-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LJrdMocyiLAY9wGHuPY5s/YB+yuGtocSWurKnQagtplSKLen0Eh/apUPFJcgtqnD N207aAIBoBhGwGRv8EmE2w== 0001157523-03-004917.txt : 20030923 0001157523-03-004917.hdr.sgml : 20030923 20030923075835 ACCESSION NUMBER: 0001157523-03-004917 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030923 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030923 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY CENTRAL INDEX KEY: 0000895421 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 363145972 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11758 FILM NUMBER: 03905110 BUSINESS ADDRESS: STREET 1: 1585 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2127614000 MAIL ADDRESS: STREET 1: 1221 SIXTH AVENUE STREET 2: 5TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER & CO DATE OF NAME CHANGE: 19980326 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER DISCOVER & CO DATE OF NAME CHANGE: 19960315 8-K 1 a4477696.txt MORGAN STANLEY 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 23, 2003 Morgan Stanley --------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 1-11758 36-3145972 - -------------------------------------------------------------------------------- (State or other (Commission File Number) (I.R.S. Employer jurisdiction of Identification No.) incorporation) 1585 Broadway, New York, New York 10036 ------------------------------------------------------------------------ (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (212) 761-4000 ----------------------- - -------------------------------------------------------------------------------- (Former address, if changed since last report) Item 7. Financial Statements and Exhibits - -------------------------------------------------------------------------------- 99.1 Press release of the Registrant dated September 23, 2003 containing financial information for the third quarter ended August 31, 2003. Item 12. Results of Operations and Financial Condition - -------------------------------------------------------------------------------- On September 23, 2003 Morgan Stanley (the "Registrant") released financial information with respect to its quarter ended August 31, 2003. A copy of the press release containing this information is annexed as Exhibit 99.1 to this Report and by this reference incorporated herein and made a part hereof. The information furnished under Item 12 of this Report, including Exhibit 99.1, shall be deemed to be "filed" for purpose of the Securities Exchange Act of 1934, as amended. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. MORGAN STANLEY ------------------------------------------------- (Registrant) By: /s/ David S. Moser ------------------------------------------------- David S. Moser Principal Accounting Officer Dated: September 23, 2003 EX-99 3 a4477696ex991.txt MORGAN STANLEY 8-K EXHIBIT 99.1 Exhibit 99.1 Morgan Stanley Reports Third Quarter Net Income of $1.3 Billion With Return on Equity of 22.0%; Earnings Per Share are $1.15 NEW YORK--(BUSINESS WIRE)--Sept. 23, 2003--Morgan Stanley (NYSE: MWD) today reported net income of $1,269 million for the quarter ended August 31, 2003 -- a 108 percent increase from the third quarter of 2002 and 112 percent from the second quarter of 2003. Diluted earnings per share were $1.15 -- compared to $0.55 a year ago and $0.55 in the second quarter. Changes to the terms of the Company's equity-based compensation program made in the third quarter increased net income by $350 million and diluted earnings per share by $0.32. Third quarter net revenues (total revenues less interest expense and the provision for loan losses) were $5.3 billion -- 13 percent better than last year's third quarter and 4 percent ahead of this year's second quarter. The annualized return on average common equity for the quarter was 22.0 percent. Philip J. Purcell, Chairman & CEO, and Robert G. Scott, President & COO, said in a joint statement, "We are very pleased with these results. Business has clearly picked up in equity underwriting and retail securities, and our fixed income division had another outstanding quarter. We have begun to see the benefits of an improving environment as well as our previous expense initiatives." For the first nine months of 2003, net income was $2,773 million, a 23 percent increase over $2,256 million a year ago. Nine-month diluted earnings per share were $2.52, up 24 percent from last year's $2.03. Net revenues rose 6 percent from a year ago to $15.8 billion and the annualized return on average common equity was 16.3 percent. During the quarter, the Company completed an extensive analysis of its equity-based compensation program and implemented changes that emphasized long-term service and retention objectives, including longer vesting periods and higher eligibility requirements. As a result, the Company is expensing awards over a longer period of service. The effect of these changes reduced compensation expense by $519 million and increased net income by $350 million, or $0.32 per share, for the three and nine month periods ended August 31, 2003. The annualized return on average common equity increased by 6.1 percentage points for the quarter and 2.1 percentage points for the year-to-date period. By business segment, net income increased as follows: Institutional Securities, $273 million; Individual Investor Group, $48 million; Investment Management, $22 million; and Credit Services, $7 million. The business segment review below includes the effects of these changes. In addition, the Company's segment results have been restated to reflect reallocations of certain revenues and expenses. While such reallocations had no effect on the Company's consolidated results of operations, they affected the net income of each segment. For a discussion of these changes, see "Explanatory Note" immediately preceding the financial pages of this release. INSTITUTIONAL SECURITIES Institutional Securities net income increased to $825 million from last year's third quarter of $264 million. Net revenues increased 32 percent, driven by the Company's fixed income business, which achieved its second best quarter, and an improved market for equity underwriting. -- Fixed income sales and trading net revenues more than doubled from third quarter 2002 to $1.5 billion. The increase resulted from strong performances in the credit products, interest-rate and currency products, and commodities groups. The revenue increases in credit products and interest rate products reflected a favorable trading environment, strong capital markets activity and increases in interest rate volatility. Higher commodities revenues were driven by increased activity in electricity, natural gas and oil markets. -- Equity sales and trading net revenues declined 21 percent from a year ago to $830 million, reflecting lower revenues in the Company's cash and derivative products businesses. Sharply lower equity market volatility negatively affected results. -- Advisory revenues were $130 million, down 13 percent from last year due to declining levels of global M&A activity. Industry-wide, completed M&A transaction volume fell 24 percent compared with third quarter 2002.(1) -- Underwriting revenues of $388 million were 55 percent above last year's third quarter. An improved market share in equity -- combined with an industry-wide increase in equity underwriting activity -- drove the increase. An increase in industry-wide fixed income underwriting activity also contributed to these results. -- For the calendar year-to-date, the Company ranked third in completed global M&A with a 20 percent market share; fifth in announced global M&A with a 14 percent market share; third in worldwide equity and equity related issuances with a 10 percent market share; and fourth in U.S. investment grade debt issuances with an 11 percent market share.