Key questions from the fourth quarter earnings call conducted by Morgan Stanley on September 19, 2007.

Mike Mayo (Deutsche Bank): You said $726 million of the $940 million loan writedown was on the $31 billion in the pipeline, so that is a 4% writedown on the pipeline. Is that correct?

David Sidwell: Yes, on the $31 billion of pipeline, we took $726 million of losses, and that is as we had said, net of fees, so the gross mark was $1.2 billion.

Mike Mayo (Deutsche Bank): Would the other remaining portion be what was on your balance sheet?

David Sidwell: Our policy is to mark-to-market all loans and commitments. We wanted to make sure we focused on the leveraged lending and specifically on the pipeline. In addition to leveraged lending, we have a large relationship lending business where in the quarter we also took losses. In addition and offsetting that earlier in the quarter there was a positive P&L from commitments that closed and cleared the market on the LAF side.

Mike Mayo (Deutsche Bank): You mentioned ineffective hedges. How large were the hedging losses and in what area?

David Sidwell: That is not a comment in connection with the lending and acquisition finance pipeline. That is where we were talking about the sales and trading results in the credit markets overall and saying that when you look at the markets in the third quarter, you see a number of factors widening credit spreads. You also see the impact of a lack of liquidity and one of the impacts is the normal relationships between various parts of the capital structure broke down in the quarter and we saw that we had the senior parts of capital structures more impacted than we would have expected, and that is basically what we mean by hedging. The economic hedging, a part of our sales and trading activities in credit products, shows up in fixed income sales and trading.

Mike Mayo (Deutsche Bank): When you talk about corporate credit and securitized sales and trading having declined from $1.3 billion to $260 million, is that where you are seeing the impact?

David Sidwell: Yes.

Mike Mayo (Deutsche Bank): What would be a normal rate for that one line item, or how much of that would you perceive as unusual?

David Sidwell: The second quarter of this year was a record. The credit markets have been a large and successful business for us, including both the origination securitization and trading. It is included in our fixed income results, and quarter by quarter some parts in fixed income do better than others, so if you are trying to look at trends, you should look at the overall fixed income sales and trading line.

Mike Mayo (Deutsche Bank): Prime brokerage did better than expected. It is surprising in this environment. Are you gaining share, or what is going on there?

David Sidwell: We are a leading prime broker. We did see the level of balances increase in the early part of the quarter before they came off. We have good relationships with our prime brokerage clients, and we saw the benefit of that this quarter.

Mike Mayo (Deutsche Bank): You must be gaining share from Bear Stearns. What would your response be?

David Sidwell: We do not want to get into who we gain, who we lose share to.

Roger Freeman (Lehman Brothers): There were reports during August that you were down $500 million in the equity business, and it seemed like that is where you ended the quarter as well. What the peak of that decline was and how much you gained back?

David Sidwell: The 480 is the performance for the quarter. It is across a number of groups that have quantitative strategies. The number was higher. We did gain some of that back, and what is most important, we gained it back on reduced positions.

Roger Freeman (Lehman Brothers): Did you pull back from the strategy that would have limited some of the ability to fall back because the back half of the month was better?

David Sidwell: At the peak we made a decision that we did not like the overall level of risk that we had in these strategies and while if you look over time these have been profitable strategies, we wanted to reflect the market conditions in August and as a result we significantly reduced those positions. The revenues we generated after the deleveraging were based on lower positions.

Roger Freeman (Lehman Brothers): Can you give the total impact of marks across the entire fixed income business and leveraged lending in the quarter?

David Sidwell: We will give a lot more disclosure on the Level 3 information when we file the 10-Q. For example in the residential and commercial mortgage business, we use a variety of instruments, some of which are liquid and so would be in Level 1. Some have models with observable inputs which would fall into Level 2 and then we have other instruments that fall into Level 3. In any of our trading strategies, we tend to utilize products that are in a variety of levels of disclosure. Overall, our residential mortgage business in the quarter did make money. It made less money in revenue terms than it had in the second quarter, but it was still positive. The disclosures that we make in our Q, you will see there was an increase in the marks in the Level 3 but that was offset then by reduced, or losses, in other levels of our fair value.

Roger Freeman (Lehman Brothers): Can you talk about the implications of marking some of your structured debt to market in terms of does that have an implication for higher interest expense going forward, as you have to amortize that gain?

David Sidwell: Anything that we mark-to-market will reflect the mark in the period that we are in, so if you think about our structured notes, where we fair value those notes, given what happened to credit spreads broadly and to Morgan Stanley specifically where our credit spreads widened during the quarter, the liability which is represented by those structured notes, given the widening in our credit spread, we take a gain on that. To some degree, that represents that if you wanted to buy back that piece of paper, presumably you would pay less to buy it back because of the counterparty’s view of your credit worthiness. To the extent next quarter credit spreads change that mark will change.

Roger Freeman (Lehman Brothers): If credit spreads compress again, if the credit markets gets loosened up, are you going to see a reversal of that in the fourth quarter?

David Sidwell: If credit spreads tighten, you would expect to see a gain; to the extent they widen further, you would expect to see a loss if credit spreads tighten from where we are and if they widen incremental gains.

Roger Freeman (Lehman Brothers): What is the total amount of the debt that is marked that way?

David Sidwell: We do not have that information.