forma	Tier	1	common	capital	ratio	under	Basel	III	is	a non-GAAP	financial	measure	that	the	Company	considers	to	be	a	useful	measure	to	the	Company	and	investors	to	gauge	future	regulatory	capital	requirements.	The	pro forma	Tier	1	common	capital	ratio	estimate	is	based	on	shareholders'	equity,	Tier	1	common	capital	and	RWAs	at	December	31,	2012.	This	preliminary	estimate	is subject	to	risks	and	uncertainties	that	may	cause	actual	results	to	differ	materially	and	should	not	be	taken	as	a	projection	of	what	the	Company's	capital	ratios,	RWAs, earnings	or	other	results	will	actually	be	at	these	future	dates.	For	a	discussion	of	risks	and	uncertainties	that	may	affect	the	future	results	of	the	Company,	please	see "Risk	Factors"	in	Part	I,	Item	1A	herein.

# Required	Capital.

The	Company's	required	capital	("Required	Capital")	estimation	is	based	on	the	Required	Capital	Framework,	an	internal	capital	adequacy	measure.	This	framework	is a	risk-based	internal	use	of	capital	measure,	which	is	compared	with	the	Company's	regulatory	capital	to	help	ensure	the	Company	maintains	an	amount	of	risk-based going	concern	capital	after	absorbing	potential	losses	from	extreme	stress	events	where	applicable,	at	a	point	in	time.	The	difference	between	the	Company's	regulatory capital	and	aggregate	Required	Capital	is	Parent	capital.	Average	Tier	1	common	capital,	aggregate	Required	Capital	and	Parent	capital	for	2012	were	approximately $42.8	billion,	$27.3	billion	and	$15.5	billion,	respectively.	The	Company	generally	holds	Parent	capital	for	prospective	regulatory	requirements,	organic	growth, acquisitions	and	other	capital	needs.

Tier	1	common	capital	and	common	equity	attribution	to	the	business	segments	is	based	on	capital	usage	calculated	by	the	Required	Capital	Framework.	In	principle, each	business	segment	is	capitalized	as	if	it	were	an	independent	operating	entity	with	limited	diversification	benefit	between	the	business	segments.	Required	Capital	is assessed	at	each	business	segment	and	further	attributed	to	product	lines.	This	process	is	intended	to	align	capital	with	the	risks	in	each	business	segment	in	order	to allow	senior	management	to	evaluate	returns	on	a	risk-adjusted	basis.	The	Required	Capital	Framework	will	evolve	over	time	in	response	to	changes	in	the	business	and regulatory	environment	and	to	incorporate	enhancements	in	modeling	techniques.	The	Company	will	continue	to	evaluate	the	framework	with	respect	to	the	impact	of future	regulatory	requirements,	as	appropriate.

Beginning	in	the	quarter	ended	March	31,	2012,	the	Company	and	segment	Required	Capital	is	met	by	Tier	1	common	capital.	Prior	to	the	quarter	ended	March	31, 2012,	the	Company's	Required	Capital	was	met	by	regulatory	Tier	1	capital	or	Tier	1	common	equity.	Segment	capital	for	prior	periods	has	been	recast	under	this framework.

For	a	further	discussion	of	the	Company's	Tier	1	common	capital,	see	"Capital"	herein.

The	following	table	presents	the	business	segments'	and	Parent's	average	Tier	1	common	capital	and	average	common	equity	for	2012	and	2011:

|  | Average<br>Tier	1	Common<br>Capital | Average<br>Common<br>Equity | Average<br>Tier	1	Common<br>Capital | Average<br>Common<br>Equity |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tbillions) |  |  |
| Institutional\tSecurities | $22.3 | $29.0 | $25.9 | $32.7 |
| Global\tWealth\tManagement\tGroup | 3.7 | 13.3 | 3.3 | 13.2 |
| Asset\tManagement | 1.3 | 2.4 | 1.5 | 2.6 |
| Parent\tcapital | 15.5 | 16.1 | 5.3 | 5.9 |
| Total | $42.8 | $60.8 | $36.0 | $54.4 |

The	Company	updated	its	Required	Capital	Framework	methodology,	with	the	regulatory	changes	becoming	effective	in	2013.	As	a	result	of	this	update	to	the	Required Capital	Framework	methodology,	and	taking	the	estimated	impact	of	Basel	2.5	into	consideration,	Parent	capital	is	estimated	to	decrease	by	approximately	$13	billion with	a	corresponding	increase	allocated	to	the	business	segments.

# Liquidity.

The	Basel	Committee	has	developed	two	standards	for	supervisors	to	use	in	liquidity	risk	supervision.	The	first	standard's	objective	is	to	promote	the	short-term resilience	of	the	liquidity	risk	profile	of	banks	and	bank	holding	companies.	The	Basel	Committee	developed	the	Liquidity	Coverage	Ratio	("LCR")	to	ensure	banks have	sufficient	high-quality	liquid	assets	to	cover	net	cash	outflows	arising	from	significant	stress	over	30	calendar	days.	The	standard	requires	that	the	value	of	the	ratio be	no	lower	than	100%;	the	Company	is	compliant	with	this	liquidity	standard.	The	second	standard's	objective	is	to	promote	resilience	over	a	longer	time	horizon.	The Net	Stable	Funding	Ratio	("NSFR")	has	a	time	horizon	of	one	year	and	builds	on	traditional	"net	liquid	asset"	and	"cash	capital"	methodologies	used	widely	by internationally	active	banking	organizations	to	provide	a	sustainable	maturity	structure	of	assets	and	liabilities.	The	NSFR	is	defined	as	the	amount	of	available	stable funding	to	the	amount	of	required	stable	funding.	This	ratio	must	be	greater	than	100%.	After	an	observation	period	that	began	in	2011,	the	LCR,	including	any revisions,	will	be	introduced	on	January	1,	2015.	The	NSFR,	including	any	revisions,	will	move	to	a	minimum	standard	by	January	1,	2018.	The	Company	will	continue to	monitor	the	development	of	these	standards,	including	any	further	calibration	by	the	Basel	Committee	and	their	potential	impact	on	the	Company's	current	liquidity and	funding	requirements.

In	addition,	in	December	2011,	the	Federal	Reserve	issued	proposed	rules	to	implement	certain	requirements	of	the	Dodd-Frank	Act's	systemic	risk	regime,	including with	respect	to	liquidity.	The	proposed	rules	would	require	systemically	important	financial	institutions,	such	as	the	Company,	to	maintain	a	sufficient	quantity	of	highly liquid	assets	to	survive	a	projected	30-day	liquidity	stress	event,	to	conduct	regular	liquidity	stress	tests,	and	to	implement	various	liquidity	risk	management requirements.

# Off-Balance	Sheet	Arrangements	with	Unconsolidated	Entities.

The	Company	enters	into	various	arrangements	with	unconsolidated	entities,	including	variable	interest	entities	("VIE"),	primarily	in	connection	with	its	Institutional Securities	and	Asset	Management	business	segments.

Institutional	Securities	Activities.				The	Company	utilizes	special	purpose	entities	("SPE")	primarily	in	connection	with	securitization	activities.	The	Company	engages in	securitization	activities	related	to	commercial	and	residential	mortgage	loans,	U.S.	agency	collateralized	mortgage	obligations,	corporate	bonds	and	loans,	municipal bonds	and	other	types	of	financial	assets.	The	Company	may	retain	interests	in	the	securitized	financial	assets	as	one	or	more	tranches	of	the	securitization.	These retained	interests	are	included	in	the	consolidated	statements	of	financial	condition	at	fair	value.	Any	changes	in	the	fair	value	of	such	retained	interests	are	recognized	in the	consolidated	statements	of	income.	Retained	interests	in	securitized	financial	assets	were	approximately	$3.2	billion	and	$2.9	billion	at	December	31,	2012	and December	31,	2011,	respectively,	substantially	all	of	which	were	related	to	U.S.	agency	collateralized	mortgage	obligations,	commercial	mortgage	loan	and	residential mortgage	loan	securitization	transactions.	For	further	information	about	the	Company's	securitization	activities,	see	Note	7	to	the	consolidated	financial	statements.

The	Company	has	entered	into	liquidity	facilities	with	SPEs	and	other	counterparties,	whereby	the	Company	is	required	to	make	certain	payments	if	losses	or	defaults occur.	The	Company	often	may	have	recourse	to	the	underlying	assets	held	by	the	SPEs	in	the	event	payments	are	required	under	such	liquidity	facilities	(see	Note	13	to the	consolidated	financial	statements).

Asset	Management	Activities.				As	a	general	partner	in	certain	private	equity	and	real	estate	partnerships,	the	Company	receives	distributions	from	the	partnerships according	to	the	provisions	of	the	partnership	agreements.	The	Company	may,	from	time	to	time,	be	required	to	return	all	or	a	portion	of	such	distributions	to	the	limited partners	in	the	event	the	limited	partners	do	not	achieve	a	certain	return	as	specified	in	various	partnership	agreements,	subject	to	certain	limitations.	These	amounts	are noted	in	the	table	below	under	"General	partner	guarantees".

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

The	table	below	summarizes	certain	information	regarding	the	Company's	obligations	under	guarantee	arrangements	at	December	31,	2012:

|  | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional |  | Carrying |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Years\tto\tMaturity |  |  |  | Amount |  |
|  |  |  |  |  |  | (Asset)/ | Collateral/ |
| Type\tof\tGuarantee | Less\tthan\t1 | 1-3 | 3-5 | Over\t5 | Total | Liability | Recourse |
|  |  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |  |
| Credit\tderivative\tcontracts(1) | $444,092 | $583,649 | $716,945 | $148,506 | $1,893,192 | $10,883 | $— |
| Other\tcredit\tcontracts | 796 | 125 | 155 | 1,323 | 2,399 | (745) | — |
| Non-credit\tderivative\tcontracts(1) | \t 943,448 | \t 798,348 | \t 281,877 | \t 411,271 | 2,434,944 | 76,880 | — |
| Standby\tletters\tof\tcredit\tand\tother\tfinancial\tguarantees\tissued(2)(3) | 796 | 1,253 | 1,269 | 5,742 | 9,060 | (189) | 7,086 |
| Market\tvalue\tguarantees | — | 93 | 108 | 531 | 732 | 10 | 101 |
| Liquidity\tfacilities | 2,403 | 148 | — | — | 2,551 | (4) | 3,764 |
| Whole\tloan\tsales\trepresentations\tand\twarranties | — | — | — | 24,950 | 24,950 | 79 | — |
| Securitization\trepresentations\tand\twarranties | — | — | — | 70,904 | 70,904 | 35 | — |
| General\tpartner\tguarantees | 69 | 43 | — | 200 | 312 | 76 | — |

(1) Carrying	amounts	of	derivative	contracts	are	shown	on	a	gross	basis	prior	to	cash	collateral	or	counterparty	netting.	For	further	information	on	derivative	contracts,	see	Note	12	to	the	consolidated	financial statements.

(2) Approximately	$2.0	billion	of	standby	letters	of	credit	are	also	reflected	in	the	"Commitments"	table	below	in	primary	and	secondary	lending	commitments.	Standby	letters	of	credit	are	recorded	at	fair	value	within Financial	instruments	owned	or	Financial	instruments	sold,	not	yet	purchased	in	the	consolidated	statements	of	financial	condition.

(3) Amounts	include	guarantees	issued	by	consolidated	real	estate	funds	sponsored	by	the	Company	of	approximately	$113	million.	These	guarantees	relate	to	obligations	of	the	fund's	investee	entities,	including guarantees	related	to	capital	expenditures	and	principal	and	interest	debt	payments.	Accrued	losses	under	these	guarantees	of	approximately	$4	million	are	reflected	as	a	reduction	of	the	carrying	value	of	the related	fund	investments,	which	are	reflected	in	Financial	instruments	owned—Investments	on	the	consolidated	statements	of	financial	condition.

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

See	Note	13	to	the	consolidated	financial	statements	for	information	on	other	guarantees	and	indemnities.

# Commitments	and	Contractual	Obligations.

The	Company's	commitments	associated	with	outstanding	letters	of	credit	and	other	financial	guarantees	obtained	to	satisfy	collateral	requirements,	investment activities,	corporate	lending	and	financing	arrangements,	mortgage	lending	and	margin	lending	at	December	31,	2012	are	summarized	below	by	period	of	expiration.

Since	commitments	associated	with	these	instruments	may	expire	unused,	the	amounts	shown	do	not	necessarily	reflect	the	actual	future	cash	funding	requirements:

|  |  | Years	to	Maturity |  |  | Total	at |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Less |  |  |  | December\t31, |
|  | than\t1 | 1-3 | 3-5 | Over\t5 | 2012 |
|  |  | (dollars\tin\tmillions) |  |  |  |
| Letters\tof\tcredit\tand\tother\tfinancial\tguarantees\tobtained\tto\tsatisfy\tcollateral\trequirements | $1,186 | $1 | $6 | $— | $1,193 |
| Investment\tactivities | 794 | 94 | 49 | 292 | 1,229 |
| Primary\tlending\tcommitments—investment\tgrade(1) | 7,734 | \t 11,583 | \t 34,743 | 171 | 54,231 |
| Primary\tlending\tcommitments—non-investment\tgrade(1) | 924 | 3,881 | \t 10,148 | \t 2,161 | 17,114 |
| Secondary\tlending\tcommitments(2) | 116 | 103 | 53 | 50 | 322 |
| Commitments\tfor\tsecured\tlending\ttransactions | 235 | — | — | — | 235 |
| Forward\tstarting\treverse\trepurchase\tagreements\tand\tsecurities\tborrowing\tagreements(3)(4) | \t 45,653 | — | — | — | 45,653 |
| Commercial\tand\tresidential\tmortgage-related\tcommitments | 778 | 16 | 183 | 207 | 1,184 |
| Other\tcommitments | 1,534 | 157 | 93 | 95 | 1,879 |
| Total | $58,954 | $15,835 | $45,275 | $2,976 | $123,040 |

(1) This	amount	includes	$35.3	billion	of	investment	grade	and	$8.4	billion	of	non-investment	grade	unfunded	commitments	accounted	for	as	held	for	investment	and	$1.4	billion	of	investment	grade	and	$2.3	billion of	non-investment	grade	unfunded	commitments	accounted	for	as	held	for	sale	at	December	31,	2012.	The	remainder	of	these	lending	commitments	is	carried	at	fair	value.

(2) These	commitments	are	recorded	at	fair	value	within	Financial	instruments	owned	and	Financial	instruments	sold,	not	yet	purchased	in	the	consolidated	statements	of	financial	condition	(see	Note	4	to	the consolidated	financial	statements).

(3) The	Company	enters	into	forward	starting	reverse	repurchase	and	securities	borrowing	agreements	(agreements	that	have	a	trade	date	at	or	prior	to	December	31,	2012	and	settle	subsequent	to	period-end)	that	are primarily	secured	by	collateral	from	U.S.	government	agency	securities	and	other	sovereign	government	obligations.	These	agreements	primarily	settle	within	three	business	days	and	of	the	total	amount	at December	31,	2012,	$40.0	billion	settled	within	three	business	days.

(4) The	Company	also	has	a	contingent	obligation	to	provide	financing	to	a	clearinghouse	through	which	it	clears	certain	transactions.	The	financing	is	required	only	upon	the	default	of	a	clearinghouse	member.	The financing	takes	the	form	of	a	reverse	repurchase	facility,	with	a	maximum	amount	of	approximately	$2.3	billion.

The	above	table	does	not	include	the	Company's	commitment	to	purchase	an	additional	35%	of	the	Wealth	Management	JV	for	$4.725	billion	upon	obtaining	all regulatory	approvals	(see	Note	3	to	the	consolidated	financial	statements).

For	further	description	of	these	commitments,	see	Note	13	to	the	consolidated	financial	statements	and	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk— Risk	Management—Credit	Risk"	in	Part	II,	Item	7A	herein.

In	the	normal	course	of	business,	the	Company	enters	into	various	contractual	obligations	that	may	require	future	cash	payments.	Contractual	obligations	include	long- term	borrowings,	other	secured	financings,	contractual	interest	payments,	contractual	payments	on	time	deposits,	operating	leases,	purchase	obligations	and	expected

contributions	for	pension	and	postretirement	plans.	The	Company's	future	cash	payments	associated	with	certain	of	its	obligations	at	December	31,	2012	are summarized	below:

|  |  |  | Payments	Due	in: |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| At\tDecember\t31,\t2012 | 2013 | 2014-2015 | 2016-2017 | Thereafter | Total |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Long-term\tborrowings(1) | $25,303 | $46,404 | $48,121 | $ 49,743 | $169,571 |
| Other\tsecured\tfinancings(1) | 8,528 | 3,828 | 610 | 1,465 | 14,431 |
| Contractual\tinterest\tpayments(2) | 5,982 | \t 10,119 | 7,027 | 21,127 | 44,255 |
| Time\tdeposits(3) | 3,040 | 185 | — | — | 3,225 |
| Operating\tleases—office\tfacilities(4) | 666 | 1,221 | 951 | 2,883 | 5,721 |
| Operating\tleases—equipment(4) | 324 | 253 | 128 | 134 | 839 |
| Purchase\tobligations(5) | 615 | 461 | 180 | 45 | 1,301 |
| Pension\tand\tpostretirement\tplans—expected\tcontribution(6) | 50 | — | — | — | 50 |
| Total(7) | $44,508 | $62,471 | $57,017 | $ 75,397 | $239,393 |

(1) See	Note	11	to	the	consolidated	financial	statements.	Amounts	presented	for	Other	secured	financings	are	financings	with	original	maturities	greater	than	one	year.

(2) Amounts	represent	estimated	future	contractual	interest	payments	related	to	unsecured	long-term	borrowings	based	on	applicable	interest	rates	at	December	31,	2012.	Amounts	include	stated	coupon	rates,	if	any, on	structured	or	index-linked	notes.

(3) Amounts	represent	contractual	principal	and	interest	payments	related	to	time	deposits	primarily	held	at	the	Subsidiary	Banks.

(4) See	Note	13	to	the	consolidated	financial	statements.

(5) Purchase	obligations	for	goods	and	services	include	payments	for,	among	other	things,	consulting,	outsourcing,	printing,	computer	and	telecommunications	maintenance	agreements,	certain	license	agreements related	to	Wealth	Management	JV,	and	certain	transmission,	transportation	and	storage	contracts	related	to	the	commodities	business.	Purchase	obligations	at	December	31,	2012	reflect	the	minimum	contractual obligation	under	legally	enforceable	contracts	with	contract	terms	that	are	both	fixed	and	determinable.	These	amounts	exclude	obligations	for	goods	and	services	that	already	have	been	incurred	and	are	reflected on	the	Company's	consolidated	statement	of	financial	condition.

(7) Amounts	exclude	unrecognized	tax	benefits,	as	the	timing	and	amount	of	future	cash	payments	are	not	determinable	at	this	time	(see	Note	22	to	the	consolidated	financial	statements	for	further	information).

# Effects	of	Inflation	and	Changes	in	Foreign	Exchange	Rates.

The	Company's	assets	to	a	large	extent	are	liquid	in	nature	and,	therefore,	are	not	significantly	affected	by	inflation.	Inflation	may	result	in	increases	in	the	Company's expenses,	which	may	not	be	readily	recoverable	in	the	price	of	services	offered.	To	the	extent	inflation	results	in	rising	interest	rates	and	has	other	adverse	effects	upon the	securities	markets	and	upon	the	value	of	financial	instruments,	it	may	adversely	affect	the	Company's	financial	position	and	profitability.

A	significant	portion	of	the	Company's	business	is	conducted	in	currencies	other	than	the	U.S.	dollar,	and	changes	in	foreign	exchange	rates	relative	to	the	U.S.	dollar can,	therefore,	affect	the	value	of	non-U.S.	dollar	net	assets,	revenues	and	expenses.	Potential	exposures	as	a	result	of	these	fluctuations	in	currencies	are	closely monitored,	and,	where	cost-justified,	strategies	are	adopted	that	are	designed	to	reduce	the	impact	of	these	fluctuations	on	the	Company's	financial	performance.	These strategies	may	include	the	financing	of	non-U.S.	dollar	assets	with	direct	or	swap-based	borrowings	in	the	same	currency	and	the	use	of	currency	forward	contracts	or the	spot	market	in	various	hedging	transactions	related	to	net	assets,	revenues,	expenses	or	cash	flows.

# Item		7A.				Quantitative	and	Qualitative	Disclosures	about	Market	Risk.

Management	believes	effective	risk	management	is	vital	to	the	success	of	the	Company's	business	activities.	Accordingly,	the	Company	employs	an	enterprise	risk management	("ERM")	framework	to	integrate	the	diverse	roles	of	risk	management	into	a	holistic	enterprise	structure	and	to	facilitate	the	incorporation	of	risk evaluation	into	decision-making	processes	across	the	Company.	The	Company	has	policies	and	procedures	in	place	to	identify,	assess,	monitor	and	manage	the significant	risks	involved	in	the	activities	of	its	Institutional	Securities,	Global	Wealth	Management	Group	and	Asset	Management	business	segments	as	well	as	at	the holding	company	level.	Principal	risks	involved	in	the	Company's	business	activities	include	market,	credit,	capital	and	liquidity,	operational,	legal	and	regulatory	risk.

The	cornerstone	of	the	Company's	risk	management	philosophy	is	the	execution	of	risk-adjusted	returns	through	prudent	risk	taking	that	protects	the	Company's	capital base	and	franchise.	Five	key	principles	underlie	this	philosophy:	comprehensiveness,	independence,	accountability,	defined	risk	tolerance	and	transparency.	The	fast- paced,	complex,	and	constantly	evolving	nature	of	global	financial	markets	requires	that	the	Company	maintain	a	risk	management	culture	that	is	incisive, knowledgeable	about	specialized	products	and	markets,	and	subject	to	ongoing	review	and	enhancement.	To	help	ensure	the	efficacy	of	risk	management,	which	is	an essential	component	of	the	Company's	reputation,	senior	management	requires	thorough	and	frequent	communication	and	the	appropriate	escalation	of	risk	matters.

# Risk	Governance	Structure.

Risk	management	at	the	Company	requires	independent	company-level	oversight,	accountability	of	the	Company's	business	segments,	and	effective	communication	of risk	matters	to	senior	management	and	across	the	Company.	The	nature	of	the	Company's	risks,	coupled	with	its	risk	management	philosophy,	informs	the	Company's risk	governance	structure.	The	Company's	risk	governance	structure	is	comprised	of	the	Board	of	Directors;	the	Risk	Committee	of	the	Board	("BRC"),	the	Audit Committee	of	the	Board	("BAC"),	and	the	Operations	and	Technology	Committee	of	the	Board	("BOTC");	the	Firm	Risk	Committee	("FRC");	senior	management oversight	(including	the	Chief	Executive	Officer,	Chief	Risk	Officer,	Chief	Financial	Officer,	Chief	Legal	Officer	and	Chief	Compliance	Officer);	the	Internal	Audit Department	and	risk	managers,	committees,	and	groups	within	and	across	the	Company's	business	segments.	A	risk	governance	structure	composed	of	independent	but complementary	entities	facilitates	efficient	and	comprehensive	supervision	of	the	Company's	risk	exposures	and	processes.

Morgan	Stanley	Board	of	Directors.				The	Board	has	oversight	for	the	Company's	ERM	framework	and	is	responsible	for	helping	to	ensure	that	the	Company's	risks are	managed	in	a	sound	manner.	The	Board	has	authorized	the	committees	within	the	ERM	framework	to	help	facilitate	its	risk	oversight	responsibilities.

Risk	Committee	of	the	Board.				The	BRC	is	composed	of	non-management	directors.	The	BRC	is	responsible	for	assisting	the	Board	in	the	oversight	of	the	Company's risk	governance	structure;	the	Company's	risk	management	and	risk	assessment	guidelines	and	policies	regarding	market,	credit,	and	liquidity	and	funding	risk;	the Company's	risk	tolerance;	and	the	performance	of	the	Chief	Risk	Officer.	The	BRC	reports	to	the	full	Board	on	a	regular	basis.

Audit	Committee	of	the	Board.				The	BAC	is	composed	of	independent	directors.	The	BAC	is	responsible	for	oversight	of	the	integrity	of	the	Company's	consolidated financial	statements,	the	Company's	compliance	with	legal	and	regulatory	requirements,	the	Company's	system	of	internal	controls,	the	qualifications	and	independence of	the	Company's	independent	auditor,	and	the	performance	of	the	Company's	internal	and	independent	auditors.	In	addition,	the	BAC	assists	the	Board	in	its	oversight of	certain	aspects	of	risk

management,	including	review	of	the	major	franchise,	reputational,	legal	and	compliance	risk	exposures	of	the	Company	and	the	steps	management	has	taken	to	monitor and	control	such	exposures,	as	well	as	guidelines	and	policies	that	govern	the	process	for	risk	assessment	and	risk	management.	The	BAC	reports	to	the	full	Board	on	a regular	basis.

Operations	and	Technology	Committee	of	the	Board.				The	BOTC	is	composed	of	non-management	directors.	The	BOTC	is	responsible	for	reviewing	the	major operational	risk	exposures	of	the	Company	and	the	steps	management	has	taken	to	monitor	and	control	such	exposures.	Additionally,	the	BOTC	is	responsible	for assisting	the	Board	in	its	oversight	of	the	Company's	operations	and	technology	strategy,	including	significant	investments	in	support	of	such	strategy.	The	BOTC	is	also responsible	for	the	review	and	approval	of	operations	and	technology	policies,	as	well	as	the	review	of	the	Company's	risk	management	and	risk	assessment	guidelines and	policies	regarding	operational	risk.	The	BOTC	reports	to	the	full	Board	on	a	regular	basis.

Firm	Risk	Committee.				The	Board	has	also	authorized	the	FRC,	a	management	committee	appointed	and	chaired	by	the	Chief	Executive	Officer,	which	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'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	FRC	reports	to	the	full	Board,	the	BAC,	the	BOTC	and	the	BRC	through	the	Company's	Chief	Risk Officer	and	Chief	Financial	Officer.

Chief	Risk	Officer.				The	Chief	Risk	Officer,	who	is	independent	of	business	units,	reports	to	the	Chief	Executive	Officer	and	the	BRC.	The	Chief	Risk	Officer	oversees compliance	with	the	Company's	risk	limits;	approves	exceptions	to	the	Company's	risk	limits;	independently	reviews	material	market,	credit	and	operational	risks;	and reviews	results	of	risk	management	processes	with	the	Board,	the	BRC,	the	BAC,	and	the	BOTC,	as	appropriate.	The	Chief	Risk	Officer	also	coordinates	with	the Compensation,	Management	Development	and	Succession	Committee	of	the	Board	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.

Internal	Audit	Department.				The	Internal	Audit	Department	provides	independent	risk	and	control	assessment	and	reports	to	the	BAC	and	administratively	to	the	Chief Legal	Officer.	The	Internal	Audit	Department	examines	the	Company's	operational	and	control	environment	and	conducts	audits	designed	to	cover	all	major	risk categories.

Independent	Risk	Management	Functions.				The	independent	risk	management	functions	(Market	Risk,	Credit	Risk	Management,	Operational	Risk	and	Corporate Treasury	departments)	are	independent	of	the	Company's	business	units.	These	groups	assist	senior	management	and	the	FRC	in	monitoring	and	controlling	the Company's	risk	through	a	number	of	control	processes.	Each	function	maintains	its	own	risk	governance	structure	with	specified	individuals	and	committees	responsible for	aspects	of	managing	risk.	Further	discussion	about	the	responsibilities	of	the	risk	management	functions	may	be	found	below	under	"Market	Risk",	"Credit	Risk", and	"Operational	Risk"	and	in	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations—Liquidity	and	Capital	Resources"	in	Part	II, Item	7	herein.

Control	Groups.				The	Company	control	groups	include	the	Human	Resources	Department,	the	Legal	and	Compliance	Division,	the	Operations	Division,	Global Technology	and	Data,	the	Tax	Department	and	Finance.	The	Company	control	groups	coordinate	with	the	business	segment	control	groups	to	review	the	risk	monitoring and	risk	management	policies	and	procedures	relating	to,	among	other	things,	controls	over	financial	reporting	and	disclosure;	the	business	segment's	market,	credit	and operational	risk	profile;	sales	practices;	reputation;	legal	enforceability;	compliance	and	regulatory	risk;	and	operational	and	technological	risks.	Participation	by	the

senior	officers	of	the	Company	and	business	segment	control	groups	helps	ensure	that	risk	policies	and	procedures,	exceptions	to	risk	limits,	new	products	and	business ventures,	and	transactions	with	risk	elements	undergo	thorough	review.

Divisional	Risk	Committees.				Each	business	segment	has	a	risk	committee	that	is	responsible	for	helping	to	ensure	that	the	business	segment,	as	applicable,	adheres	to established	limits	for	market,	credit,	operational	and	other	risks;	implements	risk	measurement,	monitoring,	and	management	policies	and	procedures	that	are	consistent with	the	risk	framework	established	by	the	FRC;	and	reviews,	on	a	periodic	basis,	its	aggregate	risk	exposures,	risk	exception	experience,	and	the	efficacy	of	its	risk identification,	measurement,	monitoring	and	management	policies	and	procedures,	and	related	controls.

# Stress	Value-at-Risk.

The	Company	frequently	enhances	its	market	and	credit	risk	management	framework	to	address	severe	stresses	that	are	observed	in	global	markets	during	economic downturns.	During	2012,	the	Company	expanded	and	improved	its	risk	measurement	processes,	including	stress	tests	and	scenario	analysis,	and	further	refined	its market	and	credit	risk	limit	framework.	Stress	Value-at-Risk	("S-VaR"),	a	proprietary	methodology	that	comprehensively	measures	the	Company's	market	and	credit risks,	was	further	refined	and	continues	to	be	an	important	metric	used	in	establishing	the	Company's	risk	appetite	and	its	capital	allocation	framework.	S-VaR	simulates many	stress	scenarios	based	on	more	than	25	years	of	historical	data	and	attempts	to	capture	the	different	liquidities	of	various	types	of	general	and	specific	risks. Additionally,	S-VaR	captures	event	and	default	risks	that	are	particularly	relevant	for	credit	portfolios.

# Risk	Management	Process.

The	following	is	a	discussion	of	the	Company's	risk	management	policies	and	procedures	for	its	principal	risks	(capital	and	liquidity	risk	is	discussed	in	"Management's Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations—Liquidity	and	Capital	Resources"	in	Part	II,	Item	7	herein).	The	discussion	focuses	on	the Company's	securities	activities	(primarily	its	institutional	trading	activities)	and	corporate	lending	and	related	activities.	The	Company	believes	that	these	activities generate	a	substantial	portion	of	its	principal	risks.	This	discussion	and	the	estimated	amounts	of	the	Company's	risk	exposure	generated	by	the	Company's	statistical analyses	are	forward-looking	statements.	However,	the	analyses	used	to	assess	such	risks	are	not	predictions	of	future	events,	and	actual	results	may	vary	significantly from	such	analyses	due	to	events	in	the	markets	in	which	the	Company	operates	and	certain	other	factors	described	below.

Market	risk	refers	to	the	risk	that	a	change	in	the	level	of	one	or	more	market	prices,	rates,	indices,	implied	volatilities	(the	price	volatility	of	the	underlying	instrument imputed	from	option	prices),	correlations	or	other	market	factors,	such	as	market	liquidity,	will	result	in	losses	for	a	position	or	portfolio.	Generally,	the	Company	incurs market	risk	as	a	result	of	trading,	investing	and	client	facilitation	activities,	principally	within	the	Institutional	Securities	business	segment	where	the	substantial	majority of	the	Company's	Value-at-Risk	("VaR")	for	market	risk	exposures	is	generated.	In	addition,	the	Company	incurs	trading-related	market	risk	within	the	Global	Wealth Management	Group	business	segment.	The	Asset	Management	business	segment	incurs	principally	Non-trading	market	risk	primarily	from	capital	investments	in	real estate	funds	and	investments	in	private	equity	vehicles.

Sound	market	risk	management	is	an	integral	part	of	the	Company's	culture.	The	various	business	units	and	trading	desks	are	responsible	for	ensuring	that	market	risk exposures	are	well-managed	and	prudent.	The	control	groups	help	ensure	that	these	risks	are	measured	and	closely	monitored	and	are	made	transparent	to	senior management.	The	Market	Risk	Department	is	responsible	for	ensuring	transparency	of	material	market	risks,	monitoring	compliance	with	established	limits,	and escalating	risk	concentrations	to	appropriate	senior	management.	To	execute	these	responsibilities,	the	Market	Risk	Department	monitors	the	Company's	risk

against	limits	on	aggregate	risk	exposures,	performs	a	variety	of	risk	analyses,	routinely	reports	risk	summaries,	and	maintains	the	Company's	VaR	and	scenario analysis	systems.	These	limits	are	designed	to	control	price	and	market	liquidity	risk.	Market	risk	is	also	monitored	through	various	measures:	using	statistics	(including VaR	and	related	analytical	measures);	by	measures	of	position	sensitivity;	and	through	routine	stress	testing,	which	measures	the	impact	on	the	value	of	existing portfolios	of	specified	changes	in	market	factors,	and	scenario	analyses	conducted	by	the	Market	Risk	Department	in	collaboration	with	the	business	units.	The	material risks	identified	by	these	processes	are	summarized	in	reports	produced	by	the	Market	Risk	Department	that	are	circulated	to	and	discussed	with	senior	management,	the FRC,	the	BRC,	and	the	Board	of	Directors.

The	Chief	Risk	Officer,	who	reports	to	the	Chief	Executive	Officer	and	the	BRC,	among	other	things,	monitors	market	risk	through	the	Market	Risk	Department,	which reports	to	the	Chief	Risk	Officer	and	is	independent	of	the	business	units,	and	has	close	interactions	with	senior	management	and	the	risk	management	control	groups	in the	business	units.	The	Chief	Risk	Officer	is	a	member	of	the	FRC,	chaired	by	the	Chief	Executive	Officer,	which	includes	the	most	senior	officers	of	the	Company,	and regularly	reports	on	market	risk	matters	to	this	committee,	as	well	as	to	the	Board	of	Directors	and	the	BRC.

# Sales	and	Trading	and	Related	Activities.

Primary	Market	Risk	Exposures	and	Market	Risk	Management.				During	2012,	the	Company	had	exposures	to	a	wide	range	of	interest	rates,	equity	prices,	foreign exchange	rates	and	commodity	prices—and	the	associated	implied	volatilities	and	spreads—related	to	the	global	markets	in	which	it	conducts	its	trading	activities.

The	Company	is	exposed	to	interest	rate	and	credit	spread	risk	as	a	result	of	its	market-making	activities	and	other	trading	in	interest	rate-sensitive	financial	instruments (e.g.,	risk	arising	from	changes	in	the	level	or	implied	volatility	of	interest	rates,	the	timing	of	mortgage	prepayments,	the	shape	of	the	yield	curve	and	credit	spreads). The	activities	from	which	those	exposures	arise	and	the	markets	in	which	the	Company	is	active	include,	but	are	not	limited	to,	the	following:	corporate	and	government debt	across	both	developed	and	emerging	markets	and	asset-backed	debt	(including	mortgage-related	securities).

The	Company	is	exposed	to	equity	price	and	implied	volatility	risk	as	a	result	of	making	markets	in	equity	securities	and	derivatives	and	maintaining	other	positions (including	positions	in	non-public	entities).	Positions	in	non-public	entities	may	include,	but	are	not	limited	to,	exposures	to	private	equity,	venture	capital,	private partnerships,	real	estate	funds	and	other	funds.	Such	positions	are	less	liquid,	have	longer	investment	horizons	and	are	more	difficult	to	hedge	than	listed	equities.

The	Company	is	exposed	to	foreign	exchange	rate	and	implied	volatility	risk	as	a	result	of	making	markets	in	foreign	currencies	and	foreign	currency	derivatives,	from maintaining	foreign	exchange	positions	and	from	holding	non-U.S.	dollar-denominated	financial	instruments.

The	Company	is	exposed	to	commodity	price	and	implied	volatility	risk	as	a	result	of	market-making	activities	and	maintaining	commodity	positions	in	physical commodities	(such	as	crude	and	refined	oil	products,	natural	gas,	electricity,	and	precious	and	base	metals)	and	related	derivatives.	Commodity	exposures	are	subject	to periods	of	high	price	volatility	as	a	result	of	changes	in	supply	and	demand.	These	changes	can	be	caused	by	weather	conditions;	physical	production,	transportation	and storage	issues;	or	geopolitical	and	other	events	that	affect	the	available	supply	and	level	of	demand	for	these	commodities.

The	Company	manages	its	trading	positions	by	employing	a	variety	of	risk	mitigation	strategies.	These	strategies	include	diversification	of	risk	exposures	and	hedging. Hedging	activities	consist	of	the	purchase	or	sale	of	positions	in	related	securities	and	financial	instruments,	including	a	variety	of	derivative	products	(e.g.,	futures, forwards,	swaps	and	options).	Hedging	activities	may	not	always	provide	effective	mitigation	against	trading	losses	due	to	differences	in	the	terms,	specific characteristics	or	other	basis	risks	that	may	exist	between	the	hedge	instrument	and	the	risk	exposure	that	is	being	hedged.	The	Company	manages	the	market	risk associated	with	its	trading	activities	on	a	Company-wide	basis,	on	a	worldwide	trading	division	level	and	on	an	individual

product	basis.	The	Company	manages	and	monitors	its	market	risk	exposures	in	such	a	way	as	to	maintain	a	portfolio	that	the	Company	believes	is	well-diversified	in the	aggregate	with	respect	to	market	risk	factors	and	that	reflects	the	Company's	aggregate	risk	tolerance	as	established	by	the	Company's	senior	management.

Aggregate	market	risk	limits	have	been	approved	for	the	Company	across	all	divisions	worldwide.	Additional	market	risk	limits	are	assigned	to	trading	desks	and,	as appropriate,	products	and	regions.	Trading	division	risk	managers,	desk	risk	managers,	traders	and	the	Market	Risk	Department	monitor	market	risk	measures	against limits	in	accordance	with	policies	set	by	senior	management.

VaR.				The	Company	uses	the	statistical	technique	known	as	VaR	as	one	of	the	tools	used	to	measure,	monitor	and	review	the	market	risk	exposures	of	its	trading portfolios.	The	Market	Risk	Department	calculates	and	distributes	daily	VaR-based	risk	measures	to	various	levels	of	management.

VaR	Methodology,	Assumptions	and	Limitations.				The	Company	has	enhanced	its	VaR	model	during	2012	to	make	it	more	responsive	to	current	market	conditions while	maintaining	a	longer	term	perspective.	This	enhancement	is	consistent	with	regulatory	requirements.	The	current	VaR	model	has	been	approved	by	the	Company's regulators	for	use	in	regulatory	capital	calculations.

The	Company	estimates	VaR	using	a	model	based	on	volatility	adjusted	historical	simulation	for	general	market	risk	factors	and	Monte	Carlo	simulation	for	name- specific	risk	in	corporate	shares,	bonds,	loans	and	related	derivatives.	The	model	constructs	a	distribution	of	hypothetical	daily	changes	in	the	value	of	trading	portfolios based	on	the	following:	historical	observation	of	daily	changes	in	key	market	indices	or	other	market	risk	factors;	and	information	on	the	sensitivity	of	the	portfolio values	to	these	market	risk	factor	changes.	The	Company's	current	VaR	model	uses	four	years	of	historical	data	with	a	volatility	adjustment	to	reflect	current	market conditions.	The	Company's	prior	VaR	model	also	uses	four	years	of	historical	data	but	does	not	make	any	volatility	adjustments	and	is	therefore	less	responsive	to current	market	conditions.	To	facilitate	the	transition	to	the	current	VaR	model,	results	using	both	the	current	and	prior	VaR	models	are	included	in	the	Trading	Risks section	below.	The	Company's	95%/one-day	VaR	corresponds	to	the	unrealized	loss	in	portfolio	value	that,	based	on	historically	observed	market	risk	factor movements,	would	have	been	exceeded	with	a	frequency	of	5%,	or	five	times	in	every	100	trading	days,	if	the	portfolio	were	held	constant	for	one	day.

The	Company's	VaR	model	generally	takes	into	account	linear	and	non-linear	exposures	to	equity	and	commodity	price	risk,	interest	rate	risk,	credit	spread	risk	and foreign	exchange	rates.	The	model	also	takes	into	account	linear	exposures	to	implied	volatility	risks	for	all	asset	classes	and	non-linear	exposures	to	implied	volatility risks	for	equity,	commodity	and	foreign	exchange	referenced	products.	The	VaR	model	also	captures	certain	implied	correlation	risks	associated	with	portfolio	credit derivatives	as	well	as	certain	basis	risks	(e.g.,	corporate	debt	and	related	credit	derivatives).

The	Company	uses	VaR	as	one	of	a	range	of	risk	management	tools.	Among	their	benefits,	VaR	models	permit	estimation	of	a	portfolio's	aggregate	market	risk exposure,	incorporating	a	range	of	varied	market	risks	and	portfolio	assets.	One	key	element	of	the	VaR	model	is	that	it	reflects	risk	reduction	due	to	portfolio diversification	or	hedging	activities.	However,	VaR	has	various	strengths	and	limitations,	which	include,	but	are	not	limited	to:	use	of	historical	changes	in	market	risk factors,	which	may	not	be	accurate	predictors	of	future	market	conditions,	and	may	not	fully	incorporate	the	risk	of	extreme	market	events	that	are	outsized	relative	to observed	historical	market	behavior	or	reflect	the	historical	distribution	of	results	beyond	the	95%	confidence	interval;	and	reporting	of	losses	in	a	single	day,	which does	not	reflect	the	risk	of	positions	that	cannot	be	liquidated	or	hedged	in	one	day.	A	small	proportion	of	market	risk	generated	by	trading	positions	is	not	included	in VaR.	The	modeling	of	the	risk	characteristics	of	some	positions	relies	on	approximations	that,	under	certain	circumstances,	could	produce	significantly	different	results from	those	produced	using	more	precise	measures.	VaR	is	most	appropriate	as	a	risk	measure	for	trading	positions	in	liquid	financial	markets	and	will	understate	the	risk associated	with	severe	events,	such	as	periods	of	extreme	illiquidity.	The	Company	is	aware	of	these	and

other	limitations	and,	therefore,	uses	VaR	as	only	one	component	in	its	risk	management	oversight	process.	As	explained	above,	this	process	also	incorporates	stress testing	and	scenario	analyses	and	extensive	risk	monitoring,	analysis,	and	control	at	the	trading	desk,	division	and	Company	levels.

The	Company's	VaR	model	evolves	over	time	in	response	to	changes	in	the	composition	of	trading	portfolios	and	to	improvements	in	modeling	techniques	and	systems capabilities.	The	Company	is	committed	to	continuous	review	and	enhancement	of	VaR	methodologies	and	assumptions	in	order	to	capture	evolving	risks	associated with	changes	in	market	structure	and	dynamics.	As	part	of	regular	process	improvement,	additional	systematic	and	name-specific	risk	factors	may	be	added	to	improve the	VaR	model's	ability	to	more	accurately	estimate	risks	to	specific	asset	classes	or	industry	sectors.

Since	the	reported	VaR	statistics	are	estimates	based	on	historical	data,	VaR	should	not	be	viewed	as	predictive	of	the	Company's	future	revenues	or	financial performance	or	of	its	ability	to	monitor	and	manage	risk.	There	can	be	no	assurance	that	the	Company's	actual	losses	on	a	particular	day	will	not	exceed	the	VaR amounts	indicated	below	or	that	such	losses	will	not	occur	more	than	five	times	in	100	trading	days	for	a	95%/one-day	VaR.	VaR	does	not	predict	the	magnitude	of losses	which,	should	they	occur,	may	be	significantly	greater	than	the	VaR	amount.

VaR	for	2012.				The	tables	below	present	VaR	for	the	Company's	Trading	portfolio	on	a	year-end,	annual	average,	and	annual	high	and	low	basis	under	both	the	current model	as	well	as	the	prior	model	(see	Tables	1a	and	1b	below,	respectively).	The	VaR	that	would	result	if	the	Company	were	to	adopt	an	alternative	confidence	level	for the	VaR	statistic	(99%	rather	than	95%)	using	the	current	model	is	also	disclosed	(see	Table	2	below).

The	Credit	Portfolio	VaR	is	disclosed	as	a	separate	category	from	the	Primary	Risk	Categories.	The	Credit	Portfolio	VaR	includes	the	mark-to-market	lending	exposures and	associated	hedges,	as	well	as	counterparty	credit	valuation	adjustments	and	related	hedges.

# Trading	Risks.

The	tables	below	present	the	Company's	95%/one-day	Trading	VaR	using	both	the	current	model	and	the	prior	model:

| Table	1a:	95%	VaR—Current	Model |  | 95%/One-Day	VaR	for	2012 | 95%/One-Day	VaR	for	2012 |  |  | 95%/One-Day	VaR	for	2011 | 95%/One-Day	VaR	for	2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Market\tRisk\tCategory | Period\nEnd | Average | High | Low | Period\nEnd | Average | High | Low |
|  |  |  |  | (dollars\tin\tmillions) |  |  |  |  |
| Interest\trate\tand\tcredit\tspread | $56 | $56 | $87 | $33 | $62 | $63 | $99 | $\t\t41 |
| Equity\tprice | 21 | 26 | 39 | 18 | 23 | 27 | 47 | 20 |
| Foreign\texchange\trate | 10 | 13 | 23 | 7 | 18 | 16 | 27 | 8 |
| Commodity\tprice | 20 | 24 | 32 | 18 | 26 | 27 | 35 | 21 |
| Less:\tDiversification\tbenefit(1)(2) | (40) | (55) | \t N/A | \t N/A | (64) | (55) | \t N/A | \t N/A |
| Primary\tRisk\tCategories | $67 | $64 | $98 | $52 | $65 | $78 | $119 | $55 |
| Credit\tPortfolio | 19 | 26 | 50 | 18 | 50 | 61 | 97 | 37 |
| Less:\tDiversification\tbenefit(1)(2) | (11) | (17) | \t N/A | \t N/A | (34) | (41) | \t N/A | \t N/A |
| Total\tTrading\tVaR | $75 | $73 | $107 | $57 | $81 | $98 | $123 | $72 |

(1) Diversification	benefit	equals	the	difference	between	the	total	VaR	and	the	sum	of	the	component	VaRs.	This	benefit	arises	because	the	simulated	one-day	losses	for	each	of	the	components	occur	on	different days;	similar	diversification	benefits	also	are	taken	into	account	within	each	component.

(2) N/A–Not	Applicable.	The	minimum	and	maximum	VaR	values	for	the	total	VaR	and	each	of	the	component	VaRs	might	have	occurred	on	different	days	during	the	year,	and	therefore	the	diversification	benefit	is not	an	applicable	measure.

The	Company's	average	VaR	for	the	Primary	Risk	Categories	for	2012	was	$64	million	compared	with	$78	million	for	2011.	This	decrease	was	primarily	driven	by reduced	risk	in	interest	rate	and	credit	spread	sensitive	products.

The	average	Credit	Portfolio	VaR	for	2012	was	$26	million	compared	with	$61	million	for	2011.	This	change	was	primarily	driven	by	a	significant	reduction	in counterparty	exposure	to	MBIA,	which	the	Company	settled	in	December	2011	(see	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of Operations—Executive	Summary—Significant	Items—Monoline	Insurers"	in	Part	II,	Item	7	herein	for	further	information).	Additionally,	the	transition	of	loans	held	at fair	value	to	loans	held	for	investment	(net	of	allowance)	also	contributed	to	the	reduction.

The	average	Total	Trading	VaR	for	2012	was	$73	million	compared	with	$98	million	for	2011.	This	decrease	was	driven	by	the	aforementioned	movements.

To	aid	in	the	transition	to	the	current	VaR	model	in	2012,	results	using	the	prior	model	are	being	provided	for	comparative	purposes.	This	dual	presentation	will	be discontinued	in	2013:

| Table	1b:	95%	VaR—Prior	Model |  | 95%/One-Day	VaR	for	2012 | 95%/One-Day	VaR	for	2012 |  |  | 95%/One-Day	VaR	for	2011 | 95%/One-Day	VaR	for	2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Period |  |  |  | Period |  |  |  |
| Market\tRisk\tCategory | End | Average | High | Low | End | Average | High | Low |
|  |  |  |  | (dollars\tin\tmillions) |  |  |  |  |
| Interest\trate\tand\tcredit\tspread | $84 | $73 | $98 | $46 | $66 | $87 | $137 | $\t\t49 |
| Equity\tprice | 25 | 32 | 46 | 23 | 25 | 31 | 48 | 21 |
| Foreign\texchange\trate | 14 | 16 | 25 | 9 | 18 | 17 | 27 | 8 |
| Commodity\tprice | 23 | 29 | 40 | 22 | 28 | 30 | 44 | 23 |
| Less:\tDiversification\tbenefit(1)(2) | (57) | (70) | \t N/A | \t N/A | (67) | (63) | \t N/A | \t N/A |
| Primary\tRisk\tCategories | $89 | $80 | $108 | $65 | $70 | $102 | $170 | $60 |
| Credit\tPortfolio | 23 | 31 | 52 | 21 | 52 | 97 | 124 | 49 |
| Less:\tDiversification\tbenefit(1)(2) | (17) | (22) | \t N/A | \t N/A | (35) | (70) | \t N/A | \t N/A |
| Total\tTrading\tVaR | $95 | $89 | $118 | $74 | $87 | $129 | $168 | $83 |

The	current	VaR	model	estimates	are	lower	than	the	VaR	estimates	produced	under	the	prior	model	because	the	prior	model	places	more	emphasis	on	the	large	market moves	experienced	during	the	2008	financial	crisis,	whereas	the	current	model	emphasized	more	recent	volatility,	which	has	been	generally	lower.

# VaR	Statistics	under	Varying	Assumptions.

VaR	statistics	are	not	readily	comparable	across	firms	because	of	differences	in	the	breadth	of	products	included	in	each	firm's	VaR	model,	in	the	statistical	assumptions made	when	simulating	changes	in	market	risk	factors,	and	in	the	methods	used	to	approximate	portfolio	revaluations	under	the	simulated	market	conditions.	These differences	can	result	in	materially	different	VaR	estimates	for	similar	portfolios.	The	impact	varies	depending	on	the	factor	history	assumptions,	the	frequency	with which	the	factor	history	is	updated,	and	the	confidence	level.	As	a	result,	VaR	statistics	are	more	reliable	and	relevant	when	used	as	indicators	of	trends	in	risk	taking rather	than	as	a	basis	for	inferring	differences	in	risk	taking	across	firms.

Table	2	presents	VaR	statistics	for	the	Company	under	an	alternative	confidence	level	(95%	versus	99%).	The	Company	previously	disclosed	VaR	using	a	One-Year Risk	Factor	History	as	well	as	a	Four-Year	Risk	Factor	History	to	aid	comparison	with	other	firms,	many	of	which	use	relatively	short	risk	factor	histories	in	their	VaR models.	The	current	model,	while	maintaining	a	longer	term	perspective,	responds	to	changes	in	risk	at	a	rate	comparable	to	a	One-Year	VaR	or	an	exponentially weighted	VaR,	and	thus	the	comparison	is	no	longer	necessary.

| Table	2:	95%	and	99%	Average	Trading	VaR—Current	Model | 95%	Average	One-<br>Day<br>VaR	for	2012 |  | 99%	Average	One-<br>Day<br>VaR	for	2012 |
| :--- | :--- | :--- | :--- |
| Market\tRisk\tCategory |  | (dollars\tin\tmillions) |  |
| Interest\trate\tand\tcredit\tspread | $56 |  | $90 |
| Equity\tprice | 26 |  | 38 |
| Foreign\texchange\trate | 13 |  | 20 |
| Commodity\tprice | 24 |  | 38 |
| Less:\tDiversification\tbenefit(1) | (55) |  | (89) |
| Primary\tRisk\tCategories | $64 |  | $97 |
| Credit\tPortfolio | 26 |  | 43 |
| Less:\tDiversification\tbenefit(1) | (17) |  | (28) |
| Total\tTrading\tVaR | $73 |  | $112 |

# Distribution	of	VaR	Statistics	and	Net	Revenues	for	2012.

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

The	distribution	of	VaR	Statistics	and	Net	Revenues	will	be	presented	in	the	tables	below	for	both	the	Primary	Risk	Categories	and	the	Total	Trading	populations.

# Primary	Risk	Categories.

As	shown	in	Table	1a	above,	the	Company's	average	95%/one-day	Primary	Risk	Categories	VaR	for	2012	was	$64	million.	The	histogram	below	presents	the distribution	of	the	Company's	daily	95%/one-day	Primary	Risk	Categories	VaR	for	2012,	which	was	in	a	range	between	$55	million	and	$70	million	for	approximately 72%	of	the	trading	days	during	the	year.

The	histogram	below	shows	the	distribution	of	daily	net	trading	revenues	for	the	Company's	businesses	that	comprise	the	Primary	Risk	Categories	for	2012.	This excludes	non-trading	revenues	of	these	businesses	and	revenues	associated	with	the	Company's	own	credit	risk.	During	2012,	the	Company's	businesses	that	comprise the	Primary	Risk	Categories	experienced	net	trading	losses	on	39	days,	of	which	no	day	was	in	excess	of	the	95%/one-day	Primary	Risk	Categories	VaR.

# Total	Trading—including	the	Primary	Risk	Categories	and	the	Credit	Portfolio.

As	shown	in	Table	1a	above,	the	Company's	average	95%/one-day	Total	Trading	VaR,	which	includes	the	Primary	Risk	Categories	and	the	Credit	Portfolio,	for	2012 was	$73	million.	The	histogram	below	presents	the	distribution	of	the	Company's	daily	95%/one-day	Total	Trading	VaR	for	2012,	which	was	in	a	range	between	$60 million	and	$80	million	for	approximately	75%	of	trading	days	during	the	year.

The	histogram	below	shows	the	distribution	of	daily	net	trading	revenues	for	the	Company's	Trading	businesses	for	2012.	This	excludes	non-trading	revenues	of	these businesses	and	revenues	associated	with	the	Company's	own	credit	risk.	During	2012,	the	Company	experienced	net	trading	losses	on	37	days,	of	which	no	day	was	in excess	of	the	95%/one-day	Trading	VaR.

# Non-Trading	Risks.

The	Company	believes	that	sensitivity	analysis	is	an	appropriate	representation	of	the	Company's	non-trading	risks.	Reflected	below	is	this	analysis,	which	covers substantially	all	of	the	non-trading	risk	in	the	Company's	portfolio.

# Counterparty	Exposure	Related	to	the	Company's	Own	Spread.

The	credit	spread	risk	relating	to	the	Company's	own	mark-to-market	derivative	counterparty	exposure	is	managed	separately	from	VaR.	The	credit	spread	risk sensitivity	of	this	exposure	corresponds	to	an	increase	in	value	of	approximately	$6	million	for	each	1	basis	point	widening	in	the	Company's	credit	spread	level	for	both December	31,	2012	and	December	31,	2011.

# Funding	Liabilities.

The	credit	spread	risk	sensitivity	of	the	Company's	mark-to-market	funding	liabilities	corresponded	to	an	increase	in	value	of	approximately	$13	million	and	$12	million for	each	1	basis	point	widening	in	the	Company's	credit	spread	level	for	December	31,	2012	and	December	31,	2011,	respectively.

# Interest	Rate	Risk	Sensitivity	on	Income	from	Continuing	Operations.

The	Company	measures	the	interest	rate	risk	of	certain	assets	and	liabilities	by	calculating	the	hypothetical	sensitivity	of	net	interest	income	to	potential	changes	in	the level	of	interest	rates	over	the	next	twelve	months.	This	sensitivity	analysis	includes	positions	that	are	mark-to-market,	as	well	as	positions	that	are	accounted	for	on	an accrual	basis.	For	interest	rate	derivatives	that	are	perfect	economic	hedges	to	non-mark-to-market	assets	or	liabilities,	the	disclosed	sensitivities	include	only	the	impact of	the	coupon	accrual	mismatch.	This	treatment	mitigates	the	effects	caused	by	the	measurement	basis	differences	between	the	economic	hedge	and	the	corresponding hedged	instrument.

Given	the	currently	low	interest	rate	environment,	the	Company	uses	the	following	two	interest	rate	scenarios	to	quantify	the	Company's	sensitivity:	instantaneous parallel	shocks	of	100	and	200	basis	point	increases	to	all	points	on	all	yield	curves	simultaneously.

The	hypothetical	model	does	not	assume	any	growth,	change	in	business	focus,	asset	pricing	philosophy	or	asset/liability	funding	mix	and	does	not	capture	how	the Company	would	respond	to	significant	changes	in	market	conditions.	Furthermore,	the	model	does	not	reflect	the	Company's	expectations	regarding	the	movement	of interest	rates	in	the	near	term,	nor	the	actual	effect	on	income	from	continuing	operations	before	income	taxes	if	such	changes	were	to	occur.

(1) Amounts	for	December	31,	2012	exclude	Citi's	portion	of	income	from	continuing	operations	before	taxes	associated	with	its	redeemable	noncontrolling	interest	in	the	Wealth	Management	Joint	Venture.

(2) Amounts	for	December	31,	2011	exclude	Citi's	portion	of	income	from	continuing	operations	before	taxes	associated	with	its	nonredeemable	noncontrolling	interest	in	the	Wealth	Management	Joint	Venture.

# Principal	Investments.

The	Company	makes	investments	in	both	public	and	private	companies.	These	investments	are	predominantly	equity	positions	with	long	investment	horizons,	the majority	of	which	are	for	business	facilitation	purposes.	The	market	risk	related	to	these	investments	is	measured	by	estimating	the	potential	reduction	in	net	revenues associated	with	a	10%	decline	in	investment	values.

| Investments | December	31,	2012 |  | December	31,	2011 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Investments\trelated\tto\tAsset\tManagement\tactivities: |  |  |  |
| Hedge\tfund\tinvestments | $120 |  | $141 |
| Private\tequity\tand\tinfrastructure\tfunds | 125 |  | 108 |
| Real\testate\tfunds | 138 |  | 133 |
| Other\tinvestments: |  |  |  |
| Mitsubishi\tUFJ\tMorgan\tStanley\tSecurities\tCo.,\tLtd. | 143 |  | 144 |
| Other\tCompany\tinvestments | 292 |  | 297 |

Credit	risk	refers	to	the	risk	of	loss	arising	when	a	borrower,	counterparty	or	issuer	does	not	meet	its	financial	obligations.	The	Company	primarily	incurs	credit	risk exposure	to	institutions	and	individuals	mainly	through	the	Institutional	Securities	and	Global	Wealth	Management	Group	business	segments.

The	Company	may	incur	credit	risk	in	the	Institutional	Securities	business	segment	through	a	variety	of	activities,	including,	but	not	limited	to,	the	following:

•entering	into	swap	or	other	derivative	contracts	under	which	counterparties	have	obligations	to	make	payments	to	the	Company;

•extending	credit	to	clients	through	various	lending	commitments;

•	 providing	short-	or	long-term	funding	that	is	secured	by	physical	or	financial	collateral	whose	value	may	at	times	be	insufficient	to	fully	cover	the	loan repayment	amount;

•	 posting	margin	and/or	collateral	to	clearinghouses,	clearing	agencies,	exchanges,	banks,	securities	firms	and	other	financial	counterparties;

•investing	or	trading	in	securities	and	loan	pools,	whereby	the	value	of	these	assets	may	fluctuate	based	on	realized	or	expected	defaults	on	the	underlying obligations	or	loans.

The	Company	incurs	credit	risk	in	the	Global	Wealth	Management	Group	business	segment	primarily	through	lending	to	individual	investors,	including	the	following:

•	 margin	loans	collateralized	by	securities;

•	 non-purpose	loans	predominantly	collateralized	by	securities;

•single-family	residential	prime	mortgage	loans	in	conforming,	non-conforming	or	home	equity	lines	of	credit	("HELOC")	form.

The	Company	also	incurs	nominal	credit	risk	in	the	Asset	Management	business	segment,	whereby	the	Company	enters	into	OTC	derivative	hedges	to	manage	currency, interest	rate	and	other	market	risks	associated	with	capital	investments	made	to	facilitate	new	fund	launches.

# Monitoring	and	Control.

In	order	to	protect	the	Company	from	losses,	the	Credit	Risk	Management	Department	establishes	company-wide	practices	to	evaluate,	monitor	and	control	credit	risk exposure	at	the	transaction,	obligor	and	portfolio	levels.	The	Credit	Risk	Management	Department	approves	extensions	of	credit,	evaluates	the	creditworthiness	of	the Company's	counterparties	and	borrowers	on	a	regular	basis,	and	ensures	that	credit	exposure	is	actively	monitored	and	managed.	The	evaluation	of	counterparties	and borrowers	includes	an	assessment	of	the	probability	that	an	obligor	will	default	on	its	financial	obligations	and	any	losses	that	may	occur	when	an	obligor	defaults.	In addition,	credit	risk	exposure	is	actively	managed	by	credit	professionals	and	committees	within	the	Credit	Risk	Management	Department	and	through	various	risk committees,	whose	membership	includes	individuals	from	the	Credit	Risk	Management	Department.	A	comprehensive	and	global	Credit	Limits	Framework	is	also utilized	to	evaluate	and	manage	credit	risk	levels	across	the	Company.	The	Credit	Limits	Framework	is	calibrated	within	the	Company's	risk	tolerance	and	includes single-name	limits	and	portfolio	concentration	limits	by	country,	industry	and	product	type.	The	Credit	Risk	Management	Department	ensures	transparency	of	material credit	risks,	compliance	with	established	limits	and	escalation	of	risk	concentrations	to	appropriate	senior	management.	The	Credit	Risk	Management	Department	also works	closely	with	the	Market	Risk	Department	and	applicable	business	units	to	monitor	risk	exposures	and	to	perform	stress	tests	to	identify,	analyze	and	control	credit risk	concentrations	arising	in	the	Company's	lending	and	trading	activities.	The	stress	tests	shock	market	factors	(e.g.,	interest	rates,	commodity	prices,	equity	prices) and	risk	parameters	such	as	default	probabilities	and	expected	losses	in	order	to	identify	potential	credit	exposure	concentrations	to	individual

counterparties,	countries	and	industries.	Stress	and	scenario	tests	are	conducted	in	accordance	with	established	Company	policies	and	procedures	and	comply	with methodologies	outlined	in	the	Basel	regulatory	framework.

Credit	Evaluation.				The	evaluation	of	corporate	and	commercial	counterparties	as	well	as	certain	high	net	worth	borrowers	includes	assigning	obligor	credit	ratings, which	reflect	an	assessment	of	an	obligor's	probability	of	default.	Credit	evaluations	typically	involve	the	assessment	of	financial	statements,	leverage,	liquidity,	capital strength,	asset	composition	and	quality,	market	capitalization	and	access	to	capital	markets,	cash	flow	projections	and	debt	service	requirements,	and	the	adequacy	of collateral,	if	applicable.	The	Credit	Risk	Management	Department	also	evaluates	strategy,	market	position,	industry	dynamics,	obligor's	management	and	other	factors that	could	affect	the	obligor's	risk	profile.	Additionally,	the	Credit	Risk	Management	Department	evaluates	the	relative	position	of	the	Company's	particular	obligation in	the	borrower's	capital	structure	and	relative	recovery	prospects,	as	well	as	collateral	(if	applicable)	and	other	structural	elements	of	the	particular	transaction.

The	evaluation	of	consumer	borrowers	is	tailored	to	the	specific	type	of	lending.	Margin	and	non-purpose	securities-based	loans	are	evaluated	based	on	factors	that include,	but	are	not	limited	to,	the	amount	of	the	loan,	the	degree	of	leverage	and	the	quality,	diversification,	price	volatility	and	liquidity	of	the	collateral.	The underwriting	of	residential	real	estate	loans	includes,	but	is	not	limited	to	review	of	the	obligor's	income,	net	worth,	liquidity,	collateral,	loan-to-value	ratio	and	credit bureau	information.	Subsequent	credit	monitoring	for	residential	real	estate	loans	is	performed	at	the	portfolio	level	and	for	consumer	loans,	collateral	values	are monitored	on	an	ongoing	basis.

Credit	risk	metrics	assigned	to	corporate,	commercial	and	consumer	borrowers	during	the	evaluation	process	are	incorporated	into	the	Credit	Risk	Management Department's	maintenance	of	the	allowance	for	loan	losses	for	the	loans	held	for	investment	portfolio.	Such	allowance	serves	as	a	safeguard	against	probable	inherent losses	as	well	as	probable	losses	related	to	loans	identified	for	impairment.	For	more	information	on	the	Company's	allowance	for	loan	losses,	see	Notes	2	and	8	to	the consolidated	financial	statements.

Risk	Mitigation.				The	Company	may	seek	to	mitigate	credit	risk	from	its	lending	and	trading	activities	in	multiple	ways,	including	collateral	provisions,	guarantees	and hedges.	At	the	transaction	level,	the	Company	seeks	to	mitigate	risk	through	management	of	key	risk	elements	such	as	size,	tenor,	financial	covenants,	seniority	and collateral.	The	Company	actively	hedges	its	lending	and	derivatives	exposure	through	various	financial	instruments	that	may	include	single-name,	portfolio	and structured	credit	derivatives.	Additionally,	the	Company	may	sell,	assign	or	sub-participate	funded	loans	and	lending	commitments	to	other	financial	institutions	in	the primary	and	secondary	loan	market.	In	connection	with	its	derivatives	trading	activities,	the	Company	generally	enters	into	master	netting	agreements	and	collateral arrangements	with	counterparties.	These	agreements	provide	the	Company	with	the	ability	to	demand	collateral,	as	well	as	to	liquidate	collateral	and	offset	receivables and	payables	covered	under	the	same	master	agreement	in	the	event	of	counterparty	default.

# Lending	Activities.

The	Company	provides	loans	to	a	variety	of	customers,	from	large	corporate	and	institutional	clients	to	high	net	worth	individuals.	The	table	below	summarizes	the Company's	loans	classified	as	Loans	and	Financial

instruments	owned	in	the	consolidated	statements	of	financial	condition	at	December	31,	2012.	See	Notes	4	and	8	to	the	consolidated	financial	statements	for	further information.

|  | Institutional<br>Securities<br>Corporate<br>Lending(1) | Institutional<br>Securities<br>Other(2) | Global<br>Wealth<br>Management<br>Group(3) | Total |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |  |
| Commercial\tand\tindustrial | $5,688 | $755 | $2,909 | $9,352 |
| Consumer\tloans | — | — | 7,615 | 7,615 |
| Residential\treal\testate\tloans | — | — | 6,625 | 6,625 |
| Wholesale\treal\testate\tloans | — | 318 | 7 | 325 |
| Loans\theld\tfor\tinvestment,\tnet\tof\tallowance | 5,688 | 1,073 | 17,156 | \t 23,917 |
| Loans\theld\tfor\tsale | 4,964 | 23 | 142 | 5,129 |
| Loans\theld\tat\tfair\tvalue | 7,682 | 9,629 | — | \t 17,311 |
| Total\tloans | $18,334 | $10,725 | $17,298 | $46,357 |

(1) In	addition	to	loans,	at	December	31,	2012,	$43.7	billion	of	unfunded	lending	commitments	were	accounted	for	as	held	for	investment,	$3.7	billion	of	unfunded	lending	commitments	were	accounted	for	as	held	for sale	and	$23.9	billion	of	unfunded	lending	commitments	were	accounted	for	at	fair	value.

(2) In	addition	to	loans,	at	December	31,	2012,	$0.2	billion	of	unfunded	lending	commitments	were	accounted	for	as	held	for	investment	and	$0.8	billion	of	unfunded	lending	commitments	were	accounted	for	at	fair value.

(3) In	addition	to	loans,	at	December	31,	2012,	$2.4	billion	of	unfunded	lending	commitments	were	accounted	for	as	held	for	investment	and	$0.3	billion	of	unfunded	lending	commitments	were	accounted	for	as	held for	sale.

Institutional	Securities	Corporate	Lending	Activities.				In	connection	with	certain	of	its	Institutional	Securities	business	segment	activities,	the	Company	provides loans	or	lending	commitments	to	select	corporate	clients.	These	loans	and	lending	commitments	have	varying	terms;	may	be	senior	or	subordinated;	may	be	secured	or unsecured;	are	generally	contingent	upon	representations,	warranties	and	contractual	conditions	applicable	to	the	borrower;	and	may	be	syndicated,	traded	or	hedged	by the	Company.

The	Company's	corporate	lending	credit	exposure	is	primarily	from	loan	and	lending	commitments	used	for	general	corporate	purposes,	working	capital	and	liquidity purposes	and	typically	consist	of	revolving	lines	of	credit,	letter	of	credit	facilities	and	certain	term	loans.	In	addition,	the	Company	provides	"event-driven"	loans	and lending	commitments	associated	with	a	particular	event	or	transaction,	such	as	to	support	client	merger,	acquisition	or	recapitalization	activities.	The	Company's	"event- driven"	loans	and	lending	commitments	typically	consist	of	revolving	lines	of	credit,	term	loans	and	bridge	loans.

Corporate	lending	commitments	may	not	be	indicative	of	the	Company's	actual	funding	requirements,	as	the	commitment	may	expire	unused	or	the	borrower	may	not fully	utilize	the	commitment	or	the	Company's	portion	of	the	commitment	may	be	reduced	through	the	syndication	or	sales	process.	Such	syndications	or	sales	may involve	third-party	institutional	investors	where	the	Company	may	have	a	custodial	relationship,	such	as	prime	brokerage	clients.

The	Company	may	hedge	and/or	sell	its	exposures	in	connection	with	loans	and	lending	commitments.	Additionally,	the	Company	may	mitigate	credit	risk	by	requiring borrowers	to	pledge	collateral	and	include	financial	covenants	in	lending	commitments.	In	the	consolidated	statements	of	financial	condition,	these	loans	are	carried	at either	fair	value	with	changes	in	fair	value	recorded	in	earnings	or	held	for	investment,	which	is	recorded	at	amortized	cost,	or	held	for	sale,	which	is	recorded	at	lower of	cost	or	fair	value.

During	2011,	the	Company	accounted	for	certain	new	loans	and	lending	commitments	as	held	for	investment.	Effective	April	1,	2012,	the	Company	began	accounting for	all	new	originated	Corporate	loans	and	lending	commitments	as	either	held	for	investment	or	held	for	sale.

The	tables	below	presents	the	Company's	credit	exposure	from	its	corporate	lending	positions	and	lending	commitments,	which	is	measured	in	accordance	with	the Company's	internal	risk	management	standards	at	December	31,	2012	and	December	31,	2011.	The	"total	corporate	lending	exposure"	column	includes	funded	and unfunded	loans	and	lending	commitments.	Lending	commitments	represent	legally	binding	obligations	to	provide	funding	to	clients	at	December	31,	2012	and December	31,	2011	for	all	lending	transactions.	Since	commitments	associated	with	these	business	activities	may	expire	unused	or	may	not	be	utilized	to	full	capacity, they	do	not	necessarily	reflect	the	actual	future	cash	funding	requirements.

# Corporate	Lending	Commitments	and	Funded	Loans	at	December	31,	2012

| Credit	Rating(1) | Less	than	1 | 1-3 | 3-5 | Over	5 | Exposure(2) |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (dollars\tin\tmillions) |  |  |
| AAA | $611 | $107 | $111 | $— | $829 |
| AA | 3,028 | 798 | 5,664 | 68 | 9,558 |
| A | 2,656 | 5,279 | \t 11,108 | 185 | 19,228 |
| BBB | 2,420 | \t 10,274 | \t 19,560 | 736 | 32,990 |
| Investment\tgrade | 8,715 | \t 16,458 | \t 36,443 | 989 | 62,605 |
| Non-investment\tgrade | 1,663 | 5,303 | \t 15,305 | \t 3,000 | 25,271 |
| Total | $10,378 | $21,761 | $51,748 | $3,989 | $87,876 |

(1) Obligor	credit	ratings	are	determined	by	the	Credit	Risk	Management	Department.

(2) Total	corporate	lending	exposure	represents	the	Company's	potential	loss	assuming	the	market	price	of	funded	loans	and	lending	commitments	was	zero.

|  |  | Years	to	Maturity |  |  | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  | Corporate |
|  |  |  |  |  | Lending |
| Credit\tRating(1) | Less\tthan\t1 | 1-3 | 3-5 | Over\t5 | Exposure\t(2) |
|  |  |  | (dollars\tin\tmillions) |  |  |
| AAA | $779 | $385 | $90 | $— | $1,254 |
| AA | 3,878 | 1,660 | 4,433 | 65 | 10,036 |
| A | 5,234 | 5,378 | 8,463 | 215 | 19,290 |
| BBB | 4,532 | 6,538 | \t 17,539 | 226 | 28,835 |
| Investment\tgrade | 14,423 | \t 13,961 | \t 30,525 | 506 | 59,415 |
| Non-investment\tgrade | 2,451 | 5,276 | \t 13,272 | \t 2,460 | 23,459 |
| Total | $16,874 | $19,237 | $43,797 | $2,966 | $82,874 |

At	December	31,	2012	and	December	31,	2011,	the	aggregate	amount	of	investment	grade	funded	loans	was	$8.4	billion	and	$7.8	billion,	respectively,	and	the	aggregate amount	of	non-investment	grade	funded	loans	was	$8.2	billion	and	$7.8	billion,	respectively.	In	connection	with	these	corporate	lending	activities	(which	include corporate	funded	and	unfunded	loans	and	lending	commitments),	the	Company	had	hedges	(which	include	"single	name,"	"sector"	and	"index"	hedges)	with	a	notional amount	of	$19.7	billion	and	$35.8	billion	related	to	the	total	corporate	lending	exposure	of	$87.9	billion	and	$82.9	billion	at	December	31,	2012	and	December	31, 2011,	respectively.

# "Event-Driven"	Loans	and	Lending	Commitments	at	December	31,	2012	and	December	31,	2011.

Included	in	the	total	corporate	lending	exposure	amounts	in	the	table	above	at	December	31,	2012	were	"event-driven"	exposures	of	$5.6	billion	composed	of	funded loans	of	$2.1	billion	and	lending	commitments	of	$3.5	billion.	Included	in	the	"event-driven"	exposure	at	December	31,	2012	were	$3.9	billion	of	loans	and	lending commitments	to	non-investment	grade	borrowers.	The	maturity	profile	of	the	"event-driven"	loans	and	lending	commitments	at	December	31,	2012	was	as	follows:	35% will	mature	in	less	than	1	year,	12%	will	mature	within	1	to	3	years,	18%	will	mature	within	3	to	5	years	and	35%	will	mature	in	over	5	years.

Included	in	the	total	corporate	lending	exposure	amounts	in	the	table	above	at	December	31,	2011	were	"event-driven"	exposure	of	$7.2	billion	composed	of	funded loans	of	$3.0	billion	and	lending	commitments	of	$4.2	billion.	Included	in	the	"event-driven"	exposure	at	December	31,	2011	were	$3.8	billion	of	loans	and	lending commitments	to	non-investment	grade	borrowers.	The	maturity	profile	of	the	"event-driven"	loans	and	lending	commitments	at	December	31,	2011	was	as	follows:	55% will	mature	in	less	than	1	year,	9%	will	mature	within	1	to	3	years,	13%	will	mature	within	3	to	5	years	and	23%	will	mature	in	over	5	years.

At	December	31,	2012	and	December	31,	2011,	$554	million	and	$301	million	of	the	Company's	"event-driven"	loans	were	on	a	non-accrual	basis,	respectively;	all other	"event-driven"	loans	were	current.	These	loans	primarily	are	those	the	Company	originated	prior	to	the	financial	crisis	in	2008	and	was	unable	to	sell	or	syndicate. For	loans	carried	at	fair	value	that	are	on	non-accrual	status,	interest	income	is	recognized	on	a	cash	basis.

Institutional	Securities	Other	Lending	Activities.				In	addition	to	the	primary	corporate	lending	activity	described	above,	the	Institutional	Securities	business	segment engages	in	other	lending	activity.	These	loans	include	corporate	loans	purchased	in	the	secondary	market,	commercial	and	residential	mortgage	loans,	asset-backed loans	and	financing	extended	to	equities	and	commodities	customers.	At	December	31,	2012,	approximately	98%	of	Institutional	Securities	Other	lending	activities	held for	investment	were	current;	less	than	3%	were	on	non-accrual	status	because	the	loans	were	past	due	for	a	period	of	90	days	or	more	or	payment	of	principal	or	interest was	in	doubt.

Global	Wealth	Management	Group	Lending	Activities.				The	principal	Global	Wealth	Management	Group	activities	that	result	in	credit	risk	to	the	Company	include purpose	and	non-purpose	securities-based	lending,	structured	credit	facilities	and	residential	mortgage	lending.	Margin	or	purpose	lending	allows	clients	to	borrow money	against	the	value	of	qualifying	securities	for	the	purpose	of	purchasing,	trading,	or	carrying	margin	stock	or	refinancing	margin	debt.	Non-purpose	securities- based	lending	allows	clients	to	borrow	money	against	the	value	of	qualifying	securities	for	any	suitable	purpose	other	than	purchasing,	trading,	or	carrying	margin	stock or	refinancing	margin	debt.	The	Company	establishes	approved	lines	and	advance	rates	against	qualifying	securities	and	monitors	limits	daily	and,	pursuant	to	such guidelines,	requires	customers	to	deposit	additional	collateral	or	reduce	borrowings	when	necessary.	In	certain	instances,	the	Company	enters	into	reverse	repurchase agreements	and	securities	borrowed	transactions	to	acquire	securities	to	cover	short	positions,	to	settle	other	securities	obligations	and	to	accommodate	customers'	needs.

The	Global	Wealth	Management	Group	also	provides	structured	secured	and	unsecured	credit	facilities	to	high	net	worth	individuals	and	their	small	and	medium-sized domestic	businesses,	with	a	suite	of	products	that	includes	working	capital	lines	of	credit,	revolving	lines	of	credit,	standby	letters	of	credit	and	term	loans.	Decisions	to extend	credit	are	based	on	an	analysis	of	the	borrower,	the	guarantor,	the	collateral,	cash	flow,	liquidity,	leverage	and	credit	history.

With	respect	to	first	and	second	lien	mortgages,	including	HELOC	loans,	a	loan	evaluation	process	is	adopted	within	a	framework	of	credit	underwriting	policies	and collateral	valuation.	The	Company's	underwriting	policy	is	designed	to	ensure	that	all	borrowers	pass	an	assessment	of	capacity	and	willingness	to	pay,	which	includes an	analysis	of	applicable	industry	standard	credit	scoring	models	(e.g.,	Fair	Isaac	Corporation	("FICO")	scores),	debt	ratios	and	reserves	of	the	borrower.	Loan-to- collateral	value	ratios	are	determined	based	on	independent

third-party	property	appraisal/valuations,	and	security	lien	position	is	established	through	title/ownership	reports.	Eligible	conforming	loans	are	currently	held	for	sale, while	most	non-conforming	and	HELOC	loans	are	held	for	investment	in	the	Company's	portfolio.

