<PAGE> 1
The information in this preliminary prospectus is not complete and may be
changed.
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-75321
Subject to Completion. Dated November 29, 1999.
Prospectus Supplement No. to the Prospectus dated May 18, 1999.
$
THE GOLDMAN SACHS GROUP, INC.
Medium-Term Notes, Series B
[GOLDMAN SACHS LOGO] -------------------------
Callable Index-Linked Notes due 2005
(Linked to the GSTI(TM) Internet Index and the GSTI(TM) Multimedia Networking
Index)
-------------------------
Each note being offered has the terms described beginning on page S-12,
including the following:
SUMMARY OF TERMS
ISSUER: The Goldman Sachs Group, Inc.
UNDERLYING INDEX: the GSTI(TM) Internet Index, also referred to as the "GIN
Index", and the GSTI(TM) Multimedia Networking Index, also referred to as the
"GIP Index", each as published and calculated by the Chicago Board Options
Exchange; the two indexes will be combined based on an equal weighting between
them on the trade date, as described on page S-12
FACE AMOUNT: as specified in the note; $ in the aggregate for all the
offered notes
ORIGINAL ISSUE PRICE: 99.50% of the face amount
TRADE DATE: , 1999
ORIGINAL ISSUE DATE (SETTLEMENT DATE): December , 1999
STATED MATURITY DATE: June , 2005 unless extended for up to six business days
INTEREST RATE (COUPON): 0%; the note will not bear interest prior to maturity
PRINCIPAL AMOUNT: unless Goldman Sachs exercises the call right, on the stated
maturity date Goldman Sachs will pay the Holder of the note cash equal to 100%
of the outstanding face amount of the note plus the additional amount, if any.
The additional amount will be payable only if the final Underlying Index level
exceeds the reference Underlying Index level and will be calculated as follows:
outstanding face amount
x
(final Underlying Index level - reference Underlying Index level)
------------------------------------------------------
reference Underlying Index level
ISSUER CALL: Goldman Sachs may redeem the offered notes in whole, but not in
part, at the times and prices, expressed as a percentage of the face amount, set
forth below:
- on the first business day following the anniversary of the original issue
date in each of the following years:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2002 175%
2003 200%
2004 225%
</TABLE>
REFERENCE UNDERLYING INDEX LEVEL: 100, determined as described on page S-13
FINAL UNDERLYING INDEX LEVEL: the level of the Underlying Index on the
determination date, calculated as described on page S-13 and subject to
adjustment
LISTING: the offered notes will not be listed on any securities exchange or
quotation system
NET PROCEEDS TO THE GOLDMAN SACHS GROUP, INC.: % of the face amount
CALCULATION AGENT: Goldman, Sachs & Co.
See "Additional Risk Factors Specific to Your Note" beginning on page S-2 to
read about investment risks relating to the note being purchased.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
Goldman Sachs may use this prospectus supplement in the initial sale of the
offered notes. In addition, Goldman, Sachs & Co. or any other affiliate of
Goldman Sachs may use this prospectus supplement in a market-making transaction
in an offered note after its initial sale. UNLESS GOLDMAN SACHS OR ITS AGENT
INFORMS THE PURCHASER OTHERWISE IN THE CONFIRMATION OF SALE, THIS PROSPECTUS
SUPPLEMENT IS BEING USED IN A MARKET-MAKING TRANSACTION.
GOLDMAN, SACHS & CO.
-------------------------
Prospectus Supplement dated , 1999.
<PAGE> 2
ADDITIONAL RISK FACTORS SPECIFIC TO YOUR NOTE
An investment in your note is subject to risks described in the attached
prospectus under "Risk Factors", including those relating to indexed notes, and
to the risks described below. Your note is a riskier investment than ordinary
debt securities. Also, your note is not equivalent to investing directly in the
Underlying Index stocks -- i.e., the stocks comprising the GIN Index and GIP
Index to which your note is linked. You should carefully consider whether the
offered notes are suited to your particular circumstances.
YOUR NOTE DOES NOT BEAR
PERIODIC INTEREST
You will not receive any periodic interest payments on your note. Even if
the final Underlying Index level exceeds the reference Underlying Index level,
the over-all return you earn on your note may be less than you would have earned
by investing in a debt security that bears interest at a prevailing market rate.
Moreover, under applicable United States tax law as described further below, you
will have to pay tax on deemed interest amounts even though your note does not
bear periodic interest.
THE MARKET VALUE OF YOUR NOTE MAY BE
INFLUENCED BY MANY FACTORS THAT ARE
UNPREDICTABLE AND INTERRELATED IN
COMPLEX WAYS
When we refer to the market value of your note, we mean the value that you
could receive for your note if you chose to sell it in the open market before
the stated maturity date. The market value of your note will be affected by many
factors that are beyond our control and are unpredictable. Moreover, these
factors interrelate in complex ways, and the effect of one factor on the market
value of your note may offset or enhance the effect of another factor. For
example, an increase in U.S. interest rates, which could have a negative effect
on the market value of your note, may offset any positive effect that an
increase in the level of the Underlying Index attributable to favorable economic
developments could have. The following paragraphs describe the expected impact
on the market value of your note given a change in a specific factor, assuming
all other conditions remain constant. In addition, see "-- The Market Value of
Your Note May Be Influenced By Factors Specifically Related to Internet Stocks"
and "-- The Market Value of Your Note May Be Influenced By Factors Specifically
Related to Non-Internet Technology Stocks" below.
The Underlying Index Level Will Affect the Market Value of Your Note
As further described under "the Underlying Index" below, the Underlying
Index is the GIN Index and the GIP Index, combined based on an equal weighting
between them on the trade date of your note, as determined by the calculation
agent in the manner described below under "Specific Terms of Your Note -- GIN
Index, GIP Index and Underlying Index". Thus, the level of the Underlying Index
at any time will reflect the levels of both the GIN Index and the GIP Index at
that time. Changes in the level of the GIN Index may not be matched or may be
offset by changes in the GIP Index and vice versa. Consequently, changes in
either the GIN Index or the GIP Index, taken alone, may not result in an
identical change in the Underlying Index.
We expect that the market value of your note at any particular time will
depend substantially on the amount, if any, by which the level of the Underlying
Index at that time has risen above or has fallen below the reference Underlying
Index level. Even if you sell your note at a time when the Underlying Index
level exceeds the reference Underlying Index level, you may receive
substantially less than the amount that would be payable on the stated maturity
date based on a final Underlying Index level equal to that current level. If you
sell your note at a time when the level of the Underlying Index is below, or not
sufficiently above, the reference Underlying
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Index level, you may receive less than the face amount of your note. Fluctuating
U.S. dividend rates may affect the market value of your note because they may
affect the market value of the stocks underlying the GIN Index and the GIP Index
and, thus, the level of the Underlying Index. Political, economic and other
developments that affect the stocks underlying the GIN Index and the GIP Index
may also affect the level of the Underlying Index and, indirectly, the market
value of your note.
As indicated under "The Underlying Index -- Historical Closing Levels of
the GIN Index and the GIP Index", the levels of the GIN Index and the GIP Index
have been highly volatile at times in the past. It is impossible to predict
whether the GIN Index or the GIP Index and, hence, the Underlying Index will
rise or fall.
Changes in Interest Rates are Likely to Affect the Market Value of Your Note
Because we will pay, at a minimum, 100% of the outstanding face amount of
your note on the stated maturity date, we expect that the market value of your
note, like that of a traditional debt security, will be affected by changes in
interest rates, although these changes may affect your note and a traditional
debt security in different degrees. In general, if U.S. interest rates increase,
we expect that the market value of your note will decrease and, conversely, if
U.S. interest rates decrease, we expect that the market value of your note will
increase.
Changes in the Volatility of the GIN Index and the GIP Index and Changes in the
Correlation Between the GIN Index and the GIP Index are Likely to Affect the
Market Value of Your Note
The volatility of the Underlying Index refers to the size and frequency of
the changes in the level of Underlying Index. Thus, the volatility of the
Underlying Index reflects the volatility in the GIN Index and the GIP Index,
taken together, and the correlation between the GIN Index and the GIP Index. In
general, if the volatility of the Underlying Index increases, we expect that the
market value of your note will decrease and, conversely, if the volatility of
the Underlying Index decreases, we expect that the market value of your note
will increase. A change in the volatility of the GIP Index may not be matched or
may be offset by a change in the volatility of the GIN Index and vice versa and,
therefore, may not result in an identical change in the volatility of the
Underlying Index.
The Time Remaining to Maturity Is Likely to Affect the Market Value of Your Note
Prior to the stated maturity date, the market value of your note may be
higher than one would expect if that value were based solely on the level of the
Underlying Index and the level of interest rates. This difference would reflect
a "time premium" due to expectations concerning the levels of the GIN Index and
the GIP Index and interest rates during the time remaining to the stated
maturity date. However, as the time remaining to the stated maturity date
decreases, we expect that this time premium will decrease, lowering the market
value of your note.
Changes in Our Credit Ratings May Affect the Market Value of Your Note
Our credit ratings are an assessment of our ability to pay our
obligations, including those on the offered notes. Consequently, actual or
anticipated changes in our credit ratings may affect the market value of your
note. However, because your return on your note is dependent upon factors, such
as the levels of the GIN Index and the GIP Index and interest rates, in addition
to our ability to pay our obligation on your note, an improvement in our credit
ratings will not reduce the other investment risks related to your note.
