MS Q2 2015 10-Q

Morgan Stanley (MS) SEC Quarterly Report (10-Q) for Q3 2015

MS 2015 10-K
MS Q2 2015 10-Q MS 2015 10-K
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

¨ TRANSITION 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)

1585 Broadway

New York, NY 10036

(Address of principal executive offices, including zip code)

36-3145972

(I.R.S. Employer Identification No.)

(212) 761-4000

(Registrant's telephone number, including area code)

Indicate by check mark whether the 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 the 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 (§ 232.405 of this chapter) 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 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

Accelerated Filer   ¨

Non-Accelerated Filer  ¨

Smaller reporting company  ¨

(Do not check if a smaller reporting company)

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

As of October 30, 2015, there were 1,936,223,959 shares of the Registrant's Common Stock, par value $0.01 per share, outstanding.

Table of Contents

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended September 30, 2015

Table of Contents Page

Part I-Financial Information

Item 1.

Financial Statements (unaudited)

1

Condensed Consolidated Statements of Income-Three and Nine Months Ended September  30, 2015 and 2014

1

Condensed Consolidated Statements of Comprehensive Income-Three and Nine Months Ended September 30, 2015 and 2014

2

Condensed Consolidated Statements of Financial Condition-September 30, 2015 and December 31, 2014

3

Condensed Consolidated Statements of Changes in Total Equity-Nine Months Ended September 30, 2015 and 2014

4

Condensed Consolidated Statements of Cash Flows-Nine Months Ended September 30, 2015 and 2014

5
Notes to Condensed Consolidated Financial Statements (unaudited) 6

1. Introduction and Basis of Presentation

6

2. Significant Accounting Policies

7

3. Fair Values

8

4. Derivative Instruments and Hedging Activities

30

5. Investment Securities

43

6. Collateralized Transactions

49

7. Loans and Allowance for Credit Losses

52

8. Equity Method Investments

57

9. Deposits

57

10. Long-Term Borrowings and Other Secured Financings

58

11. Commitments, Guarantees and Contingencies

59

12. Variable Interest Entities and Securitization Activities

65

13. Regulatory Requirements

72
14. Total Equity 75
15. Earnings per Common Share 79
16. Interest Income and Interest Expense 80
17. Employee Benefit Plans 81
18. Income Taxes 81
19. Segment and Geographic Information 82
20. Subsequent Events 85

Report of Independent Registered Public Accounting Firm

86
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 87
Introduction 87
Business Segments 97
Supplemental Financial Information and Disclosures 116
Accounting Development Updates 118
Critical Accounting Policies 119
Liquidity and Capital Resources 120

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

141

Item 4.

Controls and Procedures

157

Financial Data Supplement (unaudited)

158

Part II-Other Information

Item 1.

Legal Proceedings

164

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

166

Item 5.

Other Information

167

Item 6.

Exhibits

167

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Table of Contents

AVAILABLE INFORMATION

Morgan Stanley files annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (the "SEC"). You may read and copy any document we file 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 Morgan Stanley) file electronically with the SEC. Morgan Stanley's electronic SEC filings are available to the public at the SEC's internet site, www.sec.gov .

Morgan Stanley's internet site is www.morganstanley.com . You can access Morgan Stanley's Investor Relations webpage at www.morganstanley.com/about-us-ir . Morgan Stanley 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. Morgan Stanley also makes available, through its Investor Relations webpage, via a link to the SEC's internet site, statements of beneficial ownership of Morgan Stanley's equity securities filed by its directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.

Morgan Stanley has a Corporate Governance webpage. You can access information about Morgan Stanley's corporate governance at www.morganstanley.com/about-us-governance . Morgan Stanley posts the following on its Corporate Governance webpage:

Amended and Restated Certificate of Incorporation;

Amended and Restated Bylaws;

Charters for its Audit Committee; Operations and Technology Committee; Compensation, Management Development and Succession Committee; Nominating and Governance 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 Activities;

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. Morgan Stanley 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 Morgan Stanley's internet site is not incorporated by reference into this report.

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Table of Contents

Part I-Financial Information.

Item 1. Financial Statements.

MORGAN STANLEY

Condensed Consolidated Statements of Income

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

(unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2015 2014 2015 2014

Revenues:

Investment banking

$ 1,313 $ 1,551 $ 4,284 $ 4,492

Trading

2,026 2,448 8,649 7,926

Investments

(119 138 408 724

Commissions and fees

1,115 1,124 3,459 3,478

Asset management, distribution and administration fees

2,732 2,716 8,155 7,886

Other

(62 373 406 873

Total non-interest revenues

7,005 8,350 25,361 25,379

Interest income

1,451 1,384 4,321 3,977

Interest expense

689 827 2,265 2,845

Net interest

762 557 2,056 1,132

Net revenues

7,767 8,907 27,417 26,511

Non-interest expenses:

Compensation and benefits

3,437 4,214 12,366 12,720

Occupancy and equipment

341 350 1,034 1,069

Brokerage, clearing and exchange fees

485 437 1,435 1,338

Information processing and communications

447 396 1,300 1,231

Marketing and business development

158 160 487 472

Professional services

576 522 1,660 1,506

Other

849 608 2,079 1,653

Total non-interest expenses

6,293 6,687 20,361 19,989

Income from continuing operations before income taxes

1,474 2,220 7,056 6,522

Provision for income taxes

423 463 1,704 1,263

Income from continuing operations

1,051 1,757 5,352 5,259

Discontinued operations:

Income (loss) from discontinued operations before income taxes

(4 (8 (13 (11

Provision for (benefit from) income taxes

(2 (3 (4 (5

Income (loss) from discontinued operations

(2 (5 (9 (6

Net income

$ 1,049 $ 1,752 $ 5,343 $ 5,253

Net income applicable to nonredeemable noncontrolling interests

31 59 124 156

Net income applicable to Morgan Stanley

$ 1,018 $ 1,693 $ 5,219 $ 5,097

Preferred stock dividends and other

79 64 301 199

Earnings applicable to Morgan Stanley common shareholders

$ 939 $ 1,629 $ 4,918 $ 4,898

Earnings per basic common share:

Income from continuing operations

$ 0.49 $ 0.85 $ 2.57 $ 2.55

Income (loss) from discontinued operations

-   -   -   (0.01

Earnings per basic common share

$ 0.49 $ 0.85 $ 2.57 $ 2.54

Earnings per diluted common share:

Income from continuing operations

$ 0.48 $ 0.83 $ 2.52 $ 2.49

Income (loss) from discontinued operations

-   -   (0.01 -  

Earnings per diluted common share

$ 0.48 $ 0.83 $ 2.51 $ 2.49

Dividends declared per common share

$ 0.15 $ 0.10 $ 0.40 $ 0.25

Average common shares outstanding:

Basic

1,904,213,493 1,922,995,835 1,915,807,606 1,925,172,108

Diluted

1,949,281,601 1,970,922,473 1,957,544,581 1,970,091,170

See Notes to Condensed Consolidated Financial Statements.

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MORGAN STANLEY

Condensed Consolidated Statements of Comprehensive Income

(dollars in millions)

(unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
    2015         2014         2015         2014    

Net income

$ 1,049 $ 1,752 $ 5,343 $ 5,253

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments(1)

$ (61 $ (327 $ (249 $ (175

Change in net unrealized gains (losses) on available for sale securities(2)

100 (102 72 134

Pension, postretirement and other(3)

4 (15 3 (7

Total other comprehensive income (loss)

$ 43 $ (444 $ (174 $ (48

Comprehensive income

$ 1,092 $ 1,308 $ 5,169 $ 5,205

Net income applicable to nonredeemable noncontrolling interests

31 59 124 156

Other comprehensive income (loss) applicable to nonredeemable noncontrolling interests

15 (62 (3 (26

Comprehensive income applicable to Morgan Stanley

$ 1,046 $ 1,311 $ 5,048 $ 5,075

(1) Amounts include provision for (benefit from) income taxes of $30 million and $249 million for the quarters ended September 30, 2015 and 2014, respectively, and $150 million and $137 million for the nine months ended September 30, 2015 and 2014, respectively.
(2) Amounts include provision for (benefit from) income taxes of $57 million and $(70) million for the quarters ended September 30, 2015 and 2014, respectively, and $41 million and $92 million for the nine months ended September 30, 2015 and 2014, respectively.
(3) Amounts include provision for (benefit from) income taxes of $(2) million and $(7) million for the quarters ended September 30, 2015 and 2014, respectively, and $(2) million and $(4) million for the nine months ended September 30, 2015 and 2014, respectively.

See Notes to Condensed Consolidated Financial Statements.

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MORGAN STANLEY

Condensed Consolidated Statements of Financial Condition

(dollars in millions, except share data)

(unaudited)

September 30,
2015
December 31,
2014

Assets

Cash and due from banks ($13 and $45 at September 30, 2015 and December 31, 2014, respectively, related to consolidated variable interest entities, generally not available to the Company)

$ 19,244 $ 21,381

Interest bearing deposits with banks

34,274 25,603

Cash deposited with clearing organizations or segregated under federal and other regulations or requirements ($165 and $149 at September 30, 2015 and December 31, 2014, respectively, related to consolidated variable interest entities, generally not available to the Company)

35,552 40,607

Trading assets, at fair value ($129,632 and $127,342 were pledged to various parties at September 30, 2015 and December 31, 2014, respectively) ($834 and $966 at September 30, 2015 and December 31, 2014, respectively, related to consolidated variable interest entities, generally not available to the Company)

237,811 256,801

Investment securities (includes $61,159 and $69,216 at fair value at September 30, 2015 and December 31, 2014, respectively)

64,689 69,316

Securities received as collateral, at fair value

9,456 21,316

Securities purchased under agreements to resell (includes $809 and $1,113 at fair value at September 30, 2015 and December 31, 2014, respectively)

127,206 83,288

Securities borrowed

148,245 136,708

Customer and other receivables

50,070 48,961

Loans:

Held for investment (net of allowances of $173 and $149 at September 30, 2015 and December 31, 2014, respectively)

69,010 57,119

Held for sale

9,199 9,458

Other investments ($364 and $467 at September 30, 2015 and December 31, 2014, respectively, related to consolidated variable interest entities, generally not available to the Company)

4,282 4,355

Premises, equipment and software costs (net of accumulated depreciation of $6,906 and $6,219 at September 30, 2015 and December 31, 2014, respectively) ($187 and $191 at September 30, 2015 and December 31, 2014, respectively, related to consolidated variable interest entities, generally not available to the Company)

6,259 6,108

Goodwill

6,587 6,588

Intangible assets (net of accumulated amortization of $2,050 and $1,824 at September 30, 2015 and December 31, 2014, respectively) (includes $5 and $6 at fair value at September 30, 2015 and December 31, 2014, respectively)

3,069 3,159

Other assets ($57 and $59 at September 30, 2015 and December 31, 2014, respectively, related to consolidated variable interest entities, generally not available to the Company)

9,160 10,742

Total assets

$ 834,113 $ 801,510

Liabilities

Deposits

$ 147,226 $ 133,544

Short-term borrowings (includes $1,768 and $1,765 at fair value at September 30, 2015 and December 31, 2014, respectively)

1,982 2,261

Trading liabilities, at fair value

125,525 107,381

Obligation to return securities received as collateral, at fair value

20,328 25,685

Securities sold under agreements to repurchase (includes $597 and $612 at fair value at September 30, 2015 and December 31, 2014, respectively)

58,570 69,949

Securities loaned

20,644 25,219

Other secured financings (includes $3,450 and $4,504 at fair value at September 30, 2015 and December 31, 2014, respectively) ($456 and $348 at September 30, 2015 and December 31, 2014, respectively, related to consolidated variable interest entities, generally non-recourse to the Company)

10,171 12,085

Customer and other payables

193,775 181,069

Other liabilities and accrued expenses ($3 and $72 at September 30, 2015 and December 31, 2014, respectively, related to consolidated variable interest entities, generally non-recourse to the Company)

19,129 19,441

Long-term borrowings (includes $31,387 and $31,774 at fair value at September 30, 2015 and December 31, 2014, respectively)

160,343 152,772

Total liabilities

757,693 729,406

Commitments and contingent liabilities (see Note 11)

Equity

Morgan Stanley shareholders' equity:

Preferred stock (see Note 14)

7,520 6,020

Common stock, $0.01 par value:

Shares authorized: 3,500,000,000 at September 30, 2015 and December 31, 2014;

Shares issued: 2,038,893,979 at September 30, 2015 and December 31, 2014;

Shares outstanding: 1,938,069,312 and 1,950,980,142 at September 30, 2015 and December 31, 2014, respectively

20 20

Additional paid-in capital

23,876 24,249

Retained earnings

48,746 44,625

Employee stock trusts

2,399 2,127

Accumulated other comprehensive loss

(1,419 (1,248

Common stock held in treasury, at cost, $0.01 par value:

Shares outstanding: 100,824,667 and 87,913,837 at September 30, 2015 and December 31, 2014, respectively

(3,456 (2,766

Common stock issued to employee stock trusts

(2,399 (2,127

Total Morgan Stanley shareholders' equity

75,287 70,900

Nonredeemable noncontrolling interests

1,133 1,204

Total equity

76,420 72,104

Total liabilities and equity

$ 834,113 $ 801,510

See Notes to Condensed Consolidated Financial Statements.