In	addition,	the	Global	Wealth	Management	Group	business	segment	has	employee	loans	that	are	granted	primarily	in	conjunction	with	a	program	established	by	the Company	to	retain	and	recruit	certain	employees.	These	loans,	recorded	in	Receivables—Fees,	interest	and	other	in	the	consolidated	statements	of	financial	condition, are	full	recourse,	require	periodic	payments	and	have	repayment	terms	ranging	from	four	to	12	years.	The	Company	establishes	a	reserve	for	loan	amounts	it	does	not consider	recoverable	from	terminated	employees,	which	is	recorded	in	Compensation	and	benefits	expense.

At	December	31,	2012,	approximately	99%	of	the	Global	Wealth	Management	Group	business	segment's	loans	held	for	investment	portfolio	were	current.

# Credit	Exposure—Derivatives.

The	Company	incurs	credit	risk	as	a	dealer	in	OTC	derivatives.	Credit	risk	with	respect	to	derivative	instruments	arises	from	the	failure	of	a	counterparty	to	perform according	to	the	terms	of	the	contract.	In	connection	with	its	OTC	derivative	activities,	the	Company	generally	enters	into	master	netting	agreements	and	collateral arrangements	with	counterparties.	These	agreements	provide	the	Company	with	the	ability	to	demand	collateral	as	well	as	to	liquidate	collateral	and	offset	receivables and	payables	covered	under	the	same	master	agreement	in	the	event	of	counterparty	default.	The	Company	manages	its	trading	positions	by	employing	a	variety	of	risk mitigation	strategies.	These	strategies	include	diversification	of	risk	exposures	and	hedging.	Hedging	activities	consist	of	the	purchase	or	sale	of	positions	in	related securities	and	financial	instruments,	including	a	variety	of	derivative	products	(e.g.,	futures,	forwards,	swaps	and	options).	For	credit	exposure	information	on	the Company's	OTC	derivative	products,	see	Note	12	to	the	consolidated	financial	statements.

Credit	Derivatives.				A	credit	derivative	is	a	contract	between	a	seller	(guarantor)	and	buyer	(beneficiary)	of	protection	against	the	risk	of	a	credit	event	occurring	on	a set	of	debt	obligations	issued	by	a	specified	reference	entity.	The	beneficiary	pays	a	periodic	premium	over	the	life	of	the	contract	and	is	protected	for	the	period.	If	a credit	event	occurs,	the	guarantor	is	required	to	make	payment	to	the	beneficiary	based	on	the	terms	of	the	credit	derivative	contract.	Credit	events,	as	defined	in	the contract,	may	be	one	or	more	of	the	following	defined	events:	bankruptcy,	dissolution	or	insolvency	of	the	referenced	entity,	failure	to	pay,	obligation	acceleration, repudiation,	payment	moratorium	and	restructurings.

The	Company	trades	in	a	variety	of	credit	derivatives	and	may	either	purchase	or	write	protection	on	a	single	name	or	portfolio	of	referenced	entities.	In	transactions referencing	a	portfolio	of	referenced	names	or	securities,	protection	may	be	limited	to	a	tranche	of	exposure	or	a	single	name	within	the	portfolio.	The	Company	is	an active	market	maker	in	the	credit	derivatives	markets.	As	a	market	maker,	the	Company	works	to	earn	a	bid-offer	spread	on	client	flow	business	and	manages	any residual	credit	or	correlation	risk	on	a	portfolio	basis.	Further,	the	Company	uses	credit	derivatives	to	manage	its	exposure	to	residential	and	commercial	mortgage	loans and	corporate	lending	exposures	during	the	periods	presented.	The	effectiveness	of	the	Company's	CDS	protection	as	a	hedge	of	the	Company's	exposures	may	vary depending	upon	a	number	of	factors,	including	the	contractual	terms	of	the	CDS.

The	Company	actively	monitors	its	counterparty	credit	risk	related	to	credit	derivatives.	A	majority	of	the	Company's	counterparties	are	banks,	broker-dealers, insurance	and	other	financial	institutions.	Contracts	with	these	counterparties	do	not	include	ratings-based	termination	events	but	do	include	provisions	related	to counterparty	rating	downgrades,	which	may	result	in	additional	collateral	being	required	by	the	Company.	As	with	all	derivative	contracts,	the	Company	considers counterparty	credit	risk	in	the	valuation	of	its	positions	and	recognizes	credit	valuation	adjustments	as	appropriate	within	Principal	transactions—Trading.

The	following	table	summarizes	the	key	characteristics	of	the	Company's	credit	derivative	portfolio	by	counterparty	at	December	31,	2012	and	December	31,	2011.	The fair	values	shown	are	before	the	application	of	any	counterparty	or	cash	collateral	netting.	For	additional	credit	exposure	information	on	the	Company's	credit	derivative portfolio,	see	Note	12	to	the	consolidated	financial	statements.

|  |  | Fair	Values(1) |  | Notionals |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Receivable | Payable | Net | Beneficiary | Guarantor |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Banks\tand\tsecurities\tfirms | $60,728 | $57,399 | $3,329 | $1,620,774 | $1,573,217 |
| Insurance\tand\tother\tfinancial\tinstitutions | 7,313 | 6,908 | 405 | 278,705 | 313,897 |
| Non-financial\tentities | 226 | 187 | 39 | 7,922 | 6,078 |
| Total | $68,267 | $64,494 | $3,773 | $1,907,401 | $1,893,192 |

(1) The	Company's	CDS	are	classified	in	both	Level	2	and	Level	3	of	the	fair	value	hierarchy.	Approximately	7%	of	receivable	fair	values	and	5%	of	payable	fair	values	represent	Level	3	amounts	(see	Note	4	to	the consolidated	financial	statements).

|  |  | Fair	Values(1) |  | Notionals |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Receivable | Payable | Net | Beneficiary | Guarantor |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Banks\tand\tsecurities\tfirms | $123,821 | $117,125 | $6,696 | $2,099,438 | $2,039,555 |
| Insurance\tand\tother\tfinancial\tinstitutions | 13,467 | 13,334 | 133 | 326,633 | 386,720 |
| Monolines(2) | 298 | 5 | 293 | 18,647 | — |
| Non-financial\tentities | 1,205 | 262 | 943 | 17,543 | 6,129 |
| Total | $138,791 | $130,726 | $8,065 | $2,462,261 | $2,432,404 |

(2) Credit	derivatives	used	to	hedge	the	Company's	credit	exposure	to	Monolines	(including	derivative	counterparty	exposure)	are	included	in	the	table	based	on	the	counterparties	writing	such	hedges.	None	of	these hedges	are	written	by	other	Monolines.

In	addition	to	the	activities	noted	above,	there	are	other	credit	risks	managed	by	the	Credit	Risk	Management	Department	and	various	business	areas	within	the Institutional	Securities	business	segment.	The	Company	participates	in	securitization	activities	whereby	it	extends	short-	or	long-term	funding	to	clients	through	loans and	lending	commitments	that	are	secured	by	assets	of	the	borrower	and	generally	provide	for	over-collateralization,	including	commercial	real	estate,	loans	secured	by loan	pools,	commercial	and	industrial	company	loans,	and	secured	lines	of	revolving	credit.	Credit	risk	with	respect	to	these	loans	and	lending	commitments	arises	from the	failure	of	a	borrower	to	perform	according	to	the	terms	of	the	loan	agreement	or	a	decline	in	the	underlying	collateral	value.	See	Note	7	to	the	consolidated	financial statements	for	information	about	the	Company's	securitization	activities.	Certain	risk	management	activities	as	they	pertain	to	establishing	appropriate	collateral	amounts for	the	Company's	prime	brokerage	and	securitized	product	businesses	are	primarily	monitored	within	those	respective	areas	in	that	they	determine	the	appropriate collateral	level	for	each	strategy	or	position.	In	addition,	a	collateral	management	group	monitors	collateral	levels	against	requirements	and	oversees	the	administration of	the	collateral	function.	See	Note	6	to	the	consolidated	financial	statements	for	additional	information	about	the	Company's	collateralized	transactions.

# Country	Risk	Exposure.

Country	risk	exposure	is	the	risk	that	events	within	a	country,	such	as	currency	crisis,	regulatory	changes	and	other	political	events,	will	adversely	affect	the	ability	of the	sovereign	government	and/or	obligors	within	the

country	to	honor	their	obligations	to	the	Company.	Country	risk	exposure	is	measured	in	accordance	with	the	Company's	internal	risk	management	standards	and includes	obligations	from	sovereign	governments,	corporations,	clearinghouses	and	financial	institutions.	The	Company	actively	manages	country	risk	exposure	through a	comprehensive	risk	management	framework	that	combines	credit	and	market	fundamentals	and	allows	the	Company	to	effectively	identify,	monitor	and	limit	country risk.	Country	risk	exposure	before	and	after	hedges	is	monitored	and	managed.

The	Company's	obligor	credit	evaluation	process	may	also	identify	indirect	exposures	whereby	an	obligor	has	vulnerability	or	exposure	to	another	country	or jurisdiction.	Examples	of	indirect	exposures	include	mutual	funds	that	invest	in	a	single	country,	offshore	companies	whose	assets	reside	in	another	country	to	that	of	the offshore	jurisdiction	and	finance	company	subsidiaries	of	corporations.	Indirect	exposures	identified	through	the	credit	evaluation	process	may	result	in	a	reclassification of	country	risk.

The	Company	conducts	periodic	stress	testing	that	seeks	to	measure	the	impact	on	the	Company's	credit	and	market	exposures	of	shocks	stemming	from	negative economic	or	political	scenarios.	When	deemed	appropriate	by	the	Company's	risk	managers,	the	stress	test	scenarios	include	country	exit	from	the	Eurozone	and possible	contagion	effects.	Second	order	risks	such	as	the	impact	for	core	European	banks	of	their	peripheral	exposures	may	also	be	considered.	The	Company	also conducts	legal	and	documentation	analysis	of	its	exposures	to	obligors	in	peripheral	jurisdictions,	which	are	defined	as	exposures	in	Greece,	Ireland,	Italy,	Portugal	and Spain	(the	"European	Peripherals"),	to	identify	the	risk	that	such	exposures	could	be	redenominated	into	new	currencies	or	subject	to	capital	controls	in	the	case	of country	exit	from	the	Eurozone.	This	analysis,	and	results	of	the	stress	tests,	may	result	in	the	amendment	of	limits	or	exposure	mitigation.

In	addition	to	the	Company's	country	risk	exposure,	the	Company	discloses	its	cross-border	risk	exposure	in	"Financial	Statements	and	Supplementary	Data—Financial Data	Supplement	(Unaudited)"	in	Part	II,	Item	8	herein.	It	is	based	on	the	Federal	Financial	Institutions	Examination	Council's	("FFIEC")	regulatory	guidelines	for reporting	cross-border	information	and	represents	the	amounts	that	the	Company	may	not	be	able	to	obtain	from	a	foreign	country	due	to	country-specific	events, including	unfavorable	economic	and	political	conditions,	economic	and	social	instability,	and	changes	in	government	policies.

There	can	be	substantial	differences	between	the	Company's	country	risk	exposure	and	cross-border	risk	exposure.	For	instance,	unlike	the	cross-border	risk	exposure, the	Company's	country	risk	exposure	includes	the	effect	of	certain	risk	mitigants	such	as	obtaining	collateral	from	counterparties.	In	addition,	the	basis	for	determining the	domicile	of	the	country	risk	exposure	is	different	from	the	basis	for	determining	the	cross-border	risk	exposure.	Cross-border	risk	exposure	is	reported	based	on	the country	of	jurisdiction	for	the	obligor	or	guarantor.	Besides	country	of	jurisdiction,	the	Company	considers	factors	such	as	physical	location	of	operations	or	assets, location	and	source	of	cash	flows/revenues	and	location	of	collateral	(if	applicable)	in	order	to	determine	the	basis	for	country	risk	exposure.	Furthermore,	cross-border risk	exposure	incorporates	CDS	only	where	protection	is	purchased	while	country	risk	exposure	incorporates	CDS	where	protection	is	both	purchased	and	sold.

The	Company's	sovereign	exposures	consist	of	financial	instruments	entered	into	with	sovereign	and	local	governments.	Its	non-sovereign	exposures	comprise exposures	to	corporations	and	financial	institutions.	The	following	table	shows	the	Company's	significant	non-U.S.	country	risk	exposure	except	for	select	European countries	(see	the	table	in	"Country	Risk	Exposure—Select	European	Countries"	herein)	at	December	31,	2012.	Index	credit	derivatives	are	included	in	the	Company's country	risk	exposure	tables.	Each	reference	entity	within	an	index	is	allocated	to	that	reference	entity's	country	of	risk.	Index	exposures	are	allocated	to	the	underlying reference	entities	in	proportion	to	the	notional	weighting	of	each	reference	entity	in	the	index,	adjusted	for	any	fair	value	receivable/payable	for	that	reference	entity. Where	credit	risk	crosses	multiple	jurisdictions,	for	example,	a	CDS	purchased	from	an	issuer	in	a	specific	country	which	references	bonds	issued	by	an	entity	in	a different	country,	the	fair	value	of	the	CDS	is	reflected	in	the	Net	Counterparty	Exposure	column	based	on	the

country	of	the	CDS	issuer.	Further,	the	notional	amount	of	the	CDS	adjusted	for	the	fair	value	of	the	receivable/payable	is	reflected	in	the	Net	Inventory	column	based on	the	country	of	the	underlying	reference	entity.

| Country | Net<br>Inventory(1) | Net<br>Counterparty<br>Exposure(2)(3) | Funded<br>Lending | Unfunded<br>Commitments | Exposure<br>Before<br>Hedges | Hedges(4) | Net<br>Exposure(5) |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (dollars\tin\tmillions) |  |  |  |
| United\tKingdom: |  |  |  |  |  |  |  |
| Sovereigns | $1,831 | $17 | $— | $— | $1,848\t\t$ | (272) | \t$1,576 |
| Non-sovereigns | 989 | 11,791 | \t 2,584 | 5,287 | \t 20,651 | (3,329) | 17,322 |
| Subtotal | $2,820 | $11,808 | $2,584 | $5,287 | $22,499\t\t$(3,601) | $22,499\t\t$(3,601) | \t$18,898 |
| Germany: |  |  |  |  |  |  |  |
| Sovereigns | $11,249 | $827 | $— | $— | $12,076\t\t$(1,246) | $12,076\t\t$(1,246) | \t$10,830 |
| Non-sovereigns | (366) | 3,070 | 597 | 3,856 | 7,157 | (2,531) | 4,626 |
| Subtotal | $10,883 | $3,897 | $597 | $3,856 | $19,233\t\t$(3,777) | $19,233\t\t$(3,777) | \t$15,456 |
| Brazil: |  |  |  |  |  |  |  |
| Sovereigns | $4,294 | $3 | $— | $— | $4,297\t\t$ | — | \t$4,297 |
| Non-sovereigns | 192 | 242 | 759 | 213 | 1,406 | (79) | 1,327 |
| Subtotal | $4,486 | $245 | $759 | $213 | $5,703\t\t$ | (79) | \t$5,624 |
| Japan: |  |  |  |  |  |  |  |
| Sovereigns | $2,356 | $302 | $— | $— | $2,658\t\t$ | (113) | \t$2,545 |
| Non-sovereigns | (291) | 2,306 | 44 | — | 2,059 | (130) | 1,929 |
| Subtotal | $2,065 | $2,608 | $44 | $— | $4,717\t\t$ | (243) | \t$4,474 |
| Canada: |  |  |  |  |  |  |  |
| Sovereigns | $556 | $9 | $— | $— | $565\t\t$ | — | \t$565 |
| Non-sovereigns | 756 | 991 | 161 | 1,550 | 3,458 | (375) | 3,083 |
| Subtotal | $1,312 | $1,000 | $161 | $1,550 | $4,023\t\t$ | (375) | \t$3,648 |

(1) Net	inventory	represents	exposure	to	both	long	and	short	single-name	and	index	positions	( i.e.,	bonds	and	equities	at	fair	value	and	CDS	based	on	notional	amount	assuming	zero	recovery	adjusted	for	any	fair value	receivable	or	payable).	As	a	market	maker,	the	Company	transacts	in	these	CDS	positions	to	facilitate	client	trading.	At	December	31,	2012,	net	exposures	related	to	purchased	and	sold	single-name	and index	credit	derivatives	for	these	countries	were	$(1,078)	million.	For	a	further	description	of	the	triggers	for	purchased	credit	protection	and	whether	those	triggers	may	limit	the	effectiveness	of	the	Company's hedges,	see	"Credit	Exposure—Derivatives"	herein.

(2) Net	counterparty	exposure	(i.e.,	repurchase	transactions,	securities	lending	and	OTC	derivatives)	takes	into	consideration	legally	enforceable	master	netting	agreements	and	collateral.

(3) At	December	31,	2012,	the	benefit	of	collateral	received	against	counterparty	credit	exposure	was	$15.3	billion	in	the	U.K.,	with	all	the	collateral	consisting	of	cash	and	U.S.	and	U.K.	government	obligations,	and $17.0	billion	in	Germany	with	98%	of	collateral	consisting	of	cash	and	government	obligations	of	France,	Belgium	and	the	Netherlands.	The	benefit	of	collateral	received	against	counterparty	credit	exposure	in the	three	other	countries	totaled	approximately	$4.4	billion,	with	collateral	primarily	consisting	of	cash	and	U.S.	and	Japanese	government	obligations.	These	amounts	do	not	include	collateral	received	on	secured financing	transactions.

(4) Represents	CDS	hedges	(purchased	and	sold)	on	net	counterparty	exposure	and	funded	lending	executed	by	trading	desks	responsible	for	hedging	counterparty	and	lending	credit	risk	exposures	for	the	Company. Based	on	the	CDS	notional	amount	assuming	zero	recovery	adjusted	for	any	fair	value	receivable	or	payable.

(5) In	addition,	at	December	31,	2012,	the	Company	had	exposure	to	these	countries	for	overnight	deposits	with	banks	of	approximately	$9.2	billion.

Country	Risk	Exposure—Select	European	Countries.				In	connection	with	certain	of	its	Institutional	Securities	business	segment	activities,	the	Company	has	country risk	exposure	to	many	foreign	countries.	During	2012,	certain	European	countries,	which	include	the	European	Peripherals	and	France,	experienced	varying	degrees	of credit	deterioration	due	to	weaknesses	in	their	economic	and	fiscal	situations.	The	following	table	shows	the	Company's	country	risk	exposure	to	the	European Peripherals	and	France	at	December	31,	2012.	Such	country	risk	exposure	is	measured	in	accordance	with	the	Company's	internal	risk	management	standards	and includes

obligations	from	sovereign	and	non-sovereigns,	which	includes	governments,	corporations,	clearinghouses	and	financial	institutions.

|  |  | Counterparty |  |  |  | Exposure |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Net | Exposure(2) | Funded | Unfunded | CDS | Before |  | Net |
| Country | Inventory(1) | (3) | Lending | Commitments | Adjustment(4) | Hedges | Hedges(5) | Exposure |
|  |  |  |  | (dollars\tin\tmillions) |  |  |  |  |
| Greece: |  |  |  |  |  |  |  |  |
| Sovereigns | $6 | $34 | $\t— | $— | $— | $40 | $— | $40 |
| Non-sovereigns | 59 | 3 | 52 | — | — | 114 | (48) | 66 |
| Subtotal | $65 | $37 | $52 | $— | $— | $154 | $(48) | $106 |
| Ireland: |  |  |  |  |  |  |  |  |
| Sovereigns | $90 | $7 | $\t— | $— | $5 | $102 | $2 | $104 |
| Non-sovereigns | 84 | 29 | 72 | 56 | 19 | 260 | (22) | 238 |
| Subtotal | $174 | $36 | $72 | $56 | $24 | $362 | $(20) | $342 |
| Italy: |  |  |  |  |  |  |  |  |
| Sovereigns | $619 | $287 | $\t— | $— | $490 | $1,396 | $(203) | $1,193 |
| Non-sovereigns | 448 | 774 | 384 | 727 | 153 | 2,486 | (496) | 1,990 |
| Subtotal | $1,067 | $1,061 | $384 | $727 | $643 | $3,882 | $(699) | $3,183 |
| Spain: |  |  |  |  |  |  |  |  |
| Sovereigns | $691 | $2 | $\t— | $— | $468 | $1,161 | $(6) | $1,155 |
| Non-sovereigns | 298 | 301 | 123 | 807 | 167 | 1,696 | (362) | 1,334 |
| Subtotal | $989 | $303 | $123 | $807 | $635 | $2,857 | $(368) | $2,489 |
| Portugal: |  |  |  |  |  |  |  |  |
| Sovereigns | $(31) | $32 | $\t— | $— | $31 | $32 | $(78) | $(46) |
| Non-sovereigns | 113 | 32 | 98 | — | 60 | 303 | (31) | 272 |
| Subtotal | $82 | $64 | $98 | $— | $91 | $335 | $(109) | $226 |
| Sovereigns | $1,375 | $362 | $\t— | $— | $994 | $2,731 | $(285) | $2,446 |
| Non-sovereigns | 1,002 | 1,139 | 729 | 1,590 | 399 | 4,859 | (959) | 3,900 |
| Total\tEuropean\tPeripherals(6) | $2,377 | $1,501 | $729 | $1,590 | $1,393 | $7,590 | $(1,244) | $6,346 |
| France(6): |  |  |  |  |  |  |  |  |
| Sovereigns | $(3,086) | $15 | $\t— | $— | $32 | $(3,039) | $(230) | $(3,269) |
| Non-sovereigns | (870) | 2,244 | 270 | 1,926 | 259 | 3,829 | (812) | 3,017 |
| Total\tFrance(6) | $(3,956) | $2,259 | $270 | $1,926 | $291 | $790 | $(1,042) | $(252) |

(1) Net	inventory	represents	exposure	to	both	long	and	short	single-name	and	index	positions	( i.e.,	bonds	and	equities	at	fair	value	and	CDS	based	on	notional	amount	assuming	zero	recovery	adjusted	for	any	fair value	receivable	or	payable).	As	a	market	maker,	the	Company	transacts	in	these	CDS	positions	to	facilitate	client	trading.	At	December	31,	2012,	net	exposures	related	to	purchased	and	sold	single-name	and index	credit	derivatives	for	the	European	Peripherals	and	France	were	$(408)	million	and	$(1,462)	million,	respectively.	For	a	further	description	of	the	triggers	for	purchased	credit	protection	and	whether	those triggers	may	limit	the	effectiveness	of	the	Company's	hedges,	see	"Credit	Exposure—Derivatives"	herein.

(3) At	December	31,	2012,	the	benefit	of	collateral	received	against	counterparty	credit	exposure	was	$5.0	billion	in	the	European	Peripherals,	with	97%	of	such	collateral	consisting	of	cash	and	German	government obligations	and	$7.5	billion	in	France	with	nearly	all	collateral	consisting	of	cash	and	U.S.	government	obligations.	These	amounts	do	not	include	collateral	received	on	secured	financing	transactions.

(4) CDS	adjustment	represents	credit	protection	purchased	from	European	Peripherals'	banks	on	European	Peripherals'	sovereign	and	financial	institution	risk	or	French	banks	on	French	sovereign	and	financial institution	risk.	Based	on	the	CDS	notional	amount	assuming	zero	recovery	adjusted	for	any	fair	value	receivable	or	payable.

(6) In	addition,	at	December	31,	2012,	the	Company	had	European	Peripherals	and	French	exposure	for	overnight	deposits	with	banks	of	approximately	$81	million	and	$27	million,	respectively.

Industry	Exposure—Corporate	Lending	and	OTC	Derivative	Products.				The	Company	also	monitors	its	credit	exposure	to	individual	industries	for	credit	exposure arising	from	corporate	loans	and	lending	commitments	as	discussed	above	and	current	exposure	arising	from	the	Company's	OTC	derivative	contracts.

The	following	tables	show	the	Company's	credit	exposure	from	its	primary	corporate	loans	and	lending	commitments	and	OTC	derivative	products	by	industry	at December	31,	2012:

(1) Includes	mutual	funds,	pension	funds,	private	equity	and	real	estate	funds,	exchanges	and	clearinghouses	and	diversified	financial	services.

(2) For	further	information	on	derivative	instruments	and	hedging	activities,	see	Note	12	to	the	consolidated	financial	statements.

Operational	risk	refers	to	the	risk	of	financial	or	other	loss,	or	potential	damage	to	a	firm's	reputation,	resulting	from	inadequate	or	failed	internal	processes,	people, resources	and	systems	or	from	external	events	(e.g.,	fraud,	legal	and	compliance	risks	or	damage	to	physical	assets).	The	Company	may	incur	operational	risk	across	the full	scope	of	its	business	activities,	including	revenue-generating	activities	(e.g.,	sales	and	trading)	and	control	groups	(e.g.,	information	technology	and	trade processing).	Legal,	regulatory	and	compliance	risk	is	included	in	the	scope	of	operational	risk	and	is	discussed	below	under	"Legal,	Regulatory	and	Compliance	Risk."

The	Company	has	established	an	operational	risk	framework	to	identify,	measure,	monitor	and	control	risk	across	the	Company.	Effective	operational	risk	management is	essential	to	reducing	the	impact	of	operational	risk	incidents	and	mitigating	legal,	regulatory	and	reputational	risks.	The	framework	is	continually	evolving	to	account for	changes	in	the	Company	and	respond	to	the	changing	regulatory	and	business	environment.	The	Company	has	implemented	operational	risk	data	and	assessment systems	to	monitor	and	analyze	internal	and	external	operational	risk	events,	business	environment	and	internal	control	factors	and	to	perform	scenario	analysis.	The collected	data	elements	are	incorporated	in	the	operational	risk	capital	model.	The	model	encompasses	both	quantitative	and	qualitative	elements.	Internal	loss	data	and scenario	analysis	results	are	direct	inputs	to	the	capital	model,	while	external	operational	incidents,	business	environment	internal	control	factors	and	metrics	are	indirect inputs	to	the	model.

Primary	responsibility	for	the	management	of	operational	risk	is	with	the	business	segments,	the	control	groups	and	the	business	managers	therein.	The	business managers	generally	maintain	processes	and	controls	designed	to	identify,	assess,	manage,	mitigate	and	report	operational	risk.	Each	business	segment	has	a	designated operational	risk	coordinator.	The	operational	risk	coordinator	regularly	reviews	operational	risk	issues	and	reports	to	senior	management	within	each	business.	Each control	group	also	has	a	designated	operational	risk	coordinator	and	a	forum	for	discussing	operational	risk	matters	with	senior	management.	Oversight	of	operational risk	is	provided	by	regional	risk	committees	and	senior	management.	In	the	event	of	a	merger;	joint	venture;	divestiture;	reorganization;	or	creation	of	a	new	legal	entity, a	new	product	or	a	business	activity,	operational	risks	are	considered,	and	any	necessary	changes	in	processes	or	controls	are	implemented.

Enterprise	Operational	Risk	and	Control	("EORC")	and	the	independent	Operational	Risk	Department	("ORD")	work	with	the	business	segments	and	control	groups	to help	ensure	a	transparent,	consistent	and	comprehensive	program	for	managing	operational	risk	within	each	area	and	across	the	Company	globally.	ORD	is	responsible for	the	design,	ownership	and	independent	validation	of	the	operational	risk	framework	(including	operational	risk	policies),	analysis	of	operational	risk	data	and	senior governance	reporting.	EORC	is	responsible	for	the	execution	of	the	operational	risk	framework,	including,	but	not	limited	to,	facilitating,	collecting	and	validating operational	risk	data.

Business	Continuity	Management	is	responsible	for	identifying	key	risks	and	threats	to	the	Company's	resiliency	and	planning	to	ensure	that	a	recovery	strategy	and required	resources	are	in	place	for	the	resumption	of	critical	business	functions	following	a	disaster	or	other	business	interruption.	Disaster	recovery	plans	are	in	place for	critical	facilities	and	resources	on	a	company-wide	basis,	and	redundancies	are	built	into	the	systems	as	deemed	appropriate.	The	key	components	of	the	Company's disaster	recovery	plans	include:	crisis	management;	business	recovery	plans;	applications/data	recovery;	work	area	recovery;	and	other	elements	addressing management,	analysis,	training	and	testing.

The	Company	maintains	an	information	security	program	that	coordinates	the	management	of	information	security	risks	and	satisfies	regulatory	requirements. Information	security	policies	are	designed	to	protect	the	Company's	information	assets	against	unauthorized	disclosure,	modification	or	misuse.	These	policies	cover	a broad	range	of	areas,	including:	application	entitlements,	data	protection,	incident	response,	Internet	and	electronic	communications,	remote	access	and	portable	devices. The	Company	has	also	established	policies,	procedures	and	technologies	to	protect	its	computers	and	other	assets	from	unauthorized	access.

The	Company	utilizes	the	services	of	external	vendors	in	connection	with	the	Company's	ongoing	operations.	These	may	include,	for	example,	outsourced	processing and	support	functions	and	consulting	and	other	professional	services.	The	Company	manages	its	exposures	to	the	quality	of	these	services	through	a	variety	of	means, including	service	level	and	other	contractual	agreements,	and	ongoing	monitoring	of	the	vendors'	performance.	It	is	anticipated	that	the	use	of	these	services	will continue	and	possibly	increase	in	the	future.	The	Supplier	Risk	Management	program	is	responsible	for	the	policies,	procedures,	organizations,	governance	and supporting	technology	to	ensure	adequate	risk	management	controls	between	the	Company	and	its	third-party	suppliers	as	it	relates	to	information	security,	disaster recoverability	and	other	key	areas.	The	program	ensures	Company	compliance	with	regulatory	requirements.

Legal	risk	includes	the	risk	of	exposure	to	fines,	penalties,	judgments,	damages	and/or	settlements	in	connection	with	regulatory	or	legal	actions	as	a	result	of	non- compliance	with	applicable	legal	and	regulatory	requirements	and	standards.	Legal	risk	also	includes	contractual	and	commercial	risk	such	as	the	risk	that	a counterparty's	performance	obligations	will	be	unenforceable.	The	Company	is	generally	subject	to	extensive	regulation	in	the	different	jurisdictions	in	which	it	conducts its	business	(see	also	"Business—Supervision	and	Regulation"	in	Part	I,	Item	1	and	"Risk	Factors"	in	Part	I,	Item	1A).	The	Company	has	established	procedures	based on	legal	and	regulatory	requirements	on	a	worldwide	basis	that	are	designed	to	foster	compliance	with	applicable	statutory	and	regulatory	requirements.	The	Company, principally	through	the	Legal	and	Compliance	Division,	also	has	established	procedures	that	are	designed	to	require	that	the	Company's	policies	relating	to	business conduct,	ethics	and	practices	are	followed	globally.	In	connection	with	its	businesses,	the	Company	has	and	continuously	develops	various	procedures	addressing	issues such	as	regulatory	capital	requirements,	sales	and	trading	practices,	new	products,	information	barriers,	potential	conflicts	of	interest,	structured	transactions,	use	and safekeeping	of	customer	funds	and	securities,	lending	and	credit	granting,	anti-money	laundering,	privacy	and	recordkeeping.	In	addition,	the	Company	has	established procedures	to	mitigate	the	risk	that	a	counterparty's	performance	obligations	will	be	unenforceable,	including	consideration	of	counterparty	legal	authority	and	capacity, adequacy	of	legal	documentation,	the	permissibility	of	a	transaction	under	applicable	law	and	whether	applicable	bankruptcy	or	insolvency	laws	limit	or	alter contractual	remedies.	The	legal	and	regulatory	focus	on	the	financial	services	industry	presents	a	continuing	business	challenge	for	the	Company.

# Item	8. Financial	Statements	and	Supplementary	Data.

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

To	the	Board	of	Directors	and	Shareholders	of	Morgan	Stanley:

We	have	audited	the	accompanying	consolidated	statements	of	financial	condition	of	Morgan	Stanley	and	subsidiaries	(the	"Company")	as	of	December	31,	2012	and 2011	and	the	consolidated	statements	of	income,	comprehensive	income,	cash	flows,	and	changes	in	total	equity	for	the	years	ended	December	31,	2012,	2011	and	2010. These	consolidated	financial	statements	are	the	responsibility	of	the	Company's	management.	Our	responsibility	is	to	express	an	opinion	on	these	consolidated	financial statements	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and perform	the	audit	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement.	An	audit	includes	examining,	on	a	test	basis, evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements.	An	audit	also	includes	assessing	the	accounting	principles	used	and	significant	estimates made	by	management,	as	well	as	evaluating	the	overall	financial	statement	presentation.	We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	such	consolidated	financial	statements	present	fairly,	in	all	material	respects,	the	financial	position	of	the	Company	as	of	December	31,	2012	and	2011, and	the	results	of	their	operations	and	their	cash	flows	for	the	years	ended	December	31,	2012,	2011	and	2010,	in	conformity	with	accounting	principles	generally accepted	in	the	United	States	of	America.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	Company's	internal	control	over financial	reporting	as	of	December	31,	2012,	based	on	the	criteria	established	in	Internal	Control—Integrated	Framework	issued	by	the	Committee	of	Sponsoring Organizations	of	the	Treadway	Commission,	and	our	report	dated	February	26,	2013	expressed	an	unqualified	opinion	on	the	Company's	internal	control	over	financial reporting.

/s/	Deloitte	&	Touche	LLP

New	York,	New	York

# Consolidated	Statements	of	Financial	Condition

# (dollars	in	millions,	except	share	data)

|  | December	31,<br>2012 | December	31,<br>2011 |
| :--- | :--- | :--- |
| Assets |  |  |
| Cash\tand\tdue\tfrom\tbanks\t($526\tand\t$511\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively,\trelated\tto\tconsolidated\tvariable\tinterest\tentities\tgenerally\tnot |  |  |
| available\tto\tthe\tCompany) | $20,878 | $13,165 |
| Interest\tbearing\tdeposits\twith\tbanks | 26,026 | 34,147 |
| Cash\tdeposited\twith\tclearing\torganizations\tor\tsegregated\tunder\tfederal\tand\tother\tregulations\tor\trequirements | 30,970 | 29,454 |
| Financial\tinstruments\towned,\tat\tfair\tvalue\t(approximately\t$147,348\tand\t$140,749\twere\tpledged\tto\tvarious\tparties\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011, |  |  |
| respectively): |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities | 54,015 | 63,449 |
| Other\tsovereign\tgovernment\tobligations | 43,162 | 29,059 |
| Corporate\tand\tother\tdebt\t($1,602\tand\t$3,007\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively,\trelated\tto\tconsolidated\tvariable\tinterest\tentities, |  |  |
| generally\tnot\tavailable\tto\tthe\tCompany) | 49,157 | 68,923 |
| Corporate\tequities | 69,427 | 47,966 |
| Derivative\tand\tother\tcontracts | 36,197 | 48,064 |
| Investments\t($1,888\tand\t$1,666\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively,\trelated\tto\tconsolidated\tvariable\tinterest\tentities,\tgenerally\tnot |  |  |
| available\tto\tthe\tCompany) | 8,346 | 8,195 |
| Physical\tcommodities | 7,299 | 9,697 |
| Total\tfinancial\tinstruments\towned,\tat\tfair\tvalue | 267,603 | 275,353 |
| Securities\tavailable\tfor\tsale,\tat\tfair\tvalue | 39,869 | 30,495 |
| Securities\treceived\tas\tcollateral,\tat\tfair\tvalue | 14,278 | 11,651 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell\t(includes\t$621\tand\t$112\tat\tfair\tvalue\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011, |  |  |
| respectively) | 134,412 | 130,155 |
| Securities\tborrowed | 121,701 | 127,074 |
| Receivables: |  |  |
| Customers | 46,197 | 33,977 |
| Brokers,\tdealers\tand\tclearing\torganizations | 7,335 | 5,248 |
| Fees,\tinterest\tand\tother | 10,756 | 9,444 |
| Loans\t(net\tof\tallowances\tof\t$106\tand\t$17\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively) | 29,046 | 15,369 |
| Other\tinvestments | 4,999 | 4,832 |
| Premises,\tequipment\tand\tsoftware\tcosts\t(net\tof\taccumulated\tdepreciation\tof\t$5,525\tand\t$4,852\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively)\t($224 |  |  |
| and\t$234\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively,\trelated\tto\tconsolidated\tvariable\tinterest\tentities,\tgenerally\tnot\tavailable\tto\tthe\tCompany) | 5,946 | 6,457 |
| Goodwill | 6,650 | 6,686 |
| Intangible\tassets\t(net\tof\taccumulated\tamortization\tof\t$1,250\tand\t$910\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively)\t(includes\t$7\tand\t$133\tat\tfair |  |  |
| value\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively) | 3,783 | 4,285 |
| Other\tassets\t($593\tand\t$446\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively,\trelated\tto\tconsolidated\tvariable\tinterest\tentities,\tgenerally\tnot\tavailable\tto |  |  |
| the\tCompany) | 10,511 | 12,106 |
| Total\tassets | $780,960 | $749,898 |

See	Notes	to	Consolidated	Financial	Statements.

# Consolidated	Statements	of	Financial	Condition—(Continued)

|  | December	31,<br>2012 | December	31,<br>2011 |
| :--- | :--- | :--- |
| Liabilities |  |  |
| Deposits\t(includes\t$1,485\tand\t$2,101\tat\tfair\tvalue\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively) | $83,266 | $65,662 |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings\t(includes\t$725\tand\t$1,339\tat\tfair\tvalue\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively) | 2,138 | 2,843 |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased,\tat\tfair\tvalue: |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities | 21,620 | 19,630 |
| Other\tsovereign\tgovernment\tobligations | 29,614 | 17,141 |
| Corporate\tand\tother\tdebt | 5,054 | 8,410 |
| Corporate\tequities | 26,876 | 24,497 |
| Derivative\tand\tother\tcontracts | 36,958 | 46,453 |
| Physical\tcommodities | — | 16 |
| Total\tfinancial\tinstruments\tsold,\tnot\tyet\tpurchased,\tat\tfair\tvalue | 120,122 | 116,147 |
| Obligation\tto\treturn\tsecurities\treceived\tas\tcollateral,\tat\tfair\tvalue | 18,226 | 15,394 |
| Securities\tsold\tunder\tagreements\tto\trepurchase\t(includes\t$363\tand\t$348\tat\tfair\tvalue\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively\t) | 122,674 | 104,800 |
| Securities\tloaned | 36,849 | 30,462 |
| Other\tsecured\tfinancings\t(includes\t$9,466\tand\t$14,594\tat\tfair\tvalue\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively)\t($976\tand\t$2,316\tat\tDecember\t31, |  |  |
| 2012\tand\tDecember\t31,\t2011,\trespectively,\trelated\tto\tconsolidated\tvariable\tinterest\tentities\tand\tare\tnon-recourse\tto\tthe\tCompany) | 15,727 | 20,719 |
| Payables: |  |  |
| Customers | 122,540 | 117,241 |
| Brokers,\tdealers\tand\tclearing\torganizations | 2,497 | 4,082 |
| Interest\tand\tdividends | 2,685 | 2,292 |
| Other\tliabilities\tand\taccrued\texpenses\t($117\tand\t$121\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively,\trelated\tto\tconsolidated\tvariable\tinterest\tentities |  |  |
| and\tare\tnon-recourse\tto\tthe\tCompany) | 14,928 | 15,944 |
| Long-term\tborrowings\t(includes\t$44,044\tand\t$39,663\tat\tfair\tvalue\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011,\trespectively) | 169,571 | 184,234 |
|  | 711,223 | 679,820 |
| Commitments\tand\tcontingent\tliabilities\t(see\tNote\t13) |  |  |
| Redeemable\tnoncontrolling\tinterests\t(see\tNotes\t2,\t3\tand\t15) | 4,309 | — |
| Equity |  |  |
| Morgan\tStanley\tshareholders'\tequity: |  |  |
| Preferred\tstock | 1,508 | 1,508 |
| Common\tstock,\t$0.01\tpar\tvalue: |  |  |
| Shares\tauthorized:\t3,500,000,000\tat\tDecember\t31,\t2012\tand\tDecember\t31,\t2011; |  |  |
| Shares\tissued:\t2,038,893,979\tat\tDecember\t31,\t2012\tand\t1,989,377,171\tat\tDecember\t31,\t2011;\tShares\toutstanding:\t1,974,042,123\tat |  |  |
| December\t31,\t2012\tand\t1,926,986,130\tat\tDecember\t31,\t2011 | 20 | 20 |
| Paid-in\tcapital | 23,426 | 22,836 |
| Retained\tearnings | 39,912 | 40,341 |
| Employee\tstock\ttrust | 2,932 | 3,166 |
| Accumulated\tother\tcomprehensive\tloss | (516) | (157) |
|  | (2,241) | (2,499) |
| Common\tstock\tissued\tto\temployee\ttrust | (2,932) | (3,166) |
| Total\tMorgan\tStanley\tshareholders'\tequity | 62,109 | 62,049 |
| Nonredeemable\tnoncontrolling\tinterests | 3,319 | 8,029 |
| Total\tequity | 65,428 | 70,078 |
| Total\tliabilities,\tredeemable\tnoncontrolling\tinterests\tand\tequity | $\t780,960 | $\t749,898 |

# Consolidated	Statements	of	Income

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Revenues: |  |  |  |
| Investment\tbanking | $4,758 | $4,991 | $5,122 |
| Principal\ttransactions: |  |  |  |
| Trading | 6,991 | 12,384 | 9,393 |
| Investments | 742 | 573 | 1,825 |
| Commissions\tand\tfees | 4,257 | 5,347 | 4,913 |
| Asset\tmanagement,\tdistribution\tand\tadministration\tfees | 9,008 | 8,410 | 7,843 |
| Other | 555 | 175 | 1,236 |
| Total\tnon-interest\trevenues | 26,311 | 31,880 | 30,332 |
| Interest\tincome | 5,725 | 7,258 | 7,305 |
| Interest\texpense | 5,924 | 6,902 | 6,407 |
| Net\tinterest | (199) | 356 | 898 |
| Net\trevenues | 26,112 | 32,236 | 31,230 |
| Non-interest\texpenses: |  |  |  |
| Compensation\tand\tbenefits | 15,622 | 16,333 | 15,866 |
| Occupancy\tand\tequipment | 1,546 | 1,548 | 1,544 |
| Brokerage,\tclearing\tand\texchange\tfees | 1,536 | 1,633 | 1,416 |
| Information\tprocessing\tand\tcommunications | 1,913 | 1,811 | 1,645 |
| Marketing\tand\tbusiness\tdevelopment | 602 | 595 | 571 |
| Professional\tservices | 1,923 | 1,794 | 1,808 |
| Other | 2,455 | 2,423 | 2,182 |
| Total\tnon-interest\texpenses | 25,597 | 26,137 | 25,032 |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 515 | 6,099 | 6,198 |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | (239) | 1,410 | 743 |
| Income\tfrom\tcontinuing\toperations | 754 | 4,689 | 5,455 |
| Discontinued\toperations: |  |  |  |
| Gain\t(loss)\tfrom\tdiscontinued\toperations | (43) | (160) | 610 |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | (5) | (116) | 363 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (38) | (44) | 247 |
| Net\tincome | $716 | $4,645 | $5,702 |
| Net\tincome\tapplicable\tto\tredeemable\tnoncontrolling\tinterests | 124 | — | — |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 524 | 535 | 999 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | $68 | $4,110 | $4,703 |
| Earnings\t(loss)\tapplicable\tto\tMorgan\tStanley\tcommon\tshareholders | $(30) | $2,067 | $3,594 |
| Amounts\tapplicable\tto\tMorgan\tStanley: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $135 | $4,161 | $4,469 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (67) | (51) | 234 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | $68 | $4,110 | $4,703 |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $0.02 | $1.28 | $2.48 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (0.04) | (0.03) | 0.16 |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare | $(0.02) | $1.25 | $2.64 |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $0.02 | $1.26 | $2.45 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (0.04) | (0.03) | 0.18 |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare | $(0.02) | $1.23 | $2.63 |
| Dividends\tdeclared\tper\tcommon\tshare | $0.20 | $0.20 | $0.20 |
| Average\tcommon\tshares\toutstanding: |  |  |  |
| Basic |  |  |  |
|  | \t 1,885,774,276 | \t 1,654,708,640 | \t 1,361,670,938 |
| Diluted | \t 1,918,811,270 | \t 1,675,271,669 | \t 1,411,268,971 |

# Consolidated	Statements	of	Comprehensive	Income

# (dollars	in	millions)

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $716 | $4,645 | $5,702 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax: |  |  |  |
| Foreign\tcurrency\ttranslation\tadjustments(1) | $(255) | $35 | $221 |
| Amortization\tof\tcash\tflow\thedges(2) | 6 | 7 | 9 |
| Net\tunrealized\tgains\ton\tSecurities\tavailable\tfor\tsale(3) | 28 | 87 | 36 |
| Pension,\tpostretirement\tand\tother\trelated\tadjustments(4) | (260) | 251 | (20) |
| Total\tother\tcomprehensive\tincome\t(loss) | $(481) | $380 | $246 |
| Comprehensive\tincome | $235 | $5,025 | $5,948 |
| Net\tincome\tapplicable\tto\tredeemable\tnoncontrolling\tinterests | 124 | — | — |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 524 | 535 | 999 |
| Other\tcomprehensive\tincome\t(loss)\tapplicable\tto\tredeemable\tnoncontrolling\tinterests | (2) | — | — |
| Other\tcomprehensive\tincome\t(loss)\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | (120) | 70 | 153 |
| Comprehensive\tincome\t(loss)\tapplicable\tto\tMorgan\tStanley | $(291) | $4,420 | $4,796 |

# Consolidated	Statements	of	Cash	Flows

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| CASH\tFLOWS\tFROM\tOPERATING\tACTIVITIES |  |  |  |
| Net\tincome | $716 | $4,645 | $5,702 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Deferred\tincome\ttaxes | (639) | 413 | (129) |
| Loss\ton\tequity\tmethod\tinvestees | 23 | 995 | 37 |
| Compensation\tpayable\tin\tcommon\tstock\tand\toptions | 891 | 1,300 | 1,260 |
| Depreciation\tand\tamortization | 1,581 | 1,404 | 1,419 |
| Gain\ton\tbusiness\tdispositions | (156) | (24) | (570) |
| Gain\ton\tsale\tof\tstake\tin\tChina\tInternational\tCapital\tCorporation\tLimited | — | — | (668) |
| Gains\ton\tcurtailments\tof\tpension\tand\tpostretirement\tplans | — | — | (54) |
| Gain\ton\tsale\tof\tsecurities\tavailable\tfor\tsale | (78) | (143) | (102) |
| (Gain)\tloss\ton\tretirement\tof\tlong-term\tdebt | (29) | (155) | 27 |
| Insurance\treimbursement | — | — | (76) |
| Loss\ton\tRevel | — | — | 1,190 |
| Impairment\tcharges\tand\tother-than-temporary\timpairment\tcharges | 271 | 159 | 201 |
| Provision\tfor\tcredit\tlosses\ton\tlending\tactivities | 155 | (113) | — |
| Changes\tin\tassets\tand\tliabilities: |  |  |  |
| Cash\tdeposited\twith\tclearing\torganizations\tor\tsegregated\tunder\tfederal\tand\tother\tregulations\tor\trequirements | (1,516) | (10,274) | 4,532 |
| Financial\tinstruments\towned,\tnet\tof\tfinancial\tinstruments\tsold,\tnot\tyet\tpurchased | 6,389 | 29,913 | 16,400 |
| Securities\tborrowed | 5,373 | 11,656 | 28,771 |
| Securities\tloaned | 6,387 | 1,368 | 2,848 |
| Receivables\tand\tother\tassets | (10,200) | 6,433 | (6,492) |
| Payables\tand\tother\tliabilities | (1,283) | (6,985) | 697 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell | (4,257) | 18,098 | (5,045) |
| Securities\tsold\tunder\tagreements\tto\trepurchase | 20,920 | (42,798) | (9,334) |
| Net\tcash\tprovided\tby\toperating\tactivities | 24,548 | 15,892 | 40,614 |
| CASH\tFLOWS\tFROM\tINVESTING\tACTIVITIES |  |  |  |
| Net\tproceeds\tfrom\t(payments\tfor): |  |  |  |
| Premises,\tequipment\tand\tsoftware\tcosts | (1,312) | (1,304) | (1,201) |
| Business\tacquisitions,\tnet\tof\tcash\tacquired | — | — | (1,042) |
| Business\tdispositions,\tnet\tof\tcash\tdisposed | 1,725 | — | 840 |
| Sale\tof\tstake\tin\tChina\tInternational\tCapital\tCorporation\tLimited | — | — | 989 |
| Japanese\tsecurities\tjoint\tventure\twith\tMUFG | — | (129) | 247 |
| Loans | (3,486) | (9,208) | (307) |
| Purchases\tof\tsecurities\tavailable\tfor\tsale | (24,477) | (20,601) | (29,989) |
| Sales,\tmaturities\tand\tredemptions\tof\tsecurities\tavailable\tfor\tsale | 15,136 | 19,998 | 999 |
| Net\tcash\tused\tfor\tinvesting\tactivities | (12,414) | (11,244) | (29,464) |
| CASH\tFLOWS\tFROM\tFINANCING\tACTIVITIES |  |  |  |
| Net\tproceeds\tfrom\t(payments\tfor): |  |  |  |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings | (705) | (413) | 878 |
| Distributions\trelated\tto\tnoncontrolling\tinterests | (296) | (791) | (332) |
| Derivatives\tfinancing\tactivities | 118 | (3) | (85) |
| Other\tsecured\tfinancings | (6,628) | 1,867 | (751) |
| Deposits | 17,604 | 1,850 | 1,597 |
| Net\tproceeds\tfrom: |  |  |  |
| Excess\ttax\tbenefits\tassociated\twith\tstock-based\tawards | 42 | — | 5 |
| Public\tofferings\tand\tother\tissuances\tof\tcommon\tstock | — | — | 5,581 |
| Issuance\tof\tlong-term\tborrowings | 23,646 | 32,725 | 32,523 |
| Payments\tfor: |  |  |  |
| Long-term\tborrowings | (43,092) | (39,232) | (28,201) |
| Redemption\tof\tjunior\tsubordinated\tdebentures\trelated\tto\tChina\tInvestment\tCorporation\tLimited | — | — | (5,579) |
| Repurchases\tof\tcommon\tstock\tfor\temployee\ttax\twithholding | (227) | (317) | (317) |
| Purchase\tof\tadditional\tstake\tin\tthe\tWealth\tManagement\tJoint\tVenture\tfrom\tCiti | (1,890) | — | — |
| Cash\tdividends | (469) | (834) | (1,156) |
| Net\tcash\tprovided\tby\t(used\tfor)\tfinancing\tactivities | (11,897) | (5,148) | 4,163 |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tcash\tequivalents | (119) | (314) | 14 |
| Effect\tof\tcash\tand\tcash\tequivalents\trelated\tto\tvariable\tinterest\tentities | (526) | 511 | 297 |
| Net\tincrease\t(decrease)\tin\tcash\tand\tcash\tequivalents | (408) | (303) | 15,624 |
| Cash\tand\tcash\tequivalents,\tat\tbeginning\tof\tperiod | 47,312 | 47,615 | 31,991 |
| Cash\tand\tcash\tequivalents,\tat\tend\tof\tperiod | $ 46,904 | $ 47,312 | $ 47,615 |
| Cash\tand\tcash\tequivalents\tinclude: |  |  |  |
| Cash\tand\tdue\tfrom\tbanks | $ 20,878 | $ 13,165 | $7,341 |
| Interest\tbearing\tdeposits\twith\tbanks | 26,026 | 34,147 | 40,274 |
| Cash\tand\tcash\tequivalents,\tat\tend\tof\tperiod | $ 46,904 | $ 47,312 | $ 47,615 |

# SUPPLEMENTAL	DISCLOSURE	OF	CASH	FLOW	INFORMATION

# Consolidated	Statements	of	Changes	in	Total	Equity

|  | Preferred<br>Stock | Common<br>Stock | Paid-in<br>Capital | Retained<br>Earnings | Employee<br>Stock<br>Trust | Accumulated<br>Other<br>Comprehensive<br>Income	(Loss) | Common<br>Stock<br>Held	in<br>Treasury<br>at	Cost | Common<br>Stock<br>Issued	to<br>Employee<br>Trust | Non-<br>redeemable<br>Non-<br>controlling<br>Interests | Total<br>Equity |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| BALANCE\tAT\tDECEMBER\t31,\t2009 | $9,597 | $15 | $8,619 | $35,056 | $4,064 | $(560) | $(6,039) | $(4,064) | $6,092 | $52,780 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | — | — | — | 4,703 | — | — | — | — | — | 4,703 |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | — | — | — | — | — | — | — | — | 999 | 999 |
| Dividends | — | — | — | (1,156) | — | — | — | — | — | (1,156) |
| Shares\tissued\tunder\temployee\tplans\tand\trelated\ttax\teffects | — | — | (1,407) | — | (599) | — | 2,297 | 599 | — | 890 |
| Repurchases\tof\tcommon\tstock | — | — | — | — | — | — | (317) | — | — | (317) |
| Net\tchange\tin\tcash\tflow\thedges | — | — | — | — | — | 9 | — | — | — | 9 |
| Pension\tand\tpostretirement\tadjustments | — | — | — | — | — | (18) | — | — | (2) | (20) |
| Foreign\tcurrency\ttranslation\tadjustments | — | — | — | — | — | 66 | — | — | 155 | 221 |
| Gain\ton\tJapanese\tsecurities\tjoint\tventure\twith\tMUFG | — | — | 731 | — | — | — | — | — | — | 731 |
| Change\tin\tnet\tunrealized\tgains\ton\tsecurities\tavailable\tfor\tsale | — | — | — | — | — | 36 | — | — | — | 36 |
| Redemption\tof\tCIC\tequity\tunits\tand\tissuance\tof\tcommon\tstock | — | 1 | 5,578 | — | — | — | — | — | — | 5,579 |
| Increase\tin\tnonredeemable\tnoncontrolling\tinterests\trelated\tto |  |  |  |  |  |  |  |  |  |  |
| Japanese\tsecurities\tjoint\tventure\twith\tMUFG | — | — | — | — | — | — | — | — | 1,130 | 1,130 |
| Other\tdecreases\tin\tnonredeemable\tnoncontrolling\tinterests | — | — | — | — | — | — | — | — | (178) | (178) |
| BALANCE\tAT\tDECEMBER\t31,\t2010 | 9,597 | 16 | \t 13,521 | 38,603 | 3,465 | (467) | (4,059) | (3,465) | 8,196 | \t 65,407 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | — | — | — | 4,110 | — | — | — | — | — | 4,110 |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | — | — | — | — | — | — | — | — | 535 | 535 |
| Dividends | — | — | — | (646) | — | — | — | — | — | (646) |
| Shares\tissued\tunder\temployee\tplans\tand\trelated\ttax\teffects | — | — | (642) | — | (299) | — | 1,877 | 299 | — | 1,235 |
| Repurchases\tof\tcommon\tstock | — | — | — | — | — | — | (317) | — | — | (317) |
| Net\tchange\tin\tcash\tflow\thedges | — | — | — | — | — | 7 | — | — | — | 7 |
| Pension\tand\tpostretirement\tand\tother\trelated\tadjustments | — | — | — | — | — | 251 | — | — | — | 251 |
| Foreign\tcurrency\ttranslation\tadjustments | — | — | — | — | — | (35) | — | — | 70 | 35 |
| Change\tin\tnet\tunrealized\tgains\ton\tsecurities\tavailable\tfor\tsale | — | — | — | — | — | 87 | — | — | — | 87 |
| Other\tincrease\tin\tequity\tmethod\tinvestments | — | — | 146 | — | — | — | — | — | — | 146 |
| MUFG\tstock\tconversion | (8,089) | 4 | 9,811 | (1,726) | — | — | — | — | — | — |
| Other\tdecreases\tin\tnonredeemable\tnoncontrolling\tinterests | — | — | — | — | — | — | — | — | (772) | (772) |
| BALANCE\tAT\tDECEMBER\t31,\t2011 | $1,508 | $20 | $22,836 | $40,341 | $3,166 | $(157) | $(2,499) | $(3,166) | $8,029 | $70,078 |

# Consolidated	Statements	of	Changes	in	Total	Equity—(Continued)

|  | Preferred<br>Stock | Common<br>Stock | Paid-in<br>Capital | Retained<br>Earnings | Employee<br>Stock<br>Trust | Accumulated<br>Other<br>Comprehensive<br>Income	(Loss) | Common<br>Stock<br>Held	in<br>Treasury<br>at	Cost | Common<br>Stock<br>Issued	to<br>Employee<br>Trust | Non-<br>redeemable<br>Non-<br>controlling<br>Interests | Total<br>Equity |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| BALANCE\tAT\tDECEMBER\t31,\t2011 | $1,508 | $20 | $22,836 | $40,341 | $3,166 | $(157) | $(2,499) | $(3,166) | $8,029 | $70,078 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | — | — | — | 68 | — | — | — | — | — | 68 |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | — | — | — | — | — | — | — | — | 524 | 524 |
| Dividends | — | — | — | (497) | — | — | — | — | — | (497) |
| Shares\tissued\tunder\temployee\tplans\tand\trelated\ttax\teffects | — | — | 662 | — | (234) | — | 485 | 234 | — | 1,147 |
| Repurchases\tof\tcommon\tstock | — | — | — | — | — | — | (227) | — | — | (227) |
| Net\tchange\tin\tcash\tflow\thedges | — | — | — | — | — | 6 | — | — | — | 6 |
| Pension,\tpostretirement\tand\tother\trelated\tadjustments | — | — | — | — | — | (265) | — | — | 5 | (260) |
| Foreign\tcurrency\ttranslation\tadjustments | — | — | — | — | — | (128) | — | — | (125) | (253) |
| Change\tin\tnet\tunrealized\tgains\ton\tsecurities\tavailable\tfor\tsale | — | — | — | — | — | 28 | — | — | — | 28 |
| Purchase\tof\tadditional\tstake\tin\tthe\tWealth\tManagement\tJoint\tVenture | — | — | (107) | — | — | — | — | — | (1,718) | (1,825) |
| Reclassification\tto\tredeemable\tnoncontrolling\tinterests | — | — | — | — | — | — | — | — | (4,288) | (4,288) |
| Other\tnet\tincreases | — | — | 35 | — | — | — | — | — | 892 | 927 |
| BALANCE\tAT\tDECEMBER\t31,\t2012 | $1,508 | $20 | $23,426 | $39,912 | $2,932 | $(516) | $(2,241) | $(2,932) | $3,319 | $65,428 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# 1.				Introduction	and	Basis	of	Presentation.

The	Company.				Morgan	Stanley,	a	financial	holding	company,	is	a	global	financial	services	firm	that	maintains	significant	market	positions	in	each	of	its	business segments—Institutional	Securities,	Global	Wealth	Management	Group	and	Asset	Management.	The	Company,	through	its	subsidiaries	and	affiliates,	provides	a	wide variety	of	products	and	services	to	a	large	and	diversified	group	of	clients	and	customers,	including	corporations,	governments,	financial	institutions	and	individuals. Unless	the	context	otherwise	requires,	the	terms	"Morgan	Stanley,"	or	the	"Company,"	mean	Morgan	Stanley	(the	"Parent")	together	with	its	consolidated	subsidiaries.

Global	Wealth	Management	Group,	which	includes	the	Company's	65%	interest	in	Morgan	Stanley	Smith	Barney	Holdings	LLC	(the	"Wealth	Management	Joint Venture"	or	"Wealth	Management	JV")	(see	Note	3),	provides	brokerage	and	investment	advisory	services	to	individual	investors	and	small-to-medium	sized businesses	and	institutions	covering	various	investment	alternatives;	financial	and	wealth	planning	services;	annuity	and	other	insurance	products;	credit	and other	lending	products;	cash	management	services;	retirement	services;	and	trust	and	fiduciary	services	and	engages	in	fixed	income	principal	trading,	which primarily	facilitates	clients'	trading	or	investments	in	such	securities.

Quilter.				On	April	2,	2012,	the	Company	completed	the	sale	of	Quilter	&	Co.	Ltd.	("Quilter"),	its	retail	wealth	management	business	in	the	United	Kingdom ("U.K.").	The	results	of	Quilter	are	reported	as	discontinued	operations	within	the	Global	Wealth	Management	Group	business	segment	for	all	periods	presented	through the	date	of	sale.

Saxon.				On	October	24,	2011,	the	Company	announced	that	it	had	reached	an	agreement	to	sell	Saxon,	a	provider	of	servicing	and	subservicing	of	residential	mortgage loans,	to	Ocwen	Financial	Corporation.	The	transaction,	which	was	restructured	as	a	sale	of	Saxon's	assets	during	the	first	quarter	of	2012,	was	substantially	completed in	the	second	quarter	of	2012.	Discontinued	operations	in	2012	include	a	provision	of	approximately	$115	million	related	to	a	settlement	with	the	Board	of	Governors	of the	Federal	Reserve	System	(the	"Federal	Reserve")	concerning	the	independent	foreclosure	review	related	to	Saxon.	The	results	of	Saxon	are	reported	as	discontinued operations	within	the	Institutional	Securities	business	segment	for	all	periods	presented.

In	the	fourth	quarter	of	2011,	the	Company	classified	a	real	estate	property	management	company	as	held	for	sale	within	the	Asset	Management	business	segment.	The transaction	closed	during	the	first	quarter	of	2012.	The	results	of	this	company	are	reported	as	discontinued	operations	within	the	Asset	Management	business	segment for	all	periods	presented	through	the	date	of	sale.

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS—(Continued)

Retail	Asset	Management	Business.				On	June	1,	2010,	the	Company	completed	the	sale	of	substantially	all	of	its	retail	asset	management	business	("Retail	Asset Management"),	including	Van	Kampen	Investments,	Inc.,	to	Invesco	Ltd.	("Invesco").	The	Company	received	$800	million	in	cash	and	approximately	30.9	million shares	of	Invesco	stock	upon	the	sale	resulting	in	a	cumulative	after-tax	gain	of	$718	million,	of	which	$8	million,	$28	million	and	$570	million	was	recorded	in	2012, 2011	and	2010,	respectively.	The	remaining	gain,	representing	tax	basis	benefits,	was	recorded	in	the	quarter	ended	December	31,	2009.	The	results	of	Retail	Asset Management	are	reported	as	discontinued	operations	within	the	Asset	Management	business	segment	for	all	periods	presented	through	the	date	of	sale.	The	Company recorded	the	30.9	million	shares	as	securities	available	for	sale	and	subsequently	sold	the	shares	in	the	fourth	quarter	of	2010,	resulting	in	a	realized	pre-tax	gain	of approximately	$102	million	reported	within	Other	revenues	in	the	consolidated	statement	of	income	for	2010.

Revel	Entertainment	Group,	LLC.				On	February	17,	2011,	the	Company	completed	the	sale	of	Revel	Entertainment	Group,	LLC	("Revel"),	a	development	stage enterprise	and	subsidiary	of	the	Company	that	was	primarily	associated	with	a	development	property	in	Atlantic	City,	New	Jersey.	The	sale	price	approximated	the carrying	value	of	Revel	and,	accordingly,	the	Company	did	not	recognize	any	pre-tax	gain	or	loss	in	2011	on	the	sale.	The	results	of	Revel	are	reported	as	discontinued operations	within	the	Institutional	Securities	business	segment	for	all	periods	presented	through	the	date	of	sale.	Amounts	for	2010	included	losses	of	$1.2	billion	in connection	with	such	disposition.	See	Note	22	for	additional	information	about	an	income	tax	benefit	related	to	Revel.

CityMortgage	Bank.				In	the	third	quarter	of	2010,	the	Company	completed	the	disposal	of	CityMortgage	Bank	("CMB"),	a	Moscow-based	mortgage	bank.	The	results of	CMB	are	reported	as	discontinued	operations	within	the	Institutional	Securities	business	segment	for	all	periods	presented	through	the	date	of	sale.

Discover.				On	June	30,	2007,	the	Company	completed	the	spin-off	of	its	business	segment	Discover	Financial	Services	("DFS")	to	its	shareholders.	On	February	11, 2010,	DFS	paid	the	Company	$775	million	in	complete	satisfaction	of	its	obligations	to	the	Company	regarding	the	sharing	of	proceeds	from	a	lawsuit	against	Visa	and MasterCard.	The	payment	was	recorded	as	a	gain	in	discontinued	operations	for	2010.

Other.				In	the	third	quarter	of	2010,	the	Company	completed	the	disposal	of	a	real	estate	property	within	the	Asset	Management	business	segment.	The	results	related	to this	property	are	reported	as	discontinued	operations	for	all	periods	presented	through	the	date	of	sale.

Prior	period	amounts	have	been	recast	for	discontinued	operations.	See	Note	25	for	additional	information	on	discontinued	operations.

Basis	of	Financial	Information.				The	consolidated	financial	statements	are	prepared	in	accordance	with	accounting	principles	generally	accepted	in	the	United	States of	America	("U.S."),	which	require	the	Company	to	make	estimates	and	assumptions	regarding	the	valuations	of	certain	financial	instruments,	the	valuation	of	goodwill and	intangible	assets,	compensation,	deferred	tax	assets,	the	outcome	of	litigation	and	tax	matters,	and	other	matters	that	affect	the	consolidated	financial	statements	and related	disclosures.	The	Company	believes	that	the	estimates	utilized	in	the	preparation	of	the	consolidated	financial	statements	are	prudent	and	reasonable.	Actual results	could	differ	materially	from	these	estimates.	Intercompany	balances	and	transactions	have	been	eliminated.

Consolidation.				The	consolidated	financial	statements	include	the	accounts	of	the	Company,	its	wholly	owned	subsidiaries	and	other	entities	in	which	the	Company	has a	controlling	financial	interest,	including	certain

variable	interest	entities	("VIE")	(see	Note	7).	For	consolidated	subsidiaries	that	are	less	than	wholly	owned,	the	third-party	holdings	of	equity	interests	are	referred	to	as noncontrolling	interests.	The	portion	of	net	income	attributable	to	noncontrolling	interests	for	such	subsidiaries	is	presented	as	either	Net	income	(loss)	applicable	to redeemable	noncontrolling	interests	or	Net	income	(loss)	applicable	to	nonredeemable	noncontrolling	interests	in	the	consolidated	statements	of	income.	The	portion	of the	shareholders'	equity	of	such	subsidiaries	that	is	redeemable	is	presented	as	Redeemable	noncontrolling	interests	outside	of	the	equity	section	in	the	consolidated statements	of	financial	condition.	The	portion	of	the	shareholders'	equity	of	such	subsidiaries	that	is	nonredeemable	is	presented	as	Nonredeemable	noncontrolling interests,	a	component	of	total	equity,	in	the	consolidated	statements	of	financial	condition.

For	entities	where	(1)	the	total	equity	investment	at	risk	is	sufficient	to	enable	the	entity	to	finance	its	activities	without	additional	support	and	(2)	the	equity	holders	bear the	economic	residual	risks	and	returns	of	the	entity	and	have	the	power	to	direct	the	activities	of	the	entity	that	most	significantly	affect	its	economic	performance,	the Company	consolidates	those	entities	it	controls	either	through	a	majority	voting	interest	or	otherwise.	For	VIEs	(i.e.,	entities	that	do	not	meet	these	criteria),	the Company	consolidates	those	entities	where	the	Company	has	the	power	to	make	the	decisions	that	most	significantly	affect	the	economic	performance	of	the	VIE	and has	the	obligation	to	absorb	losses	or	the	right	to	receive	benefits	that	could	potentially	be	significant	to	the	VIE,	except	for	certain	VIEs	that	are	money	market	funds, investment	companies	or	are	entities	qualifying	for	accounting	purposes	as	investment	companies.	Generally,	the	Company	consolidates	those	entities	when	it	absorbs	a majority	of	the	expected	losses	or	a	majority	of	the	expected	residual	returns,	or	both,	of	the	entities.

For	investments	in	entities	in	which	the	Company	does	not	have	a	controlling	financial	interest	but	has	significant	influence	over	operating	and	financial	decisions,	the Company	generally	applies	the	equity	method	of	accounting	with	net	gains	and	losses	recorded	within	Other	revenues.	Where	the	Company	has	elected	to	measure certain	eligible	investments	at	fair	value	in	accordance	with	the	fair	value	option,	net	gains	and	losses	are	recorded	within	Principal	transactions—Investments	(see	Note 4).

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

The	Company's	significant	regulated	U.S.	and	international	subsidiaries	include	Morgan	Stanley	&	Co.	LLC	("MS&Co."),	Morgan	Stanley	Smith	Barney	LLC,	Morgan Stanley	&	Co.	International	plc	("MSIP"),	Morgan	Stanley	MUFG	Securities	Co.,	Ltd.	("MSMS"),	Morgan	Stanley	Bank,	N.A.	and	Morgan	Stanley	Private	Bank, National	Association.

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

# 2.				Significant	Accounting	Policies.

# Revenue	Recognition.

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

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

Commissions	and	fees.				Commission	and	fee	revenues	primarily	arise	from	agency	transactions	in	listed	and	over-the-counter	("OTC")	equity	securities,	services related	to	sales	and	trading	activities,	and	sales	of	mutual	funds,	futures,	insurance	products	and	options.	Commission	and	fee	revenues	are	recognized	in	the	accounts	on trade	date.

Asset	Management,	Distribution	and	Administration	Fees.				Asset	management,	distribution	and	administration	fees	are	recognized	over	the	relevant	contract	period. Sales	commissions	paid	by	the	Company	in	connection	with	the	sale	of	certain	classes	of	shares	of	its	open-end	mutual	fund	products	are	accounted	for	as	deferred commission	assets.	The	Company	periodically	tests	the	deferred	commission	assets	for	recoverability	based	on	cash	flows	expected	to	be	received	in	future	periods.	In certain	management	fee	arrangements,	the	Company	is	entitled	to	receive	performance-based	fees	(also	referred	to	as	incentive	fees)	when	the	return	on	assets	under management	exceeds	certain	benchmark	returns	or	other	performance	targets.	In	such	arrangements,	performance	fee	revenue	is	accrued	(or	reversed)	quarterly	based	on measuring	account/fund	performance	to	date	versus	the	performance	benchmark	stated	in	the	investment	management	agreement.	Performance-based	fees	are	recorded within	Principal	transactions—Investments	or	Asset	management,	distribution	and	administration	fees	depending	on	the	nature	of	the	arrangement.	The	amount	of performance-based	fee	revenue	at	risk	of	reversing	if	fund	performance	falls	below	stated	investment	management	agreement	benchmarks	was	approximately	$205 million	at	December	31,	2012	and	approximately	$179	million	at	December	31,	2011.

Principal	Transactions.				See	"Financial	Instruments	and	Fair	Value"	below	for	principal	transactions	revenue	recognition	discussions.

# Financial	Instruments	and	Fair	Value.

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

Financial	Instruments	Measured	at	Fair	Value.				All	of	the	instruments	within	Financial	instruments	owned	and	Financial	instruments	sold,	not	yet	purchased,	are measured	at	fair	value,	either	through	the	fair	value	option	election	(discussed	below)	or	as	required	by	other	accounting	guidance.	These	financial	instruments	primarily represent	the	Company's	trading	and	investment	positions	and	include	both	cash	and	derivative	products.	In	addition,	debt	securities	classified	as	Securities	available	for sale	are	measured	at	fair	value	in	accordance	with	accounting	guidance	for	certain	investments	in	debt	securities.	Furthermore,	Securities	received	as	collateral	and Obligation	to	return	securities	received	as	collateral	are	measured	at	fair	value	as	required	by	other	accounting	guidance.	Additionally,	certain	Deposits,	certain Commercial	paper	and	other	short-term	borrowings	(structured	notes),	certain	Other	secured	financings,	certain	Securities	sold	under	agreements	to	repurchase	and certain	Long-term	borrowings	(primarily	structured	notes)	are	measured	at	fair	value	through	the	fair	value	option	election.

Gains	and	losses	on	all	of	these	instruments	carried	at	fair	value	are	reflected	in	Principal	transactions—Trading	revenues,	Principal	transactions—Investments	revenues or	Investment	banking	revenues	in	the	consolidated

statements	of	income,	except	for	Securities	available	for	sale	(see	"Securities	Available	for	Sale"	section	herein	and	Note	5)	and	derivatives	accounted	for	as	hedges	(see "Hedge	Accounting"	section	herein	and	Note	12).	Interest	income	and	expense	are	recorded	within	the	consolidated	statements	of	income	depending	on	the	nature	of	the instrument	and	related	market	conventions.	When	interest	is	included	as	a	component	of	the	instruments'	fair	value,	interest	is	included	within	Principal	transactions— Trading	revenues	or	Principal	transactions—Investments	revenues.	Otherwise,	it	is	included	within	Interest	income	or	Interest	expense.	Dividend	income	is	recorded	in Principal	transactions—Trading	revenues	or	Principal	transactions—Investments	revenues	depending	on	the	business	activity.	The	fair	value	of	OTC	financial instruments,	including	derivative	contracts	related	to	financial	instruments	and	commodities,	is	presented	in	the	accompanying	consolidated	statements	of	financial condition	on	a	net-by-counterparty	basis,	when	appropriate.	Additionally,	the	Company	nets	the	fair	value	of	cash	collateral	paid	or	received	against	the	fair	value amounts	recognized	for	net	derivative	positions	executed	with	the	same	counterparty	under	the	same	master	netting	arrangement.

Fair	Value	Option.				The	fair	value	option	permits	the	irrevocable	fair	value	option	election	on	an	instrument-by-instrument	basis	at	initial	recognition	of	an	asset	or liability	or	upon	an	event	that	gives	rise	to	a	new	basis	of	accounting	for	that	instrument.	The	Company	applies	the	fair	value	option	for	eligible	instruments,	including certain	securities	purchased	under	agreements	to	resell,	certain	loans	and	lending	commitments,	certain	equity	method	investments,	certain	securities	sold	under agreements	to	repurchase,	certain	structured	notes,	certain	time	deposits	and	certain	other	secured	financings.

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

In	determining	fair	value,	the	Company	uses	various	valuation	approaches	and	establishes	a	hierarchy	for	inputs	used	in	measuring	fair	value	that	maximizes	the	use	of relevant	observable	inputs	and	minimizes	the	use	of	unobservable	inputs	by	requiring	that	the	most	observable	inputs	be	used	when	available.	Observable	inputs	are inputs	that	market	participants	would	use	in	pricing	the	asset	or	liability	developed	based	on	market	data	obtained	from	sources	independent	of	the	Company. Unobservable	inputs	are	inputs	that	reflect	the	Company's	assumptions	about	the	assumptions	other	market	participants	would	use	in	pricing	the	asset	or	liability developed	based	on	the	best	information	available	in	the	circumstances.	The	hierarchy	is	broken	down	into	three	levels	based	on	the	observability	of	inputs	as	follows:

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

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

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

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

The	Company	considers	prices	and	inputs	that	are	current	as	of	the	measurement	date,	including	during	periods	of	market	dislocation.	In	periods	of	market	dislocation, the	observability	of	prices	and	inputs	may	be	reduced	for	many	instruments.	This	condition	could	cause	an	instrument	to	be	reclassified	from	Level	1	to	Level	2	or	Level 2	to	Level	3	of	the	fair	value	hierarchy	(see	Note	4).	In	addition,	a	downturn	in	market	conditions	could	lead	to	declines	in	the	valuation	of	many	instruments.

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

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

Fair	value	for	many	cash	instruments	and	OTC	derivative	contracts	is	derived	using	pricing	models.	Pricing	models	take	into	account	the	contract	terms	(including maturity)	as	well	as	multiple	inputs,	including,	where	applicable,	commodity	prices,	equity	prices,	interest	rate	yield	curves,	credit	curves,	correlation,	creditworthiness of	the	counterparty,	creditworthiness	of	the	Company,	option	volatility	and	currency	rates.	Where	appropriate,	valuation	adjustments	are	made	to	account	for	various factors	such	as	liquidity	risk	(bid-ask	adjustments),	credit	quality,	model	uncertainty	and	concentration	risk.	Adjustments	for	liquidity	risk	adjust	model-derived	mid- market	levels	of	Level	2	and	Level	3	financial	instruments	for	the	bid-mid	or	mid-ask	spread	required	to	properly	reflect	the	exit	price	of	a	risk	position.	Bid-mid	and mid-ask	spreads	are	marked	to	levels	observed	in	trade	activity,	broker	quotes	or	other	external	third-party	data.	Where	these	spreads	are	unobservable	for	the	particular position	in	question,	spreads	are	derived	from	observable	levels	of	similar	positions.	The	Company	applies	credit-related	valuation	adjustments	to	its	short-term	and long-term	borrowings	(primarily	structured	notes)	for	which	the	fair	value	option	was	elected	and	to	OTC	derivatives.	The	Company	considers	the	impact	of	changes	in its	own	credit	spreads	based	upon	observations	of	the	Company's	secondary	bond	market	spreads	when	measuring	the	fair	value	for	short-term	and	long-term borrowings.	For	OTC	derivatives,	the	impact	of	changes	in	both	the	Company's	and	the	counterparty's	credit	standing	is	considered	when	measuring	fair	value.	In determining	the	expected	exposure,	the	Company	simulates	the	distribution	of	the	future	exposure	to	a	counterparty,	then	applies	market-based	default	probabilities	to the	future	exposure,	leveraging	external	third-party	credit	default	swap	("CDS")	spread	data.	Where	CDS	spread	data	are	unavailable	for	a	specific	counterparty,	bond market	spreads,	CDS	spread	data	based	on	the	counterparty's	credit	rating	or	CDS	spread	data	that	reference	a	comparable	counterparty	may	be	utilized.	The	Company also	considers	collateral	held	and	legally	enforceable	master	netting	agreements	that	mitigate	the	Company's	exposure	to	each	counterparty.	Adjustments	for	model uncertainty	are	taken	for	positions	whose	underlying	models	are	reliant	on	significant	inputs	that	are	neither	directly	nor	indirectly	observable,	hence	requiring	reliance on	established	theoretical	concepts	in	their	derivation.	These	adjustments	are	derived	by	making	assessments	of	the	possible	degree	of	variability	using	statistical approaches	and	market-based	information	where	possible.	The	Company	generally	subjects	all	valuations	and	models	to	a	review	process	initially	and	on	a	periodic basis	thereafter.	The	Company	may	apply	a	concentration	adjustment	to	certain	of	its	OTC	derivatives	portfolios	to	reflect	the	additional	cost	of	closing	out	a	particularly large	risk	exposure.	Where	possible,	these	adjustments	are	based	on	observable

market	information	but	in	many	instances	significant	judgment	is	required	to	estimate	the	costs	of	closing	out	concentrated	risk	exposures	due	to	the	lack	of	liquidity	in the	marketplace.

