Convertible Bonds Yield Singapore

Opportunities in the Convertible Bond Market

October 2008

Executive Summary  Convertible Bonds are corporate debt obligations with an embedded call option.  Because of the fixed income and equity characteristics of converts, investors expect better risk adjusted returns than both of these asset classes over time.  However, during the current credit crisis, convertible bond valuations have cheapened dramatically.  This has created opportunities for investors who are looking to 

Establish long positions in distressed and investment grade assets



Enhance the returns of equity portfolios by replacing long stock positions with higher-yielding convertible bonds which are more senior in the capital structure.



Buy cheap equity options



Obtain exposure to credits to which they otherwise would not have access: for many issuers convertible bonds are the only credit products available.

 Assuming investors are comfortable with the overall credit of the underlying issuer, a convertible bond offers the potential holder yield as well as a call option on the issuing company.

2

Why have Convertible Bonds Underperformed? 

Niche Market 



Higher Funding Costs 



Because convert arbitrage is a leveraged strategy, the increase in funding costs have hurt returns for most convertible arbitrageurs. This has caused a sell-off since it became more expensive to keep positions on the books, particularly on “carry trades” (deep in-the-money convertible trades and mandatory trades).

Lehman Unwind Trades 



Over the last 7 years, convert arbitrageurs have increasingly become the dominant participants in the convertible market, with many such players holding similar positions. As a result, there are few buyers in the market when arbitrageurs start to sell en masse. In addition, new issues were structured towards convert arbitrageurs, with lower coupons and higher premiums to increase volatility exposure at the expense of lower outright returns.

When Lehman declared bankruptcy, many commercial banks who had repo lines with Lehman received converts that were hypothecated to them as collateral for the repos. Since commercial banks were not active participants in convertible investments, they sold these converts as they received it. This caused blocks to trade significantly below market prices that put further pressure on valuations.

TRACE Reporting 

The NASD Trace reporting requirements increased visibility of trades to the market/ Therefore market reactions to trades (e.g. LEH unwind trades) exacerbated the selling. With each LEH block the entire market was repriced lower as all dealers and investor alike saw each price. Before the TRACE requirement, block trades would trade “in the hole” but bonds would snap back after the trade and valuations would not be depressed for a significant amount of time. Now each block trade prices the market lower, leading to more selling because of the following reasons:



Redemption Related Selling 



With convert arbitrageurs returns negative 15+% YTD, many funds are starting to face (or are beginning to fear and prepare for) investor redemptions. This has led to more selling at depressed levels, putting further pressure on valuations.

Short Sale Rule 

The short selling ban on financials and other stocks adversely impacted valuations of the underlying converts. Because investors cannot initiate or increase short positions in the specified names, sellers of those converts are forced to sell into extremely low bids because arbitrageurs can not delta-hedge their positions. Valuation on these names because without the ability to short stock against the converts, there is no way for arbitrageurs to extract the theoretical cheapness. 3

Why Invest in Convertibles Now? Convertible Bonds: Market vs. Model Price  Convertible bonds are trading significantly below values implied by Goldman Sachs convertible models. 

The chart below shows the average difference between the market price of the 100 largest convertible bonds (based on face amount outstanding) and the “fair value” of the bonds derived from Goldman Sachs’s models. The average is weighted by face amount outstanding.



Bonds were trading approximately in line with the model before the credit crisis began in Jul 2007. However, since then the bonds have cheapened substantially and are now trading more than 14% below the fair value based on Goldman Sachs model.

Source: Goldman Sachs. As of 10-Oct-08

4

Why Invest in Convertible Now? Yield Analysis: Converts vs. High-Yield & IG 

Yields of convertible bonds have widened significantly more than yields of high-yield and investment grade bonds over the past year 

The chart below compares the average yield* of the largest 100 U.S. convertible bonds as of 31Oct07, based on face amount outstanding to the yield of the iBoxx USD Liquid High-Yield Index.



