The Goldman Sachs Group, Inc.

Where to Invest Now

Sustainability of rally depends on final demand

September 2009

David J. Kostin Chief US Equity Strategist Goldman, Sachs & Co. 212-902-6781 david.kostin@gs.com

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment decision.
For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to
www.gs.com/research/hedge.html.
Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
 US equity market: Investment views & strategies
Sustainability of rally depends on final demand

1. Economy: Macro data show recovery in process; Final demand is key issue 200
Recent rallies from bear market lows
– GS Global Leading Indicator (GLI) improved for 4th consecutive month. "Pop"
1 month
"Stall"
3 months
"Sustained Rally"
6 months
– ISM at 53 (up from 33 in Dec). Consumer Confidence at 66 (up from 55 in Nov). Min: 9% Min: -4% Min: 3%
175 S&P 500 1982
– Non-farm payroll declines now at 216,000 per month (vs. 740,000 loss in Jan). Avg: 15 Avg: 7 Avg: 14

S&P 500 (indexed to 100 at trough)

Return Max: 21 Max: 15 Max: 26
– Benefit of inventory re-stocking tempered by all-time low capacity utilization (69). Year-end
Price Target
150 Current (+6% from 2-Sep)
2. Earnings: Focus on 2010 pre-provision EPS of $81 2009 1975
1990
– Our S&P 500 operating EPS estimates are $52 for 2009 and $75 for 2010.
– On a pre-provision and pre-write-down basis our estimates are $69 and $81. 125

– 2010E ex-financials EPS reflects 23% gain from low, below 36% historical avg. 2002
1987

– Record 5.7% drop in SG&A expenses drives margins and operating leverage. 100

3. Valuation: 7% upside to YE 2009 fair value; 11% 1-year return potential to 1100 Trough
– Our year-end 2009 fair value equals 1060 based on our DDM framework. 75

– Other approaches (Fed Model, P/E mean reversion) point to valuations 1400+. (5) (4) (3) (2) (1) 0 1 2 3 4 5 6 7 8 9 10 11 12
Months around Trough
– S&P 500 currently 46% above March low and trades at 12.5x our 2010 EPS.
– Defensives (Health Care, Staples) most attractively valued but lack catalyst. S&P 500 earnings trajectory
$110
S&P 500 Peak 2008 2009E 2010E
$100
4. Money flows: Mutual funds and pension/retirement funds key to sustained rally S&P 500 $91
$90 Ex-Financials
(Trailing EPS)
– Mutual funds (23% of equity market) bought stocks in March, May and June.

Trailing EPS (last-twelve-months)

$80 Peak $73 $75
– Hedge funds (3%) covered shorts in April, July and August. $70
$64
$50
– Pension & retirement funds (19%) remain modestly underweight equities. $60
$50
– Money market mutual fund assets total $3.6 trillion, 41% of S&P 500 market cap. Ex-Financials
Financials $61
$40 Contribution to $50
Peak $26 $52
$30 S&P 500 EPS
Implementation: Goldman Sachs Portfolio Strategy Bloomberg baskets (GSSU5)
$20 Financials
– Cyclicals. Buy cyclical sectors: Energy, Materials, Financials, Technology. $10 Contribution to
$14
– BRICs. Buy firms with high sales exposure to emerging markets (GSTHBRIC). $0 S&P 500 EPS
$(14)
– Operating leverage. Buy stocks with high operating leverage (GSTHOPHI). $(10)
$2
$(20)
– Capex. Buy firms investing for growth with high capex/depreciation (GSTHRINV).
Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10
Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10
Goldman Sachs Global ECS Research Source: Compustat, Goldman Sachs Global ECS Research. As of August 31, 2009. 2
 US Portfolio Strategy analytical framework
Economy, earnings, valuation, and money flow
1. Economy 2. Earnings
3.5 % EPS Recovery Price Recovery
EPS EPS One Year Two Years One Year Two Year
Peak Trough After Trough After Trough Return Return
GDP Growth (qoq annualized %)

1.5 % 3.0 3.0

2.0 2.0 Dec-09 Dec-14 69 % 194 % 29 % 33 %
1.5 1.5 1.5
Dec-16 Dec-21 138 238 37 26
(0.5)% (0.7) (1.0) Dec-29 Sep-38 31 74 121 113
(2.7) Sep-41 Jun-46 71 122 54 59
(2.5)% Jun-51 Dec-52 5 16 42 59
(5.4)
(6.4) Jun-56 Dec-58 18 13 31 44
Dec-59 Sep-61 15 30 33 56
(4.5)%
Dec-66 Sep-67 11 20 33 42
Sep-69 Dec-70 17 37 44 60
(6.5)% Sep-74 Sep-75 30 55 38 67
Dec-81 Dec-82 21 43 58 62
(8.5)% Jun-86 Jun-87 41 66 21 57
Q1A Q2A Q3A Q4A Q1A Q2E Q3E Q4E Q1E Q2E Q3E Q4E Jun-89 Mar-92 14 43 29 36
Sep-00 Mar-02 22 49 34 44
Jun-07 Jun-09 50
2008 2009 2010
Historical Average 36 % 71 % 43 % 54 %

3. Valuation 4. Money Flow

100%
Year-end 2009 S&P 500 Fair Value Share of
Hedge Funds 3%

Upside / (Downside) US Corporate Equity Market Households 35%

Goldman Sachs From Current 80%

Methodology Top-down S&P 500 Level (995)

60%
Fed model 1420 43 % Other 9%
US Treasury 10 Year Yield 1580 59 Pension Funds 11%
BBB Corporate 10 Year Yield 1260 27 40% Government Retirement Funds 8%

Reversion of P/E to 10-yr avg 1410 42 % International Investors 12%

20%
US Portfolio Strategy DDM 1060 7%
Assumptions: 4% ERP, 6.7% long term EPS growth, 4.5% risk free rate
Mutual Funds 23%
0%
Avg Fair Value (using 3 approaches) 1300 31 %
1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009
Source: Compustat, Robert Shiller, Federal Reserve, Standard and Poor’s and Goldman Sachs Global ECS Research. Earnings data: Reported (1909-1970) and Operating (1970-2009). As of September 3, 2009.
Goldman Sachs Global ECS Research 3
 Investment strategies relate to end market demand
US stock rally will continue only if top-line sales materialize
Cyclicals lead when ISM above 50 BRICs driving global growth
65
50 to Trough: Trough to 50:
GDP Growth (% yr/yr)
ISM Peak
Staples Materials
60
ISM Peak
Health Care Industrials
2009 2010
Telecom
Utilities
Discretionary GS Consensus GS Consensus
Financials
55
China 9.4 8.3 11.9 9.3
Aug-09 = 53
BRICs 5.3 5.1 8.7 7.2
50 India 5.8 6.2 7.8 7.2
50
50 World (0.8) (1.0) 4.0 3.4
Peak to 50:
50 to Peak: USA (2.6) (2.6) 2.0 2.3
45 Energy
Energy
UK (4.2) (4.3) 1.9 0.9
Financials
Telecom Materials Japan (5.2) (6.1) 1.5 1.3
40 Utilities Tech Europe (3.6) (5.8) 1.4 0.3
Industrials
ISM Trough
Staples Euroland (3.8) (4.3) 1.2 0.6
Dec-08 = 33
35

Sales growth leads capex growth

2Q 2009 Results: Revenues vs. Earnings 30% 20%

378 Stocks Earnings Surprise 20%

Sales Growth
Line, RHS 15%
(ex. Fin & Utilities)

Annual S&P 500 Capex Growth

Positive Inline Negative Total

Annual S&P 500 Sales Growth

10%
Positive 15% 8% 2% 25% 10%
Revenue

5%
Surprise

0%
Inline 26% 21% 5% 51% 0%

(10%) Capex Growth

Bars, LHS -5%
Negative 8% 12% 3% 23% (15)%
(20%) U.S. Portfolio -10%
Strategy Forecasts (22)%
Total 49% 40% 10% (30%) -15%
1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012
Source: Compustat, Goldman Sachs Options Research, Consensus Economics August 2009, Goldman Sachs Global ECS Research. As of September 3, 2009.

Goldman Sachs Global ECS Research 4

 Recommended investment implementations
US Portfolio Strategy baskets on Bloomberg <GSSU5>
Cyclicals BRICs (Bloomberg: <GSTHBRIC>)
160 4 130
Relative Performance BRICS Sales Basket
Cyclicals outperforming
outperforming
Operating leverage increasing 125 Long GSTHBRIC / 124
Indexed Return Cyclicals vs. Defensives Sectors

140
Short S&P 500
120

Degree of Operating Leverage

120 Degree of
Operating 3
Leverage
100 (RHS) 115

110
80
Cyclicals vs.
Defensives 2
Sectors 105
60
(LHS)
S&P 500 outperforming
Defensives outperforming
100
40 Operating leverage declining
50-stock basket with highest revenue exposure to BRICs. Sector-neutral vs. S&P 500
95
20 1

Dec-08

Apr-09

May-09

Aug-09
Jan-09

Mar-09

Jun-09

Jul-09

Sep-09
1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014
Operating Leverage (<GSTHOPHI> vs. <GSTHOPLO>)
110 Capex (<GSTHINVG>)
120
Relative Performance
105
115 Long GSTHINVG /
Short SPX
100
110

95
105

90 100
Relative Performance

85 Long GSTHOPHI /
95
Short GSTHOPLO
Degree of operating leverage = (sales – COGS) / (sales – COGS – SG&A – depreciation) Reinvestment ratio based on highest 1-yr historical and 2-yr expected capex / depreciation
80 90
Dec-06

Dec-07

Dec-08

Dec-09
Mar-07

Jun-07

Sep-07

Mar-08

Jun-08

Sep-08

Mar-09

Jun-09

Sep-09

Aug-08

Nov-08

Aug-09

Nov-09
Feb-09

May-09
Source: Compustat, Goldman Sachs Research estimates, Goldman Sachs Global ECS Research. As of September 3, 2009.

