Financial Pacific: Capital Allocation & Buying Growth (third party) september 29.2010

September 20, 2010

Directors DESKTOP

Our framework

With the macroeconomic environment

increasingly uncertain, we remain committed to

buying yield, and also advocate searching for

growth. Beyond that we remain tactical in our

approach, with a focus on capital allocation to

help generate alpha.

Continue to buy yield…

Building on a strategy we began in November

2009, we continue to seek out yield. We are

buyers of stocks that combine high yields and

dividend growth. We also turn our focus to

companies where dividend yields exceed bond

yields, among other strategies. Our top income

ideas are BMY, CBL, CTL, SXL and T.

…while also buying growth

We seek out companies with the potential to

outgrow peers regardless of the economic

environment, as well as those levered to global

growth. Scarce in number but high in potential we

are buyers of CMI, LULU, SAPE and SBAC as

well as the Mobility and Aerospace themes.

Our tactical tilt favors capital allocation

A combination of macro fears and policy

uncertainty has driven total cash balances up over

40% in the last two years. We believe this cash

will be put to work and focus investors on:

- M&A. We recommend our GSRHACQN basket

of potential M&A targets and identify stocks with

IRRs over 15%.

- Buybacks. We highlight names with high

authorizations relative to their market caps.

- Special dividends. Ahead of potential tax law

changes we screen for potential special dividend

payers. The list includes MSFT, SNI and SYK.

While we watch austerity and ag

- Agriculture. With rising food inflation and

shifting supply dynamics in proteins we see

opportunity in CF, MON, BEEF3.SA and SFD.

- Government austerity. We expect continued

budget pressure across all forms of government.

We sell our baskets of most exposed companies

GSRHGOVT (all sectors) and GSRHGXHD (ex-

healthcare and aero/defense).

Anthony Carpet

(212) 902-6758 [email protected] Goldman Sachs & Co.

Laura Conigliaro


Robert D. Boroujerdi


Michael Chanin, CFA


Deep Mehta


Thomas Craven, CFA


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 theend 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.

The Goldman Sachs Group, Inc. Global Investment Research

September 20, 2010

Directors DESKTOP

September 20, 2010 Americas

Goldman Sachs Global Investment Research 2

Table of contents

Portfolio manager summary 3

Snapshot of our coverage views 5

Macro corner 6

The search for yield 7

Finding growth in single stocks and themes 12

Cash balances continue to balloon – what now? 16

Government Corner: Watching budget proposals and mid-term elections 21

Demographic opportunities 23

Current Americas sector views: Commodities 24

Current Americas sector views: Consumer 25

Current Americas sector views: Financials 26

Current Americas sector views: Healthcare 27

Current Americas sector views: Industrials 28

Current Americas sector views: TMT 29

Latin America – Brazil domestic and export momentum 30

Updating our volatility outlook for a more muted recovery 31

Americas Conviction List ideas 32

Appendix: Investment Profile Methodology 33

Stock selections in this document are based on individual analyst criteria.

Prices in this document are based on the market close of September 16, 2010, except where noted.



Portfolio manager summary

Against a backdrop of low interest rates and a recovery which is uneven and L-shaped in nature we choose not to

complicate our positioning. Our framework is “barbell” in nature, whereby we seek out income in the form of high-yielding

stocks and buy growth where the trajectory of the business is independent of macroeconomic trends and/or plays to rising

global growth. Outside these two distinct views we advise clients to be tactical in their security selection, focusing on

businesses where capital allocation decisions present opportunities and where companies exhibit some form of accelerating

growth.

Coloring this view is the lack of inflows into domestic equity funds this year, which is driving investors to sell a name to buy a name

as they remain pretty close to fully invested. Indeed, with YTD domestic equity fund flows (through September 15) of -$50.1 billion

versus -$39.4 billion in all of last year (per Investment Company Institute), the flow tailwind to appreciation appears limited. With

that said, we like our money upfront (dividends) and favor scarcity value found in growth names.

Keeping it simple

Continue to buy yield…

An opportunity to benefit from increased income to compensate for historically low interest rates remains at the forefront of our

recommendation set. We provide a list of strategies by which our analysts estimate high dividend yields and sustainable payouts.

Yield plus dividend growth. We recommend owning a group of Buy-rated stocks with above-average yields, dividend growth,

strong cash flows and low leverage, including Century Link, Home Depot and KLA-Tencor, among others.

Dividend versus bond yield. We leverage information from the bond market to identify equities with dividend yields that are

likely to represent compelling risk/reward scenarios, such as Buy-rated AT&T, Bristol Myers and Philip Morris International.

…while also buying growth

For the intermediate to long term, we believe investors can: (1) invest in mobility, where we see an inflection coming in 4Q2010;

and (2) buy Aerospace, where positive cyclical fundamentals combine with unique secular drivers. In addition, we also identify

company-specific growth stories across our coverage by using the following strategies:

High growth. We highlight companies with consistently strong revenue growth and expanding operating margins. These

growth leaders include CL-Buy rated Cummins, Sapient and SBA Communications, as well as Buy-rated lululemon athletica.

Global growth. We look at companies that are levered to global growth and utilize our proprietary Investment Profiling (IP)

growth score to identify standouts. Our list includes CL-Buy rated Amazon and Boeing, and Buy-rated Citicorp.

Our tactical tilt favors capital allocation

A combination of macro fears and policy uncertainty coupled with healthy profits has pushed total cash balances across our

coverage up 40% over the last two years, and total cash as a percentage of enterprise value to 9.3% from 5.5%. This provides

companies with the ability to aggressively address capital allocation decisions.



M&A is real. Historically high cash balances, a benign credit environment, compelling IRRs and $500 billion of dry powder with

private equity, all make M&A an attractive proposition. We recommend two sets of strategies to monetize the M&A revival:

M&A target basket. Our refreshed 108-name basket (Bloomberg: GSRHACQN1) consists of names for which our analysts

see more than 15% chance of take out over the next twelve months.

IRRs over 15%. We run an LBO analysis across our coverage and showcase 86 names with IRRs over 15%.

Buybacks: More than a “needle mover”. We identify a list of stocks that have the highest remaining repurchase authorizations

as a percentage of their market cap. For these names, which include Buy-rated Home Depot, and Neutral-rated Aon and

Novellus, the completion of existing programs has the potential to drive significant EPS and upside accretion.

Special dividends. With tax policy under review in Washington, we screen for potential special dividend payers on a purely

quantitative model. We identify Buy-rated Microsoft, and Neutral-rated Scripps Networks Interactive and Stryker among

others.

While we watch austerity and ag

Agriculture. With rising food inflation and shifting supply dynamics in proteins we see opportunity in CL-Buy rated CF

Industries and Monsanto, and Buy-rated Minerva and Smithfield Foods.

Government austerity. Despite the recently announced stimulus initiatives, we expect continued budget pressure across all

forms of government. We sell our basket of the most exposed companies: GSRHGOVT (all sectors) and a second basket

GSRHGXHD that excludes Healthcare and Defense stocks.

Our core long-term theme

Demographic dynamics. We revisit one of our department’s anchor themes: focusing on stocks tied to long-term demographic

trends – Retiring Baby Boomers, the expanding global middle class, and generational waves after the Baby Boom. See page 23

for more details.

1Note: The ability to trade this basket will depend upon market conditions, including liquidity and borrow constraints at the time of trade.



Snapshot of our coverage views

Core to our departmental approach is the breakdown of coverage into six distinct business units: Commodities, Consumer/Retail,

Financials, Healthcare, Industrials and TMT. We analyze each sector with regard to its own drivers, valuation and place in the

business cycle. Each business unit includes multiple senior analysts responsible for the coverage of specific sector groups.

Since our last publication, dated April 12, 2010, we have made several changes to our coverage views (see Exhibit 1), including ten

coverage view downgrades and three upgrades. In addition, we have initiated or re-organized coverage, resulting in six new

coverage groups and views (noted in bold in the exhibit below).

Exhibit 1: Summary of our coverage group views Arrows indicate upgrades or downgrades since our previous publication on April 12, 2010

Source: Goldman Sachs Research.

Attractive Neutral Cautious Attractive Neutral CautiousCommodities Healthcare

Coal Base Metals Gas Utilities Healthcare Supply Chain Healthcare ITDiversified Pipelines Clean Energy Managed HealthCare HealthCare Tech Facilities

Integrated Oil Diversified Utilities Medical TechnologyEngineering & Construction Pharma GenericExploration and Production Pharma Services-CROs

Independent Power Producers Pharma Specialty BrandedMLPs Energy Pharmaceuticals

Oil ServiceRefining and Marketing

Regulated UtilitiesSteel

Consumer/Retail IndustrialsAutos, Auto Parts & Dealers Gaming Gaming Manufacturers Aerospace Chemicals Defense

Beverages Households Food Air Freight Diversified IndustrialsLodging Leisure Multi-Industry Environmental Services

Rental Cars Retail Apparel MachineryToys Retail Hardlines Paper & Forest Products

Retail -Off-the-Mall Animal ProteinsRetail -On-the-Mall Railroads

Retail Specialty Apparel Specialty PackagingRetail Specialty Trucking

TobaccoFinancials TMT

Large Banks Asset Managers InsuranceLife Internet Cable & SatelliteBrokers & Advisors Specialty Finance IT Consulting and Outsourcing Communications TechnologyBuilding Products IT Supply Chain & Components Information ServicesDiscount Brokers Media and Entertainment SMid-cap Internet and Entertainment

Homebuilders Semi Cap Equipment Transaction ProcessorsInsurance Brokers Semi Device Wireline Service CanadaInsurance Non Life Software Wireline ServicesMarket Structure Telecom Services: Towers

Mortgage InsuranceREITS

Trust Banks



Macro corner

We pay heed to our economists’ forecasts, which are above consensus on global and emerging market growth and below

consensus in the United States. Goldman Sachs’ Chief US Economist Jan Hatzius does not expect a double-dip recession,

but sees the risk of two consecutive quarters of negative GDP growth as being as high as 25-30%. We believe that

consensus forecasts that the United States will return to above-trend growth next year are too ambitious.

Our Economics team expects US growth to slow to a 1.5% (annualized) rate in the second half of 2010 and early 2011, driving

our full-year real GDP growth estimates of 2.6% for 2010 and 1.8% in 2011. This slowdown is driven by the waning contributions

of the inventory cycle and fiscal policy. We expect the Fed to initiate quantitative easing measures (QE2), most likely through

sizable purchases of Treasury securities, later this year or early in 2011.

Conversely, we expect growth outside the United States to be better than the market is pricing, especially in BRICs nations and

emerging economies. For BRICs in aggregate we see 8.9% real GDP growth in 2010 and 8.7% in 2011, and our global growth

forecast is 4.8% in 2010 and 4.6% in 2011. See Exhibit 2.

In China, inventory restocking and shifts in policy implementation likely contributed to the growth rebound in August, and we

expect CPI inflation to moderate as food prices normalize along with weather conditions. We believe that the bottoming of the

credit cycle will prove an important catalyst for rebuilding investment confidence, and against this backdrop we forecast a

return to what we believe to be the country’s trend real GDP growth rate of 10% in 2011. See Exhibit 3.

Exhibit 2: Goldman Sachs versus consensus real GDP growth As of September 16, 2010

Exhibit 3: China’s export growth has been driven by demand outside the G-3 Percentage point contribution to yoy China exports growth

Source: Goldman Sachs Global ECS Research.

Source: CEIC, GS Global ECS Research.

% yoy 2008 2009GS Consensus* GS Consensus*

USA 0.0 -2.6 2.6 2.7 1.8 2.4Japan -1.2 -5.2 2.9 3.0 1.3 1.3Euroland 0.4 -4.0 1.7 1.6 2.2 1.4UK -0.1 -4.9 1.7 1.5 2.8 2.1Europe 0.5 -3.9 1.8 1.7 2.4 1.7Canada 0.5 -2.5 3.1 3.1 2.5 2.5China 9.6 8.7 10.1 9.9 10.0 9.0India 6.7 7.4 8.2 8.3 8.7 8.3Brazil 5.1 -0.2 7.8 7.2 4.5 4.4Russia 5.2 -7.9 5.3 5.0 6.1 4.5BRICs 7.8 5.3 8.9 8.7 8.7 7.9Advanced Economies 0.2 -3.1 2.7 2.7 2.3 2.2

World 2.6 -0.6 4.9 4.7 4.6 4.2* Consensus Economics September 2010

2010 2011

-15

-10

-5

0

5

10

15

20

25

30

97 98 99 00 01 02 03 04 05 06 07 08 09 10

USA

EU

Developed Asia*

Rest of the world

ppt, 3mma

* Developed Asia includes Japan, Korea and Taiwan.



The search for yield

We first highlighted various strategies for investing in stocks with high dividend yields in our report “SPOTLIGHT SERIES:

Dividends” published on November 12, 2009, and continue to recommend this trade. In this report, we refresh our analysis

and provide specific names for investors searching for high and sustainable yields amid a challenging economic

environment.

With rates remaining low and the Fed staying accommodative, the opportunity to benefit from increased income remains at the

forefront of our recommendation set. To that end we list several dividend strategies to take advantage of this theme. To help better

frame the current opportunity we step back and provide a snapshot of S&P 500 returns with and without dividends to highlight how

income has contributed to the performance of stocks over various time periods in the last 20 years (see Exhibit 4). Amid the slowing

economic environment and historically high cash balances in corporate America (discussed in depth on page 16), we believe that

investors should continue to invest in companies whose dividend payouts will drive shareholder returns.

