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Goldman SachsInvestment Strategy Group

“What’s Next for the Economy”

Technology Association of Georgia

May 13, 2008

Economic Outlook

3

U.S. Outlook Scenarios – End 2008(As of April 2008)

This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

Good Case (15%) Central Case (65%) Bad Case (20%)

Real GDP Growth - Q4/Q4 >0.25% -0.25/+0.25% <-0.25%

Monetary Policy 1.75-2.25% 1.25-1.75% <1.25%

10 Year Treasury Bond Yields Yields >4% 3.5 – 4% Yields <3.5%

Inflation (Core CPI) – Q4/Q4 2.5-3% 2.5-3% 2.5-3%

Inflation (Headline CPI) – Q4/Q4 3-3.5% 2.5-3% 2.5-3%

4

U.S. Economic Growth OutlookContributions to GDP Growth - Q4/Q4 (As of May 2008)

17%


Component Share of GDP 2004 2005 2006 2007P ISG Central Case

2008 E

Consumption 70% 2.6% 2.0% 2.4% 1.8% -0.4%

Residential Investment 5% 0.3% 0.3% -0.7% -0.9% -0.5%

Non-Residential Investment 12% 0.8% 0.6% 0.6% 0.8% -0.4%

Change in Inventories 0.3% 0.0% -0.3% -0.2% 0.1%

Government 18% 0.1% 0.2% 0.4% 0.4% 0.4%

Net Trade -5% -1.0% -0.1% 0.4% 0.8% 0.8%

Total 100% 3.1% 2.9% 2.6% 2.7% -0.25%/+0.25%

5

Source: Datastream, Investment Strategy GroupThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department. Past performance is not a guide of future results and the value of the investments and the income derived from them can go down as well as up.

Strains on the households sector have been intensifying over the past months. Most employment measures (e.g. payroll data, hours worked, and the households’ survey) suggest that employment growth is slowing down. (Exhibit 1) At the same time, slowing nominal wage growth and higher food and energy prices are exerting further pressure on real disposable income growth.

Households balance sheets have weakened. The savings rate is close to an all-time low. At the same time, reflecting lower home prices and equity markets, households’ net worth declined for the first time since the third quarter in 2002. (Exhibit 2). Credit conditions are tightening. Both in early 1999 and in early 2005 a step down in the savings rate gave a boost to spending, but, given the weaker state of households’ balance sheets, a large further step down appears unlikely at the moment.

Reflecting these headwinds, consumer confidence indicators have fallen sharply (Exhibit 3). The latest data suggest that consumer spending has flattened; we anticipate that consumer spending will turn down in the months ahead. Mitigating factors could be: a recovery in the stock or housing market, lower commodity prices, stabilization in the labor market.

US Employment and Consumption Weakening

4.0

4.5

5.0

5.5

6.0

6.5

63 67 71 75 79 83 87 91 95 99 03 07

-2

0

2

4

6

8

10

12

14

Net Worth/Disp Income - LHS

Savings Rate - Inverted, RHS

2. Household Net Worth/Personal Disposable Income Ratio vs. Savings Rate (Inverted)

(Through Q1 2008)

123,000

128,000

133,000

138,000

143,000

148,000

97 98 99 00 01 02 03 04 05 06 07

(in th

ou

san

ds)

96

98

100

102

104

106

108

Total Employment Payrolls - LHS

Total Employment Household Survey - LHS

Hours Worked Index - RHS

1. US Labor Market (Through March 2008)

34

54

74

94

114

134

154

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

61

71

81

91

101

111

Conference Board Index (LHS)

U.Michigan Sentiment Index(RHS)

3. US Consumer Confidence(Through March 2008)

6


Residential investment has now been contracting for almost two years, but leading indicators such as new home sales and housing starts suggest that the contraction has still further to go. Thus, residential investment should continue to detract from growth throughout 2008 (Exhibit 1).

The corporate sector is in good shape today - cash balances are high and debt is low as a share of overall corporate assets. As a share of nominal GDP, non- residential investment is also just below its long-term average. Such healthy indicators suggest that a deep contraction in corporate investment spending should be unlikely.

However, profit growth has slowed, implying lower cash flow generation, credit conditions have deteriorated and domestic demand prospects have worsened. Some deceleration in investment spending, therefore, now seems probable. We anticipate capex growth will decline by around 3-4% in 2008, slowing from around +5-6% in 2007. (Exhibit 2)

As in the past, corporate decisions on employment and capital spending will be tightly linked (Exhibit 3), determining the shape of the business cycle in the coming quarters.

US Housing Continues To Fall, Capex to Decline

400

500

600

700

800

900

1000

1100

1200

1300

84 86 88 90 92 94 96 98 00 02 04 06 08

Ne

w H

om

e S

ale

s -

Th

ou

sa

nd

s

215

265

315

365

415

465

515

565

615

Re

sid

en

tia

l In

ve

stm

en

t -

Bill

ion

s o

f U

SD

New Home Sales - LHS

GDP Residential Investment - RHS

1. New Home Sales vs. Residential Investment(Through Q1 2008)

-15

-10

-5

0

5

10

15

20

25

83 85 87 89 91 93 95 97 99 01 03 05 07

-4

-2

0

2

4

6

8

Non-Residential Fixed Investment - LHS

Worked Hours - RHS

3. Non-Residential Fixed Investment vs. Worked Hours (%YoY)

(Through Q4 2007)

-28

-18

-8

2

12

22

32

42

82 84 86 88 90 92 94 96 98 00 02 04 06

-13

-8

-3

2

7

12

17

22Corporate Profits -LHS

Non-Residential Fixed Investment - RHS

2. Corporate Profits vs. Non-Residential Fixed Investment (Nominal, in %YoY)(Through Q4 2007)

7

1 Real Fed Funds Rate is calculated by subtracting core CPI inflation from the effective Fed Funds Rate.Source: Datastream, Investment Strategy GroupThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department. Past performance is not a guide of future results and the value of the investments and the income derived from them can go down as well as up.

Over the coming months, there will also be important forces that will support the economy and help mitigate the downward pressure from slowing domestic demand.

The contribution of net trade to GDP growth was about 0.6 percentage points to average growth in 2007. With a cheap dollar (Exhibit 1), it is likely that such contribution will remain stronger than at any time during the past 20 years. We expect that export growth will weaken somewhat due to slowing in the rest of the world but import growth will weaken even more significantly (Exhibit 2).

Support for economic activity will also come from policy actions. Lower Fed rates will gradually feed into the pipeline and support credit growth. (Exhibit 3) At the same time, the $168 billion fiscal stimulus package should also support growth (GS economists estimate a boost of somewhere between 1-2% to GDP in the second half of the year).

US Positive Net Trade Still Significant, Policy Helping

-15

-10

-5

0

5

10

15

20

86 88 90 92 94 96 98 00 02 04 06 08

Imports

Exports

Forecast

69.6

79.0

60

70

80

90

100

110

120

130

140

150

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Nominal Real

1. Trade-Weighted Dollar Index Against Major Currencies (100=1973)(Through March 2008)

2. Exports and Imports Growth (%YoY)(Through 2008)

3. Real Fed Funds Rate1

(Through March 2008)

-10

0.2

-10%

-5%

0%

5%

10%

15%

71 74 77 80 83 86 89 92 95 98 01 04 07

Average: 2.0%

8

US Current Inflation Backdrop

1. Summary of Current vs. Historical Inflation Levels

2. Global Inflation Levels(As of March 2008)

US headline inflation has accelerated over the last year, reaching 4.0% yoy in March. Such acceleration has been almost entirely due to the more volatile food and energy components. Food inflation, which represents 13.9% of CPI, has accelerated to 4.4% in March compared to 3.3% in March 2007. Energy inflation, which represents 8.7% of CPI, has accelerated to 17.0% in March compared to 4.5% in March 2007.