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MORGAN STANLEY

Condensed Consolidated Statements of Changes in Total Equity

Nine Months Ended September 30, 2015 and 2014

(dollars in millions)

(unaudited)

Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Employee
Stock
Trusts
Accumulated
Other
Comprehensive
Income (Loss)
Common
Stock
Held in
Treasury
at Cost
Common
Stock
Issued to
Employee
Stock
Trusts
Non-
redeemable
Non-
controlling
Interests
Total
Equity

BALANCE AT DECEMBER 31, 2014

$ 6,020 $ 20 $ 24,249 $ 44,625 $ 2,127 $ (1,248 $ (2,766 $ (2,127 $ 1,204 $ 72,104

Net income applicable to Morgan Stanley

-   -   -   5,219 -   -   -   -   -   5,219

Net income applicable to nonredeemable noncontrolling interests

-   -   -   -   -   -   -   -   124 124

Dividends

-   -   -   (1,098 -   -   -   -   -   (1,098

Shares issued under employee plans and related tax effects

-   -   (356 -   272 -   1,445 (272 -   1,089

Repurchases of common stock and employee tax withholdings

-   -   -   -   -   -   (2,135 -   -   (2,135

Net change in Accumulated other comprehensive income

-   -   -   -   -   (171 -   -   (3 (174

Issuance of preferred stock

1,500 -   (7 -   -   -   -   -   -   1,493

Deconsolidation of certain legal entities associated with a real estate fund

-   -   -   -   -   -   -   -   (191 (191

Other net decreases

-   -   (10 -   -   -   -   -   (1 (11

BALANCE AT SEPTEMBER 30, 2015

$ 7,520 $ 20 $ 23,876 $ 48,746 $ 2,399 $ (1,419 $ (3,456 $ (2,399 $ 1,133 $ 76,420

BALANCE AT DECEMBER 31, 2013

$ 3,220 $ 20 $ 24,570 $ 42,172 $ 1,718 $ (1,093 $ (2,968 $ (1,718 $ 3,109 $ 69,030

Net income applicable to Morgan Stanley

-   -   -   5,097 -   -   -   -   -   5,097

Net income applicable to nonredeemable noncontrolling interests

-   -   -   -   -   -   -   -   156 156

Dividends

-   -   -   (696 -   -   -   -   -   (696

Shares issued under employee plans and related tax effects

-   -   (627 -   409 -   1,638 (409 -   1,011

Repurchases of common stock and employee tax withholdings

-   -   -   -   -   -   (1,172 -   -   (1,172

Net change in Accumulated other comprehensive income

-   -   -   -   -   (22 -   -   (26 (48

Issuance of preferred stock

2,800 -   (18 -   -   -   -   -   -   2,782

Deconsolidation of certain legal entities associated with a real estate fund

-   -   -   -   -   -   -   -   (1,606 (1,606

Other net decreases

-   -   (3 -   -   -   -   -   (540 (543

BALANCE AT SEPTEMBER 30, 2014

$ 6,020 $ 20 $ 23,922 $ 46,573 $ 2,127 $ (1,115 $ (2,502 $ (2,127 $ 1,093 $ 74,011

See Notes to Condensed Consolidated Financial Statements.

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MORGAN STANLEY

Condensed Consolidated Statements of Cash Flows

(dollars in millions)

(unaudited)

Nine Months Ended
September 30,
2015 2014

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$ 5,343 $ 5,253

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Income from equity method investments

(118 (108

Compensation payable in common stock and options

836 933

Depreciation and amortization

1,023 748

Net gain on sale of available for sale securities

(74 (36

Impairment charges

91 85

Provision for credit losses on lending activities

47 1

Other operating activities

264 (167

Changes in assets and liabilities:

Cash deposited with clearing organizations or segregated under federal and other regulations or requirements

5,055 (5,903

Trading assets, net of Trading liabilities

39,775 39,156

Securities borrowed

(11,537 (10,596

Securities loaned

(4,575 (5,142

Customer and other receivables and other assets

787 2,931

Customer and other payables and other liabilities

10,351 23,335

Securities purchased under agreements to resell

(43,918 19,136

Securities sold under agreements to repurchase

(11,313 (61,935

Net cash provided by (used for) operating activities

(7,963 7,691

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from (payments for):

Premises, equipment and software, net

(964 (533

Business dispositions, net of cash disposed

-   962

Loans:

Purchases, net of proceeds from sales

(1,053 (797

Originations, net of repayments

(10,260 (13,177

Investment securities:

Purchases

(32,133 (24,581

Proceeds from sales

32,788 11,212

Proceeds from paydowns and maturities

4,285 3,415

Other investing activities

(61 (264

Net cash used for investing activities

(7,398 (23,763

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from (payments for):

Short-term borrowings

(279 (382

Nonredeemable noncontrolling interests

(70 (189

Other secured financings

(1,677 (1,725

Deposits

13,682 12,003

Proceeds from:

Excess tax benefits associated with stock-based awards

180 91

Derivatives financing activities

392 784

Issuance of preferred stock, net of issuance costs

1,493 2,782

Issuance of long-term borrowings

30,159 26,529

Payments for:

Long-term borrowings

(17,615 (24,731

Derivatives financing activities

(372 (384

Repurchases of common stock and employee tax withholdings

(2,135 (1,172

Cash dividends

(1,096 (652

Net cash provided by financing activities

22,662 12,954

Effect of exchange rate changes on cash and cash equivalents

(767 (939

Net decrease in cash and cash equivalents

6,534 (4,057

Cash and cash equivalents, at beginning of period

46,984 59,883

Cash and cash equivalents, at end of period

$ 53,518 $ 55,826

Cash and cash equivalents include:

Cash and due from banks

$ 19,244 $ 20,242

Interest bearing deposits with banks

34,274 35,584

Cash and cash equivalents, at end of period

$ 53,518 $ 55,826

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash payments for interest were $1,456 million and $2,116 million for the nine months ended September 30, 2015 and 2014, respectively.

Cash payments for income taxes were $541 million and $620 million for the nine months ended September 30, 2015 and 2014, respectively.

See Notes to Condensed Consolidated Financial Statements.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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, Wealth Management and Investment Management. Morgan Stanley, 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.

For a summary of the activities of each of the Company's business segments, see Note 1 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 (the "2014 Form 10-K").

Basis of Financial Information.

The Company's condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), 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 legal and tax matters, allowance for credit losses and other matters that affect its condensed consolidated financial statements and related disclosures. The Company believes that the estimates utilized in the preparation of its condensed consolidated financial statements are prudent and reasonable. Actual results could differ materially from these estimates. Intercompany balances and transactions have been eliminated.

The accompanying condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in the 2014 Form 10-K. Certain footnote disclosures included in the 2014 Form 10-K have been condensed or omitted from the condensed consolidated financial statements as they are not required for interim reporting under U.S. GAAP. The condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The results of operations for interim periods are not necessarily indicative of results for the entire year.

Consolidation.

The condensed 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 12). For consolidated subsidiaries that are less than wholly owned, the third-party holdings of equity interests are referred to as noncontrolling interests. The net income attributable to noncontrolling interests for such subsidiaries is presented as Net income (loss) applicable to nonredeemable noncontrolling interests in the Company's condensed consolidated statements of income. The portion of shareholders' equity of such subsidiaries that is attributable to noncontrolling interests for such subsidiaries is presented as Nonredeemable noncontrolling interests, a component of total equity, in the Company's condensed consolidated statements of financial condition.

For a discussion of the Company's VIEs and its significant regulated U.S. and international subsidiaries, see Note 1 to the consolidated financial statements in the 2014 Form 10-K.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

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 trading, investment banking, commissions and fees, and interest income, along with the associated interest expense, as one integrated activity.

Statements of Cash Flows Presentation.

During 2015, the Company deconsolidated approximately $191 million in net assets previously attributable to nonredeemable noncontrolling interests that were related to a real estate fund sponsored by the Company. The deconsolidation resulted in a non-cash reduction of assets of $169 million. During 2014, the Company deconsolidated approximately $1.6 billion in net assets previously attributable to nonredeemable noncontrolling interests related to certain legal entities associated with another real estate fund sponsored by the Company. The deconsolidation resulted in a non-cash reduction of assets of $1.3 billion.

Global Oil Merchanting Business.

As a result of entering into a definitive agreement to sell the global oil merchanting unit of the commodities division to Castleton Commodities International LLC, on May 11, 2015, the Company recognized an impairment charge of $10 million and $69 million in Other revenues in the Company's condensed consolidated statements of income in the quarter and nine months ended September 30, 2015, respectively, to reduce the carrying amount of the unit to its estimated fair value less costs to sell. The Company closed the transaction on November 1, 2015. The transaction does not meet the criteria for discontinued operations and is not expected to have a material impact on the Company's financial results (see Note 3).

TransMontaigne.

On July 1, 2014, the Company completed the sale of its ownership stake in TransMontaigne Inc. ("TransMontaigne"), a U.S.-based oil storage, marketing and transportation company, as well as related physical inventory and the assumption of the Company's obligations under certain terminal storage contracts, to NGL Energy Partners LP. The gain on sale, which was included in continuing operations, was approximately $101 million for the quarter and nine months ended September 30, 2014.

CanTerm.

On March 27, 2014, the Company completed the sale of Canterm Canadian Terminals Inc. ("CanTerm"), a public storage terminal operator for refined products with two distribution terminals in Canada. As a result of the Company's level of continuing involvement with CanTerm, the results of CanTerm are reported as a component of continuing operations within the Company's Institutional Securities business segment for the nine months ended September 30, 2014. The gain on sale was approximately $45 million and is included in the condensed consolidated statement of income for the nine months ended September 30, 2014.

2. Significant Accounting Policies.

For a detailed discussion about the Company's significant accounting policies, see Note 2 to the consolidated financial statements in the 2014 Form 10-K.

7
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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

During the quarter and nine months ended September 30, 2015, other than the following, there were no significant updates made to the Company's significant accounting policies.

Accounting Standards Adopted.

Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.

In June 2014, the Financial Accounting Standards Board (the "FASB") issued an accounting update requiring repurchase-to-maturity transactions be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. This accounting update also requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty (a repurchase financing), which will result in secured borrowing accounting for the repurchase agreement. This guidance became effective for the Company beginning January 1, 2015. In addition, new disclosures are required for sales of financial assets where the Company retains substantially all the exposure throughout the term and for the collateral pledged and remaining maturity of repurchase and securities lending agreements, which were effective January 1, 2015, and April 1, 2015, respectively. The adoption of this guidance did not have a material impact on the Company's condensed consolidated financial statements. For further information on the adoption of this guidance, see Notes 6 and 12.

Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).

In May 2015, the FASB issued an accounting update that removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured at net asset value ("NAV") per share, or its equivalent using the practical expedient. The Company adopted this guidance retrospectively during the second quarter of 2015, as early adoption is permitted. For further information on the adoption of this guidance, see Note 3.

Goodwill.

The Company completed its annual goodwill impairment testing at July 1, 2015. The Company's impairment 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. However, adverse market or economic events could result in impairment charges in future periods.

3. Fair Values.

Fair Value Measurements.

For 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, see Note 4 to the consolidated financial statements in the 2014 Form 10-K.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

The following fair value hierarchy tables present information about the Company's assets and liabilities measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014.

Assets and Liabilities Measured at Fair Value on a Recurring Basis.

At September 30, 2015.

