Ridge and Taylor arrive home after Steffys Memorial Service. Taylor is visibly upset with tears still streaming down her face and she is clutching an article of clothing that Steffy had worn before the trip. She tells Ridge that Steffy had gotten ketchup all over it and she had scolded her for it. Ridge said that he was sure that Steffy had forgotten all about it minutes after it happened. Taylor thinks back to their time on the boat. She remembers that she had wanted to check on the kids because Steffy was afraid of water, but that Ridge had talked her out of it. Later they are lying in bed and Ridge has his arms wrapped around her and he says that her mother is probably watching over Steffy as her father had said earlier. Taylor said that she wished that it were true. She said that when her mother died, she felt that she was at peace. She said that she doesn't feel that Steffy is at peace and that she needs her. They are interrupted by Phoebe, who wants to be with her mother. Taylor clings to her child. Catherine apologizes and Ridge asks her to take Phoebe back to bed. Taylor said that she would be taking care of her own child and putting her back to bed. She leaves and Catherine and Ridge look a bit flustered.
At Morgan's, the captain arrives to get his money. Morgan said that he would not receive any money until she got her package. He asks to see the money first, which Morgan shows him. He brings in a buggy with Steffy in it. Morgan is extremely happy to see the little girl. She asks him to recount how he managed to obtain Steffy. He explains that he chloroformed her until she stopped struggling and then he put her in a lock box. He said that everyone was looking for the child and then he ripped her jacket and led them to believe that a shark attacked the child. Morgan gives him the money and asks him to leave. He claims to want to help her with the child and maybe something else. He starts kissing her neck and she seems to be into it, when he suddenly bends over in pain. Morgan tells him that the last person, who tried to expose her secrets ended up in Intensive Care and that he would not be that lucky. He grabs the money and runs out. He tells her that she is crazy. Morgan says that she finally has Ridge's child and she tells Steffy to call her Mommy.
Deacon and Little Eric are bonding when Amber comes in and grabs the baby and tells him how much she missed him. Deacon wants to show her what they had been doing. She tells him that she had just been to a child's funeral and that the parents were devastated. She said that they didn't deserve to lose their child, while someone like Deacon was allowed to have his child. She tells him that he leaves things lying around like letter openers, etc. Deacon leaves. He comes back with several bags and asks Amber to help him childproof the apartment. Amber finds his stash of cigarettes and she tells him that he needed to get rid of the cigarettes or she and the baby would leave. Deacon decides to get rid of all of the trash. Amber looks pleased.
Rick stops by for a visit with his mother who shows him a gift she and Thorne bought for Little Eric. She admits her concern for what's happening with Amber and her decision to live with Deacon. Rick stews that she finds it hard to believe that he could have feelings for her. After he leaves, Brooke turns to Bridget to express her concern and mentions that being a bar owner, Deacon's got to be a little slick which she guesses is attractive to Amber. She tells herself that there's probably not much she can do now to break up Amber and Rick. Deacon finds Amber getting the baby ready to go out. He offers to go with her but she explains that she's meeting Rick. As they talk, she asks him if he expects her to fall madly in love with him during her four-month stay at his place. When he suggests that it's one of his hopes, she laughs at the idea which causes Deacon to ask why she insults him so much. Rick arrives and suggests that they bring the baby to his house instead of the park because of the weather but Deacon urges them to stay and play with Little Eric there while he goes downstairs and works. Downstairs, Deacon stuns his staff when he doesn't chastise a waitress for coming in late because of her sick child. He returns to his apartment in time to hear Amber tell Rick that she pities him.
Deacon went to the Insomnia after over hearing Amber's harsh words about him. Her words rang through his mind again. Deacon ran into Stephanie there. He approached her and told her that he had heard about the loss of her granddaughter. Stephanie asked him to join her. She confronted him about his feelings for Amber and warned him that he wouldn't be able to come between Rick and Amber. Deacon questioned Stephanie on whether or not she truly believed that Amber was the right woman for Rick. He made a case for Amber being better off with him because they came from similar backgrounds. Stephanie asked Deacon if he was using the baby to hold onto Amber. He denied it but didn't deny her suggestion that he was in love with Amber and wanted her for himself.