Goldman Sachs Global ECS Research 5

 Benefit of anticipated inventory re-stocking
will be tempered by all-time low capacity utilization
Private Inventories ISM New Orders less Inventories
3% 40
Change in Private Inventories ISM Manufacturing
30
New Orders less Inventories
2%
Percent of GDP

20
1%

10
0%

(1)%
(10)

(2)%
(20)
1970 1975 1980 1985 1990 1995 2000 2005 2010 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10

S&P 500 Inventory/Sales Capacity Utilization

14% 95%
Inventory / Sales US Capacity Utilization
13% 90%

12%
85%
11% Seasonally Long-term avg = 81%
Adjusted 80%
10%
Inventory / LTM
Sales 75%
9%

8% 70%
Quarterly Inventory /
7% LTM Sales 65%
July 2009
Seasonally Adjusted Inventory = Average Inventory over last four quarters 69%
6%
60%
Dec-80

Dec-82

Dec-84

Dec-86

Dec-88

Dec-90

Dec-92

Dec-94

Dec-96

Dec-98

Dec-00

Dec-02

Dec-04

Dec-06

Dec-08

Dec-10

Dec-12

Dec-68

Dec-70
Dec-72
Dec-74
Dec-76
Dec-78
Dec-80
Dec-82
Dec-84
Dec-86
Dec-88
Dec-90
Dec-92
Dec-94
Dec-96
Dec-98
Dec-00
Dec-02
Dec-04
Dec-06
Dec-08
Dec-10
Source: Haver IDC via Factset, Department of Commerce and Goldman Sachs Global ECS Research. As of September 3, 2009.
Goldman Sachs Global ECS Research 6
 Labor market remains weak
We expect the unemployment rate will reach 10% in 2010

Employment Growth Unemployment rate

12
Change in non-farm payrolls (mom, thousands)

800
10.8 GS
10.2
Monthly Change in non-farm payrolls (000s) Unemployment Rate Forecast
600
10 9.7
9.0
400 Current

Unemployment Rate (%)

7.7
200 8

0
6.2
6
(200)

(400) -2.8 million -1.6 million -2.7 million 4

(2.0%) (1.5%) (1.2%)
(600)
2
(800) 6.9 million jobs (4.5%) have been
lost since January 2008 Recession
(1000) 0
Dec-80

Dec-82

Dec-84

Dec-86

Dec-88

Dec-90

Dec-92

Dec-94

Dec-96

Dec-98

Dec-00

Dec-02

Dec-04

Dec-06

Dec-08

Dec-10

Jan-50

Jan-53

Jan-56

Jan-59

Jan-62

Jan-65

Jan-68

Jan-71

Jan-74

Jan-77

Jan-80

Jan-83

Jan-86

Jan-89

Jan-92

Jan-95

Jan-98

Jan-01

Jan-04

Jan-07

Jan-10
Source: Goldman Sachs Global ECS Research. As of September 4, 2009.
Goldman Sachs Global ECS Research 7
 Savings rate and the impact on consumer spending
How higher savings rate translates into less spending

Consumer discretionary cash flow

Personal savings rate Sensitivity to 2010 savings rate

14
2009 - 2010 Growth in
US Personal Savings Rate
12 Goldman Sachs forecast Consumer Discretionary
2010 Cash Flow
US Personal Savings Rate (%)

10
Savings Rate % ($ bn)
8.8%
8
LT Average = 7% 4% 2.7 % $180
6 5% 1.1 70
6% (0.6) (40)
4
7% (2.2) (150)
2 8% (3.9) (260)
0 9% (5.5) (370)
10% (7.2) (480)
(2)
Mar-47

Mar-50

Mar-53

Mar-56

Mar-59

Mar-62

Mar-65

Mar-68

Mar-71

Mar-74

Mar-77

Mar-80

Mar-83

Mar-86

Mar-89

Mar-92

Mar-95

Mar-98

Mar-01

Mar-04

Mar-07

Mar-10

If US savings rate rises to 10% in 2010,

Consumer Discretionary Cash Flow would
decline by 7%, or $480 billion, from 2009 levels.

Source: Goldman Sachs Global ECS Research. As of July 1, 2009.

Goldman Sachs Global ECS Research 8
 Discretionary cash flow definition and sensitivities

Calculating "discretionary household cash flow" Discretionary Cash Flow sensitivities

Impact to
Personal disposable income discretionary
+ Cash distribution from assets Magnitude cash flow
- Noncash income (a) Driver of Move $ bn %
= Disposable cash income Unemployment Rate 1 ppt 85.1 1.2
Disposable personal income 1 ppt. of growth 106.4 1.6
+ Net asset liquidations (MEW)
MEW $10 bb 10.0 0.1
+ Change in consumer credit
= Household cash flow Consumer credit 1 ppt. of growth 25.7 0.4
Financial Obligations Ratio 10 bps 10.6 0.2
- Debt service and financial obligations Food prices 1 ppt. of growth 7.4 0.1
- Essential spending
Energy Crude oil $10 / barrel 31.4 0.5
Food at home Gasoline $0.25 / gallon 35.5 0.5
Out-of-pocket medical costs Total energy 1 ppt. of growth 6.4 0.1
= Discretionary cash flow (b)
Increase in savings rate 1 ppt. 106.4 1.6

(a) For example, employer contributions to pension plans.

(b) Excluding cash savings impact from consumer credit reductions
Source: Goldman Sachs Retail Research Team.

Goldman Sachs Global ECS Research 9

 Decomposition of S&P 500 earnings estimates
Financials’ provisions & write-downs drag down SPX EPS

Contribution to EPS Annual earnings growth rates

GS Top-Down EPS Bottom-up GS Top-Down Bottom-Up
2008A 2009E 2010E 2009E 2010E 2009E 2010E 2009E 2010E
Consumer Discretionary $2 $3 $5 $4 $6 35 % 40 % 61 % 52 %
Utilities 3 3 3 3 3 1 10 1 11
Consumer Staples 8 8 9 8 9 0 5 (2) 8
Health Care 10 10 11 11 12 (2) 10 8 10
Telecom Services 3 2 3 2 3 (2) 3 (5) 8
Information Technology 9 8 10 9 12 (15) 20 0 28
Industrials 10 6 7 6 7 (35) 2 (36) 9
Materials 2 1 2 1 2 (47) 110 (33) 88
Energy 16 7 13 5 10 (55) 80 (67) 84
S&P 500 ex-Financials 64 50 61 51 64 (22) 23 (20) 26
Financials Operating EPS (14) 2 14 4 11 NM NM NM 152
S&P 500 Operating EPS $50 $52 $75 $55 $75 5% 45 % 12 % 36 %
+ Provisions & Writedowns 31 17 6 NA NA (46) (66) NA NA
S&P 500 EPS ex-P&W 81 69 81 NA NA (15) 18 NA NA

Source: FirstCall, Compustat and Goldman Sachs Research. Note: P&W = Provisions & Write-downs. As of September 2, 2009.

Goldman Sachs Global ECS Research 10

 S&P 500 earnings estimates versus previous peaks
Our 2010 EPS estimate is 14% below historical peak profits

Top-down 2010E EPS

Historical S&P 500 EPS by Sector GS Forecast as % of
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Historical High
Utilities $1 $2 $2 $2 $2 $3 $3 $3 $3 $3 $3 109%
Health Care 6 6 6 6 7 8 9 10 10 10 11 108
Consumer Staples 6 5 5 6 7 7 7 8 8 8 9 105
Info Tech 7 2 2 5 8 9 9 10 9 8 10 93
Energy 5 4 3 5 7 11 13 14 16 7 13 81
Telecom Services 4 3 2 2 2 2 3 3 3 2 3 66
Industrials 6 4 5 5 6 8 9 10 10 6 7 64
Consumer Discr 5 2 6 6 7 7 8 7 2 3 5 60
Materials 2 1 1 1 2 2 3 3 2 1 2 59

S&P 500 ex Financials $42 $28 $34 $39 $49 $57 $64 $68 $64 $50 $61 90%

Financials Operating EPS 14 11 12 16 19 20 24 15 (14) 2 14 59

Provisions & Writedowns 0 0 0 0 0 0 0 (10) (31) (17) (6)
Financials Pre-Prov & WD 14 11 12 16 19 20 24 25 17 19 20 81

S&P 500 $56 $39 $46 $55 $68 $76 $88 $83 $50 $52 $75 86%
S&P 500 ex-P&W 56 39 46 55 68 76 88 93 81 69 81 88

Note: Boxed numbers indicate the last year in which the S&P 500 achieved earnings comparable to 2010 forecasts, by sector.
Source: FirstCall, Compustat and Goldman Sachs Research. Note: P&W = Provisions & Write-downs. As of July 30, 2009.
Goldman Sachs Global ECS Research 11
 Cyclicals forecast to post best sales growth in 2010
Worst year/year sales decline in 40 years reported in 2Q09

S&P 500 Quarterly Sales Growth (Y/Y) S&P 500 Quarterly Earnings Growth (Y/Y)
60
40

Sales Growth 50 Earnings Growth

Q1 = -14% 40 Q1 = -36%
30

S&P 500 Earnings Growth (yoy, %)

Q2 = -17% Q2E = -25%
S&P 500 Sales Growth (yoy, %)

30
20 20

10
10
0
1%
-10
0
-20
-2% -17% -18% -35%
-4% -23%
-10 -7% -30
-32%
-40
excluding Financials & Utilities Recession -36%
-17% excluding Financials & Utilities Recession
-20 -50

Mar-70

Mar-72

Mar-74

Mar-76

Mar-78

Mar-80

Mar-82

Mar-84

Mar-86

Mar-88

Mar-90

Mar-92

Mar-94

Mar-96

Mar-98

Mar-00

Mar-02

Mar-04

Mar-06

Mar-08

Mar-10

Mar-12

Mar-14
Mar-70

Mar-72

Mar-74

Mar-76

Mar-78

Mar-80

Mar-82

Mar-84

Mar-86

Mar-88

Mar-90

Mar-92

Mar-94

Mar-96

Mar-98

Mar-00

Mar-02

Mar-04

Mar-06

Mar-08

Mar-10

Mar-12

Mar-14

Sector Sales Growth (year-over-year)

