Manoj Shivdasani Barclays

EQUITY RESEARCH

State of the Convert Market - Category 5

October 7, 2008

Venu Krishna, CFA Tel: 212-526-7328

Manoj Shivdasani, CFATel: 212-526-5995

William GioielliTel: 212-526-6379

Barclays Capital 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.Customers of Barclays Capital Inc. in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.lehmanlive.com or can call 1-800-253-4626 to request a copy of this research.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST(S) CERTIFICATION(S) ON PAGE 44 AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 44

U.S. Convertible Research

2

I. Macro Economic Backdrop

II. Convert Market Performance

III. Valuation Leak

IV. Technicals

V. Primary Issuance

VI. Volatility Trends

VII. Credit Trends

VIII. Market Structure

IX. Positioning

Table of Contents

3

Macro Economic Backdrop

4

Unprecedented Macro Weakness – Equities Sell-Off Dramatically, Valuations Lower But Value Call Elusive

Source: Barclays Capital, Factset.

S&P 500 Price Graph S&P 500 Forward P/E

700

800

900

1000

1100

1200

1300

1400

1500

1600

Jan

98

Jul 9

8

Jan

99

Jul 9

9

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00

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0

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01

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03

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12

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28

30

32

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99

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08

S&P 500 down 29.8% from its 10/07 highs. Equity forward P/Es are low relative to historical trend – suggesting value

However, value call elusive given earnings growth and recession fears.

$700 billion TARP bailout appears to be a necessary but insufficient plan to prop up the markets

Global decoupling clearly hasn’t panned out and world markets are mired collectively. On a positive note, it appears that coordinated global intervention is likely to try and thaw the credit freeze and the issue is front and center at the highest political and economic levels globally.

5

Money Market Assets Rise Sharply as Risk Aversion Remains High, Earnings Expectations Revised Lower

8%

10%

12%

14%

16%

18%

08/01 08/08 08/14 08/22 08/29 09/12 09/19 09/26

8%

10%

12%

14%

08/01 08/08 08/14 08/22 08/29 09/12 09/19 09/26

Q3 08 S&P 500 Ex Fin. Earnings Growth Expectations

Q4 08 S&P 500 Ex Fin. Earnings Growth Expectations

Source: Barclays Capital.

Money Market Assets as a Percent of S&P 500 Market Cap

10%

15%

20%

25%

30%

35%

40%

May

00

Aug

00

Nov

00

Feb

01

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08

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08

8009001000110012001300140015001600

Money Market as % of SPX Market Cap S&P 500

6

Macro Indicators Kindle Recession Fears; Economy Front and CenterRJ/CRB Commodity Price Index – Sharp Declines

on Growth Concerns

US Unemployment Rate – Increased Sharply Close to 2003 Highs Consumer Confidence – Near Multi Year Low


150

200

250

300

350

400

450

500

Jan

01

May

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Sep

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Jan

06

May

06

Sep

06

Jan

07

May

07

Sep

07

Jan

08

May

08

Sep

08

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Jan

01

May

01

Sep

01

Jan

02

May

02

Sep

02

Jan

03

May

03

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07

May

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07

Jan

08

May

08

0

20

40

60

80

100

120

140

Jan

01

May

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Sep

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Jan

02

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02

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03

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Sep

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Jan

06

May

06

Sep

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Jan

07

May

07

Sep

07

Jan

08

May

08

Sep

08

ISM Manuf. PMI – Dropping to Post 9/11 Levels

40

45

50

55

60

65

Jan

01

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7

As Credit Continues Its Dramatic Selloff and Conditions Deteriorate…Lehman US Credit Index – Inv Grade Now at Pre-

Crisis High Yield Levels & Much Higher Than 2002Lehman HY Index OAS – Continues to Widen

Dramatically, Near 2002 Levels


0

50

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0

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08

3yr Swap Spreads – Significantly Wider 3M LIBOR OIS – Reflecting Market Fears

0

50

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8

…Volatility Spikes Higher


10%

15%

20%

25%

30%

35%

Jan

00

Jul 0

0

Jan

01

Jul 0

1

Jan

02

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03

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8

S&P 500 12M ATM Implied S&P 500 12M ATM Imp Vol Change

The S&P 500 12M ATM Implied Vol has spiked and is now at 29 % close to its 2002 highs of 30.3%

The table below shows the significant increase in single name listed volatility over the past few months

The skew is quite flat (see S&P 500 3M skew trend) in spite of the magnitude of equity declines. This has been a common theme this year suggesting that the market is positioning for violent rallies.

Term structures at least at the index level are close to their most inverted in the last decade (only three comparable cases).

While the VIX is at its highest levels since 1990, implied correlation while climbing higher isn’t near its peak. suggesting that the market is factoring in a fair bit of idiosyncratic risk.

S&P 500 12M ATM Imp Vol

5/15/08

S&P 500 12M ATM Imp Vol

10/2/08 Change25th Percentile 27.2 37.3 10.1

Mean 35.0 50.7 15.8Median 33.2 47.2 14.1

75th Percentile 39.6 58.8 19.2

9

Skew Quite Flat, Term Structure Inverted, Implied Correlations Climb Higher

S&P 500 3M SkewS&P 500 3M – 12M Term Structure (12M minus

3M plot)


15%

17%

19%

21%

23%

25%

27%

29%

31%

33%

Jan

07

Feb

07

Mar

07

Apr

07

May

07

Jun

07

Jul 0

7

Aug

07

Sep

07

Oct

07

Nov

07

Dec

07

Jan

08

Feb

08

Mar

08

Apr

08

May

08

Jun

08

Jul 0

8

Aug

08

Sep

08

Oct

08

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Jan

96

Jul 9

6

Jan

97

Jul 9

7

Jan

98

Jul 9

8

Jan

99

Jul 9

9

Jan

00

Jul 0

0

Jan

01

Jul 0

1

Jan

02

Jul 0

2

Jan

03

Jul 0

3

Jan

04

Jul 0

4

Jan

05

Jul 0

5

Jan

06

Jul 0

6

Jan

07

Jul 0

7

Jan

08

Jul 0

8

0%

10%

20%

30%

40%

50%

60%

70%

Feb

00

Jun

00

Oct

00

Feb

01

Jun

01

Oct

01

Feb

02

Jun

02

Oct

02

Feb

03

Jun

03

Oct

03

Feb

04

Jun

04

Oct

04

Feb

05

Jun

05

Oct

05

Feb

06

Jun

06

Oct

06

Feb

07

Jun

07

Oct

07

Feb

08

Jun

08

21% 26%

S&P 500 3M & 12M Implied Correlation VIX Index

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

Jan

00

Jul 0

0

Jan

01

Jul 0

1

Jan

02

Jul 0

2

Jan

03

Jul 0

3

Jan

04

Jul 0

4

Jan

05

Jul 0

5

Jan

06

Jul 0

6

Jan

07

Jul 0

7

Jan

08

Jul 0

8

10

Economic Outlook Weakens With GDP Growth Decelerating

Barclays Capital Economic Forecasts

Source: Barclays Capital Economics Team.

