Dane Holmes -Director of Investor Relations David A. Viniar - Executive Vice President and ChiefFinancial Officer

Guy Moszkowski - Merrill Lynch Glen Schorr - UBS Meredith Whitney - CIBC World Markets Roger Freeman - Lehman Brothers Mike Mayo -Deutsche Bank Jeff Harte - Sandler O'Neill Douglas Sipkin - Wachovia James Mitchell - Buckingham Research Prashant Bhatia - Citigroup Steven Wharton - J.P. Morgan Michael Hecht - Banc of America

I would like towelcome everyone to the Goldman Sachs fourth quarter 2007 earnings conference call. (Operator Instructions) Mr. Holmes, you maybegin your conference.

Good morning,everyone. This is Dane Holmes, Directorof Investor Relations at Goldman Sachs. Welcome to our fourth quarter earnings conferencecall. Today’s call may includeforward-looking statements. Thesestatements represent the firm’s belief regarding future events, but by their nature are uncertain and outside of the firm’s control. The firm’s actual results and financialcondition may differ, possibly materially, from what is indicated in these forward-looking statements. For a discussion of some of the risks and factors that could affect the firm’s future results, please see the description of risk factors in our current annual report on Form 10-K for our fiscal year ending November2006. I would also direct you to read the forward-looking disclaimers in our quarterly earnings release, particularlyas it relates to our Investment Bankingtransaction backlog; and, you should also read the information on the calculation of non-GAAP financial measuresthat is posted on the investor relations portion of our website, www.gs.com. This audio telecastis copyrighted material of the Goldman Sachs Group, Inc. and may not be duplicated, reproduced, or rebroadcastwithout our consent. Our Chief Financialofficer, David Viniar, will now review thefirm’s results.