Quoted
Prices  in
Active

Markets
for
Identical
Assets

(Level 1)
Significant
Observable
Inputs

(Level 2)
Significant
Unobservable
Inputs

(Level 3)
Counterparty
and Cash
Collateral
Netting
Balance at
September 30,
2015
(dollars in millions)

Assets at Fair Value

Trading assets:

U.S. government and agency securities:

U.S. Treasury securities

$ 18,359 $ -   $ -   $ -   $ 18,359

U.S. agency securities

1,328 18,690 -   -   20,018

Total U.S. government and agency securities

19,687 18,690 -   -   38,377

Other sovereign government obligations

19,597 7,493 11 -   27,101

Corporate and other debt:

State and municipal securities

-   1,954 33 -   1,987

Residential mortgage-backed securities

-   1,746 404 -   2,150

Commercial mortgage-backed securities

-   1,868 79 -   1,947

Asset-backed securities

-   771 31 -   802

Corporate bonds

-   13,207 226 -   13,433

Collateralized debt and loan obligations

-   187 545 -   732

Loans and lending commitments

-   6,170 5,164 -   11,334

Other debt

-   1,714 530 -   2,244

Total corporate and other debt

-   27,617 7,012 -   34,629

Corporate equities(1)

96,023 491 575 -   97,089

Derivative and other contracts:

Interest rate contracts

860 368,503 2,160 -   371,523

Credit contracts

-   23,844 937 -   24,781

Foreign exchange contracts

102 70,801 347 -   71,250

Equity contracts

876 49,833 951 -   51,660

Commodity contracts

3,392 14,646 3,203 -   21,241

Other

-   364 -   -   364

Netting(2)

(4,652 (437,820 (3,981 (61,072 (507,525

Total derivative and other contracts

578 90,171 3,617 (61,072 33,294

Investments:

Investments measured at NAV(3)

4,278

Principal investments

23 97 541 -   661

Other

149 204 312 -   665

Total investments

172 301 853 -   5,604

Physical commodities

-   1,717 -   -   1,717

Total trading assets

136,057 146,480 12,068 (61,072 237,811

AFS securities

27,765 33,394 -   -   61,159

Securities received as collateral

9,455 -   1 -   9,456

Securities purchased under agreements to resell

-   809 -   -   809

Intangible assets(4)

-   -   5 -   5

Total assets measured at fair value

$ 173,277 $ 180,683 $ 12,074 $ (61,072 $ 309,240

9
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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Quoted
Prices  in
Active

Markets
for
Identical
Assets

(Level 1)
Significant
Observable
Inputs

(Level 2)
Significant
Unobservable
Inputs

(Level 3)
Counterparty
and Cash
Collateral
Netting
Balance at
September 30,
2015
(dollars in millions)

Liabilities at Fair Value

Short-term borrowings

$ -   $ 1,699 $ 69 $ -   $ 1,768

Trading liabilities:

U.S. government and agency securities:

U.S. Treasury securities

14,524 -   -   -   14,524

U.S. agency securities

1,026 135 -   -   1,161

Total U.S. government and agency securities

15,550 135 -   -   15,685

Other sovereign government obligations

13,611 2,379 -   -   15,990

Corporate and other debt:

State and municipal securities

-   3 -   -   3

Corporate bonds

-   6,783 19 -   6,802

Lending commitments

-   2 -   -   2

Other debt

-   7 4 -   11

Total corporate and other debt

-   6,795 23 -   6,818

Corporate equities(1)

50,017 1,145 97 -   51,259

Derivative and other contracts:

Interest rate contracts

780 346,806 2,071 -   349,657

Credit contracts

-   22,900 1,742 -   24,642

Foreign exchange contracts

60 72,593 281 -   72,934

Equity contracts

691 53,728 2,992 -   57,411

Commodity contracts

3,845 13,551 1,771 -   19,167

Other

-   51 -   -   51

Netting(2)

(4,652 (437,820 (3,981 (41,636 (488,089

Total derivative and other contracts

724 71,809 4,876 (41,636 35,773

Total trading liabilities

79,902 82,263 4,996 (41,636 125,525

Obligation to return securities received as collateral

20,327 -   1 -   20,328

Securities sold under agreements to repurchase

-   443 154 -   597

Other secured financings

-   3,109 341 -   3,450

Long-term borrowings

-   28,925 2,462 -   31,387

Total liabilities measured at fair value

$ 100,229 $ 116,439 $ 8,023 $ (41,636 $ 183,055

AFS-available for sale

(1) For trading purposes, the Company holds or sells short 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 shared level. For further information on derivative instruments and hedging activities, see Note 4.
(3) Certain investments that are measured at fair value using the NAV per share, or its equivalent, are not classified in the fair value hierarchy. For additional disclosure about such investments, see "Fair Value of Investments that are Measured at Net Asset Value" herein.
(4) Amount represents mortgage servicing rights ("MSRs") accounted for at fair value.

10
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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

At December 31, 2014.

Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Observable
Inputs

(Level 2)
Significant
Unobservable
Inputs

(Level 3)
Counterparty
and Cash
Collateral
Netting
Balance at
December 31,
2014
(dollars in millions)

Assets at Fair Value

Trading assets:

U.S. government and agency securities:

U.S. Treasury securities

$ 16,961 $ -   $ -   $ -   $ 16,961

U.S. agency securities

850 18,193 -   -   19,043

Total U.S. government and agency securities

17,811 18,193 -   -   36,004

Other sovereign government obligations

15,149 7,888 41 -   23,078

Corporate and other debt:

State and municipal securities

-   2,049 -   -   2,049

Residential mortgage-backed securities

-   1,991 175 -   2,166

Commercial mortgage-backed securities

-   1,484 96 -   1,580

Asset-backed securities

-   583 76 -   659

Corporate bonds

-   15,800 386 -   16,186

Collateralized debt and loan obligations

-   741 1,152 -   1,893

Loans and lending commitments

-   6,088 5,874 -   11,962

Other debt

-   2,167 285 -   2,452

Total corporate and other debt

-   30,903 8,044 -   38,947

Corporate equities(1)

112,490 1,357 272 -   114,119

Derivative and other contracts:

Interest rate contracts

663 495,026 2,484 -   498,173

Credit contracts

-   30,813 1,369 -   32,182

Foreign exchange contracts

83 72,769 249 -   73,101

Equity contracts(2)

571 45,967 1,586 -   48,124

Commodity contracts

4,105 18,042 2,268 -   24,415

Other

-   376 -   -   376

Netting(3)

(4,910 (564,127 (4,220 (66,720 (639,977

Total derivative and other contracts

512 98,866 3,736 (66,720 36,394

Investments:

Investments measured at NAV(4)

5,009

Principal investments

58 3 835 -   896

Other

225 198 323 -   746

Total investments

283 201 1,158 -   6,651

Physical commodities

-   1,608 -   -   1,608

Total trading assets

146,245 159,016 13,251 (66,720 256,801

AFS securities

37,200 32,016 -   -   69,216

Securities received as collateral

21,265 51 -   -   21,316

Securities purchased under agreements to resell

-   1,113 -   -   1,113

Intangible assets(5)

-   -   6 -   6

Total assets measured at fair value

$ 204,710 $ 192,196 $ 13,257 $ (66,720 $ 348,452

11
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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Observable
Inputs

(Level 2)
Significant
Unobservable
Inputs

(Level 3)
Counterparty
and Cash
Collateral
Netting
Balance at
December 31,
2014
(dollars in millions)

Liabilities at Fair Value

Short-term borrowings

$ -   $ 1,765 $ -   $ -   $ 1,765

Trading liabilities:

U.S. government and agency securities:

U.S. Treasury securities

14,199 -   -   -   14,199

U.S. agency securities

1,274 85 -   -   1,359

Total U.S. government and agency securities

15,473 85 -   -   15,558

Other sovereign government obligations

11,653 2,109 -   -   13,762

Corporate and other debt:

State and municipal securities

-   1 -   -   1

Corporate bonds

-   5,943 78 -   6,021

Lending commitments

-   10 5 -   15

Other debt

-   63 38 -   101

Total corporate and other debt

-   6,017 121 -   6,138

Corporate equities(1)

31,340 326 45 -   31,711

Derivative and other contracts:

Interest rate contracts

602 469,319 2,657 -   472,578

Credit contracts

-   29,997 2,112 -   32,109

Foreign exchange contracts

21 72,233 98 -   72,352

Equity contracts(2)

416 51,405 3,751 -   55,572

Commodity contracts

4,817 15,584 1,122 -   21,523

Other

-   172 -   -   172

Netting(3)

(4,910 (564,127 (4,220 (40,837 (614,094

Total derivative and other contracts

946 74,583 5,520 (40,837 40,212

Total trading liabilities

59,412 83,120 5,686 (40,837 107,381

Obligation to return securities received as collateral

25,629 56 -   -   25,685

Securities sold under agreements to repurchase

-   459 153 -   612

Other secured financings

-   4,355 149 -   4,504

Long-term borrowings

-   29,840 1,934 -   31,774

Total liabilities measured at fair value

$ 85,041 $ 119,595 $ 7,922 $ (40,837 $ 171,721

(1) For trading purposes, the Company holds or sells short equity securities issued by entities in diverse industries and of varying size.
(2) The balance of Level 3 asset derivative equity contracts increased by $57 million with a corresponding decrease in the balance of Level 2 asset derivative equity contracts, and the balance of Level 3 liability derivative equity contracts increased by $842 million with a corresponding decrease in the balance of Level 2 liability derivative equity contracts to correct the fair value level assigned to these contracts at December 31, 2014. The total amount of asset and liability derivative equity contracts remained unchanged.
(3) 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 shared level. For further information on derivative instruments and hedging activities, see Note 4.
(4) Certain investments that are measured at fair value using the NAV per share, or its equivalent, are not classified in the fair value hierarchy. For additional disclosure about such investments, see "Fair Value of Investments that are Measured at Net Asset Value" herein.
(5) Amount represents MSRs accounted for at fair value.

12
Table of Contents

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Changes in 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 the quarters and nine months ended September 30, 2015 and 2014, 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.

13
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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Three Months Ended September 30, 2015.

Beginning
Balance at
June 30,
2015
Total
Realized and
Unrealized
Gains
(Losses)(1)
Purchases(2) Sales Issuances Settlements Net
Transfers
Ending
Balance at
September 30,
2015
Unrealized
Gains

(Losses)
for Level 3
Assets/
Liabilities
Outstanding at
September 30,
2015(3)
(dollars in millions)

Assets at Fair Value

Trading assets:

U.S. agency securities

$ 3 $ -   $ -   $ -   $ -   $ -   $ (3 $ -   $ -  

Other sovereign government obligations

12 -   5 (4 -   -   (2 11 -  

Corporate and other debt:

State and municipal securities

7 5 12 (5 -   -   14 33 5

Residential mortgage-backed securities

378 3 59 (55 -   -   19 404 4

Commercial mortgage-backed securities

84 (12 17 (6 -   -   (4 79 (12

Asset-backed securities

19 -   13 (7 -   -   6 31 -  

Corporate bonds

479 (25 78 (228 -   (50 (28 226 (6

Collateralized debt and loan obligations

660 (7 80 (188 -   -   -   545 (11

Loans and lending commitments

5,512 (78 939 (156 -   (1,229 176 5,164 (53

Other debt

564 (22 9 (4 -   (1 (16 530 (23

Total corporate and other debt

7,703 (136 1,207 (649 -   (1,280 167 7,012 (96

Corporate equities

486 10 150 (80 -   -   9 575 4

Net derivative and other contracts(4):

Interest rate contracts

(236 (137 12 -   (7 74 383 89 (66

Credit contracts

(989 210 -   -   (74 86 (38 (805 219

Foreign exchange contracts

446 42 3 -   -   (327 (98 66 45

Equity contracts

(2,102 309 16 -   (50 (187 (27 (2,041 296

Commodity contracts

1,205 238 -   -   -   (11 -   1,432 179

Total net derivative and other contracts

(1,676 662 31 -   (131 (365 220 (1,259 673

Investments:

Principal investments

581 26 8 (50 -   -   (24 541 26

Other

300 11 1 -   -   -   -   312 11
Securities received as collateral 3 -   -   (2 -   -   -   1 -  
Intangible assets 6 (1 -   -   -   -   -   5 (1

Liabilities at Fair Value

Short-term borrowings $ -   $ (2 $ -   $ -   $ 4 $ -   $ 63 $ 69 $ (2
Trading liabilities:

Corporate and other debt:

Corporate bonds

15 9 (10 23 -   -   -   19 7

Other debt

4 -   -   -   -   -   -   4 -  

Total corporate and other debt

19 9 (10 23 -   -   -   23 7

Corporate equities

112 72 (50 99 -   -   8 97 73

Obligation to return securities received as collateral

3 -   (2 -   -   -   -   1 -  

Securities sold under agreements to repurchase

154 -   -   -   -   -   -   154 -  

Other secured financings

168 2 -   -   187 (12 -   341 2

Long-term borrowings

2,221 61 -   -   237 (81 146 2,462 64

(1) Total realized and unrealized gains (losses) are primarily included in Trading revenues in the condensed consolidated statements of income except for $37 million related to Trading assets-Investments, which is included in Investments revenues.
(2) Loan originations are included in purchases.
(3) Amounts represent unrealized gains (losses) for the quarter ended September 30, 2015 related to assets and liabilities still outstanding at September 30, 2015.
(4) Net derivative and other contracts represent Trading assets-Derivative and other contracts net of Trading liabilities-Derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 4.

14
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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Nine Months Ended September 30, 2015.

