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Goldman Sachs Dynamic Opportunities Limited

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Performance Highlight

November 2008 

Market Overview

Goldman Sachs Dynamic Opportunities ('GSDO' or the 'Fund') ended the month of November in negative territory.  

Only two of the nine managers in the Event Driven sector ended the month positively as the majority of the underlying managers experienced difficulties amid declining equity and credit markets. While many equity market indices ended the month down 5-10%, there were some outliers, such as Russia, which ended the month down approximately 15%. One manager with long exposure to select metals and mining and energy related equities experienced significant losses on the month. In the corporate credit space, high yield bonds and leveraged loans continued to trade lower as confidence in the financial system continued to erode. Managers with significant long credit exposure suffered losses as the market continued to decline. In risk arbitrage, some managers benefited from exposure to the beverage industry as a high profile merger came to a close during the month. While managers have been defensively positioned for most of 2008, they continued to maintain low gross exposure given the heightened levels of market volatility and regulatory risk.  

One of the seven managers in the Equity Long/Short sector ended the month slightly positive. Six out of seven of Equity Long/Short managers had negative performance as equity markets continued to experience volatility and widespread selling, which created a difficult environment for fundamentals based stock-pickers. Managers with high levels of net exposure drove the bulk of the sector's losses. These managers tended to have net long exposure to the financials, materials, technology, and consumer discretionary sectors. The better performing managers had reduced exposure given the increased volatility and indiscriminate selling in the markets. Some managers also benefited from strong short stock picking, particularly in the real estate, financials, and consumer sectors, as well as short term opportunistic trading.  

Tactical Trading continues to be the strongest performing sector. Two of the four managers in the Tactical Trading sector ended the month positively. Two of the Company's macro managers generated positive results driven by interest rate trading, particularly in directional positions in the U.S. and U.K.  The Company's trend following manager experienced negative performance as modest losses from livestock positions offset gains from spread trades capturing mispriced volatility in beans and corn.

In order to reduce the Fund's drawings on its credit facility, largely arising from realised foreign exchange losses, the Fund submitted redemption requests in respect of part of or its complete investments with the managers in the following sectors. Redemptions are expected to become effective by the dates stated below:

Sources: Bloomberg, Financial Times, Reuters, The New York Times, The Wall Street Journal. 

Performance

Portfolio Characteristics (Reflects USD Share Class)1

Cumulative Performance (Reflects USD Share Class)1

Return Comparison (Inception-To-Date) (Reflects USD Share Class)1

Weights4

Attribution (Reflects USD Share Class)5,6

Performance Analysis - Sectors (Reflects USD Share Class)5,7

Performance Analysis - Overall (Reflects USD Share Class)5,7

Monthly Performance (Reflects USD Share Class)5

GSDO's Investments by Manager Name8,9

Endnotes

Past performance is not indicative of future results, which may vary. Please see Disclosures for important information.

References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time (each, an 'index') are provided for your information only. References to the indices do not imply that the portfolio will achieve returns, volatility or other results similar to the indices. The composition of the indices may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which are subject to change over time. Information regarding the Fund's investment objectives is contained in the Fund's latest report and accounts, but is subject to amendment. Source for index data: Bloomberg. 

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice or a recommendation to buy or sell investments in the Fund or any other investments mentioned in this report or to follow any investment strategy. Furthermore, this report should not be construed as an invitation or inducement to engage in investment activity in the Fund. 

1     Performance is final and unaudited. The figures published here are final as of 28/11/2008, calculated as of 02/01/2009, but are potentially subject to revision. Returns are presented in the currency displayed. 

2     Returns less than 12 months are cumulative, not annualized.

3     This is the excess return over the risk-free rate (3 Month USD LIBOR).

4     Does not include cash. The Investment Manager may change the allocations over time. The allocations noted before should not be deemed representative of allocations in the future. Allocations based upon month-end valuations as of 28/11/2008, calculated as of 02/01/2009. Figures may not sum to 100% due to rounding.  

5     Performance is final and unaudited. The figures published here are final as of 28/11/2008, calculated as of 02/01/2009, but are potentially subject to revision. 

