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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant ¨

Check the appropriate box:

MORGAN STANLEY

(Name of Registrant as Specified in Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

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March 25, 2009

Fellow shareholder:

I cordially invite you to attend Morgan Stanley’s 2009 annual meeting of shareholders to:

Our Board of Directors recommends that you vote “FOR” the election of directors, the ratification of the appointment of the auditor, the approval of the compensation of executives as disclosed in this proxy statement and the amendment of the 2007 Equity Incentive Compensation Plan and “AGAINST” the shareholder proposals.

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

Very truly yours,

John J. Mack

Chairman and Chief Executive Officer

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Morgan Stanley

1585 Broadway

New York, New York 10036

March 25, 2009

Proxy Statement

We are sending you this proxy statement in connection with the solicitation of proxies by our Board of Directors for the 2009 annual meeting of shareholders. We are mailing this proxy statement and the accompanying form of proxy to shareholders on or about March 26, 2009. In this proxy statement, we refer to Morgan Stanley as the “Company,” “we,” “our” or “us” and the Board of Directors as the “Board.” When we refer to Morgan Stanley’s fiscal year, we mean the twelve-month period ending November 30 of the stated year (for example, fiscal 2008 is December 1, 2007 through November 30, 2008). In December 2008, the Board of Directors approved a change in the Company’s fiscal year end from November 30 to December 31, effective for the 2009 fiscal year, and the period from December 1, 2008 to December 31, 2008 was a transition period.

Annual Meeting Information

Date and Location.    We will hold the annual meeting on Wednesday, April 29, 2009 at 9:00 a.m., local time, at our offices at 2000 Westchester Avenue, Purchase, New York.

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

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

Voting Information

Record Date.    The record date for the annual meeting is March 4, 2009. You may vote all shares of Morgan Stanley’s common stock that you owned as of the close of business on that date. Each share of common stock entitles you to one vote on each matter voted on at the annual meeting. On the record date, 1,082,199,988 shares of common stock were outstanding. We need a majority of the shares of common stock outstanding on the record date represented, in person or by proxy, to hold the annual meeting.

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

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

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

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

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

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

Votes Required to Elect Directors.    Each director will be elected by a majority of the votes cast with respect to such director. A “majority of the votes cast” means that the number of votes cast “for” a director exceeds the number of votes cast “against” that director. Under Delaware law, if the director is not elected at the annual meeting, the director will continue to serve on the Board as a “holdover director.” As required by the Company’s

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Bylaws, each director has submitted an irrevocable letter of resignation as director that becomes effective if he or she is not elected by shareholders and the Board accepts the resignation. If a director is not elected, the Nominating and Governance Committee will consider the director’s resignation and recommend to the Board whether to accept or reject the resignation. The Board will decide whether to accept or reject the resignation and publicly disclose its decision, including the rationale behind the decision if it rejects the resignation, within 90 days after the election results are certified.

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

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

Item 1—Election of Directors

Our Board currently has twelve (12) directors. The Board stands for election at each annual meeting of shareholders. Each director holds office until his or her successor has been duly elected and qualified or the director’s earlier resignation, death or removal. The nominees are all current directors of Morgan Stanley, and each nominee has indicated that he or she will serve if elected. We do not anticipate that any nominee will be unable or unwilling to stand for election, but if that happens, your proxy will be voted for another person nominated by the Board.

On October 13, 2008, Morgan Stanley issued to Mitsubishi UFJ Financial Group, Inc. (MUFG) 7,839,209 shares of Series B Non-Cumulative Non-Voting Perpetual Convertible Preferred Stock and 1,160,791 shares of Series C Non-Cumulative Non-Voting Perpetual Preferred Stock for an aggregate purchase price of $9 billion (see “Principal Shareholders”). In connection with such issuance, Morgan Stanley entered into an Investor Agreement with MUFG dated as of October 13, 2008 (Investor Agreement), whereby Morgan Stanley agreed to take all lawful action to cause one of MUFG’s senior officers or directors to be a member of Morgan Stanley’s Board of Directors. Pursuant to the terms of the Investor Agreement, the Board increased the size of the Board from eleven (11) to twelve (12) directors and elected Mr. Nobuyuki Hirano to the Board effective March 10, 2009. See also “Certain Transactions.”

		Roy J. Bostock (68).    Chairman of the Partnership for a Drug-Free America (since 2002). Chairman of the Committee for Economic Development (2002 to 2005). Chairman of B|Com3 Group, Inc., an advertising and marketing services firm that is now part of the Publicis Groupe S.A. (2000 to 2001). Chairman and Chief Executive Officer, D’Arcy, Masius Benton & Bowles (1990 to 2000).   Director since:    2005   Other directorships:    Delta Air Lines Inc. and Yahoo! Inc. (Non-Executive Chairman)