Exhibit 4: Dividends enhanced S&P 500 returns across different time horizons

S&P 500 vs. S&P 500 Total Returns Index performance

Exhibit 5: Fixed income yields remain low by historical standards

Yields for selected securities

Source: Bloomberg.

Source: Federal Reserve, Bloomberg, Bankrate.com.

Dividends are an important component of total return for the stocks under our coverage. This is particularly reflected in the YTD

total returns of MLPs, Utilities, Telecom Services and Consumer Staples stocks, which were significantly enhanced by dividend

returns (see Exhibit 6). We carve out MLPs and REITs separately from Energy and Financials for the purpose of this analysis, given

that they either cater to a select investing audience, or have unique tax considerations.

In Exhibit 7, we list the top ten sub-sectors under our coverage ranked by average 2011E dividend yield. We note that the average

yield for six out of these ten sub-sectors is more attractive compared to the current 10-year treasury yield of 2.77%.

S&P 500 with dividends (Total Returns Index)

S&P 500 without dividends (Price Index) Total Returns Premium

Last 20 years 439.3% 255.0% 184.3%

Last 10 years ‐7.5% ‐23.3% 15.8%

Last 5 years 1.0% ‐9.2% 10.1%

Since March 9, 2009 (recent lowpoint)

71.7% 66.2% 5.5%

Last 12 Months 7.4% 5.2% 2.2%

YTD 2.3% 0.9% 1.5%

Security Yield3 month Treasury 0.16%90‐day AA non‐financial commercial paper 0.24%1 year Treasury 0.25%3‐month LIBOR 0.29%90 day asset‐backed commercial paper 0.31%1‐year LIBOR 0.82%10 year TIPS 0.97%1 year CD 1.21%S&P 500 2.01%3 Year CD 1.16%10 year Treasury 2.77%ML Investment Grade Corporate Bond Index 3.86%



Exhibit 6: Dividends form an important part of sector total return in particular

for REITs, MLPS, Staples, Telecom and Utilities % YTD Sector-average Price and Dividend returns for our rated coverage universe

Exhibit 7: Dividend Yields of the top 10 sub-sectors under our coverage vs.

current 10-yr treasury yield 2011E Dividend yield calculated for sub-sectors where at least 50% companies pay

a dividend

Source: FactSet, Goldman Sachs Research estimates.

Source: Bloomberg, Goldman Sachs ECS Research, Goldman Sachs Research estimates.

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

REITs MLPs Consumer Staples

Consumer Discretionary

Telecom Services

Information Technology

Industrials Materials Utilities Financials ex-REITs

Health care Energy ex-MLPs

Price Returns Dividend Returns

0%

1%

2%

3%

4%

5%

6%

7%



Core yield investment strategies

For investors searching for high and sustainable yields, we recommend two core strategies, namely stocks where our analysts

estimate high yields with dividend growth and sustainable payouts; and companies with estimated dividend yields that surpass

their bond yields. We provide a separate list with top yields for buy-rated names in REITs and MLPs.

Yield Strategy #1: Yield plus dividend growth

We recommend buying a group of names with above-average yields that have shown an ability to grow dividends and that possess

a balance sheet that allows for sustainable payouts (see Exhibit 8). To this end, we have screened our coverage with the following

criteria:

Dividend yield for 2011E greater than the current 10-year treasury yield of 2.77%.

We remove companies that cut dividends in 2010.

Include only those names that our analysts expect will grow dividends in 2011.

Cash flow is necessary to maintain sustainable dividend growth; we exclude companies with FCF yields below 5%.

Weak balance sheets limit both the capacity and propensity to pay and raise dividends; we remove companies with net

debt/equity greater than 100%.

Exhibit 8: Yield plus dividend growth

For important disclosures, please go to http://www.gs.com/research/hedge.html. For methodology and risks associated with price targets, please see analysts’ previously published research.

Source: Goldman Sachs Research estimates.

Yield Strategy #2: Dividend yields that surpass bond yields

We leverage information from the bond market to identify equities with dividend yields that are likely to represent compelling

risk/reward scenarios. Continued strength in the bond market has driven corporate bond yields to 40-year lows, especially for many

high-quality dividend paying companies. Low bond yields affirm that fixed income investors see cash flow as ample to pay the

debts of a firm over the next several years. This cash flow cushion observed by credit investors could be used to support future

dividend increases as well.

In Exhibit 9, we highlight names where dividend yields appear attractive relative to bond yields based on the following criteria:

• Dividend yield is above the yield to maturity on the closest to a 5-year senior non-convertible note.

Ticker Company Name Sector Rating Market Cap Price Target Price Upside to Target Price Div Yield DPS Growth DPS Growth FCF Yield Net debt/Equity($ mn) ($) ($) Target Price Period 2011E 2010/09 2011/10 2011E 2011E

CTL CenturyLink Inc. Telecom Tower Buy 11,447 38.08 42.00 10.3% 12 months 7.8% 3.6% 3.0% 13.5% 75.7%T AT&T Inc. Telecom Tower Buy 166,102 28.11 34.00 21.0% 12 months 6.4% 2.4% 7.0% 7.3% 65.5%BMY Bristol-Myers Squibb Company Pharma Buy 46,215 26.95 30.00 11.3% 12 months 4.8% 3.2% 2.0% 9.8% -19.7%HD The Home Depot, Inc. Retail Hardlines Buy 50,496 29.95 34.00 13.5% 12 months 3.4% 4.1% 5.9% 8.5% 42.4%KLAC KLA-Tencor Semiconductors Buy 5,323 31.08 41.00 31.9% 6 months 3.2% 33.3% 25.0% 9.7% -38.1%LLTC Linear Technology Corp. Semiconductors Buy 7,275 31.64 35.00 10.6% 6 months 3.2% 5.9% 6.4% 6.9% -58.8%ADI Analog Devices, Inc. Semiconductors Buy 9,026 29.48 38.00 28.9% 6 months 3.0% 5.2% 4.8% 9.8% -71.8%MMM 3M Company Multi-Industry Buy 60,581 84.95 104.00 22.4% 12 months 2.8% 3.0% 14.3% 6.3% -6.3%HAS Hasbro, Inc. HHPC CL-Buy 6,721 44.43 57.00 28.3% 12 months 2.8% 25.0% 25.0% 8.6% 45.9%BAX Baxter International, Inc. Medical Technology CL-Buy 27,528 44.98 57.00 26.7% 12 months 2.8% 15.2% 3.3% 6.1% 32.7%

Maria Grant, CFA John Marshall



• Our equity analyst expects the company to continue to maintain or increase the dividend in 2011.

• Our equity analyst rates the equity Buy or Neutral and sees upside to their 6- or 12-month price target.

Exhibit 9: We see strong risk/reward in dividend yields that are above bond yields Estimated 2011 dividend yield based on analyst estimates; market observed corporate bond yield for the closest to a 5 year senior note

Source: Bloomberg, Goldman Sachs Research estimates.

Yield Strategy #3: High yielding MLPs and REITs

MLPs and REITs have among the highest sector average 2011E dividend yields in our coverage universe at 6.4% and 3.8%,

respectively. Given their structure and tax or contractual requirements, MLPs and REITs have a high degree of visibility on near-term

distributions, a key reason for their YTD outperformance in an uncertain economic environment.

We note that MLP distributions are subject to ordinary income tax rates, and any negative adjustment to tax policy as a result of

expiration of Bush-era tax cuts, where dividends are subject to 15% tax rate, may cause yield-oriented investors to rotate into this

sector due to the increased relative attractiveness of MLPs.

We provide below a list of highest yielding Buy-rated MLPs and REITs in Exhibit 10.

Exhibit 10: Top yields for Buy-rated MLPs and REITs Stocks with 2011E dividend yield above 4% based on analyst estimates


Equity Market Current Equity Target Upside to Target Price vidend Yie Bond yield Dividend yield - Div GrowthTicker Company name Sector Rating cap ($m) Price Price Target Price Period 2011E 5 year 5y Bond Yield 2011/2010MO Altria Group, Inc. BevFoodTobacco Neutral 48,583 $23.47 $24.00 2% 12 months 6.9% 2.8% 4.1% 6.1%CTL CenturyLink Inc. TelecomTower Buy 11,447 $38.08 $42.00 10% 12 months 7.8% 4.1% 3.7% 3.0%VZ Verizon Communications TelecomTower Neutral 88,824 $31.42 $32.00 2% 12 months 6.4% 2.8% 3.6% 3.8%T AT&T Inc. TelecomTower Buy 166,102 $28.11 $34.00 21% 12 months 6.4% 2.8% 3.6% 7.0%PM Philip Morris International Inc. BevFoodTobacco Buy 104,985 $55.11 $58.00 5% 12 months 5.1% 2.7% 2.4% 14.9%EXC Exelon Corp. Utilities Neutral 27,897 $42.14 $44.00 4% 12 months 5.2% 2.8% 2.4% 3.0%BMY Bristol-Myers Squibb Company Pharma Buy 46,215 $26.95 $30.00 11% 12 months 4.8% 2.7% 2.1% 2.0%PFE Pfizer Inc. Pharma Buy 138,453 $17.17 $19.00 11% 12 months 4.7% 2.6% 2.1% 12.5%COP ConocoPhillips Integrated Oil/Refining Neutral 82,119 $55.36 $57.00 3% 6 months 4.2% 2.6% 1.6% 9.5%AEP American Electric Power Utilities Neutral 17,208 $36.00 $37.00 3% 12 months 5.0% 3.5% 1.5% 7.8%

C Company Name Sector Rating Market Cap Price Target Price Upside to Target Price Div Yield DPS Growth DPS Growth FCF Yield Net debt/Equity($ mn) ($) ($) Target Price Period 2011E 2010/09 2011/10 2011E 2011E

ETP Energy Transfer Partners, L.P. MLPs Buy 8,556 47.50 54.00 13.7% 12 months 7.7% 0.0% 2.8% 1.5% 159.1%SXL Sunoco Logistics Partners L.P. MLPs CL-Buy 2,359 75.57 87.00 15.1% 12 months 6.7% 9.9% 9.5% -1.7% 153.3%EPD Enterprise Products Partners LP MLPs Buy 24,346 38.03 41.00 7.8% 12 months 6.5% 5.5% 6.3% 3.9% 103.0%MMP Magellan Midstream Partners MLPs Buy 5,617 49.86 55.00 10.3% 12 months 6.4% 4.0% 7.3% 2.2% 132.6%CBL CBL & Associates Properties REITS Buy 2,561 13.48 18.00 33.5% 12 months 5.9% 67.0% 0.0% 20.4% 318.2%HCP HCP, Inc. REITS Buy 10,997 36.72 33.00 -10.1% 12 months 5.1% 1.1% 0.0% 3.5% 90.5%SE Spectra Energy Corp. MLPs CL-Buy 14,131 21.74 26.00 19.6% 12 months 4.8% 0.0% 4.0% 2.7% 117.6%OKE ONEOK, Inc. MLPs Buy 4,768 44.21 53.00 19.9% 12 months 4.4% 7.1% 7.8% 18.1% 121.3%CPT Camden Property Trust REITS Buy 3,149 47.37 49.00 3.4% 12 months 4.0% -12.2% 5.0% 6.1% 130.9%



A word on taxes

We readily acknowledge that the environment for paying dividends and the treatment of sentiment towards these strategies relies

on outcomes of tax code policy in Washington. While we are not taking a stance on political outcomes, we do highlight (in a

scenario setting) what the after-tax dollar amount of a dividend is on a 15%, 20%, 25% and 39.6% federal tax rate for the top 25

dividend yields in our Buy/Neutral rated Coverage (see Exhibit 11). We exclude state and local taxes from this analysis and base our

scenario analysis on the current level of taxation, two of the more widely discussed levels, and finally what the rate would be if

nothing was done to tax code. This is for purposes of comparison only. We also note that the current pre-tax yield for a 10-year

treasury is 2.77%.