Taylor continued to grieve over the loss of Steffy. Ridge tried to talk to her but she angrily blamed him for their loss. Ridge was shocked to learn that Taylor held him responsible for the death of their daughter. She informed him that if only he hadn't suggested they go to St. Thomas in the first place; and if he hadn't persuaded her to take the boat to the islands in the fog and dark, and if only he had let her check on the girls when she wanted to, then Steffy would still be alive. Ridge tried to reason with Taylor but she just couldn't deal with it right now. She grabbed her coat and told Ridge that she needed to be alone. Alone, Taylor sobbed and cried about how much she missed her daughter.
Morgan read Steffy a story about a little red-headed girl named Stacey, who could no longer be with her parents but who had a fairy godmother in her life. Morgan asked Steffy if she would like to be like Stacey and have a fairy godmother to do fun things with. Steffy asked for her mommy and daddy on more than one occasion, but Morgan tried her best to keep Ridge and Taylor off the little girl's mind. She asked Steffy if she would like to look like Stacey, the little red haired girl in the book. After trying a wig on the little girl, Morgan decided to dye Steffy's hair instead so that no one would recognize her as 'Steffy' any longer. After a trip to the bathroom to color Steffy's hair, the little girl emerged with red hair. Morgan told Steffy to call herself 'Stacey' now.
At the Insomnia Café, Deacon accidentally spilled a cup of espresso on Bridget's pants. Bridget reacted very angry until she looked up at Deacon and found him very attractive. Deacon was personable and sweet and offered Bridget $100.00 dollars to replace her pants. Bridget declined his offer of money, but then asked him if he would buy her a cup of coffee. When they sat down together to drink the coffee, Deacon guessed that Bridget is from Beverly Hills. Bridget was astonished that Deacon knew where she was from. Deacon said her expensive nail job was a dead give away. When Bridget told Deacon that he looked familiar, he joked and said his picture could be found on post office walls. At first, Bridget didn't realize he was joking, then caught on to it. Deacon didn't mention who he was. Deacon asked Bridget if she was waiting for her boyfriend to arrive. He said he didn't want to make her boyfriend angry or jealous. When Deacon began to leave, Bridget blurted out "do you have a girlfriend"? Deacon replied "no, not yet". Bridget remained at the table hoping she would see Deacon again.
Morgan's newly hired babysitter, Norita, who speaks mostly Spanish, arrived to care for Steffy while Morgan was to go to work. Morgan told Norita that the child's name is Stacey, but she likes to be called Steffy at times. Morgan gave Norita explicit orders that Stacey is not to go outside because she is sick. After Morgan left for work, Norita washed Stacey's hair and discovered red dye coming off on the towel.
While Ridge was in his office grieving with a photograph of Steffy in his hand, he was unaware that Brooke was observing him from the doorway. Ridge poured his heart out to Brooke. Ridge told Brooke that Taylor blames him for Steffy's accident. Brooke encouraged Ridge to go home and be with Taylor. She supported Ridge and told him that Taylor will realize that he is not responsible for Steffy's death. When Brooke embraced Ridge to comfort him, Ridge noticed Morgan standing in the doorway. Ridge, very enraged, told Morgan that she no longer works at Forrester. Brooke told him she returned the money from the buy-out of her contract. Ridge demanded that Morgan leave immediately. While he pushed her out of the door, he told her that "you're the reason that my daughter is dead. Taylor and I went to St. Thomas because of what you did to me."