(2) INDIVIDUAL INVESTOR GROUP The Individual Investor Group net income rose to $125 million compared to $18 million for the third quarter of 2002. -- Total net revenues increased 3 percent from third quarter 2002 to $1,054 million. Third quarter 2002 net revenues included $95 million associated with the sale of the Company's MS Online brokerage accounts, and a $45 million writedown of an equity investment related to the Company's European retail securities activities. In the current quarter, principal transaction trading revenues increased 22 percent and commissions rose 7 percent, driven primarily by increased individual investor interest in equity products. -- Total client assets of $544 billion were 5 percent higher than the end of last year's third quarter, reflecting, in part, a 10 percent increase in the S&P 500 over the same period of time. In addition, client assets in fee-based accounts rose 14 percent to $122 billion, and the percentage of client assets in fee-based accounts increased to 22 percent from 21 percent a year ago. -- At quarter-end, the number of global financial advisors was 11,326 -- a decrease of 318 for the quarter and 2,264 over the past year. INVESTMENT MANAGEMENT Investment Management net income rose to $116 million from $97 million in last year's third quarter. The increase was driven primarily by a lower income tax rate. Asset management fees decreased 4 percent reflecting lower distribution and redemption fees. -- The Company's assets under management were $433 billion, up $12 billion over the second quarter of this year and $9 billion over the third quarter of last year. The increase during the quarter reflected market appreciation and positive net customer flows, while the increase from last year was due to market appreciation. -- Retail assets of $268 billion were $9 billion higher than the end of the second quarter and $8 billion higher than a year ago. Institutional assets were $165 billion, an increase of $3 billion for the quarter and $1 billion compared to a year ago. -- Among full-service brokerage firms, the Company had the highest number of domestic funds (47) receiving one of Morningstar's two highest ratings.(3) The percent of the Company's fund assets performing in the top half of the Lipper rankings over three years was 69 percent, unchanged from a year ago.(4) CREDIT SERVICES Credit Services quarterly net income declined to $185 million from $209 million in the third quarter of 2002. On a managed loan basis, an increase in the provision for loan losses was partially offset by lower non-interest expenses and higher net interest income. -- Managed credit card loans at quarter end rose 1 percent from a year ago to $50 billion and the interest rate spread was unchanged at 8.91 percent. -- Merchant and cardmember fees were essentially unchanged at $523 million as higher merchant discount fees from increased transaction volume were offset by lower cardmember late fees. Transaction volume rose 2 percent from a year ago to $24.8 billion, driven by a 6 percent increase in sales. -- The managed credit card net charge-off rate increased to 6.90 percent -- 83 basis points above a year ago and 40 basis points above last quarter. The over-30-day delinquency rate was 6.05 percent -- 33 basis points above last year but 16 basis points below last quarter. Sustained high levels of U.S. bankruptcy filings and unemployment along with changes in the Company's account re-aging policy, which tightened terms under which delinquent accounts are returned to a current status -- negatively affected the charge-off and delinquency rates. -- Non-interest expenses of $542 million declined 12 percent compared with third quarter 2002, primarily due to a decline in marketing and advertising expenses. As of August 31, 2003, the Company had repurchased approximately 9 million shares of its common stock since the end of fiscal 2002. The Company also announced that its Board of Directors declared a $0.23 quarterly dividend per common share. The dividend is payable on October 31, 2003, to common shareholders of record on October 10, 2003. Total capital at August 31, 2003 was $78.2 billion, including $26.5 billion of common shareholders' equity and preferred securities subject to mandatory redemption. Book value per common share was $21.79, based on 1.1 billion shares outstanding. Morgan Stanley is a global financial services firm and a market leader in securities, investment management and credit services. With more than 600 offices in 28 countries, Morgan Stanley connects people, ideas and capital to help clients achieve their financial aspirations. Access this press release on-line @www.morganstanley.com (See Attached Schedules) This release may contain forward-looking statements. These statements reflect management's beliefs and expectations, and are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect the Company's future results, please see "Certain Factors Affecting Results of Operations" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Competition" and "Regulation" in Part I, Item 1 in the Company's 2002 Annual Report on Form 10-K and "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in the Company's Quarterly Reports on Form 10-Q for fiscal 2003. (1) Source: Thomson Financial Securities Data -- for the periods: June 1 to August 31, 2002 & 2003. (2) Source: Thomson Financial Securities Data -- for the period January 1, 2003 to August 31, 2003. (3) Full service brokerage firms include: Merrill Lynch, Citigroup and Prudential. As of August 31, 2003. (4) As of July 31, 2003. MORGAN STANLEY Explanatory Note As previously disclosed, the Company has been reviewing its segment allocation methodology. This review resulted in the reallocation of certain revenues and expenses in the third quarter of 2003 among the Company's business segments, Institutional Securities ("IS"), Individual Investor Group ("IIG"), Investment Management ("IM") and Credit Services. The Company believes that the results of these reallocations better reflect the economics of each business segment by representing transactions as if conducted between a segment and an external party. Prior periods have been restated to reflect these segment allocation changes. While the segment allocation changes had no effect on the Company's consolidated net income, they affected the net income of each segment. The principal revenues and expenses that have been reallocated among the segments are: -- Retail Customer Fixed Income Transactions - The results of the individual fixed income business are now allocated between IS and IIG to reflect the relative value from both the execution of the retail customer trading activities through IS and the retail customer relationship management through IIG. Previously, the trading results of this business were reflected entirely in IS. -- Money Market Funds - Retail customers of IIG invest in money market funds managed by the Company. A percentage of the fund management fees associated with these investments is now allocated to IIG. Previously, all of these fees were reflected in IM. -- Transfer Agency Costs - IIG provides certain transfer agency- related activities for mutual funds, including funds managed by the Company. IM receives revenue from these funds and now reimburses certain transfer agency-related costs, including costs related to mailings, to IIG. Previously, these costs were not reimbursed by IM. -- Certain Mutual Fund Distribution Fees - Retail customers invest in shares of mutual funds managed by the Company. The segment results now reflect the establishment of a third party distribution relationship between IM and IIG relating to the sales of these funds. Accordingly, IM now reports the distribution fees, contingent deferred sales charge revenues and commission expenses paid to IIG associated with these sales. IIG results now reflect these commission revenues associated with current period sales. Previously, all of the revenues and expenses associated with these transactions were reported by IIG. As a result of treating these intersegment transactions as external transactions, the Company has a new "Intersegment Eliminations" category to reconcile the segment results to the Company's consolidated results. The net income/loss in Intersegment Eliminations represents the effect of timing differences associated with the revenue and expense recognition of commissions paid by IM to IIG and the related compensation costs paid to IIG's financial advisors. MORGAN STANLEY Financial Summary (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------- ------------- ------ Net revenues Institutional Securities $ 2,793 $ 2,117 32% Individual Investor Group 1,054 1,028 3% Investment Management 653 642 2% Credit Services 834 933 (11%) Intersegment Eliminations (83) (81) (2%) ------------- ------------- Consolidated net revenues $ 5,251 $ 4,639 13% ============= ============= Net income / (loss) Institutional Securities $ 825 $ 264 * Individual Investor Group 125 18 * Investment Management 116 97 20% Credit Services 185 209 (11%) Intersegment Eliminations 18 23 (22%) ------------- ------------- Consolidated net income $ 1,269 $ 611 108% ============= ============= Basic earnings per common share $ 1.18 $ 0.57 107% Diluted earnings per common share $ 1.15 $ 0.55 109% Average common shares outstanding Basic 1,077.7 1,081.7 Diluted 1,100.6 1,105.5 Period end common shares outstanding 1,088.1 1,093.1 Return on common equity 22.0% 11.4% - -------------------------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. The Company's segment results have been restated to reflect certain segment allocation changes. While such changes had no effect on the Company's consolidated net income, they impacted the net income of each segment. For a discussion of the nature of these changes, see "Explanatory Note" immediately preceding the financial pages of this