Actual Bottom-Up Estimates
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Annual Annual
Sector Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 2009 2010
Energy (41)% (46)% (41)% (5)% 42 % 28 % 14 % 17 % (5)% 17 %
Information Technology (11) (14) (10) (5) 4 7 8 7 (5) 7
Materials (29) (31) (29) (5) 11 7 9 6 (5) 6
Consumer Staples (1) (2) (2) 6 2 4 5 5 6 5
Consumer Discretionary (14) (10) (10) 1 (3) 3 3 4 1 4
Health Care 2 2 3 5 5 5 4 3 5 3
Industrials (9) (16) (14) (7) 1 2 3 3 (7) 3
Telecom Services 2 2 3 4 2 2 0 1 4 1
S&P 500 (14)% (17)% (15)% (0)% 7% 7% 6% 6% (0)% 6%
Source: First Call, Bloomberg, FactSet, Goldman Sachs Global ECS Research. As of September 2, 2009.
Goldman Sachs Global ECS Research 12
 Quarterly profit margins contracted although firms
cut SG&A expenses more than in past recessions
S&P 500 Quarterly Profit Margin (Y/Y) S&P 500 SG&A Growth (Y/Y)
10 25 %

Profit Margin SG&A Growth

SG&A Growth
20 %
9 (yoy) Q1 = -3.3%
Q1 = 6.0%
S&P 500 Quarterly Profit Margin (%)

Q2 = -5.7%
Q2 = 7.2%

SG&A Growth (yoy, %)

15 %
8

10 %
7.2%
7

5%
6
6.0% 0%
Sep-01
5
(0.2)%
(5)% Dec-88 Dec-91
4.6% (3.4)% (4.1)%
4 Jun-09
4.0%
3.8% 4.0% (10)% (5.7)%
Recession
excluding Financials & Utilities
3
(15)%
Mar-70

Mar-72

Mar-74

Mar-76

Mar-78

Mar-80

Mar-82

Mar-84

Mar-86

Mar-88

Mar-90

Mar-92

Mar-94

Mar-96

Mar-98

Mar-00

Mar-02

Mar-04

Mar-06

Mar-08

Mar-10

Mar-12

Mar-14

Dec-78

Dec-80

Dec-82

Dec-84

Dec-86

Dec-88

Dec-90

Dec-92

Dec-94

Dec-96

Dec-98

Dec-00

Dec-02

Dec-04

Dec-06

Dec-08

Dec-10

Dec-12
EBIT Margin Decline by Sector SG&A Growth
2Q 2009
Peak 2Q 2009 Decline
Sector Margin Margin (bp) Sector (year-over-year)

Health Care 13.5% 13.3% (18)bp Telecom Services 4.7 %

Telecom Services 17.0 16.3 (70)
Consumer Staples (1.6)
Health Care (3.3)
Consumer Staples 11.6 9.7 (193)
S&P 500 (5.7)%
Information Technology 17.5 15.5 (202)
Consumer Discretionary (6.1)
S&P 500 13.4 11.2 (215)
Industrials (8.2)
Consumer Discretionary 11.4 8.6 (273)
Materials (9.8)
Materials 14.9 10.2 (472)
Energy (11.2)
Industrials 19.2 12.6 (661)
Information Technology (12.4)
Energy 19.0 8.3 (1,063)
S&P 500 margin excludes Financials and Utilities over the entire time horizon as well as General Motors (GM) and Ford (F) from 2004-present.
Source: Compustat, First Call, Bloomberg, Goldman Sachs Research and Goldman Sachs Global ECS Research. As of September 2, 2009.
Goldman Sachs Global ECS Research 13
 Better margins explains how 25% of companies beat
revenue in 2Q but 49% beat consensus EPS estimates
S&P 500 ex. Financials and Utilities 107
Market has rewarded top-line sales more than margins
378 Stocks Earnings Surprise 106
Positive Inline Negative Total
105
Positive 15% 8% 2% 25%
104
Revenue
Surprise

103 Sep-2 = 102

Inline 26% 21% 5% 51%
102

101 Revenue Beaters

Negative 8% 12% 3% 23% vs. Cost Cutters
100 (Relative Performance)
Total 49% 40% 10% 99
1-Jun 15-Jun 29-Jun 13-Jul 27-Jul 10-Aug 24-Aug 7-Sep

Of the 185 stocks (49%) beating consensus 2Q EPS estimate by more than 1 standard deviation . . .

2Q 2009 Revenue and Earnings Beaters (56 stocks) 2Q 2009 Cost Cutters (30 stocks)
Leading sectors: Tech, Health Care Leading sectors: Industrials, Materials
Companies Companies
AAPL JNPR SNDK JNJ CMCSA JWN MMM RTN APD TWX EP WMT
ORCL BMC MCHP AMGN AZO F LLL FLS PPG TGT EOG PBG
GLW HRS LSI TMO KSS LO ITT RRD EMN MAT HES SLE
DELL NTAP NVDA AGN APOL TAP IRM DOV DOW VFC CI HRL
EMC ERTS CRM DGX NWL HSY FCX AVY MWV NYT BCR QLGC
MA A AMAT HSP EXPE APA PTV CAT MON VAR KLAC
CA LLTC MYL LIFE RL MUR CF RX
CTSH ADSK ISRG DVA DV CAM PXD

Source: First Call, I/B/E/S, Compustat and Goldman Sachs Global ECS Research. As of September 3, 2009.
Goldman Sachs Global ECS Research 14
 Use of cash by S&P 500 companies
Back to the future: 73% of cash invested for growth in 2009
1600
Buybacks
1400 Dividends
Cash Acquisitions 33% 23%
1200 Research & Development 28%
Cash Usage ($ billions)

Capital Expenditures
1000
14%
12%
27% 13% 8%
15% 12% 12%
800 20% 10%
16% 18%
16% 12% 12% 14% 13% 11%
15% 13% 20%
12% 18% 14% 9%
600 16% 13% 16% 14% 14%
12% 16% 11% 12% 12%
14% 11% 9% 12%
14% 16% 15% 8% 18%
15% 9% 14% 14%
11% 14% 17% 15% 17%
400 15% 18%
15%
14%
32% 39%
46% 34% 47%
200 42% 44% 44% 38% 35% 40%
48% 47% 42% 43%

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E

Use of cash:
Invest for Growth 73% 70% 71% 72% 74% 76% 72% 69% 62% 60% 59% 54% 63% 73% 68%
(Capex + R&D + M&A)
Return to Investors 27% 30% 29% 28% 26% 24% 28% 31% 38% 40% 41% 46% 37% 27% 32%
(buybacks + dividends)
% year/year growth
2006 2007 2008 2009E 2010E

Capital Usage
Capital Expenditures 18 % 5% 10 % (22)% (15)%
Research & Development 11 10 7 (9) (15)
Cash Acquisitions 44 10 (29) (40) 25
Share Buybacks 33 30 (45) (77) 40
Dividends 15 14 (2) (21) (3)
Total Capital Usage 24 % 15 % (16)% (34)% (4)%
Source: Compustat, Goldman Sachs Global ECS Research. Note: Capital usage data for all 10 S&P 500 sectors.
Goldman Sachs Global ECS Research 15
 Capex growth is highly correlated with sales growth

30 % 20 %
S&P 500 Capex Growth
(LTM, bars, left) 15 %
S&P 500 Capex YoY Growth (LTM)

S&P 500 Sales YoY Growth (LTM)

20 %
10 %
10 %
5%

0% 0%

(5)%
(10)% S&P 500 Sales Growth
(LTM, right)
(10)%
U.S. Portfolio
(20)%
Strategy (15)%
Correlation = 0.62 Forecasts
Correlation (with 2Q sales lag) = 0.85
(30)% (20)%
Sep-85

Sep-87

Sep-89

Sep-91

Sep-93

Sep-95

Sep-97

Sep-99

Sep-01

Sep-03

Sep-05

Sep-07

Sep-09

Sep-11
Source: Compustat and Goldman Sachs Global ECS Research. As of August 31, 2009.

Goldman Sachs Global ECS Research 16

 S&P 500 capital expenditure trends since 1985

S&P 500 historical and projected capex S&P 500 capex growth
$ billions, LTM series % year/year growth, quarterly

600 30
LTM S&P 500 Capex ($ bil, quarterly series)

S&P 500 Capex 20

S&P 500 Capex (% year/year growth)

500
(LTM, $ bil)
10
400

(34)% 0

300 (28)%
(10)
Goldman Sachs US Portfolio
Strategy Forecasts S&P 500 Capex Growth
200
(6)% (20) (Quarterly, year/year)
(13)% Goldman Sachs US Portfolio
100 (30) Strategy Forecasts
Peak-to-trough decline Recessions
Recessions
(40)
0

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11
Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Source: Compustat and Goldman Sachs Global ECS Research. As of August 31, 2009.

Goldman Sachs Global ECS Research 17

 Historical peak-to-trough declines in capex by sector
Our top-down forecast represents 34% decline this cycle

Peak to Trough Capital Expenditure Decline Bottom-up Estimates (a)

1980s 1990s 2000 Current Historical Declines
Sector Cycle Cycle Cycle Cycle Mildest Worst 2009 2010
Telecom Services (12)% (3)% (65)% (14)% (3)% (65)% (10)% 1%
Materials (15) (31) (56) (14) (15) (56) (30) (2)
Information Technology (27) (16) (55) (18) (16) (55) (17) 14
Energy (51) (16) (15) (6) (15) (51) (24) 2
Utilities (50) (39) (43) (2) (39) (50) (4) (0)
Industrials (5) (20) (30) (9) (5) (30) (27) (8)
Consumer Discretionary (14) (9) (27) (34) (9) (27) (23) 1
Financials (23) (19) (11) (30) (11) (23) (22) 1
Health Care (6) (15) (4) (10) (4) (15) 1 9
Consumer Staples (5) (6) (3) (12) (3) (6) (7) 4

Sector Average (21)% (17)% (31)% (15)% (17)% (31)% (16)% 2%

S&P 500 (13)% (6)% (29)% (10)% (6)% (29)% (18) 2

Goldman Sachs top-down estimates -22% in 2009 and -15% in 2010.

(a) Goldman Sachs bottom-up forecasts.

Note: Boxes represent worst historical peak-to-trough decline for each sector.
Source: Compustat, Goldman Sachs Global ECS Research. As of August 31, 2009.
Goldman Sachs Global ECS Research 18
 S&P 500 triangulation of three valuation approaches
Fed Model, mean reversion of P/E multiple, and DDM

Year-end 2009 S&P 500 Fair Value

Upside / (Downside)
Goldman Sachs From Current
Methodology Top-down S&P 500 Level (995)

Fed model 1420 43 %

US Treasury 10 Year Yield 1580 59
BBB Corporate 10 Year Yield 1260 27

Reversion of P/E to 10-yr avg 1410 42 %

US Portfolio Strategy DDM 1060 7%

Assumptions: 4% ERP, 6.7% long term EPS growth, 4.5% risk free rate

Avg Fair Value (using 3 approaches) 1300 31 %

Source: Goldman Sachs Global ECS Research. Prices as of September 2, 2009.