Beginning
Balance at
December 31,
2014
Total
Realized and
Unrealized
Gains
(Losses)(1)
Purchases(2) Sales Issuances Settlements Net
Transfers
Ending
Balance at
September 30,
2015
Unrealized
Gains

(Losses)
for Level 3
Assets/
Liabilities
Outstanding at
September 30,
2015(3)
(dollars in millions)

Assets at Fair Value

Trading assets:

Other sovereign government obligations

$ 41 $ (1 $ 7 $ (31 $ -   $ -   $ (5 $ 11 $ -  

Corporate and other debt:

State and municipal securities

-   5 14 (1 -   -   15 33 5

Residential mortgage-backed securities

175 28 172 (57 -   -   86 404 19

Commercial mortgage-backed securities

96 (17 23 (23 -   -   -   79 (19

Asset-backed securities

76 (1 22 (31 -   -   (35 31 4

Corporate bonds

386 (19 155 (218 -   (53 (25 226 (16

Collateralized debt and loan obligations

1,152 141 320 (709 -   (331 (28 545 (7

Loans and lending commitments

5,874 (34 1,860 (95 -   (2,461 20 5,164 (62

Other debt

285 (13 30 (14 -   (25 267 530 -  

Total corporate and other debt

8,044 90 2,596 (1,148 -   (2,870 300 7,012 (76

Corporate equities

272 57 437 (199 -   -   8 575 67

Net derivative and other contracts(4):

Interest rate contracts

(173 (37 16 -   (22 277 28 89 20

Credit contracts

(743 (69 6 -   (94 86 9 (805 (89

Foreign exchange contracts

151 133 4 -   (1 (197 (24 66 133

Equity contracts(5)

(2,165 (76 115 -   (279 252 112 (2,041 (237

Commodity contracts

1,146 345 2 -   (112 111 (60 1,432 420

Total net derivative and other contracts

(1,784 296 143 -   (508 529 65 (1,259 247

Investments:

Principal investments

835 22 20 (109 -   (187 (40 541 -  

Other

323 (5 2 (6 -   -   (2 312 -  
Securities received as collateral -   -   1 -   -   -   -   1 -  
Intangible assets 6 -   -   -   -   (1 -   5 -  

Liabilities at Fair Value

Short-term borrowings $ -   $ (2 $ -   $ -   $ 60 $ -   $ 7 $ 69 $ (2
Trading liabilities:

Corporate and other debt:

Corporate bonds

78 6 (25 37 -   -   (65 19 6

Lending commitments

5 5 -   -   -   -   -   -   5

Other debt

38 -   (1 7 -   (39 (1 4 -  

Total corporate and other debt

121 11 (26 44 -   (39 (66 23 11

Corporate equities

45 90 (88 128 -   -   102 97 90

Obligation to return securities received as collateral

-   -   -   1 -   -   -   1 -  

Securities sold under agreements to repurchase

153 (1 -   -   -   -   -   154 -  

Other secured financings

149 (5 -   -   223 (36 -   341 4

Long-term borrowings

1,934 159 -   -   853 (213 47 2,462 157

(1) Total realized and unrealized gains (losses) are primarily included in Trading revenues in the Company's condensed consolidated statements of income except for $17 million related to Trading assets-Investments, which is included in Investments revenues.
(2) Loan originations are included in purchases.
(3) Amounts represent unrealized gains (losses) for the nine months ended September 30, 2015 related to assets and liabilities still outstanding at September 30, 2015.
(4) Net derivative and other contracts represent Trading assets-Derivative and other contracts net of Trading liabilities-Derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 4.
(5) Net liability Level 3 derivative equity contracts increased by $785 million to correct the fair value level assigned to these contracts at December 31, 2014. The total amount of derivative equity contracts remained unchanged at December 31, 2014.

15
Table of Contents

MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Three Months Ended September 30, 2014.

Beginning
Balance at
June 30,
2014
Total
Realized and
Unrealized
Gains
(Losses)(1)
Purchases(2) Sales Issuances Settlements Net
Transfers
Ending
Balance at
September 30,
2014
Unrealized
Gains

(Losses)
for Level 3
Assets/
Liabilities
Outstanding at
September 30,
2014(3)
(dollars in millions)

Assets at Fair Value

Trading assets:

Other sovereign government obligations

$ 14 $ (1 $ -   $ (1 $ -   $ -   $ 1 $ 13 $ (1

Corporate and other debt:

State and municipal securities

4 -   -   -   -   -   (4 -   -  

Residential mortgage-backed securities

55 11 33 (7 -   (11 -   81 11

Commercial mortgage-backed securities

47 (1 1 (3 -   -   13 57 (2

Asset-backed securities

65 5 27 (8 -   -   22 111 5

Corporate bonds

510 36 99 (148 -   -   9 506 38

Collateralized debt obligations

1,332 8 299 (362 -   (6 -   1,271 6

Loans and lending commitments

5,829 (20 2,138 (676 -   (721 957 7,507 (24

Other debt

22 -   135 (3 -   -   1 155 -  

Total corporate and other debt

7,864 39 2,732 (1,207 -   (738 998 9,688 34

Corporate equities

243 (2 30 (41 -   -   11 241 7

Net derivative and other contracts(4):

Interest rate contracts

(109 (15 7 -   (3 (17 150 13 (22

Credit contracts

(710 209 7 -   (64 (108 (16 (682 140

Foreign exchange contracts

109 (27 6 (3 -   70 (1 154 (25

Equity contracts

(1,097 (6 56 -   (59 (105 23 (1,188 (9

Commodity contracts

1,132 73 36 -   -   (62 (12 1,167 12

Other

(3 (1 -   -   -   4 -   -   -  

Total net derivative and other contracts

(678 233 112 (3 (126 (218 144 (536 96

Investments:

Principal investments

883 (1 22 (23 -   -   32 913 (1

Other

380 (3 14 -   -   -   2 393 (3

Intangible assets

6 -   -   -   -   -   -   6 -  

Liabilities at Fair Value

Trading liabilities:

Other sovereign government obligations

$ -   $ -   $ -   $ -   $ -   $ -   $ 2 $ 2 $ -  

Corporate and other debt:

Corporate bonds

14 1 (8 46 -   -   (3 48 1

Lending commitments

12 12 -   -   -   -   -   -   -  

Other debt

42 5 -   -   -   (2 -   35 5

Total corporate and other debt

68 18 (8 46 -   (2 (3 83 6

Corporate equities

6 (5 (12 2 -   -   2 3 (4

Securities sold under agreements to repurchase

155 2 -   -   -   -   -   153 2

Other secured financings

135 -   -   -   4 (3 26 162 -  

Long-term borrowings

1,779 72 -   -   136 (108 186 1,921 72

(1) Total realized and unrealized gains (losses) are primarily included in Trading revenues in the condensed consolidated statements of income except for $(4) million related to Trading assets-Investments, which is included in Investments revenues.
(2) Loan originations are included in purchases.
(3) Amounts represent unrealized gains (losses) for the quarter ended September 30, 2014 related to assets and liabilities still outstanding at September 30, 2014.
(4) Net derivative and other contracts represent Trading assets-Derivative and other contracts net of Trading liabilities-Derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 4.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Nine Months Ended September 30, 2014.

Beginning
Balance at
December 31,
2013
Total
Realized
and
Unrealized
Gains
(Losses)(1)
Purchases(2) Sales Issuances Settlements Net
Transfers
Ending
Balance at
September 30,
2014
Unrealized
Gains

(Losses)
for Level 3
Assets/
Liabilities
Outstanding at
September 30,
2014(3)
(dollars in millions)

Assets at Fair Value

Trading assets:

Other sovereign government obligations

$ 27 $ (1 $ 7 $ (21 $ -   $ -   $ 1 $ 13 $ (1

Corporate and other debt:

Residential mortgage-backed securities

47 34 30 (9 -   (20 (1 81 29

Commercial mortgage-backed securities

108 11 22 (97 -   -   13 57 (3

Asset-backed securities

103 (3 58 (93 -   -   46 111 (3

Corporate bonds

522 107 185 (302 -   -   (6 506 84

Collateralized debt and loan obligations

1,468 137 716 (940 -   (109 (1 1,271 45

Loans and lending commitments

5,129 (202 3,962 (327 -   (1,299 244 7,507 (181

Other debt

27 4 128 (6 -   (2 4 155 3

Total corporate and other debt

7,404 88 5,101 (1,774 -   (1,430 299 9,688 (26

Corporate equities

190 17 83 (47 -   -   (2 241 10

Net derivative and other contracts(4):

Interest rate contracts

113 (4 8 -   (3 (61 (40 13 4

Credit contracts

(147 (434 52 -   (118 10 (45 (682 (475

Foreign exchange contracts

68 (6 6 (1 -   106 (19 154 (2

Equity contracts

(831 (19 223 (1 (273 (370 83 (1,188 (66

Commodity contracts

880 177 200 -   -   (90 -   1,167 99

Other

(4 (1 -   -   -   5 -   -   -  

Total net derivative and other contracts

79 (287 489 (2 (394 (400 (21 (536 (440

Investments:

Principal investments

2,160 49 36 (124 -   (1,234 26 913 129

Other

538 (13 17 (11 -   -   (138 393 (6
Intangible assets 8 -   -   -   -   (2 -   6 (1

Liabilities at Fair Value

Short-term borrowings $ 1 $ -   $ -   $ -   $ -   $ (1 $ -   $ -   $ -  
Trading liabilities:

Other sovereign government obligations

-   -   -   -   -   -   2 2 -  

Corporate and other debt:

Corporate bonds

22 2 (46 85 -   -   (11 48 3

Lending commitments

2 2 -   -   -   -   -   -   -  

Other debt

48 15 -   -   -   1 1 35 5

Total corporate and other debt

72 19 (46 85 -   1 (10 83 8

Corporate equities

8 (6 (16 2 -   -   3 3 (6

Securities sold under agreements to repurchase

154 1 -   -   -   -   -   153 1

Other secured financings

278 (9 -   -   21 (188 42 162 (6

Long-term borrowings

1,887 17 -   -   372 (289 (32 1,921 15

(1) Total realized and unrealized gains (losses) are primarily included in Trading revenues in the Company's condensed consolidated statements of income except for $36 million related to Trading assets-Investments, which is included in Investments revenues.
(2) Loan originations are included in purchases.
(3) Amounts represent unrealized gains (losses) for the nine months ended September 30, 2014 related to assets and liabilities still outstanding at September 30, 2014.
(4) Net derivative and other contracts represent Trading assets-Derivative and other contracts, net of Trading liabilities-Derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 4.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Quantitative Information about and Sensitivity of Significant Unobservable Inputs Used in Recurring Level 3 Fair Value Measurements.

The disclosures below provide information on the valuation techniques, significant unobservable inputs, and their ranges and averages 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 following disclosures also include qualitative information on the sensitivity of the fair value measurements to changes in the significant unobservable inputs.

At September 30, 2015

Balance at
September 30,
2015

Valuations Technique(s) /

Significant Unobservable Input(s) /

Sensitivity of the Fair Value to
Changes in the Unobservable Inputs

Range(1) Averages(2)
(dollars in millions)

Assets at Fair Value

Trading assets:

Corporate and other debt:

Residential mortgage-backed securities

$ 404 Comparable pricing:

Comparable bond price / (A)

0 to 80 points 36 points

Commercial mortgage-backed securities

79 Comparable pricing:

Comparable bond price / (A)

0 to 9 points 2 points

Corporate bonds

226 Comparable pricing:

Comparable bond price / (A)

4 to 119 points 83 points

Collateralized debt and loan obligations

545 Comparable pricing(3):

Comparable bond price / (A)

45 to 103 points 77 points

Correlation model:

Credit correlation / (B)

35% to 60% 49%

Loans and lending commitments

5,164 Corporate loan model:

Credit spread / (C)

72 to 831 basis points 544 basis points

Margin loan model:

Credit spread / (C)(D)

80 to 548 basis points 165 basis points

Volatility skew / (C)(D)

14% to 70% 36%

Discount rate / (C)(D)

2% to 6% 4%

Option model:

Volatility skew / (C)

-1% -1%

Comparable pricing(3):

Comparable loan price / (A)

40 to 103 points 89 points

Discounted cash flow:

Implied weighted average cost of capital / (C)(D)

6% to 8% 7%

Capitalization rate / (C)(D)

4% to 10% 4%

Other debt

530 Comparable pricing:

Comparable loan price / (A)

3 to 84 points 65 points

Comparable pricing:

Comparable bond price / (A)

11 points 11 points

Option model:

At the money volatility / (A)

16% to 53% 16%

Margin loan model(3):

Discount rate / (C)

1% to 2% 1%

Corporate equities

575 Comparable pricing:

Comparable price / (A)

59% to 91% 78%

Comparable pricing(3):

Comparable equity price / (A)

100% 100%

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Balance at
September 30,
2015

Valuations Technique(s) /

Significant Unobservable Input(s) /

Sensitivity of the Fair Value to
Changes in the Unobservable Inputs

Range(1) Averages(2)
(dollars in millions)

Market approach:

EBITDA multiple / (A)(D)

9 times 9 times

Price / Book ratio / (A)(D)

0 times 0 times

Net derivative and other
contracts(4):

Interest rate contracts

89

Option model:

Interest rate volatility concentration liquidity multiple / (C)(D)

0 to 3 times 2 times

Interest rate - Foreign exchange correlation / (C)(D)

26% to 62% 44% / 43%(5)

Interest rate volatility skew / (A)(D)

32% to 91% 44% / 43%(5)

Interest rate quanto correlation / (A)(D)

-8% to 37% 2% / -8%(5)

Interest rate curve correlation / (C)(D)

24% to 93% 69% / 75%(5)

Inflation volatility / (A)(D)

60% 60% / 60%(5)

Interest rate - Inflation
correlation / (A)(D)

-43% to -41% -43% /-43%(5)

Credit contracts

(805

Comparable pricing:

Cash synthetic basis / (C)(D)

5 to 12 points 9 points

Comparable bond price / (C)(D)

0 to 75 points 25 points

Correlation model(3):

Credit correlation / (B)

34% to 99% 58%

Foreign exchange contracts(6)

66

Option model:

Interest rate - Foreign exchange correlation / (C)(D)

26% to 62% 44% / 43%(5)

Interest rate volatility skew / (A)(D)

32% to 91% 44% / 43%(5)

Interest rate curve / (A)(D)

0% to 1% 0% / 0%(5)

Interest rate quanto correlation / (A)(D)

-8% to 37% 2% / -8%(5)

Equity contracts(6)

(2,041

Option model:

At the money volatility / (A)(D)

16% to 62% 31%

Volatility skew / (A)(D)

-3% to 0% -1%

Equity - Equity correlation / (C)(D)

40% to 99% 72%

Equity - Foreign exchange correlation / (A)(D)

-50% to 10% -16%

Equity - Interest rate correlation / (C)(D)

-31% to 50% 14% / 7%(5)

Commodity contracts

1,432

Option model:

Forward power price / (C)(D)

$4 to $91 per $33 per
Megawatt hour Megawatt hour

Commodity volatility / (A)(D)

10% to 59% 18%

Cross commodity correlation / (C)(D)

43% to 100% 93%

Investments:

Principal investments

541

Discounted cash flow:

Implied weighted average cost of capital / (C)(D)

14% 14%

Exit multiple / (A)(D)

10 times 10 times

Capitalization rate / (C)(D)

5% to 10% 6%

Equity discount rate / (C)(D)

18% to 35% 21%

Market approach(3):

EBITDA multiple / (A)(D)

9 to 19 times 11 times

Forward capacity price / (A)(D)

$5 to $9 $7

Comparable pricing:

Comparable equity price / (A)

75% to 100% 84%

Other

312

Discounted cash flow:

Implied weighted average cost of capital / (C)(D)

10% 10%

Exit multiple / (A)(D)

10 times 10 times

Market approach:

EBITDA multiple / (A)

8 to 14 times 10 times

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Balance at
September 30,
2015

Valuations Technique(s) /

Significant Unobservable Input(s) /

Sensitivity of the Fair Value to
Changes in the Unobservable Inputs

Range(1) Averages(2)
(dollars in millions)

Comparable pricing(3):

Comparable equity price / (A)

100% 100%
Liabilities at Fair Value
Short-term borrowings $ 69

Comparable pricing:

Comparable equity price / (A)

20% 20%
Corporate equities 97

Comparable pricing:

Comparable equity price / (A)

0% to 100% 80%

Securities sold under agreements to repurchase

154 Discounted cash flow:

Funding spread / (A)

96 to 123 basis points 113 basis points
Other secured financings 341

Comparable pricing:

Comparable bond price / (A)

100 points 100 points

Discounted cash flow(3):

Discount rate / (C)

4% to 17% 5%

Discounted cash flow:

Funding spread / (A)

108 to 130 basis points 119 basis points
Long-term borrowings 2,462

Option model(3):

At the money volatility / (C)(D)

22% to 40% 29%

Volatility skew / (A)(D)

-2% to 0% -1%

Equity - Equity correlation / (A)(D)

40% to 97% 78%

Equity - Foreign exchange
correlation / (C)(D)

-70% to 35% -42%

Option model:

Equity alpha / (A)

25% to 80% 63%

Correlation model:

Credit correlation / (B)

40% to 60% 44%

Comparable pricing:

Comparable equity price / (A)

100% 100%

At December 31, 2014.

Balance at
December 31, 2014

Valuation Technique(s) / Significant
Unobservable Input(s) / Sensitivity of
the Fair Value to
Changes in the Unobservable Inputs

Range(1) Averages(2)
(dollars in millions)

Assets at Fair Value

Trading assets:

Corporate and other debt:

Residential mortgage-backed securities

$ 175

Comparable pricing:

Comparable bond price / (A)

3 to 90 points 15 points

Commercial mortgage-backed securities

96

Comparable pricing:

Comparable bond price / (A)

0 to 7 points 1 point

Asset-backed securities

76

Comparable pricing:

Comparable bond price / (A)

0 to 62 points 23 points

Corporate bonds

386

Comparable pricing:

Comparable bond price / (A)

1 to 160 points 90 points

Collateralized debt and loan obligations

1,152

Comparable pricing(3):

Comparable bond price / (A)

20 to 100 points 66 points

Correlation model:

Credit correlation / (B)

47% to 65% 56%

Loans and lending commitments

5,874

Corporate loan model:

Credit spread / (C)

36 to 753 basis points 373 basis points

Margin loan model:

Credit spread / (C)(D)

150 to 451 basis points 216 basis points

Volatility skew / (C)(D)

3% to 37% 21%

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Balance at
December 31, 2014

Valuation Technique(s) / Significant
Unobservable Input(s) / Sensitivity of
the Fair Value to
Changes in the Unobservable Inputs

Range(1) Averages(2)
(dollars in millions)

Discount rate / (C)(D)

2% to 3% 3%

Option model:

Volatility skew / (C)

-1% -1%

Comparable pricing(3):

Comparable loan price / (A)

15 to 105 points 89 points

Other debt

285

Comparable pricing(3):

Comparable loan price / (A)

0 to 75 points 39 points

Comparable pricing:

Comparable bond price / (A)

15 points 15 points

Option model:

At the money volatility / (A)

15% to 54% 15%

Corporate equities

272

Net asset value:

Discount to net asset value / (C)

0% to 71% 36%

Comparable pricing:

Comparable price / (A)

83% to 96% 85%

Comparable pricing(3):

Comparable equity price / (A)

100% 100%

Market approach:

EBITDA multiple / (A)(D)

6 to 9 times 8 times

Price / Book ratio / (A)(D)

0 times 0 times

Net derivative and other contracts(4):

Interest rate contracts

(173)

Option model:

Interest rate volatility concentration liquidity multiple / (C)(D)

0 to 3 times 2 times

Interest rate - Foreign exchange correlation / (A)(D)

28% to 62% 44% / 42% (5) 

Interest rate volatility skew / (A)(D)

38% to 104% 86% / 60%(5)

Interest rate quanto correlation / (A)(D)

-9% to 35% 6% / -6%(5)

Interest rate curve correlation / (A)(D)

44% to 87% 73% / 80%(5)

Inflation volatility / (A)(D)

69% to 71% 70% / 71%(5)

Interest rate - Inflation correlation / (A)(D)

-44% to -40% -42% / -43%(5)

Credit contracts

(743)

Comparable pricing:

Cash synthetic basis / (C)(D)

5 to 13 points 9 points

Comparable bond price / (C)(D)

0 to 55 points 18 points

Correlation model(3):

Credit correlation / (B)

42% to 95% 63%

Foreign exchange
contracts(6)

151

Option model:

Interest rate quanto correlation / (A)(D)

-9% to 35% 6% / -6%(5)

Interest rate - Credit spread correlation / (A)(D)

-54% to -2% -17% / -11%(5)

Interest rate curve correlation / (A)(D)

44% to 87% 73% / 80%(5)

Interest rate - Foreign exchange correlation / (A)(D)

28% to 62% 44% / 42%(5)

Interest rate curve / (A)(D)

0% to 2% 1% / 1%(5)

Equity contracts(6)(7)

(2,165)

Option model:

At the money volatility / (A)(D)

14% to 51% 29%

Volatility skew / (A)(D)

-2% to 0% -1%

Equity - Equity correlation / (C)(D)

40% to 99% 72%

Equity - Foreign exchange correlation / (C)(D)

-50% to 10% -16%

Equity - Interest rate correlation / (C)(D)

-18% to 81% 26% / 11%(5)

Commodity contracts

1,146

Option model:

Forward power price / (C)(D)

$5 to $106 per $38 per
Megawatt hour Megawatt hour

Commodity volatility / (A)(D)

11% to 90% 19%

Cross commodity correlation / (C)(D)

33% to 100% 93%

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Balance at
December 31, 2014

Valuation Technique(s) / Significant
Unobservable Input(s) / Sensitivity of
the Fair Value to
Changes in the Unobservable Inputs

Range(1) Averages(2)
(dollars in millions)

Investments:

Principal investments

835

Discounted cash flow:

Implied weighted average cost of capital / (C)(D)

11% 11%

Exit multiple / (A)(D)

10 times 10 times

Discounted cash flow:

Equity discount rate / (C)

25% 25%

Market approach(3):

EBITDA multiple / (A)(D)

4 to 14 times 10 times

Price / Earnings ratio / (A)(D)

23 times 23 times

Forward capacity price / (A)(D)

$5 to $7 $7

Comparable pricing:

Comparable equity price / (A)

64% to 100% 95%

Other

323

Discounted cash flow:

Implied weighted average cost of capital / (C)(D)

10% to 13% 11%

Exit multiple / (A)(D)

6 to 9 times 9 times

Market approach:

EBITDA multiple / (A)(D)

9 to 13 times 10 times

Comparable pricing(3):

Comparable equity price / (A)

100% 100%

Liabilities at Fair Value

Trading liabilities:

Corporate and other debt:

Corporate bonds

$ 78

Option model:

Volatility skew / (C)(D)

-1% -1%

At the money volatility / (C)(D)

10% 10%

Securities sold under agreements to repurchase

153

Discounted cash flow:

Funding spread / (A)

75 to 91 basis points 86 basis points

Other secured financings

149

Comparable pricing:

Comparable bond price / (A)

99 to 101 points 100 points

Discounted cash flow(3):

Funding spread / (A)

82 to 98 basis points 95 basis points

Long-term borrowings

1,934

Option model(3):

At the money volatility / (C)(D)

18% to 32% 27%

Volatility skew / (A)(D)

-1% to 0% 0%

Equity - Equity correlation / (A)(D)

40% to 90% 68%

Equity - Foreign exchange correlation / (C)(D)

-73% to 30% -32%

Option model:

Equity alpha / (A)

0% to 94% 67%

Correlation model:

Credit correlation / (B)

48% to 65% 51%

EBITDA-Earnings before interest, taxes, depreciation and amortization

(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, 80 points would be 80% of par. A basis point equals 1/100th of 1%; for example, 831 basis points would equal 8.31%.
(2) Amounts represent weighted averages except where simple averages and the median of the inputs are provided (see footnote 5 below). Weighted averages are calculated by weighting each input by the fair value of the respective financial instruments except for collateralized debt and loan obligations, principal investments, other debt, corporate bonds, long-term borrowings and derivative instruments where some or all inputs are weighted by risk.
(3) This is the predominant valuation technique for this major asset or liability class.
(4) Credit Valuation Adjustment ("CVA") and Funding Valuation Adjustments ("FVA") are included in the balance, but excluded from the Valuation Technique(s) and Significant Unobservable Input(s) in the table above. CVA is a Level 3 input when the underlying counterparty credit curve is unobservable. FVA is a Level 3 input in its entirety given the lack of observability of funding spreads in the principal market.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

(5) The data structure of the significant unobservable inputs used in valuing interest rate contracts, foreign exchange contracts and certain equity contracts may be in a multi-dimensional form, such as a curve or surface, with risk distributed across the structure. Therefore, a simple average and median, together with the range of data inputs, may be more appropriate measurements than a single point weighted average.
(6) Includes derivative contracts with multiple risks ( i.e., hybrid products).
(7) Net liability Level 3 derivative equity contracts increased by $785 million to correct the fair value level assigned to these contracts at December 31, 2014. This correction did not result in a change to the Valuation Technique(s), Significant Unobservable Inputs, Ranges or Averages.

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.

For a description of the Company's significant unobservable inputs included in the September 30, 2015 and December 31, 2014 tables above for all major categories of assets and liabilities, see Note 4 to the consolidated financial statements in the 2014 Form 10-K.

During the quarter and nine months ended September 30, 2015, there were no significant updates made to the Company's significant unobservable inputs.

Fair Value of Investments that are Measured at Net Asset Value.

For a description of the Company's investments in private equity funds, real estate funds and hedge funds measured at fair value based on NAV, see Note 4 to the consolidated financial statements in the 2014 Form 10-K. The following tables present information solely about the Company's investments in private equity funds, real estate funds and hedge funds measured at fair value using the NAV per share, or its equivalent, at September 30, 2015 and December 31, 2014:

At September 30, 2015 At December 31, 2014
Fair Value Commitment Fair Value Commitment
(dollars in millions)

Private equity funds

$ 1,962 $ 597 $ 2,569 $ 613

Real estate funds

1,664 135 1,753 112

Hedge funds(1):

Long-short equity hedge funds

447 -   433 -  

Fixed income/credit-related hedge funds

73 -   76 -  

Event-driven hedge funds

3 -   39 -  

Multi-strategy hedge funds

129 4 139 3

Total

$ 4,278 $ 736 $ 5,009 $ 728

(1) Fixed income/credit-related hedge funds, event-driven hedge funds and multi-strategy hedge funds are redeemable at least on a three-month period basis, primarily with a notice period of 90 days or less. At September 30, 2015, approximately 32% of the fair value amount of long-short equity hedge funds was redeemable at least quarterly, 48% is redeemable every six months and 20% of these funds have a redemption frequency of greater than six months. At December 31, 2014, approximately 36% of the fair value amount of long-short equity hedge funds was redeemable at least quarterly, 47% is redeemable every six months and 17% of these funds have a redemption frequency of greater than six months. The notice period for long-short equity hedge funds at September 30, 2015 and December 31, 2014 was primarily greater than six months.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Private Equity Funds and Real Estate Funds.