release. MORGAN STANLEY Financial Summary (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Net revenues Institutional Securities $ 2,793 $ 2,680 4% Individual Investor Group 1,054 952 11% Investment Management 653 608 7% Credit Services 834 884 (6%) Intersegment Eliminations (83) (79) (5%) ------------ ------------ Consolidated net revenues $ 5,251 $ 5,045 4% ============ ============ Net income / (loss) Institutional Securities $ 825 $ 283 * Individual Investor Group 125 32 * Investment Management 116 77 51% Credit Services 185 190 (3%) Intersegment Eliminations 18 17 6% ------------ ------------ Consolidated net income $ 1,269 $ 599 112% ============ ============ Basic earnings per common share $ 1.18 $ 0.56 111% Diluted earnings per common share $ 1.15 $ 0.55 109% Average common shares outstanding Basic 1,077.7 1,077.4 Diluted 1,100.6 1,097.5 Period end common shares outstanding 1,088.1 1,086.7 Return on common equity 22.0% 10.6% - -------------------------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. The Company's segment results have been restated to reflect certain segment allocation changes. While such changes had no effect on the Company's consolidated net income, they impacted the net income of each segment. For a discussion of the nature of these changes, see "Explanatory Note" immediately preceding the financial pages of this release. MORGAN STANLEY Financial Summary (unaudited, dollars in millions) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Net revenues Institutional Securities $ 8,607 $ 7,272 18% Individual Investor Group 2,928 3,134 (7%) Investment Management 1,851 2,097 (12%) Credit Services 2,616 2,630 (1%) Intersegment Eliminations (232) (264) 12% ------------ ------------ Consolidated net revenues $ 15,770 $ 14,869 6% ============ ============ Net income / (loss) Institutional Securities $ 1,711 $ 1,219 40% Individual Investor Group 186 70 * Investment Management 265 334 (21%) Credit Services 557 569 (2%) Intersegment Eliminations 54 64 (16%) ------------ ------------ Consolidated net income $ 2,773 $ 2,256 23% ============ ============ Basic earnings per common share $ 2.57 $ 2.08 24% Diluted earnings per common share $ 2.52 $ 2.03 24% Average common shares outstanding Basic 1,077.1 1,084.1 Diluted 1,098.2 1,112.0 Period end common shares outstanding 1,088.1 1,093.1 Return on common equity 16.3% 14.3% - -------------------------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. The Company's segment results have been restated to reflect certain segment allocation changes. While such changes had no effect on the Company's consolidated net income, they impacted the net income of each segment. For a discussion of the nature of these changes, see "Explanatory Note" immediately preceding the financial pages of this release. F-1 - ---------------------------------------------------------------------- MORGAN STANLEY Consolidated Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 608 $ 470 29% Principal transactions: Trading 2,105 469 * Investments 38 (64) * Commissions 775 854 (9%) Fees: Asset management, distribution and administration 956 969 (1%) Merchant and cardmember 340 359 (5%) Servicing 462 510 (9%) Interest and dividends 3,534 4,376 (19%) Other 111 216 (49%) ------------ ------------ Total revenues 8,929 8,159 9% Interest expense 3,368 3,188 6% Provision for consumer loan losses 310 332 (7%) ------------ ------------ Net revenues 5,251 4,639 13% ------------ ------------ Compensation and benefits 1,938 2,064 (6%) Occupancy and equipment 191 198 (4%) Brok., clearing and exchange fees 212 207 2% Info processing and communications 313 341 (8%) Marketing and business development 199 285 (30%) Professional services 283 273 4% Other 238 302 (21%) ------------ ------------ Total non-interest expenses 3,374 3,670 (8%) ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 1,877 969 94% Income tax expense 561 337 66% Div. on pref. securities subject to mandatory redemption 47 21 124% ------------ ------------ Net income $ 1,269 $ 611 108% ============ ============ Comp & benefits as a % of net rev. 37% 44% - -------------------------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Consolidated Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Investment banking $ 608 $ 536 13% Principal transactions: Trading 2,105 1,583 33% Investments 38 59 (36%) Commissions 775 709 9% Fees: Asset management, distribution and administration 956 881 9% Merchant and cardmember 340 339 -- Servicing 462 503 (8%) Interest and dividends 3,534 3,692 (4%) Other 111 112 (1%) ------------ ------------ Total revenues 8,929 8,414 6% Interest expense 3,368 3,060 10% Provision for consumer loan losses 310 309 -- ------------ ------------ Net revenues 5,251 5,045 4% ------------ ------------ Compensation and benefits 1,938 2,274 (15%) Occupancy and equipment 191 195 (2%) Brok., clearing and exchange fees 212 202 5% Info processing and communications 313 316 (1%) Marketing and business development 199 250 (20%) Professional services 283 259 9% Other 238 634 (62%) ------------ ------------ Total non-interest expenses 3,374 4,130 (18%) ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 1,877 915 105% Income tax expense 561 276 103% Div. on pref. securities subject to mandatory redemption 47 40 18% ------------ ------------ Net income $ 1,269 $ 599 112% ============ ============ Comp & benefits as a % of net rev. 37% 45% - -------------------------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Consolidated Income Statement Information (unaudited, dollars in millions) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 1,733 $ 1,807 (4%) Principal transactions: Trading 5,244 2,297 128% Investments 75 (47) * Commissions 2,157 2,531 (15%) Fees: Asset management, distribution and administration 2,733 3,030 (10%) Merchant and cardmember 1,042 1,048 (1%) Servicing 1,532 1,556 (2%) Interest and dividends 11,015 12,089 (9%) Other 310 543 (43%) ------------ ------------ Total revenues 25,841 24,854 4% Interest expense 9,116 8,968 2% Provision for consumer loan losses 955 1,017 (6%) ------------ ------------ Net revenues 15,770 14,869 6% ------------ ------------ Compensation and benefits 6,763 6,794 -- Occupancy and equipment 582 604 (4%) Brok., clearing and exchange fees 605 566 7% Info processing and communications 945 1,000 (6%) Marketing and business development 711 781 (9%) Professional services 767 748 3% Other 1,179 813 45% ------------ ------------ Total non-interest expenses 11,552 11,306 2% ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 4,218 3,563 18% Income tax expense 1,336 1,242 8% Div. on pref. securities subject to mandatory redemption 109 65 68% ------------ ------------ Net income $ 2,773 $ 2,256 23% ============ ============ Comp & benefits as a % of net rev. 43% 46% - -------------------------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-2 - ---------------------------------------------------------------------- MORGAN STANLEY Institutional Securities Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 518 $ 399 30% Principal transactions: Trading 1,931 326 * Investments 30 14 114% Commissions 440 548 (20%) Asset management, distribution and administration fees 24 24 -- Interest and dividends 2,943 3,618 (19%) Other 60 72 (17%) ------------ ------------ Total revenues 5,946 5,001 19% Interest expense 3,153 2,884 9% ------------ ------------ Net revenues 2,793 2,117 32% ------------ ------------ Total non-interest expenses 1,589 1,699 (6%) ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 1,204 418 * Income tax expense 332 133 150% Div. on pref. securities subject to mandatory redemption 47 21 124% ------------ ------------ Net income $ 825 $ 264 * ============ ============ Pre-tax profit margin (1) 41% 19% After-tax profit margin (2) 30% 12% - -------------------------- (1) Income before taxes, less dividends on preferred securities as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Institutional Securities Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Investment banking $ 518 $ 462 12% Principal transactions: Trading 1,931 1,416 36% Investments 30 46 (35%) Commissions 440 423 4% Asset management, distribution and administration fees 24 22 9% Interest and dividends 2,943 3,075 (4%) Other 60 75 (20%) ------------ ------------ Total revenues 5,946 5,519 8% Interest expense 3,153 2,839 11% ------------ ------------ Net revenues 2,793 2,680 4% ------------ ------------ Total non-interest expenses 1,589 2,280 (30%) ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 1,204 400 * Income tax expense 332 77 * Div. on pref. securities subject to mandatory redemption 47 40 18% ------------ ------------ Net income $ 825 $ 283 * ============ ============ Pre-tax profit margin (1) 41% 13% After-tax profit margin (2) 30% 11% - -------------------------- (1) Income before taxes, less dividends on preferred securities