Goldman Sachs Global ECS Research 19

 Bottom-up Forward P/E has doubled since Nov-08
as analysts have cut EPS estimates by almost 30%

$120
30x
Bottom-Up Forward 20-Nov-08

S&P 500 Bottom-Up Forward EPS Estimate

EPS Estimate $89 $100
25x (RHS)
S&P 500 Bottom-Up Forward P/E

$80
20x 2-Sep-09
9-Oct-07 $64
Bottom-Up Forward P/E 15.8x
(LHS) $60
15x 2-Sep-09
16.0x

$40
10x
20-Nov-08
8.4x
5x $20

0x $0
Dec-80

Dec-82

Dec-84

Dec-86

Dec-88

Dec-90

Dec-92

Dec-94

Dec-96

Dec-98

Dec-00

Dec-02

Dec-04

Dec-06

Dec-08

Dec-10

Dec-12
Source: Compustat, Robert Shiller, and Goldman Sachs Research. As of September 2, 2009.

Goldman Sachs Global ECS Research 20

 Cyclically-adjusted S&P 500 P/E ratio based on
10-year average trailing EPS, 1927-2009

45

40 Cyclically Adjusted
S&P 500 P/E Ratio
35
(10-year average trailing EPS)
Cyclically-Adjusted P/E

30

25

20 80 year Current
avg = 16.7x (31-Aug)
15.0x
15

10
9-Mar-09
5 9.9x
16-Aug-82
1932
6.2x
5.1x
0
Dec-27
Dec-31
Dec-35
Dec-39
Dec-43
Dec-47
Dec-51
Dec-55
Dec-59
Dec-63
Dec-67
Dec-71
Dec-75
Dec-79
Dec-83
Dec-87
Dec-91
Dec-95
Dec-99
Dec-03
Dec-07
Dec-11
Dec-15
Dec-19
Source: Compustat, Robert Shiller, and Goldman Sachs Research. As of August 31, 2009.

Goldman Sachs Global ECS Research 21

 S&P 500 Dividend Discount Model (DDM)

S&P 500 Top-Down Dividend Discount Model w

CAGR
2008A 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E '09E-'19E
Top-down Forecast Dividends $28.39 $22.10 $22.03 $22.80 $24.81 $26.74 $28.39 $29.84 $31.36 $32.96 $34.64 $36.40 5.1%
Annual Dividend Growth (%) 2.4 (22.1) (0.3) 3.5 8.8 7.8 6.2 5.1 5.1 5.1 5.1 5.1
Payout Ratio (%) 57.3 42.6 29.2 26.0 26.5 26.8 26.7 26.3 25.9 25.5 25.1 24.7
EPS ($) 49.51 52.00 75.00 88.00 93.00 100.00 106.00 114.00 121.00 129.00 138.00 147.00 11.0%
Annual EPS Growth (%) (40.0) 4.7 45.3 16.3 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.7

Cost of Equity 8.5%

Years from cash flow 0.3 1.3 2.3 3.3 4.3 5.3 6.3 7.3 8.3 9.3 10.3
Discount factor 0.97 0.90 0.83 0.76 0.70 0.65 0.60 0.55 0.51 0.47 0.43
PV of future dividend $6 $20 $19 $19 $19 $18 $18 $17 $17 $16 $16

Assumptions Decomposition of S&P 500 fair value

100%
Assumed LT EPS growth rate 6.7% Present Value of Dividends
Risk-free rate (a) 4.5% 90%
Equity risk premium 4.00% (2009-2018) 169 16%
80%
Cost of Equity (risk free rate + ERP) 8.5%
70%
Calculation of DCF value
60%
Terminal year multiple (b) 55.6 x
Terminal year value 2022 50%
Present Value of Dividends 870 84%
PV of terminal year value 870 (2019+)
40%
PV of dividends years 1-10 169
PV of terminal year value + PV of dividends 1039 30%

20%
S&P 500 DDM Fair Value 1040
Current S&P 500 Price: 995 10% 1039 100%
Premium / (Discount) to Fair Value (5)% 0%

(a) Current 10-year Treasury yield equals 3.3%.

(b) Terminal multiple calculated as 1 / (cost of equity – long term EPS growth rate). Alternatively, terminal multiple equals the inverse of the normalized dividend yield.
Source: Compustat and Goldman Sachs Research. As of September 2, 2009.

Goldman Sachs Global ECS Research 22

 S&P 500 future fair value path based on DDM
and current fair value sensitivity analysis
2000

Path of S&P 500 fair value based on 1860

DDM estimates and assuming S&P 500 fair value is
equal to the present value of future dividends
1700 1750

1640
S&P 500 level

1540
1400 1450
2009 Year-end
Top-down 1360
Fair Value
1280
1200
1100 1130
Current
SPX 1040 1060
(995) Current
Top-down
Fair Value
800
Current 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E

Sensitivity Analysis
Long Term EPS Growth Terminal Multiple Equity Risk Premium Risk Free Rate
Premium / Premium / Premium / Premium /
Input (Discount) Input (Discount) Input (Discount) Input (Discount)
Value to Fair Value Value to Fair Value Value to Fair Value Value to Fair Value
(5)% (5)% (5)% (5)%
6.25% 13% 45 x 13% 4.50% 19% 4.00% (45)%
6.50 4 50 4 4.25 9 4.25 (22)
Base Case: 6.70 (5) 56 (5) 4.00 (5) 4.50 (5)
6.75 (7) 60 (12) 3.75 (22) 4.75 9
7.00 (22) 65 (20) 3.50 (45) 5.00 19

Source: Goldman Sachs Global ECS Research. As of September 2, 2009.

Goldman Sachs Global ECS Research 23
 Global dividend swap market
Annualized potential return to Goldman Sachs forecasts

24%
Annualized potential upside/downside to forecasts

Nikkei 225
20%
EURO
STOXX 50
16%
12%
FTSE 100
8%
4%
S&P 500
0%
(4)%
2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019
For details see Global Dividend Swap Monitor, August 31, 2009
Source: Goldman Sachs Global ECS Research. As of August 31, 2009.

Goldman Sachs Global ECS Research 24

 Goldman Sachs forecasts and upside/(downside)
to market-implied dividend levels, 2009-2019
S&P 500
2008R 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Goldman Sachs Forecast 28.39 22.10 22.03 22.80 24.82 26.74 28.39 29.84 31.36 32.96 34.64 36.72
annual growth 2% (22)% (0)% 4% 9% 8% 6% 5% 5% 5% 5% 6%
Current market 28.40 22.20 22.23 22.68 23.38 24.15 24.95 25.77 26.65 27.56 28.49 29.46
annual growth 2% (22)% 0% 2% 3% 3% 3% 3% 3% 3% 3% 3%
Upside/(Downside) (0)% (1)% 1% 6% 11 % 14 % 16 % 18 % 20 % 22 % 25 %
Annualized (1.6)% (0.7)% 0.2 % 1.8 % 2.4 % 2.5 % 2.4 % 2.3 % 2.2 % 2.1 % 2.2 %

EURO STOXX 50
2008R 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Goldman Sachs Forecast 158.6 116.5 112.2 121.5 127.6 133.9 140.6 147.7 155.1 162.8 170.9 179.5
annual growth 8% (27)% (4)% 8% 5% 5% 5% 5% 5% 5% 5% 5%
Current market 158.6 115.8 93.5 89.3 90.6 91.7 92.9 94.0 95.4 96.9 98.3 99.6
annual growth 8% (27)% (19)% (5)% 2% 1% 1% 1% 1% 2% 1% 1%
Upside/(Downside) 1% 20 % 36 % 41 % 46 % 51 % 57 % 62 % 68 % 74 % 80 %
Annualized 2.2 % 15.3 % 14.5 % 10.9 % 9.2 % 8.2 % 7.4 % 6.9 % 6.5 % 6.1 % 5.9 %

FTSE 100
2008R 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Goldman Sachs Forecast 233.3 188.7 191.4 211.5 221.0 231.0 241.4 252.2 263.6 275.5 287.9 300.8
annual growth 8% (19)% 1% 11 % 4% 4% 4% 4% 4% 4% 4% 4%
Current market 233.3 187.9 156.5 146.5 146.0 146.0 147.0 148.1 149.1 150.1 151.2 152.2
annual growth 8% (19)% (17)% (6)% (0)% 0% 1% 1% 1% 1% 1% 1%
Upside/(Downside) 0% 22 % 44 % 51 % 58 % 64 % 70 % 77 % 83 % 90 % 98 %
Annualized 1.5 % 17.0 % 17.5 % 13.4 % 11.3 % 9.8 % 8.8 % 8.1 % 7.6 % 7.2 % 6.8 %

Nikkei 225
2008R 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Goldman Sachs Forecast 220.3 160.4 163.2 168.1 173.1 178.3 183.7 189.2 194.9 200.7 206.7 212.9
annual growth 8% (27)% 2% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Current market 220.3 153.0 126.0 127.0 128.0 130.5 133.0 136.0 139.0 142.0 145.0 148.0
annual growth 8% (31)% (18)% 1% 1% 2% 2% 2% 2% 2% 2% 2%
Upside/(Downside) 5% 30 % 32 % 35 % 37 % 38 % 39 % 40 % 41 % 43 % 44 %
Annualized 17.9 % 22.3 % 13.1 % 9.6 % 7.5 % 6.3 % 5.4 % 4.7 % 4.3 % 3.9 % 3.6 %

For details see Global Dividend Swap Monitor, August 31, 2009
Source: Goldman Sachs Global ECS Research. As of August 31, 2009.

