See notes to the financial statements.
See notes to the financial statements.
NOTES TO FINANCIAL STATEMENTS
AT
DECEMBER 31, 2021 AND 2020, AND FOR THE YEAR ENDED DECEMBER 31, 2021
| 1. | DESCRIPTION OF THE PLAN |
The following summary of the Morgan Stanley 401(k)
Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan document for more
complete information. Terms used in this description have the same meaning as in the Plan document.
General — The Plan is a profit-sharing
plan that includes a “qualified cash or deferred arrangement” as described in Section 401(k) of the Internal Revenue
Code of 1986, as amended (the “Code”), and is subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended (“ERISA”). The Plan’s interest in the Morgan Stanley Stock Fund is designated as an employee stock
ownership plan within the meaning of Code section 4975(e)(7) to the extent provided in the Plan.
Morgan Stanley Domestic Holdings, Inc. (the “Plan
Sponsor”) is a corporation wholly-owned by Morgan Stanley Capital Management, LLC, a limited liability company whose sole member
is Morgan Stanley (the “Company”). The Plan Sponsor has delegated certain functions to Morgan Stanley Services Group Inc.
(“MSSG”), a corporation wholly-owned by the Plan Sponsor. The Company’s Chief Human Resources Officer or his or her
delegate (the “Plan Administrator”) has the authority to control and manage the operation and administration of the Plan,
make rules and regulations, and take actions to administer the Plan. The Plan Administrator has delegated certain operational and administrative
responsibilities to certain employees in the Company’s Human Resources department.
The Company acquired E*TRADE Financial Corporation, Eaton
Vance Corp., and Hyas Group LLC in the third quarter of 2020, first quarter of 2021 and fourth quarter of 2021, respectively. In connection
with the acquisitions, the E*TRADE 401(k) Plan (the “E*TRADE Plan”), Eaton Vance Profit Sharing and Savings Plan (the “Eaton
Vance Plan”), and Hyas Group 401(k) Profit Sharing Plan (the “Hyas Plan”) were merged into the Plan, and participants
of the E*TRADE Plan, the Eaton Vance Plan and the Hyas Plan became members of the Plan effective at the close of business on December
31, 2021. The final valuations for the Eaton Vance Plan, the E*TRADE Plan and the Hyas Plan were performed at market close on December
31, 2021 and each plan’s assets, including notes receivable from participants, were merged into the Plan’s assets. The Eaton
Vance Plan’s investment assets of $807.5 million are reported in Participant-directed investments at fair value in the Statement
of Net Assets. The investment assets of the E*TRADE Plan and Hyas Plan were liquidated and the proceeds wired to the Plan before the close
of business on December 31, 2021. The transfer amounts of $730.2 million for the E*TRADE Plan and $5.6 million for the Hyas Plan are recorded
in Plan mergers receivable in the Statement of Net Assets as the wires settled subsequent to year-end.
All of the Plan’s investments are held in a trust
account at The Northern Trust Company, N.A. (the “Trustee”).
Eligibility — U.S. benefits-eligible
employees, generally defined as full-time and part-time (regularly scheduled to work at least 50% of the Company’s standard work
week) employees of participating companies are eligible to participate in the Plan upon hire.
Part-time employees who are regularly scheduled to work
less than 50% of the Company’s standard work week may elect to commence participation in the Plan on the later of (A) the date their
employment commences or (B) January 1, 2018, without regard to age.
Individuals who are (a) classified by a participating
company as non-U.S. benefits-eligible workers, interns, summer associates, contingent workers, leased workers, independent contractors
or consultants, regardless of whether or not such classification is subsequently upheld for any purpose by a court or federal, state or
local administrative authority; (b) covered by a collective bargaining agreement with respect to which a participating company is
a party, unless such agreement provides for participation in the Plan; (c) first hired or transferred to a participating company
while in an hourly status on or after July 1, 2004; or (d) Puerto Rico residents, are not eligible to participate in the Plan.
Effective January 1, 2020, hourly employees are eligible
to participate in the Plan. Eligible participants who terminate employment and are later rehired by a participating company may participate
in the Plan immediately upon rehire.
Employee Contributions — Eligible participants
may elect to contribute before-tax and/or Roth after-tax contributions of 1% to 30% of eligible pay subject to Code limits ($19,500 for
2021). Those participants who have attained at least age 50 by the end of 2021 may elect an additional before-tax or Roth after-tax
“Catch-Up Contribution” of 1% to 30% of eligible pay, subject to Code limits ($6,500 for 2021).
Certain eligible participants may also elect to contribute
non-Roth after-tax contributions of 1% to 30% of eligible earnings. Participants eligible to make non-Roth after-tax contributions include
eligible employees considered to be non-highly compensated employees (for 2021, employees who earned less than $274,984 during 2020).
Participants may also contribute amounts representing eligible rollover distributions from other qualified retirement plans, excluding
other qualified plans sponsored by the Company and its affiliates. All contributions are subject to certain Code limitations.
Company Contributions — In addition to
the eligibility requirements for each type of Company Contribution described below, to be eligible for Company Contributions for any given
Plan Year, a participant must be actively at work or on an authorized leave of absence on December 31 or, during the year, have terminated
employment because of Retirement, Release, Total and Permanent Disability (each as defined by the Plan) or died. Company Contributions
are generally credited to participant accounts during the first quarter of the year following the calendar year for which the contribution
amounts are determined.