Exhibit 11: Dividend yields in different tax scenarios

Top 25 dividend yields (ex MLPs, REITs) for Buy/Neutral-rated stocks in our coverage under a 15%, 20%, 25% and 39.6% tax rate scenario


Ticker Company Sector Rating Last Price Div Yld After tax Yld After tax Yld After tax Yld After tax YldPre-tax C2011E 15% tax rate 20% tax rate 25% tax rate 39.6% tax rate

FTR Frontier Communications Corp. Telecom Tower Neutral 7.88 9.8% 8.3% 7.8% 7.3% 5.9%BGCP BGC Partners, Inc. Market Structure Neutral 5.67 8.8% 7.5% 7.0% 6.6% 5.3%CHH Choice Hotels International, Inc. Leisure Lodging Gaming Neutral 35.69 8.2% 7.0% 6.6% 6.2% 5.0%WIN Windstream Corp. Telecom Tower Neutral 12.32 8.1% 6.9% 6.5% 6.1% 4.9%CTL CenturyLink Inc. Telecom Tower Buy 38.08 8.0% 6.8% 6.4% 6.0% 4.8%ELNK EarthLink, Inc. SMid-Cap Internet Neutral 8.77 7.3% 6.2% 5.9% 5.5% 4.4%AB AllianceBernstein Holding L.P. Asset Managers Neutral 25.71 6.9% 5.8% 5.5% 5.2% 4.2%MO Altria Group, Inc. Beverage Food Tobacco Neutral 23.47 6.9% 5.8% 5.5% 5.2% 4.2%BX The Blackstone Group L.P. Asset Managers CL-Buy 10.77 6.9% 5.8% 5.5% 5.1% 4.1%T AT&T Inc. Telecom Tower Buy 28.11 6.5% 5.5% 5.2% 4.9% 3.9%VZ Verizon Communications Telecom Tower Neutral 31.42 6.4% 5.5% 5.1% 4.8% 3.9%LO Lorillard, Inc Beverage Food Tobacco CL-Buy 80.69 6.4% 5.5% 5.1% 4.8% 3.9%BKS Barnes and Noble, Inc. Retail Hardlines Neutral 15.92 6.3% 5.4% 5.1% 4.8% 3.8%CIE Cobalt International Energy, Inc. E&P Neutral 8.90 6.3% 5.4% 5.0% 4.7% 3.8%PGN Progress Energy Inc. Utilities Neutral 43.69 5.8% 5.0% 4.7% 4.4% 3.5%ISIL Intersil Corp. Semiconductors Neutral 10.71 5.8% 5.0% 4.7% 4.4% 3.5%WR Westar Energy Inc. Utilities Neutral 23.70 5.5% 4.7% 4.4% 4.1% 3.3%POR Portland General Electric Co. Utilities Neutral 20.14 5.5% 4.7% 4.4% 4.1% 3.3%RIG Transocean Ltd. Oil Service Neutral 59.86 5.3% 4.5% 4.2% 4.0% 3.2%Q Qwest Communications Intl. Telecom Tower Neutral 6.06 5.3% 4.5% 4.2% 4.0% 3.2%TU TELUS Corp. Telecom Tower Neutral 40.18 5.2% 4.4% 4.2% 3.9% 3.2%EXC Exelon Corp. Utilities Neutral 42.14 5.2% 4.4% 4.1% 3.9% 3.1%PM Philip Morris International Inc. Beverage Food Tobacco Buy 55.11 5.2% 4.4% 4.1% 3.9% 3.1%ED Consolidated Edison, Inc. Utilities Neutral 47.59 5.1% 4.4% 4.1% 3.8% 3.1%WY Weyerhaeuser Co. Paper Neutral 15.84 5.1% 4.3% 4.0% 3.8% 3.1%



Finding growth in single stocks and themes

Against the backdrop of macro economic fear and slowing US GDP growth, we believe there are ample opportunities to

invest in companies with superior growth profiles. Such stocks include names that outgrow their sector peers during

economic duress, are product cycle winners and are levered to global growth. We present several intermediate and long-

term strategies.

Growth Strategy #1: High long-term growth

We highlight growth leaders – the companies we expect to have among the highest growth and margin expansion over the next

three years (see Exhibit 12). We screen for Buy-rated companies where our analysts have forecast revenue and operating profit

growth in excess of 10% in each of the next three years.

Exhibit 12: Companies we believe will have the highest growth in the coming years Buy-rated companies with expanding operating margins and sales and EBIT growth in excess of 10% through to 2012.


Growth Strategy #2: Global growth

Across our coverage, we favor stocks that are levered to global growth, especially to BRICs where Goldman Sachs economists

forecast 8.9% and 8.7% real GDP growth in 2010 and 2011 respectively, versus 2.8% and 1.6% for the United States. To identify these

names we screen for Buy-rated companies with the high international exposure (specifically over 15% exposure to Asia), and

leverage our Investment Profiling (IP) framework to identify names with an IP Growth score in the top 30% of our coverage universe

(See appendix for IP scores calculation methodology). We exclude ADRs and oil-related stocks (see Exhibit 13).

Exhibit 13: Internationally exposed companies with high IP growth score

Buy-rated companies with the international exposure and IP Growth above 70thth percentile (See appendix for IP scores calculation)


Market Cap Price Upside To OM Exp PEGTicker Company Name Sector ($, mn) Rating ($) Target Price 2010/09 2011/10 2012/11 2010/09 2011/10 2012/11 2009-12 (EPS 2011/10)ANF Abercrombie & Fitch Retail Specialty 3,141 Buy 36.14 13% 17% 15% 13% 62% 40% 46% 6% 0.5ARM ArvinMeritor, Inc. Automobiles 1,363 Buy 14.14 34% 18% 12% 11% 571% 86% 41% 6% 0.1CMI Cummins, Inc. Machinery 16,589 CL-Buy 84.08 24% 23% 24% 11% 114% 37% 14% 7% 0.4JNPR Juniper Networks, Inc. Comm Tech 16,028 CL-Buy 29.74 8% 22% 21% 17% 57% 35% 17% 7% 0.8LULU lululemon athletica inc. Retail Specialty 3,002 Buy 43.40 6% 44% 22% 18% 69% 28% 22% 5% 1.3RAX Rackspace Hosting, Inc. Telecom Tower 2,810 Buy 21.18 18% 24% 27% 24% 44% 71% 39% 7% 0.8SAPE Sapient IT Services 1,547 CL-Buy 11.22 16% 28% 25% 25% 46% 60% 26% 4% 0.4SBAC SBA Communications Corp. Telecom Tower 4,379 CL-Buy 37.86 14% 13% 13% 11% 51% 82% 45% 21% 0.3V Visa Inc. IT Services 50,464 CL-Buy 68.38 36% 17% 16% 13% 24% 17% 14% 4% NMVMW VMware, Inc. Software 35,797 Buy 84.76 24% 40% 26% 23% 102% 51% 28% 10% 1.8

Sales Growth EBIT Growth

Ticker Company Name Sector Rating Market Cap Price Target Price Upside to Target Price Sales-Asia (%) Sales-EMEA (%) IP Growth($ mn) ($) (S) Target Price Period Percentile

KLAC KLA-Tencor Semiconductors Buy 5,323 31.08 41.00 32% 6 months 71% 7% 80QCOM QUALCOMM, Inc. Comm Tech CL-Buy 68,915 41.97 46.00 10% 12 months 68% 17% 79BUCY Bucyrus International Inc. Machinery Buy 5,568 69.12 70.00 1% 12 months 29% 12% 77C Citigroup Inc. Banks Buy 116454.00 3.97 4.60 16% 12 months 22% 29% 73JNPR Juniper Networks, Inc. Comm Tech CL-Buy 16,028 29.74 32.00 8% 12 months 20% 29% 77AMZN Amazon.com Inc. Internet CL-Buy 67,399 148.13 150.00 1% 6 months 20% 28% 95ARUN Aruba Networks, Inc. Comm Tech Buy 2,276 20.92 20.00 -4% 12 months 19% 15% 99BA The Boeing Company Aer Defense CL-Buy 46,491 62.58 84.00 34% 12 months 18% 20% 78VMW VMware, Inc. Software Buy 35,797 84.76 105.00 24% 12 months 16% 32% 93

Last Reported Year



In addition to the quantitatively-derived, cross-sector opportunities above, we present three sector-specific themes that

offer intermediate- to long-term drivers.

Aerospace marries the cyclical to the secular

International air traffic and new aircraft order activity have both recovered, implying the next Aerospace cycle is underway. That

said, Aerospace also benefits from multiple unique secular drivers that can create differentiated growth: (1) the unusually large

backlogs of Boeing and Airbus after under-delivering to demand during the last order upturn, (2) an emerging market dominated

demand profile, and (3) the 787 product cycle and R&D tailwind. Our top picks are CL-Buy rated Boeing and Precision Castparts.

Aerospace stocks are highly correlated with both international air traffic growth and new aircraft orders. Both have recovered

faster than expected. Air traffic has now grown yoy at a double-digit rate for five of the past six months. New aircraft orders are

on pace to show one of the strongest annual totals on record in the first year of a recovery.

In an effort to dampen the cyclicality of its business, Boeing and Airbus intentionally under-delivered to demand by only

modestly raising production during the last order cycle (2004-2008) despite multiple consecutive years of record demand,

exiting a recession with >8 years of production backlog. With the OEMs still needing to deliver on last cycle’s backlog, plus the

surprise new order activity YTD, Boeing offers strong growth even if the macro environment deteriorates.

The 787 provides a unique product cycle that also offers growth regardless of the macroeconomic environment. Boeing has a

backlog of 847 Dreamliner orders, versus the targeted annual production run-rate of 120 aircraft. Furthermore, many Aerospace

companies will have a large R&D tailwind as the expense to develop Boeing’s 787 rolls off. See Exhibits 14-15.

Exhibit 14: The Aerospace cycle has turned Air traffic and new orders showing consistent improvement

Exhibit 15: Boeing still needs to deliver on last cycle’s order demand Backlog/sales still elevated even on the other side of the recession

Source: IATA, Company data, FactSet, Goldman Sachs Research estimates.

Source: Company data, Goldman Sachs Research estimates.

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Noah Poponak, CFA



Mobility continues to inflect higher in 4Q2010

One of the most significant trends in TMT is the rapid proliferation of wireless devices that allow always-on connectivity for an

increasingly mobile and productive global population. We see a key inflection point in 4Q2010 due to the rise of tablets as a new

category of wireless devices following the surprising success of Apple’s iPad, the move to fourth generation wireless technology

(4G) at Verizon, and continued competition driving smartphone prices lower and penetration higher.

We estimate that smartphones and tablets will be two of the fastest-growing consumer electronics categories over the next

three years and will rapidly cannibalize handsets and PCs, respectively. We estimate that smartphones will grow at a CAGR of

39% from 2010 through 2013 (see Exhibit 16), and that tablets will reach 16 mn units in 2010 and 35 mn in 2011. While

forecasting the success of individual vendors is challenging given the competitive and rapidly evolving landscape, we

recommend investing in the key enablers such as CL-Buy rated Qualcomm, which is the leader in cellular chipsets, and Buy-

rated Broadcom, which is the leader in Wi-Fi and Bluetooth chipsets and is also expanding into cellular chipsets.

We also favor the towers given their leverage to mobile data growth. We believe wireless carriers’ growth prospects are tied to

growth in data, facilitated by significant smartphone subsidies. Top picks in the space are CL-Buy rated SBA Communications

and Crown Castle as well as Buy-rated American Tower.

In IT Services, we believe Buy-rated Syniverse is among the best positioned companies to benefit from the secular growth in

mobile data, with nearly 80% of its revenue derived from wireless roaming and messaging. See Exhibit 17.

Exhibit 16: Smartphone penetration is inflecting as ASPs decline Smartphone unit, revenue and penetration estimates

Exhibit 17: New devices drive significantly higher data usage Estimated monthly data usage by device

Source: Company data, IDC, and Goldman Sachs Research estimates.


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Simona Jankowski, CFA



Agricultural stocks should satisfy your hunger for returns today and long-term

Strain on the global supply and demand balance for grains has inspired a major run in agriculture commodities, with the spot prices

of wheat, corn and soybeans up 43%, 31% and 12%, respectively, over the past three months – all of which elements support robust

earnings growth for fertilizer and seed companies. In the global meat trade, shifting supply dynamics favor US pork and Brazilian

beef suppliers over US chicken producers.

We remain bullish on fertilizer stocks as exceptional price momentum across the nutrient complex, combined with benign input

costs, drives earnings upside. A favorable pricing backdrop for nitrogen and phosphate has emerged as banner returns

expected by farmers from the upcoming harvest have driven demand against a very tight supply backdrop. CL-Buy rated CF

Industries is our favorite way to trade this theme.

With farmer returns increasing and CL-Buy rated Monsanto trimming premiums for its cutting-edge RR2 soybean and

SmartStax corn technology, we believe solid yield results this fall will lead to market share gains and improved sentiment for

this ag biotech leader.

We favor hogs over chicken at this point in the meat cycle and have a Buy rating on Smithfield and a CL-Sell rating on Tyson.

Very tight supply dynamics support another leg up in hog prices in 2011, while a modest oversupply situation is likely to keep

chicken prices capped. Higher feed costs are a challenge for the group as vertically integrated producers struggle to

immediately pass input cost inflation through.

We see strong demand for Brazilian beef in the short term, making up for lower exports from Argentina and Uruguay as well as

other countries where tighter supply has hampered packers, including the United States and the EU. We therefore maintain our

preference for stocks with high exposure to Brazilian beef, namely Buy-rated Minerva. See Exhibits 18-19.

Exhibit 18: Futures prices suggest exceptional farmer returns Hypothetical forward farmer returns per bushel of corn based on futures

Exhibit 19: Fertilizer demand outlook – best since 2007 Total fertilizer demand expected to increase 6.3% (1.3mn tons) in 2011

Source: Iowa State University, Goldman Sachs Research estimates.


-$0.50$0.00$0.50$1.00$1.50$2.00$2.50$3.00

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ar-06Sep-06M

ar-07Sep-07M

ar-08Sep-08M

ar-09Sep-09M

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ar-11

Fertilizer Year Basis N P K Total

2007 13,194 4,572 5,133 22,899

2008 12,561 4,247 4,660 21,468

2009 12,027 3,647 3,265 18,939

2010E 12,812 4,185 3,963 20,960

2011E 13,189 4,419 4,666 22,274

2010/11 change

Percent 2.9% 5.6% 17.7% 6.3%

Volume 377 234 703 1,314

(000 Nutrient Tons)

Robert Koort, CFA

Lindsay Drucker Mann,

CFA



Cash balances continue to balloon – what now?

Whether in response to demand uncertainty, fear of a double dip or waiting for policy clarification, cash balances in

corporate America continue to balloon. We continue to believe that M&A will remain a prevalent theme and expect

companies to begin more aggressively addressing their capital allocation decisions into year-end. We refresh our M&A and

IRR work below and introduce a new analysis on which companies may be potential special dividend payers ahead of

expected tax code changes.

As seen in Exhibit 20, gross cash balances have grown by 40% between 2Q2008 and 2Q2010. Exhibit 21 shows that total cash as a

percentage of enterprise value likewise increased from 5.5% to 9.3% during this period as companies actively scaled back spending.

Based on our analysts’ cash flow projections and holding 2Q2010 EV constant, this number is estimated to rise to 11% by 2Q2011.