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		Erskine B. Bowles (63).    President of the University of North Carolina (since January 2006). Senior advisor (since September 2001) and Managing Director (1999 to 2001) of Carousel Capital LLC, a private investment firm. General Partner at the private investment firm of Forstmann Little & Co. (1999 to 2001).   Director since:    2005   Other directorships:    General Motors Corporation and Cousins Properties Incorporated
		Howard J. Davies (58).    Director of the London School of Economics and Political Science (since September 2003). Chairman of the U.K. Financial Services Authority (August 1997 to September 2003). Deputy Governor, the Bank of England (September 1995 to August 1997).   Director since:    2004
		Nobuyuki Hirano (57).    Senior Managing Director (since October 2008) and Managing Director (January 2006 to October 2008), The Bank of Tokyo-Mitsubishi UFJ, Ltd., a subsidiary of Mitsubishi UFJ Financial Group, Inc., one of the world’s leading financial groups. Managing Director and General Manager, Corporate Planning Office (May 2005 to January 2006), Director and General Manager, Corporate Planning Office (May 2004 to May 2005) and Director and General Manager, Corporate Banking Division No. 2, Corporate Banking Group No. 1 and Global Corporate Banking Business Unit (June 2001 to May 2004), The Bank of Tokyo-Mitsubishi, Ltd.   Director since:    2009   Other directorships:    Mitsubishi UFJ Financial Group, Inc.
		C. Robert Kidder (64).    Chairman & Chief Executive Officer, 3Stone Advisors LLC, a private investment firm (since August 2006). Principal, Stonehenge Partners, Inc., a private investment firm (April 2004 to January 2006). President of Borden Capital, Inc., a company that provided financial and strategic advice to the Borden family of companies (November 2001 to March 2003). Chairman of the Board (January 1995 to August 2004) and Chief Executive Officer (January 1995 to March 2002) of Borden Chemical, Inc. (formerly Borden, Inc.), a forest products and industrial chemicals company.   Director since:    1993   Other directorships:    Schering-Plough Corporation

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		John J. Mack (64).    Chairman of the Board of Directors and Chief Executive Officer (since June 2005). Chairman of Pequot Capital Management (June 2005). Co-Chief Executive Officer of Credit Suisse Group (January 2003 to June 2004). President, Chief Executive Officer and Director of Credit Suisse First Boston (July 2001 to June 2004). President and Chief Operating Officer of Morgan Stanley (May 1997 to January 2001).   Director since:    2005
		Donald T. Nicolaisen (64).    Chief Accountant for the U.S. Securities and Exchange Commission (September 2003 to November 2005). Partner of PricewaterhouseCoopers, an accounting firm (1978 to September 2003).   Director since:    2006   Other directorships:    MGIC Investment Corporation, Verizon Communications Inc. and Zurich Financial Services
		Charles H. Noski (56).    Corporate Vice President and Chief Financial Officer (December 2003 to March 2005) and Director (November 2002 to May 2005) of Northrop Grumman Corporation. Senior advisor to The Blackstone Group (March 2003 to November 2003). Vice Chairman of the Board (July 2002 to November 2002), Vice Chairman of the Board and Chief Financial Officer (February 2002 to July 2002) and Senior Executive Vice President and Chief Financial Officer (December 1999 to February 2002) of AT&T Corp. President, Chief Operating Officer and Director, Hughes Electronics Corporation (October 1997 to December 1999).   Director since:    2005   Other directorships:    Microsoft Corporation, Air Products and Chemicals, Inc. and Automatic Data Processing, Inc.
		Hutham S. Olayan (55).    President, Chief Executive Officer and Director of Olayan America Corporation, the Americas-based arm of The Olayan Group (since 1985). Director of The Olayan Group, a private, multinational enterprise with diversified businesses and investments in the Middle East and globally (since 1981).   Director since:    2006
		Charles E. Phillips, Jr. (49).    President and Director (since January 2004) and Executive Vice President, Strategy, Partnerships, and Business Development (May 2003 to January 2004) of Oracle Corporation, a software company. Managing Director, Morgan Stanley (December 1996 to May 2003).   Director since:    2006   Other directorships:    Oracle Corporation and Viacom Inc.

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		O. Griffith Sexton (65).    Advisory director of Morgan Stanley (from May 1995 to September 2008). Adjunct professor of finance at Columbia Business School (since 1995) and visiting lecturer at Princeton University (since 2000).   Director since:    2005   Other directorships:    Investor AB
		Laura D. Tyson (61).    S. K. and Angela Chan Professor of Global Management (since July 2008) and Professor of Business Administration and Economics (January 2007 to July 2008), Walter A. Haas School of Business, University of California at Berkeley. Dean of the London Business School (January 2002 to December 2006). Dean (July 1998 to December 2001) and Class of 1939 Professor in Economics and Business Administration (January 1997 to July 1998) at the Walter A. Haas School of Business, University of California, Berkeley. National Economic Advisor to the President and Chair, President’s National Economic Council (February 1995 to December 1996).   Director since:    1997   Other directorships:    Eastman Kodak Company and AT&T Inc.

Our Board unanimously recommends a vote “FOR” the election of all twelve (12) nominees. Proxies solicited by our Board will be voted “FOR” these nominees unless otherwise instructed.