Company Match: For employees (except Senior Advisors
and Advisory Directors (or equivalent titles) each as defined in the Plan) with eligible pay between $100,000 and $275,000, the Plan-provided
Company Match for 2021 was one dollar for each dollar of before-tax and/or Roth after-tax contributions that eligible participants contributed
to the Plan, up to a maximum of 5% of eligible pay. For these employees, the maximum Company Match for 2021 was $14,500. For employees
with eligible pay under $100,000 or over $275,000, the Plan-provided Company Match for 2021 was one dollar for each dollar of before-tax
or Roth after-tax contributions that eligible participants contributed to the Plan, up to a maximum of 4% of eligible pay, up to the Code
limit of
$290,000. For these employees, the maximum Company Match
for 2021 was $11,600. The Company Match is made at the discretion of the Plan Sponsor.
The 2021 Company Match contributions were invested according
to each participant’s investment elections on file or in a default fund or funds, as selected by the Plan Administrator. The 2021
Company Match was $290,987,015, of which $8,507,874 was covered by forfeitures held by the Plan. The contribution was recorded as Employer
contributions receivable at December 31, 2021 and paid in cash by the Company to the Plan in January 2022. The 2020 Company Match was
$250,708,022, of which $5,664,966 was covered by forfeitures held by the Plan. The contribution was recorded as Employer contributions
receivable at December 31, 2020 and paid in cash by the Company to the Plan in January 2021.
Fixed Contribution: Eligible employees with annualized
base pay and eligible annual pay of $100,000 or less and who are not employed as Financial Advisors, Producing Assistant Branch Managers,
Producing Branch Managers, or Producing Sales Managers (or equivalent title), Advisory Directors or Senior Advisors (or equivalent title)
at December 31 and who are not Saxon employees of Morgan Stanley’s U.S. Residential Mortgage Business receive a Fixed Contribution
of 2% of eligible pay regardless of whether they contribute to the Plan or receive a Company Match. The 2021 Fixed Contribution of $15,271,415
was recorded as Employer contributions receivable at December 31, 2021 and paid in cash by the Company in January 2022. The 2020 Fixed
Contribution of $16,730,595 was recorded as Employer contributions receivable at December 31, 2020 and paid in cash by the Company in
January 2021.
Citi Pension Transition Contributions: To be eligible
for Citi Pension Transition Contributions, employees who transferred from Citigroup to the Company or its affiliates in connection with
the formation of the Company’s Wealth Management business segment must have been notified by Citigroup that their prior plan benefit
opportunity qualified them for transition contributions under the Citigroup 401(k) Plan and they must have been at least age 45 with five
or more years of service, including prior Citigroup service, at December 31, 2010. Citi Pension Transition Contributions were available
for up to 10 Plan Years, beginning with the 2011 Plan year and ending with the 2020 Plan Year.
The Citi Pension Transition Contributions are based on
the one-time calculation Citigroup performed to determine the percentage of annual eligible pay for the annual transition contributions
under the Citigroup 401(k) Plan. The 2020 Citi Pension Transition Contribution of $1,933,140 was recorded as Employer contributions receivable
at December 31, 2020 and paid in cash by the Company in January 2021. The Citi Pension Transition Contributions ended with the 2020 Plan
Year.
Morgan Stanley Transition Contribution: Eligible
employees are those who earned a Morgan Stanley pension benefit or received a 401(k) Plan Retirement Contribution during 2010 and at December
31, 2010 were employed by a participating company and at least age 45 with five or more years of service. Eligible employees receive a
Morgan Stanley Transition Contribution regardless of whether or not they contribute to the Plan. Morgan Stanley Transition Contributions
may be available under the Plan for up to 10 Plan Years, beginning with the 2011 Plan Year and ending with the 2020 Plan Year.
The 2020 Morgan Stanley Transition Contribution of $22,401,172
was recorded as Employer contributions receivable at December 31, 2020 and paid in cash by the Company in January 2021. The Morgan Stanley
Transition Contribution ended with the 2020 Plan Year.
Participant Accounts — Individual accounts
are maintained for each Plan participant. Each participant’s account is credited with the participant’s contributions, allocations
of Company Contributions and Plan earnings, and charged with an allocation of Plan losses and administrative expenses not otherwise paid
by the Plan Sponsor, and reduced by the amount of any benefit payments to such participant. The benefit to which a participant is entitled
is the benefit that can be provided from the participant’s vested account.
Investments — Participants direct the
investment of their contributions into various investment options offered by the Plan, which are subject to change from time to time.
At December 31, 2021, the Plan offered mutual funds, commingled or collective trust funds, employer stock fund, and separately managed
accounts (“Separate Accounts”).
The Plan is intended to meet the requirements of Section
404(c) of ERISA, with the result that participants, and no other fiduciaries, are responsible for the investment of their Plan accounts.