Exhibit 20: Total cash balances grew nearly 40% over the last two years… Coverage universe (ex-financials) total cash balances

Exhibit 21: … while Cash/EV grew from 5.5% to 9.3% and is expected to

grow to 11% one year from now Coverage universe (ex-financials) total cash as a % of enterprise value EV. 2Q2010

EV held constant for estimated periods

Source: FactSet, Goldman Sachs Research.

Source: FactSet, Goldman Sachs Research estimates.

M&A

Global M&A activity has recently shown signs of acceleration in August (up 6% mom), led by a 69% mom surge in the Americas

after a relatively lackluster 1H2010, and is now up 21% compared to 2009 levels. While the pace of M&A in the United States as

measured by announced M&A value to market cap at 5.3% in 2010 is below the 1999-2010 average of 6.8%, the pace of the backlog

buildup in 3Q2010TD, the highest in the past three years, should lead to higher 4Q2010 and early 2011 advisory results. Given the

high cash balances, modest valuations and compelling IRRs, we expect this acceleration in M&A to continue for the rest of the year.

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Refreshing the GSRHACQN basket: Our preferred way to monetize M&A acceleration

Since 2009, we have asked our analysts to identify potential candidates for M&A activity under our coverage. Those that screen

attractively, on a quantitative and/or qualitative basis, have had their price target methodologies changed to reflect an M&A

premium where appropriate. In Exhibit 22, we identify companies ranked by our analysts as 1 (>30% probability) or 2 (15-30%) for

potential M&A activity in the next 12 months.

Exhibit 22: Summary of M&A candidates: Companies our analysts believe have at least 15% chance of M&A activity where checked (√) names are included in GRHACQN basket. Not all companies are included in the basket due to technical and other limitations.


Sector Company Name TickerM&A Level of

Probability RatingPrice

($)Price

Target ($)Upside to

Price TargetPrice Target

PeriodGSRHACQN

Basket Sector Company Name TickerM&A Level of

Probability RatingPrice

($)Price

Target ($)Upside to

Price Target

Price Target Period

GSRHACQN Basket

TMT IndustrialsComm Tech Aruba Networks, Inc. ARUN 2 Buy 20.92 20.00 -4% 12 months Aero/Defense Textron Inc. TXT 2 Buy 19.24 25.00 30% 12 months

Acme Packet, Inc. APKT 2 Neutral 36.08 33.00 -9% 12 months AeroVironment, Inc. AVAV 2 Neutral 21.49 22.00 2% 12 months Brocade Communications Systems BRCD 2 Neutral 5.72 5.75 1% 12 months Alliant Techsystems, Inc ATK 2 Neutral 72.51 79.00 9% 12 months F5 Networks, Inc. FFIV 2 Neutral 100.52 80.00 -20% 12 months FLIR Systems, Inc. FLIR 2 Neutral 27.20 31.00 14% 12 months Infinera Corp. INFN 2 Neutral 11.06 7.50 -32% 12 months Goodrich Corp. GR 2 Neutral 70.43 85.00 21% 12 months Netgear, Inc. NTGR 2 Neutral 24.87 22.00 -12% 12 months Chemicals Huntsman Corp. HUN 2 CL-Buy 10.61 13.00 23% 12 months Riverbed Technology, Inc. RVBD 2 Neutral 43.99 36.00 -18% 12 months Compass Minerals International CMP 2 Neutral 73.15 85.00 16% 12 months

IT Services Amdocs Limited DOX 1 Buy 27.44 35.00 28% 12 months Nalco Holding Company NLC 2 Neutral 25.57 25.00 -2% 12 monthsSapient SAPE 1 CL-Buy 11.22 13.00 16% 12 months Rockwood Holdings, Inc. ROC 2 Neutral 30.37 30.00 -1% 12 months Computer Sciences Corp. CSC 1 Neutral 43.17 50.00 16% 12 months The Mosaic Co. MOS 2 Neutral 60.55 60.00 -1% 12 months ExlService Holdings, Inc. EXLS 1 Neutral 19.04 20.00 5% 12 months Intrepid Potash, Inc. IPI 2 Sell 25.83 20.00 -23% 12 months Heartland Payment Systems, Inc. HPY 1 Neutral 15.03 15.00 0% 12 months Paper Pactiv Corporation PTV 2 Neutral 32.49 31.00 -5% 12 months WNS (Holdings) Ltd. WNS 1 Sell 9.00 9.00 0% 12 months Multi-Industry Rockwell Automation, Inc. ROK 2 Neutral 59.40 66.00 11% 12 months Alliance Data Systems Corp. ADS 2 Neutral 63.04 64.00 2% 12 months Graco Inc. GGG 2 Sell 30.10 33.00 10% 12 months Genpact Ltd. G 2 Neutral 16.08 17.50 9% 12 months Kennametal Inc. KMT 2 Sell 28.98 31.00 7% 12 months Global Payments Inc. GPN 2 Neutral 40.88 45.00 10% 12 months Machinery/Diversified Bucyrus International Inc. BUCY 2 Buy 69.12 70.00 1% 12 months Higher One Holdings, Inc. ONE 2 Neutral 15.88 15.00 -6% 12 months Joy Global Inc. JOYG 2 Buy 66.06 70.00 6% 12 months Total System Services, Inc. TSS 2 Sell 14.75 13.00 -12% 12 months Terex Corp. TEX 2 Neutral 21.67 22.00 2% 12 months

Semi and Semi Eq FormFactor, Inc. FORM 2 Neutral 8.23 6.00 -27% 6 months Mueller Water Products, Inc. MWA 2 Sell 2.72 3.20 18% 12 months STEC, Inc. STEC 2 Neutral 12.70 15.00 18% 6 months Commodities

Media DreamWorks Animation SKG, Inc. DWA 2 Neutral 31.93 36.00 13% 6 months Coal Alpha Natural Resources, Inc. ANR 2 Buy 39.81 52.00 31% 6 months Financial Engines, Inc. FNGN 2 Neutral 13.84 17.00 23% 12 months Massey Energy Co. MEE 2 Neutral 32.36 36.00 11% 6 months Scripps Networks Interactive, Inc. SNI 2 Neutral 45.36 45.00 -1% 12 months E&P Newfield Exploration Company NFX 2 CL-Buy 53.31 64.00 20% 6 months

Software Akamai Technologies, Inc. AKAM 1 Buy 52.26 60.00 15% 12 months Anadarko Petroleum Corp. APC 2 Neutral 54.11 62.00 15% 6 months SuccessFactors, Inc. SFSF 1 Buy 23.64 29.00 23% 12 months Cabot Oil & Gas Corp. COG 2 Neutral 27.82 38.00 37% 6 months Taleo Corporation TLEO 1 Buy 27.09 32.00 18% 12 months EOG Resources Inc. EOG 2 CL-Buy 91.00 129.00 42% 6 months Citrix Systems Inc. CTXS 1 Neutral 67.03 60.00 -10% 12 months Oil Service Bristow Group Inc. BRS 2 Buy 35.91 39.00 9% 6 months CommVault Systems, Inc. CVLT 1 Neutral 25.88 27.00 4% 12 months ENSCO International Plc. ESV 2 Neutral 44.25 46.00 4% 6 months Limelight Networks, Inc. LLNW 1 Neutral 4.49 5.00 11% 12 months FMC Technologies FTI 2 Neutral 65.67 66.00 1% 6 months Red Hat, Inc. RHT 1 Neutral 37.44 33.00 -12% 12 months Pride International PDE 2 Neutral 26.62 24.00 -10% 6 months TIBCO Software Inc. TIBX 1 Neutral 15.65 17.00 9% 12 months Atwood Oceanics, Inc. ATW 2 Sell 27.56 23.00 -17% 6 months Salesforce.com, Inc. CRM 2 Buy 116.92 128.00 9% 12 months Alternative Energy STR Holdings, Inc. STRI 2 Neutral 23.55 20.00 -15% 12 months VMware, Inc. VMW 2 Buy 84.76 105.00 24% 12 months Steel/Metals AK Steel Holding AKS 1 Buy 13.84 16.00 16% 6 months BMC Software, Inc. BMC 2 Neutral 39.09 44.00 13% 12 months Steel Dynamics Inc. STLD 2 Buy 15.14 18.00 19% 6 months Concur Technologies, Inc. CNQR 2 Neutral 50.81 52.00 2% 12 months Commercial Metals Company CMC 2 Sell 14.49 12.00 -17% 6 months NetSuite Inc. N 2 Neutral 19.90 21.00 6% 12 months ConsumerSolarWinds, Inc. SWI 2 Neutral 16.27 18.50 14% 12 months Automobiles Tenneco Inc. TEN 2 Neutral 26.85 30.00 12% 6 months Quest Software, Inc. QSFT 2 Sell 23.09 22.00 -5% 12 months Tesla Motors, Inc. TSLA 2 Neutral 20.94 21.00 0% 6 months

Telecom Leap Wireless International, Inc. LEAP 1 Neutral 10.93 15.00 37% 12 months Harley-Davidson, Inc. HOG 2 Sell 28.43 26.00 -9% 6 months Rackspace Hosting, Inc. RAX 2 Buy 21.18 25.00 18% 12 months Bev/Food/Tobacco Hansen Natural Corp. HANS 2 Buy 45.86 50.00 9% 12 months The DIRECTV Group, Inc. DTV 2 Buy 41.22 48.00 16% 12 months Lorillard, Inc LO 2 CL-Buy 80.69 97.00 20% 12 months Global Crossing Ltd. GLBC 1 Neutral 12.31 13.00 6% 12 months Dr Pepper Snapple Group DPS 2 Neutral 35.19 41.00 17% 12 months

Healthcare HHPC Mead Johnson Nutrition Co. MJN 1 CL-Buy 56.15 61.00 9% 12 months HC Services Omnicare, Inc. OCR 2 Neutral 21.57 24.00 11% 6 months Alberto-Culver Co. ACV 2 Buy 30.93 35.00 13% 12 months

athenahealth, Inc. ATHN 2 Neutral 29.32 29.00 -1% 6 months The Estee Lauder Companies Inc. EL 2 Neutral 59.19 58.00 -2% 12 months PSS World Medical, Inc. PSSI 2 Neutral 20.18 21.00 4% 12 months Retail Hard Barnes and Noble, Inc. BKS 1 Neutral 15.92 15.00 -6% 12 months

Med Tech Edwards Lifesciences Corp. EW 1 Neutral 58.31 60.00 3% 12 months GameStop Corp. GME 2 Neutral 19.40 22.00 13% 12 months Hospira, Inc. HSP 2 Buy 55.71 64.00 15% 12 months OfficeMax Inc. OMX 2 Buy 12.68 17.00 34% 12 months NuVasive, Inc. NUVA 2 Neutral 33.01 34.00 3% 12 months Retail Broad BJ's Wholesale Club, Inc. BJ 1 Neutral 42.83 42.00 -2% 12 months

Managed Care Health Net, Inc. HNT 1 Buy 26.68 30.00 12% 6 months Retail Apparel lululemon athletica inc. LULU 2 Buy 43.40 46.00 6% 6 months WellCare Health Plans, Inc. WCG 1 Buy 26.86 34.00 27% 6 months FinancialsCentene Corp. CNC 2 Buy 21.95 27.00 23% 6 months Market Structure E*TRADE Financial Corp. ETFC 2 Buy 14.00 17.00 21% 12 monthsAMERIGROUP Corp. AGP 2 Neutral 38.19 39.00 2% 6 months GFI Group Inc. GFIG 2 Neutral 4.58 6.00 31% 12 months Coventry Health Care, Inc. CVH 2 Neutral 21.07 22.00 4% 6 months Investment Technology Group, Inc. ITG 2 Neutral 14.46 16.00 11% 12 months

Pharma Medicis Pharmaceutical Corp. MRX 2 Neutral 29.41 29.00 -1% 12 months MarketAxess Holdings Inc. MKTX 2 Neutral 16.65 17.00 2% 12 months Allergan, Inc. AGN 2 CL-Buy 64.67 81.00 25% 12 months Piper Jaffray Companies Inc. PJC 2 Neutral 30.14 35.00 16% 12 months Par Pharmaceutical Cos., Inc. PRX 2 Neutral 27.91 27.00 -3% 12 months TradeStation Group, Inc. TRAD 2 Neutral 6.49 7.00 8% 12 monthsImpax Laboratories, Inc. IPXL 2 Neutral 17.90 20.00 12% 12 months REITS CBL & Associates Properties CBL 1 Buy 13.48 18.00 34% 12 months King Pharmaceuticals, Inc. KG 2 Neutral 9.18 9.50 3% 12 months Developers Diversified Realty DDR 2 Neutral 11.34 12.00 6% 12 months Endo Pharmaceuticals Holdings Inc. ENDP 2 Neutral 28.97 28.00 -3% 12 months SL Green Realty Corp SLG 2 Neutral 64.50 59.00 -9% 12 months

The Macerich Co. MAC 2 Neutral 43.03 38.00 -12% 12 months BRE Properties, Inc. BRE 2 Sell 42.45 33.00 -22% 12 months

GSRHACQN basket was introduced on October 10, 2009 and refreshed on November 19, 2009 and March 10, 2010.



State of private equity

We expect the pace of sponsor-led activity to accelerate over the coming quarters, further contributing to global M&A volumes.