IF THE LEVEL OF THE UNDERLYING INDEX CHANGES, THE MARKET VALUE OF YOUR NOTE MAY
NOT CHANGE IN THE SAME MANNER
The market value of your note may not have a one-to-one relationship with
the level of the Underlying Index. Changes in the level of the Underlying Index
may not result in a comparable change in the market value of your note. We
discuss some of the reasons for this disparity under "-- The Market Value
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of Your Note May Be Influenced by Many Factors That Are Unpredictable and
Interrelated in Complex Ways" above.
YOUR NOTE MAY NOT HAVE
AN ACTIVE TRADING MARKET
Your note will not be listed on any securities exchange or quotation
system. Thus, there may be no secondary market for your note. Even if a
secondary market for your note develops, it may not provide significant
liquidity and we expect that transaction costs in any secondary market would be
high. As a result, the difference between bid and asked prices for your note in
any secondary market could be substantial.
YOUR RETURN ON YOUR NOTE WILL NOT REFLECT THE RETURN ON THE UNDERLYING INDEX
STOCKS
The Underlying Index calculator calculates the levels of the GIN Index and
the GIP Index by reference to the prices of the common stocks included in the
GIN Index and the GIP Index, respectively, without taking account of the value
of any dividends that may be paid on those stocks. As a result, the return on
your note will not reflect the return you would realize if you actually owned
the stocks included in the GIN Index or the GIP Index and received any dividends
paid on those stocks.
YOU HAVE NO SHAREHOLDER RIGHTS
Investing in your note will not make you a holder of any of the Underlying
Index stocks. Neither you nor any other holder or owner of your note will have
any voting rights, any right to receive dividends or other distributions or any
other rights with respect to the Underlying Index stocks. On any redemption date
or on the stated maturity date, your note will be paid in cash, and you will
have no right to receive delivery of any Underlying Index stocks.
WE CAN REDEEM YOUR NOTE AT OUR OPTION
At various times after the third anniversary of the original issue date,
we will be entitled to redeem your note at our option as further described under
"Specific Terms of Your Note -- Our Call Right" below. Because the redemption
price will be determined by reference to a pre-established schedule, rather than
with regard to the level of the Underlying Index when the redemption occurs, the
amount we will pay if we redeem your note may be substantially less than the
principal amount we would pay on the stated maturity date based on a final
Underlying Index level equal to the level of the Underlying Index at the time of
redemption. The redemption price will not take into account any increase in the
level of the Underlying Index above the reference Underlying Index level that
may have occurred prior to redemption or that may occur after redemption and
prior to the stated maturity date. We would expect to exercise our call right if
the Underlying Index has increased to a level at which the expected market value
of your note, if it were not subject to redemption, would be greater than the
redemption price that we would have to pay on the relevant redemption date. Even
if we do not exercise our option to redeem your note, our ability to do so may
adversely affect the market value of your note.
WE CAN POSTPONE THE STATED MATURITY DATE IF A MARKET DISRUPTION EVENT OCCURS
If the calculation agent determines that, on the determination date, a
market disruption event has occurred or is continuing, the determination date
will be postponed until the first business day on which no market disruption
event occurs or is continuing. See "Specific Terms of Your Note -- Stated
Maturity Date". As a result, the stated maturity date for your note will also be
postponed, although not by more than five business days. Thus, you may not
receive the payment that we are obligated to make on the stated maturity date
until after the originally scheduled due date.
If the determination date is postponed to the latest possible day and the
closing levels of either the GIN Index or the GIP Index or both -- and, thus,
the closing level of the Underlying Index -- are not available on that day
because of a market disruption event or for any other reason, the calculation
agent will nevertheless determine the closing level of the Underlying Index
based on its
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assessment, made in its sole discretion, of the market values of the Underlying
Index stocks at that time.
AS UNDERLYING INDEX SPONSOR AND CALCULATION AGENT, GOLDMAN, SACHS & CO.
WILL HAVE THE AUTHORITY TO MAKE
DETERMINATIONS THAT COULD MATERIALLY
AFFECT YOUR NOTE IN VARIOUS WAYS AND
CREATE CONFLICTS OF INTEREST
As further described under "The Underlying Index" below, each of the GIN
Index and the GIP Index is a sub-index of the GSTI(TM)* Composite Index and was
developed, and is owned, by our affiliate, Goldman, Sachs & Co. We refer to
Goldman, Sachs & Co. in that capacity as the "Underlying Index sponsor".
Goldman, Sachs & Co. is also the underwriter of, and market-maker for, the
offered notes. The GIN Index and the GIP Index have been licensed for certain
purposes to us and the CBOE. Goldman, Sachs & Co. is responsible for advising
the CBOE as the CBOE composes, calculates and maintains the GIN Index and the
GIP Index. Goldman, Sachs & Co. has considerable influence over the composition,
calculation and maintenance of the GIN Index and the GIP Index. For example, the
GSTI(TM) Committee of Goldman, Sachs & Co., which we further describe under "The
Underlying Index" below, selects the stocks to be included, added or deleted
from each of the GIN Index and the GIP Index, subject to the fulfillment of the
criteria for inclusion, addition or deletion of common stocks in the GSTI(TM)
Composite Index. Also, in some circumstances, Goldman, Sachs & Co. can modify
these eligibility criteria. Goldman, Sachs & Co. will also calculate the level
of the Underlying Index, based on the levels of the GIN Index and the GIP Index.
The judgments that Goldman, Sachs & Co., as Underlying Index sponsor, could make
in connection with the composition, calculation and maintenance of the GIN Index
and the GIP Index could affect the value of those indexes and, thus, the value
of the Underlying Index and the value of your note. See "The Underlying Index"
for additional details on the role of Goldman, Sachs & Co. as the Underlying
Index sponsor.
Also, as calculation agent for your note, Goldman, Sachs & Co. will have
discretion in making various determinations that affect your note. As described
in "Specific Terms of Your Note -- Discontinuance or Modification of the
Underlying Index", these may include making adjustments to the GIN Index, the
GIP Index or the Underlying Index and determining the final Underlying Index
level, which we will use to calculate the amount we must pay on the stated
maturity date. These may also include determining whether to postpone the stated
maturity date because of a market disruption event.
The role played by Goldman, Sachs & Co., as Underlying Index sponsor and
calculation agent, and the exercise by it of the kinds of discretion described
above could adversely affect the value of your note and may present Goldman,
Sachs & Co. with a conflict of interest of the kind described below under
"-- Our Business Activities May Create Conflicts of Interest Between You and
Us".
TRADING AND OTHER TRANSACTIONS BY
GOLDMAN SACHS IN SECURITIES LINKED TO
THE UNDERLYING INDEX STOCKS MAY IMPAIR
THE MARKET VALUE OF YOUR NOTE
As we describe under "Use of Proceeds and Hedging" below, we, through
Goldman, Sachs & Co. or one or more of our other affiliates, may hedge our
obligations under the offered notes by purchasing some or all of the Underlying
Index stocks, options or futures on the GIN Index, the GIP Index or the
Underlying Index stocks or other instruments linked to the GIN Index, the GIP
Index or the Underlying Index stocks and may adjust the hedge by, among other
things, purchasing or selling any of the foregoing at any time and from time to
time. Any of these hedging activities may adversely affect the Underlying Index
level -- directly or indirectly by affecting the price of the Underlying Index
stocks -- and, therefore, the value of your
- ---------------
* GSTI(TM) is a trademark of Goldman, Sachs & Co. and used with its permission.
S-5
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note. It is possible that we, through our affiliates, could receive substantial
returns with respect to our hedging activities while the value of your note may
decline. See "Use of Proceeds and Hedging" for a further discussion of
securities transactions in which we or one or more of our affiliates may engage.
Goldman, Sachs & Co. and our other affiliates may also engage in trading
in one or more of the Underlying Index stocks or instruments linked to the GIN
Index, the GIP Index or the Underlying Index stocks, for their proprietary
accounts, for other accounts under their management or to facilitate
transactions, including block transactions, on behalf of customers. Any of these
activities of Goldman, Sachs & Co. or our other affiliates could adversely
affect the Underlying Index level -- directly or indirectly by affecting the
price of the Underlying Index stocks -- and, therefore, the value of your note.
We and our affiliates have issued and underwritten in the past -- and may issue
and underwrite in the future -- securities or financial or derivative
instruments with returns linked to changes in the level of the GIN Index, the
GIP Index or the Underlying Index or one or more of the Underlying Index stocks.
By introducing competing products into the marketplace in this manner, we or our
affiliates could adversely affect the value of your note.
The indenture governing your note does not contain any restriction on our
ability or the ability of any of our affiliates to purchase or sell all or any
portion of the Underlying Index stocks or instruments linked to those stocks.
THE MARKET VALUE OF YOUR NOTE MAY BE
INFLUENCED BY FACTORS SPECIFICALLY
RELATED TO INTERNET STOCKS
General economic conditions and earnings results of the companies whose
common stocks comprise the GIN Index and real or anticipated changes in those
conditions or results may affect the market value of your note. All of the GIN
Index stocks (and some of the GIP Index stocks) are in the Internet-related
sector of the technology industry. There are a number of different views
regarding the valuation of stocks in the Internet sector and the future
performance of these stocks. Some of these views suggest that these stocks are
currently overvalued. The following paragraphs describe a number of the risks
related to the Internet sector.
Limited Operating History
Internet companies in general have relatively short operating histories.
They are subject to the risks, expenses and difficulties frequently encountered
by early-stage companies in new and rapidly evolving markets, such as evolving
and unpredictable business models, intense competition, management of growth and
rapid changes in customer demands and industry standards. The failure of an
Internet company to address these challenges could have a material adverse
effect on its business, results of operations, financial condition and
prospects.