Employer Stock Provisions — The Morgan Stanley
Stock Fund is invested primarily in “employer securities” (as defined in the Code), is designated an employee stock ownership
plan to the extent provided in the Plan, and is subject to additional plan provisions, including the ability of eligible participants
to elect to receive current cash dividend distributions relating to the Morgan Stanley Stock Fund.
Voting and Tender Rights — Each participant
may direct a vote on shares of Company common stock in the Morgan Stanley Stock Fund that are allocated to his or her Plan account. Each
participant is to be notified prior to the time that voting rights are to be exercised. Unvoted shares, including shares held in the Plan’s
forfeiture account, are to be voted in the same proportion as the total actual votes cast by participants with respect to shares held
in the Morgan Stanley Stock Fund for or against the matter under consideration. Similar rules apply to tender or other similar rights
appurtenant to Company common stock held in the Morgan Stanley Stock Fund, except that shares for which no tender direction is given by
the participant will not be tendered. If there is a tender for less than all shares or if there are more tender directions than can be
satisfied, participant shares are to be tendered on a pro rata basis.
Vesting — Participants are vested immediately
in their Employee Contributions plus earnings thereon. Generally, participants are vested in any Company Contributions upon the earlier
of: (i) completion of three years of service, or (ii) termination of employment due to death, retirement, Release or Total and
Permanent Disability, each as defined by the Plan. There is no partial vesting. A participant is always fully vested in dividends paid
with respect to the Morgan Stanley Stock Fund.
Other — Certain reservists and persons who
provide military service are entitled to additional rights under the Plan. Additional rules apply in the event that the Plan becomes top-heavy
as described in the Code. In 2020, certain participants were entitled to additional rights relating to distributions under the Plan in
accordance with the Coronavirus Aid, Relief and Economic Security (CARES) Act.
Forfeitures — Unvested portion of a participant’s
account may be forfeited on termination of such participant’s employment for specified reasons. Forfeitures are used to reduce the
year-end Company Contributions and pay certain Plan expenses.
Notes Receivable from Participants — Generally,
a participant may borrow up to the lesser of $50,000 or 50% of his/her vested Plan account. Beginning March 7 and ending December 31,
2020,
certain eligible employees were permitted to borrow up
to $100,000 from the Plan in accordance with the CARES Act. Loans are secured by the balance in the participant’s account and bear
interest at a rate determined by the Plan Administrator. Fixed, Retirement and Transition Contributions, each as defined by the Plan,
are not eligible for loans. Each loan processed incurs a $75 administrative fee. Generally, principal and interest are paid ratably through
payroll deductions back to the individual participant’s account; participants may fully or partially pre-pay their loans without
penalty. Loans become due on termination of employment, except (1) prior to August 1, 2020, in the case of Release, in which case a participant
may continue repayments for up to 12 months, or the due date for the loan, whichever is earlier and (2) for loans that are outstanding
on or after August 1, 2020, the principal and interest due thereon shall be repaid over the remaining term of the loan with respect to
a terminated participant. Loan repayments due between March 27, 2020 and December 31, 2020 were permitted to be suspended for up to one
year in accordance with the CARES Act. Effective June 26, 2020, a participant may have two outstanding loans at a time.
Payment of Benefits — Participants may
elect to receive all or a portion of their vested account balance following termination of employment.
Participants may withdraw any vested amount allocated to
their accounts while in service after attaining age 59-1/2. In the event of a hardship (as defined in the Plan), participants regardless
of age may withdraw their vested Employee and Company Contributions to the extent permitted by the Plan. Voluntary Employee Contributions
made before 1984 and after-tax Employee Contributions made after 1983 also may be withdrawn in service without regard to the participant’s
age, subject to Plan terms. Payments are made in cash and/or in-kind in shares of Morgan Stanley stock at the direction of the participant.
Non-hardship withdrawals are limited to eight per year (Note 7). Between May 15, 2020 and December 31, 2020, certain eligible participants
were permitted to withdraw up to $100,000 from their Plan account in accordance with the CARES Act.
A participant may elect to receive his or her vested interest
in the Morgan Stanley Stock Fund in-kind. Shares are recorded electronically in book entry form on the records of the Company’s
transfer agent, Broadridge Financial Solutions, Inc.
Plan Termination — Although it has not
expressed any intent to do so, the Plan Sponsor (or its delegate, MSSG) has the right under the Plan to terminate the Plan subject to
the provisions of ERISA. In such event, participants become fully vested in any Company Contributions to the extent required by the Code.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Accounting — The Plan’s
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Use of Estimates — The preparation of
financial statements requires Plan management to make estimates and assumptions regarding the valuation of certain financial instruments
that affect the reported amounts of net assets available for benefits and changes therein. Actual results could differ from the estimates
and assumptions used.
Administrative Expenses — Administrative
expenses of the Plan are paid by the Plan, unless paid by the Plan Sponsor, as provided in the Plan document. The Plan Sponsor is under
no obligation to
pay the Plan’s administrative expenses. Participants
pay administrative costs for loans, distributions and qualified domestic relation orders.
All investment management and transaction fees directly
related to the Plan investments are paid by the Plan. Management fees and operating expenses charged to the Plan for investments are deducted
from income earned on a daily basis and are not separately reflected. Consequently, investment management fees and operating expenses
are reflected as a reduction of investment return for such investments.