Notably, global LBOs in 3Q2010 have already surpassed last quarter’s levels, at about $40 billion in total volume, the highest since

mid-2008. As credit conditions remain very favorable, we expect the private equity industry will continue to deploy nearly $500

billion in dry powder raised over the last three years. Moreover, the need to monetize investments and return capital to limited

partners could lead to a flurry for strategic exits (selling a portfolio company to an industry player as opposed to exiting via an IPO),

which should further drive M&A volumes. Among our coverage, CL-Buy rated Blackstone and Buy-rated KKR are the largest

beneficiaries of this trend.

Companies with high IRRs

We provide a list of 86 companies that have IRRs of at least 15% from our quantitative department LBO model (see Exhibit 23).

Under the base case, the model assumes a five-year holding period, 20% bid premium, initial leverage based on sector-specific

debt/EBITDA multiples, a 9% weighted average cost of debt and an exit multiple based on a company’s three-year historical average

EV/EBITDA. Operational assumptions for sales growth, EBITDA margin and capex growth are taken from analyst forecasts.

Exhibit 23: Companies with IRRs of 15% or more Companies with IRRs over 15% from our standardized department LBO model


Ticker Company Rating SectorMarket Cap (USD, Mn) IRR Ticker Company Rating Sector

Market Cap (USD, Mn) IRR

WCG WellCare Health Plans, Inc. Buy Managed Care/Facilities 1,125 92% OSK Oshkosh Corp. Neutral Machinery 2,411 21%GT The Goodyear Tire & Rubber Co. Buy Automobiles 2,611 54% ATI Allegheny Technologies Neutral Steel 4,465 21%VRGY Verigy Ltd. Neutral Semiconductors 586 43% CMC Commercial Metals Company Sell Steel 1,651 20%ISIL Intersil Corp. Neutral Semiconductors 1,325 42% LSI LSI Corp. Neutral Semiconductors 2,931 20%LEAP Leap Wireless International, Inc. Neutral Telecom Tower 856 40% MGA Magna International, Inc. Sell Automobiles 8,636 20%VSEA Varian Semi Equipment Assoc. Neutral Semiconductors 2,065 40% ROCK Gibraltar Industries, Inc. Neutral Steel 261 20%AMAT Applied Materials, Inc. Buy Semiconductors 14,945 39% MCHP Microchip Technology Inc. Neutral Semiconductors 5,582 19%PCS MetroPCS Communications, Inc. Neutral Telecom Tower 3,390 37% HUN Huntsman Corp. CL-Buy Chemicals 2,491 19%AKS AK Steel Holding Buy Steel 1,553 36% USU USEC Inc. Neutral SmallMid Cap 559 19%EDMC Education Management Corp. Neutral SmallMid Cap 1,521 36% TIN Temple-Inland Inc. Buy Paper 2,091 19%FTR Frontier Communications Corp. Neutral Telecom Tower 2,446 35% ORA Ormat Technologies, Inc. Neutral Utilities 1,326 19%STLD Steel Dynamics Inc. Buy Steel 2,757 34% FWLT Foster Wheeler Ltd. Neutral E&C 3,083 18%KLAC KLA-Tencor Buy Semiconductors 5,323 33% EM Emdeon Inc. Neutral Managed Care/Facilities 1,248 18%IRF International Rectifier Corp. Neutral Semiconductors 1,420 33% EW Edwards Lifesciences Corp. Neutral Med Tech 3,464 17%ODP Office Depot Neutral Retail Hardlines 1,113 32% URS URS Corp. Neutral E&C 3,059 17%ARM ArvinMeritor, Inc. Buy Automobiles 1,363 31% BRCM Broadcom Corporation Buy Semiconductors 19,036 17%F Ford Motor Company CL-Buy Automobiles 42,433 30% TCK__B.TO Teck Resources Limited Neutral Metals 23,293 17%UPL Ultra Petroleum Neutral E&P 5,986 27% BTU Peabody Energy Corp. Buy Coal 12,670 17%RUE rue21, inc. Neutral Retail Specialty 559 27% RS Reliance Steel and Aluminum Co. Neutral Steel 2,981 17%SD SandRidge Energy, Inc. Neutral E&P 1,286 27% ADS Alliance Data Systems Corp. Neutral IT Services 3,581 17%PWR Quanta Services, Inc. Neutral E&C 3,708 27% PEG Public Service Enterprise Group Inc. CL-Buy Utilities 16,018 17%HOG Harley-Davidson, Inc. Sell Automobiles 6,633 27% V Visa Inc. CL-Buy IT Services 50,464 17%LRCX Lam Research Corp. CL-Buy Semiconductors 5,045 26% WYNN Wynn Resorts, Limited Neutral Leisure Lodging Gaming 11,004 17%WMB The Williams Companies, Inc. Buy MLPs 10,781 26% ADI Analog Devices, Inc. Buy Semiconductors 9,026 17%FDML Federal Mogul Corp. Neutral Automobiles 1,740 26% ACI Arch Coal Inc. Neutral Coal 4,038 16%NVDA Nvidia Corp. Neutral Semiconductors 6,153 26% LVS Las Vegas Sands Corp. Neutral Leisure Lodging Gaming 21,257 16%SMP Standard Motor Products, Inc. Neutral Automobiles 208 26% GLBC Global Crossing Ltd. Neutral Telecom Tower 1,009 16%AMD Advanced Micro Devices, Inc. Sell Semiconductors 4,360 25% CF CF Industries Holdings, Inc. CL-Buy Chemicals 7,087 16%CNX Consol Energy Inc. Buy Coal 6,391 25% URBN Urban Outfitters Inc. Neutral Retail Specialty 5,819 16%GME GameStop Corp. Neutral Retail Hardlines 3,196 25% MXIM Maxim Integrated Products Sell Semiconductors 5,160 16%SWN Southwestern Energy Co. Neutral E&P 11,037 24% CBI Chicago Bridge & Iron CL-Buy E&C 2,319 16%AA Alcoa Neutral Metals 12,576 24% WY Weyerhaeuser Co. Neutral Paper 8,489 16%EEQ Enbridge Energy Management Sell MLPs 895 23% SPR Spirit AeroSystems Holdings, Inc. Buy Aerospace & Defense 2,776 16%PMCS PMC-Sierra, Inc. Neutral Semiconductors 1,870 23% CVI CVR Energy, Inc. Neutral Integrated Oil/Refining 658 16%X U.S. Steel Group Buy Steel 6,665 23% MOH Molina Healthcare, Inc. Neutral Managed Care/Facilities 756 16%PCX Patriot Coal Corporation Sell Coal 981 23% TEN Tenneco Inc. Neutral Automobiles 1,587 15%NUVA NuVasive, Inc. Neutral Med Tech 1,518 22% AMSG AmSurg Corp. Neutral Managed Care/Facilities 527 15%EQIX Equinix, Inc. Neutral Telecom Tower 4,142 22% GPI Group 1 Automotive, Inc. Buy Automobiles 690 15%SHAW The Shaw Group Inc. Neutral E&C 2,780 22% SAH Sonic Automotive, Inc. Neutral Automobiles 484 15%ANF Abercrombie & Fitch Buy Retail Specialty 3,141 22% IPI Intrepid Potash, Inc. Sell Chemicals 1,939 15%BZ Boise Inc. Neutral Paper 606 22% SU Suncor Energy Inc. Buy Integrated Oil/Refining 50,729 15%UFS Domtar Corp. Buy Paper 2,751 21% BBG Bill Barrett Corp. Neutral Coal 1,505 15%JCG J. Crew Group, Inc. Neutral Retail Specialty 2,131 21% CHS Chico's FAS, Inc. CL-Sell Retail Specialty 1,763 15%



Buybacks

We believe that alongside M&A and dividends, companies could put the piled up cash to use by repurchasing shares in order to

drive shareholder value. We had first highlighted a set of quantitative buy-back related screens in our report “SPOTLIGHT SERIES:

Buybacks” published on December 9, 2009.

Below, we refresh our core screen of a list of stocks that have the highest remaining repurchase authorizations as a percentage of

market cap (see Exhibit 24). For these stocks the completion of existing buyback programs has the potential to be more than a

needle mover and drive upside and EPS accretion.

Exhibit 24: Largest remaining authorizations as a percentage of market cap

Buy and Neutral-rated stocks

Source: Company filings, Goldman Sachs Research estimates.

We acknowledge that some companies with a high ratio of repurchase authorizations to market cap may not be buying back very

actively at present, and their immediate capital allocation or investment priorities may lie elsewhere. However, we view these

authorizations potentially indicative of future repurchases, and completion or resumption of buybacks may drive significant upside

to the stock price.

Last Market cap Repurchase Active Repurchase Remaining /Ticker Company name Sector Rating price ($ mn) authorized ($ mn) remaining ($ mn) market capNVLS Novellus Systems Inc. Semiconductors Neutral $24.95 2,379 1,000 681 29%CBB Cincinnati Bell Inc. Telecom Tower Neutral $2.70 543 150 150 28%MCO Moody's Corporation Finance Specialty Neutral $24.85 5,927 2,000 1,331 22%HD The Home Depot, Inc. Retail Hardlines Buy $29.95 50,496 40,000 11,299 22%MTH Meritage Homes Corp. Homebuilders Buy $18.38 590 200 130 22%AON Aon Corp. Insurance Neutral $37.89 10,211 6,600 2,165 21%JNY Jones Apparel Group Retail Broadlines Neutral $18.64 1,555 500 304 20%NVDA Nvidia Corp. Semiconductors Neutral $10.57 6,153 2,700 1,200 20%



Potential special dividend opportunities

According to the Goldman Sachs office in Washington, DC, we expect a heavy focus for the remainder of the year on tax policy and

whether to extend all or some of the Bush cuts from 2001 and 2003 that are due to expire at year-end. Without exploring the range

of possible outcomes (moving from the current 15% tax rate on dividends to anywhere between 20% and 39.6%), we note the

potential for companies to specially reward shareholders with one-time payments given large cash balances and favorable tax

situations (see Exhibit 25). This would, in turn, provide a higher total return to investors. Recently, we have witnessed such moves

by Wynn, Sapient, Warner Chilcott, and Universal American, among others. Below we provide a screen for potential special

dividend payers, for which our analysts also see an opportunity, identified based on a set of criteria as follows:

Buy or Neutral-rated companies that pay a dividend.

Net debt/equity for the latest reported quarter is less than 35%.

Quick ratio for the latest reported quarter is over 1.5.

FCF yield for 2010E forecast over 5%

Insider ownership is greater than 10% of the total shares outstanding.

Exhibit 25: Potential Special Dividend Payers?

Companies that pay a dividend that are cash-rich, have low leverage and high insider ownership.

Source: Lionshares via FactSet, Goldman Sachs Research estimates.

While all of these companies quantitatively screen as good candidates with a potential to pay a special dividend, we acknowledge

some of them may have other strategically desirable uses of cash.

Ticker Company Sector Rating Market Cap Last Div YldNet debt/

Equity Quick Ratio FCF YieldInsider

Ownership($,mn) Price 2010E Last Q Last Q 2010E (%)

MSFT Microsoft Corp. Software Buy 220,650 25.33 2% -80% 2.1 10% 12%AEO American Eagle Outfitters Inc. Retail Specialty Neutral 3,017 14.66 2% -31% 1.9 8% 11%SNI Scripps Networks Interactive, Inc. Media and Entertainment Neutral 7,611 45.36 1% 31% 4.8 6% 31%SYK Stryker Corp. Medical Technology Neutral 19,515 48.74 1% -45% 4.6 11% 13%GWW W.W. Grainger Inc. Multi-industry Neutral 8,285 116.75 2% 5% 1.7 6% 15%



Government Corner: Watching budget proposals and mid-term elections

Despite the White House’s recently announced stimulus initiatives, we believe the difficult budget situations at all three

levels of government present downside risk to companies with exposure to government spending. With Congressional mid-

term elections approaching, we continue to monitor the evolving budget and tax outlook.

Our expectation of constrained government spending is based on difficult budget situations, as highlighted by the Goldman Sachs

US Economics team and Washington, DC-based economist Alec Phillips. While these projections rely on naturally imprecise

assumptions of economic growth and legislative actions, our economists expect the US federal budget deficit to become

approximately 6% of US GDP by 2020 (see Exhibit 26).

States and local governments also face serious budget issues. As Exhibit 27 shows, state governments face impending budget

shortfalls. States were given $150 billion in aid as part of the stimulus package passed by Congress in 2009 and an additional $26

billion was signed into law last month. We do not see additional aid on the horizon and, as such, states will likely need to make up

the shortfall with spending cuts or tax increases. Further, reduced spending at the local government level is a particular downside

risk. Local revenues may fall even further from current levels, as they are largely based on property taxes, a revenue source that lags

economic activity to a greater degree than income taxes.

Exhibit 26: Projections of the federal deficit as a percentage of GDP Different assumptions of economic growth and tax cut renewals materially impact the

relative size of the federal budget deficit.

Exhibit 27: Budget shortfalls at the state level will need to be filled We do not expect states to receive substantial federal aid to close budget gaps.

Source: CBO, OMB, Department of the Treasury, Department of Commerce, Goldman Sachs Research.

Source: NCL, NASBO, Goldman Sachs Economic Research.

-12

-10

-8

-6

-4

-2

0

-12

-10

-8

-6

-4

-2

0

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

GSCBO BaselineOMB

Percent of GDP Percent of GDP

Federal Budget Balance:

Fiscal Year

The GSRHGOVT and GSRHGXHD Bloomberg baskets capture companies under our coverage most exposed to government spending.



Newly announced proposals from the President are modest in size when compared to the 2009 stimulus package and

should not detract investor attention from the long-term budget issues.

The Bonus Depreciation plan allows for the full expensing of capital investments in the first year. Our economists believe that, if

passed, this will not likely have a substantial impact on corporate behavior, as it does not introduce new tax benefits, but simply

moves them forward from future years. Through 2020, the cost to the federal government is $30 billion.