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

See	Note	4	for	a	description	of	valuation	techniques	applied	to	the	major	categories	of	financial	instruments	measured	at	fair	value.

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

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

Valuation	Process.				The	Valuation	Review	Group	("VRG")	within	the	Financial	Control	Group	("FCG")	is	responsible	for	the	Company's	fair	value	valuation	policies, processes	and	procedures.	VRG	is	independent	of	the	business	units	and	reports	to	the	Chief	Financial	Officer	("CFO"),	who	has	final	authority	over	the	valuation	of	the Company's	financial	instruments.	VRG	implements	valuation	control	processes	to	validate	the	fair	value	of	the	Company's	financial	instruments	measured	at	fair	value including	those	derived	from	pricing	models.	These	control	processes	are	designed	to	assure	that	the	values	used	for	financial	reporting	are	based	on	observable	inputs wherever	possible.	In	the	event	that	observable	inputs	are	not	available,	the	control	processes	are	designed	to	ensure	that	the	valuation	approach	utilized	is	appropriate and	consistently	applied	and	that	the	assumptions	are	reasonable.

The	Company's	control	processes	apply	to	financial	instruments	categorized	in	Level	1,	Level	2	or	Level	3	of	the	fair	value	hierarchy,	unless	otherwise	noted.	These control	processes	include:

Model	Review.				VRG,	in	conjunction	with	the	Market	Risk	Department	("MRD")	and,	where	appropriate,	the	Credit	Risk	Management	Department,	both	of which	report	to	the	Chief	Risk	Officer,	independently	review	valuation	models'	theoretical	soundness,	the	appropriateness	of	the	valuation	methodology	and calibration	techniques	developed	by	the	business	units	using	observable	inputs.	Where	inputs	are	not	observable,	VRG	reviews	the	appropriateness	of	the proposed	valuation	methodology	to	ensure	it	is	consistent	with	how	a	market	participant	would	arrive	at	the	unobservable	input.	The	valuation	methodologies utilized	in	the	absence	of	observable	inputs	may	include	extrapolation	techniques	and	the	use	of	comparable	observable	inputs.	As	part	of	the	review,	VRG develops	a	methodology	to	independently	verify	the	fair	value	generated	by	the	business	unit's	valuation	models.	Before	trades	are	executed	using	new	valuation models,	those	models	are	required	to	be	independently	reviewed.	All	of	the	Company's	valuation	models	are	subject	to	an	independent	annual	VRG	review.

Independent	Price	Verification.				The	business	units	are	responsible	for	determining	the	fair	value	of	financial	instruments	using	approved	valuation	models	and valuation	methodologies.	Generally	on	a	monthly	basis,	VRG	independently	validates	the	fair	values	of	financial	instruments	determined	using	valuation	models by	determining	the	appropriateness	of	the	inputs	used	by	the	business	units	and	by	testing	compliance	with	the	documented	valuation	methodologies	approved	in the	model	review	process	described	above.

VRG	uses	recently	executed	transactions,	other	observable	market	data	such	as	exchange	data,	broker/dealer	quotes,	third-party	pricing	vendors	and	aggregation services	for	validating	the	fair	values	of	financial	instruments	generated	using	valuation	models.	VRG	assesses	the	external	sources	and	their	valuation methodologies	to	determine	if	the	external	providers	meet	the	minimum	standards	expected	of	a	third-party	pricing	source.	Pricing	data	provided	by	approved external	sources	are	evaluated	using	a	number	of	approaches;	for	example,	by	corroborating	the	external	sources'	prices	to	executed	trades,	by	analyzing	the methodology	and	assumptions	used	by	the	external	source	to	generate	a	price	and/or	by	evaluating	how	active	the	third-party	pricing	source	(or	originating	sources used	by	the	third-party	pricing	source)	is	in	the	market.	Based	on	this	analysis,	VRG	generates	a	ranking	of	the	observable	market	data	to	ensure	that	the	highest- ranked	market	data	source	is	used	to	validate	the	business	unit's	fair	value	of	financial	instruments.

For	financial	instruments	categorized	within	Level	3	of	the	fair	value	hierarchy,	VRG	reviews	the	business	unit's	valuation	techniques	to	ensure	these	are consistent	with	market	participant	assumptions.

The	results	of	this	independent	price	verification	and	any	adjustments	made	by	VRG	to	the	fair	value	generated	by	the	business	units	are	presented	to	management of	the	Company's	three	business	segments	(i.e.,	Institutional	Securities,	Global	Wealth	Management	Group	and	Asset	Management),	the	CFO	and	the	Chief	Risk Officer	on	a	regular	basis.

Review	of	New	Level	3	Transactions.				VRG	reviews	the	models	and	valuation	methodology	used	to	price	all	new	material	Level	3	transactions	and	both	FCG	and MRD	management	must	approve	the	fair	value	of	the	trade	that	is	initially	recognized.

For	further	information	on	financial	assets	and	liabilities	that	are	measured	at	fair	value	on	a	recurring	and	non-recurring	basis,	see	Note	4.

# Hedge	Accounting.

The	Company	applies	hedge	accounting	using	various	derivative	financial	instruments	to	hedge	interest	rate	and	foreign	exchange	risk	arising	from	assets	and	liabilities not	held	at	fair	value	as	part	of	asset/liability	and	currency	management.	These	financial	instruments	are	included	within	Financial	instruments	owned—Derivative	and other	contracts	or	Financial	instruments	sold,	not	yet	purchased—Derivative	and	other	contracts	in	the	consolidated	statements	of	financial	condition.

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

For	further	information	on	derivative	instruments	and	hedging	activities,	see	Note	12.

For	purposes	of	the	consolidated	statements	of	cash	flows,	cash	and	cash	equivalents	consist	of	Cash	and	due	from	banks	and	Interest	bearing	deposits	with	banks,	which are	highly	liquid	investments	with	original	maturities	of	three	months	or	less,	held	for	investment	purposes,	and	readily	convertible	to	known	amounts	of	cash.

The	Company's	significant	non-cash	activities	in	2012	included	assets	and	liabilities	of	approximately	$2.6	billion	and	$1.0	billion,	respectively,	disposed	of	in connection	with	business	dispositions,	and	$1.1	billion	of	net	assets	received	from	Citigroup	Inc.	("Citi")	related	to	the	Smith	Barney	delayed	contribution	businesses	in connection	with	the	Wealth	Management	JV	(see	Note	3).	At	June	30,	2011,	Mitsubishi	UFJ	Financial	Group,

Inc.	("MUFG")	and	the	Company	converted	MUFG's	outstanding	Series	B	Non-Cumulative	Non-Voting	Perpetual	Convertible	Preferred	Stock	("Series	B	Preferred Stock")	in	the	Company	with	a	face	value	of	$7.8	billion	(carrying	value	$8.1	billion)	and	a	10%	dividend	into	Company	common	stock.	As	a	result	of	the	adjustment	to the	conversion	ratio,	pursuant	to	the	transaction	agreement,	the	Company	incurred	a	one-time,	non-cash	negative	adjustment	of	approximately	$1.7	billion	in	its calculation	of	basic	and	diluted	earnings	per	share	("EPS")	for	2011	(see	Note	15).	The	Company's	significant	non-cash	activities	in	2010	included	assets	acquired	of approximately	$0.5	billion	and	assumed	liabilities	of	approximately	$0.2	billion	in	connection	with	business	acquisitions	and	approximately	$0.6	billion	of	equity securities	received	in	connection	with	the	sale	of	Retail	Asset	Management,	which	were	subsequently	sold	(see	Notes	1	and	25).

During	the	third	quarter	of	2012,	the	Company	identified	that	activities	related	to	certain	loans	had	been	reported	as	cash	flows	from	operating	activities	that	should have	been	presented	as	investing	activities.	The	Company	corrected	the	previously	presented	cash	flows	for	these	loans	and	in	doing	so,	the	consolidated	statements	of cash	flows	for	2011	and	2010	were	adjusted	to	increase	net	cash	flows	from	operating	activities	by	$9.2	billion	and	$0.3	billion,	respectively,	with	corresponding decreases	in	net	cash	flows	from	investing	activities.	The	Company	has	evaluated	the	effect	of	the	incorrect	presentation,	both	qualitatively	and	quantitatively,	and concluded	that	it	did	not	have	a	material	impact	on,	nor	require	amendment	of,	any	previously	filed	annual	or	quarterly	consolidated	financial	statements.

# Transfers	of	Financial	Assets.

Transfers	of	financial	assets	are	accounted	for	as	sales	when	the	Company	has	relinquished	control	over	the	transferred	assets.	Any	related	gain	or	loss	on	sale	is recorded	in	Net	revenues.	Transfers	that	are	not	accounted	for	as	sales	are	treated	as	a	collateralized	financing,	in	certain	cases	referred	to	as	"failed	sales." Securities	borrowed	or	purchased	under	agreements	to	resell	and	securities	loaned	or	sold	under	agreements	to	repurchase	are	treated	as	collateralized	financings	(see Note	6).	Securities	purchased	under	agreements	to	resell	("reverse	repurchase	agreements")	and	Securities	sold	under	agreements	to	repurchase	("repurchase agreements")	are	carried	on	the	consolidated	statements	of	financial	condition	at	the	amounts	of	cash	paid	or	received,	plus	accrued	interest,	except	for	certain repurchase	agreements	for	which	the	Company	has	elected	the	fair	value	option	(see	Note	4).	Where	appropriate,	repurchase	agreements	and	reverse	repurchase agreements	with	the	same	counterparty	are	reported	on	a	net	basis.	Securities	borrowed	and	securities	loaned	are	recorded	at	the	amount	of	cash	collateral	advanced	or received.

# Premises,	Equipment	and	Software	Costs.

Premises	and	equipment	consist	of	buildings,	leasehold	improvements,	furniture,	fixtures,	computer	and	communications	equipment,	power	plants,	tugs,	barges, terminals,	pipelines	and	software	(externally	purchased	and	developed	for	internal	use).	Premises	and	equipment	are	stated	at	cost	less	accumulated	depreciation	and amortization.	Depreciation	and	amortization	are	provided	by	the	straight-line	method	over	the	estimated	useful	life	of	the	asset.	Estimated	useful	lives	are	generally	as follows:	buildings—39	years;	furniture	and	fixtures—7	years;	computer	and	communications	equipment—3	to	9	years;	power	plants—15	years;	tugs	and	barges—15 years;	and	terminals,	pipelines	and	equipment—3	to	25	years.	Estimated	useful	lives	for	software	costs	are	generally	3	to	5	years.

Leasehold	improvements	are	amortized	over	the	lesser	of	the	estimated	useful	life	of	the	asset	or,	where	applicable,	the	remaining	term	of	the	lease,	but	generally	not exceeding:	25	years	for	building	structural	improvements	and	15	years	for	other	improvements.

Premises,	equipment	and	software	costs	are	tested	for	impairment	whenever	events	or	changes	in	circumstances	suggest	that	an	asset's	carrying	value	may	not	be	fully recoverable	in	accordance	with	current	accounting	guidance.

The	Company	accounts	for	income	tax	expense	(benefit)	using	the	asset	and	liability	method,	under	which	recognition	of	deferred	tax	assets	and	related	valuation allowance	(recorded	in	Other	assets)	and	liabilities	for	the	expected	future	tax	consequences	of	events	that	have	been	included	in	the	financial	statements.	Under	this method,	deferred	tax	assets	and	liabilities	are	determined	based	upon	the	temporary	differences	between	the	financial	statement	and	income	tax	bases	of	assets	and liabilities	using	currently	enacted	tax	rates	in	effect	for	the	year	in	which	the	differences	are	expected	to	reverse.	The	effect	of	a	change	in	tax	rates	on	deferred	tax	assets and	liabilities	is	recognized	in	income	tax	expense	(benefit)	in	the	period	that	includes	the	enactment	date.

The	Company	recognizes	net	deferred	tax	assets	to	the	extent	that	it	believes	these	assets	are	more	likely	than	not	to	be	realized.	In	making	such	a	determination,	the Company	considers	all	available	positive	and	negative	evidence,	including	future	reversals	of	existing	taxable	temporary	differences,	projected	future	taxable	income, tax-planning	strategies,	and	results	of	recent	operations.	If	the	Company	determines	that	it	would	be	able	to	realize	deferred	tax	assets	in	the	future	in	excess	of	their	net recorded	amount,	it	would	make	an	adjustment	to	the	deferred	tax	asset	valuation	allowance,	which	would	reduce	the	provision	for	income	taxes.

Uncertain	tax	positions	are	recorded	on	the	basis	of	a	two-step	process	whereby	(1)	the	Company	determines	whether	it	is	more	likely	than	not	that	the	tax	positions	will be	sustained	on	the	basis	of	the	technical	merits	of	the	position	and	(2)	for	those	tax	positions	that	meet	the	more-likely-than-not	recognition	threshold,	the	Company recognizes	the	largest	amount	of	tax	benefit	that	is	more	than	50	percent	likely	to	be	realized	upon	ultimate	settlement	with	the	related	tax	authority.

# Earnings	per	Common	Share.

Basic	EPS	is	computed	by	dividing	income	available	to	Morgan	Stanley	common	shareholders	by	the	weighted	average	number	of	common	shares	outstanding	for	the period.	Income	available	to	Morgan	Stanley	common	shareholders	represents	net	income	applicable	to	Morgan	Stanley	reduced	by	preferred	stock	dividends	and allocations	of	earnings	to	participating	securities.	Common	shares	outstanding	include	common	stock	and	vested	restricted	stock	units	("RSUs")	where	recipients	have satisfied	either	the	explicit	vesting	terms	or	retirement	eligibility	requirements.	Diluted	EPS	reflects	the	assumed	conversion	of	all	dilutive	securities.

In	December	2007,	the	Company	sold	Equity	Units	that	included	contracts	to	purchase	Company	common	stock	to	a	wholly	owned	subsidiary	of	China	Investment Corporation,	Ltd.	("CIC"),	(the	"CIC	Entity"),	for	approximately	$5,579	million.	Effective	October	13,	2008,	the	Company	began	calculating	EPS	in	accordance	with the	accounting	guidance	for	determining	EPS	for	participating	securities	as	a	result	of	an	adjustment	to	these	Equity	Units.	The	accounting	guidance	for	participating securities	and	the	two-class	method	of	calculating	EPS	addresses	the	computation	of	EPS	by	companies	that	have	issued	securities	other	than	common	stock	that contractually	entitle	the	holder	to	participate	in	dividends	and	earnings	of	the	company	along	with	common	shareholders	according	to	a	predetermined	formula.	The	two- class	method	requires	the	Company	to	present	EPS	as	if	all	of	the	earnings	for	the	period	are	distributed	to	Morgan	Stanley	common	shareholders	and	any	participating securities,	regardless	of	whether	any	actual	dividends	or	distributions	are	made.	The	amount	allocated	to	the	participating	securities	is	based	upon	the	contractual	terms of	their	respective	contract	and	is	reflected	as	a	reduction	to	Net	income	applicable	to	Morgan	Stanley	common	shareholders	for	the	Company's	basic	and	diluted	EPS calculations	(see	Note	16).	The	two-class	method	does	not	impact	the	Company's	actual	net	income	applicable	to	Morgan	Stanley	or	other	financial	results.	Unless contractually	required	by	the	terms	of	the	participating	securities,	no	losses	are	allocated	to	participating	securities	for	purposes	of	the	EPS	calculation	under	the	two- class	method.

On	July	1,	2010,	Moody's	Investors	Service,	Inc.	("Moody's")	announced	that	it	was	lowering	the	equity	credit	assigned	to	these	Equity	Units.	The	terms	of	the	Equity Units	permitted	the	Company	to	redeem	the	junior	subordinated	debentures	underlying	the	Equity	Units	upon	the	occurrence	and	continuation	of	such	a	change	in	equity credit	(a	"Rating	Agency	Event").	In	response	to	this	Rating	Agency	Event,	the	Company	redeemed	the	junior	subordinated	debentures	in	August	2010,	and	the redemption	proceeds	were	subsequently	used	by	the	CIC	Entity	to	settle	its	obligation	under	the	purchase	contracts.	The	settlement	of	the	purchase	contracts	and	delivery of	116,062,911	shares	of	Company	common	stock	to	the	CIC	Entity	occurred	in	August	2010.

Under	current	accounting	guidance,	unvested	share-based	payment	awards	that	contain	non-forfeitable	rights	to	dividends	or	dividend	equivalents	(whether	paid	or unpaid)	are	participating	securities	and	shall	be	included	in	the	computation	of	EPS	pursuant	to	the	two-class	method	described	above.	Share-based	payment	awards	that pay	dividend	equivalents	subject	to	vesting	are	not	deemed	participating	securities	and	are	included	in	diluted	shares	outstanding	(if	dilutive)	under	the	treasury	stock method.

The	Company	has	granted	performance-based	stock	units	("PSU")	that	vest	and	convert	to	shares	of	common	stock	only	if	the	Company	satisfies	predetermined performance	and	market	goals.	Since	the	issuance	of	the	shares	is	contingent	upon	the	satisfaction	of	certain	conditions,	the	PSUs	are	included	in	diluted	EPS	based	on the	number	of	shares	(if	any)	that	would	be	issuable	if	the	end	of	the	reporting	period	were	the	end	of	the	contingency	period.

# Long-Term	Incentive	Compensation.

Stock-Based	Compensation.				The	Company	accounts	for	stock-based	compensation	in	accordance	with	the	accounting	guidance	for	equity-based	awards.	This accounting	guidance	requires	measurement	of	compensation	cost	for	stock-based	awards	at	fair	value	and	recognition	of	compensation	cost	over	the	service	period,	net of	estimated	forfeitures.	The	Company	determines	the	fair	value	of	RSUs	(including	RSUs	with	non-market	performance	conditions)	based	on	the	grant	date	fair	value of	the	Company's	common	stock,	measured	as	the	volume-weighted	average	price	on	the	date	of	grant.	The	fair	value	of	stock	options	is	determined	using	the	Black- Scholes	valuation	model	and	the	single	grant	life	method.	Under	the	single	grant	life	method,	option	awards	with	graded	vesting	are	valued	using	a	single	weighted average	expected	option	life.	RSUs	with	market-based	conditions	are	valued	using	a	Monte	Carlo	valuation	model.

Compensation	expense	for	stock-based	compensation	awards	is	recognized	using	the	graded	vesting	attribution	method.	Compensation	expense	for	awards	with performance	conditions	is	recognized	based	on	the	probable	outcome	of	the	performance	condition	at	each	reporting	date.	At	the	end	of	the	contingency	period,	the	total compensation	cost	recognized	will	be	the	grant-date	fair	value	of	all	units	that	actually	vest	based	on	the	outcome	of	the	performance	conditions.	Compensation	expense for	awards	with	market-based	conditions	is	recognized	irrespective	of	the	probability	of	the	market	condition	being	achieved	and	is	not	reversed	if	the	market	condition	is not	met.

The	Company	recognizes	the	expense	for	stock-based	awards	over	the	requisite	service	period.	For	anticipated	year-end	equity	awards	that	are	granted	to	employees expected	to	be	retirement-eligible	under	the	award	terms,	that	do	not	contain	a	future	service	requirement,	the	Company	accrues	the	estimated	cost	of	these	awards	over the	course	of	the	calendar	year	preceding	the	grant	date.	The	Company	believes	that	this	method	of	recognition	for	retirement-eligible	employees	is	preferable	because	it better	reflects	the	period	over	which	the	compensation	is	earned.	Certain	other	2012	performance	year	award	terms	introduced	a	new	vesting	requirement	for	employees who	satisfy	existing	retirement-eligible	provisions	to	provide	a	one-year	advance	notice	of	their	intention	to	retire	from	the	Company.	As	such,	these	awards	will	begin	to be	expensed	after	the	grant	date	in	2013	over	the	appropriate	service	period.

Rabbi	Trust.				The	Company	maintains,	and	utilizes	at	its	discretion,	trusts,	commonly	referred	to	as	rabbi	trusts	(the	"Rabbi	Trusts"),	in	connection	with	certain	long- term	incentive	compensation	plans.	The	assets	of	the	Rabbi	Trusts	are	consolidated,	and	as	such,	are	accounted	for	in	a	manner	similar	to	treasury	stock,	where	the	shares of	common	stock	outstanding	are	offset	by	an	equal	amount	in	Employee	stock	trust.	The	Company	uses	the	grant	date	fair	value	of	long-term	incentive	compensation	as the	basis	for	recognition	of	the	assets	in	the	Rabbi	Trusts.	Subsequent	changes	in	the	fair	value	are	not	recognized	as	the	Company's	long-term	incentive	compensation plans	do	not	permit	diversification	and	must	be	settled	by	the	delivery	of	a	fixed	number	of	shares	of	the	Company's	common	stock.

Deferred	Cash-Based	Compensation.				The	Company	also	maintains	various	deferred	cash-based	compensation	plans	for	the	benefit	of	certain	current	and	former employees	that	provide	a	return	to	the	participating	employees	based	upon	the	performance	of	various	referenced	investments.	The	Company	often	invests	directly,	as	a principal,	in	investments	or	other	financial	instruments	to	economically	hedge	its	obligations	under	its	deferred	cash-based	compensation	plans.	Changes	in	value	of	such investments	made	by	the	Company	are	recorded	in	Principal	transactions—Trading	and	Principal	transactions—Investments.

Compensation	expense	associated	with	the	deferred	cash-based	compensation	plans	is	calculated	based	on	the	notional	value	of	the	award	granted,	adjusted	for	upward and	downward	changes	in	fair	value	of	the	referenced	investment.	For	unvested	awards,	the	expense	is	recognized	over	the	service	period	using	graded	vesting	attribution method.	Generally,	changes	in	compensation	expense	resulting	from	changes	in	fair	value	of	the	referenced	investment	will	be	offset	by	changes	in	fair	value	of investments	made	by	the	Company.	However,	there	may	be	a	timing	difference	between	the	immediate	revenue	recognition	of	gains	and	losses	on	the	Company's investments	and	the	deferred	recognition	of	the	related	compensation	expense	over	the	vesting	period.	For	vested	awards	with	only	notional	earnings	on	the	referenced investments,	the	expense	is	fully	recognized	in	the	current	period.

# Translation	of	Foreign	Currencies.

Assets	and	liabilities	of	operations	having	non-U.S.	dollar	functional	currencies	are	translated	at	year-end	rates	of	exchange,	and	amounts	recognized	in	the	income statement	are	translated	at	the	rate	of	exchange	on	the	respective	date	of	recognition	for	each	amount.	Gains	or	losses	resulting	from	translating	foreign	currency financial	statements,	net	of	hedge	gains	or	losses	and	related	tax	effects,	are	reflected	in	Accumulated	other	comprehensive	income	(loss),	a	separate	component	of Morgan	Stanley	Shareholders'	equity	on	the	consolidated	statements	of	financial	condition.	Gains	or	losses	resulting	from	remeasurement	of	foreign	currency transactions	are	included	in	net	income.

Goodwill	and	indefinite-lived	intangible	assets	are	not	amortized	and	are	reviewed	annually	(or	more	frequently	when	certain	events	or	circumstances	exist)	for impairment.	Other	intangible	assets	are	amortized	over	their	estimated	useful	lives	and	reviewed	for	impairment.	Impairment	losses	are	recorded	within	Other	expenses in	the	consolidated	statements	of	income.

During	the	quarter	ended	September	30,	2012,	the	Company	changed	the	brand	name	of	the	U.S.	Wealth	Management	business	from	Morgan	Stanley	Smith	Barney	to Morgan	Stanley	Wealth	Management.	The	Smith

Barney	tradename	will	continue	to	be	legally	protected	by	the	Company	and	will	continue	to	be	used	as	stipulated	by	our	regulators	as	the	legal	entity	name	for	the Company's	retail	broker-dealer,	Morgan	Stanley	Smith	Barney	LLC.	As	a	result	of	the	change	in	intended	use	of	this	tradename,	the	Company	determined	that	the tradename	should	be	reclassified	from	an	indefinite–lived	to	a	finite–lived	intangible	asset.	This	change	required	the	Company	to	test	the	intangible	asset	for impairment.	Based	on	a	comparison	of	the	fair	value	to	the	carrying	value	of	the	tradename	as	of	the	date	of	the	brand	name	change,	no	impairment	was	identified.	The carrying	value	of	the	tradename	will	be	amortized	over	its	remaining	estimated	useful	life.

Available	for	sale	("AFS")	securities	are	reported	at	fair	value	in	the	consolidated	statements	of	financial	condition	with	unrealized	gains	and	losses	reported	in Accumulated	other	comprehensive	income	(loss),	net	of	tax.	Interest	and	dividend	income,	including	amortization	of	premiums	and	accretion	of	discounts,	is	included	in Interest	income	in	the	consolidated	statements	of	income.	Realized	gains	and	losses	on	AFS	securities	are	reported	in	earnings	(see	Note	5).	The	Company	utilizes	the "first-in,	first-out"	method	as	the	basis	for	determining	the	cost	of	AFS	securities.

Other-than-temporary	impairment.				AFS	securities	with	a	current	fair	value	less	than	their	amortized	cost	are	analyzed	as	part	of	the	Company's	ongoing	assessment	of other-than-temporary	impairment	("OTTI").

For	AFS	debt	securities,	the	Company	incurs	a	loss	in	the	consolidated	statements	of	income	for	the	OTTI	if	the	Company	has	the	intent	to	sell	the	security	or	it	is	more likely	than	not	the	Company	will	be	required	to	sell	the	security	before	recovery	of	its	amortized	cost	basis	as	of	the	reporting	date.	For	those	debt	securities	the Company	does	not	expect	to	sell	or	expect	to	be	required	to	sell,	the	Company	must	evaluate	whether	it	expects	to	recover	the	entire	amortized	cost	basis	of	the	debt security.	In	the	event	of	a	credit	loss,	only	the	amount	of	impairment	associated	with	the	credit	loss	is	recognized	in	income.	Unrealized	losses	relating	to	factors	other than	credit	are	recorded	in	Accumulated	other	comprehensive	income	(loss),	net	of	tax.	A	credit	loss	exists	if	the	present	value	of	cash	flows	expected	to	be	collected	is less	than	the	amortized	cost	basis	of	the	security.	When	determining	if	a	credit	loss	exists,	the	Company	considers	all	relevant	information	including	the	length	of	time and	the	extent	to	which	the	fair	value	has	been	less	than	the	amortized	cost	basis;	adverse	conditions	specifically	related	to	the	security,	an	industry,	or	geographic	area; changes	in	the	financial	condition	of	the	issuer	of	the	security,	or	in	the	case	of	an	asset-backed	debt	security,	changes	in	the	financial	condition	of	the	underlying	loan obligors;	the	historical	and	implied	volatility	of	the	fair	value	of	the	security;	the	payment	structure	of	the	debt	security	and	the	likelihood	of	the	issuer	being	able	to make	payments	that	increase	in	the	future;	failure	of	the	issuer	of	the	security	to	make	scheduled	interest	or	principal	payments;	any	changes	to	the	rating	of	the	security by	a	rating	agency	and	recoveries	or	additional	declines	in	fair	value	after	the	balance	sheet	date.	When	estimating	the	present	value	of	expected	cash	flows,	information includes	the	remaining	payment	terms	of	the	security,	prepayment	speeds,	financial	condition	of	the	issuer(s),	expected	defaults	and	the	value	of	any	underlying collateral.

For	AFS	equity	securities,	the	Company	considers	various	factors	including	the	intent	and	ability	to	hold	the	equity	security	for	a	period	of	time	sufficient	to	allow	for any	anticipated	recovery	in	market	value	in	evaluating	whether	an	OTTI	exists.	If	the	equity	security	is	considered	other-than-temporarily	impaired,	the	security	will	be written	down	to	fair	value,	with	the	full	difference	between	fair	value	and	cost	recognized	in	earnings.

# Loans.

The	Company	accounts	for	loans	based	on	the	following	categories:	loans	held	for	investment;	loans	held	for	sale;	and	loans	at	fair	value.

# Loans	Held	for	Investment

Loans	held	for	investment	are	reported	as	outstanding	principal	adjusted	for	any	charge-offs,	the	allowance	for	loan	losses,	any	deferred	fees	or	costs	for	originated loans,	and	any	unamortized	premiums	or	discounts	for	purchased	loans.

Interest	Income.				Interest	income	on	performing	loans	held	for	investment	is	accrued	and	recognized	as	interest	income	at	the	contractual	rate	of	interest.	Purchase price	discounts	or	premiums,	as	well	as	net	deferred	loan	fees	or	costs,	are	amortized	into	interest	income	over	the	life	of	the	loan	to	produce	a	level	rate	of	return.

Allowance	for	Loan	Losses.				The	allowance	for	loan	losses	estimates	probable	losses	related	to	loans	individually	identified	for	impairment	in	addition	to	the	probable losses	inherent	in	the	held	for	investment	loan	portfolio.

When	a	loan	is	deemed	impaired	or	required	to	be	specifically	evaluated	under	regulatory	requirements	in	certain	regions,	the	impairment	is	measured	based	on	the present	value	of	expected	future	cash	flows	discounted	at	the	loan's	effective	interest	rate	or	as	a	practical	expedient,	the	observable	market	price	of	the	loan	or	the	fair value	of	the	collateral	if	the	loan	is	collateral	dependent.	If	the	present	value	of	the	expected	future	cash	flows	(or	alternatively,	the	observable	market	price	of	the	loan	or the	fair	value	of	the	collateral)	is	less	than	the	recorded	investment	in	the	loan,	then	the	Company	recognizes	an	allowance	and	a	charge	to	the	provision	for	loan	losses within	Other	revenues.

Generally,	inherent	losses	in	the	portfolio	for	unimpaired	loans	are	estimated	using	statistical	analysis	and	judgment	around	the	exposure	at	default,	the	probability	of default	and	the	loss	given	default.	Specific	qualitative	and	environmental	factors	such	as	economic	and	business	conditions,	nature	and	volume	of	the	portfolio	and lending	terms,	and	volume	and	severity	of	past	due	loans	may	also	be	considered	in	the	calculations.

Nonaccrual	Loans.				The	Company	places	loans	on	nonaccrual	status	if	principal	or	interest	is	past	due	for	a	period	of	90	days	or	more	or	payment	of	principal	or	interest is	in	doubt	unless	the	obligation	is	well	secured	and	in	the	process	of	collection.	A	loan	is	considered	past	due	when	a	payment	due	according	to	the	contractual	terms	of the	loan	agreement	has	not	been	remitted	by	the	borrower.	Loans	assigned	a	credit	quality	indicator	of	Substandard,	Doubtful	or	Loss	are	identified	as	impaired	and placed	on	nonaccrual	status.	For	descriptions	of	these	modifiers,	see	Note	8.

Payments	received	on	nonaccrual	loans	held	for	investment	are	applied	to	principal	if	there	is	doubt	regarding	the	ultimate	collectability	of	principal	(i.e.,	cost	recovery method).	If	collection	of	the	principal	of	nonaccrual	loans	held	for	investment	is	not	in	doubt,	interest	income	is	recognized	on	a	cash	basis.	If	neither	principal	nor interest	collection	is	in	doubt,	loans	are	on	accrual	status	and	interest	income	is	recognized	using	the	effective	interest	method.	Loans	that	are	nonaccrual	status	may	not be	restored	to	accrual	status	until	all	delinquent	principal	and/or	interest	has	been	brought	current,	after	a	reasonable	period	of	performance,	typically	a	minimum	of six	months.

Charge-offs.				The	Company	charges	off	a	loan	in	the	period	that	it	is	deemed	uncollectible	and	records	a	reduction	in	the	allowance	for	loan	losses	and	the	balance	of the	loan.

Loan	Commitments.				The	Company	calculates	the	liability	and	related	expense	for	the	credit	exposure	related	to	commitments	to	fund	loans	that	will	be	held	for investment	in	a	manner	similar	to	outstanding	loans	disclosed	above.	The	analysis	also	incorporates	a	credit	conversion	factor,	which	is	the	expected	utilization	of	the undrawn	commitment.	The	liability	is	recorded	in	Other	liabilities	and	accrued	expenses	on	the	consolidated	statements	of	financial	condition,	and	the	expense	is recorded	in	Other	non-interest	expenses	in	the	consolidated	statements	of	income.	For	more	information	regarding	loan	commitments,	standby	letters	of	credit	and financial	guarantees,	see	Note	13.

# Loans	Held	for	Sale

Loans	held	for	sale	are	measured	at	the	lower	of	cost	or	fair	value,	with	valuation	changes	recorded	in	Other	revenues.	The	Company	determines	the	valuation	allowance on	an	individual	loan	basis,	except	for	residential	mortgage	loans	for	which	the	valuation	allowance	is	determined	at	the	loan	product	level.	Any	decreases	in	fair	value below	the	initial	carrying	amount	and	any	recoveries	in	fair	value	up	to	the	initial	carrying	amount	are	recorded	in	Other	revenues.	However,	increases	in	fair	value above	initial	carrying	value	are	not	recognized.

Interest	income	on	loans	held	for	sale	is	accrued	and	recognized	based	on	the	contractual	rate	of	interest.	Loan	origination	fees	or	costs	and	purchase	price	discounts	or premiums	are	deferred	in	a	contra	loan	account	until	the	related	loan	is	sold.	The	deferred	fees	and	discounts	or	premiums	are	an	adjustment	to	the	basis	of	the	loan	and therefore	are	included	in	the	periodic	determination	of	the	lower	of	cost	or	fair	value	adjustments	and/or	the	gain	or	losses	recognized	at	the	time	of	sale.

Loans	held	for	sale	are	subject	to	the	nonaccrual	policies	described	above.	Because	loans	held	for	sale	are	recognized	at	the	lower	of	cost	or	fair	value,	the	allowance	for loan	losses	and	charge-off	policies	do	not	apply	to	these	loans.

# Loans	at	Fair	Value

Loans	for	which	the	fair	value	option	is	elected	are	carried	at	fair	value,	with	changes	in	fair	value	recognized	in	earnings.	Loans	carried	at	fair	value	are	not	evaluated	for purposes	of	recording	an	allowance	for	loan	losses.	For	further	information	on	loans	carried	at	fair	value	and	classified	as	Financial	instruments	owned	and	Financial instruments	sold,	not	yet	purchased,	see	Note	4.

For	further	information	on	loans,	see	Note	8.

# Noncontrolling	Interests.

For	consolidated	subsidiaries	that	are	less	than	wholly	owned,	the	third-party	holdings	of	equity	interests	are	referred	to	as	noncontrolling	interests.

As	a	result	of	the	modifications	to	the	purchase	agreement	regarding	the	Wealth	Management	JV,	the	Company	now	classifies	Citi's	interest	in	the	Wealth	Management JV	as	a	redeemable	noncontrolling	interest,	as	the	interest	is	redeemable	at	both	the	option	of	the	Company	and	upon	the	occurrence	of	an	event	that	is	not	solely	within the	Company's	control.	This	interest	is	classified	outside	of	the	equity	section	in	Redeemable	noncontrolling	interests	in	the	consolidated	statements	of	financial condition.	Noncontrolling	interests	that	do	not	contain	such	redemption	features	are	presented	as	Nonredeemable	noncontrolling	interests,	a	component	of	total	equity,	in the	consolidated	statements	of	financial	condition.

Reconsideration	of	Effective	Control	for	Repurchase	Agreements.				In	April	2011,	the	Financial	Accounting	Standards	Board	(the	"FASB")	issued	accounting	guidance that	modified	the	criteria	that	must	be	satisfied	for	a	transfer	of	financial	assets	to	be	accounted	for	as	a	sale.	If	the	transferor	maintains	effective	control	over	the transferred	assets,	the	transaction	is	to	be	accounted	for	as	a	financing.	This	guidance	eliminated	from	the	assessment	of	effective	control	(1)	the	criterion	requiring	the transferor	to	have	the	ability	to	repurchase	or	redeem	the	financial	assets	on	substantially	the	agreed	terms,	even	in	the	event	of	default	by	the	transferee,	and	(2)	the collateral	maintenance	implementation	guidance	related	to	that	criterion.	This	guidance	became	effective	for	transfers	occurring	on	and	after	January	1,	2012.	The adoption	of	this	accounting	guidance	did	not	have	a	material	impact	on	the	Company's	consolidated	financial	statements.

Amendments	to	Achieve	Common	Fair	Value	Measurement	and	Disclosure	Requirements	in	U.S.	GAAP	and	IFRS.				In	May	2011,	the	FASB	issued	an	accounting update	that	clarified	existing	fair	value	measurement	guidance	and	changed	certain	principles	or	requirements	for	measuring	fair	value	or	disclosing	information	about fair	value	measurements.	This	update	resulted	in	common	principles	and	requirements	for	measuring	fair	value	and	for	disclosing	information	about	fair	value measurement	in	accordance	with	U.S.	generally	accepted	accounting	principles	("GAAP")	and	International	Financial	Reporting	Standards	("IFRS").	The	guidance became	effective	for	the	Company	beginning	on	January	1,	2012.	See	Note	4	for	additional	disclosures	as	required	by	this	accounting	guidance.

Goodwill	Impairment	Test.				In	September	2011,	the	FASB	issued	accounting	guidance	that	simplified	how	entities	test	goodwill	for	impairment.	This	guidance	allows entities	an	option	to	first	assess	qualitative	factors	to	determine	whether	it	is	necessary	to	perform	the	two-step	quantitative	goodwill	impairment	test.	Under	that	option, an	entity	no	longer	would	be	required	to	calculate	the	fair	value	of	a	reporting	unit	unless	the	entity	determines,	based	on	that	qualitative	assessment,	that	it	is	more	likely than	not	that	its	fair	value	is	less	than	its	carrying	amount.	This	guidance	became	effective	for	the	Company	beginning	on	January	1,	2012.	The	adoption	of	this accounting	guidance	did	not	have	a	material	impact	on	the	Company's	consolidated	financial	statements.

# 3.	Wealth	Management	Joint	Venture.

On	May	31,	2009,	the	Company	and	Citi	consummated	the	combination	of	the	Company's	Global	Wealth	Management	Group	and	the	businesses	of	Citi's	Smith	Barney in	the	U.S.,	Quilter	Holdings	Ltd.	(see	Note	25)	in	the	U.K.	and	Smith	Barney	Australia	(collectively,	"Smith	Barney").	The	combined	businesses	operate	as	Morgan Stanley	Wealth	Management.	Prior	to	September	2012,	the	Company	owned	51%	and	Citi	owned	49%	of	the	Wealth	Management	JV.

In	September	2012,	the	Company	reached	an	agreement	with	Citi	to	purchase	an	additional	14%	stake	in	the	Wealth	Management	JV,	and	a	transfer	of	approximately $5.4	billion	of	deposits	at	no	premium	from	Citi.	In	addition,	the	agreement	specifies	that	the	Company	must	use	reasonable	best	efforts	to	obtain	the	regulatory approvals	required	to	purchase	the	remaining	35%	stake	in	the	Wealth	Management	JV	by	June	1,	2015	and,	subject	to	receipt	of	such	approvals,	the	Company	must consummate	such	acquisition	by	that	date	at	a	purchase	price	of	$4.725	billion	(or	a	pro	rata	portion	of	such	amount	if	less	than	35%	of	the	total	outstanding	stake	is being	purchased)	and	receive	a	transfer	of	deposits	currently	estimated	to	be	$59	billion	at	no	premium	from	Citi,	no	later	than	June	1,	2015.

The	Company	completed	the	purchase	of	the	additional	14%	stake	in	the	Wealth	Management	JV	from	Citi	on	September	17,	2012	for	$1.89	billion.	The	related	$5.4 billion	of	deposits	were	transferred	at	no	premium	in	October	of	2012.	At	December	31,	2012,	the	Company	held	a	65%	stake	in	the	Wealth	Management	JV.

The	change	in	the	terms	of	the	Wealth	Management	JV's	agreement	to	acquire	the	remaining	noncontrolling	interest	resulted	in	a	reclassification	of	approximately	$4.3 billion	from	nonredeemable	noncontrolling	interests	to	redeemable	noncontrolling	interests	on	the	consolidated	statement	of	financial	condition.	At	December	31,	2012, the	redeemable	noncontrolling	interest	is	not	reflected	as	a	liability	at	its	redemption	amount	because	it	is	not	deemed	probable	that	the	noncontrolling	interest	will become	redeemable	due	to	the	required	regulatory	approvals.

# 4.	Fair	Value	Disclosures.

# Fair	Value	Measurements.

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

# U.S.	Government	and	Agency	Securities.

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

•	 U.S.	Agency	Securities.				U.S.	agency	securities	are	composed	of	three	main	categories	consisting	of	agency-issued	debt,	agency	mortgage	pass-through	pool securities	and	collateralized	mortgage	obligations.	Non-callable	agency-issued	debt	securities	are	generally	valued	using	quoted	market	prices.	Callable agency-issued	debt	securities	are	valued	by	benchmarking	model-derived	prices	to	quoted	market	prices	and	trade	data	for	identical	or	comparable	securities. The	fair	value	of	agency	mortgage	pass-through	pool	securities	is	model-driven	based	on	spreads	of	the	comparable	To-be-announced	("TBA")	security. Collateralized	mortgage	obligations	are	valued	using	quoted	market	prices	and	trade	data	adjusted	by	subsequent	changes	in	related	indices	for	identical	or comparable	securities.	Actively	traded	non-callable	agency-issued	debt	securities	are	generally	categorized	in	Level	1	of	the	fair	value	hierarchy.	Callable agency-issued	debt	securities,	agency	mortgage	pass-through	pool	securities	and	collateralized	mortgage	obligations	are	generally	categorized	in	Level	2	of	the fair	value	hierarchy.

# Other	Sovereign	Government	Obligations.

•	 Foreign	sovereign	government	obligations	are	valued	using	quoted	prices	in	active	markets	when	available.	These	bonds	are	generally	categorized	in	Level	1	of the	fair	value	hierarchy.	If	the	market	is	less	active	or	prices	are	dispersed,	these	bonds	are	categorized	in	Level	2	of	the	fair	value	hierarchy.

# Corporate	and	Other	Debt.

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

•	 Residential	Mortgage-Backed	Securities	("RMBS"),	Commercial	Mortgage-Backed	Securities	("CMBS")	and	other	Asset-Backed	Securities ("ABS").				RMBS,	CMBS	and	other	ABS	may	be	valued	based	on	price	or	spread	data	obtained	from	observed	transactions	or	independent	external	parties such	as	vendors	or	brokers.	When	position-specific	external	price	data	are	not	observable,	the	fair	value	determination	may	require	benchmarking	to	similar instruments	and/or	analyzing	expected	credit	losses,	default	and	recovery	rates.	In	evaluating	the	fair	value	of	each	security,	the	Company	considers	security collateral-specific	attributes,	including	payment	priority,	credit	enhancement	levels,	type	of	collateral,	delinquency	rates	and	loss	severity.	In	addition,	for RMBS	borrowers,	Fair	Isaac	Corporation	("FICO")	scores	and	the	level	of	documentation	for	the	loan	are	also	considered.	Market	standard	models,	such	as Intex,	Trepp	or	others,	may	be	deployed	to	model	the	specific	collateral	composition	and	cash	flow	structure	of	each	transaction.	Key	inputs	to	these	models are	market	spreads,	forecasted	credit	losses,	default	and	prepayment	rates	for	each	asset	category.	Valuation	levels	of	RMBS	and	CMBS	indices	are	also	used as	an	additional	data	point	for	benchmarking	purposes	or	to	price	outright	index	positions.

RMBS,	CMBS	and	other	ABS	are	generally	categorized	in	Level	2	of	the	fair	value	hierarchy.	If	external	prices	or	significant	spread	inputs	are	unobservable or	if	the	comparability	assessment	involves	significant	subjectivity	related	to	property	type	differences,	cash	flows,	performance	and	other	inputs,	then	RMBS, CMBS	and	other	ABS	are	categorized	in	Level	3	of	the	fair	value	hierarchy.

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

•	 Collateralized	Debt	Obligations	("CDO").	The	Company	holds	cash	CDOs	that	typically	reference	a	tranche	of	an	underlying	synthetic	portfolio	of	single name	credit	default	swaps	collateralized	by	corporate	bonds	("credit-linked	notes")	or	cash	portfolio	of	asset-backed	securities	("asset-backed	CDOs").	Credit correlation,	a	primary	input	used	to	determine	the	fair	value	of	credit-linked	notes,	is	usually	unobservable	and	derived	using	a	benchmarking	technique.	The other	credit-linked	note	model	inputs	such	as	credit	spreads,	including	collateral	spreads,	and	interest	rates	are	typically	observable.	Asset-backed	CDOs	are valued	based	on	an	evaluation	of	the	market	and	model	input	parameters	sourced	from	similar	positions	as	indicated	by	primary	and	secondary	market	activity. Each	asset-backed	CDO	position	is	evaluated	independently	taking	into	consideration	available	comparable	market	levels,	underlying	collateral	performance and	pricing,	and	deal	structures,	as	well	as	liquidity.	Cash	CDOs	are	categorized	in	Level	2	of	the	fair	value	hierarchy	when	either	the	credit	correlation	input	is insignificant	or	comparable	market	transactions	are	observable.	In	instances	where	the	credit	correlation	input	is	deemed	to	be	significant	or	comparable market	transactions	are	unobservable,	cash	CDOs	are	categorized	in	Level	3	of	the	fair	value	hierarchy.

•	 Corporate	Loans	and	Lending	Commitments.				The	fair	value	of	corporate	loans	is	determined	using	recently	executed	transactions,	market	price	quotations (where	observable),	implied	yields	from	comparable	debt,	and	market	observable	credit	default	swap	spread	levels	obtained	from	independent	external	parties such	as	vendors	and	brokers	adjusted	for	any	basis	difference	between	cash	and	derivative	instruments,	along	with	proprietary	valuation	models	and	default recovery	analysis	where	such	transactions	and	quotations	are	unobservable.	The	fair	value	of	contingent	corporate	lending	commitments	is	determined	by	using executed	transactions	on	comparable	loans	and	the	anticipated	market	price	based	on	pricing	indications	from	syndicate	banks	and	customers.	The	valuation	of loans	and	lending	commitments	also	takes	into	account	fee	income	that	is	considered	an	attribute	of	the	contract.	Corporate	loans	and	lending	commitments	are categorized	in	Level	2	of	the	fair	value	hierarchy	except	in	instances	where	prices	or	significant	spread	inputs	are	unobservable,	in	which	case	they	are categorized	in	Level	3	of	the	fair	value	hierarchy.

•	 Mortgage	Loans.				Mortgage	loans	are	valued	using	observable	prices	based	on	transactional	data	or	third-party	pricing	for	identical	or	comparable instruments,	when	available.	Where	position-specific	external	prices	are	not	observable,	the	Company	estimates	fair	value	based	on	benchmarking	to	prices	and rates	observed	in	the	primary	market	for	similar	loan	or	borrower	types	or	based	on	the	present	value	of	expected	future	cash	flows	using	its	best	estimates	of the	key	assumptions,	including	forecasted	credit	losses,	prepayment	rates,	forward	yield	curves	and	discount	rates	commensurate	with	the	risks	involved	or	a methodology	that	utilizes	the	capital	structure	and	credit	spreads	of	recent	comparable	securitization	transactions.	Mortgage	loans	valued	based	on	observable market	data	for	identical	or	comparable	instruments	are	categorized	in	Level	2	of	the	fair	value	hierarchy.	Where	observable	prices	are	not	available,	due	to	the subjectivity	involved	in	the	comparability	assessment	related	to	mortgage	loan	vintage,	geographical	concentration,	prepayment	speed	and	projected	loss assumptions,	mortgage	loans	are	categorized	in	Level	3	of	the	fair	value	hierarchy.	Mortgage	loans	are	presented	within	Loans	and	lending	commitments	in	the fair	value	hierarchy	table.

•	 Auction	Rate	Securities	("ARS").				The	Company	primarily	holds	investments	in	Student	Loan	Auction	Rate	Securities	("SLARS")	and	Municipal	Auction Rate	Securities	("MARS")	with	interest	rates	that	are	reset	through	periodic	auctions.	SLARS	are	ABS	backed	by	pools	of	student	loans.	MARS	are	municipal bonds	often	wrapped	by	municipal	bond	insurance.	ARS	were	historically	traded	and	valued	as	floating	rate	notes,	priced	at	par	due	to	the	auction	mechanism. Beginning	in	fiscal	2008,	uncertainties	in	the	credit	markets	have	resulted	in	auctions	failing	for	certain	types	of	ARS.	Once	the	auctions	failed,	ARS	could	no longer	be	valued	using	observations	of	auction	market	prices.	Accordingly,	the	fair	value	of	ARS	is	determined	using	independent	external	market	data	where available	and	an	internally	developed	methodology	to	discount	for	the	lack	of	liquidity	and	non-performance	risk.

Inputs	that	impact	the	valuation	of	SLARS	are	independent	external	market	data,	the	underlying	collateral	types,	level	of	seniority	in	the	capital	structure, amount	of	leverage	in	each	structure,	credit	rating	and	liquidity	considerations.	Inputs	that	impact	the	valuation	of	MARS	are	recently	executed transactions,	the	maximum	rate,	quality	of	underlying	issuers/insurers	and	evidence	of	issuer	calls/prepayment.	ARS	are	generally	categorized	in	Level	2	of	the fair	value	hierarchy	as	the	valuation	technique	relies	on	observable	external	data.	SLARS	and	MARS	are	presented	within	Asset-backed	securities	and	State and	municipal	securities,	respectively,	in	the	fair	value	hierarchy	table.

# Corporate	Equities.

•	 Exchange-Traded	Equity	Securities.				Exchange-traded	equity	securities	are	generally	valued	based	on	quoted	prices	from	the	exchange.	To	the	extent	these securities	are	actively	traded,	valuation	adjustments	are	not	applied,	and	they	are	categorized	in	Level	1	of	the	fair	value	hierarchy;	otherwise,	they	are categorized	in	Level	2	or	Level	3	of	the	fair	value	hierarchy.

•	 Unlisted	Equity	Securities.				Unlisted	equity	securities	are	valued	based	on	an	assessment	of	each	underlying	security,	considering	rounds	of	financing	and third-party	transactions,	discounted	cash	flow	analyses	and	market-based	information,	including	comparable	company	transactions,	trading	multiples	and changes	in	market	outlook,	among	other	factors.	These	securities	are	generally	categorized	in	Level	3	of	the	fair	value	hierarchy.

•	 Fund	Units.				Listed	fund	units	are	generally	marked	to	the	exchange-traded	price	or	net	asset	value	("NAV")	and	are	categorized	in	Level	1	of	the	fair	value hierarchy	if	actively	traded	on	an	exchange	or	in	Level	2	of	the	fair	value	hierarchy	if	trading	is	not	active.	Unlisted	fund	units	are	generally	marked	to	NAV and	categorized	as	Level	2;	however,	positions	which	are	not	redeemable	at	the	measurement	date	or	in	the	near	future	are	categorized	in	Level	3	of	the	fair value	hierarchy.

# Derivative	and	Other	Contracts.

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

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

Depending	on	the	product	and	the	terms	of	the	transaction,	the	fair	value	of	OTC	derivative	products	can	be	either	observed	or	modeled	using	a	series	of techniques	and	model	inputs	from	comparable	benchmarks,	including	closed-form	analytic	formulas,	such	as	the	Black-Scholes	option-pricing	model,	and simulation	models	or	a	combination	thereof.	Many	pricing	models	do	not	entail	material	subjectivity

because	the	methodologies	employed	do	not	necessitate	significant	judgment,	and	the	pricing	inputs	are	observed	from	actively	quoted	markets,	as	is	the	case for	generic	interest	rate	swaps,	certain	option	contracts	and	certain	credit	default	swaps.	In	the	case	of	more	established	derivative	products,	the	pricing	models used	by	the	Company	are	widely	accepted	by	the	financial	services	industry.	A	substantial	majority	of	OTC	derivative	products	valued	by	the	Company	using pricing	models	fall	into	this	category	and	are	categorized	in	Level	2	of	the	fair	value	hierarchy.

Other	derivative	products,	including	complex	products	that	have	become	illiquid,	require	more	judgment	in	the	implementation	of	the	valuation	technique applied	due	to	the	complexity	of	the	valuation	assumptions	and	the	reduced	observability	of	inputs.	This	includes	certain	types	of	interest	rate	derivatives	with both	volatility	and	correlation	exposure	and	credit	derivatives	including	credit	default	swaps	on	certain	mortgage-backed	or	asset-backed	securities,	basket credit	default	swaps	and	CDO-squared	positions	(a	CDO-squared	position	is	a	special	purpose	vehicle	that	issues	interests,	or	tranches,	that	are	backed	by tranches	issued	by	other	CDOs)	where	direct	trading	activity	or	quotes	are	unobservable.	These	instruments	involve	significant	unobservable	inputs	and	are categorized	in	Level	3	of	the	fair	value	hierarchy.

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

For	basket	credit	default	swaps	and	CDO-squared	positions,	the	correlation	input	between	reference	credits	is	unobservable	for	each	specific	swap	or	position and	is	benchmarked	to	standardized	proxy	baskets	for	which	correlation	data	are	available.	The	other	model	inputs	such	as	credit	spread,	interest	rates	and recovery	rates	are	observable.	In	instances	where	the	correlation	input	is	deemed	to	be	significant,	these	instruments	are	categorized	in	Level	3	of	the	fair	value hierarchy;	otherwise,	these	instruments	are	categorized	in	Level	2	of	the	fair	value	hierarchy.

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

•	 Collateralized	Derivative	Contracts.	In	the	fourth	quarter	of	2010,	the	Company	began	using	the	overnight	indexed	swap	("OIS")	curve	as	an	input	to	value	its collateralized	interest	rate	derivative	contracts.	During	the	fourth	quarter	of	2011,	the	Company	recognized	a	pre-tax	loss	of	approximately	$108	million	in Principal	transactions—Trading	upon	application	of	the	OIS	curve	to	certain	additional	fixed	income	products	within	the	Institutional	Securities	business segment.	Previously,	the	Company	discounted	these	contracts	based	on	London	Interbank	Offered	Rate	("LIBOR").	At	December	31,	2012	and	December	31, 2011,	substantially	all	of	the	Company's	collateralized	derivative	contracts	were	valued	using	the	OIS	curve.

# Investments.

•	 The	Company's	investments	include	direct	investments	in	equity	securities	as	well	as	investments	in	private	equity	funds,	real	estate	funds	and	hedge	funds, which	include	investments	made	in	connection	with	certain	employee	deferred	compensation	plans.	Direct	investments	are	presented	in	the	fair	value	hierarchy table	as	Principal	investments	and	Other.	Initially,	the	transaction	price	is	generally	considered	by	the	Company	as	the	exit	price	and	is	the	Company's	best estimate	of	fair	value.

After	initial	recognition,	in	determining	the	fair	value	of	non-exchange-traded	internally	and	externally	managed	funds,	the	Company	generally	considers	the NAV	of	the	fund	provided	by	the	fund	manager	to	be	the	best	estimate	of	fair	value.	For	non-exchange-traded	investments	either	held	directly	or	held	within internally	managed	funds,	fair	value	after	initial	recognition	is	based	on	an	assessment	of	each	underlying	investment,	considering	rounds	of	financing	and third-party	transactions,	discounted	cash	flow	analyses	and	market-based	information,	including	comparable	company	transactions,	trading	multiples	and changes	in	market	outlook,	among	other	factors.	Exchange-traded	direct	equity	investments	are	generally	valued	based	on	quoted	prices	from	the	exchange.

Exchange-traded	direct	equity	investments	that	are	actively	traded	are	categorized	in	Level	1	of	the	fair	value	hierarchy.	Non-exchange-traded	direct	equity investments	and	investments	in	private	equity	and	real	estate	funds	are	generally	categorized	in	Level	3	of	the	fair	value	hierarchy.	Investments	in	hedge	funds that	are	redeemable	at	the	measurement	date	or	in	the	near	future	are	categorized	in	Level	2	of	the	fair	value	hierarchy;	otherwise,	they	are	categorized	in	Level 3	of	the	fair	value	hierarchy.

# Physical	Commodities.

•	 The	Company	trades	various	physical	commodities,	including	crude	oil	and	refined	products,	natural	gas,	base	and	precious	metals,	and	agricultural	products. Fair	value	for	physical	commodities	is	determined	using	observable	inputs,	including	broker	quotations	and	published	indices.	Physical	commodities	are categorized	in	Level	2	of	the	fair	value	hierarchy;	in	instances	where	significant	inputs	are	unobservable,	they	are	categorized	in	Level	3	of	the	fair	value hierarchy.

•	 Securities	available	for	sale	are	composed	of	U.S.	government	and	agency	securities	(e.g.,	U.S.	Treasury	securities,	agency-issued	debt,	agency	mortgage	pass- through	securities	and	collateralized	mortgage	obligations),	CMBS,	Federal	Family	Education	Loan	Program	("FFELP")	student	loan	asset-backed	securities, auto	loan	asset-backed	securities,	corporate	bonds	and	equity	securities.	Actively	traded	U.S.	Treasury	securities,	non-callable	agency-issued	debt	securities and	equity	securities	are	generally	categorized	in	Level	1	of	the	fair	value	hierarchy.	Callable	agency-issued	debt	securities,	agency	mortgage	pass-through securities,	collateralized	mortgage	obligations,	CMBS,	FFELP	student	loan	asset-backed	securities,	auto	loan	asset-backed	securities	and	corporate	bonds	are generally	categorized	in	Level	2	of	the	fair	value	hierarchy.	For	further	information	on	securities	available	for	sale,	see	Note	5.

# Deposits.

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

# Commercial	Paper	and	Other	Short-Term	Borrowings/Long-Term	Borrowings.

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

Securities	Purchased	under	Agreements	to	Resell	and	Securities	Sold	under	Agreements	to	Repurchase.

•	 The	fair	value	of	a	reverse	repurchase	agreement	or	repurchase	agreement	is	computed	using	a	standard	cash	flow	discounting	methodology.	The	inputs	to	the valuation	include	contractual	cash	flows	and	collateral	funding	spreads,	which	are	estimated	using	various	benchmarks,	interest	rate	yield	curves	and	option volatilities.	In	instances	where	the	unobservable	inputs	are	deemed	significant,	reverse	repurchase	agreements	and	repurchase	agreements	are	categorized	in Level	3	of	the	fair	value	hierarchy;	otherwise,	they	are	categorized	in	Level	2	of	the	fair	value	hierarchy.

The	following	fair	value	hierarchy	tables	present	information	about	the	Company's	assets	and	liabilities	measured	at	fair	value	on	a	recurring	basis	at	December	31, 2012	and	December	31,	2011.

# Assets	and	Liabilities	Measured	at	Fair	Value	on	a	Recurring	Basis	at	December	31,	2012.

|  | Quoted	Prices	in<br>Active	Markets	for<br>Identical	Assets<br>(Level	1) | Significant<br>Observable<br>Inputs<br>(Level	2) | Significant<br>Unobservable<br>Inputs<br>(Level	3) | Counterparty<br>and	Cash<br>Collateral<br>Netting | Balance	at<br>December	31,<br>2012 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Assets\tat\tFair\tValue |  |  |  |  |  |
| Financial\tinstruments\towned: |  |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |  |
| U.S.\tTreasury\tsecurities | $24,662 | $14 | $— | $— | $24,676 |
| U.S.\tagency\tsecurities | 1,451 | 27,888 | — | — | 29,339 |
| Total\tU.S.\tgovernment\tand\tagency |  |  |  |  |  |
| securities | 26,113 | 27,902 | — | — | 54,015 |
| Other\tsovereign\tgovernment\tobligations | 37,669 | 5,487 | 6 | — | 43,162 |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |
| State\tand\tmunicipal\tsecurities | — | 1,558 | — | — | 1,558 |
| Residential\tmortgage-backed\tsecurities | — | 1,439 | 45 | — | 1,484 |
| Commercial\tmortgage-backed\tsecurities | — | 1,347 | 232 | — | 1,579 |
| Asset-backed\tsecurities | — | 915 | 109 | — | 1,024 |
| Corporate\tbonds | — | 18,403 | 660 | — | 19,063 |
| Collateralized\tdebt\tobligations | — | 685 | 1,951 | — | 2,636 |
| Loans\tand\tlending\tcommitments | — | 12,617 | 4,694 | — | 17,311 |
| Other\tdebt | — | 4,457 | 45 | — | 4,502 |
| Total\tcorporate\tand\tother\tdebt | — | 41,421 | 7,736 | — | 49,157 |
| Corporate\tequities(1) | 68,072 | 1,067 | 288 | — | 69,427 |
| Derivative\tand\tother\tcontracts: |  |  |  |  |  |
| Interest\trate\tcontracts | 446 | 819,581 | 3,774 | — | 823,801 |
| Credit\tcontracts | — | 63,234 | 5,033 | — | 68,267 |
| Foreign\texchange\tcontracts | 34 | 52,729 | 31 | — | 52,794 |
| Equity\tcontracts | 760 | 37,074 | 766 | — | 38,600 |
| Commodity\tcontracts | 4,082 | 14,256 | 2,308 | — | 20,646 |
| Other | — | 143 | — | — | 143 |
| Netting(2) | (4,740) | (883,733) | (6,947) | (72,634) | (968,054) |
| Total\tderivative\tand\tother\tcontracts | 582 | 103,284 | 4,965 | (72,634) | 36,197 |
| Investments: |  |  |  |  |  |
| Private\tequity\tfunds | — | — | 2,179 | — | 2,179 |
| Real\testate\tfunds | — | 6 | 1,370 | — | 1,376 |
| Hedge\tfunds | — | 382 | 552 | — | 934 |
| Principal\tinvestments | 185 | 83 | 2,833 | — | 3,101 |
| Other | 199 | 71 | 486 | — | 756 |
| Total\tinvestments | 384 | 542 | 7,420 | — | 8,346 |
| Physical\tcommodities | — | 7,299 | — | — | 7,299 |
| Total\tfinancial\tinstruments\towned | 132,820 | 187,002 | 20,415 | (72,634) | 267,603 |

|  | Quoted	Prices	in<br>Active	Markets	for<br>Identical	Assets<br>(Level	1) | Significant<br>Observable<br>Inputs<br>(Level	2) | Significant<br>Unobservable<br>Inputs<br>(Level	3) | Counterparty<br>and	Cash<br>Collateral<br>Netting | Balance	at<br>December	31,<br>2012 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Securities\tavailable\tfor\tsale | 14,466 | 25,403 | — | — | 39,869 |
| Securities\treceived\tas\tcollateral | 14,232 | 46 | — | — | 14,278 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto |  |  |  |  |  |
| resell | — | 621 | — | — | 621 |
| Intangible\tassets(3) | — | — | 7 | — | 7 |
| Total\tassets\tmeasured\tat\tfair\tvalue | $161,518 | $213,072 | $20,422 | $(72,634) | $322,378 |
| Liabilities\tat\tFair\tValue |  |  |  |  |  |
| Deposits | $— | $1,485 | $— | $— | $1,485 |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings | — | 706 | 19 | — | 725 |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased: |  |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |  |
| U.S.\tTreasury\tsecurities | 20,098 | 21 | — | — | 20,119 |
| U.S.\tagency\tsecurities | 1,394 | 107 | — | — | 1,501 |
| Total\tU.S.\tgovernment\tand\tagency\tsecurities | 21,492 | 128 | — | — | 21,620 |
| Other\tsovereign\tgovernment\tobligations | 27,583 | 2,031 | — | — | 29,614 |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |
| State\tand\tmunicipal\tsecurities | — | 47 | — | — | 47 |
| Residential\tmortgage-backed\tsecurities | — | — | 4 | — | 4 |
| Corporate\tbonds | — | 3,942 | 177 | — | 4,119 |
| Collateralized\tdebt\tobligations | — | 328 | — | — | 328 |
| Unfunded\tlending\tcommitments | — | 305 | 46 | — | 351 |
| Other\tdebt | — | 156 | 49 | — | 205 |
| Total\tcorporate\tand\tother\tdebt | — | 4,778 | 276 | — | 5,054 |
| Corporate\tequities(1) | 25,216 | 1,655 | 5 | — | 26,876 |
| Derivative\tand\tother\tcontracts: |  |  |  |  |  |
| Interest\trate\tcontracts | 533 | 789,715 | 3,856 | — | 794,104 |
| Credit\tcontracts | — | 61,283 | 3,211 | — | 64,494 |
| Foreign\texchange\tcontracts | 2 | 56,021 | 390 | — | 56,413 |
| Equity\tcontracts | 748 | 39,212 | 1,910 | — | 41,870 |
| Commodity\tcontracts | 4,530 | 15,702 | 1,599 | — | 21,831 |
| Other | — | 54 | 7 | — | 61 |
| Netting(2) | (4,740) | (883,733) | (6,947) | (46,395) | (941,815) |
| Total\tderivative\tand\tother\tcontracts | 1,073 | 78,254 | 4,026 | (46,395) | 36,958 |
| Total\tfinancial\tinstruments\tsold,\tnot\tyet\tpurchased | 75,364 | 86,846 | 4,307 | (46,395) | 120,122 |
| Obligation\tto\treturn\tsecurities\treceived\tas\tcollateral | 18,179 | 47 | — | — | 18,226 |
| Securities\tsold\tunder\tagreements\tto\trepurchase | — | 212 | 151 | — | 363 |
| Other\tsecured\tfinancings | — | 9,060 | 406 | — | 9,466 |
| Long-term\tborrowings | — | 41,255 | 2,789 | — | 44,044 |
| Total\tliabilities\tmeasured\tat\tfair\tvalue | $93,543 | $139,611 | $7,672 | $(46,395) | $194,431 |

(1) The	Company	holds	or	sells	short	for	trading	purposes	equity	securities	issued	by	entities	in	diverse	industries	and	of	varying	size.

(2) For	positions	with	the	same	counterparty	that	cross	over	the	levels	of	the	fair	value	hierarchy,	both	counterparty	netting	and	cash	collateral	netting	are	included	in	the	column	titled	"Counterparty	and	Cash Collateral	Netting."	For	contracts	with	the	same	counterparty,	counterparty	netting	among	positions	classified	within	the	same	level	is	included	within	that	level.	For	further	information	on	derivative	instruments and	hedging	activities,	see	Note	12.

(3) Amount	represents	mortgage	servicing	rights	("MSR")	accounted	for	at	fair	value.	See	Note	7	for	further	information	on	MSRs.

# Transfers	Between	Level	1	and	Level	2	During	2012.

For	assets	and	liabilities	that	were	transferred	between	Level	1	and	Level	2	during	the	period,	fair	values	are	ascribed	as	if	the	assets	or	liabilities	had	been	transferred	as of	the	beginning	of	the	period.

Financial	instruments	owned—Derivative	and	other	contracts	and	Financial	instruments	sold,	not	yet	purchased—Derivative	and	other	contracts.				During	2012,	the Company	reclassified	approximately	$3.2	billion	of	derivative	assets	and	approximately	$2.5	billion	of	derivative	liabilities	from	Level	2	to	Level	1	as	these	listed derivatives	became	actively	traded	and	were	valued	based	on	quoted	prices	from	the	exchange.	Also	during	2012,	the	Company	reclassified	approximately	$0.4	billion of	derivative	assets	and	approximately	$0.3	billion	of	derivative	liabilities	from	Level	1	to	Level	2	as	transactions	in	these	contracts	did	not	occur	with	sufficient frequency	and	volume	to	constitute	an	active	market.

|  | Quoted	Prices	in<br>Active	Markets	for<br>Identical	Assets<br>(Level	1) | Significant<br>Observable<br>Inputs<br>(Level	2) | Significant<br>Unobservable<br>Inputs<br>(Level	3) | Counterparty<br>and	Cash<br>Collateral<br>Netting | Balance	at<br>December	31,<br>2011 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Assets\tat\tFair\tValue |  |  |  |  |  |
| Financial\tinstruments\towned: |  |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |  |
| U.S.\tTreasury\tsecurities | $38,769 | $1 | $— | $— | $38,770 |
| U.S.\tagency\tsecurities | 4,332 | 20,339 | 8 | — | 24,679 |
| Total\tU.S.\tgovernment\tand\tagency\tsecurities | 43,101 | 20,340 | 8 | — | 63,449 |
| Other\tsovereign\tgovernment\tobligations | 22,650 | 6,290 | 119 | — | 29,059 |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |
| State\tand\tmunicipal\tsecurities | — | 2,261 | — | — | 2,261 |
| Residential\tmortgage-backed\tsecurities | — | 1,304 | 494 | — | 1,798 |
| Commercial\tmortgage-backed\tsecurities | — | 1,686 | 134 | — | 1,820 |
| Asset-backed\tsecurities | — | 937 | 31 | — | 968 |
| Corporate\tbonds | — | 25,873 | 675 | — | 26,548 |
| Collateralized\tdebt\tobligations | — | 1,711 | 980 | — | 2,691 |
| Loans\tand\tlending\tcommitments | — | 14,854 | 9,590 | — | 24,444 |
| Other\tdebt | — | 8,265 | 128 | — | 8,393 |
| Total\tcorporate\tand\tother\tdebt | — | 56,891 | 12,032 | — | 68,923 |
| Corporate\tequities(1) | 45,173 | 2,376 | 417 | — | 47,966 |
| Derivative\tand\tother\tcontracts: |  |  |  |  |  |
| Interest\trate\tcontracts | 1,493 | 906,082 | 5,301 | — | 912,876 |
| Credit\tcontracts | — | 123,689 | 15,102 | — | 138,791 |
| Foreign\texchange\tcontracts | — | 61,770 | 573 | — | 62,343 |
| Equity\tcontracts | 929 | 44,558 | 800 | — | 46,287 |
| Commodity\tcontracts | 6,356 | 31,246 | 2,176 | — | 39,778 |
| Other | — | 292 | 306 | — | 598 |
| Netting(2) | (7,596) | (1,045,912) | (11,837) | (87,264) | (1,152,609) |
| Total\tderivative\tand\tother\tcontracts | 1,182 | 121,725 | 12,421 | (87,264) | 48,064 |

|  | Quoted	Prices	in<br>Active	Markets	for<br>Identical	Assets<br>(Level	1) | Significant<br>Observable<br>Inputs<br>(Level	2) | Significant<br>Unobservable<br>Inputs<br>(Level	3) | Counterparty<br>and	Cash<br>Collateral<br>Netting | Balance	at<br>December	31,<br>2011 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Investments: |  |  |  |  |  |
| Private\tequity\tfunds | — | 7 | 1,936 | — | 1,943 |
| Real\testate\tfunds | — | 5 | 1,213 | — | 1,218 |
| Hedge\tfunds | — | 473 | 696 | — | 1,169 |
| Principal\tinvestments | 161 | 104 | 2,937 | — | 3,202 |
| Other | 141 | 21 | 501 | — | 663 |
| Total\tinvestments | 302 | 610 | 7,283 | — | 8,195 |
| Physical\tcommodities | — | 9,651 | 46 | — | 9,697 |
| Total\tfinancial\tinstruments\towned | 112,408 | 217,883 | 32,326 | (87,264) | 275,353 |
| Securities\tavailable\tfor\tsale | 13,437 | 17,058 | — | — | 30,495 |
| Securities\treceived\tas\tcollateral | 11,530 | 121 | — | — | 11,651 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell | — | 112 | — | — | 112 |
| Intangible\tassets(3) | — | — | 133 | — | 133 |
| Total\tassets\tmeasured\tat\tfair\tvalue | $137,375 | $235,174 | $32,459 | $(87,264) | $317,744 |
| Liabilities\tat\tFair\tValue |  |  |  |  |  |
| Deposits | $— | $2,101 | $— | $— | $2,101 |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings | — | 1,337 | 2 | — | 1,339 |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased: |  |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |  |
| U.S.\tTreasury\tsecurities | 17,776 | — | — | — | 17,776 |
| U.S.\tagency\tsecurities | 1,748 | 106 | — | — | 1,854 |
| Total\tU.S.\tgovernment\tand\tagency\tsecurities | 19,524 | 106 | — | — | 19,630 |
| Other\tsovereign\tgovernment\tobligations | 14,981 | 2,152 | 8 | — | 17,141 |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |
| State\tand\tmunicipal\tsecurities | — | 3 | — | — | 3 |
| Residential\tmortgage-backed\tsecurities | — | — | 355 | — | 355 |
| Commercial\tmortgage-backed\tsecurities | — | 14 | — | — | 14 |
| Corporate\tbonds | — | 6,217 | 219 | — | 6,436 |
| Collateralized\tdebt\tobligations | — | 3 | — | — | 3 |
| Unfunded\tlending\tcommitments | — | 1,284 | 85 | — | 1,369 |
| Other\tdebt | — | 157 | 73 | — | 230 |
| Total\tcorporate\tand\tother\tdebt | — | 7,678 | 732 | — | 8,410 |
| Corporate\tequities(1) | 24,347 | 149 | 1 | — | 24,497 |
| Derivative\tand\tother\tcontracts: |  |  |  |  |  |
| Interest\trate\tcontracts | 1,680 | 873,466 | 4,881 | — | 880,027 |
| Credit\tcontracts | — | 121,438 | 9,288 | — | 130,726 |
| Foreign\texchange\tcontracts | — | 64,218 | 530 | — | 64,748 |
| Equity\tcontracts | 877 | 45,375 | 2,034 | — | 48,286 |
| Commodity\tcontracts | 7,144 | 31,248 | 1,606 | — | 39,998 |
| Other | — | 879 | 1,396 | — | 2,275 |
| Netting(2) | (7,596) | (1,045,912) | (11,837) | (54,262) | (1,119,607) |
| Total\tderivative\tand\tother\tcontracts | 2,105 | 90,712 | 7,898 | (54,262) | 46,453 |
| Physical\tcommodities | — | 16 | — | — | 16 |
| Total\tfinancial\tinstruments\tsold,\tnot\tyet\tpurchased | 60,957 | 100,813 | 8,639 | (54,262) | 116,147 |
| Obligation\tto\treturn\tsecurities\treceived\tas\tcollateral | 15,267 | 127 | — | — | 15,394 |

|  | Quoted	Prices	in<br>Active	Markets	for<br>Identical	Assets<br>(Level	1) | Significant<br>Observable<br>Inputs<br>(Level	2) | Significant<br>Unobservable<br>Inputs<br>(Level	3) | Counterparty<br>and	Cash<br>Collateral<br>Netting | Balance	at<br>December	31,<br>2011 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Securities\tsold\tunder\tagreements\tto\trepurchase | — | 8 | 340 | — | 348 |
| Other\tsecured\tfinancings | — | 14,024 | 570 | — | 14,594 |
| Long-term\tborrowings | 10 | 38,050 | 1,603 | — | 39,663 |
| Total\tliabilities\tmeasured\tat\tfair\tvalue | $76,234 | $156,460 | $11,154 | $(54,262) | $189,586 |

(3) Amount	represents	MSRs	accounted	for	at	fair	value.	See	Note	7	for	further	information	on	MSRs.

Financial	instruments	owned—Other	sovereign	government	obligations	and	Financial	instruments	sold,	not	yet	purchased—Other	sovereign	government obligations.				During	2011,	the	Company	reclassified	approximately	$0.9	billion	of	other	sovereign	government	obligations	assets	and	approximately	$1.7	billion	of other	sovereign	government	obligations	liabilities	from	Level	1	to	Level	2.	These	reclassifications	primarily	related	to	certain	European	peripheral	government	bonds	as these	securities	traded	with	a	high	degree	of	pricing	volatility,	dispersion	and	wider	bid-ask	spreads.	The	Company	continues	to	mark	these	securities	to	observable market	price	quotations.

Financial	instruments	owned—Derivative	and	other	contracts	and	Financial	instruments	sold,	not	yet	purchased—Derivative	and	other	contracts.				During	2011,	the Company	reclassified	approximately	$0.7	billion	of	derivative	assets	and	approximately	$1.0	billion	of	derivative	liabilities	from	Level	2	to	Level	1	as	these	listed derivatives	became	actively	traded	and	were	valued	based	on	quoted	prices	from	the	exchange.	Also	during	2011,	the	Company	reclassified	approximately	$1.3	billion of	derivative	assets	and	approximately	$1.4	billion	of	derivative	liabilities	from	Level	1	to	Level	2	as	transactions	in	these	contracts	did	not	occur	with	sufficient frequency	and	volume	to	constitute	an	active	market.

# Level	3	Assets	and	Liabilities	Measured	at	Fair	Value	on	a	Recurring	Basis.

The	following	tables	present	additional	information	about	Level	3	assets	and	liabilities	measured	at	fair	value	on	a	recurring	basis	for	2012,	2011	and	2010,	respectively. Level	3	instruments	may	be	hedged	with	instruments	classified	in	Level	1	and	Level	2.	As	a	result,	the	realized	and	unrealized	gains	(losses)	for	assets	and	liabilities within	the	Level	3	category	presented	in	the	tables	below	do	not	reflect	the	related	realized	and	unrealized	gains	(losses)	on	hedging	instruments	that	have	been	classified by	the	Company	within	the	Level	1	and/or	Level	2	categories.

Additionally,	both	observable	and	unobservable	inputs	may	be	used	to	determine	the	fair	value	of	positions	that	the	Company	has	classified	within	the	Level	3 category.	As	a	result,	the	unrealized	gains	(losses)	during	the	period	for	assets	and	liabilities	within	the	Level	3	category	presented	in	the	tables	below	may	include changes	in	fair	value	during	the	period	that	were	attributable	to	both	observable	(e.g.,	changes	in	market	interest	rates)	and	unobservable	(e.g.,	changes	in	unobservable long-dated	volatilities)	inputs.

For	assets	and	liabilities	that	were	transferred	into	Level	3	during	the	period,	gains	(losses)	are	presented	as	if	the	assets	or	liabilities	had	been	transferred	into	Level	3	at the	beginning	of	the	period;	similarly,	for	assets	and

liabilities	that	were	transferred	out	of	Level	3	during	the	period,	gains	(losses)	are	presented	as	if	the	assets	or	liabilities	had	been	transferred	out	at	the	beginning	of	the period.