The average convertible bond yield has widened by more than 800 bps over the past year, while high-yield and investment grade bond yields have only increased by approximately 260 bps and 150 bps respectively.



Note that a portion of the widening of converts yields is due to the equity exposure of the converts. As equities fall, converts yields will rise even if credit remains constant.

Source: Goldman Sachs *Yield shown is the maximum of Yield-to-Put and Yield-to-Maturity. Bonds are chosen that have at least $200mn face amount outstanding and at least 18 months until maturity. Average is weighted by face amount outstanding. As of 10-Oct-08

5

Why Invest in Convertibles Now? Low Implied Volatility: Converts vs. SPX  The implied volatilities of Convertible bonds are trading significantly below the implied volatilities of SPX names, based on Goldman Sachs models. 

The chart below compares the average implied volatility of the 100 largest convertible bonds (based on face amount outstanding) and the average 2y, 25-delta call volatility of the top 200 SPX names, extrapolated from the implied volatility surface. The bond and option averages are weighted by face amount outstanding and market cap, respectively.



While equity option volatilities have been increasing in recent months, converts implied volatilities have been rapidly declining.

Note: calculation of implied vol for converts requires a credit-spread input. For names that do not have CDS markets, we back out an estimate of the spread from the HY CDX.

Source: Goldman Sachs. As of 10-Oct-08

6

Convertible Bond Investment Themes  On the following slides, we show examples of different investment themes in the convertible bond market: 

High Yield



Investment Grade



Equity Income Opportunities



Negative Basis Trades

 For each of these themes, we show examples* of bonds that meet this criteria.  We would be happy to work with you to customize a list of convertible bonds to meet your objectives.

*note that these bonds are examples only. This presentation does not provide any opinion about the fundamental strength of any of the bonds shown or of their issuers. 7

High Yield Opportunities: Yield and Leverage By Sector  The table below shows that the Media, Telecom, Transportation, Basic Materials, Semis, Autos, Software, Hardware, and Consumer Cyclical sectors provide the best trade-off between yield and leverage.  However, opportunities may be found in specific bonds in other sectors as well. Average Statistics of Converts With At Least $200mm Face Amount Outstanding (Sorted By Difference Between Avg Yield and Avg Leverage) Sector Avg Yield (%) Avg Net Debt/Adj EBITDA Total Size (mm) Media 7.4 1.3 $10,639 Telecom 9.17 3.4 $14,949 Transportation 7.38 2.1 $1,928 Basic Materials 7.06 1.8 $781 Autos 8.71 4.5 $6,303 Semis 4.24 0.3 $10,586 Software 2.91 -0.2 $10,626 Hardware 8.1 5.1 $16,376 Consumer Cyclicals 4.52 1.6 $8,043 Healthcare 3.08 1.4 $31,193 Consumer Staples 4.57 2.9 $4,151 Reits 9.09 8.4 $22,616 Biotec 1.03 0.6 $13,535 Industrials 2.18 1.8 $7,886 Natural Resources 1.26 0.9 $2,342 Energy 2.22 2.7 $19,860 Construction -3.87 -1.1 $600 Utility -14.28 4.7 $787 Banks 10.91 n/a $9,261 Insurance 9.01 n/a $6,159

# Bonds 19 24 6 2 6 19 23 25 18 53 8 42 22 20 6 26 2 3 13 6

Yield is max of yield-to-put and yield-to-maturity. Averages are weighted by face amount outstanding. Only includes bonds with at least $200mm face amount outstanding whose underlying issuer has positive Adj. EBITDA Source: Goldman Sachs As of 10-Oct-08