Corporate Governance

Corporate Governance Documents.    Morgan Stanley has a corporate governance webpage at the “Company Information” link under the “About Morgan Stanley” link at www.morganstanley.com (www.morganstanley.com/about/company/governance/index.html).

Our Corporate Governance Policies (including our Director Independence Standards), Code of Ethics and Business Conduct, Board Committee charters, Policy Regarding Communication by Shareholders and Other Interested Parties with the Board of Directors, Policy Regarding Director Candidates Recommended by Shareholders, Policy Regarding Corporate Political Contributions, Policy Regarding Shareholder Rights Plan, information regarding the Integrity Hotline and the Equity Ownership Commitment are available at our corporate governance webpage at www.morganstanley.com/about/company/governance/index.html and are available to any shareholder who requests them by writing to Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036. The Board has established a process whereby shareholders can communicate with directors. This process is described in “Communications with Directors.”

Director Independence.    The Board has determined that Messrs. Bostock, Bowles, Davies, Kidder, Nicolaisen, Noski, Ms. Olayan, Messrs. Phillips and Sexton and Dr. Tyson are independent in accordance with the Director Independence Standards established under our Corporate Governance Policies. To assist the Board with its determination, the standards follow NYSE rules and establish guidelines as to employment and commercial relationships that affect independence and categories of relationships that are not deemed material for purposes of director independence. Ten (10) of twelve (12) of our current directors are independent. The Board also determined that Dr. Klaus Zumwinkel, who did not stand for re-election at the 2008 annual meeting of shareholders, was independent in accordance with the Director Independence Standards established under our Corporate Governance Policies during the period he served on the Board. All members of the Audit Committee, the Compensation, Management Development and Succession Committee and the Nominating and Governance Committee satisfy the standards of independence applicable to members of such committees. In addition, the Board has determined that all members of the Audit Committee, Messrs. Davies, Nicolaisen, Noski and Sexton, are “audit committee financial experts” within the meaning of current Securities and Exchange Commission (SEC) rules.

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

In determining Mr. Bostock’s independence, the Board considered, in addition to relationships deemed immaterial under the Company’s Director Independence Standards, an employment relationship of the Company with a family member of Mr. Bostock. In connection with the Company’s acquisition of FrontPoint Partners LLC (FrontPoint) in December 2006, a son-in-law of Mr. Bostock who was employed at FrontPoint and held less than 5% of the equity interests in FrontPoint became a managing director of the Company in the Company’s asset management business and is currently the Co-CEO of FrontPoint. The Board considered that the managing director: received his pro rata share of the merger consideration (including contingent consideration that was paid in fiscal 2008 upon satisfaction of certain conditions); will receive a retention payment in 2009 in connection with the December 2006 acquisition of FrontPoint that induced him to become and remain a Morgan Stanley employee; is not an executive officer of the Company within the meaning of relevant SEC rules; and is awarded compensation in line with his position at Morgan Stanley and in comparison to market standards. The Board also considered that Mr. Bostock has no influence over the asset management business other than that possessed by any other Morgan Stanley non-employee director. The Board determined, consistent with NYSE rules and based upon the facts and circumstances, that the relationship is immaterial to Mr. Bostock’s independence.

In determining Mr. Sexton’s independence, the Board considered, in addition to relationships deemed immaterial under the Company’s Director Independence Standards, the Company’s provision of medical and dental insurance to Mr. Sexton (for which Mr. Sexton pays the full cost). The Board determined, consistent with NYSE rules and based upon the facts and circumstances, that the relationship is immaterial to Mr. Sexton’s independence.

Lead Director.    Our Corporate Governance Policies, which were adopted by our Board, provide for an independent and active Lead Director with clearly defined leadership authority and responsibilities. Our Lead Director, C. Robert Kidder, was appointed by our other independent directors in 2006 and his responsibilities include: (i) presiding at all meetings of the Board at which the Chairman is not present; (ii) having the authority to call, and lead, sessions composed only of non-management or independent directors; (iii) advising the Chairman of the Board’s informational needs; (iv) advising the Chairman regarding Board meeting agendas and as to the appropriate schedule of Board meetings and requesting, if necessary, the inclusion of additional agenda items; and (v) making himself available, if requested by major shareholders, for consultation and direct communication.

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Board Meetings and Committees.    Our Board met 28 times during fiscal 2008. Each director attended at least 75% of the total number of meetings of the Board and committees on which the director served that were held while the director was a member. The Board’s standing committees include the following:

⁽¹⁾ Mr. Sexton joined the Audit Committee effective December 1, 2008, and Mr. Phillips concluded his service on the Audit Committee effective January 1, 2009.

⁽²⁾ Mr. Phillips joined the Nominating and Governance Committee effective January 1, 2009.

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

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

Director Attendance at Annual Meetings.    The Company’s Corporate Governance Policies state that directors are expected to attend annual meetings of shareholders. All of the eleven current directors who were on the Board of Directors at the time attended the 2008 annual meeting of shareholders.