Payment of Benefits — Benefit payments
to participants are recorded upon distribution. Amounts allocated to participants who elected to withdraw from the Plan during the year
ended December 31, 2021 generally were paid prior to the year end. Amounts requested in the Plan Year but paid subsequent to the
Plan Year were not significant.
Risks and Uncertainties — The Plan utilizes
various investment options, including derivative instruments. Investments, in general, are exposed to various risks, such as interest
rate, market liquidity and credit risks, as well as overall market volatility. Market risks include global events which could impact the
value of investment securities, such as pandemic or international conflict. Due to the level of risk associated with certain investments
and the sensitivity of certain fair value estimates to changes in valuation assumptions, it is reasonably possible that changes in value
of investments will occur in the near term and that such changes could materially affect participants’ account balances and the
amounts reported in the financial statements.
Included in investments at December 31, 2021 are shares
of the Plan sponsor’s common stock, which represent sixteen percent of participant-directed investments at December 31, 2021.
A significant decline in the market value of the sponsor’s stock would significantly affect the net assets available for benefits.
Investment Valuation and Income Recognition —
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on an accrual basis. The cost of Plan
investments is based on the average cost method for individual securities. Dividends are recorded on the ex-dividend date. Realized and
unrealized gains and losses on investments are reflected in Net investment income —Net appreciation in fair value of investments.
The Plan’s investments and derivative instruments
are measured at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
(i.e., the “exit price”) in an orderly transaction between market participants at the measurement date (see Note 6).
In determining fair value, the Plan uses various valuation
approaches and establishes a hierarchy for inputs used in measuring fair value that requires the most observable inputs be used when available.
Observable inputs are inputs that market participants would
use in pricing the asset or liability that were developed based on market data obtained from sources independent of the Plan. Unobservable
inputs are inputs that reflect assumptions the Plan believes other market participants would use in pricing the asset or liability that
are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels
based on the observability of inputs as follows, with Level 1 being the highest and Level 3 being the lowest level:
Level 1. Valuations based on quoted prices in active
markets that the Plan has the ability to access for identical assets or liabilities. Valuation adjustments, block discounts and discounts
for entity-specific restrictions that would not transfer to market participants are not applied to Level 1
instruments. Since valuations are based on quoted prices
that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2. Valuations based on one or more quoted prices
in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3. Valuations based on inputs that are unobservable
and significant to the overall fair value measurement.
The availability of observable inputs can vary from product
to product and is affected by a wide variety of factors, including the type of product, whether the product is new and not yet established
in the marketplace, the liquidity of markets and other characteristics particular to the product. To the extent that valuation is based
on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly,
the degree of judgment exercised by the Plan in determining fair value is greatest for instruments categorized in Level 3 of the fair
value hierarchy.
The Plan considers prices and inputs that are current as
of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices
and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or
from Level 2 to Level 3 of the fair value hierarchy.
In certain cases, the inputs used to measure fair value
may fall into different levels of the fair value hierarchy. In such cases, the total fair value amount is disclosed in the level appropriate
for the lowest level input that is significant to the total fair value of the asset or liability.
Notes Receivable from Participants —
Notes receivable from participants are measured at their unpaid principal balance plus accrued interest. Interest is repaid monthly and
any delinquent interest payments at December 31, 2021 and 2020 were not significant. Based on the terms of the Plan document, delinquent
participant loans are recorded as distributions when a distributable event occurs.
| 3. | DERIVATIVE INSTRUMENTS AND REPURCHASE AGREEMENTS |
Derivative instruments are permitted in the Plan’s
Separate Account portfolios only to the extent that they comply with all of the Plan’s policy guidelines, and are consistent with
the Plan’s risk and return objectives. In addition, derivative instruments may be used only if they are deemed to be more attractive
than a similar direct investment in the underlying cash market, or if the investment vehicle is being used to manage the risk of the portfolio.
Any use of derivative instruments may not result in exposure of the Plan to investment sectors that are otherwise prohibited under the
investment guidelines.
The investment guidelines established with each Separate
Account manager for the Plan set forth the guidelines for the commitments that an investment manager may make with respect to derivative
instruments. Within the scope of the investment guidelines, the Plan may be invested in futures, options, swaps, and forwards.
Market risk arises from adverse changes in the fair value
of these contracts.
Futures and options — The Plan held certain
fixed income future and option contracts in Separate Accounts at December 31, 2021 and 2020 within the PIMCO Core Fixed Income Fund, PIMCO
Real Return Portfolio Fund, and PIMCO Low Duration Fund. The Plan held certain equity index future contracts in a Separate Account at
December 31, 2021 and 2020 within AQR International Equity Fund. Both written and purchased options were held as underlying investments.
When the investment manager purchases or writes an option, an amount equal to the premium paid or received by the Plan is recorded as
an asset or liability and is subsequently adjusted to the current market value of the option written or purchased. The fair value of these
investments at December 31, 2021 and 2020 was not significant and the changes in fair value are accounted for as part of Net appreciation
in fair value of investments in the Statement of changes in net assets available for benefits.