Thanks, Dane. I’d like to thank all of you for listening today and would alsolike to wish everyone happy holidays. I’ll give a brief overview of our results and then take questions. I’m very pleased toreport a record year for Goldman Sachs. Net revenues were $46 billion, net earnings were $11.6 billion, andearnings per diluted share were $24.73. Theseresults generated a return on common equity of 32.7%. Book value per share was $90.43, an increase of 25% over year end 2006, despite the repurchase of 41 million shares for nearly$9 billion. For the fourth quarter, net revenues were $10.7billion, net earnings were $3.2 billion, and earnings per diluted share were $7.01. I’d like to begin by noting that our recordresults in 2007 were not driven by the outperformance of any individual business,but rather by the cumulative impact of record performances across each of our businesses. In favorable environments, Goldman Sachs, like the rest of our peers, is expected to producestrong results. However, we believe thatthe true test of our franchise is relativeperformance throughout the cycle. In light of the recently more challenging market conditions, our record resultsdemonstrate the diversity of our business mix, the breadth of our global footprint, and mostimportantly, the strength of the Goldman Sachs client franchise. Ourperformance is also a direct by product of the talent of our people and their tireless commitmentto our culture of risk management, teamwork, and excellence. I will now revieweach of our businesses. InvestmentBanking posted its second best quarter with net revenues of $2 billion, down 8%from the record third quarter. For the full year, Investment Banking net revenueswere a record $7.6 billion, up 34% from 2006, the previous record. Within InvestmentBanking, fourth quarter advisory revenues were $1.2 billion, down 12% from the record third quarter. Goldman Sachs once again ranked first in announced M&A globally for calendar 2007through November. We advised on a number of important transactions that closedin the fourth quarter, including the € 72.1 billion sale of ABN Amro to a consortium led by Royal Bank of Scotland; NorskHydro’s $32 billionsale to Statoil and TransOcean’s$17.4 billion acquisition of GlobalSanta Fe. We were also advisorin a number of significant announced transactions,including Commerce Bank Corp’s $8.6 billion sale to Toronto Dominion Bank, ICBC’s $5.6 billionacquisition of a 20% stake in South Africa’s Standard Bank, and Abu Dhabi National Energy’s $4.6 billion acquisition of PrimeWest Energy Trust. Fourth quarterunderwriting net revenues were $733 million, unchanged from the third quarter as equity underwritingrevenues grew 14% to $403 million and debt underwriting declined 13% to $330million. While global equity marketsrevolved over much of the quarter, the strength in equity underwriting was driven by a robust and diversified portfolio oftransactions. Debt underwriting revenuesdeclined given continued dislocation in leverage finance markets. During the fourth quarter, we participated in many noteworthy underwriting transactions,including Bovespa’s $3.7 billion IPO, NearStar’s $2.5 billion IPO and Freddie Mac’s $6billion preferred share offer. While we can’tpredict the environment for Investment Banking in 2008, the current level of strategic dialogue with ourclients remains high. However, continuedcapital market dislocation and concerns about the broader economic environment, could impact the pace of Investment Banking business in 2008. Underwritingactivity has remained robust as global equity assurances offset recent weakness in leverage finance markets. Our backlog declined during the fourth quarter, but remains higher than yearend 2006 levels and is well diversified by both geography and sector. Let me now turn to Trading and PrincipalInvestments, which is comprised of FICC, Equities and PrincipalInvestments. Net revenues were $6.9billion in the fourth quarter, down 16% from the third quarter. Full year net revenues were up 22% overfiscal 2006 to a record $31.2 billion. FICC quarterly netrevenues of $3.3 billion were down 32% from the record third quarter. For the full year, FICC net revenues were a record $16.2 billion, 13% higher than fiscal2006. FICC continues to benefit fromsignificant diversity across both product mix and geography and a robust client franchise. The operating environment for FICC was less favorable for much of the fourth quarter due to lower levels of clientactivity, particularly in the month of November. Wider credit spreads, heightened volatility,and reduced market liquidity kept many market participants on the sidelines. Credit revenues decreased sequentially as gains on certain equityinvestments, including $900 million for a [inaudible] win were included in third quarter revenues. The sequential decline was reduced by gains of approximately $500 millionrelated to our leverage finance business in the fourth quarter. Commodities net revenues were upsequentially, largely driven by approximately $800 million in gains associated with the partial sale of the Cogentrix Power Plant portfolio. Currencies, rates and mortgages continued to be solid, though down from the record third quarter. Turning to Equities,net revenues for the fourth quarter were $2.6 billion, down 17%, reflecting declines in both our principal activities and ourcustomer franchise compared to a record third quarter. Equities commissions were down 7% from the record third quarter to $1.2 billion. For the full year, Equities produced record netrevenues of $11.3 billion, up 33% over fiscal 2006. These results reflect the strength of the operating environment for Equities as mostmajor industries rose during the year. We also continued tobenefit from meaningful growth in our equity derivatives franchise and marketshare gains in our electronic trading business. Turning to risk,average daily value at risk in the fourth quarter was $151 million, compared to $139 million for the third quarter. The increase in VAR was driven by higher volatility acrossmortgage and equity markets. Let me now review Principal Investments, whichproduced net revenues of $1 billion in the fourth quarter. Our investment in ICBC produced $163 million gain and wegenerated $838 million in gains and overrides from a diverse portfolio of corporate real estatePrincipal Investments. For the full year, Principal Investments producednet revenues of $3.8 billion. ExcludingSMFG and ICBC, we generated a record $3.4 billion in gains and overrides from corporate and realestate Principal Investments in 2007, more than doubling the $1.4 billion we earned in fiscal 2006. This performance reflects the continued execution of our strategy to be an advisor, financier, and co-investor with ourclients. Asset Management andSecurities Services reported fourth quarter net revenues of $1.8 billion, down6% from the third quarter. Full year revenueswere up 11% to $7.2 billion. AssetManagement produced net revenues of $1.2 billion, down 3% from the third quarter. Management fees were down 2% sequentially to$1.1 billion. For the full year, Asset Management net revenueswere a record $4.5 billion; management fees were$4.3 billion, up 29% sequentially. During the fourth quarter, assets under management grew9% to a record $868 billion. Total inflows during the quarter were $58 billion, including $42billion into money markets, as investors continued to seek higher qualityassets; and $16 billion of additional inflows, largely in fixed income. We also benefited from $14 billion in market appreciation during the quarter, mainly in fixed income. For the full year, assets under management increased28% or a record $192 billion. Totalinflows during the year were $161 billion, including $88 billion into money market and $73billion across fixed income equity and alternative investment assets. We also benefitedfrom $31 billion of net market appreciation, mostly in fixed income and equities. We continue to be focused on the build out of our private capabilities,particularly in actively managed alternative assets, and remain very optimistic about the growth prospects for Asset Management. Securities Servicesproduced net revenues of $672 million in the fourth quarter, down 12% sequentially,largely due to seasonality. For the full year, Securities Services net revenueswere a record $2.7 billion, up 25% annually. These strong results reflect our market-leadingfranchise in prime brokerage and our success in winning new client mandates. Now let me turn to expenses. Compensation and benefits expense in the quarter was $3.3 billion. This results in a full year compensation to net revenue ratioof 43.9%. Non-compensation expenses were$2.4 billion in the fourth quarter, up 12% sequentially. This increase was primarily due to market development and occupancycosts, as we continue to expand our global footprint. Occupancy costs included $128 million of exitcosts related to the firm’s office space. For the full year, non-compensation expenses were$8.2 billion, up 23% over 2006. Half of the annual increase was due to activity related tobrokerage clearing exchange and distribution fees. Headcount at the end of the fourth quarter was approximately 30,500 up15% over 2006 and 2% from the third quarter. Our effective tax rate was 34.1% for the full year. During the quarter, the firm repurchased 11.6 million shares forapproximately $2.7 billion. For the full year, we repurchased 41.2 millionshares representing $9 billion of capital. We currently have approximately 71 million shares remaining under the firm’s existing authorization. This includes 60 million shares of an increased authorization recently approved byour board. We faced significantchallenges in 2007. The fact that we produced record net revenuesand earnings serves as a confirmation of several strategicinitiatives which we implemented over the last several years. Principally, our commitment to serving asadvisor, financier, and co-investor to our clients, our consistent focus onproduct innovation to meet their needs, and the continued expansion of our globalfootprint. Within InvestmentBanking, we believe a key driver of our growth will come from the continued expansion of our business modelinto developing markets. We find in many of these markets that our clients are as focused on expanding their globalpresence as building domestic market share. Investment Banking continues to drive various revenue streams across the firm, particularly within the context of our principal investingbusinesses, where almost two-thirds of our investing opportunities are sourced through our client facing franchise. FICC producedanother record year in arguably the most challenging mortgage and credit markets we’ve seen in almost a decade. At the core of FICC’s success is the strength of its client franchise. Clients come to us for best-in-classexecution, especially in dislocated markets. We remained committed to making markets forour clients, even at the height of market difficulty and illiquidity. While we can’t predict that FICC willexperience another year of double-digit revenue growth in 2008, we see tremendous opportunities across each of ourfive businesses to continue product innovation and expand our footprint. Our Equitiesbusiness continues to benefit from a bifurcated high touch and low touch business model. Our expertise in pricing and risk managing large high touchtransactions, coupled with our robust electronic trading capabilities, haveallowed us to continue to gain market share and leverage the expense structure. Our PrincipalInvesting business had a record year as our investments havecontinued to perform well and provide significant opportunities forharvesting. We have a diverse portfolio of corporate and realestate principal investments around the world and continue to see compelling investing opportunities. Within AssetManagement, we’ve continued to grow and diversify our product offerings andexpand our international reach. In the last two years, we’ve increased assets undermanagement by over $330 billion. Building out our private wealth management business remains a key strategic priority and we expect that the strength of our brand and the diversity of our product offerings willposition us to be successful in this pursuit. Our prime brokeragebusiness demonstrated significant revenue growth in 2007 by maintaining a leading market share and securing many newclient mandates. We believe that growth in hedge fund assets will continue to drivecompelling opportunities for this business. Given the current dislocation in certain of the world’s capital markets, we are of course cautious about the near-term outlook for our business. However, we remain very optimistic about the medium- and long-term outlook for GoldmanSachs as we continue to chase GDP around the world. Long term, globaleconomic growth will continue to be the fundamental driver of our business. Although many are concerned about the potential for slow down in domestic and/or global economies, we feelconfident about the strategic steps we have taken thus far and will look to leverage ourglobal client franchise, firm culture and the talent of our people to maximize shareholderreturns over the long term. With that, I’d liketo thank you again for listening today, and I’m now happy to answer yourquestions.