Shareholder Nominations for Director Candidates.    The Nominating and Governance Committee will consider director candidates recommended by shareholders. Any shareholder wishing to nominate a candidate for our Board should consult our Policy Regarding Director Candidates Recommended by Shareholders, available at www.morganstanley.com/about/company/governance/index.html. The discussion of the applicable procedures for such nominations is described in “Shareholder Recommendations for Director Candidates,” which also describes the Nominating and Governance Committee’s process for identifying and evaluating director candidates.

Compensation Governance.    The CMDS Committee currently consists of three directors, including our Lead Director, all of whom are independent members of the Board under the NYSE listing standards and our Director Independence Categorical Standards. The CMDS Committee operates under a written charter adopted by the Board. As noted in the table above, the CMDS Committee is responsible for reviewing and approving annually all compensation awarded to the Company’s executive officers, including the CEO and other executive officers named in the “2008 Summary Compensation Table” (named executive officers or NEOs). In addition, the CMDS Committee administers the Company’s equity incentive plans, including reviewing and approving equity grants to executive officers. Information on the CMDS Committee’s processes, procedures and analysis of NEO compensation for fiscal 2008 is addressed in the “Compensation Discussion and Analysis.”

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

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To perform its duties, the CMDS Committee retains the services of a qualified and independent compensation consultant that possesses the necessary skill, experience and resources to meet the CMDS Committee’s needs and that has no relationship with the Company that would interfere with its ability to provide independent advice. The CMDS Committee has selected Hay Group as its compensation consultant. Hay Group has also been retained by the Nominating and Governance Committee to provide consulting services on Board compensation, but has not provided any such services as of the date of this proxy statement. Other than the consulting services that it provides to the CMDS Committee, Hay Group currently provides no consulting services to the Company or its executive officers. Hay Group assists the CMDS Committee in collecting and evaluating external market data regarding executive compensation and performance and advises the CMDS Committee on developing trends and best practices in executive compensation and equity and incentive plan design.

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

The principal compensation plans and arrangements applicable to our NEOs are described in the “Compensation Discussion and Analysis” and the tables in the “Executive Compensation” section. The CMDS Committee may delegate the administration of these plans as appropriate, including to executive officers of the Company and members of the Company’s Human Resources department. The CMDS Committee may also create subcommittees with authority to act on its behalf. Significant delegations made by the CMDS Committee include the following:

Our executive officers do not engage directly with the CMDS Committee in setting the amount or form of executive officer compensation. However, as discussed in the “Compensation Discussion and Analysis,” as part of the annual performance review for our executive officers other than the CEO, the CMDS Committee considers our CEO’s assessment of each executive officer’s individual performance, as well as the performance of the Company and our CEO’s compensation recommendations for each executive officer.

Annual year-end equity awards are typically granted by the CMDS Committee after the end of our fiscal year. This schedule coincides with the time when year-end financial results are available and the CMDS Committee can evaluate individual and Company performance with respect to the Company’s performance priorities and strategic goals and apply the Section 162(m) formula described in the “Compensation Discussion and Analysis.” Special equity awards are generally approved on a monthly basis; however, they may be granted at any time, as deemed necessary for new hires, promotions, and recognition or retention purposes. We do not coordinate or time the release of material information around our grant dates in order to affect the value of compensation.

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Executive Equity Ownership Commitment.    Executive officers and other members of senior management who are members of the Company’s Operating Committee are subject to an Equity Ownership Commitment that requires them to retain at least 75% of common stock and equity awards (less allowances for the payment of any option exercise price and taxes) made to them while they are on the Operating Committee. This commitment ties a portion of their net worth to the Company’s stock price and provides a continuing incentive for them to work towards superior long-term stock price performance. None of our executive officers have prearranged trading plans under SEC Rule 10b5-1.

Beneficial Ownership of Company Common Stock

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

The following table sets forth the beneficial ownership of common stock as of November 30, 2008 by each of our directors and NEOs, and by all our directors and executive officers as of November 30, 2008, as a group. As of November 30, 2008, none of the common stock beneficially owned by our directors and NEOs was pledged.

⁽¹⁾ Each director, NEO and executive officer as of November 30, 2008 had sole voting and investment power with respect to his or her shares, except as follows: Mr. Mack’s beneficial ownership includes 300,000 shares held in a grantor retained annuity trust for which his spouse is the sole trustee, and Mr. Bostock’s beneficial ownership includes 1,775 shares held by his spouse.

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

⁽³⁾ Excludes stock units granted on December 18, 2008 to the NEOs for services in fiscal 2008. The following table lists the number of stock units awarded to each NEO for fiscal 2008.

⁽⁴⁾ See the “2008 Outstanding Equity Awards at Fiscal Year End Table” for additional information regarding stock options held by the NEOs as of November 30, 2008.

⁽⁵⁾ Each NEO and director beneficially owned less than 1% of the shares of common stock outstanding. All executive officers and directors as a group as of November 30, 2008 beneficially owned less than 1% of the common stock outstanding.

⁽⁶⁾ See “Item 1–Election of Directors” regarding Mr. Hirano’s election to the Board and “Principal Shareholders” regarding MUFG’s beneficial ownership of Company common stock.