Swaps — Under the investment managers’
standard International Swap and Derivatives Association agreements, counterparty risk is limited by provisions which allow for the mutual
exchange of collateral should a swap’s market value exceed $250,000. Further, the investment managers are instructed to restrict
trading to only those counterparties with the largest capitalization and highest credit ratings in the industry. Investment manager policy
is to execute swaps only with counterparties whose credit rating is A-/A3 or better, unless otherwise approved by the Plan. At December 31,
2021 and 2020, the investment assets held by the Plan included positions in interest rate swaps, credit default swaps, equity swaps, and
inflation swaps. At December 31, 2021, the investment assets held by the Plan also included positions in overnight index swaps. These
assets were held in Separate Accounts at December 31, 2021 and 2020 within the PIMCO Core Fixed Income Fund, PIMCO Real Return Portfolio
Fund, PIMCO Low Duration Fund and AQR International Equity Fund. The fair value of these investments at December 31, 2021 and 2020 was
not significant and the changes in fair value are accounted for as part of Net appreciation in fair value of investments in the Statement
of changes in net assets available for benefits.
Forwards — The Plan may enter into forward
foreign currency contracts in order to hedge certain foreign currency denominated investments. Forward foreign currency commitments are
generally entered into with counterparties of high credit quality; therefore, the risk of nonperformance by the counterparties is considered
negligible. Additionally, the Plan’s investment guidelines require that the forward foreign currency contracts be restricted in
their application and used for economic hedging purposes. The Plan held positions in forward foreign currency contracts in Separate Accounts
at December 31, 2021 and 2020 in the PIMCO Real Return Portfolio Fund, Artisan International Growth Fund, PIMCO Low Duration Fund, Principal
Global Real Estate Securities Fund, and AQR International Equity Fund. The Plan also held positions in forward equity contracts in Separate
Accounts at December 31, 2021 and 2020 in the AQR International Equity Fund. The fair value of these investments at December 31, 2021
and 2020 was not significant and the changes in fair value are accounted for as part of Net appreciation in fair value of investments
in the Statement of changes in net assets available for benefits.
Securities sold under agreements to repurchase (“repurchase
agreements”) — The Plan held positions in repurchase agreements in Separate Accounts in the BlackRock Government Short
Term Investment Fund at December 31, 2021, and in the BlackRock Government Short Term Investment Fund, the PIMCO Core Fixed Income Fund,
and the PIMCO Low Duration Fund at December 31, 2020. The changes in fair value are accounted for as part of Net appreciation in fair
value of investments in the Statement of changes in net assets available for benefits.
| 4. | EXEMPT PARTY-IN-INTEREST TRANSACTIONS |
Parties-in-interest include Plan fiduciaries, employees,
participant employers and service providers, certain owners and certain relatives of such individuals, as defined by ERISA.
There were a range of investment options available in the
Plan at December 31, 2021 and 2020, of which one was managed by Morgan Stanley Investment Management (“MSIM”), one was
an employer stock fund (Morgan Stanley Stock Fund), and registered investment companies and collective trust fund managed by Eaton Vance
or its affiliates, or by Charles Schwab Investment Management, Inc., an affiliate of the Eaton Vance Plan’s trustee, custodian,
and recordkeeper . All party-in-interest investments are in the Morgan Stanley Stock Fund, the funds managed by MSIM, an affiliate of
the Plan Sponsor, and funds issued by Northern Trust, Principal, PIMCO, Blackrock, AQR Capital Management, T. Rowe Price, Artisan Partners,
Fidelity Institutional Asset Management, Shenkman, Thompson, Siegel & Walmsley, Wellington Trust Company, N.A., State Street Global
Advisors, Weatherbie Capital LLC, Westwood Management Corp., Eaton Vance, Charles Schwab, Calvert, Parametric, and Westfield Capital Management
Company.
Investments in and gain or losses related to common stock
and funds issued by Morgan Stanley or its affiliate, MSIM, and notes receivables from participants are as follows:
Investments and receivables held by the Plan
| |
At December 31, 2021 | |
At December 31, 2020 | |
Year Ended December 31, 2021 |
Morgan Stanley common stock | |
| | | |
| | | |
| | |
Number of shares held | |
| 29,021,541 | | |
| 31,072,026 | | |
| n/a | |
Fair value of shares held | |
$ | 2,848,754,465 | | |
$ | 2,129,365,942 | | |
| n/a | |
Net realized gain | |
| n/a | | |
| n/a | | |
$ | 146,558,314 | |
Dividend income | |
| n/a | | |
| n/a | | |
$ | 62,582,596 | |
| |
| | | |
| | | |
| | |
Investments in a Registered Investment Company issued by MSIM | |
| | | |
| | | |
| | |
Fair value of shares held | |
$ | 2,327,695,628 | | |
$ | 2,515,284,009 | | |
| n/a | |
Net realized gain | |
| n/a | | |
| n/a | | |
$ | 605,700,435 | |
| |
| | | |
| | | |
| | |
Notes receivable from participants | |
| | | |
| | | |
| | |
Participant loans | |
$ | 123,439,581 | | |
$ | 118,114,863 | | |
| n/a | |
Interest income | |
| n/a | | |
| n/a | | |
$ | 5,633,630 | |
Eligible participants of the Morgan Stanley Stock Fund
may elect to receive current cash payment of dividends paid on the Morgan Stanley Stock Fund within the Plan, to the extent provided in
the Plan.