(Operator Instructions) And your first question will comefrom the line of GuyMoszkowski with Merrill Lynch. Guy Moszkowski - Merrill Lynch: Good morning.

Good morning, Guy. Guy Moszkowski- Merrill Lynch: I wanted to ask you first if you could elaborate alittle bit on thetenor of strategic dialogues that you’re having with Investment Banking clientsand the degree towhich your banker sense that CEOs, Board of Directors, aregetting more cautious inthe US and possibly inEurope and how that might affect strategic activity over thenext year or so.

Thedialogue is quite broad and quite widespread. It’s really... It’s not concentrated inan industry group,it’s not concentrated ina region. As I said, it’s quite, quite broad, quitewidespread, and I think we have not seen thecautiousness in thedialogue yet but I think how things unfold will bedirectly correlated to what happens inthe world. I think many of these conversations will turninto transactions if markets recover, if economies grow, and if markets don’tand economies areslower, than I think many of them will not turn into transactions. Guy Moszkowski- Merrill Lynch: David, could you give us alittle bit more elaboration sort of numerically on your comment about thebacklog?

We don’t disclose numbers, Guy, and we don’t disclosepercentages, but itis... If you look at itfrom the third quarterto the fourth quarter,the decline waslargely in mergers andit was largely becausea lot of thedeals were closed and not as many came inand if you look at itfrom year over year, it’s kind of flattish and mergers and FICC and fixedincome and it’s up inequity underwritings. Guy Moszkowski- Merrill Lynch: Okay, thanks. That’shelpful. You had mentioned, or rather Ithink in theQ3 10-Q you alluded to about a$1.8 billion CDO exposure and I think on thetapes this morning I’ve seen that you’ve said something about $400million. Arethose comparable numbers and if so, was thereduction all due towrite downs or were you actually able to sell some?

No, they’re not completely comparable. The$1.8 was CDOs and residuals and CLOs and acouple other things. I think thecomparable number was about alittle under $1 billion to alittle under $400 million and more of itwas write downs than sales. Guy Moszkowski- Merrill Lynch: Okay and the$500 million that you referred to incredit, was that basically arecovery on some of the$2 billion plus gross leverage finance write down inthe third quarter?

Correct. Guy Moszkowski- Merrill Lynch: Realized recoveries, right?

Most of that was sales above themarks. Guy Moszkowski- Merrill Lynch: Okay and asmall question, the$104 million inoverrides that you referred to, is that allrealized or is there some difference inthe way that youreport that now under FAS 157 and 159 where you would have asort of accrual that could bounce around?

Allof our overrides arerealized. Guy Moszkowski- Merrill Lynch: Okay and I guess afinal question I’d like to ask is just on comp. When we look atthe comp each year isup a tad and of courseif we were to back out thenon-recurring portion of last years 123-R charge, itwould be up alittle bit more than that. I’m justwondering why given thestrength of revenue that you had on theone hand and the muchweaker sort of employment environment that we’re seeing inthe industry here atthe end of theyear, why we couldn’t have seen maybe alittle bit more comp leverage?

I think you know I think people paytoo much attention to theratio as a ratio. As we’ve told you before, we compensate ourpeople individually. We don’t start witha ratio and give itout. We look at eachperson. We reward people for theirperformance, for thefirm’s performance, for their business unit’s performance. We also look atthe market environmentsor look at allthose things. We also did have 15% headcount growth over thecourse of the year andwhen we took all thosethings into consideration, we felt that that was fair compensation for ouremployees and fair income for our shareholders. Guy Moszkowski- Merrill Lynch: Fair enough. Hard toargue with thelatter. Thank you.