8

High Yield Opportunities  The table below shows a few examples of high-yielding convertible bonds with at least $200mm of face amount outstanding. Description EYE 2.500 07/15/24 A Q 3.500 11/15/25 NT B 2.125 04/15/14 SVVS 3.000 05/15/12 LAMR 2.875 12/31/10 NIHD 2.750 08/15/25 HERO 3.375 06/01/38 A FLEX 1.000 08/01/10 BGC 1.000 10/15/12 BGC 0.875 11/15/13 CIEN 0.875 06/15/17 BID 3.125 06/15/13 CHK A 2.500 05/15/37 MEE 3.25 8/01/15 OCR 3.250 12/15/35 HOLX 2.000 12/15/37 LPNT 3.500 05/15/14 ARM 4.000 2/15/27 A ALU A 2.750 06/15/23 AGP 2.000 05/15/12 NTAP 1.750 06/01/13 LPNT 3.250 08/15/25 ARM 4.625 3/1/26 A SFD 4.000 06/30/13 STX 2.375 08/15/12 MIL 3.750 06/01/26 A MYL 3.750 09/15/15 A SNDK 1.000 05/15/13

Tkr EYE Q NT SVVS LAMR NIHD HERO FLEX BGC BGC CIEN BID CHK MEE OCR HOLX LPNT ARM ALU AGP NTAP LPNT ARM SFD STX MIL MYL SNDK

BondPx 78.53 70.5 41.31 58.24 73.94 79.05 61.12 78.06 62.06 54.545 36.14 65.15 46.665 58.705 57.74 62.145 66.04 53.67 85.99 72.41 66.45 73.85 69.75 78.415 76.27 83.89 71.445 75.05

StkPx 6.83 2.18 1.63 7.12 22.48 21.9 6.24 4.97 16.43 16.43 7.27 11.62 16.52 20.73 22.97 14.59 23.44 9.69 2.33 18.1 13.25 23.44 9.69 13.73 8.66 55.99 7.22 15.92

%Premium YTM/YTP 479.48 23.01 81.96 21.7 750.31 19.31 485.58 19.28 61.91 17.29 83.07 15.7 392.48 15.34 145.39 15.1 217.02 13.62 67.58 13.49 94.86 13.32 91.36 13.32 46.05 12.95 148.69 12.39 101.27 12.21 64.73 12.02 46.45 11.95 49.42 11.79 525.36 11.7 70.73 11.54 60.93 11.07 93.52 10.91 52.1 10.52 29.76 9.8 51.04 9.79 36.02 9.76 32.03 9.44 290.84 7.39

S&P BB+ BNR B NR NR BBNR B+ B+ BBBBB BBB+ B+ B B BBB+ NR B B BBBB+ BBB+ B+

Moodys Caa1 B1 NR NR NR NR NR NR NR B1 NR Ba3 Ba3 NR B3 NR NR NR Ba3 NR NR B1 NR NR NR NR NR NR

PutDate IssueSize($) 1/15/2010 350,000 11/15/2010 1,265,000 4/15/2014 575,000 5/15/2012 345,000 12/31/2010 287,209 8/15/2010 350,000 6/1/2013 250,000 8/1/2010 500,000 10/15/2012 475,000 11/15/2013 355,000 6/15/2017 500,000 6/15/2013 200,000 5/15/2017 1,150,000 8/1/2015 690,000 12/15/2015 977,500 12/13/2013 1,725,000 5/15/2014 575,000 2/15/2019 200,000 6/15/2010 750,000 5/15/2012 260,000 6/1/2013 1,265,000 2/15/2013 225,000 3/1/2016 300,000 6/30/2013 400,000 8/15/2012 326,000 12/1/2011 565,000 9/15/2015 500,000 5/15/2013 1,150,000

Source: Goldman Sachs. Prices as of 10 - Oct-08.

