Introduction to the ABX and CMBX Indices

1
Introduction to the ABX and CMBX Indices
November 2006
2
Overview of Structured Product SyntheticsStructur
ed Product Single Name CDS Sample Terms

• Underlying
• Designated specific reference obligations along
  with the initial face amount
• Payments
• Fixed payments (paid by protection buyer) CDS
  premium, Act/360 basis, paid monthly / quarterly
• Floating payments (paid by protection seller)
  Upon the occurrence of a credit event, the
  applicable settlement amount
• Additional fixed payments (paid by protection
  buyer) Upon the occurrence of a reimbursement of
  any prior floating payments, the applicable
  reimbursement amount

Please see the draft transaction Confirmation for
full details of trade mechanics. All materials
contained herein are for discussion purposes only
and will be superseded by full legal
documentation in the event the parties decide to
enter into any transaction
3
Overview of Structured Product SyntheticsStructur
ed Product Single Name CDS Sample Terms (cont)

• Notional Balance
• Notional balance is adjusted as follows
• Reduced by amortizations on the reference
  obligations
• Reduced by writedown amounts and principal
  shortfalls
• Reduced by physical settlement
• Increased by writedown reimbursements
• Credit Events Settlement Amount
• Failure to pay principal Percent of class
  principal not paid x notional
• Writedown Percent of class written down x
  notional
• Downgrade to CCC / Caa3 Physical settlement only
• Optional physical settlement after any credit
  event
• The PAUG includes a provision for giving an
  option to the protection buyer to terminate the
  contract in part or in whole by delivering the
  reference obligation. This feature, called the
  "Physical Settlement Option," is triggered by any
  credit event

Please see the draft transaction Confirmation for
full details of trade mechanics. All materials
contained herein are for discussion purposes only
and will be superseded by full legal
documentation in the event the parties decide to
enter into any transaction
4
The ABX.HE and CMBX IndicesHighlights

• ABX.HE references 20 HEL ABS obligations and CMBX
  references 25 CMBS obligations
• The Indices comprise subindices
• AAA, AA, A, BBB and BBB- for ABX
• AAA, AA, A, BBB, BBB-, and BB for CMBX (BB was
  not included on the first series of CMBX)
• Each subindex, in turn, includes 20 Subprime Home
  Equity bonds or 25 CMBS securities
• The reference obligations in each subindex
  comprise bonds at different rating levels
• Bonds in each subindex are selected from the same
  set of reference entities
• Every six months, the Indices will be
  reconstituted using the same criteria
• On January 19, 2006, the ABX.HE 06-1 began
  trading
• We estimate that more than 150bn of trade
  notional has been executed on the ABX.HE indices
• Goldman has executed more than 80bn of trade
  notional
• On March 7, 2006, the CMBX Index began trading

5
The ABX.HE and CMBX IndicesConstruction Criteria
Portfolio Selection Criteria
Source Goldman Sachs, ABX.HE Launch
Presentation ABX Indices The New US Asset
Backed Credit Default Swap Benchmark Indices (CDS
IndexCo) CMBX Launch Presentation CMBX Indices
The New US Commercial Mortgage Backed Credit
Default Swap Benchmark Indices (CDS IndexCo)
6
Trading the ABX.HE IndicesIndicative terms and
conditions

• Indices
• Notional Amortization mirrors that of the
  underlying bonds
• Fixed Rate Established on roll date premium.
  Subsequent trades require upfront exchange of
  premium/discount
• Floating Rate Payments Interest Shortfall,
  Writedown, Principal Shortfall
• Additional Fixed Payments Interest Shortfall
  Reimbursement, Writedown Reimbursement, Principal
  Shortfall Reimbursement
• Quotations Dealers will quote price and
  exchange upfront amounts based on the difference
  between that price and par
• Floating Amount Events Failure to Pay
  Principal, Interest Shortfall and Writedown
• Physical Settlement Not Applicable

Note All financial information and other data
shown are for illustrative purposes only and are
not intended to represent an actual
transaction Source Goldman Sachs, ABX.HE Launch
Presentation ABX Indices The New US Asset
Backed Credit Default Swap Benchmark Indices (CDS
IndexCo)
7
Trading the CMBX IndicesIndicative terms and
conditions

• Indices
• Notional Amortization mirrors that of the
  underlying bonds
• Fixed Rate Established one day prior to roll
  date. Payable monthly based on average balance.
• Floating Rate Payments Interest Shortfall,
  Writedown, Principal Shortfall
• Additional Fixed Payments Interest Shortfall
  Reimbursement, Writedown Reimbursement, Principal
  Shortfall Reimbursement
• Quotations Dealers will quote spread and
  compute price from the MarkIt calculator
• Credit Events Principal Shortfall and Write-Down
• Physical Settlement Not Applicable
• Accruals Accrues 25th to 25th with no following
  convention payments made on the 25th on an
  Actual/360 basis