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

⁽¹⁾ Based on the capitalization of the Company as of November 30, 2008 and the initial conversion rate of 39.604 shares of common stock per share of Series B Preferred Stock, representing an initial conversion price of $25.25 per share of common stock. MUFG filed a Schedule 13D Information Statement on October 23, 2008, as amended on October 30, 2008, disclosing that (i) MUFG acquired 7,839,209 shares of Series B Preferred Stock on October 13, 2008, which may be converted into 310,464,033 shares of common stock at the initial conversion rate, and (ii) based on the number of shares of our common stock outstanding as of September 30, 2008, MUFG beneficially owned approximately 22.62% of the outstanding shares of our common stock, assuming full conversion of the Series B Preferred Stock held by MUFG at the initial conversion rate and no conversion of any other securities not beneficially owned by MUFG that are convertible or exchangeable into shares of our common stock.

⁽²⁾ Based on a review of the Schedule 13G Information Statement filed on February 17, 2009 by State Street, acting in various fiduciary capacities. The Schedule 13G discloses that State Street had sole voting power as to 43,798,959 shares, shared voting power as to 100,438,041 shares and shared dispositive power as to 144,429,478 shares; that shares held by State Street on behalf of the Trust and a Company-sponsored equity-based compensation program amounted to 9.3% of our common stock as of December 31, 2008; and that State Street disclaimed beneficial ownership of all shares reported therein.

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⁽³⁾ Based on a review of the Schedule 13G Information Statement filed on February 17, 2009 by FMR LLC, Edward C. Johnson 3d and Fidelity Management & Research Company (Fidelity), a wholly-owned subsidiary of FMR LLC. Certain of the shares listed above are beneficially owned by FMR LLC subsidiaries and related entities. The Schedule 13G discloses that members of the Johnson family may be deemed to form a controlling group with respect to FMR LLC and that FMR LLC, Edward C. Johnson 3d and Fidelity, and their respective affiliates, have had sole voting power as to 2,387,235 shares and sole dispositive power as to 54,349,804 shares.

Executive Compensation

Compensation Discussion and Analysis.    The Compensation, Management Development and Succession (CMDS) Committee is actively involved in the design and execution of Morgan Stanley’s compensation strategy and approves all compensation awarded to our named executive officers (NEOs), as discussed in more detail under “Compensation Governance.” The CMDS Committee met nine times during fiscal 2008, and an additional three times after fiscal year-end in connection with 2008 compensation, and regularly reported to the full Board. This Compensation Discussion and Analysis (CD&A) describes the Company’s executive compensation objectives and policies, analyzes the CMDS Committee’s decisions on NEO compensation in 2008 and discusses executive compensation policy for 2009. The CD&A is organized around four main topics:

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

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For 2008, the CMDS Committee decreased the percentage of equity awarded and introduced MSCIP. Given the decline in the Company’s stock price over the past year, the application of traditional equity award levels would have resulted in an unexpectedly large number of shares being granted. This would have significantly reduced the Company’s compensation plan share reserve, contributed to shareholder dilution and potentially resulted in significant but unintended wealth accumulation should the stock price recover.

Reduction of Compensation:

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“Clawback” for Broad-Based Long-Term Incentive Program:

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For 2009 and beyond, the CMDS Committee will continue to review the Company’s compensation and benefit programs to ensure they are consistent with evolving best-practices and fully comply with legislation regarding compensation paid by participants in the TARP Capital Purchase Program.

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When the CMDS Committee established these financial performance criteria, the Company’s “investment bank competitors” consisted of Bear Stearns, Goldman Sachs, Lehman Brothers and Merrill Lynch. The Company’s “core competitors” consisted of these investment bank competitors as well as Bank of America, Citigroup, Credit Suisse Group, Deutsche Bank, JPMorgan Chase and UBS.

Due to the merger of Bear Stearns with JPMorgan Chase, the bankruptcy of Lehman Brothers and the sale of Merrill Lynch to Bank of America during fiscal 2008, the investment bank competitor group, as originally defined, was ultimately no longer a useful comparison for assessing the Company’s financial performance. Similarly, relative performance measures established at the beginning of the fiscal year ceased to be relevant during the third quarter of fiscal 2008, as a result of the market-wide financial crisis.

As a result of these changes, the CMDS Committee’s assessment of the Company’s financial performance focused on absolute performance versus prior year performance. The Chief Financial Officer (CFO) reviewed the Company’s financial performance with the Board and the CMDS Committee periodically throughout fiscal 2008.

Over the first three quarters of fiscal 2008, the investment bank competitor group had a business mix most similar to that of the Company, while the core competitors included a broader range of more diversified financial services companies. The CMDS Committee and its consultant believe that our core competitor group was representative of the market in which we compete for talent, and that the size of the group provided sufficient comparative data across the range of senior positions at the Company. But, as noted above, the investment bank competitor group ultimately ceased to be a useful comparison for compensation decisions.

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As a result of our participation in the TARP Capital Purchase Program, compensation in excess of $500,000 earned by any “senior executive officer” while the U.S. Treasury holds an equity or debt interest in the Company is not deductible, including “performance-based” compensation. For 2008, the $500,000 deductibility limit under the TARP Capital Purchase Program has been pro-rated from the date of the U.S. Treasury’s investment in the Company.

