Morgan Stanley 2009 Annual Report Download - page 168

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Collateralized Loan and Debt Obligations. A collateralized loan obligation (“CLO”) or a CDO is an SPE that
purchases a pool of assets, consisting of corporate loans, corporate bonds, asset-backed securities or synthetic
exposures on similar assets through derivatives and issues multiple tranches of debt and equity securities to
investors. In the Asset Management business segment, the Company manages CLOs with assets of $2.2 billion
and $2.1 billion as of December 31, 2009 and December 31, 2008, respectively, and receives a management fee
for these services. The Company’s maximum exposure to loss on these managed CLOs was immaterial as of
December 31, 2009 and 2008. The Company’s maximum exposure to loss on other CLOs and CDOs is $1.5
billion and $3.0 billion as of December 31, 2009 and December 31, 2008, respectively.
Equity-Linked Notes. In an equity-linked note transaction included in the tables above, the Company typically
transfers to an SPE either (1) a note issued by the Company, the payments on which are linked to the
performance of a specific equity security, equity index or other index or (2) debt securities issued by other
companies and a derivative contract, the terms of which will relate to the performance of a specific equity
security, equity index or other index. These transactions are designed to transfer to investors the risks related to
the specific equity security, equity index or other index.
Asset Management Investment Funds. The tables above do not include certain investments made by the
Company held by entities qualifying for accounting purposes as investment companies.
See Note 11 for information on a lending facility provided to a real estate fund sponsored by the Company. The
Company provided this facility in response to the fund’s increased liquidity needs resulting from the downturn in
the global real estate markets.
Failed Sales.
In order to be treated as a sale of assets for accounting purposes, a transaction must meet all of the criteria
stipulated in the accounting guidance for the transfer of financial assets. If the transfer fails to meet these criteria,
that transfer is treated as a failed sale. In such case, the Company continues to recognize the assets in Financial
instruments owned and the Company recognizes the associated liabilities in Other secured financings in the
consolidated statements of financial condition.
The assets transferred to many unconsolidated VIEs in transactions accounted for as failed sales cannot be
removed unilaterally by the Company and are not generally available to the Company. The related liabilities
issued by many unconsolidated VIEs are non-recourse to the Company. In certain other failed sale transactions,
the Company has the unilateral right to remove assets or provides additional recourse through derivatives such as
total return swaps, guarantees or other forms of involvement.
The following tables present information about transfers of assets treated by the Company as secured financings
as of December 31, 2009 and December 31, 2008:
At December 31, 2009
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
Credit-
Linked
Notes Other
(dollars in millions)
Assets
Unpaid principal amount .................................... $376 $324 $1,059 $1,332
Fair value ................................................ 151 291 1,012 1,294
Other secured financings
Unpaid principal amount .................................... 267 271 1,025 1,332
Fair value ................................................ 138 269 978 1,294
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