On the other hand, core inflation remains somewhat well contained on several metrics and inflation expectations as measured by TIPS are well anchored. However, the University of Michigan Inflation Expectations Survey has recently accelerated. (Exhibit 1)

Inflation trends globally are somewhat similar, with headline inflation sharply higher relative to its year-ago levels, including in China and Euroland.

Several factors are driving fears of a further acceleration in US inflation:

- Higher commodity prices

- Higher import prices driven by:

- Weaker US Dollar

- Higher inflation imported from trading partners e.g. China

- Could inflation expectations become unhinged as the Fed eases due to growth concerns?

At the same time, we see disinflationary pressures from:

- Widening output gap as growth slows, labor markets weaken

- Housing component of inflation (29.7% in headline inflation and 38.5% in core inflation) slowing

Headline CPI

Averages

Current 1 Year Prior Change 3-Year 5-Year

Euroland 3.6% 1.9% 1.6% 2.3% 2.2%

U.K. 2.4% 3.1% -0.7% 2.3% 1.9%

Japan 1.0% -0.2% 1.2% 0.1% 0.0%

China 8.3% 3.3% 5.0% 3.1% 3.0%

Brazil 4.7% 3.0% 1.8% 4.7% 6.7%

Russia 13.3% 7.4% 5.9% 10.4% 11.1%

India 5.5% 7.6% -2.1% 5.7% 5.0%

Current 1 Year Ago Change3 Year

Average10 Year Average

Headline InflationHeadline CPI 4.0% 2.8% 1.2% 3.2% 2.6%Headline PCE 3.4% 2.3% 1.0% 2.8% 2.2%Market-Based Headline PCE 3.4% 2.2% 1.3% 2.7% 2.0%

Core InflationCore CPI 2.4% 2.5% -0.1% 2.3% 2.2%Median CPI 3.0% 3.3% -0.3% 2.9% 2.6%

Trimmed Mean CPI1 2.8% 2.8% 0.0% 2.6% 2.3%

Core PCE 2.0% 2.5% -0.5% 2.2% 1.8%Market-Based Core PCE 1.7% 2.3% -0.6% 1.8% 1.5%

Inflation ExpectationsTIPS Implied Inflation Rate 2.3% 2.4% -0.1% 2.4% 2.0%Univ. of Michigan Inflation Expectations

4.8% 3.3% 1.5% 3.3% 2.8%

1 The Trimmed Mean is calculated by the Federal Reserve Bank of Cleveland and removes from overall CPI inflation the top and bottom eight percent of the distribution of price changes. This is done to remove the impact of large relative price changes in each month.

9


2. US Import Prices vs. Core CPI (in %YoY)(Through March 2008)

US Imported Inflation: Impact of Weak US Dollar

-11

-6

-1

4

9

14

94 95 96 97 98 99 00 01 02 03 04 05 06 07

1.0

1.5

2.0

2.5

3.0

3.5

Import prices, % yoy (LHS)

CPI core, % yoy (RHS)

1. US Import Prices vs. Headline CPI (in %YoY)(Through March 2008)

During the past year, the rise in commodity prices coupled with the dollar depreciation has resulted in a sharp increase in import prices, which rose by 14.8% YoY in March 2008, the highest on record for almost twenty years (Exhibit 1).

Higher import prices are passed on to final consumer prices at varying speeds. The bulk of such increases, most notably energy prices, are passed on directly, therefore impacting headline inflation very significantly (Exhibit 1). The rest goes through the domestic supply chain and is passed on to core CPI both more slowly and with variable lags (Exhibit 2).

Academic research has shown that for every 1% decrease in USD, roughly 0.25-0.4% passes through to import prices. Approximately half of that rise in import prices passes through to CPI. We estimate that a part of the recent increase in import prices has not yet been passed on to core prices and therefore will put upward prices on core inflation over the coming months.

US

-10

-5

0

5

10

15

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

0.9

1.4

1.9

2.4

2.9

3.4

3.9

4.4

Import prices, % yoy (LHS)

CPI, % yoy (RHS)

10


US Imported Goods Inflation: Impact of Rising Chinese Inflation

-15

-10

-5

0

5

10

15

20

25

30

35

40

45

50

99 00 01 02 03 04 05 06 07 08

Industrial Countries

Latin America

China

Other Asia

Middle East

Higher US import price inflation so far has been due to the surge in oil and commodity prices, and only very marginally to the slight rise in import price inflation from China. The relationship of US CPI with imported inflation from China has historically been virtually nil. (Exhibits 1, 2 & 3)

At the same time, producer prices of consumer goods in China (the largest supplier of consumer goods to the US) are now clearly rising. So far, such increases have not translated into higher prices of imported consumer goods, but pressures may be building.

1. Headline CPI and PPI in China (in %YoY)(Through March 2008)

2. US Import Price Inflation (in %YoY)(Jan. 1999 – Jan. 2008)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

All IndustrialCountries

Latin America Middle East China

3. Importance of Import Price Inflation on US CPI - R2 in %) (Dec. 2004 – Jan. 2008)

-6

-4

-2

0

2

4

6

8

10

12

96 97 98 99 00 01 02 03 04 05 06 07 08

CPI

PPI

11


3. US Average Hourly Earnings vs. Core PCE (in % YoY)(Through March 2008)

US Decelerating Nominal Wage Growth

2. US Hours Worked vs. Compensation per Hour (in % YoY)(Through Q4 2007)

0.6

1.1

1.6

2.1

2.6

3.1

3.6

4.1

4.6

5.1

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

0.0

0.5

1.0

1.5

2.0

2.5

Ave Hour Earn (LHS)

Core PCE, mkt-based (RHS)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

89 91 93 95 97 99 01 03 05 07

Compensation per hour

Hours Worked

Over the longer term, the main determinant of core inflation is the growth of unit labor costs, given by the difference between nominal wages and labor productivity growth (Exhibit 1). With productivity growth about stable, the key variable to watch is nominal wage growth, which, in turn, is driven by labor market developments (Exhibit 2).

The main available indicators suggest that nominal wage growth turned in the middle of 2007 and is currently decelerating. For example, average hourly earnings slowed from 4.1% yoy in Q2 2007 to 3.6% yoy in the first quarter of 2008 (Exhibit 3).

Going forward, we expect that the labor market will remain weak and that therefore nominal wage growth will slow further, thereby exerting downward pressure on core inflation.

US

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06

Unit Labor Costs

Consumption DeflatorCore

1. US Unit Labor Costs vs. Consumption Deflator (in % YoY)(Through Q4 2007)

12

US Slowing Housing Component

1. Component Breakdown of CPI and PCE

0.0

2.0

4.0

6.0

8.0

10.0

12.0

84 86 88 90 92 94 96 98 00 02 04 06 08

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

CPI -- Rent of Primary Residence - LHS

OFHEO Index - LHS

Ratio RHS

2. Rental Component of CPI vs. Home Prices (in %YoY)(Through January 2008)

Indices of consumer prices also include a component which reflects direct and implied (“owner equivalent”, “OER”) rent. Exhibit 1 shows that the weight of this component is significant and it is much larger in the CPI index than in the PCE deflator.

Over the past year, rent and OER have been decelerating (Exhibit 2), dampening the increase in core inflation and contributing to the decline in the differential between core CPI and core PCE deflator.

Over the next year, we expect that rent and OER will continue to decelerate, reflecting the ongoing weakness in the housing market.

Consumer Price Index PCE Price IndexWeight in Total Weight in Core Weight in Total Weight in Core

Total Index 100% na 100% naFood 13.9 na 13.8 naEnergy 8.7 na 6.4 naCore Index 77.4 100% 79.8 100%Shelter 32.4 41.9 15 18.8OER 23.8 30.8 11 13.8Rent 5.9 7.7 3 3.8Lodging 2.6 3.4 0.8 1Medical Services 4.8 6.2 17.3 21.6Services ex energy, medical, and shelter 18.4 23.8 25 31.3Durable Goods 11.1 14.4 11 13.8Nondurable Goods ex food and energy 10.6 13.7 11.6 14.5

Source: Datastream, GS Economics Research, Investment Strategy GroupThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department. Past performance is not a guide of future results and the value of the investments and the income derived from them can go down as well as up.