Clearly we are in a weak macro environment

Our Economists (Ethan Harris’ Team) are forecasting a Real GDP growth rate of 1.8% in 2008 and just 0.8% in 2009. They expect the Fed Funds rate to be cut to 1.25% in 2009 and 10 Year yields to climb back to 4%.

2Q08 3Q08E 4Q08E 1Q09E 2Q09E 2004 2005 2006 2007 2008E 2009E

Real GDP 3.3 1.5 (0.5) (0.5) 1.0 4.2 3.2 2.9 2.0 1.8 0.8

Core CPI 2.3 2.5 2.5 2.4 2.5 1.8 2.2 2.5 2.3 2.4 2.2

Fed Funds Rate 2.00 2.00 1.75 1.25 1.25 2.25 4.25 5.25 4.25 1.75 1.25

10-year Treasuries 3.97 3.50 3.50 3.70 3.80 4.16 4.39 4.70 4.02 3.50 4.00

11

Convert Market Performance

12

Challenging Return Environment – Outright & Arbitrage

2.1%

-3.4%

-1.4%-2.4%

-0.5%

-2.8%

4.7%

1.7%

-4.3%-2.8%

-0.3%

-13.1%

2.0%

-1.0%-0.3%

-1.4% -0.8%

-4.2%

1.3% 0.8%

-2.3% -1.7% -1.2%

-14%

-12%-10%

-8%-6%

-4%-2%

0%2%

4%6%

Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08LEH Cvt Composite HFRI Index

The past 12M has been very challenging for the convert market reflecting broader equity and credit weakness

Since Oct 07, the market has had 10 ‘down’ months with several precipitous monthly declines. September 2008 has been especially tough with an outright decline of 13.1% (the highest monthly decline since we’ve started tracking the returns (Jan ‘03).

Arbitrage returns have been fairly weak too and while September 2008 data is not yet available going by past history the poor outright returns seen last month don’t bode well for arbitrage returns in our opinion.

Monthly Total Returns of the Convert Market

Source: Barclays Capital, Hedge Fund Research.

13

This Year’s Been Ugly

Outright Returns Hedged Strategy Returns

Source: Barclays Capital, Hedge Fund Research.

In 2008 YTD (as of 4/21/08), the US convertible market declined by 18.94% only slightly better than the S&P 500 (-19.29%).

At the beginning of 2008 the market had a delta of 60.8% and the atypical near 100% downside participation was due to the credit sell off (IG down 6.83% and HY down -10.08%)

Clearly this year convertibles haven’t dampened downside risk as one would have expected (additional reasons discussed later)

2008 YTD the convert arb strategy has dramatically underperformed other hedge fund strategies due largely to the credit weakness (unstable bond floors wrecking the convert arb strategy)

Note the strong outright performance in 2006 after the decline during the 2005 sell-off and in 2003 after the tech bubble crash.

2008 YTD* 2007 2006 2005 2004 2003

HFRX Convertible Arbitrage (24.45) (0.95) 9.57 (5.69) (0.14) 8.85

HFRX Distressed Securities (7.92) 3.99 9.56 1.21 8.95 20.90HFRX Equity Hedge (13.61) 3.21 9.23 4.19 2.18 14.47HFRX Equity Market Neutral 0.10 3.11 4.76 0.21 0.32 (2.38)HFRX Event Driven (12.72) 4.88 10.32 2.81 6.93 18.74HFRX Macro 2.59 3.19 5.61 6.67 (0.32) 14.61HFRX Merger Arbitrage 1.18 4.85 10.73 3.72 2.80 4.26HFRX Relative Value Arbitrage (18.87) 5.80 10.65 (0.97) 1.98 9.15

* Most recent data available

2008 YTD 2007 2006 2005 2004 2003

Lehman U.S. Convert Composite (18.94) 5.62 13.33 2.02 9.61 27.68

S&P 500 (19.29) 5.49 15.79 4.91 10.87 28.68Russell 2000 (10.38) (1.56) 18.44 4.63 18.44 47.29Nasdaq (20.64) 10.65 10.39 2.13 9.15 50.77Lehman U.S. High Yield (10.08) 1.87 11.85 2.74 11.13 28.97Lehman U.S. Credit (6.83) 5.11 4.26 1.96 5.24 7.707-10yr Treasury 5.14 10.20 2.67 2.43 4.41 1.88

Past Performance is No Guarantee of Future Results

14

Weakness Across All Sectors as Convert Market Value Collapses DramaticallyYear to date all sectors in the convert market have declined. Basic Industry, Financials and Consumer Cyclical were particularly affected. Convert market cap has declined from $372.3 billion on 5/15/08 to $275.1 billion on 9/30/08

Note the precipitous declines for preferreds and mandatories which has significant Financials representation

Returns have been weak across the credit spectrum in 2008 YTD. Investment grade returns were skewed to the downside due to the presence of several IG financial preferreds/mandatories.