Certain officers and employees of the Plan Sponsor (who
may also be participants in the Plan) perform administrative services related to the operation, record keeping and financial reporting
of the Plan. The Plan Sponsor pays these salaries and other administrative expenses on behalf of the Plan. Certain fees, including fees
for the investment management services, to the extent not paid by the Plan Sponsor, are paid by the Plan. All direct and indirect fees
paid by the Plan are considered party-in-interest transactions.
| 5. | FEDERAL INCOME TAX STATUS |
The Internal Revenue Service determined and informed
the Plan Sponsor by a letter dated May 22, 2018, that the Plan and its related trust account continue to be designed in accordance
with the applicable provisions of the Code. The Plan has been amended since receiving this letter, however, the Plan Sponsor and the
Plan Administrator believe the Plan is currently designed and operated in compliance with the applicable requirements of the
Code.
The Plan Sponsor has analyzed the tax positions taken by
the Plan, and has concluded that at December 31, 2021 and 2020, there are no uncertain tax positions taken by the Plan that would require
recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions;
however, there are currently no audits of the Plan for any tax periods in progress. The Plan Sponsor believes the Plan is no longer subject
to income tax examinations for years prior to 2017.
| 6. | FAIR VALUE MEASUREMENTS |
The following descriptions of the valuation methods and
assumptions used by the Plan to determine the fair values of investments apply to investments held directly by the Plan.
Registered Investment Companies –
Mutual funds are registered with the Securities and Exchange Commission and are intended to meet the requirements of the Investment
Company Act of 1940 with respect to income distribution, fee structure, and diversification of assets. Mutual funds are generally marked
to quoted prices or net asset value (“NAV”) and are categorized in Level 1 of the fair value hierarchy if based upon prices
which are observable in an active market. The PIMCO International Bond (Unhedged) fund requires the Trustee to calculate the fair value
since the fund has a daily interest rate factor that pays a monthly dividend and therefore the fund is categorized as Level 2 of the fair
value hierarchy. The Plan generally prohibits the sale of these investment options within 30 days of a purchase into that investment option.
Morgan Stanley Stock Fund (the “Fund”)
– The Plan holds investments in the Fund holding Morgan
Stanley common stock and containing a short-term investment fund to facilitate participant transactions into and out of the Fund. The
Company has specific rules that govern employee transactions in Morgan Stanley stock. Employees may transact in Morgan Stanley stock (including
the Fund) only during a window period. Shorter window periods and prior approval requirements apply to those employees deemed Access Persons
(as defined in the Company’s employee trading policy) by the Company. Access Persons who are members of the Company’s Management
or Operating Committees are prohibited from selling the Fund within six months of a purchase.
Separate Accounts -
The Separate Accounts are professionally managed portfolios held by the Plan. The participants share in the appreciation and depreciation
in proportion to their contribution to the Separate Account. Separate Accounts are administered and supervised by investment managers
who decide how to invest funds contributed by investors, subject to written investment guidelines. At December 31, 2021 and 2020, the
Plan’s Separate Accounts consisted of the T. Rowe Price U.S. Large-Cap Value Fund, the PIMCO Core Fixed Income Fund, the PIMCO Real
Return Portfolio Fund, the PIMCO Low Duration Fund, the Shenkman Capital High Yield Bond Fund, the Fidelity Institutional Asset Management
Select International Small Cap Fund, the Artisan International Growth Fund, the BlackRock Government Short Term Investment Fund, the Thompson,
Siegel & Walmsley Mid Cap Value Fund, the AQR International Equity Fund, the AQR Emerging Markets
Equity Fund, the Principal Global
Real Estate Securities Fund and the Westfield Mid Cap Growth Equity Fund. At December 31, 2021, the Plan’s Separate Accounts also
consisted of the Weatherbie Specialized Growth Fund and the Westwood Small CAP Fund. At December 31, 2020, the Plan’s Separate Accounts
also consisted of the William Blair Small Cap Value Fund and the Rice Hall James Small Cap Opportunities Fund. The Plan generally prohibits
the sale of these investment options within 30 days of a purchase into that investment option.
A description of the valuation methods
and assumptions applied to the major categories of the Fund and the Separate Accounts are as follows:
Corporate equities
Corporate equities, including Morgan
Stanley common stock, are exchange-traded equity securities that are generally valued based on quoted prices from the exchange. To the
extent these securities are actively traded, valuation adjustments are not applied. Corporate equities are categorized in Level 1 of the
fair value hierarchy. Stapled securities, consisting of two or more corporate equity securities that are contractually bound to form a
single salable unit that cannot be bought or sold separately, are categorized in Level 2 of the fair value hierarchy.
Cash and cash equivalents
Cash and cash equivalents are valued at cost, which approximates
fair value and are categorized in Level 1 of the fair value hierarchy.
