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A Year of Record Performance

Merrill Lynch reported net earnings of $4.0 billion for 2003 — a record. Our full-year pretax profit margin rose to 28% — also a record. Earnings per diluted share were $4.05, up 54% from $2.63 per share in the prior year. Net revenues were $20.2 billion, up 8% from 2002. Return on average common equity was 16.1%, up from 11.7% in 2002.

We are proud of our performance because our success would not have been possible but for the collective efforts of all 48,100 Merrill Lynch employees. Their commitment to excellence, dedication to serving clients, hard work and determination are what define Merrill Lynch. Together, we have enhanced efficiency throughout the company, creating tremendous operating leverage with a very large percentage of incremental revenues dropping to the bottom line.

An Improving Market in Which to Grow

We finished the year with considerable momentum and an improving business environment, after three years of market declines. Major stock indices rose meaningfully and bond markets remained strong. Corporations reported healthy profits. Across the globe, economies began to grow. There were outstanding opportunities for our clients and for Merrill Lynch. We met those opportunities with a focus on broadening and deepening relationships, diversifying sources of revenue, continuing to invest with discipline and making sure compensation was tied closely to actual performance at every level of the company.

We expect more of ourselves than simply to benefit from a rising market tide. Our goal is to perform well across market cycles. We set a course to reshape Merrill Lynch and diversify our revenue sources. The results of that effort are reflected in the performance of our businesses in 2003.

Global Markets & Investment Banking

In Global Markets & Investment Banking (GMI), we combined our debt and equity sales trading resources into a single global markets unit and we integrated our capital markets origination and advisory capabilities into our investment banking unit. We realigned these businesses to better meet the increasingly sophisticated, interrelated needs of our corporate and institutional clients.

We've broadened our debt markets activities, including credit, principal investments, secured financing and municipal finance. We have significantly enhanced our foreign exchange activities around the world and grown revenues considerably in this area. As a result of these efforts, the revenue profile of our debt business is more balanced and we have more sources of potential growth. These opportunities require relatively little additional investment on our part, but have the potential to produce significant additional revenue.

In equities, we have a long history of success based on a high-touch platform that is considered by many to be the best in the industry. We intend to keep it that way with continued investment of capital, people and management focus. But we also are refining our business model. We've built a growing portfolio of trading businesses and expanded our technology capabilities to better serve those clients requiring more automated trading and investment decision support.

In investment banking, we now are well positioned to provide clients with the full breadth of our strategic advisory and corporate finance capabilities. We are better able to bring in additional services to our existing client relationships and generate growth. Our investment banking revenues gained momentum in 2003 and this business is significantly more profitable than at its peak revenue level in 2000.

Our performance and future prospects in investment banking have never been better. We are taking steps to assure the business continues to grow, targeting a number of new hires — senior bankers in key geographic markets, industries and product areas — to strengthen our leading presence in financial institutions, real estate, energy and power, and to fill gaps in sectors where Merrill Lynch has been underrepresented, such as leveraged finance.

1: Includes after-tax net recoveries related to Sept. 11 of $91 million and net restructuring benefits of $3 million. 2: Includes after-tax research and other settlement-related expenses of $207 million, net recoveries related to Sept. 11 of $126 million, and net restructuring benefits of $42 million. 3: Includes after-tax restructuring and other charges of $1.7 billion and net expenses related to Sept. 11 of $83 million.