9

Investment Grade Opportunities  The table below shows examples of yield opportunities in investment grade convertible bonds. Description PLD 1.875 11/15/37 OMC 0.000 02/07/31 DRE 3.750 12/07/11 AVT 2.000 03/15/34 BID 3.125 06/15/13 BXP 2.875 02/15/37 VNO 2.850 03/15/27 TECD 2.750 12/15/26 RIG A 1.625 12/15/37 RIG B 1.500 12/15/37 NBR 0.940 05/15/2011 EQR 3.850 08/15/26 RIG C 1.500 12/15/37 GENZ 1.25 12/01/23 STJ 1.220 12/15/08 CCL 1.132 04/29/33 BXP 3.625 02/15/14 ADM 0.875 02/15/14 OMC 0.000 06/15/33 AMGN A .125 02/01/11 BXP 3.750 05/15/36 OMC 0.000 07/01/38 MDT A 1.500 04/15/11 WYE L-50bps 01/15/24 EMC 1.75 12/01/11

Tkr PLD OMC DRE AVT BID BXP VNO TECD RIG RIG NBR EQR RIG GENZ STJ CCL BXP ADM OMC AMGN BXP OMC MDT WYE EMC

BondPx 55.46 95.225 71.64 94.68 65.15 72.38 71.85 73.98 80.115 74.165 78.005 82.87 70.475 98.63 98.435 60.92 78.52 69.135 87.645 83.79 84.39 88.08 87.125 96.57 87.83

StkPx 27.31 30.12 16.26 16.99 11.62 76.18 78.23 22.57 69.05 69.05 14.00 41.00 69.05 64.59 32.52 28.02 76.18 15.45 30.12 48.58 76.18 30.12 40.00 29.89 10.12

Parity 33.31 54.76 33.23 50.21 34.18 53.65 48.15 41.6 40.95 40.95 30.55 67.33 40.95 90.66 62.47 34.13 64.79 35.28 58.49 60.84 76.23 58.49 71.49 49.49 62.94

Premium %Premium 22.4 67.27 40.59 74.12 38.66 116.33 44.72 89.07 31.22 91.36 18.98 35.38 23.95 49.74 32.88 79.05 39.29 95.93 33.34 81.4 47.52 155.53 15.79 23.45 29.65 72.39 8.22 9.06 36.09 57.76 27.04 79.24 13.98 21.58 33.98 96.31 29.29 50.08 23.2 38.12 8.41 11.03 29.85 51.04 15.76 22.05 47.33 95.62 25.13 39.93

YTM/YTP 16.91 15.83 15.42 14.99 13.32 13.31 13.15 12.81 12.30 11.41 10.92 10.92 10.38 10.29 10.13 8.87 8.68 8.09 7.99 7.87 7.80 7.74 7.17 6.58 5.99

S&P BBB+ ABBB+ BBBBBBABBB BBBBBB+ BBB+ BBB+ BBB+ BBB+ BBB+ AAAA AA+ AAAAA+ A-

Moodys NR Baa1 NR Baa3 Ba3 NR Baa2 Ba2 Baa2 Baa2 NR NR Baa2 NR NR A3 NR NR Baa1 A2 NR Baa1 A1 A3 NR

Source: Goldman Sachs. Prices as of 10-Oct-08.

10

Equity Income Opportunities Overview of Break-Even Metric 



The recent cheapening of convert valuations has created attractive opportunities for equity income oriented players. 

Since many convertible bonds are currently yielding higher than their underlying dividend yields, for equity investors this creates an opportunity to play the income pick-up as well as upside in common stock.



Swapping into convertibles from equity also allows investors to gain relative senior position vs. equity in the capital structure.

A common metric for evaluating equity income pick-up strategies is the amount of time a convert must be held until the additional cash-flow earned vs. the stock position is equal to the premium initially paid to swap into the convert. 

This metric is referred to as the “Break-Even”



It is given by the following formula:

Breakeven =



Bond Price - (Stock Price × Conversion Ratio) Coupon - (Dividend Yield * Conversion Ratio * Stock Price)

Note that a convertible bond can outperform its underlying stock position in less time than this breakeven if convertible bond valuations strengthen.