Convert Market Performance Breakdown – Lehman Brothers US Convert Composite (9/30/08)

Index/Sub IndexMkt Val ($Bln)

% of Index

2008 YTD Return

2007 Total Return

2006 Total Return

2005 Total Return

2004 Total Return

Lehman Convertible Composite $275.1 100% (18.9) 5.6 13.3 2.0 9.6TypeCash Pay Bonds $206.8 75% (12.6) 5.3 13.3 1.5 8.4Zero Cpn/OID $12.9 5% (7.1) 0.9 8.6 0.6 9.2Preferreds $38.7 14% (32.3) 6.7 18.9 (0.9) 7.7Mandatories $16.7 6% (48.3) 12.0 14.9 11.8 17.2Credit QualityInvestment Grade $96.9 35% (20.6) 6.6 9.1 1.4 5.6Intermediate Grade $74.9 27% (21.8) 7.8 15.4 3.2 13.6Junk $22.2 8% (27.9) (2.1) 29.1 (6.7) 16.1Non-Rated $81.1 29% (11.4) 4.9 12.6 3.9 9.5SectorBasic Industry $14.8 5% (31.6) 45.4 27.4 16.9 10.4Cap Goods $11.4 4% (11.1) 21.4 10.4 (3.5) 16.7Communications $17.1 6% (15.5) (2.9) 15.0 (0.0) 10.1Consumer Cyclical $16.9 6% (24.9) (0.7) 24.7 (14.9) 3.8Consumer Noncyclical $54.9 20% (7.1) 6.0 7.2 3.9 10.0Energy $12.7 5% (13.5) 24.8 14.2 20.1 9.8Technology $45.8 17% (18.2) 4.7 11.0 1.0 6.6Transport $5.8 2% (15.8) (9.2) 26.7 3.2 0.5Industrial Other $3.8 1% (5.4) 17.9 11.8 (10.5) 6.6Utilities $16.2 6% (17.4) 22.7 11.0 11.1 22.2Finance Institutions $66.2 24% (26.7) (5.0) 12.1 5.9 10.8

Market Breakdown 5/15/08

Index/Sub IndexMkt Val ($Bln)

% of Index

Lehman Convertible Compos $372.3 100%TypeCash Pay Bonds $264.9 71%Zero Cpn/OID $19.4 5%Preferreds $56.7 15%Mandatories $31.3 8%Credit QualityInvestment Grade $130.5 35%Intermediate Grade $98.4 26%Junk $29.2 8%Non-Rated $114.2 31%SectorBasic Industry $23.6 6%Cap Goods $15.3 4%Communications $19.6 5%Consumer Cyclical $25.7 7%Consumer Noncyclical $59.0 16%Energy $22.2 6%Technology $62.6 17%Transport $6.7 2%Industrial Other $4.0 1%Utilities $23.7 6%Finance Institutions $103.3 28%


15

Valuation Leak

16

Convertible Asset Class – In a Perfect Storm

De-LeveringFlight to Quality

Equities Plummeting

Credit Significantly

Wider

RedemptionsLiquidity Scarcer

Short Sale RuleFunding HigherBorrow Difficult

Financial Pfd/Mandatories

Collapsing


17

Valuation Dampens Amidst Credit Downturn and Technical Selloff…

Recent Performance vs. Historical Sell-Offs Delta Neutral Analysis


12/31/04 - 5/13/05

7/19/07 - 7/27/07

11/09/07 - 4/14/08

05/15/08 - 09/30/08

# of Securities 752 802 751 753

Change in Mkt Val ($27.8) ($15.4) ($21.5) ($81.3)

Percent Change (9.9%) (4.4%) (6.8%) (24.0%)

Parity Value Percent Change (11.7%) (8.4%) (12.1%) (28.6%)

Change in Premium ($2.6) $9.1 $8.1 ($7.7)

Change in % Premium 2.8% 5.2% 7.7% 8.6%

Downside Participation 84.0% 52.7% 56.3% 83.8%Avg. Beginning Delta 61% 68% 55% 55%

The current market decline has proven worse for the convert market than many we have tracked in the past. During the 5/15/08 – 9/30/08 period our delta neutral analysis estimates that of the 513 securities, the market has leaked $11.6B in value

We estimate the downside participation of the current decline at 84% vs. an estimated delta of 55%.

$ in Billions12/31/04 -

5/13/057/19/07 - 7/27/07

11/09/07 - 4/14/08

05/15/08 - 09/30/08

Securities 536 665 459 513

Mkt Val Beginning $213.3 $296.9 $216.2 $253.5

Mkt Val Ending $189.5 $283.7 $206.2 $197.4

Dollar Neutral Estimate $196.5 $283.6 $204.4 $209.0

Est. Value Leak $7.00 ($0.03) ($1.74) $11.63

Premium Beginning $38.5 $42.9 $32.4 $46.3

Premium Beginning 22.0% 16.9% 17.6% 22.4%

Premium Ending $36.7 $48.1 $35.3 $43.6

Premium Ending 24.0% 20.4% 20.7% 28.3%

Est. Dollar Neutral Premium $43.7 $48.1 $33.6 $55.2

Est. Dollar Neutral Premium 28.6% 20.4% 19.6% 35.9%

Premium Leak $7.0 ($0.0) ($1.7) $11.6

Premium Leak 4.6% (0.0%) (1.0%) 7.6%

18

Many Securities Trading Below Dollar-Neutral Levels Despite Dramatic Stock Declines Defying Traditional Convexity…

Delta Neutral Points Leaked (Typical & Equity Sensitive Converts, Excluding Mandatories)

45

112

225

124

0 1

192

472

35

124

165189

0

50

100

150

200

250

300

350

400

450

500

> 10 Points 5 to 10 Points 0 to 5 Points Retained Value

$ Billions

12/31/04 - 5/13/05 7/19/07 - 7/27/07 5/15/08 - 9/30/08


We compare the security level valuation leak during the current sell-off with that of what happened in the past.

Our analysis included a total of 513 typical and equity sensitive securities excluding mandatories

Relative to its dollar neutral estimates which we believe should be a conservative estimate of downside value –especially for sharp equity declines, only 37% have retained value. 165 securities lost between 0 to 5 points, 124 securities lost between 5 and 10 points and 35 securities lost greater than 10 points.

The analysis clearly shows the value leak in the convertible market.