Stephanie went to visit Taylor. Stephanie brought Cappuccino and carrot cake in an effort to cheer Taylor up. Taylor told Stephanie she didn't want anyone to be with her including Ridge. She explained that she blames Ridge for Steffy's death because he didn't think the children needed to be checked on a few minutes prior to the accident. Taylor told Stephanie that she knows her daughter is dead, but her instincts tell her differently and that is why she can't accept that Steffy is dead. Stephanie explained it was because she didn't see Steffy's dead body. Stephanie encouraged Taylor to talk to a psychiatrist. Taylor agreed to do so. When flowers were delivered, Taylor looked at them, then smashed the flowers on the floor. She then fell to the floor crying hysterically.
Rick talked with a college buddy and lamented over the fact that his mother was giving him grief again about Amber. His friend, Charlie, agreed that Rick was too young for marriage and should be concentrating on having fun like other guys his age. Charlie then told Rick about his girlfriend's friend, Amanda, who had a crush on Rick. The two girls were on their way over for a study date with the guys. Rick assured his friend that he still knew how to flirt and have a good time and that he intended to prove it once the girls showed up. Amanda and Jennifer arrived and the four teens flirted. They asked Rick if he lived in his house alone and if he had a girlfriend. Rick avoided the girls' questions.
Deacon told Amber that he had a surprise for her and he showed her a pool table and challenged her to a game. She was about to play, claiming that she practically grew up in a pool haul and could kick his butt, but then she backed off. She told Deacon that she was not about to place this game or any other game with him. She assured him that she was only staying with him because of Little Eric and that there was no way she would fall for him. Deacon tried to point out to her that she and Rick were from different worlds, whereas she and Deacon were from the same side of the tracks. Deacon told Amber that he wanted her and his son in his life but Amber said that would never happen. Then she told Deacon that she intended to move her wedding up to Rick and get married right away.
Taylor met with a psychiatrist friend and colleague to try to help her make peace with the loss of Steffy. Taylor told the doctor how she blamed herself and Ridge for what happened to their daughter. She also commented on how she hadn't been able to let go and accept Steffy's death, but rather, she had hope of her still being alive. The doctor encouraged Taylor to get away for a few days to try to make peace over the loss and get control of her life again.
Over at Forrester Creations, Stephanie barged in on Brooke and Ridge who were working. Stephanie demanded that Ridge get home and be with his wife. Ridge assured his mother that he would love to be at home with his wife, but that she didn't want him there. He told her that he too, was hurting and felt alone because Taylor wouldn't open up to him. Then Ridge shocked his mom by informing her that Morgan was back in LA and back working at Forrester Creations. Stephanie was flabbergasted. She demanded an explanation from Brooke. Brooke informed her mother-in-law that Morgan insisted on her job back or she would sue the company. Brooke explained that she saw no other choice. Stephanie went off in pursuit of Morgan saying that she wasn't about to let Morgan get away with this.
Back at the Forrester guesthouse, the guys went for takeout while the girls discussed Amanda's crush on Rick. They tried to figure out whether or not he had a girlfriend. Just then, Amber came in and was surprised to find the girls in her house. The girls assumed that Amber was Rick's sister, and they filled her in on how much fun they were having hanging out with Rick and Charlie. Then they began to ask Amber questions about Rick, while Amanda admitted that she had the hots for him. Amber was surprised to hear that Rick and Amanda had been flirting all afternoon and that Rick made no mention of having a girlfriend. Just then, Rick and Charlie returned. Rick was shocked to find Amber sitting with the girls.
Stephanie was able to locate papers sent over by the real estate agent that showed Morgan's new address. Stephanie was stunned when she saw that Morgan purchased a large house near Ridge and Taylor's. She took off and went right over there. Just before Stephanie got to the house, Morgan came home and noticed that the nanny appeared upset. When she questioned her, she found the white towel with the red dye stain on it. She tried to explain to the foreign nanny but when she saw the confused and suspicious look on the nanny's face, she decided it was best to fire her. Before she had the chance, she saw Stephanie approaching. She told the nanny to take Steffy upstairs and to keep quiet. Morgan opened the door to a hostile Stephanie who demanded to know what Morgan was up to.