# Changes	in	Level	3	Assets	and	Liabilities	Measured	at	Fair	Value	on	a	Recurring	Basis	for	2012.

|  | Beginning | Total	Realized |  |  |  |  |  | Ending | Liabilities |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Balance\tat | and\tUnrealized |  |  |  |  |  | Balance\tat | Outstanding\tat |
|  | December\t31, | Gains\t(Losses) |  |  |  |  |  | December\t31, | December\t31, |
|  | 2011 | (1) | Purchases | Sales | Issuances | \tSettlements | \t Net\tTransfers | 2012 | 2012(2) |
|  |  |  |  |  | (dollars\tin\tmillions) |  |  |  |  |
| Assets\tat\tFair\tValue |  |  |  |  |  |  |  |  |  |
| Financial\tinstruments\towned: |  |  |  |  |  |  |  |  |  |
| U.S.\tagency\tsecurities | $8 | $— | $— | $(7) | $— | \t$— | $(1) | $— | $— |
| Other\tsovereign\tgovernment\tobligations | 119 | — | 12 | (125) | — | — | — | 6 | (9) |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |  |  |  |  |
| Residential\tmortgage-backed\tsecurities | 494 | (9) | 32 | (285) | — | — | (187) | 45 | (26) |
| Commercial\tmortgage-backed\tsecurities | 134 | 32 | 218 | (49) | — | (100) | (3) | 232 | 28 |
| Asset-backed\tsecurities | 31 | 1 | 109 | (32) | — | — | — | 109 | (1) |
| Corporate\tbonds | 675 | 22 | 447 | (450) | — | — | (34) | 660 | (7) |
| Collateralized\tdebt\tobligations | 980 | 216 | 1,178 | (384) | — | — | (39) | 1,951 | 142 |
| Loans\tand\tlending\tcommitments | 9,590 | 37 | 2,648 | (2,095) | — | (4,316) | (1,170) | 4,694 | (91) |
| Other\tdebt | 128 | 2 | — | (95) | — | — | 10 | 45 | (6) |
| Total\tcorporate\tand\tother\tdebt | 12,032 | 301 | 4,632 | (3,390) | — | (4,416) | (1,423) | 7,736 | 39 |
| Corporate\tequities | 417 | (59) | 134 | (172) | — | — | (32) | 288 | (83) |
| Net\tderivative\tand\tother\tcontracts(3): |  |  |  |  |  |  |  |  |  |
| Interest\trate\tcontracts | 420 | (275) | 28 | — | (7) | (217) | (31) | (82) | 297 |
| Credit\tcontracts | 5,814 | (2,799) | 112 | — | (502) | (961) | 158 | 1,822 | (3,216) |
| Foreign\texchange\tcontracts | 43 | (279) | — | — | — | 19 | (142) | (359) | (225) |
| Equity\tcontracts | (1,234) | 390 | 202 | (9) | (112) | (210) | (171) | (1,144) | 241 |
| Commodity\tcontracts | 570 | 114 | 16 | — | (41) | (20) | 70 | 709 | 222 |
| Other | (1,090) | 57 | — | — | — | 236 | 790 | (7) | 53 |
| Total\tnet\tderivative\tand\tother\tcontracts | 4,523 | (2,792) | 358 | (9) | (662) | (1,153) | 674 | 939 | (2,628) |
| Investments: |  |  |  |  |  |  |  |  |  |
| Private\tequity\tfunds | 1,936 | 228 | 308 | (294) | — | — | 1 | 2,179 | 147 |
| Real\testate\tfunds | 1,213 | 149 | 143 | (136) | — | — | 1 | 1,370 | 229 |
| Hedge\tfunds | 696 | 61 | 81 | (151) | — | — | (135) | 552 | 51 |
| Principal\tinvestments | 2,937 | 130 | 160 | (419) | — | — | 25 | 2,833 | 93 |
| Other | 501 | (45) | 158 | (70) | — | — | (58) | 486 | (48) |
| Total\tinvestments | 7,283 | 523 | 850 | (1,070) | — | — | (166) | 7,420 | 472 |
| Physical\tcommodities | 46 | — | — | — | — | (46) | — | — | — |
| Intangible\tassets | 133 | (39) | — | (83) | — | (4) | — | 7 | (7) |
| Liabilities\tat\tFair\tValue |  |  |  |  |  |  |  |  |  |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings | $2 | $(5) | $— | $— | $3 | \t$(3) | $12 | $19 | $(4) |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased: |  |  |  |  |  |  |  |  |  |
| Other\tsovereign\tgovernment\tobligations | 8 | — | (8) | — | — | — | — | — | — |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |  |  |  |  |
| Residential\tmortgage-backed\tsecurities | 355 | (4) | (355) | — | — | — | — | 4 | (4) |
| Corporate\tbonds | 219 | (15) | (129) | 110 | — | — | (38) | 177 | (23) |
| Unfunded\tlending\tcommitments | 85 | 39 | — | — | — | — | — | 46 | 39 |
| Other\tdebt | 73 | 9 | (1) | 36 | — | (55) | 5 | 49 | 11 |
| Total\tcorporate\tand\tother\tdebt | 732 | 29 | (485) | 146 | — | (55) | (33) | 276 | 23 |
| Corporate\tequities | 1 | (1) | (21) | 22 | — | — | 2 | 5 | (3) |
| Securities\tsold\tunder\tagreements\tto\trepurchase | 340 | (14) | — | — | — | — | (203) | 151 | (14) |
| Other\tsecured\tfinancings | 570 | (69) | — | — | 21 | (232) | (22) | 406 | (67) |
| Long-term\tborrowings | 1,603 | (651) | — | — | 1,050 | (279) | (236) | 2,789 | (652) |

(1) Total	realized	and	unrealized	gains	(losses)	are	primarily	included	in	Principal	transactions—Trading	in	the	consolidated	statements	of	income	except	for	$523	million	related	to	Financial	instruments	owned— Investments,	which	is	included	in	Principal	transactions—Investments.

(2) Amounts	represent	unrealized	gains	(losses)	for	2012	related	to	assets	and	liabilities	still	outstanding	at	December	31,	2012.

(3) Net	derivative	and	other	contracts	represent	Financial	instruments	owned—Derivative	and	other	contracts	net	of	Financial	instruments	sold,	not	yet	purchased—Derivative	and	other	contracts.	For	further information	on	derivative	instruments	and	hedging	activities,	see	Note	12.

Financial	instruments	owned—Corporate	and	other	debt.				During	2012,	the	Company	reclassified	approximately	$1.9	billion	of	certain	Corporate	and	other	debt, primarily	loans,	from	Level	3	to	Level	2.	The	Company	reclassified	the	loans	as	external	prices	and/or	spread	inputs	for	these	instruments	became	observable.

The	Company	also	reclassified	approximately	$0.5	billion	of	certain	Corporate	and	other	debt	from	Level	2	to	Level	3.	The	reclassifications	were	primarily	related	to corporate	loans	and	were	generally	due	to	a	reduction	in	market	price	quotations	for	these	or	comparable	instruments,	or	a	lack	of	available	broker	quotes,	such	that unobservable	inputs	had	to	be	utilized	for	the	fair	value	measurement	of	these	instruments.

Financial	instruments	owned—Net	derivative	and	other	contracts.				During	2012,	the	Company	reclassified	approximately	$1.4	billion	of	certain	credit	derivative	assets and	approximately	$1.2	billion	of	certain	credit	derivative	liabilities	from	Level	3	to	Level	2.	These	reclassifications	were	primarily	related	to	single	name	credit	default swaps	and	basket	credit	default	swaps	for	which	certain	unobservable	inputs	became	insignificant	to	the	overall	measurement.

The	Company	also	reclassified	approximately	$0.6	billion	of	certain	credit	derivative	assets	and	approximately	$0.3	billion	of	certain	credit	derivative	liabilities	from Level	2	to	Level	3.	The	reclassifications	were	primarily	related	to	basket	credit	default	swaps	for	which	certain	unobservable	inputs	became	significant	to	the	overall measurement.

The	net	losses	in	Net	derivative	and	other	contracts	were	primarily	driven	by	tightening	of	credit	spreads	on	underlying	reference	entities	of	basket	credit	default	swaps where	the	Company	was	long	protection.

|  | Beginning | Total	Realized |  |  |  |  |  | Ending | Liabilities |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Balance\tat | and\tUnrealized |  |  |  |  |  | Balance\tat | Outstanding\tat |
|  | December\t31, | Gains\t(Losses) |  |  |  |  |  | December\t31, | December\t31, |
|  | 2010 | (1) | \t Purchases | Sales | Issuances | \t Settlements | \t Net\tTransfers | 2011 | 2011(2) |
|  |  |  |  |  | (dollars\tin\tmillions) |  |  |  |  |
| Assets\tat\tFair\tValue |  |  |  |  |  |  |  |  |  |
| Financial\tinstruments\towned: |  |  |  |  |  |  |  |  |  |
| U.S.\tagency\tsecurities | $13 | $— | $66 | $(68) | $— | $— | $(3) | $8 | $— |
| Other\tsovereign\tgovernment\tobligations | 73 | (4) | 56 | (2) | — | — | (4) | 119 | (2) |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |  |  |  |  |
| State\tand\tmunicipal\tsecurities | 110 | (1) | — | (96) | — | — | (13) | — | — |
| Residential\tmortgage-backed\tsecurities | 319 | (61) | 382 | (221) | — | (1) | 76 | 494 | (59) |
| Commercial\tmortgage-backed\tsecurities | 188 | 12 | 75 | (90) | — | — | (51) | 134 | (18) |
| Asset-backed\tsecurities | 13 | 4 | 13 | (19) | — | — | 20 | 31 | 2 |
| Corporate\tbonds | 1,368 | (136) | 467 | (661) | — | — | (363) | 675 | (20) |
| Collateralized\tdebt\tobligations | 1,659 | 109 | 613 | (1,296) | — | (55) | (50) | 980 | (84) |
| Loans\tand\tlending\tcommitments | 11,666 | (251) | 2,932 | (1,241) | — | (2,900) | (616) | 9,590 | (431) |
| Other\tdebt | 193 | 42 | 14 | (76) | — | (11) | (34) | 128 | — |
| Total\tcorporate\tand\tother\tdebt | 15,516 | (282) | 4,496 | (3,700) | — | (2,967) | (1,031) | 12,032 | (610) |
| Corporate\tequities | 484 | (46) | 416 | (360) | — | — | (77) | 417 | 16 |
| Net\tderivative\tand\tother\tcontracts(3): |  |  |  |  |  |  |  |  |  |
| Interest\trate\tcontracts | 424 | 628 | 45 | — | (714) | (150) | 187 | 420 | 522 |
| Credit\tcontracts | 6,594 | 319 | 1,199 | — | (277) | (2,165) | 144 | 5,814 | 1,818 |
| Foreign\texchange\tcontracts | 46 | (35) | 2 | — | — | 28 | 2 | 43 | (13) |
| Equity\tcontracts | (762) | 592 | 214 | (133) | (1,329) | 136 | 48 | (1,234) | 564 |
| Commodity\tcontracts | 188 | 708 | 52 | — | — | (433) | 55 | 570 | 689 |
| Other | (913) | (552) | 1 | — | (118) | 405 | 87 | (1,090) | (536) |
| Total\tnet\tderivative\tand\tother\tcontracts | 5,577 | 1,660 | 1,513 | (133) | (2,438) | (2,179) | 523 | 4,523 | 3,044 |
| Investments: |  |  |  |  |  |  |  |  |  |
| Private\tequity\tfunds | 1,986 | 159 | 245 | (513) | — | — | 59 | 1,936 | 85 |
| Real\testate\tfunds | 1,176 | 21 | 196 | (171) | — | — | (9) | 1,213 | 251 |
| Hedge\tfunds | 901 | (20) | 169 | (380) | — | — | 26 | 696 | (31) |
| Principal\tinvestments | 3,131 | 288 | 368 | (819) | — | — | (31) | 2,937 | 87 |
| Other | 560 | 38 | 8 | (34) | — | — | (71) | 501 | 23 |
| Total\tinvestments | 7,754 | 486 | 986 | (1,917) | — | — | (26) | 7,283 | 415 |
| Physical\tcommodities | — | (47) | 771 | — | — | (673) | (5) | 46 | 1 |
| Securities\treceived\tas\tcollateral | 1 | — | — | (1) | — | — | — | — | — |
| Intangible\tassets | 157 | (25) | 6 | (1) | — | (4) | — | 133 | (27) |
| Liabilities\tat\tFair\tValue |  |  |  |  |  |  |  |  |  |
| Deposits | $16 | $2 | $— | $— | $— | $(14) | $— | $— | $— |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings | 2 | — | — | — | — | — | — | 2 | — |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased: |  |  |  |  |  |  |  |  |  |
| Other\tsovereign\tgovernment\tobligations | — | 1 | — | 9 | — | — | — | 8 | — |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |  |  |  |  |
| Residential\tmortgage-backed\tsecurities | — | (8) | — | 347 | — | — | — | 355 | (8) |
| Corporate\tbonds | 44 | 37 | (407) | 694 | — | — | (75) | 219 | 51 |
| Unfunded\tlending\tcommitments | 263 | 178 | — | — | — | — | — | 85 | 178 |
| Other\tdebt | 194 | 123 | (12) | 22 | — | (2) | (6) | 73 | 12 |
| Total\tcorporate\tand\tother\tdebt | 501 | 330 | (419) | 1,063 | — | (2) | (81) | 732 | 233 |
| Corporate\tequities | 15 | (1) | (15) | 5 | — | — | (5) | 1 | — |
| Obligation\tto\treturn\tsecurities\treceived\tas\tcollateral | 1 | — | (1) | — | — | — | — | — | — |
| Securities\tsold\tunder\tagreements\tto\trepurchase | 351 | 11 | — | — | — | — | — | 340 | 11 |
| Other\tsecured\tfinancings | 1,016 | 27 | — | — | 154 | (267) | (306) | 570 | 13 |
| Long-term\tborrowings | 1,316 | 39 | — | — | 769 | (377) | (66) | 1,603 | 32 |

Financial	instruments	owned—Corporate	and	other	debt.				During	2011,	the	Company	reclassified	approximately	$1.8	billion	of	certain	Corporate	and	other	debt, primarily	corporate	loans,	from	Level	3	to	Level	2.	The	Company	reclassified	these	corporate	loans	as	external	prices	and/or	spread	inputs	for	these	instruments	became observable.

Financial	instruments	owned—Net	derivative	and	other	contracts.				The	net	gains	in	Net	derivative	and	other	contracts	were	primarily	driven	by	market	movements	and certain	transactions	during	2011	related	to	interest	rate,	equity	and	commodity	contracts.

# Changes	in	Level	3	Assets	and	Liabilities	Measured	at	Fair	Value	on	a	Recurring	Basis	for	2010.

|  |  | Total	Realized | Purchases, |  |  | for	Level	3 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Beginning | and | Sales,\tOther |  | Ending | Assets/Liabilities |
|  | Balance\tat | Unrealized | Settlements |  | Balance\tat | Outstanding\tat |
|  | December\t31, | Gains | and\tIssuances, | Net | December\t31, | December\t31, |
|  | 2009 | (Losses)(1) | net | Transfers | 2010 | 2010(2) |
|  |  |  | (dollars\tin\tmillions) |  |  |  |
| Assets\tat\tFair\tValue |  |  |  |  |  |  |
| Financial\tinstruments\towned: |  |  |  |  |  |  |
| U.S.\tagency\tsecurities | $36 | $(1) | $13 | $(35) | $13 | $(1) |
| Other\tsovereign\tgovernment\tobligations | 3 | 5 | 66 | (1) | 73 | 5 |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |  |
| State\tand\tmunicipal\tsecurities | 713 | (11) | (533) | (59) | 110 | (12) |
| Residential\tmortgage-backed\tsecurities | 818 | 12 | (607) | 96 | 319 | (2) |
| Commercial\tmortgage-backed\tsecurities | 1,573 | 35 | (1,054) | (366) | 188 | (61) |
| Asset-backed\tsecurities | 591 | 10 | (436) | (152) | 13 | 7 |
| Corporate\tbonds | 1,038 | (84) | 403 | 11 | 1,368 | 41 |
| Collateralized\tdebt\tobligations | 1,553 | 368 | (259) | (3) | 1,659 | 189 |
| Loans\tand\tlending\tcommitments | 12,506 | 203 | (376) | (667) | 11,666 | 214 |
| Other\tdebt | 1,662 | 44 | (92) | (1,421) | 193 | 49 |
| Total\tcorporate\tand\tother\tdebt | 20,454 | 577 | (2,954) | (2,561) | 15,516 | 425 |
| Corporate\tequities | 536 | 118 | (189) | 19 | 484 | 59 |
| Net\tderivative\tand\tother\tcontracts(3): |  |  |  |  |  |  |
| Interest\trate\tcontracts | 387 | 238 | (178) | (23) | 424 | 260 |
| Credit\tcontracts | 8,824 | (1,179) | 128 | (1,179) | 6,594 | 58 |
| Foreign\texchange\tcontracts | 254 | (77) | 33 | (164) | 46 | (109) |
| Equity\tcontracts | (689) | (131) | (146) | 204 | (762) | (143) |
| Commodity\tcontracts | 7 | 121 | 60 | — | 188 | 268 |
| Other | (437) | (266) | (220) | 10 | (913) | (284) |
| Total\tnet\tderivative\tand\tother\tcontracts | 8,346 | (1,294) | (323) | (1,152) | 5,577 | 50 |
| Investments: |  |  |  |  |  |  |
| Private\tequity\tfunds | 1,296 | 496 | 202 | (8) | 1,986 | 462 |
| Real\testate\tfunds | 833 | 251 | 89 | 3 | 1,176 | 399 |
| Hedge\tfunds | 1,708 | (161) | (327) | (319) | 901 | (160) |
| Principal\tinvestments | 3,195 | 470 | 229 | (763) | 3,131 | 412 |
| Other | 581 | 109 | (129) | (1) | 560 | 49 |
| Total\tinvestments | 7,613 | 1,165 | 64 | (1,088) | 7,754 | 1,162 |
| Securities\treceived\tas\tcollateral | 23 | — | (22) | — | 1 | — |
| Intangible\tassets | 137 | 43 | (23) | — | 157 | 23 |
| Liabilities\tat\tFair\tValue |  |  |  |  |  |  |
| Deposits | $24 | $— | $— | $(8) | $16 | $— |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings | — | — | 2 | — | 2 | — |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased: |  |  |  |  |  |  |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |  |
| Asset-backed\tsecurities | 4 | — | (4) | — | — | — |
| Corporate\tbonds | 29 | (15) | 13 | (13) | 44 | (9) |
| Collateralized\tdebt\tobligations | 3 | — | (3) | — | — | — |
| Unfunded\tlending\tcommitments | 252 | (4) | 7 | — | 263 | (2) |
| Other\tdebt | 431 | 65 | (161) | (11) | 194 | 62 |
| Total\tcorporate\tand\tother\tdebt | 719 | 46 | (148) | (24) | 501 | 51 |
| Corporate\tequities | 4 | 17 | 54 | (26) | 15 | 9 |
| Obligation\tto\treturn\tsecurities\treceived\tas\tcollateral | 23 | — | (22) | — | 1 | — |
| Securities\tsold\tunder\tagreements\tto\trepurchase | — | (1) | 350 | — | 351 | (1) |
| Other\tsecured\tfinancings | 1,532 | (44) | (612) | 52 | 1,016 | (44) |
| Long-term\tborrowings | 6,865 | 66 | (5,175) | (308) | 1,316 | (84) |

(2) Amounts	represent	unrealized	gains	(losses)	for	2010	related	to	assets	and	liabilities	still	outstanding	at	December	31,	2010.

Financial	instruments	owned—Corporate	and	other	debt.				During	2010,	the	Company	reclassified	approximately	$3.5	billion	of	certain	Corporate	and	other	debt, primarily	loans	and	hybrid	contracts,	from	Level	3	to	Level	2.	The	Company	reclassified	these	loans	and	hybrid	contracts	as	external	prices	and/or	spread	inputs	for	these instruments	became	observable	and	certain	unobservable	inputs	were	deemed	insignificant	to	the	overall	measurement.

The	Company	also	reclassified	approximately	$0.9	billion	of	certain	Corporate	and	other	debt	from	Level	2	to	Level	3.	The	reclassifications	were	primarily	related	to certain	corporate	loans	and	were	generally	due	to	a	reduction	in	market	price	quotations	for	these	or	comparable	instruments,	or	a	lack	of	available	broker	quotes,	such that	unobservable	inputs	had	to	be	utilized	for	the	fair	value	measurement	of	these	instruments.

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

During	2010,	the	Company	reclassified	approximately	$1.2	billion	of	certain	Net	derivative	contracts	from	Level	3	to	Level	2.	These	reclassifications	were	related	to certain	tranched	bespoke	credit	basket	default	swaps	and	single	name	credit	default	swaps	for	which	certain	unobservable	inputs	were	deemed	insignificant.

Financial	instruments	owned—Investments.				During	2010,	the	Company	reclassified	approximately	$1.0	billion	from	Level	3	to	Level	2.	These	reclassifications	were primarily	related	to	principal	investments	for	which	external	prices	became	unobservable.

# Quantitative	Information	about	and	Sensitivity	of	Significant	Unobservable	Inputs	Used	in	Recurring	Level	3	Fair	Value	Measurements	at	December	31,	2012.

The	disclosures	below	provide	information	on	the	valuation	techniques,	significant	unobservable	inputs	and	their	ranges	for	each	major	category	of	assets	and	liabilities measured	at	fair	value	on	a	recurring	basis	with	a	significant	Level	3	balance.	The	level	of	aggregation	and	breadth	of	products	cause	the	range	of	inputs	to	be	wide	and not	evenly	distributed	across	the	inventory.	Further,	the	range	of	unobservable	inputs	may	differ	across	firms	in	the	financial	services	industry	because	of	diversity	in	the types	of	products	included	in	each	firm's	inventory.

The	disclosures	below	also	include	qualitative	information	on	the	sensitivity	of	the	fair	value	measurements	to	changes	in	the	significant	unobservable	inputs.

| Valuation<br>Technique(s) | Sensitivity	of	the	Fair	Value	to	Changes<br>in	the	Unobservable	Inputs |  |  | Range(1) |  |  | Weighted<br>Average |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Comparable\tpricing | Comparable\tbond\tprice\t/\t(A) | \t46 | \tto | 100 | points | 76 | points |
| Discounted\tcash\tflow | Internal\trate\tof\treturn\t/\t(C) |  |  | 21 | % | 21 | % |
| Comparable\tpricing | Comparable\tbond\tprice\t/\t(A) | 0 | \tto | 143 | points | 24 | points |
| Comparable\tpricing | Comparable\tbond\tprice\t/\t(A) | 15 | \tto | 88 | points | 59 | points |
| Correlation\tmodel | Credit\tcorrelation\t/\t(B) | 15 | \tto | 45 | % | 40 | % |
| Corporate\tloan\tmodel | Credit\tspread\t/\t(C) | 17 | \tto | \t1,004 | basis\tpoints | 281 | basis\tpoints |
| Comparable\tpricing | Comparable\tbond\tprice\t/\t(A) | 80 | \tto | 120 | points | 104 | points |
| Comparable\tpricing | Comparable\tloan\tprice\t/\t(A) | 55 | \tto | 100 | points | 88 | points |
| Net\tasset\tvalue | Discount\tto\tnet\tasset\tvalue\t/\t(C) | 0 | \tto | 37 | % | 8 | % |
| Comparable\tpricing | Discount\tto\tcomparable\tequity\tprice\t/\t(C) | 0 | \tto | 27 | points | 14 | points |
| Market\tapproach | Earnings\tbefore\tinterest,\ttaxes,\tdepreciation\tand |  |  | 6 | times | 6 | times |
|  | amortization\t("EBITDA")\tmultiple\t/\t(A) |  |  |  |  |  |  |
| Option\tmodel | Interest\trate\tvolatility\tconcentration\tliquidity | 0 | \tto | 8 | times |  | See\t(3) |
|  | multiple\t/\t(C)(D) |  |  |  |  |  |  |
|  | Comparable\tbond\tprice\t/\t(A)(D) | 5 | \tto | 98 | points |  |  |
|  | Interest\trate—Foreign\texchange\tcorrelation\t/\t(A) | 2 | \tto | 63 | % |  |  |
|  | (D) |  |  |  |  |  |  |
|  | Interest\trate\tvolatility\tskew\t/\t(A)(D) | 9 | \tto | 95 | % |  |  |
|  | Interest\trate\tquanto\tcorrelation\t/\t(A)(D) | \t-53 | \tto | 33 | % |  |  |
|  | Interest\trate\tcurve\tcorrelation\t/\t(A)(D) | 48 | \tto | 99 | % |  |  |
|  | Inflation\tvolatility\t/\t(A)(D) | 49 | \tto | 100 | % |  |  |
| Discounted\tcash\tflow | Forward\tcommercial\tpaper\trate-LIBOR\tbasis\t/\t(A) | -18 | \tto | 95 | basis\tpoints |  |  |
| Comparable\tpricing | Cash\tsynthetic\tbasis\t/\t(C) | 2 | \tto | 14 | points |  | See\t(4) |
|  | Comparable\tbond\tprice\t/\t(C) | 0 | \tto | 80 | points |  |  |
| Correlation\tmodel | Credit\tcorrelation\t/\t(B) | 14 | \tto | 94 | % |  |  |
| Option\tmodel | Comparable\tbond\tprice\t/\t(A)(D) | 5 | \tto | 98 | points |  | See\t(6) |
|  | Interest\trate\tquanto\tcorrelation\t/(A)(D) | \t-53 | \tto | 33 | % |  |  |
|  | Interest\trate—Credit\tspread\tcorrelation\t/\t(A)(D) | -59 | \tto | 65 | % |  |  |
|  | Interest\trate—Foreign\texchange\tcorrelation\t/\t(A) | 2 | \tto | 63 | % |  |  |
|  | (D) |  |  |  |  |  |  |
|  | Interest\trate\tvolatility\tskew\t/\t(A)(D) | 9 | \tto | 95 | % |  |  |
| Option\tmodel | At\tthe\tmoney\tvolatility\t/\t(C)(D) | 7 | \tto | 24 | % |  | See\t(7) |
|  | Volatility\tskew\t/\t(C)(D) | -2 | \tto | 0 | % |  |  |
|  | Equity—Equity\tcorrelation\t/\t(C)(D) | 40 | \tto | 96 | % |  |  |
|  | Equity—Foreign\texchange\tcorrelation\t/\t(C)(D) | -70 | \tto | 38 | % |  |  |
|  | Equity—Interest\trate\tcorrelation\t/\t(C)(D) | 18 | \tto | 65 | % |  |  |

# Liabilities

Financial	instruments	sold,	not	yet	purchased:

Corporate	bonds $177 Comparable	pricing Securities	sold	under	agreements	to	repurchase 151 Discounted	cash	flow

(1) The	ranges	of	significant	unobservable	inputs	are	represented	in	points,	percentages,	basis	points,	times	or	megawatt	hours.	Points	are	a	percentage	of	par;	for	example,	100	points	would	be	100%	of	par.	A	basis point	equals	1/100th	of	1%;	for	example,	1,004	basis	points	would	equal	10.04%.

(2) Investments	in	funds	measured	using	an	unadjusted	net	asset	value	are	excluded.

(3) See	below	for	a	qualitative	discussion	of	the	wide	unobservable	input	ranges	for	comparable	bond	prices,	interest	rate	volatility	skew,	interest	rate	quanto	correlation	and	forward	commercial	paper	rate–LIBOR basis.

(4) See	below	for	a	qualitative	discussion	of	the	wide	unobservable	input	ranges	for	comparable	bond	prices	and	credit	correlation.

(5) Includes	derivative	contracts	with	multiple	risks	( i.e.,	hybrid	products).

(6) See	below	for	a	qualitative	discussion	of	the	wide	unobservable	input	ranges	for	comparable	bond	prices,	interest	rate	quanto	correlation,	interest	rate-credit	spread	correlation	and	interest	rate	volatility	skew.

(7) See	below	for	a	qualitative	discussion	of	the	wide	unobservable	input	range	for	equity-foreign	exchange	correlation.

# Sensitivity	of	the	fair	value	to	changes	in	the	unobservable	inputs:

(A) Significant	increase	(decrease)	in	the	unobservable	input	in	isolation	would	result	in	a	significantly	higher	(lower)	fair	value	measurement.

(B) Significant	changes	in	credit	correlation	may	result	in	a	significantly	higher	or	lower	fair	value	measurement.	Increasing	(decreasing)	correlation	drives	a	redistribution	of	risk	within	the	capital	structure	such	that junior	tranches	become	less	(more)	risky	and	senior	tranches	become	more	(less)	risky.

(C) Significant	increase	(decrease)	in	the	unobservable	input	in	isolation	would	result	in	a	significantly	lower	(higher)	fair	value	measurement.

(D) There	are	no	predictable	relationships	between	the	significant	unobservable	inputs.

The	following	provides	a	description	of	significant	unobservable	inputs	included	in	the	table	above	for	all	major	categories	of	assets	and	liabilities	and	a	qualitative discussion	of	wide	unobservable	input	ranges	for	derivative	products:

•	 Comparable	bond	price	–	a	pricing	input	used	when	prices	for	the	identical	instrument	are	not	available.	Significant	subjectivity	may	be	involved	when	fair value	is	determined	using	pricing	data	available	for

comparable	instruments.	Valuation	using	comparable	instruments	can	be	done	by	calculating	an	implied	yield	(or	spread	over	a	liquid	benchmark)	from	the price	of	a	comparable	bond,	then	adjusting	that	yield	(or	spread)	to	derive	a	value	for	the	bond.	The	adjustment	to	yield	(or	spread)	should	account	for	relevant differences	in	the	bonds	such	as	maturity	or	credit	quality.	Alternatively,	a	price-to-price	basis	can	be	assumed	between	the	comparable	instrument	and	bond being	valued	in	order	to	establish	the	value	of	the	bond.	Additionally,	as	the	probability	of	default	increases	for	a	given	bond	(i.e.,	as	the	bond	becomes	more distressed),	the	valuation	of	that	bond	will	increasingly	reflect	its	expected	recovery	level	assuming	default.	The	decision	to	use	price-to-price	or	yield/spread comparisons	largely	reflects	trading	market	convention	for	the	financial	instruments	in	question.	Price-to-price	comparisons	are	primarily	employed	for CMBS,	CDO,	mortgage	loans	and	distressed	corporate	bonds.	Implied	yield	(or	spread	over	a	liquid	benchmark)	is	utilized	predominately	for	non-distressed corporate	bonds,	loans	and	credit	contracts.

Interest	rate	contracts,	credit	contracts	and	foreign	exchange	contracts	–	For	interest	rate,	credit	and	foreign	exchange	contracts,	the	wide	range	of	the bond	price	inputs	is	largely	driven	by	dispersion	in	the	credit	quality	and	ratings	of	the	underlying	assets	and	the	maturity	of	the	contracts.

•Internal	rate	of	return	–	the	discount	factor	required	for	the	net	present	value	of	future	cash	flows	to	equal	zero.	The	internal	rate	of	return	represents	the minimum	average	annual	return	required	for	an	investment.

•	 Correlation	–	a	pricing	input	where	the	payoff	is	driven	by	more	than	one	underlying	risk.	Correlation	is	a	measure	of	the	relationship	between	the	movements of	two	variables	(i.e.,	how	the	change	in	one	variable	influences	a	change	in	the	other	variable).	Credit	correlation,	for	example,	is	the	factor	that	describes	the relationship	between	the	probability	of	individual	entities	to	default	on	obligations	and	the	joint	probability	of	multiple	entities	to	default	on	obligations.	The correlation	ranges	may	be	wide	since	any	two	underlying	inputs	may	be	highly	correlated	(either	positively	or	negatively)	or	weakly	correlated.

Equity	contracts	–	For	equity	derivative	contracts,	the	wide	range	of	equity-foreign	exchange	correlation	inputs	is	primarily	due	to	the	large	number	of correlation	pairs,	the	diverse	nature	of	the	correlation	pairs,	and	the	maturity	of	the	contracts.

Interest	rate	contracts	and	foreign	exchange	contracts	–	The	interest	rate	quanto	correlation	and	interest	rate-credit	spread	correlation	input	ranges	for interest	rate	and	foreign	exchange	contracts	reflect	differences	in	economic	terms	for	the	underlying	instruments.	For	example,	a	change	in	a	currency pair	can	significantly	impact	the	implied	quanto	correlation	and	a	change	in	the	reference	entity	can	significantly	impact	the	implied	interest	rate-credit spread	correlation.

Credit	contracts	–	The	Company	holds	positions	covering	a	wide	range	of	maturities,	capital	structure	subordinations,	and	credit	quality	of	underlying reference	entities,	all	of	which	affect	the	marking	of	the	credit	correlation	input.

•	 Credit	spread	–	the	difference	in	yield	between	different	securities	due	to	differences	in	credit	quality.	The	credit	spread	reflects	the	additional	net	yield	an investor	can	earn	from	a	security	with	more	credit	risk	relative	to	one	with	less	credit	risk.	The	credit	spread	of	a	particular	security	is	often	quoted	in	relation to	the	yield	on	a	credit	risk-free	benchmark	security	or	reference	rate,	typically	either	U.S.	Treasury	or	LIBOR.

•	 EBITDA	multiple	/	Exit	multiple	–	is	the	Enterprise	Value	to	EBITDA	ratio,	where	the	Enterprise	Value	is	the	aggregate	value	of	equity	and	debt	minus	cash and	cash	equivalents.	The	EBITDA	multiple	reflects	the	value	of	the	company	in	terms	of	its	full-year	EBITDA,	whereas	the	exit	multiple	reflects	the	value	of the	company	in	terms	of	its	full	year	expected	EBITDA	at	exit.	Either	multiple	allows	comparison	between	companies	from	an	operational	perspective	as	the effect	of	capital	structure,	taxation	and	depreciation/amortization	is	excluded.

•	 Volatility	–	the	measure	of	the	variability	in	possible	returns	for	an	instrument	given	how	much	that	instrument	changes	in	value	over	time.	Volatility	is	a pricing	input	for	options	and,	generally,	the	lower	the	volatility,	the	less	risky	the	option.	The	level	of	volatility	used	in	the	valuation	of	a	particular	option depends	on	a	number	of	factors,	including	the	nature	of	the	risk	underlying	that	option	(e.g.,	the	volatility	of	a	particular	underlying	equity	security	may	be significantly	different	from	that	of	a	particular	underlying	commodity	index),	the	tenor	and	the	strike	price	of	the	option.

•	 Volatility	skew	–	the	measure	of	the	difference	in	implied	volatility	for	options	with	identical	underliers	and	expiry	dates	but	with	different	strikes.	The	implied volatility	for	an	option	with	a	strike	price	that	is	above	or	below	the	current	price	of	an	underlying	asset	will	typically	deviate	from	the	implied	volatility	for	an option	with	a	strike	price	equal	to	the	current	price	of	that	same	underlying	asset.

Interest	rate	contracts	and	foreign	exchange	contracts	–	The	volatility	skew	input	range	for	interest	rate	and	foreign	exchange	contracts	reflects differences	in	economic	terms	for	the	underlying	instruments	as	well	as	market	factors	specific	to	each	underlier	for	which	volatility	is	being	estimated. For	example,	a	change	in	the	strike	of	an	option	can	significantly	impact	the	implied	interest	rate	volatility	skew.

•	 Forward	commercial	paper	rate–LIBOR	basis	–	the	basis	added	to	the	LIBOR	rate	when	the	commercial	paper	yield	is	expressed	as	a	spread	over	the	LIBOR rate.

Interest	rate	contracts	–	There	are	multiple	credit	ratings	of	commercial	paper,	each	of	which	will	lead	to	a	different	basis	to	LIBOR.	The	basis	to LIBOR	is	dependent	on	a	number	of	factors,	including,	but	not	limited	to,	collateralization	of	the	commercial	paper,	credit	rating	of	the	issuer,	and	the supply	of	commercial	paper.	For	example,	the	higher	the	credit	rating,	the	lower	the	basis.	The	basis	may	become	negative,	i.e.,	the	return	for	highly- rated	commercial	paper,	such	as	asset-backed	commercial	paper,	may	be	less	than	LIBOR.

•	 Cash	synthetic	basis	–	the	measure	of	the	price	differential	between	cash	financial	instruments	("cash	instruments")	and	their	synthetic	derivative-based equivalents	("synthetic	instruments").	The	range	disclosed	in	the	table	above	signifies	the	number	of	points	by	which	the	synthetic	bond	equivalent	price	is higher	than	the	quoted	price	of	the	underlying	cash	bonds.

•Implied	WACC	–	the	weighted	average	cost	of	capital	("WACC")	implied	by	the	current	value	of	equity	in	a	discounted	cash	flow	model.	The	model	assumes that	the	cash	flow	assumptions,	including	projections,	are	fully	reflected	in	the	current	equity	value	while	the	debt	to	equity	ratio	is	held	constant.	The	WACC theoretically	represents	the	required	rate	of	return	to	debt	and	equity	investors,	respectively.

•	 Capitalization	rate	–	the	ratio	between	net	operating	income	produced	by	an	asset	and	its	market	value	at	the	projected	disposition	date.

•	 Funding	spread	–	the	difference	between	the	general	collateral	rate	(which	refers	to	the	rate	applicable	to	a	broad	class	of	U.S.	Treasury	issuances)	and	the specific	collateral	rate	(which	refers	to	the	rate	applicable	to	a	specific	type	of	security	pledged	as	collateral,	such	as	a	municipal	bond).	Repurchase agreements	are	discounted	based	on	collateral	curves.	The	curves	are	constructed	as	spreads	over	the	corresponding	OIS/LIBOR	curves,	with	the	short	end	of the	curve	representing	spreads	over	the	corresponding	OIS	curves	and	the	long	end	of	the	curve	representing	spreads	over	LIBOR.

# Fair	Value	of	Investments	that	Calculate	Net	Asset	Value.

The	Company's	Investments	measured	at	fair	value	were	$8,346	million	and	$8,195	million	at	December	31,	2012	and	2011,	respectively.	The	following	table	presents information	solely	about	the	Company's	investments	in	private	equity	funds,	real	estate	funds	and	hedge	funds	measured	at	fair	value	based	on	net	asset	value	at December	31,	2012	and	2011,	respectively.

|  | At	December	31,	2012 |  | At	December	31,	2011 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Fair | Unfunded | Fair | Unfunded |
|  | Value | Commitment | Value | Commitment |
|  |  | (dollars\tin\tmillions) |  |  |
| Private\tequity\tfunds | $2,179 | $644 | $1,906 | $938 |
| Real\testate\tfunds | \t 1,376 | 221 | \t 1,188 | 448 |
| Hedge\tfunds(1): |  |  |  |  |
| Long-short\tequity\thedge\tfunds | 475 | — | 545 | 5 |
| Fixed\tincome/credit-related\thedge\tfunds | 86 | — | 124 | — |
| Event-driven\thedge\tfunds | 52 | — | 163 | — |
| Multi-strategy\thedge\tfunds | 321 | 3 | 335 | — |
| Total | $4,489 | $868 | $4,261 | $1,391 |

(1) Fixed	income/credit-related	hedge	funds,	event-driven	hedge	funds,	and	multi-strategy	hedge	funds	are	redeemable	at	least	on	a	six-month	period	basis	primarily	with	a	notice	period	of	90	days	or	less.	At December	31,	2012,	approximately	36%	of	the	fair	value	amount	of	long-short	equity	hedge	funds	is	redeemable	at	least	quarterly,	38%	is	redeemable	every	six	months	and	26%	of	these	funds	have	a	redemption frequency	of	greater	than	six	months.	The	notice	period	for	long-short	equity	hedge	funds	at	December	31,	2012	is	primarily	greater	than	six	months.	At	December	31,	2011,	approximately	38%	of	the	fair	value amount	of	long-short	equity	hedge	funds	is	redeemable	at	least	quarterly,	32%	is	redeemable	every	six	months	and	30%	of	these	funds	have	a	redemption	frequency	of	greater	than	six	months.	The	notice	period	for long-short	equity	hedge	funds	at	December	31,	2011	is	primarily	greater	than	six	months.

Private	Equity	Funds.				Amount	includes	several	private	equity	funds	that	pursue	multiple	strategies	including	leveraged	buyouts,	venture	capital,	infrastructure	growth capital,	distressed	investments,	and	mezzanine	capital.	In	addition,	the	funds	may	be	structured	with	a	focus	on	specific	domestic	or	foreign	geographic	regions.	These investments	are	generally	not	redeemable	with	the	funds.	Instead,	the	nature	of	the	investments	in	this	category	is	that	distributions	are	received	through	the	liquidation of	the	underlying	assets	of	the	fund.	At	December	31,	2012,	it	is	estimated	that	5%	of	the	fair	value	of	the	funds	will	be	liquidated	in	the	next	five	years,	another	27%	of the	fair	value	of	the	funds	will	be	liquidated	between	five	to	10	years	and	the	remaining	68%	of	the	fair	value	of	the	funds	have	a	remaining	life	of	greater	than	10	years.

Real	Estate	Funds.				Amount	includes	several	real	estate	funds	that	invest	in	real	estate	assets	such	as	commercial	office	buildings,	retail	properties,	multi-family residential	properties,	developments	or	hotels.	In	addition,	the	funds	may	be	structured	with	a	focus	on	specific	geographic	domestic	or	foreign	regions.	These investments	are	generally	not	redeemable	with	the	funds.	Distributions	from	each	fund	will	be	received	as	the	underlying	investments	of	the	funds	are	liquidated.	At December	31,	2012,	it	is	estimated	that	4%	of	the	fair	value	of	the	funds	will	be	liquidated	within	the	next	five	years,	another	46%	of	the	fair	value	of	the	funds	will	be liquidated	between	five	to	10	years	and	the	remaining	50%	of	the	fair	value	of	the	funds	have	a	remaining	life	of	greater	than	10	years.

Hedge	Funds.				Investments	in	hedge	funds	may	be	subject	to	initial	period	lock-up	restrictions	or	gates.	A	hedge	fund	lock-up	provision	is	a	provision	that	provides that,	during	a	certain	initial	period,	an	investor	may	not	make	a	withdrawal	from	the	fund.	The	purpose	of	a	gate	is	to	restrict	the	level	of	redemptions	that	an	investor	in a	particular	hedge	fund	can	demand	on	any	redemption	date.

•	 Long-short	Equity	Hedge	Funds.				Amount	includes	investments	in	hedge	funds	that	invest,	long	or	short,	in	equities.	Equity	value	and	growth	hedge	funds purchase	stocks	perceived	to	be	undervalued	and	sell

stocks	perceived	to	be	overvalued.	Investments	representing	approximately	7%	of	the	fair	value	of	the	investments	in	this	category	cannot	be	redeemed currently	because	the	investments	include	certain	initial	period	lock-up	restrictions.	The	remaining	restriction	period	for	these	investments	subject	to	lock-up restrictions	was	primarily	two	years	or	less	at	December	31,	2012.	Investments	representing	approximately	7%	of	the	fair	value	of	the	investments	in	long- short	equity	hedge	funds	cannot	be	redeemed	currently	because	an	exit	restriction	has	been	imposed	by	the	hedge	fund	manager.	The	restriction	period	for these	investments	subject	to	an	exit	restriction	was	primarily	one	year	or	less	at	December	31,	2012.

•	 Fixed	Income/Credit-Related	Hedge	Funds.				Amount	includes	investments	in	hedge	funds	that	employ	long-short,	distressed	or	relative	value	strategies	in order	to	benefit	from	investments	in	undervalued	or	overvalued	securities	that	are	primarily	debt	or	credit	related.	At	December	31,	2012,	investments representing	approximately	5%	of	the	fair	value	of	the	investments	in	fixed	income/credit-related	hedge	funds	cannot	be	redeemed	currently	because	the investments	include	certain	initial	period	lock-up	restrictions.	The	remaining	restriction	period	for	these	investments	subject	to	lock-up	restrictions	was primarily	one	year	or	less	at	December	31,	2012.

•	 Event-Driven	Hedge	Funds.				Amount	includes	investments	in	hedge	funds	that	invest	in	event-driven	situations	such	as	mergers,	hostile	takeovers, reorganizations,	or	leveraged	buyouts.	This	may	involve	the	simultaneous	purchase	of	stock	in	companies	being	acquired	and	the	sale	of	stock	in	its	acquirer, with	the	expectation	to	profit	from	the	spread	between	the	current	market	price	and	the	ultimate	purchase	price	of	the	target	company.	At	December	31,	2012, there	were	no	restrictions	on	redemptions.

•	 Multi-strategy	Hedge	Funds.	Amount	includes	investments	in	hedge	funds	that	pursue	multiple	strategies	to	realize	short-	and	long-term	gains.	Management	of the	hedge	funds	has	the	ability	to	overweight	or	underweight	different	strategies	to	best	capitalize	on	current	investment	opportunities.	At	December	31,	2012, investments	representing	approximately	66%	of	the	fair	value	of	the	investments	in	this	category	cannot	be	redeemed	currently	because	the	investments	include certain	initial	period	lock-up	restrictions.	The	remaining	restriction	period	for	these	investments	subject	to	lock-up	restrictions	was	primarily	two	years	or	less at	December	31,	2012.	Investments	representing	approximately	9%	of	the	fair	value	of	the	investments	in	multi-strategy	hedge	funds	cannot	be	redeemed currently	because	an	exit	restriction	has	been	imposed	by	the	hedge	fund	manager.	The	restriction	period	for	these	investments	subject	to	an	exit	restriction	was indefinite	at	December	31,	2012.

# Fair	Value	Option.

The	Company	elected	the	fair	value	option	for	certain	eligible	instruments	that	are	risk	managed	on	a	fair	value	basis	to	mitigate	income	statement	volatility	caused	by measurement	basis	differences	between	the	elected	instruments	and	their	associated	risk	management	transactions	or	to	eliminate	complexities	of	applying	certain accounting	models.	The	following	tables	present	net	gains	(losses)	due	to	changes	in	fair	value	for	items	measured	at	fair	value	pursuant	to	the	fair	value	option	election for	2012,	2011	and	2010,	respectively:

|  | Principal | Interest | Gains	(Losses) |
| :--- | :--- | :--- | :--- |
|  | Transactions-\nTrading | Income\n(Expense) | Included\tin\nNet\tRevenues |
|  |  | (dollars\tin\tmillions) |  |
| Year\tEnded\tDecember\t31,\t2012 |  |  |  |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell | $8 | $5 | $13 |
| Deposits | 57 | (86) | (29) |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings(1) | (31) | — | (31) |
| Securities\tsold\tunder\tagreements\tto\trepurchase | (15) | (4) | (19) |
| Long-term\tborrowings(1) | (5,687) | (1,321) | (7,008) |
| Year\tEnded\tDecember\t31,\t2011 |  |  |  |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell | $12 | $— | $12 |
| Deposits | 66 | (117) | (51) |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings(1) | 567 | — | 567 |
| Securities\tsold\tunder\tagreements\tto\trepurchase | 3 | (7) | (4) |
| Long-term\tborrowings(1) | 4,204 | (1,075) | 3,129 |
| Year\tEnded\tDecember\t31,\t2010 |  |  |  |
| Deposits | $2 | $(173) | $(171) |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings(1) | (8) | — | (8) |
| Securities\tsold\tunder\tagreements\tto\trepurchase | 9 | (1) | 8 |
| Long-term\tborrowings(1) | (872) | (849) | (1,721) |

(1) Of	the	total	gains	(losses)	recorded	in	Principal	transactions—Trading	for	short-term	and	long-term	borrowings	for	2012,	2011	and	2010,	$(4,402)	million,	$3,681	million	and	$(873)	million,	respectively,	are attributable	to	changes	in	the	credit	quality	of	the	Company,	and	the	respective	remainder	is	attributable	to	changes	in	foreign	currency	rates	or	interest	rates	or	movements	in	the	reference	price	or	index	for structured	notes	before	the	impact	of	related	hedges.

In	addition	to	the	amounts	in	the	above	table,	as	discussed	in	Note	2,	all	of	the	instruments	within	Financial	instruments	owned	or	Financial	instruments	sold,	not	yet purchased	are	measured	at	fair	value,	either	through	the	election	of	the	fair	value	option	or	as	required	by	other	accounting	guidance.	The	amounts	in	the	above	table	are included	within	Net	revenues	and	do	not	reflect	gains	or	losses	on	related	hedging	instruments,	if	any.

The	Company	hedges	the	economics	of	market	risk	for	short-term	and	long-term	borrowings	(i.e.,	risks	other	than	that	related	to	the	credit	quality	of	the	Company)	as part	of	its	overall	trading	strategy	and	manages	the	market	risks	embedded	within	the	issuance	by	the	related	business	unit	as	part	of	the	business	units'	portfolio.	The gains	and	losses	on	related	economic	hedges	are	recorded	in	Principal	transactions—Trading	and	largely	offset	the	gains	and	losses	on	short-term	and	long-term borrowings	attributable	to	market	risk.

At	December	31,	2012	and	2011,	a	breakdown	of	the	short-term	and	long-term	borrowings	by	business	unit	responsible	for	risk-managing	the	borrowing	is	shown	in	the table	below:

|  | At	December | At	December |
| :--- | :--- | :--- |
| Business\tUnit | 31,\t2012 | 31,\t2011 |
|  | (dollars\tin\tmillions) |  |
| Interest\trates | $23,330 | $23,188 |
| Equity | 17,326 | 13,926 |
| Credit\tand\tforeign\texchange | 3,337 | 3,012 |
| Commodities | 776 | 876 |
| Total | $44,769 | $41,002 |

The	following	tables	present	information	on	the	Company's	short-term	and	long-term	borrowings	(primarily	structured	notes),	loans	and	unfunded	lending	commitments for	which	the	fair	value	option	was	elected.

# Gains	(Losses)	due	to	Changes	in	Instrument-Specific	Credit	Risk.

(1) The	change	in	the	fair	value	of	short-term	and	long-term	borrowings	(primarily	structured	notes)	includes	an	adjustment	to	reflect	the	change	in	credit	quality	of	the	Company	based	upon	observations	of	the Company's	secondary	bond	market	spreads.

(2) Instrument-specific	credit	gains	(losses)	were	determined	by	excluding	the	non-credit	components	of	gains	and	losses,	such	as	those	due	to	changes	in	interest	rates.

(3) Gains	(losses)	were	generally	determined	based	on	the	differential	between	estimated	expected	client	yields	and	contractual	yields	at	each	respective	period	end.

# Net	Difference	between	Contractual	Principal	Amount	and	Fair	Value.

|  | At	December<br>31,	2012 | At	December<br>31,	2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tbillions) |  |
| Short-term\tand\tlong-term\tborrowings(1) | $(0.4) | $2.5 |
| Loans(2) | 25.2 | 27.2 |
| Loans\t90\tor\tmore\tdays\tpast\tdue\tand/or\ton\tnon-accrual\tstatus(2)(3) | 20.5 | 22.1 |

(1) These	amounts	do	not	include	structured	notes	where	the	repayment	of	the	initial	principal	amount	fluctuates	based	on	changes	in	the	reference	price	or	index.

(2) The	majority	of	this	difference	between	principal	and	fair	value	amounts	emanates	from	the	Company's	distressed	debt	trading	business,	which	purchases	distressed	debt	at	amounts	well	below	par.

(3) The	aggregate	fair	value	of	loans	that	were	in	non-accrual	status,	which	includes	all	loans	90	or	more	days	past	due,	was	$1.4	billion	and	$2.0	billion	at	December	31,	2012	and	December	31,	2011,	respectively.

The	aggregate	fair	value	of	loans	that	were	90	or	more	days	past	due	was	$0.8	billion	and	$1.5	billion	at	December	31,	2012	and	December	31,	2011,	respectively.

The	tables	above	exclude	non-recourse	debt	from	consolidated	VIEs,	liabilities	related	to	failed	sales	of	financial	assets,	pledged	commodities	and	other	liabilities	that have	specified	assets	attributable	to	them.

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

Certain	assets	were	measured	at	fair	value	on	a	non-recurring	basis	and	are	not	included	in	the	tables	above.	These	assets	may	include	loans,	other	investments, premises,	equipment	and	software	costs,	and	intangible	assets.

The	following	tables	present,	by	caption	on	the	consolidated	statements	of	financial	condition,	the	fair	value	hierarchy	for	those	assets	measured	at	fair	value	on	a	non- recurring	basis	for	which	the	Company	recognized	a	non-recurring	fair	value	adjustment	for	2012,	2011	and	2010,	respectively.

|  |  | Quoted	Prices	in |  | Significant | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Carrying\tValue | Active\tMarkets\tfor | Significant | Unobservable | Gains |
|  | At\tDecember\t31, | Identical\tAssets | Observable\tInputs | Inputs | (Losses)\tfor |
|  | 2012 | (Level\t1) | (Level\t2) | (Level\t3) | 2012(1) |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Loans(2) | $1,821 | $— | $277 | $1,544 | $(60) |
| Other\tinvestments(3) | 90 | — | — | 90 | (37) |
| Premises,\tequipment\tand\tsoftware\tcosts(4) | 33 | — | — | 33 | (170) |
| Intangible\tassets(3) | — | — | — | — | (4) |
| Total | $1,944 | $— | $277 | $1,667 | $(271) |

(1) Losses	are	recorded	within	Other	expenses	in	the	consolidated	statements	of	income	except	for	fair	value	adjustments	related	to	Loans	and	losses	related	to	Other	investments,	which	are	included	in	Other	revenues.

(2) Non-recurring	changes	in	fair	value	for	loans	held	for	investment	were	calculated	based	upon	the	fair	value	of	the	underlying	collateral.	The	fair	value	of	the	collateral	was	determined	using	internal	expected recovery	models.	The	non-recurring	change	in	fair	value	for	mortgage	loans	held	for	sale	is	based	upon	a	valuation	model	incorporating	market	observable	inputs.

(3) Losses	recorded	were	determined	primarily	using	discounted	cash	flow	models.

(4) Losses	were	determined	using	discounted	cash	flow	models	and	primarily	represented	the	write-off	of	the	carrying	value	of	certain	premises	and	software	that	were	abandoned	during	2012	in	association	with	the Morgan	Stanley	Wealth	Management	integration.

In	addition	to	the	losses	included	in	the	table	above,	there	was	a	pre-tax	gain	of	approximately	$51	million	(related	to	Other	assets)	included	in	discontinued	operations in	2012	in	connection	with	the	disposition	of	Saxon	(see	Notes	1	and	25).	This	pre-tax	gain	was	primarily	due	to	the	subsequent	increase	in	the	fair	value	of	Saxon, which	had	incurred	impairment	losses	of	$98	million	in	the	quarter	ended	December	31,	2011.	The	fair	value	of	Saxon	was	determined	based	on	the	revised	purchase price	agreed	upon	with	the	buyer.

There	were	no	liabilities	measured	at	fair	value	on	a	non-recurring	basis	during	2012.

|  |  | Quoted	Prices	in |  | Significant | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Carrying\tValue | Active\tMarkets\tfor | Significant | Unobservable | Gains |
|  | At\tDecember\t31, | Identical\tAssets | Observable\tInputs | Inputs | (Losses)\tfor |
|  | 2011 | (Level\t1) | (Level\t2) | (Level\t3) | 2011(1) |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Loans(2) | $70 | $— | $— | $70 | $5 |
| Other\tinvestments(3) | 71 | — | — | 71 | (52) |
| Premises,\tequipment\tand\tsoftware\tcosts(3) | 4 | — | — | 4 | (7) |
| Intangible\tassets(4) | — | — | — | — | (7) |
| Total | $145 | $— | $— | $145 | $(61) |

(4) Losses	were	determined	primarily	using	discounted	cash	flow	models	or	a	valuation	technique	incorporating	an	observable	market	index.

In	addition	to	the	losses	included	in	the	table	above,	impairment	losses	of	approximately	$98	million	(of	which	$83	million	related	to	Other	assets	and	$15	million related	to	Premises,	equipment	and	software	costs)	were	included	in	discontinued	operations	related	to	Saxon	(see	Notes	1	and	25).	These	losses	were	determined	using the	purchase	price	agreed	upon	with	the	buyer.

|  |  | Quoted	Prices	in |  | Significant | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Carrying\tValue | Active\tMarkets\tfor | Significant | Unobservable | Gains |
|  | At\tDecember\t31, | Identical\tAssets | Observable\tInputs | Inputs | (Losses)\tfor |
|  | 2010 | (Level\t1) | (Level\t2) | (Level\t3) | 2010(1) |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Loans(2) | $680 | $— | $151 | $529 | $(12) |
| Other\tinvestments(3) | 88 | — | — | 88 | (19) |
| Goodwill(4) | — | — | — | — | (27) |
| Intangible\tassets(5) | 3 | — | — | 3 | (174) |
| Total | $771 | $— | $151 | $620 | $(232) |

(1) Losses	related	to	Loans,	impairments	related	to	Other	investments	and	losses	related	to	Goodwill	and	certain	Intangibles	associated	with	the	disposition	of	FrontPoint	Partners	LLC	("FrontPoint")	are	included	in Other	revenues	in	the	consolidated	statements	of	income	(see	Notes	19	and	24	for	further	information	on	FrontPoint).	Remaining	losses	were	included	in	Other	expenses	in	the	consolidated	statements	of	income.

(4) Loss	relates	to	FrontPoint,	determined	primarily	using	discounted	cash	flow	models	(see	Notes	19	and	24	for	further	information	on	FrontPoint).

(5) Losses	primarily	related	to	investment	management	contracts,	including	contracts	associated	with	FrontPoint,	and	were	determined	primarily	using	discounted	cash	flow	models.

In	addition	to	the	losses	included	in	the	table	above,	the	Company	incurred	a	loss	of	approximately	$1.2	billion	in	connection	with	the	disposition	of	Revel,	which	was included	in	discontinued	operations.	The	loss	primarily	related	to	premises,	equipment	and	software	costs	and	was	included	in	discontinued	operations	(see	Notes	1 and	25).	The	fair	value	of	Revel,	net	of	estimated	costs	to	sell,	included	in	Premises,	equipment	and	software	costs	was	approximately	$28	million	at	December	31,	2010 and	was	classified	in	Level	3.	Fair	value	was	determined	using	discounted	cash	flow	models.

There	were	no	liabilities	measured	at	fair	value	on	a	non-recurring	basis	during	2010.

# Financial	Instruments	Not	Measured	at	Fair	Value.

The	table	below	presents	the	carrying	value,	fair	value	and	fair	value	hierarchy	category	of	certain	financial	instruments	that	are	not	measured	at	fair	value	in	the consolidated	statements	of	financial	condition.	The	table	below	excludes	certain	financial	instruments	such	as	equity	method	investments	and	all	non-financial	assets and	liabilities	such	as	the	value	of	the	long-term	relationships	with	our	deposit	customers.

The	carrying	value	of	cash	and	cash	equivalents,	including	Interest	bearing	deposits	with	banks,	and	other	short-term	financial	instruments	such	as	Federal	funds	sold and	securities	purchased	under	agreements	to	resell,	Securities	borrowed,	Securities	sold	under	agreements	to	repurchase,	Securities	loaned,	certain	receivables	and payables	arising	in	the	ordinary	course	of	business,	certain	Deposits,	Commercial	paper	and	other	short-term	borrowings	and	Other	secured	financings	approximate	fair value	because	of	the	relatively	short	period	of	time	between	their	origination	and	expected	maturity.

The	fair	value	of	sweep	facilities	whereby	cash	balances	are	swept	into	separate	money	market	savings	deposits	and	transaction	accounts	included	within	Deposits	is determined	using	a	standard	cash	flow	discounting	methodology.

For	longer-dated	Federal	funds	sold	and	securities	purchased	under	agreements	to	resell,	Securities	borrowed,	Securities	sold	under	agreements	to	repurchase,	Securities loaned	and	Other	secured	financings,	fair	value	is	determined	using	a	standard	cash	flow	discounting	methodology.	The	inputs	to	the	valuation	include	contractual	cash flows	and	collateral	funding	spreads,	which	are	estimated	using	various	benchmarks	and	interest	rate	yield	curves.

For	consumer	and	residential	real	estate	loans	where	position-specific	external	price	data	is	not	observable,	the	fair	value	is	based	on	the	credit	risks	of	the	borrower using	a	probability	of	default	and	loss	given	default	method,	discounted	at	the	estimated	external	cost	of	funding	level.	The	fair	value	of	corporate	loans	is	determined using	recently	executed	transactions,	market	price	quotations	(where	observable),	implied	yields	from	comparable	debt,	and	market	observable	credit	default	swap spread	levels	along	with	proprietary	valuation	models	and	default	recovery	analysis	where	such	transactions	and	quotations	are	unobservable.

The	fair	value	of	long-term	borrowings	is	generally	determined	based	on	transactional	data	or	third	party	pricing	for	identical	or	comparable	instruments,	when available.	Where	position-specific	external	prices	are	not	observable,	fair	value	is	determined	based	on	current	interest	rates	and	credit	spreads	for	debt	instruments	with similar	terms	and	maturity.

# Financial	Instruments	Not	Measured	at	Fair	Value	at	December	31,	2012.

|  | At	December	31,	2012 |  | Fair	Value	Measurements	Using: | Fair	Value	Measurements	Using: |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Quoted\tPrices\tin | Significant | Significant |
|  |  |  | Active\tMarkets\tfor | Observable | Unobservable |
|  | Carrying\tValue | Fair\tValue | Identical\tAssets\n(Level\t1) | Inputs\n(Level\t2) | Inputs\n(Level\t3) |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Financial\tAssets: |  |  |  |  |  |
| Cash\tand\tdue\tfrom\tbanks | $20,878 | $20,878 | $20,878 | $— | $— |
| Interest\tbearing\tdeposits\twith\tbanks | 26,026 | 26,026 | 26,026 | — | — |
| Cash\tdeposited\twith\tclearing\torganizations\tor\tsegregated\tunder\tfederal |  |  |  |  |  |
| and\tother\tregulations\tor\trequirements | 30,970 | 30,970 | 30,970 | — | — |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell | 133,791 | \t 133,792 | — | \t 133,035 | 757 |
| Securities\tborrowed | 121,701 | \t 121,705 | — | \t 121,691 | 14 |
| Receivables(1): |  |  |  |  |  |
| Customers | 46,197 | 46,197 | — | 46,197 | — |
| Brokers,\tdealers\tand\tclearing\torganizations | 7,335 | 7,335 | — | 7,335 | — |
| Fees,\tinterest\tand\tother | 6,170 | 6,102 | — | — | 6,102 |
| Loans(2) | 29,046 | 27,263 | — | 5,307 | 21,956 |
| Financial\tLiabilities: |  |  |  |  |  |
| Deposits | $81,781 | $81,781 | $— | $81,781 | $— |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings | 1,413 | 1,413 | — | 1,107 | 306 |
| Securities\tsold\tunder\tagreements\tto\trepurchase | 122,311 | \t 122,389 | — | \t 111,722 | 10,667 |
| Securities\tloaned | 36,849 | 37,163 | — | 35,978 | 1,185 |
| Other\tsecured\tfinancings | 6,261 | 6,276 | — | 3,649 | 2,627 |
| Payables(1): |  |  |  |  |  |
| Customers | 122,540 | \t 122,540 | — | \t 122,540 | — |
| Brokers,\tdealers\tand\tclearing\torganizations | 2,497 | 2,497 | — | 2,497 | — |
| Long-term\tborrowings | 125,527 | \t 126,683 | — | \t 116,511 | 10,172 |

(1) Accrued	interest,	fees	and	dividend	receivables	and	payables	where	carrying	value	approximates	fair	value	have	been	excluded.

(2) Includes	all	loans	measured	at	fair	value	on	a	non-recurring	basis.

The	fair	value	of	the	Company's	unfunded	lending	commitments,	primarily	related	to	corporate	lending	in	the	Institutional	Securities	business	segment,	that	are	not carried	at	fair	value	at	December	31,	2012	was	$755	million,	of	which	$543	million	and	$212	million	would	be	categorized	in	Level	2	and	Level	3	of	the	fair	value hierarchy,	respectively.	The	carrying	value	of	these	commitments,	if	fully	funded,	would	be	$50.0	billion.

The	following	tables	present	information	about	the	Company's	available	for	sale	securities:

|  |  |  | At	December	31,	2012 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Gross | Gross | Other-than- |  |
|  | Amortized\nCost | Unrealized\nGains | Unrealized\nLosses | Temporary\nImpairment | Fair\nValue |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Debt\tsecurities\tavailable\tfor\tsale: |  |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |  |
| U.S.\tTreasury\tsecurities | $ 14,351 | $109 | $2 | $— | $14,458 |
| U.S.\tagency\tsecurities | 15,330 | 122 | 3 | — | \t 15,449 |
| Total\tU.S.\tgovernment\tand\tagency\tsecurities | 29,681 | 231 | 5 | — | \t 29,907 |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |
| Commercial\tmortgage-backed\tsecurities: |  |  |  |  |  |
| Agency | 2,197 | 6 | 4 | — | 2,199 |
| Non-Agency | 160 | — | — | — | 160 |
| Auto\tloan\tasset-backed\tsecurities | 1,993 | 4 | 1 | — | 1,996 |
| Corporate\tbonds | 2,891 | 13 | 3 | — | 2,901 |
| FFELP\tstudent\tloan\tasset-backed\tsecurities(1) | 2,675 | 23 | — | — | 2,698 |
| Total\tCorporate\tand\tother\tdebt | 9,916 | 46 | 8 | — | 9,954 |
| Total\tdebt\tsecurities\tavailable\tfor\tsale | 39,597 | 277 | 13 | — | \t 39,861 |
| Equity\tsecurities\tavailable\tfor\tsale | 15 | — | 7 | — | 8 |
| Total | $ 39,612 | $277 | $20 | $— | $39,869 |

(1) Amounts	are	backed	by	a	guarantee	from	the	U.S.	Department	of	Education	of	at	least	95%	of	the	principal	balance	and	interest	on	such	loans.

|  |  |  | At	December	31,	2011 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amortized\nCost | Gross\nUnrealized\nGains | Gross\nUnrealized\nLosses | Other-than-\nTemporary\nImpairment | Fair\nValue |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Debt\tsecurities\tavailable\tfor\tsale: |  |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |  |
| U.S.\tTreasury\tsecurities | $ 13,240 | $182 | $— | $— | $13,422 |
| U.S.\tagency\tsecurities | 16,083 | 54 | 20 | — | \t 16,117 |
| Corporate\tand\tother\tdebt(1) | 944 | — | 3 | — | 941 |
| Total\tdebt\tsecurities\tavailable\tfor\tsale | 30,267 | 236 | 23 | — | \t 30,480 |
| Equity\tsecurities\tavailable\tfor\tsale | 15 | — | — | — | 15 |
| Total | $ 30,282 | $236 | $23 | $— | $30,495 |

(1) Amounts	represent	FFELP	student	loan	asset-backed	securities,	in	which	the	loans	are	backed	by	a	guarantee	from	the	U.S.	Department	of	Education	of	at	least	95%	of	the	principal	balance	and	interest	on	such loans.

The	tables	below	present	the	fair	value	of	investments	in	securities	available	for	sale	that	are	in	an	unrealized	loss	position:

|  | Less	than	12	Months | Less	than	12	Months | 12	Months	or	Longer | 12	Months	or	Longer |  | Total |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gross | Gross | Gross | Gross |  |  | Gross |
|  | Unrealized | Unrealized | Unrealized | Unrealized |  |  | Unrealized |
| At\tDecember\t31,\t2012 | Fair\tValue | Losses | Fair\tValue | Losses | Fair\tValue |  | Losses |
|  |  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |  |
| Debt\tsecurities\tavailable\tfor\tsale: |  |  |  |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |  |  |  |
| U.S.\tTreasury\tsecurities | $1,012 | $2 | $— | $— | $1,012 |  | $2 |
| U.S.\tagency\tsecurities | 1,534 | 3 | 27 | — | 1,561 |  | 3 |
| Total\tU.S.\tgovernment\tand\tagency\tsecurities | 2,546 | 5 | 27 | — | 2,573 |  | 5 |
| Corporate\tand\tother\tdebt: |  |  |  |  |  |  |  |
| Commercial\tmortgage-backed\tsecurities: |  |  |  |  |  |  |  |
| Agency | 1,057 | 4 | — | — | 1,057 |  | 4 |
| Auto\tloan\tasset-backed\tsecurities | 710 | 1 | — | — | 710 |  | 1 |
| Corporate\tbonds | 934 | 3 | — | — | 934 |  | 3 |
| Total\tCorporate\tand\tother\tdebt | 2,701 | 8 | — | — | 2,701 |  | 8 |
| Total\tdebt\tsecurities\tavailable\tfor\tsale | 5,247 | 13 | 27 | — | 5,274 |  | 13 |
| Equity\tsecurities\tavailable\tfor\tsale | 8 | 7 | — | — | 8 |  | 7 |
| Total | $5,255 | $20 | $27 | $— | $5,282 |  | $20 |

|  | Less	than	12	Months | Less	than	12	Months | 12	Months	or	Longer | 12	Months	or	Longer | Total |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gross | Gross | Gross | Gross |  | Gross |
|  | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized |
| At\tDecember\t31,\t2011 | Value | Losses | Value | Losses | Value | Losses |
|  |  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |
| Debt\tsecurities\tavailable\tfor\tsale: |  |  |  |  |  |  |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |  |  |
| U.S.\tagency\tsecurities | $6,250 | $15 | $1,492 | $5 | $7,742 | $20 |
| Corporate\tand\tother\tdebt | 679 | 3 | — | — | 679 | 3 |
| Total | $6,929 | $18 | $1,492 | $5 | $8,421 | $23 |

Gross	unrealized	losses	are	recorded	in	Accumulated	other	comprehensive	income.

For	debt	securities	available	for	sale	in	an	unrealized	loss	position,	the	Company	does	not	intend	to	sell	these	securities	or	expect	to	be	required	to	sell	these	securities prior	to	recovery	of	the	amortized	cost	basis.	In	addition,	the	Company	does	not	expect	the	U.S.	government	and	agency	securities	to	experience	a	credit	loss	given	the explicit	and	implicit	guarantee	provided	by	the	U.S.	government.	The	Company	believes	that	the	debt	securities	with	an	unrealized	loss	in	Accumulated	other comprehensive	income	were	not	other-than-temporarily	impaired	at	December	31,	2012	and	2011.

For	equity	securities	available	for	sale	in	an	unrealized	loss	position,	the	Company	does	not	intend	to	sell	these	securities	or	expect	to	be	required	to	sell	these	securities prior	to	the	recovery	of	the	amortized	cost	basis.	The	Company	believes	that	the	equity	securities	with	an	unrealized	loss	in	Accumulated	other	comprehensive	income were	not	other-than-temporarily	impaired	at	December	31,	2012.

The	following	table	presents	the	amortized	cost	and	fair	value	of	debt	securities	available	for	sale	by	contractual	maturity	dates	at	December	31,	2012.

| At	December	31,	2012 | Amortized	Cost | Fair	Value | Average	Yield |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |
| U.S.\tTreasury\tsecurities: |  |  |  |
| Due\twithin\t1\tyear | $753 | $757 | 0.8% |
| After\t1\tyear\tbut\tthrough\t5\tyears | 13,492 | 13,592 | 0.7% |
| After\t5\tyears | 106 | 109 | 1.5% |
| Total | 14,351 | 14,458 |  |
| U.S.\tagency\tsecurities:\nAfter\t5\tyears | 15,330 | 15,449 | 1.0% |
| Total | 15,330 | 15,449 |  |
| Total\tU.S.\tgovernment\tand\tagency\tsecurities | 29,681 | 29,907 | 0.9% |
| Corporate\tand\tother\tdebt: |  |  |  |
| Commercial\tmortgage-backed\tsecurities: |  |  |  |
| Agency: |  |  |  |
| After\t1\tyear\tbut\tthrough\t5\tyears | 353 | 354 | 1.0% |
| After\t5\tyears | 1,844 | 1,845 | 1.3% |
| Total | 2,197 | 2,199 |  |
| Non-Agency:\nAfter\t5\tyears | 160 | 160 | 0.7% |
| Total | 160 | 160 |  |
| Auto\tloan\tasset-backed\tsecurities: |  |  |  |
| After\t1\tyear\tbut\tthrough\t5\tyears | 1,642 | 1,645 | 0.7% |
| After\t5\tyears | 351 | 351 | 0.7% |
| Total | 1,993 | 1,996 |  |
| Corporate\tbonds: |  |  |  |
| Due\twithin\t1\tyear | 153 | 153 | 0.7% |
| After\t1\tyear\tbut\tthrough\t5\tyears | 2,589 | 2,599 | 1.1% |
| After\t5\tyears | 149 | 149 | 1.2% |
| Total | 2,891 | 2,901 |  |
| FFELP\tstudent\tloan\tasset-backed\tsecurities: |  |  |  |
| After\t1\tyear\tbut\tthrough\t5\tyears | 94 | 95 | 0.9% |
| After\t5\tyears | 2,581 | 2,603 | 1.1% |
| Total | 2,675 | 2,698 |  |
| Total\tCorporate\tand\tother\tdebt | 9,916 | 9,954 | 1.0% |
| Total\tdebt\tsecurities\tavailable\tfor\tsale | $39,597 | $ 39,861 | 0.9% |

See	Note	7	for	additional	information	on	securities	issued	by	VIEs,	including	U.S.	agency	mortgage-backed	securities,	auto	loan	asset-backed	securities	and	FFELP student	loan	asset-backed	securities.

The	following	table	presents	information	pertaining	to	sales	of	securities	available	for	sale	during	2012,	2011	and	2010:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Gross\trealized\tgains | $88 | $145 | $102 |
| Gross\trealized\tlosses | $10 | $2 | $— |
| Proceeds\tof\tsales\tof\tsecurities\tavailable\tfor\tsale | $10,398 | $17,085 | $670 |

Gross	realized	gains	and	losses	are	recognized	in	Other	revenues	in	the	consolidated	statements	of	income.

# 6.				Collateralized	Transactions.

The	Company	enters	into	reverse	repurchase	agreements,	repurchase	agreements,	securities	borrowed	and	securities	loaned	transactions	to,	among	other	things,	acquire securities	to	cover	short	positions	and	settle	other	securities	obligations,	to	accommodate	customers'	needs	and	to	finance	the	Company's	inventory	positions.	The Company's	policy	is	generally	to	take	possession	of	Securities	received	as	collateral,	Securities	purchased	under	agreements	to	resell	and	Securities	borrowed.	The Company	manages	credit	exposure	arising	from	reverse	repurchase	agreements,	repurchase	agreements,	securities	borrowed	and	securities	loaned	transactions	by,	in appropriate	circumstances,	entering	into	master	netting	agreements	and	collateral	arrangements	with	counterparties	that	provide	the	Company,	in	the	event	of	a	customer default,	the	right	to	liquidate	collateral	and	the	right	to	offset	a	counterparty's	rights	and	obligations.	The	Company	also	monitors	the	fair	value	of	the	underlying securities	as	compared	with	the	related	receivable	or	payable,	including	accrued	interest,	and,	as	necessary,	requests	additional	collateral	to	ensure	such	transactions	are adequately	collateralized.	Where	deemed	appropriate,	the	Company's	agreements	with	third	parties	specify	its	rights	to	request	additional	collateral.

The	Company	also	engages	in	securities	financing	transactions	for	customers	through	margin	lending.	Under	these	agreements	and	transactions,	the	Company	either receives	or	provides	collateral,	including	U.S.	government	and	agency	securities,	other	sovereign	government	obligations,	corporate	and	other	debt,	and	corporate equities.	Customer	receivables	generated	from	margin	lending	activity	are	collateralized	by	customer-owned	securities	held	by	the	Company.	The	Company	monitors required	margin	levels	and	established	credit	limits	daily	and,	pursuant	to	such	guidelines,	requires	customers	to	deposit	additional	collateral,	or	reduce	positions,	when necessary.	Margin	loans	are	extended	on	a	demand	basis	and	are	not	committed	facilities.	Factors	considered	in	the	review	of	margin	loans	are	the	amount	of	the	loan, the	intended	purpose,	the	degree	of	leverage	being	employed	in	the	account,	and	overall	evaluation	of	the	portfolio	to	ensure	proper	diversification	or,	in	the	case	of concentrated	positions,	appropriate	liquidity	of	the	underlying	collateral	or	potential	hedging	strategies	to	reduce	risk.	Additionally,	transactions	relating	to	concentrated or	restricted	positions	require	a	review	of	any	legal	impediments	to	liquidation	of	the	underlying	collateral.	Underlying	collateral	for	margin	loans	is	reviewed	with respect	to	the	liquidity	of	the	proposed	collateral	positions,	valuation	of	securities,	historic	trading	range,	volatility	analysis	and	an	evaluation	of	industry	concentrations. For	these	transactions,	adherence	to	the	Company's	collateral	policies	significantly	limits	the	Company's	credit	exposure	in	the	event	of	customer	default.	The	Company may	request	additional	margin	collateral	from	customers,	if	appropriate,	and,	if	necessary,	may	sell	securities	that	have	not	been	paid	for	or	purchase	securities	sold	but not	delivered	from	customers.	At	December	31,	2012	and	December	31,	2011,	there	were	approximately	$24.0	billion	and	$16.2	billion,	respectively,	of	customer margin	loans	outstanding.

Other	secured	financings	include	the	liabilities	related	to	transfers	of	financial	assets	that	are	accounted	for	as	financings	rather	than	sales,	consolidated	VIEs	where	the Company	is	deemed	to	be	the	primary	beneficiary,	and

certain	equity-linked	notes	and	other	secured	borrowings.	These	liabilities	are	generally	payable	from	the	cash	flows	of	the	related	assets	accounted	for	as	Financial instruments	owned	(see	Notes	7	and	11).

The	Company	pledges	its	financial	instruments	owned	to	collateralize	repurchase	agreements	and	other	securities	financings.	Pledged	financial	instruments	that	can	be sold	or	repledged	by	the	secured	party	are	identified	as	Financial	instruments	owned	(pledged	to	various	parties)	in	the	consolidated	statements	of	financial	condition. The	carrying	value	and	classification	of	financial	instruments	owned	by	the	Company	that	have	been	loaned	or	pledged	to	counterparties	where	those	counterparties	do not	have	the	right	to	sell	or	repledge	the	collateral	were	as	follows:

The	Company	receives	collateral	in	the	form	of	securities	in	connection	with	reverse	repurchase	agreements,	securities	borrowed	and	derivative	transactions,	and customer	margin	loans.	In	many	cases,	the	Company	is	permitted	to	sell	or	repledge	these	securities	held	as	collateral	and	use	the	securities	to	secure	repurchase agreements,	to	enter	into	securities	lending	and	derivative	transactions	or	for	delivery	to	counterparties	to	cover	short	positions.	The	Company	additionally	receives securities	as	collateral	in	connection	with	certain	securities-for-securities	transactions	in	which	the	Company	is	the	lender.	In	instances	where	the	Company	is	permitted to	sell	or	repledge	these	securities,	the	Company	reports	the	fair	value	of	the	collateral	received	and	the	related	obligation	to	return	the	collateral	in	the	consolidated statements	of	financial	condition.	At	December	31,	2012	and	December	31,	2011,	the	fair	value	of	financial	instruments	received	as	collateral	where	the	Company	is permitted	to	sell	or	repledge	the	securities	was	$560	billion	and	$488	billion,	respectively,	and	the	fair	value	of	the	portion	that	had	been	sold	or	repledged	was	$397 billion	and	$335	billion,	respectively.