The CMDS Committee finalized fiscal 2008 incentive compensation for NEOs on December 18, 2008, after thoroughly evaluating Company, business unit and individual performance for the year against the metrics and priorities described above. The CMDS Committee specifically considered the following factors in determining NEO incentive compensation:

A detailed analysis of the Company’s financial and operational performance for fiscal 2008 is contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008.

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The CMDS Committee’s compensation determinations for the NEOs for fiscal 2008 are set forth in the following table.

⁽¹⁾ Messrs. Kelleher’s and Chammah’s base salary was £170,000 for fiscal 2008. The amount of British pounds sterling was converted to U.S. dollars using the fiscal year average of daily spot rates of £1 to $1.8994. For 2009, NEO base salaries were adjusted as follows: £325,000 for Mr. Chammah; £220,000 for Mr. Kelleher and $400,000 for Messrs. Lynch and Nides. Mr. Mack’s base salary was not changed for 2009.

⁽²⁾ Mr. Kelleher’s fiscal 2008 cash bonus paid was paid in British pounds sterling in the amount of £1,531,987. The amount of U.S. dollars was converted to British pounds sterling using the fiscal year average of daily spot rates of $1 to £0.5265.

⁽³⁾ The number of RSUs awarded was determined by dividing the dollar value of the award by $16.8313, the volume weighted average price of the Company’s common stock on the grant date, December 18, 2008, and rounding down to the nearest whole number. Fractional shares were paid in cash.

In determining fiscal 2008 incentive compensation for our NEOs, the CMDS Committee certified that the compensation awarded to the Company’s covered executive officers under IRS Section 162(m) did not exceed the maximum amount yielded by the application of the shareholder-approved performance formula.

The Company was part of the initial group of financial institutions participating in the TARP Capital Purchase Program, and on October 26, 2008 entered into a Securities Purchase Agreement–Standard Terms with the U.S. Treasury pursuant to which, among other things, the Company sold preferred stock and warrants to the U.S. Treasury. As a participant in the TARP Capital Purchase Program, the Company acknowledges its responsibilities to both its shareholders and the American taxpayers. As discussed in Section IV.C below, the Company has amended its compensation and benefits programs to comply with the initial restrictions set forth in the Emergency Economic Stabilization Act of 2008 (EESA), prior to the amendment of the act in 2009. The American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law on February 17, 2009. ARRA amends EESA and contains additional restrictions on executive compensation applicable to institutions that receive TARP capital, including companies that participated in the TARP Capital Purchase Program prior to enactment of ARRA. ARRA will provide further restrictions on the amount and type of compensation we pay to our executive officers and certain other highly compensated employees; however, the details of those restrictions will not be known until the Treasury Department proposes and finalizes regulations to effectuate the law. The CMDS Committee will continue to review the Company’s compensation and benefit programs to ensure that it fully complies with applicable law, including ARRA and any related regulations.

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Subject to changes required by ARRA or other applicable laws and regulations, the CMDS Committee is committed to moving further away from an executive compensation program focused largely on annual incentive awards towards one that is balanced between fixed, short-term and long-term compensation. At this time, we expect that the new executive compensation program will be comprised of three key elements (in addition to retirement and health and welfare benefits):

Under this program, stock units awarded to senior executives will be forfeited unless predetermined performance goals are satisfied over a three-year period. At the conclusion of that period, earned stock units will convert to shares of Company common stock. Shares underlying the performance units (excluding shares withheld for the payment of taxes) may not be sold or otherwise transferred by the executives until the Company fully redeems all of its preferred stock (Series D) issued to the U.S. Treasury under TARP, plus any accrued and unpaid dividends. Further, if the CMDS Committee later determines that any portion of the shares earned was based on materially inaccurate financial statements of the Company, this portion will be subject to clawback by the Company. The performance stock units will not provide for voting or dividend equivalent rights before they are converted to Company stock.

The performance stock unit awards will be tied directly to the Company’s long-term core financial metrics—specifically:

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Compensation, Management Development and Succession Committee Report.

We, the Compensation, Management Development and Succession Committee of the Board of Directors of Morgan Stanley, have reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on such review and discussions, we have recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008 filed with the SEC.

We hereby certify that we have reviewed with the Company’s Chief Risk Officer the Senior Executive Officer (as such term is defined by the Emergency Economic Stabilization Act of 2008) incentive compensation arrangements and have made reasonable efforts to ensure that such arrangements do not encourage Senior Executive Officers to take unnecessary and excessive risks that threaten the value of the financial institution.

Respectfully submitted,

C. Robert Kidder, Chair

Erskine B. Bowles

Donald T. Nicolaisen

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2008 Summary Compensation Table.    The following table summarizes the compensation of our named executive officers in the format specified by the SEC. Our NEOs are our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers as determined by their total compensation for the fiscal year ended November 30, 2008 set forth in the table below, excluding, in accordance with SEC rules, the amount in the column captioned “Change in Pension Value and Nonqualified Deferred Compensation Earnings.” Compensation in the table below includes not only compensation earned for services in the applicable fiscal year but, in the case of stock awards and option awards, compensation earned for services in prior fiscal years but recognized as an expense for financial statement reporting purposes with respect to the fiscal years reported in the table. See also “Award Values in the Compensation Discussion and Analysis and the 2008 Summary Compensation Table” below.