Additional infrastructure spending, at a cost of $50 billion, perhaps has the most difficult road to passage due to funding issues.

The Research and Experimentation tax credit, which our economists believe is an effective incentive, may be too modestly sized

to have a material impact.

We have identified the companies under our coverage that are most exposed to government spending to aid investors who believe

that there is a downside risk to government spending. GSRHGOVT includes companies where at least 20% of revenues are derived

from government and GSRHGXHD, is similar, but excludes Healthcare and Aerospace/Defense companies (see Exhibit 28).

Exhibit 28: Composition of the GSRHGOVT basket

Companies under our coverage where sales to government were at least 20% of revenues in the last reported year

Source: Goldman Sachs Research, Company data.

Ticker Company GICS Level ThreeMarket Cap

($, mn)Gov't as a% of Sales GSRHGOVT GSRHGXHD Ticker Company GICS Level Three

Market Cap($, mn)

Gov't as a% of Sales GSRHGOVT GSRHGXHD

CNC Centene Corp. Health Care Providers & Services 1,070 100% CVH Coventry Health Care, Inc. Health Care Providers & Services 3,139 57% AGP AMERIGROUP Corp. Health Care Providers & Services 2,017 100% OCR Omnicare, Inc. Health Care Providers & Services 2,548 53% MOH Molina Healthcare, Inc. Health Care Providers & Services 756 100% MGLN Magellan Health Services, Inc. Health Care Providers & Services 1,595 50% LMT Lockheed Martin Corp. Aerospace & Defense 25,465 98% BA The Boeing Company Aerospace & Defense 46,491 49% GVA Granite Construction Inc. Construction & Engineering 885 96% OSK Oshkosh Corp. Machinery 2,411 49% WCG WellCare Health Plans, Inc. Health Care Providers & Services 1,125 93% KBR KBR, Inc. Construction & Engineering 3,822 49% NOC Northrop Grumman Corp. Aerospace & Defense 17,551 91% NUVA NuVasive, Inc. Health Care Equipment & Supplies 1,518 48% LLL L-3 Communications Holdings Inc. Aerospace & Defense 8,039 91% THC Tenet Healthcare Corp. Health Care Providers & Services 2,186 48% HS HealthSpring Inc. Health Care Providers & Services 1,271 90% CMP Compass Minerals International Metals & Mining 2,396 47% RTN Raytheon Company Aerospace & Defense 17,515 88% HMA Health Management Associates Health Care Providers & Services 1,894 41% ATK Alliant Techsystems, Inc Aerospace & Defense 2,417 84% LPNT LifePoint Hospitals, Inc. Health Care Providers & Services 1,899 40% GD General Dynamics Corp. Aerospace & Defense 23,819 80% CSC Computer Sciences Corp. IT Services 6,757 39% HUM Humana Inc. Health Care Providers & Services 8,678 76% CYH Community Health Systems, Inc. Health Care Providers & Services 2,913 37% EW Edwards Lifesciences Corp. Health Care Equipment & Supplies 3,464 76% TXT Textron Inc. Industrial Conglomerates 5,818 31% SYK Stryker Corp. Health Care Equipment & Supplies 19,515 72% AAWW Atlas Air Worlwide Holdings, Inc. Air Freight & Logistics 1,243 31% ITT ITT Corp. Aerospace & Defense 8,455 70% BMY Bristol-Myers Squibb Company Pharmaceuticals 46,215 30% HSP Hospira, Inc. Health Care Equipment & Supplies 9,248 70% GR Goodrich Corp. Aerospace & Defense 8,909 30% BDX Becton Dickinson & Co. Health Care Equipment & Supplies 17,874 69% UNH UnitedHealth Group Health Care Providers & Services 38,379 30% BAX Baxter International, Inc. Health Care Equipment & Supplies 27,528 69% JEC Jacobs Engineering Group Inc. Construction & Engineering 4,480 30% FLIR FLIR Systems, Inc. Electronic Equipment & Instruments 4,397 68% MLM Martin Marietta Materials Construction Materials 3,513 28% ZMH Zimmer Holdings, Inc. Health Care Equipment & Supplies 10,266 67% VMC Vulcan Materials Company Construction Materials 4,763 28% STJ St. Jude Medical, Inc. Health Care Equipment & Supplies 12,896 67% EMS Emergency Medical Services Corp. Health Care Providers & Services 2,308 28% BSX Boston Scientific Corp. Health Care Equipment & Supplies 8,284 66% MWA Mueller Water Products, Inc. Machinery 419 28% COV Covidien PLC Health Care Equipment & Supplies 19,953 64% HXL Hexcel Corp. Aerospace & Defense 1,841 27% URS URS Corp. Construction & Engineering 3,059 63% SHAW The Shaw Group Inc. Construction & Engineering 2,780 25% MDT Medtronic, Inc. Health Care Equipment & Supplies 37,462 60% ROP Roper Industries, Inc. Electrical Equipment 6,143 20% COL Rockwell Collins Corp. Aerospace & Defense 9,237 58% RVBD Riverbed Technology, Inc. Communications Equipment 3,364 20%



Demographic opportunities

We see three major population shifts that we believe will have material implications for long-term investors, and we

highlight our tradable basket of stocks exposed to these themes (Bloomberg ticker: GSRHDEMO) as a vehicle for exposure.

Retiring Baby Boomers. The approaching retirement of the Baby Boomers (born 1946-1964) will significantly alter the

spending, saving and leisure patterns of the largest generational cohort in US history. We see opportunities among healthcare

stocks that can successfully navigate industry changes such as CL-Buy rated Allergan and McKesson and financial services

companies that can help Boomers meet their retirement needs including Neutral-rated Ameriprise. Conversely, we see

challenges for discretionary companies that target consumers age 55-64, such as CL-Sell rated Chico’s.

The expanding global middle class. Our economics team coined the notion of the “expanding middle” to describe both a

global shift toward middle-income economies and the growth of the middle-class population within these economies. We see

continued growth in consumer and infrastructure demand driven by the expanding middle, and see consequences across

sectors. Exposed names include Buy-rated Citigroup, Teck Resources, Colgate-Palmolive and News Corp.

Generational waves after the Baby Boom. Less well understood than the Baby Boom are population peaks in the under-30

demographic in the United States. The rise of these groups to economic prominence will have significant consequences,

particularly within the Consumer and TMT sectors. Top picks include CL-Buy rated Hasbro and Buy-rated Broadcom and

Disney. See Exhibits 29-30.

Exhibit 29: Age distribution in the US is undergoing material changes US population by age (thousands), June 2010 estimate

Exhibit 30: Emerging economies are set to grow faster than developed peers Social and economic measures, grouped by current wealth bands

Source: US Census Bureau, Population Division.

Source: World Bank, UN Population Division, CIA World Factbook, GS SUSTAIN.

0

1,000

2,000

3,000

4,000

5,000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100+

Millenials (16‐29) and Generation Z (0‐4) are gaining economic signficance...

...while Baby Boomers (46‐64) are progressinginto retirement.

Baby BoomersMillennialsGen Z

Population Median age

Labor force

GDP per capita

Total, mn2009 Years Total, mn

2009Real US$

2009CAGR 09-

20EBangladesh 164 23.3 76 512 7.5%Pakistan 170 20.8 59 948 5.6%Vietnam 90 27.4 44 969 9.7%India 1,203 25.3 457 1,083 8.4%Nigeria 155 19.0 47 1,228 7.0%Philippines 91 22.5 38 1,805 7.2%Egypt 78 24.8 25 1,850 6.5%Indonesia 237 27.6 106 2,081 6.5%China 1,344 34.1 731 3,117 11.0%Iran 73 27.0 29 4,800 7.1%Brazil 197 28.6 93 7,427 5.6%Mexico 109 26.3 43 9,280 5.8%Turkey 77 27.7 24 9,869 6.3%Russia 141 38.4 63 10,575 6.5%Korea 49 37.3 21 22,631 5.1%Japan 128 44.2 49 34,564 1.2%Italy 59 43.3 19 36,781 1.5%Germany 82 43.8 32 41,739 1.4%France 62 39.4 23 42,631 1.9%Canada 33 40.4 16 45,011 2.1%USA 312 36.7 139 46,626 2.2%UK 61 40.2 26 47,164 2.0%

US$10-20k

Over US$20k

Wealth level Country

GDP growth

Under US$2k

US$2-5kUS$5-10k

0% 10% 20%

See our August 4,

2010 report

“Demographic Dynamics: A case

study for equity

investors” by Anthony Carpet, et al. for a more detailed

discussion of demographic themes

and beneficiaries.



Current Americas sector views: Commodities

We continue to expect oil demand to grow in excess of non-OPEC supply and view a “slow grind higher” as the most likely

path for oil prices into 2011. An uncertain economic environment has emerged as the key downside risk for energy markets,

but our medium-term analysis continues to show a likely return to demand rationing pricing within the next few years.

Against this backdrop of heightened near-term economic uncertainty, we remain selective across the broad energy sector.

Within Integrated Oil we favor visible production and resource growth, with an emphasis on companies exposed to Canada’s oil

sands, Brazil, onshore North American unconventional resources, or international growth. Top picks include CL-Buy rated

Canadian Natural Resources and Occidental Petroleum and Buy-rated OGX.

For E&P stocks to outperform we believe that investors need to have greater confidence in weather-normal natural gas supply-

demand via either lower rig counts or improved demand. Within the group we see CL-Buy rated EOG Resources and Newfield

Exploration Corporation as secular winners with above average growth and returns.

We have an Attractive coverage view on the Coal sector, as we believe stocks will pre-trade a 1H2011 global steel recovery. Top

picks are Buy-rated Alpha Natural Resources, Peabody Energy and Consol Energy, each of which has leverage to rising met

coal demand and company-specific catalysts.

In June 2010 we initiated coverage on the Clean Energy sector. Among solar stocks, we see higher-than-expected demand

driving profit share to lower cost producers and view Buy-rated First Solar as a structural winner where cost advantages are

increasing. In the advanced battery sub-sector we think multiples are in line with realistic growth expectations given the likely

multi-year waiting period prior to clarity on mainstream plug-in adoption.

Exhibit 31: Leading indicators highlight the macro risk for energy demand Goldman Sachs Global Leading Indicator (left); implied global oil demand (right)

Exhibit 32: We forecast 91% global solar growth in 2010 and 30% in 2011 New solar photovoltaic installations by region; in MWs

Source: Goldman Sachs Global ECS Research, IEA, Goldman Sachs Research.


-5.0%-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%

(12.0)

(9.0)

(6.0)

(3.0)

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93

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95

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96

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Implied oil dem

and growth (%

)GLI

inde

x (%

cha

nge,

y-o

-y)

GLI index level needed for GS 2H2010/2011 oil demand

forecast of ~1.6 mn b/dGS Global Leading Indicator

Implied global oil demand growth

2935.3175

5730.3760566825.5324

13017.4

16869.5618140.9165

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2007 2008 2009E 2010E 2011E 2012E

Meg

awat

ts

Other Germany Japan US China Europe (ex-Germany)

+91%

+30%+8%

See page 15 for a discussion of

agricultural stocks.



Current Americas sector views: Consumer

With a subpar recovery to date, we believe we are in a “new normal” environment in the United States, as growth in high-

level sales of consumer spending – real PCE, “core” retail sales, company SSS trends – peaked at subpar levels. We remain

selective across Retail-consumer space, with a preference for niche growth stories, and companies levered to emerging

market strength, and also identify capital allocation as a key theme across retailers.

Among Staples we prefer Beverages and Tobacco over Food and HHPC, where softer volume – an outgrowth of “new normal”

macro dynamics – and stepped up promotional activity could pressure margins in 2H2010. Sell-rated Campbell and Kimberly-

Clark face fundamental headwinds due to the competitive backdrop. For exposure to Staples, invest in CL-Buy rated Mead

Johnson for strong emerging markets exposure, PepsiCo for accelerating earnings growth and Lorillard for strong cash

returns and market share gains, where we note an over 6% dividend yield in 2011E.

We maintain a Neutral coverage view across retailers. Among Hardlines, our top pick is CL-Buy rated Staples, an improving

capital allocation story, ongoing share gainer, and mean reversion story on valuation. Among specialty retailers we prefer

names like CL-Buy rated Nike and Buy-rated lululemon athletica where company specific drivers can help buck lackluster

sector trends, while avoiding CL-Sell rated Chicos where drivers of above trend performance are now fading/ reversing.

We remain attractive on lodging stocks as supply pipeline continues to freeze and RevPAR has turned positive. Dramatic

expense reduction by companies has reduced costs at both property and corporate level giving the benefit of operating

leverage as operating environment stabilizes. We are buyers of CL-Buy rated Starwood and Buy-rated Marriott and Hyatt.

We are attractive on US autos, auto parts and dealers, where we expect a rising tide of sales from a very low base, and benefits

from unprecedented restructuring. We recommend Buy-rated Arvin Meritor for commercial truck exposure, and Ford, which we

believe will benefit from an improving SAAR and a significantly resized cost base.

We initiated coverage on Toys with an attractive view. We have a CL-Buy rating on Hasbro, which we believe is in the early

stages of a renewed revenue growth cycle driven by a new model that better leverages toy brands in movies/TV, and expect it

to solidly beat consensus in 2011 driven by the third Transformers movie, The Hub TV network and continued share

repurchases.

Exhibit 33: We expect Consumer Staples margins to fall in 2H2010 Consumer Staples aggregate operating margin change versus year-ago

Exhibit 34: US RevPAR has turned positive and is improving 4-week moving average of weekly RevPAR (2007-2010)

Source: Company data, Goldman Sachs Sales estimates.

