Morgan Stanley 2015 Annual Report Download - page 53

provide efficiency and liquidity for markets. Although not included in Trading revenues, Interest income and expense are
also impacted by market-making activities, as debt securities held by the Company earn interest and securities are loaned,
borrowed, sold with agreement to repurchase and purchased with agreement to resell.
Investments. The Company’s investments generally are held for long-term appreciation, or as discussed above, hedging
purposes, and generally are subject to significant sales restrictions. Estimates of the fair value of the investments may involve
significant judgment and may fluctuate significantly over time in light of business, market, economic and financial
conditions generally or in relation to specific transactions. In some cases, such investments are required or are a necessary
part of offering other products. The revenues recorded are the result of realized gains and losses from sales and unrealized
gains and losses from ongoing fair value changes of the Company’s holdings, as well as from investments associated with
certain employee deferred compensation and co-investment plans. Typically, there are no fee revenues from these
investments. The sales restrictions on the investments relate primarily to redemption and withdrawal restrictions on
investments in real estate funds, hedge funds and private equity funds, which include investments made in connection with
certain employee deferred compensation plans (see Note 3 to the consolidated financial statements in Item 8). Restrictions on
interests in exchanges and clearinghouses generally include a requirement to hold those interests for the period of time that
the Company is clearing trades on that exchange or clearinghouse. Additionally, there are certain investments related to
assets held by consolidated real estate funds, which are primarily related to holders of noncontrolling interests.
Commissions and Fees. Commission and fee revenues primarily arise from agency transactions in listed and over-the-
counter (“OTC”) equity securities, services related to sales and trading activities, and sales of mutual funds, futures,
insurance products and options.
Asset Management, Distribution and Administration Fees. Asset management, distribution and administration fees include
fees associated with the management and supervision of assets, account services and administration, performance-based fees
relating to certain funds, separately managed accounts, shareholder servicing and the distribution of certain open-ended
mutual funds.
Asset management, distribution and administration fees in the Wealth Management business segment also include revenues
from individual and institutional investors electing a fee-based pricing arrangement and fees for investment management.
Mutual fund distribution fees in the Wealth Management business segment are based on either the average daily fund net
asset balances or average daily aggregate net fund sales and are affected by changes in the overall level and mix of assets
under management or supervision.
Asset management fees in the Investment Management business segment arise from investment management services the
Company provides to investment vehicles pursuant to various contractual arrangements. The Company receives fees
primarily based upon mutual fund daily average net assets or based on monthly or quarterly invested equity for other
vehicles. Performance-based fees in the Investment Management business segment are earned on certain products as a
percentage of appreciation earned by those products and, in certain cases, are based upon the achievement of performance
criteria. These fees are normally earned annually and are recognized on a monthly or quarterly basis.
Net Interest. Interest income and Interest expense are a function of the level and mix of total assets and liabilities, including
Trading assets and Trading liabilities; Investment securities, which include available for sale (“AFS”) securities and held to
maturity (“HTM”) securities; Securities borrowed or purchased under agreements to resell; Securities loaned or sold under
agreements to repurchase; Loans; Deposits; Other short-term borrowings; Long-term borrowings; trading strategies;
customer activity in the prime brokerage business; and the prevailing level, term structure and volatility of interest rates.
Net Revenues by Segment.
Institutional Securities. Investment banking revenues are composed of fees from advisory services and revenues from the
underwriting of securities offerings and syndication of loans, net of syndication expenses.
Equity and fixed income and commodities sales and trading net revenues are composed of Trading revenues; Commissions
and fees; Asset management, distribution and administration fees; and Net interest income (expense). In assessing the
profitability of its sales and trading activities, the Company views these net revenues in the aggregate. In addition, decisions
47