2008 Summary Compensation Table

*  Mr. Chammah became Co-President, effective December 1, 2007. Mr. Chammah was not an executive officer of the Company during fiscal 2007.

⁽¹⁾ Includes elective deferrals to the Company’s employee benefit plans.

⁽²⁾ Includes elective deferrals to the Company’s employee benefit plans. For fiscal 2008, includes 2008 annual cash bonus amounts paid in January 2009 and amounts awarded under the Morgan Stanley Compensation Incentive Plan (MSCIP) for performance in fiscal 2008:

The fiscal 2008 MSCIP awards are scheduled to be distributed according to the following schedule: 50% on January 2, 2011 and 50% on January 2, 2012, and are subject to cancellation and clawback. For further details on MSCIP awards, see the “Compensation Discussion and Analysis” beginning on page 13.

⁽³⁾ Represents amounts recognized as an expense in the Company’s financial statements for the relevant fiscal year related to all RSUs (including fractional RSUs settled in cash at grant) or stock options, as applicable, awarded to the NEOs. See “Award Values in the Compensation Discussion and Analysis and the 2008 Summary Compensation Table” below. For the value of RSUs granted to each NEO for services to the Company in fiscal 2008, see the table in the “Compensation Discussion and Analysis” on page 22. For the value of RSUs granted to each NEO for services to the Company in fiscal 2007, see the “2008 Grants of Plan-Based Awards Table.”

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⁽⁴⁾ The grant date fair value of RSU awards included in the table was based on the volume weighted average price of the common stock on the grant date. The amount recognized as an expense related to RSUs in the Company’s financial statements for fiscal 2008 represents:

The amount recognized as an expense related to RSUs in the Company’s financial statements for fiscal 2007 represents:

⁽⁵⁾ No stock options were awarded to the NEOs for services in fiscal 2008 or fiscal 2007. The amount recognized as an expense related to stock options in the Company’s financial statements for fiscal 2007 represents:

As of November 30, 2008, all outstanding Company stock options had no intrinsic value because the exercise price of each stock option was greater than $14.75, the closing price of the Company’s common stock on November 28, 2008 (the last trading day of fiscal 2008).

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

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During 2008, the Company changed its pension measurement date from September 30 to November 30. The change in pension value for the period October 1, 2007 to November 30, 2007 for Messrs. Mack, Kelleher, Chammah, Lynch and Nides was $24,770, $56,074, $21,107, $186, and $175, respectively, and is based on a 6.34% discount rate and the RP-2000 White Collar Combined Mortality Table projected to 2015 with Scale AA for Males and Females, the assumptions used for the 2007 measurement period.

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

Mr. Kelleher is covered by Morgan Stanley’s overseas assignment policy, which is designed to eliminate any financial detriment or gain from the overseas assignment. Mr. Kelleher’s amounts include $2,196,369 related to his overseas assignment and his entitlements under the policy, including housing expenses, tax reimbursements and tax equalization payments, financial advisory and tax planning services, reimbursement for educational costs and cost of living adjustments.

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Mr. Chammah is covered by a modified expatriate package with Morgan Stanley regarding his transfer to the UK, with a cost to the Company of $790,150 for fiscal 2008 (converted from British pounds sterling to U.S. dollars using the fiscal year average of daily spot rates of £1 to $1.8994). The amount reported also includes personal use of Company aircraft.

Pursuant to a written agreement with the Company, Mr. Nides was reimbursed for reasonable commuting and other personal expenses of $73,950 related to travel between his home in Washington D.C. and the Company’s offices in New York and tax reimbursements of $58,595 related to imputed income for these expenses. These expenses include the cost of airfare, car service and housing arrangements.

⁽⁸⁾ Mr. Mack’s employment agreement provides that his annual base salary cannot be less than $775,000, the base salary provided to our CEO who immediately preceded him.

⁽⁹⁾ Mr. Mack did not receive any bonus for fiscal 2008 or fiscal 2007 and Mr. Chammah did not receive any bonus for fiscal 2008.

⁽¹⁰⁾ Messrs. Kelleher’s and Chammah’s base salary was £170,000 for fiscal 2008. The amount of British pounds sterling was converted to U.S. dollars using the fiscal year average of daily spot rates of £1 to $1.8994.

⁽¹¹⁾ Mr. Kelleher’s fiscal 2008 cash bonus paid in January 2009 was $2,909,903 and was paid in British pounds sterling in the amount of £1,531,987. The amount of U.S. dollars was converted to British pounds sterling using the fiscal year average of daily spot rates of $1 to £0.5265.