Note All financial information and other data
shown are for illustrative purposes only and are
not intended to represent an actual
transaction Source Goldman Sachs, CMBX Launch
Presentation CMBX Indices The New US Commercial
Mortgage Backed Credit Default Swap Benchmark
Indices (CDS IndexCo)
8
Index vs. Single Name TradesComparing a few
features
9
Key Features of Trade Mechanics1Important
Definitions, Valuable Dates and Margin
Requirements
Margin Requirements
Important Definitions

• Trade Date the day the trader says done and
  trade is executed
• Effective date of trade same as trade date
  when protection begins
• Effective date of index (i.e. annex date) date
  the annex was initially published or revised
• Settlement date date on which the premium is
  exchanged
• Premium fee exchanged when trade is initially
  done comprising the market value of the trade and
  accrued interest since last payment date
• Accrued interest (in terms of premium) interest
  accumulated from and including last payment date
  but excluding effective date of trade
• Factor - A change in the outstanding principal
  issuance i.e. of principal unpaid on the
  reference obligation
• Initial Fixed rate Payer Calculation period
  from and including last payment date but
  excluding the next payment date of the bond

Valuable Dates

• Trade date T
• Effective date of trade T 0
• MarkIt Publish date - 24 hours or less after
  trustee report is published (25th)

1 Source Goldman Sachs
Note All financial information and other data
shown are for illustrative purposes only and are
not intended to represent an actual transaction
10
Trade Ideas Using the ABX.HE and CMBX.NA Indices

• Bearish view on housing/consumers/commercial real
  estate
• Customers with this view have been selling the
  Index (shorting credit buying protection) at the
  A, BBB, and BBB- level
• Credit steepener (flattener) trades
• View is that credit curve will steepen (flatten)
  with adverse (favorable) developments
• Fund shorts by selling protection higher (lower)
  in the capital structure
• Most common BBB- vs BBB, BBB vs AAA
• Transition management
• Investors with cash to invest (or risk to add)
  have used the index to gain exposure to home
  equity or CMBS spreads while they ramp up
  single-name or cash positions
• Investors can scale out of the index as they put
  new cash to work (or add risk)
• Basis trades
• Trading single names or cash versus the Index
• Can structure positive carry trades or express
  leveraged views on particular names
• Index arbitrage

Note Past results are not indications of future
performance
11
Trade Ideas using the ABX.HE and CMBX.NA
IndicesContinued

• Tranching
• Significant interest/inquiry in tranches
• Standardization, pricing, and liquidity should
  take time to evolve
• Options
• Hedgers have expressed interest in options
  strategies to mitigate risk
• Similar in construction to options on CDX
  currently traded

Note Past results are not indications of future
performance
12
Trade Ideas using the ABX.HE and CMBX.NA
IndicesContinued

• Hedging mortgage credit risk
• Originators have sold the index across the
  capital structure to hedge their origination
  pipelines
• Originators or investors with positions in
  mortgage residuals have sold the BBB and BBB-
  Indexes to mitigate risk
• Some originators view BBB/BBB- protection as
  cheap to mortgage insurance
• ABX/CMBX versus corporate credit
• Hedge funds have traded BBB/BBB- vs correlated
  corporate credit such as consumer portion of CDX,
  HVOL, or REITs or single name CDS such as
  homebuilders

ABX.HE BBB- vs OTR CDX.HVOL1
ABX.HE BBB- vs OTR CDX.IG1
1Note Past results are not indications of future
performance. Indicative as of 25Oct06.
13
Trade Themes using the ABX.HE and CMBX.NA
IndicesContinued

• ABX/CMBX vs Equities
• Equity accounts and macro hedge funds have used
  the Index (primarily BBB and BBB-) to hedge the
  residual risk in originator stocks
• Short is funded by high dividend yield
• ABX and certain housing related equity names have
  become more correlated