11

Equity Income Opportunities Breakeven Metric Example 



Consider a bond with the following details 

Bond Price:

$73.67 per $100 Bond Face



Coupon:

6.5% of Bond Face



Conversion Ratio:

52.03 Shares per $1,000 Bond Face



Stock Price:

$8.47 per share



Dividend Yield: 1.69%

The premium of the bond over the stock price, per $100 face, is equal to:

Premium = $73.67 − 

52.03 × $8.47 = $29.60 10

The annual carry of the bond over the stock, per $100 face, is equal to:

Annual Carry vs Stock = $6.5 − 1.69% × $8.47 × 

The breakeven of the bond vs. the stock is equal to:

Breakeven = 

52.03 = $5.76 10

$29.60 = 5.1 years 5.76

Thus, an investor must hold the bond for 5.1 years before the extra carry earned is equal to the upfront premium paid to swap into the bond. Again, the bond could outperform sooner than 5.1 years if its valuation rises vs. the stock. 12

Equity Income Opportunities 

The table below shows examples of potential equity to convertibles swap candidates ordered by their break-evens.

Description F 4.250 12/15/36 VRTX 4.750 02/15/13 DRS 2.000 02/01/26 ITRI 2.500 8/1/26 THOR 1.3798 5/16/34 FTWR 9.000 11/15/12 LVLT 10.000 5/1/11 DST (A) 4.125 08/15/23 CEPH 2.000 06/01/15 VMED 6.500 11/15/16 AMD 6.000 05/01/15 AG 1.750 12/31/33 CQB 4.250 08/15/16 SFD 4.000 06/30/13 ATK 3.000 08/15/24 VRSN 3.250 08/15/37 MYL 3.750 09/15/15 STP 3.000 03/15/13 AMD 5.750 08/15/12 PSSI 3.125 08/01/14 ALO 2.125 03/15/27 MIL 3.750 06/01/26 LPNT 3.500 05/15/14 LEAP 4.500 07/15/14 CEDC 3.000 03/15/13 KCI 3.250 04/15/15 SKS 2.000 03/15/24 CHK A 2.500 05/15/37

Tkr F VRTX DRS ITRI THOR FTWR LVLT DST CEPH VMED AMD AG CQB SFD ATK VRSN MYL STP AMD PSSI ALO MIL LPNT LEAP CEDC KCI SKS CHK

BondPx 28.37 118.04 130.72 115.57 74.85 41.00 71.83 97.03 138.59 45.87 36.20 166.47 74.07 78.42 111.04 78.87 71.45 67.44 45.93 96.36 106.22 83.89 66.04 53.64 57.52 64.66 62.61 46.67

StkPx 1.99 25.44 76.21 71.25 24.23 1.29 1.46 41.25 61.61 5.16 3.81 35.66 12.63 13.73 77.72 22.17 7.22 21.90 3.81 17.11 30.62 55.99 23.44 24.24 26.45 22.44 5.83 16.52

Premium %Premium Brk-Evn(yrs) 7.24 33.47 1.7 8.34 7.59 1.8 3.32 2.60 1.9 6.72 6.15 2.7 3.71 5.19 2.7 26.44 169.91 2.9 32.28 79.59 3.2 13.49 16.05 3.3 6.91 5.24 3.5 20.03 74.59 3.5 23.64 174.19 3.9 7.12 4.46 4.1 18.06 32.09 4.2 18.01 29.76 4.5 13.7 14.06 4.6 14.87 23.05 4.6 17.36 32.03 4.6 14.44 27.12 4.8 28 147.93 4.9 15.96 19.80 5.1 12.55 13.37 5.9 22.28 36.02 5.9 21.03 46.45 6.0 28.13 108.18 6.3 18.86 48.47 6.3 21.21 48.53 6.5 14.01 28.76 7.0 14.75 46.05 7.2