You’re welcome.

Your next question will come from theline of Glen Schorr with UBS. Glen Schorr - UBS: Thanks. Hey, Dave.

Good morning, Glen. Glen Schorr - UBS: Good morning. InPrincipal Investments, you had acouple of comments that areinteresting. If you take out and putaside SMFG and ICBC for asecond, you have about $12 billion inprincipal investments that you note inthe pressrelease. Based on your comments asadvisor, financier, and co-investor, looking atthe $12 billion, evenif you put a 20-25%ROI over time over that which would begreat, you’ve been producing higher than that. Where else do thegains on other corporate and real estate flowthrough and where are theassets that are notbeing included in thatprincipal investment table, because it’s obviously coming from severalplaces.

Well first of allthe principalinvestment gains on theprincipal investment line areall related to theassets on that table. Sothere’s on other assets that flowinto that line in ourfinancial statements. First of allthe returns on ourprincipal investments have been quite good and we have avery diverse portfolio. Itis very diverse by industry, itis very diverse by geography, and itis both real estate and corporate and it’s just agood business. We have theability through our client franchise to source alot of investments, soit’s just been a very...It’s a good businessfor us. Now I’m not going to tell you asyou know that it’s going to be$800 million every quarter but I think it’s going to bea good and growingbusiness for us. Glen Schorr - UBS: And thefunds that you allmanage, do they have theability to co-invest along with your co-investments?

What doyou mean, co-invest? Thefunds are for alarge principal investment, thefund would be theprincipal vehicle for us co-investing with our clients. Glen Schorr - UBS: Okay. That’s what Iwas just checking and then maybe can you help us with thebook growth, and this is always screwy, especially inthe fourth quarter,but just maybe conceptually. I knowyou’re not going to give thenumbers on. You have $7 inearnings, you paydividends, you buy abunch of... you have some buy backs but somehow book grows by about $7. Thinking through theinputs, I know that you give out equity and comp and you have some taxbenefits, but help memake sense of that.

We can getback to you offline and go through exactly thenumbers, but I think it’s pretty much what you said. You start with earnings, you also have toadd... I’m sorry, theone thing I think you missed from your calculation inthe fourth quarter is allthe equity-basedcompensation. Soyou have earnings, you have equity-based compensation, and you take away fromthat dividends and share repurchases and you end up with thebook value. Glen Schorr - UBS: And no major changesto the equitybase?

Roughly no material changes. Glen Schorr - UBS: Okay and I didn’t hear if you said inyour prepared remarks, any major movements between Level 2-3?

No, well, yes, movements between Level 2-3. There arealways lots of movements. Thenet number will befairly similar. We had atthe end of thesecond quarter it wasroughly 6% of our assets. Atthe end of thethird quarter it wasroughly 7%. Atthe end of thefourth quarter I think it’s back to about 6% but you have things... You know wethink that there’s much more focus on itthan there should be. There arethings like Level 3 assets atthe end of thethird quarter included alot of leverage loans. Some of those were sold. Some of those moved into Level 2 because there’s amuch more active market inleverage loans. On theflip side, Principal Investments, by definition, areLevel 3 assets and we made more principal investments inthe fourthquarter. Soit goes up forthat. Soroughly flat, a littlebit down on apercentage basis. Glen Schorr - UBS: And maybe last, ingeneral I’ve seen larger balance sheets ingeneral for everybody. Part of that isgrowing with your equity, but I would think that some people inthese uncertain times might want to take down thesize of the balancesheet a littlebit. You guys don’t disclose itbut if you could just make acomment on.

Our balance sheet will beup a little bit andour leverage is going to... I think it’s roughly flat versus thethird quarter, if you look atassets to equities, soit’s grown pretty much inline with equities from thethird quarter to thefourth quarter. Glen Schorr - UBS: Okay, thanks Dave.

You’re welcome.

Your next question will come from theline of Meredith Whitney with CIBC World Markets. Meredith Whitney - CIBC World Markets: Good morning and happy holidays. I have two unrelated questions and I’m goingto ask them both atonce so I can have myassociates hear on speakerphone. But as thehistory of available information on Goldman is limited, only back to ’99, Iwant to try to do sometealeaf reading with respect to your comments on FICC. Soin not one of this...this turn and in most,almost all but one didyou have single digit growth year and then you had negative growth on theequity lines and theobvious negative growth years ’01 and ’02. Under what circumstances could you fathom anot just not double-digit growth but anegative growth scenario inFICC? Then thesecond question is if you would please, because I geta lot of questions onthis, walk through how you manage counter party risk inyour various businesses.