Source: Smith Travel Research..

‐1.0%

‐0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10E 4Q10E

Wgt Ave Chg Simple Ave Chg

EBIT margins were down for the first time in several quarters driven by softer volume and

stepped‐up promotional activity

EBIT margins were down for the first time in several quarters driven by softer volume and

stepped‐up promotional activity

-25%

-20%

-15%

-10%

-5%

0%

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Current Americas sector views: Financials

We view the recently announced Basel 3 standards as a positive for Banks, as the increased clarity on capital requirements

may spur the better capitalized firms to seek share buybacks and increased dividends – both of which have been well below

trend.

We favor large banks and expect them, on aggregate, to generate $170 billion of Tier 1 common capital through 2012, raising

the group’s ratio 11.7% of assets, and we highlight CL-Buy rated J.P. Morgan Chase, where we estimate that it will have excess

capital equal to 25% of its market cap by 2012. Within the trust banks, CL-Buy rated Northern Trust has the strongest Tier 1

common ratio and may pursue small-scale M&A and buybacks.

We expect improving issuance, tighter credit spreads, and newly raised AUM to drive fee-related earnings for CL-Buy rated

Blackstone Group, and we see CL-Buy rated BlackRock as a strong franchise trading at an attractive valuation. In contrast, we

expect the soft capital markets to weigh on CL-Sell rated Jefferies Group.

CL-Buy rated housing owner/operator Brookdale Senior Living is an inexpensive and low-risk opportunity to invest in the

aging Baby Boomer demographic theme, and the company’s improved leverage ratios remove an overhang for the stock.

Among the insurers, we expect CL-Buy rated ACE Limited to maintain its sector-leading 10+% ROE over the next few years.

We see strong cash flow generation that is being returned to shareholders and attractive valuation as key for CL-Buy rated

NASDAQ OMX Group. The company also has a more defensive profile in a low-volume environment given their more

diversified business mix.

Mall operator Simon Property Group has stable growth, attractive valuation, and a strong balance sheet that can support a

dividend increase, all of which drive our CL-Buy rating for the stock. See Exhibits 35-36.

Exhibit 35: Excess capital under the new Basel requirements are set to rise…Estimated excess capital based under newly released Basel 3 requirements

Exhibit 36: …which might be deployed to raise dividends Dividend payout ratios have fallen well below their long-term average of 41%

Source: Company data, SNL Financial, Goldman Sachs Research.

Source: SNL Financial, Goldman Sachs Research estimates.

$109 bn

(300)

(250)

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4Q08

2Q09

4Q09

2Q10

Div

iden

d pa

yout

ratio

(%)

Avg payout ratio* = 41%

* Note - excluding 2H01 and 2H08. Payout ratio on chart consists of BAC, C, JPM, MS, USB, PNC & WFC



Current Americas sector views: Healthcare

We remain selective within Healthcare, with an Attractive coverage view on Healthcare Supply Chain and Managed Care

and a Neutral view on all other sub-sectors. While valuation remains low and sentiment is negative throughout the sector,

we see near-term fundamental overhangs and prefer to focus on new product stories and companies with the potential to

benefit shareholders via capital allocation activity.

We have a positive outlook for Healthcare Supply Chain stocks, which we expect to receive strong support from the upcoming

generic launches. In particular we prefer large diversified distributors, and our top picks are CL-Buy rated McKesson and Buy-

rated AmerisourceBergen.

In Managed Care we believe there is positive risk-reward at current valuations, and see upside for stocks as the underwriting

cycle turns positive. CL-Buy rated CIGNA remains our favorite name in the space, as the company trades at a discount to peers

and has the least Medicare Advantage exposure of the group.

We believe the Major Pharma sector has undergone structural change and do not expect ROICs to return to pre-2009

restructuring levels. Still, valuation is inexpensive and we see opportunities for companies to return cash to shareholders. We

highlight Buy-rated Pfizer as the name with the least exposure to healthcare reform in the group (about 1% of EPS) and perhaps

the most potential to drive shareholder returns via buybacks and dividends, with an estimated 2011 yield of 4.7%. See Exhibits

37-38.

Exhibit 37: A substantial portion of the branded market is going generic Cumulative expiring branded spend ($ bn)

Exhibit 38: The commercial underwriting cycle has turned positive Pretax margin (all products) for core public (ex-Humana) and NFP Blues, 1966-12E

Source: Company data, IMS Health, Goldman Sachs Research estimates.


0%

4%

8%

12%

16%

20%

24%

28%

32%

36%

40%

44%

48%

52%

56%

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

$130

$140

$150

Cumulative expiring branded spend

% of 2009 branded pharma market

% of 2009 non-biotech pharma market branded

spend going

Over a third of current branded

spend will be generic in 3 years

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

196619671968196919701971197219731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010E2011E2012E

NFP Blues

Public companies



Current Americas sector views: Industrials

Our focus in Industrials is increasingly selective given the economic slowdown. We favor companies with positive exposure

to strong emerging market demand, pricing power driven by positive supply-side dynamics, as well as those with

improving margins and strong balance sheet opportunities.

Strong domestic pricing and margins, aggressive international growth initiatives and our expectations of increased buybacks

and dividends drive our CL-Buy rating on UPS. Operational and margin improvements, as well as growing volumes, support

our CL-Buy rating for Canadian Pacific Railway.

We have a Cautious coverage view of our Defense coverage based on the negative outlook of government expenditures and are

CL-Sell rated on both Lockheed Martin and Northrop Grumman. In contrast, we see rising air traffic and new equipment

orders as key positives for CL-Buy rated Boeing, backing our Attractive view of Aerospace (see page 13).

Within our Machinery coverage, we are CL-Buy rated on Cummins due to stronger China fixed investment, gains in US truck

share and potential for an expanded buyback program. We are Buy-rated on Joy Global and Bucyrus on the back of a rise in

mining equipment capex and an accelerating recovery in aftermarket sales.

We lowered our Chemicals coverage view to Neutral since our last Desktop to reflect a more muted growth outlook, but we

have a very constructive view on CL-Buy rated Huntsman where we see the company successfully undergoing a structural

change from a commodity to specialized chemicals producer, increasing the strength of its balance sheet in the process. A

healthy yield and recent insider buying support our view. See Exhibits 39-40.

Exhibit 39: Rail volumes increased over the summer Rail carloads originated; 4-week rolling average.

Exhibit 40: Historical US Department of Defense investment spending We appear to be entering another near-decade long cycle of reduced spending.

Source: Association of American Railroads.

Source: SNL Financial, Goldman Sachs Research estimates.

250

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390

Apr May Jun Jul Aug

Thou

sand

s

Thou

sand

s

Other Carloads Intermodal

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

FY 5

8

FY 6

3

FY 6

8

FY 7

3

FY 7

8

FY 8

3

FY 8

8

FY 9

3

FY 9

8

FY 0

3

FY 0

8

FY 1

3E

12 years up

12 years up

10 years down

11 years up

8 years down

?

See page 13 for a

discussion of Aerospace.



Current Americas sector views: TMT

We remain bullish across most areas of TMT, with an Attractive coverage view on eight of fifteen sub-sectors. Our

constructive framework is driven by TMT’s exposure to specific themes such mobility (discussed on page 14) and cloud

computing, as well as potential capital allocation activity driven by high cash balances within the group.

Our recent CIO survey suggests more typical seasonal spending than in recent years, with 70% of respondents expecting

“normal” seasonal IT spending. As show in Exhibit 41, tech tends to outperform in 4Q in normal spending years, led by the

Internet sector.

Among Internet stocks we favor companies with international exposure and strong value propositions, and our top picks are CL-

Buy rated Amazon.com and Buy-rated Priceline in e-commerce and Buy-rated Google and Baidu in advertising.

Recent M&A and dividend activity in tech highlight the potential for large, cash-rich companies to make acquisitions or return

cash to shareholders. For exposure to M&A activity we recommend the GS Software Strategic M&A basket (Bloomberg ticker

GSRHLSMA), and for investors looking for yield in the TMT space we highlight Buy-rated CenturyTel (7.8% dividend yield) and

Buy-rated AT&T (6.4% dividend yield).

We have an Attractive coverage view of the Software space, with a preference for secular winners that have the ability to grow

earnings even in a cyclical downturn. Such names include Buy-rated Salesforce.com, SuccessFactors and Taleo with

exposure to cloud computing, VMware in virtualization and Akamai in online content delivery.

We remain very bullish on the Semi Equipment cycle, where we expect strong NAND investment in 2011 as well as continued

strength in DRAM. We estimate that 2010 capex will be up 98% from 2009 levels and forecast a 22% increase in 2011. We

believe semi equipment stocks combine good fundamentals and attractive valuation, and see the most upside for CL-Buy rated

Lam Research and Teradyne due to their expanding addressable markets and reduced operating costs.

Exhibit 41: Tech trends to outperform in 4Q Average quarterly performance by sub-sector, 2002-10 (excluding December 2008)

Exhibit 42: We expect semi capex to increase 22% yoy in 2011 Semi equipment capex spending

Source: Goldman Sachs Research

Source: Company data, Goldman Sachs Research.

Index Mar Jun Sep DecS&P 500 ‐2.0% 0.8% 0.0% 5.4%Nasdaq Composite ‐2.1% 1.6% 0.3% 7.9%

GS Technology Index ‐2.5% 1.0% ‐0.2% 10.0%GS Hardware Index 0.6% 2.7% ‐0.2% 11.6%GS Software Index ‐2.5% 0.1% 1.9% 10.3%GS Semiconductor Index 0.0% ‐0.1% ‐2.3% 7.2%GS Multimedia Networking Index ‐1.1% 3.2% ‐1.2% 9.7%GS IT Services Index ‐2.0% 1.0% ‐1.6% 9.0%GS Internet Index ‐0.3% 5.2% 0.4% 12.6%S&P 500 Telecom Services Index ‐4.9% ‐0.7% ‐2.8% 9.0%

0

8000

16000

24000

32000

40000

48000

56000

64000

Tota

l cap

ex ($

mn)

See page 14 for a

discussion of TMT names exposed to the

themes of mobility

and connectivity.



Latin America – Brazil domestic and export momentum

The core equity stories in Latin America going into 4Q2010 and early 2011 are Brazil’s simultaneously surging consumer

spending at home and commodity exports abroad.

A record Christmas selling season is coming, in our view, as job creation, wages, and consumer credit availability in Brazil are

all breaking records. This comes just as expectations that interest rates must rise further have evaporated, after three months of

near-zero consumer price inflation. Underlying factors suggest that strong demand growth is sustainable.

However, the most obvious consumer stories in retailing and consumer goods have already risen well above the market during

2010, to multiples in the 20–60X P/E range. We recommend other stocks whose main underlying driver is also Brazilian

domestic consumer activity, and with earnings growth as fast overall as many retailers, but at multiples below, mostly well

below, 20X. These include banks Bradesco, Itaú Unibanco, and Banco ABC, mall operator BR Malls, insurance company Sul

America, and homebuilders Cyrela, PDG, and Even, all of which are on our Buy list.

Separately, Brazil’s resource companies continue riding a secular shift towards production in Brazil of global commodities. In a

context of rapid emerging-market growth around the world, we think new global supply will be constrained vs demand enough

to support prices in 4Q2010 and push them up further in 2011. We favor Buy-rated Vale (iron ore, copper, nickel, fertilizer),

Fibria (paper pulp), Suzano (pulp & paper), Minerva (beef), and railway ALL, whose main cargo is grains. See Exhibits 43-44.

Exhibit 43: Unemployment keeps dropping

Exhibit 44: Commodity prices edging up again

Goldman Sachs Global Commodity Price Index

Source: IBGE - Brazilian Institute for Geography and Statistics.

Source: Goldman Sachs Research. Note: market-trading-weighted index of all major traded commodities.

0

2

4

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series) 200

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-10



Updating our volatility outlook for a more muted recovery

We expect realized volatility for the S&P 500 to be in the 17%-20% range through year-end 2010, still above average, but

consistent with recent levels, given Goldman Sachs US Economic team’s outlook for a slowing economy. Based on this

view and our analysis of cross-asset factors, the VIX seems fair; however, longer-dated options continue to overprice

forward-looking volatility in our view which, together with near record levels of put/call skew, signals investor nervousness.

Our Economists’ outlook for sluggish spending, a stall in industrial activity, and renewed labor market deterioration implies

above average, but not extreme, volatility as we close out the year. If we assume ISM new orders falls to 47 by year-end

(consistent with a forecast for headline ISM at 50 or below), spending is flat, and unemployment rises to 9.8%, we could see

volatility in the 17-20% range, assuming no exogenous shocks. This is consistent with what slowing momentum in the Goldman

Sachs Global Leading indicator (GSI) would suggest for volatility as well.

The VIX in the low 20s seems reasonable. VIX futures as short-dated as four months out are pricing in much higher

levels of volatility than we expect; skew is near record levels as uncertainty is evident. The spread between VIX and VIX

futures is very wide as even 4-month futures are pricing in 30% volatility, well above what is justified by economics alone. The

market is clearly pricing in some probability of a shock or a steep increase in correlation to drive volatility higher. One-year skew

(the ratio between put and call prices) is near its highest levels in over 10 years.

Asset allocation opportunity: A low rates, high skew environment means that “risk reversal” strategies which sell a put and

buy a call are priced at their most attractive levels in a decade. We recommend investors use risk reversals as an alternative to

futures or ETFs to fine-tune their equity exposure and outperform in a down market. Risk: Investors who sell a put have 1-1

market exposure below the put strike. See Exhibits 45-46.