19

As Converts Underperform Relative to Expectations this Year


-15%

-10%

-5%

0%

5%

10%

Jan

03

Apr

03

Jul 0

3

Oct

03

Jan

04

Apr

04

Jul 0

4

Oct

04

Jan

05

Apr

05

Jul 0

5

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05

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Jul 0

6

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07

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Jul 0

7

Oct

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08

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Jul 0

8

US Convertibles Expected Returns

US Convertibles vs. Expected Returns

Cumulative Convertibles Outperformance Relative to Expected Performance (Equities,

Equity Volatility and Credit)

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Jan

03

Apr

03

Jul 0

3

Oct

03

Jan

04

Apr

04

Jul 0

4

Oct

04

Jan

05

Apr

05

Jul 0

5

Oct

05

Jan

06

Apr

06

Jul 0

6

Oct

06

Jan

07

Apr

07

Jul 0

7

Oct

07

Jan

08

Apr

08

Jul 0

8

Model explains returns of US Convertible Composite using equity returns (S&P 500, Russell 2000), credit spreads (LEH US Credit) and equity volatility (wt. avg. 24-month listed vol of SPX constituents)

Cumulative deviations from fair value provide a measure of relative performance of converts

Throughout 2007, converts held up better than expected given changes in credit spreads, equity returns and equity volatility

But much of the outperformance has been reversed during the recent selloff

20

The Rise and Fall of Financial Convertible Preferreds/Mandatories Severely Impacted the Convert Market…

Examples of Financial Pfd Performance

Several large cap Financials tapped the convertible preferred/mandatory market over the past year. Of the $61.9 billion new issuance this year 60% ($37.2 billion) was from Financials.

Compared to the cumulative face value of $45.3B the market value of these securities stands at just $17.3B ($28.0B loss)

Significant value destroyed through the Financials as markets turned south (see table below, >500MM face)

While equity and credit has impacted the convert market, these financial recap issues have only deepened the woes

Convert Price Stock Price

Current Yield Premium OAS

Citi 6.5% Pfd01/18/2008 $50.00 $16.44 6.50 27.8 51310/01/2008 $39.30 $20.51 8.27 29.3 1,242

BofA 7.25% Pfd01/25/2008 $1,000.00 $40.00 7.25 25.0 44210/01/2008 $836.20 $35.00 8.67 19.5 1,105

Financial Preferred Value Destruction

Counter CUSIP Ticker Issuer Coupon Issue DateIssue Size

($MM)

Current Mkt Cap ($MM)

Value Drop

($MM)Preferreds9006506 939322848 WM Washington Mutual 5.375 04/24/01 1,150 24 1,1269008644 846048205 SOV Sovereign Bancorp Inc. 4.375 02/19/04 800 298 5029009747 313586810 FNM Fannie Mae 5.375 12/30/04 2,500 25 2,4759013728 939322814 WM Washington Mutual 7.750 12/12/07 3,000 7 2,9939013837 172967598 C Citigroup 6.500 01/18/08 3,169 2,491 6789013867 060505682 BAC Bank of America 7.250 01/25/08 6,900 5,770 1,1309014175 52523J453 LEH Lehman Brothers 7.250 04/01/08 4,000 2 3,9989014258 929903219 WB Wachovia Corp. 7.500 04/14/08 4,025 1,531 2,4949014270 446150401 HBAN Huntington Bancshares 8.500 04/17/08 569 481 889014287 125581603 CIT CIT Group 8.750 04/23/08 575 363 2129014542 493267405 KEY KeyCorp 7.750 06/13/08 658 603 549014556 316773209 FITB Fifth Third Bancorp 8.500 06/19/08 1,108 1,184 (77)Mandatories9010172 59156R702 MET MetLife Inc. 6.375 06/16/05 2,070 1,093 9779010617 G98255121 XL XL Capital 7.000 12/07/05 745 211 5349013493 125581405 CIT CIT Group 7.750 10/18/07 690 224 4669013791 78442P700 SLM SLM Corp 7.250 12/28/07 1,150 735 4159014348 524901303 LM Legg Mason 7.000 05/07/08 1,150 752 3989014356 313586745 FNM Fannie Mae 8.750 05/09/08 2,588 120 2,4679014364 026874115 AIG American International Grou 8.500 05/13/08 5,880 627 5,2539014502 52520W218 LEH Lehman Brothers 8.750 06/09/08 2,000 119 1,8819014672 G98255600 XL XL Capital 10.750 07/29/08 575 622 (47)

TOTAL 45,300 17,283 28,018


21

Autos: U.S. Light Vehicle Sales Continue to Fall as Consumers Retreat and Financing Becomes Harder…


U.S. Light Vehicle Sales

R2 = 62%

8

10

12

14

16

18

20

Jun-

67

Jun-

68

Jun-

69

Jun-

70

Jun-

71

Jun-

72

Jun-

73

Jun-

74

Jun-

75

Jun-

76

Jun-

77

Jun-

78

Jun-

79

Jun-

80

Jun-

81

Jun-

82

Jun-

83

Jun-

84

Jun-

85

Jun-

86

Jun-

87

Jun-

88

Jun-

89

Jun-

90

Jun-

91

Jun-

92

Jun-

93

Jun-

94

Jun-

95

Jun-

96

Jun-

97

Jun-

98

Jun-

99

Jun-

00

Jun-

01

Jun-

02

Jun-

03

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

SAA

R (m

il)

SAAR Log. (SAAR)

Peak Trough ContractionDecember 1969(IV) November 1970 (IV) 11November 1973(IV) March 1975 (I) 16January 1980(I) July 1980 (III) 6July 1981(III) November 1982 (IV) 16July 1990(III) March 1991(I) 8March 2001(I) November 2001 (IV) 8

22

Dragging 2 Big Components of the Convert Market (Ford and GM) Lower

Auto Convert Performance


Nearly $6 billion in market value wiped out between the Ford and GM converts.