13

US Inflation Outlook: Bringing It All Together

Inflationary pressures generally tend to be high at this point of the cycle. However, inflation tends to peak into a recession and then fall sharply, as the economy grows below trend and the output gap widens. (Exhibit 1)

Over the next 3-6 months, we believe that the impact of higher import prices will prevail and core inflation could accelerate from the latest reading of 2.4% yoy towards 3% yoy.

Later in the year, the impact of a weaker labor market and slowing growth will be more important. The evolution of inflation expectations will also be crucial at that point. If expectations do not deteriorate materially from here, core inflation should then stabilize in the 2.5-3% range and slowly come down during 2009.

Assuming that the dollar does not depreciate further and commodity prices stabilize, the rate of growth of import prices should gradually slow in the second half of the year. As a result, the impact on headline CPI inflation will gradually fade away. We expect that headline inflation might accelerate further over the next few months but will then gradually converge to core inflation at 2.5-3% by year-end.

1. Consumer Price Index (% YoY)1970 – March 2008

1%

3%

5%

7%

9%

11%

13%

15%

17%

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Headline

Core

14

GDP Q4 07 y/y 2008 Consensus 2008 ISG

Eurozone 2.2 1.6 1.2-1.7

UK 2.8 1.8 1.2-1.7

Japan 2.0 1.4 1.2-1.7

China 11.4 10.0 10.0-10.5

Rest of Asia* 7.3 6.9 6.25-6.75

Inflation Latest 2008 Consensus 2008 ISG

Eurozone 3.5 (Mar-08) 2.5 2.6-3.1

UK 2.5 (Mar-08) 2.6 2.2-2.7

Japan 1.0 (Feb-08) 0.7 0-0.5

China 8.3 (Mar-08) 5.7 4.5

Rest of Asia* 4.4 (Jan-08) 4.7 4.5

* Rest of Asia includes all of Asia except for China and Japan.Source: Bloomberg, Datastream, Investment Strategy GroupThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

Monetary Policy Current % 12-Mo. Forward 2008 ISG

Eurozone 4.00 4.0 3.75-4.00

UK 5.00 4.5 4.25-4.50

Japan 0.5 0.75 0.25-0.5

China 3.78 3.6 4.0

Rest of Asia* 6.4 5.7 5.50-6.0

Global Macro Outlook: End 2008 Scenarios(As of April 2008)

• We expect that GDP growth will slow virtually everywhere, reflecting the effects of generally tighter credit conditions, higher energy and food prices, and slowing profit growth. But we do not expect a recession in any region.

• China is likely to welcome a slow down in growth of about 1-2% given the strong pace of growth and rising inflationary pressures.

• A further 1% slowdown in US consumption would subtract roughly half a percentage point from Eurozone, UK, and Japan growth, and 0.75% from growth in China and Rest of Asia.

• Inflation has picked up in most areas of the world during the past six months, primarily due to food and energy prices.

• Going forward, we expect that inflation will come back down everywhere due to below trend growth except in Asia ex-Japan, where growth is likely to remain above trend.

• We expect Eurozone inflation is likely to remain above the ECB target of just below 2%.

• Reflecting a sharper economic slowdown, we expect that the Bank of England will cut rates by more than currently priced in the forward market, but the ECB, more focused on inflation, could remain on hold.

Financial Markets Outlook

16

2. S&P 500: Price to Trailing Earnings Multiple Through Apr. 23, 2008

3. U.S. Equities: Different PE Multiples Through Apr. 23, 2008

Average PEs Since 1980

Current PE Overall Ex-Bubble1 Overall Ex-Bubble1

Price to Trailing 12 Month Earnings 20.8x 19.2x 17.8x 23.2x 21.5x

Price to Trend Earnings 20.0x 19.3x 16.6x 23.9x 20.8x

Price to Peak Earnings 16.2x 16.6x 14.6x 19.5x 17.1x

Price to Trailing 10 Year Earnings 26.8x 25.1x 21.8x 30.6x 26.6x

Price to Consensus Forward Earnings 14.9x 15.8x 14.0x 18.7x 16.4x

1 Bubble period is 1997-2001.

When Inflation is 2-4% and

Volatility of Inflation is <1%

US Equities: Update on ValuationsA. Relative to Own History

1. S&P 500: Price to Trend Earnings MultipleApr. 23, 2008

0

5

10

15

20

25

30

35

40

00 08 16 24 32 40 48 56 64 72 80 88 96 04

Current price to trend earnings multiple is 20.0x, which is about 14.2% below it’s 20 year moving average of 22.8x. Relative to the current inflation backdrop, US equities appear to be neutral to slightly cheap on this valuation measure, if you exclude the internet bubble valuations.

Current price to trailing earnings multiple is at 20.8x, which is about 7.3% below it’s 20 year moving average of 22.3x. Relative to the current inflation backdrop, US equities are about 3.4% cheap on this valuation measure, even if you exclude the internet bubble valuations.

Price to peak earnings is currently 16.2x, vs. an average of 17.1x during periods of low and stable inflation, again, excluding the bubble period.

Overall, even after excluding the lofty valuations seen during the internet bubble, we find that US equities are cheap to fair valued relative to their own history.

Source: Standard & Poor’s, Datastream, BloombergThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

20.822.3

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

50x

00 05 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05

1973 Oil Embargo

1929 Great Depression

1987 Equity Crisis

2000 "Internet Bubble"

1998 LTCM / Asian Crisis

1990 S&L Crisis

20-Year Moving Average

17Source: Investment Strategy Group, Standard & Poor’s, DatastreamThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

US Equities: Update on ValuationsB. Relative to Inflation and Interest Rates

3. Dividend Yield vs. 2-Year TreasuryThrough March 2008

0.6%

-15%

-10%

-5%

0%

5%

77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07

High deflationary and inflationary environments are both unfavorable for equity valuations. Current valuations reflect being in the inflation “sweet spot” of 2-4%. (Exhibit 1)

In addition, stability of inflation is important - it can be viewed as a proxy for systemic risk, capturing both variability in supply and demand in the economy as well as flexibility of the monetary system.

Historically, when inflation has been low (i.e. between 2-4%) and stable (i.e. inflation volatility <1%), PE multiples tend to be higher. (Exhibit 2)

Currently, US equities appear to be attractively valued relative to the interest rate and inflation backdrop. (Exhibits 2 & 3)

2. PE Multiples: Current vs. Historical ComparisonsThrough Apr. 23 2008

0x

5x

10x

15x

20x

25x

30x

35x

40x

-20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%

Headline Inflation (% YoY)

Pric

e to

Tre

nd

Ea

rnin

gs

"Internet Bubble"

Inflation "Sweet Spot": 2-4%

Current

1. Price to Trend Earnings vs. Headline Inflation1890 - March 2008

Note: Number of observations when CPI 2-4% is 271. Number of observations when CPI 2-4% and inflation volatility less than 1% is 179

When CPI CPI 2-4%

Current 2-4% and CPI Vol. <1%

Price to Trend Earnings 20.0 20.7 22.8

Price to Peak Earnings 16.2 17.6 18.9

18

2008 Earnings Outlook

16.6%

-10.9%

-4.9%

-16.8%

16.9%

-6.4%

0.6%

-12.0%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Consensus Central Good Bad

Mid-February

Current$98.1

ISG

$75

$80

$70

$96.7

3. ISG vs. Consensus 2008 Operating Earnings Growth Estimates (% YoY)As of April 23, 2008

2. ISG 2008 Central Case Earnings Estimates

In Exhibit 1 we summarize the conclusions from our analyses on historical earnings corrections in which we look at peak to trough, trend to trough, and earnings growth rates at different GDP growth cohorts.