as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Institutional Securities Income Statement Information (unaudited, dollars in millions) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 1,481 $ 1,584 (7%) Principal transactions: Trading 4,749 1,809 * Investments 65 28 132% Commissions 1,279 1,577 (19%) Asset management, distribution and administration fees 68 66 3% Interest and dividends 9,212 9,968 (8%) Other 197 307 (36%) ------------ ------------ Total revenues 17,051 15,339 11% Interest expense 8,444 8,067 5% ------------ ------------ Net revenues 8,607 7,272 18% ------------ ------------ Total non-interest expenses 6,062 5,363 13% ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 2,545 1,909 33% Income tax expense 725 625 16% Div. on pref. securities subject to mandatory redemption 109 65 68% ------------ ------------ Net income $ 1,711 $ 1,219 40% ============ ============ Pre-tax profit margin (1) 28% 25% After-tax profit margin (2) 20% 17% - -------------------------- (1) Income before taxes, less dividends on preferred securities as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-3 - ---------------------------------------------------------------------- MORGAN STANLEY Individual Investor Group Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 79 $ 63 25% Principal transactions: Trading 174 143 22% Investments 0 (46) * Commissions 348 325 7% Asset management, distribution and administration fees 364 352 3% Interest and dividends 92 112 (18%) Other 35 126 (72%) ------------ ------------ Total revenues 1,092 1,075 2% Interest expense 38 47 (19%) ------------ ------------ Net revenues 1,054 1,028 3% ------------ ------------ Total non-interest expenses 861 993 (13%) ------------ ------------ Income / (loss) before income taxes 193 35 * Income tax expense / (benefit) 68 17 * ------------ ------------ Net income / (loss) $ 125 $ 18 * ============ ============ Pre-tax profit margin (1) 18% 3% After-tax profit margin (2) 12% 2% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Individual Investor Group Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Investment banking $ 79 $ 65 22% Principal transactions: Trading 174 167 4% Investments 0 0 -- Commissions 348 300 16% Asset management, distribution and administration fees 364 333 9% Interest and dividends 92 91 1% Other 35 35 -- ------------ ------------ Total revenues 1,092 991 10% Interest expense 38 39 (3%) ------------ ------------ Net revenues 1,054 952 11% ------------ ------------ Total non-interest expenses 861 887 (3%) ------------ ------------ Income / (loss) before income taxes 193 65 * Income tax expense / (benefit) 68 33 106% ------------ ------------ Net income / (loss) $ 125 $ 32 * ============ ============ Pre-tax profit margin (1) 18% 7% After-tax profit margin (2) 12% 3% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Individual Investor Group Income Statement Information (unaudited, dollars in millions) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 224 $ 198 13% Principal transactions: Trading 495 488 1% Investments 0 (45) * Commissions 919 1,030 (11%) Asset management, distribution and administration fees 1,034 1,087 (5%) Interest and dividends 272 342 (20%) Other 99 183 (46%) ------------ ------------ Total revenues 3,043 3,283 (7%) Interest expense 115 149 (23%) ------------ ------------ Net revenues 2,928 3,134 (7%) ------------ ------------ Total non-interest expenses 2,622 3,004 (13%) ------------ ------------ Income / (loss) before income taxes 306 130 135% Income tax expense / (benefit) 120 60 100% ------------ ------------ Net income / (loss) $ 186 $ 70 * ============ ============ Pre-tax profit margin (1) 11% 4% After-tax profit margin (2) 6% 2% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-4 - ---------------------------------------------------------------------- MORGAN STANLEY Investment Management Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 11 $ 8 38% Principal transactions: Investments 8 (32) 125% Commissions 16 11 45% Asset management, distribution and administration fees 612 635 (4%) Interest and dividends 0 7 * Other 8 15 (47%) ------------ ------------ Total revenues 655 644 2% Interest expense 2 2 -- ------------ ------------ Net revenues 653 642 2% ------------ ------------ Total non-interest expenses 496 477 4% ------------ ------------ Income before income taxes 157 165 (5%) Income tax expense 41 68 (40%) ------------ ------------ Net income $ 116 $ 97 20% ============ ============ Pre-tax profit margin (1) 24% 26% After-tax profit margin (2) 18% 15% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Investment Management Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Investment banking $ 11 $ 9 22% Principal transactions: Investments 8 13 (38%) Commissions 16 13 23% Asset management, distribution and administration fees 612 565 8% Interest and dividends 0 0 -- Other 8 10 (20%) ------------ ------------ Total revenues 655 610 7% Interest expense 2 2 -- ------------ ------------ Net revenues 653 608 7% ------------ ------------ Total non-interest expenses 496 489 1% ------------ ------------ Income before income taxes 157 119 32% Income tax expense 41 42 (2%) ------------ ------------ Net income $ 116 $ 77 51% ============ ============ Pre-tax profit margin (1) 24% 20% After-tax profit margin (2) 18% 13% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Investment Management Income Statement Information (unaudited, dollars in millions) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 28 $ 25 12% Principal transactions: Investments 10 (30) 133% Commissions 41 36 14% Asset management, distribution and administration fees 1,752 2,004 (13%) Interest and dividends 2 17 (88%) Other 23 47 (51%) ------------ ------------ Total revenues 1,856 2,099 (12%) Interest expense 5 2 150% ------------ ------------ Net revenues 1,851 2,097 (12%) ------------ ------------ Total non-interest expenses 1,461 1,547 (6%) ------------ ------------ Income before income taxes 390 550 (29%) Income tax expense 125 216 (42%) ------------ ------------ Net income $ 265 $ 334 (21%) ============ ============ Pre-tax profit margin (1) 21% 26% After-tax profit margin (2) 14% 16% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-5 - ---------------------------------------------------------------------- MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 340 $ 359 (5%) Servicing 462 510 (9%) Other 18 12 50% ------------ ------------ Total non-interest revenues 820 881 (7%) Interest revenue 515 646 (20%) Interest expense 191 262 (27%) ------------ ------------ Net interest income 324 384 (16%) Provision for consumer loan losses 310 332 (7%) ------------ ------------ Net credit income 14 52 (73%) ------------ ------------ Net revenues 834 933 (11%) ------------ ------------ Total non-interest expenses 542 617 (12%) ------------ ------------ Income before taxes 292 316 (8%) Income tax expense 107 107 -- ------------ ------------ Net income $ 185 $ 209 (11%) ============ ============ Pre-tax profit margin (1) 35% 34% After-tax profit margin (2) 22% 22% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 340 $ 339 -- Servicing 462 503 (8%) Other 18 5 * ------------ ------------ Total non-interest revenues 820 847 (3%) Interest revenue 515 543 (5%) Interest expense 191 197 (3%) ------------ ------------ Net interest income 324 346 (6%) Provision for consumer loan losses 310 309 -- ------------ ------------ Net credit income 14 37 (62%) ------------ ------------ Net revenues 834 884 (6%) ------------ ------------ Total non-interest expenses 542 582 (7%) ------------ ------------ Income before taxes 292 302 (3%) Income tax expense 107 112 (4%) ------------ ------------ Net income $ 185 $ 190 (3%) ============ ============ Pre-tax profit margin (1) 35% 34% After-tax profit margin (2) 22% 21% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 1,042 $ 1,048 (1%) Servicing 1,532 1,556 (2%) Other 20 31 (35%) ------------ ------------ Total non-interest revenues 2,594 2,635 (2%) Interest revenue 1,604 1,801 (11%) Interest expense 627 789 (21%) ------------ ------------ Net interest income 977 1,012 (3%) Provision for consumer loan losses 955 1,017 (6%) ------------ ------------ Net credit income 22 (5) * ------------ ------------ Net revenues 2,616 2,630 (1%) ------------ ------------ Total non-interest expenses 1,732 1,751 (1%) ------------ ------------ Income before taxes 884 879 1% Income tax expense 327 310 5% ------------ ------------ Net income $ 557 $ 569 (2%) ============ ============ Pre-tax profit margin (1) 34% 33% After-tax profit margin (2) 21% 22% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-6 - ---------------------------------------------------------------------- MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 523 $ 525 -- Servicing 0 0 -- Other 19 25 (24%) ------------ ------------ Total non-interest revenues 542 