The global economy, corporate profits and the securities market should be stronger in 2004 than in 2003. We expect a more favorable environment, and we should increase our revenues and profits.

We did not reduce headcount in investment banking and in sales and trading as sharply as some competitors in 2001-2003, and we believe this will allow us to serve clients better during the upturn we expect in 2004. The talent and experience of our people will continue to be one of our greatest competitive strengths.

We are adding two exceptional Directors to our Board in early 2004: Sir Howard Davies, Director of the London School of Economics, whom I mentioned earlier, and Dr. Klaus Zumwinkel, Chairman of the Management Board of Deutsche Post AG. These additions will be significant as they mark the transition of our Board to a truly global membership, reflecting the geographic breadth of our business. We will miss Ed Brennan, who left the Board in October after being named Executive Chairman of AMR Corp., and Bob Bauman, who will retire from the Board in April. Our company has benefited from their wise counsel and careful oversight.

Our friend, colleague, and President & COO Robert Scott announced his retirement in October. He is now an Advisory Director and will continue to help us with assignments in a number of key areas. Bob has been with Morgan Stanley for 33 years in a number of different capacities, and no one has served with greater commitment or finer intelligence. He represents the very best qualities of our firm.

Sincerely,

Philip J. Purcell
Chairman & Chief Executive Officer
February 5, 2004