Based on these analyses we recently reduced our 2008 central case operating and reported earnings estimates to $75 and $67, respectively, down from $85 and $73 previously. (Exhibit 2)

These new levels imply a decline in operating earnings of around 10.9% and reported earnings of around 6.4% vs. 2007 earnings. (Exhibit 3)

All three of our outlook scenarios stand well below consensus growth expectations for 2008 of 16.9%. (Exhibit 3)

As we have noted before, at turning points (e.g. in 1990/91, 1998, 2001), analysts’ track record for estimating earnings has been quite poor historically. For example, during bear markets, analyst revisions have been around -18%. Since Q3 07, analysts have revised down their extremely positive 2008 earnings estimates by roughly 5%, suggesting there is more room for downside revisions.

$85

$75

$73

$67

$60

$65

$70

$75

$80

$85

$90

Old New

Operating

Reported

1. Summary of Implications for 2008 Earnings Based on Previous Earnings Correction Cycles

Operating ReportedDeviation from Peak $70-$74 $69-$73Deviation from Trend -- $61-$65Growth Rates at Different GDP Growth Cohorts $74-$78 $63.5-$66.5

Source: Investment Strategy Group, DatastreamThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

19

Determining ISG’s 2008 S&P 500 Price Target

Based on our earnings estimates, the S&P 500 central case price target range is 1475-1540 (vs. previous range of 1500-1575). This range implies a price return of 7-12% and a total return of 9-14% from current levels.

This range stands at the upper end of the fundamental valuation range of 1330-1540 (which is based on trend earnings) due to the following reasons:

•Valuations are not lofty and corporate balance sheets are in decent shape as they have low debt levels and are cash rich

•The aggressive policy backdrop – both monetary and fiscal – is a positive tailwind for US equities.

•Earnings support from export growth remains a positive surprise for earnings. A weak US Dollar could continue to support earnings growth from foreign sales (barring a deep US recession).

•Much of the earnings decline has been write-downs based on mark to markets which may not recur as deeply going forward, so reported earnings growth may stabilize by mid year.


Good Case (15%) Central Case (65%) Bad Case (20%)

End 2008 S&P 500 Earnings

Op. Earnings $80

Rep. Earnings $72

Trend Rep. Earnings $72.5

Op. Earnings $75

Rep. Earnings $67

Trend Rep. Earnings $70

Op. Earnings ≤ $70

Rep. Earnings ≤ $63

Trend Rep. Earnings $68

S&P 500 Price to Trend Reported Earnings 19 –22x 19 –22x Below 19x

2008 S&P 500 Fundamental Valuation Range 1378-1595 1330-1540 S&P 500 below 1292

End 2008 S&P 500 Price Target (based on a combination of trend and forward earnings estimate)

1600 1475-1540 1240

1. 2008 Equity Scenarios

20

Considerations for Implementing US Equity Exposure

US equities have corrected by around 12% since the peak October 9 of last year (the peak to trough correction this cycle was close to 20%). We expect near-term volatility as past bear market corrections suggest that another 10-15% fall from current levels is not unlikely. (Exhibit 1).

The key question is: have US equities priced in a recession already? Exhibit 3 shows that US equities tend to bottom during recessions, not after. The trough in performance tends to come midway through recessionary periods: the historical performance of US equities during the second half of recessions far exceeds that of the first as equity markets are forward looking and recover as visibility improves. (Exhibit 3)

1. Equity Market Corrections During Previous Bear Markets (Price Returns)

2. S&P 500 Performance During Recessions

Recession S&P 500 PerformanceBeginning End 1st Half 2nd Half

Jul-53 May-54 2.2% 15.7%Aug-57 Apr-58 -12.0% 5.0%Apr-60 Feb-61 -1.7% 13.4%Dec-69 Nov-70 -17.0% 11.5%Nov-73 Mar-75 -22.2% 5.6%Jan-80 Jul-80 -7.1% 16.3%Jul-81 Nov-82 -14.2% 24.6%Jul-90 Mar-91 -12.4% 18.1%Mar-01 Nov-01 1.6% -6.2%

Average -9.2% 11.6%Median -12.0% 13.4%

From To US Equities* MSCI EAFE MSCI EMDuration (Months)

3-Sep-29 8-Jul-32 -86% - - 35

10-Jul-57 22-Oct-57 -21% - - 3

12-Dec-61 26-Jun-62 -28% - - 7

9-Feb-66 7-Oct-66 -22% - - 8

29-Nov-68 26-May-70 -36% - - 18

11-Jan-73 3-Oct-74 -48% -41% - 21

28-Nov-80 12-Aug-82 -27% -25% - 21

25-Aug-87 4-Dec-87 -34% -16% - 3

16-Jul-90 11-Oct-90 -20% -17% -22% 3

20-Jul-98 8-Oct-98 -19% -21% -32% 3

24-Mar-00 9-Oct-02 -49% -51% -50% 31

9-Oct-07 23-Apr-08 -12% -9% -6% 7

Average -33.5% -25.9% -27.5% 13 Median -27.5% -21.3% -27.3% 7

Source: Investment Strategy Group, Bloomberg,This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

21

Implications for Global Equities

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

U.S

.

EA

FE

EM

All

Indi

a

Chi

na

Apr-08 Average (10 Yr)

Source: Investment Strategy Group, MSCI, DatastreamThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

Price-to-Forward Earnings Ratio

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

U.S

.

EA

FE

EM

All

Indi

a

Chi

na

Apr-08 Average (10 Yr)

1. Price to Cash FlowThrough April 3, 2008

2. Price to Forward Earnings Through April 3, 2008

3. Consensus Earnings Growth Expectations As of April 2008

21.4

17.6

14.9

11.4

-10.9

4.6

-15

-10

-5

0

5

10

15

20

25

India China EM All Consensus ISG EAFE

US

• Valuations of the major developed equity markets appear reasonable against the backdrop of a low and stable inflation environment.

• Emerging equity market valuations are more difficult to analyze relative to their history given the significant changes in the region and the limited data set. Overall, emerging equity markets appear to be slightly expensive. Within emerging markets, India and China are expensive relative to their own history as well as relative to US and other developed equity markets. (Exhibits 1 and 2)

• In addition to expensive valuations, there is some downside risk to consensus earnings growth expectations due to: a) slower global growth; b) rising materials and labor costs; c) rising capital spending all of which imply lower profitability and margin compression; d) analysts’ expectations tend to lag at turning points. (Exhibit 3)

22

US Interest Rate Outlook

2.32

1.8%

1.9%

2.0%

2.1%

2.2%

2.3%

2.4%

2.5%

2.6%

2.7%

2.8%

Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08

US

TIP

S Im

plie

d In

flatio

n R

ate

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Ma

rke

t Im

plie

d F

ed

Fu

nd

s R

ate

Us

ing

3 M

on

th E

uro

do

llar

Ra

te

Pa

th (

%)

MARKET EXPECTATIONS

Inflation: The market continues to have a relatively benign view of future inflation per the 10 year breakeven inflation rate (nominal 10 year yield less TIPS 10 year yield) (Exhibit 1). Even though this has shown some volatility recently, it has remained within a range between 2.2% and 2.6%.

Monetary Policy & Yields: During 2007 the Fed cut its target rate by 100bps, and year to date the Fed has cut the target rate by another 225bps putting its level at 2.00%. The market now believes that the Fed has almost finished reducing its target rate and monetary policy will begin to tighten towards the end of 2008. (Exhibit 2) With respect to the 10 year Treasury, the market anticipates a 2008 year-end rate of about 4%. (Exhibit 3)

ISG FORECAST

In our central case scenario, we expect Fed Funds to be between 1.25-1.75%. We think that core inflation will remain contained to a range of 2.5% to 3.0% as growth remains subdued. Given this expected level of inflation, interest rates will remain relatively low, with our 10 year Treasury yield around 3.5% to 4.0% by end 2008. (Exhibit 3)

Source: Lehman Brothers, BloombergThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

3. ISG 2007 Forecasts(As of May 1, 2008)

1. TIPS Breakeven Inflation Rate (As of April 23, 2008)

2. Expected Path of Eurodollar Short Rates(As of April 23, 2008)

Nominal Rates (%)Market

Expectations ISG ForecastCurrent End-2008 2008

Federal Funds 2.0 1.75-2.25 1.25-1.75

10 Year Treasury 3.72 3.98 3.5-4.0

23

• Developed currencies appear consistently overvalued relative to the USD across several valuation metrics. The strongest valuation signals are for the CHF and EUR, which are overvalued by 33% and 25% in aggregate, respectively.