Exhibit 45: Our estimates see realized volatility above average through 2010S&P 500 calendar month realized volatility: actual and forecast

Exhibit 46: S&P 500 1y 90%/110% risk reversals are pricing at their most

attractive levels over the past decade due to low rates and high skew S&P 500 1y 90% put price – 110% call price as % of spot. Data as of 15-Sep-10.



0

20

40

60

80

0

20

40

60

80

Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10

SPX calendar month

realized volatility

Model Predicted

Average since 1960: 13.7

Our forecast for SPX 1m realized vol

17-20 by December 2010

-4

-3

-2

-1

0

1

2

3

4

Sep-00 Mar-02 Sep-03 Mar-05 Sep-06 Mar-08 Sep-09

S&

P 5

00 9

0%

Pu

t P

rice

-110%

Call

Pri

ce (

1y)

Maria Grant, CFA Krag Gregory, Ph.D.



Americas Conviction List ideas

Our Conviction List has been actively managed by our Investment Review Committee (IRC) since inception in September

2006.

All ratings changes and material price target changes must be reviewed and approved by the IRC.

The list contains our analysts’ highest conviction stock ideas. See Exhibit 47.

Exhibit 47: Goldman Sachs Conviction List

as of September 17, 2010


Stock/Business Unit Ticker RatingMkt Cap

$mmLast Price

Target Price

% to Target

TP Period CL Days Analyst Stock/Business Unit Ticker Rating

Mkt Cap $mm

Last Price

Target Price

% to Target

TP Period CL Days Analyst

Tech HealthcareLam Research Corp. LRCX Buy 5,045 $39.48 53.00 34% 6 m 815 James Covello CIGNA Corp. CI Buy 9,413 $34.64 44.00 27% 6 m 596 Matthew Borsch, CFATeradyne, Inc. TER Buy 2,045 $10.39 17.00 64% 6 m 498 James Covello Baxter International, Inc. BAX Buy 27,528 $44.98 57.00 27% 12 m 56 David H. RomanAmazon.com Inc. AMZN Buy 67,399 $148.13 150.00 1% 6 m 102 James Mitchell, CFA McKesson Corp. MCK Buy 16,978 $62.42 81.00 30% 12 m 128 Robert P. JonesOracle Corp. ORCL Buy 128,771 $25.36 32.00 26% 12 m 10 Sarah Friar Parexel International Corp. PRXL Buy 1,271 $22.09 28.00 27% 6 m 44 Robert P. JonesSBA Communications Corp. SBAC Buy 4,379 $37.86 43.00 14% 12 m 500 Jason Armstrong, CFA Medco Health Solutions MHS Buy 22,673 $47.04 76.00 62% 12 m 81 Randall Stanicky, CFACrown Castle International Corp. CCI Buy 11,912 $41.64 46.00 10% 12 m 245 Jason Armstrong, CFA Allergan, Inc. AGN Buy 19,699 $64.67 81.00 25% 12 m 151 Randall Stanicky, CFAJuniper Networks, Inc. JNPR Buy 16,028 $29.74 32.00 8% 12 m 287 Simona Jankowski, CFA IndustrialsRogers Communications Inc. RCI__B.TO Sell 21,883 C$38.66 29.00 -25% 12 m 227 Jason Armstrong, CFA Dover Corp. DOV Buy 9,285 $49.84 60.00 20% 12 m 38 Terry DarlingQUALCOMM, Inc. QCOM Buy 68,915 $41.97 46.00 10% 12 m 67 Simona Jankowski, CFA Cummins, Inc. CMI Buy 16,589 $84.08 104.00 24% 12 m 4 Jerry Revich, CFASapient SAPE Buy 1,547 $11.22 13.00 16% 12 m 136 Julio C. Quinteros Jr. Tyson Foods, Inc. TSN Sell 6,400 $17.02 14.00 -18% 6 m 39 Lindsay Drucker Mann, CFAVisa Inc. V Buy 50,464 $68.38 93.00 36% 12 m 70 Julio C. Quinteros Jr. The Boeing Company BA Buy 46,491 $62.58 84.00 34% 12 m 130 Noah Poponak, CFA

Consumer Precision Castparts Corp. PCP Buy 17,839 $124.40 140.00 13% 12 m 71 Noah Poponak, CFAFord Motor Company F Buy 42,433 $12.44 16.00 29% 6 m 513 Patrick Archambault, CFA Lockheed Martin Corp. LMT Sell 25,465 $68.51 65.00 -5% 12 m 254 Noah Poponak, CFADana Holding Corp. DAN Buy 1,540 $11.00 15.00 36% 6 m 198 Patrick Archambault, CFA Northrop Grumman Corp. NOC Sell 17,551 $57.77 51.00 -12% 12 m 67 Noah Poponak, CFAHasbro, Inc. HAS Buy 6,721 $44.43 57.00 28% 12 m 136 Michael Kelter United Parcel Service, Inc. UPS Buy 66,053 $66.72 78.00 17% 12 m 198 Scott Malat, CFAMead Johnson Nutrition Co. MJN Buy 11,505 $56.15 61.00 9% 12 m 46 Andrew Sawyer, CFA Canadian Pacific Railway Ltd. CP.TO Buy 10,469 C$63.7 75.00 18% 12 m 81 Scott Malat, CFAStaples, Inc. SPLS Buy 14,151 $19.39 23.00 19% 12 m 9 Matthew J. Fassler Huntsman Corp. HUN Buy 2,491 $10.61 13.00 23% 12 m 133 Robert Koort, CFAStarwood Hotels & Resorts HOT Buy 9,526 $50.94 62.00 22% 12 m 403 Steven Kent, CFA CF Industries Holdings, Inc. CF Buy 7,087 $99.74 110.00 10% 12 m 31 Robert Koort, CFANike, Inc. NKE Buy 37,508 $76.64 85.00 11% 6 m 204 Michelle Tan, CFA Monsanto Co. MON Buy 31,477 $57.27 71.00 24% 12 m 107 Robert Koort, CFAChico's FAS, Inc. CHS Sell 1,763 $9.99 8.00 -20% 6 m 53 Michelle Tan, CFA CommoditiesLorillard, Inc LO Buy 13,579 $80.69 97.00 20% 12 m 67 Judy E. Hong Canadian Natural Resources Ltd. CNQ Buy 36,270 $33.41 41.00 23% 6 m 226 Arjun N. MurtiPepsiCo, Inc. PEP Buy 111,439 $66.61 76.00 14% 12 m 128 Judy E. Hong Occidental Petroleum Corp. OXY Buy 62,096 $76.45 90.00 18% 6 m 238 Arjun N. Murti

Financials Newfield Exploration Company NFX Buy 7,082 $53.31 64.00 20% 6 m 108 Brian Singer, CFAJ.P. Morgan Chase & Co. JPM Buy 162,952 $40.99 51.00 24% 12 m 599 Richard Ramsden EOG Resources Inc. EOG Buy 22,978 $91.00 129.00 42% 6 m 38 Brian Singer, CFANorthern Trust Corp. NTRS Buy 11,903 $49.25 57.00 16% 12 m 116 Richard Ramsden Spectra Energy Corp. SE Buy 14,131 $21.74 26.00 20% 12 m 344 Theodore DurbinBrookdale Senior Living Inc. BKD Buy 1,690 $14.16 20.00 41% 12 m 36 Sloan Bohlen Sunoco Logistics Partners L.P. SXL Buy 2,359 $75.57 87.00 15% 12 m 102 Michael Cerasoli, CFASimon Property Group SPG Buy 33,259 $94.59 100.00 6% 12 m 36 Jonathan Habermann Ameren Corp. AEE Sell 6,570 $27.56 22.00 -20% 12 m 226 Michael LapidesBlackRock, Inc. BLK Buy 31,695 $162.54 173.00 6% 12 m 116 Marc Irizarry Public Service Enterprise Group Inc. PEG Buy 16,018 $31.59 39.00 23% 12 m 88 Michael LapidesThe Blackstone Group L.P. BX Buy 12,180 $10.77 14.50 35% 12 m 36 Marc Irizarry Chicago Bridge & Iron CBI Buy 2,319 $23.44 28.00 19% 12 m 324 Joe RitchieACE Limited ACE Buy 19,448 $57.79 61.00 6% 12 m 116 Christopher M. NeczyporJefferies Group Inc. JEF Sell 4,982 $24.78 22.00 -11% 6 m 116 Daniel Harris, CFAThe Nasdaq Stock Market, Inc. NDAQ Buy 4,046 $19.36 23.00 19% 12 m 226 Daniel Harris, CFA



Appendix: Investment Profile Methodology

Calculation methodology for the GS Investment Profile (IP) scores

Returns and multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters away. Growth uses

the value for the fiscal year at least seven quarters away compared with the year at least three quarters away (on a per-share

basis for all metrics). For instance, if today is May 25, 2010 and the next year-end is December 31, 2010, we use December 2011

for valuation and returns, and 2012/2011 for growth.

Goldman Sachs metrics are normalized by assigning a Z-score based on the company’s position within the overall distribution

of all IP scores (assuming a normal distribution).

The average of these normalized metrics is taken (or the average of those available in the case of financials).

The peer group average is based on the simple average of normalized metrics for all the constituents.

This average is then used to generate a percentile score from 1 to 100.

Measures used in each factor

Returns: calculated using an average of return on equity, return on capital employed, and cash return on cash invested

(CROCI—a measure of cash returns) for each stock. Only ROE is considered for select financial stocks (Banks, Insurance and

Market structure). Top Quintile (Q1): stocks with the highest returns; Bottom Quintile (Q5): stocks with the lowest returns.

Growth: calculated using an average of a company’s sales, EBITDA, and EPS growth. For select financials (Banks, Insurance,

Market structure), we use only EPS and sales growth. Q1: stocks with the highest growth; Q5: stocks with the lowest growth.

Multiple: calculated using an average of price/earnings, price/book, dividend yield, enterprise value/EBITDA, enterprise

value/free cash flow and enterprise value /debt adjusted cash flow. Only price/earnings, price/book and dividend yield are used

for select financial stocks (Banks, Insurance and Market structure). Q1: stocks with the lowest multiples; Q5: stocks with the

highest multiples.

Volatility: calculated as the standard deviation of daily total returns over a trailing 12-month period. Q1: stocks with the lowest

volatility; Q5: stocks with the highest volatility.

Balance sheet: calculated using net debt/EBITDA (leverage). This is used only for non-financial stocks. Q1: stocks with the

lowest leverage; Q5: stocks with the highest leverage.

Integrated: calculated as an aggregate score based on Returns, Growth and Valuation. Q1: stocks with the highest integrated

score; Q5: stocks with the lowest integrated score.



Equity Baskets Disclosure

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.

Rating and pricing information not provided elsewhere (as of September 17, 2010)

ALL America Latina Logistica (B/A; R$16.70), AmerisourceBergen Corp. (B/A; $30.18), Ameriprise Financial, Inc. (N/N; $47.62),

American Tower Corp. (B/A; $49.27), ArvinMeritor, Inc. (B/A; $14.04), Baidu.com, Inc. (B/A; $85.73), Banco ABC (B/A; R$14.28),

Banco Bradesco (B/A; R$31.85), BR Malls (B/A; R$29.31), Broadcom Corporation (B/A; $34.16), Campbell Soup Co. (S/C; $36.30),

Colgate-Palmolive Company (N/N; $77.37), Consol Energy Inc. (B/A; $34.81), Cyrela Brazil Realty (B/A; R$23.50), The Walt Disney

Company (B/A; $34.56), EVEN (B/A; R$8.72), Fibria Celulose S.A. (B/A; R$29.97), First Solar, Inc. (B/N; $144.88), Google Inc. (B/A;

$490.15), Hyatt Hotels Corporation (B/A; $39.13), Itaú Unibanco Holding (B/A; R$38.70), Kimberly-Clark Corporation (S/N; $66.37),

Marriott International (B/A; $35.62), Minerva S.A. (B/N; R$6.74), The News Corp. (A) (B/A; $13.53), OGX Petróleo e Gás

Participações S.A. (B/A; R$20.20); PDG Realty (B/A; R$19.90), Peabody Energy Corp. (B/A; $47.00), Priceline.com Incorporated

(B/N; $334.95), Smithfield Foods, Inc. (B/N; $16.64), SulAmérica S.A. (B/A; R$18.49), Suzano Papel E Celulose SA (B/A; R$16.52),

Syniverse Technologies, Inc. (B/A; $21.60), Vale (B/N; $27.85).



Reg AC

We, Anthony Carpet, Laura Conigliaro, Robert D. Boroujerdi, Michael Chanin, CFA, Deep Mehta and Thomas Craven, CFA, hereby certify that all of the views expressed in this report accurately reflect

our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific

recommendations or views expressed in this report.

Investment Profile

The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth,

returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage

universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,

ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month

volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make

comparisons between companies in different sectors and markets.

Disclosures

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

Company-specific regulatory disclosures


published research.

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 31% 53% 16% 47% 44% 34%

As of July 1, 2010, Goldman Sachs Global Investment Research had investment ratings on 2,814 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 views and related definitions' below.



Price target and rating history chart(s)


published research.

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; for equity securities, market making and/or

specialist role. Goldman Sachs usually makes a market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities.

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 Goldman Sachs, which includes

investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer,

director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be associated persons of Goldman Sachs & Co. and

therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions on communications with subject company, public appearances and trading securities held by the analysts.

Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes 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 http://www.gs.com/research/hedge.html.

Additional disclosures required under the laws and regulations of jurisdictions other than the United States

The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: This research, and any

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