Okay. First one, I’llgive you an easyanswer to the firstone. Environment like themonth of November that lasts for theentire year of 2008. Clearly we wouldnot see growth inFICC revenues if that happened because basically what happened because of thelack of liquidity, because of thevolatility, clients sat on thesidelines. They was just not alot of activity and for us, and we’ve said this before, that’s really whatdrives our revenues and really inall of our businessesbut in FICC aswell. It’s not thedirection of interest rates or thedirection of commodity prices or thedirections of currencies, it’s activity levels. Inthe month of November,there was a biglack of liquidity in themarkets and very little activity sothat would certainly not bea good environment forFICC. We would not have double-digitgrowth. I doubt we would have any growthif that happened. Okay, your second question counter party riskmanagement. That is allpart of our risk management. Counterparty risk, credit risk, market risk. Wedon’t separate them. We have alarge group of people who look atour credit risk around theworld and therefore counter party risk and we have just like inmarket risk, in creditrisk, we have risk limits. We have risklimits by counter party, by industry, by geography, soit’s cut in manydifferent ways and what we tend to put inplace to enable us to continue to dobusiness with counter parties if we getnear or at theirlimits is we put mitigates inplace like collateral. Sowe will have collateral-based triggers of credit exposure to firms or we willhedge certain things with CDS depending on what’s happening but we look atour counter party exposure as closely as we look atany other risk and we set awhole series of limits and that’s how we operate. Meredith Whitney - CIBC World Markets: Okay, if I could just follow up on that. Doyou see in’08 as that being amajor factor for amajor risk for theindustry or are thereothers larger than that?

Counter party risk? Meredith Whitney - CIBC World Markets: Yes.

I don’t view itas being any... I amsure there are somecounter parties for whom where itwill be abigger risk to them in2008 than the past andsome where itwon’t. I don’t seeit being any... Wealways look at this asa really bigrisk and so I don’tthink it’s going to bea bigger risk in2008 than it was prior. Meredith Whitney - CIBC World Markets: Okay, thanks somuch.

You’re welcome.

Your next question will come from theline of Roger Freeman with Lehman Brothers. Roger Freeman - Lehman Brothers: Hi, good morning David.

Good morning, Roger. Roger Freeman - Lehman Brothers: I guess with respect to any net impact of your positioning inmortgage credit this quarter looks like itwas pretty much a pushwhere it was apositive last quarter, is that afair --

I think what we said was itwas still strong or solid but lower than therecord third quarter. Roger Freeman - Lehman Brothers: Okay. Where would youcharacterize your positioning there right now? Are you net longor short mortgage credit?

I think you can assume that thefact that we told you we were short atthe end of thethird quarter was amoment in timething. That is not likely to happen veryoften because it’s not good for us to disclose we’re longor short in atrading position and it’s something that can changeevery day and so Ithink you shouldn’t expect to seethat very often. Roger Freeman - Lehman Brothers: Okay solet me just askthis. Last quarter you thought that wewere sort of closer to thebottom in valuation. What doyou think about themarket right now and specifically when doyou think there’s going to bea bidfor some of the maybehigher quality, sayCDO, the higherquality tranches in CDOs;do you expect toactually be aliquidity provider inthat area?

I think we arestill closer to thebottom and I don’t think there’s aproblem with thebid. I think there’s abid, I don’t think there aremany offers. SoI think it’s aquestion of people actually being willing to sell what they have, not thefact that there aren’t buyers. I thinkthere are buyers thereand for the rightassets at theright price, yes, we would bea buyer. Roger Freeman - Lehman Brothers: Thetransactions that have occurred have largely been institutions that arein adistressed situation. I guess thequestion is when does that bidnarrow to a pointwhere you actually get, sort of aliquid secondary market?

That’s thequestion and I’m not smart enough to know theanswer but I think it’s really going to bea question of sellersbeing willing to sell things atthe then-prevailingmarket price. Roger Freeman - Lehman Brothers: Okay, what about thecommercial mortgage market? I thinkthat’s a biggerbusiness for you than residential, right, and can you talk about yourhedging? Doyou have sufficient credit hedges?

You know, it’s not really abigger business for us than theresidential business. We area bigplayer in it. We provide financing for people and we tradeCMBS and it’s a riskthat we manage just like allof our other risks. It’s not differentthan anything else. We look on aday-to-day basis atour exposure. We look atif we have commitments. How dowe hedge them? We look attimes to go long andtimes to go short. It’s really... It’snot necessarily abigger business than theresidential business. It’s part of ourmortgage business which is animportant business but certainly not outsized inthe context of ourFICC business. Roger Freeman - Lehman Brothers: You wouldn’t consider thewidening and spread of CMBS as asignificant contributor to thesequential results?

No. Roger Freeman - Lehman Brothers: Lastly, can you just maybe expand alittle bit more on thelevel of client engagement. Specificallytalk about December now versus November sofar and maybe by product. Where did you seethe weakest clientengagement and where was itstill relatively strong last month?

December is two weeks old soit’s very hard to sayhow things are goingto unfold and our expectation is for therest of December, which there is not going to bethat much going on because we’re getting towards theholidays and a lot ofpeople go away, and hopefully itwill pick up inJanuary. Theweakest thing inenvironmentally in thefourth quarter was thecredit markets inNovember. They were very volatile. As I said, there was alack of liquidity, there were very difficult markets and it’s too early to tellin December. Roger Freeman - Lehman Brothers: Okay. Thanks for thecomments.

You’re welcome.

Your next question will come from theline of Mike Mayo with Deutsche Bank. Mike Mayo - Deutsche Bank: Good morning.

Good morning, Mike. Mike Mayo - Deutsche Bank: I might have missed it, but how much intotal write downs did you take? You saidmaybe $800 million on CDOs and CLOs or from that also doyou have write downs on mortgages or CDOs elsewhere?

We didn’t sayso you didn’t missit. It’s not anumber we disclose. Our mortgagebusiness was profitable over theyear. We took some write downs on our longmortgage inventory and incases where we had hedges or other short positions, they were up, and they wereup more than over thecourse of the yearmore than longs were down, but on both sides of it, and we’re not going todisclose the number, inthe context of somenumbers you’ve seen, both sides were relatively modest. Mike Mayo - Deutsche Bank: But thewrite downs have been more than the$500 million of recoveries from theleveraged loans?