Call Date PutDate YTM/YTP 12/20/2013 12/20/2016 25.13 2/15/2010 2/15/2013 0.48 2/1/2009 2/1/2011 0.18 8/1/2011 8/1/2011 1.47 5/16/2011 5/16/2011 1.31 11/15/2010 11/15/2012 43.17 5/1/2009 5/1/2011 25.08 8/20/2010 8/15/2010 5.56 6/1/2015 -3.21 11/15/2016 20.03 5/1/2015 26.9 1/1/2011 12/31/2010 -0.67 2/19/2014 8/15/2016 8.87 6/30/2013 9.8 8/20/2014 8/15/2014 2.16 8/15/2017 8/15/2037 4.54 9/15/2015 9.44 3/15/2013 12.81 8/15/2012 29.93 8/1/2014 3.78 3/20/2014 3/15/2014 1.71 12/1/2011 12/1/2011 9.76 5/15/2014 11.95 7/15/2014 17.44 3/15/2013 16.97 4/15/2015 10.93 3/21/2011 3/15/2014 11.46 5/15/2017 5/15/2017 12.95

S&P CCC NR BBBNR NR CCC NR NR BB BB CCC+ BBBBNR B+ NR B BBB+ BBB CCC BB+ BBBB

Moodys Caa1 NR B2 NR NR NR NR NR NR NR NR B1 NR NR NR NR NR NR NR NR NR NR NR Caa1 NR NR NR Ba3

Source: Goldman Sachs. Prices as of 10-Oct-08.

13

Negative Basis Trades  Due to technical factors, there are times when a convertible bond can trade below the theoretical price derived from CDS spread (commonly referred to as Bond Floor).  Such a bond is considered to have a negative basis.  This could be an attractive outright long convertible bond trade or a relative value trade by being long convertible and long CDS protection against it.

 Example: 

BXP 2.875s due 2/15/2037 Puttable 2/20/2012. Price quoted 72.375 vs. $76.18 on 10/10/08. 

Bond is less than 4 years to put. Using 300bps CDS spread (4yrs) bond floor or investment value of the convertible implies 89.05.



Therefore, bond basis is calculated as (72.375 – 89.05) = -16.68

14

Negative Basis Trades 

Below we show examples of negative basis trades with at least $200mm of face amount outstanding.

Description PLD 2.625 5/15/38 DRE 3.750 12/07/11 PLD 1.875 11/15/37 BXP 2.875 02/15/37 DDR 3.500 08/15/11 DDR 3.000 03/15/12 VNO 2.850 03/15/27 WRI 3.95 08/01/26 VNO 3.625 11/15/26 BRE 4.125 08/15/26 RIG B 1.500 12/15/37 HPT 3.800 03/15/27 RIG A 1.625 12/15/37 RIG C 1.500 12/15/37 NBR 0.940 05/15/2011 ADM 0.875 02/15/14 EQR 3.850 08/15/26 AMGN A .125 02/01/11 PRU L-163 bps 12/15/37 MDT A 1.500 04/15/11 BXP 3.625 02/15/14 PRU L-240 bps 12/12/36 OMC 0.000 06/15/33 OMC 0.000 07/01/38 AMGN B .375 02/01/13 BXP 3.750 05/15/36 MDT B 1.625 04/15/13 EMC 1.75 12/01/11

Tkr PLD DRE PLD BXP DDR DDR VNO WRI VNO BRE RIG HPT RIG RIG NBR ADM EQR AMGN PRU MDT BXP PRU OMC OMC AMGN BXP MDT EMC

BondPx 56.05 71.64 55.46 72.38 62.17 58.36 71.85 75.20 76.90 74.72 74.17 66.38 80.12 70.48 78.01 69.14 82.87 83.79 84.50 87.13 78.52 90.50 87.65 88.08 78.95 84.39 84.13 87.83

BondFloor 74.91 90.13 73.8 89.06 79.69 75.15 88.15 90.45 91.89 89.15 86.94 78.67 92.06 82.19 89.14 77.88 91.53 91.87 91.84 94.41 85.76 97.49 94.18 94.18 83.39 88.57 87.87 91.4