The	Company	is	subject	to	concentration	risk	by	holding	large	positions	in	certain	types	of	securities,	loans	or	commitments	to	purchase	securities	of	a	single	issuer, including	sovereign	governments	and	other	entities,	issuers	located	in	a	particular	country	or	geographic	area,	public	and	private	issuers	involving	developing	countries, or	issuers	engaged	in	a	particular	industry.	Financial	instruments	owned	by	the	Company	include	U.S.	government	and	agency	securities	and	securities	issued	by	other sovereign	governments	(principally	Japan,	the	U.K.,	Germany	and	Brazil),	which,	in	the	aggregate,	represented	approximately	12%	of	the	Company's	total	assets	at December	31,	2012.	In	addition,	substantially	all	of	the	collateral	held	by	the	Company	for	resale	agreements	or	bonds	borrowed,	which	together	represented approximately	24%	of	the	Company's	total	assets	at	December	31,	2012,	consist	of	securities	issued	by	the	U.S.	government,	federal	agencies	or	other	sovereign government	obligations.	Positions	taken	and	commitments	made	by	the	Company,	including	positions	taken	and	underwriting	and	financing	commitments	made	in connection	with	its	private	equity,	principal	investment	and	lending	activities,	often	involve	substantial	amounts	and	significant	exposure	to	individual	issuers	and businesses,	including	non-investment	grade	issuers.	In	addition,	the	Company	may	originate	or	purchase	certain	residential	and	commercial	mortgage	loans	that	could contain	certain	terms	and	features	that	may	result	in	additional	credit

risk	as	compared	with	more	traditional	types	of	mortgages.	Such	terms	and	features	may	include	loans	made	to	borrowers	subject	to	payment	increases	or	loans	with high	loan-to-value	ratios.

At	December	31,	2012	and	December	31,	2011,	cash	and	securities	deposited	with	clearing	organizations	or	segregated	under	federal	and	other	regulations	or requirements	were	as	follows:

|  | At<br>December	31,<br>2012 | At<br>December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Cash\tdeposited\twith\tclearing\torganizations\tor\tsegregated\tunder\tfederal\tand\tother\tregulations\tor |  |  |
| requirements | $30,970 | $29,454 |
| Securities(1) | 13,424 | 15,120 |
| Total | $44,394 | $44,574 |

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

# 7.					Variable	Interest	Entities	and	Securitization	Activities.

The	Company	is	involved	with	various	special	purpose	entities	("SPE")	in	the	normal	course	of	business.	In	most	cases,	these	entities	are	deemed	to	be	VIEs.

The	Company	applies	accounting	guidance	for	consolidation	of	VIEs	to	certain	entities	in	which	equity	investors	do	not	have	the	characteristics	of	a	controlling	financial interest.	Except	for	certain	asset	management	entities,	the	primary	beneficiary	of	a	VIE	is	the	party	that	both	(1)	has	the	power	to	direct	the	activities	of	a	VIE	that	most significantly	affect	the	VIE's	economic	performance	and	(2)	has	an	obligation	to	absorb	losses	or	the	right	to	receive	benefits	that	in	either	case	could	potentially	be significant	to	the	VIE.	The	Company	consolidates	entities	of	which	it	is	the	primary	beneficiary.

The	Company's	variable	interests	in	VIEs	include	debt	and	equity	interests,	commitments,	guarantees,	derivative	instruments	and	certain	fees.	The	Company's involvement	with	VIEs	arises	primarily	from:

•Interests	purchased	in	connection	with	market-making	activities,	securities	held	in	its	available	for	sale	portfolio	and	retained	interests	held	as	a	result	of securitization	activities,	including	re-securitization	transactions.

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

•	 Servicing	of	residential	and	commercial	mortgage	loans	held	by	VIEs.

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

•	 Derivatives	entered	into	with	VIEs.

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

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

The	Company	determines	whether	it	is	the	primary	beneficiary	of	a	VIE	upon	its	initial	involvement	with	the	VIE	and	reassesses	whether	it	is	the	primary	beneficiary	on an	ongoing	basis	as	long	as	it	has	any	continuing	involvement	with	the	VIE.	This	determination	is	based	upon	an	analysis	of	the	design	of	the	VIE,	including	the

VIE's	structure	and	activities,	the	power	to	make	significant	economic	decisions	held	by	the	Company	and	by	other	parties,	and	the	variable	interests	owned	by	the Company	and	other	parties.

The	power	to	make	the	most	significant	economic	decisions	may	take	a	number	of	different	forms	in	different	types	of	VIEs.	The	Company	considers	servicing	or collateral	management	decisions	as	representing	the	power	to	make	the	most	significant	economic	decisions	in	transactions	such	as	securitizations	or	CDOs.	As	a	result, the	Company	does	not	consolidate	securitizations	or	CDOs	for	which	it	does	not	act	as	the	servicer	or	collateral	manager	unless	it	holds	certain	other	rights	to	replace	the servicer	or	collateral	manager	or	to	require	the	liquidation	of	the	entity.	If	the	Company	serves	as	servicer	or	collateral	manager,	or	has	certain	other	rights	described	in the	previous	sentence,	the	Company	analyzes	the	interests	in	the	VIE	that	it	holds	and	consolidates	only	those	VIEs	for	which	it	holds	a	potentially	significant	interest	of the	VIE.

The	structure	of	securitization	vehicles	and	CDOs	is	driven	by	several	parties,	including	loan	seller(s)	in	securitization	transactions,	the	collateral	manager	in	a	CDO,	one or	more	rating	agencies,	a	financial	guarantor	in	some	transactions	and	the	underwriter(s)	of	the	transactions,	who	serve	to	reflect	specific	investor	demand.	In	addition, subordinate	investors,	such	as	the	"B-piece"	buyer	(i.e.,	investors	in	most	subordinated	bond	classes)	in	commercial	mortgage-backed	securitizations	or	equity	investors in	CDOs,	can	influence	whether	specific	loans	are	excluded	from	a	CMBS	transaction	or	investment	criteria	in	a	CDO.

For	many	transactions,	such	as	re-securitization	transactions,	CLNs	and	other	asset-repackaged	notes,	there	are	no	significant	economic	decisions	made	on	an	ongoing basis.	In	these	cases,	the	Company	focuses	its	analysis	on	decisions	made	prior	to	the	initial	closing	of	the	transaction	and	at	the	termination	of	the	transaction.	Based upon	factors,	which	include	an	analysis	of	the	nature	of	the	assets,	including	whether	the	assets	were	issued	in	a	transaction	sponsored	by	the	Company	and	the	extent	of the	information	available	to	the	Company	and	to	investors,	the	number,	nature	and	involvement	of	investors,	other	rights	held	by	the	Company	and	investors,	the standardization	of	the	legal	documentation	and	the	level	of	the	continuing	involvement	by	the	Company,	including	the	amount	and	type	of	interests	owned	by	the Company	and	by	other	investors,	the	Company	concluded	in	most	of	these	transactions	that	decisions	made	prior	to	the	initial	closing	were	shared	between	the	Company and	the	initial	investors.	The	Company	focused	its	control	decision	on	any	right	held	by	the	Company	or	investors	related	to	the	termination	of	the	VIE.	Most	re- securitization	transactions,	CLNs	and	other	asset-repackaged	notes	have	no	such	termination	rights.

Except	for	consolidated	VIEs	included	in	other	structured	financings	and	managed	real	estate	partnerships	in	the	tables	below,	the	Company	accounts	for	the	assets	held by	the	entities	primarily	in	Financial	instruments	owned	and	the	liabilities	of	the	entities	as	Other	secured	financings	in	the	consolidated	statements	of	financial condition.	For	consolidated	VIEs	included	in	other	structured	financings,	the	Company	accounts	for	the	assets	held	by	the	entities	primarily	in	Premises,	equipment	and software	costs,	and	Other	assets	in	the	consolidated	statements	of	financial	condition.	For	consolidated	VIEs	included	in	managed	real	estate	partnerships,	the	Company accounts	for	the	assets	held	by	the	entities	primarily	in	Financial	instruments	owned—Investments	in	the	consolidated	statements	of	financial	condition.	Except	for consolidated	VIEs	included	in	other	structured	financings,	the	assets	and	liabilities	are	measured	at	fair	value,	with	changes	in	fair	value	reflected	in	earnings.

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

As	part	of	the	Company's	Institutional	Securities	business	segment's	securitization	and	related	activities,	the	Company	has	provided,	or	otherwise	agreed	to	be responsible	for,	representations	and	warranties	regarding	certain	assets	transferred	in	securitization	transactions	sponsored	by	the	Company	(see	Note	13).

The	following	tables	present	information	at	December	31,	2012	and	December	31,	2011	about	VIEs	that	the	Company	consolidates.	Consolidated	VIE	assets	and liabilities	are	presented	after	intercompany	eliminations	and	include	assets	financed	on	a	non-recourse	basis:

|  |  |  | At	December	31,	2012 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Mortgage\tand\nAsset-Backed\nSecuritizations | Collateralized\nDebt\nObligations | Managed\nReal\tEstate\nPartnerships | Other\nStructured\nFinancings | Other |
|  |  |  | (dollars\tin\tmillions) |  |  |
| VIE\tassets | $978 | $52 | $2,394 | $983 | $1,676 |
| VIE\tliabilities | $646 | $16 | $83 | $65 | $313 |

|  |  |  | At	December	31,	2011 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Mortgage\tand\nAsset-Backed\nSecuritizations | Collateralized\nDebt\nObligations | Managed\nReal\tEstate\nPartnerships | Other\nStructured\nFinancings | Other |
|  |  |  | (dollars\tin\tmillions) |  |  |
| VIE\tassets | $2,414 | $102 | $2,207 | $918 | $1,937 |
| VIE\tliabilities | $1,699 | $69 | $102 | $2,576 | $556 |

In	general,	the	Company's	exposure	to	loss	in	consolidated	VIEs	is	limited	to	losses	that	would	be	absorbed	on	the	VIE's	assets	recognized	in	its	financial	statements, net	of	losses	absorbed	by	third-party	holders	of	the	VIE's	liabilities.	At	December	31,	2012	and	December	31,	2011,	managed	real	estate	partnerships	reflected nonredeemable	noncontrolling	interests	in	the	Company's	consolidated	financial	statements	of	$1,804	million	and	$1,653	million,	respectively.	The	Company	also	had additional	maximum	exposure	to	losses	of	approximately	$58	million	and	$200	million	at	December	31,	2012	and	December	31,	2011,	respectively.	This	additional exposure	related	primarily	to	certain	derivatives	(e.g.,	instead	of	purchasing	senior	securities,	the	Company	has	sold	credit	protection	to	synthetic	CDOs	through	credit derivatives	that	are	typically	related	to	the	most	senior	tranche	of	the	CDO)	and	commitments,	guarantees	and	other	forms	of	involvement.

The	following	tables	present	information	about	certain	non-consolidated	VIEs	in	which	the	Company	had	variable	interests	at	December	31,	2012	and	December	31, 2011.	The	tables	include	all	VIEs	in	which	the	Company	has	determined	that	its	maximum	exposure	to	loss	is	greater	than	specific	thresholds	or	meets	certain	other criteria.	Most	of	the	VIEs	included	in	the	tables	below	are	sponsored	by	unrelated	parties;	the	Company's

involvement	generally	is	the	result	of	the	Company's	secondary	market-making	activities	and	securities	held	in	its	available	for	sale	portfolio	(see	Note	5):

|  |  | At	December	31,	2012 | At	December	31,	2012 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Mortgage\tand\nAsset-Backed\nSecuritizations | Collateralized\nDebt\nObligations | Municipal\nTender\nOption\nBonds | Other\nStructured\nFinancings | Other |
|  |  |  | (dollars\tin\tmillions) |  |  |
| VIE\tassets\tthat\tthe\tCompany\tdoes\tnot\tconsolidate\t(unpaid\tprincipal\tbalance)(1) | $251,689 | $13,178 | $3,390 | $1,811 | $14,029 |
| Maximum\texposure\tto\tloss: |  |  |  |  |  |
| Debt\tand\tequity\tinterests(2) | $22,280 | $1,173 | $— | $1,053 | $3,387 |
| Derivative\tand\tother\tcontracts | 154 | 51 | 2,158 | — | 562 |
| Commitments,\tguarantees\tand\tother | 66 | — | — | 679 | 384 |
| Total\tmaximum\texposure\tto\tloss | $22,500 | $1,224 | $2,158 | $1,732 | $4,333 |
| Carrying\tvalue\tof\texposure\tto\tloss—Assets: |  |  |  |  |  |
| Debt\tand\tequity\tinterests(2) | $22,280 | $1,173 | $— | $663 | $3,387 |
| Derivative\tand\tother\tcontracts | 156 | 8 | 4 | — | 174 |
| Total\tcarrying\tvalue\tof\texposure\tto\tloss—\tAssets | $22,436 | $1,181 | $4 | $663 | $3,561 |
| Carrying\tvalue\tof\texposure\tto\tloss—Liabilities: |  |  |  |  |  |
| Derivative\tand\tother\tcontracts | $11 | $2 | $— | $— | $172 |
| Commitments,\tguarantees\tand\tother | — | — | — | 12 | — |
| Total\tcarrying\tvalue\tof\texposure\tto\tloss—\tLiabilities | $11 | $2 | $— | $12 | $172 |

(1) Mortgage	and	asset-backed	securitizations	include	VIE	assets	as	follows:	$18.3	billion	of	residential	mortgages;	$53.8	billion	of	commercial	mortgages;	$126.3	billion	of	U.S.	agency	collateralized	mortgage obligations;	and	$53.3	billion	of	other	consumer	or	commercial	loans.

(2) Mortgage	and	asset-backed	securitizations	include	VIE	debt	and	equity	interests	as	follows:	$1.0	billion	of	residential	mortgages;	$1.5	billion	of	commercial	mortgages;	$14.8	billion	of	U.S.	agency	collateralized mortgage	obligations;	and	$5.0	billion	of	other	consumer	or	commercial	loans.

|  |  |  | At	December	31,	2011 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Mortgage\tand\nAsset-Backed\nSecuritizations | Collateralized\nDebt\nObligations | Municipal\nTender\nOption\nBonds | Other\nStructured\nFinancings | Other |
|  |  |  | (dollars\tin\tmillions) |  |  |
| VIE\tassets\tthat\tthe\tCompany\tdoes\tnot\tconsolidate\t(unpaid\tprincipal\tbalance) |  |  |  |  |  |
| (1) | $231,110 | $7,593 | $6,833 | $1,944 | $20,997 |
| Maximum\texposure\tto\tloss: |  |  |  |  |  |
| Debt\tand\tequity\tinterests(2) | $16,469 | $491 | $201 | $978 | $2,413 |
| Derivative\tand\tother\tcontracts | 103 | 843 | 4,141 | — | 1,209 |
| Commitments,\tguarantees\tand\tother | 208 | — | — | 804 | 561 |
| Total\tmaximum\texposure\tto\tloss | $16,780 | $1,334 | $4,342 | $1,782 | $4,183 |
| Carrying\tvalue\tof\texposure\tto\tloss—Assets: |  |  |  |  |  |
| Debt\tand\tequity\tinterests(2) | $16,469 | $491 | $201 | $640 | $2,413 |
| Derivative\tand\tother\tcontracts | 101 | 657 | 24 | — | 338 |
| Total\tcarrying\tvalue\tof\texposure\tto\tloss—Assets | $16,570 | $1,148 | $225 | $640 | $2,751 |
| Carrying\tvalue\tof\texposure\tto\tloss—Liabilities: |  |  |  |  |  |
| Derivative\tand\tother\tcontracts | $13 | $159 | $— | $— | $114 |
| Commitments,\tguarantees\tand\tother | — | — | — | 14 | 176 |
| Total\tcarrying\tvalue\tof\texposure\tto\tloss—\tLiabilities | $13 | $159 | $— | $14 | $290 |

(1) Mortgage	and	asset-backed	securitizations	include	VIE	assets	as	follows:	$9.1	billion	of	residential	mortgages;	$81.7	billion	of	commercial	mortgages;	$121.6	billion	of	U.S.	agency	collateralized	mortgage obligations;	and	$18.7	billion	of	other	consumer	or	commercial	loans.	Prior-period	amounts	were	adjusted	to	conform	to	the	current	period's	presentation.

(2) Mortgage	and	asset-backed	securitizations	include	VIE	debt	and	equity	interests	as	follows:	$0.6	billion	of	residential	mortgages;	$1.1	billion	of	commercial	mortgages;	$13.5	billion	of	U.S.	agency	collateralized mortgage	obligations;	and	$1.3	billion	of	other	consumer	or	commercial	loans.	Prior-period	amounts	were	adjusted	to	conform	to	the	current	period's	presentation.

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

The	Company's	maximum	exposure	to	loss	does	not	include	the	offsetting	benefit	of	any	financial	instruments	that	the	Company	may	utilize	to	hedge	these	risks associated	with	the	Company's	variable	interests.	In	addition,	the	Company's	maximum	exposure	to	loss	is	not	reduced	by	the	amount	of	collateral	held	as	part	of	a transaction	with	the	VIE	or	any	party	to	the	VIE	directly	against	a	specific	exposure	to	loss.

Securitization	transactions	generally	involve	VIEs.	Primarily	as	a	result	of	its	secondary	market-making	activities,	the	Company	owned	additional	securities	issued	by securitization	SPEs	for	which	the	maximum	exposure	to	loss	is	less	than	specific	thresholds.	These	additional	securities	totaled	$3.6	billion	at	December	31,	2012.	These securities	were	either	retained	in	connection	with	transfers	of	assets	by	the	Company,	acquired	in	connection	with	secondary	market-making	activities	or	held	in	the Company's	available	for	sale	portfolio	(see

Note	5).	Securities	issued	by	securitization	SPEs	consist	of	$0.7	billion	of	securities	backed	primarily	by	residential	mortgage	loans,	$1.1	billion	of	securities	backed	by U.S.	agency	collateralized	mortgage	obligations,	$0.5	billion	of	securities	backed	by	commercial	mortgage	loans,	$0.6	billion	of	securities	backed	by	collateralized	debt obligations	or	collateralized	loan	obligations	and	$0.7	billion	backed	by	other	consumer	loans,	such	as	credit	card	receivables,	automobile	loans	and	student	loans.	The Company's	primary	risk	exposure	is	to	the	securities	issued	by	the	SPE	owned	by	the	Company,	with	the	risk	highest	on	the	most	subordinate	class	of	beneficial interests.	These	securities	generally	are	included	in	Financial	instruments	owned—Corporate	and	other	debt	or	Securities	available	for	sale	and	are	measured	at	fair value.	The	Company	does	not	provide	additional	support	in	these	transactions	through	contractual	facilities,	such	as	liquidity	facilities,	guarantees	or	similar	derivatives. The	Company's	maximum	exposure	to	loss	generally	equals	the	fair	value	of	the	securities	owned.

The	Company's	transactions	with	VIEs	primarily	include	securitizations,	municipal	tender	option	bond	trusts,	credit	protection	purchased	through	CLNs,	other structured	financings,	collateralized	loan	and	debt	obligations,	equity-linked	notes,	managed	real	estate	partnerships	and	asset	management	investment	funds.	The Company's	continuing	involvement	in	VIEs	that	it	does	not	consolidate	can	include	ownership	of	retained	interests	in	Company-sponsored	transactions,	interests purchased	in	the	secondary	market	(both	for	Company-sponsored	transactions	and	transactions	sponsored	by	third	parties),	derivatives	with	securitization	SPEs (primarily	interest	rate	derivatives	in	commercial	mortgage	and	residential	mortgage	securitizations	and	credit	derivatives	in	which	the	Company	has	purchased protection	in	synthetic	CDOs),	and	as	servicer	in	residential	mortgage	securitizations	in	the	U.S.	and	Europe	and	commercial	mortgage	securitizations	in	Europe.	Such activities	are	further	described	below.

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

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

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

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

See	Note	12	for	further	information	on	derivative	instruments	and	hedging	activities.

Available	for	Sale	Securities.				In	its	available	for	sale	portfolio,	the	Company	holds	securities	issued	by	VIEs	not	sponsored	by	the	Company.	These	securities	include government	guaranteed	securities	issued	in	transactions

sponsored	by	the	federal	mortgage	agencies	and	the	most	senior	securities	issued	by	VIEs	in	which	the	securities	are	backed	by	student	loans,	automobile	loans	or commercial	mortgage	loans.	See	Note	5.

Municipal	Tender	Option	Bond	Trusts.				In	a	municipal	tender	option	bond	transaction,	the	Company,	generally	on	behalf	of	a	client,	transfers	a	municipal	bond	to	a trust.	The	trust	issues	short-term	securities	that	the	Company,	as	the	remarketing	agent,	sells	to	investors.	The	client	retains	a	residual	interest.	The	short-term	securities are	supported	by	a	liquidity	facility	pursuant	to	which	the	investors	may	put	their	short-term	interests.	In	some	programs,	the	Company	provides	this	liquidity	facility;	in most	programs,	a	third-party	provider	will	provide	such	liquidity	facility.	The	Company	may	purchase	short-term	securities	in	its	role	either	as	remarketing	agent	or liquidity	provider.	The	client	can	generally	terminate	the	transaction	at	any	time.	The	liquidity	provider	can	generally	terminate	the	transaction	upon	the	occurrence	of certain	events.	When	the	transaction	is	terminated,	the	municipal	bond	is	generally	sold	or	returned	to	the	client.	Any	losses	suffered	by	the	liquidity	provider	upon	the sale	of	the	bond	are	the	responsibility	of	the	client.	This	obligation	generally	is	collateralized.	Liquidity	facilities	provided	to	municipal	tender	option	bond	trusts	are classified	as	derivatives.	The	Company	consolidates	any	municipal	tender	option	bond	trusts	in	which	it	holds	the	residual	interest.	No	such	trusts	were	consolidated	at either	December	31,	2012	or	December	31,	2011.

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

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

Other	Structured	Financings.				The	Company	primarily	invests	in	equity	interests	issued	by	entities	that	develop	and	own	low-income	communities	(including	low- income	housing	projects)	and	entities	that	construct	and	own	facilities	that	will	generate	energy	from	renewable	resources.	The	equity	interests	entitle	the	Company	to its	share	of	tax	credits	and	tax	losses	generated	by	these	projects.	In	addition,	the	Company	has	issued	guarantees	to	investors	in	certain	low-income	housing	funds.	The guarantees	are	designed	to	return	an	investor's	contribution	to	a	fund	and	the	investor's	share	of	tax	losses	and	tax	credits	expected	to	be	generated	by	the	fund.	The Company	is	also	involved	with	entities	designed	to	provide	tax-efficient	yields	to	the	Company	or	its	clients.

Collateralized	Loan	and	Debt	Obligations.				A	collateralized	loan	obligation	or	a	CDO	is	an	SPE	that	purchases	a	pool	of	assets,	consisting	of	corporate	loans,	corporate bonds,	asset-backed	securities	or	synthetic	exposures	on	similar	assets	through	derivatives,	and	issues	multiple	tranches	of	debt	and	equity	securities	to	investors.

Equity-Linked	Notes.				In	an	equity-linked	note	transaction	included	in	the	tables	above,	the	Company	typically	transfers	to	an	SPE	either	(1)	a	note	issued	by	the Company,	the	payments	on	which	are	linked	to	the	performance	of	a	specific	equity	security,	equity	index	or	other	index	or	(2)	debt	securities	issued	by	other	companies and	a	derivative	contract,	the	terms	of	which	will	relate	to	the	performance	of	a	specific	equity	security,	equity	index	or	other	index.	These	transactions	are	designed	to provide	investors	with	exposure	to	certain	risks	related	to	the	specific	equity	security,	equity	index	or	other	index.	Equity-linked	notes	are	included	in	Other	in	the	above VIE	tables.

Managed	Real	Estate	Partnerships.				The	Company	sponsors	funds	that	invest	in	real	estate	assets.	Certain	of	these	funds	are	classified	as	VIEs	primarily	because	the Company	has	provided	financial	support	through	lending	facilities	and	other	means.	The	Company	also	serves	as	the	general	partner	for	these	funds	and	owns	limited partnership	interests	in	them.	These	funds	were	consolidated	at	December	31,	2012	and	December	31,	2011.

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

# Transfers	of	Assets	with	Continuing	Involvement.

The	following	tables	present	information	at	December	31,	2012	regarding	transactions	with	SPEs	in	which	the	Company,	acting	as	principal,	transferred	financial	assets with	continuing	involvement	and	received	sales	treatment:

|  |  | At	December	31,	2012 | At	December	31,	2012 |  |
| :--- | :--- | :--- | :--- | :--- |
|  |  | U.S.\tAgency | U.S.\tAgency | Credit- |
|  | Residential | Commercial | Collateralized | Linked |
|  | Mortgage | Mortgage | Mortgage | Notes |
|  | Loans | Loans | Obligations | and\tOther |
|  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |
| SPE\tassets\t(unpaid\tprincipal\tbalance)(1) | $36,750 | $70,824 | $17,787 | $14,701 |
| Retained\tinterests\t(fair\tvalue): |  |  |  |  |
| Investment\tgrade | $1 | $77 | $1,468 | $— |
| Non-investment\tgrade | 54 | 109 | — | 1,503 |
| Total\tretained\tinterests\t(fair\tvalue) | $55 | $186 | $1,468 | $1,503 |
| Interests\tpurchased\tin\tthe\tsecondary\tmarket\t(fair\tvalue): |  |  |  |  |
| Investment\tgrade | $11 | $124 | $99 | $389 |
| Non-investment\tgrade | 113 | 34 | — | 31 |
| Total\tinterests\tpurchased\tin\tthe\tsecondary\tmarket\t(fair\tvalue) | $124 | $158 | $99 | $420 |
| Derivative\tassets\t(fair\tvalue) | $2 | $948 | $— | $177 |
| Derivative\tliabilities\t(fair\tvalue) | $22 | $— | $— | $303 |

(1) Amounts	include	assets	transferred	by	unrelated	transferors.

|  |  | At	December	31,	2012 | At	December	31,	2012 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Level\t1 | Level\t2 | Level\t3 | Total |
|  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |
| Retained\tinterests\t(fair\tvalue): |  |  |  |  |
| Investment\tgrade | $ — | $1,476 | $70 | $1,546 |
| Non-investment\tgrade | \t — | 84 | \t 1,582 | \t 1,666 |
| Total\tretained\tinterests\t(fair\tvalue) | $ — | $1,560 | $1,652 | $3,212 |
| Interests\tpurchased\tin\tthe\tsecondary\tmarket\t(fair\tvalue): |  |  |  |  |
| Investment\tgrade | $ — | $617 | $6 | $623 |
| Non-investment\tgrade | \t — | 139 | 39 | 178 |
| Total\tinterests\tpurchased\tin\tthe\tsecondary\tmarket\t(fair\tvalue) | $ — | $756 | $45 | $801 |
| Derivative\tassets\t(fair\tvalue) | $ — | $774 | $353 | $1,127 |
| Derivative\tliabilities\t(fair\tvalue) | $ — | $295 | $30 | $325 |

The	following	tables	present	information	at	December	31,	2011	regarding	transactions	with	SPEs	in	which	the	Company,	acting	as	principal,	transferred	assets	with continuing	involvement	and	received	sales	treatment:

|  |  | At	December	31,	2011 | At	December	31,	2011 |  |
| :--- | :--- | :--- | :--- | :--- |
|  |  | U.S.\tAgency | U.S.\tAgency | Credit- |
|  | Residential | Commercial | Collateralized | Linked |
|  | Mortgage | Mortgage | Mortgage | Notes |
|  | Loans | Loans | Obligations | and\tOther |
|  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |
| SPE\tassets\t(unpaid\tprincipal\tbalance)(1) | $41,977 | $85,333 | $33,728 | $14,315 |
| Retained\tinterests\t(fair\tvalue): |  |  |  |  |
| Investment\tgrade | $14 | $22 | $1,151 | $2 |
| Non-investment\tgrade | 106 | 44 | — | 1,545 |
| Total\tretained\tinterests\t(fair\tvalue) | $120 | $66 | $1,151 | $1,547 |
| Interests\tpurchased\tin\tthe\tsecondary\tmarket\t(fair\tvalue): |  |  |  |  |
| Investment\tgrade | $45 | $164 | $20 | $411 |
| Non-investment\tgrade | 149 | 82 | — | 11 |
| Total\tinterests\tpurchased\tin\tthe\tsecondary\tmarket\t(fair\tvalue) | $194 | $246 | $20 | $422 |
| Derivative\tassets\t(fair\tvalue) | $18 | $1,200 | $— | $223 |
| Derivative\tliabilities\t(fair\tvalue) | $30 | $31 | $— | $510 |

|  |  | At	December	31,	2011 | At	December	31,	2011 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Level\t1 | Level\t2 | Level\t3 | Total |
|  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |
| Retained\tinterests\t(fair\tvalue): |  |  |  |  |
| Investment\tgrade | $ — | $1,186 | $3 | $1,189 |
| Non-investment\tgrade | \t — | 74 | \t 1,621 | \t 1,695 |
| Total\tretained\tinterests\t(fair\tvalue) | $ — | $1,260 | $1,624 | $2,884 |
| Interests\tpurchased\tin\tthe\tsecondary\tmarket\t(fair\tvalue): |  |  |  |  |
| Investment\tgrade | $ — | $638 | $2 | $640 |
| Non-investment\tgrade | \t — | 126 | 116 | 242 |
| Total\tinterests\tpurchased\tin\tthe\tsecondary\tmarket\t(fair\tvalue) | $ — | $764 | $118 | $882 |
| Derivative\tassets\t(fair\tvalue) | $ — | $869 | $572 | $1,441 |
| Derivative\tliabilities\t(fair\tvalue) | $ — | $541 | $30 | $571 |

Transferred	assets	are	carried	at	fair	value	prior	to	securitization,	and	any	changes	in	fair	value	are	recognized	in	the	consolidated	statements	of	income.	The	Company may	act	as	underwriter	of	the	beneficial	interests	issued	by	securitization	vehicles.	Investment	banking	underwriting	net	revenues	are	recognized	in	connection	with	these transactions.	The	Company	may	retain	interests	in	the	securitized	financial	assets	as	one	or	more	tranches	of	the	securitization.	These	retained	interests	are	included	in the	consolidated	statements	of	financial	condition	at	fair	value.	Any	changes	in	the	fair	value	of	such	retained	interests	are	recognized	in	the	consolidated	statements	of income.

Net	gains	on	sales	of	assets	in	securitization	transactions	at	the	time	of	the	sale	were	not	material	in	2012,	2011	and	2010.

During	2012,	2011	and	2010,	the	Company	received	proceeds	from	new	securitization	transactions	of	$17.0	billion,	$22.6	billion	and	$25.6	billion,	respectively.	During 2012,	2011	and	2010,	the	Company	received	proceeds	from	cash	flows	from	retained	interests	in	securitization	transactions	of	$4.3	billion,	$6.5	billion	and	$7.1	billion, respectively.

The	Company	has	provided,	or	otherwise	agreed	to	be	responsible	for,	representations	and	warranties	regarding	certain	assets	transferred	in	securitization	transactions sponsored	by	the	Company	(see	Note	13).

# Failed	Sales.

In	order	to	be	treated	as	a	sale	of	assets	for	accounting	purposes,	a	transaction	must	meet	all	of	the	criteria	stipulated	in	the	accounting	guidance	for	the	transfer	of financial	assets.	If	the	transfer	fails	to	meet	these	criteria,	that	transfer	of	financial	assets	is	treated	as	a	failed	sale.	In	such	case	for	transfers	to	VIEs	and	securitizations, the	Company	continues	to	recognize	the	assets	in	Financial	instruments	owned,	and	the	Company	recognizes	the	associated	liabilities	in	Other	secured	financings	in	the consolidated	statements	of	financial	condition.

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

The	following	table	presents	information	about	the	carrying	value	(equal	to	fair	value)	of	assets	and	liabilities	resulting	from	transfers	of	financial	assets	treated	by	the Company	as	secured	financings:

|  | At	December	31,	2012 | At	December	31,	2012 | At	December	31,	2011 | At	December	31,	2011 |
| :--- | :--- | :--- | :--- | :--- |
|  | Carrying\tValue\tof |  | Carrying\tValue\tof |  |
|  | Assets | Liabilities | Assets | Liabilities |
|  |  | (dollars\tin\tmillions) |  |  |
| Commercial\tmortgage\tloans | $ — | $— | $121 | $121 |
| Credit-linked\tnotes | 283 | 222 | 383 | 339 |
| Equity-linked\ttransactions | 422 | 405 | 1,243 | 1,214 |
| Other | 29 | 28 | 75 | 74 |

# Mortgage	Servicing	Activities.

Mortgage	Servicing	Rights.				The	Company	may	retain	servicing	rights	to	certain	mortgage	loans	that	are	sold.	These	transactions	create	an	asset	referred	to	as	MSRs, which	totaled	approximately	$7	million	and	$133	million	at	December	31,	2012	and	December	31,	2011,	respectively,	and	are	included	within	Intangible	assets	and carried	at	fair	value	in	the	consolidated	statements	of	financial	condition.	On	April	2,	2012,	the	Company	sold	MSRs	which	totaled	approximately	$84	million	and approximately	$119	million	at	April	2,	2012	and	December	31,	2011,	respectively	(see	Notes	1	and	25).

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

The	Company	provides	no	credit	support	as	part	of	its	servicing	activities.	The	Company	is	required	to	make	servicing	advances	to	the	extent	that	it	believes	that	such advances	will	be	reimbursed.	Reimbursement	of	servicing	advances	is	a	senior	obligation	of	the	SPE,	senior	to	the	most	senior	beneficial	interests	outstanding. Outstanding	advances	are	included	in	Other	assets	and	are	recorded	at	cost,	net	of	allowances.	Advances	at	December	31,	2012	and	December	31,	2011	totaled approximately	$49	million	and	$1,296	million,	respectively,	net	of	allowances	of	$0	million	and	$14	million	at	December	31,	2012	and	December	31,	2011, respectively.	The	decline	in	servicing	advances	is	largely	the	result	of	the	sale	of	MSRs	discussed	above.

The	following	tables	present	information	about	the	Company's	mortgage	servicing	activities	for	SPEs	to	which	the	Company	transferred	loans	at	December	31,	2012 and	December	31,	2011:

|  | Residential<br>Mortgage<br>Unconsolidated<br>SPEs | Residential<br>Mortgage<br>Consolidated<br>SPEs | Commercial<br>Mortgage<br>Unconsolidated<br>SPEs | Commercial<br>Mortgage<br>Consolidated<br>SPEs |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |  |
| Assets\tserviced\t(unpaid\tprincipal\tbalance) | $821 | $1,141 | $4,760 | $— |
| Amounts\tpast\tdue\t90\tdays\tor\tgreater |  |  |  |  |
| (unpaid\tprincipal\tbalance)(1) | $86 | $43 | $— | $— |
| Percentage\tof\tamounts\tpast\tdue\t90\tdays\tor\tgreater(1) | 10.4% | 3.8% | — | — |
| Credit\tlosses | $3 | $2 | $— | $— |

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

|  |  | At	December	31,	2011 |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Residential\nMortgage\nUnconsolidated\nSPEs | Residential\nMortgage\nConsolidated\nSPEs | Commercial\nMortgage\nUnconsolidated\nSPEs | Commercial\nMortgage\nConsolidated\nSPEs |
|  |  | (dollars\tin\tmillions) |  |  |
| Assets\tserviced\t(unpaid\tprincipal\tbalance) | $9,821 | $2,180 | $5,750 | $1,596 |
| Amounts\tpast\tdue\t90\tdays\tor\tgreater\t(unpaid\tprincipal\tbalance)(1) | $3,087 | $354 | $— | $— |
| Percentage\tof\tamounts\tpast\tdue\t90\tdays\tor\tgreater(1) | 31.4% | 16.2% | — | — |
| Credit\tlosses | $631 | $81 | $— | $— |

# 8.				Financing	Receivables.

The	Company's	loans	held	for	investment	are	recorded	at	amortized	cost	and	classified	as	Loans	in	the	consolidated	statements	of	financial	condition.	A	description	of the	Company's	loan	portfolio	is	described	below.

•	 Commercial	and	Industrial.	Commercial	and	industrial	loans	include	commercial	lending,	corporate	lending	and	commercial	asset-backed	lending	products. Risk	factors	considered	in	determining	the	allowance	for	commercial	and	industrial	loans	include	the	borrower's	financial	strength,	seniority	of	the	loan, collateral	type,	volatility	of	collateral	value,	debt	cushion,	covenants	and	(for	unsecured	loans)	counterparty	type.

•	 Consumer.	Consumer	loans	include	unsecured	loans	and	non-purpose	securities-based	lending	that	allows	clients	to	borrow	money	against	the	value	of qualifying	securities	for	any	suitable	purpose	other	than	purchasing,	trading,	or	carrying	marketable	securities	or	refinancing	margin	debt.	The	allowance methodology	for	unsecured	loans	considers	the	specific	attributes	of	the	loan	as	well	as	borrower's	source	of	repayment.	The	allowance	methodology	for	non- purpose	securities-based	lending	considers	the	collateral	type	underlying	the	loan	(e.g.,	diversified	securities,	concentrated	securities,	or	restricted	stock).

•	 Real	Estate—Residential.	Residential	real	estate	loans	include	home	equity	lines	of	credit	and	non-conforming	loans.	The	allowance	methodology	for nonconforming	residential	mortgage	loans	considers	several	factors,	including	but	not	limited	to	loan-to-value	ratio,	a	FICO	score,	home	price	index,	and delinquency	status.	The	methodology	for	home	equity	loans	considers	credit	limits	and	utilization	rates	in	addition	to	the	factors	considered	for	non- conforming	residential	mortgages.

•	 Real	Estate—Wholesale.	Wholesale	real	estate	loans	include	owner-occupied	loans	and	income-producing	loans.	The	principal	risk	factor	for	determining	the allowance	for	wholesale	real	estate	loans	is	the	underlying	collateral	type,	which	is	affected	by	the	time	period	to	liquidate	the	collateral	and	the	volatility	in collateral	values.

The	Company's	loans	held	for	investment	at	December	31,	2012	and	December	31,	2011	included	the	following:

|  | At<br>December	31,<br>2012 | At<br>December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Commercial\tand\tindustrial | $9,352 | $5,083 |
| Consumer\tloans | 7,615 | 5,170 |
| Residential\treal\testate\tloans | 6,625 | 4,674 |
| Wholesale\treal\testate\tloans | 325 | 328 |
| Total\tloans\theld\tfor\tinvestment(1) | $23,917 | $15,255 |

(1) Amounts	are	net	of	allowances	of	$106	million	and	$17	million	at	December	31,	2012	and	December	31,	2011,	respectively.	The	increase	for	the	year	ended	December	31,	2012	was	primarily	driven	by enhancements	to	the	estimates	for	the	inherent	losses	for	and	growth	in	the	Company's	loans	held	for	investment	portfolio.

The	above	table	does	not	include	loans	held	for	sale	of	$5,129	million	and	$114	million	at	December	31,	2012	and	December	31,	2011,	respectively.

The	Company's	Credit	Risk	Management	Department	evaluates	new	obligors	before	credit	transactions	are	initially	approved,	and	at	least	annually	thereafter	for consumer	and	industrial	loans.	For	corporate	and	commercial	loans,	credit	evaluations	typically	involve	the	evaluation	of	financial	statements,	assessment	of	leverage, liquidity,	capital	strength,	asset	composition	and	quality,	market	capitalization	and	access	to	capital	markets,	cash	flow	projections	and	debt	service	requirements,	and	the adequacy	of	collateral,	if	applicable.	The	Company's	Credit	Risk	Management	Department	will	also	evaluate	strategy,	market	position,	industry	dynamics,	obligor's management	and	other	factors	that	could	affect	the	obligor's	risk	profile.	For	residential	real	estate	and	consumer	loans,	the	initial	credit	evaluation	includes,	but	is	not limited	to,	review	of	the	obligor's	income,	net	worth,	liquidity,	collateral,	loan-to-value	ratio,	and	credit	bureau	information.	Subsequent	credit	monitoring	for	residential real	estate	loans	is	performed	at	the	portfolio	level.	Consumer	loan	collateral	values	are	monitored	on	an	ongoing	basis.

The	Company	utilizes	the	following	credit	quality	indictors	in	its	credit	monitoring	process.

•	 Pass.	A	credit	exposure	rated	pass	has	a	continued	expectation	of	timely	repayment,	all	obligations	of	the	borrower	are	current,	and	the	obligor	complies	with material	terms	and	conditions	of	the	lending	agreement.

•	 Special	Mention.	Extensions	of	credit	that	have	potential	weakness	that	deserve	management's	close	attention	and	if	left	uncorrected	may,	at	some	future	date, result	in	the	deterioration	of	the	repayment	prospects	for	the	credit.	These	potential	weaknesses	may	be	due	to	circumstances	such	as	the	borrower	experiencing negative	operating	trends,	having	an	ill-proportioned	balance	sheet,	experiencing	problems	with	management	or	labor	relations,	experiencing	pending litigation,	or	there	are	concerns	about	the	condition	or	control	over	collateral.

•	 Substandard.	Obligor	has	a	well-defined	weakness	that	jeopardizes	the	repayment	of	the	debt	and	has	a	high	probability	of	payment	default	with	the	distinct possibility	that	the	Company	will	sustain	some	loss	if	noted	deficiencies	are	not	corrected.	Indicators	of	a	substandard	loan	include	that	the	obligor	is experiencing	current	or	anticipated	unprofitable	operations,	inadequate	fixed	charge	coverage,	and	inadequate	liquidity	to	support	operations	or	meet obligations	when	they	come	due	or	marginal	capitalization.

Consumer	loans	are	considered	substandard	when	they	are	past	due	90	cumulative	days	from	the	contractual	due	date.	Residential	real	estate	and	home	equity loans	are	considered	substandard	when	they	are	past	due	more	than	90	days	and	have	a	loan-to-value	ratio	greater	than	60%,	except	for	home	equity	loans where	the	Company	does	not	hold	a	senior	mortgage,	which	are	considered	substandard	when	past	due	90	days	or	more	regardless	of	loan-to-value	ratio.

•	 Doubtful.	Inherent	weakness	in	the	exposure	makes	the	collection	or	repayment	in	full,	based	on	existing	facts,	conditions	and	circumstances,	highly improbable,	but	the	amount	of	loss	is	uncertain.	The	obligor	may	demonstrate	inadequate	liquidity,	insufficient	capital	or	lack	of	necessary	resources	to continue	as	a	going	concern	or	may	be	in	default.

•	 Loss.	Extensions	of	credit	classified	as	loss	are	considered	uncollectible	and	are	charged	off.

At	December	31,	2012,	the	Company	collectively	evaluated	for	impairment,	gross	of	the	allowance,	commercial	and	industrial	loans,	consumer	loans,	residential	real estate	loans	and	wholesale	real	estate	loans	of	$9,419	million,	$7,613	million,	$6,629	million	and	$326	million,	respectively.	The	Company	individually	evaluated	for impairment,	gross	of	the	allowance,	commercial	and	industrial	loans,	consumer	loans	and	residential	real	estate	loans	of	$30	million,	$5	million	and	$1	million, respectively.	Commercial	and	industrial	loans	of	approximately	$19	million	and	residential	real	estate	loans	of	approximately	$1	million	were	impaired	at	December	31, 2012.	Approximately	99%	of	the	Company's	loan	portfolio	was	current	at	December	31,	2012.

At	December	31,	2011,	the	Company	collectively	evaluated	for	impairment,	gross	of	the	allowance,	commercial	and	industrial	loans,	consumer	loans,	residential	real estate	loans	and	wholesale	real	estate	loans	of	$4,934	million,	$5,072	million,	$4,675	million	and	$278	million,	respectively.	The	Company	individually	evaluated	for impairment,	gross	of	the	allowance,	commercial	and	industrial	loans,	consumer	loans	and	wholesale	real	estate	loans	of	$163	million,	$100	million	and	$50	million, respectively.	Commercial	and	industrial	loans	of	approximately	$33	million	and	wholesale	real	estate	loans	of	approximately	$50	million	were	impaired	at	December	31, 2011.	Approximately	99%	of	the	Company's	loan	portfolio	was	current	at	December	31,	2011.

The	Company	assigned	an	internal	grade	of	"doubtful"	to	certain	commercial	asset-backed	and	wholesale	real	estate	loans	totaling	$25	million	and	$87	million	at December	31,	2012	and	December	31,	2011,	respectively.	Doubtful	loans	can	be	classified	as	current	if	the	borrower	is	making	payments	in	accordance	with	the	loan agreement.	The	Company	assigned	an	internal	grade	of	"pass"	to	the	majority	of	its	remaining	loan	portfolio.

# Employee	Loans.

Employee	loans	are	granted	primarily	in	conjunction	with	a	program	established	in	the	Global	Wealth	Management	Group	business	segment	to	retain	and	recruit	certain employees.	These	loans	are	recorded	in	Receivables—Fees,	interest	and	other	in	the	consolidated	statements	of	financial	condition.	These	loans	are	full	recourse, generally	require	periodic	payments	and	have	repayment	terms	ranging	from	one	to	12	years.	The	Company	establishes	a	reserve	for	loan	amounts	it	does	not	consider recoverable	from	terminated	employees,	which	is	recorded	in	Compensation	and	benefits	expense.	At	December	31,	2012,	the	Company	had	$5,998	million	of	employee loans,	net	of	an	allowance	of	approximately	$131	million.	At	December	31,	2011,	the	Company	had	$5,610	million	of	employee	loans,	net	of	an	allowance	of approximately	$119	million.

The	Company	has	also	granted	loans	to	other	employees	primarily	in	conjunction	with	certain	after-tax	leveraged	investment	arrangements.	At	December	31,	2012,	the balance	of	these	loans	was	$172	million,	net	of	an	allowance	of	approximately	$108	million.	At	December	31,	2011,	the	balance	of	these	loans	was	$162	million,	net	of an	allowance	of	approximately	$133	million.	The	Company	establishes	a	reserve	for	non-recourse	loan	amounts	not	recoverable	from	employees,	which	is	recorded in	Other	expense.

In	certain	instances,	the	Company	enters	into	reverse	repurchase	agreements	and	securities	borrowed	transactions	to	acquire	securities	to	cover	short	positions,	to	settle other	securities	obligations	and	to	accommodate	customers'	needs.	The	Company	also	engages	in	securities	financing	transactions	for	customers	through	margin	lending (see	Note	6).

# Servicing	Advances.

As	part	of	its	servicing	activities,	the	Company	may	make	servicing	advances	to	the	extent	that	it	believes	that	such	advances	will	be	reimbursed	(see	Note	7).

# 9.				Goodwill	and	Net	Intangible	Assets.

The	Company	tests	goodwill	for	impairment	on	an	annual	basis	and	on	an	interim	basis	when	certain	events	or	circumstances	exist.	The	Company	tests	for	impairment	at the	reporting	unit	level,	which	is	generally	at	the	level	of	or	one	level	below	its	business	segments.	For	both	the	annual	and	interim	tests,	the	Company	has	the	option	to first	assess	qualitative	factors	to	determine	whether	the	existence	of	events	or	circumstances	leads	to	a	determination	that	it	is	more	likely	than	not	that	the	fair	value	of	a reporting	unit	is	less	than	its	carrying	amount.	If	after	assessing	the	totality	of	events	or	circumstances,	the	Company	determines	it	is	more	likely	than	not	that	the	fair value	of	a	reporting	unit	is	greater	than	its	carrying	amount,	then	performing	the	two-step	impairment	test	is	not	required.	However,	if	the	Company	concludes otherwise,	then	it	is	required	to	perform	the	first	step	of	the	two-step	impairment	test.	Goodwill	impairment	is	determined	by	comparing	the	estimated	fair	value	of	a reporting	unit	with	its	respective	carrying	value.	If	the	estimated	fair	value	exceeds	the	carrying	value,	goodwill	at	the	reporting	unit	level	is	not	deemed	to	be	impaired. If	the	estimated	fair	value	is	below	carrying	value,	however,	further	analysis	is	required	to	determine	the	amount	of	the	impairment.	Additionally,	if	the	carrying	value	of a	reporting	unit	is	zero	or	a	negative	value	and	it	is	determined	that	it	is	more	likely	than	not	the	goodwill	is	impaired,	further	analysis	is	required.	The	estimated	fair values	of	the	reporting	units	are	derived	based	on	valuation	techniques	the	Company	believes	market	participants	would	use	for	each	of	the	reporting	units.

The	estimated	fair	values	are	generally	determined	utilizing	methodologies	that	incorporate	price-to-book	and	price-to-earnings	multiples	of	certain	comparable companies.	The	Company	also	utilizes	a	discounted	cash	flow	methodology	for	certain	reporting	units.

The	Company	completed	its	annual	goodwill	impairment	testing	at	July	1,	2012	and	July	1,	2011.	The	Company's	testing	did	not	indicate	any	goodwill	impairment	as each	of	the	Company's	reporting	units	with	goodwill	had	a	fair	value	that	was	substantially	in	excess	of	its	carrying	value.

Due	to	the	volatility	in	the	equity	markets,	the	economic	outlook	and	the	Company's	common	shares	trading	below	book	value	during	the	quarters	in	2012,	the	Company performed	additional	impairment	testing,	which	did	not	result	in	any	goodwill	impairment.	Adverse	market	or	economic	events	could	result	in	impairment	charges	in future	periods.	At	December	31,	2012	and	December	31,	2011,	each	of	the	Company's	reporting	units	with	goodwill	had	a	fair	value	that	was	substantially	in	excess	of its	carrying	value.

# Goodwill.

Changes	in	the	carrying	amount	of	the	Company's	goodwill,	net	of	accumulated	impairment	losses	for	2012	and	2011,	were	as	follows:

|  |  | Wealth |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Institutional\nSecurities | Management\nGroup | Asset\nManagement | Total |
|  |  | (dollars\tin\tmillions) |  |  |
| Goodwill\tat\tDecember\t31,\t2010 | $383 | $5,616 | $740 | $6,739 |
| Foreign\tcurrency\ttranslation\tadjustments\tand\tother | (53) | — | — | (53) |
| Goodwill\tat\tDecember\t31,\t2011(1) | $330 | $5,616 | $740 | $6,686 |
| Foreign\tcurrency\ttranslation\tadjustments\tand\tother | (6) | 35 | — | 29 |
| Goodwill\tdisposed\tof\tduring\tthe\tperiod(2) | — | (65) | — | (65) |
| Goodwill\tat\tDecember\t31,\t2012(1) | $324 | $5,586 | $740 | $6,650 |

(1) The	amount	of	the	Company's	goodwill	before	accumulated	impairments	of	$700	million,	which	included	$673	million	related	to	the	Institutional	Securities	business	segment	and	$27	million	related	to	the	Asset Management	business	segment,	was	$7,350	million	and	$7,386	million	at	December	31,	2012	and	December	31,	2011,	respectively.

(2) The	Global	Wealth	Management	Group	activity	represents	goodwill	disposed	of	in	connection	with	the	sale	of	Quilter	(see	Notes	1	and	25).

# Net	Intangible	Assets.

Changes	in	the	carrying	amount	of	the	Company's	intangible	assets	for	2012	and	2011	were	as	follows:

|  |  | Wealth |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Institutional | Management | Asset |  |
|  | Securities | Group | Management | Total |
|  |  | (dollars\tin\tmillions) |  |  |
| Amortizable\tnet\tintangible\tassets\tat\tDecember\t31,\t2010 | $262 | $3,963 | $5 | $4,230 |
| Mortgage\tservicing\trights\t(see\tNote\t7) | 151 | 6 | — | 157 |
| Indefinite-lived\tintangible\tassets\t(see\tNote\t2) | — | 280 | — | 280 |
| Net\tintangible\tassets\tat\tDecember\t31,\t2010 | $413 | $4,249 | $5 | $4,667 |
| Amortizable\tnet\tintangible\tassets\tat\tDecember\t31,\t2010 | $262 | $3,963 | $5 | $4,230 |
| Foreign\tcurrency\ttranslation\tadjustments\tand\tother | (10) | — | — | (10) |
| Amortization\texpense | (23) | (322) | — | (345) |
| Impairment\tlosses(1) | (4) | — | (3) | (7) |
| Intangible\tassets\tacquired\tduring\tthe\tperiod | 5 | — | — | 5 |
| Intangible\tassets\tdisposed\tof\tduring\tthe\tperiod | (1) | — | — | (1) |
| Amortizable\tnet\tintangible\tassets\tat\tDecember\t31,\t2011 | $229 | $3,641 | $2 | $3,872 |
| Mortgage\tservicing\trights\t(see\tNote\t7) | 122 | 11 | — | 133 |
| Indefinite-lived\tintangible\tassets\t(see\tNote\t2) | — | 280 | — | 280 |
| Net\tintangible\tassets\tat\tDecember\t31,\t2011 | $351 | $3,932 | $2 | $4,285 |
| Amortizable\tnet\tintangible\tassets\tat\tDecember\t31,\t2011 | $229 | $3,641 | $2 | $3,872 |
| Foreign\tcurrency\ttranslation\tadjustments\tand\tother | 5 | 1 | — | 6 |
| Amortization\texpense | (17) | (322) | (1) | (340) |
| Impairment\tlosses(1) | (4) | — | — | (4) |
| Increase\tdue\tto\tSmith\tBarney\ttradename(2) | — | 280 | — | 280 |
| Intangible\tassets\tacquired\tduring\tthe\tperiod | 4 | — | — | 4 |
| Intangible\tassets\tdisposed\tof\tduring\tthe\tperiod(3) | (42) | — | — | (42) |
| Amortizable\tnet\tintangible\tassets\tat\tDecember\t31,\t2012 | 175 | 3,600 | 1 | \t 3,776 |
| Mortgage\tservicing\trights\t(see\tNote\t7) | — | 7 | — | 7 |
| Net\tintangible\tassets\tat\tDecember\t31,\t2012 | $175 | $3,607 | $1 | $3,783 |

(1) Impairment	losses	are	recorded	within	Other	expenses	in	the	consolidated	statements	of	income.

(2) The	Global	Wealth	Management	Group	business	segment	activity	represents	the	reclassification	of	$280	million	from	an	indefinite-lived	to	a	finite-lived	intangible	asset	(see	Note	2).

(3) The	Institutional	Securities	business	segment	activity	represents	intangible	assets	disposed	of	in	connection	with	the	sale	of	a	principal	investment.

|  | At	December	31,	2012 |  | At	December	31,	2011 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Gross |  | Gross |  |
|  | Carrying\nAmount | Accumulated\nAmortization | Carrying\nAmount | Accumulated\nAmortization |
|  |  | (dollars\tin\tmillions) |  |  |
| Amortizable\tintangible\tassets: |  |  |  |  |
| Trademarks | $7 | $3 | $59 | $13 |
| Tradename | 280 | 2 | — | — |
| Customer\trelationships | 4,058 | 923 | 4,063 | 673 |
| Management\tcontracts | 313 | 116 | 313 | 80 |
| Research | 176 | 126 | 176 | 91 |
| Other | 192 | 80 | 171 | 53 |
| Total\tamortizable\tintangible\tassets | $ 5,026 | $1,250 | $ 4,782 | $910 |

Amortization	expense	associated	with	intangible	assets	is	estimated	to	be	approximately	$314	million	per	year	over	the	next	five	years.

|  | At | At |
| :--- | :--- | :--- |
|  | December\t31, | December\t31, |
|  | 2012(1) | 2011(1) |
|  | (dollars\tin\tmillions) |  |
| Savings\tand\tdemand\tdeposits(2) | $80,058 | $63,029 |
| Time\tdeposits(3) | 3,208 | 2,633 |
| Total | $83,266 | $65,662 |

(1) Total	deposits	subject	to	Federal	Deposit	Insurance	Corporation	(the	"FDIC")	at	December	31,	2012	and	December	31,	2011	were	$62	billion	and	$52	billion,	respectively.

(3) Certain	time	deposit	accounts	are	carried	at	fair	value	under	the	fair	value	option	(see	Note	4).

The	weighted	average	interest	rates	of	interest	bearing	deposits	outstanding	during	2012,	2011	and	2010	were	0.3%,	0.4%	and	0.5%,	respectively.

At	December	31,	2012,	interest-bearing	deposits	maturing	over	the	next	five	years	were	as	follows	(dollars	in	millions):

(1) Amount	includes	approximately	$79	billion	of	savings	deposits,	which	have	no	stated	maturity,	and	approximately	$3	billion	of	time	deposits.

# 11.				Borrowings	and	Other	Secured	Financings.

# Commercial	Paper	and	Other	Short-Term	Borrowings.

The	table	below	summarizes	certain	information	regarding	commercial	paper	and	other	short-term	borrowings:

|  | December	31,<br>2012 | December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Commercial\tPaper(1): |  |  |
| Balance\tat\tperiod-end | $306 | $978 |
| Average\tbalance(2) | $479 | $899 |
| Weighted\taverage\tinterest\trate\ton\tperiod-end\tbalance(3) | 10.1% | 2.7% |
| Other\tShort-Term\tBorrowings(4)(5): |  |  |
| Balance\tat\tperiod-end | $1,832 | $1,865 |
| Average\tbalance(2) | $1,461 | $2,276 |

(2) Average	balances	are	calculated	based	upon	weekly	balances.

(3) The	weighted	average	interest	rate	at	December	31,	2012	is	driven	primarily	by	commercial	paper	issued	in	a	foreign	country	in	which	typical	funding	rates	are	significantly	higher	than	in	the	U.S.

(4) These	borrowings	included	bank	loans,	bank	notes	and	structured	notes	with	original	maturities	of	12	months	or	less.

(5) Certain	structured	short-term	borrowings	are	carried	at	fair	value	under	the	fair	value	option.	See	Note	4	for	additional	information.

# Long-Term	Borrowings.

Maturities	and	Terms.				Long-term	borrowings	consisted	of	the	following	(dollars	in	millions):

|  | Parent	Company |  | Subsidiaries |  | At | At |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Variable | Variable | Variable | December | December |
|  | Fixed | Rate | Fixed | Rate | 31, | 31, |
|  | Rate | (1)(2) | Rate | (1)(2) | 2012(3)(4) | 2011(5) |
| Due\tin\t2012 | $— | $— | $— | $— | $— | $35,082 |
| Due\tin\t2013 | 5,867 | \t 17,938 | 17 | 1,481 | 25,303 | 25,018 |
| Due\tin\t2014 | \t 11,988 | 8,782 | 17 | 964 | 21,751 | 21,484 |
| Due\tin\t2015 | \t 14,262 | 5,938 | 17 | 4,436 | 24,653 | 21,888 |
| Due\tin\t2016 | 9,902 | 8,308 | 74 | 1,700 | 19,984 | 19,027 |
| Due\tin\t2017 | \t 16,859 | 9,432 | 17 | 1,829 | 28,137 | 17,501 |
| Thereafter | \t 36,916 | \t 11,081 | \t 295 | 1,451 | 49,743 | 44,234 |
| Total | $95,794 | $61,479 | $437 | $11,861 | $169,571 | $184,234 |
| Weighted\taverage\tcoupon\tat\tperiod-end(6) | 5.3% | 1.1% | 6.5% | 4.5% | 4.4% | 4.0% |

(1) Variable	rate	borrowings	bear	interest	based	on	a	variety	of	money	market	indices,	including	LIBOR	and	Federal	Funds	rates.

(2) Amounts	include	borrowings	that	are	equity-linked,	credit-linked,	commodity-linked	or	linked	to	some	other	index.

(3) Amounts	include	an	increase	of	approximately	$6.4	billion	at	December	31,	2012,	to	the	carrying	amount	of	certain	of	the	Company's	long-term	borrowings	associated	with	fair	value	hedges.	The	increase	to	the carrying	value	associated	with	fair	value	hedges	by	year	due	was	approximately	less	than	$0.1	billion	due	in	2013,	$0.3	billion	due	in	2014,	$0.8	billion	due	in	2015,	$0.8	billion	due	in	2016,	$1.5	billion	due	in 2017	and	$2.9	billion	due	thereafter.

(4) Amounts	include	an	increase	of	approximately	$0.4	billion	at	December	31,	2012	to	the	carrying	amounts	of	certain	of	the	Company's	long-term	borrowings	for	which	the	fair	value	option	was	elected	(see	Note 4).

(5) Amounts	include	long-term	borrowings	issued	under	the	Temporary	Liquidity	Guarantee	Program	("TLGP").

(6) Weighted	average	coupon	was	calculated	utilizing	U.S.	and	non-U.S.	dollar	interest	rates	and	excludes	financial	instruments	for	which	the	fair	value	option	was	elected.

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

|  | At	December	31,<br>2012 | At	December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Senior\tdebt | $158,899 | $175,471 |
| Subordinated\tdebt | 5,845 | 3,910 |
| Junior\tsubordinated\tdebentures | 4,827 | 4,853 |
| Total | $169,571 | $184,234 |

During	2012,	the	Company	issued	and	reissued	notes	with	a	principal	amount	of	approximately	$24	billion.	During	2012,	approximately	$43	billion	of	notes	matured	or were	retired.

Senior	debt	securities	often	are	denominated	in	various	non-U.S.	dollar	currencies	and	may	be	structured	to	provide	a	return	that	is	equity-linked,	credit-linked, commodity-linked	or	linked	to	some	other	index	(e.g.,	the	consumer	price	index).	Senior	debt	also	may	be	structured	to	be	callable	by	the	Company	or	extendible	at	the option	of	holders	of	the	senior	debt	securities.	Debt	containing	provisions	that	effectively	allow	the	holders	to	put	or	extend	the	notes	aggregated	$1,131	million	at December	31,	2012	and	$1,179	million	at	December	31,	2011.	In	addition,	separate	agreements	are	entered	into	by	the	Company's	subsidiaries	that	effectively	allow	the holders	to	put	the	notes	aggregated	$1,895	million	at	December	31,	2012	and	$2,234	million	at	December	31,	2011.	Subordinated	debt	and	junior	subordinated debentures	generally	are	issued	to	meet	the	capital	requirements	of	the	Company	or	its	regulated	subsidiaries	and	primarily	are	U.S.	dollar	denominated.

Senior	Debt—Structured	Borrowings.				The	Company's	index-linked,	equity-linked	or	credit-linked	borrowings	include	various	structured	instruments	whose	payments and	redemption	values	are	linked	to	the	performance	of	a	specific	index	(e.g.,	Standard	&	Poor's	500),	a	basket	of	stocks,	a	specific	equity	security,	a	credit	exposure	or basket	of	credit	exposures.	To	minimize	the	exposure	resulting	from	movements	in	the	underlying	index,	equity,	credit	or	other	position,	the	Company	has	entered	into various	swap	contracts	and	purchased	options	that	effectively	convert	the	borrowing	costs	into	floating	rates	based	upon	LIBOR.	These	instruments	are	included	in	the preceding	table	at	their	redemption	values	based	on	the	performance	of	the	underlying	indices,	baskets	of	stocks,	or	specific	equity	securities,	credit	or	other	position	or index.	The	Company	carries	either	the	entire	structured	borrowing	at	fair	value	or	bifurcates	the	embedded	derivative	and	carries	it	at	fair	value.	The	swaps	and purchased	options	used	to	economically	hedge	the	embedded	features	are	derivatives	and	also	are	carried	at	fair	value.	Changes	in	fair	value	related	to	the	notes	and economic	hedges	are	reported	in	Principal	transactions—Trading	revenues.	See	Note	4	for	further	information	on	structured	borrowings.

Subordinated	Debt	and	Junior	Subordinated	Debentures.				Included	in	the	Company's	long-term	borrowings	are	subordinated	notes	of	$5,845	million	having	a contractual	weighted	average	coupon	of	4.81%	at	December	31,	2012	and	$3,910	million	having	a	weighted	average	coupon	of	4.77%	at	December	31,	2011.	Junior subordinated	debentures	outstanding	by	the	Company	were	$4,827	million	at	December	31,	2012	and	$4,853	million	at	December	31,	2011	having	a	contractual weighted	average	coupon	of	6.37%	at	both	December	31,	2012	and	December	31,	2011.	Maturities	of	the	subordinated	and	junior	subordinated	notes	range	from	2014	to 2067.	Maturities	of	certain	junior	subordinated	debentures	can	be	extended	to	2052	at	the	Company's	option.

Asset	and	Liability	Management.					In	general,	securities	inventories	not	financed	by	secured	funding	sources	and	the	majority	of	assets	are	financed	with	a	combination of	short-term	funding,	floating	rate	long-term	debt	or	fixed	rate	long-term	debt	swapped	to	a	floating	rate.	Fixed	assets	are	generally	financed	with	fixed	rate	long-term debt.	The	Company	uses	interest	rate	swaps	to	more	closely	match	these	borrowings	to	the	duration,	holding	period	and	interest	rate	characteristics	of	the	assets	being funded	and	to	manage	interest	rate	risk.	These	swaps	effectively	convert	certain	of	the	Company's	fixed	rate	borrowings	into	floating	rate	obligations.	In	addition,	for non-U.S.	dollar	currency	borrowings	that	are	not	used	to	fund	assets	in	the	same	currency,	the	Company	has	entered	into	currency	swaps	that	effectively	convert	the borrowings	into	U.S.	dollar	obligations.	The	Company's	use	of	swaps	for	asset	and	liability	management	affected	its	effective	average	borrowing	rate	as	follows:

(1) Included	in	the	weighted	average	and	effective	average	calculations	are	non-U.S.	dollar	interest	rates.

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

# FDIC's	Temporary	Liquidity	Guarantee	Program.

At	December	31,	2011,	the	Company	had	long-term	debt	outstanding	of	$12.1	billion	under	the	TLGP.	There	was	no	TLGP	debt	outstanding	at	December	31,	2012. The	issuance	of	debt	under	the	TLGP	expired	on	December	31,	2010,	but	the	existing	long-term	debt	outstanding	was	guaranteed	until	June	30,	2012.	These	borrowings were	senior	unsecured	debt	obligations	of	the	Company	and	guaranteed	by	the	FDIC	under	the	TLGP.	The	FDIC	has	concluded	that	the	guarantee	is	backed	by	the	full faith	and	credit	of	the	U.S.	government.

# Other	Secured	Financings.

Other	secured	financings	include	the	liabilities	related	to	transfers	of	financial	assets	that	are	accounted	for	as	financings	rather	than	sales,	consolidated	VIEs	where	the Company	is	deemed	to	be	the	primary	beneficiary,	pledged	commodities,	certain	equity-linked	notes	and	other	secured	borrowings.	See	Note	7	for	further	information on	other	secured	financings	related	to	VIEs	and	securitization	activities.

The	Company's	other	secured	financings	consisted	of	the	following:

|  | At<br>December	31,<br>2012 | At<br>December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Secured\tfinancings\twith\toriginal\tmaturities\tgreater\tthan\tone\tyear | $14,431 | $18,696 |
| Secured\tfinancings\twith\toriginal\tmaturities\tone\tyear\tor\tless(1) | 641 | 275 |
| Failed\tsales(2) | 655 | 1,748 |
| Total(3) | $15,727 | $20,719 |

(1) At	December	31,	2012,	amount	included	approximately	$10	million	of	variable	rate	financings	and	approximately	$631	million	of	fixed	rate	financings.

(2) For	more	information	on	failed	sales,	see	Note	7.

Maturities	and	Terms:				Secured	financings	with	original	maturities	greater	than	one	year	consisted	of	the	following:

|  |  | Variable | At | At |
| :--- | :--- | :--- | :--- | :--- |
|  | Fixed | Rate(1) | December\t31, | December\t31, |
|  | Rate | (2) | 2012 | 2011 |
|  |  | (dollars\tin\tmillions) |  |  |
| Due\tin\t2012 | $— | $— | $— | $7,861 |
| Due\tin\t2013 | \t 2,768 | 5,760 | 8,528 | 4,849 |
| Due\tin\t2014 | 189 | 2,679 | 2,868 | 1,765 |
| Due\tin\t2015 | — | 960 | 960 | 1,094 |
| Due\tin\t2016 | — | 429 | 429 | 384 |
| Due\tin\t2017 | — | 181 | 181 | 559 |
| Thereafter | 949 | 516 | 1,465 | 2,184 |
| Total | $3,906 | $10,525 | $14,431 | $18,696 |
| Weighted\taverage\tcoupon\trate\tat\tperiod-end(3) | 1.1% | 1.6% | 1.4% | 1.7% |

(1) Variable	rate	borrowings	bear	interest	based	on	a	variety	of	indices	including	LIBOR.

(3) Weighted	average	coupon	was	calculated	utilizing	U.S.	and	non-U.S.	dollar	interest	rates	and	excludes	secured	financings	that	are	linked	to	non-interest	indices.

Maturities	and	Terms:				Failed	sales	consisted	of	the	following:

|  | At<br>December	31,<br>2012 | At<br>December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Due\tin\t2012 | $— | $784 |
| Due\tin\t2013 | 479 | 785 |
| Due\tin\t2014 | 17 | 5 |
| Due\tin\t2015 | 7 | 29 |
| Due\tin\t2016 | 136 | 127 |
| Due\tin\t2017 | 14 | 14 |
| Thereafter | 2 | 4 |
| Total | $655 | $1,748 |

# 12.				Derivative	Instruments	and	Hedging	Activities.

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

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

The	Company's	derivative	products	consisted	of	the	following:

|  | At	December	31,	2012 |  | At	December	31,	2011 | At	December	31,	2011 |
| :--- | :--- | :--- | :--- | :--- |
|  | Assets | Liabilities | Assets | Liabilities |
|  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |
| Exchange\ttraded\tderivative\tproducts | $4,641 | $6,131 | $4,103 | $4,969 |
| OTC\tderivative\tproducts | \t 31,556 | \t 30,827 | \t 43,961 | \t 41,484 |
| Total | $36,197 | $36,958 | $48,064 | $46,453 |

The	Company	incurs	credit	risk	as	a	dealer	in	OTC	derivatives.	Credit	risk	with	respect	to	derivative	instruments	arises	from	the	failure	of	a	counterparty	to	perform according	to	the	terms	of	the	contract.	The	Company's	exposure	to	credit	risk	at	any	point	in	time	is	represented	by	the	fair	value	of	the	derivative	contracts	reported	as assets.	The	fair	value	of	a	derivative	represents	the	amount	at	which	the	derivative	could	be	exchanged	in	an	orderly	transaction	between	market	participants	and	is further	described	in	Notes	2	and	4.

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

The	tables	below	present	a	summary	by	counterparty	credit	rating	and	remaining	contract	maturity	of	the	fair	value	of	OTC	derivatives	in	a	gain	position	at December	31,	2012	and	December	31,	2011,	respectively.	Fair

value	is	presented	in	the	final	column,	net	of	collateral	received	(principally	cash	and	U.S.	government	and	agency	securities):

# OTC	Derivative	Products—Financial	Instruments	Owned	at	December	31,	2012(1)

|  |  |  |  |  | Cross- | Net |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Years\tto\tMaturity |  |  | Maturity | Exposure | Net |
|  |  |  |  |  | and\tCash | Post- | Exposure |
|  |  |  |  |  | Collateral | Cash | Post- |
| Credit\tRating(2) | Less\tthan\t1 | 1-3 | 3-5 | Over\t5 | Netting(3) | Collateral | Collateral |
|  |  |  |  | (dollars\tin\tmillions) |  |  |  |
| AAA | $353 | $551 | $1,299 | $6,121 | $(4,851) | $3,473\t\t\t $ | 3,088 |
| AA | 2,125 | 3,635 | 2,958 | 10,270 | (12,761) | 6,227 | 4,428 |
| A | 6,643 | 9,596 | 14,228 | 29,729 | (50,721) | 9,475 | 7,638 |
| BBB | 2,673 | 3,970 | 3,704 | 18,586 | (21,704) | 7,229 | 5,764 |
| Non-investment\tgrade | 2,091 | 2,855 | 2,142 | 4,538 | (6,474) | 5,152 | 2,947 |
| Total | $13,885 | $20,607 | $24,331 | $69,244 | $(96,511) | $31,556\t\t\t $ | 23,865 |

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

(2) Obligor	credit	ratings	are	determined	by	the	Company's	Credit	Risk	Management	Department.

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

|  |  | Years	to	Maturity | Years	to	Maturity |  | Cross-Maturity |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  | and | Net\tExposure | Net\tExposure |
|  |  |  |  |  | Cash\tCollateral | Post-Cash | Post- |
| Credit\tRating(2) | Less\tthan\t1 | 1-3 | 3-5 | Over\t5 | Netting(3) | Collateral | Collateral |
|  |  |  |  | (dollars\tin\tmillions) |  |  |  |
| AAA | $621 | $1,615 | $1,586 | $10,375 | $(7,513) | $6,684 | $6,389 |
| AA | 5,578 | 7,547 | 5,972 | 21,068 | (31,074) | 9,091 | 7,048 |
| A | 7,576 | 5,538 | 10,224 | 27,417 | (41,608) | 9,147 | 7,117 |
| BBB | 4,437 | 4,448 | 3,231 | 17,758 | (17,932) | 11,942 | 10,337 |
| Non-investment\tgrade | 2,819 | 2,949 | 2,703 | 5,084 | (6,458) | 7,097 | 4,158 |
| Total | $21,031 | $22,097 | $23,716 | $81,702 | $(104,585) | $43,961 | $35,049 |

The	Company	applies	hedge	accounting	using	various	derivative	financial	instruments	to	hedge	interest	rate	and	foreign	exchange	risk	arising	from	assets	and	liabilities not	held	at	fair	value	as	part	of	asset	and	liability	management	and	foreign	currency	exposure	management.

The	Company's	hedges	are	designated	and	qualify	for	accounting	purposes	as	one	of	the	following	types	of	hedges:	hedges	of	exposure	to	changes	in	fair	value	of	assets and	liabilities	being	hedged	(fair	value	hedges)	and	hedges	of	net	investments	in	foreign	operations	whose	functional	currency	is	different	from	the	reporting	currency	of the	parent	company	(net	investment	hedges).

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

Fair	Value	Hedges—Interest	Rate	Risk.				The	Company's	designated	fair	value	hedges	consisted	primarily	of	interest	rate	swaps	designated	as	fair	value	hedges	of changes	in	the	benchmark	interest	rate	of	fixed	rate	senior	long-term	borrowings.	The	Company	uses	regression	analysis	to	perform	an	ongoing	prospective	and retrospective	assessment	of	the	effectiveness	of	these	hedging	relationships	(i.e.,	the	Company	applies	the	"long-haul"	method	of	hedge	accounting).	A	hedging relationship	is	deemed	effective	if	the	fair	values	of	the	hedging	instrument	(derivative)	and	the	hedged	item	(debt	liability)	change	inversely	within	a	range	of	80%	to 125%.	The	Company	considers	the	impact	of	valuation	adjustments	related	to	the	Company's	own	credit	spreads	and	counterparty	credit	spreads	to	determine	whether they	would	cause	the	hedging	relationship	to	be	ineffective.

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

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

During	2012,	the	Company	recognized	an	out-of-period	pre-tax	gain	of	approximately	$109	million	in	the	Institutional	Securities	business	segment's	Other	sales	and trading	net	revenues	related	to	the	reversal	of	amounts	recorded	in	cumulative	other	comprehensive	income	due	to	the	incorrect	application	of	hedge	accounting	on certain	derivative	contracts	previously	designated	as	net	investment	hedges	of	certain	foreign,	non-U.S.	dollar	denominated	subsidiaries.	The	Company	has	evaluated	the effects	of	the	incorrect	application	of	hedge	accounting,	both	qualitatively	and	quantitatively,	and	concluded	that	it	did	not	have	a	material	impact	on	any	prior	annual	or quarterly	consolidated	financial	statements.	Subsequent	to	the	identification	of	the	incorrect	application	of	net	investment	hedge	accounting,	the	Company	has appropriately	redesignated	the	forward	foreign	exchange	contracts	and	reapplied	hedge	accounting.

The	following	tables	summarize	the	fair	value	of	derivative	instruments	designated	as	accounting	hedges	and	the	fair	value	of	derivative	instruments	not	designated	as accounting	hedges	by	type	of	derivative	contract	on	a	gross	basis.	Fair	values	of	derivative	contracts	in	an	asset	position	are	included	in	Financial	instruments	owned— Derivative	and	other	contracts.	Fair	values	of	derivative	contracts	in	a	liability	position	are	reflected	in	Financial	instruments	sold,	not	yet	purchased—Derivative	and other	contracts:

(1) Notional	amounts	include	gross	notionals	related	to	open	long	and	short	futures	contracts	of	$73	billion	and	$68	billion,	respectively.	The	unsettled	fair	value	on	these	futures	contracts	(excluded	from	the	table above)	of	$1,073	million	and	$24	million	is	included	in	Receivables—Brokers,	dealers	and	clearing	organizations	and	Payables—Brokers,	dealers	and	clearing	organizations,	respectively,	on	the	consolidated statements	of	financial	condition.

|  | Assets	at |  | Liabilities	at |  |
| :--- | :--- | :--- | :--- | :--- |
|  | December\t31,\t2011 |  | December\t31,\t2011 |  |
|  | Fair\tValue | Notional | Fair\tValue | Notional |
|  |  | (dollars\tin\tmillions) |  |  |
| Derivatives\tdesignated\tas\taccounting\thedges: |  |  |  |  |
| Interest\trate\tcontracts | $8,151 | $71,706 | $— | $— |
| Foreign\texchange\tcontracts | 348 | 12,222 | 57 | 7,111 |
| Total\tderivatives\tdesignated\tas\taccounting\thedges | 8,499 | 83,928 | 57 | 7,111 |
| Derivatives\tnot\tdesignated\tas\taccounting\thedges(1): |  |  |  |  |
| Interest\trate\tcontracts | 904,725 | 21,099,876 | 880,027 | 21,005,733 |
| Credit\tcontracts | 138,791 | 2,466,623 | 130,726 | 2,428,042 |
| Foreign\texchange\tcontracts | 61,995 | 1,582,364 | 64,691 | 1,604,493 |
| Equity\tcontracts | 46,287 | 603,290 | 48,286 | 595,146 |
| Commodity\tcontracts | 39,778 | 411,661 | 39,998 | 374,594 |
| Other | 598 | 11,662 | 2,275 | 24,905 |
| Total\tderivatives\tnot\tdesignated\tas\taccounting\thedges | 1,192,174 | 26,175,476 | 1,166,003 | 26,032,913 |
| Total\tderivatives | $1,200,673 | $26,259,404 | $1,166,060 | $26,040,024 |
| Cash\tcollateral\tnetting | (77,938) | — | (44,936) | — |
| Counterparty\tnetting | (1,074,671) | — | (1,074,671) | — |
| Total\tderivatives | $48,064 | $26,259,404 | $46,453 | $26,040,024 |

The	following	tables	summarize	the	gains	or	losses	reported	on	derivative	instruments	designated	and	qualifying	as	accounting	hedges	for	2012,	2011	and	2010.