We’re not going to disclose anumber. Mike Mayo - Deutsche Bank: Okay and your leveraged loans, you had $42 billion atthe end of thethird quarter. Where is that now and howdid it getthere?

We had $42 billion of unfunded commitments atthe end of thethird quarter. Inthe fourth quarter wesold or canceled $16 billion. $9 billionwas funded. We made $10 billion of newcommitments and that leaves us with $27 billion of unfunded commitments atthe end of thefourth quarter. Those numbers add up. Mike Mayo - Deutsche Bank: And you had gains even though some of theleverage loan indices kind of round tripped and then more. Can you talk about what you’re seeing inthat market?

Virtually allof those gains were realized gains, Mike, sovirtually all of themwere realized, sothings that were sold above themarks. I think what you’ve seen is itwas a... We went through awhole cycle in thefourth quarter in theleverage loan market. Itstarted off basically closed then through late September and most of October itwas quite robust. Then inNovember it was quiteslow again. I think themarket is difficult but thedifference between now and August is... And we were getting deals done lastweek and the weekbefore and the weekbefore that, so forwell-structured, correctly levered, correctly priced transactions, you can getthem done. There arebuyers. Mike Mayo - Deutsche Bank: And then lastly, non-US, you talked about, can you talkabout your non-US growth inthe fourth quarterversus your US growth and kind of what you’re seeing by geography. How much is therest of the worldgetting dragged down by thecredit situation in theUS?

You know towards theend of the fourthquarter you saw some of thenon-US markets were affected as much as theUSmarkets. Markets inAsiawere down quite a bitover the course ofNovember so I thinkyou did certainly seethat affecting themarkets overseas as much as they affected theUS. When we look out though, thetrajectory remains thesame, and that we expect our business to growfaster outside the US,especially in Asia,especially in some of thebrick countries and you have Koreaand the Middle East for that, than we doin theUS sowe expect the USwill grow aswell. Sono change inthe trajectory atall. Mike Mayo - Deutsche Bank: Allright, thanks.

You’re welcome

Your next question will come from theline of Jeff Harte with Sandler O'Neill. Jeff Harte - Sandler O'Neill: Good morning.

Good morning, Jeff. Jeff Harte - Sandler O'Neill: As we think to 2008, can you talk alittle bit about your budgeting process? I guess I’m trying to getat insuch a volatileenvironment where things went from feast to famine, you know, October toNovember, how do youtry to plan for 2008?

Itis a volatileenvironment but I will tell you it’s not harder now than itis any other year because one of thethings we know for sure is if things seem stable, we’re probably wrong, becausethe world hasevolved in place andwhatever we think is going to happen, what we know for sure is itwill be somethingdifferent. Itwill be better or itwill be worse but itwill not be exactlywhat we think. Sobudgeting is a verydifficult process and it’s why it’s not aone time a year thingfor us. We’re going through itright now. We will look atpeople’s best estimates of where there business will be. We’ll give, we’ll allocate resources based onthat, and that will behead count and that will becapital and that will bebalance sheet, and then we’ll go acouple of months into theyear and we will reassess, and we areconstantly reassessing that and we’ll doa minibudgeting process several times ayear because we know themarket’s changing. Jeff Harte - Sandler O'Neill: And maybe getting even alittle more touchy-feely off of that, I think back to aslide you’ve shown before showing M&A activity as apercent of global market cap and indicating that yes, things arereal good in ’06 andearly ’07 but not nearly to thelevel they had been inprior peaks. As far as some of thefroth or kind of peak cyclic activity level we saw insomething like anM&A based on ametric like that, how doyou look at thingsgoing forward? I mean, arethings really different this time or is there really thepotential for a big’08-’09 near term increase insomething like M&A activity with LBOs, bigLBOs being sidelined?

You know Jeff I actually don’t have those infront of me sowe’ll get back to youon those, but just environmentally, we’re likely to seefewer of the megapublic-to-private LBOs than we saw. Ithink that’s pretty clear. Thebusiness is not over or indebt or anything, they’re using lots of leverage on reasonable sized dealseither on whole companies or on divisions of companies. They just don’t think we’ll seethe megapublic-to-privates we saw, sothat will be indecline, and the realquestion is that going to bereplaced by thestrategic activity? We’ve seen abunch of fairly large strategic deals announced. There is alot of dialogue going on and I think whether that dialogue becomes transactionsis going to be verymuch related to do themarkets recover and dothe economies continueto grow, and if they do, then we’ll seea lot of them becometransactions. Jeff Harte - Sandler O'Neill: Okay, thank you.

You’re welcome.

Your next question will come from theline of Douglas Sipkin with Wachovia. Douglas Sipkin - Wachovia: Good morning, David.

Good morning Doug. Douglas Sipkin - Wachovia: Just acouple of questions here. First off, howwould you categorize themarket for gaining prime brokerage business this year versus last and maybe Iwould say more nearterm over the lasthalf of 2007 versus maybe ’06 and ’05?