Goldman Sachs Global ECS Research 25

 Sector concentration of current market cap and
2010E dividends for major global equity indices
S&P 500 EURO STOXX 50
% of Index % of Index
Sector Market Cap Dividend Sector Market Cap Dividend
Consumer Staples 13 % 18 % Financials 29 % 23 %
Energy 11 13 Telecom Serv. 11 18
Industrials 10 12 Utilities 13 16
Health Care 13 12 Energy 10 14
Information Tech. 19 9 Industrials 7 7
Financials 15 9 Health Care 5 6
Telecom Serv. 3 9 Consumer Staples 8 5
Utilities 4 8 Consumer Disc. 8 5
Consumer Disc. 9 7 Materials 5 4
Materials 3 3 Information Tech. 4 3

S&P 500 100 % 100 % EURO STOXX 50 100 % 100 %

FTSE 100 Nikkei 225

% of Index % of Index
Sector Market Cap Dividend Sector Market Cap Dividend
Energy 23 % 28 % Information Tech. 10 % 19 %
Consumer Staples 15 16 Industrials 19 18
Financials 21 14 Consumer Disc. 20 17
Health Care 7 12 Health Care 6 16
Telecom Serv. 6 11 Consumer Staples 6 10
Utilities 3 6 Financials 16 7
Materials 16 5 Materials 8 7
Consumer Disc. 6 4 Telecom Serv. 9 4
Industrials 3 3 Energy 2 2
Information Tech. 0 0 Utilities 4 1

FTSE 100 100 % 100 % Nikkei 225 100 % 100 %

Source: Goldman Sachs Global ECS Research. As of August 31, 2009.

Goldman Sachs Global ECS Research 26

 Top 20 estimated 2010 dividend contributors for
S&P 500 and Euro Stoxx 50

S&P 500 EURO STOXX 50

2010E 2010E 2010E 2010E
% of Index 2010E 09-'10 Dividend Payout % of Index 2010E 09-'10 Dividend Payout
Name Mkt Cap Dividend DPS Growth Yield Ratio Name Mkt Cap Dividend DPS Growth Yield Ratio
AT&T Inc 1.6% 5.1% 1.74 4% 6.9% 78% Telefonica 4.7% 8.5% 1.30 13 % 7.5% 65%
Exxon Mobil Corp 3.6 4.6 1.82 8 2.7 29 TOTAL SA 5.3 8.5 2.42 3 6.1 57
Johnson & Johnson 1.8 2.9 2.03 3 3.4 42 Grupo Santander 4.9 8.0 0.56 (5) 5.4 57
Verizon Communicat 0.9 2.9 1.89 2 6.3 71 E.ON 3.3 5.1 1.50 0 5.3 59
Chevron Corp 1.5 2.9 2.98 8 4.4 40 France Telecom 2.7 4.6 1.44 3 8.1 76
Procter & Gamble 1.7 2.8 1.83 12 3.5 45 ENI 3.8 4.5 1.10 5 6.6 52
Philip Morris 1.0 2.5 2.26 5 4.9 66 sanofi-aventis 3.5 4.3 2.61 8 5.6 44
Microsoft Corp 2.4 2.4 0.48 (2) 2.0 25 Deutsche Telekom 2.3 3.9 0.78 0 8.4 152
Pfizer Inc 1.2 2.2 0.99 (6) 6.2 43 Vivendi 1.4 2.9 1.50 7 7.5 55
General Electric Co 1.6 2.2 0.61 (26) 4.5 64 Allianz SE 2.0 2.7 4.00 14 5.2 40
Coca-Cola Co/The 1.3 1.8 1.75 7 3.5 52 Enel SpA 2.2 2.7 0.25 5 6.2 60
Merck & Co Inc/NJ 0.7 1.6 1.58 2 5.2 46 RWE 2.0 2.6 3.80 0 6.1 61
IBM Corp 1.7 1.6 2.02 3 1.7 21 Nokia 2.1 2.5 0.45 13 4.6 62
Intel Corp 1.2 1.6 0.59 5 3.0 74 Siemens AG 3.1 2.4 1.75 3 2.9 37
Altria Group Inc 0.4 1.5 1.36 5 7.5 75 BASF AG 1.8 2.3 1.50 0 4.3 80
PepsiCo Inc/NC 1.0 1.5 2.00 9 3.5 50 Unilever (NV) 3.2 2.1 0.82 3 4.4 57
ConocoPhillips 0.7 1.5 2.08 7 4.7 35 Bayer AG 2.0 2.0 1.50 7 3.6 38
Wal-Mart Stores Inc 2.2 1.4 1.13 9 2.2 29 Munich Re (reg) 1.2 1.8 6.00 9 5.7 44
Abbott Laboratories 0.8 1.4 1.71 10 3.8 42 BBVA 2.6 1.8 0.26 (12) 2.1 30
McDonald's Corp 0.7 1.1 2.59 21 4.7 62 Iberdrola SA 1.9 1.6 0.32 14 5.0 61

Top 20 27.8% 45.7% Top 20 56.1% 74.8%

S&P 500 100.0 100.0 2.2% EURO STOXX 50 100.0 100.0 4.5%

Source: Goldman Sachs Global ECS Research. As of August 31, 2009.

Goldman Sachs Global ECS Research 27
 Top 20 estimated 2010 dividend contributors for
FTSE 100 and Nikkei 225

FTSE 100 Nikkei 225

2010E 2010E 2010E 2010E
% of Index 2010E 09-'10 Dividend Payout % of Index 2010E 09-'10 Dividend Payout
Name Mkt Cap Dividend DPS Growth Yield Ratio Name Mkt Cap Dividend DPS Growth Yield Ratio
BP plc 7.8% 13.1% 6 0% 6.4% 56% Fast Retailing Co Ltd 0.6% 4.2% 170 6% 1.6% 26%
Vodafone 5.3 8.8 6 5 6.4 63 Canon Inc 2.3 4.1 110 0 3.2 59
Royal Dutch Shell plc 8.1 7.6 6 3 6.3 54 Takeda Pharmaceuti 1.4 3.9 155 (15) 4.2 62
GlaxoSmithKline 4.7 7.1 6 8 5.8 61 Eisai Co Ltd 0.5 3.5 140 3 4.2 93
HSBC 8.8 6.8 4 25 3.8 53 Astellas Pharma Inc 0.8 3.1 125 4 3.4 47
Royal Dutch Shell plc 8.1 5.8 6 3 6.4 54 Honda Motor Co Ltd 2.6 3.0 61 89 2.1 34
British American Tob 2.9 4.1 6 6 5.6 65 Kyocera Corp 0.7 3.0 120 0 1.5 66
AstraZeneca 3.1 4.1 5 6 5.3 41 KDDI Corp 1.2 3.0 12000 9 2.3 22
BHP Billiton Plc 7.6 2.4 3 3 3.3 44 Shin-Etsu Chemical C 1.2 2.5 100 0 1.8 41
Tesco 2.3 2.2 4 12 3.9 49 TDK Corp 0.3 2.2 90 0 1.7 47
National Grid 1.1 2.0 7 8 7.1 61 Trend Micro Inc 0.2 2.2 90 13 2.6 66
Diageo 1.8 2.0 4 5 4.0 51 Secom Co Ltd 0.5 2.1 85 0 2.1 35
Rio Tinto plc 4.1 1.8 4 100 3.5 43 Toyota Motor Corp 6.5 2.0 80 14 2.1 35
Imperial Tobacco 1.3 1.7 5 10 5.1 46 Fanuc Ltd 0.9 1.6 63 (3) 0.9 31
Unilever (NV) 3.8 1.7 4 3 4.1 52 NTT Data Corp 0.4 1.6 6250 4 2.0 37
Standard Chartered 2.1 1.5 3 15 3.5 36 Seven & I Holdings C 0.9 1.4 57 0 2.7 45
Kao Corp 0.6 1.4 56 0 2.4 51
Reckitt Benckiser 1.6 1.4 3 0 3.4 53
Daiichi Sankyo Co Lt 0.7 1.4 55 (21) 2.9 89
Scottish and Souther 0.8 1.3 7 7 6.8 71
Konami Corp 0.1 1.3 54 0 3.0 56
BT Group 0.8 1.1 5 8 5.4 55
Shiseido Co Ltd 0.3 1.2 50 0 3.0 84
Aviva plc 0.8 0.0 0 NA 0.0 0
Top 20 22.7% 48.7%
Top 20 77.0% 76.5%
Nikkei 225 100.0 100.0 1.6%
FTSE 100 100.0 100.0 4.4%

Source: Goldman Sachs Global ECS Research. As of August 31, 2009.

Goldman Sachs Global ECS Research 28

 Ownership of the US equity market
Mutual funds hold 8x the equity assets of hedge funds

100%
Hedge Funds 3%
Share of
US Corporate Equity Market
80%
Households 35%

60% Other 9%

Pension Funds 11%

40% Government Retirement Funds 8%

International Investors 12%

20%
Mutual Funds 23%

0%
1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009
Source: Compustat, Federal Reserve, Goldman Sachs Global ECS Research, as of September 2, 2009.
Goldman Sachs Global ECS Research 29
 Money market mutual fund assets total $3.6 trillion
equal to 41% of S&P 500 equity capitalization

$4,500 70%

$4,000 60%

$3,500
$3.6

Money Market Fund assets

50%
Money Market Fund assets

as % of S&P 500 MktCap

Trillion
$3,000 Money Market Mutual Fund Assets
Money Market Mutual Fund Assets 40% as % of S&P 500 Market Cap
($ billions)

$2,500
($ Billions) 41%

$2,000 30%

$1,500
20%
$1,000

10%
$500

$0 0%
Dec-91
Dec-92
Dec-93
Dec-94
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10

Dec-91
Dec-92

Dec-93
Dec-94
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Source: AMG and Goldman Sachs Global ECS Research. As of September 2, 2009.
Goldman Sachs Global ECS Research 30
 Portfolio distribution of large-cap core mutual funds
and Goldman Sachs recommended sector weightings
35%

Average Fund Weight

30%
S&P Weight
Goldman Sachs Weighting
25%

20%

75th %ile
15%

10%

5% 25th %ile

0%

Information Consumer Telecom Consumer

-5% Energy Financials Materials Industrials Technology Discretionary Utilities Services Health Care Staples

S&P Weight 11.7 15.4 3.4 10.0 18.5 9.1 3.8 3.2 13.5 11.5
Average Mutual -10%
Fund Weight 11.7 15.4 4.6 10.0 20.0 10.6 2.4 2.4 12.7 10.2

Goldman Sachs
14.7 17.4 5.4 11.0 19.5 9.1 3.8 1.2 10.5 7.5
Weighting

Goldman Sachs vs S&P 500

Overweight/(Underweight) 300 bp 200 bp 200 bp 100 bp 100 bp 0 bp 0 bp (200) bp (300) bp (400) bp

Percent difference OW/(UW) 26 % 13 % 59 % 10 % 5% 0% 0% (62)% (22)% (35)%

Overweight / Underweight

Source: Lionshare, Lipper and Goldman Sachs Global ECS Research. Pricing as of August 31, 2009.
Goldman Sachs Global ECS Research 31
 Long-only buying versus short covering rally
Hedge Fund short-covering during April and since mid-July
115 130
March May − mid-July
Mutual Fund Buying Mutual Fund Buying
110 120
Most Shorted Stocks S&P 500 up 9% S&P 500 up 7%

vs Least Shorted Most Shorted vs. Most Shorted vs.