ABX.HE BBB- vs New Century Financial1
ABX.HE BBB- vs SP 5001
1Note Past results are not indications of future
performance. Indicative as of 25Oct06.
14
Evolution of Spreads for the ABX.HE OTR
Subindices1From 01/19/2006 to 10/25/2006
ABX.HE BBB and BBB-
ABX.HE AAA and AA
ABX.HE A
ABX.HE Spread Stats
1 Source Goldman Sachs. Indicative as of COB
25Oct06.
15
Evolution of Spreads for the CMBX
Subindices1From 03/06/2006 to 10/25/2006
CMBX AAA and AA
CMBX BBB and BBB-
CMBX A
CMBX Spread Stats
1 Source Goldman Sachs. Indicative as of COB
25Oct06.
16
Update on the ABX.HE Bases1As of 10/23/06
Indicative Basis Report1
1 Source Goldman Sachs
Note Past results are not indications of future
performance
17
ABX.HE BBB Basis1As of 10/25/06
Indicative ABX.HE BBB Historical Basis1
Average Basis 17
1Note Past results are not indications of future
performance. Indicative as of 25Oct06.
18
ABX.HE BBB- Basis1As of 10/25/06
Indicative ABX.HE BBB- Historical Basis1
Average Basis 25
1Note Past results are not indications of future
performance. Indicative as of 25Oct06.
19
Update on the CMBX Bases1As of 10/25/06
Indicative Basis Report1
1 Source Goldman Sachs
Note Past results are not indications of future
performance
20
CMBX BBB Basis1As of 10/25/06
Indicative CMBX BBB Historical Basis1
Average Basis 1.9
1Note Past results are not indications of future
performance. Indicative as of 25Oct06.
21
CMBX BBB- Basis1As of 10/25/06
Indicative CMBX BBB- Historical Basis1
Average Basis 2.5
1Note Past results are not indications of future
performance. Indicative as of 25Oct06.
22
Important Disclaimers Please Read

• All materials, including proposed terms and
  conditions, are indicative and for discussion
  purposes only. The information contained herein
  has been prepared solely for informational
  purposes and is not an offer to buy or sell or a
  solicitation of an offer to buy or sell any swap,
  security or instrument or to participate in any
  trading strategy. If any offer is made, it shall
  be made pursuant to (in the case of swaps) a
  final swap confirmation, or (in the case of
  securities) a final offering circular (the
  Offering Circular) prepared by or on behalf of
  the issuer of any such securities (the Issuer),
  both of which would contain material information
  not contained herein and which shall supersede,
  amend and supplement this information in its
  entirety. Any offer of swaps or securities which
  is eventually made may contain terms which are
  substantially different from the terms described
  herein. Goldman Sachs Co. does not provide
  accounting, tax or legal advice, however, you
  should be aware that any proposed indicative
  transaction could have accounting, tax, legal or
  other implications that should be discussed with
  your advisors and/or counsel. Any decision to
  enter into the swaps or invest in the securities
  described herein should be made after reviewing
  such final swap confirmation or final Offering
  Circular, conducting such investigations as the
  swap counterparty or investor deems necessary or
  appropriate and consulting the swap
  counterparty's or investors own legal,
  accounting, tax and other advisors in order to
  make an independent determination of the
  suitability and consequences of participating in
  the swaps or securities. Finalized terms and
  conditions are subject to discussion and
  negotiation and will be evidenced by a formal
  agreement. Opinions expressed are our present
  opinions only and are subject to change without
  further notice.
• The information contained herein is confidential
  information. By accepting this information, the
  recipient agrees that it will and it will cause
  its directors, partners, officers, employees and
  representatives to, use the information only to
  evaluate its potential interest in the swaps and
  securities described herein and for no other
  purpose and will not divulge any such information
  to any other party except that Goldman Sachs (as
  used herein, such term shall include Goldman,
  Sachs Co. and each of its affiliates) agrees
  that, subject to applicable law, any and all
  aspects of this material that are necessary to
  support any U.S. federal income tax benefits may
  be disclosed by a recipient of this information.
  Any reproduction of this information, in whole or
  in part, is prohibited.
• Goldman, Sachs Co., its respective affiliates
  and others associated with them may have
  positions in, and may effect transactions in,
  securities and instruments of issuers mentioned
  herein and may also perform or seek to perform
  investment banking services for the issuers of
  such securities and such instruments.