1 “Other Developed” includes Canada, Australia, New Zealand, Sweden, and Switzerland.

Source: Investment Strategy Group, Goldman Sachs Economics Research, OECD, Datastream, IIF, Financial TimesThis material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

Current Investing Landscape Outlook for USD vs. Developed Currencies: Overcorrection

2. Foreign Currency Over/Undervaluation vs. US Dollar (As of Apr. 23, 2008)

PPP GSDEER 5 Year M.A. Average

CHF 61% 19% 19% 33%

EUR 31% 20% 25% 25%

AUD 33% 22% 12% 22%

NZD 23% 18% 25% 22%

GBP 30% 8% 21% 20%

CAD 23% 20% 13% 19%

JPY 16% 9% 6% 10%

72.6

81.4

60

70

80

90

100

110

120

130

140

150

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Nominal Real

1. Trade-Weighted Dollar Index Against Major Currencies (100=1973)Through March 2008

• The trade weighted USD now stands at its lowest point in nominal terms relative to a basket of major currencies over the last twenty eight years. In real terms, the USD is also close to the bottom of its long-term historical range, just above the lows touched in 1995.

• The recent acceleration of the U.S. dollar decline is due to cyclical factors. The ongoing credit crunch, which traces its origins to the deflating U.S. housing bubble, now threatens broader economic growth, and has resulted in a sharp downward revision in interest rate and growth expectations, leading to recent USD weakness.

24

Outlook for USD: vs. Emerging Market CurrenciesOpportunities Exist

1. US Dollar Performance vs. Other Currencies(Jan 2000 = 100, Through 2007)

Source: Federal Reserve, US Bureau of Economic Analysis, DataStream, IIF.

This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department. Past performance is not a guide of future results and the value of the investments and the income derived from them can go down as well as up.

76.7

99.0

125.8

70

80

90

100

110

120

130

140

150

160

Jan-00 Oct-00 Jul-01 Apr-02 Jan-03 Oct-03 Jul-04 Apr-05 Jan-06 Oct-06 Jul-07* As of December 31, 2007

Major

OITP

Selected Other Asia 1.6%

7.8%

8.9%

14.9%15.6%

1.8%

4.2%

8.7%

12.3%

4.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

GCC Brazil Selected OtherAsia

China Russia

2006

2007

2. Growth in Reserves Over Last 12 Months as % of GDP

Emerging Market currencies have not appreciated significantly against the US dollar this decade:

Major currencies have shouldered most of the burden of US Dollar weakness.

The currencies of the Other Important Trading Partners (OITP) of the US such as Mexico and China have been relatively stable.

Selected Asian currencies have actually depreciated vs. the US dollar.

We favor emerging market currencies which have:

• Resisted pressure to appreciate against the dollar in the past few years and built up massive reserves in the process.

• Favorable valuations.

• Improved economic policies since the 1997-98 Asian and Russian crisis.

•Tightening monetary policy relative to the US.

• Stable political outlook.

25

Other Emerging Market AssetsNot the Time for Tactical Overweight Positions

Source: Federal Reserve, US Bureau of Economic Analysis, DataStream, IIF.

This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department. Past performance is not a guide of future results and the value of the investments and the income derived from them can go down as well as up.

1. Emerging Market Debt vs. High Yield Spreads(As of Apr. 21, 2008)

266

680

0

200

400

600

800

1000

1200

Jan-02 Aug-02 Mar-03 Oct-03 May-04 Dec-04 Jul-05 Feb-06 Sep-06 Apr-07 Nov-07

Emerging Markets

US High Yield Corporate

Brazil 2002 Elections

GM and Ford Ratings Downgrade (S&P)

Recent Risk Aversion

Emerging market debt spreads are not compelling in absolute and relative terms.

• Spreads have barely widened in the recent liquidity squeeze.

• Spread widening has been focused only on the worst credits.

The risk-return tradeoff of a significant overweight position in emerging equity markets is far less compelling given current valuations.

• Policy mistakes or global risk aversion shocks can and do lead to significant corrections when the markets are priced close to perfection.

• Valuations are extreme in some “story markets” such as Vietnam.

2. Emerging Market Equity – Price to Trend Cash Flow(Dec. 2002 vs. Feb. 2008)

2.9

7.2

10.9

7.39.3

13.2

18.7

22.2

39.4

17.8

20.6

15.8

0

5

10

15

20

25

30

35

40

45

China Russia India Brazil EM All U.S.

Dec-02

Feb-08

Appendix

27

Profiles of ProfessionalsInvestment Strategy Group

Sharmin Mossavar-Rahmani, CFAManaging Director, Chief Investment Officer – Private Wealth Management

Sharmin is Chief Investment Officer for the Private Wealth Management Group of Goldman Sachs’ Investment Management Division. She is responsible for overall strategic asset allocation and tactical investment strategy within Private Wealth Management. Sharmin joined the firm as a Partner in 1993 after six years with Fidelity Management Trust Company where, most recently, she was Chief Investment Officer responsible for all separate and commingled fixed income accounts. Sharmin is a member of the Board of Trustees and the Investment Committee of New York-Presbyterian Hospital and the National Advisory Board of the Merage Institute for the American Dream . She has published two books and numerous articles on portfolio management issues. She earned a B.A. from Princeton University in 1980 and an M.S. from Stanford University in 1982.

Jeff GoldenbergManaging Director, Director of Portfolio Strategy – Private Wealth Management

Jeff was appointed director of Portfolio Strategy for the Private Wealth Management Group in 2003, and is on the board of the Goldman Sachs Trust Company, where he served as chairman, president and CEO in 2005. In addition, Jeff is an active member of the firm’s Retirement Investment Committee, and co-heads the Columbia Business School recruiting effort. Jeff joined Goldman Sachs as a summer associate in 1980, and returned as a full-time associate in 1981. He was promoted to vice president in 1986, was named managing director in 1996, and partner in 1998. After building a successful team as a senior private wealth advisor, Jeff served as the regional manager for New York from 1996 to 1999. Since 1999, he has held various roles including East Coast regional manager from 1999 to 2001, director of Clients and Investments from 2001 to 2003, and oversight of the Strategic Wealth Advisory Team from 2003 to 2004. Jeff serves on the Wall Street Division Steering Committee of the UJA-Federation and is on the board of the 92nd Street Y. He is also a member of Atlantic and Fenway Golf Clubs. Jeff received his MBA from Columbia University in 1981 and BA from Bowdoin College in 1977.

Maziar Minovi, Ph.D.Managing Director – Private Wealth Management

Maziar joined the Investment Strategy Group of Private Wealth Management in May 2006 to focus on tactical asset allocation in emerging markets including debt, equities, and currencies. He comes to Goldman Sachs from MassMutual/Babson Capital Management where he was head of their Emerging Markets Group and also managed an emerging markets hedge fund. Prior to that, he had experience working at the International Monetary Fund, Long Term Capital Management, Putnam Investment Management, and The World Bank. Maziar received a Ph.D. in International Finance and Economic Development (1993), MBA (1988) and BBA (1986) from the George Washington University.

Chris BlumeManaging Director – Private Wealth Management

Chris Blume joined the Investment Strategy Group (ISG) in 2004 and focuses on strategic and tactical asset allocation for Private Wealth Management clients. Prior to joining ISG, Chris was most recently a fixed income portfolio manager at Goldman Sachs Asset Management (GSAM) where he led the Financial Institutions and Structured Portfolios area. In this position, he was responsible for central bank and insurance portfolios as well as accounts with specific asset/liability structuring requirements. Before joining GSAM in 1994, he worked for three years as an assistant vice president in JP Morgan Investment Management's Capital Market Research Department. He received a B.S. in 1989 and a M.B.A. in 1994 from the Wharton School at the University of Pennsylvania.