105 (Sector Neutral, LHS) Least Shorted up 1% Least Shorted down 8% 110

100 100

95 mid-July − August 90
April
Short-Covering Rally Short-Covering Rally

90 S&P 500 S&P 500 up 10% S&P 500 up 7% 80

(RHS)
Most Shorted vs. Most Shorted vs.
Least Shorted up 10% Least Shorted up 8%
85 70
11-Feb

25-Feb

12-Aug

26-Aug
31-Dec

20-May
8-Apr

22-Apr

6-May

1-Jul

15-Jul

29-Jul
14-Jan

28-Jan

3-Jun

17-Jun
11-Mar

25-Mar

400 3.0 % Sector Most Shorted vs.

Return Least Shorted
t of S&P 500 Market Cap Held Short (%)
350
since since
Dollars of S&P 500 Stocks ($ bill

300 2.5 % 15-Jul 15-Jul

250
Consumer Discretionary 9% 24 %
Industrials 9 15
200 2.0 % Health Care 7 7
Share of S&P 500 Energy 5 6
150 6
market cap held short Aggregate Dollars Financials 13
(right-hand axis) of Short Interest Consumer Staples 2 4
100 1.5 %
(left-hand axis) Utilities 3 4
50 Information Technology 6 (1)
Materials 13 (4)
0 1.0 % Telecom Services 3 (18)
Apr-07

Apr-08

Apr-09
Jan-07

Jul-07

Oct-07

Jan-08

Jul-08

Oct-08

Jan-09

Jul-09

Oct-09

Jan-10

S&P 500 7% 8%

Source: Compustat and Goldman Sachs Global ECS Research. As of August 18, 2009.
Goldman Sachs Global ECS Research 32
 Hedge Fund net exposure rose in 2Q 2009
and has returned to pre-Lehman levels
Hedge Fund Positioning ($ bil)
Long Short Exposure % Net Long
Portfolio Portfolio Gross Net (Net/Long)
30-Jun-07 $1,002 $547 $1,549 $456 45%
30-Sep-07 938 498 1,435 440 47
31-Dec-07 898 506 1,405 392 44 Hedge Funds have
31-Mar-08 858 558 1,416 300 35 increased Net Long
30-Jun-08 896 606 1,502 291 32 exposure to
30-Sep-08 616 513 1,128 103 17 pre-Lehman levels.
31-Dec-08 393 309 702 83 21
31-Mar-09 393 303 696 90 23
30-Jun-09 498 346 844 153 31

Gross Positioning Net Positioning

Long Short Gross % of Aggregate 2Q Net
Sector ($ bil) ($ bil) ($ bil) Gross Sector ($ bil) Change Weighting
Information Technology $ 88 $ 58 $ 146 17 % Information Technology $ 30 $ 12 20 %
Financials 70 63 133 16 Health Care 29 9 20
Consumer Discretionary 71 56 127 15 Materials 19 4 13
Health Care 75 46 121 14 Energy 18 3 12
Industrials 46 38 84 10 Consumer Discretionary 14 6 10
Energy 46 28 75 9 Consumer Staples 9 3 6
Consumer Staples 33 24 58 7 Telecom Services 9 1 6
Materials 33 14 47 6 Industrials 7 3 5
Utilities 15 11 26 3 Financials 6 20 4
Telecom Services 16 6 22 3 Utilities 4 1 3

Total Gross Portfolio $ 498 $ 346 $ 844 100 % Total Net Portfolio $ 153 $ 63 100 %

Hedge Funds are no longer net short the

Hedge Funds deploy 17% of gross assets into
Fiancials sector. Funds appear most net
Info Tech, the most of any sector.
long Info Tech.

Source: Lionshare via FactSet, IDC, and Goldman Sachs Global ECS Research. As of June 30, 2009.
Goldman Sachs Global ECS Research 33
 Hedge fund ownership of US equities fell by 80 bp
since June 2008 and 7% of funds have closed

Hedge Fund Ownership of Russell 3000 7% fewer HFs filed 13-Fs in 2Q 2009 vs. 2008
6.0 %
15%
Hedge Fund Ownership of Russell 3000

5.5 %
Jun-08
5.0 % Estimated Hedge Fund Closings
4.5% 12%
4.5 % Change in number of Hedge Funds that filed a
Hedge Fund Ownership Jun-09
13-F formin June 2008 but NOT in June 2009
4.0 % 3.7%
3.5 %
of US Equity Market
9%
3.0 %
2.5 % Dec-08
2.0 % 2.9% 6%
10%
1.5 %
8% 7%
1.0 % 3% 6%
0.5 % 4%
0.0 % 0%
0%
Jun-02

Jun-03

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09
Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Less than $500m to $1B to $2B to Greater All Funds

$500m $1B $2B $5B than $5B

Source: Lionshare via FactSet, IDC, Compustat and Goldman Sachs Global ECS Research. As of June 30, 2009.
Goldman Sachs Global ECS Research 34
 Stocks that “matter most” to hedge funds have
outperformed by average 70 bp per quarter since 2001
125

Hedge Fund Stocks Total Return (100 = Dec 2003)

Stocks that "Matter Most" Stocks that "Matter Most"
Bloomberg <GSTHHVIP> Bloomberg: <GSTHHVIP>
120
(Relative Return vs. SPX)
Quarterly Relative Return vs. SPX
Maximum 675 bp 115
75th Percentile 193
Current = 108
Median 79 110
25th Percentile (39)
Minimum (785)
105
Standard Deviation 285

Average Excess Return (bp) 70 bp 100 Returns 2Q YTD

Sharpe Ratio 0.25 VIP List 22.4% 21.8%
S&P 500 15.9% 11.4%
Hit rate of outperformance 64 % 95

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09
Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09
since May 2001

Stock correlation is approaching historical avg Hedge Funds appear to be generating alpha YTD
0.8
110

0.7 Typical Hedge Fund

100 LONG Portfolio
0.6 Average stock correlation
Average Stock Correlation

vs. SHORT Portfolio

18-Aug-09
0.5 90
83

0.4
80
0.39 Hedge Fund
0.3
70 Longs vs. Shorts
0.2 Jan: +11% Jun: -3%
Feb: -8% Jul: -1%
60 Mar: -3% Aug: +1%
0.1
Apr: +5% YTD: +22% 20-Nov-08
May: +19% 58
0.0 50
Dec-89

Dec-90
Dec-91

Dec-92

Dec-93
Dec-94

Dec-95

Dec-96

Dec-97
Dec-98

Dec-99

Dec-00
Dec-01

Dec-02

Dec-03
Dec-04

Dec-05

Dec-06
Dec-07

Dec-08

Dec-09
Dec-10

Jun-07

Aug-07

Oct-07

Apr-08

Jun-08

Aug-08

Oct-08

Apr-09

Jun-09

Aug-09
Dec-07

Feb-08

Dec-08

Feb-09
Source: Lionshare via FactSet, IDC, and Goldman Sachs Global ECS Research. As of August 18, 2009.
Goldman Sachs Global ECS Research 35
 Sector valuation
Defensives offer best value but lack visible catalyst

Aggregate valuation metrics for S&P 500 and sectors Standard deviation vs. 10-year history (Z-Score)

EV/ EV/ Price/ FCF PEG NTM EV/ EV/ Price/ FCF PEG Median
Sales EBITDA Book Yield P/E Ratio Z-Score
Sales EBITDA Book Yield Ratio P/E
S&P 500 1.4x 7.3x 2.1x 5.9 % 1.6x 14.7x S&P 500 (1.1) (2.6) (1.2) (1.2) (0.7) 2.5 (1.1)

Materials 1.5 13.2 2.4 3.6 2.1 20.5 Health Care (1.8) (0.8) (0.9) (1.8) (2.6) (1.7) (1.7)

Financials NM NM 1.2 NM 1.7 16.7 Telecommunication Services (1.2) 1.0 0.3 (1.0) (1.2) (0.0) (0.5)
Consumer Discretionary 1.2 7.1 2.1 7.3 1.5 16.6 Consumer Staples 0.3 2.1 (0.7) (0.2) (1.8) (3.2) (0.5)
Information Technology 2.1 9.9 3.6 6.7 1.3 16.4 Information Technology (0.1) (0.2) 0.5 (0.8) (1.2) (1.2) (0.5)
Industrials 1.7 9.2 2.3 7.9 1.6 15.9 Utilities NM 1.4 0.5 NM 0.1 (0.1) 0.3
Energy 1.0 4.3 1.8 0.3 3.6 13.7 Industrials 0.6 1.6 0.3 (0.0) 1.1 (0.2) 0.5
Consumer Staples 1.1 8.5 3.3 6.4 1.4 13.7 Energy 0.4 (0.4) (0.3) 1.5 1.8 4.1 0.9
Telecommunication Services 1.7 5.2 1.6 13.3 2.4 12.8 Consumer Discretionary 1.9 2.1 1.8 (1.0) 0.1 (0.1) 1.0
Utilities NM 7.0 1.5 NM 2.2 11.9 Financials NM NM (1.1) NM 2.7 1.6 1.6
Health Care 1.2 7.5 2.8 8.1 1.3 11.8 Materials 2.0 6.8 1.5 1.0 2.3 1.1 1.7

Based on bottom-up consensus valuation.

Source: Compustat, First Call via FactSet, and Goldman Sachs Global ECS Research. As of September 2, 2009.