Thebusiness is growing. Itcontinues to grow. I think thehedge fund as a class,as an asset class, isgoing to keep growing. People areputting money into hedge funds and we areone of the leaders inthat business and we have avery high share in thebusiness and I think we continue to gain avery high share of clients inthat business. Douglas Sipkin - Wachovia: Okay and then secondly, obviously as itrelates to themortgage asset class, you guys did aphenomenal job this year. Any thoughtprocess within thefirm to maybe getbigger in sellingthese distressed businesses that obviously now valuations aremuch more compelling while some of your competitors probably arebacktracking, so itseems like it’s apretty good opportunity to getlarger in that assetclass.

Looking for opportunities to buy distressed assets hasbeen a good businessfor Goldman Sachs for many years. Itwas in Asia,it was inEurope, itwas going back to theRTC in theUS inthe early 90’s. Ithas been abusiness that we have been infor a longtime and I would expect that hopefully we’ll seesome opportunities in themortgage world for us to buy distressed assets and it’s just indifferent asset classes indifferent locations atdifferent times it is acore competency atGoldman Sachs. Douglas Sipkin - Wachovia: Isn’t itgreat? And then just shifting to theAsset Management business, obviously very strong flows on liquidity notsurprising. I was surprised to seethe very large andsubstantial fixed income flows. Is thereanything specific to thefourth quarter for you guys? Is ita function ofallocations or good performance? Anything outside of just people putting money into fixed income that youcould point to because itjust seemed like such abig number for youguys.

I didn’t getit as what yousaid. I think as people looking for highquality assets and I think it’s been our performance which hasbeen pretty good inthat space. Douglas Sipkin - Wachovia: Great. Thanks fortaking my questions.

You’re welcome.

Your next question will come from theline of James Mitchell with Buckingham Research. James Mitchell - Buckingham Research: Good morning.

Good morning, Jim. James Mitchell - Buckingham Research: Most of my questions areanswered, but a coupleof more minor ones maybe. First off, on thebuy back, you bought about 41 million shares. I flashed here out of the60, now you’re up to 71. Doyou think you would accelerate that into ’08 given that you weren’t asaggressive in ’07 andprobably rightfully soin thesecond half of this year?

We bought back afew fewer shares in’07 than in ’06. I think thebest thing to use is what we did in’07 for looking at ’08but it can vary fromthat by a littlebit. We increased theauthorization because we were down to 11 million shares and we could use thatup and we wanted to make sure that we had thedry powder if we wanted to buy back more. We’ll see howthings unfold, but I think it’s going to besomewhere in that samerange. James Mitchell - Buckingham Research: Okay, fair enough and then just theother question on theadvisory fees. Thelast two quarters seems to have been from arealization rate afew low versus atleast publicly announced completed volumes. Have you seen astep up in sort ofnon-M&A advisory revenues given theamount of turmoil in themarket? Hasthat been a part ofthat or is it justsimply every quarter it’s alittle different interms of theprofitability of each deal?

It’s both. It’s thelatter. Itreally is the latter. James Mitchell - Buckingham Research: Okay great. Thanks.

You’re welcome.

(Operator Instructions) Your next question will come from theline of Prashant Bhatia with Citigroup. Prashant Bhatia - Citigroup: Hi.

Good morning. Prashant Bhatia - Citigroup: Just on thefixed income trading revenue, inlooking at itbacking out Horizon and Cogentrix and soon, it looks like therevenue fell from $5 billion last quarter to about $2 billion thisquarter. I know you talked aboutactivity levels being alot lighter on thesideline but can you elaborate alittle more? Was thewhole decline just clients really pulling back?

Thewhole decline can never beexplained by just one thing. There was alot less activity in thequarter. There were certain things likeas we mentioned within FICC we end up with certain equity positions as welllike Horizon that was sold inthe third quarter thatwe didn’t have in thefourth quarter, so youdon’t see things likethat sometimes. Markets were difficult,activity was lower, and soit was really avariety of things. Prashant Bhatia - Citigroup: Okay, and Novemberwas still a positive month?

We don’t disclose our P&L by month. Prashant Bhatia - Citigroup: Okay. Also on takingadvantage of distressed assets, can you talk alittle bit about themortgage servicer you just purchased and is that more to help you takeadvantage of some of thedistress in theCDO marketplace or is that more just ageneral investment? Prashant Bhatia - Citigroup: It’s both. It’s notjust to help us take advantage of thedistressed environment that we think we’re in. There’s going to bea mortgage market inthe United Statesgoing forward and it’s going to bea bigmarket and it’s going to bea good business andbeing able to service assets is akey to beingsuccessful in thatbusiness. We think Litton is one of thebest servicers around and we think they have theright standards, very good quality people, and so we thinkbeing able to purchase them is going to help us as thewhole mortgage market kind of unfolds going forward. Prashant Bhatia - Citigroup: Okay, soit’s a little of both,strategic and business that you want to bein.

Yes. Absolutely. It’smore strategic than anything. Prashant Bhatia - Citigroup: Great and then on theAsset Management side, I think $80-90 billion inmoney fund flows that have come in. Canyou just give afeel if you have one on how much of that can potentially stick and how much ofthat is just taking advantage of thenatural arbitrage when theFed cuts rate.

That’s avery fair question. It’s hard tosay. I don’t think it’s theFed cutting rates somuch as I think it ispeople looking for flexquality and looking for thehighest quality investments they can. Ithink we will keep some of that but I think those assets areprobably less sticky than other assets. Prashant Bhatia - Citigroup: Okay, great. Thankyou.

You’re welcome.