The 5 large auto converts with a total face of ~$16 billion currently have a market value of ~$8 billion

Cvt Actual Price

Cvt Percent Price Stock Price

Market Value ($MM)

Current Yield (%)

YTM / YTP / CY

Yrs to Put / Maturity Delta Premium OAS* Delta Years to Put

F 4.25% due 203605/15/2008 $109.52 109.52 $8.17 5,421 3.88 3.88 8.6 87.7 23.3 1,001 87.7 8.610/01/2008 $65.11 65.11 $5.20 3,223 6.53 10.75 8.2 89.7 15.2 NM 89.7 8.2

Change (40.6%) (36.4%) (2,198)

F 6.5% due 203205/15/2008 $36.76 73.52 $8.17 2,112 8.84 9.26 23.7 61.6 59.3 988 61.6 N/A10/01/2008 $23.93 47.86 $5.20 1,375 13.58 14.19 23.3 60.5 62.9 2,203 60.5 N/A

Change (34.9%) (36.4%) (737)

GM 5.25% due 2032 (GBM)05/15/2008 $17.25 68.99 $21.23 1,794 7.61 13.03 5.8 30.8 110.9 1,030 30.8 5.810/01/2008 $8.59 34.35 $9.45 893 15.29 31.48 5.4 40.5 135.9 NM 40.5 5.4

Change (50.2%) (55.5%) (901)

GM 6.25% due 2033 (GPM)05/15/2008 $17.82 71.30 $21.23 3,066 8.76 11.00 10.2 59.7 59.9 1,011 59.7 10.210/01/2008 $8.17 32.66 $9.45 1,404 19.14 25.93 9.8 73.6 64.6 NM 73.6 9.8

Change (54.2%) (55.5%) (1,661)

GM 1.5% due 2009 (GRM)05/15/2008 $23.27 93.08 $21.23 1,392 1.61 8.56 1.0 20.9 60.3 838 20.9 N/A10/01/2008 $20.00 80.00 $9.45 1,055 1.88 39.75 0.7 0.3 209.6 NM 0.3 N/A

Change (14.1%) (55.5%) (337)*NM for OAS above 3000

23

Technicals

24

Convertible Arbitrage AUM – Past the Mid-2007 Peak, Looks Like We’re Headed For a Cyclical Downturn

0

5

10

15

20

25

30

35

40

45

50

Dec

-99

Mar

-00

Jun-

00

Sep-

00

Dec

-00

Mar

-01

Jun-

01

Sep-

01

Dec

-01

Mar

-02

Jun-

02

Sep-

02

Dec

-02

Mar

-03

Jun-

03

Sep-

03

Dec

-03

Mar

-04

Jun-

04

Sep-

04

Dec

-04

Mar

-05

Jun-

05

Sep-

05

Dec

-05

Mar

-06

Jun-

06

Sep-

06

Dec

-06

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Assets under management declined sharply from 2004 to 2005 but then picked up into 2006 - 2007. That growth however, appears to have slowed down. In the first quarter of 2008 AUM stood at $33.8 billion 13% lower than the $38.8 level in 4Q 2007.

Asset flows turned positive in 1Q 2008 after a slight negative in 4Q 2007. After the last cycle when flows turned slightly negative in 3Q 2004, the market experienced a wave of negative flows in the 6 -subsequent quarters. Given recent performance of the asset class, we expect flows to turn negative over the next few quarters.

Convertible Arbitrage Assets Under Management ($B)

Source: Barclays Capital, Tremont.

25

Poor Performance > Redemptions/Flight to Quality > Selling > Poor Performance

-3

-2

-1

0

1

2

3

4

Sep

08

Jun

08

Mar

08

Dec

07

Sep

07

Jun

07

Mar

07

Dec

06

Sep

06

Jun

06

Mar

06

Dec

05

Sep

05

Jun

05

Mar

05

Dec

04

Sep

04

Jun

04

Mar

04

Dec

03

Sep

03

Jun

03

Mar

03

Dec

02

Sep

02

Jun

02

Mar

02

Dec

01

Sep

01

Jun

01

Mar

01

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Convert Arb Fund Flows LTM HFRX Index Return

Given the poor performance of the strategy relative to other hedged fund strategies, we anticipate selling pressure on the back of redemptions, reducing fund leverage, and flight to quality

HFRX Convertible Arbitrage Returns vs. Fund Flows

Source: Barclays Capital, Tremont.

26

Volatility Higher but Liquidity is Being Tested…

0

10

20

30

40

50

60

05-O

ct

05-N

ov

05-D

ec

06-J

an

06-F

eb

06-M

ar

06-A

pr

06-M

ay

06-J

un

06-J

ul

06-A

ug

06-S

ep

06-O

ct

06-N

ov

06-D

ec

07-J

an

07-F

eb

07-M

ar

07-A

pr

07-M

ay

07-J

un

07-J

ul

07-A

ug

07-S

ep

07-O

ct

07-N

ov

07-D

ec

08-J

an

08-F

eb

08-M

ar

08-A

pr

08-M

ay

08-J

un

08-J

ul

08-A

ug

08-S

ep

Cvt HY Cvt IG Cvt Total

Typically we would expect volumes to go up in volatile markets, however TRACE volumes have been steadily declining since the beginning of 2008

However, given the significant volatility this time around, liquidity is becoming scarcer

Reasons for lower volumes and liquidity includeBroad market weakness leading to significant risk-aversion with bids drying upBroker-dealer risk reduction, de-levering and consolidationNegative convert arb performance leading to the diminished hedge fund activityImposition of the short-sale ruleWidening Bid-Ask spreads discouraging active trading / rebalancing of portfolios

Monthly Convert TRACE Volumes ($B)


27

Primary Issuance

28

After a Financials Driven Strong First Half, New Issuance Slows to a Trickle and Organic Growth Turns Negative

Organic Growth of the Convert Market, LTM Organic Growth of the Convert Market Since 2003


-0.6

0.3

13.8

9.7

-0.8 -1.1

7.7

12.1

-1.8

1.3

-8.6 -8.7-10

-5

0

5

10

15

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

$ Billions

23.8

-17.4-22.0

10.8

39.0

9.8

-30

-20

-10

0

10

20

30

40

50

2003 2004 2005 2006 2007 2008 YTD

$ Billions

Over the past two months alone, organic growth has fallen almost $20B leaving the YTD number at $9.8B of inflows

We expect organic growth to remain subdued as issuers hesitate to issue new paper in a market where spreads have widened and stocks have declined considerably