Goldman Sachs Global ECS Research 36

 Goldman Sachs US Portfolio Strategy Baskets

Permission to our GS Portfolio Strategy Baskets

To receive access to the Goldman Sachs US Portfolio Strategy <GSSU5> Bloomberg page, please follow the directions
below:
1. Please go to your Bloomberg terminal and type IAM <go>.
2. Take a screen shot of the page.
3. Send the attachment and an e-mail to your Goldman Sachs salesperson requesting access to the US Portfolio Strategy
Bloomberg <GSSU5> page.

Note: The ability to trade baskets will depend upon market conditions, including liquidity and borrow constraints at the time of trade.
Source: Bloomberg and Goldman Sachs Research.
Goldman Sachs Global ECS Research 37
 Buy US Portfolio Strategy BRICs basket
<GSTHBRIC>
Sales Sales
Company Ticker Rating Non-US BRICs Company Ticker Rating Non-US BRICs
Information Technology (20% of the Basket) Financials (11% of the Basket)
Sohu.com Inc. SOHU Neutral 100 % 100 % Citigroup Inc. C Not Rated 55 % 25 %
Genpact Ltd G Neutral 100 81 Morgan Stanley MS Neutral 57 21
Marvell Technology Group Ltd. MRVL Buy* 96 66 ProLogis PLD Sell 43 12
Fairchild Semiconductor Internation FCS NC 91 63 Franklin Resources BEN Buy 35 10
NVIDIA Corp. NVDA Neutral 92 62 White Mountains Insurance Group LWTM NC 36 6
Novellus Systems NVLS Sell* 74 59 Bank of New York BK Buy 32 5
Cree Inc. CREE NC 82 59 Bank of America Corp. BAC Buy* 11 4
Silicon Laboratories Inc. SLAB NC 87 59 Basket median 36 % 10 %
Basket median 91 % 63 % Sector median 4 0
Sector median 51 0 Industrials (9% of the Basket)
Health Care (14% of the Basket) Copa Holdings S.A. (Cl A) CPA NC 100 % 69 %
Mylan Laboratories MYL Buy 38 % 24 % Expeditors Int'l EXPD NC 80 58
Pfizer, Inc. PFE Buy* 52 19 Avery Dennison Corp. AVY NC 63 23
Waters Corporation WAT NC 68 17 Boeing Company BA Neutral 41 23
Varian Medical Systems VAR NC 51 16 Emerson Electric EMR Neutral 52 21
Bristol-Myers Squibb BMY Neutral 44 11 Basket median 63 % 23 %
Schering-Plough SGP Not Rated 64 11 Sector median 34 0
Illumina Inc. ILMN Neutral 43 10 Consumer Discretionary (8% of the Basket)
Basket median 51 % 16 % Central European Media EnterprisesCETV Neutral 100 % 100 %
Sector median 36 0 CTC Media Inc. CTCM Neutral 100 100
Consumer Staples (13% of the Basket) Las Vegas Sands Corp. LVS RS 67 67
Central European Distribution Corp. CEDC NC 99 % 99 % Yum! Brands, Inc YUM Buy 50 21
Avon Products AVP Sell 78 52 Basket median 83 % 83 %
Bunge Ltd. BG NC 76 39 Sector median 20 0
Corn Products International Inc. CPO NC 70 33 Materials (5% of the Basket)
Philip Morris Intl PM Buy 100 30 Newmont Mining Corp. (Hldg. Co.) NEM NC 71 % 48 %
PepsiAmericas Inc. PAS Not Rated 24 19 Mosaic Co. MOS Neutral 65 35
Coca-Cola Co. KO Buy 67 14 Basket median 68 % 42 %
Basket median 76 % 33 % Sector median 42 0
Sector median 24 0 Utilities (4% of the Basket)
Energy (13% of the Basket) AES Corp. AES NC 81 % 68 %
Atwood Oceanics Inc. ATW Neutral 93 % 32 % Duke Energy DUK Neutral 9 8
Global Industries Ltd. GLBL NC 69 20 Basket median 45 % 38 %
Pride International Inc. PDE Neutral 83 19 Sector median 0 0
Helmerich & Payne Inc. HP Neutral 21 15 Telecommunication Services (3% of the Basket)
Schlumberger Ltd. SLB Neutral 77 14 NII Holdings Inc. NIHD Neutral 100 % 46 %
Dresser-Rand Group Inc. DRC Neutral 100 13 American Tower Corporation AMT Buy 13 4
Seahawk Drilling Inc. HAWK NC NA NA Basket median 56 % 25 %
Basket median 80 % 17 % Sector median 0 0
Sector median 34 0
GSTHBRIC median 68 % 23 %
S&P 500 median 25 0
Source: Company 10-K filings, FactSet & Goldman Sachs Research. As of September 2, 2009.
Goldman Sachs Global ECS Research 38
 Buy high operating leverage basket <GSTHOPHI>
Sell low operating leverage basket <GSTHOPLO>
High Operating Leverage <Bloomberg: GSTHOPHI> Low Operating Leverage <Bloomberg: GSTHOPLO>
Degree of 2009E-2010E Degree of 2009E-2010E
Operating Growth EBIT Margin Operating Growth EBIT Margin
Name Ticker Leverage Sales EBIT LTM 2010E Name Ticker Leverage Sales EBIT LTM 2010E
Consumer Discretionary
Consumer Discretionary
Goodyear Tire & Rubber GT 14.5 2 % 144 % 1% 5%
Marriott Int'l. MAR 1.3 (1)% (3)% 7% 5%
Macy's Inc M 7.7 (0) 9 5 5
McDonald's Corp. MCD 1.6 5 6 28 29
Amazon.com AMZN 5.7 21 33 5 5
Coach, Inc. COH 2.3 4 (1) 33 29
Consumer Staples
Consumer Staples
Whole Foods Market Inc. WFMI 11.7 5% 16 % 3% 4%
Lorillard LO 1.3 1% 2% 42 % 41 %
Estee Lauder EL 9.1 1 18 9 9
Reynolds American Inc. RAI 1.7 (2) 0 28 29
Safeway Inc. SWY 7.8 3 8 4 4
Coca-Cola Co. KO 2.5 5 8 25 28
Coca-Cola Enterprises CCE 5.9 1 4 7 7
Brown-Forman Corp. BF.B 2.4 3 3 27 27
Energy
Energy
Pioneer Natural PXD 3.6 50 % NM 18 % 18 %
Devon Energy Corp. DVN 0.6 35 % 102 % (76)% 40 %
Anadarko Petroleum APC 2.5 25 NM 39 14
Chesapeake Energy Corp. CHK 0.7 8 (3) (57) 40
Smith International Inc. SII 2.4 3 8 14 10
Halliburton Co. HAL 1.3 1 5 21 14
Hess Corp. HES 2.2 40 234 10 9
Rowan Cos. RDC 1.3 (14) (38) 36 25
Health Care
Health Care
Coventry Health Care CVH 5.6 (17)% 17 % 5% 5%
CIGNA Corp. CI 1.3 5% 6% 5% 9%
Genzyme Corp. GENZ 3.8 23 33 22 32
Gilead Sciences GILD 1.6 14 10 51 46
Celgene Corp. CELG 3.4 21 41 32 45
Medco Health Solutions Inc. MHS 1.9 6 13 4 4
Merck & Co. MRK 3.2 (2) 5 38 29
AmerisourceBergen Corp. ABC 2.4 3 2 1 1
Industrials
Industrials
Eaton Corp. ETN 4.9 (1)% 15 % 6% 8%
ITT Industries, Inc. ITT 1.2 (0)% 5% 11 % 10 %
Grainger (W.W.) Inc. GWW 3.8 4 5 12 11
Precision Castparts PCP 1.2 (5) (8) 24 22
Cummins Inc. CMI 3.4 (0) 35 8 7
Fluor Corp. FLR 1.3 (4) (15) 5 4
Information Technology
Information Technology
Applied Materials AMAT 13.1 21 % NM 3% 2%
Mastercard MA 1.1 10 % 14 % 42 % 44 %
KLA-Tencor Corp. KLAC 11.2 10 591 (3) 11
Total System Services TSS 1.4 1 3 20 21
Broadcom Corporation BRCM 10.8 17 NM 6 6
Linear Technology Corp. LLTC 1.8 3 (2) 47 38
Materials
Materials
Ecolab Inc. ECL 4.6 4 % 11 % 12 % 13 %
Allegheny Technologies Inc ATI 1.6 9 % 261 % 14 % 7%
Alcoa Inc AA 3.7 8 NM 5 8
Pactiv Corp. PTV 1.9 0 1 15 17
Telecommunication Services
Telecommunication Services
Verizon Communications VZ 3.3 1% 5% 20 % 19 %
Windstream WIN 1.8 (2)% (3)% 35 % 33 %
High Operating Leverage Median 4.7 4% 16 % 7% 8%
Low Operating Leverage Median 1.5 3% 3% 22 % 26 %
S&P 500 ex. Financials and Utilities Median 2.6 4 7 14 13
S&P 500 ex. Financials and Utilities Median 2.6 4 7 14 13

Degree of Operating Leverage calculated as (Sales – COGS) / (Sales – COGS – SGA – Depreciation). Based on LTM data.
Note: * indicates on the Conviction List. Source: IDC, Compustat, Goldman Sachs Research Estimates, and Goldman Sachs Global ECS Research.

