2

6) MUFG will have no more than one representative on any committee or
subcommittee of the board of directors of MS or have more than one vote on

the committee or subcommittee, and no person designated by MUFG will
chair any committee or subcommittee of the board.

7) MUFG must continue to abide by all the passivity commitments already
provided to the Federal Reserve Board.


April 21, 2011

Conditions for allowing Mitsubishi UFJ Financial Group, Inc. (“MUFG’) to have

two representatives on the board of directors of Morgan Stanley (“MS”) without a
finding of control under the Bank Holding Company Act

1) MUFG will maintain an investment in at least 20 percent of the voting
common equity of MS and will use all its reasonable best efforts to honor a
Federal Reserve Board request to provide additional capital to preserve the
maximum level of ownership of total equity of MS that MUFG has achieved
prior to the date of the request. This capital may be on terms similar to those
provided to other parties that invest in MS at the same time.

2) MUFG will use all its reasonable best efforts to assist MS in raising funding
from other sources, including assisting MS in attracting new capital, and
obtaining other financial support from other sources, as requested by MS.

3) MUFG commits not to impose any restrictions on the ability of MS
unilaterally to access the capital markets (e.g., no down-round protection);
provided that this commitment shall not prevent MUFG from maintaining its
current preemptive rights with respect to sales of capital instruments by MS.

4) MUFG must account for its investment in MS using the equity accounting
method (thereby accounting for losses as well as profits), provided that
equity accounting is available.

5) After taking account of the size, composition and expertise of the members
of the MS board of directors and the fact that a majority of the members of
the board will continue to be independent of management of MS, of MUFG
and of other investors, MUFG may have two voting representatives on the
board of directors of MS (each with only one vote) so long as those
representatives constitute less than 15% of the membership of the board of
directors; except that the membership percentage may temporarily exceed
15% (but may not exceed 17%) for a reasonable period of time necessary to
fill any temporary vacancy on the board of directors that may occur; and
provided that neither representative of MUFG may second a motion made by
the other MUFG representative.


BOARD OF GOVERNORS

OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

April 22, 2011

H. Rodgin Cohen, Esq.
Sullivan & Cromwell, LLP
125 Broad Street

New York, NY 10004

Dear Mr. Cohen:

This is in response to a request by Mitsubishi UFJ Financial Group, Inc.
(MUFG), Tokyo, Japan, for the Board’s views under the control provisions of
section 2 of the Bank Holding Company Act (BHC Act) regarding a proposal by
MUFG to convert preferred shares it owns in Morgan Stanley, New York, New
York, into common voting shares of Morgan Stanley. A determination regarding
whether MUFG may convert the preferred shares into common shares is the
subject of a separate proceeding under the BHC Act.

In October 2008, MUFG invested $9 billion in a combination of convertible
and nonconvertible preferred stock of Morgan Stanley. In connection with that
investment, MUFG provided passivity commitments designed to ensure that
MUFG would not exercise a controlling influence over Morgan Stanley for
purposes of the BHC Act. MUFG has previously converted certain of these
preferred shares into voting common stock of Morgan Stanley and has proposed to
convert its remaining holdings of Series B Preferred Stock into voting common
stock. As a result of the proposed conversion, MUFG would own approximately
22.4 percent of the common stock of Morgan Stanley.

In connection with its request, MUFG has proposed to adopt the equity
method of accounting for its investment in Morgan Stanley. This method would
allow MUFG to recognize its proportionate interest in any earnings (and losses) of
Morgan Stanley. To meet the requirements for equity accounting, MUFG
represents that it must have two representatives on the board of directors of
Morgan Stanley. MUFG has offered a number of commitments to the Board
designed to reaffirm that MUFG would neither seek nor be able to exercise a


controlling influence over Morgan Stanley under this structure. These
commitments include a commitment that neither MUFG representative would
second a motion made by the other representative and that the two directors could
not together constitute more than 15 percent of the membership of the Morgan
Stanley board of directors, except in the case of a temporary vacancy on the board.!
These commitments are attached in the Appendix. In addition, MUFG has
reaffirmed its commitment to the passivity commitments provided in connection
with its original investment in Morgan Stanley.

The Board has considered carefully the potential for the proposed change in
MUFG’s voting power on Morgan Stanley’s board to create the ability of MUFG
to exercise a controlling influence over Morgan Stanley for purposes of the BHC
Act. In particular, the Board has considered the size, composition, and expertise of
the members of the Morgan Stanley board of directors and the fact that a majority
of the members of the board will continue to be independent of management,
MUFG, and other investors. The Board also considered that MUFG
representatives would represent less than 15 percent of the total membership of the
board and that neither MUFG representative would be able to second a motion
offered by the other MUFG representative. In addition, an MUFG representative
would be able to cast only one vote on any committee or subcommittee of the
board.

In addition to these limitations surrounding MUFG’s involvement in the
governance of Morgan Stanley, MUFG has agreed to take additional financial
responsibility for its representation on the board of Morgan Stanley. MUFG has
committed to maintain at least a 20 percent proportional interest in Morgan
Stanley, including by participating in any capital raising efforts by Morgan
Stanley. MUFG has also committed to use its reasonable best efforts, at the
request of the Board of Governors, to maintain its investment at the highest level of
investment made by MUFG before the Board’s request. It also has committed to
use its reasonable best efforts to assist Morgan Stanley in obtaining funding and
financial support from other sources if requested by Morgan Stanley. Moreover,
MUFG has committed not to impose any restrictions on the ability of Morgan
Stanley unilaterally to access the capital markets.

' With the addition of a second representative of MUFG, there would be at least

14 members of the board of directors of Morgan Stanley. If there is a temporary
vacancy on the board, MUFG representatives may cast both their votes on a matter
only if the MUFG votes represent 17 percent or less of the total votes cast
regarding that matter.


The Board has also taken into account, as it did in 2008, the fact that Morgan
Stanley is a substantial organization in its own right that can be expected to be able
to act in its own interests. MUFG has demonstrated its ability to abide by
commitments made to the Board and has been in continuous compliance with the
passivity commitments made in 2008.

In light of all the facts of record, including the commitments made by
MUFG, the Board would not at this time find that MUFG would have the ability to
exercise a controlling influence over Morgan Stanley solely by virtue of the
proposed structure outlined in this letter. This determination is limited to the
question of control and does not grant approval of the proposed conversion. For
purposes of this determination, the conditions and commitments made in
connection with this request are deemed to be conditions imposed in writing by the
Board in connection with its findings and decisions and, as such, may be enforced
in proceedings under applicable law.

Sincerely yours,

flLtictd, Jut—

Robert deV. Frierson
Deputy Secretary of the Board

Appendix