550 (1%) Interest revenue 1,576 1,643 (4%) Interest expense 391 483 (19%) ------------ ------------ Net interest income 1,185 1,160 2% Provision for consumer loan losses 893 777 15% ------------ ------------ Net credit income 292 383 (24%) ------------ ------------ Net revenues 834 933 (11%) ------------ ------------ Total non-interest expenses 542 617 (12%) ------------ ------------ Income before taxes 292 316 (8%) Income tax expense 107 107 -- ------------ ------------ Net income $ 185 $ 209 (11%) ============ ============ Pre-tax profit margin (1) 35% 34% After-tax profit margin (2) 22% 22% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. ' MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 523 $ 524 -- Servicing 0 0 -- Other 19 35 (46%) ------------ ------------ Total non-interest revenues 542 559 (3%) Interest revenue 1,576 1,592 (1%) Interest expense 391 410 (5%) ------------ ------------ Net interest income 1,185 1,182 -- Provision for consumer loan losses 893 857 4% ------------ ------------ Net credit income 292 325 (10%) ------------ ------------ Net revenues 834 884 (6%) ------------ ------------ Total non-interest expenses 542 582 (7%) ------------ ------------ Income before taxes 292 302 (3%) Income tax expense 107 112 (4%) ------------ ------------ Net income $ 185 $ 190 (3%) ============ ============ Pre-tax profit margin (1) 35% 34% After-tax profit margin (2) 22% 21% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 1,594 $ 1,568 2% Servicing 0 0 -- Other 108 77 40% ------------ ------------ Total non-interest revenues 1,702 1,645 3% Interest revenue 4,748 4,868 (2%) Interest expense 1,242 1,462 (15%) ------------ ------------ Net interest income 3,506 3,406 3% Provision for consumer loan losses 2,592 2,421 7% ------------ ------------ Net credit income 914 985 (7%) ------------ ------------ Net revenues 2,616 2,630 (1%) ------------ ------------ Total non-interest expenses 1,732 1,751 (1%) ------------ ------------ Income before taxes 884 879 1% Income tax expense 327 310 5% ------------ ------------ Net income $ 557 $ 569 (2%) ============ ============ Pre-tax profit margin (1) 34% 33% After-tax profit margin (2) 21% 22% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-7 - ---------------------------------------------------------------------- MORGAN STANLEY Intersegment Eliminations (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 0 $ 0 -- Principal transactions: Trading 0 0 -- Investments 0 0 -- Commissions (29) (30) 3% Asset management, distribution and administration fees (44) (42) (5%) Interest and dividends (16) (7) (129%) Other (10) (9) (11%) ------------ ------------ Total revenues (99) (88) (13%) Interest expense (16) (7) (129%) ------------ ------------ Net revenues (83) (81) (2%) ------------ ------------ Total non-interest expenses (114) (116) 2% ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 31 35 (11%) Income tax expense 13 12 8% ------------ ------------ Net income $ 18 $ 23 (22%) ============ ============ MORGAN STANLEY Intersegment Eliminations (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Investment banking $ 0 $ 0 -- Principal transactions: Trading 0 0 -- Investments 0 0 -- Commissions (29) (27) (7%) Asset management, distribution and administration fees (44) (39) (13%) Interest and dividends (16) (17) 6% Other (10) (13) 23% ------------ ------------ Total revenues (99) (96) (3%) Interest expense (16) (17) 6% ------------ ------------ Net revenues (83) (79) (5%) ------------ ------------ Total non-interest expenses (114) (108) (6%) ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 31 29 7% Income tax expense 13 12 8% ------------ ------------ Net income $ 18 $ 17 6% ============ ============ MORGAN STANLEY Intersegment Eliminations (unaudited, dollars in millions) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 0 $ 0 -- Principal transactions: Trading 0 0 -- Investments 0 0 -- Commissions (82) (112) 27% Asset management, distribution and administration fees (121) (127) 5% Interest and dividends (75) (39) (92%) Other (29) (25) (16%) ------------ ------------ Total revenues (307) (303) (1%) Interest expense (75) (39) (92%) ------------ ------------ Net revenues (232) (264) 12% ------------ ------------ Total non-interest expenses (325) (359) 9% ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 93 95 (2%) Income tax expense 39 31 26% ------------ ------------ Net income $ 54 $ 64 (16%) ============ ============ F-8 - ---------------------------------------------------------------------- MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Total assets (millions) $ 580,632 $ 516,772 12% Adjusted assets (1) $ 392,820 $ 361,517 9% Period end common shares outstanding(millions) 1,088.1 1,093.1 -- Book value per common share $ 21.79 $ 19.59 11% Shareholders' equity (millions) (2) $ 26,517 $ 22,626 17% Total capital (millions) (3) $ 78,241 $ 66,631 17% Worldwide employees 52,205 57,799 (10%) Average Daily 99%/One-Day Value-at-Risk ("VaR") (4) Primary Market Risk Category ($ millions, pre-tax) Interest rate and credit spread $ 42 $ 45 Equity price 25 22 Foreign exchange rate 7 7 Commodity price 27 22 Aggregate trading VaR $ 54 $ 54 - -------------------------- (1) Represents total assets less assets attributable to matched resale agreements, certain securities borrowed transactions and segregated customer cash balances. See page F-18 for further information. (2) Includes preferred and common equity and preferred securities subject to mandatory redemption. (3) Includes preferred and common equity, preferred securities subject to mandatory redemption, capital units and the non-current portion of long-term debt. (4) 99%/One-Day VaR represents the loss amount that one would not expect to exceed, on average, more than one time every one hundred trading days in the Company's Institutional trading positions if the portfolio were held constant for a one day period. The Company's VaR incorporates substantially all financial instruments generating market risk that are managed by the Company's Institutional trading businesses. For a further discussion of the calculation of VaR and the limitations of the Company's VaR methodology, see Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk" in the firm's Annual Report on Form 10-K for the fiscal year ended November 30, 2002. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Total assets (millions) $ 580,632 $ 586,881 (1%) Adjusted assets (1) $ 392,820 $ 406,977 (3%) Period end common shares outstanding(millions) 1,088.1 1,086.7 -- Book value per common share $ 21.79 $ 20.83 5% Shareholders' equity (millions) (2) $ 26,517 $ 25,341 5% Total capital (millions) (3) $ 78,241 $ 78,665 (1%) Worldwide employees 52,205 53,507 (2%) Average Daily 99%/One-Day Value-at-Risk ("VaR") (4) Primary Market Risk Category ($ millions, pre-tax) Interest rate and credit spread $ 42 $ 41 Equity price 25 23 Foreign exchange rate 7 11 Commodity price 27 27 Aggregate trading VaR $ 54 $ 54 - -------------------------- (1) Represents total assets less assets attributable to matched resale agreements, certain securities borrowed transactions and segregated customer cash balances. See page F-18 for further information. (2) Includes preferred and common equity and preferred securities subject to mandatory redemption. (3) Includes preferred and common equity, preferred securities subject to mandatory redemption, capital units and the non-current portion of long-term debt. (4) 99%/One-Day VaR represents the loss amount that one would not expect to exceed, on average, more than one time every one hundred trading days in the Company's Institutional trading positions if the portfolio were held constant for a one day period. The Company's VaR incorporates substantially all financial instruments generating market risk that are managed by the Company's Institutional trading businesses. For a further discussion of the calculation of VaR and the limitations of the Company's VaR methodology, see Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk" in the firm's Annual Report on Form 10-K for the fiscal year ended November 30, 2002. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-9 - ---------------------------------------------------------------------- MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Institutional Securities Advisory revenue (millions) $ 130 $ 149 (13%) Underwriting revenue (millions) $ 388 $ 250 55% Sales and trading net revenue (millions) (1) Equity $ 830 $ 1,052 (21%) Fixed income $ 1,462 $ 697 110% Mergers and acquisitions announced trans (2) Morgan Stanley global market volume (billions) $ 88.1 $ 126.9 Rank 5 4 Worldwide equity and related issues (2) Morgan Stanley global market volume (billions) $ 22.4 $ 13.7 Rank 3 5 Individual Investor Group Global financial advisors 11,326 13,590 (17%) Total client assets (billions) $ 544 $ 520 5% Fee-based client account assets (billions) (3) $ 122 $ 107 14% Fee-based assets as a % of client assets 22% 21% Domestic retail locations 525 649 (19%) - -------------------------- (1) Includes principal trading, commissions and net interest revenue. (2) Source: Thomson Financial Securities Data - January 1 to August 31, 2003. (3) Represents the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Financial Information and Statistical Data (unaudited) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Institutional Securities Advisory revenue (millions) $ 130 $ 141 (8%) Underwriting revenue (millions) $ 388 $ 321 21% Sales and trading net revenue (millions) (1) Equity $ 830 $ 865 (4%) Fixed income $ 1,462 $ 1,282 14% Mergers and acquisitions announced trans (2) Morgan Stanley global market volume (billions) $ 88.1 $ 48.4 Rank 5 6 Worldwide equity and related issues (2) Morgan Stanley global market volume (billions) $ 22.4 $ 13.5 Rank 3 2 Individual Investor Group Global financial advisors 11,326 11,644 (3%) Total client assets (billions) $ 544 $ 532 2% Fee-based client account assets (billions) (3) $ 122 $ 113 8% Fee-based assets as a % of client assets 22% 21% Domestic retail locations 525 547 (4%) - -------------------------- (1) Includes principal trading, commissions and net interest revenue. (2) Source: Thomson Financial Securities Data - January 1 to August 31, 2003. (3) Represents the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Financial Information and Statistical Data (unaudited) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Institutional Securities Advisory revenue (millions) $ 437 $ 690 (37%) Underwriting revenue (millions) $ 1,044 $ 894 17% Sales and trading net revenue (millions) (1) Equity $ 2,672 $ 2,907 (8%) Fixed income $ 4,379 $ 2,657 65% - -------------------------- (1) Includes principal trading, commissions and net interest revenue. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-10 - ---------------------------------------------------------------------- MORGAN STANLEY Statistical Data (unaudited) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment Management ($ billions) Net flows Retail $ 4.9 $ (0.7) * Institutional (2.1) 0.0 * ------------ ------------ Net flows excluding money markets 2.8 (0.7) * ------------ ------------ Money markets 0.2 1.0 (80%) Assets under management or supervision by distribution channel Retail $ 268 $ 260 3% Institutional 165 164 1% ------------ ------------ Total $ 433 $ 424 2% ============ ============ Assets under management or supervision by asset class Equity $ 189 $ 175 8% Fixed income 123 127 (3%) Money market 66 66 -- Other (1) 55 56 (2%) ------------ ------------ Total $ 433 $ 424 2% ============ ============ - -------------------------- (1) Includes Alternative Investments. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Statistical Data (unaudited) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Investment Management ($ billions) Net flows Retail $ 4.9 $ 1.2 * Institutional (2.1) (4.0) 48% ------------ ------------ Net flows excluding money markets 2.8 (2.8) * ------------ ------------ Money markets 0.2 (2.6) 108% Assets under management or supervision by distribution channel Retail $ 268 $ 259 3% Institutional 165 162 2% ------------ ------------ Total $ 433 $ 421 3% ============ ============ Assets under management or supervision by asset class Equity $ 189 $ 174 9% Fixed income 123 127 (3%) Money market 66 65 2% Other (1) 55 55 -- ------------ ------------ Total $ 433 $ 421 3% ============ ============ - -------------------------- (1) Includes Alternative Investments. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Statistical Data (unaudited) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment Management ($ billions) Net flows Retail $ 5.6 $ 2.1 * Institutional (8.6) (1.2) * ------------ ------------ Net flows excluding money markets (3.0) 0.9 * ------------ ------------ Money markets (3.3) (4.3) 23% - -------------------------- Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-11 - ---------------------------------------------------------------------- MORGAN STANLEY Financial Information and Statistical Data (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Credit Services Owned credit card loans Period end $ 18,106 $ 21,452 (16%) Average $ 18,600 $ 20,083 (7%) Managed credit card loans (1) Period end $ 49,965 $ 49,677 1% Average $ 50,663 $ 49,344 3% Interest yield 11.94% 12.86% (92 bp) Interest spread 8.91% 8.91% 0 bp Net charge-off rate 6.90% 6.07% 83 bp Delinquency rate (over 30 days) 6.05% 5.72% 33 bp Delinquency rate (over 90 days) 2.91% 2.49% 42 bp Transaction volume (billions) $ 24.8 $ 24.3 2% Accounts (millions) 46.3 46.2 -- Active accounts (millions) 21.3 22.8 (7%) Average receivables per average active account (actual $) $ 2,348 $ 2,145 9% Securitization gain $ (9) $ (3) * - -------------------------- (1) Includes owned and securitized credit card loans. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Financial Information and Statistical Data (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Credit Services Owned credit card loans Period end $ 18,106 $ 18,465 (2%) Average $ 18,600 $ 19,120 (3%) Managed credit card loans (1) Period end $ 49,965 $ 50,880 (2%) Average $ 50,663 $ 51,174 (1%) Interest yield 11.94% 11.97% (3 bp) Interest spread 8.91% 8.78% 13 bp Net charge-off rate 6.90% 6.50% 40 bp Delinquency rate (over 30 days) 6.05% 6.21% (16 bp) Delinquency rate (over 90 days) 2.91% 3.01% (10 bp) Transaction volume (billions) $ 24.8 $ 24.0 3% Accounts (millions) 46.3 46.4 -- Active accounts (millions) 21.3 21.8 (2%) Average receivables per average active account (actual $) $ 2,348 $ 2,319 1% Securitization gain $ (9) $ 11 * - -------------------------- (1) Includes owned and securitized credit card loans. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Financial Information and Statistical Data (unaudited, dollars in millions) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Credit Services Owned credit card loans Period end $ 18,106 $ 21,452 (16%) Average $ 19,991 $ 20,333 (2%) Managed credit card loans (1) Period end $ 49,965 $ 49,677 1% Average $ 51,537 $ 49,701 4% Interest yield 11.90% 12.71% (81 bp) Interest spread 8.69% 8.75% (6 bp) Net charge-off rate 6.52% 6.28% 24 bp Delinquency rate (over 30 days) 6.05% 5.72% 33 bp Delinquency rate (over 90 days) 2.91% 2.49% 42 bp Transaction volume (billions) $ 74.9 $ 72.0 4% Accounts (millions) 46.3 46.2 -- Active accounts (millions) 21.3 22.8 (7%) Average receivables per average active account (actual $) $ 2,333 $ 2,109 11% Securitization gain $ 37 $ 16 131% - -------------------------- (1) Includes owned and securitized credit card loans. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-12 - ---------------------------------------------------------------------- MORGAN STANLEY The following page (F-13) presents more detailed financial information regarding the results of operations for the combined institutional securities, individual investor group and investment management businesses. Morgan Stanley believes that a combined presentation is informative due to certain synergies among these businesses, as well as to facilitate comparisons of the Company's results with those of other companies in the financial services industry that have securities and asset management businesses. Morgan Stanley provides this type of presentation for its credit services activities page (F-14) in order to provide helpful comparison to other credit card issuers. - ---------------------------------------------------------------------- MORGAN STANLEY Inst'l Securities, Individual Investor Group and Investment Mgm't (1) Combined Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 608 $ 470 29% Principal transactions: Trading 2,105 469 * Investments 38 (64) * Commissions 775 854 (9%) Asset management, distribution and administration fees 956 969 (1%) Interest and dividends 3,029 3,730 (19%) Other 96 207 (54%) ------------ ------------ Total revenues 7,607 6,635 15% Interest expense 3,187 2,926 9% ------------ ------------ Net revenues 4,420 3,709 19% ------------ ------------ Compensation and benefits 1,746 1,858 (6%) Occupancy and equipment 170 180 (6%) Brok., clearing and exchange fees 212 207 2% Info processing and communications 227 247 (8%) Marketing and business development 108 139 (22%) Professional services 218 211 3% Other 154 214 (28%) ------------ ------------ Total non-interest expenses 2,835 3,056 (7%) ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 1,585 653 143% Income tax expense 454 230 97% Div. on pref. securities subject to mandatory redemption 47 21 124% ------------ ------------ Net income $ 1,084 $ 402 * ============ ============ Comp & benefits as a % of net rev. 40% 50% Non-comp expenses as a % of net rev. 25% 32% Pre-tax profit margin (2) 35% 17% After-tax profit margin (3) 25% 11% Number of employees (4) 37,493 42,585 (12%) - -------------------------- (1) Includes the elimination of intersegment activity. (2) Income before taxes, less dividends on preferred securities as a % of net revenues. (3) Net income as a % of net revenues. (4) Includes Institutional Securities, Individual Investor Group, Investment Management and Infrastructure/Company areas. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Inst'l Securities, Individual Investor Group and Investment Mgm't (1) Combined Income Statement Information (unaudited, dollars in millions) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Investment banking $ 608 $ 536 13% Principal transactions: Trading 2,105 1,583 33% Investments 38 59 (36%) Commissions 775 709 9% Asset management, distribution and administration fees 956 881 9% Interest and dividends 3,029 3,159 (4%) Other 96 113 (15%) ------------ ------------ Total revenues 7,607 7,040 8% Interest expense 3,187 2,873 11% ------------ ------------ Net revenues 4,420 4,167 6% ------------ ------------ Compensation and benefits 1,746 2,071 (16%) Occupancy and equipment 170 176 (3%) Brok., clearing and exchange fees 212 202 5% Info processing and communications 227 234 (3%) Marketing and business development 108 122 (11%) Professional services 218 196 11% Other 154 553 (72%) ------------ ------------ Total non-interest expenses 2,835 3,554 (20%) ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 1,585 613 * Income tax expense 454 164 * Div. on pref. securities subject to mandatory redemption 47 40 18% ------------ ------------ Net income $ 1,084 $ 409 * ============ ============ Comp & benefits as a % of net rev. 40% 50% Non-comp expenses as a % of net rev. 25% 36% Pre-tax profit margin (2) 35% 14% After-tax profit margin (3) 25% 10% Number of employees (4) 37,493 38,031 (1%) - -------------------------- (1) Includes the elimination of intersegment activity. (2) Income before taxes, less dividends on preferred securities as a % of net revenues. (3) Net income as a % of net revenues. (4) Includes Institutional Securities, Individual Investor Group, Investment Management and Infrastructure/Company areas. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Inst'l Securities, Individual Investor Group and Investment Mgm't (1) Combined Income Statement Information (unaudited, dollars in millions) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Investment banking $ 1,733 $ 1,807 (4%) Principal transactions: Trading 5,244 2,297 128% Investments 75 (47) * Commissions 2,157 2,531 (15%) Asset management, distribution and administration fees 2,733 3,030 (10%) Interest and dividends 9,471 10,302 (8%) Other 299 519 (42%) ------------ ------------ Total revenues 21,712 20,439 6% Interest expense 8,549 8,193 4% ------------ ------------ Net revenues 13,163 12,246 7% ------------ ------------ Compensation and benefits 6,154 6,199 (1%) Occupancy and equipment 522 552 (5%) Brok., clearing and exchange fees 605 566 7% Info processing and communications 689 735 (6%) Marketing and business development 339 413 (18%) Professional services 588 576 2% Other 932 521 79% ------------ ------------ Total non-interest expenses 9,829 9,562 3% ------------ ------------ Income before taxes and dividends on preferred securities subject to mandatory redemption 3,334 2,684 24% Income tax expense 1,009 932 8% Div. on pref. securities subject to mandatory redemption 109 65 68% ------------ ------------ Net income $ 2,216 $ 1,687 31% ============ ============ Comp & benefits as a % of net rev. 47% 51% Non-comp expenses as a % of net rev. 28% 27% Pre-tax profit margin (2) 25% 21% After-tax profit margin (3) 17% 14% - -------------------------- (1) Includes the elimination of intersegment activity. (2) Income before taxes, less dividends on preferred securities as a % of net revenues. (3) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-13 - ---------------------------------------------------------------------- MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 523 $ 525 -- Servicing 0 0 -- Other 19 25 (24%) ------------ ------------ Total non-interest revenues 542 550 (1%) Interest revenue 1,576 1,643 (4%) Interest expense 391 483 (19%) ------------ ------------ Net interest income 1,185 1,160 2% Provision for consumer loan losses 893 777 15% ------------ ------------ Net credit income 292 383 (24%) ------------ ------------ Net revenues 834 933 (11%) ------------ ------------ Compensation and benefits 192 206 (7%) Occupancy and equipment 21 18 17% Info processing and communications 86 94 (9%) Marketing and business development 91 146 (38%) Professional services 65 62 5% Other 87 91 (4%) ------------ ------------ Total non-interest expenses 542 617 (12%) ------------ ------------ Income before taxes 292 316 (8%) Income tax expense 107 107 -- ------------ ------------ Net income $ 185 $ 209 (11%) ============ ============ Comp & benefits as a % of net rev. 23% 22% Non-comp expenses as a % of net rev. 42% 44% Pre-tax profit margin (1) 35% 34% After-tax profit margin (2) 22% 22% Number of employees 14,712 15,214 (3%) - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Quarter Ended % Aug 31, 2003 May 31, 2003 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 523 $ 524 -- Servicing 0 0 -- Other 19 35 (46%) ------------ ------------ Total non-interest revenues 542 559 (3%) Interest revenue 1,576 1,592 (1%) Interest expense 391 410 (5%) ------------ ------------ Net interest income 1,185 1,182 -- Provision for consumer loan losses 893 857 4% ------------ ------------ Net credit income 292 325 (10%) ------------ ------------ Net revenues 834 884 (6%) ------------ ------------ Compensation and benefits 192 203 (5%) Occupancy and equipment 21 19 11% Info processing and communications 86 82 5% Marketing and business development 91 128 (29%) Professional services 65 63 3% Other 87 87 -- ------------ ------------ Total non-interest expenses 542 582 (7%) ------------ ------------ Income before taxes 292 302 (3%) Income tax expense 107 112 (4%) ------------ ------------ Net income $ 185 $ 190 (3%) ============ ============ Comp & benefits as a % of net rev. 23% 23% Non-comp expenses as a % of net rev. 42% 43% Pre-tax profit margin (1) 35% 34% After-tax profit margin (2) 22% 21% Number of employees 14,712 15,476 (5%) - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. MORGAN STANLEY Credit Services Income Statement Information (unaudited, dollars in millions) (Managed loan basis) Nine Months Ended % Aug 31, 2003 Aug 31, 2002 Change ------------ ------------ ------ Fees: Merchant and cardmember $ 1,594 $ 1,568 2% Servicing 0 0 -- Other 108 77 40% ------------ ------------ Total non-interest revenues 1,702 1,645 3% Interest revenue 4,748 4,868 (2%) Interest expense 1,242 1,462 (15%) ------------ ------------ Net interest income 3,506 3,406 3% Provision for consumer loan losses 2,592 2,421 7% ------------ ------------ Net credit income 914 985 (7%) ------------ ------------ Net revenues 2,616 2,630 (1%) ------------ ------------ Compensation and benefits 609 595 2% Occupancy and equipment 60 52 15% Info processing and communications 256 265 (3%) Marketing and business development 372 368 1% Professional services 179 172 4% Other 256 299 (14%) ------------ ------------ Total non-interest expenses 1,732 1,751 (1%) ------------ ------------ Income before taxes 884 879 1% Income tax expense 327 310 5% ------------ ------------ Net income $ 557 $ 569 (2%) ============ ============ Comp & benefits as a % of net rev. 23% 23% Non-comp expenses as a % of net rev. 43% 44% Pre-tax profit margin (1) 34% 33% After-tax profit margin (2) 21% 22% - -------------------------- (1) Income before taxes as a % of net revenues. (2) Net income as a % of net revenues. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-14 - ---------------------------------------------------------------------- MORGAN STANLEY The following pages (F-15 - F-17) present a reconciliation for certain information disclosed on pages F-7, F-12 and F-14. The data is presented on both a "managed" loan basis and as reported under generally accepted accounting principles ("owned" loan basis). Managed loan data assumes that the Company's securitized loan receivables have not been sold and presents the results of securitized loan receivables in the same manner as the Company's owned loans. The Company operates its Credit Services business and analyzes its financial performance on a managed basis. Accordingly, underwriting and servicing standards are comparable for both owned and securitized loans. The Company believes that managed loan information is useful to investors because it provides information regarding the quality of loan origination and credit performance of the entire managed portfolio and allows investors to understand the related credit risks inherent in owned loans and retained interests in securitizations. In addition, investors often request information on a managed basis, which provides a more meaningful comparison to industry competitors. MORGAN STANLEY Financial Information and Statistical Data (1) (unaudited, dollars in millions) Quarter Ended Aug 31, 2003 --------------------------------------------------------- General Purpose Credit Card Loans: Delinquency Rate Net ------------ Period Interest Interest Charge- 30 90 End Avg Yield Spread offs Days Days -------- -------- -------- -------- -------- ------ ----- Owned $ 18,106 $ 18,600 10.28% 6.05% 6.26% 5.28% 2.54% Securitized 31,859 32,063 12.91% 10.52% 7.26% 6.48% 3.12% -------- -------- Managed $ 49,965 $ 50,663 11.94% 8.91% 6.90% 6.05% 2.91% ======== ======== Quarter Ended Aug 31, 2002 --------------------------------------------------------- General Purpose Credit Card Loans: Delinquency Rate Net ------------ Period Interest Interest Charge- 30 90 End Avg Yield Spread offs Days Days -------- -------- -------- -------- -------- ------ ----- Owned $ 21,452 $ 20,083 12.09% 6.68% 6.07% 5.37% 2.38% Securitized 28,225 29,261 13.40% 10.41% 6.07% 5.98% 2.57% -------- -------- Managed $ 49,677 $ 49,344 12.86% 8.91% 6.07% 5.72% 2.49% ======== ======== Quarter Ended May 31, 2003 --------------------------------------------------------- General Purpose Credit Card Loans: Delinquency Rate Net ------------ Period Interest Interest Charge- 30 90 End Avg Yield Spread offs Days Days -------- -------- -------- -------- -------- ------ ----- Owned $ 18,465 $ 19,120 10.57% 6.28% 5.92% 5.27% 2.56% Securitized 32,415 32,054 12.81% 10.23% 6.84% 6.74% 3.27% -------- -------- Managed $ 50,880 $ 51,174 11.97% 8.78% 6.50% 6.21% 3.01% ======== ======== - -------------------------- (1) The tables provide a reconciliation of certain managed and owned basis statistical data (period-end and average loan balances, interest yield, interest spread, net charge-off rates, and 30- and 90-day delinquency rates) for the periods indicated. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-15 - ---------------------------------------------------------------------- MORGAN STANLEY Financial Information and Statistical Data (1) (unaudited, dollars in millions) Nine Months Ended Aug 31, 2003 --------------------------------------------------------- General Purpose Credit Card Loans: Delinquency Rate Net ------------ Period Interest Interest Charge- 30 90 End Avg Yield Spread offs Days Days -------- -------- -------- -------- -------- ------ ----- Owned $ 18,106 $ 19,991 10.00% 5.64% 5.90% 5.28% 2.54% Securitized 31,859 31,546 13.10% 10.56% 6.91% 6.48% 3.12% -------- -------- Managed $ 49,965 $ 51,537 11.90% 8.69% 6.52% 6.05% 2.91% ======== ======== Nine Months Ended Aug 31, 2002 --------------------------------------------------------- General Purpose Credit Card Loans: Delinquency Rate Net ------------ Period Interest Interest Charge- 30 90 End Avg Yield Spread offs Days Days -------- -------- -------- -------- -------- ------ ----- Owned $ 21,452 $ 20,333 11.15% 5.79% 6.14% 5.37% 2.38% Securitized 28,225 29,368 13.79% 10.75% 6.37% 5.98% 2.57% -------- -------- Managed $ 49,677 $ 49,701 12.71% 8.75% 6.28% 5.72% 2.49% ======== ======== - -------------------------- (1) The tables provide a reconciliation of certain managed and owned basis statistical data (period-end and average loan balances, interest yield, interest spread, net charge-off rates, and 30- and 90-day delinquency rates) for the periods indicated. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-16 - ---------------------------------------------------------------------- MORGAN STANLEY Reconciliation of Managed Income Statement Data (1) (unaudited, dollars in millions) Quarter Ended Nine Months Ended Aug 31, Aug 31, May 31, Aug 31, Aug 31, 2003 2002 2003 2003 2002 -------- -------- -------- ---------- --------- Merchant and cardmember fees: Owned $ 340 $ 359 $ 339 $ 1,042 $ 1,048 Securitization Adj. 183 166 185 552 520 -------- -------- -------- ---------- --------- Managed $ 523 $ 525 $ 524 $ 1,594 $ 1,568 ======== ======== ======== ========== ========= Servicing fees: Owned $ 462 $ 510 $ 503 $ 1,532 $ 1,556 Securitization Adj. (462) (510) (503) (1,532) (1,556) -------- -------- -------- ---------- --------- Managed $ 0 $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ========== ========= Other: Owned $ 18 $ 12 $ 5 $ 20 $ 31 Securitization Adj. 1 13 30 88 46 -------- -------- -------- ---------- --------- Managed $ 19 $ 25 $ 35 $ 108 $ 77 ======== ======== ======== ========== ========= Interest revenue: Owned $ 515 $ 646 $ 543 $ 1,604 $ 1,801 Securitization Adj. 1,061 997 1,049 3,144 3,067 -------- -------- -------- ---------- --------- Managed $1,576 $1,643 $1,592 $ 4,748 $ 4,868 ======== ======== ======== ========== ========= Interest expense: Owned $ 191 $ 262 $ 197 $ 627 $ 789 Securitization Adj. 200 221 213 615 673 -------- -------- -------- ---------- --------- Managed $ 391 $ 483 $ 410 $ 1,242 $ 1,462 ======== ======== ======== ========== ========= Provision for consumer loan losses: Owned $ 310 $ 332 $ 309 $ 955 $ 1,017 Securitization Adj. 583 445 548 1,637 1,404 -------- -------- -------- ---------- --------- Managed $ 893 $ 777 $ 857 $ 2,592 $ 2,421 ======== ======== ======== ========== ========= - -------------------------- (1) The tables provide a reconciliation of certain managed and owned basis income statement data (merchant and cardmember fees, servicing fees, other revenue, interest revenue, interest expense and provision for consumer loan losses) for the periods indicated. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-17 - ---------------------------------------------------------------------- MORGAN STANLEY The following page (F-18) presents a reconciliation of adjusted assets. Balance sheet leverage ratios are one indicator of capital adequacy when viewed in the context of a company's overall liquidity and capital policies. The Company views the adjusted leverage ratio as a more relevant measure of financial risk when comparing financial services firms and evaluating leverage trends. This ratio is adjusted to reflect the low-risk nature of assets attributable to matched resale agreements, certain securities borrowed transactions and segregated customer cash balances. In addition, the adjusted leverage ratio reflects the deduction from shareholders' equity of the amount of equity used to support goodwill, as the Company does not view this amount of equity as available to support its risk capital needs. MORGAN STANLEY Reconciliation of Adjusted Assets (unaudited, dollars in millions, except ratios) Quarter Ended Aug 31, Aug 31, May 31, 2003 2002 2003 ----------- ----------- ----------- Total assets $ 580,632 $ 516,772 $ 586,881 Less: Lesser of securities purchased under agreements to resell or securities sold under agreements to repurchase (74,271) (65,512) (71,374) Assets recorded under certain provisions of SFAS No. 140 (28,920) (10,634) (24,837) Lesser of securities borrowed or securities loaned (57,490) (45,567) (55,388) Segregated customer cash and securities balances (25,670) (32,095) (26,829) Goodwill (1,461) (1,447) (1,476) ----------- ----------- ----------- Adjusted assets $ 392,820 $ 361,517 $ 406,977 =========== =========== =========== Shareholders' equity $ 23,707 $ 21,416 $ 22,631 Preferred securities subject to mandatory redemption 2,810 1,210 2,710 ----------- ----------- ----------- Subtotal 26,517 22,626 25,341 Less: Goodwill (1,461) (1,447) (1,476) ----------- ----------- ----------- Tangible shareholders' equity $ 25,056 $ 21,179 $ 23,865 =========== =========== =========== Leverage ratio (1) 23.2x 24.4x 24.6x =========== =========== =========== Adjusted leverage ratio (2) 15.7x 17.1x 17.1x =========== =========== =========== - -------------------------- (1) Leverage ratio equals total assets divided by tangible shareholders' equity. (2) Adjusted leverage ratio equals adjusted total assets divided by tangible shareholders' equity. Note: Certain reclassifications have been made to prior period amounts to conform to the current presentation. F-18 CONTACT: Morgan Stanley, New York Investor Relations: William Pike, 212-761-0008 or Media Relations: Raymond O'Rourke, 212-761-4262 EX-99 4 a4477696ex992.txt MORGAN STANLEY EXHIBIT September 23, 2003 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 RE: Morgan Stanley Current Report on Form 8-K Commission File No. 1-11758 ------------------------------------------------ Ladies and Gentlemen: Attached for filing by Morgan Stanley (the "Company") pursuant to the Securities Exchange Act of 1934 is the Company's Current Report on Form 8-K, dated September 23, 2003 including all exhibits thereto. Very truly yours, /s/ Peter G. Albero ------------------------------ Peter G. Albero Executive Director (212) 537-2404 Enclosures cc: Ronald T. Carman, Esq. -----END PRIVACY-ENHANCED MESSAGE-----