# Derivatives	Designated	as	Fair	Value	Hedges.

The	following	table	presents	gains	(losses)	reported	on	derivative	instruments	and	the	related	hedge	item	as	well	as	the	hedge	ineffectiveness	included	in	Interest expense	in	the	consolidated	statements	of	income	from	interest	rate	contracts:

|  |  | Gains	(Losses)	Recognized |  |
| :--- | :--- | :--- | :--- |
| Product\tType | 2012 | 2011 | 2010 |
|  |  | (dollars\tin\tmillions) |  |
| Derivatives | $29 | $3,415 | $1,257 |
| Borrowings | \t 703 | (2,549) | (604) |
| Total | $732 | $866 | $653 |

Derivatives	Designated	as	Net	Investment	Hedges.

|  |  | Gains	(Losses) |  |
| :--- | :--- | :--- | :--- |
|  | Recognized\tin\nOCI\t(effective\tportion) | Recognized\tin\nOCI\t(effective\tportion) |  |
| Product\tType | 2012(1) | 2011 | 2010 |
|  |  | (dollars\tin\tmillions) |  |
| Foreign\texchange\tcontracts(2) | $102 | $180 | $(285) |
| Total | $102 | $180 | $(285) |

(1) A	gain	of	$77	million,	net	of	tax,	related	to	net	investment	hedges	was	reclassified	from	other	comprehensive	income	into	income	during	2012.	The	amount	primarily	related	to	the	reversal	of	amounts	recorded	in cumulative	other	comprehensive	income	due	to	the	incorrect	application	of	hedge	accounting	on	certain	derivative	contracts	(see	above	for	further	information).

(2) Losses	of	$235	million,	$220	million	and	$147	million	were	recognized	in	income	related	to	amounts	excluded	from	hedge	effectiveness	testing	during	2012,	2011	and	2010,	respectively.

The	table	below	summarizes	gains	(losses)	on	derivative	instruments	not	designated	as	accounting	hedges	for	2012,	2011	and	2010:

|  |  | Gains	(Losses) |  |
| :--- | :--- | :--- | :--- |
|  | Recognized\tin\tIncome(1)(2) | Recognized\tin\tIncome(1)(2) |  |
| Product\tType | 2012 | 2011 | 2010 |
|  |  | (dollars\tin\tmillions) |  |
| Interest\trate\tcontracts | $2,930 | $5,538 | $544 |
| Credit\tcontracts | (722) | 38 | (533) |
| Foreign\texchange\tcontracts | (340) | (2,982) | 146 |
| Equity\tcontracts | (1,794) | 3,880 | (2,772) |
| Commodity\tcontracts | 387 | 500 | 597 |
| Other\tcontracts | 1 | (51) | (160) |
| Total\tderivative\tinstruments | $462 | $6,923 | $(2,178) |

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

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

The	Company	also	has	certain	embedded	derivatives	that	have	been	bifurcated	from	the	related	structured	borrowings.	Such	derivatives	are	classified	in	Long-term borrowings	and	had	a	net	fair	value	of	$53	million	at	both	December	31,	2012	and	December	31,	2011,	and	a	notional	value	of	$2,178	million	and	$3,312	million	at December	31,	2012	and	December	31,	2011,	respectively.	The	Company	recognized	gains	of	$12	million,	losses	of	$21	million	and	gains	of	$76	million	related	to changes	in	the	fair	value	of	its	bifurcated	embedded	derivatives	for	2012,	2011	and	2010,	respectively.

At	December	31,	2012	and	December	31,	2011,	the	amount	of	payables	associated	with	cash	collateral	received	that	was	netted	against	derivative	assets	was	$69.2 billion	and	$77.9	billion,	respectively,	and	the	amount	of	receivables	in	respect	of	cash	collateral	paid	that	was	netted	against	derivative	liabilities	was	$43.0	billion	and $44.9	billion,	respectively.	Cash	collateral	receivables	and	payables	of	$158	million	and	$34	million,	respectively,	at	December	31,	2012	and	$268	million	and	$9 million,	respectively,	at	December	31,	2011,	were	not	offset	against	certain	contracts	that	did	not	meet	the	definition	of	a	derivative.

# Credit-Risk-Related	Contingencies.

In	connection	with	certain	OTC	trading	agreements,	the	Company	may	be	required	to	provide	additional	collateral	or	immediately	settle	any	outstanding	liability balances	with	certain	counterparties	in	the	event	of	a	credit	ratings	downgrade.	At	December	31,	2012,	the	aggregate	fair	value	of	OTC	derivative	contracts	that	contain credit-risk-related	contingent	features	that	are	in	a	net	liability	position	totaled	$31,096	million,	for	which	the	Company	has	posted	collateral	of	$28,008	million,	in	the normal	course	of	business.	The	long-term	credit	ratings	on	the	Company	by	Moody's	and	Standard	&	Poor's	Ratings	Services	("S&P")	are	currently	at	different	levels (commonly	referred	to	as	"split	ratings").	At	December	31,	2012,	the	future	potential	collateral	amounts,	termination	payments	or	other	contractual	amounts	that	could be	called	by	counterparties	in	the	event	of	a	downgrade	of	the	Company's	long-term	credit	rating	under	various	scenarios	are:	$288	million	(Baa1	Moody's/BBB+	S&P) and	$1,978	million	(Baa2	Moody's/BBB	S&P).	Of	these	amounts,	$1,926	million	at	December	31,	2012	related	to	bilateral	arrangements	between	the	Company	and other	parties	where	upon	the	downgrade	of	one	party,	the	downgraded	party	must	deliver	collateral	to	the	other	party.	These	bilateral	downgrade	arrangements	are	a	risk management	tool	used	extensively	by	the	Company	as	credit	exposures	are	reduced	if	counterparties	are	downgraded.

# Credit	Derivatives	and	Other	Credit	Contracts.

The	Company	enters	into	credit	derivatives,	principally	through	credit	default	swaps,	under	which	it	receives	or	provides	protection	against	the	risk	of	default	on	a	set	of debt	obligations	issued	by	a	specified	reference	entity	or	entities.	A	majority	of	the	Company's	counterparties	are	banks,	broker-dealers,	insurance	and	other	financial institutions,	and	monoline	insurers.

The	tables	below	summarize	the	notional	and	fair	value	of	protection	sold	and	protection	purchased	through	credit	default	swaps	at	December	31,	2012	and December	31,	2011:

|  | Protection	Sold |  | Protection	Purchased |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Notional | Fair\tValue\n(Asset)/Liability | Notional | Fair\tValue\n(Asset)/Liability |
|  |  | (dollars\tin\tmillions) |  |  |
| Single\tname\tcredit\tdefault\tswaps | $1,069,474 | $2,889 | $1,029,543 | $(2,456) |
| Index\tand\tbasket\tcredit\tdefault\tswaps | 551,630 | 5,664 | 454,800 | (5,124) |
| Tranched\tindex\tand\tbasket\tcredit\tdefault\tswaps | 272,088 | 2,330 | 423,058 | (7,076) |
| Total | $1,893,192 | $10,883 | $1,907,401 | $(14,656) |

|  | Protection	Sold |  | Protection	Purchased |  |
| :--- | :--- | :--- | :--- | :--- |
|  |  | Fair\tValue | Fair\tValue | Fair\tValue |
|  | Notional | (Asset)/Liability | Notional | (Asset)/Liability |
|  |  | (dollars\tin\tmillions) |  |  |
| Single\tname\tcredit\tdefault\tswaps | $1,325,045 | $47,045 | $1,315,333 | $(45,345) |
| Index\tand\tbasket\tcredit\tdefault\tswaps | 787,228 | 29,475 | 601,452 | (24,373) |
| Tranched\tindex\tand\tbasket\tcredit\tdefault\tswaps | 320,131 | 17,109 | 545,476 | (31,976) |
| Total | $2,432,404 | $93,629 | $2,462,261 | $(101,694) |

The	table	below	summarizes	the	credit	ratings	and	maturities	of	protection	sold	through	credit	default	swaps	and	other	credit	contracts	at	December	31,	2012:

|  | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Fair	Value |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Years\tto\tMaturity |  |  | (Asset)/ |
| Credit\tRatings\tof\tthe\tReference\tObligation | Less\tthan\t1 | 1-3 | 3-5 | Over\t5 | Total | Liability(1)(2) |
|  |  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |
| Single\tname\tcredit\tdefault\tswaps: |  |  |  |  |  |  |
| AAA | $2,368 | $6,592 | $19,848 | $5,767 | $34,575 | $(204) |
| AA | 10,984 | 16,804 | 34,280 | 7,193 | 69,261 | (325) |
| A | 66,635 | 72,796 | 67,285 | 10,760 | 217,476 | (2,740) |
| BBB | 124,662 | 145,462 | 142,714 | 34,396 | 447,234 | (492) |
| Non-investment\tgrade | 91,743 | 98,515 | 92,143 | 18,527 | 300,928 | 6,650 |
| Total | 296,392 | 340,169 | 356,270 | 76,643 | 1,069,474 | 2,889 |
| Index\tand\tbasket\tcredit\tdefault\tswaps(3): |  |  |  |  |  |  |
| AAA | 18,652 | 36,005 | 45,789 | 3,240 | 103,686 | (1,377) |
| AA | 1,255 | 9,479 | 12,026 | 8,343 | 31,103 | (55) |
| A | 2,684 | 5,423 | 5,440 | 125 | 13,672 | (155) |
| BBB | 27,720 | 105,870 | 143,562 | 29,101 | 306,253 | (862) |
| Non-investment\tgrade | 97,389 | 86,703 | 153,858 | 31,054 | 369,004 | 10,443 |
| Total | 147,700 | 243,480 | 360,675 | 71,863 | 823,718 | 7,994 |
| Total\tcredit\tdefault\tswaps\tsold | $444,092 | $583,649 | $716,945 | $148,506 | $1,893,192 | $10,883 |
| Other\tcredit\tcontracts(4)(5) | $796 | $125 | $155 | $1,323 | $2,399 | $(745) |
| Total\tcredit\tderivatives\tand\tother\tcredit\tcontracts | $444,888 | $583,774 | $717,100 | $149,829 | $1,895,591 | $10,138 |

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

(2) Fair	value	amounts	of	certain	credit	default	swaps	where	the	Company	sold	protection	have	an	asset	carrying	value	because	credit	spreads	of	the	underlying	reference	entity	or	entities	tightened	during	the	terms	of the	contracts.

(3) Credit	ratings	are	calculated	internally.

(4) Other	credit	contracts	include	CLNs,	CDOs	and	credit	default	swaps	that	are	considered	hybrid	instruments.

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

|  | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Maximum	Potential	Payout/Notional | Fair	Value |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Years\tto\tMaturity |  |  | (Asset)/ |
| Credit\tRatings\tof\tthe\tReference\tObligation | Less\tthan\t1 | 1-3 | 3-5 | Over\t5 | Total | Liability(1)(2) |
|  |  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |
| Single\tname\tcredit\tdefault\tswaps: |  |  |  |  |  |  |
| AAA | $1,290 | $5,681 | $24,087 | $12,942 | $44,000\t\t$ | 1,536 |
| AA | 12,416 | 22,043 | 23,341 | 10,986 | 68,786 | 1,597 |
| A | 67,344 | 124,445 | 85,543 | 47,640 | 324,972 | 8,683 |
| BBB | 131,588 | 218,262 | 115,320 | 64,347 | 529,517 | 4,789 |
| Non-investment\tgrade | 94,105 | 133,867 | 82,163 | 47,635 | 357,770 | 30,440 |
| Total | 306,743 | 504,298 | 330,454 | 183,550 | 1,325,045 | 47,045 |
| Index\tand\tbasket\tcredit\tdefault\tswaps(3): |  |  |  |  |  |  |
| AAA | 48,115 | 49,997 | 33,584 | 19,110 | 150,806 | (907) |
| AA | 6,584 | 15,349 | 9,498 | 15,745 | 47,176 | 1,053 |
| A | 5,202 | 18,996 | 17,396 | 12,286 | 53,880 | 2,470 |
| BBB | 8,525 | 99,004 | 235,888 | 32,057 | 375,474 | 8,365 |
| Non-investment\tgrade | 112,451 | 141,042 | 160,537 | 65,993 | 480,023 | 35,603 |
| Total | 180,877 | 324,388 | 456,903 | 145,191 | 1,107,359 | 46,584 |
| Total\tcredit\tdefault\tswaps\tsold | $487,620 | $828,686 | $787,357 | $328,741 | $2,432,404\t\t$ | 93,629 |
| Other\tcredit\tcontracts(4)(5) | $65 | $2,356 | $717 | $2,469 | $5,607\t\t$ | (1,146) |
| Total\tcredit\tderivatives\tand\tother\tcredit\tcontracts | $487,685 | $831,042 | $788,074 | $331,210 | $2,438,011\t\t$ | 92,483 |

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

Index	and	Basket	Credit	Default	Swaps.				Index	and	basket	credit	default	swaps	are	credit	default	swaps	that	reference	multiple	names	through	underlying	baskets	or portfolios	of	single	name	credit	default	swaps.	Generally,	in	the	event	of	a	default	on	one	of	the	underlying	names,	the	Company	will	have	to	pay	a	pro	rata	portion	of	the total	notional	amount	of	the	credit	default	index	or	basket	contract.	In	order	to	provide	an

indication	of	the	current	payment	status	or	performance	risk	of	these	credit	default	swaps,	the	weighted	average	external	credit	ratings	of	the	underlying	reference entities	comprising	the	basket	or	index	were	calculated	and	disclosed.

The	Company	also	enters	into	index	and	basket	credit	default	swaps	where	the	credit	protection	provided	is	based	upon	the	application	of	tranching	techniques.	In tranched	transactions,	the	credit	risk	of	an	index	or	basket	is	separated	into	various	portions	of	the	capital	structure,	with	different	levels	of	subordination.	The	most junior	tranches	cover	initial	defaults,	and	once	losses	exceed	the	notional	of	the	tranche,	they	are	passed	on	to	the	next	most	senior	tranche	in	the	capital	structure.

When	external	credit	ratings	are	not	available,	credit	ratings	were	determined	based	upon	an	internal	methodology.

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

Purchased	Credit	Protection	with	Identical	Underlying	Reference	Obligations.				For	single	name	credit	default	swaps	and	non-tranched	index	and	basket	credit	default swaps,	the	Company	has	purchased	protection	with	a	notional	amount	of	approximately	$1.5	trillion	and	$1.9	trillion	at	December	31,	2012	and	December	31,	2011, respectively,	compared	with	a	notional	amount	of	approximately	$1.6	trillion	and	$2.1	trillion	at	December	31,	2012	and	December	31,	2011,	respectively,	of	credit protection	sold	with	identical	underlying	reference	obligations.	In	order	to	identify	purchased	protection	with	the	same	underlying	reference	obligations,	the	notional amount	for	individual	reference	obligations	within	non-tranched	indices	and	baskets	was	determined	on	a	pro	rata	basis	and	matched	off	against	single	name	and	non- tranched	index	and	basket	credit	default	swaps	where	credit	protection	was	sold	with	identical	underlying	reference	obligations.

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

# 13.				Commitments,	Guarantees	and	Contingencies.

# Commitments.

The	Company's	commitments	associated	with	outstanding	letters	of	credit	and	other	financial	guarantees	obtained	to	satisfy	collateral	requirements,	investment activities,	corporate	lending	and	financing	arrangements,	mortgage	lending	and	margin	lending	at	December	31,	2012	are	summarized	below	by	period	of	expiration. Since	commitments	associated	with	these	instruments	may	expire	unused,	the	amounts	shown	do	not	necessarily	reflect	the	actual	future	cash	funding	requirements:

|  |  | Years	to	Maturity | Years	to	Maturity |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  | Total\tat |
|  | Less |  |  |  | December\t31, |
|  | than\t1 | 1-3 | 3-5 | Over\t5 | 2012 |
|  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |
| Letters\tof\tcredit\tand\tother\tfinancial\tguarantees\tobtained\tto\tsatisfy\tcollateral\trequirements | $1,186 | $1 | $6 | $— | $1,193 |
| Investment\tactivities | 794 | 94 | 49 | 292 | 1,229 |
| Primary\tlending\tcommitments—investment\tgrade(1) | 7,734 | \t 11,583 | \t 34,743 | 171 | 54,231 |
| Primary\tlending\tcommitments—non-investment\tgrade(1) | 924 | 3,881 | \t 10,148 | \t 2,161 | 17,114 |
| Secondary\tlending\tcommitments(2) | 116 | 103 | 53 | 50 | 322 |
| Commitments\tfor\tsecured\tlending\ttransactions | 235 | — | — | — | 235 |
| Forward\tstarting\treverse\trepurchase\tagreements\tand\tsecurities\tborrowing\tagreements(3)(4) | \t 45,653 | — | — | — | 45,653 |
| Commercial\tand\tresidential\tmortgage-related\tcommitments | 778 | 16 | 183 | 207 | 1,184 |
| Other\tcommitments | 1,534 | 157 | 93 | 95 | 1,879 |
| Total | $58,954 | $15,835 | $45,275 | $2,976 | $123,040 |

(2) These	commitments	are	recorded	at	fair	value	within	Financial	instruments	owned	and	Financial	instruments	sold,	not	yet	purchased	in	the	consolidated	statements	of	financial	condition	(see	Note	4).

The	above	table	does	not	include	the	Company's	commitment	to	purchase	an	additional	35%	of	the	Wealth	Management	JV	for	$4.725	billion	upon	obtaining	all regulatory	approvals	(see	Note	3).

Letters	of	Credit	and	Other	Financial	Guarantees	Obtained	to	Satisfy	Collateral	Requirements.				The	Company	has	outstanding	letters	of	credit	and	other	financial guarantees	issued	by	third-party	banks	to	certain	of	the	Company's	counterparties.	The	Company	is	contingently	liable	for	these	letters	of	credit	and	other	financial guarantees,	which	are	primarily	used	to	provide	collateral	for	securities	and	commodities	borrowed	and	to	satisfy	various	margin	requirements	in	lieu	of	depositing	cash or	securities	with	these	counterparties.

Investment	Activities.				The	Company	enters	into	commitments	associated	with	its	real	estate,	private	equity	and	principal	investment	activities,	which	include alternative	products.

Lending	Commitments.				Primary	lending	commitments	are	those	which	are	originated	by	the	Company	whereas	secondary	lending	commitments	are	purchased	from third	parties	in	the	market.	The	commitments	include	lending	commitments	that	are	made	to	investment	grade	and	non-investment	grade	companies	in	connection	with corporate	lending	and	other	business	activities.

Commitments	for	Secured	Lending	Transactions.				Secured	lending	commitments	are	extended	by	the	Company	to	companies	and	are	secured	by	real	estate	or	other physical	assets	of	the	borrower.	Loans	made	under	these	arrangements	typically	are	at	variable	rates	and	generally	provide	for	over-collateralization	based	upon	the creditworthiness	of	the	borrower.

Forward	Starting	Reverse	Repurchase	Agreements.				The	Company	has	entered	into	forward	starting	securities	purchased	under	agreements	to	resell	(agreements	that have	a	trade	date	at	or	prior	to	December	31,	2012	and	settle	subsequent	to	period-end)	that	are	primarily	secured	by	collateral	from	U.S.	government	agency	securities and	other	sovereign	government	obligations.

Commercial	and	Residential	Mortgage-Related	Commitments.				The	Company	enters	into	forward	purchase	contracts	involving	residential	mortgage	loans,	residential mortgage	lending	commitments	to	individuals	and	residential	home	equity	lines	of	credit.	In	addition,	the	Company	enters	into	commitments	to	originate	commercial	and residential	mortgage	loans.

Underwriting	Commitments.				The	Company	provides	underwriting	commitments	in	connection	with	its	capital	raising	sources	to	a	diverse	group	of	corporate	and	other institutional	clients.

Other	Commitments.				Other	commitments	generally	include	commercial	lending	commitments	to	small	businesses	and	commitments	related	to	securities-based	lending activities	in	connection	with	the	Company's	Global	Wealth	Management	Group	business	segment.

The	Company	sponsors	several	non-consolidated	investment	funds	for	third-party	investors	where	the	Company	typically	acts	as	general	partner	of,	and	investment advisor	to,	these	funds	and	typically	commits	to	invest	a	minority	of	the	capital	of	such	funds,	with	subscribing	third-party	investors	contributing	the	majority.	The Company's	employees,	including	its	senior	officers,	as	well	as	the	Company's	directors,	may	participate	on	the	same	terms	and	conditions	as	other	investors	in	certain	of these	funds	that	the	Company	forms	primarily	for	client	investment,	except	that	the	Company	may	waive	or	lower	applicable	fees	and	charges	for	its	employees.	The Company	has	contractual	capital	commitments,	guarantees,	lending	facilities	and	counterparty	arrangements	with	respect	to	these	investment	funds.

Premises	and	Equipment.				The	Company	has	non-cancelable	operating	leases	covering	premises	and	equipment	(excluding	commodities	operating	leases,	shown separately).	At	December	31,	2012,	future	minimum	rental	commitments	under	such	leases	(net	of	subleases,	principally	on	office	rentals)	were	as	follows (dollars	in	millions):

The	total	of	minimum	rentals	to	be	received	in	the	future	under	non-cancelable	operating	subleases	at	December	31,	2012	was	$114	million.

Occupancy	lease	agreements,	in	addition	to	base	rentals,	generally	provide	for	rent	and	operating	expense	escalations	resulting	from	increased	assessments	for	real	estate taxes	and	other	charges.	Total	rent	expense,	net	of	sublease	rental	income,	was	$765	million,	$781	million,	and	$788	million	in	2012,	2011	and	2010,	respectively.

In	connection	with	its	commodities	business,	the	Company	enters	into	operating	leases	for	both	crude	oil	and	refined	products	storage	and	for	vessel	charters.	At December	31,	2012,	future	minimum	rental	commitments	under	such	leases	were	as	follows	(dollars	in	millions):

# Guarantees.

|  |  |  | Years	to	Maturity |  |  | Amount |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  |  | (Asset)/ | Collateral/ |
| Type\tof\tGuarantee | Less\tthan\t1 | 1-3 | 3-5 | Over\t5 | Total | Liability | Recourse |
|  |  |  |  | (dollars\tin\tmillions) |  |  |  |
| Credit\tderivative\tcontracts(1) | $ 444,092 | $ 583,649 | $ 716,945 | $ 148,506 | $1,893,192\t\t$ | 10,883 | \t$— |
| Other\tcredit\tcontracts | 796 | 125 | 155 | 1,323 | 2,399 | (745) | — |
| Non-credit\tderivative\tcontracts(1) | 943,448 | 798,348 | 281,877 | 411,271 | 2,434,944 | 76,880 | — |
| Standby\tletters\tof\tcredit\tand\tother\tfinancial\tguarantees\tissued(2)(3) | 796 | 1,253 | 1,269 | 5,742 | 9,060 | (189) | 7,086 |
| Market\tvalue\tguarantees | — | 93 | 108 | 531 | 732 | 10 | 101 |
| Liquidity\tfacilities | 2,403 | 148 | — | — | 2,551 | (4) | 3,764 |
| Whole\tloan\tsales\trepresentations\tand\twarranties | — | — | — | 24,950 | 24,950 | 79 | — |
| Securitization\trepresentations\tand\twarranties | — | — | — | 70,904 | 70,904 | 35 | — |
| General\tpartner\tguarantees | 69 | 43 | — | 200 | 312 | 76 | — |

(1) Carrying	amounts	of	derivative	contracts	are	shown	on	a	gross	basis	prior	to	cash	collateral	or	counterparty	netting.	For	further	information	on	derivative	contracts,	see	Note	12.

(2) Approximately	$2.0	billion	of	standby	letters	of	credit	are	also	reflected	in	the	"Commitments"	table	above	in	primary	and	secondary	lending	commitments.	Standby	letters	of	credit	are	recorded	at	fair	value	within Financial	instruments	owned	or	Financial	instruments	sold,	not	yet	purchased	in	the	consolidated	statements	of	financial	condition.

(3) Amounts	include	guarantees	issued	by	consolidated	real	estate	funds	sponsored	by	the	Company	of	approximately	$113	million.	These	guarantees	relate	to	obligations	of	the	fund's	investee	entities,	including guarantees	related	to	capital	expenditures	and	principal	and	interest	debt	payments.	Accrued	losses	under	these	guarantees	of	approximately	$4	million	are	reflected	as	a	reduction	of	the	carrying	value	of	the related	fund	investments,	which	are	reflected	in	Financial	instruments	owned—Investments	on	the	consolidated	statement	of	financial	condition.

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

Derivative	Contracts.				Certain	derivative	contracts	meet	the	accounting	definition	of	a	guarantee,	including	certain	written	options,	contingent	forward	contracts	and credit	default	swaps	(see	Note	12	regarding	credit	derivatives	in	which	the	Company	has	sold	credit	protection	to	the	counterparty).	Although	the	Company's	derivative arrangements	do	not	specifically	identify	whether	the	derivative	counterparty	retains	the	underlying	asset,	liability	or	equity	security,	the	Company	has	disclosed information	regarding	all	derivative	contracts	that	could	meet	the	accounting	definition	of	a	guarantee.	The	maximum	potential	payout	for	certain	derivative	contracts, such	as	written	interest	rate	caps	and	written	foreign	currency	options,	cannot	be	estimated,	as	increases	in	interest	or	foreign	exchange	rates	in	the	future	could	possibly be	unlimited.	Therefore,	in	order	to	provide	information	regarding	the	maximum	potential	amount	of	future	payments	that	the	Company	could	be

required	to	make	under	certain	derivative	contracts,	the	notional	amount	of	the	contracts	has	been	disclosed.	In	certain	situations,	collateral	may	be	held	by	the	Company for	those	contracts	that	meet	the	definition	of	a	guarantee.	Generally,	the	Company	sets	collateral	requirements	by	counterparty	so	that	the	collateral	covers	various transactions	and	products	and	is	not	allocated	specifically	to	individual	contracts.	Also,	the	Company	may	recover	amounts	related	to	the	underlying	asset	delivered	to the	Company	under	the	derivative	contract.

The	Company	records	all	derivative	contracts	at	fair	value.	Aggregate	market	risk	limits	have	been	established,	and	market	risk	measures	are	routinely	monitored	against these	limits.	The	Company	also	manages	its	exposure	to	these	derivative	contracts	through	a	variety	of	risk	mitigation	strategies,	including,	but	not	limited	to,	entering into	offsetting	economic	hedge	positions.	The	Company	believes	that	the	notional	amounts	of	the	derivative	contracts	generally	overstate	its	exposure.

Standby	Letters	of	Credit	and	Other	Financial	Guarantees	Issued.				In	connection	with	its	corporate	lending	business	and	other	corporate	activities,	the	Company provides	standby	letters	of	credit	and	other	financial	guarantees	to	counterparties.	Such	arrangements	represent	obligations	to	make	payments	to	third	parties	if	the counterparty	fails	to	fulfill	its	obligation	under	a	borrowing	arrangement	or	other	contractual	obligation.	A	majority	of	the	Company's	standby	letters	of	credit	is provided	on	behalf	of	counterparties	that	are	investment	grade.

Market	Value	Guarantees.				Market	value	guarantees	are	issued	to	guarantee	timely	payment	of	a	specified	return	to	investors	in	certain	affordable	housing	tax	credit funds.	These	guarantees	are	designed	to	return	an	investor's	contribution	to	a	fund	and	the	investor's	share	of	tax	losses	and	tax	credits	expected	to	be	generated	by	a fund.	From	time	to	time,	the	Company	may	also	guarantee	return	of	principal	invested,	potentially	including	a	specified	rate	of	return,	to	fund	investors.

Liquidity	Facilities.				The	Company	has	entered	into	liquidity	facilities	with	SPEs	and	other	counterparties,	whereby	the	Company	is	required	to	make	certain	payments if	losses	or	defaults	occur.	Primarily,	the	Company	acts	as	liquidity	provider	to	municipal	bond	securitization	SPEs	and	for	standalone	municipal	bonds	in	which	the holders	of	beneficial	interests	issued	by	these	SPEs	or	the	holders	of	the	individual	bonds,	respectively,	have	the	right	to	tender	their	interests	for	purchase	by	the Company	on	specified	dates	at	a	specified	price.	The	Company	often	may	have	recourse	to	the	underlying	assets	held	by	the	SPEs	in	the	event	payments	are	required under	such	liquidity	facilities	as	well	as	make-whole	or	recourse	provisions	with	the	trust	sponsors.	Primarily	all	of	the	underlying	assets	in	the	SPEs	are	investment grade.	Liquidity	facilities	provided	to	municipal	tender	option	bond	trusts	are	classified	as	derivatives.

Whole	Loan	Sale	Guarantees.				The	Company	has	provided,	or	otherwise	agreed	to	be	responsible	for,	representations	and	warranties	regarding	certain	whole	loan sales.	Under	certain	circumstances,	the	Company	may	be	required	to	repurchase	such	assets	or	make	other	payments	related	to	such	assets	if	such	representations	and warranties	were	breached.	The	Company's	maximum	potential	payout	related	to	such	representations	and	warranties	is	equal	to	the	current	unpaid	principal	balance ("UPB")	of	such	loans.	The	Company	has	information	on	the	current	UPB	only	when	it	services	the	loans.	The	amount	included	in	the	above	table	for	the	maximum potential	payout	of	$25.0	billion	includes	the	current	UPB	where	known	($6.1	billion)	and	the	UPB	at	the	time	of	sale	($18.9	billion)	when	the	current	UPB	is	not known.	The	UPB	at	the	time	of	the	sale	of	all	loans	covered	by	these	representations	and	warranties	was	approximately	$44.9	billion.	The	related	liability	primarily relates	to	sales	of	loans	to	the	federal	mortgage	agencies.

Securitization	Representations	and	Warranties.				As	part	of	the	Company's	Institutional	Securities	business	segment's	securitization	and	related	activities,	the	Company has	provided,	or	otherwise	agreed	to	be	responsible	for,	representations	and	warranties	regarding	certain	assets	transferred	in	securitization	transactions	sponsored	by

the	Company.	The	extent	and	nature	of	the	representations	and	warranties,	if	any,	vary	among	different	securitizations.	Under	certain	circumstances,	the	Company	may be	required	to	repurchase	such	assets	or	make	other	payments	related	to	such	assets	if	such	representations	and	warranties	were	breached.	The	maximum	potential amount	of	future	payments	the	Company	could	be	required	to	make	would	be	equal	to	the	current	outstanding	balances	of,	or	losses	associated	with,	the	assets	subject	to breaches	of	such	representations	and	warranties.	The	amount	included	in	the	above	table	for	the	maximum	potential	payout	includes	the	current	UPB	where	known	and the	UPB	at	the	time	of	sale	when	the	current	UPB	is	not	known.

Between	2004	and	2012,	the	Company	sponsored	approximately	$148	billion	of	RMBS	primarily	containing	U.S.	residential	loans	that	are	outstanding	at	December	31, 2012.	Of	that	amount,	the	Company	made	representations	and	warranties	concerning	approximately	$47	billion	of	loans	and	agreed	to	be	responsible	for	the representations	and	warranties	made	by	third-party	sellers,	many	of	which	are	now	insolvent,	on	approximately	$21	billion	of	loans.	At	December	31,	2012,	the Company	had	recorded	$35	million	in	the	consolidated	financial	statements	for	payments	owed	as	a	result	of	breach	of	representations	and	warranties	made	in connection	with	these	residential	mortgages.	At	December	31,	2012,	the	current	UPB	for	all	the	residential	assets	subject	to	such	representations	and	warranties	was approximately	$20.1	billion	and	the	cumulative	losses	associated	with	U.S.	RMBS	were	approximately	$12.3	billion.	The	Company	did	not	make,	or	otherwise	agree	to be	responsible	for	the	representations	and	warranties	made	by	third	party	sellers	on	approximately	$80	billion	of	residential	loans	that	it	securitized	during	that	time period.	The	Company	has	not	sponsored	any	U.S.	RMBS	transactions	since	2007.

The	Company	also	made	representations	and	warranties	in	connection	with	its	role	as	an	originator	of	certain	commercial	mortgage	loans	that	it	securitized	in	CMBS. Between	2004	and	2012,	the	Company	originated	approximately	$47	billion	and	$21	billion	of	U.S.	and	non-U.S.	commercial	mortgage	loans,	respectively,	that	were placed	into	CMBS	sponsored	by	the	Company	that	are	outstanding	at	December	31,	2012.	At	December	31,	2012,	the	Company	had	not	accrued	any	amounts	in	the consolidated	financial	statements	for	payments	owed	as	a	result	of	breach	of	representations	and	warranties	made	in	connection	with	these	commercial	mortgages.	At December	31,	2012,	the	current	UPB	for	all	U.S.	commercial	mortgage	loans	subject	to	such	representations	and	warranties	is	$33.2	billion.	For	the	non-U.S. commercial	mortgage	loans,	the	amount	included	in	the	above	table	for	the	maximum	potential	payout	includes	the	current	UPB	when	known	of	$4.9	billion	and	the UPB	at	the	time	of	sale	when	the	current	UPB	is	not	known	of	$0.4	billion.

General	Partner	Guarantees.				As	a	general	partner	in	certain	private	equity	and	real	estate	partnerships,	the	Company	receives	certain	distributions	from	the partnerships	related	to	achieving	certain	return	hurdles	according	to	the	provisions	of	the	partnership	agreements.	The	Company	may,	from	time	to	time,	be	required	to return	all	or	a	portion	of	such	distributions	to	the	limited	partners	in	the	event	the	limited	partners	do	not	achieve	a	certain	return	as	specified	in	various	partnership agreements,	subject	to	certain	limitations.

# Other	Guarantees	and	Indemnities.

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

•	 Trust	Preferred	Securities.				The	Company	has	established	Morgan	Stanley	Capital	Trusts	for	the	limited	purpose	of	issuing	trust	preferred	securities	to	third parties	and	lending	the	proceeds	to	the	Company	in	exchange	for	junior	subordinated	debentures.	The	Company	has	directly	guaranteed	the	repayment	of	the trust	preferred	securities	to	the	holders	thereof	to	the	extent	that	the	Company	has	made	payments	to	a	Morgan	Stanley	Capital	Trust	on	the	junior	subordinated debentures.	In	the	event	that	the	Company	does

not	make	payments	to	a	Morgan	Stanley	Capital	Trust,	holders	of	such	series	of	trust	preferred	securities	would	not	be	able	to	rely	upon	the	guarantee	for payment	of	those	amounts.	The	Company	has	not	recorded	any	liability	in	the	consolidated	financial	statements	for	these	guarantees	and	believes	that	the occurrence	of	any	events	(i.e.,	non-performance	on	the	part	of	the	paying	agent)	that	would	trigger	payments	under	these	contracts	is	remote.	See	Note	15	for details	on	the	Company's	junior	subordinated	debentures.

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

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

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

# Contingencies.

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

damages.	In	some	cases,	the	entities	that	would	otherwise	be	the	primary	defendants	in	such	cases	are	bankrupt	or	are	in	financial	distress.	These	actions	have	included, but	are	not	limited	to,	residential	mortgage	and	credit	crisis	related	matters.	Over	the	last	several	years,	the	level	of	litigation	and	investigatory	activity	focused	on residential	mortgage	and	credit	crisis	related	matters	has	increased	materially	in	the	financial	services	industry.	As	a	result,	the	Company	expects	that	it	may	become	the subject	of	increased	claims	for	damages	and	other	relief	regarding	residential	mortgages	and	related	securities	in	the	future	and,	while	the	Company	has	identified	below any	individual	proceedings	where	the	Company	believes	a	material	loss	to	be	reasonably	possible	and	reasonably	estimable,	there	can	be	no	assurance	that	material losses	will	not	be	incurred	from	claims	that	have	not	yet	been	notified	to	the	Company	or	are	not	yet	determined	to	be	probable	or	possible	and	reasonably	estimable losses.

The	Company	contests	liability	and/or	the	amount	of	damages	as	appropriate	in	each	pending	matter.	Where	available	information	indicates	that	it	is	probable	a	liability had	been	incurred	at	the	date	of	the	consolidated	financial	statements	and	the	Company	can	reasonably	estimate	the	amount	of	that	loss,	the	Company	accrues	the estimated	loss	by	a	charge	to	income.	In	many	proceedings,	however,	it	is	inherently	difficult	to	determine	whether	any	loss	is	probable	or	even	possible	or	to	estimate the	amount	of	any	loss.	In	addition,	even	where	loss	is	possible	or	an	exposure	to	loss	exists	in	excess	of	the	liability	already	accrued	with	respect	to	a	previously recognized	loss	contingency,	it	is	not	always	possible	to	reasonably	estimate	the	size	of	the	possible	loss	or	range	of	loss.

For	certain	legal	proceedings,	the	Company	cannot	reasonably	estimate	such	losses,	particularly	for	proceedings	that	are	in	their	early	stages	of	development	or	where plaintiffs	seek	substantial	or	indeterminate	damages.	Numerous	issues	may	need	to	be	resolved,	including	through	potentially	lengthy	discovery	and	determination	of important	factual	matters,	determination	of	issues	related	to	class	certification	and	the	calculation	of	damages,	and	by	addressing	novel	or	unsettled	legal	questions relevant	to	the	proceedings	in	question,	before	a	loss	or	additional	loss	or	range	of	loss	or	additional	loss	can	be	reasonably	estimated	for	any	proceeding.

For	certain	other	legal	proceedings,	the	Company	can	estimate	reasonably	possible	losses,	additional	losses,	ranges	of	loss	or	ranges	of	additional	loss	in	excess	of amounts	accrued,	but	does	not	believe,	based	on	current	knowledge	and	after	consultation	with	counsel,	that	such	losses	will	have	a	material	adverse	effect	on	the Company's	consolidated	financial	statements	as	a	whole,	other	than	the	matters	referred	to	in	the	following	paragraphs.

On	August	25,	2008,	the	Company	and	two	ratings	agencies	were	named	as	defendants	in	a	purported	class	action	related	to	securities	issued	by	a	structured	investment vehicle	called	Cheyne	Finance	PLC	and	Cheyne	Finance	LLC	(together,	the	"Cheyne	SIV").	The	case	is	styled	Abu	Dhabi	Commercial	Bank,	et	al.	v.	Morgan	Stanley	& Co.	Inc.,	et	al.	and	is	pending	in	the	United	States	District	Court	for	the	Southern	District	of	New	York	("SDNY").	The	complaint	alleges,	among	other	things,	that	the ratings	assigned	to	the	securities	issued	by	the	Cheyne	SIV	were	false	and	misleading,	including	because	the	ratings	did	not	accurately	reflect	the	risks	associated	with the	subprime	residential	mortgage	backed	securities	held	by	the	Cheyne	SIV.	The	plaintiffs	currently	assert	allegations	of	aiding	and	abetting	fraud	and	negligent misrepresentation	relating	to	approximately	$852	million	of	securities	issued	by	the	Cheyne	SIV.	The	plaintiffs'	motion	for	class	certification	was	denied	in	June	2010. The	court	denied	the	Company's	motion	for	summary	judgment	on	the	aiding	and	abetting	fraud	claim	in	August	2012.	The	Company's	motion	for	summary	judgment on	the	negligent	misrepresentation	claim,

filed	November	30,	2012,	is	pending.	The	court	has	set	a	trial	date	of	May	6,	2013.	There	are	currently	14	named	plaintiffs	in	the	action	claiming	damages	of approximately	$638	million.	Plaintiffs	are	also	seeking	punitive	damages.	Based	on	currently	available	information,	the	Company	believes	that	the	defendants	could incur	a	loss	up	to	approximately	$638	million,	plus	pre-	and	post-judgment	interest,	fees	and	costs.

On	March	15,	2010,	the	Federal	Home	Loan	Bank	of	San	Francisco	filed	two	complaints	against	the	Company	and	other	defendants	in	the	Superior	Court	of	the	State	of California.	These	actions	are	styled	Federal	Home	Loan	Bank	of	San	Francisco	v.	Credit	Suisse	Securities	(USA)	LLC,	et	al.,	and	Federal	Home	Loan	Bank	of San	Francisco	v.	Deutsche	Bank	Securities	Inc.	et	al.,	respectively.	Amended	complaints	filed	on	June	10,	2010	allege	that	defendants	made	untrue	statements	and material	omissions	in	connection	with	the	sale	to	plaintiff	of	a	number	of	mortgage	pass	through	certificates	backed	by	securitization	trusts	containing	residential mortgage	loans.	The	amount	of	certificates	allegedly	sold	to	plaintiff	by	the	Company	in	these	cases	was	approximately	$704	million	and	$276	million,	respectively.	The complaints	raise	claims	under	both	the	federal	securities	laws	and	California	law	and	seek,	among	other	things,	to	rescind	the	plaintiff's	purchase	of	such	certificates.	On July	29,	2011	and	September	8,	2011,	the	court	presiding	over	both	actions	sustained	defendants'	demurrers	with	respect	to	claims	brought	under	the	Securities	Act,	and overruled	defendants'	demurrers	with	respect	to	all	other	claims.	At	January	25,	2013,	the	current	unpaid	balance	of	the	mortgage	pass	through	certificates	at	issue	in these	cases	was	approximately	$365	million,	and	the	certificates	had	not	yet	incurred	losses.	Based	on	currently	available	information,	the	Company	believes	it	could incur	a	loss	up	to	the	difference	between	the	$365	million	unpaid	balance	of	these	certificates	and	their	fair	market	value	at	the	time	of	a	judgment	against	the	Company, plus	pre-	and	post-judgment	interest,	fees	and	costs.	The	Company	may	be	entitled	to	be	indemnified	for	some	of	these	losses	and	to	an	offset	for	interest	received	by	the plaintiff	prior	to	a	judgment.

On	July	9,	2010	and	February	11,	2011,	Cambridge	Place	Investment	Management	Inc.	filed	two	separate	complaints	against	the	Company	and	other	defendants	in	the Superior	Court	of	the	Commonwealth	of	Massachusetts,	both	styled	Cambridge	Place	Investment	Management	Inc.	v.	Morgan	Stanley	&	Co.,	Inc.,	et	al.	The	complaints assert	claims	on	behalf	of	certain	clients	of	plaintiff's	affiliates	and	alleges	that	defendants	made	untrue	statements	and	material	omissions	in	the	sale	of	a	number of	mortgage	pass	through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount	of	certificates	allegedly	issued	by	the Company	or	sold	to	plaintiff's	affiliates'	clients	by	the	Company	in	the	two	matters	was	approximately	$344	million.	The	complaints	raise	claims	under	the Massachusetts	Uniform	Securities	Act	and	seek,	among	other	things,	to	rescind	the	plaintiff's	purchase	of	such	certificates.	On	October	14,	2011,	plaintiffs	filed	an amended	complaint	in	each	action.	On	November	22,	2011,	defendants	filed	a	motion	to	dismiss	the	amended	complaints.	On	March	12,	2012,	the	court	denied defendants'	motion	to	dismiss	with	respect	to	plaintiff's	standing	to	bring	suit.	Defendants	sought	interlocutory	appeal	from	that	decision	on	April	11,	2012.	On	April	26, 2012,	defendants	filed	a	second	motion	to	dismiss	for	failure	to	state	a	claim	upon	which	relief	can	be	granted,	which	the	court	denied,	in	substantial	part,	on	October	2, 2012.	Based	on	currently	available	information,	the	Company	believes	it	could	incur	a	loss	for	these	actions	of	up	to	the	difference	between	the	as	yet	undetermined unpaid	balance	of	these	certificates	and	their	fair	market	value	at	the	time	of	a	judgment	against	the	Company,	plus	pre-	and	post-judgment	interest,	fees	and	costs.	The Company	may	be	entitled	to	be	indemnified	for	some	of	these	losses	and	to	an	offset	for	interest	received	by	the	plaintiff	prior	to	a	judgment.

On	July	15,	2010,	China	Development	Industrial	Bank	("CDIB")	filed	a	complaint	against	the	Company,	which	is	styled	China	Development	Industrial	Bank	v.	Morgan Stanley	&	Co.	Incorporated	et	al.	and	is	pending	in	the	Supreme	Court	of	the	State	of	New	York,	New	York	County	("Supreme	Court	of	NY,	NY	County").	The complaint	relates	to	a	$275	million	credit	default	swap	referencing	the	super	senior	portion	of	the	STACK	2006-1	CDO.	The	complaint	asserts	claims	for	common	law fraud,	fraudulent	inducement	and	fraudulent	concealment

and	alleges	that	the	Company	misrepresented	the	risks	of	the	STACK	2006-1	CDO	to	CDIB,	and	that	the	Company	knew	that	the	assets	backing	the	CDO	were	of	poor quality	when	it	entered	into	the	credit	default	swap	with	CDIB.	The	complaint	seeks	compensatory	damages	related	to	the	approximately	$228	million	that	CDIB	alleges it	has	already	lost	under	the	credit	default	swap,	rescission	of	CDIB's	obligation	to	pay	an	additional	$12	million,	punitive	damages,	equitable	relief,	fees	and	costs.	On February	28,	2011,	the	court	presiding	over	this	action	denied	the	Company's	motion	to	dismiss	the	complaint	and	on	March	21,	2011,	the	Company	appealed	that order.	On	July	7,	2011,	the	appellate	court	affirmed	the	lower	court's	decision	denying	the	motion	to	dismiss.	Based	on	currently	available	information,	the	Company believes	it	could	incur	a	loss	of	up	to	approximately	$240	million	plus	pre-	and	post-judgment	interest,	fees	and	costs.

On	October	15,	2010,	the	Federal	Home	Loan	Bank	of	Chicago	filed	a	complaint	against	the	Company	and	other	defendants	in	the	Circuit	Court	of	the	State	of	Illinois styled	Federal	Home	Loan	Bank	of	Chicago	v.	Bank	of	America	Funding	Corporation	et	al.	The	complaint	alleges	that	defendants	made	untrue	statements	and	material omissions	in	the	sale	to	plaintiff	of	a	number	of	mortgage	pass	through	certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	total	amount of	certificates	allegedly	sold	to	plaintiff	by	the	Company	in	this	action	was	approximately	$203	million.	The	complaint	raises	claims	under	Illinois	law	and	seeks,	among other	things,	to	rescind	the	plaintiff's	purchase	of	such	certificates.	On	March	24,	2011,	the	court	granted	plaintiff	leave	to	file	an	amended	complaint.	On	May	27,	2011, defendants	filed	a	motion	to	dismiss	the	amended	complaint,	which	motion	was	denied	on	September	19,	2012.	The	Company	filed	its	answer	on	December	21,	2012.	At January	25,	2013,	the	current	unpaid	balance	of	the	mortgage	pass	through	certificates	at	issue	in	this	case	was	approximately	$105	million	and	certain	certificates	had begun	to	incur	losses.	Based	on	currently	available	information,	the	Company	believes	it	could	incur	a	loss	up	to	the	difference	between	the	$105	million	unpaid	balance of	these	certificates	(plus	any	losses	incurred)	and	their	fair	market	value	at	the	time	of	a	judgment	against	the	Company,	plus	pre-	and	post-judgment	interest,	fees	and costs.	The	Company	may	be	entitled	to	be	indemnified	for	some	of	these	losses	and	to	an	offset	for	interest	received	by	the	plaintiff	prior	to	a	judgment.

On	July	18,	2011,	the	Western	and	Southern	Life	Insurance	Company	and	certain	affiliated	companies	filed	a	complaint	against	the	Company	and	other	defendants in	the	Court	of	Common	Pleas	in	Ohio,	styled	Western	and	Southern	Life	Insurance	Company,	et	al.	v.	Morgan	Stanley	Mortgage	Capital	Inc.,	et	al.	An	amended complaint	was	filed	on	April	2,	2012	and	alleges	that	defendants	made	untrue	statements	and	material	omissions	in	the	sale	to	plaintiffs	of	certain	mortgage	pass	through certificates	backed	by	securitization	trusts	containing	residential	mortgage	loans.	The	amount	of	the	certificates	allegedly	sold	to	plaintiffs	by	the	Company	was approximately	$153	million.	The	amended	complaint	raises	claims	under	the	Ohio	Securities	Act,	federal	securities	laws,	and	common	law	and	seeks,	among	other things,	to	rescind	the	plaintiffs'	purchases	of	such	certificates.	On	May	21,	2012,	the	Company	filed	a	motion	to	dismiss	the	amended	complaint,	which	motion	was denied	on	August	3,	2012.	The	court	has	set	a	trial	date	of	November	2013.	At	January	25,	2013,	the	current	unpaid	balance	of	the	mortgage	pass	through	certificates	at issue	in	this	case	was	approximately	$123	million,	and	certain	certificates	had	begun	to	incur	losses.	Based	on	currently	available	information,	the	Company	believes	it could	incur	a	loss	up	to	the	difference	between	the	$123	million	unpaid	balance	of	these	certificates	(plus	any	losses	incurred)	and	their	fair	market	value	at	the	time	of	a judgment	against	the	Company,	plus	post-judgment	interest,	fees	and	costs.	The	Company	may	be	entitled	to	an	offset	for	interest	received	by	the	plaintiff	prior	to	a judgment.

On	September	2,	2011,	the	Federal	Housing	Finance	Agency	("FHFA"),	as	conservator	for	Fannie	Mae	and	Freddie	Mac,	filed	17	complaints	against	numerous	financial services	companies,	including	the	Company.	A	complaint	against	the	Company	and	other	defendants	was	filed	in	the	Supreme	Court	of	NY,	NY	County,	styled	Federal Housing	Finance	Agency,	as	Conservator	v.	Morgan	Stanley	et	al.	The	complaint	alleges	that	defendants	made	untrue	statements	and	material	omissions	in	connection with	the	sale	to	Fannie	Mae	and	Freddie	Mac	of	residential	mortgage	pass	through	certificates	with	an	original	unpaid	balance	of	approximately	$11	billion.

The	complaint	raises	claims	under	federal	and	state	securities	laws	and	common	law	and	seeks,	among	other	things,	rescission	and	compensatory	and	punitive damages.	On	September	26,	2011,	defendants	removed	the	action	to	the	SDNY	and	on	October	26,	2011,	the	FHFA	moved	to	remand	the	action	back	to	the	Supreme Court	of	the	State	of	New	York.	On	May	11,	2012,	plaintiff	withdrew	its	motion	to	remand.	On	July	13,	2012,	the	Company	filed	a	motion	to	dismiss	the	complaint, which	motion	was	denied	in	large	part	on	November	19,	2012.	Trial	is	currently	scheduled	to	begin	in	January	2015.	At	January	25,	2013,	the	current	unpaid	balance	of the	mortgage	pass	through	certificates	at	issue	in	these	cases	was	approximately	$2.9	billion,	and	the	certificates	had	incurred	losses	in	excess	of	$40	million.	Based	on currently	available	information,	the	Company	believes	it	could	incur	a	loss	up	to	the	difference	between	the	$2.9	billion	unpaid	balance	of	these	certificates	(plus	any losses	incurred)	and	their	fair	market	value	at	the	time	of	a	judgment	against	the	Company,	plus	pre-	and	post-judgment	interest,	fees	and	costs.	The	Company	may	be entitled	to	be	indemnified	for	some	of	these	losses	and	to	an	offset	for	interest	received	by	the	plaintiff	prior	to	a	judgment.

Morgan	Stanley.				The	Company	is	a	financial	holding	company	under	the	Bank	Holding	Company	Act	of	1956,	as	amended,	and	is	subject	to	the	regulation	and oversight	of	the	Federal	Reserve.	The	Federal	Reserve	establishes	capital	requirements	for	the	Company,	including	well-capitalized	standards,	and	evaluates	the Company's	compliance	with	such	capital	requirements.	The	Office	of	the	Comptroller	of	the	Currency	establishes	similar	capital	requirements	and	standards	for	Morgan Stanley	Bank,	N.A.	and	Morgan	Stanley	Private	Bank,	National	Association.

The	Company	calculates	its	capital	ratios	and	risk-weighted	assets	("RWAs")	in	accordance	with	the	capital	adequacy	standards	for	financial	holding	companies	adopted by	the	Federal	Reserve.	These	standards	are	based	upon	a	framework	described	in	the	"International	Convergence	of	Capital	Measurement	and	Capital	Standards,"	July 1988,	as	amended,	also	referred	to	as	Basel	I.	In	December	2007,	the	U.S.	banking	regulators	published	final	regulation	incorporating	the	Basel	II	Accord,	which requires	internationally	active	banking	organizations,	as	well	as	certain	of	their	U.S.	bank	subsidiaries,	to	implement	Basel	II	standards	over	the	next	several	years.	In July	2010,	the	Company	began	reporting	its	capital	adequacy	standards	on	a	parallel	basis	to	its	regulators	under	Basel	I	and	Basel	II	as	part	of	a	phased	implementation of	Basel	II.

The	U.S.	Basel	III	proposals	contemplate	that	the	new	capital	requirements	would	be	phased	in	over	several	years,	beginning	in	2013.	In	November	2012,	the	U.S. banking	regulators	announced	that	the	U.S.	Basel	III	proposals	would	not	become	effective	on	January	1,	2013.	The	announcement	did	not	specify	new	implementation or	phase	in	dates	for	the	U.S.	Basel	III	proposals.

At	December	31,	2012,	the	Company	was	in	compliance	with	Basel	I	capital	requirements	with	ratios	of	Tier	1	capital	to	RWAs	of	17.7%	and	total	capital	to	RWAs	of 18.5%	(6%	and	10%	being	well-capitalized	for	regulatory	purposes,	respectively).	The	total	capital	to	RWAs	ratio	reflects	an	increase	of	approximately	65	basis

points	that	is	the	result	of	a	$2	billion	subordinated	debt	issuance	by	the	Company	in	October	2012.	The	ratio	of	Tier	1	common	capital	to	RWAs	was	14.6%	(5%	being the	minimum	under	the	Federal	Reserve's	Comprehensive	Capital	Analysis	and	Review	("CCAR")	framework).	Financial	holding	companies	are	subject	to	a	Tier	1 leverage	ratio	as	defined	by	the	Federal	Reserve.	The	Company	calculated	its	Tier	1	leverage	ratio	as	Tier	1	capital	divided	by	adjusted	average	total	assets	(which reflects	adjustments	for	disallowed	goodwill,	certain	intangible	assets,	deferred	tax	assets	and	financial	and	non-financial	equity	investments).	The	adjusted	average	total assets	are	derived	using	weekly	balances	for	the	year.	At	December	31,	2012,	the	Company	was	in	compliance	with	this	leverage	restriction,	with	a	Tier	1	leverage	ratio of	7.1%	(5%	being	well-capitalized	for	regulatory	purposes).

The	following	table	summarizes	the	capital	measures	for	the	Company:

|  | December	31,	2012 |  | December	31,	2011 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Balance | Ratio | Balance | Ratio |
|  |  | (dollars\tin\tmillions) |  |  |
| Tier\t1\tcommon\tcapital(1)(2) | $44,794 | \t14.6% | $39,785 | \t12.6% |
| Tier\t1\tcapital(1) | 54,360 | \t17.7% | 51,114 | \t16.2% |
| Total\tcapital(1) | 56,626 | \t18.5% | 54,956 | \t17.5% |
| RWAs(1) | \t 306,746 | \t — | \t 314,817 | \t — |
| Adjusted\taverage\tassets(1) | \t 769,495 | \t — | \t 769,578 | \t — |
| Tier\t1\tleverage(1) | — | 7.1% | — | 6.6% |

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

At	December	31,	2012,	the	Company's	U.S.	bank	operating	subsidiaries	met	all	capital	adequacy	requirements	to	which	they	are	subject	and	exceeded	all	regulatory mandated	and	targeted	minimum	regulatory	capital	requirements	to	be	well-capitalized.	There	are	no	conditions	or	events	that	management	believes	have	changed	the Company's	U.S.	bank	operating	subsidiaries'	category.

The	table	below	sets	forth	the	capital	information	for	the	Company's	U.S.	bank	operating	subsidiaries,	which	are	U.S.	depository	institutions,	calculated	in	a	manner consistent	with	the	guidelines	described	under	Basel	I:

|  | December	31,	2012 | December	31,	2012 | December	31,	2011 | December	31,	2011 |
| :--- | :--- | :--- | :--- | :--- |
|  | Amount | Ratio | Amount | Ratio |
|  |  | (dollars\tin\tmillions) |  |  |
| Total\tcapital\t(to\tRWAs): |  |  |  |  |
| Morgan\tStanley\tBank,\tN.A. | $11,509 | \t17.2% | $10,222 | \t17.8% |
| Morgan\tStanley\tPrivate\tBank,\tNational\tAssociation | $1,673 | \t28.8% | $1,278 | \t31.9% |
| Tier\tI\tcapital\t(to\tRWAs): |  |  |  |  |
| Morgan\tStanley\tBank,\tN.A. | $9,918 | \t14.9% | $8,703 | \t15.1% |
| Morgan\tStanley\tPrivate\tBank,\tNational\tAssociation | $1,665 | \t28.7% | $1,275 | \t31.8% |
| Leverage\tratio: |  |  |  |  |
| Morgan\tStanley\tBank,\tN.A. | $9,918 | \t13.3% | $8,703 | \t13.2% |
| Morgan\tStanley\tPrivate\tBank,\tNational\tAssociation | $1,665 | \t10.6% | $1,275 | \t10.2% |

Under	regulatory	capital	requirements	adopted	by	the	U.S.	federal	banking	agencies,	U.S.	depository	institutions,	in	order	to	be	considered	well-capitalized,	must maintain	a	ratio	of	total	capital	to	RWAs	of	10%,	a	capital	ratio	of	Tier	1	capital	to	RWAs	of	6%,	and	a	ratio	of	Tier	1	capital	to	average	book	assets	(leverage	ratio)	of 5%.	Each	U.S.	depository	institution	subsidiary	of	the	Company	must	be	well-capitalized	in	order	for	the	Company	to	continue	to	qualify	as	a	financial	holding	company and	to	continue	to	engage	in	the	broadest	range	of	financial	activities	permitted	for	financial	holding	companies.	At	December	31,	2012	and	December	31,	2011,	the Company's	U.S.	depository	institutions	maintained	capital	at	levels	in	excess	of	the	universally	mandated	well-capitalized	levels.	These	subsidiary	depository institutions	maintain	capital	at	levels	sufficiently	in	excess	of	the	"well-capitalized"	requirements	to	address	any	additional	capital	needs	and	requirements	identified	by the	federal	banking	regulators.

MS&Co.	and	Other	Broker-Dealers.				MS&Co.	is	a	registered	broker-dealer	and	registered	futures	commission	merchant	and,	accordingly,	is	subject	to	the	minimum net	capital	requirements	of	the	U.S.	Securities	and	Exchange	Commission	("SEC"),	the	Financial	Industry	Regulatory	Authority,	Inc.	and	the	U.S.	Commodity	Futures Trading	Commission.	MS&Co.	has	consistently	operated	with	capital	in	excess	of	its	regulatory	capital	requirements.	MS&Co.'s	net	capital	totaled	$7,820	million	and $8,249	million	at	December	31,	2012	and	December	31,	2011,	respectively,	which	exceeded	the	amount	required	by	$6,453	million	and	$7,215	million,	respectively. MS&Co.	is	required	to	hold	tentative	net	capital	in	excess	of	$1	billion	and	net	capital	in	excess	of	$500	million	in	accordance	with	the	market	and	credit	risk	standards of	Appendix	E	of	SEC	Rule	15c3-1.	MS&Co.	is	also	required	to	notify	the	SEC	in	the	event	that	its	tentative	net	capital	is	less	than	$5	billion.	At	December	31,	2012, MS&Co.	had	tentative	net	capital	in	excess	of	the	minimum	and	the	notification	requirements.

MSSB	is	a	registered	broker-dealer	and	registered	futures	commission	merchant	and,	accordingly,	is	subject	to	the	minimum	net	capital	requirements	of	the	SEC,	the Financial	Industry	Regulatory	Authority,	Inc.	and	the	U.S.	Commodity	Futures	Trading	Commission.	MSSB	has	consistently	operated	with	capital	in	excess	of	its regulatory	capital	requirements.	MSSB	clears	certain	customer	activity	directly	and	introduces	other	business	to	MS&Co.	and	Citi.	Subsequent	to	July	6,	2012,	MSSB clears	customer	activity	that	was	previously	introduced	to	Citi.

MSIP,	a	London-based	broker-dealer	subsidiary,	is	subject	to	the	capital	requirements	of	the	Financial	Services	Authority,	and	MSMS,	a	Tokyo-based	broker-dealer subsidiary,	is	subject	to	the	capital	requirements	of	the	Financial	Services	Agency.	MSIP	and	MSMS	have	consistently	operated	in	excess	of	their	respective	regulatory capital	requirements.

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

Morgan	Stanley	Derivative	Products	Inc.	("MSDP"),	a	derivative	products	subsidiary	rated	A2	by	Moody's	and	AAA	by	S&P,	maintains	certain	operating	restrictions that	have	been	reviewed	by	Moody's	and	S&P.	MSDP	is	operated	such	that	creditors	of	the	Company	should	not	expect	to	have	any	claims	on	the	assets	of	MSDP, unless	and	until	the	obligations	to	its	own	creditors	are	satisfied	in	full.	Creditors	of	MSDP	should	not	expect	to	have	any	claims	on	the	assets	of	the	Company	or	any	of its	affiliates,	other	than	the	respective	assets	of	MSDP.

The	regulatory	capital	requirements	referred	to	above,	and	certain	covenants	contained	in	various	agreements	governing	indebtedness	of	the	Company,	may	restrict	the Company's	ability	to	withdraw	capital	from	its	subsidiaries.	At	December	31,	2012	and	2011,	approximately	$17.6	billion	and	$16.2	billion,	respectively,	of	net	assets of	consolidated	subsidiaries	may	be	restricted	as	to	the	payment	of	cash	dividends	and	advances	to	the	parent	company.

# 15.				Redeemable	Noncontrolling	Interests	and	Total	Equity.

# Redeemable	Noncontrolling	Interests.

Redeemable	noncontrolling	interests	relates	to	the	Wealth	Management	JV	(see	Note	3).	Changes	in	redeemable	noncontrolling	interests	for	2012	were	as	follows (dollars	in	millions):

# Total	Equity.

# Morgan	Stanley	Shareholders'	Equity.

Common	Stock.					Changes	in	shares	of	common	stock	outstanding	for	2012,	2011	and	2010	were	as	follows	(share	data	in	millions):

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Shares\toutstanding\tat\tbeginning\tof\tperiod | \t1,927 | \t1,512 | \t1,361 |
| Public\tofferings\tand\tother\tissuances\tof\tcommon\tstock | — | 385 | 116 |
| Net\timpact\tof\tstock\toption\texercises\tand\tother\tshare\tissuances | 60 | 41 | 46 |
| Treasury\tstock\tpurchases(1) | (13) | (11) | (11) |
| Shares\toutstanding\tat\tend\tof\tperiod | \t1,974 | \t1,927 | \t1,512 |

(1) Treasury	stock	purchases	include	repurchases	of	common	stock	for	employee	tax	withholding.

Treasury	Shares.				In	December	2006,	the	Company	announced	that	its	Board	of	Directors	had	authorized	the	repurchase	of	up	to	$6	billion	of	the	Company's outstanding	common	stock.	The	share	repurchase	program	considers,	among	other	things,	business	segment	capital	needs,	as	well	as	equity-based	compensation	and benefit	plan	requirements.	During	2012	and	2011,	the	Company	did	not	purchase	any	of	its	common	stock	as	part	of	its	share	repurchase	program.	At	December	31, 2012,	the	Company	had	approximately	$1.6	billion	remaining	under	its	current	share	repurchase	authorization.	Share	repurchases	by	the	Company	are	subject	to regulatory	approval.

MUFG	Stock	Conversion.					On	June	30,	2011,	the	Company's	outstanding	Series	B	Preferred	Stock	owned	by	MUFG	with	a	face	value	of	$7.8	billion	(carrying	value $8.1	billion)	and	a	10%	dividend	was	converted	into	385,464,097	shares	of	Company	common	stock,	including	approximately	75	million	shares	resulting	from	the adjustment	to	the	conversion	ratio	pursuant	to	the	transaction	agreement.	As	a	result	of	the	adjustment	to	the	conversion	ratio,	the	Company	incurred	a	one-time,	non- cash	negative	adjustment	of	approximately	$1.7	billion	in	its	calculation	of	basic	and	diluted	earnings	per	share	during	2011.

# CIC	Investment.

In	December	2007,	the	Company	sold	Equity	Units	that	included	contracts	to	purchase	Company	common	stock	to	a	wholly	owned	subsidiary	of	CIC	for	approximately $5,579	million.	Each	Equity	Unit	had	a	stated	amount	of	$1,000	per	unit	consisting	of:	(i)	an	undivided	beneficial	ownership	interest	in	a	trust	preferred	security	of Morgan	Stanley	Capital	Trust	A	("Series	A	Trust"),	Morgan	Stanley	Capital	Trust	B	("Series	B	Trust")	or	Morgan	Stanley	Capital	Trust	C	("Series	C	Trust")	(each	a "Morgan	Stanley	Capital	Trust"	and,	collectively,	the	"Trusts")	with	an	initial	liquidation	amount	of	$1,000	and	(ii)	a	stock	purchase	contract	relating	to	the	common stock,	par	value	of	$0.01	per	share,	of	the	Company.	A	substantial	portion	of	the	investment	proceeds	from	the	offering	of	the	Equity	Units	was	treated	as	Tier	1	capital for	regulatory	capital	purposes.

In	the	first	quarter	of	fiscal	2008,	the	Company	issued	junior	subordinated	debt	securities	for	a	total	of	$5,579,173,000	in	exchange	for	$5,579,143,000	in	aggregate proceeds	from	the	sale	of	the	trust	preferred	securities	by	the	Trusts	and	$30,000	in	trust	common	securities	issued	equally	by	the	Trusts.	The	Company	elected	to	fair value	the	junior	subordinated	debentures	pursuant	to	the	fair	value	option	accounting	guidance.	The	trust	common	securities,	which	were	held	by	the	Company, represented	an	interest	in	the	Trusts	and	were	recorded	as	an	equity	method	investment	in	the	Company's	consolidated	statement	of	financial	condition.	The	Trusts	were VIEs	in	accordance	with	current	accounting	guidance,	and	the	Company	did	not	consolidate	its	interests	in	the	Trusts	as	it	was	not	the	primary	beneficiary	of	any	of	the Trusts.

As	a	result	of	the	transaction	with	MUFG	described	under	"Preferred	Stock—Series	B	and	Series	C	Preferred	Stock"	below,	upon	settlement	of	the	Equity	Units,	CIC would	be	entitled	to	receive	116,062,911	shares	of	the	Company's	common	stock,	subject	to	anti-dilution	adjustments.	In	June	2009,	to	maintain	its	pro	rata	share	in	the Company's	share	capital,	CIC	participated	in	the	Company's	registered	public	offering	of	85,890,277	shares	by	purchasing	45,290,576	shares	of	the	Company's common	stock.

Redemption	of	CIC	Equity	Units	and	Issuance	of	Common	Stock.					On	July	1,	2010,	Moody's	announced	that	it	was	lowering	the	equity	credit	assigned	to	such	Equity Units.	The	terms	of	the	Equity	Units	permitted	the	Company	to	redeem	the	junior	subordinated	debentures	underlying	the	Equity	Units	upon	a	Rating	Agency	Event.	In response	to	this	Rating	Agency	Event,	the	Company	redeemed	the	junior	subordinated	debentures	in	August	2010	and	the	redemption	proceeds	were	subsequently	used by	the	CIC	Entity	to	settle	its	obligation	under	the	purchase	contracts.	The	settlement	of	the	purchase	contracts	and	delivery	of	116,062,911	shares	of	Company	common stock	to	the	CIC	Entity	occurred	in	August	2010.

Earnings	per	Share.					Prior	to	October	13,	2008,	the	impact	of	the	Equity	Units	was	reflected	in	the	Company's	earnings	per	diluted	common	share	using	the	treasury stock	method.	Under	the	treasury	stock	method,	the	number	of	shares	of	common	stock	included	in	the	calculation	of	earnings	per	diluted	common	share	was	calculated as	the	excess,	if	any,	of	the	number	of	shares	expected	to	be	issued	upon	settlement	of	the	stock	purchase	contract	based	on	the	average	market	price	for	the	last	20	days of	the	reporting	period,	less	the	number	of	shares	that	could	be	purchased	by	the	Company	with	the	proceeds	to	be	received	upon	settlement	of	the	contract	at	the average	closing	price	for	the	reporting	period.

Dilution	of	net	income	per	share	occurred	(i)	in	reporting	periods	when	the	average	closing	price	of	common	shares	was	over	$57.6840	per	share	or	(ii)	in	reporting periods	when	the	average	closing	price	of	common	shares	for	a	reporting	period	was	between	$48.0700	and	$57.6840	and	was	greater	than	the	average	market	price	for the	last	20	days	ending	three	days	prior	to	the	end	of	such	reporting	period.

Effective	October	13,	2008	(as	a	result	of	the	adjustment	to	the	Equity	Units	as	described	above)	and	prior	to	the	quarter	ended	June	30,	2010,	the	Company	included	the Equity	Units	in	the	diluted	EPS	calculation	using	the	more	dilutive	of	the	two-class	method	or	the	treasury	stock	method.	The	Equity	Units	participated	in	substantially all	of	the	earnings	of	the	Company	(i.e.,	any	earnings	above	$0.27	per	quarter)	in	basic	EPS	(assuming	a	full	distribution	of	earnings	of	the	Company),	and	therefore,	the Equity	Units	generally	would	not	have	been	included	as	incremental	shares	in	the	diluted	calculation	under	the	treasury	stock	method.	During	2010,	no	dividends	above $0.27	per	share	were	declared	during	any	quarterly	reporting	period.

Beginning	in	the	quarter	ended	June	30,	2010,	and	prior	to	the	redemption	of	the	junior	subordinated	debentures	underlying	the	Equity	Units	and	issuance	of	common stock,	the	Company	included	the	Equity	Units	in	the	diluted	EPS	calculation	using	the	more	dilutive	of	the	two-class	method	or	the	if-converted	method.	See	Note	2	for further	discussion	of	the	two-class	method	and	Note	16	for	the	dilutive	impact	for	2012,	2011	and	2010.

The	Equity	Units	did	not	share	in	any	losses	of	the	Company	for	purposes	of	calculating	EPS.	Therefore,	if	the	Company	incurred	a	loss	in	any	reporting	period,	losses were	not	allocated	to	the	Equity	Units	in	the	EPS	calculation	under	the	two-class	method.

Rabbi	Trusts.				The	Company	has	established	Rabbi	Trusts	to	provide	common	stock	voting	rights	to	certain	employees	who	hold	outstanding	RSUs.	The	assets	of	the Rabbi	Trusts	are	consolidated	with	those	of	the	Company,	and	the	value	of	the	Company's	stock	held	in	the	Rabbi	Trusts	is	classified	in	Morgan	Stanley	shareholders' equity	and	generally	accounted	for	in	a	manner	similar	to	treasury	stock.

Preferred	Stock.					The	Company's	preferred	stock	outstanding	consisted	of	the	following:

|  |  | Shares |  | Carrying	Value |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Dividend | Outstanding | Liquidation | At | At |
| Series | Rate\n(Annual) | at\tDecember\n31,\t2012 | Preference\nper\tShare | December\t31,\n2012 | December\t31,\n2011 |
|  |  |  |  | (dollars\tin\tmillions) |  |
| A | N/A | 44,000 | $25,000 | $1,100 | $1,100 |
| C | 10.0% | 519,882 | 1,000 | 408 | 408 |
| Total |  |  |  | $1,508 | $1,508 |

N/A—Not	Available.

The	Company's	preferred	stock	qualifies	as	Tier	1	capital	in	accordance	with	regulatory	capital	requirements	(see	Note	14).

Series	A	Preferred	Stock.				In	July	2006,	the	Company	issued	44,000,000	Depositary	Shares,	in	an	aggregate	of	$1,100	million.	Each	Depositary	Share	represents 1/1,000th	of	a	Share	of	Floating	Rate	Non-Cumulative	Preferred	Stock,	Series	A,	$0.01	par	value	("Series	A	Preferred	Stock").	The	Series	A	Preferred	Stock	is redeemable	at	the	Company's	option,	in	whole	or	in	part,	on	or	after	July	15,	2011	at	a	redemption	price	of	$25,000	per	share	(equivalent	to	$25	per	Depositary	Share). The	Series	A	Preferred	Stock	also	has	a	preference	over	the	Company's	common	stock	upon	liquidation.	In	December	2012,	the	Company	declared	a	quarterly	dividend of	$255.56	per	share	of	Series	A	Preferred	Stock	that	was	paid	on	January	15,	2013	to	preferred	shareholders	of	record	on	December	31,	2012.

Series	B	and	Series	C	Preferred	Stock.				On	October	13,	2008,	the	Company	issued	to	MUFG	7,839,209	shares	of	Series	B	Preferred	Stock	and	1,160,791	shares	of Series	C	Preferred	Stock	for	an	aggregate	purchase	price	of	$9	billion.

The	Series	B	Preferred	Stock	paid	a	non-cumulative	dividend,	as	and	if	declared	by	the	Board	of	Directors	of	the	Company,	in	cash,	at	the	rate	of	10%	per	annum	of	the liquidation	preference	of	$1,000	per	share,	except	under	certain	circumstances	(as	set	forth	in	the	securities	purchase	agreement	for	the	sale	of	the	Series	B	Preferred Stock	and	the	Series	C	Preferred	Stock	to	MUFG).

The	Series	C	Preferred	Stock	is	redeemable	by	the	Company,	in	whole	or	in	part,	on	or	after	October	15,	2011	at	a	redemption	price	of	$1,100	per	share.	Dividends	on the	Series	C	Preferred	Stock	are	payable,	on	a	non-cumulative	basis,	as	and	if	declared	by	the	Board	of	Directors	of	the	Company,	in	cash,	at	the	rate	of	10%	per	annum of	the	liquidation	preference	of	$1,000	per	share.	In	December	2012,	the	Company	declared	a	quarterly	dividend	of	$25.00	per	share	of	Series	C	Preferred	Stock	that was	paid	on	January	15,	2013	to	preferred	shareholders	of	record	on	December	31,	2012.

The	$9	billion	in	proceeds	was	allocated	to	the	Series	B	Preferred	Stock	and	the	Series	C	Preferred	Stock	based	on	their	relative	fair	values	at	issuance	(approximately $8.1	billion	was	allocated	to	the	Series	B	Preferred	Stock	and	approximately	$0.9	billion	to	the	Series	C	Preferred	Stock).	Upon	redemption	by	the	Company,	the	excess of	the	redemption	value	of	$1,100	per	share	over	the	carrying	value	of	the	Series	C	Preferred	Stock	($0.9	billion	allocated	at	inception	or	approximately	$784	per	share) will	be	charged	to	Retained	earnings	(i.e.,	treated	in	a	manner	similar	to	the	treatment	of	dividends	paid).	The	amount	charged	to	Retained	earnings	will	be	deducted	from the	numerator	in	calculating	basic	and	diluted	earnings	per	share	during	the	related	reporting	period	in	which	the	Series	C	Preferred	Stock	is	redeemed	by	the	Company (see	Note	16	for	additional	details).

During	2009,	640,909	shares	of	the	Series	C	Preferred	Stock	were	redeemed	with	an	aggregate	price	equal	to	the	aggregate	price	exchanged	by	MUFG	for approximately	$0.7	billion	of	common	stock.

During	2011,	the	Company	and	MUFG	completed	the	conversion	of	MUFG	Series	B	Preferred	Stock	(see	"MUFG	Stock	Conversion"	herein).

Accumulated	Other	Comprehensive	Loss.				At	December	31,	2012	and	2011,	the	components	of	the	Company's	Accumulated	other	comprehensive	loss	are	as	follows:

|  | At<br>December	31,<br>2012 | At<br>December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Foreign\tcurrency\ttranslation\tadjustments,\tnet\tof\ttax | $(123) | $5 |
| Amortization\texpense\trelated\tto\tterminated\tcash\tflow\thedges,\tnet\tof\ttax | (5) | (11) |
| Pension,\tpostretirement\tand\tother\trelated\tadjustments,\tnet\tof\ttax | (539) | (274) |
| Net\tunrealized\tgain\ton\tsecurities\tavailable\tfor\tsale,\tnet\tof\ttax | 151 | 123 |
| Accumulated\tother\tcomprehensive\tloss,\tnet\tof\ttax | $(516) | $(157) |

Cumulative	Foreign	Currency	Translation	Adjustments.				Cumulative	foreign	currency	translation	adjustments	include	gains	or	losses	resulting	from	translating	foreign currency	financial	statements	from	their	respective	functional	currencies	to	U.S.	dollars,	net	of	hedge	gains	or	losses	and	related	tax	effects.	The	Company	uses	foreign currency	contracts	to	manage	the	currency	exposure	relating	to	its	net	investments	in	non-U.S.	dollar	functional	currency	subsidiaries.	Increases	or	decreases	in	the	value of	the	Company's	net	foreign	investments	generally	are	tax	deferred	for	U.S.	purposes,	but	the	related	hedge	gains	and	losses	are	taxable	currently.	The	Company attempts	to	protect	its	net	book	value	from	the	effects	of	fluctuations	in	currency	exchange	rates	on	its	net	investments	in	non-U.S.	dollar	subsidiaries	by	selling	the appropriate	non-U.S.	dollar	currency	in	the	forward	market.	Under	some	circumstances,	however,	the	Company	may	elect	not	to	hedge	its	net	investments	in	certain foreign	operations	due	to	market	conditions,	including	the	availability	of	various	currency	contracts	at	acceptable	costs.	Information	at	December	31,	2012	and December	31,	2011	relating	to	the	effects	on	cumulative	foreign	currency	translation	adjustments	resulting	from	translation	of	foreign	currency	financial	statements	and from	gains	and	losses	from	hedges	of	the	Company's	net	investments	in	non-U.S.	dollar	functional	currency	subsidiaries	is	summarized	below:

(1) A	gain	of	$77	million,	net	of	tax,	related	to	net	investment	hedges	was	reclassified	from	other	comprehensive	income	into	income	during	2012.	The	amount	primarily	related	to	the	reversal	of	amounts	recorded	in cumulative	other	comprehensive	income	due	to	the	incorrect	application	of	hedge	accounting	on	certain	derivative	contracts	(see	Note	12	for	further	information).