Award Values in the Compensation Discussion and Analysis and the 2008 Summary Compensation Table

The “2008 Summary Compensation Table” was prepared in accordance with SEC regulations and values equity awards based principally on the treatment of compensation expense in the income statement under the applicable accounting rule, currently Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123R). For this reason, the values disclosed for RSUs for Messrs. Kelleher and Chammah in the “Stock Awards” column of the “2008 Summary Compensation Table” for fiscal 2008 and fiscal 2007 differ from the values disclosed for awards granted as part of fiscal 2008 compensation in the table that appears in the “Compensation Discussion and Analysis” on page 22 and from the values disclosed for awards granted as part of fiscal 2007 compensation in the “2008 Grants of Plan-Based Awards Table.” Also for this reason, the “Option Awards” column of the “2008 Summary Compensation Table” includes values for 2007, even though no stock options were awarded to the NEOs for fiscal 2007.

In general, under SFAS No. 123R, an equity award is expensed over the service period of the award. If the employee is retirement-eligible at grant under the terms of the award, then the award is expensed over a service period prior to the grant date. Fiscal 2008 RSUs awarded to the NEOs are not canceled upon a termination of employment, provided that the NEO does not leave the Company to join a competitor and the NEO has complied with the other cancellation provisions of the award; therefore, the fiscal 2008 awards are considered vested at grant. In accordance with SFAS No. 123R, we expensed RSU awards that were granted to our NEOs in December 2008 for performance in fiscal 2008 over the 2008 fiscal year (the service period of the award) and prior to the grant date. Therefore, the full SFAS No. 123R grant date value of these RSUs is disclosed in the “Stock Awards” column of the above table for Messrs. Kelleher, Lynch and Nides. Messrs. Mack and Chammah did not receive any RSUs for performance in fiscal 2008. Messrs. Kelleher and Chammah hold Company RSU awards that were previously granted in respect of prior fiscal years and either (i) they were not retirement-eligible at grant under the award terms or (ii) the awards were granted prior to the adoption of SFAS No. 123R. The portion of these awards that was expensed during fiscal 2008 for Mr. Chammah is the value set forth in the “Stock Awards” column of the “2008 Summary Compensation Table” and the portion of these awards that was expensed during fiscal 2008 for Mr. Kelleher is aggregated with the expense for Mr. Kelleher’s fiscal 2008 annual RSU awards in the “Stock Awards” column of the 2008 Summary Compensation Table.

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2008 Grants of Plan-Based Awards Table.    The following table sets forth information with respect to the RSUs granted under the Morgan Stanley 2007 Equity Incentive Compensation Plan to each NEO during fiscal 2008. Equity awards granted for performance in fiscal 2007 are reported below because they were granted on December 20, 2007, during fiscal 2008. In other words, although this table reports RSU awards for Mr. Chammah, the RSUs were granted as part of his fiscal year 2007 compensation and were expensed during fiscal 2007. Mr. Chammah did not receive any RSUs for performance in fiscal 2008.

2008 Grants of Plan-Based Awards Table⁽¹⁾

⁽¹⁾ The table does not include awards granted to Messrs. Kelleher, Lynch and Nides in December 2008 for performance in fiscal 2008, although the compensation expense for their fiscal 2008 awards was recognized in fiscal 2008 and is included in the “2008 Summary Compensation Table” for fiscal 2008. For the value of RSUs granted in December 2008 for performance in fiscal 2008, see the table that appears in the “Compensation Discussion and Analysis” on page 22.

⁽²⁾ The RSUs are scheduled to convert to shares according to the following schedule: 50% on January 2, 2010 and 50% on January 2, 2011. The NEOs are entitled to receive dividend equivalents on the RSUs, which are paid currently and may be paid in cash, shares of our common stock, or a combination thereof, at the Company’s discretion. The NEOs may direct the vote of the shares underlying the RSUs. The NEOs are retirement-eligible under the award terms and, therefore, the awards are considered vested at grant; however, the RSUs are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. For further details on cancellation of awards, see “Potential Payments Upon Termination or Change-in-Control.”

⁽³⁾ Represents the fair value in accordance with SFAS No. 123R of the RSUs as of the grant date. The grant date fair value of the RSUs is based on $50.87, the volume weighted average price of the common stock on the grant date. The market value of the RSUs, which have not yet converted to shares, decreased by approximately 71% from the grant date as of November 30, 2008, based on the $14.75 closing price of the common stock on November 28, 2008 (the last trading day of fiscal 2008).

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2008 Outstanding Equity Awards at Fiscal Year End Table.    The following table discloses the number of shares covered by unexercised stock options and unvested RSUs held by our NEOs on November 30, 2008. Each NEO is retirement-eligible under his RSU award terms and, therefore, all of his outstanding RSU awards are considered vested and, in accordance with SEC rules, are not included in this table. Outstanding RSUs held by the NEOs on November 30, 2008 are disclosed in the “Stock Ownership of Directors and Executive Officers” table. As of November 30, 2008, the stock options held by the NEOs had no intrinsic value because the exercise price of each stock option was greater than $14.75, the closing price of the Company’s common stock on November 28, 2008 (the last trading day of fiscal 2008).

2008 Outstanding Equity Awards at Fiscal Year End Table