Investments in these funds generally are not redeemable due to the closed-ended nature of these funds. Instead, distributions from each fund will be received as the underlying investments of the funds are disposed and monetized. The following table presents information about the fair value of the funds estimated to be liquidated over time:

At September 30, 2015
Fair Value of the Funds Estimated to be Liquidated

Fund Type

Less than 5 years 5-10 years Over 10 years Total
(dollars in millions)

Private equity funds

$ 139 $ 1,151 $ 672 $ 1,962

Real estate funds

235 882 547 1,664

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. The following table presents information about lock-up restrictions and gates by hedge fund type:

At September 30, 2015
Hedge Fund Restrictions

Hedge Fund Type

Fair Value Lock-up Restrictions Gate Restrictions
(dollars in millions)

Long-short equity(1)(2)

$ 447 1 12

Fixed income/credit-related(1)

73 13 N/A

Event-driven(1)

3 3 N/A

Multi-strategy(1)(2)

129 37 28

N/A-Not Applicable.

(1) The remaining restriction period subject to lock-up restrictions was primarily over three years at September 30, 2015.
(2) The restriction period for these investments subject to an exit restriction was indefinite at September 30, 2015.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

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 table presents net gains (losses) due to changes in fair value for items measured at fair value pursuant to the fair value option election for the quarters and nine months ended September 30, 2015 and 2014, respectively:

Interest Gains (Losses)
Trading Income Included in
Revenues (Expense) Net Revenues
(dollars in millions)

Three Months Ended September 30, 2015

Securities purchased under agreements to resell

$ (1 $ 2 $ 1

Short-term borrowings(1)

(85 -   (85

Securities sold under agreements to repurchase

-   (2 (2

Long-term borrowings(1)

1,137 (129 1,008

Nine Months Ended September 30, 2015

Securities purchased under agreements to resell

$ (4 $ 7 $ 3

Short-term borrowings(1)

(127 -   (127

Securities sold under agreements to repurchase

4 (5 (1

Long-term borrowings(1)

2,226 (399 1,827

Three Months Ended September 30, 2014

Securities purchased under agreements to resell

$ (2 $ 2 $ -  

Short-term borrowings(2)

5 2 7

Securities sold under agreements to repurchase

3 (2 1

Long-term borrowings(2)

1,579 (174 1,405

Nine Months Ended September 30, 2014

Securities purchased under agreements to resell

$ (4 $ 6 $ 2

Short-term borrowings(2)

(32 2 (30

Securities sold under agreements to repurchase

(2 (4 (6

Long-term borrowings(2)

631 (520 111

(1) Of the total gains (losses) recorded in Trading revenues for short-term and long-term borrowings for the quarter and nine months ended September 30, 2015, $435 million and $742 million, respectively, are attributable to changes in the credit quality of the Company and other credit factors, 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.
(2) Of the total gains (losses) recorded in Trading revenues for short-term and long-term borrowings for the quarter and nine months ended September 30, 2014, $215 million and $428 million, respectively, are attributable to changes in the credit quality of the Company and other credit factors, 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 to the consolidated financial statements in the 2014 Form 10-K, all of the instruments within Trading assets or Trading liabilities 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

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 unit's portfolio. The gains and losses on related economic hedges are recorded in Trading revenues and largely offset the gains and losses on short-term and long-term borrowings attributable to market risk.

At September 30, 2015 and December 31, 2014, a breakdown of the short-term and long-term borrowings measured at fair value on a recurring basis by business unit responsible for risk-managing each borrowing is shown in the table below.

Short-Term and Long-Term  Borrowings

Business Unit

At September 30, 2015 At December 31, 2014
(dollars in millions)

Equity

$ 17,054 $ 17,253

Interest rates

13,614 13,545

Credit and foreign exchange

1,947 2,105

Commodities

540 636

Total

$ 33,155 $ 33,539

The following tables present information on the Company's short-term and long-term borrowings (primarily structured notes), and loans and lending commitments for which the fair value option was elected:

Gains (Losses) due to Changes in Instrument-Specific Credit Risk.

Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
(dollars in millions)

Short-term and long-term borrowings(1)

$ 435 $ 215 $ 742 $ 428

Loans and other debt(2)

(32 25 39 153

Lending commitments(3)

5 2 13 29

(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 and changes in other credit factors.
(2) Loans and other debt 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) on lending commitments 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.

Contractual Principal
Amount Exceeds Fair
Value
At
September 30,
2015
At
December 31,
2014
(dollars in millions)

Loans and other debt(1)

$ 14,186 $ 14,990

Loans 90 or more days past due and/or on nonaccrual status(1)(2)

11,798 12,916

Short-term and long-term borrowings(3)

694 (670

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

(1) The majority of the difference between principal and fair value amounts for loans and other debt emanates from the Company's distressed debt trading business, which purchases distressed debt at amounts well below par.
(2) The aggregate fair value of loans that were in nonaccrual status, which includes all loans 90 or more days past due, was $2,070 million and $1,367 million at September 30, 2015 and December 31, 2014, respectively. The aggregate fair value of loans that were 90 or more days past due was $916 million and $643 million at September 30, 2015 and December 31, 2014, respectively.
(3) Short-term and long-term borrowings do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in the reference price or index.

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 and liabilities were measured at fair value on a non-recurring basis and are not included in the tables above. These assets and liabilities may include loans, other investments, premises, equipment and software costs, intangible assets and lending commitments.

The following tables present, by caption on the Company's condensed 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 the quarters and nine months ended September 30, 2015 and 2014.

Three Months and Nine Months Ended September 30, 2015.

Fair Value Measurements Using:
Carrying
Value at
September 30,
2015(1)
Quoted
in  Active
Markets
for
Identical
Assets

(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs

(Level 3)
Total
Gains (Losses)
for the

Three Months
Ended
September 30,
2015(2)
Total
Gains (Losses)
for the

Nine Months
Ended
September 30,
2015(2)
(dollars in millions)

Assets:

Loans(3)

$ 5,089 $ -   $ 3,060 $ 2,029 $ 12 $ (201

Other investments(4)

-   -   -   -   -   (2

Premises, equipment and software costs(5)

-   -   -   -   (2 (24

Total assets

$ 5,089 $ -   $ 3,060 $ 2,029 $ 10 $ (227

Liabilities:

Other liabilities and accrued expenses(3)

$ (427 $ -   $ (365 $ (62 $ (144 $ (171

Total liabilities

$ (427 $ -   $ (365 $ (62 $ (144 $ (171

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Three Months and Nine Months Ended September 30, 2014.

Fair Value Measurements Using:
Carrying
Value at
September 30,
2014(1)
Quoted
in  Active
Markets
for
Identical
Assets

(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs

(Level 3)
Total
Gains (Losses)
for the

Three Months
Ended
September 30,
2014(2)
Total
Gains (Losses)
for the

Nine Months
Ended
September 30,
2014(2)
(dollars in millions)

Assets:

Loans(3)

$ 2,672 $ -   $ 1,996 $ 676 $ (45 $ (55

Other investments(4)

38 -   -   38 (2 (27

Premises, equipment and software costs(5)

-   -   -   -   (27 (43

Intangible assets(4)

20 -   -   20 (4 (6

Other assets(5)

-   -   -   -   -   (9

Total assets

$ 2,730 $ -   $ 1,996 $ 734 $ (78 $ (140

(1) Carrying values relate only to those assets that had fair value adjustments during the quarters ended September 30, 2015 and 2014.
(2) Changes in the fair value of Loans and losses related to Other investments are recorded within Other revenues in the Company's condensed consolidated statements of income. Losses related to Premises, equipment and software costs, Intangible assets and Other assets are recorded within Other expenses if not held for sale and within Other revenues if held for sale. Losses related to Other liabilities and accrued expenses are recorded within Other revenues and represent non-recurring fair value adjustments for certain lending commitments designated as held for sale.
(3) Non-recurring changes in the fair value of loans and lending commitments held for investment or held for sale were calculated using recently executed transactions; market price quotations; valuation models that incorporate market observable inputs where possible, such as comparable loan or debt prices and credit default swap spread levels adjusted for any basis difference between cash and derivative instruments; or default recovery analysis where such transactions and quotations are unobservable.
(4) Losses related to Other investments and Intangible assets were determined primarily using discounted cash flow models and methodologies that incorporate multiples of certain comparable companies.
(5) Losses related to Premises, equipment and software costs and Other assets were determined primarily using a default recovery analysis.

In addition to the table above, as a result of entering into an agreement to sell the global oil merchanting unit of the commodities division, the Company recognized an impairment charge of $10 million and $69 million in Other revenues in the Company's condensed consolidated statements of income in the quarter and nine months ended September 30, 2015, respectively, to reduce the carrying amount of the unit to its estimated fair value less costs to sell.

There were no significant liabilities measured at fair value on a non-recurring basis during the quarter and nine months ended September 30, 2014.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Financial Instruments Not Measured at Fair Value.

The tables below present the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value in the Company's condensed consolidated statements of financial condition. The tables below exclude 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.

For a further discussion of the Company's financial instruments not measured at fair value, see Note 4 to the consolidated financial statements in 2014 Form 10-K.

At September 30, 2015.

At September 30, 2015 Fair Value Measurements Using:
Carrying
Value
Fair Value Quoted
Prices  in
Active
Markets
for
Identical
Assets

(Level 1)
Significant
Observable
Inputs

(Level 2)
Significant
Unobservable
Inputs

(Level 3)
(dollars in millions)

Financial Assets:

Cash and due from banks

$ 19,244 $ 19,244 $ 19,244 $ -   $ -  

Interest bearing deposits with banks

34,274 34,274 34,274 -   -  

Cash deposited with clearing organizations or segregated under federal and other regulations or requirements

35,552 35,552 35,552 -   -  

Investment securities-HTM securities

3,530 3,528 1,007 2,521 -  

Securities purchased under agreements to resell

126,397 126,397 -   125,731 666

Securities borrowed

148,245 148,232 -   148,148 84

Customer and other receivables(1)

46,134 46,028 -   41,230 4,798

Loans(2)

78,209 79,026 -   17,317 61,709

Financial Liabilities:

Deposits

$ 147,226 $ 147,248 $ -   $ 147,248 $ -  

Short-term borrowings

214 214 -   214 -  

Securities sold under agreements to repurchase

57,973 58,036 -   55,598 2,438

Securities loaned

20,644 20,657 -   20,488 169

Other secured financings

6,721 6,720 -   5,441 1,279

Customer and other payables(1)

190,434 190,434 -   190,434 -  

Long-term borrowings

128,956 130,826 -   130,747 79

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

At December 31, 2014.

At December 31, 2014 Fair Value Measurements Using:
Carrying
Value
Fair Value Quoted
Prices in
Active
Markets
for
Identical
Assets

(Level 1)
Significant
Observable
Inputs

(Level 2)
Significant
Unobservable
Inputs

(Level 3)
(dollars in millions)

Financial Assets:

Cash and due from banks

$ 21,381 $ 21,381 $ 21,381 $ -   $ -  

Interest bearing deposits with banks

25,603 25,603 25,603 -   -  

Cash deposited with clearing organizations or segregated under federal and other regulations or requirements

40,607 40,607 40,607 -   -  

Investment securities-HTM securities

100 100 100 -   -  

Securities purchased under agreements to resell

82,175 82,165 -   81,981 184

Securities borrowed

136,708 136,708 -   136,696 12

Customer and other receivables(1)

45,116 45,028 -   39,945 5,083

Loans(2)

66,577 67,800 -   18,212 49,588

Financial Liabilities:

Deposits

$ 133,544 $ 133,572 $ -   $ 133,572 $ -  

Short-term borrowings

496 496 -   496 -  

Securities sold under agreements to repurchase

69,337 69,433 -   63,921 5,512

Securities loaned

25,219 25,244 -   24,740 504

Other secured financings

7,581 7,881 -   5,465 2,416

Customer and other payables(1)

178,373 178,373 -   178,373 -  

Long-term borrowings

120,998 124,961 -   124,150 811

HTM-held to maturity

(1) Accrued interest, fees, and dividend receivables and payables where carrying value approximates fair value have been excluded.
(2) Amounts include all loans measured at fair value on a non-recurring basis.

The fair value of the Company's lending commitments, primarily related to corporate lending in the Company's Institutional Securities business segment, that are not carried at fair value at September 30, 2015 was $1,807 million, of which $1,544 million and $263 million would have been categorized in Level 2 and Level 3 of the fair value hierarchy, respectively. The notional amount of these commitments was $109.8 billion.