Potential Fluctuations in Future Results
Due to the limited operating history of Internet companies and the
unpredictability of the industry, Internet companies generally have neither
internal nor industry-based historical financial data for any significant period
of time upon which to project revenues or base planned operating expenses. The
results of operations of a particular Internet company may fluctuate
significantly in the future due to a variety of factors, many of which relate to
the Internet industry as a whole and are outside the control of any individual
Internet company, such as the rate of growth, usage and acceptance of the
Internet as information media, the rate of acceptance of the Internet as an
advertising medium and a channel of commerce and specific economic conditions in
the Internet markets.
Volatility of Internet Stocks
The market prices of stocks of Internet companies have historically been
volatile for a variety of reasons, including the factors discussed above. In
addition, the trading volumes of some Internet stocks have been limited due to a
relatively small number of freely tradeable shares compared to other
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companies, which may result in greater volatility. Although over time more
shares of these companies should become freely tradeable, there is no assurance
that their owners will sell those shares. If an owner or owners were to sell a
significant number of shares, those sales could depress the market price of that
stock.
Intense Competition
The market for the Internet products and services is highly competitive,
and we expect this competition to continue to intensify. Increased competition
could result in price reductions, reduced margins or loss of market share. We
can give no assurance that a particular Internet company will be able to compete
successfully against its competitors or that the increased competition will not
have a material adverse effect on its business, results of operations, financial
condition and prospects.
Risk of System Failure
The ability of Internet companies to provide timely and continuous online
products and services and to manage advertising depends on the efficient and
uninterrupted operation of their computer and communications hardware and
software systems. These systems and operations are vulnerable to damage or
interruption from human error, natural disasters, power loss, telecommunication
failures, break-ins, sabotage, computer viruses, intentional acts of vandalism
and similar events. The occurrence of any such event that interrupts or delays
the operations of an Internet company would have a material adverse effect on
the business, results of operations, financial condition and prospects of that
company.
Risks of Year 2000 Non-Compliance
Many currently installed computer systems and software products are coded
to accept only two-digit entries to identify a year in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish between 20th century
dates and 21st century dates. Accordingly, all Internet companies must upgrade
their computer systems and software products to comply with applicable "Year
2000" requirements. The failure of an Internet company, or any of its viewers,
customers, linked sites, advertisers, suppliers or other companies on which it
relies, to be Year 2000 compliant could materially affect its business, results
of operations, financial condition and prospects. We have not conducted any
investigations as to whether any of the companies in the GIN Index or the GIP
Index are or will be Year 2000 compliant.
Dependence on Continued Growth in Use of the Internet
Future growth in the revenues of Internet companies will depend on the
widespread acceptance and use of the Internet as a source of information and
entertainment and as a vehicle for commerce in goods and services. Rapid growth
in the use of the Internet is a recent phenomenon, and we can give no assurance
that such use will continue to develop or that a sufficient base of users will
emerge to support the combined companies' businesses. Moreover, critical issues
concerning the commercial use of the Internet (including security, reliability,
cost, ease of use and access, quality of service and acceptance of advertising)
remain unresolved and may negatively affect growth in the use of the Internet.
Internet usage may be inhibited for a number of reasons, such as inadequate
development of the necessary network infrastructure, failure to develop
necessary technologies in a timely manner, security concerns and government
regulations. In addition, corporations and other networks providing access to
the Internet may restrict access to certain sites or hours of usage, which could
limit access to and reduce traffic on web sites. If the use of the Internet does
not continue to grow or grows at a slower rate than expected, the business,
financial condition, operating results and prospects of Internet companies would
be materially adversely affected.
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Unproven Acceptance of Internet Advertising
Standards to measure the effectiveness of web advertising have yet to be
widely developed. If standards do not develop, existing advertisers may not
continue or increase their levels of web advertising. Furthermore, advertisers
that have traditionally relied upon other advertising media may be reluctant to
advertise on the web. The business, results of operations, financial condition
and prospects of Internet companies could be materially adversely affected if
the market for web advertising declines or develops more slowly than expected.
In addition, "filter" software programs that limit or prevent advertising from
being delivered to a web user's computer are available. Widespread adoption of
this software could materially adversely affect the commercial viability of web
advertising, which could materially adversely affect the advertising revenues of
Internet companies.
Government Regulation and Legal
Uncertainties Relating to the Internet
Existing domestic and international laws and regulations specifically
regulate communications and commerce on the web. Furthermore, laws and
regulations that address issues such as user privacy, pricing, online content
regulation, taxation and the characteristics and quality of online products and
services are under consideration by federal, state, local and foreign
governments and agencies. In addition, several telecommunications companies have
petitioned the U.S. Federal Communications Commission to regulate Internet
service providers and online services providers in a manner similar to the
regulation of long distance telephone carriers and to impose access fees on such
companies. This regulation, if imposed, could increase the cost of transmitting
data over the web. Moreover, it may take years to determine the extent to which
existing laws relating to issues such as intellectual property ownership and
infringement, libel, obscenity and personal privacy are applicable to the web.
New laws or regulations relating to the web, or certain application or
interpretation of existing laws, may impede the growth in the use of the web or
otherwise materially adversely affect the business of Internet companies.
Concerns About Web Security
Concern about the transmission of confidential information over the
Internet has been a barrier to electronic commerce and communications over the
web. Any well-publicized compromise of security could deter more people from
using the web or from using it to conduct transactions that involve the
transmission of confidential information, such as signing up for a paid
subscription, executing stock trades or purchasing goods or services. Because
many of the Internet advertisers seek to advertise on the web to encourage
people to use the web to purchase goods or services, the business, results of
operations and financial condition of Internet companies could be materially
adversely affected if the Internet users significantly reduce their use of the
web because of security concerns. In addition, Internet companies may incur
significant costs to protect themselves against the threat of security breaches
or to alleviate problems caused by these breaches.
Management of Growth
Like other early-stage companies, Internet companies in general have
experienced rapid growth in their operations. This rapid growth has placed, and
the anticipated future growth will continue to place, a significant strain on
the managerial, operational and financial resources of Internet companies. To
manage the growth, Internet companies will need to continue to implement and
improve their operational, financial and management information systems and to
hire, train, motivate and manage their employees. The failure of an Internet
company to successfully manage any of these issues would have a material adverse
effect on its business, results of operations, financial condition and
prospects.
Intellectual Property and Proprietary Rights
The success of an Internet company depends significantly upon its
proprietary
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technology. Internet companies generally rely on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
agreements to protect their proprietary rights. The protective steps taken by a
particular Internet company may be inadequate to deter misappropriation of its
proprietary information, which may result in harm to its brand, devaluation of
its proprietary content and decrease in its competitiveness. Furthermore, the
defense of a company's intellectual property rights could require the
expenditure of significant financial and managerial resources. In addition, an
Internet company may become subject to infringement claims brought by other
companies. Any such infringement claim, even if not meritorious, could result in
the expenditure of significant financial and managerial resources on the part of
such Internet company, which could materially adversely affect its business,
results of operations and financial condition.
Technological Change and New Products
and Services
The market for Internet products and services is characterized by rapid
technological change, changing customer needs, frequent new product
introductions and evolving industry standards. A particular Internet company's
future success will depend on its ability to continually and timely introduce
new products, services and technologies or improve the performance, features and
reliability of its existing products and services in response to both evolving
demands of the marketplace and competitive product offerings. If an Internet
company fails to develop new or improved products, services or technologies in a
timely manner in response to changing market conditions or customer
requirements, its business, results of operations, financial condition and
prospects could be materially adversely affected.
THE MARKET VALUE OF YOUR NOTE MAY BE INFLUENCED BY FACTORS SPECIFICALLY RELATED
TO NON-INTERNET TECHNOLOGY STOCKS
General economic conditions and earnings results of the companies whose
common stocks comprise the GIP Index and real or anticipated changes in those
conditions or results may affect the market value of your note. The technology
sector in which the GIP Index stock issuers operate is, among other things,
highly competitive in nature, subject to rapid technological change and evolving
industry standards with respect to its products and services, and often requires
the introduction on an ongoing basis of new products and enhancements (many of
which require proper protection of intellectual property rights). If any of the
constituent companies of the GIP Index are adversely affected by one or more of
these factors, it could have a negative impact on the level of the GIP Index
and, consequently, the value of your note. Also, many of the risks relating to
Internet technology stocks, described earlier, may also apply to the GIP Index
stocks.
OUR BUSINESS ACTIVITIES MAY CREATE
CONFLICTS OF INTEREST BETWEEN YOU AND US
As we have noted above, Goldman, Sachs & Co. and our other affiliates
expect to engage in trading activities related to the GIN Index, the GIP Index
and the Underlying Index stocks that are not for your account or on your behalf.
These trading activities may present a conflict between your interest in the
note and the interests Goldman, Sachs & Co. and our other affiliates will have
in their proprietary accounts, in facilitating transactions, including block
trades, for their customers and in accounts under their management. These
trading activities, if they influence the prices of the Underlying Index stocks,
could be adverse to your interests as a beneficial owner of your note.
Goldman, Sachs & Co. and our other affiliates may, at present or in the
future, engage in business with the issuers of the GIN Index or GIP Index
stocks, including making loans to or equity investments in those companies or
providing advisory services to those companies. These services could include
merger and acquisition advisory services. These activities may present a
conflict between the obligations of Goldman, Sachs & Co. or another affiliate of
Goldman Sachs and your interests as a beneficial owner of a note. Moreover, one
or more of
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our affiliates have published and in the future expect to publish research
reports with respect to some or all of the issuers of the Underlying Index
stocks. Any of these activities by any of our affiliates may affect the price of
the Underlying Index stocks and, therefore, the value of your note.