23
Important Disclaimers Please Read

• Neither Goldman, Sachs Co. nor any of its
  affiliates nor the issuer of any securities (or
  any of their affiliates) make any representation
  or warranty, express or implied, as to the
  accuracy or completeness of the information
  contained herein and nothing contained herein
  shall be relied upon as a promise or
  representation whether as to the past or future
  performance. This information includes estimates
  and projections and involves significant elements
  of subjective judgment and analysis. No
  representations are made as to the accuracy of
  such estimates or projections or that all
  assumptions relating to such estimates or
  projections have been considered or stated or
  that such projections will be realized. The
  information contained herein does not purport to
  contain all of the information that may be
  required to evaluate such swaps or securities and
  any recipient is encouraged to read (in the case
  of the swaps) the final swap confirmation or (in
  the case of securities) the Offering Circular and
  should conduct its own independent analysis of
  the date referred to herein. Goldman, Sachs
  Co. and its affiliates disclaim any and all
  liability relating to this information,
  including, without limitation, any express or
  implied representation or warranty for statements
  contained in and omissions from this information.
  Neither Goldman, Sachs Co. nor any of its
  affiliates nor the issuer of any securities will
  update or otherwise revise the information
  contained herein except by means of the final
  swap confirmation or Offering Circular.
• Projections, Pro Forma Information and Forward
  Looking Statements. These materials contain
  statements that are not purely historical in
  nature, but are forward-looking statements.
  These include, among other things, projections,
  forecasts, estimates of income, yield or return,
  future performance targets, sample or pro forma
  portfolio structures or portfolio composition,
  scenario analyses, specific investment strategies
  and proposed or pro forma levels of
  diversification or sector investment. These
  forward-looking statements are based upon certain
  assumptions. Actual events are difficult to
  predict and are beyond the control of the Issuer,
  Goldman, Sachs Co. or its affiliates. Actual
  events may differ from those assumed. All
  forward-looking statements included are based on
  information available on the date hereof and
  neither Goldman, Sachs Co. nor any of its
  affiliates assume any duty to update any
  forward-looking statement. Some important
  factors which could cause actual results to
  differ materially for those in any
  forward-looking statements include, among other
  things, the actual composition of the portfolio
  (consisting of credit default swaps), any
  defaults or Credit Events in the portfolio, the
  timing of any defaults or Credit Events, the
  timing and amount of any subsequent recoveries,
  changes in interest rates, and any weakening of
  the specific credits included in the portfolio.
  Other risk factors are also described (in the
  case of the swaps) in the final swap confirmation
  or (in the case of securities) in the Offering
  Circular. Accordingly, there can be no assurance
  that estimated returns or projections will be
  realized, that forward-looking statements will
  materialize or that actual returns or results
  will not be materially lower than those
  presented.

24
Risk Factors - Please Read

• Entering into a credit derivative transaction (a
  Credit Default Swap) referencing an ABX Index
  involves certain risks. Prospective
  counterparties should carefully read the final
  swap confirmation and consider the following risk
  factors prior to entering into a Credit Default
  Swap. Any decision to enter into a Credit
  Default Swap should be made after conducting such
  investigations as a counterparty deems necessary
  and consulting the counterpartys own legal,
  accounting and tax advisors in order to make an
  independent determination of the suitability and
  consequences of entering into a Credit Default
  Swap. The following is not intended to be an
  exhaustive list of the risks involved in entering
  into a Credit Default Swap.
• Limited Liquidity and Restrictions on Transfer.
  The market for Credit Default Swaps on the ABX
  Indices is new and there is currently very
  limited liquidity for the Credit Default Swaps.
  There can be no assurance that liquidity will
  exist in the Credit Default Swaps at any time in
  the future. The Credit Default Swaps represent
  bilateral contracts that cannot be transferred or
  terminated without the consent of the other
  party, which consent may be withheld or delayed
  for a number of reasons. Goldman Sachs may, but
  is not obligated to, unwind or terminate a Credit
  Default Swap under terms acceptable to it in its
  sole discretion. Any counterparty under a Credit
  Default Swap must be prepared to hold its
  position in the Credit Default Swap for an
  indefinite period of time or until it terminates
  in accordance with its terms.
• No Claims on the Reference Entities.
  Participation in a Credit Default Swap does not
  constitute a purchase or other acquisition or
  assignment of any interest in any obligation of
  any Reference Entity. The parties to the Credit
  Default Swap will not have any recourse against
  any Reference Entity and will have no rights to
  enforce directly compliance by any Reference
  Entity with the terms of its obligations that are
  referred to in the Credit Default Swap, no rights
  of set-off against any Reference Entity, no
  voting rights with respect to any Reference
  Entity and no security interest in any Reference
  Obligation.
• Limited Provision of Information about Reference
  Obligations/Reference Entities. No information
  will be provided to prospective counterparties
  with respect to any Reference Obligation or
  Reference Entity. Investors should conduct their
  own investigation and analysis with respect to
  the creditworthiness of each Reference Obligation
  and the likelihood of the occurrence of an event
  triggering payments under the Credit Default Swap
  occurring with respect to each Reference Entity
  and Reference Obligation.