The fair value of the Company's lending commitments, primarily related to corporate lending in the Company's Institutional Securities business segment, that are not carried at fair value at December 31, 2014 was $1,178 million, of which $928 million and $250 million would have been categorized in Level 2 and Level 3 of the fair value hierarchy, respectively. The notional amount of these commitments was $86.8 billion.

4. Derivative Instruments and Hedging Activities.

The Company trades and makes markets globally in listed futures, over-the-counter ("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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

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.

Offsetting of Derivative Instruments.

In connection with its derivative activities, the Company generally enters into master netting agreements and collateral agreements with its counterparties. For a further discussion of these agreements, see Note 12 to the consolidated financial statements in the 2014 Form 10-K. The following tables present information about the offsetting of derivative instruments and related collateral amounts. See information related to offsetting of certain collateralized transactions in Note 6.

At September 30, 2015
Gross
Amounts(1)
Amounts Offset
in the Condensed
Consolidated
Statements of
Financial
Condition
Net Amounts
Presented in the
Condensed
Consolidated
Statements of
Financial
Condition
Amounts Not Offset in the
Condensed Consolidated
Statements of Financial
Condition(2)
Net
Exposure
Financial
Instruments
Collateral
Other
Cash
Collateral
(dollars in millions)

Derivative assets

Bilateral OTC

$ 379,609 $ (351,265 $ 28,344 $ (9,967 $ (8 $ 18,369

Cleared OTC(3)

129,262 (127,987 1,275 -   -   1,275

Exchange traded

31,948 (28,273 3,675 -   -   3,675

Total derivative assets

$ 540,819 $ (507,525 $ 33,294 $ (9,967 $ (8 $ 23,319

Derivative liabilities

Bilateral OTC

$ 361,467 $ (332,549 $ 28,918 $ (6,967 $ -   $ 21,951

Cleared OTC(3)

128,153 (127,267 886 -   (2 884

Exchange traded

34,242 (28,273 5,969 (735 -   5,234

Total derivative liabilities

$ 523,862 $ (488,089 $ 35,773 $ (7,702 $ (2 $ 28,069

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

At December 31, 2014
Gross
Amounts(4)
Amounts Offset
in the Condensed
Consolidated
Statements of
Financial
Condition
Net Amounts
Presented in the
Condensed
Consolidated
Statements of
Financial
Condition
Amounts Not Offset in the
Condensed Consolidated
Statements of Financial
Condition(2)
Net
Exposure
Financial
Instruments
Collateral
Other
Cash
Collateral
(dollars in millions)

Derivative assets

Bilateral OTC

$ 427,079 $ (396,582 $ 30,497 $ (9,844 $ (19 $ 20,634

Cleared OTC(3)

217,169 (215,576 1,593 -   -   1,593

Exchange traded

32,123 (27,819 4,304 -   -   4,304

Total derivative assets

$ 676,371 $ (639,977 $ 36,394 $ (9,844 $ (19 $ 26,531

Derivative liabilities

Bilateral OTC

$ 410,003 $ (375,095 $ 34,908 $ (11,192 $ (179 $ 23,537

Cleared OTC(3)

211,695 (211,180 515 -   (6 509

Exchange traded

32,608 (27,819 4,789 (726 -   4,063

Total derivative liabilities

$ 654,306 $ (614,094 $ 40,212 $ (11,918 $ (185 $ 28,109

(1) Amounts include $6.2 billion of derivative assets and $6.9 billion of derivative liabilities, which are either not subject to master netting agreements or collateral agreements or are subject to such agreements but the Company has not determined the agreements to be legally enforceable. See also "Fair Value and Notional of Derivative Instruments" herein, for additional disclosure about gross fair values and notionals for derivative instruments by risk type.
(2) Amounts relate to master netting agreements and collateral agreements, which have been determined by the Company to be legally enforceable in the event of default but where certain other criteria are not met in accordance with applicable offsetting accounting guidance.
(3) Amounts include OTC derivatives that are centrally cleared in accordance with certain regulatory requirements.
(4) Amounts include $6.5 billion of derivative assets and $6.9 billion of derivative liabilities, which are either not subject to master netting agreements or collateral agreements or are subject to such agreements but the Company has not determined the agreements to be legally enforceable. See also "Fair Value and Notional of Derivative Instruments" herein, for additional disclosure about gross fair values and notionals for derivative instruments by risk type.

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 Note 2 to the consolidated financial statements in the 2014 Form 10-K and Note 3.

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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

OTC Derivative Products-Trading Assets.

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 September 30, 2015 and December 31, 2014. Fair value is presented in the final column, net of collateral received (principally cash and U.S. government and agency securities):

At September 30, 2015(1)
Years to Maturity Cross-Maturity
and Cash
Collateral
Netting(3)
Net  Exposure
Post-cash
Collateral
Net Exposure
Post-collateral

Credit Rating(2)

Less
than 1
1-3 3-5 Over 5
(dollars in millions)

AAA

$ 260 $ 289 $ 895 $ 4,174 $ (4,514 $ 1,104 $ 924

AA

2,599 2,493 1,848 11,978 (13,432 5,486 2,887

A

10,807 9,428 5,885 22,520 (38,543 10,097 6,606

BBB

4,202 4,711 2,414 12,306 (15,682 7,951 5,654

Non-investment grade

4,502 3,339 1,521 3,755 (8,144 4,973 3,573

Total

$ 22,370 $ 20,260 $ 12,563 $ 54,733 $ (80,315 $ 29,611 $ 19,644

At December 31, 2014(1)
Years to Maturity Cross-Maturity
and Cash
Collateral
Netting(3)
Net Exposure
Post-cash
Collateral
Net Exposure
Post-collateral

Credit Rating(2)

Less
than 1
1-3 3-5 Over 5
(dollars in millions)

AAA

$ 499 $ 246 $ 1,313 $ 4,281 $ (5,009 $ 1,330 $ 1,035

AA

2,679 2,811 2,704 14,137 (15,415 6,916 4,719

A

11,733 10,833 7,585 23,968 (43,644 10,475 6,520

BBB

5,119 3,753 2,592 13,132 (15,844 8,752 6,035

Non-investment grade

3,196 3,089 1,541 2,499 (5,727 4,598 3,918

Total

$ 23,226 $ 20,732 $ 15,735 $ 58,017 $ (85,639 $ 32,071 $ 22,227

(1) Fair values shown represent the Company's net exposure to counterparties related to the Company's OTC derivative products. Amounts include centrally cleared OTC derivatives. The tables do not include exchange-traded 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.

For a discussion of hedge accounting, fair value hedges-interest rate risk and net investment hedges, see Note 12 to the consolidated financial statements in the 2014 Form 10-K.

33
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MORGAN STANLEY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Fair Value and Notional of Derivative Instruments.

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 and the platform on which these instruments are traded or cleared on a gross basis. Fair values of derivative contracts in an asset position are included in Trading assets, and fair values of derivative contracts in a liability position are reflected in Trading liabilities in the Company's condensed consolidated statements of financial condition (see Note 3):

Derivative Assets
at September 30, 2015
Fair Value Notional
Bilateral
OTC
Cleared
OTC(1)
Exchange
Traded
Total Bilateral
OTC
Cleared
OTC(1)
Exchange
Traded
Total
(dollars in millions)

Derivatives designated as accounting hedges:

Interest rate contracts

$ 3,565 $ 1,828 $ -   $ 5,393 $ 38,389 $ 43,193 $ -   $ 81,582

Foreign exchange contracts

210 5 -   215 6,533 438 -   6,971

Total derivatives designated as accounting hedges

3,775 1,833 -   5,608 44,922 43,631 -   88,553

Derivatives not designated as accounting hedges(2):

Interest rate contracts

242,212 123,482 436 366,130 4,570,771 6,416,792 1,231,155 12,218,718

Credit contracts

21,246 3,535 -   24,781 684,536 171,985 -   856,521

Foreign exchange contracts

70,521 412 102 71,035 1,964,784 13,908 42,417 2,021,109

Equity contracts

25,261 -   26,399 51,660 356,509 -   294,745 651,254

Commodity contracts

16,230 -   5,011 21,241 87,566 -   103,188 190,754

Other

364 -   -   364 7,568 -   -   7,568

Total derivatives not designated as accounting hedges

375,834 127,429 31,948 535,211 7,671,734 6,602,685 1,671,505 15,945,924

Total derivatives

$ 379,609 $ 129,262 $ 31,948 $ 540,819 $ 7,716,656 $ 6,646,316 $ 1,671,505 $ 16,034,477

Cash collateral netting

(54,391 (2,480 -   (56,871 -   -   -   -  

Counterparty netting

(296,874 (125,507 (28,273 (450,654 -   -   -   -  

Total derivative assets

$ 28,344 $ 1,275 $ 3,675 $ 33,294 $ 7,716,656 $ 6,646,316 $ 1,671,505 $ 16,034,477

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Derivative Liabilities
at September 30, 2015
Fair Value Notional
Bilateral
OTC
Cleared
OTC(1)
Exchange
Traded
Total Bilateral
OTC
Cleared
OTC(1)
Exchange
Traded
Total
(dollars in millions)

Derivatives designated as accounting hedges:

Interest rate contracts

$ 61 $ 98 $ -   $ 159 $ 2,000 $ 4,519 $ -   $ 6,519

Foreign exchange contracts

37 2 -   39 4,155 153 -   4,308

Total derivatives designated as accounting hedges

98 100 -   198 6,155 4,672 -   10,827

Derivatives not designated as accounting hedges(2):

Interest rate contracts

224,805 124,372 321 349,498 4,259,745 6,013,571 1,189,701 11,463,017

Credit contracts

21,224 3,418 -   24,642 617,011 165,496 -   782,507

Foreign exchange contracts

72,572 263 60 72,895 1,968,292 12,137 9,274 1,989,703

Equity contracts

28,858 -   28,553 57,411 351,276 -   293,615 644,891

Commodity contracts

13,859 -   5,308 19,167 79,641 -   89,147 168,788

Other

51 -   -   51 4,170 -   -   4,170

Total derivatives not designated as accounting hedges

361,369 128,053 34,242 523,664 7,280,135 6,191,204 1,581,737 15,053,076

Total derivatives

$ 361,467 $ 128,153 $ 34,242 $ 523,862 $ 7,286,290 $ 6,195,876 $ 1,581,737 $ 15,063,903

Cash collateral netting

(35,675 (1,760 -   (37,435 -   -   -   -  

Counterparty netting

(296,874 (125,507 (28,273 (450,654 -   -   -   -  

Total derivative liabilities

$ 28,918 $ 886 $ 5,969 $ 35,773 $ 7,286,290 $ 6,195,876 $ 1,581,737 $ 15,063,903

Derivative Assets
at December 31, 2014
Fair Value Notional
Bilateral
OTC
Cleared
OTC(1)
Exchange
Traded
Total Bilateral
OTC
Cleared
OTC(1)
Exchange
Traded
Total
(dollars in millions)

Derivatives designated as accounting hedges:

Interest rate contracts

$ 3,947 $ 1,053 $ -   $ 5,000 $ 44,324 $ 27,692 $ -   $ 72,016

Foreign exchange contracts

498 6 -   504 9,362 261 -   9,623

Total derivatives designated as accounting hedges

4,445 1,059 -   5,504 53,686 27,953 -   81,639

Derivatives not designated as accounting hedges(3):

Interest rate contracts

281,214 211,552 407 493,173 4,854,953 9,187,454 1,467,056 15,509,463

Credit contracts

27,776 4,406 -   32,182 806,441 167,390 -   973,831

Foreign exchange contracts

72,362 152 83 72,597 1,955,343 11,538 9,663 1,976,544

Equity contracts

23,208 -   24,916 48,124 299,363 -   271,164 570,527

Commodity contracts

17,698 -   6,717 24,415 115,792 -   156,440 272,232

Other

376 -   -   376 5,179 -   -   5,179

Total derivatives not designated as accounting hedges

422,634 216,110 32,123 670,867 8,037,071 9,366,382 1,904,323 19,307,776

Total derivatives

$ 427,079 $ 217,169 $ 32,123 $ 676,371 $ 8,090,757 $ 9,394,335 $ 1,904,323 $ 19,389,415

Cash collateral netting

(58,541 (4,654 -   (63,195 -   -   -   -  

Counterparty netting

(338,041 (210,922 (27,819 (576,782 -   -   -   -  

Total derivative assets

$ 30,497 $ 1,593 $ 4,304 $ 36,394 $ 8,090,757 $ 9,394,335 $ 1,904,323 $ 19,389,415

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Derivative Liabilities
at December 31, 2014
Fair Value Notional
Bilateral
OTC
Cleared
OTC(1)
Exchange
Traded
Total Bilateral
OTC
Cleared
OTC(1)
Exchange
Traded
Total
(dollars in millions)

Derivatives designated as accounting hedges:

Interest rate contracts

$ 125 $ 99 $ -   $ 224 $ 2,024 $ 7,588 $ -   $ 9,612

Foreign exchange contracts

5 1 -   6 1,491 121 -   1,612

Total derivatives designated as accounting hedges

130 100 -   230 3,515 7,709 -   11,224

Derivatives not designated as accounting hedges(3):