A large part (60%) of the $62 billion raised this year was from Financials

Convertible New Issuance

54.1

88.3

47.633.1

70.3

96.4

61.9

20.6

0

20

40

60

80

100

120

2002 2003 2004 2005 2006 2007 2008 YTD

$ Billions

NI Volume Annualized

29

Volatility Trends

30

Listed and Realized Vol has Spiked but Convert Implieds Are Lagging

Implied vs. 90D Realized Vol Spread


-30

-25

-20

-15

-10

-5

0

5

10

Dec

03

Mar

04

Jun

04

Sep

04

Dec

04

Mar

05

Jun

05

Sep

05

Dec

05

Mar

06

Jun

06

Sep

06

Dec

06

Mar

07

Jun

07

Sep

07

Dec

07

Mar

08

Jun

08

Sep

08

15

20

25

30

35

40

45

Aug

04

Oct

04

Dec

04

Feb

05

Apr

05

Jun

05

Aug

05

Oct

05

Dec

05

Feb

06

Apr

06

Jun

06

Aug

06

Oct

06

Dec

06

Feb

07

Apr

07

Jun

07

Aug

07

Oct

07

Dec

07

Feb

08

Apr

08

Jun

08

Aug

08

Implied Vol Realized Vol Opt Vol

Volatility Trends Implied vs. Option Vol Spread

-20

-15

-10

-5

0

5

10

Aug

04

Oct

04

Dec

04

Feb

05

Apr

05

Jun

05

Aug

05

Oct

05

Dec

05

Feb

06

Apr

06

Jun

06

Aug

06

Oct

06

Dec

06

Feb

07

Apr

07

Jun

07

Aug

07

Oct

07

Dec

07

Feb

08

Apr

08

Jun

08

Aug

08

31

Credit Trends

32

Convert Market OAS Widens in Tandem With the Broader Credit Selloff

Non IG Converts vs. HY B Index IG Converts vs. US Credit Index


200

300

400

500

600

700

800

900

1000

1100

1200

Oct

07

Oct

07

Nov

07

Nov

07

Nov

07

Dec

07

Dec

07

Jan

08

Jan

08

Feb

08

Feb

08

Mar

08

Mar

08

Apr

08

Apr

08

May

08

May

08

May

08

Jun

08

Jun

08

Jul 0

8

Jul 0

8

Aug

08

Aug

08

Sep

08

Sep

08

Non IG Cvts HY B Index

100

150

200

250

300

350

400

450

500

550

600

Oct

07

Oct

07

Nov

07

Nov

07

Nov

07

Dec

07

Dec

07

Jan

08

Jan

08

Feb

08

Feb

08

Mar

08

Mar

08

Apr

08

Apr

08

May

08

May

08

May

08

Jun

08

Jun

08

Jul 0

8

Jul 0

8

Aug

08

Aug

08

Sep

08

Sep

08

IG Cvts US Credit

Over the past year Convert OAS has widened significantly in line with Credit.

While the Non IG segment has largely tracked the HY OAS, in the recent past IG Convert OAS appears to have widened much more than the Credit Index

Both IG (541 bps) and Non-IG Convert OAS (1076 bps) at the widest levels since we started our Index in 2003.

33

Market Structure

34

Changing Market Structure & Profile


Bond structures account for 80% of the market, largely unchanged from end 2006. Financial and mandatory pfd issuance rose meteorically but then declined equally fast this year.

On the back of sharp equity market declines, the market has become less equity sensitive. The ‘equity-sensitive’ segment now accounts for 37% of the market from a high of 56% at the beginning of 2007. Premiums have increased sharply to 41.0% from 23.4% over the same period.

The number of distressed converts has increased from 11 in 2006 to 19 in 2007 and 91 currently.

The large cap segment is lower given the collapse of Financial preferred issues.

The ‘price’ of the market currently at 82% is the lowest since we launched the index on Jan ’03.

The convert market has shrunk significantly and is now has a market cap of just $271B relative to $345B at the beginning of 2008

Yields have increased significantly. The current yield now stands at 4.6% relative to 3.1% at the beginning of 2008. Overall yield (greater of YTM/YTP/CY) has nearly doubled from 4.3% to 8.3%.

Sector concentration - The Financial, Healthcare, and Information Technology sectors account for 61% of the convert market value outstanding and 59% of the underlying equity exposure.

Vol and credit risk exposure: The average vega for the market is 0.29% while the average Rho (100bps) is 1.73%. Should credit weaken further it would take a vol expansion of 6 points to offset every 100bps of widening

35

Bond Structures & Small/Mid-Caps Dominate; Equity Sensitivity Sharply Lower

Convert Market Breakdown by Type Convert Market Breakdown by Profile

Convert Market Breakdown by Market Cap Convert Market Breakdown by Credit Quality

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 YTD

Investment Grade Intermediate Grade Speculative Grade Not Rated


0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 YTD

Cash Pay Zero Cpn Preferred Mandatory

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 YTD

Equity Sensitive Typical Busted Distressed

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 YTD

Large Cap Mid Cap Small Cap

36

Premiums Expand Significantly; Yields Up Sharply…As Market Value Shrinks

Price of the Convert Market (Mkt Val / Face) Premium of the Convert Market (%)

Size of the Convert Market Yield & Current Yield of the Convert Market

250

279 270257

271

314331

219

303 303280

308

345

271

0

50

100

150

200

250

300

350

400

2002 2003 2004 2005 2006 2007 2008 YTD

$ Billions

Face Market Value


80%

85%

90%

95%

100%

105%

110%

115%

120%

Dec

02

Mar

03

Jun

03

Sep

03

Dec

03

Mar

04

Jun

04

Sep

04

Dec

04

Mar

05

Jun

05

Sep

05

Dec

05

Mar

06

Jun

06

Sep

06

Dec

06

Mar

07

Jun

07

Sep

07

Dec

07

Mar

08

Jun

08

Sep

08

800

900

1000

1100

1200

1300

1400

1500

1600

Price of Convert Market (LHS) S&P 500 (RHS)

39.3

30.9

25.823.4

31.2

41.0

0

5

10

15

20

25

30

35

40

45

2003 2004 2005 2006 2007 2008 YTD

3.0 3.2 3.0 3.1

4.6

3.7

4.4

3.5

4.3

8.3

0

1

2

3

4

5

6

7

8

9

2004 2005 2006 2007 2008 YTDCurrent Yield YTP / YTM /CY

37

Relatively Short Duration a Positive; Short Sale Rule a Negative

Once could argue that the short sale restrictions were needed to stabilize the broader markets.

That said the rule has had a negative impact on the convert arb strategy.