In	2012,	the	Company	reclassified	approximately	$4.3	billion	from	nonredeemable	noncontrolling	interests	to	redeemable	noncontrolling	interests	for	Citi's	remaining 35%	interest	in	the	Wealth	Management	JV	(see	Note	3).	Changes	in	nonredeemable	noncontrolling	interests	in	2012	also	included	distributions	related	to	MSMS

of	$151	million.	Changes	in	nonredeemable	noncontrolling	interests	in	2011,	primarily	resulted	from	distributions	related	to	the	Wealth	Management	JV	of	$346	million and	distributions	related	to	MSMS	of	$416	million.	Changes	in	nonredeemable	noncontrolling	interests	in	2010,	primarily	resulted	from	distributions	related	to	the Wealth	Management	JV	of	$306	million.

Basic	EPS	is	computed	by	dividing	earnings	(loss)	applicable	to	Morgan	Stanley	common	shareholders	by	the	weighted	average	number	of	common	shares	outstanding for	the	period.	Common	shares	outstanding	include	common	stock	and	vested	RSUs	where	recipients	have	satisfied	either	the	explicit	vesting	terms	or	retirement eligibility	requirements.	Diluted	EPS	reflects	the	assumed	conversion	of	all	dilutive	securities.	The	Company	calculates	EPS	using	the	two-class	method	and	determines whether	instruments	granted	in	share-based	payment	transactions	are	participating	securities	(see	Note	2).	The	following	table	presents	the	calculation	of	basic	and diluted	EPS	(in	millions,	except	for	per	share	data):

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Basic\tEPS: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $754 | $4,689 | $5,455 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (38) | (44) | 247 |
| Net\tincome | 716 | 4,645 | \t 5,702 |
| Net\tincome\tapplicable\tto\tredeemable\tnoncontrolling\tinterests | 124 | — | — |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 524 | 535 | 999 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | 68 | 4,110 | \t 4,703 |
| Less:\tPreferred\tdividends\t(Series\tA\tPreferred\tStock) | (44) | (44) | (45) |
| Less:\tPreferred\tdividends\t(Series\tB\tPreferred\tStock) | — | (196) | (784) |
| Less:\tMUFG\tstock\tconversion | — | (1,726) | — |
| Less:\tPreferred\tdividends\t(Series\tC\tPreferred\tStock) | (52) | (52) | (52) |
| Less:\tAllocation\tof\t(earnings)\tloss\tto\tparticipating\tRSUs(2): |  |  |  |
| From\tcontinuing\toperations | (2) | (26) | (108) |
| From\tdiscontinued\toperations | — | 1 | (7) |
| Less:\tAllocation\tof\tundistributed\t(earnings)\tto\tEquity\tUnits(1): |  |  |  |
| From\tcontinuing\toperations | — | — | (102) |
| From\tdiscontinued\toperations | — | — | (11) |
| Earnings\t(loss)\tapplicable\tto\tMorgan\tStanley\tcommon\tshareholders | $(30) | $2,067 | $3,594 |
| Weighted\taverage\tcommon\tshares\toutstanding | \t 1,886 | 1,655 | \t 1,362 |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $0.02 | $1.28 | $2.48 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (0.04) | (0.03) | 0.16 |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare | $(0.02) | $1.25 | $2.64 |

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Diluted\tEPS: |  |  |  |
| Earnings\t(loss)\tapplicable\tto\tMorgan\tStanley\tcommon\tshareholders | $(30) | $2,067 | $3,594 |
| Impact\ton\tincome\tof\tassumed\tconversions: |  |  |  |
| Assumed\tconversion\tof\tEquity\tUnits(1): |  |  |  |
| From\tcontinuing\toperations | — | — | 76 |
| From\tdiscontinued\toperations | — | — | 40 |
| Earnings\t(loss)\tapplicable\tto\tcommon\tshareholders\tplus\tassumed\tconversions | $(30) | $2,067 | $3,710 |
| Weighted\taverage\tcommon\tshares\toutstanding | \t 1,886 | \t 1,655 | \t 1,362 |
| Effect\tof\tdilutive\tsecurities: |  |  |  |
| Stock\toptions\tand\tRSUs(2) | 33 | 20 | 5 |
| Equity\tUnits(1) | — | — | 44 |
| Weighted\taverage\tcommon\tshares\toutstanding\tand\tcommon\tstock\tequivalents | \t 1,919 | \t 1,675 | \t 1,411 |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $0.02 | $1.26 | $2.45 |
| Net\tincome\t(loss)\tfrom\tdiscontinued\toperations | (0.04) | (0.03) | 0.18 |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare | $(0.02) | $1.23 | $2.63 |

(1) See	Note	15	for	further	information	on	Equity	Units.

(2) RSUs	that	are	considered	participating	securities	participate	in	all	of	the	earnings	of	the	Company	in	the	computation	of	basic	EPS,	and,	therefore,	such	RSUs	are	not	included	as	incremental	shares	in	the	diluted calculation.

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

| Number	of	Antidilutive	Securities	Outstanding	at	End	of	Period: | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  | (shares\tin\tmillions) | (shares\tin\tmillions) |  |
| RSUs\tand\tperformance-based\tstock\tunits | 8 | 21 | 38 |
| Stock\toptions | 42 | 57 | 67 |
| Series\tB\tPreferred\tStock | \t— | \t— | \t311 |
| Total | 50 | 78 | \t416 |

# 17.					Interest	Income	and	Interest	Expense.

Details	of	Interest	income	and	Interest	expense	were	as	follows:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Interest\tincome(1): |  |  |  |
| Financial\tinstruments\towned(2) | $2,736 | $3,593 | $3,931 |
| Securities\tavailable\tfor\tsale | 343 | 348 | 215 |
| Loans | 643 | 356 | 315 |
| Interest\tbearing\tdeposits\twith\tbanks | 124 | 186 | 155 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell\tand\tSecurities\tborrowed | 364 | 886 | 769 |
| Other | \t 1,515 | \t 1,889 | \t 1,920 |
| Total\tinterest\tincome | $5,725 | $7,258 | $7,305 |
| Interest\texpense(1): |  |  |  |
| Deposits | $181 | $236 | $310 |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings | 38 | 41 | 28 |
| Long-term\tdebt | \t 4,622 | \t 4,912 | \t 4,592 |
| Securities\tsold\tunder\tagreements\tto\trepurchase\tand\tSecurities\tloaned | \t 1,805 | \t 1,925 | \t 1,591 |
| Other | (722) | (212) | (114) |
| Total\tinterest\texpense | $5,924 | $6,902 | $6,407 |
| Net\tinterest | $(199) | $356 | $898 |

(1) Interest	income	and	expense	are	recorded	within	the	consolidated	statements	of	income	depending	on	the	nature	of	the	instrument	and	related	market	conventions.	When	interest	is	included	as	a	component	of	the instrument's	fair	value,	interest	is	included	within	Principal	transactions—Trading	revenues	or	Principal	transactions—Investments	revenues.	Otherwise,	it	is	included	within	Interest	income	or	Interest	expense.

(2) Interest	expense	on	Financial	instruments	sold,	not	yet	purchased	is	reported	as	a	reduction	to	Interest	income	on	Financial	instruments	owned.

# 18.				Sale	of	Bankruptcy	Claims	Related	to	a	Derivative	Counterparty.

During	2011,	the	Company	entered	into	participation	agreements	with	certain	investors	whereby	the	Company	sold	participating	interests	representing	certain	claims against	a	derivative	counterparty	that	filed	for	bankruptcy	protection.	The	Company	recorded	a	gain	on	sale	of	$58	million	in	2011.	Because	these	sales	were	made	after the	court	decision,	the	Company	made	no	representations	and	warranties	relating	to	disallowance	of	claims.	All	gains	related	to	these	claims	are	reflected	in	the consolidated	statements	of	income	in	Principal	transactions—Trading	revenues	within	the	Institutional	Securities	business	segment.

Details	of	Other	revenues	were	as	follows:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Gain\ton\tChina\tInternational\tCapital\tCorporation\tLimited\t(see\tNote\t24) | $— | $ — | $668 |
| Gain\ton\tsale\tof\tInvesco\tshares\t(see\tNote\t1) | \t — | \t — | 102 |
| FrontPoint\timpairment\tcharges\t(see\tNote\t24) | \t — | (30) | (126) |
| Gain\t(loss)\ton\tretirement\tof\tlong-term\tdebt\t(see\tNote\t11) | 29 | 155 | (27) |
|  | \t 152 | (783) | (62) |
| Other | \t 374 | 833 | 681 |
| Total | $555 | $175 | $1,236 |

# 20.				Long-Term	Incentive	Compensation	Plans.

The	Company	maintains	various	long-term	incentive	compensation	plans	for	the	benefit	of	its	employees.	The	two	principal	forms	of	long-term	incentive	compensation are	granted	under	several	stock-based	compensation	and	deferred	cash-based	compensation	plans.

Stock-Based	Compensation	Plans.	The	accounting	guidance	for	stock-based	compensation	requires	measurement	of	compensation	cost	for	equity-based	awards	at	fair value	and	recognition	of	compensation	cost	over	the	service	period,	net	of	estimated	forfeitures	(see	Note	2).

The	components	of	the	Company's	stock-based	compensation	expense	(net	of	cancellations)	are	presented	below:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Deferred\trestricted\tstock\tunits | $864 | $1,057 | $1,075 |
| Stock\toptions | 4 | 24 | 1 |
| Performance-based\tstock\tunits | 29 | 32 | 39 |
| Total(1) | $897 | $1,113 | $1,115 |

(1) Amounts	for	2012,	2011	and	2010	include	$31	million,	$186	million	and	$222	million,	respectively,	related	to	equity	awards	that	were	granted	in	2013,	2012	and	2011,	respectively,	to	employees	who	satisfied retirement-eligible	requirements	under	the	award	terms	that	do	not	contain	a	future	service	period.	The	decrease	in	2012	is	due	to	the	introduction	of	a	new	vesting	requirement	in	certain	2012	performance	year award	terms	for	employees	who	satisfied	the	existing	retirement	eligible	provisions	to	provide	a	one-year	advance	notice	of	their	intention	to	retire	from	the	Company.	As	such,	these	awards	will	begin	to	be expensed	in	2013	after	the	grant	date	over	the	appropriate	service	period	(see	Note	2).

The	table	above	excludes	stock-based	compensation	expense	recorded	in	discontinued	operations,	which	was	approximately	$3	million	in	2012	and	$3	million	for	2010. See	Notes	1	and	25	for	additional	information	on	discontinued	operations.

The	tax	benefit	related	to	stock-based	compensation	expense	was	$306	million,	$383	million	and	$382	million	for	2012,	2011	and	2010,	respectively.	The	tax	benefit	for stock-based	compensation	expense	included	in	discontinued	operations	was	$1	million	in	both	2012	and	2010.

At	December	31,	2012,	the	Company	had	$709	million	of	unrecognized	compensation	cost	related	to	unvested	stock-based	awards.	Absent	estimated	or	actual	forfeitures or	cancellations,	this	amount	of	unrecognized	compensation	cost	will	be	recognized	as	$446	million	in	2013,	$175	million	in	2014	and	$88	million	thereafter.	These amounts	do	not	include	2012	performance	year	awards	granted	in	January	2013	which	will	begin	to	be	amortized	in	2013.

In	connection	with	awards	under	its	stock-based	compensation	plans,	the	Company	is	authorized	to	issue	shares	of	its	common	stock	held	in	treasury	or	newly	issued shares.	At	December	31,	2012,	approximately	118	million	shares	were	available	for	future	grant	under	these	plans.

The	Company	generally	uses	treasury	shares,	if	available,	to	deliver	shares	to	employees	and	has	an	ongoing	repurchase	authorization	that	includes	repurchases	in connection	with	awards	granted	under	its	stock-based	compensation	plans.	Share	repurchases	by	the	Company	are	subject	to	regulatory	approval.	See	Note	15	for additional	information	on	the	Company's	share	repurchase	program.

Deferred	Restricted	Stock	Units.	The	Company	has	granted	deferred	stock	awards	pursuant	to	several	stock-based	compensation	plans.	The	plans	provide	for	the deferral	of	a	portion	of	certain	employees'	long-term	incentive	compensation	with	awards	made	in	the	form	of	restricted	common	stock	or	in	the	right	to	receive unrestricted	shares	of	common	stock	in	the	future.	Awards	under	these	plans	are	generally	subject	to	vesting	over	time	contingent	upon	continued	employment	and	to restrictions	on	sale,	transfer	or	assignment	until	the	end	of	a	specified	period,	generally	two	to	three	years	from	date	of	grant.	All	or	a	portion	of	an	award	may	be canceled	if	employment	is	terminated	before	the	end	of	the	relevant	restriction	period.	All	or	a	portion	of	a	vested	award	also	may	be	canceled	in	certain	limited situations,	including	termination	for	cause	during	the	relevant	restriction	period.	Recipients	of	deferred	stock	awards	may	have	voting	rights,	at	the	Company's discretion,	and	generally	receive	dividend	equivalents.

The	following	table	sets	forth	activity	relating	to	the	Company's	vested	and	unvested	RSUs	(share	data	in	millions):

|  | Number	of<br>Shares | Grant	Date	Fair<br>Value |
| :--- | :--- | :--- |
| RSUs\tat\tbeginning\tof\tperiod | 111 | $28.82 |
| Granted | 54 | 18.09 |
| Conversions\tto\tcommon\tstock | (38) | 28.69 |
| Canceled | (5) | 24.77 |
| RSUs\tat\tend\tof\tperiod(1) | 122 | $24.29 |

(1) At	December	31,	2012,	approximately	112	million	RSUs	with	a	weighted	average	grant	date	fair	value	of	$24.44	were	vested	or	expected	to	vest.

The	weighted	average	price	for	RSUs	granted	during	2011	and	2010	was	$28.94	and	$28.95,	respectively.	At	December	31,	2012,	the	weighted	average	remaining	term until	delivery	for	the	Company's	outstanding	RSUs	was	approximately	1.5	years.

At	December	31,	2012,	the	intrinsic	value	of	outstanding	RSUs	was	$2,304	million.

The	total	fair	market	value	of	RSUs	converted	to	common	stock	during	2012,	2011	and	2010	was	$660	million,	$935	million	and	$971	million,	respectively.

The	following	table	sets	forth	activity	relating	to	the	Company's	unvested	RSUs	(share	data	in	millions):

|  | Number	of<br>Shares | Grant	Date	Fair<br>Value |
| :--- | :--- | :--- |
| Unvested\tRSUs\tat\tbeginning\tof\tperiod | 78 | $28.32 |
| Granted | 54 | 18.09 |
| Vested | (44) | 24.64 |
| Canceled | (5) | 24.74 |
| Unvested\tRSUs\tat\tend\tof\tperiod(1) | 83 | $23.83 |

(1) Unvested	RSUs	represent	awards	where	recipients	have	yet	to	satisfy	either	the	explicit	vesting	terms	or	retirement-eligible	requirements.	At	December	31,	2012,	approximately	73	million	unvested	RSUs	with	a weighted	average	grant	date	fair	value	of	$24.00	were	expected	to	vest.

Stock	Options.	The	Company	has	granted	stock	option	awards	pursuant	to	several	stock-based	compensation	plans.	The	plans	provide	for	the	deferral	of	a	portion	of certain	key	employees'	discretionary	compensation	with	awards	made	in	the	form	of	stock	options	generally	having	an	exercise	price	not	less	than	the	fair	value	of	the Company's	common	stock	on	the	date	of	grant.	Such	stock	option	awards	generally	become	exercisable	over	a	three-year	period	and	expire	seven	to	10	years	from	the date	of	grant,	subject	to	accelerated	expiration	upon	termination	of	employment.	Stock	option	awards	have	vesting,	restriction	and	cancellation	provisions	that	are generally	similar	to	those	in	deferred	restricted	stock	units.	The	weighted	average	fair	value	of	the	Company's	options	granted	during	2011	was	$8.24,	utilizing	the following	weighted	average	assumptions:

| Grant	Year | Risk-<br>Free	Interest<br>Rate | Expected	Life | Expected	Stock<br>Price	Volatility | Expected	Dividend<br>Yield |
| :--- | :--- | :--- | :--- | :--- |
| 2011 | 2.1% | 5.0\tyears | 32.7% | 1.5% |

The	Company's	expected	option	life	has	been	determined	based	upon	historical	experience.	The	expected	stock	price	volatility	assumption	was	determined	using	the implied	volatility	of	exchange-traded	options,	in	accordance	with	accounting	guidance	for	share-based	payments.	The	risk-free	interest	rate	was	determined	based	on	the yields	available	on	U.S.	Treasury	zero-coupon	issues.

The	following	table	sets	forth	activity	relating	to	the	Company's	stock	options	(option	data	in	millions):

|  | Number	of<br>Options | Average<br>Exercise<br>Price |
| :--- | :--- | :--- |
| Options\toutstanding\tat\tbeginning\tof\tperiod | 57 | $48.15 |
| Canceled | (15) | 47.49 |
| Options\toutstanding\tat\tend\tof\tperiod(1) | 42 | 48.37 |
| Options\texercisable\tat\tend\tof\tperiod | 39 | 49.93 |

(1) At	December	31,	2012,	approximately	42	million	options	with	a	weighted	average	exercise	price	of	$48.58	were	vested.

There	were	no	stock	options	exercised	during	2012,	2011	or	2010.	At	December	31,	2012,	the	intrinsic	value	of	in-the-money	exercisable	stock	options	was	not	material.

The	following	table	presents	information	relating	to	the	Company's	stock	options	outstanding	at	December	31,	2012	(number	of	options	data	in	millions):

| At	December	31,	2012 |  | Options	Outstanding |  |  | Options	Exercisable |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Range\tof\tExercise\tPrices | Number\nOutstanding | Weighted\tAverage\nExercise\tPrice | Average\nRemaining\tLife\n(Years) | Number\nExercisable | Weighted\tAverage\nExercise\tPrice | Average\nRemaining\tLife\n(Years) |
| $28.00\t–\t$39.99 | 12 | $34.50 | 1.4 | 9 | $36.15 | 0.1 |
| $40.00\t–\t$49.99 | 18 | 46.57 | 1.1 | 18 | 46.57 | 1.1 |
| $50.00\t–\t$59.99 | 1 | 52.05 | 3.0 | 1 | 52.05 | 3.0 |
| $60.00\t–\t$76.99 | 11 | 66.75 | 3.9 | 11 | 66.75 | 3.9 |
| Total | 42 |  |  | 39 |  |  |

Performance-Based	Stock	Units.				The	Company	has	granted	PSUs	to	certain	senior	executives.	These	PSUs	will	vest	and	convert	to	shares	of	common	stock	at	the	end of	the	performance	period	only	if	the	Company	satisfies	predetermined	performance	and	market	goals	over	the	three-year	performance	period	that	began	on	January	1	of the	grant	year	and	ends	three	years	later	on	December	31.	Under	the	terms	of	the	grant,	the	number	of	PSUs	that	will	actually	vest	and	convert	to	shares	will	be	based	on the	extent	to	which	the	Company	achieves	the	specified	performance	goals	during	the	performance	period.	Performance-based	stock	unit	awards	have	vesting,	restriction and	cancellation	provisions	that	are	generally	similar	to	those	in	deferred	stock	awards.

One-half	of	the	award	will	be	earned	based	on	the	Company's	return	on	average	common	shareholders'	equity,	excluding	the	impact	of	the	fluctuation	in	the	Company's credit	spreads	and	other	credit	factors	for	certain	of	the	Company's	long-term	and	short-term	borrowings,	primarily	structured	notes,	that	are	accounted	for	at	fair	value ("Average	ROE").	For	PSUs	granted	in	2012,	the	Average	ROE	also	excludes	gains	or	losses	associated	with	the	sale	of	specified	business,	specified	goodwill impairments,	any	gain	or	loss	associated	with	specified	legal	settlements	related	to	business	activities	conducted	prior	to	January	1,	2011	and	specified	cumulative	catch- up	adjustments	resulting	from	changes	in	accounting	principles	that	are	not	applied	on	a	full	retrospective	basis.	The	number	of	PSUs	ultimately	earned	for	this	portion of	the	awards	will	be	applied	by	a	multiplier	as	follows:

| Minimum |  | Maximum |  |
| :--- | :--- | :--- | :--- |
| Average\tROE | Multiplier | Average\tROE | Multiplier |
| Less\tthan\t6% | 0.0 | \t12%\tor\tmore | 1.5 |
| Less\tthan\t7.5% | 0.0 | \t18%\tor\tmore | 2.0 |
| Less\tthan\t7.5% | 0.0 | \t18%\tor\tmore | 2.0 |

One-half	of	the	award	will	be	earned	based	on	the	Company's	total	shareholder	return	("TSR"),	relative	to	the	S&P	Financial	Sectors	Index	(for	the	2012	award)	and	to members	of	a	comparison	peer	group	(for	the	2011	and	2010	awards).	The	number	of	PSUs	ultimately	earned	for	this	portion	of	the	awards	will	be	applied	by	a multiplier	as	follows:

| Metrics | TSR | Multiplier<br>TSR | Multiplier |
| :--- | :--- | :--- | :--- |
| \t\t Comparison\tof\tTSR | \t\t Below | Down\tto\t0.0\t\t \t\t Above | Up\tto\t1.5 |
| \t\t Ranking\twithin\tthe\tcomparison\tgroup | \t\t Rank\t9\tor\t10 | 0.0 |  |
|  |  | \t\t Rank\t1 | 2.0 |
| \t\t Ranking\twithin\tthe\tcomparison\tgroup | \t\t Rank\t9\tor\t10 | 0.0 |  |
|  |  | \t\t Rank\t1 | 2.0 |

The	fair	value	per	share	of	this	portion	of	the	award	for	2012,	2011	and	2010	was	$20.42,	$43.14	and	$41.52,	respectively,	estimated	on	the	date	of	grant	using	a	Monte Carlo	simulation	and	the	following	assumptions.

| Grant	Year | Risk-<br>Free	Interest<br>Rate | Expected	Stock<br>Price	Volatility | Expected	Dividend<br>Yield |
| :--- | :--- | :--- | :--- |
| 2012 | 0.4% | 56.0% | 1.1% |
| 2011 | 1.0% | 89.0% | 1.5% |
| 2010 | 1.5% | 89.9% | 0.7% |

Because	the	payout	depends	on	the	Company's	total	shareholder	return	relative	to	a	comparison	group,	the	valuation	also	depended	on	the	performance	of	the	stocks	in the	comparison	group	as	well	as	estimates	of	the	correlations	among	their	performance.	The	expected	stock	price	volatility	assumption	was	determined	using	historical volatility	because	correlation	coefficients	can	only	be	developed	through	historical	volatility.	The	expected	dividend	yield	was	based	on	historical	dividend	payments.

The	risk-free	interest	rate	was	determined	based	on	the	yields	available	on	U.S.	Treasury	zero-coupon	issues.

Deferred	Cash-based	Compensation	Plans.				The	Company	maintains	various	deferred	cash-based	compensation	plans	for	the	benefit	of	certain	current	and	former employees	that	provide	a	return	to	the	plan	participants	employees	based	upon	the	performance	of	various	referenced	investments.	The	Company	often	invests	directly, as	a	principal,	in	investments	or	other	financial	instruments	to	economically	hedge	its	obligations	under	its	deferred	cash-based	compensation	plans.	Changes	in	value	of such	investments	made	by	the	Company	are	recorded	in	Principal	transactions—Trading	and	Principal	transactions—Investments.

Compensation	expense	associated	with	the	deferred	cash-based	compensation	plans	is	calculated	based	on	the	notional	value	of	the	award	granted,	adjusted	for	upward and	downward	changes	in	fair	value	of	the	referenced	investment.	For	unvested	awards,	the	expense	is	recognized	over	the	service	period	using	the	graded	vesting attribution	method.	Generally,	changes	in	compensation	expense	resulting	from	changes	in	fair	value	of	the	referenced	investment	will	be	offset	by	changes	in	fair	value of	investments	made	by	the	Company.	However,	there	may	be	a	timing	difference	between	the	immediate	revenue	recognition	of	gains	and	losses	on	the	Company's investments	and	the	deferred	recognition	of	the	related	compensation	expense	over	the	vesting	period.	For	vested	awards	with	only	notional	earnings	on	the	referenced investments,	the	expense	is	fully	recognized	in	the	current	period.

The	components	of	the	Company's	deferred	compensation	expense	(net	of	cancellations)	are	presented	below:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Deferred\tcash-based\tawards(1) | $1,815 | $1,809 | $771 |
| Return\ton\treferenced\tinvestments | 435 | 132 | 465 |
| Total | $2,250 | $1,941 | $1,236 |

(1) Amounts	for	2012,	2011	and	2010	include	$93	million,	$113	million	and	$80	million,	respectively,	related	to	deferred	awards	that	were	granted	in	2013,	2012	and	2011,	respectively,	to	employees	who	satisfied retirement-eligible	requirements	under	the	award	terms	that	do	not	contain	a	service	period.

The	table	above	excludes	deferred	cash-based	compensation	expense	recorded	in	discontinued	operations,	which	was	approximately	$7	million	in	2012,	$7	million	in 2011	and	$9	million	for	2010.	See	Notes	1	and	25	for	additional	information	on	discontinued	operations.

At	December	31,	2012,	the	Company	had	approximately	$782	million	of	unrecognized	compensation	cost	related	to	unvested	deferred	cash-based	awards	(excluding unrecognized	expense	for	returns	on	referenced	investments).	Absent	actual	cancellations	and	any	future	return	on	referenced	investments,	this	amount	of	unrecognized compensation	cost	will	be	recognized	as	$540	million	in	2013,	$104	million	in	2014	and	$138	million	thereafter.	These	amounts	do	not	include	2012	performance	year awards	granted	in	January	2013	which	will	begin	to	be	amortized	in	2013.

# 21.				Employee	Benefit	Plans.

The	Company	sponsors	various	pension	plans	for	the	majority	of	its	U.S.	and	non-U.S.	employees.	The	Company	provides	certain	other	postretirement	benefits, primarily	health	care	and	life	insurance,	to	eligible	U.S.	employees.	The	Company	also	provides	certain	postemployment	benefits	to	certain	former	employees	or	inactive employees	prior	to	retirement.

Pension	and	Other	Postretirement	Plans.				Substantially	all	of	the	U.S.	employees	of	the	Company	and	its	U.S.	affiliates	who	were	hired	before	July	1,	2007	are covered	by	the	U.S.	Qualified	Plan,	a	non-contributory,	defined	benefit	pension	plan	that	is	qualified	under	Section	401(a)	of	the	Internal	Revenue	Code	(the	"U.S. Qualified	Plan").	Unfunded	supplementary	plans	(the	"Supplemental	Plans")	cover	certain	executives.	In	addition,	certain	of	the	Company's	non-U.S.	subsidiaries	also have	defined	benefit	pension	plans	covering	substantially	all	of	their	employees.	These	pension	plans	generally	provide	pension	benefits	that	are	based	on	each employee's	years	of	credited	service	and	on	compensation	levels	specified	in	the	plans.	The	Company's	policy	is	to	fund	at	least	the	amounts	sufficient	to	meet minimum	funding	requirements	under	applicable	employee	benefit	and	tax	laws.	Liabilities	for	benefits	payable	under	the	Supplemental	Plans	are	accrued	by	the Company	and	are	funded	when	paid	to	the	beneficiaries.	The	Company's	U.S.	Qualified	Plan	was	closed	to	new	hires	effective	July	1,	2007.	In	lieu	of	a	defined	benefit pension	plan,	eligible	employees	(excluding	legacy	Smith	Barney	employees)	who	were	first	hired,	rehired	or	transferred	to	a	U.S.	benefits	eligible	position	on	or	after July	1,	2007	received	a	retirement	contribution	under	the	Morgan	Stanley	401(k)	Plan.	On	December	23,	2010,	the	Morgan	Stanley	401(k)	Plan	was	amended	to	cease allocating	a	retirement	contribution	with	respect	to	plan	years	beginning	on	or	after	January	1,	2011.

On	June	1,	2010,	the	U.S.	Qualified	Plan	was	amended	to	cease	future	benefit	accruals	after	December	31,	2010.	Any	benefits	earned	by	participants	under	the	U.S. Qualified	Plan	at	December	31,	2010	were	preserved	and	will	be	payable	based	on	the	U.S.	Qualified	Plan's	provisions.	As	a	result,	the	Company	recorded	a	curtailment gain	that	reduced	Compensation	and	benefits	expense	by	approximately	$51	million	in	the	consolidated	statements	of	income	for	2010.	Additionally,	the Company	remeasured	the	obligation	and	assets	of	the	U.S.	Qualified	Plan	at	May	31,	2010	due	to	such	cessation	of	accruals	for	benefits.

The	Company	also	has	an	unfunded	postretirement	benefit	plan	that	provides	medical	and	life	insurance	for	eligible	U.S.	retirees	and	medical	insurance	for	their dependents.

On	October	29,	2010,	the	Morgan	Stanley	U.S.	Medical	Plan	was	amended	to	change	eligibility	requirements	for	a	Company-provided	subsidy	toward	the	cost	of	retiree medical	coverage	after	December	31,	2010.	As	a	result,	the	Company	recorded	a	curtailment	gain	that	reduced	Compensation	and	benefits	expense	by	approximately	$4 million	in	the	consolidated	statements	of	income	for	2010.	Additionally,	the	Company	remeasured	the	obligation	and	assets	of	the	postretirement	plan	at	October	31, 2010	for	this	amendment.

# Net	Periodic	Benefit	Expense.

The	following	table	presents	the	components	of	the	net	periodic	benefit	expense	for	2012,	2011	and	2010:

|  |  | Pension |  |  | Postretirement |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 |
|  |  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |
| Service\tcost,\tbenefits\tearned\tduring\tthe\tperiod | $26 | $27 | $99 | $4 | $4 | $7 |
| Interest\tcost\ton\tprojected\tbenefit\tobligation | 156 | 158 | 152 | 7 | 8 | 11 |
| Expected\treturn\ton\tplan\tassets | (110) | (131) | (128) | \t — | — | \t — |
| Net\tamortization\tof\tprior\tservice\tcosts | \t — | \t — | (4) | (14) | (14) | (3) |
| Net\tamortization\tof\tactuarial\tloss | 27 | 17 | 24 | 2 | 2 | 1 |
| Curtailment\tgain | \t — | \t — | (50) | \t — | — | (4) |
| Settlement\tloss | \t — | 1 | 3 | \t — | — | \t — |
| Net\tperiodic\tbenefit\texpense | $99 | $72 | $96 | $(1) | $\t\t\t\t— | $12 |

Other	changes	in	plan	assets	and	benefit	obligations	recognized	in	other	comprehensive	loss	(income)	on	a	pre-tax	basis	in	2012,	2011	and	2010	were	as	follows:

|  |  | Pension |  |  | Postretirement |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 |
|  |  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |
| Net\tloss\t(gain) | $416 | $(401) | $34 | $16 | $(5) | $2 |
| Prior\tservice\tcost\t(credit) | 3 | 2 | \t — | \t — | \t — | (54) |
| Amortization\tof\tprior\tservice\tcredit | \t — | \t — | 54 | 14 | 14 | 7 |
| Amortization\tof\tnet\tloss | (27) | (18) | (27) | (2) | (2) | (1) |
| Total\trecognized\tin\tother\tcomprehensive\tloss\t(income) | $392 | $(417) | $61 | $28 | $7 | $(46) |

The	Company,	for	most	plans,	amortizes	(as	a	component	of	pension	and	postretirement	expense)	unrecognized	net	gains	and	losses	over	the	average	future	service	of active	participants	to	the	extent	that	the	gain	(loss)	exceeds	10%	of	the	greater	of	the	projected	benefit	obligation	or	the	market-related	value	of	plan	assets.	Effective January	1,	2011,	the	U.S.	Qualified	Plan	amortizes	the	unrecognized	net	gains	and	losses	using	the	average	life	expectancy	of	participants.

The	following	table	presents	the	weighted	average	assumptions	used	to	determine	net	periodic	benefit	costs	for	2012,	2011	and	2010:

|  |  | Pension |  |  | Postretirement |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 |
| Discount\trate | \t4.57% | \t5.44% | \t5.91% | \t4.56% | \t5.41% | \t6.00\t/\t5.35% |
| Expected\tlong-term\trate\tof\treturn\ton\tplan\tassets | \t3.78 | \t4.78 | \t4.78 | \tN/A | \tN/A | N/A |
| Rate\tof\tfuture\tcompensation\tincreases | \t2.14 | \t2.28 | \t5.13 | \tN/A | \tN/A | N/A |

# N/A—Not	Applicable.

The	expected	long-term	rate	of	return	on	plan	assets	represents	the	Company's	best	estimate	of	the	long-term	return	on	plan	assets.	For	the	U.S.	Qualified	Plan,	the expected	long-term	rate	of	return	was	estimated	by	computing	a	weighted	average	return	of	the	underlying	long-term	expected	returns	on	the	plan's	fixed	income	assets based	on	the	investment	managers'	target	allocations	within	this	asset	class.	The	expected	long-term	return	on	assets	is	a	long-term	assumption	that	generally	is	expected to	remain	the	same	from	one	year	to	the	next	unless	there	is	a	significant	change	in	the	target	asset	allocation,	the	fees	and	expenses	paid	by	the	plan	or	market conditions.	The	U.S.	Qualified	Plan	has	100%	investment	in	fixed	income	securities	and	related	derivative	securities,	including	interest	rate	swap	contracts.	This	asset allocation	is	expected	to	help	protect	the	plan's	funded	status	and	limit	volatility	of	the	Company's	contributions.	Total	U.S.	Qualified	Plan	portfolio	performance	is assessed	by	comparing	actual	investment	performance	with	changes	in	the	estimated	present	value	of	the	U.S.	Qualified	Plan's	liability.

# Benefit	Obligations	and	Funded	Status.

The	following	table	provides	a	reconciliation	of	the	changes	in	the	benefit	obligation	and	fair	value	of	plan	assets	for	2012	and	2011:

|  | Pension | Postretirement |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Reconciliation\tof\tbenefit\tobligation: |  |  |
| Benefit\tobligation\tat\tDecember\t31,\t2010 | $2,953 | $155 |
| Service\tcost | 27 | 4 |
| Interest\tcost | 158 | 8 |
| Actuarial\tloss\t(gain) | 490 | (4) |
| Plan\tamendments | 4 | — |
| Plan\tsettlements | (16) | — |
| Benefits\tpaid | (98) | (9) |
| Other,\tincluding\tforeign\tcurrency\texchange\trate\tchanges | (1) | — |
| Benefit\tobligation\tat\tDecember\t31,\t2011 | $3,517 | $154 |
| Service\tcost | 26 | 4 |
| Interest\tcost | 156 | 7 |
| Actuarial\tloss | 405 | 15 |
| Plan\tsettlements | (2) | — |
| Benefits\tpaid | (147) | (6) |
| Other,\tincluding\tforeign\tcurrency\texchange\trate\tchanges | (72) | — |
| Benefit\tobligation\tat\tDecember\t31,\t2012 | $3,883 | $174 |
| Reconciliation\tof\tfair\tvalue\tof\tplan\tassets: |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tDecember\t31,\t2010 | $2,642 | $\t— |
| Actual\treturn\ton\tplan\tassets | \t 1,024 | — |
| Employer\tcontributions | 57 | 9 |
| Benefits\tpaid | (98) | (9) |
| Plan\tsettlements | (16) | — |
| Other,\tincluding\tforeign\tcurrency\texchange\trate\tchanges | (5) | — |
| Fair\tvalue\tof\tplan\tassets\tat\tDecember\t31,\t2011 | $3,604 | $\t— |
| Actual\treturn\ton\tplan\tassets | 83 | — |
| Employer\tcontributions | 42 | 6 |
| Benefits\tpaid | (147) | (6) |
| Plan\tsettlements | (2) | — |
| Other,\tincluding\tforeign\tcurrency\texchange\trate\tchanges | (61) | — |
| Fair\tvalue\tof\tplan\tassets\tat\tDecember\t31,\t2012 | $3,519 | $\t— |

The	following	table	presents	a	summary	of	the	funded	status	at	December	31,	2012	and	December	31,	2011:

|  |  | Pension |  | Postretirement |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | December\t31,\n2012 |  | December\t31,\n2011 | December\t31,\n2012 | December\t31,\n2011 |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Funded\t(unfunded)\tstatus | $(364) |  | $87 | $(174) | $(154) |
| Amounts\trecognized\tin\tthe\tconsolidated\tstatements\tof\tfinancial |  |  |  |  |  |
| condition\tconsist\tof: |  |  |  |  |  |
| Assets | $97 |  | $495 | $— | $— |
| Liabilities | (461) |  | (408) | (174) | (154) |
| Net\tamount\trecognized | $(364) |  | $87 | $(174) | $(154) |
| Amounts\trecognized\tin\taccumulated\tother\tcomprehensive\tloss\tconsist |  |  |  |  |  |
| of: |  |  |  |  |  |
| Prior\tservice\tcredit | $(2) |  | $(5) | $(24) | $(38) |
| Net\tloss | 821 |  | 432 | 41 | 27 |
| Net\tloss\t(gain)\trecognized | $819 |  | $427 | $17 | $(11) |

The	estimated	prior	service	credit	that	will	be	amortized	from	accumulated	other	comprehensive	loss	into	net	periodic	benefit	cost	over	2013	is	$14	million	for postretirement	plans.	The	estimated	net	loss	that	will	be	amortized	from	accumulated	other	comprehensive	loss	into	net	periodic	benefit	cost	over	2013	is	approximately $36	million	for	defined	benefit	pension	plans	and	$3	million	for	postretirement	plans.

The	accumulated	benefit	obligation	for	all	defined	benefit	pension	plans	was	$3,858	million	and	$3,458	million	at	December	31,	2012	and	December	31,	2011, respectively.

The	following	table	contains	information	for	pension	plans	with	projected	benefit	obligations	in	excess	of	the	fair	value	of	plan	assets	at	period-end:

|  | December	31,<br>2012 | December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Projected\tbenefit\tobligation | $552 | $567 |
| Fair\tvalue\tof\tplan\tassets | 90 | 159 |

The	following	table	contains	information	for	pension	plans	with	accumulated	benefit	obligations	in	excess	of	the	fair	value	of	plan	assets	at	period-end:

|  | December	31,<br>2012 | December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Accumulated\tbenefit\tobligation | $527 | $450 |
| Fair\tvalue\tof\tplan\tassets | 90 | 85 |

The	following	table	presents	the	weighted	average	assumptions	used	to	determine	benefit	obligations	at	period-end:

|  | December	31,<br>2012 | December	31,<br>2011 | December	31,<br>2012 | December	31,<br>2011 |
| :--- | :--- | :--- | :--- | :--- |
| Discount\trate | 3.95% | 4.57% | 3.88% | 4.56% |
| Rate\tof\tfuture\tcompensation\tincrease | 0.98 | 2.14 | N/A | N/A |

The	discount	rates	used	to	determine	the	benefit	obligations	for	the	U.S.	pension	plans,	U.S.	postretirement	plan	and	the	U.K.	pension	plan's	liabilities	were	selected	by the	Company,	in	consultation	with	its	independent	actuaries,	using	a	pension	discount	yield	curve	based	on	the	characteristics	of	the	plans,	each	determined independently.	The	pension	discount	yield	curve	represents	spot	discount	yields	based	on	duration	implicit	in	a	representative	broad	based	Aa	corporate	bond	universe	of high-quality	fixed	income	investments.	For	all	other	non-U.S.	pension	plans,	the	Company	set	the	assumed	discount	rates	based	on	the	nature	of	liabilities,	local economic	environments	and	available	bond	indices.

The	following	table	presents	assumed	health	care	cost	trend	rates	used	to	determine	the	U.S.	postretirement	benefit	obligations	at	period-end:

|  | December	31,<br>2012 | December	31,<br>2011 |
| :--- | :--- | :--- |
| Health\tcare\tcost\ttrend\trate\tassumed\tfor\tnext\tyear: |  |  |
| Medical | 6.93-7.53% | 6.95-7.68% |
| Prescription | 8.66% | 9.08% |
| Rate\tto\twhich\tthe\tcost\ttrend\trate\tis\tassumed\tto\tdecline\t(ultimate\ttrend\trate) | 4.50% | 4.50% |
| Year\tthat\tthe\trate\treaches\tthe\tultimate\ttrend\trate | 2029 | 2029 |

Assumed	health	care	cost	trend	rates	can	have	a	significant	effect	on	the	amounts	reported	for	the	Company's	postretirement	benefit	plan.	A	one-percentage	point	change in	assumed	health	care	cost	trend	rates	would	have	the	following	effects:

|  | Point<br>Increase |  | One-Percentage<br>Point	(Decrease) |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Effect\ton\ttotal\tpostretirement\tservice\tand\tinterest\tcost | $2 |  | $(2) |
| Effect\ton\tpostretirement\tbenefit\tobligation | 26 |  | (21) |

No	impact	of	the	Medicare	Prescription	Drug,	Improvement	and	Modernization	Act	of	2003	has	been	reflected	in	the	Company's	consolidated	statements	of	income	as Medicare	prescription	drug	coverage	was	deemed	to	have	no	material	effect	on	the	Company's	postretirement	benefit	plan.

Plan	Assets.				The	U.S.	Qualified	Plan	assets	represent	90%	of	the	Company's	total	pension	plan	assets.	The	U.S.	Qualified	Plan	uses	a	combination	of	active	and	risk- controlled	fixed	income	investment	strategies.	The	fixed	income	asset	allocation	consists	primarily	of	fixed	income	securities	designed	to	approximate	the	expected	cash flows	of	the	plan's	liabilities	in	order	to	help	reduce	plan	exposure	to	interest	rate	variation	and	to	better	align	assets	with	obligations.	The	longer	duration	fixed	income allocation	is	expected	to	help	protect	the	plan's	funded	status	and	maintain	the	stability	of	plan	contributions	over	the	long	run.

The	allocation	by	investment	manager	of	the	Company's	U.S.	Qualified	Plan	is	reviewed	by	the	Morgan	Stanley	Retirement	Plan	Investment	Committee	("Investment Committee")	on	a	regular	basis.	When	the	exposure	to	a	given	investment	manager	reaches	a	minimum	or	maximum	allocation	level,	an	asset	allocation	review	process is	initiated,	and	the	portfolio	will	be	automatically	rebalanced	toward	the	target	allocation	unless	the	Investment	Committee	determines	otherwise.

Derivative	instruments	are	permitted	in	the	U.S.	Qualified	Plan's	portfolio	only	to	the	extent	that	they	comply	with	all	of	the	plan's	policy	guidelines	and	are	consistent with	the	plan's	risk	and	return	objectives.	In	addition,	any	investment	in	derivatives	must	meet	the	following	conditions:

•	 Derivatives	may	be	used	only	if	they	are	deemed	by	the	investment	manager	to	be	more	attractive	than	a	similar	direct	investment	in	the	underlying	cash market	or	if	the	vehicle	is	being	used	to	manage	risk	of	the	portfolio.

•	 Derivatives	may	not	be	used	in	a	speculative	manner	or	to	leverage	the	portfolio	under	any	circumstances.

•	 Derivatives	may	not	be	used	as	short-term	trading	vehicles.	The	investment	philosophy	of	the	U.S.	Qualified	Plan	is	that	investment	activity	is	undertaken	for long-term	investment	rather	than	short-term	trading.

•	 Derivatives	may	only	be	used	in	the	management	of	the	U.S.	Qualified	Plan's	portfolio	when	their	possible	effects	can	be	quantified,	shown	to	enhance	the risk-return	profile	of	the	portfolio,	and	reported	in	a	meaningful	and	understandable	manner.

As	a	fundamental	operating	principle,	any	restrictions	on	the	underlying	assets	apply	to	a	respective	derivative	product.	This	includes	percentage	allocations	and	credit quality.	Derivatives	will	be	used	solely	for	the	purpose	of	enhancing	investment	in	the	underlying	assets	and	not	to	circumvent	portfolio	restrictions.

The	plan	assets	are	measured	at	fair	value	using	valuation	techniques	that	are	consistent	with	the	valuation	techniques	applied	to	the	Company's	major	categories	of assets	and	liabilities	as	described	in	Note	4.	Quoted	market	prices	in	active	markets	are	the	best	evidence	of	fair	value	and	are	used	as	the	basis	for	the	measurement,	if available.	If	a	quoted	market	price	is	available,	the	fair	value	is	the	product	of	the	number	of	trading	units	multiplied	by	the	market	price.	If	a	quoted	market	price	is	not available,	the	estimate	of	fair	value	is	based	on	the	valuation	approaches	that	maximize	use	of	observable	inputs	and	minimize	use	of	unobservable	inputs.

The	fair	value	of	OTC	derivative	contracts	is	derived	primarily	using	pricing	models,	which	may	require	multiple	market	input	parameters.	Derivative	contracts	are presented	on	a	gross	basis	prior	to	cash	collateral	or	counterparty	netting.	Derivative	contracts	consist	of	investments	in	futures	contracts	and	swaps.

Commingled	trust	funds	are	privately	offered	funds	available	to	institutional	clients	that	are	regulated,	supervised	and	subject	to	periodic	examination	by	a	federal	or state	agency.	The	trust	must	be	maintained	for	the	collective	investment	or	reinvestment	of	assets	contributed	to	it	from	employee	benefit	plans	maintained	by	more	than one	employer	or	a	controlled	group	of	corporations.	The	sponsor	of	the	commingled	trust	funds	values	the	funds'	NAV	based	on	the	fair	value	of	the	underlying securities.	The	underlying	securities	of	the	commingled	trust	funds	consist	of	mainly	long-duration	fixed	income	instruments.	Commingled	trust	funds	that	are redeemable	at	the	measurement	date	or	in	the	near	future	are	categorized	in	Level	2	of	the	fair	value	hierarchy,	otherwise	they	are	categorized	in	Level	3	of	the	fair	value hierarchy.

Some	non-U.S.	based	plans	hold	foreign	funds	that	consist	of	investments	in	foreign	corporate	equity	funds,	foreign	corporate	bond	funds,	foreign	target	cash	flow	funds and	foreign	liquidity	funds.	Foreign	corporate	equity	funds	and	foreign	corporate	bond	funds	invest	in	individual	securities	quoted	on	a	recognized	stock	exchange	or

traded	in	a	regulated	market	and	certain	bond	funds	that	aim	to	produce	returns	as	close	as	possible	to	certain	Financial	Times	Stock	Exchange	indexes.	Foreign	target cash	flow	funds	are	designed	to	provide	a	series	of	fixed	annual	cash	flows	over	5	or	10	years	achieved	by	investing	in	government	bonds	and	derivatives.	Foreign liquidity	funds	place	a	high	priority	on	capital	preservation,	stable	value	and	a	high	liquidity	of	assets.	Foreign	fund	investments	are	categorized	in	Level	2	of	the	fair value	hierarchy	as	they	are	readily	redeemable	at	their	NAV.	Corporate	equity	investments	traded	on	a	formal	exchange	are	categorized	in	Level	1	of	the	fair	value hierarchy.

Other	investments	consist	of	investment	held	by	non-U.S.	based	plans	in	emerging	markets,	real	estate,	hedge	funds	and	insurance	annuity	contracts.	These	emerging markets,	real	estate	and	hedge	funds	are	categorized	in	Level	2	of	the	fair	value	hierarchy	to	the	extent	that	they	are	readily	redeemable	at	their	NAV,	otherwise	they	are categorized	in	Level	3	of	the	fair	value	hierarchy.	The	insurance	annuity	contracts	are	valued	based	on	the	premium	reserve	of	the	insurer	for	a	guarantee	that	the	insurer has	given	to	the	employee	benefit	fund	that	approximates	fair	value.	The	insurance	annuity	contracts	are	categorized	in	Level	3	of	the	fair	value	hierarchy.

The	following	table	presents	the	fair	value	of	the	net	pension	plan	assets	at	December	31,	2012.	There	were	no	transfers	between	levels	during	2012.

|  | Quoted	Prices	in |  |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Active\tMarkets\tfor | Significant | Significant |  |
|  | Identical\tAssets\n(Level\t1) | Observable\tInputs\n(Level\t2) | Unobservable\nInputs\t(Level\t3) | Total |
|  |  | (dollars\tin\tmillions) |  |  |
| Assets: |  |  |  |  |
| Investments: |  |  |  |  |
| Cash\tand\tcash\tequivalents(1) | $80 | $— | $— | $80 |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |
| U.S.\tTreasury\tsecurities | 1,354 | — | — | \t 1,354 |
| U.S.\tagency\tsecurities | — | 241 | — | 241 |
| Total\tU.S.\tgovernment\tand\tagency\tsecurities | 1,354 | 241 | — | \t 1,595 |
| Corporate\tand\tother\tdebt: |  |  |  |  |
| State\tand\tmunicipal\tsecurities | — | 2 | — | 2 |
| Collateralized\tdebt\tobligations | — | 71 | — | 71 |
| Total\tcorporate\tand\tother\tdebt | — | 73 | — | 73 |
| Corporate\tequities | 20 | — | — | 20 |
| Derivative\tcontracts(2) | — | 224 | — | 224 |
| Derivative-related\tcash\tcollateral\treceivable | — | 3 | — | 3 |
| Commingled\ttrust\tfunds(3) | — | 1,275 | — | \t 1,275 |
| Foreign\tfunds(4) | — | 282 | — | 282 |
| Other\tinvestments | — | 11 | 30 | 41 |
| Total\tinvestments | 1,454 | 2,109 | 30 | \t 3,593 |
| Receivables: |  |  |  |  |
| Other\treceivables(1) | — | 71 | — | 71 |
| Total\treceivables | — | 71 | — | 71 |
| Total\tassets | $1,454 | $2,180 | $30 | $3,664 |
| Liabilities: |  |  |  |  |
| Derivative\tcontracts(5) | $— | $57 | $\t— | $57 |
| Derivative-related\tcash\tcollateral\tpayable | — | 28 | — | 28 |
| Other\tliabilities(1) | — | 60 | — | 60 |
| Total\tliabilities | — | 145 | — | 145 |
| Net\tpension\tassets | $1,454 | $2,035 | $30 | $3,519 |

(1) Cash	and	cash	equivalents,	other	receivables	and	other	liabilities	are	valued	at	cost,	which	approximates	fair	value.

(2) Derivative	contracts	in	an	asset	position	include	investments	in	interest	rate	swaps	of	$224	million.

(3) Commingled	trust	funds	include	investments	in	fixed	income	funds	of	$1,275	million.

(4) Foreign	funds	include	investments	in	bond	funds,	targeted	cash	flow	funds,	liquidity	funds	and	diversified	funds	of	$141	million,	$85	million,	$55	million	and	$1	million,	respectively.

(5) Derivative	contracts	in	a	liability	position	include	investments	in	interest	rate	swaps	of	$57	million.

The	following	table	presents	the	fair	value	of	the	net	pension	plan	assets	at	December	31,	2011.	Certain	investments	in	U.S.	agency	securities,	valued	at	approximately $245	million,	were	reclassified	from	Level	1	to	Level	2	during	2011	as	transactions	in	these	securities	did	not	occur	with	sufficient	frequency	and	volume	to	constitute	an active	market:

|  | in	Active	Markets | Significant | Significant |  |
| :--- | :--- | :--- | :--- | :--- |
|  | for\tIdentical | Observable\tInputs | Unobservable |  |
|  | Assets\t(Level\t1) | (Level\t2) | Inputs\t(Level\t3) | Total |
|  |  | (dollars\tin\tmillions) |  |  |
| Assets: |  |  |  |  |
| Investments: |  |  |  |  |
| Cash\tand\tcash\tequivalents(1) | $11 | $— | $— | $11 |
| U.S.\tgovernment\tand\tagency\tsecurities: |  |  |  |  |
| U.S.\tTreasury\tsecurities | 1,295 | — | — | \t 1,295 |
| U.S.\tagency\tsecurities | — | 245 | — | 245 |
| Total\tU.S.\tgovernment\tand\tagency\tsecurities | 1,295 | 245 | — | \t 1,540 |
| Other\tsovereign\tgovernment\tobligations | 16 | 48 | — | 64 |
| Corporate\tand\tother\tdebt: |  |  |  |  |
| State\tand\tmunicipal\tsecurities | — | 2 | — | 2 |
| Corporate\tbonds | — | 142 | — | 142 |
| Collateralized\tdebt\tobligations | — | 88 | — | 88 |
| Total\tcorporate\tand\tother\tdebt | — | 232 | — | 232 |
| Corporate\tequities | 6 | — | — | 6 |
| Derivative\tcontracts(2) | — | 230 | — | 230 |
| Derivative-related\tcash\tcollateral\treceivable | — | 1 | — | 1 |
| Commingled\ttrust\tfunds(3) | — | 1,339 | — | \t 1,339 |
| Foreign\tfunds(4) | — | 273 | — | 273 |
| Other\tinvestments | — | 13 | 26 | 39 |
| Total\tinvestments | 1,328 | 2,381 | 26 | \t 3,735 |
| Receivables: |  |  |  |  |
| Other\treceivables(1) | — | 14 | — | 14 |
| Total\treceivables | — | 14 | — | 14 |
| Total\tassets | $1,328 | $2,395 | $26 | $3,749 |
| Liabilities: |  |  |  |  |
| Derivative\tcontracts(5) | $— | $105 | $\t— | $105 |
| Derivative-related\tcash\tcollateral\tpayable | — | 25 | — | 25 |
| Other\tliabilities(1) | — | 15 | — | 15 |
| Total\tliabilities | — | 145 | — | 145 |
| Net\tpension\tassets | $1,328 | $2,250 | $26 | $3,604 |

(2) Derivative	and	other	contracts	in	an	asset	position	include	investments	in	interest	rate	swaps	of	$230	million.

(3) Commingled	trust	funds	include	investments	in	cash	funds	and	fixed	income	funds	of	$39	million	and	$1,300	million,	respectively.

(4) Foreign	funds	include	investments	in	equity	funds,	bond	funds,	targeted	cash	flow	funds	and	diversified	funds	of	$17	million,	$124	million,	$131	million	and	$1	million,	respectively.

(5) Derivative	and	other	contracts	in	a	liability	position	include	investments	in	inflation	swaps	and	interest	rate	swaps	of	$9	million	and	$96	million,	respectively.

The	following	table	presents	changes	in	Level	3	pension	assets	measured	at	fair	value	for	2012:

|  |  | Return	on |  | Purchases, |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Plan\tAssets | Actual | Sales, |  |  |
|  |  | Related\tto | Return | Other |  | Ending |
|  | Beginning | Assets\tStill | on\tPlan | Settlements |  | Balance |
|  | Balance\tat | Held\tat | Assets\tRelated | and | Net\tTransfers | at\tDecember |
|  | January\t1,\n2012 | December\t31,\n2012 | to\tAssets\tSold\nduring\t2012 | Issuances,\nnet | In\tand/or\t(Out)\nof\tLevel\t3 | 31,\n2012 |
|  |  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |
| Investments\nOther\tinvestments | $26 | $— | $\t— | $4 | $— | $30 |
| Total\tinvestments | $26 | $— | $— | $4 | $— | $30 |

|  |  | Actual |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Return\ton | Purchases, | Purchases, |  |  |
|  |  | Plan\tAssets | Actual | Sales, |  |  |
|  |  | Related\tto | Return | Other |  |  |
|  | Beginning\nBalance\tat\nJanuary\t1,\n2011 | Assets\tStill\nHeld\tat\nDecember\t31,\n2011 | on\tPlan\nAssets\tRelated\nto\tAssets\tSold\nduring\t2011 | Settlements\nand\nIssuances,\nnet | Net\tTransfers\nIn\tand/or\t(Out)\nof\tLevel\t3 | Ending\nBalance\nat\tDecember\t31,\n2011 |
|  |  |  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |  |  |
| Investments\nOther\tinvestments | $23 | $(1) | $— | $4 | $— | $26 |
| Total\tinvestments | $23 | $(1) | $— | $4 | $— | $26 |

# Cash	Flows.

At	December	31,	2012,	the	Company	expects	to	contribute	approximately	$50	million	to	its	pension	and	postretirement	benefit	plans	in	2013	based	upon	the	plans' current	funded	status	and	expected	asset	return	assumptions	for	2013,	as	applicable.

Expected	benefit	payments	associated	with	the	Company's	pension	and	postretirement	benefit	plans	for	the	next	five	years	and	in	aggregate	for	the	five	years	thereafter at	December	31,	2012	are	as	follows:

|  | Pension | Postretirement |
| :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |
| 2013 | $136 | $6 |
| 2014 | 137 | 6 |
| 2015 | 134 | 7 |
| 2016 | 137 | 7 |
| 2017 | 142 | 8 |
| 2018-2022 | 773 | 47 |

Morgan	Stanley	401(k)	Plan,	Morgan	Stanley	401(k)	Savings	Plan	and	Profit	Sharing	Awards.				U.S.	employees	meeting	certain	eligibility	requirements	may participate	in	the	Morgan	Stanley	401(k)	Plan	or	the	Morgan	Stanley	401(k)	Savings	Plan.	Eligible	U.S.	employees	receive	401(k)	matching	cash	or	stock	contributions. Matching	contributions	for	2012	were	funded	with	cash	and	allocated	according	to	participants'	current	investment	direction.	Matching	contributions	for	2011	were funded	in	stock	and	invested	in	the	Morgan	Stanley	Stock	Fund.

Effective	January	1,	2011,	the	Morgan	Stanley	401(k)	Plan	was	amended	to	conform	with	the	Morgan	Stanley	401(k)	Savings	Plan	to	provide	a	$1	for	$1	Company match	up	to	4%	of	eligible	pay	up	to	the	Internal	Revenue	Service	("IRS")	limit.	In	addition,	the	fixed	contribution	was	amended	to	apply	to	eligible	employees	in	both the	Morgan	Stanley	401(k)	Plan	and	Morgan	Stanley	401(k)	Savings	Plan	with	eligible	pay	less	than	or	equal	to	$100,000	who	are	not	Financial	Advisors	or	Senior Advisors.	The	fixed	contribution	is	equal	to	2%	of	eligible	pay.	Also	effective	January	1,	2011,	an	MS	Transition	Contribution	was	added	for	participants	who	received a	2010	accrual	in	the	U.S.	Qualified	Plan	or	a	2010	retirement	contribution	in	the	401(k)	Plan	and	who	met	certain	age	and	service	requirements	as	of	December	31, 2010.

Effective	July	1,	2009,	the	Company	introduced	the	Morgan	Stanley	401(k)	Savings	Plan	for	legacy	Smith	Barney	U.S.	employees	who	were	contributed	to	MSSB	and certain	other	groups.	In	2010,	legacy	Smith	Barney	U.S.	employees	with	eligible	pay	less	than	or	equal	to	$100,000	received	a	fixed	contribution	under	the	401(k) Savings	Plan.	The	amount	of	fixed	contribution	was	included	in	the	Company's	401(k)	expense	and	equaled	between	1%	and	2%	of	eligible	pay	based	on	years	of service	at	December	31.	Additionally,	certain	eligible	legacy	Smith	Barney	employees	were	granted	a	transition	contribution	and,	for	their	year	of	transfer,	a	one-time make-up	Company	match	based	on	certain	transition	percentages	of	eligible	pay	and	a	comparison	of	the	Company	match	under	the	Citi	401(k)	Plan	and	Morgan Stanley	401(k)	Savings	Plan.	The	retirement	contribution	granted	in	lieu	of	a	defined	benefit	pension	plan	and	the	fixed	contribution,	transition	contribution	and	make- up	Company	match	granted	to	legacy	Smith	Barney	employees	are	included	in	the	Company's	401(k)	expense.	Effective	May	1,	2011,	the	Saxon	401(k)	Plan	was merged	with	the	Morgan	Stanley	401(k)	Savings	Plan.	Effective	December	31,	2012,	the	Morgan	Stanley	401(k)	Savings	Plan	was	merged	with	the	Morgan	Stanley 401(k)	Plan.

The	Company	also	provides	discretionary	profit	sharing	to	certain	non-U.S.	employees.	The	pre-tax	expense	associated	with	the	401(k)	plans	and	profit	sharing	for 2012,	2011	and	2010	was	$246	million,	$257	million	and	$196	million,	respectively.

Defined	Contribution	Pension	Plans.				The	Company	maintains	separate	defined	contribution	pension	plans	that	cover	substantially	all	employees	of	certain	non-U.S. subsidiaries.	Under	such	plans,	benefits	are	determined	based	on	a	fixed	rate	of	base	salary	with	certain	vesting	requirements.	In	2012,	2011	and	2010,	the	Company's expense	related	to	these	plans	was	$126	million,	$136	million	and	$117	million,	respectively.

Other	Postemployment	Benefits.				Postemployment	benefits	may	include,	but	are	not	limited	to,	salary	continuation,	severance	benefits,	disability-related	benefits,	and continuation	of	health	care	and	life	insurance	coverage	provided	to	former	employees	or	inactive	employees	after	employment	but	before	retirement.	The postemployment	benefit	obligations	were	not	material	at	December	31,	2012	and	December	31,	2011.

The	provision	for	(benefit	from)	income	taxes	from	continuing	operations	consisted	of:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Current: |  |  |  |
| U.S.\tfederal | $(178) | $35 | $213 |
| U.S.\tstate\tand\tlocal | 140 | 276 | 162 |
| Non-U.S.: |  |  |  |
| United\tKingdom | (16) | 169 | 457 |
| Japan | 90 | 19 | (31) |
| Hong\tKong | 16 | (3) | (7) |
| Other(1) | 355 | 378 | 423 |
|  | $407 | $874 | $1,217 |
| Deferred: |  |  |  |
| U.S.\tfederal | $(748) | $508 | $(861) |
| U.S.\tstate\tand\tlocal | (64) | (49) | 349 |
| Non-U.S.: |  |  |  |
| United\tKingdom | 77 | 32 | 9 |
| Japan | 170 | 41 | 23 |
| Hong\tKong | 35 | 27 | 28 |
| Other(1) | (116) | (23) | (22) |
|  | $(646) | $536 | $(474) |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes\tfrom\tcontinuing\toperations | $(239) | $1,410 | $743 |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes\tfrom\tdiscontinuing\toperations | $(5) | $(116) | $363 |

(1) Results	for	2012	Non-U.S.	Other	jurisdictions	included	significant	total	tax	provisions	(benefits)	of	$41	million,	$36	million,	$36	million,	$33	million,	$32	million,	and	$(31)	million	from	India,	Brazil,	Spain, Canada,	Singapore,	and	Netherlands,	respectively.	Results	for	2011	Non-U.S.	Other	jurisdictions	included	significant	total	tax	provisions	of	$98	million,	$78	million,	$68	million,	and	$23	million	from	Brazil, Netherlands,	Spain,	and	India,	respectively.	Results	for	2010	Non-U.S.	Other	jurisdictions	included	significant	total	tax	provisions	of	$102	million,	$71	million,	$45	million,	and	$34	million	from	China,	Brazil, Netherlands,	and	Spain,	respectively.

The	following	table	reconciles	the	provision	for	(benefit	from)	income	taxes	to	the	U.S.	federal	statutory	income	tax	rate:

|  | 2012(1) | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| U.S.\tfederal\tstatutory\tincome\ttax\trate | 35.0% | \t35.0% | \t 35.0% |
|  | 8.7 | 2.6 | 6.3 |
| Domestic\ttax\tcredits | \t(43.1) | \t(3.9) | (3.7) |
| Tax\texempt\tincome | \t(30.1) | \t(0.3) | (1.8) |
| Non-U.S.\tearnings: |  |  |  |
| Foreign\tTax\tRate\tDifferential | \t(14.0) | 0.7 | \t(13.6) |
| Change\tin\tReinvestment\tAssertion | 4.8 | \t(2.2) | (6.1) |
| Change\tin\tForeign\tTax\tRates | (0.3) | 1.6 | \t — |
| Valuation\tallowance | — | \t(7.3) | \t — |
| Other | (7.4) | \t(3.1) | (4.1) |
| Effective\tincome\ttax\trate | \t(46.4)% | \t23.1% | \t 12.0% |

(1) 2012	percentages	are	reflective	of	the	lower	level	of	income	from	continuing	operations	before	income	taxes	on	a	comparative	basis	due	to	the	change	in	the	fair	value	of	certain	of	the	Company's	long-term	and short-term	borrowings	resulting	from	fluctuations	in	its	credit	spreads	and	other	credit	factors.

The	Company's	effective	tax	rate	from	continuing	operations	for	2012	included	an	aggregate	net	tax	benefit	of	$142	million.	This	included	a	discrete	benefit	of approximately	$299	million	related	to	the	remeasurement	of	reserves	and	related	interest	associated	with	either	the	expiration	of	the	applicable	statute	of	limitations	or new	information	regarding	the	status	of	certain	Internal	Revenue	Service	examinations.	The	Company	also	recognized,	in	part	as	a	result	of	completing	a	comprehensive review	of	its	deferred	tax	accounts,	an	aggregate	out-of-period	net	tax	provision	of	approximately	$157	million,	to	adjust	the	overstatement	of	deferred	tax	assets associated	with	partnership	investments,	principally	in	the	Company's	Asset	Management	business	segment	and	repatriated	earnings	of	foreign	subsidiaries	recorded	in prior	years.	The	Company	has	evaluated	the	effects	of	the	understatement	of	the	income	tax	provision	both	qualitatively	and	quantitatively	and	concluded	that	it	did	not have	a	material	impact	on	any	prior	annual	or	quarterly	consolidated	financial	statements.	Excluding	the	aggregate	net	tax	benefit	noted	above,	the	effective	tax	rate from	continuing	operations	in	2012	would	have	been	a	benefit	of	18.8%.

The	Company's	effective	tax	rate	from	continuing	operations	for	2011	included	a	$447	million	discrete	net	tax	benefit	from	the	remeasurement	of	a	deferred	tax	asset and	the	reversal	of	a	related	valuation	allowance.	The	deferred	tax	asset	and	valuation	allowance	were	recognized	in	income	from	discontinued	operations	in	2010	in connection	with	the	recognition	of	a	$1.2	billion	loss	due	to	writedowns	and	related	costs	following	the	Company's	commitment	to	a	plan	to	dispose	of	Revel.	The Company	recorded	the	valuation	allowance	because	the	Company	did	not	believe	it	was	more	likely	than	not	that	it	would	have	sufficient	future	net	capital	gain	to realize	the	benefit	of	the	expected	capital	loss	to	be	recognized	upon	the	disposal	of	Revel.	During	the	quarter	ended	March	31,	2011,	the	disposal	of	Revel	was restructured	as	a	tax-free	like	kind	exchange	and	the	disposal	was	completed.	The	restructured	transaction	changed	the	character	of	the	future	taxable	loss	to	ordinary. The	Company	reversed	the	valuation	allowance	because	the	Company	believes	it	is	more	likely	than	not	that	it	will	have	sufficient	future	ordinary	taxable	income	to recognize	the	recorded	deferred	tax	asset.	In	accordance	with	the	applicable	accounting	literature,	this	reversal	of	a	previously	established	valuation	allowance	due	to	a change	in	circumstances	was	recognized	in	income	from	continuing	operations	during	the	quarter	ended	March	31,	2011.	Additionally,	in	2011	the	Company	recognized a	discrete	tax	benefit	of	$137	million	related	to	the	reversal	of	U.S.	deferred	tax	liabilities	associated	with	prior-years'	undistributed	earnings	of	certain	non-U.S. subsidiaries	that	were	determined	to	be	indefinitely	reinvested	abroad,	and	a	discrete	tax	cost	of	$100	million	related	to	the	remeasurement	of	Japanese	deferred	tax assets	as	a	result	of	a	decrease	in	the	local	statutory	income	tax	rates	starting	in	2012.	Excluding	the	aggregate	net	discrete	tax	benefits	noted	above,	the	effective	tax	rate from	continuing	operations	in	2011	would	have	been	31.0%.

The	Company's	effective	tax	rate	from	continuing	operations	for	2010	included	discrete	tax	benefits	of	$382	million	related	to	the	reversal	of	U.S.	deferred	tax	liabilities associated	with	prior-years'	undistributed	earnings	of	certain	non-U.S.	subsidiaries	that	were	determined	to	be	indefinitely	reinvested	abroad,	$345	million	associated with	the	remeasurement	of	net	unrecognized	tax	benefits	and	related	interest	based	on	new	information	regarding	the	status	of	federal	and	state	examinations,	and	$277 million	associated	with	the	planned	repatriation	of	non-U.S.	earnings	at	a	cost	lower	than	originally	estimated.	Excluding	the	discrete	tax	benefits	noted	above,	the effective	tax	rate	from	continuing	operations	in	2010	would	have	been	27.5%.

The	Company	had	approximately	$7,191	million	and	$6,461	million	of	cumulative	earnings	at	December	31,	2012	and	December	31,	2011,	respectively,	attributable	to foreign	subsidiaries	for	which	no	U.S.	provision	has	been	recorded	for	income	tax	that	could	occur	upon	repatriation.	Except	to	the	extent	such	earnings	can	be repatriated	tax	efficiently,	they	are	permanently	invested	abroad.	Accordingly,	approximately	$719	million	and	$670	million	of	deferred	tax	liabilities	were	not	recorded with	respect	to	these	earnings	at	December	31,	2012	and	December	31,	2011,	respectively.

Deferred	income	taxes	reflect	the	net	tax	effects	of	temporary	differences	between	the	financial	reporting	and	tax	bases	of	assets	and	liabilities	and	are	measured	using the	enacted	tax	rates	and	laws	that	will	be	in	effect	when	such	differences	are	expected	to	reverse.	Significant	components	of	the	Company's	deferred	tax	assets	and liabilities	at	December	31,	2012	and	December	31,	2011	were	as	follows:

|  | December	31, | December	31, |
| :--- | :--- | :--- |
|  | 2012 | 2011(2) |
|  | (dollars\tin\tmillions) |  |
| Gross\tdeferred\ttax\tassets: |  |  |
| Tax\tcredits\tand\tloss\tcarryforwards | $6,193 | $6,757 |
| Employee\tcompensation\tand\tbenefit\tplans | 2,173 | 2,425 |
| Valuation\tand\tliability\tallowances | 529 | 437 |
| Deferred\texpenses | 75 | 65 |
| Other | 83 | — |
| Total\tdeferred\ttax\tassets | 9,053 | 9,684 |
| Valuation\tallowance(1) | 48 | 60 |
| Deferred\ttax\tassets\tafter\tvaluation\tallowance | $9,005 | $9,624 |
| Gross\tdeferred\ttax\tliabilities: |  |  |
| Non-U.S.\toperations | $1,253 | $1,204 |
| Fixed\tassets | 115 | 97 |
| Valuation\tof\tinventory,\tinvestments\tand\treceivables | 351 | 1,052 |
| Other | — | 360 |
| Total\tdeferred\ttax\tliabilities | $1,719 | $2,713 |
| Net\tdeferred\ttax\tassets | $7,286 | $6,911 |

(1) The	valuation	allowance	reduces	the	benefit	of	certain	separate	Company	federal	and	state	net	operating	loss	carryforwards	to	the	amount	that	will	more	likely	than	not	be	realized.

(2) Certain	adjustments	have	been	made	to	prior	period	amounts	to	reflect	the	completion	of	the	comprehensive	review	of	the	Company's	deferred	tax	accounts,	resulting	in	an	increase	in	total	deferred	tax	assets	and deferred	tax	assets	after	valuation	allowance,	and	a	corresponding	decrease	in	total	deferred	tax	liabilities	of	$482	million.

During	2012,	the	valuation	allowance	was	decreased	by	$12	million	related	to	the	ability	to	utilize	certain	state	net	operating	losses.

The	Company	had	tax	credit	carryforwards	for	which	a	related	deferred	tax	asset	of	$5,705	million	and	$6,060	million	was	recorded	at	December	31,	2012	and December	31,	2011,	respectively.	These	carryforwards	are	subject	to	annual	limitations	on	utilization	and	will	begin	to	expire	in	2016,	with	a	significant	amount scheduled	to	expire	in	2020,	if	not	utilized.

The	Company	had	net	operating	loss	carryforwards	in	Japan	for	which	a	related	deferred	tax	asset	of	$236	million	and	$435	million	was	recorded	at	December	31,	2012 and	December	31,	2011,	respectively.	These	carryforwards	are	subject	to	annual	limitations	and	will	begin	to	expire	in	2019.

The	Company	believes	the	recognized	net	deferred	tax	asset	(after	valuation	allowance)	of	$7,286	million	is	more	likely	than	not	to	be	realized	based	on	expectations	as to	future	taxable	income	in	the	jurisdictions	in	which	it	operates.

The	Company	recorded	net	income	tax	provision	to	Paid-in	capital	related	to	employee	stock-based	compensation	transactions	of	$114	million,	$76	million,	and	$322 million	in	2012,	2011,	and	2010,	respectively.

The	following	table	presents	the	U.S.	and	non-U.S.	components	of	income	from	continuing	operations	before	income	tax	expense	(benefit)	for	2012,	2011,	and	2010, respectively:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| U.S. | $(1,241) | $3,250 | $3,580 |
| Non-U.S.(1) | 1,756 | \t 2,849 | \t 2,618 |
|  | $515 | $6,099 | $6,198 |

(1) Non-U.S.	income	is	defined	as	income	generated	from	operations	located	outside	the	U.S.

The	total	amount	of	unrecognized	tax	benefits	was	approximately	$4.1	billion,	$4.0	billion,	and	$3.7	billion	at	December	31,	2012,	December	31,	2011,	and December	31,	2010,	respectively.	Of	this	total,	approximately	$1.6	billion,	$1.8	billion,	and	$1.7	billion,	respectively	(net	of	federal	benefit	of	state	issues,	competent authority	and	foreign	tax	credit	offsets)	represent	the	amount	of	unrecognized	tax	benefits	that,	if	recognized,	would	favorably	affect	the	effective	tax	rate	in	future periods.

In	accordance	with	the	guidance	for	accounting	for	uncertainty	in	income	taxes,	penalties	related	to	unrecognized	tax	benefits	may	be	classified	as	either	income	taxes	or another	expense	classification.	During	2010,	the	Company	changed	the	classification	of	penalties	related	to	unrecognized	tax	benefits	and	began	recording	them	in Provision	for	income	taxes	in	the	consolidated	statements	of	income.	The	Company	previously	recorded	such	penalties	in	Income	(loss)	from	continuing	operations before	income	taxes	as	part	of	Other	expenses.	The	Company	believes	the	change	in	classification	of	penalties	is	preferable	because	such	penalties	are	directly	dependent on	and	correlated	to	related	income	tax	positions.

Additionally,	the	Company	views	penalties	and	interest	on	uncertain	tax	positions	as	part	of	the	cost	of	managing	the	Company's	overall	tax	exposure,	and	the	change	in presentation	aligns	the	classification	of	penalties	related	to	unrecognized	tax	benefits	with	the	classification	of	interest	on	unrecognized	tax	benefits	already	classified	as part	of	Provision	for	income	taxes.	Penalties	related	to	unrecognized	tax	benefits	during	2010	and	prior	periods	were	not	material.	Accordingly,	the	Company	did	not retrospectively	adjust	prior	periods.	The	change	in	classification	did	not	impact	Net	income	or	Earnings	per	share	and	the	impact	on	Income	(loss)	from	continuing operations	before	income	taxes	was	not	material.

The	Company	recognizes	the	accrual	of	interest	related	to	unrecognized	tax	benefits	in	Provision	for	income	taxes	in	the	consolidated	statements	of	income.	The Company	recognized	$(10)	million,	$56	million,	and	$(93)	million	of	interest	expense	(benefit)	(net	of	federal	and	state	income	tax	benefits)	in	the	consolidated statements	of	income	for	the	years	ended	December	31,	2012,	December	31,	2011,	and	December	31,	2010,	respectively.	Interest	expense	accrued	at	December	31, 2012,	December	31,	2011,	and	December	31,	2010	was	approximately	$243	million,	$330	million,	and	$274	million,	respectively,	net	of	federal	and	state	income	tax benefits.	Penalties	related	to	unrecognized	tax	benefits	for	the	year	ended	December	31,	2012	were	immaterial.

The	following	table	presents	a	reconciliation	of	the	beginning	and	ending	amount	of	unrecognized	tax	benefits	for	2012,	2011	and	2010	(dollars	in	millions):

| Increase	based	on	tax	positions	related	to	prior	periods<br>Decreases	based	on	tax	positions	related	to	prior	periods<br>Decreases	related	to	settlements	with	taxing	authorities<br>Decreases	related	to	a	lapse	of	applicable	statute	of	limitations | 479<br>(881)<br>(356)<br>(61) |
| :--- | :--- |
| Balance\tat\tDecember\t31,\t2010 | $3,711 |
| Increase\tbased\ton\ttax\tpositions\trelated\tto\tthe\tcurrent\tperiod\nIncrease\tbased\ton\ttax\tpositions\trelated\tto\tprior\tperiods\nDecreases\tbased\ton\ttax\tpositions\trelated\tto\tprior\tperiods\nDecreases\trelated\tto\tsettlements\twith\ttaxing\tauthorities\nDecreases\trelated\tto\ta\tlapse\tof\tapplicable\tstatute\tof\tlimitations | $412\n70\n(79)\n(56)\n(13) |
| Balance\tat\tDecember\t31,\t2011 | $4,045 |
| Increase\tbased\ton\ttax\tpositions\trelated\tto\tthe\tcurrent\tperiod | $299 |
| Increase\tbased\ton\ttax\tpositions\trelated\tto\tprior\tperiods | 127 |
| Decreases\tbased\ton\ttax\tpositions\trelated\tto\tprior\tperiods | (21) |

The	Company	is	under	continuous	examination	by	the	IRS	and	other	tax	authorities	in	certain	countries,	such	as	Japan	and	the	U.K.,	and	in	states	in	which	the	Company has	significant	business	operations,	such	as	New	York.	The	Company	is	currently	under	review	by	the	IRS	Appeals	Office	for	the	remaining	issues	covering	tax	years 1999	–	2005.	Also,	the	Company	is	currently	at	various	levels	of	field	examination	with	respect	to	audits	with	the	IRS,	as	well	as	New	York	State	and	New	York	City, for	tax	years	2006	–	2008	and	2007	–	2009,	respectively.	During	2012,	the	Company	reached	a	conclusion	with	the	U.K.	and	Japanese	tax	authorities	on	all	issues through	tax	years	2009	and	2010,	respectively.	The	impact	of	these	settlements	to	the	financial	statements	was	immaterial.	During	2013,	the	Company	expects	to	reach	a conclusion	with	the	U.K.	tax	authorities	on	substantially	all	issues	through	tax	year	2010.