Government and agency securities
Government and agency securities are valued using factors
which include but are not limited to market quotations, yields, maturities, and the bond’s terms and conditions. U.S. Treasury securities,
valued using quoted market prices, are categorized in Level 1 of the fair value hierarchy. Callable agency-issued debt securities are
valued by benchmarking model-derived prices to quoted market prices and trade data for comparable instruments. The fair value of agency
mortgage pass-through pool securities is model-driven based on spreads of a comparable to be announced security. For index-linked securities,
the market price is adjusted daily by the appropriate index factor. The fair value of state and municipal securities is determined using
recently executed transactions, market price quotations or pricing models that factor in, where applicable, interest rates, bond or CDS
spreads and volatility. Callable agency-issued debt securities, agency mortgage pass-through pool securities, index-linked securities,
and state and municipal government securities are generally categorized in Level 2 of the fair value hierarchy.
Corporate debt instruments
Corporate debt instruments are composed of corporate bonds,
corporate loans and asset-backed securities. Corporate bonds and corporate loans are valued using factors which include but are not limited
to recently executed transactions, market price quotations and spreads. Asset-backed securities may be valued based on price or spread
data obtained from observed transactions or independent external parties such as vendors or brokers. When position-specific external price
data are not observable, the fair value determination may require benchmarking to similar securities. For index linked securities, the
market price is adjusted daily by the appropriate index factor. Corporate debt instruments are categorized in Level 2 of the fair value
hierarchy.
Derivative instruments
Depending on the product and terms of the transaction, the
fair value of over-the-counter (“OTC”) derivative products can be either observed or modeled using a series of techniques
and model inputs from comparable benchmarks, including closed-form analytic formulas, such as the Black-Scholes option-pricing model,
and simulation models or a combination thereof. Many pricing models do not
entail material subjectivity as the methodologies employed
do not necessitate significant judgment, since model inputs may be observed from actively quoted markets, as is the case for generic interest
rate swaps and certain option contracts. Interest rate swaps are valued using observable inputs. Listed derivatives that are not actively
traded are valued using the same approaches as those applied to OTC derivatives. Derivative instruments are categorized in Level 2 of
the fair value hierarchy, except for cash collaterals related to the derivative instruments, which are valued at carrying value and categorized
in Level 1.
Repurchase agreements
The fair value of repurchase agreements is computed using
a standard cash flow discounting methodology. The inputs to the valuation include contractual cash flows and collateral funding spreads
which are estimated using various benchmarks, interest rate yield curves and option volatilities. Repurchase agreements are categorized
in Level 2 of the fair value hierarchy.
Collective Trust Funds –
Each investment is administered and supervised by its respective investment manager who decides how to invest the contributed funds.
The Collective Trust Funds do not have a readily determinable fair value. The fair values of participating units held in the Collective
Trust Funds are valued at NAVs as a practical expedient. If there is a fee accrual, the Trustee is responsible for determining the fair
value. At December 31, 2021 and 2020, the Plan held investments in funds managed by State Street Global Advisors, BlackRock, Inc., Wellington
Trust Company, N.A., PIMCO, Northern Trust, Eaton Vance, and AQR Capital Management. Terms of the applicable Collective Trust Fund Agreements
and/or Investment Management Agreements permit the termination of the agreement and the receipt of the fund securities at fair value within
30 days. There were no unfunded commitments and no restricted redemption notice periods. Other than certain funds managed by State Street
Global Advisors and BlackRock, Inc., from which the Plan does not restrict the frequency of redemptions, the Plan generally prohibits
the sale of the Collective Trust Fund investment options within 30 days of a purchase into that investment option.
| |
Plan's Investment Assets and Liabilities at Fair Value at December 31, 2021 |
| |
Quoted Prices in Active Markets for Identical Assets | |
Significant Other Observable Inputs | |
Significant Unobservable Inputs | |
|
| |
| |
| |
| |
|
| |
Level 1 | |
Level 2 | |
Level 3 | |
Total |
Investment Assets: | |
| |
| |
| |
|
| |
| |
| |
| |
|
Registered Investment Companies | |
| 3,128,630,741 | | |
| 35,454,626 | | |
| - | | |
| 3,164,085,367 | |
| |
| | | |
| | | |
| | | |
| | |
Separately Managed Accounts | |
| | | |
| | | |
| | | |
| | |
Corporate equities | |
| 5,847,621,688 | | |
| 2,527,557 | | |