6     Contribution data is geometrically calculated based on a monthly time series. Data will not arithmetically sum to fund total. Cumulative geometric returns for less than 12 months are calculated as follows: (1+r1)*(1+r2)*…*(1+rn)-1. Annualized geometric returns for returns greater than 12 months are calculated as follows: [(1+r1)*(1+r2)*…*(1+m)]12/m -1. 

7     Sector and overall returns are net of underlying manager fees but gross of Goldman Sachs management and incentive fees. Presented in USD unless otherwise stated. 

8     As of 28/11/2008, calculated as of 02/01/2009. This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice or a recommendation to buy or sell investments in the Fund or any other investments mentioned in this report or to follow any investment strategy. Furthermore, this report should not be construed as an invitation or inducement to engage in investment activity in the Fund. 

9     This is a list of all GSDO managers excluding Amaranth and Tisbury. Amaranth and Tisbury have been excluded because each is a  holding (a) that comprises less than 1% of GSDO's assets and (b) from which GSDO has submitted a full redemption form. The list is subject to change without notice to investors and therefore may not be an indication of the ten largest investments that currently comprise the Fund's portfolio. 

Disclosures

Opinions and views expressed are current opinions as of the date appearing in this material only. No part of this material may be i) copied, photocopied or duplicated in any form, by any means; or ii) redistributed without the prior written consent of Goldman Sachs Hedge Fund Strategies LLC. 

The performance described herein is based in part on estimates of the recovery value of such fund's assets currently held at Lehman Brothers and/or amounts owed to such fund by Lehman Brothers. In addition, these exposures are based on information we have received from the majority, but not all of our underlying hedge fund managers, and we have no way of independently verifying or otherwise confirming the accuracy of the information provided. There can be no guarantee that our estimate is accurate. There is significant uncertainty with respect to the ultimate outcome of the Lehman Brothers insolvency proceedings, and therefore the amounts ultimately recovered from Lehman Brothers could be materially different than our estimates. Accordingly, the estimated values set forth herein may not completely reflect the impact of potential losses. When realized, such losses could adversely impact the performance of the fund. We continue to assess our funds' exposure to the bankruptcy of Lehman Brothers and we may revise our estimates of recovery value at any time.

This report does not form part of, and must not be used for the purposes of, any offering of shares in the Fund.

This material has been prepared by Goldman Sachs Asset Management (GSAM) and/or Goldman Sachs International (GSI) and is not a product of the Goldman Sachs Global Investment Research (GIR) Department. The views and opinions expressed may differ from those of the GIR Department or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and neither GSAM nor GSI has an obligation to provide any updates or changes. 

References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time (each, an 'index') are provided for your information only. References to the indices do not imply that the portfolio will achieve returns, volatility or other results similar to the indices. The composition of the indices may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which are subject to change over time. Information regarding portfolio objectives is contained in the prospectus as amended from time to time. Source for index data: Bloomberg. 

Indices are unmanaged. The figures for the index reflect the reinvestment of dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices.

Effect of fees on performance: 

The following table provides a simplified example of the effect of management and incentive fees on portfolio returns. For example, assume a portfolio has a steady investment return, gross of fees, of 0.5% per month and total management fees of 0.1250% per month of the market value of the portfolio on the last day of the month and incentive fees of 10% of net profits. Management fees and incentive fees are deducted from the market value of the portfolio on that day. There are no cash flows during the period. The table shows that, assuming that other factors such as investment return and fees remain constant, the difference increases due to the compounding effect over time. Of course, the magnitude of the difference between gross-of-fee and net-of-fee returns will depend on a variety of factors, and the example has been intentionally simplified.

Period                Gross Return      Net Return      Differential  

1 year                    6.17%                  4.13%              2.04% 

2 years                 12.72%                  8.42%             4.29%

10 years               81.94%                49.83%           32.11%

MSCI World Index: Morgan Stanley Capital International's market capitalization weighted index is composed of companies representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific Region. The index is calculated without dividends, with net or with gross dividends reinvested, in both US dollars and local currencies.

Lehman Brothers Aggregate Index: The index is composed of securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. The index's total return consists of price appreciation/depreciation plus income as a percentage of the original investment. Indexes are rebalanced monthly by market capitalization.  