THE POLICIES OF THE UNDERLYING INDEX CALCULATOR AND CHANGES THAT AFFECT THE GIN
INDEX, THE GIP INDEX OR THE UNDERLYING INDEX STOCKS COULD AFFECT THE AMOUNT
PAYABLE ON YOUR NOTE AND ITS MARKET VALUE
As we more fully describe under "The Underlying Index" below, the Chicago
Board Options Exchange, or the CBOE, which we also refer to in this prospectus
supplement as the "Underlying Index calculator", in consultation with our
affiliate, Goldman, Sachs & Co., is responsible for calculating and maintaining
the GIN Index and the GIP Index. The policies of the Underlying Index calculator
concerning the calculation of the GIN Index level and the GIP Index level,
additions, deletions or substitutions of stocks included in the GSTI(TM)
Composite Index, the GIN Index or the GIP Index and the manner in which changes
affecting those stocks or their issuers, such as reorganizations or mergers, are
reflected in the GIN Index and the GIP Index and could, therefore, affect the
levels of the GIN Index and the GIP Index, and, thus, the level of the
Underlying Index. These factors could, therefore, affect the amount payable on
your note on the stated maturity date and the market value of your note prior to
that date. In applying these policies, the Underlying Index calculator may act
by itself or in conjunction with Goldman, Sachs & Co., as the Underlying Index
sponsor.
The amount payable on your note and its market value could also be
affected if the Underlying Index calculator (whether acting independently or in
conjunction with the Underlying Index sponsor) changes these policies, for
example by changing the manner in which it calculates the GIN Index level or the
GIP Index level, or if the Underlying Index calculator discontinues or suspends
calculation or publication of the GIN Index level or the GIP Index level, in
which case it may become difficult to determine the market value of your note.
If events such as these occur, or if the GIN Index level or the GIP Index level
is not available on the determination date because of a market disruption event
or for any other reason, the calculation agent -- which initially will be
Goldman, Sachs & Co., our affiliate -- may determine the final Underlying Index
level -- and thus the amount payable on the stated maturity date -- in a manner
it considers appropriate, in its sole discretion. We describe the discretion
that the calculation agent will have in determining the final Underlying Index
level and the amount payable on your note more fully under "Specific Terms of
Your Note -- Discontinuance or Modification of the Underlying Index" and
"-- Role of Calculation Agent". In addition, Goldman, Sachs & Co. may replace
CBOE as the calculator of any of the GSTI(TM) Indexes, including the GIN Index
and the GIP Index.
THERE IS NO AFFILIATION BETWEEN THE UNDERLYING INDEX STOCK ISSUERS AND US,
AND WE ARE NOT RESPONSIBLE FOR ANY
DISCLOSURE BY THOSE ISSUERS
Goldman Sachs is not affiliated with the issuers of the Underlying Index
stocks or the Underlying Index calculator. As we have told you above, however,
Goldman, Sachs & Co. is the Underlying Index sponsor and we or our affiliates
may currently or from time to time in the future engage in business with the
issuers of the Underlying Index stocks. Nevertheless, neither we nor any of our
affiliates (including the Underlying Index sponsor) assumes any responsibility
for the adequacy or accuracy of any publicly available information about the
issuers of the Underlying Index stocks.
Neither the Underlying Index calculator nor any of the Underlying Index
stock issuers is involved in this offering of your note in any way, and none of
those entities has any obligation of any sort with respect to your note. Thus,
neither the Underlying Index calculator nor any of the Underlying Index stock
issuers has -- and Goldman, Sachs & Co., as Underlying Index sponsor, does not
have -- any obligation to take your interests, or those of anyone else having an
interest in
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your note, into consideration for any reason, including in determining,
composing or calculating the GIN Index, the GIP Index or the Underlying Index or
in taking any corporate actions that might affect the value of your note, as
applicable.
YOU WILL HAVE TO PAY TAX ON DEEMED INTEREST AMOUNTS, EVEN THOUGH YOUR NOTE DOES
NOT BEAR PERIODIC INTEREST, AND
ANY GAIN YOU RECOGNIZE WHEN YOUR NOTE
IS SOLD, REDEEMED OR MATURES WILL BE
TAXED AS ORDINARY INCOME
Because we intend to treat your note as a single debt instrument subject
to special rules governing contingent payment obligations for United States
federal income tax purposes, if you are a United States holder, you will be
required to accrue interest on your note even though your note does not bear
periodic interest. We will calculate a comparable yield and projected payment
schedule, which you will be required to use in determining the amount of
interest to be included in income each year unless you timely disclose and
justify on your federal income tax return the use of a different comparable
yield and projected payment schedule. This comparable yield and projected
payment schedule will not be provided to you for any other purpose than the
determination of your interest accruals with respect to your note.
If the amount actually paid at maturity is less than the assumed amount
payable at maturity, you will have recognized taxable income in periods prior to
maturity that exceeds your economic income from holding the note during those
periods (with an offsetting ordinary loss when your note matures to the extent
of the interest previously accrued and capital loss for any loss thereafter).
Moreover, if you otherwise sell or dispose of your note prior to maturity, you
will be required to treat any gain recognized upon the disposition of your note
as ordinary income instead of capital gain. See "Supplemental Discussion of
Federal Income Tax Consequences" for a more detailed description of the United
States federal income tax consequences of purchasing, owning and disposing of
your note.
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SPECIFIC TERMS OF YOUR NOTE
Please note that in this section entitled "Specific Terms of Your Note",
references to "The Goldman Sachs Group, Inc.", "we", "our" and "us" mean only
The Goldman Sachs Group, Inc. and do not include its consolidated subsidiaries,
while references to "Goldman Sachs" mean The Goldman Sachs Group, Inc. together
with its consolidated subsidiaries. Also, references to "Holders" mean those who
own notes registered in their own names, on the books that we or the trustee
maintains for this purpose, and not indirect holders who own beneficial
interests in notes registered in street name or in notes issued in book-entry
form through The Depository Trust Company. Please review the special
considerations that apply to indirect holders in the attached prospectus, under
"Description of Notes We May Offer -- Legal Ownership of Notes".
We refer to the notes offered in this prospectus supplement, including
your note, as the offered notes. The offered notes are part of a series of debt
securities, entitled "Medium-Term Notes, Series B", that we may issue under the
indenture from time to time. This prospectus supplement summarizes specific
financial and other terms that apply to the offered notes, including your note;
terms that apply generally to all Series B medium-term notes are described in
"Description of Notes We May Offer" in the attached prospectus. The terms
described here supplement those described in the attached prospectus and, if the
terms described here are inconsistent with those described there, the terms
described here are controlling.
In addition to those described on the front cover page, the following
terms will apply to your note:
SPECIFIED CURRENCY: U.S. dollars
FORM OF NOTE:
- - global form only: yes, at DTC
- - non-global form available: no
DENOMINATIONS: any note registered in the name of a Holder must have a face
amount of $10,000 or a multiple of $1,000 in excess of $10,000
DEFEASANCE APPLIES AS FOLLOWS:
- - full defeasance: no
- - covenant defeasance: no
OTHER TERMS:
- - the default amount will be payable on any acceleration of the maturity of your
note as described below under "-- Special Calculation Provisions"
- - a business day for your note will not be the same as a business day for our
other Series B medium-term notes, as described below under "-- Special
Calculation Provisions"
Please note that the information about the original issue date, original
issue price and net proceeds to The Goldman Sachs Group, Inc. on the front cover
page relates only to the initial sale of the notes. If you have purchased your
note in a market-making transaction after the initial sale, information about
the price and date of sale to you will be provided in a separate confirmation of
sale.
We describe the terms of your note in more detail below.
GIN INDEX, GIP INDEX AND UNDERLYING INDEX
In this prospectus supplement, when we refer to the GIN Index or the GIP
Index, we mean the GIN Index or the GIP Index, as applicable, specified on the
front cover, or any successor index to each such index, as they may be modified,
replaced or adjusted from time to time as described below under
"-- Discontinuance or Modification of the Underlying Index". When we refer to
the Underlying Index as of any time, we mean the GIN Index and the GIP Index as
then in effect, combined based on the relative weights assigned to them on the
trade date of your note as described below.
On the trade date, the GIN Index and the GIP Index will be combined to
form the Underlying Index by using a fixed weight for each of the GIN Index and
the GIP Index. Those fixed weights will be determined by the calculation agent
on the trade date, based on the levels of the GIN Index and the GIP Index
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on or prior to the trade date, in a manner such that the Underlying Index is an
equal weighted combination of the GIN Index and the GIP Index on the trade date.
The level of the Underlying Index on any date after the trade date can be
determined by using the formula to determine the final Underlying Index level in
the manner described below under "-- Payment of Principal on Stated Maturity
Date -- Final Underlying Index Level", except that references to the
determination date in that formula should be replaced with references to the
relevant date of calculation.