The	Company	believes	that	the	resolution	of	tax	matters	will	not	have	a	material	effect	on	the	consolidated	statements	of	financial	condition	of	the	Company,	although	a resolution	could	have	a	material	impact	on	the	Company's	consolidated	statements	of	income	for	a	particular	future	period	and	on	the	Company's	effective	income	tax rate	for	any	period	in	which	such	resolution	occurs.	The	Company	has	established	a	liability	for	unrecognized	tax	benefits	that	the	Company	believes	is	adequate	in relation	to	the	potential	for	additional	assessments.	Once	established,	the	Company	adjusts	unrecognized	tax	benefits	only	when	more	information	is	available	or	when an	event	occurs	necessitating	a	change.

The	Company	periodically	evaluates	the	likelihood	of	assessments	in	each	taxing	jurisdiction	resulting	from	the	expiration	of	the	applicable	statute	of	limitations	or	new information	regarding	the	status	of	current	and	subsequent	years'	examinations.	As	part	of	the	Company's	periodic	review	federal	and	state	unrecognized	tax

benefits	were	released	or	remeasured.	As	a	result	of	this	remeasurement,	the	income	tax	provision	for	the	year	ended	December	31,	2012	and	December	31,	2010 included	a	benefit	of	$299	million	and	$345	million,	respectively.

It	is	reasonably	possible	that	significant	changes	in	the	gross	balance	of	unrecognized	tax	benefits	may	occur	within	the	next	12	months	partially	due	to	an	expected conclusion	of	an	IRS	appeals	process	for	the	remaining	issues	covering	tax	years	1999—2005.	At	this	time,	however,	it	is	not	possible	to	reasonably	estimate	the expected	change	to	the	total	amount	of	unrecognized	tax	benefits	and	impact	on	the	effective	tax	rate	over	the	next	12	months.

The	following	are	the	major	tax	jurisdictions	in	which	the	Company	and	its	affiliates	operate	and	the	earliest	tax	year	subject	to	examination:

# 23.				Segment	and	Geographic	Information.

# Segment	Information.

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

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

As	a	result	of	treating	certain	intersegment	transactions	as	transactions	with	external	parties,	the	Company	includes	an	Intersegment	Eliminations	category	to	reconcile the	business	segment	results	to	the	Company's	consolidated	results.	Intersegment	Eliminations	also	reflect	the	effect	of	fees	paid	by	the	Institutional	Securities	business segment	to	the	Global	Wealth	Management	Group	business	segment	related	to	the	bank	deposit	program.

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

| 2012 | Institutional<br>Securities | Management<br>Group | Asset<br>Management | Intersegment<br>Eliminations | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Total\tnon-interest\trevenues | $12,339 | $11,904 | $2,243 | $(175) | $26,311 |
| Net\tinterest | (1,786) | 1,612 | (24) | (1) | (199) |
| Net\trevenues | $10,553 | $13,516 | $2,219 | $(176) | $26,112 |
| Income\t(loss)\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | $(1,671) | $1,600 | $590 | $(4) | $515 |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes(1) | (1,065) | 559 | 267 | — | (239) |
| Income\t(loss)\tfrom\tcontinuing\toperations | (606) | 1,041 | 323 | (4) | 754 |
| Discontinued\toperations(2): |  |  |  |  |  |
| Gain\t(loss)\tfrom\tdiscontinued\toperations | (154) | 94 | 13 | 4 | (43) |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | (35) | 26 | 4 | — | (5) |
| Net\tgain\t(loss)\ton\tdiscontinued\toperations | (119) | 68 | 9 | 4 | (38) |
| Net\tincome\t(loss) | (725) | 1,109 | 332 | — | 716 |
| Net\tincome\tapplicable\tto\tredeemable\tnoncontrolling\tinterests | — | 124 | — | — | 124 |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 194 | 143 | 187 | — | 524 |
| Net\tincome\t(loss)\tapplicable\tto\tMorgan\tStanley | $(919) | $842 | $145 | $— | $68 |

|  |  | Global	Wealth |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2011 | Institutional\nSecurities | Management\nGroup | Asset\nManagement | Intersegment\nEliminations | Total |
|  |  |  | (dollars\tin\tmillions) |  |  |
| Total\tnon-interest\trevenues(3) | $18,255 | $11,812 | $1,928 | $(115) | $31,880 |
| Net\tinterest | (1,080) | 1,477 | (41) | — | 356 |
| Net\trevenues | $17,175 | $13,289 | $1,887 | $(115) | $32,236 |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | $4,591 | $1,255 | $253 | $— | $6,099 |
| Provision\tfor\tincome\ttaxes | 879 | 458 | 73 | — | 1,410 |
| Income\tfrom\tcontinuing\toperations | 3,712 | 797 | 180 | — | 4,689 |
| Discontinued\toperations(2): |  |  |  |  |  |
| Gain\t(loss)\tfrom\tdiscontinued\toperations | (205) | 21 | 24 | — | (160) |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | (106) | 7 | (17) | — | (116) |
| Net\tgain\t(loss)\ton\tdiscontinued\toperations | (99) | 14 | 41 | — | (44) |
| Net\tincome | 3,613 | 811 | 221 | — | 4,645 |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 244 | 146 | 145 | — | 535 |
| Net\tincome\tapplicable\tto\tMorgan\tStanley | $3,369 | $665 | $76 | $— | $4,110 |

| 2010 | Institutional<br>Securities | Management<br>Group | Asset<br>Management | Discover | Intersegment<br>Eliminations | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (dollars\tin\tmillions) |  |  |  |
| Total\tnon-interest\trevenues(3) | $16,355 | $11,403 | $2,761 | $— | $(187) | $30,332 |
| Net\tinterest | (226) | 1,116 | (76) | — | 84 | 898 |
| Net\trevenues | $16,129 | $12,519 | $2,685 | $— | $(103) | $31,230 |
| Income\t(loss)\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | $4,365 | $1,130 | $718 | $— | $(15) | $6,198 |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | 313 | 328 | 105 | — | (3) | 743 |
| Income\t(loss)\tfrom\tcontinuing\toperations | 4,052 | 802 | 613 | — | (12) | 5,455 |
| Discontinued\toperations(2): |  |  |  |  |  |  |
| Gain\t(loss)\tfrom\tdiscontinued\toperations | (1,203) | 26 | 999 | 775 | 13 | 610 |
| Provision\tfor\tincome\ttaxes | 13 | 8 | 335 | — | 7 | 363 |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations(4) | (1,216) | 18 | 664 | 775 | 6 | 247 |
| Net\tincome\t(loss) | 2,836 | 820 | 1,277 | 775 | (6) | 5,702 |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 290 | 301 | 408 | — | — | 999 |
| Net\tincome\t(loss)\tapplicable\tto\tMorgan\tStanley | $2,546 | $519 | $869 | $\t\t775 | $(6) | $4,703 |

(1) Results	for	2012	included	an	out-of-period	net	tax	provision	of	approximately	$107	million,	attributable	to	the	Asset	Management	business	segment,	related	to	the	overstatement	of	deferred	tax	assets	associated with	partnership	investments	in	prior	years	and	an	out-of-period	net	tax	provision	of	approximately	$50	million,	attributable	to	the	Institutional	Securities	business	segment,	related	to	the	overstatement	of	deferred tax	assets	associated	with	repatriated	earnings	of	a	foreign	subsidiary	recorded	in	prior	years	(see	Note	22).

(2) See	Notes	1	and	25	for	discussion	of	discontinued	operations.

(3) In	the	fourth	quarter	of	2011	and	2010,	the	Company	recognized	a	pre-tax	loss	of	approximately	$108	million	and	a	pre-tax	gain	of	approximately	$176	million,	respectively,	in	net	revenues	upon	application	of the	OIS	curve	within	the	Institutional	Securities	business	segment	(see	Note	4).

(4) Amounts	for	2010	included	a	loss	of	$1.2	billion	related	to	the	disposition	of	Revel	included	within	the	Institutional	Securities	business	segment,	a	gain	of	approximately	$570	million	related	to	the	Company's sale	of	Retail	Asset	Management	within	the	Asset	Management	business	segment	and	a	gain	of	$775	million	related	to	the	legal	settlement	with	DFS.

| Net	Interest | Institutional<br>Securities | Management<br>Group | Asset<br>Management | Intersegment<br>Eliminations | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (dollars\tin\tmillions) |  |  |
| 2012 |  |  |  |  |  |
| Interest\tincome | $4,128 | $2,015 | $10 | $(428) | $5,725 |
| Interest\texpense | 5,914 | 403 | 34 | (427) | \t 5,924 |
| Net\tinterest | $(1,786) | $1,612 | $(24) | $(1) | $(199) |
| 2011 |  |  |  |  |  |
| Interest\tincome | $5,740 | $1,863 | $10 | $(355) | $7,258 |
| Interest\texpense | 6,820 | 386 | 51 | (355) | \t 6,902 |
| Net\tinterest | $(1,080) | $1,477 | $(41) | $— | $356 |
| 2010 |  |  |  |  |  |
| Interest\tincome | $5,910 | $1,581 | $22 | $(208) | $7,305 |
| Interest\texpense | 6,136 | 465 | 98 | (292) | \t 6,407 |
| Net\tinterest | $(226) | $1,116 | $(76) | $84 | $898 |

|  | Institutional | Management | Asset |  |
| :--- | :--- | :--- | :--- | :--- |
| Total\tAssets(1) | Securities | Group | Management | Total |
|  |  | (dollars\tin\tmillions) |  |  |
| At\tDecember\t31,\t2012 | $638,852 | $134,762 | $7,346 | $780,960 |
| At\tDecember\t31,\t2011 | $641,456 | $101,427 | $7,015 | $749,898 |

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

# Geographic	Information.

The	Company	operates	in	both	U.S.	and	non-U.S.	markets.	The	Company's	non-U.S.	business	activities	are	principally	conducted	and	managed	through	European	and Asian	locations.	The	net	revenues	and	total	assets	disclosed	in	the	following	table	reflect	the	regional	view	of	the	Company's	consolidated	net	revenues	on	a	managed basis,	based	on	the	following	methodology:

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

•	 Global	Wealth	Management	Group:	global	representative	coverage	location.

•	 Asset	Management:	client	location,	except	for	Merchant	Banking	and	Real	Estate	Investing	businesses,	which	are	based	on	asset	location.

| Net	Revenues | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Americas | $20,200 | $22,306 | $21,452 |
| Europe,\tMiddle\tEast\tand\tAfrica | 3,078 | 6,619 | 5,458 |
| Asia | 2,834 | 3,311 | 4,320 |
| Net\trevenues | $26,112 | $32,236 | $31,230 |

| Total	Assets | At	December	31,<br>2012 | At	December	31,<br>2011 |
| :--- | :--- | :--- |
|  | (dollars\tin\tmillions) |  |
| Americas | $587,993 | $558,765 |
| Europe,\tMiddle\tEast\tand\tAfrica | 122,152 | 134,190 |
| Asia | 70,815 | 56,943 |
| Total | $780,960 | $749,898 |

# 24.					Equity	Method	Investments.

The	Company	has	investments	accounted	for	under	the	equity	method	(see	Note	1)	of	$4,682	million	and	$4,524	million	at	December	31,	2012	and	December	31,	2011, respectively,	included	in	Other	investments	in	the	consolidated	statements	of	financial	condition.	Losses	from	these	investments	were	$23	million,	$995	million	and	$37 million	in	2012,	2011	and	2010,	respectively,	and	are	included	in	Other	revenues	in	the	consolidated	statements	of	income.	The	losses	for	2011	included	the	loss	related to	the	Company's	40%	stake	in	Mitsubishi	UFJ	Morgan	Stanley	Securities	Co.,	Ltd.	("MUMSS"),	as	described	below.	In	addition,	in	December	2010,	the	Company completed	the	sale	of	its	34.3%	stake	in	China	International	Capital	Corporation	Limited,	for	a	pre-tax	gain	of	approximately	$668	million,	which	is	included	in	Other revenues	in	the	consolidated	statement	of	income	(see	Note	19).

The	following	presents	certain	equity	method	investees	at	December	31,	2012	and	2011:

|  | Percent<br>Ownership | December	31,<br>2012 | December	31,<br>2011 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Mitsubishi\tUFJ\tMorgan\tStanley\tSecurities\tCo.,\tLtd. | 40% | $1,428 | $1,444 |
| Lansdowne\tPartners(2) | 19.8% | 221 | 276 |
| Avenue\tCapital\tGroup(2)(3) | — | 224 | 237 |

(1) Book	value	of	these	investees	exceeds	the	Company's	share	of	net	assets,	reflecting	equity	method	intangible	assets	and	equity	method	goodwill.

(2) The	Company's	ownership	interest	represents	limited	partnership	interests.	The	Company	is	deemed	to	have	significant	influence	in	these	limited	partnerships,	as	the	Company's	limited	partnership	interests	were above	the	3%	to	5%	threshold	for	interests	that	should	be	accounted	for	under	the	equity	method.

(3) The	Company's	ownership	interest	represents	limited	partnership	interests	in	a	number	of	different	entities	within	the	Avenue	Capital	Group.

On	May	1,	2010,	the	Company	and	MUFG	formed	a	joint	venture	in	Japan	of	their	respective	investment	banking	and	securities	businesses.	MUFG	and	the	Company have	integrated	their	respective	Japanese	securities	companies	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	MUMSS.	The	Company	contributed	the	investment	banking	operations	conducted	in Japan	by	its	subsidiary	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.

To	the	extent	that	losses	incurred	by	MUMSS	result	in	a	requirement	to	restore	its	capital,	MUFG	is	solely	responsible	for	providing	this	additional	capital	to	a	minimum level	and	the	Company	is	not	obligated	to	contribute	additional	capital	to	MUMSS.	Because	of	losses	incurred	by	MUMSS,	MUFG	contributed	approximately	$370 million	and	$259	million	of	capital	to	MUMSS	on	April	22,	2011	and	November	24,	2011,	respectively.	The	MUFG	capital	injections	improved	the	capital	base	and restored	the	capital	adequacy	ratio	of	MUMSS	in	each	case.	As	a	result	of	the	capital	injections,	during	2011,	the	Company	recorded	increases	of	approximately	$251 million	in	the	carrying	amount	of	the	equity	method	investment	in	MUMSS,	reflecting	the	Company's	40%	share	of	the	increases	in	the	net	asset	value	of	MUMSS,	and increases	in	the	Company's	Paid-in	capital	of	approximately	$146	million	(after-tax).

The	following	presents	summarized	financial	data	for	MUMSS:

|  | At	December	31, | At	December	31, |
| :--- | :--- | :--- |
|  | 2012 | 2011 |
|  | (dollars\tin\tmillions) | (dollars\tin\tmillions) |
| Total\tassets | $141,635 | $158,363 |
| Total\tliabilities | 138,742 | 155,555 |
| Noncontrolling\tinterests | 41 | 22 |

|  |  | At	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2012 | 2011 | 2010 |
|  |  | (dollars\tin\tmillions) |  |
| Net\trevenues | $2,365 | $735 | $1,073 |
| Income\t(loss)\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 333 | (1,746) | (253) |
| Net\tincome\t(loss) | 405 | (1,976) | (156) |
| Net\tincome\t(loss)\tapplicable\tto\tMUMSS | 397 | (1,976) | (144) |

# FrontPoint.

On	March	1,	2011,	the	Company	and	the	principals	of	FrontPoint	completed	a	transaction	whereby	FrontPoint	senior	management	and	portfolio	managers	own	a majority	equity	stake	in	FrontPoint	and	the	Company	retained	a	minority	stake.	FrontPoint	has	replaced	the	Company's	affiliates	as	the	investment	advisor	and	general partner	of	the	FrontPoint	funds.	The	investment	in	FrontPoint	is	recorded	within	the	Asset	Management	business	segment.	Prior	to	March	1,	2011,	the	Company consolidated	FrontPoint.	In	2011,	the	Company	recorded	losses	of	approximately	$27	million	related	to	the	writedown	of	the	minority	investment	in	FrontPoint	and approximately	$3	million	of	impairment	losses	related	to	investment	management	contracts	associated	with	FrontPoint.	The	losses	were	included	in	Other	revenues	in	the consolidated	statements	of	income.

# Huaxin	Securities	Joint	Venture.

In	June	2011,	the	Company	and	Huaxin	Securities	Co.,	Ltd.	("Huaxin	Securities")	(also	known	as	China	Fortune	Securities	Co.,	Ltd.)	jointly	announced	the	operational commencement	of	their	securities	joint	venture	in	China.	During	2011,	the	Company	recorded	initial	costs	of	$130	million	related	to	the	formation	of	this	new	Chinese securities	joint	venture	in	Other	expenses	in	the	consolidated	statement	of	income.	The	joint	venture,	Morgan	Stanley	Huaxin	Securities	Company	Limited,	is	registered and	principally	located	in	Shanghai.	Huaxin	Securities	holds	a	two-thirds	interest	in	the	joint	venture	while	the	Company	owns	a	one-third	interest.	The	establishment	of the	joint	venture	allows	the	Company	to	further	build	on	its	established	onshore	businesses	in	China.	The	joint	venture's	business	includes	underwriting	and	sponsorship of	shares	in	the	domestic	China	market	(including	A	shares	and	foreign	investment	shares),	as	well	as	underwriting,	sponsorship	and	principal	trading	of	bonds (including	government	and	corporate	bonds).

Lansdowne	Partners	is	a	London-based	investment	manager.	Avenue	Capital	Group	is	a	New	York-based	investment	manager.	The	investments	are	accounted	for	within the	Asset	Management	business	segment.

The	Company	also	invests	in	certain	structured	transactions	and	other	investments	not	integral	to	the	operations	of	the	Company	accounted	for	under	the	equity	method of	accounting	amounting	to	$2.8	billion	and	$2.5	billion	at	December	31,	2012	and	2011,	respectively.

See	Note	1	for	a	discussion	of	the	Company's	discontinued	operations.

The	table	below	provides	information	regarding	amounts	included	in	discontinued	operations:

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Net\trevenues(1): |  |  |  |
| Retail\tAsset\tManagement(2) | $12 | $11 | $1,221 |
| Saxon(3) | 79 | 28 | 197 |
| Quilter(4) | 148 | 134 | 117 |
| Other(5) | 80 | 61 | 141 |
|  | $319 | $234 | $1,676 |
| Pre-tax\tgain\t(loss)\ton\tdiscontinued\toperations(1): |  |  |  |
| Revel(6) | $\t— | $(10) | $(1,208) |
| Retail\tAsset\tManagement(2) | 12 | 14 | 994 |
| DFS(7) | \t — | \t — | 775 |
| Saxon(3) | (187) | (194) | (34) |
| Quilter(4) | 97 | 21 | 27 |
| Other(5) | 35 | 9 | 56 |
|  | $(43) | $(160) | $610 |

(1) Amounts	included	eliminations	of	intersegment	activity.

(2) Included	a	pre-tax	gain	of	approximately	$853	million	in	2010	in	connection	with	the	sale	of	Retail	Asset	Management.

(3) Revenues	included	a	pre-tax	gain	of	approximately	$51	million	in	2012,	primarily	resulting	from	the	subsequent	increase	in	fair	value	of	Saxon,	which	had	incurred	impairment	losses	of	$98	million	in	the	quarter ended	December	31,	2011.	Pre-tax	gain	(loss)	in	2012	included	a	provision	of	approximately	$115	million	related	to	a	settlement	with	the	Federal	Reserve	concerning	the	independent	foreclosure	review	related	to Saxon.

(4) Included	a	pre-tax	gain	of	approximately	$108	million	in	2012	in	connection	with	the	sale	of	Quilter.

(5) Included	in	Other	are	related	to	the	sale	of	CMB	and	the	sale	of	a	principal	investment.

(6) Included	a	loss	of	approximately	$1.2	billion	in	2010	in	connection	with	the	disposition	of	Revel.

(7) Relates	to	the	legal	settlement	with	DFS	in	2010.

# Parent	Company	Only

# Condensed	Statements	of	Financial	Condition

|  | December	31,<br>2012 | December	31,<br>2011 |
| :--- | :--- | :--- |
| Assets: |  |  |
| Cash\tand\tdue\tfrom\tbanks | $9,564 | $11,935 |
| Interest\tbearing\tdeposits\twith\tbanks | 4,165 | 3,385 |
| Financial\tinstruments\towned,\tat\tfair\tvalue | 2,930 | 12,747 |
| Securities\tpurchased\tunder\tagreement\tto\tresell\twith\taffiliate | 48,493 | 50,356 |
| Advances\tto\tsubsidiaries: |  |  |
| Bank\tand\tbank\tholding\tcompany | 16,731 | 18,325 |
| Non-bank | 115,949 | 129,751 |
| Equity\tinvestments\tin\tsubsidiaries: |  |  |
| Bank\tand\tbank\tholding\tcompany | 23,511 | 19,899 |
| Non-bank | 32,591 | 26,201 |
| Other\tassets | 7,201 | 6,845 |
| Total\tassets | $261,135 | $279,444 |
| Liabilities\tand\tShareholders'\tEquity: |  |  |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings | $228 | $1,100 |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased,\tat\tfair\tvalue | 1,117 | 1,861 |
| Payables\tto\tsubsidiaries | 36,733 | 35,159 |
| Other\tliabilities\tand\taccrued\texpenses | 3,132 | 4,123 |
| Long-term\tborrowings | 157,816 | 175,152 |
|  | 199,026 | 217,395 |
| Commitments\tand\tcontingent\tliabilities |  |  |
| Shareholders'\tequity: |  |  |
| Preferred\tstock | 1,508 | 1,508 |
| Common\tstock,\t$0.01\tpar\tvalue: |  |  |
| Shares\tauthorized:\t3,500,000,000\tin\t2012\tand\t2011; |  |  |
| Shares\tissued:\t2,038,893,979\tin\t2012\tand\t1,989,377,171\tin\t2011; |  |  |
| Shares\toutstanding:\t1,974,042,123\tin\t2012\tand\t1,926,986,130\tin\t2011 | 20 | 20 |
| Paid-in\tcapital | 23,426 | 22,836 |
| Retained\tearnings | 39,912 | 40,341 |
| Employee\tstock\ttrust | 2,932 | 3,166 |
| Accumulated\tother\tcomprehensive\tloss | (516) | (157) |
|  | (2,241) | (2,499) |
| Common\tstock\tissued\tto\temployee\ttrust | (2,932) | (3,166) |
| Total\tshareholders'\tequity | 62,109 | 62,049 |
| Total\tliabilities\tand\tshareholders'\tequity | $261,135 | $279,444 |

# Condensed	Statements	of	Income	and	Comprehensive	Income

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Revenues: |  |  |  |
| Dividends\tfrom\tnon-bank\tsubsidiary | $545 | $7,153 | $2,537 |
| Principal\ttransactions | (3,398) | 4,772 | 628 |
| Other | 36 | (241) | (307) |
| Total\tnon-interest\trevenues | (2,817) | \t 11,684 | 2,858 |
| Interest\tincome | 3,316 | 3,251 | 3,305 |
| Interest\texpense | 5,190 | 5,600 | 5,351 |
| Net\tinterest | (1,874) | (2,349) | (2,046) |
| Net\trevenues | (4,691) | 9,335 | 812 |
| Non-interest\texpenses: |  |  |  |
| Non-interest\texpenses | 114 | 120 | 230 |
| Income\t(loss)\tbefore\tprovision\tfor\t(benefit\tfrom)\tincome\ttaxes | (4,805) | 9,215 | 582 |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | (1,088) | 1,825 | 1,587 |
| Net\tincome\t(loss)\tbefore\tundistributed\tgain\t(loss)\tsubsidiaries | (3,717) | 7,390 | (1,005) |
| Undistributed\tgain\t(loss)\tof\tsubsidiaries | 3,785 | (3,280) | 5,708 |
| Net\tincome | 68 | 4,110 | 4,703 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax: |  |  |  |
| Foreign\tcurrency\ttranslation\tadjustments | (128) | (35) | 66 |
| Amortization\tof\tcash\tflow\thedges | 6 | 7 | 9 |
| Net\tunrealized\tgain\ton\tSecurities\tavailable\tfor\tsale | 28 | 87 | 36 |
| Pension,\tpostretirement\tand\tother\trelated\tadjustments | (265) | 251 | (18) |
| Comprehensive\tincome\t(loss) | $(291) | $4,420 | $4,796 |
| Net\tincome | $68 | $4,110 | $4,703 |
| Earnings\t(loss)\tapplicable\tto\tMorgan\tStanley\tcommon\tshareholders | $(30) | $2,067 | $3,594 |

# Condensed	Statements	of	Cash	Flows

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Cash\tflows\tfrom\toperating\tactivities: |  |  |  |
| Net\tincome | $68 | $4,110 | $4,703 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Compensation\tpayable\tin\tcommon\tstock\tand\tstock\toptions | 891 | 1,300 | 1,260 |
| Undistributed\t(gain)\tloss\tof\tsubsidiaries | (3,785) | 3,280 | (5,708) |
| (Gain)\tloss\ton\tretirement\tof\tlong-term\tdebt | (29) | (155) | 27 |
| Change\tin\tassets\tand\tliabilities: |  |  |  |
| Financial\tinstruments\towned,\tnet\tof\tfinancial\tinstruments\tsold,\tnot\tyet\tpurchased | 9,610 | 103 | (11,848) |
| Other\tassets | (418) | 960 | 929 |
| Other\tliabilities\tand\taccrued\texpenses | 6,637 | (4,242) | 15,072 |
| Net\tcash\tprovided\tby\toperating\tactivities | 12,974 | 5,356 | 4,435 |
| Cash\tflows\tfrom\tinvesting\tactivities: |  |  |  |
| Advances\tto\tand\tinvestments\tin\tsubsidiaries | 6,461 | 10,290 | (9,552) |
| Securities\tpurchased\tunder\tagreement\tto\tresell\twith\taffiliate | 1,864 | (726) | (1,545) |
| Net\tcash\tprovided\tby\t(used\tfor)\tinvesting\tactivities | 8,325 | 9,564 | (11,097) |
| Cash\tflows\tfrom\tfinancing\tactivities: |  |  |  |
| Net\tproceeds\tfrom\t(payments\tfor)\tshort-term\tborrowings | (872) | (253) | 202 |
| Excess\ttax\tbenefits\tassociated\twith\tstock-based\tawards | 42 | — | 5 |
| Net\tproceeds\tfrom: |  |  |  |
| Public\tofferings\tand\tother\tissuances\tof\tcommon\tstock | — | — | 5,581 |
| Issuance\tof\tlong-term\tborrowings | 20,582 | 28,106 | 26,683 |
| Payments\tfor: |  |  |  |
|  | — | — | (5,579) |
| Repurchases\tof\tcommon\tstock\tfor\temployee\ttax\twithholding | (227) | (317) | (317) |
| Long-term\tborrowings | (41,914) | (35,805) | (25,349) |
| Cash\tdividends | (469) | (834) | (1,156) |
| Net\tcash\tprovided\tby\t(used\tfor)\tfinancing\tactivities |  |  |  |
|  | (22,858) | (9,103) | 70 |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tcash\tequivalents | (32) | 113 | (817) |
| Net\tincrease\t(decrease)\tin\tcash\tand\tcash\tequivalents | (1,591) | 5,930 | (7,409) |
| Cash\tand\tcash\tequivalents,\tat\tbeginning\tof\tperiod | 15,320 | 9,390 | 16,799 |
| Cash\tand\tcash\tequivalents,\tat\tend\tof\tperiod | $13,729 | $15,320 | $9,390 |
| Cash\tand\tcash\tequivalents\tinclude: |  |  |  |
| Cash\tand\tdue\tfrom\tbanks | $9,564 | $11,935 | $5,672 |
| Interest\tbearing\tdeposits\twith\tbanks | 4,165 | 3,385 | 3,718 |
| Cash\tand\tcash\tequivalents,\tat\tend\tof\tperiod | $13,729 | $15,320 | $9,390 |

# Transactions	with	Subsidiaries.

The	Parent	Company	has	transactions	with	its	consolidated	subsidiaries	determined	on	an	agreed-upon	basis	and	has	guaranteed	certain	unsecured	lines	of	credit	and contractual	obligations	of	certain	of	its	consolidated	subsidiaries.	Certain	reclassifications	have	been	made	to	prior	period	amounts	to	conform	to	the	current	year's presentation.

In	the	normal	course	of	its	business,	the	Parent	Company	guarantees	certain	of	its	subsidiaries'	obligations	under	derivative	and	other	financial	arrangements.	The	Parent Company	records	Financial	instruments	owned	and	Financial	instruments	sold,	not	yet	purchased,	which	include	derivative	contracts,	at	fair	value	on	its	condensed statements	of	financial	condition.

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

The	Parent	Company	has	issued	guarantees	on	behalf	of	its	subsidiaries	to	various	U.S.	and	non-U.S.	exchanges	and	clearinghouses	that	trade	and	clear	securities	and/or futures	contracts.	Under	these	guarantee	arrangements,	the	Parent	Company	may	be	required	to	pay	the	financial	obligations	of	its	subsidiaries	related	to	business transacted	on	or	with	the	exchanges	and	clearinghouses	in	the	event	of	a	subsidiary's	default	on	its	obligations	to	the	exchange	or	the	clearinghouse.	The	Parent	Company has	not	recorded	any	contingent	liability	in	the	condensed	financial	statements	for	these	arrangements	and	believes	that	any	potential	requirements	to	make	payments under	these	arrangements	is	remote.

The	Parent	Company	guarantees	certain	debt	instruments	and	warrants	issued	by	subsidiaries.	The	debt	instruments	and	warrants	totaled	$8.9	billion	and	$6.9	billion	at December	31,	2012	and	December	31,	2011,	respectively.	In	connection	with	subsidiary	lease	obligations,	the	Parent	Company	has	issued	guarantees	to	various	lessors. At	December	31,	2012	and	December	31,	2011,	the	Parent	Company	had	$1.4	billion	and	$1.4	billion	of	guarantees	outstanding,	respectively,	under	subsidiary	lease obligations,	primarily	in	the	U.K.

# 27.				Quarterly	Results	(unaudited).

|  |  | 2012	Quarter |  |  |  | 2011	Quarter |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | First | Second(1) | Third(2) | Fourth(2) | First | Second | Third | Fourth |
|  |  |  | (dollars\tin\tmillions,\texcept\tper\tshare\tdata) | (dollars\tin\tmillions,\texcept\tper\tshare\tdata) | (dollars\tin\tmillions,\texcept\tper\tshare\tdata) |  |  |  |
| Total\tnon-interest\trevenues | $6,983 | $7,102 | $5,435 | \t$6,791 | \t$7,551 | \t$9,266 | \t$9,658 | \t$5,405 |
| Net\tinterest | (59) | (160) | (155) | 175 | 7 | (66) | 145 | 270 |
| Net\trevenues | 6,924 | 6,942 | 5,280 | 6,966 | 7,558 | 9,200 | 9,803 | 5,675 |
| Total\tnon-interest\texpenses | 6,722 | 6,005 | 6,763 | 6,107 | 6,662 | 7,229 | 6,115 | 6,131 |
| Income\t(loss)\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 202 | 937 | (1,483) | 859 | 896 | 1,971 | 3,688 | (456) |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | 54 | 224 | (525) | 8 | (246) | 539 | 1,415 | (298) |
| Income\t(loss)\tfrom\tcontinuing\toperations | 148 | 713 | (958) | 851 | 1,142 | 1,432 | 2,273 | (158) |
| Discontinued\toperations(3): |  |  |  |  |  |  |  |  |
| Gain\t(loss)\tfrom\tdiscontinued\toperations | 28 | 52 | (11) | (112) | (24) | (22) | (8) | (106) |
| Provision\tfor\t(benefit\tfrom)\tincome\ttaxes | 42 | 15 | (13) | (49) | (12) | 4 | (28) | (80) |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (14) | 37 | 2 | (63) | (12) | (26) | 20 | (26) |
| Net\tincome\t(loss) | 134 | 750 | (956) | 788 | 1,130 | 1,406 | 2,293 | (184) |
| Net\tincome\tapplicable\tto\tredeemable\tnoncontrolling\tinterests | — | — | 8 | 116 | — | — | — | — |
| Net\tincome\tapplicable\tto\tnonredeemable\tnoncontrolling\tinterests | 228 | 159 | 59 | 78 | 162 | 213 | 94 | 66 |
| Net\tincome\t(loss)\tapplicable\tto\tMorgan\tStanley | $(94) | $591 | $(1,023)\t\t$ | 594 | \t$968 | \t$1,193 | \t$2,199 | \t$(250) |
| Earnings\t(loss)\tapplicable\tto\tMorgan\tStanley\tcommon\tshareholders | $(119) | $564 | $(1,047)\t\t$ | 568 | \t$736 | \t$(558) | \t$2,153 | \t$(275) |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare(4): |  |  |  |  |  |  |  |  |
| Income\t(loss)\tfrom\tcontinuing\toperations | $(0.05) | $0.28 | $(0.55)\t\t$ | 0.33 | \t$0.51 | \t$(0.36) | \t$1.16 | \t$(0.13) |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (0.01) | 0.02 | — | (0.03) | — | (0.02) | — | (0.02) |
| Earnings\t(loss)\tper\tbasic\tcommon\tshare | $(0.06) | $0.30 | $(0.55)\t\t$ | 0.30 | \t$0.51 | \t$(0.38) | \t$1.16 | \t$(0.15) |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare(4): |  |  |  |  |  |  |  |  |
| Income\t(loss)\tfrom\tcontinuing\toperations | $(0.05) | $0.28 | $(0.55)\t\t$ | 0.33 | \t$0.51 | \t$(0.36) | \t$1.14 | \t$(0.13) |
| Net\tgain\t(loss)\tfrom\tdiscontinued\toperations | (0.01) | 0.01 | — | (0.04) | (0.01) | (0.02) | 0.01 | (0.02) |
| Earnings\t(loss)\tper\tdiluted\tcommon\tshare | $(0.06) | $0.29 | $(0.55)\t\t$ | 0.29 | \t$0.50 | \t$(0.38) | \t$1.15 | \t$(0.15) |
| Dividends\tdeclared\tper\tcommon\tshare | $0.05 | $0.05 | $0.05 | \t$0.05 | \t$0.05 | \t$0.05 | \t$0.05 | \t$0.05 |
| Book\tvalue\tper\tcommon\tshare | $30.74 | $31.02 | $30.53 | \t$30.70 | \t$31.45 | \t$30.17 | \t$31.29 | \t$31.42 |

(1) The	second	quarter	of	2012	included	an	out-of-period	pre-tax	gain	of	approximately	$300	million	related	to	the	reversal	of	amounts	recorded	in	cumulative	other	comprehensive	income	due	to	the	incorrect application	of	hedge	accounting	on	certain	derivative	contracts	previously	designated	as	net	investment	hedges	of	certain	foreign,	non-U.S.	dollar	denominated	subsidiaries.	This	amount	included	a	pre-tax	gain	of approximately	$191	million	related	to	the	first	quarter	of	2012,	with	the	remainder	impacting	prior	periods	(see	Note	12).

(2) The	third	quarter	of	2012	included	an	out-of-period	net	tax	provision	of	approximately	$82	million	primarily	related	to	the	overstatement	of	tax	benefits	associated	with	repatriated	earnings	of	a	foreign	subsidiary in	prior	periods,	while	the	fourth	quarter	of	2012	included	an	out-of-period	net	tax	provision	of	approximately	$75	million	primarily	related	to	the	overstatement	of	deferred	tax	assets	associated	with	partnership investments	in	prior	periods	(see	Note	22).

(3) See	Notes	1	and	25	for	more	information	on	discontinued	operations.

(4) Summation	of	the	quarters'	earnings	per	common	share	may	not	equal	the	annual	amounts	due	to	the	averaging	effect	of	the	number	of	shares	and	share	equivalents	throughout	the	year.

The	Company	has	evaluated	subsequent	events	for	adjustment	to	or	disclosure	in	the	consolidated	financial	statements	through	the	date	of	this	report	and	the	Company has	not	identified	any	recordable	or	disclosable	events,	not	otherwise	reported	in	these	consolidated	financial	statements	or	the	notes	thereto,	except	for	the	following:

# Common	Dividend.

On	January	18,	2013,	the	Company	announced	that	its	Board	of	Directors	declared	a	quarterly	dividend	per	common	share	of	$0.05.	The	dividend	is	payable	on February	15,	2013	to	common	shareholders	of	record	on	February	5,	2013.

On	February	25,	2013,	the	Company	issued	$4.5	billion	in	senior	unsecured	debt.

# Process	Driven	Trading.

In	2011,	the	Company	announced	that	it	had	reached	an	agreement	with	the	employees	of	its	in-house	quantitative	proprietary	trading	unit,	Process	Driven	Trading ("PDT"),	whereby	PDT	employees	will	acquire	certain	assets	from	the	Company	and	launch	an	independent	advisory	firm.	This	transaction	closed	on	January	1,	2013.

During	2012,	PDT	did	not	have	a	material	impact	on	the	Company's	financial	condition,	results	of	operations	and	liquidity.

On	January	1,	2013,	the	U.S.	banking	regulators'	rules	to	implement	the	Basel	Committee's	market	risk	capital	framework,	referred	to	as	"Basel	2.5,"	became	effective.

# FINANCIAL	DATA	SUPPLEMENT	(Unaudited)

# Average	Balances	and	Interest	Rates	and	Net	Interest	Income

|  | Average |  |  |
| :--- | :--- | :--- | :--- |
|  | Weekly |  | Average |
|  | Balance | Interest | Rate |
|  |  | (dollars\tin\tmillions) |  |
| Assets |  |  |  |
| Interest\tearning\tassets: |  |  |  |
| Financial\tinstruments\towned(1): |  |  |  |
| U.S. | $133,615 | $2,247 | 1.7% |
| Non-U.S. | 82,019 | 489 | 0.6 |
| Securities\tavailable\tfor\tsale: |  |  |  |
| U.S. | 35,141 | 343 | 1.0 |
| Loans: |  |  |  |
| U.S. | 20,996 | 597 | 2.8 |
| Non-U.S. | 363 | 46 | 12.7 |
| Interest\tbearing\tdeposits\twith\tbanks: |  |  |  |
| U.S. | 25,905 | 58 | 0.2 |
| Non-U.S. | 10,612 | 66 | 0.6 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell\tand\tSecurities\tborrowed: |  |  |  |
| U.S. | \t 189,186 | (315) | (0.2) |
| Non-U.S. | 91,851 | 679 | 0.7 |
| Other: |  |  |  |
| U.S. | 54,651 | 471 | 0.9 |
| Non-U.S. | 15,404 | 1,044 | 6.8 |
| Total | $659,743 | $5,725 | 0.9% |
| Non-interest\tearning\tassets | \t 122,428 |  |  |
| Total\tassets | $782,171 |  |  |
| Liabilities\tand\tEquity |  |  |  |
| Interest\tbearing\tliabilities: |  |  |  |
| Deposits: |  |  |  |
| U.S. | $69,265 | $181 | 0.3% |
| Non-U.S. | 165 | — | — |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings: |  |  |  |
| U.S. | 557 | 5 | 0.9 |
| Non-U.S. | 1,383 | 33 | 2.4 |
| Long-term\tdebt: |  |  |  |
| U.S. | \t 163,961 | 4,544 | 2.8 |
| Non-U.S. | 7,552 | 78 | 1.0 |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased(1): |  |  |  |
| U.S. | 38,125 | — | — |
| Non-U.S. | 51,834 | — | — |
| Securities\tsold\tunder\tagreements\tto\trepurchase\tand\tSecurities\tloaned: |  |  |  |
| U.S. | \t 101,210 | 522 | 0.5 |
| Non-U.S. | 59,932 | 1,283 | 2.1 |
| Other: |  |  |  |
| U.S. | 82,881 | (1,475) | (1.8) |
| Non-U.S. | 33,992 | 753 | 2.2 |
| Total | $610,857 | $5,924 | 1.0 |
| Non-interest\tbearing\tliabilities\tand\tequity | \t 171,314 |  |  |
| Total\tliabilities\tand\tequity | $782,171 |  |  |
| Net\tinterest\tincome\tand\tnet\tinterest\trate\tspread |  | $(199) | (0.1)% |

(1) Interest	expense	on	Financial	instruments	sold,	not	yet	purchased	is	reported	as	a	reduction	of	Interest	income	on	Financial	instruments	owned.

# FINANCIAL	DATA	SUPPLEMENT	(Unaudited)—(Continued)

|  | Average |  |  |
| :--- | :--- | :--- | :--- |
|  | Weekly |  | Average |
|  | Balance | Interest | Rate |
|  |  | (dollars\tin\tmillions) |  |
| Assets |  |  |  |
| Interest\tearning\tassets: |  |  |  |
| Financial\tinstruments\towned(1): |  |  |  |
| U.S. | $122,704 | $2,636 | 2.1% |
| Non-U.S. | \t 114,445 | 957 | 0.8 |
| Securities\tavailable\tfor\tsale: |  |  |  |
| U.S. | 27,712 | 348 | 1.3 |
| Loans: |  |  |  |
| U.S. | 12,294 | 326 | 2.7 |
| Non-U.S. | 420 | 30 | 7.1 |
| Interest\tbearing\tdeposits\twith\tbanks: |  |  |  |
| U.S. | 41,256 | 49 | 0.1 |
| Non-U.S. | 16,558 | 137 | 0.8 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell\tand\tSecurities\tborrowed: |  |  |  |
| U.S. | \t 191,843 | (79) | — |
| Non-U.S. | \t 110,682 | 965 | 0.9 |
| Other: |  |  |  |
| U.S. | 45,336 | 1,335 | 2.9 |
| Non-U.S. | 15,454 | 554 | 3.6 |
| Total | $698,704 | $7,258 | 1.0% |
| Non-interest\tearning\tassets | \t 140,131 |  |  |
| Total\tassets | $838,835 |  |  |
| Liabilities\tand\tEquity |  |  |  |
| Interest\tbearing\tliabilities: |  |  |  |
| Deposits: |  |  |  |
| U.S. | $64,559 | $236 | 0.4% |
| Non-U.S. | 91 | — | — |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings: |  |  |  |
| U.S. | 874 | 7 | 0.8 |
| Non-U.S. | 2,163 | 34 | 1.6 |
| Long-term\tdebt: |  |  |  |
| U.S. | \t 184,623 | 4,880 | 2.6 |
| Non-U.S. | 7,701 | 32 | 0.4 |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased(1): |  |  |  |
| U.S. | 30,070 | — | — |
| Non-U.S. | 61,313 | — | — |
| Securities\tsold\tunder\tagreements\tto\trepurchase\tand\tSecurities\tloaned: |  |  |  |
| U.S. | \t 110,270 | 649 | 0.6 |
| Non-U.S. | 69,276 | 1,276 | 1.8 |
| Other: |  |  |  |
| U.S. | 90,193 | (1,094) | (1.2) |
| Non-U.S. | 38,139 | 882 | 2.3 |
| Total | $659,272 | $6,902 | 1.0 |
| Non-interest\tbearing\tliabilities\tand\tequity | \t 179,563 |  |  |
| Total\tliabilities\tand\tequity | $838,835 |  |  |
| Net\tinterest\tincome\tand\tnet\tinterest\trate\tspread |  | $356 | —\t\t% |

|  | Average |  |  |
| :--- | :--- | :--- | :--- |
|  | Weekly\nBalance | Interest | Average\nRate |
|  |  | (dollars\tin\tmillions) |  |
| Assets |  |  |  |
| Interest\tearning\tassets: |  |  |  |
| Financial\tinstruments\towned(1): |  |  |  |
| U.S. | $145,449 | $3,124 | 2.1% |
| Non-U.S. | \t 105,385 | 807 | 0.8 |
| Securities\tavailable\tfor\tsale: |  |  |  |
| U.S. | 18,290 | 215 | 1.2 |
| Loans: |  |  |  |
| U.S. | 7,993 | 293 | 3.7 |
| Non-U.S. | 219 | 22 | 10.0 |
| Interest\tbearing\tdeposits\twith\tbanks: |  |  |  |
| U.S. | 33,807 | 67 | 0.2 |
| Non-U.S. | 20,897 | 88 | 0.4 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell\tand\tSecurities\tborrowed: |  |  |  |
| U.S. | \t 193,796 | 236 | 0.1 |
| Non-U.S. | \t 111,982 | 533 | 0.5 |
| Other: |  |  |  |
| U.S. | 32,400 | \t 1,565 | 4.8 |
| Non-U.S. | 18,091 | 355 | 2.0 |
| Total | $688,309 | $7,305 | 1.1\t% |
| Non-interest\tearning\tassets | \t 142,761 |  |  |
| Total\tassets | $831,070 |  |  |
| Liabilities\tand\tEquity |  |  |  |
| Interest\tbearing\tliabilities: |  |  |  |
| Deposits: |  |  |  |
| U.S. | $62,759 | $310 | 0.5% |
| Non-U.S. | 70 | — | — |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings: |  |  |  |
| U.S. | 1,599 | 11 | 0.7 |
| Non-U.S. | 1,772 | 17 | 1.0 |
| Long-term\tdebt: |  |  |  |
| U.S. | \t 186,374 | \t 4,586 | 2.5 |
| Non-U.S. | 5,170 | 6 | 0.1 |
| Financial\tinstruments\tsold,\tnot\tyet\tpurchased(1): |  |  |  |
| U.S. | 22,947 | — | — |
| Non-U.S. | 58,741 | — | — |
| Securities\tsold\tunder\tagreements\tto\trepurchase\tand\tSecurities\tloaned: |  |  |  |
| U.S. | \t 116,090 | 725 | 0.6 |
| Non-U.S. | 94,498 | 866 | 0.9 |
| Other: |  |  |  |
| U.S. | 97,585 | (504) | (0.5) |
| Non-U.S. | 23,852 | 390 | 1.6 |
| Total | $671,457 | $6,407 | 1.0 |
| Non-interest\tbearing\tliabilities\tand\tequity | \t 159,613 |  |  |
| Total\tliabilities\tand\tequity | $831,070 |  |  |
| Net\tinterest\tincome\tand\tnet\tinterest\trate\tspread |  | $898 | 0.1% |

# Rate/Volume	Analysis

The	following	tables	set	forth	an	analysis	of	the	effect	on	net	interest	income	of	volume	and	rate	changes:

|  |  | 2012	versus	2011 |  |
| :--- | :--- | :--- | :--- |
|  | Increase\t(decrease)\tdue\tto\tchange\tin: |  |  |
|  | Volume | Rate | Net\tChange |
|  |  | (dollars\tin\tmillions) |  |
| Interest\tearning\tassets |  |  |  |
| Financial\tinstruments\towned: |  |  |  |
| U.S. | $234 | $(623) | $(389) |
| Non-U.S. | (271) | (197) | (468) |
| Securities\tavailable\tfor\tsale: |  |  |  |
| U.S. | 93 | (98) | (5) |
| Loans: |  |  |  |
| U.S. | 231 | 40 | 271 |
| Non-U.S. | (4) | 20 | 16 |
| Interest\tbearing\tdeposits\twith\tbanks: |  |  |  |
| U.S. | (18) | 27 | 9 |
| Non-U.S. | (49) | (22) | (71) |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell\tand |  |  |  |
| Securities\tborrowed: |  |  |  |
| U.S. | 1 | (237) | (236) |
| Non-U.S. | (164) | (122) | (286) |
| Other: |  |  |  |
| U.S. | 274 | (1,138) | (864) |
| Non-U.S. | (2) | 492 | 490 |
| Change\tin\tinterest\tincome | $325 | $(1,858) | $(1,533) |
| Interest\tbearing\tliabilities |  |  |  |
| Deposits: |  |  |  |
| U.S. | $17 | $(72) | $(55) |
| Non-U.S. | — | — | — |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings: |  |  |  |
| U.S. | (3) | 1 | (2) |
| Non-U.S. | (12) | 11 | (1) |
| Long-term\tdebt: |  |  |  |
| U.S. | (546) | 210 | (336) |
| Non-U.S. | (1) | 47 | 46 |
| Securities\tsold\tunder\tagreements\tto\trepurchase\tand\tSecurities\tloaned: |  |  |  |
| U.S. | (53) | (74) | (127) |
| Non-U.S. | (172) | 179 | 7 |
| Other: |  |  |  |
| U.S. | 89 | (470) | (381) |
| Non-U.S. | (96) | (33) | (129) |
| Change\tin\tinterest\texpense | $(777) | $(201) | $(978) |
| Change\tin\tnet\tinterest\tincome | $1,102 | $(1,657) | $(555) |

|  | Increase	(decrease)	due	to	change	in: |  |  |
| :--- | :--- | :--- | :--- |
|  | Volume | Rate | Net\tChange |
|  |  | (dollars\tin\tmillions) |  |
| Interest\tearning\tassets |  |  |  |
| Financial\tinstruments\towned: |  |  |  |
| U.S. | $(489) | $1 | $(488) |
| Non-U.S. | 69 | 81 | 150 |
| Securities\tavailable\tfor\tsale: |  |  |  |
| U.S. | 111 | 22 | 133 |
| Loans: |  |  |  |
| U.S. | 158 | (125) | 33 |
| Non-U.S. | 20 | (12) | 8 |
| Interest\tbearing\tdeposits\twith\tbanks: |  |  |  |
| U.S. | 15 | (33) | (18) |
| Non-U.S. | (18) | 67 | 49 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tagreements\tto\tresell\tand |  |  |  |
| Securities\tborrowed: |  |  |  |
| U.S. | (2) | (313) | (315) |
| Non-U.S. | (6) | 438 | 432 |
| Other: |  |  |  |
| U.S. | 624 | (854) | (230) |
| Non-U.S. | (52) | 251 | 199 |
| Change\tin\tinterest\tincome | $430 | $(477) | $(47) |
| Interest\tbearing\tliabilities |  |  |  |
| Deposits: |  |  |  |
| U.S. | $9 | $(83) | $(74) |
| Non-U.S. | — | — | — |
| Commercial\tpaper\tand\tother\tshort-term\tborrowings: |  |  |  |
| U.S. | (5) | 1 | (4) |
| Non-U.S. | 4 | 13 | 17 |
| Long-term\tdebt: |  |  |  |
| U.S. | (43) | 337 | 294 |
| Non-U.S. | 3 | 23 | 26 |
| Securities\tsold\tunder\tagreements\tto\trepurchase\tand\tSecurities\tloaned: |  |  |  |
| U.S. | (36) | (40) | (76) |
| Non-U.S. | (231) | 641 | 410 |
| Other: |  |  |  |
| U.S. | 36 | (626) | (590) |
| Non-U.S. | 234 | 258 | 492 |
| Change\tin\tinterest\texpense | $(29) | $524 | $495 |
| Change\tin\tnet\tinterest\tincome | $459 | $(1,001) | $(542) |

|  | Average | Average | Average | Average | Average | Average |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amount(1) | Rate | Amount(1) | Rate | Amount(1) | Rate |
|  |  |  | (dollars\tin\tmillions) |  |  |  |
| Deposits(2): |  |  |  |  |  |  |
| Savings\tdeposits | $66,073 | 0.1% | $61,258 | 0.2% | $58,053 | 0.2% |
| Time\tdeposits | 3,357 | 2.6% | 3,392 | 3.5% | 4,776 | 3.7% |
| Total | $69,430 | 0.3% | $64,650 | 0.4% | $62,829 | 0.5% |

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

(2) Deposits	are	primarily	located	in	U.S.	offices.

# Ratios

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Net\tincome\tto\taverage\tassets | \tN/M | 0.5% | \t0.6% |
| Return\ton\taverage\tcommon\tequity(1) | \tN/M | 3.8% | \t9.0% |
| Return\ton\ttotal\tequity(2) | 0.1% | 6.9% | \t9.0% |
| Dividend\tpayout\tratio(3) | \tN/M | \t16.3% | \t7.6% |
| Total\taverage\tcommon\tequity\tto\taverage\tassets | 7.8% | 6.5% | \t5.1% |
| Total\taverage\tequity\tto\taverage\tassets | 8.0% | 7.1% | \t6.3% |

(1) Based	on	net	income	applicable	to	Morgan	Stanley	less	preferred	dividends	as	a	percentage	of	average	common	equity.

(2) Based	on	net	income	as	a	percentage	of	average	total	equity.

(3) Dividends	declared	per	common	share	as	a	percentage	of	net	income	per	diluted	share.

# Short-term	Borrowings

|  | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
|  |  | (dollars\tin\tmillions) |  |
| Securities\tsold\tunder\trepurchase\tagreements: |  |  |  |
| Period-end\tbalance | $122,674 | $104,800 | $147,598 |
| Average\tbalance(1)(2) | \t 125,465 | \t 142,784 | \t 178,673 |
| Maximum\tbalance\tat\tany\tmonth-end | \t 139,962 | \t 164,511 | \t 216,130 |
| Weighted\taverage\tinterest\trate\tduring\tthe\tperiod(3) | 0.9% | 0.9% | 0.7% |
| Weighted\taverage\tinterest\trate\ton\tperiod-end\tbalance(4) | 0.8% | 0.8% | 0.8% |
| Securities\tloaned: |  |  |  |
| Period-end\tbalance | $36,849 | $30,462 | $29,094 |
| Average\tbalance(1) | 35,677 | 36,762 | 31,915 |
| Maximum\tbalance\tat\tany\tmonth-end | 39,881 | 50,709 | 33,454 |
| Weighted\taverage\tinterest\trate\tduring\tthe\tperiod(3) | 1.9% | 1.9% | 1.3% |
| Weighted\taverage\tinterest\trate\ton\tperiod-end\tbalance(4) | 1.5% | 1.8% | 1.6% |

(2) In	2011,	the	period-end	balance	was	lower	than	the	annual	average	primarily	due	to	a	decrease	in	the	overall	balance	sheet	during	the	year.	In	2010,	period-end	balance	was	lower	than	the	annual	average	primarily due	to	the	seasonal	maturity	of	client	financing	activity.

(3) The	approximated	weighted	average	interest	rate	was	calculated	using	(a)	interest	expense	incurred	on	all	securities	sold	under	repurchase	agreements	and	securities	loaned	transactions,	whether	or	not	such transactions	were	reported	on	the	consolidated	statements	of	financial	condition	and	(b)	average	balances	that	were	reported	on	a	net	basis	where	certain	criteria	were	met	in	accordance	with

applicable	offsetting	guidance.	In	addition,	securities-for-securities	transactions	in	which	the	Company	was	the	borrower	were	not	included	in	the	average	balances	since	they	were	not	reported	on	the	consolidated statements	of	financial	condition.

(4) The	approximated	weighted	average	interest	rate	was	calculated	using	(a)	interest	expense	for	all	securities	sold	under	repurchase	agreements	and	securities	loaned	transactions,	whether	or	not	such	transactions were	reported	on	the	consolidated	statements	of	financial	condition	and	(b)	period-end	balances	that	were	reported	on	a	net	basis	where	certain	criteria	were	met	in	accordance	with	applicable	offsetting	guidance. In	addition,	securities-for-securities	transactions	in	which	the	Company	was	the	borrower	were	not	included	in	the	period-end	balances	since	they	were	not	reported	on	the	consolidated	statements	of	financial condition.

# Cross-border	Outstandings

Cross-border	outstandings	are	based	upon	the	Federal	Financial	Institutions	Examination	Council's	("FFIEC")	regulatory	guidelines	for	reporting	cross-border	risk. Claims	include	cash,	receivables,	securities	purchased	under	agreements	to	resell,	securities	borrowed	and	cash	trading	instruments,	but	exclude	commitments.	Securities purchased	under	agreements	to	resell	and	securities	borrowed	are	presented	based	on	the	domicile	of	the	counterparty,	without	reduction	for	related	securities	collateral held.	For	information	regarding	the	Company's	country	risk	exposure,	see	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk—Risk	Management—Credit Risk—Country	Risk	Exposure"	in	Part	II,	Item	7A.

The	following	tables	set	forth	cross-border	outstandings	for	each	country	in	which	cross-border	outstandings	exceed	1%	of	the	Company's	consolidated	assets	or	20%	of the	Company's	total	capital,	whichever	is	less,	at	December	31,	2012	and	December	31,	2011,	respectively,	in	accordance	with	the	FFIEC	guidelines	(dollars	in millions):

|  |  | At	December	31,	2012 | At	December	31,	2012 |  |
| :--- | :--- | :--- | :--- | :--- |
| Country | Banks | Governments | Other | Total |
| United\tKingdom | $17,504 | $6 | $100,090 | $117,600 |
| Cayman\tIslands | 5 | 10 | 41,628 | 41,643 |
| France | \t 28,699 | 149 | 3,915 | 32,763 |
| Japan | \t 24,935 | 148 | 2,967 | 28,050 |
| Germany | \t 15,084 | 3,014 | 4,192 | 22,290 |
| Netherlands | 1,700 | — | 10,920 | 12,620 |
| Canada | 6,651 | 1,310 | 2,893 | 10,854 |
| Korea | 32 | 6,812 | 2,311 | 9,155 |
| Switzerland | 3,319 | 242 | 5,483 | 9,044 |
| Luxembourg | 221 | 223 | 7,952 | 8,396 |
| Brazil | 221 | 260 | 1,578 | 2,059 |

|  |  | At	December	31,	2011 | At	December	31,	2011 |  |
| :--- | :--- | :--- | :--- | :--- |
| Country | Banks | Governments | Other | Total |
| United\tKingdom | $13,852 | $2 | $89,585 | $103,439 |
| Cayman\tIslands | 766 | — | \t 31,169 | 31,935 |
| France | \t 23,561 | 1,096 | 4,196 | 28,853 |
| Japan | \t 23,542 | 436 | 2,821 | 26,799 |
| Germany | \t 18,674 | 3,485 | 1,859 | 24,018 |
| Netherlands | 3,508 | 23 | 8,826 | 12,357 |
| Luxembourg | 1,619 | 94 | 6,137 | 7,850 |
| Brazil | 149 | 3,398 | 2,165 | 5,712 |
| Australia | 2,008 | 557 | 1,414 | 3,979 |
| Italy | 881 | 1,463 | 539 | 2,883 |

For	cross-border	exposure	that	exceeds	0.75%	but	does	not	exceed	1%	of	the	Company's	consolidated	assets,	Saudi	Arabia	and	Singapore	had	a	total	cross-border exposure	of	$12,848	million	at	December	31,	2012,	and	Korea,	Singapore,	Canada	and	certain	other	countries	had	a	total	cross-border	exposure	of	$26,908	million	at December	31,	2011.

# Item	9. Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure.

None.

# Item	9A. Controls	and	Procedures.

# Conclusion	Regarding	the	Effectiveness	of	Disclosure	Controls	and	Procedures.

Under	the	supervision	and	with	the	participation	of	our	management,	including	our	Chief	Executive	Officer	and	our	Chief	Financial	Officer,	we	conducted	an	evaluation of	our	disclosure	controls	and	procedures,	as	such	term	is	defined	under	Exchange	Act	Rule	13a-15(e).	Based	on	this	evaluation,	our	Chief	Executive	Officer	and	our Chief	Financial	Officer	concluded	that	our	disclosure	controls	and	procedures	were	effective	as	of	the	end	of	the	period	covered	by	this	annual	report.

# Management's	Report	on	Internal	Control	Over	Financial	Reporting.

Our	management	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting.	The	Company's	internal	control	over	financial reporting	is	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in accordance	with	generally	accepted	accounting	principles.

Our	internal	control	over	financial	reporting	includes	those	policies	and	procedures	that:

•	 Pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	the	Company;

•	 Provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in	accordance	with	generally	accepted accounting	principles,	and	that	our	receipts	and	expenditures	are	being	made	only	in	accordance	with	authorizations	of	the	Company's	management	and directors;	and

•	 Provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use	or	disposition	of	our	assets	that	could	have	a	material effect	on	our	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of	effectiveness to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or procedures	may	deteriorate.

Management	assessed	the	effectiveness	of	the	Company's	internal	control	over	financial	reporting	as	of	December	31,	2012.	In	making	this	assessment,	management used	the	criteria	set	forth	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO)	in	Internal	Control-Integrated	Framework.	Based	on management's	assessment	and	those	criteria,	management	believes	that	the	Company	maintained	effective	internal	control	over	financial	reporting	as	of	December	31, 2012.

The	Company's	independent	registered	public	accounting	firm	has	audited	and	issued	a	report	on	the	Company's	internal	control	over	financial	reporting,	which	appears below.

We	have	audited	the	internal	control	over	financial	reporting	of	Morgan	Stanley	and	subsidiaries	(the	"Company")	as	of	December	31,	2012,	based	on	criteria established	in	Internal	Control—Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.	The	Company's management	is	responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial reporting,	included	in	the	accompanying	Management's	Report	on	Internal	Control	Over	Financial	Reporting.	Our	responsibility	is	to	express	an	opinion	on	the Company's	internal	control	over	financial	reporting	based	on	our	audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.	Our	audit included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	assessing	the	risk	that	a	material	weakness	exists,	testing	and	evaluating	the	design	and operating	effectiveness	of	internal	control	based	on	the	assessed	risk,	and	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe that	our	audit	provides	a	reasonable	basis	for	our	opinion.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	by,	or	under	the	supervision	of,	the	company's	principal	executive	and	principal	financial officers,	or	persons	performing	similar	functions,	and	effected	by	the	company's	board	of	directors,	management,	and	other	personnel	to	provide	reasonable	assurance regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting principles.	A	company's	internal	control	over	financial	reporting	includes	those	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable detail,	accurately	and	fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as necessary	to	permit	preparation	of	financial	statements	in	accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company are	being	made	only	in	accordance	with	authorizations	of	management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or timely	detection	of	unauthorized	acquisition,	use,	or	disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	the	inherent	limitations	of	internal	control	over	financial	reporting,	including	the	possibility	of	collusion	or	improper	management	override	of	controls, material	misstatements	due	to	error	or	fraud	may	not	be	prevented	or	detected	on	a	timely	basis.	Also,	projections	of	any	evaluation	of	the	effectiveness	of	the	internal control	over	financial	reporting	to	future	periods	are	subject	to	the	risk	that	the	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of compliance	with	the	policies	or	procedures	may	deteriorate.

In	our	opinion,	the	Company	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	December	31,	2012,	based	on	the	criteria established	in	Internal	Control—Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	consolidated	financial	statements	of	the Company	as	of	December	31,	2012,	and	for	the	year	then	ended,	and	our	report	dated	February	26,	2013	expressed	an	unqualified	opinion	on	those	financial	statements.

# Changes	in	Internal	Control	Over	Financial	Reporting.

No	change	in	the	Company's	internal	control	over	financial	reporting	(as	such	term	is	defined	in	Exchange	Act	Rule	13a-15(f))	occurred	during	the	quarter	ended December	31,	2012	that	materially	affected,	or	is	reasonably	likely	to	materially	affect,	the	Company's	internal	control	over	financial	reporting.

# Item	9B. Other	Information.

# Part	III

# Item	10. Directors,	Executive	Officers	and	Corporate	Governance.

Information	relating	to	the	Company's	directors	and	nominees	under	the	following	captions	in	the	Company's	definitive	proxy	statement	for	its	2013	annual	meeting	of shareholders	("Morgan	Stanley's	Proxy	Statement")	is	incorporated	by	reference	herein.

•"Item	1—Election	of	Directors—Director	Nominees"

•"Item	1—Election	of	Directors—Corporate	Governance—Board	Meetings	and	Committees"

•"Item	1—Election	of	Directors—Beneficial	Ownership	of	Company	Common	Stock—Section	16(a)	Beneficial	Ownership	Reporting	Compliance"

Information	relating	to	the	Company's	executive	officers	is	contained	in	Part	I,	Item	1	of	this	report	under	"Executive	Officers	of	Morgan	Stanley."

Morgan	Stanley's	Code	of	Ethics	and	Business	Conduct	applies	to	all	directors,	officers	and	employees,	including	its	Chief	Executive	Officer,	Chief	Financial	Officer and	Deputy	Chief	Financial	Officer	and	Controller.	You	can	find	our	Code	of	Ethics	and	Business	Conduct	on	our	internet	site,

www.morganstanley.com/about/company/governance/ethics.html.	We	will	post	any	amendments	to	the	Code	of	Ethics	and	Business	Conduct,	and	any	waivers	that	are required	to	be	disclosed	by	the	rules	of	either	the	SEC	or	the	NYSE,	on	our	internet	site.

# Item	11. Executive	Compensation.

Information	relating	to	director	and	executive	officer	compensation	under	the	following	captions	in	Morgan	Stanley's	Proxy	Statement	is	incorporated	by	reference herein.

•"Item	1—Election	of	Directors—Executive	Compensation"

•"Item	1—Election	of	Directors—Corporate	Governance—Director	Compensation"

# Item	12. Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters.

Information	relating	to	equity	compensation	plans	and	security	ownership	of	certain	beneficial	owners	and	management	is	set	forth	under	the	captions	"Item	4— Company	Proposal	to	Amend	the	2007	Equity	Incentive	Compensation	Plan—Equity	Compensation	Plan	Information"	and	"Item	1—Election	of	Directors—Beneficial Ownership	of	Company	Common	Stock"	in	Morgan	Stanley's	Proxy	Statement	and	such	information	is	incorporated	by	reference	herein.

# Item	13. Certain	Relationships	and	Related	Transactions,	and	Director	Independence.

Information	regarding	certain	relationships	and	related	transactions	under	the	following	caption	in	Morgan	Stanley's	Proxy	Statement	is	incorporated	by	reference herein.

•"Item	1—Election	of	Directors—Corporate	Governance—Related	Person	Transactions	Policy"

•"Item	1—Election	of	Directors—Corporate	Governance—Certain	Transactions"

Information	regarding	director	independence	under	the	following	caption	in	Morgan	Stanley's	Proxy	Statement	is	incorporated	by	reference	herein.

•"Item	1—Election	of	Directors—Corporate	Governance—Director	Independence"

# Item	14. Principal	Accountant	Fees	and	Services.

Information	regarding	principal	accountant	fees	and	services	under	the	following	caption	in	Morgan	Stanley's	Proxy	Statement	is	incorporated	by	reference	herein. •"Item	2—Ratification	of	Appointment	of	Morgan	Stanley's	Independent	Auditor"	(excluding	the	information	under	the	subheading	"Audit	Committee Report")

# Part	IV

# Item	15. Exhibits	and	Financial	Statement	Schedules.

# Documents	filed	as	part	of	this	report.

•	 The	consolidated	financial	statements	required	to	be	filed	in	this	Annual	Report	on	Form	10-K	are	included	in	Part	II,	Item	8	hereof.

•	 An	exhibit	index	has	been	filed	as	part	of	this	report	beginning	on	page	E-1	and	is	incorporated	herein	by	reference.

# Signatures

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	Registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf	by	the undersigned,	thereunto	duly	authorized,	on	February	26,	2013.

(REGISTRANT	)

(James	P.	Gorman)

	 Chairman	of	the	Board	and	Chief	Executive	Officer

# POWER	OF	ATTORNEY

We,	the	undersigned,	hereby	severally	constitute	Ruth	Porat,	Eric	F.	Grossman	and	Martin	M.	Cohen,	and	each	of	them	singly,	our	true	and	lawful	attorneys	with	full power	to	them	and	each	of	them	to	sign	for	us,	and	in	our	names	in	the	capacities	indicated	below,	any	and	all	amendments	to	the	Annual	Report	on	Form	10-K	filed	with the	Securities	and	Exchange	Commission,	hereby	ratifying	and	confirming	our	signatures	as	they	may	be	signed	by	our	said	attorneys	to	any	and	all	amendments	to	said Annual	Report	on	Form	10-K.

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	Registrant	and	in	the capacities	indicated	on	the	26th	day	of	February,	2013.

(Ruth	Porat)

(Paul	C.	Wirth)

Executive	Vice	President	and	Chief	Financial	Officer (Principal	Financial	Officer)

Deputy	Chief	Financial	Officer (Principal	Accounting	Officer)

# SECURITIES	AND	EXCHANGE	COMMISSION

# EXHIBITS	TO	FORM	10-K

# Exhibit	Index

Certain	of	the	following	exhibits,	as	indicated	parenthetically,	were	previously	filed	as	exhibits	to	registration	statements	filed	by	Morgan	Stanley	or	its	predecessor companies	under	the	Securities	Act	or	to	reports	or	registration	statements	filed	by	Morgan	Stanley	or	its	predecessor	companies	under	the	Exchange	Act	and	are	hereby incorporated	by	reference	to	such	statements	or	reports.	Morgan	Stanley's	Exchange	Act	file	number	is	1-11758.	The	Exchange	Act	file	number	of	Morgan	Stanley Group	Inc.,	a	predecessor	company	("MSG"),	was	1-9085.^1

		4.3 Senior	Indenture	dated	as	of	November	1,	2004	between	Morgan	Stanley	and	The	Bank	of	New	York,	as	trustee	(Exhibit	4-f	to	Morgan	Stanley's Registration	Statement	on	Form	S-3/A	(No.	333-117752),	as	amended	by	First	Supplemental	Senior	Indenture	dated	as	of	September	4,	2007	(Exhibit	4.5 to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November	30,	2007),	Second	Supplemental	Senior	Indenture	dated	as	of January	4,	2008	(Exhibit	4.1	to	Morgan	Stanley's	Current	Report	on	Form	8-K	dated	January	4,	2008),	Third	Supplemental	Senior	Indenture	dated	as	of September	10,	2008	(Exhibit	4	to	Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	August	31,	2008),	Fourth	Supplemental	Senior Indenture	dated	as	of	December	1,	2008	(Exhibit	4.1	to	Morgan	Stanley's	Current	Report	on	Form	8-K	dated	December	1,	2008),	Fifth	Supplemental Senior	Indenture	dated	as	of	April	1,	2009	(Exhibit	4	to	Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	March	31,	2009),	Sixth Supplemental	Senior	Indenture

(1) For	purposes	of	this	Exhibit	Index,	references	to	"The	Bank	of	New	York"	mean	in	some	instances	the	entity	successor	to	JPMorgan	Chase	Bank,	N.A.	or	J.P. Morgan	Trust	Company,	National	Association;	references	to	"JPMorgan	Chase	Bank,	N.A."	mean	the	entity	formerly	known	as	The	Chase	Manhattan	Bank,	in some	instances	as	the	successor	to	Chemical	Bank;	references	to	"J.P.	Morgan	Trust	Company,	N.A."	mean	the	entity	formerly	known	as	Bank	One	Trust Company,	N.A.,	as	successor	to	The	First	National	Bank	of	Chicago.

4.15 Amended	and	Restated	Trust	Agreement	of	Morgan	Stanley	Capital	Trust	VI	dated	as	of	January	26,	2006	among	Morgan	Stanley,	as	depositor,	The Bank	of	New	York,	as	property	trustee,	The	Bank	of	New	York	(Delaware),	as	Delaware	trustee	and	the	administrators	named	therein	(Exhibit	4	to Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	February	28,	2006).

	10.12† Employees'	Equity	Accumulation	Plan	as	amended	and	restated	as	of	November	26,	2007	(Exhibit	10.12	to	Morgan	Stanley's	Annual	Report	on	Form 10-K	for	the	fiscal	year	ended	November	30,	2007).

10.14† Morgan	Stanley	Supplemental	Executive	Retirement	and	Excess	Plan,	amended	and	restated	effective	December	31,	2008	(Exhibit	10.2	to	Morgan Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	March	31,	2009)	as	amended	by	Amendment	(Exhibit	10.5	to	Morgan	Stanley's Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	June	30,	2009),	Amendment	(Exhibit	10.19	to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for the	year	ended	December	31,	2010)	and	Amendment	(Exhibit	10.3	to	Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	June	30, 2011).

10.15† 1995	Equity	Incentive	Compensation	Plan	(Annex	A	to	MSG's	Proxy	Statement	for	its	1996	Annual	Meeting	of	Stockholders)	as	amended	by Amendment	(Exhibit	10.39	to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November	30,	2000),	Amendment	(Exhibit	10.5 to	Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	August	31,	2005),	Amendment	(Exhibit	10.3	to	Morgan	Stanley's	Quarterly Report	on	Form	10-Q	for	the	quarter	ended	February	28,	2006),	Amendment	(Exhibit	10.24	to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the fiscal	year	ended	November	30,	2006)	and	Amendment	(Exhibit	10.22	to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended November	30,	2007).

10.16† Form	of	Equity	Incentive	Compensation	Plan	Award	Certificate	(Exhibit	10.1	to	Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter ended	August	31,	2004).

10.17† Form	of	Management	Committee	Equity	Award	Certificate	for	Discretionary	Retention	Award	of	Stock	Units	and	Stock	Options	(Exhibit	10.30	to Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November	30,	2006).

10.19† Form	of	Deferred	Compensation	Agreement	under	the	Pre-Tax	Incentive	Program	2	(Exhibit	10.12	to	MSG's	Annual	Report	for	the	fiscal	year	ended November	30,	1996).

10.20† Key	Employee	Private	Equity	Recognition	Plan	(Exhibit	10.43	to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November 30,	2000).

10.21† Morgan	Stanley	Financial	Advisor	and	Investment	Representative	Compensation	Plan	as	amended	and	restated	as	of	November	26,	2007	(Exhibit	10.34 to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November	30,	2007).

10.22† Morgan	Stanley	UK	Share	Ownership	Plan	(Exhibit	4.1	to	Morgan	Stanley's	Registration	Statement	on	Form	S-8	(No.	333-146954)).

10.23† Supplementary	Deed	of	Participation	for	the	Morgan	Stanley	UK	Share	Ownership	Plan,	dated	as	of	November	5,	2009	(Exhibit	10.36	to	Morgan Stanley's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2009).

10.26† Agreement	between	Morgan	Stanley	and	Gregory	J.	Fleming,	dated	February	3,	2010	(Exhibit	10.5	to	Morgan	Stanley's	Quarterly	Report	on	Form	10- Q	for	the	quarter	ended	March	31,	2011).

10.27† Form	of	Restrictive	Covenant	Agreement	(Exhibit	10	to	Morgan	Stanley's	Current	Report	on	Form	8-K	dated	November	22,	2005).

10.30† Morgan	Stanley	2006	Notional	Leveraged	Co-Investment	Plan,	as	amended	and	restated	as	of	November	28,	2008	(Exhibit	10.47	to	Morgan	Stanley's Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November	30,	2008).

10.31† Form	of	Award	Certificate	under	the	2006	Notional	Leveraged	Co-Investment	Plan	(Exhibit	10.7	to	Morgan	Stanley's	Quarterly	Report	on	Form	10-Q for	the	quarter	ended	February	29,	2008).

10.32† Morgan	Stanley	2007	Notional	Leveraged	Co-Investment	Plan,	amended	as	of	June	4,	2009	(Exhibit	10.6	to	Morgan	Stanley's	Quarterly	Report	on Form	10-Q	for	the	quarter	ended	June	30,	2009).

10.33† Form	of	Award	Certificate	under	the	2007	Notional	Leveraged	Co-Investment	Plan	for	Certain	Management	Committee	Members	(Exhibit	10.8	to Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	February	29,	2008).

10.34† Form	of	Award	Certificate	for	Discretionary	Retention	Awards	of	Stock	Units	(Exhibit	10.4	to	Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for the	quarter	ended	March	31,	2010).

10.35† Governmental	Service	Amendment	to	Outstanding	Stock	Option	and	Stock	Unit	Awards	(replacing	and	superseding	in	its	entirety	Exhibit	10.3	to Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	May	31,	2007)	(Exhibit	10.41	to	Morgan	Stanley's	Annual	Report	on	Form	10- K	for	the	fiscal	year	ended	November	30,	2007).

10.36† Amendment	to	Outstanding	Stock	Option	and	Stock	Unit	Awards	(Exhibit	10.53	to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year ended	November	30,	2008).

10.37† Morgan	Stanley	Compensation	Incentive	Plan	(Exhibit	10.54	to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November	30, 2008).

10.38† Form	of	Award	Certificate	under	the	Morgan	Stanley	Compensation	Incentive	Plan	(Exhibit	10.5	to	Morgan	Stanley's	Quarterly	Report	on	Form	10-Q for	the	quarter	ended	March	31,	2010).

10.39† Form	of	Executive	Waiver	(Exhibit	10.55	to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November	30,	2008).

10.40† Form	of	Executive	Letter	Agreement	(Exhibit	10.56	to	Morgan	Stanley's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November	30,	2008).

10.41† Morgan	Stanley	2009	Replacement	Equity	Incentive	Compensation	Plan	for	Morgan	Stanley	Smith	Barney	Employees	(Exhibit	4.2	to	Morgan	Stanley's Registration	Statement	on	Form	S-8	(No.	333-159504)).

10.45† Form	of	Award	Certificate	for	Performance	Stock	Units	(Exhibit	10.3	to	Morgan	Stanley's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	March 31,	2011).

10.46† Form	of	Award	Certificate	for	Special	Discretionary	Retention	Awards	of	Stock	Options	(Exhibit	10.4	to	Morgan	Stanley's	Quarterly	Report	on Form	10-Q	for	the	quarter	ended	March	31,	2011).

12* Statement	Re:	Computation	of	Ratio	of	Earnings	to	Fixed	Charges	and	Computation	of	Ratio	of	Earnings	to	Fixed	Charges	and	Preferred	Stock Dividends.

21* Subsidiaries	of	Morgan	Stanley.

		101 Interactive	data	files	pursuant	to	Rule	405	of	Regulation	S-T:	(i)	the	Consolidated	Statements	of	Financial	Condition—December	31,	2012	and December	31,	2011,	(ii)	the	Consolidated	Statements	of	Income—Twelve	Months	Ended	December	31,	2012,	December	31,	2011	and	December	31, 2010,	(iii)	the	Consolidated	Statements	of	Comprehensive	Income—Twelve	Months	Ended	December	31,	2012,	December	31,	2011	and	December 31,	2010,	(iv)	the	Consolidated	Statements	of	Cash	Flows—Twelve	Months	Ended	December	31,	2012,	December	31,	2011	and	December	31,	2010, (v)	the	Consolidated	Statements	of	Changes	in	Total	Equity—Twelve	Months	Ended	December	31,	2012,	December	31,	2011,	and	December	31, 2010,	and	(vi)	Notes	to	Consolidated	Financial	Statements.

* Filed	herewith.

** Furnished	herewith.

† Management	contract	or	compensatory	plan	or	arrangement	required	to	be	filed	as	an	exhibit	to	this	Form	10-K	pursuant	to	Item	15(b).



Question: what is the total exposure to government related derivatives , in millions?
Calculation:   total_exposure_to_government_related_derivatives = 1597 + 816
answer = total_exposure_to_government_related_derivatives
Answer: 2413