Supplemental Risk Disclosure for All Potential Investors in Hedge Funds and other private investment funds (collectively, 'Alternative Investments') 

In connection with your consideration of a direct or indirect investment in any Alternative Investment, you should be aware of the following risks:

Alternative Investments are not subject to the same regulatory requirements or governmental oversight as mutual funds. The sponsor or manager of any Alternative Investment may not be registered with any governmental agency.

Alternative Investments often engage in leverage and other investment practices that are extremely speculative and involve a high degree of risk. Such practices may increase the volatility of performance and the risk of investment loss, including the loss of the entire amount that is invested.

Alternative Investments may purchase instruments that are traded on exchanges located outside the United States that are 'principal markets' and are subject to the risk that the counterparty will not perform with respect to contracts. Furthermore, since there is generally less government supervision and regulation of foreign exchanges, Alternative Investments are also subject to the risk of the failure of the exchanges and there may be a higher risk of financial irregularities and/or lack of appropriate risk monitoring and controls.

Past performance is not a guide to future performance and the value of Alternative Investments and the income derived from them can go down as well as up. Future returns are not guaranteed and a loss of principal may occur.

Alternative Investments may impose significant fees, including incentive fees that are based upon a percentage of the realized and unrealized gains, and such fees may offset all or a significant portion of such Alternative Investment's trading profits.

Alternative Investments are offered in reliance upon an exemption from registration under the Securities Act of 1933, as amended, for offers and sales of securities that do not involve a public offering in the United States. 

Alternative Investments may themselves invest in instruments that may be highly illiquid and extremely difficult to value. This also may limit your ability to transfer your investment.

Alternative Investments generally are not required to provide their investors with periodic pricing or valuation information.

There may be conflicts of interest between the Alternative Investment and other service providers, including the investment manager and sponsor of the Alternative Investment.

Alternative Investments may involve complex tax and legal structures. Investment in any particular Alternative Investment, or Alternative Investments generally, is only suitable for sophisticated investors for whom such an investment does not constitute a complete investment program and who fully understand and are willing to assume the risks involved in such Alternative Investment. You are urged to consult with your own tax, accounting and legal advisers regarding any investment in any Alternative Investment.

Investors are also urged to take appropriate advice regarding any applicable legal requirements and any applicable taxation and exchange control regulations in the country of their citizenship, residence or domicile which may be relevant to the subscription, purchase, holding, exchange, redemption or disposal of any Alternative Investment.

We refer you to the prospectus for a more complete discussion of the risks relating to an investment in any particular Alternative Investment. You are urged to read all applicable offering materials, including the entire prospectus, prior to any investment in any Alternative Investment. Investment Restrictions apply to many of Goldman Sachs' Alternative Investments. Goldman Sachs Hedge Fund Strategies LLC (HFS) is the Investment Manager to the Fund referenced herein. HFS, a US registered investment adviser, is part of Goldman Sachs Asset Management and is a wholly owned subsidiary of The Goldman Sachs Group, Inc.

There may be conflicts of interest relating to the Fund and its service providers, including Goldman Sachs and its affiliates, who are engaged in businesses and have interests other than that of managing, distributing and otherwise providing services to the Fund. These activities and interests include potential multiple advisory, transactional and financial and other interests in securities and instruments that may be purchased or sold by the Fund, or in other investment vehicles that may purchase or sell such securities and instruments. These are considerations of which investors in the Fund should be aware. Additional information relating to these conflicts is set forth in the latest prospectus for the Fund.

This document has been communicated outside of the United States by Goldman Sachs International, Peterborough Court, 133 Fleet Street, London, EC4A 2BB, authorised and regulated by the Financial Services Authority. 

This report may also be communicated in the United Kingdom by Goldman Sachs Asset Management International which is authorised and regulated by the Financial Services Authority (FSA).

Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant.

Investors should consider that the returns that they will receive will be a function of the share price of the Fund. While we would expect that the Fund would trade substantially in line with its underlying NAV, investors should consider that the traded status of the Fund could lead it to have a significantly higher volatility and correlation to equities.

Investors should consider that the liquidity of their investment will be a function of the market demand for the shares of the Fund. There is the potential for the Fund to trade at a discount to NAV and lack of market demand may lead to their being a less liquid market.

Copyright © 2009 Goldman, Sachs & Co. All Rights Reserved. 

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