Source: Goldman Sachs. Prices as of 10-Oct-08. Bond floor implied by CDS

Basis -18.86 -18.49 -18.34 -16.68 -17.52 -16.79 -16.30 -15.25 -14.99 -14.43 -12.78 -12.29 -11.95 -11.72 -11.14 -8.74 -8.66 -8.08 -7.34 -7.29 -7.24 -6.99 -6.54 -6.10 -4.44 -4.18 -3.75 -3.57

StkPx 27.31 16.26 27.31 76.18 19 19 78.23 26.55 78.23 38.25 69.05 11.29 69.05 69.05 14 15.45 41 48.58 36.13 40 76.18 36.13 30.12 30.12 48.58 76.18 40 10.12

Parity 35.83 33.23 33.31 53.65 29.18 25.42 48.15 54.1 50.98 53.72 40.95 22.36 40.95 40.95 30.55 35.28 67.33 60.84 27.29 71.49 64.79 34.67 58.49 58.49 61.12 76.23 71.49 62.94

Premium %Premium YTM/YTP 20.47 57.13 16.62 38.66 116.33 15.42 22.4 67.27 16.91 18.98 35.38 13.31 33.24 113.9 22.03 33.19 130.57 20.42 23.95 49.74 13.15 21.35 39.46 15.03 26.17 51.34 12.83 21.25 39.57 13.69 33.34 81.4 11.41 44.28 198.05 17.05 39.29 95.93 12.3 29.65 72.39 10.38 47.52 155.53 10.92 33.98 96.31 8.09 15.79 23.45 10.92 23.2 38.12 7.87 57.71 211.47 26.17 15.76 22.05 7.17 13.98 21.58 8.68 56.33 162.47 62.9 29.29 50.08 7.99 29.85 51.04 7.74 18.08 29.58 5.94 8.41 11.03 7.8 12.76 17.86 5.64 25.13 39.93 5.99

S&P BBB+ BBB+ BBB+ ABBB BBB BBB BBB+ BBB BBB BBB+ BBB BBB+ BBB+ BBB+ A BBB+ A+ A+ AAAA+ AAA+ AAAA-

Moodys NR NR NR NR NR NR Baa2 NR Baa2 NR Baa2 Baa2 Baa2 Baa2 NR NR NR A2 A3 A1 NR NR Baa1 Baa1 A3 NR A1 NR

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Disclaimer This message has been prepared by personnel in the Equities or Fixed Income, Currency and Commodities Sales/Trading Departments of one or more affiliates of The Goldman Sachs Group, Inc. ("Goldman Sachs") and is not the product of the Global Investment Research Department or Fixed Income Research. It is not a research report and is not intended as such. Non-Reliance and Risk Disclosure: This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of our clients. It does not constitute a recommendation or take into account the particular investment objectives, financial conditions, or needs of individual clients. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. Certain transactions - including those involving futures, options, equity swaps, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not available to nor suitable for all investors. If you have any questions about whether you are eligible to enter into these transactions with Goldman Sachs, please contact your sales representative. Please ensure that you have read and understood the current options disclosure document before entering into any options transactions. Current United States listed options disclosure documents are available from our sales representatives or at http://theocc.com/publications/risks/riskstoc.pdf. This material is not for distribution to retail clients, as that term is defined under The European Union Markets in Financial Instruments Directive (2004/39/EC) and any investments, including derivatives, mentioned in this material will not be made available by us to any such retail client. Foreign-currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. The material is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only and only represent the views of the author and not those of Goldman Sachs, unless otherwise expressly noted. Special Risk Disclosure related to U.S. Registered Exchange Traded Funds: To the extent this communication contains information pertaining to U.S. registered exchange traded funds ("ETFs"), consider the investment objectives, risks, charges and expenses of the ETFs carefully before investing. A prospectus describing this and the terms and characteristics of the ETFs has been prepared by the issuer. It is recommended that you obtain and review carefully such prospectus before purchasing any ETF. You may obtain a copy of the prospectus for the ETFs mentioned in these materials by contacting your Goldman Sachs sales representative or by sending a request by (i) email to [email protected], (ii) fax to (212) 902-9316, or (iii) mail to Goldman Sachs, 85 Broad Street, NY, NY, 10004, Attn: Prospectus Department. ETFs are redeemable only in Creation Unit size aggregations and may not be individually redeemed; are redeemable only though Authorized Participants; and are redeemable on an "in-kind" basis. The public trading price of a redeemable lot of the ETFs may be different from its net asset value. These ETFs can trade at a discount or premium to the net asset value. There is always a fundamental risk of declining stock prices, which can cause losses to your investment.