The uncertainty with regards to the duration of this rule and the scope (# of stocks covered) is negatively impacting convert arb funds and broadly leading to lower valuations in our opinion.

Restricted Short Sale Convertible Market Statistics

Face ($MM )

Market Value

($MM)

Total Market 330,868 271,275

Short Sale Restricted List 84,929 52,003

Percent Affected 25.7% 19.2%

Maturity Profile of the Convert Market


We view the short to intermediate maturity profile of the market as a positive.

69% of the market matures or is puttable within the next five years

0 - 1 Years

1 - 3 Years

3 - 5 Years > 5 Years

Count 91 228 265 218

Face ($B) 35.2 91.0 88.7 118.4

Mkt Val ($B) 35.1 74.9 77.6 86.0

Percent (%) 12.8% 27.4% 28.3% 31.4%

38

Sector Concentration High; Credit Exposure Relatively High


Delta Stock Exposure BreakdownMarket Value Breakdown

TELECOM2%

MATERIALS7%

INDUSTRIALS9%

UTILITIES2%

INFO TECH14%

CONSUMER DISC8%

CONSUMER STAPLES

3%

ENERGY10%

HEALTH CARE23% FINANCIALS

22%

Rho Exposure by SectorVega Exposure by Sector

GICS Sector IssuesMarket

Value ($B)Wt Avg %

VegaAverage %

VegaCONSUMER DISCRETIONARY 64 $13.8 0.27% 0.24%CONSUMER STAPLES 14 $3.8 0.45% 0.38%ENERGY 34 $10.2 0.32% 0.32%FINANCIALS 72 $19.8 0.33% 0.30%HEALTH CARE 110 $41.2 0.36% 0.33%INDUSTRIALS 56 $13.0 0.23% 0.28%INFORMATION TECHNOLOGY 123 $33.2 0.33% 0.27%MATERIALS 14 $4.1 0.35% 0.35%TELECOMMUNICATION SERVICES 19 $6.9 0.24% 0.26%UTILITIES 6 $1.5 0.14% 0.16%TOTAL 512 $147.6 0.32% 0.29%

*Excludes Distressed and Perpetual Preferreds

GICS Sector IssuesMarket

Value ($B)Wt Avg %

RhoAverage %

RhoCONSUMER DISCRETIONARY 64 $13.8 (1.68%) (1.68%)CONSUMER STAPLES 14 $3.8 (2.82%) (2.85%)ENERGY 34 $10.2 (1.71%) (1.76%)FINANCIALS 72 $19.8 (2.12%) (2.02%)HEALTH CARE 110 $41.2 (1.35%) (1.54%)INDUSTRIALS 56 $13.0 (1.15%) (1.56%)INFORMATION TECHNOLOGY 123 $33.2 (1.76%) (1.72%)MATERIALS 14 $4.1 (1.66%) (1.84%)TELECOMMUNICATION SERVICES 19 $6.9 (1.66%) (1.63%)UTILITIES 6 $1.5 (0.75%) (1.28%)TOTAL 512 $147.6 (1.64%) (1.73%)

*Excludes Distressed and Perpetual Preferreds

TELECOM3%

MATERIALS5%

INDUSTRIALS7%

UTILITIES2%

INFO TECH16%

CONSUMER DISC11%

CONSUMER STAPLES

2%ENERGY

9%HEALTH CARE20%

FINANCIALS25%

39

Positioning

40

Issues Facing the Convertible Market

Liquidity is likely to remain low and Bid-Asks wider in a one-way market over the short term

Move to reduce leverage will likely cause continued selling pressure in the near term. Marginal arb trades that depended on higher leverage and attractive financing would likely be forced out.

Broker dealers likely to curtail capital commitment in the short term

Marginal arb trades that depended on higher leverage and attractive financing would likely be forced out.

Borrow costs likely to be higher given trend of long-only funds’ reluctance to lend and regulator focus on ‘abusive’ short-selling

Liquidity Scarcer / Bid Ask Wider

Liquidity Scarcer / Bid Ask Wider

Funding & Margin Higher/Borrow Costs

Funding & Margin Higher/Borrow Costs

Given convert arb weakness we believe that the balance of power is likely to shift incrementally to the outright and cross-over buyer base who will have a larger impact on the asset class

Outright / ArbBalance ShiftOutright / ArbBalance Shift

Past trends lead us to believe that redemptions are likely persist in the near future negatively impacting valuation

A significant reduction in convertible arbitrage funds is a likely outcome over the next six months

Redemptions LikelyRedemptions Likely

Broker & Hedge-fund De-levering

Broker & Hedge-fund De-levering

41

Recap & Outlook

Clearly the convert market both (outright and hedged) has been under tremendous pressure over the past year. This has largely been due to plummeting equities, a significant widening in spreads, a valuation collapse and significant negative technicals.

Currently we are seeing heightened risk aversion, uncertainty and pessimism. Liquidity has diminished greatly and the threat of redemption, de-leveraging and continued flight to quality based selling pressure is underway.

Given the cyclical nature of fund flows and the poor performance of the asset class we expect a wave of fund redemptions especially from convertible arbitrage.

In 2005 the weakness was convert market specific. This time around the issues are clearly much larger. The issue is systemic and needs to get sorted out first.

That said, the convertible asset class is cheap on a relative value basis. The keyword being ‘relative’.

The collapse of Financial preferreds / mandatories has brought the market significantly lower but we believe that there are other pockets (bond structures) that could be a source of relative value.

Positioning, Outlook and Investment Thesis

42

Key ThemesThe markets are in a frozen state as we speak. That said when things clear up we expect the following to be important themes in the convert market.

Yield Returns to the Market. Coupon return is much higher. The convert market now yields 9.2% (CY 4.8%) compared to a dividend yield of 2.5% for the S&P500.

Equity Volatility has clearly spiked to significantly higher levels. However, the convert market sell-off has created the opportunity to potentially buy cheap vol. IG convertible bonds are a good starting point.

If and when the credit markets begin to stabilize, gamma trading opportunities should emerge.

Call overwriting as a strategy could be considered by long-only investors given the flat skew and elevated vols.

