Goldman Sachs Co Financial Services Conference Philip J

Goldman Sachs & Co. Financial Services Conference Philip J. Purcell Chairman & CEO May 13, 2002 Stephen S. Crawford Chief Financial Officer

Sales and Trading Net Revenues ($MM, % Total) 1997 -2001 CAGR: 20% % of Firm Revenues 27% 31% 34% 37% 39% This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 1

Diversification Sales and Trading Net Revenues ($MM, % Total) Equity Fixed Income This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 2

Balance Sheet(1) $MMs Asset Class Total Assets Balance $MMs % of Total $491, 651 Cash and cash equivalents 74, 298 15% 194, 222 40% 158, 846 32% Receivables, net of allowances: 47, 885 10% Other assets, primarily includes: Aircraft, cash collateral, goodwill, office facilities etc. 16, 400 3% Financing transactions, including: Reverse repos and securities borrowed Financial instruments, including: Cash products ($118, 770) Derivative products ($31, 814) Note: (1) As of February 28, 2002 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 3

Financial Instruments – Cash(1) Selected Financial Instruments · Bank Loans: $4. 9 Bn · Private Equity: $900 MM(2) · High Yield: $1. 6 Bn Loans and Commitments Investment Grade 75% 25% Non-Investment Grade Total: $10. 2 Bn Note: (1) As of February 28, 2002 (2) Of which only $250 MM is in inventory This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 4

Financial Instruments – Derivatives(1) Maturity Profile by Counterparty Rating by Product ($MMs) Note: (1) As of February 28, 2002 AAA AA A BBB NIG This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 5

Revenue Drivers · Trading Volumes · Volatility · Primary Activity · Market Direction This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 6

Business Model Lowers Risk Increase Flow Strengthens Client Relationships This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 7

Consolidation and Fragmentation 2001 Passive Funds Top 15 Complexes (Cumulative Share %) (%) Fi de C Van lity ap g R u Pu es ard Fr tn ea an am rc h kl F in Te und M s or mpl ga et o n St n an le y TI Jan AA us -C R EF O pp M en F he S Am im er er ic an AI Ex M T Am. R pre er owe ss ic an Pr C ice en tu r PI y M Al l O CO th er s 2001 Mutual Funds Top 20 BHT SSGA Vanguard Deutsche Mellon Other 2001 Hedge Funds 2001 Separately Managed Accounts (%) (Cumulative Share %) Next 20 Next 60 Source for above charts: Morgan Stanley/Freeman Securities Research Next 535 Brandes Rittenhouse Alliance 1838 Lazard Advisors Other This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 8

Client Service Model · Three customer segments Mutual funds - Hedge funds - Asset owners - · Different value chains Best execution - Enhanced services - Advice - Capital - · One prerequisite: Scale operations This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 9

Execution OTC Market Making Automated Options Market Making Total Number of Stocks n Applied OTC market making technology and strategy to options business n Making markets in 40, 000 instruments, representing 435 names – from standing start in August 1999 n Largely automated operations – handful of traders This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 10

Services and Advice · Analytics · Financing · Settlement · Securities lending · Dedicated trading · Tax and regulatory advice · Technology This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 11

Scale Morgan Stanley Institutional Securities Trading Volume and Cost per Trade (Indexed) Gross Volumes Operations Expenses Cost per Trade This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 12

Research Top Ranked Analysts by Institutional Investor North America II First Teams 2001 n Specialty Chemicals n Medical Supplies & Devices n Data Networking n Cable n Autos & Auto Parts n Publishing & Information n Brokers & Asset Managers Services n Insurance/Nonlife n Radio & TV Broadcasting n Enterprise Software n Internet Infrastructure Europe II First Teams 2002 n Autos & Auto Parts n Luxury Goods n Telecommunications Equipment n Tobacco n Convertibles n Economics/Developed Markets n Equity Strategy/Developed Markets Services Japan II First Teams 2002 n Chemicals n Construction n Metals n Software/Business Global II First Teams 2001 n Autos & Auto Parts n Insurance n Telecommunications Equipment n Equity Strategy Morgan Stanley Proprietary Research Ratings System Pre- 3/18/2002 Ratings: n SB = Strong Buy n O = Outperform n N = Neutral n U = Underperform Ratings as of 3/18/2002: n O or Over = Overweight n E or Equal = Equal-weight n U or Under = Underweight Currently 19% of stocks are ranked Underweight by MWD Analysts This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 13

Relative Returns Annual ROE Comparison (Indexed to MWD) C MWD LEH MER GS JPM Source: Company filings and Morgan Stanley Research This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 14

New NASD and NYSE Rules Provisions Address: · Promises of Favorable Research · Limitations on Relationships and Communications · Analyst Compensation · Firm Compensation · Restrictions on Personal Trading by Analysts · Disclosures of Financial Interests in Covered Companies · Disclosures in Research Reports Regarding the Firm's Ratings · Disclosures During Public Appearances by Analysts This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 15

Value Added By Morgan Stanley Percent of Analysts Beating Passive Portfolio (%) Passive Portfolio Note: Active: Portfolio weighted by Morgan Stanley research recommendations (prior to 3/18/02) Passive: Equal-weighted performance This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 16

Average Return(1) For All IPOs Jan 1, 1999 to May 7, 2002 (%) Source: Thomson Financial Note: (1) Based on difference between offer price and price on 5/7/02 This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 17

Disciplined Underwriting MWD IPO Market Share ($ volume)(1): Total IPO Market Share Internet Industry 1995 -2001 Source: Thomson Financial Note: (1) Deals of $10 MM or more This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 18

Disciplined Underwriting Passed On The IPO. . . 1 -800 -Flowers Network Solutions Buy. com Net. Zero Earthlink Pets. com Excite Startmedia Exodus Theglobe. com Geo. Cites UUNet Infospace USWeb Internet Capital Group Vertical. Net IXL Webvan Lycos Yahoo! This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 19

An Analyst Stands His Ground Qwest Communications Qwest Stock Price ($) Jan. 25, 2001 Morgan Stanley Downgrades June 20, 2001 Morgan Stanley Downgrade Report Qwest: Report is “Hogwash” Aug. 14, 2001 Qwest Reports 12% Increase in Revenues for Quarter Nov. 14, 2001 Qwest Reports Revenue Flat, But Key Areas Growing June 25, 2001 Other Analysts Defend Qwest; Dismiss “Accounting Esoterics” Feb. 13, 2002 Company Announces It will Draw Down $4 Bn Bank Loan Apr. 4, 2002 SEC Announces It Has Begun Formal Investigation of Qwest This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 20

Not Linked to Investment Banking Revenue This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 21

A More Robust Ratings System · · · Note: Revised stock rating system March 18 th, 2002 based on intensive client survey No other firm has made similar wholesale changes in their ratings Underweight 19% Overweight 34% Equal-Weight 47% Number of stocks rated Underweight is more than 2 x major competitors combined(1) Competitors include Bernstein, CSFB, Deutsche Banc, Goldman Sachs, Merrill Lynch, Prudential Securities, and UBS Warburg This slide is part of a presentation by Morgan Stanley and is intended to be viewed as part of that presentation. The presentation is based on information generally available to the public and does not contain any material, non-public information. The presentation has been prepared solely for informational purposes and is neither an offer to sell nor the solicitation of an offer to buy any security or instrument and has not been updated since it was originally presented on May 13, 2002. 22