UNDERLYING INDEX SPONSOR, UNDERLYING INDEX CALCULATOR AND GIN, GIP AND
UNDERLYING INDEX STOCKS
When we refer to the Underlying Index sponsor as of any time, we mean the
entity or entities, including any successors, that sponsor and determine
(whether or not in conjunction with the Underlying Index calculator) the GIN
Index and the GIP Index as then in effect. When we refer to the Underlying Index
calculator as of any time, we mean the entity or entities, including any
successors, that publish, determine, calculate and maintain the GIN Index and
the GIP Index (whether or not in conjunction with the Underlying Index sponsor)
as then in effect. When we refer to the GIN Index stocks, the GIP Index stocks
or the Underlying Index stocks as of any time, we mean the stocks that comprise,
as applicable, the GIN Index, the GIP Index or both the GIN Index and the GIP
Index, in each case as then in effect, after giving effect to any additions,
deletions or substitutions.
PAYMENT OF PRINCIPAL ON STATED MATURITY DATE
On the stated maturity date, we will pay as principal, to the Holder of
your note, cash in an amount equal to:
- - 100% of the outstanding face amount of the note on the stated maturity date
plus the additional amount, if any, described below.
- - The additional amount, which will be payable only if the final Underlying
Index level exceeds the reference Underlying Index level, will be an amount
equal to the outstanding face amount of the note on the stated maturity date
multiplied by a fraction, the numerator of which will be the final Underlying
Index level minus the reference Underlying Index level and the denominator of
which will be the reference Underlying Index level.
Thus, on the stated maturity date, we will not pay more than 100% of the
outstanding face amount of your note unless the final Underlying Index level
exceeds the reference Underlying Index level.
FINAL UNDERLYING INDEX LEVEL
The calculation agent will determine the final Underlying Index level,
which will be the sum of the following amounts:
- - the closing level of the GIN Index on the determination date described below
multiplied by [GIN Index weight as determined on the trade date] and
- - the closing level of the GIP Index on the determination date multiplied by
[GIP Index weight as determined on the trade date].
For the purpose of this calculation the closing levels of the GIN Index and the
GIP Index will be those as are calculated and published by the Underlying Index
calculator. However, the calculation agent will have discretion to adjust the
final Underlying Index level or to determine it in a different manner as
described below under "-- Discontinuance or Modification of the Underlying
Index".
STATED MATURITY DATE
The stated maturity date will be June , 2005, unless that day is not a
business day, in which case the stated maturity date will be the next following
business day. If the fifth business day before this applicable day is not the
determination date described below, however, then the stated maturity date will
be the fifth business day following the determination date, provided that the
stated maturity date will never be later than the fifth business day after June
, 2005 or, if June , 2005 is not a business day, later than the sixth
business day after June , 2005. The calculation agent may postpone the
determination date -- and therefore the stated maturity date -- if a market
disruption event occurs or is continuing on a day that would otherwise be the
determination date. We
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describe market disruption events below under "-- Special Calculation
Provisions".
DETERMINATION DATE
The determination date will be the fifth business day prior to June ,
2005 unless the calculation agent determines that a market disruption event
occurs or is continuing on that fifth prior business day. In that event, the
determination date will be the first following business day on which the
calculation agent determines that a market disruption event does not occur and
is not continuing. In no event, however, will the determination date be later
than June , 2005 or, if June , 2005 is not a business day, later than the
first business day after June , 2005.
OUR CALL RIGHT
We may redeem the offered notes, including your note, in whole but not in
part, on either of the redemption dates set forth below, at our option, for cash
at the following redemption prices, which are expressed as a percentage of the
outstanding face amount redeemed: If redeemed on the first business day
following the anniversary of the original issue date in each of the years
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2002 175%
2003 200%
2004 225%
</TABLE>
If we exercise our call right, we will pay only the applicable redemption
price specified above, regardless of the level of the Underlying Index, when
redemption occurs. Generally, we would expect to exercise our call right if the
Underlying Index has increased to a level at which the expected market value of
your note, if it were not subject to redemption, would be greater than the
redemption price that we would have to pay on the relevant redemption date.
If we choose to exercise our call right, we will notify the Holder of your
note and the trustee not less than 15 nor more than 45 calendar days before the
date we select for redemption, in the manner described in the attached
prospectus. The day we select for redemption will be set forth in the notice of
redemption.
If we give a notice of redemption, then we will redeem all the outstanding
offered notes in full. On the redemption date, we will pay the applicable
redemption price in cash in the manner described under "Manner of Payment"
below.
DISCONTINUANCE OR MODIFICATION
OF THE UNDERLYING INDEX
If the Underlying Index sponsor or the Underlying Index calculator
discontinues publication of the GIN Index or the GIP Index and the Underlying
Index sponsor, the Underlying Index calculator or anyone else publishes one or
more substitute indexes that the calculation agent determines are comparable to
the GIN Index and/or the GIP Index, as applicable, then the calculation agent
will determine the amount payable on the stated maturity date by reference to
the substitute index or indexes. We refer to any substitute index for the GIN
Index approved by the calculation agent as a successor GIN Index. We refer to
any substitute index for the GIP Index approved by the calculation agent as a
successor GIP Index.
If the calculation agent determines that the publication of the GIN Index
or the GIP Index is discontinued and there is no successor GIN Index or
successor GIP Index, or that the level of the GIN Index or the GIP Index is not
available on the determination date because of a market disruption event or for
any other reason, the calculation agent will determine the amount payable on the
stated maturity date by reference to a group of stocks and a computation
methodology that the calculation agent determines will as closely as reasonably
possible replicate the GIN Index and/or the GIP Index, as applicable.
If the calculation agent determines that the GIN Index or the GIP Index,
the stocks comprising the GIN Index or the GIP Index or the method of
calculating the GIN Index or the GIP Index is changed at any time in any
respect -- including any addition, deletion or substitution and any reweighting
or rebalancing of GIN Index or the GIP Index stocks and whether the change is
made by the Underlying Index calculator or the Underlying Index sponsor under
existing policies or following a modification of those
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policies, is due to the publication of a successor GIN Index or a successor GIP
Index, is due to events affecting one or more of the GIN Index or the GIP Index
stocks or their issuers or is due to any other reason -- then the calculation
agent will be permitted (but not required) to make such adjustments in the GIN
Index and the GIP Index or the method of their calculation as it believes are
appropriate to ensure that the final Underlying Index level used to determine
the amount payable on the stated maturity date is equitable.
All determinations and adjustments to be made by the calculation agent
with respect to the GIN Index and the GIP Index and, thus, the Underlying Index
may be made by the calculation agent in its sole discretion.
See "Additional Risk Factors Specific To Your Note -- As Underlying Index
Sponsor and Calculation Agent, Goldman, Sachs & Co. Will Have the Authority to
Make Determinations That Could Materially Affect Your Note in Various Ways and
Create Conflicts of Interest" for a description of how you could be affected as
a result of our affiliation with the Underlying Index sponsor and the
calculation agent.
DEFAULT AMOUNT ON ACCELERATION
If an event of default occurs and the maturity of your note is
accelerated, we will pay the default amount in respect of the principal of your
note at the maturity. We describe the default amount below under "-- Special
Calculation Provisions".
For the purpose of determining whether the Holders of our Series B
medium-term notes, which include the offered notes, are entitled to take any
action under the indenture, we will treat the outstanding face amount of each
offered note as the outstanding principal amount of your note. Although the
terms of the offered notes differ from those of the other Series B medium-term
notes, Holders of specified percentages in principal amount of all Series B
medium-term notes, together in some cases with other series of our debt
securities, will be able to take action affecting all the Series B medium-term
notes, including the offered notes. This action may involve changing some of the
terms that apply to the Series B medium-term notes, accelerating the maturity of
the Series B medium-term notes after a default or waiving some of our
obligations under the indenture. We discuss these matters in the attached
prospectus under "Description of Notes We May Offer -- Default, Remedies and
Waiver of Default" and "-- Modification and Waiver of Covenants".
MANNER OF PAYMENT
Any payment on your note at maturity or on a redemption date will be made
to an account designated by the Holder of your note and approved by us, or at
the office of the trustee in New York City, but only when the note is
surrendered to the trustee at that office. We also may make any payment in
accordance with the applicable procedures of the depositary.
MODIFIED BUSINESS DAY
As described in the attached prospectus, any payment on your note that
would otherwise be due on a day that is not a business day may instead be paid
on the next day that is a business day, with the same effect as if paid on the
original due date. For your note, however, the term business day has a different
meaning than it does for other Series B medium-term notes. We discuss this term
under "-- Special Calculation Provisions" below.
ROLE OF CALCULATION AGENT
The calculation agent in its sole discretion will make all determinations
regarding the Underlying Index, market disruption events, business days, the
final Underlying Index level, the default amount and the amount payable in
respect of your note on any redemption date or on the stated maturity date.
Absent manifest error, all determinations of the calculation agent will be final
and binding on you and us, without any liability on the part of the calculation
agent.
Please note that Goldman, Sachs & Co. is serving as the calculation agent
as of the original issue date of your note. We may change the calculation agent
after the original issue date without notice.
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SPECIAL CALCULATION PROVISIONS
BUSINESS DAY
When we refer to a business day with respect to your note, we mean a day
that is a business day of the kind described in the attached prospectus but that
is not a day on which the New York Stock Exchange, the American Stock Exchange
or NASDAQ National Market System is authorized by law or executive order to
close or on which the GIN Index or the GIP Index is not calculated and published
by the Underlying Index calculator or the Underlying Index sponsor because the
Underlying Index calculator or the Underlying Index sponsor is not open for
business.
DEFAULT AMOUNT
The default amount for your note on any day will be an amount, in the
specified currency for the principal of your note, equal to the cost of having a
qualified financial institution, of the kind and selected as described below,
expressly assume all our payment and other obligations with respect to your note
as of that day and as if no default or acceleration had occurred, or to
undertake other obligations providing substantially equivalent economic value to
you with respect to your note. That cost will equal:
- - the lowest amount that a qualified financial institution would charge to
effect this assumption or undertaking, plus
- - the reasonable expenses, including reasonable attorneys' fees, incurred by the
Holder of your note in preparing any documentation necessary for this
assumption or undertaking.
