MORGAN STANLEY INFO

Company Synopsis o President: John Mack Regained helm in 2005 after Purcell was ousted by group of eight o First class business, in a first class way Said by Jack Morgan when they split from JP Morgan in 1935 b/c of the Glass Steagall Act. o Since our inception, we have been dedicated to serving our clients through a relationship based on intimacy, integrity and mutual trust Valuation o $51.97/share o Price fell by 24% in the past five trading days and two analysts on Tuesday predicted the firm faced possible fourth-quarter write-downs of $3 billion to $6 billion. o Earnings 1.38/share o P/E: 8.2 vs Industry: 13 Industry high: 30 o Gross Margin: 34.8 5 YR: 43.8 o Profit Margin: 9.2 5 YR: 10.4 o Fitch and S&P: AAo Revenues in Q3 07 up 21% GWP 62% Institutional securities 17% Asset Management o $0.81 dividend o 324.4% Return since merger in 97 o $739 billion assets under management Recent News o Morgan Stanley, which recently became a lead player in underwriting subprime-mortgage securities, said it has taken a $3.7 billion hit, or $2.5 billion after tax, from its subprime exposures in the first two months of the fourth quarter. o Morgan Stanley ranked No. 1 in underwriting securities backed by subprime mortgages o Morgan Stanley indicated the write-downs were generated by subprime net exposures of $10.4 billion at the end of its third quarter on Aug. 31, which had declined to $6 billion as of Oct. 31 -- a month before the end of the firm's fourth quarter this month. o A "sharp decline" in the market value of asset-backed securities in the first two months of the quarter accounted for the drop in value, Morgan Stanley said, noting that the actual impact for the full quarter will depend on market moves during the rest of this month. The remaining $6 billion exposure, said Morgan Stanley Chief Financial Officer Colm Kelleher, was the most it could lose additionally in a worst-case scenario.

MARKETS AND ECONOMY DOW 13870.26 NASDAQ - 2817 S&P 1540 CREDIT MARKET Fed Funds: 4.50 2YR-10YR: 3.07 3.94 Libor: 5.10 Swap Spreads: 70 bps Prime: 7.50 30YR MTG (fixed): 5.89 5 YR ARM: 5.46 HOUSING New-home sales were 23.3% lower than the level in September 2006 Sales of single-family homes increased 4.8% last month Existing-home sales last month was down 8% from a year earlier Inventories of homes rose 0.4 national median price of existing-homes sold was off 4.2% year-over-year Countrywide expects the housing market to remain weak "at least" through 2008 COMMERCIAL Commercial side of construction, which had remained strong at a time when the residential sector has been tanking, is showing signs of slowing, the Journal notes. FINANCIALS Merrill Lynch Write Downs - $8.4 billion, up from the $5 billion it estimated earlier this month Bank of America, which reported $1.45 billion in quarterly trading losses responsible for a 32% tumble in profit, is forcing out its investment-banking chief and shrinking those operations Bank of America, which reported $1.45 billion in quarterly trading losses responsible for a 32% tumble in profit, is forcing out its investment-banking chief and shrinking those operations DOLLAR Pound = 2.05, Euro = 1.44, CAD = 1.04, Yen = 114/$ OIL Crude prices have surged 27% in the past two months, thanks to the weak dollar and a mlange of supply concerns. trouble between Turkey and rebel Kurds taking refuge in the oil-rich north of Iraq has raised fears of another kink in global production. ECONOMY GDP 3.9% yoy third quarter Growth was solid in the third quarter but likely to slow with the "intensification of the housing correction," the Fed said in its statement Chicago regional manufacturing activity dropped to an eight-month low US Personal Spending 0.6% 0.4% 0.1% US Personal Income 0.3% 0.4% 0.3% US Jobless Claims 331K 330K 327K US ISM Manufacturing 52.0 51.5 50.9

US US US US

Personal Spending 0.6% 0.4% 0.1% Personal Income 0.3% 0.4% 0.3% Jobless Claims 331K 330K 327K ISM Manufacturing 52.0 51.5 50.9

FED.

Fed said, "after this [rate cut], the upside risks to inflation roughly balance the downside risks to growth." Plunging home construction and eroding real-estate values could hit the broader economy, while rising oil and commodity prices, combined with a falling dollar, could spoil the Fed's hopes to contain inflation. The Fed, according to minutes of recent meetings and statements by its policy makers, has expected more pain in the housing market. When judging whether to cut rates again and lower the cost of borrowed money, what it wants to know is how much that pain -- as well as the related pain felt by banks and credit markets -- could undermine employment and consumer spending and the rest of the non-housing economy MY STANCE: 25bps rate cut on 10/29/07 o Futures priced in 100% chance of 25 bps rate cut o Bond yields too low o Dollar has weakened pricing in rate cut o Housing is starting to bleed into other parts of the economy o Existing home sales -8% o Inventories up 0.4% o Median home prices of existing homes -4.2% yoy o Capex down o Durable good orders -1.7% o PCE is in FED comfort zone of 1.8% yoy in August INFLATION PCE: 1.8% yoy August Previous 1.9% "About 40% of our full-year commodity inflation will hit in the fourth quarter," referring to higher costs for wheat, corn and edible oils Oil 94 Gold 792 POLITICS Turkey wont move until they meet with the US next month "unprecedented package of unilateral sanctions against Iran today, including the long-awaited designations of its Revolutionary Guard Corps as a proliferator of weapons of mass destruction and of the elite Quds Force as a supporter of terrorism," o "the first time that the United States has tried to isolate or punish another country's military" o "has long labeled Iran as a state sponsor of terrorism, the decision to single out the Guard reflects increased frustration in the administration with the slow pace of diplomatic negotiations over Tehran's nuclear program." PEOPLE Nicolas Sarkozy President of France, in talks with UN about supporting Iraq Angelo Mozilo: 38 yr CEO Countrywide Financial said they will not go into bankruptcy Stan ONeal: departing CEO Merrill Lynch ($8.4 b write down from est $7.9 & contacting Wachovia to buy Merrill without consultation of board) NEWS 695 square miles burned and 1,609 homes destroyed, with damage estimated by the state Department of Insurance at more than $1 billion

KNOW Print out o Market Data Center from WSJ.com o TOP BOND from Bloomberg DCF or DDR Stock pitch Risk Return Relationship for asset classes Valuation of Equities, Fixed Income, Options and possibly commodities, currency, and real estate o Discounted Cash Flow - DCF o Economic Value Added - EVA o Fundamental Analysis o Intrinsic Value o Price-Earnings Ratio - P/E Ratio o Price-To-Book Ratio - P/B Ratio o Quantitative Analysis o Ratio Analysis o Valuation Re = cost of equity Rd = cost of debt E = market value of the firm's equity D = market value of the firm's debt V=E+D E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate Black-Scholes Model