Filippo CartigliaManaging Director – Private Wealth Management

Filippo returned to Goldman Sachs and joined the Investment Strategy Group in August 2007 to focus on tactical asset allocation in developed markets. Previously he was a partner at Newman Ragazzi, sole advisor to Giano, a long-short hedge fund investing mainly in European equities. Before that, Filippo was an executive director in the Economic Research Group at Goldman Sachs, focusing on European countries, and earlier an economist at the International Monetary Fund. He earned a BA from Universita’ Bocconi in 1998 and PhD in economics from Columbia University in 1992.

28


Fan JiangVice President – Private Wealth Management

Fan is the Chief Investment Officer for Goldman Sachs’ Private Wealth Management Division in Asia. Together with professionals in the firm’s Investment Strategy Group, Fan is responsible for formulating portfolio strategy for private banking clients in Asia who invest in equities, bonds, currencies, commodities, private equities and other investment instruments. Prior to his current position, Fan was the head of Fixed Income Research for Goldman Sachs Asia and was a credit strategist for 11 years. Fan has been with Goldman Sachs since 1993, first in Goldman Sachs New York, and then Goldman Sachs Asia. Fan has a graduate degree from Kellogg. Originally from Shanghai, China, Fan has spent many years in the U.S. and currently lives in Hong Kong.

Donough Kilmurray, Ph.D., CFAExecutive Director – Private Wealth Management

Donough is a member of the Investment Strategy Group, based in London since 2002, focusing on strategic and tactical asset allocation for European private clients. He joined the Investment Management Division in New York in 2000, working on investment research and strategy, in areas such as convertible bonds, small cap stocks, hedge funds, and private equity. He also customizes firm risk models for private clients. He received a Ph.D. in Mathematics and an M.S. in Finance from the University of Illinois at Urbana-Champaign in 2000. Prior to graduate school, he worked as a mathematics instructor at University College Dublin, where he received a B.S. in Mathematics and Mathematical Physics in 1992.

Clark Winter Managing Director, Director of Portfolio Strategy – Private Wealth Management

Clark is a Managing Director in the Private Wealth Management Investment Strategy Group, where he is a Director of Portfolio Strategy. He works closely with our private wealth advisors in developing and maintaining relationships with our most significant clients on a global basis. Prior to joining the firm in 2007, Clark served as the chief global investment strategist for Citigroup Global Wealth Management, Citi Private Bank & Smith Barney. Previously he founded Winter Capital International, an early manager of manager investment advisory firm that was acquired by Citigroup. Earlier he worked as President of Global Asset Management, and started at JPMorgan where he served a number of roles including opening and managing Morgan’s first offices in Madrid and Mexico City. He is chairman emeritus of both the Spanish Institute and the Mexican Cultural Institute, and currently serves on the boards of the Committee on Photography at the Museum of Modern Art, and the Belfer Center at the Kennedy School at Harvard.

Neeti BhallaManaging Director – Private Wealth Management

Neeti Bhalla joined the Investment Strategy Group of Private Wealth Management in New York in June 2002 and focuses on strategic and tactical asset allocation decisions for private clients since June 2002. Neeti joined Goldman Sachs in September 2000 as an analyst with the Investment Banking Division in London. Prior to that, Neeti was a Rhodes Scholar at Oxford where she received an M.B.A. and an M.Sc. in Social Anthropology in June 2000 and a B.A. in Economics from Kenyatta University in 1996.

Robin BrooksVice President – Private Wealth Management

Robin Brooks joined the Investment Strategy in February 2007 where he focuses on tactical asset allocation. Prior to joining Goldman Sachs, he was a Senior Economist at the International Monetary Fund, working on regional surveillance in Asia. He joined the International Monetary Fund in October 1998 after spending a year as a Research Fellow in the Economic Studies Program at the Brookings Institution in Washington, D.C. He received a Ph.D. in Economics from Yale in December 1998 and a B.Sc. in Monetary Economics from the London School of Economics in May 1993.

29


Milda DarguzaiteVice President – Investment Strategy Group: Strategic Asset Allocation

Milda Darguzaite is a member of the Investment Strategy Group of Private Wealth Management in New York focusing on strategic asset allocation for private clients. She joined Goldman Sachs in July 2004 after receiving an M.S.E. in Operations Research and Financial Engineering from Princeton University. Prior to graduate school, she worked as an investment banking analyst in Financial Institutions group at Donaldson, Lufkin and Jenrette (Credit Suisse). Milda graduated Phi Beta Kappa from Middlebury College with a B.A. in Economics and Mathematics in 1994.

Matt WeirAssociate – Investment Strategy Group: Tactical Asset Allocation

Matt Weir is an associate in the Investment Strategy Group of Private Wealth Management and focuses on tactical asset allocation for private clients. He joined Goldman Sachs in June 2003 as an analyst in the Global Investment Research Division covering retail stocks. Prior to that, he graduated Phi Beta Kappa from the University of Southern California with a B.A. in Economics in 2003.

Milena Ivanova, CFAExecutive Director – Private Wealth Management

Milena has been a member of the Investment Strategy Group since 2000. She is based in London and primarily focuses on developing asset allocation solutions for European private clients – analyzing clients’ current portfolios and structuring customized strategic and tactical target portfolios. In addition, she works on various strategic asset allocation research projects. From 1999 to 2000, she worked in the Equity Product Management team within the Asset Management Group, where she was responsible for marketing and supporting GSAM's London-based equity products. Prior to joining Goldman Sachs, Milena was awarded a four year competitive scholarship to the European Business School, London, where she graduated with a BA (Hons) in Business Administration & Language Studies. Previously she completed two years of a BA Degree in Economics at the University of Economics, Varna, Bulgaria.

Diana KrizVice President – Private Wealth Management

Diana joined the Investment Strategy Group as a writer and editor in January 2007 to provide support to the group’s communications efforts. Prior to joining Goldman Sachs, she was most recently managing editor of client communications for JPMorgan Private Bank. Diana brings more than 25 years of financial publishing experience from previous positions with Institutional Investor magazine, The Chase Manhattan Bank, PaineWebber, Equitable Investment Management, and other Wall Street firms. She holds a B.A. in economics (summa cum laude) from the University of Texas at Arlington.

Brett NelsonVice President – Private Wealth Management

Brett Nelson joined the Investment Strategy Group in May 2007 to focus on tactical asset allocation in U.S. Equities. Prior to joining ISG, Brett spent four years as a Senior Analyst with CMK Capital, a fundamentals-based, long/short equity hedge fund. His previous work experience also includes private equity and strategy consulting. Brett received an M.B.A. from Harvard Business School and a B.S. in Business Administration from Pepperdine University, where he graduated salutatorian/summa cum laude.

Camilo AmezquitaAssociate – Investment Strategy Group: Tactical Asset Allocation

Camilo is an associate in the Investment Strategy Group of Private Wealth Management, focusing on tactical asset allocation for private clients. He joined Goldman Sachs in June 2007. Prior to that, he worked as an Economic Research Assistant in the Asia and Pacific Department, at the International Monetary Fund. Camilo received a M.S. in Finance from the Carey Business School at the Johns Hopkins University in May 2007 and a bachelor’s degree in Business Administration from University of La Sabana in Bogota, Colombia in 2001.

30


Arya BolurfrushanAnalyst – Investment Strategy Group: Strategic Asset Allocation

Arya joined the Investment Strategy Group in July 2006 and focuses on strategic asset allocation for private clients. Arya graduated from Carnegie Mellon University with a Masters in Information Systems Management in 2006 and a B.S. in Information Systems with a minor in Business Administration in 2005. Prior to graduation, Arya worked with the Investment Strategy Group as a summer analyst.