25
Risk Factors - Please Read

• Mark to Market Risk/Credit Exposure. Parties to
  a Credit Default Swap are exposed to considerable
  mark-to-market volatility following changes in,
  among other things, the spreads of the Reference
  Obligations in any ABX Index and ratings
  migration on the Reference Obligations contained
  in any ABX Index. These will be reflected in any
  mark-to-market valuations in respect of a Credit
  Default Swap. If any Floating Amount Event occurs
  in respect of a Reference Obligation, sellers of
  protection will be required to make significant
  payments (which potentially could equal the full
  notional amount of the Credit Default Swap).
• Concentration Risk/Structural Risk The
  concentration of the Reference Obligations in the
  Index in one particular type of structured
  product security subjects the Credit Defaults
  Swap to a greater degree of risk with respect to
  defaults within such type of structured product
  security. Prospective counterparties should
  review the list of Reference Obligations and
  conduct their own investigation and analysis with
  regard to each Reference Obligation, including
  the credit, market, interest rate, structural and
  legal risks associated with each Reference
  Obligation.
• Evolving Nature of the Credit Default Swap
  Market. Credit default swaps (including credit
  default swaps on asset backed securities) are
  relatively new instruments in the market. While
  ISDA has published and supplemented the ISDA
  Credit Derivatives Definitions in order to
  facilitate transactions and promote uniformity in
  the credit default swap market, the credit
  default swap market is expected to change and the
  ISDA Credit Derivatives Definitions and terms
  applied to credit derivatives are subject to
  interpretation and further evolution. There can
  be no assurance that changes to the ISDA Credit
  Derivatives Definitions and other terms
  applicable to credit derivatives generally will
  be predictable. Amendments or supplements to the
  ISDA Credit Derivatives Definitions that are
  published by ISDA will only apply to the Credit
  Default Swap if the Credit Default Swap is
  amended. Therefore, in addition to the credit
  risk of Reference Obligations, Reference Entities
  and the credit risk of their counterparty,
  persons who enter into Credit Default Swaps are
  also subject to the risk that the ISDA Credit
  Derivatives Definitions could be interpreted in a
  manner that would be adverse to them or that the
  credit derivatives market generally may evolve in
  a manner that would be adverse to them.
• Credit Ratings. Credit ratings represent the
  rating agencies opinions regarding credit
  quality and are not a guarantee of quality.
  Rating agencies attempt to evaluate the safety of
  principal and/or interest payments and do not
  evaluate the risks of fluctuations in market
  value. Accordingly, credit ratings may not fully
  reflect the true risks underlying any Credit
  Default Swap. Also, rating agencies may fail to
  make timely changes in credit ratings in response
  to subsequent events, so that an issuers current
  financial condition may be better or worse than a
  rating indicates.

26
Risk Factors - Please Read

• Conflicts of Interest No Reliance. Goldman Sachs
  does not provide investment, accounting, tax or
  legal advice in respect of the Credit Default
  Swaps and shall not have a fiduciary relationship
  with any counterparty to a Credit Default Swap.
  In particular, Goldman Sachs does not make any
  representations as to (a) the suitability of any
  Credit Default Swap, (b) the appropriate
  accounting treatment or possible tax consequences
  of any Credit Default Swap or (c) the future
  performance of any Credit Default Swap either in
  absolute terms or relative to competing
  investments. Prospective counterparties should
  obtain their own independent accounting, tax and
  legal advice and should consult their own
  professional investment advisor to ascertain the
  suitability of any Credit Default Swap, including
  such independent investigation and analysis
  regarding the risks, security arrangements and
  cash-flows associated with any Credit Default
  Swap as they deem appropriate to evaluate the
  merits and risks of any Credit Default Swap
• Goldman Sachs may, by virtue of its status as an
  underwriter, advisor or otherwise, possess or
  have access to non-publicly available information
  relating to the Reference Entities and/or the
  obligations of the Reference Entities (including
  the Reference Obligations) and has not
  undertaken, and does not intend, to disclose,
  such status or non-public information in
  connection with any Credit Default Swap.
  Accordingly, this presentation may not contain
  all information that would be material to the
  evaluation of the merits and risks of entering
  into any Credit Default Swap.
• Goldman Sachs does not make any representation,
  recommendation or warranty, express or implied,
  regarding the accuracy, adequacy, reasonableness
  or completeness of the information contained
  herein or in any further information, notice or
  other document which may at any time be supplied
  in connection with a Credit Default Swap and
  accepts no responsibility or liability therefore.
  Goldman Sachs may from time be an active
  participant on both sides of the market and have
  long or short positions in, or buy and sell,
  securities, commodities, futures, options or
  other derivatives identical or related to those
  mentioned herein. Goldman Sachs may have
  potential conflicts of interest due to present or
  future relationships between Goldman Sachs and
  any Reference Entity or any obligation of any
  Reference Entity