Your next question will come from theline of Steven Wharton with J.P. Morgan. Steven Wharton - J.P. Morgan: Hi David.

Good morning Steve. Steven Wharton - J.P. Morgan: Did you disclose your structure note gains or losses orliabilities?

No. We didn’t because they were basically negligible. We had losses that were less than $50million. Itwas really tiny. Steven Wharton - J.P. Morgan: Okay, thank you.

Because our spreads basically tightened atiny bit over thecourse of the quarter. Steven Wharton - J.P. Morgan: Can you just refresh my memory what that number was lastquarter?

Itwas a gain of about$300 million. Round numbers. Steven Wharton - J.P. Morgan: Allright, thanks.

You’re welcome.

Your next question will come from theline of Michael Hecht with Banc of America. Michael Hecht - Banc of America: Hey David, good morning.

Good morning Mike. Michael Hecht - Banc of America: Just to follow up on theLevel 3 assets, you said pretty much unchangedfrom last quarter or itsounds like there were some moving parts. Are there any bigunrealized gains or losses we’ll seein terms of marks fromLevel 3 assets once theK comes out or whatever?

I don’t think you will seeanything that is unusual compared to what you’ve seen before. Michael Hecht - Banc of America: Okay and then on thePrime Brokerage business, obviously thetrend is pretty good year over year. Thesequential decline, any sign of kind of de-leveraging across thecustomer base or is thesequential decline just related to typical seasonality that you guys usuallysee?

Totally seasonality. If you look you will seeevery year, second, third quarters arethe highest and firstlower. You seethe year over yearincrease. That’s why we generally tellpeople don’t look atyear over year because our business moves sequentially. That is theone business where I would not saythat, the one businesswhere I would tell you not to look year over year and you seea pretty stronggrowth. It’s purely just theseasonality. Michael Hecht - Banc of America: Sure and then would balances kind of still beup kind of quarter over quarter?

Yes. Michael Hecht - Banc of America: Okay and then just shifting over to Asset Management, anyupdate on performance of kind of global outlook? I think I saw some things atthe tape, I guessparticularly GO, and then just kind of pace of investor redemptions and thenany update on theinvestment you guys made last quarter and any contribution that had to, I guessthat flows to equity trading inthe quarter?

Yes. I’ll dothem in reverseorder. Theinvestment in GO wentdown over the fourthquarter but still up for theyear. Alpha continued to have difficultperformance in thefourth quarter. Theperformance was difficult. We had redemptions as expected. Redemptions across our quant funds inthe fourth quarterwere around $3 billion. Close to half ofthat was in Alpha andwe think redemptions inthe first quarter fromwhat we can see will beeven greater than that and again about half of that is going to begoing to Alpha. We areokay with those funds being smaller, especially Global Alpha, because we think we’vefinally gotten too big, and we think it’ll allow us to bemore nimble and beable to react to themarket faster. Michael Hecht - Banc of America: Okay and then sticking inthe Asset Managementsegment just for asecond, quarter over quarter thedecline in kind of corefees, nothing major, but you did seeabout a 7 or 8%increase in averageassets quarter to quarter, sojust trying to understand thedrop off I guess in theC rate?

SoMike we got to thelast question before someone asked meabout that and it’s interesting. It’s ananomaly of thecalendar. Nothing else. You know we area fiscal year, fiscalquarter firm, last Friday of every quarter inevery month. Therefore inmost years we have 52 weeks. Every 5-7years we have a 53rdweek. Inmost quarters we have 13 weeks and every 5-7 years we have a14 week quarter and thethird quarter was a 14week quarter. Sole explanation for thedecrease was that we had one fewer week. One more week last quarter. Michael Hecht - Banc of America: Okay, that makes sense and then I was just hoping we couldback up and talk alittle bit more about equity trading which for theyear obviously up like 35%. I knowthere’s a lot ofthings that go through there, crop activities, equity derivatives, principallyoriented kind of cash equity trades. Iguess I’m just trying to geta sense as to anyoutsize drivers of thebusiness last year, not just last quarter but last year, and what’s kind ofdriving the resultsyou guys are seeingthere.

Very widespread. Thebusiness in general hasgrown. Itis, as we said alittle bit, we have both ahigh touch and a lowtouch strategy. Thehigh touch strategy includes both clients and [inaudible]. Itis where we have apure [inaudible] business. That was veryprofitable during theyear. Our client franchise business inshares and equity derivatives grew quite well and we also have alow touch strategywhere we are one of theleaders in electronictrading and we continue to gain market share too and soit was really across allof the variousproducts within equities. No outlier, noone thing drove it. Itwas across all theproducts. Michael Hecht - Banc of America: Okay, great, and just last housekeeping question. Thetax rate last year wasabout 34.1%. If we assume maybe non-UScontinues to pick up atthe percentage as awhole, is there room for thetax rate to drift abit lower?

Itis driven a lot bygeographic earnings. It’s also driven alittle bit by just thesize of the earnings sowe have some tax credits that becomes smaller percentages as earningsgrow. I think it’s always hard for meto predict. I think it’s best to assume what we had this year for next year,but it could vary by alittle bit, one way or theother.

Thank you. I will now turn thecall over to Mr. Holmes for any closing remarks.

I just wanted to thank everyone for joining us on our fourthquarter earnings conference call. If there areany additional questions that you have, please direct them to InvestorRelations and we’ll deal with them there. Thanks, have agood day, and happy holidays.