Interest rate contracts

264,579 207,482 293 472,354 4,615,886 9,138,417 1,714,021 15,468,324

Credit contracts

28,165 3,944 -   32,109 714,181 154,054 -   868,235

Foreign exchange contracts

72,156 169 21 72,346 1,947,178 11,477 1,761 1,960,416

Equity contracts

30,061 -   25,511 55,572 339,884 -   302,205 642,089

Commodity contracts

14,740 -   6,783 21,523 93,019 -   132,136 225,155

Other

172 -   -   172 5,478 -   -   5,478

Total derivatives not designated as accounting hedges

409,873 211,595 32,608 654,076 7,715,626 9,303,948 2,150,123 19,169,697

Total derivatives

$ 410,003 $ 211,695 $ 32,608 $ 654,306 $ 7,719,141 $ 9,311,657 $ 2,150,123 $ 19,180,921

Cash collateral netting

(37,054 (258 -   (37,312 -   -   -   -  

Counterparty netting

(338,041 (210,922 (27,819 (576,782 -   -   -   -  

Total derivative liabilities

$ 34,908 $ 515 $ 4,789 $ 40,212 $ 7,719,141 $ 9,311,657 $ 2,150,123 $ 19,180,921

(1) Amounts include OTC derivatives that are centrally cleared in accordance with certain regulatory requirements.
(2) Notional amounts include gross notionals related to open long and short futures contracts of $886 billion and $950 billion, respectively. The unsettled fair value on these futures contracts (excluded from the table above) of $432 million and $9 million is included in Customer and other receivables and Customer and other payables, respectively, in the Company's condensed consolidated statements of financial condition.
(3) Notional amounts include gross notionals related to open long and short futures contracts of $685 billion and $1,122 billion, respectively. The unsettled fair value on these futures contracts (excluded from the table above) of $472 million and $21 million is included in Customer and other receivables and Customer and other payables, respectively, in the Company's condensed consolidated statements of financial condition.

At September 30, 2015, cash collateral payables of $3 million and at December 31, 2014, cash collateral receivables and payables of $21 million and $30 million, respectively, were not offset against certain contracts that did not meet the definition of a derivative. The Company had no cash collateral receivable at September 30, 2015 that was not offset against certain contracts that did not meet the definition of a derivative.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Derivatives Designated as Fair Value Hedges.

The following table presents gains (losses) reported on interest rate derivative instruments designated and qualifying as accounting hedges and the related hedged item as well as the hedge ineffectiveness included in Interest expense in the Company's condensed consolidated statements of income:

Gains (Losses) Recognized in Interest Expense
Three Months Ended
September 30,
Nine Months Ended
September 30,

Product Type

2015 2014 2015 2014
(dollars in millions)

Derivatives

$ 1,531 $ (384 $ 390 $ 547

Borrowings

(1,334 757 386 429

Total

$ 197 $ 373 $ 776 $ 976

Derivatives Designated as Net Investment Hedges.

The following table presents gains (losses) reported on derivative instruments designated and qualifying as accounting hedges:

Gains (Losses) Recognized in OCI (effective portion)
    Three Months Ended         Nine Months Ended    
September 30, September 30,

Product Type

2015 2014 2015 2014
(dollars in millions)

Foreign exchange contracts(1)

$ 210 $ 438 $ 391 $ 262

Total

$ 210 $ 438 $ 391 $ 262

(1) Losses of $37 million and $117 million related to the forward points on the hedging instruments were excluded from hedge effectiveness testing and recognized in interest income during the quarter and nine months ended September 30, 2015, respectively. Losses of $46 million and $143 million related to the forward points on the hedging instruments were excluded from hedge effectiveness testing and recognized in interest income during the quarter and nine months ended September 30, 2014, respectively.

Derivatives Not Designated as Accounting Hedges.

The following table summarizes gains (losses) on derivative instruments not designated as accounting hedges:

Gains (Losses) Recognized in Income(1)
    Three Months Ended         Nine Months Ended    
September 30, September 30,

Product Type

2015 2014 2015 2014
(dollars in millions)

Interest rate contracts

$ 103 $ (37 $ 579 $ (1,847

Credit contracts

99 407 (110 258

Foreign exchange contracts

3,570 191 (1,224 1,795

Equity contracts

3,678 114 1,658 (2,212

Commodity contracts

787 60 1,435 531

Other contracts

35 22 (30 133

Total derivative instruments

$ 8,272 $ 757 $ 2,308 $ (1,342

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

(1) Gains (losses) on derivative contracts not designated as hedges are primarily included in Trading revenues in the Company's condensed consolidated statements of income. 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 Trading revenues in the Company's condensed consolidated statements of income.

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 $19 million and $10 million at September 30, 2015 and December 31, 2014, respectively, and a notional value of $2,069 million at both September 30, 2015 and December 31, 2014. The Company recognized a loss of $6 million and a gain of $10 million related to changes in the fair value of its bifurcated embedded derivatives for the quarter and nine months ended September 30, 2015, respectively. The Company recognized a gain of $5 million and a loss of $23 million related to changes in the fair value of its bifurcated embedded derivatives for the quarter and nine months ended September 30, 2014, respectively.

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 rating downgrade of the Company. The following table presents the aggregate fair value of certain derivative contracts that contain credit risk-related contingent features that are in a net liability position for which the Company has posted collateral in the normal course of business.

At September 30, 2015
(dollars in millions)

Net derivative liabilities

$ 26,700

Collateral posted

22,247

The additional collateral or termination payments which may be called in the event of a future credit rating downgrade vary by contract and can be based on ratings by either or both of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Services ("S&P"). At September 30, 2015, for such OTC trading agreements, the future potential collateral amounts and termination payments that could be called or required by counterparties or exchange and clearing organizations in the event of one-notch or two-notch downgrade scenarios based on the relevant contractual downgrade triggers were as follows:

At September 30, 2015
(dollars in millions)

Incremental collateral or termination payments upon potential future ratings downgrade(1):

One-notch downgrade

$ 1,111

Two-notch downgrade

1,251

(1) Amounts include $1,879 million 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

The tables below summarize the notional and fair value of protection sold and protection purchased through credit default swaps:

At September 30, 2015
Maximum Potential Payout/Notional
Protection Sold Protection Purchased
Notional Fair Value
(Asset)/Liability
Notional Fair Value
(Asset)/Liability
(dollars in millions)

Single name credit default swaps

$ 458,768 $ 1,241 $ 439,328 $ (593

Index and basket credit default swaps

264,416 (148 231,528 (68

Tranched index and basket credit default swaps

74,353 (1,394 170,635 823

Total

$ 797,537 $ (301 $ 841,491 $ 162

At December 31, 2014
Maximum Potential Payout/Notional
Protection Sold Protection Purchased
Notional Fair Value
(Asset)/Liability
Notional Fair Value
(Asset)/Liability
(dollars in millions)

Single name credit default swaps

$ 535,415 $ (2,479 $ 509,872 $ 1,641

Index and basket credit default swaps

276,465 (1,777 229,789 1,563

Tranched index and basket credit default swaps

96,182 (2,355 194,343 3,334

Total

$ 908,062 $ (6,611 $ 934,004 $ 6,538

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

The tables below summarize the credit ratings of the reference obligation and maturities of protection sold through credit default swaps and other credit contracts:

At September 30, 2015
Maximum Potential Payout/Notional Fair Value
(Asset)/
Liability(1)(2)
Years to Maturity

Credit Ratings of the Reference Obligation

Less than 1 1-3 3-5 Over 5 Total
(dollars in millions)

Single name credit default swaps:

AAA

$ 4,247 $ 13,475 $ 5,252 $ 1,587 $ 24,561 $ (253

AA

9,247 18,450 10,605 2,689 40,991 (433

A

18,861 36,875 11,145 1,825 68,706 (803

BBB

43,071 92,864 41,808 11,883 189,626 (325

Non-investment grade

35,030 66,058 28,914 4,882 134,884 3,055

Total

110,456 227,722 97,724 22,866 458,768 1,241

Index and basket credit default swaps:

AAA

14,890 41,296 1,663 -   57,849 (1,006

A

4,700 4,668 6,271 12 15,651 (197

BBB

9,904 27,045 49,952 34,893 121,794 (818

Non-investment grade

24,331 82,978 16,048 20,118 143,475 479

Total

53,825 155,987 73,934 55,023 338,769 (1,542

Total credit default swaps sold

$ 164,281 $ 383,709 $ 171,658 $ 77,889 $ 797,537 $ (301

Other credit contracts(3)

$ 1 $ 806 $ 340 $ 49 $ 1,196 $ (1,042

Total credit derivatives and other credit contracts

$ 164,282 $ 384,515 $ 171,998 $ 77,938 $ 798,733 $ (1,343

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

At December 31, 2014
Maximum Potential Payout/Notional Fair Value
(Asset)/
Liability(1)(2)
Years to Maturity

Credit Ratings of the Reference Obligation

Less than 1 1-3 3-5 Over 5 Total
(dollars in millions)

Single name credit default swaps:

AAA

$ 2,385 $ 9,400 $ 6,147 $ 692 $ 18,624 $ (113

AA

9,080 23,701 14,769 3,318 50,868 (688

A

22,861 52,291 22,083 2,944 100,179 (1,962

BBB

48,547 114,384 60,629 13,536 237,096 (1,489

Non-investment grade

29,857 66,066 29,011 3,714 128,648 1,773

Total

112,730 265,842 132,639 24,204 535,415 (2,479

Index and basket credit default swaps:

AAA

17,625 31,124 7,265 1,883 57,897 (985

AA

704 6,512 716 2,864 10,796 (270

A

1,283 6,841 10,154 30 18,308 (465

BBB

30,265 40,575 60,141 7,730 138,711 (2,904

Non-investment grade

25,750 88,105 22,971 10,109 146,935 492

Total

75,627 173,157 101,247 22,616 372,647 (4,132

Total credit default swaps sold

$ 188,357 $ 438,999 $ 233,886 $ 46,820 $ 908,062 $ (6,611

Other credit contracts(3)

$ 51 $ 539 $ 1 $ 620 $ 1,211 $ (500

Total credit derivatives and other credit contracts

$ 188,408 $ 439,538 $ 233,887 $ 47,440 $ 909,273 $ (7,111

(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 term of the contracts.
(3) Other credit contracts include credit-linked notes ("CLNs"), collateralized debt obligations ("CDOs") and credit default swaps that are considered hybrid instruments. Fair value amounts shown represent the fair value of the hybrid instruments.

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, a breakdown by credit ratings is provided. Agency ratings, if available, are used for this purpose; otherwise the Company's internal ratings are used.

Index and Basket Credit Default Swaps.

Index and basket credit default swaps are products where credit protection is provided on a portfolio 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 swap.

The Company also enters into tranched index and basket credit default swaps where credit protection is provided on a particular portion of the portfolio loss distribution. 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

In order to provide an indication of the current payment status or performance risk of the credit default swaps, a breakdown by the Company's internal credit ratings is provided. Effective January 1, 2015, the Company utilized its internal credit ratings as compared with December 31, 2014 where external agency ratings, if available, were utilized. The change in the rating methodology did not have a significant impact on investment grade versus non-investment grade classifications or the fair values of tranched and non-tranched index and basket products in the above table.

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 $668 billion and $731 billion at September 30, 2015 and December 31, 2014, respectively, compared with a notional amount of approximately $721 billion and $805 billion at September 30, 2015 and December 31, 2014, 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

5. Investment Securities.

The following tables present information about the Company's AFS securities, which are carried at fair value, and HTM securities, which are carried at amortized cost. The net unrealized gains or losses on AFS securities are reported on an after-tax basis as a component of Accumulated other comprehensive income (loss) ("AOCI").

At September 30, 2015
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Other-than-
Temporary
Impairment
Fair Value
(dollars in millions)

AFS debt securities:

U.S. government and agency securities:

U.S. Treasury securities

$ 24,718 $ 119 $ 3 $ -   $ 24,834

U.S. agency securities(1)

21,000 90 68 -   21,022

Total U.S. government and agency securities

45,718 209 71 -   45,856

Corporate and other debt:

Commercial mortgage-backed securities:

Agency

1,996 4 44 -   1,956

Non-agency

2,174 16 12 -   2,178

Auto loan asset-backed securities

2,679 3 1 -   2,681

Corporate bonds

3,866 14 17 -   3,863

Collateralized loan obligations

912 -   13 -   899

FFELP student loan asset-backed securities(2)

3,807 -   93 -   3,714

Total corporate and other debt

15,434 37 180 -   15,291

Total AFS debt securities

61,152 246 251 -   61,147

AFS equity securities

15 -   3 -   12

Total AFS securities

61,167 246 254 -   61,159

HTM securities:

U.S. government securities:

U.S. Treasury securities

1,002 5 -   -   1,007

U.S. agency securities(1)

2,528 1 8 -   2,521

Total HTM securities

3,530 6 8 -   3,528

Total Investment securities

$ 64,697 $ 252 $ 262 $ -   $ 64,687

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)