| - | | |
| 5,850,149,245 | |
Cash and cash equivalents | |
| 91,963,199 | | |
| - | | |
| - | | |
| 91,963,199 | |
Government and agency securities | |
| | | |
| | | |
| | | |
| | |
U.S. Treasury and agency securities | |
| 477,537,542 | | |
| 720,577,905 | | |
| - | | |
| 1,198,115,447 | |
Other sovereign government obligations | |
| - | | |
| 30,040,082 | | |
| - | | |
| 30,040,082 | |
State and municipal securities | |
| - | | |
| 5,043,099 | | |
| - | | |
| 5,043,099 | |
Total Government and agency securities | |
| 477,537,542 | | |
| 755,661,086 | | |
| - | | |
| 1,233,198,628 | |
Corporate debt instruments | |
| - | | |
| 323,890,010 | | |
| - | | |
| 323,890,010 | |
Derivative instruments | |
| 19,938,348 | | |
| 15,809,030 | | |
| - | | |
| 35,747,378 | |
Repurchase agreements | |
| - | | |
| 486,000,000 | | |
| - | | |
| 486,000,000 | |
| |
| 6,437,060,777 | | |
| 1,583,887,683 | | |
| - | | |
| 8,020,948,460 | |
| |
| | | |
| | | |
| | | |
| | |
Collective Trust Funds * | |
| | | |
| | | |
| | | |
| 7,507,314,199 | |
| |
| | | |
| | | |
| | | |
| | |
Participant-directed investments | |
| | | |
| | | |
| | | |
| 18,692,348,026 | |
| |
| | | |
| | | |
| | | |
| | |
Investment Liabilities: | |
| | | |
| | | |
| | | |
| | |
Separately Managed Accounts | |
| | | |
| | | |
| | | |
| | |
Derivative instruments | |
| 13,881,956 | | |
| 11,869,291 | | |
| - | | |
| 25,751,247 | |
Participant-directed investments | |
| 13,881,956 | | |
| 11,869,291 | | |
| - | | |
| 25,751,247 | |
| |
| | | |
| | | |
| | | |
| | |
| * | Amounts represent certain investments
that are measured at fair value using the NAV per share, which are not classified in the fair value hierarchy. The fair value amounts
presented in this table are intended to permit reconciliation of the fair value hierarchy to the participant-directed investments presented
in the Statement of net assets available for benefits. |
| |
Plan's Investment Assets and Liabilities at Fair Value at December 31, 2020 |
| |
Quoted Prices in Active Markets for Identical Assets | |
Significant Other Observable Inputs | |
Significant Unobservable Inputs | |
|
| |
| |
| |
| |
|
| |
Level 1 | |
Level 2 | |
Level 3 | |
Total |
Investment Assets: | |
| |
| |
| |
|
| |
| |
| |
| |
|
Registered Investment Companies | |
| 2,598,852,377 | | |
| 42,121,664 | | |
| - | | |
| 2,640,974,041 | |
| |
| | | |
| | | |
| | | |
| | |
Separately Managed Accounts | |
| | | |
| | | |
| | | |
| | |
Corporate equities | |
| 4,514,668,096 | | |
| 2,344,120 | | |
| - | | |
| 4,517,012,216 | |
Cash and cash equivalents | |
| 58,028,151 | | |
| - | | |
| - | | |
| 58,028,151 | |
Government and agency securities | |
| | | |
| | | |
| | | |
| | |
U.S. Treasury and agency securities | |
| 643,841,333 | | |
| 725,554,181 | | |
| - | | |
| 1,369,395,514 | |
Other sovereign government obligations | |
| - | | |
| 32,617,026 | | |
| - | | |
| 32,617,026 | |
State and municipal securities | |
| - | | |
| 6,917,968 | | |
| - | | |
| 6,917,968 | |
Total Government and agency securities | |
| 643,841,333 | | |
| 765,089,175 | | |
| - | | |
| 1,408,930,508 | |
Corporate debt instruments | |
| - | | |
| 278,582,027 | | |
| - | | |
| 278,582,027 | |
Derivative instruments | |
| - | | |
| 26,161,533 | | |
| - | | |
| 26,161,533 | |
Repurchase agreements | |
| - | | |
| 253,200,000 | | |
| - | | |
| 253,200,000 | |
| |
| 5,216,537,580 | | |
| 1,325,376,855 | | |
| - | | |
| 6,541,914,435 | |
| |
| | | |
| | | |
| | | |
| | |
Collective Trust Funds * | |
| | | |
| | | |
| | | |
| 6,145,315,349 | |
| |
| | | |
| | | |
| | | |
| | |
Participant-directed investments | |
| | | |
| | | |
| | | |
| 15,328,203,825 | |
| |
| | | |
| | | |
| | | |
| | |
Investment Liabilities: | |
| | | |
| | | |
| | | |
| | |
Separately Managed Accounts | |
| | | |
| | | |
| | | |
| | |
Derivative instruments | |
| 808,014 | | |
| 29,229,996 | | |
| - | | |
| 30,038,010 | |
Participant-directed investments | |
| 808,014 | | |
| 29,229,996 | | |
| - | | |
| 30,038,010 | |
| |
| | | |
| | | |
| | | |
| | |
| * | Amounts represent certain investments
that are measured at fair value using the NAV per share, which are not classified in the fair value hierarchy. The fair value amounts
presented in this table are intended to permit reconciliation of the fair value hierarchy to the participant-directed investments presented
in the Statement of net assets available for benefits. |
On March 10, 2022, the Company acquired Cook Street Consulting,
Inc. In connection with the acquisition, the Company assumed sponsorship of the Cook Street Consulting, Inc. 401(k) Plan (the “CSCI
Plan”). Employees of Cook Street Consulting, Inc. and any participating affiliates of the CSCI Plan (the “Cook Street Employees”)
are eligible to participate in the CSCI Plan and are not eligible to participate in the Plan. It is anticipated that the assets of the
CSCI Plan will merge into the Plan at the end of December 31, 2022 and Cook Street Employees are expected to become eligible to participate
in the Plan then. Total assets in the CSCI Plan were approximately $10 million as of December 31, 2021.
Effective January 1, 2022, there is no limit on non-hardship
withdrawals.
SUPPLEMENTAL SCHEDULE