During the default quotation period for your note, which we describe below, the
Holder and/or we may request a qualified financial institution to provide a
quotation of the amount it would charge to effect this assumption or
undertaking. If either party obtains a quotation, it must notify the other party
in writing of the quotation. The amount referred to in the first bullet point
above will equal the lowest -- or, if there is only one, the only -- quotation
obtained, and as to which notice is so given, during the default quotation
period. With respect to any quotation, however, the party not obtaining the
quotation may object, on reasonable and significant grounds, to the assumption
or undertaking by the qualified financial institution providing the quotation
and notify the other party in writing of those grounds within two business days
after the last day of the default quotation period, in which case that quotation
will be disregarded in determining the default amount.
DEFAULT QUOTATION PERIOD. The default quotation period is the period
beginning on the day the default amount first becomes due and ending on the
third business day after that day, unless:
- - no quotation of the kind referred to above is obtained or
- - every quotation of that kind obtained is objected to within five business days
after the due day as described above.
If either of these two events occurs, the default quotation period will continue
until the third business day after the first business day on which prompt notice
of a quotation is given as described above. If that quotation is objected to as
described above within five business days after that first business day,
however, the default quotation period will continue as described in the prior
sentence and this sentence.
In any event, if the default quotation period and the subsequent two
business day objection period have not ended before the determination date, then
the default amount will equal the principal amount of your note.
QUALIFIED FINANCIAL INSTITUTIONS. For the purpose of determining the
default amount at any time, a qualified financial institution must be a
financial institution organized under the laws of any jurisdiction in the United
States of America, Europe or Japan, which at that time has outstanding debt
obligations with a stated maturity of one year or less from the date of issue
and rated either:
- - A-1 or higher by Standard & Poor's Ratings Group or any successor, or any
other comparable rating then used by that rating agency, or
- - P-1 or higher by Moody's Investors Service, Inc. or any successor, or any
other comparable rating then used by that rating agency.
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MARKET DISRUPTION EVENT
Any of the following will be a market disruption event:
- - a suspension, absence or material limitation of trading in any one or more of
the Underlying Index stocks on their primary market, in each case for more
than two hours of trading or during the one-half hour before the close of
trading in that market, as determined by the calculation agent in its sole
discretion, or
- - a suspension, absence or material limitation of trading in option or futures
contracts relating to the GIN Index or the GIP Index, or to any one or more of
the Underlying Index stocks, if available, in the primary market for those
contracts, in each case for more than two hours of trading or during the
one-half hour before the close of trading in that market, as determined by the
calculation agent in its sole discretion, or
- - any one or more of the Underlying Index stocks, or option or futures contracts
relating to the GIN Index or the GIP Index, or to any one or more of the
Underlying Index stocks, if available, do not trade on what was the primary
market for those Underlying Index stocks or contracts, as determined by the
calculation agent in its sole discretion,
and, in any of these events, the calculation agent determines in its sole
discretion that the event materially interferes with the ability of The Goldman
Sachs Group, Inc. or any of its affiliates to unwind all or a material portion
of a hedge with respect to the offered notes that we or our affiliates may
effect as described below under "Use of Proceeds and Hedging".
The following events will not be market disruption events:
- - a limitation on the hours or numbers of days of trading, but only if the
limitation results from an announced change in the regular business hours of
the relevant market, and
- - a decision to permanently discontinue trading in the option or futures
contracts relating to the GIN Index, to the GIP Index or to any Underlying
Index stock.
For this purpose, an "absence of trading" in the primary securities market
on which an Underlying Index stock, or on which option or futures contracts
relating to the GIN Index or the GIP Index, or to any one or more of the
Underlying Index stocks, are traded will not include any time when that market
is itself closed for trading under ordinary circumstances. In contrast, a
suspension or limitation of trading in an Underlying Index stock or in option or
futures contracts relating to the GIN Index or the GIP Index, or to any one or
more of the Underlying Index stocks, if available, in the primary market for
that stock or those contracts, by reason of:
- - a price change exceeding limits set by that market, or
- - an imbalance of orders relating to that stock or those contracts, or
- - a disparity in bid and ask quotes relating to that stock or those contracts,
will constitute a suspension or material limitation of trading in that stock or
those contracts in that primary market.
In this description of market disruption events, as is the case throughout
this prospectus supplement, references to the GIN Index mean the GIN Index,
including any successor GIN Index, and references to the GIP Index mean the GIP
Index, including any successor GIP Index, in each case as it may be modified,
replaced or adjusted from time to time.
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HYPOTHETICAL RETURNS ON YOUR NOTE
In the table below, we provide a range of hypothetical final Underlying
Index levels. Based on these hypothetical final Underlying Index levels, a five
and one-half year maturity of the offered notes, the actual reference Underlying
Index level and the other assumptions set forth in the box below, we illustrate
a range of (i) hypothetical amounts that will be payable on the stated maturity
date per each $1,000 of outstanding face amount of your note, (ii) hypothetical
total rates of return on your note to the stated maturity date and (iii)
hypothetical pretax annualized rates of return on your note. Based on the same
hypothetical final Underlying Index levels and on an assumed annual dividend
amount set forth in the box below, we also compare the hypothetical pretax
annualized rates of return on your note referred to above to hypothetical pretax
annualized rates of return on owning the Underlying Index stocks (having the
same relative weighting as they do in the Underlying Index) during the five and
one-half year period from the trade date to the stated maturity date. In the
paragraphs following the table, we explain how we have calculated these amounts.
The information in the table reflects hypothetical rates of return on the
offered notes assuming that they are held to the stated maturity date. If you
sell your note prior to the stated maturity date, your return will depend upon
the market value of your note at the time of sale, which may be affected by a
number of factors that are not reflected in the table below. For a discussion of
some of these factors, see "Additional Risk Factors Specific to Your Note -- The
Market Value of Your Note May Be Influenced By Many Factors That Are
Unpredictable and Interrelated in Complex Ways", "-- The Market Value of Your
Note May Be Influenced by Factors Specifically Related to Internet Stocks" and
"-- The Market Value of Your Note May Be Influenced by Factors Specifically
Related to Non-Internet Technology Stocks".
<TABLE>
<CAPTION>
- -------------------------------------------
ASSUMPTIONS
<S> <C>
Face amount $1,000
Original issue price, expressed
as a percentage of the face
amount 99.50%
Reference Underlying Index level 100
No redemption of the offered
notes
Assumed annual Underlying Index
dividend amount 0.04
No change in, or affecting, any
of the Underlying Index
stocks or the method by which
the level of the Underlying
Index, the GIN Index level or
GIP Index is calculated
No change in the relative
weighting of any GIN Index or
GIP Index stock
No market disruption event
occurs
- -------------------------------------------
</TABLE>
The GIN Index level and the GIP Index level have been highly volatile in
the past and cannot be predicted for future periods. For information about the
levels of the GIN Index and GIP Index during recent periods, see "The Underlying
Index -- Historical Closing Levels of the GIN Index and the GIP Index" below.
As stated above, the following table assumes we do not exercise our call
right. If we were to redeem your note, the rate of return on your note to the
redemption date would likely be substantially lower than the rate to the stated
maturity date.
In order to calculate the hypothetical returns on the Underlying Index
stocks shown in the table below, we have assumed that the aggregate amount of
dividends paid on those stocks, taken together after giving effect to their
relative weightings in the Underlying Index, on an annual basis during the five
and one-half year life of the offered notes will equal the annual Underlying
Index dividend amount shown in the box above. We have assumed that the annual
Underlying Index dividend amount will not change during the
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life of the offered notes, regardless of any changes in the GIN Index or the GIP
Index or in their levels. (Thus, when expressed as a dividend yield based on the
Underlying Index level, the assumed annual dividend amount would result in a
declining dividend yield as the Underlying Index level rises and a rising
dividend yield as the Underlying Index level falls.)
We do not know, however, whether or to what extent the issuers of the
Underlying Index stocks will pay dividends in the future. These are matters that
will be determined by the issuers of those stocks and not by us. Consequently,
the amount of dividends actually paid on the Underlying Index stocks by their
issuers, and, therefore, the rate of return on the Underlying stocks, during the
five and one-half year period may differ substantially from the information
reflected in the table below.
As the following table indicates, the hypothetical rates of return shown
below do not take into account the effects of applicable taxes. Because of the
U.S. tax treatment applicable to your note, tax liabilities could negatively
affect the rate of return on your note to a comparatively greater extent than
the over-all rate of return on the Underlying Index stocks.
The following table is provided for purposes of illustration only. It
should not be taken as an indication or prediction of future investment results
and is intended merely to illustrate the impact that various hypothetical final
Underlying Index levels at the end of the indicated period could have on the
rate of return on your note and the over-all rates of return on the Underlying
Index stocks (having the same relative weightings as they did in the Underlying
Index), assuming all other variables remained constant.