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Disclaimer Order Handling Practices for U.S. Listed Equity and Index Options: While the firm is holding your options order, the firm or its clients may engage in trading activity in the same or related products, including options and underlying securities. While such trading activity is unrelated to your order, it may coincidentally impact the market prices of options that you are buying or selling. Conflict of Interest Disclosure: We are a full-service, integrated investment banking, investment management, and brokerage firm. The professionals who prepared this material are paid in part based on the profitability of The Goldman Sachs Group, Inc., which includes earnings from the firm's trading, capital markets, investment banking and other business. They, along with other salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein or the opinions expressed in research reports issued by our Research Departments, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the views expressed herein. In addition, the professionals who prepared this material may also produce material for, and from time to time, may advise or otherwise be part of our trading desks that trade as principal in the securities mentioned in this material. This material is therefore not independent from our proprietary interests, which may conflict with your interests. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives (including options) thereof in, and act as market maker or specialist in, and serve as a director of, companies mentioned in this material. In addition, we may have served as manager or co manager of a public offering of securities by any such company within the past three years. Legal Entities Disseminating this Material: This material is disseminated in Australia by Goldman Sachs JBWere Pty Ltd (ABN 21 006 797 897) on behalf of Goldman Sachs; in Canada by Goldman Sachs Canada Inc. regarding Canadian equities and by Goldman, Sachs & Co. and/or Goldman Sachs Execution & Clearing, L.P. (all other materials); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs JBWere (NZ) Limited on behalf of Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W); in India by Goldman Sachs (India) Securities Private Limited, Mumbai Branch; in Europe by Goldman Sachs International (unless stated otherwise); in France by Goldman Sachs Paris Inc. et Cie and/or Goldman Sachs International; in Germany by Goldman Sachs International and/or Goldman, Sachs & Co. oHG; in Brazil by Goldman Sachs do Brasil Banco Múltiplo S.A.; and in the United States of America by Goldman, Sachs & Co. (or when expressly noted as such, by Goldman Sachs Execution & Clearing, L.P.) (both of which are members NASD, NYSE and SIPC). You may obtain information about SIPC, including the SIPC brochure, by contacting SIPC (website: http://www.sipc.org/; phone: 202371-8300). Goldman Sachs International, which is authorized and regulated by the Financial Services Authority, has approved this material in connection with its distribution in the United Kingdom and European Union. Unless governing law permits otherwise, you must contact a Goldman Sachs entity in your home jurisdiction if you want to use our services in effecting a transaction in the securities mentioned in this material. Reproduction and Re-Distribution: No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without our prior written consent. Notwithstanding anything herein to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives and other agents) may disclose to any and all persons the U.S. federal income and state 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.

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Disclaimer Information Not for Further Dissemination. To the extent this communication contains Goldman, Sachs & Co. or its affiliates ("Goldman Sachs") pricing information, such pricing information is proprietary and/or confidential and is provided solely for the internal use of the intended recipient(s). You are notified that any unauthorized use, dissemination, distribution or copying of this communication or its contents, including pricing information, in whole or in part, is strictly prohibited. Further, unless prohibited by local law, any use, review or acceptance of this information is subject to and manifests your agreement with Goldman Sachs to use such information only in accordance with the terms set forth above. Goldman Sachs has caused its proprietary information to be delivered to you in reliance upon such agreement. © Copyright 2008 The Goldman Sachs Group, Inc. All Rights Reserved.

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