Michelle PhilipAssociate – Investment Strategy Group: Strategic Asset Allocation

Michelle joined the Investment Strategy Group in May 2004. From 2001 to May 2004, she worked within the Security Operations team in the Goldman Sachs Asset Management division. Michelle mainly focuses on developing asset allocation solutions for private clients – analyzing clients’ current portfolios and structuring customized strategic portfolios. Prior to joining Goldman Sachs, Michelle worked in the Client Services department at ING Barings. She graduated from Middlesex University Business School in 1997 with a BA (Hons) in Business Studies.

Kevin KingAnalyst – Investment Strategy Group: Tactical Asset Allocation

Kevin joined the Investment Strategy Group in July 2006 as a member of the strategic asset allocation team. In October 2007 he joined the tactical team where he focuses on tactical asset allocation for private clients. Prior to that, he was a summer analyst for Trusco Capital Management working within portfolio management. Kevin attended Duke University where he earned a B.A. in Mathematics and a B.S. in Economics.

Benjamin NganAnalyst – Investment Strategy Group: Strategic Asset Allocation

Benjamin joined the Investment Strategy Group in July 2007 and focuses on strategic asset allocation for private clients. He graduated Phi Beta Kappa from Brandeis University in 2005, having earned a B.A., magna cum laude, in Economics, Politics, and with a minor in Mathematics. Prior to joining Goldman Sachs, Benjamin spent two years at Johns Hopkins University to complete an M.A. in Economics and worked as Research Assistant for the Johns Hopkins Institute for Policy Studies.

Dan SchoenherrAnalyst – Investment Strategy Group: Strategic Asset Allocation

Dan joined the Investment Strategy Group in July 2007 after graduating with a Masters in Finance from Princeton University. He will focus primarily on developing strategic asset allocation solutions for private clients. Prior to graduate school, Dan worked in the Research Department at the Federal Reserve Bank of Boston. He received his B.A. in Mathematics and Economics from the University of Rochester.

Nabeel AbdoulaAnalyst – Investment Strategy Group: Strategic Asset Allocation

Nabeel joined the Investment Strategy Group in July 2007. He primarily focuses on developing asset allocation solutions for private clients, analyzing client portfolios, and structuring customized strategic portfolios. Nabeel graduated from the University of Warwick with a BSc (Hons) in Mathematics, Operational Research, Statistics and Economics in 2007.

31

AppendixIndices by Asset Class

(1) Trailing 2-weeks average of the 5-Year Treasury rate as of 02/15/08.

(2) Underlying index is adjusted by unsmoothing returns using Geltner confidence factor of 0.75 (Source: Geltner, David. “Smoothing in Appraisal-Based Returns”, Journal of Real Estate Finance and Economics,

September 1991, pp. 327-345.).

(3) US HARLBR Managers is modeled with a beta of 0.7 to its underlying index and with a residual volatility of 10%.

(4) International Equity is modeled using a constant mix of universally hedged MSCI equity indices (monthly rebalancing): 69% Europe, 23% Japan, 8% Pacific-ex Japan.

(5) Non-US HARLBR Managers is modeled with a beta of 0.7 to its underlying index and with a residual volatility of 10%.

(6) Multi-Strategy Hedge Funds is modeled using the following mix of styles: 15% Relative Value, 35% Event Driven, 35% Equity Long/Short, and 15% Macro/Tactical Trading.

(7) Private Equity is modeled with a beta of 0.8 to its underlying index with an information ratio of 0.25, and with a residual volatility of 10%.

(8) Buyout Private Equity is modeled with a beta of 0.8 to its underlying index with an information ratio of 0.25, and with a residual volatility of 10%.

(9) Mezzanine Private Equity is modeled with a beta of 0.8 to its underlying index with an information ratio of 0.2, and with a residual volatility of 10%.

(10) Distressed Private Equity is modeled with a beta of 0.8 to its underlying index with an information ratio of 0.2, and with a residual volatility of 15%.

(11) Venture Private Equity is modeled with a beta of 0.8 to its underlying index with an information ratio of 0.1, and with a residual volatility of 20%.

(12) Energy Private Equity is modeled with a beta of 0.8 to its underlying index with an information ratio of 0.2, and with a residual volatility of 10%.

(13) Private Real Estate is modeled with a beta of 0.8 to its underlying index with an information ratio of 0.2, and with a residual volatility of 10%.

Asset Class / Sub Asset Class Index Dates

Investment Grade Fixed Income Cash (1) Hypothetical Asset Class N/A US Investment Grade Fixed Income Lehman Brothers US Aggregate 12/79 - 12/07 US Investment Grade Municipal Bonds Lehman Brothers Municipal 1-10 Yr Blend (1-12) 7/93 - 12/07Other Fixed Income High Yield (2) Lehman Brothers High Yield 7/83 - 12/07 Municipal High Yield (2) Lehman Brothers Municipal High Yield 2/96 - 12/07U.S. Equity US Equity S&P 500 12/79 - 12/07

US Large Cap Grow th Russell 1000 Grow th 12/79 - 12/07 US Large Cap Value Russell 1000 Value 12/79 - 12/07 US Small Cap Russell 2000 12/79 - 12/07 U.S. HARLBR Managers (3) Hypothetical Asset Class N/ANon-U.S. Equity Global Developed Equity MSCI World Developed 12/79 - 12/07

Non-US Equity (4) MSCI EAFE 12/79 - 12/07 Non-US HARLBR Managers (5) Hypothetical Asset Class N/A Emerging Markets Equity MSCI Emerging Markets Free 1/88 - 12/07Hedge Funds Multi-Strategy Hedge Funds (6) Custom blend of CSFB/Tremont indices 1/94 - 12/07 Relative Value Blend of CSFB/Tremont Indices: 40%Convertible Arbitrage, 40% Equity Market Neutral, 20% Fixed Income

Arbitrage Indices1/94 - 12/07

Event Driven CSFB/Tremont Event Driven Index 1/94 - 12/07 Equity Long/Short CSFB/Tremont Equity Long/Short Index 1/94 - 12/07 Macro Tactical Trading Blend of CSFB/Tremont Indices: 40% Global Macro, 60% Managed Futures Indices 1/94 - 12/07Private Equity Private Equity (7) 60% MSCI World All Country, 40% market cap w eighted blend of S&P/Citigroup EMI Indices 8/89 - 12/07 Buyout (8) 60% MSCI World All Country, 40% market cap w eighted blend of S&P/Citigroup EMI Indices 8/89 - 12/07 Mezzanine (9) 80% Lehman US High Yield (Unsmoothed), 20% market cap w eighted blend of S&P/Citigroup EMI Indices 8/89 - 12/07 Distressed (10) 50% HFRI Distressed Index, 50% MSCI World Developed 2/90 - 12/07 Venture (11) NASDAQ 12/79 - 12/07 Energy Private Equity (12) 35% S&P 600 Energy, 15% S&P 600 Utilities, 35% MSCI EAFE Energy, 15% MSCI EAFE Utilities 1/95 - 12/07Real Estate Private Real Estate (13) Market cap w eighted blend of GPR 250 Indices 1/90 - 12/07 US Real Estate (REITs) Dow Jones Wilshire REIT Index 12/79 - 12/07 Non-US Real Estate (REITs) Market cap w eighted blend of GPR 250 Non-US Indices 1/90 - 12/07

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Methodology for Asset Allocation Modeling Using Historical Data

Asset Allocation Modeling Using Historical Data

In determining the Asset Allocation Modeling Using Historical Data for the particular time periods we use the returns of available comparable indices.

A list of comparable indices is found in the Asset Allocation Modeling Using Historical Data source in this Section. For a listing of the asset class or sub asset classes which are excluded from the analytics, please refer to "Indices for Black-Litterman Modeling" in this Section. It is important to remember that the returns shown for the Asset Allocation Modeling Using Historical Data are estimated and not actual returns. They are shown as an illustration.

Had Goldman Sachs or its affiliates managed your account during the period shown, it is highly improbable that it would have been managed in a similar fashion due to differences in economic and market conditions.

Indices are unmanaged. Investors cannot invest directly in indices. You may consider other relatively inexpensive ways of investing in strategies that may be close to an index e.g., Exchange Traded Funds.