Goldman Sachs Global ECS Research 39

 Buy Invest for Growth basket
<GSTHINVG>

Average Capex Growth Average Avg. Capex Growth Average

Capex / Depreciation (a) (year/year) Growth '09-10 (%) Capex / Depreciation (a) (year/year) Growth '09-10 (%)
Company Ticker 2008 2008-2010E 2008A CAGR Sales Earnings Company Ticker 2008 2008-2010E 2008A CAGR Sales Earnings
Consumer Discretionary SALES_GROWTHEARN_GROWIndustrials
Carnival Corp. CCL 2.7 2.6 1% (1)% 7% 3% General Electric GE 1.4 1.6 1% (12)% (3)% (12)%
McDonald's Corp. MCD 1.8 1.8 10 4 5 10 Quanta Services Inc. PWR 1.6 1.6 33 11 14 53
Kohl's Corp. KSS 2.0 1.5 (32) (16) 4 11 Deere & Co. DE 1.9 1.5 (44) (18) (0) 12
Yum! Brands, Inc YUM 1.7 1.6 26 5 3 11 Precision Castparts PCP 1.6 1.4 (6) (8) (3) 1
Darden Restaurants DRI 1.9 1.6 38 4 3 7 Grainger (W.W.) Inc. GWW 1.3 1.3 (4) 0 4 8
NIKE Inc. NKE 3.0 1.4 30 11 2 3 Lockheed Martin Corp. LMT 1.1 1.3 (1) 1 6 12
Fluor Corp. FLR 1.1 1.3 (12) (7) 6 12
Consumer Staples
Avon Products AVP 2.0 2.4 37 % 9% 7% 28 % Information Technology (a)
Colgate-Palmolive CL 2.0 2.0 17 8 6 11 Broadcom Corporation BRCM 16.6 23.4 (17)% (9)% 16 % 42 %
Costco Co. COST 2.3 1.8 3 (5) 7 9 Computer Associates Intl. CA 2.2 18.2 (19) (1) 4 9
Coca-Cola Co. KO 1.6 1.8 19 (2) 6 10 Electronic Arts ERTS 7.9 14.5 (12) (10) 4 78
Walgreen Co. WAG 2.7 1.8 15 (4) 6 14 Altera Corp. ALTR 10.0 9.7 29 3 9 35
Wal-Mart Stores WMT 1.8 1.7 (21) (4) 6 9 Oracle Corp. ORCL 1.9 9.1 11 3 5 8
Dr. Pepper Snapple Group DPS 1.5 1.7 32 7 2 7 LSI Logic LSI 2.5 7.8 31 (9) 12 NM
NVIDIA Corp. NVDA 7.3 4.9 114 (14) 12 NM
Energy KLA-Tencor Corp. KLAC 3.0 6.2 (56) (34) 13 NM
Ensco International Inc. ESV 3.5 3.5 49 % 2% (9)% (26)% Applied Materials AMAT 4.3 6.0 (2) (5) 28 NM
Rowan Cos. RDC 5.9 3.3 79 (12) (10) (38) Xilinx, Inc XLNX 5.5 5.8 (60) (26) 3 16
Southwestern Energy SWN 4.2 3.4 16 5 37 37 QUALCOMM Inc. QCOM 7.8 5.7 103 17 13 27
Chesapeake Energy Corp. CHK 8.2 2.9 81 (24) 11 (7)
Consol Energy Inc. CNX 2.7 2.3 43 2 7 (1) Materials
Spectra Energy Corp. SE 2.6 2.3 69 5 5 27 Allegheny Technologies Inc ATI 4.3 3.4 15 % (18)% 16 % NM
Diamond Offshore Drilling DO 2.3 2.3 3 (15) (0) (5) Monsanto Co. MON 1.8 1.8 65 20 5 2

Health Care (a) Telecommunication Services

Forest Laboratories FRX 10.9 12.6 27 % 18 % 6% 7% MetroPCS Communications PCS 3.7 2.2 36 % 1% 14 % 69 %
Celgene Corp. CELG 18.5 11.4 20 19 20 30 Verizon Communications VZ 1.2 1.1 (2) (1) 2 4
Genzyme Corp. GENZ 5.1 9.7 71 19 21 56
Cephalon Inc CEPH 2.8 7.7 (22) 3 9 11
Gilead Sciences GILD 8.3 8.2 46 15 15 12 Average of Top 50 (equal-weighted) 4.2 4.8 18 % (1)% 8% 14 %
Eli Lilly & Co. LLY 8.6 6.6 (12) 3 6 6 S&P 500 (eq-wgt, ex-Fins & Utilities) 2.1 2.2 6 (3) 6 14
Schering-Plough SGP 2.0 6.1 21 25 6 11
Bristol-Myers Squibb BMY 5.6 6.1 12 6 7 8

Source: Compustat and Goldman Sachs Global ECS Research. As of August 27, 2009.
Goldman Sachs Global ECS Research 40
 Constituents for Hedge Fund VIP List
<GSTHHVIP>
No. of funds Average No. of funds Average
with 10 to 200 No. of funds portfolio weight with 10 to 200 No. of funds portfolio weight
positions with stock as when stock positions with stock as when stock
owning stock Top 10 holding ranks among owning stock Top 10 holding ranks among
Company Ticker 30-Jun-09 30-Jun-09 Top 10 holdings Company Ticker 30-Jun-09 30-Jun-09 Top 10 holdings
Consumer Discretionary Industrials
priceline.com Inc. PCLN 26 15 7% TransDigm Group Inc. TDG 18 13 6%
Comcast Corp. (Cl A) CMCSA 21 12 7 Covanta Holding Corp. CVA 20 12 5
Amazon.com Inc. AMZN 18 11 6 McDermott International Inc. MDR 22 12 5
Union Pacific Corp. UNP 24 12 6
Consumer Staples
CVS Caremark Corp. CVS 37 23 4% Information Technology
Wal-Mart Stores Inc. WMT 39 22 6 Microsoft Corp. MSFT 76 49 6%
Philip Morris International Inc. PM 29 17 6 Apple Inc. AAPL 59 43 6
Procter & Gamble Co. PG 22 14 7 Google Inc. (Cl A) GOOG 54 31 6
Lorillard Inc. LO 24 12 6 QUALCOMM Inc. QCOM 58 27 5
Visa Inc. V 40 23 6
Energy MasterCard Inc. (Cl A) MA 49 22 8
Transocean Ltd. RIG 41 25 7% Hewlett-Packard Co. HPQ 36 21 6
Occidental Petroleum Corp. OXY 25 16 6 Cisco Systems Inc. CSCO 37 18 4
Anadarko Petroleum Corp. APC 27 15 5 Oracle Corp. ORCL 31 17 6
Exxon Mobil Corp. XOM 18 13 5 Research In Motion Ltd. RIMM 23 16 7
Schlumberger Ltd. SLB 17 13 7 Intel Corp. INTC 28 16 9
Petrobras Petroleo Brasileiro PBR 18 12 4 Seagate Technology Inc. STX 19 15 5
EMC Corp. EMC 31 15 4
Financials Yahoo! Inc. YHOO 25 15 7
Bank of America Corp. BAC 107 62 9% International Business Machines CIBM 25 14 5
JPMorgan Chase & Co. JPM 66 30 6 Dell Inc. DELL 23 12 6
Annaly Capital Management Inc. NLY 21 13 8
Berkshire Hathaway Inc. (Cl B) BRK.B 16 11 5 Telecommunication Services
Vimpel Communications (ADS) VIP 14 14 22 %
Health Care American Tower Corp. AMT 25 12 6
Pfizer Inc. PFE 49 29 6%
Johnson & Johnson JNJ 30 19 4 Utilities
Teva Pharmaceutical Industries LTEVA 35 19 5 Allegheny Energy Inc. AYE 21 14 6%
WellPoint Inc. WLP 30 18 8
Covidien PLC COV 32 15 5
Express Scripts Inc. ESRX 18 14 5
Thermo Fisher Scientific Inc. TMO 27 14 7
Gilead Sciences Inc. GILD 27 11 5 GSTHHVIP Average 32 19 6%

Source: Company 10-K filings, FactSet & Goldman Sachs Research. As of June 18, 2009.
Goldman Sachs Global ECS Research 41
 Equity Basket Disclosures

The Equities Division of the firm has previously introduced the basket of securities
discussed in this report. The Equity Analyst may have been consulted as to the
composition of the basket prior to its launch; however, the views expressed in this
research and its timing were not shared with the Equities Division.

Goldman Sachs Global ECS Research 42

 Analyst Certification

I, David J. Kostin, hereby certify that all of the views expressed in this report accurately reflect my personal views about
the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will
be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Goldman Sachs Global ECS Research 43

Disclosures
September 4, 2009
 Disclosures

Coverage group(s) of stocks by primary analyst(s)

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html

Company-specific regulatory disclosures

Compendium report: please see disclosures at http://www.gs.com/research.hedge.html

Goldman Sachs Global ECS Research 45

 Disclosures

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell

Global 30% 51% 19% 54% 52% 44%

As of July 1, 2009, Goldman Sachs Global Investment Research had investment ratings on 2,709 equity securities. Goldman
Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral.
Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See
'Ratings, Coverage groups and view s and related definitions' below .

Price target and rating history chart(s)

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in
this compendium can be found in the latest relevant published research.

Goldman Sachs Global ECS Research 46

 Disclosures

Regulatory disclosures

Disclosures required by United States laws and regulations

See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending
transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; market
making and/or specialist role.

The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and
members of their households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of
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of ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs website at
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Additional disclosures required under the laws and regulations of jurisdictions other than the United States
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Goldman Sachs Global ECS Research 47

 Disclosures

Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) – Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is
determined by a stock’s return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each
regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the
distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent
investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return.
Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets
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Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The
analyst assigns one of the following coverage views which represents the analyst’s investment outlook on the coverage group relative to the group’s historical fundamentals and/or
valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The
investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the
following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.
Not Rated (NR). The investment rating and target price, if any, have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a
merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating
and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target,
if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC).
Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The
information is not meaningful and is therefore excluded.

Ratings, coverage views and related definitions prior to June 26, 2006
Our rating system requires that analysts rank order the stocks in their coverage groups and assign one of three investment ratings (see definitions below) within a ratings distribution
guideline of no more than 25% of the stocks should be rated Outperform and no fewer than 10% rated Underperform. The analyst assigns one of three coverage views (see definitions
below), which represents the analyst’s investment outlook on the coverage group relative to the group’s historical fundamentals and valuation. Each coverage group, listing all stocks
covered in that group, is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html.

Definitions
Outperform (OP). We expect this stock to outperform the median total return for the analyst's coverage universe over the next 12 months. In-Line (IL). We expect this stock to perform
in line with the median total return for the analyst's coverage universe over the next 12 months. Underperform (U). We expect this stock to underperform the median total return for the
analyst's coverage universe over the next 12 months
Coverage views: Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral
(N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook
over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.
Current Investment List (CIL). We expect stocks on this list to provide an absolute total return of approximately 15%-20% over the next 12 months. We only assign this designation to
stocks rated Outperform. We require a 12-month price target for stocks with this designation. Each stock on the CIL will automatically come off the list after 90 days unless renewed
by the covering analyst and the relevant Regional Investment Review Committee.

Goldman Sachs Global ECS Research 48

 Disclosures

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The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certain contractual
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Goldman Sachs Global ECS Research 49