<TABLE>
<CAPTION>
1 2 3 4 5 6
- ------------ ------------ --------------- ------------ ------------ ------------
HYPOTHETICAL
HYPOTHETICAL AMOUNT HYPOTHETICAL
FINAL PAYABLE ON PRETAX
UNDERLYING STATED MATURITY HYPOTHETICAL ANNUALIZED
INDEX LEVEL DATE PER HYPOTHETICAL PRETAX RATE OF
HYPOTHETICAL AS % OF $1,000 PRETAX TOTAL ANNUALIZED RETURN ON
FINAL REFERENCE OUTSTANDING RATE OF RATE OF UNDERLYING
UNDERLYING UNDERLYING FACE AMOUNT RETURN ON RETURN ON INDEX
INDEX LEVEL INDEX LEVEL OF NOTE NOTE NOTE STOCKS
- ------------ ------------ --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
70 70% $1,000 0.5% 0.09% -6.33%
80 80 1,000 0.5 0.09 -3.97
90 90 1,000 0.5 0.09 -1.86
95 95 1,000 0.5 0.09 -0.89
100 100 1,000 0.5 0.09 0.04
120 120 1,200 20.6 3.44 3.38
140 140 1,400 40.7 6.31 6.24
160 160 1,600 60.8 8.83 8.76
180 180 1,800 80.9 11.07 11.00
200 200 2,000 101.0 13.11 13.03
220 220 2,200 121.1 14.96 14.88
240 240 2,400 141.2 16.67 16.59
260 260 2,600 161.3 18.25 18.17
280 280 2,800 181.4 19.72 19.64
300 300 3,000 201.5 21.11 21.02
</TABLE>
-------------------------
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<PAGE> 20
The hypothetical pretax total rate of return on note to stated maturity date
(fourth column) represents (i) the hypothetical amount payable on stated
maturity date per $1,000 of outstanding face amount of note (third column) minus
(ii) $995, the original issue price per $1,000 of outstanding face amount, with
the difference expressed as a percentage of $995.
The hypothetical pretax annualized rate of return on note (fifth column)
represents the hypothetical pretax total rate of return on note (fourth column)
expressed on an annualized basis for the period from the trade date to the
stated maturity date and is calculated on a semi-annual, bond-equivalent basis.
The hypothetical pretax annualized rate of return on the Underlying Index
stocks taken together (sixth column) represents the hypothetical pretax total
rate of return on the Underlying Index stocks (taken together and having the
same relative weightings as they do in the Underlying Index) during the period
from the trade date to the stated maturity date, expressed on an annualized
basis for this period and calculated on a semi-annual, bond-equivalent basis.
For this purpose, the hypothetical pretax total rate of return on the Underlying
Index stocks is assumed to equal the sum of (i) the hypothetical final
Underlying Index level minus the reference Underlying Index level, with the
difference expressed as a percentage of the reference Underlying Index level
(i.e., the percentage in column two minus 100%), plus (ii) 0.22% (the assumed
annual Underlying Index dividend amount multiplied by five and one-half, with
the result expressed as a percentage of the reference Underlying Index level).
We cannot predict the actual final Underlying Index level or the market
value of your note, nor can we predict the relationship between the
Underlying Index level and the market value of your note at any time prior
to the stated maturity date. The actual amount that a holder of the
offered notes will receive at stated maturity and the total and pretax
rates of return on the offered notes will depend entirely on the reference
Underlying Index level and the actual final Underlying Index level
determined by the calculation agent as described above. In particular, the
final Underlying Index level could be lower or higher than the levels
reflected in the table. Moreover, the assumptions we have made in
connection with the illustration set forth above may not reflect actual
events. Consequently, the total return that an investor in the offered
notes would actually achieve, as well as how that return would compare to
the total return that an investor in the Underlying Index stocks would
actually achieve, may be very different from the information reflected in
the table above.
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<PAGE> 21
THE UNDERLYING INDEX
As we have noted above, the Underlying Index is comprised of the GIN Index
and the GIP Index, combined based on an equal weighting as of the trade date of
your note as described under "Specific Terms of Your Note -- GIN Index, GIP
Index and Underlying Index" above. We have derived all information regarding the
GIN Index and the GIP Index contained in this prospectus supplement, including
information about the make-up, method of calculation and changes in components
of each of those indexes, from publicly available information, except
information with respect to the GSTI(TM) Committee described below, which we
obtained from Goldman, Sachs & Co. That information reflects the policies of,
and is subject to change by, Goldman, Sachs & Co., which is the Underlying Index
sponsor, and CBOE, which is the Underlying Index calculator, as more fully
described below. Goldman, Sachs & Co. owns all rights to the GSTI(TM) Composite
Index and the GSTI Sub-Indexes, including the GIN Index and the GIP Index, which
are described below. Goldman, Sachs & Co. has no obligation to continue to
sponsor, and may discontinue sponsorship of, the GIN Index or the GIP index.
Similarly, CBOE has no obligation to continue to publish or calculate, and may
discontinue publication or calculation of, the GIN Index or the GIP Index. The
consequences of Goldman, Sachs & Co. discontinuing the GIN Index or the GIP
Index, or CBOE discontinuing publication or calculation of the GIN Index or the
GIP Index, are described above in the section entitled "Specific Terms of Your
Note -- Discontinuance or Modification of the Underlying Index".
GENERAL
The GSTI(TM) Internet Index (or the GIN Index) and the GSTI(TM) Multimedia
Networking Index (or the GIP Index), the indexes to which your note is linked,
are two of the sub-indexes of the Goldman Sachs Technology Indexes (GSTI(TM)).
The GSTI(TM) is a family of indexes relating to equity securities and consists
of a composite index, which is commonly referred to as the "GSTI(TM) Composite
Index", and six sub-indexes, including the GIN Index and the GIP Index, which
are commonly referred to as the "GSTI(TM) Sub-Indexes". The GSTI(TM) Composite
Index and the GSTI(TM) Sub-Indexes are designed as benchmarks for U.S.-traded
technology and Internet-related stocks. The GSTI(TM) Composite Index is a
comprehensive index of U.S.-traded technology and Internet-related stocks
selected using the criteria described below. The GSTI(TM) Sub-Indexes are a set
of more narrowly based equity indexes consisting of eight or more stocks
selected by the GSTI(TM) Committee from the universe of stocks in the GSTI(TM)
Composite Index. The other four GSTI(TM) Sub-Indexes are the GSTI(TM) Hardware
Index, GSTI(TM) Semiconductor Index, GSTI(TM) Software Index and GSTI(TM)
Services Index.
The GSTI(TM) Committee is a committee of two or more individuals
representing the Technology Investment Research Group and the Equity Derivatives
Research Group at Goldman, Sachs & Co.
GSTI(TM) COMPOSITE INDEX DESIGN
The GSTI(TM) Composite Index has been designed to measure the performance
of U.S.-traded, high-capitalization technology and Internet-related stocks. The
GSTI(TM) Composite Index is a modified capitalization-weighted index with the
weight of the largest capitalization stocks limited to 8.5% of the entire
GSTI(TM) Composite Index on each semi-annual rebalancing date (as further
described below), with each remaining stock in the GSTI(TM) Composite Index
being weighted in proportion to its market capitalization.
The GSTI(TM) Composite Index will include all technology and
Internet-related stocks that meet the following criteria:
- - The company's stock must trade on the New York Stock Exchange or the American
Stock Exchange or must be traded through the facilities of the National
Association of Securities Dealers Automated Quotation System (NASDAQ) and be
"reported securities" under Rule 11Aa3-1 of the Securities Exchange Act of
1934. Only outstanding shares of common stock are eligible for inclusion in
the GSTI(TM)
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Composite Index; securities derivative of or representing common stock, such
as American Depositary Receipts, are not eligible for inclusion.
- - To be eligible for inclusion, the total market capitalization of the company's
stock must be equal to or greater than the capitalization "cutoff" value. The
base period "cutoff" value for the GSTI(TM) Composite Index was initially set
at $600 million and this value has been adjusted on each semi-annual
rebalancing date (as described below) to reflect the price performance of the
GSTI(TM) Composite Index since the base period and rounded to the nearest $50
million. Once included, components of the GSTI(TM) Composite Index must have a
total market capitalization which is 50% or more of the "cutoff" value on each
rebalancing date to remain included. The base period is the inception date of
the GSTI(TM) Composite Index, which was April 30, 1996. As of November 24,
1999, the "cutoff" value of the GSTI(TM) Composite Index was $1.90 billion.
- - Company stocks with a public float below 20% of shares issued and outstanding
are not eligible for inclusion in the GSTI(TM) Composite Index.
- - Each company stock must have annualized share turnover of 30% or more, based
on its average daily share volume for the six calendar months prior to
inclusion in the GSTI(TM) Composite Index. An exception to this criterion is
made for stocks eligible for inclusion under the "fast addition" rule
described below.
- - The component companies must be from a delineated group of specified Standard
Industrial Classification codes or Russell Industry codes, which are
established industry classification systems, or be classified as technology or
Internet-related using a supplemental sector or industry classification method
developed and maintained by the Investment Research Group at Goldman, Sachs &
Co. The list of technology and Internet-related stocks classified under the
Goldman Sachs Investment Research Sector Classification system are available
to interested parties upon request from the Equity Derivatives Research Group
at Goldman, Sachs & Co.
A complete list of the current constituents of the GSTI(TM) Composite
Index is available from CBOE.