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AppendixImportant InformationIRS Circular 230

IRS Circular 230 disclosure: Goldman Sachs does not provide legal, tax or accounting advice. Any statement contained in this communication (including any attachments) concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients of Goldman Sachs should obtain their own independent tax advice based on their particular circumstances.

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AppendixImportant Information

This material is intended only to facilitate your discussions with Goldman, Sachs & Co. (“Goldman Sachs”) as to the opportunities available to our private clients and is provided solely in our capacity as a broker-dealer. This does not constitute an offer or solicitation with respect to the purchase or sale of any security in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. This material is based upon information which we consider reliable, but we do not represent that such information is accurate or complete, and it should not be relied upon as such. Any historical price(s) or value(s) is as of the date indicated. Information and opinions are as of the date of this material only and are subject to change without notice.

Client-specific target asset allocations are based upon the investment objectives and other information conveyed by you to Goldman Sachs. Specific investments were chosen based upon your investment objectives and what is available to private clients of Goldman Sachs. Other investments, which may be available elsewhere, may be similar to those selected or may have characteristics similar or superior to those selected. Client-specific target asset allocation material is based on the current views of Goldman Sachs and considers any information included in our records and/or made available to us by you and/or a third party. In the event of any discrepancy between the information contained herein and the information contained in your monthly account statement(s) either at Goldman Sachs or another institution, the latter shall govern. A client's actual portfolio and investment objective(s) for accounts managed by Goldman Sachs may look significantly different from the asset allocation information provided herein. This asset allocation material may differ from the Investment Strategy Group or other Goldman Sachs model portfolios, as appropriate, based on a client's particular financial circumstances, objectives, risk tolerance, goals or other needs.

Goldman Sachs, or persons involved in the preparation or issuance of these materials, may from time to time, have long or short positions in, buy or sell (on a principal basis or otherwise), and act as market makers in, the securities or options, or serve as a director of any companies mentioned herein. In addition, Goldman Sachs may have served as manager or co-manager of a public offering of securities by any such company within the past 12 months.

Goldman Sachs does not provide accounting, tax or legal advice to its clients and all investors are strongly urged to consult with their own advisors regarding any potential strategy or investment. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.

The price or value of any strategy identified directly in this asset allocation may fall or rise against your interests.

Fee Disclosures:The analytics used in determining estimated returns are based upon indices. Some indices take into consideration fees whereas others do not. The estimated returns may reflect a portion of investment advisory fees, they do not reflect a deduction of transaction costs and other expenses a client would have paid, which would reduce return. For a complete description of all charges and fees, please see the Goldman, Sachs & Co. Form ADV Part II or the Goldman Sachs Asset Management, L.P. Form ADV Part II, available from your PWM Private Wealth Advisor.

Product Materials:Particular products, such as mutual funds, are not mentioned in this presentation. References to strategy allocations are intended to illustrate particular security products that your Private Wealth Advisor may discuss with you. If you are interested in a particular product you should refer to the attached or previously provided product material(s), including important standard performance information and legal disclosures, which should be read in conjunction with the information contained herein.

Assets Held Outside of Goldman Sachs:Goldman Sachs has not taken any steps to independently verify accuracy of the information provided by you, your agent or any third party. To the extent that these values are relied upon in determining your overall asset allocation, you agree that the advice or results will depend upon the accuracy, timeliness and completeness of the information provided to Goldman Sachs, for which you remain solely responsible.

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Investment Strategy Group Disclosures:References to the Investment Strategy Group (“ISG”) represent the views of ISG, which is part of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department. This information is provided to discuss general market activity, industry or sector trends, or other broad-based economic, market or political conditions. This information should not be construed as research or investment advice, and investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldman Sachs has no obligation to provide any updates or changes to such information. The views and opinions expressed herein may differ from the views and opinions expressed by the Global Investment Research Department or other departments or divisions of Goldman Sachs. ISG model portfolios do not take into account the particular financial circumstances, objectives, risk tolerance, goals or other needs of any specific client. ISG model portfolios do not take into account any use of leverage (either via the use of margin, options or otherwise) which may significantly alter the risks associated with any strategy. ISG model assumptions may change, without notice, resulting in higher or lower equilibrium returns for asset classes and/or portfolios. A client's actual asset allocation and investment objective(s) for accounts managed by Goldman Sachs may look significantly different from ISG or other Goldman Sachs models, as appropriate, based on a client's particular financial circumstances, objectives, risk tolerance, goals or other needs.

Assumptions:This material is based on the assumptions stated herein. In the event any of the assumptions used do not prove to be true, results are likely to vary substantially from the examples shown herein. These examples are for illustrative purposes only and no representation is being made that any client will or is likely to achieve the results shown. Simulated, modeled, or hypothetical performance results have certain inherent limitations. Simulated results are hypothetical and do not represent actual trading, and thus may not reflect material economic and market factors, such as liquidity constraints, that may have had an impact on actual decision-making.

Projections:IMPORTANT: The projections or other information generated by the Goldman Sachs Investment Strategy Report regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.

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Alternative Investments:Supplemental Risk Disclosure for All Potential Investors in Hedge Funds and other private investment funds (collectively, “Alternative Investments”). In connection with your consideration of an investment in any Alternative Investment, you should be aware of the following risks:

Alternative Investments are not subject to the same regulatory requirements or governmental oversight as mutual funds. The sponsor or manager of any Alternative Investment may not be registered with any governmental agency.

Alternative Investments often engage in leverage and other investment practices that are extremely speculative and involve a high degree of risk. Such practices may increase the volatility of performance and the risk of investment loss, including the loss of the entire amount that is invested.

Alternative Investments may purchase instruments that are traded on exchanges located outside the United States that are “principal markets” and are subject to the risk that the counterparty will not perform with respect to contracts. Furthermore, since there is generally less government supervision and regulation of foreign exchanges, Alternative Investments are also subject to the risk of the failure of the exchanges and there may be a higher risk of financial irregularities and/or lack of appropriate risk monitoring and controls.

Past performance is not a guide to future performance and the value of Alternative Investments and the income derived from them can go down as well as up. Future returns are not guaranteed and a loss of principal may occur.

Alternative Investments may impose significant fees, including incentive fees that are based upon a percentage of the realized and unrealized gains, and such fees may offset all or a significant portion of such Alternative Investment’s trading profits.

Alternative Investments are offered in reliance upon an exemption from registration under the Securities Act of 1933, as amended, for offers and sales of securities that do not involve a public offering. No public or other market is available or will develop. Interests in an Alternative Investment are highly illiquid and generally are not transferable without the consent of the sponsor, and applicable securities and tax laws will limit transfers.

Alternative Investments may themselves invest in instruments that may be highly illiquid and extremely difficult to value. This also may limit your ability to redeem or transfer your investment or delay receipt of redemption proceeds.

Alternative Investments are not required to provide their investors with periodic pricing or valuation information.

We refer you to the offering materials for a more complete discussion of the risks relating to an investment in any particular Alternative Investment.You are urged to read all of the offering materials, including the entire offering memorandum, prior to any investment in any Alternative Investment, and to ask questions of the investment manager or sponsor of such Alternative Investment.Investment Restrictions apply to many of Goldman Sachs’ Alternative Investments.

There may be conflicts of interest relating to the Alternative Investment and its service providers, including Goldman Sachs and its affiliates, who are engaged in businesses and have interests other than that of managing, distributing and otherwise providing services to the Alternative Investment. These activities and interests include potential multiple advisory, transactional and financial and other interests in securities and instruments that may be purchased or sold by the Alternative Investment, or in other investment vehicles that may purchase or sell such securities and instruments. These are considerations of which investors in the Alternative Investment should be aware. Additional information relating to these conflicts is set forth in the offering materials for the Alternative Investment.

© Copyright 2008 The Goldman Sachs Group, Inc. All rights reserved. Services offered through Goldman, Sachs & Co. Member SIPC/FINRA.

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