Gaining Equity Exposure in a Risk Controlled Manner by owning securities much higher up in the capital structure. Equity investors should actively consider a convertible market allocation given the valuation collapse - right convert structures/profiles offer balanced and less volatile exposure to equities – affording decent potential upside participation and a higher coupon income while greatly dampening downside risk.

Credit Opportunities: Credit spreads have widened significantly over the past year and the market is becoming less equity-sensitive affording credit based investment opportunities. Both IG and non-IG bonds will present opportunities.

Potential Rate Cuts would add incremental value to the convert market.

Potential Dividend Cuts would be another source of value especially given their increased likelihood in a weakening economy and a deteriorating capital raising/credit environment.

Call Risk plays – In the money converts that are net-share settled will be less likely to be called while all stock settled converts would be more likely to get called in a weak financing / capital raising environment

While preferred structures have experienced the greatest valuation collapse, they are likely to offer value at some point - likely when credit markets begin to stabilize.


43

Key Themes

Primary Issuance Value: Primary issuance has declined across asset classes and the convert asset class is no exception. We expect this to continue in the near future until the broader markets open up again. In our opinion, once this happens the convertible asset class is going to be an attractive capital raising source in a high spread –high vol environment. 2003 serves as a useful case in point when primary issuance hit $88 billion in a high spread-high vol environment.

Opportunities for Cross-Over Buyers: convert funds are clearly under pressure and technicals are playing an important factor in the sell-off. Cross over buyers both from the equity side as well as the credit side should actively consider scouring the convert market for relative value opportunities.

Convertibles though often clumped as one large amorphous asset class are in fact quite unique when diced by sector, maturity profile, credit quality, structure, equity/credit sensitivity etc. Sub-strategies within the large umbrella of convertibles is going to be important going forward.

Given the higher levels of systematic as well as idiosyncratic risk, the investment processes would have to be more involved and at a single name level. Broad diversified strategies might not be optimal in the short term.

Credit focus: The market is trading at a price of 85%, with significantly higher yields. ~80% of the market now consists of bond structures – many of which have short/intermediate puts. Spreads are significantly wider suggesting value. Managers with strong credit skills would be better positioned to invest in the asset class in the short term. Volatility based trades would be important too but only once the credit markets have stabilized. At this point in the cycle credit concerns far outweigh and vol related angle.

Our focus in this report is from a macro perspective. We will be exploring many of these themes in detail in the near future.


44

Analyst Certifications and Important Disclosures

Analyst CertificationWe, Venu Krishna and Manoj Shivdasani, hereby certify (1) that the views expressed in this research email accurately reflect our personal views about any or all of the subject securities or issuers referred to in this email and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this email.

Important DisclosuresThe analysts responsible for preparing this report have received compensation based upon various factors including the Firm's total revenues, a portion of which is generated by investment banking activities.

For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Capital Inc. Control Room, 1271 Avenue of the Americas, 42nd Floor, New York, NY 10020 or refer to the firm's disclosure website at www.lehman.com/disclosures. On September 20, 2008, Barclays Capital Inc. acquired Lehman Brothers' North American investment banking, capital markets, and private investment management businesses. During this transition period, we have endeavored to provide our respective conflicts of interest disclosures on a combined basis. All ratings and price targets prior to the acquisition date relate to coverage under Lehman Brothers Inc.

Risk Disclosure(s)The convertible valuations are based on Lehman’s proprietary convertible valuation model, under which key assumptions relate to credit spread and volatility metrics. Material changes in any of these variables can have a significant impact on valuation. Upside/downside analysis takes into consideration likely future valuation and expected trading patterns, among others. It is based on a total return participation of the convertible relative to a +/- 25% change in the common stock’s price over a one-year investment horizon. A material change in the company’s financial situation can significantly alter this assessment.

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Important Disclosures (continued)

IRS Circular 230 Prepared Materials Disclaimer: Barclays Capital and its affiliates do not provide tax advice and nothing contained herein should be construed to be tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended or written to be used, and cannot be used, by you for the purpose of avoiding U.S. tax-related penalties; and (ii) was written to support the promotion or marketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. This publication has been prepared by Barclays Capital, Inc., a US registered broker/dealer and member of FINRA. This publication is provided to you for information purposes only. Prices shown in this publication are indicative and Barclays Capital is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. Other than disclosures relating to Barclays Capital, the information contained in this publication has been obtained from sources that Barclays Capital knows to be reliable, but we do not represent or warrant that it is accurate or complete. The views in this publication are those of Barclays Capital and are subject to change, and Barclays Capital has no obligation to update its opinions or the information in this publication. Neither Barclays Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. The securities discussed in this publication may not be suitable for all investors. Barclays Capital recommends that investors independently evaluate each issuer, security or instrument discussed in this publication, and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information in this publication is not intended to predict actual results, which may differ substantially from those reflected. This communication is being made available in the UK and Europe to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion Order) 2005. It is directed at persons who have professional experience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered into only with such persons. Barclays Capital - the investment banking division of Barclays Bank PLC, authorized and regulated by the Financial Services Authority (‘FSA’) and member of the London Stock Exchange. Subject to the conditions of this publication as set out above, ABSA CAPITAL, the Investment Banking Division of ABSA Bank Limited, an authorized financial services provider (Registration No.: 1986/004794/06), is distributing this material in South Africa. Any South African person or entity wishing to effect a transaction in any security discussed herein should do so only by contacting a representative of ABSA Capital in South Africa, ABSA TOWERS NORTH, 180 COMMISSIONER STREET, JOHANNESBURG, 2001. ABSA CAPITAL IS AN AFFILIATE OF BARCLAYS CAPITAL. Non-U.S. persons should contact and execute transactions through a Barclays Bank PLC branch or affiliate in their home jurisdiction unless local regulationspermit otherwise. Barclays Bank PLC Frankfurt Branch is distributing this material in Germany under the supervision of Bundesanstalt fuerFinanzdienstleistungsaufsicht.© Copyright Barclays Bank PLC (2008). All rights reserved. No part of this publication may be reproduced in any manner without the prior written permission of Barclays Capital or any of its affiliates. Barclays Bank PLC is registered in England No. 1026167. Registered office 1 Churchill Place, London, E14 5HP. Additional information regarding this publication will be furnished upon request.

Manoj Shivdasani Barclays

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