GSTI(TM) SUB-INDEX COMPOSITION
All stocks in the GSTI(TM) Composite Index are eligible for inclusion in
one or more GSTI(TM) Sub-Indexes. The GSTI(TM) Sub-Indexes are a set of more
narrowly based indexes of eight or more stocks each selected from the universe
of GSTI(TM) Composite Index stocks by the GSTI(TM) Committee. A company may be
included in more than one GSTI(TM) Sub-Index but some companies may be included
only in the GSTI(TM) Composite Index. As of the date of this prospectus
supplement, no company is included in both the GIN Index and the GIP Index,
although this could change in the future. Each GSTI(TM) Sub-Index is weighted
according to a modified capitalization-weighting methodology, which does not
allow for the weight of any GSTI(TM) Sub-Index stock to exceed 12.5% of the
weight of the entire applicable GSTI(TM) Sub-Index on each rebalancing date. The
purpose of this weighting scheme is to limit the impact of stocks which would
otherwise dominate the relevant GSTI(TM) Sub-Index's performance but preserve
the most attractive features of a capitalization-weighted index.
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<PAGE> 23
GIN INDEX COMPOSITION
Below is a list of the 17 companies whose common stocks are included in
the GIN Index as of November 24, 1999:
<TABLE>
<CAPTION>
TRADING MARKET ON WHICH
NAME SYMBOL LISTED OR TRADED WEIGHTING (%)
- ---- ------- ---------------- -------------
<S> <C> <C> <C>
Amazon.com, Inc. ........................... AMZN NASDAQ 12.1%
America Online Inc. ........................ AOL NYSE 15.4
At Home Corp. .............................. ATHM NASDAQ 10.2
Check Point Software Technologies........... CHKP NASDAQ 2.7
CMG Information Services Inc. .............. CMGI NASDAQ 7.6
EBAY, Inc. ................................. EBAY NASDAQ 11.0
E*TRADE Group Inc. ......................... EGRP NASDAQ 4.1
Earthlink Network Inc. ..................... ELNK NASDAQ 1.0
Inktomi Communications...................... INKT NASDAQ 3.5
MindSpring Enterprises...................... MSPG NASDAQ 1.2
Network Associates Inc. .................... NETA NASDAQ 2.0
PSINET Inc. ................................ PSIX NASDAQ 1.8
RealNetworks Inc. .......................... RNWK NASDAQ 6.6
Sterling Commerce Inc....................... SE NYSE 1.5
Verio Inc. ................................. VRIO NASDAQ 1.6
Verisign Inc. .............................. VRSN NASDAQ 5.3
Yahoo! Inc.................................. YHOO NASDAQ 12.5
</TABLE>
GIP INDEX COMPOSITION
Below is a list of the 15 companies whose common stocks are included in
the GIP Index as of November 24, 1999.
<TABLE>
<CAPTION>
TRADING MARKET ON WHICH
NAME SYMBOL LISTED OR TRADED WEIGHTING (%)
- ---- ------- ---------------- -------------
<S> <C> <C> <C>
ADC Telecommunications Inc. ................ ADCT NASDAQ 2.7%
Broadcom Corporation........................ BRCM NYSE 2.8
Ciena Corp. ................................ CIEN NASDAQ 2.1
3Com Corp. ................................. COMS NASDAQ 5.6
Cabletron Systems, Inc. .................... CS NASDAQ 1.5
Cisco Systems, Inc. ........................ CSCO NASDAQ 11.6
E-Tek Dynamics Inc. ........................ ETEK NASDAQ 1.7
General Instrument Corporation.............. GIC NASDAQ 4.0
Lucent Technologies Inc. ................... LU NASDAQ 10.4
Motorola, Inc. ............................. MOT NASDAQ 10.4
Newbridge Networks Corp. ................... NN NASDAQ 1.4
Nortel Networks Corp. ...................... NT NASDAQ 14.8
Qualcomm Incorporated....................... QCOM NASDAQ 19.8
</TABLE>
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<TABLE>
<CAPTION>
TRADING MARKET ON WHICH
NAME SYMBOL LISTED OR TRADED WEIGHTING (%)
- ---- ------- ---------------- -------------
<S> <C> <C> <C>
Scientific-Atlanta, Inc. ................... NASDAQ 1.5
Tellabs, Inc. .............................. TLAB NYSE 9.8
</TABLE>
GSTI(TM) SUB-INDEX CALCULATION
The GSTI(TM) Sub-Indexes (including the GIN Index and the GIP Index) are
calculated by CBOE on a real-time basis using last-sale prices and are
disseminated every 15 seconds by CBOE during regular CBOE trading hours. If a
component stock is not currently being traded on its primary market, the most
recent price at which the stock traded on that market is used in the
calculation. The GSTI(TM) Composite Index is also calculated by CBOE in a
similar manner. Goldman, Sachs & Co. may replace CBOE as the calculator of any
of the GSTI(TM) Indexes.
The GSTI(TM) Sub-Indexes (including the GIN Index and the GIP Index) are
calculated on a modified capitalization-weighted method. This method is a hybrid
between equal weighting for all component securities (which may pose liquidity
concerns for smaller capitalization stocks) and normal capitalization weighting
for all component securities (which may result in two or three stocks dominating
an index's performance). Under the method employed with respect to each of the
GSTI(TM) Sub-Indexes (including the GIN Index and the GIP Index), the maximum
weight for any stock in the relevant GSTI(TM) Sub-Index will be "capped" at
12.5% of the weight of that entire GSTI(TM) Sub-Index on each rebalancing date.
The weight of any stock in the relevant GSTI(TM) Sub-Index may rise above the
12.5% cap between the semi-annual rebalancing dates due to relative price
performance or certain corporate actions, such as mergers, acquisitions or large
share issuances, which would result in an increase in the market capitalization
of the constituent company.
The modified capitalization-weighting method is implemented as follows:
First, each GSTI(TM) Sub-Index is capitalization-weighted using the shares
outstanding and the closing price in the primary market of each stock on the
relevant rebalancing date. Second, the weight of any stock which is above 12.5%
of the weight of the relevant GSTI(TM) Sub-Index is reduced to 12.5%. Third, the
aggregate excess weight (i.e., the sum of the pre-capped weights minus the sum
of the post-capped weights for all capped stocks) is redistributed across the
remaining uncapped stocks in the relevant GSTI(TM) Sub-Index while retaining the
relative weighting of those remaining uncapped stocks. Finally, at the time of
any future semi-annual rebalancing (as described below), stocks with GSTI(TM)
Sub-Index weights which exceed their cap in the relevant GSTI(TM) Sub-Index will
be restored to an appropriate capped weight, if necessary. (The GSTI(TM)
Composite Index is calculated in a similar manner except that the weight of any
component stock in the GSTI(TM) Composite Index is capped at 8.5%).
Each GSTI(TM) Sub-Index component stock is also assigned on each
semi-annual rebalancing date a sub-index share fraction which is used in
calculating the relevant GSTI(TM) Sub-Index divisor described below on
semi-annual rebalancing dates. Stocks which are not "capped" have a sub-index
share fraction value of unity (1.0). The sub-index share fraction for a "capped"
stock is a function of the stock's capped weight, the relevant GSTI(TM)
Sub-Index's adjusted market value and the actual number of shares of the stock
outstanding and its closing price in the primary trading market on the
rebalancing date.
The GSTI(TM) Composite Index divisor was initially calculated to yield a
benchmark value of 100.00 at the close of trading on the CBOE on April 30, 1996.
The divisor is used to convert the market value of the index portfolio to a
price or level for the index. The divisor for the GSTI(TM) Composite Index and
for each of the GSTI(TM) Sub-Indexes is adjusted by the index calculator, which
is currently CBOE, as needed to ensure continuity in each of those indexes in
the event of certain changes due to non-market factors affecting the
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<PAGE> 25
component stocks, such as additions or deletions of stocks from that index,
share changes due to mergers, acquisitions or other events, or adjustments to a
component stock's price to reflect rights offerings, spinoffs and special cash
dividends. The divisor remains at the new value until a further adjustment is
necessary as the result of another change.
As of November 24, 1999, the GIN Index's divisor was 291.3765 and the GIP
Index's divisor was 612.1715.
GSTI(TM) COMPOSITE INDEX MAINTENANCE
The GSTI(TM) Composite Index is maintained by CBOE. Index maintenance
includes rebalancing, monitoring and completing the adjustments for events such
as additions or deletions of component stocks, share changes due to mergers,
acquisitions or other events, stock splits, stock dividends and stock price
adjustments due to events such as company restructurings or spinoffs, and
adjusting the divisor for such events as needed.
The GSTI(TM) Composite Index is rebalanced by CBOE on a semi-annual basis.
Stocks are added or deleted from the GSTI(TM) Composite Index on the effective
date of the rebalancing based on the inclusion criteria described under
"-- GSTI(TM) Composite Index Design" above. For example, any GSTI(TM) Composite
Index constituent with a capitalization value that has fallen below 50% of the
"cutoff" value on a semi-annual rebalancing date is removed from the GSTI(TM)
Composite Index. In addition, changes to the relative weights of the stocks
included in the GSTI(TM) Composite Index are made to reflect the applicable
outstanding shares and closing prices of all GSTI(TM) Composite Index
constituents on the rebalancing date. The changes are implemented after the
close of trading on the CBOE on each "effective" date. The effective dates are
the third Friday of January and July of every year. The rebalancing date is
seven business days prior to (and including) the effective date. CBOE screens
stocks for inclusion in the GSTI(TM) Composite Index and determines the
component stocks of the GSTI(TM) Composite Index. Public notice of the new
component stocks list is disseminated by CBOE at least five trading days prior
to the effective date of the rebalancing unless unforeseen circumstances require
a shorter period. That public notice is published by CBOE after regular U.S.
trading hours. Except for stocks that meet the criteria for "Fast Addition or
Deletion" (described immediately below), stocks can only be added to or deleted
from the GSTI(TM) Composite Index or any of the GSTI(TM) Sub-Indexes at the time
of the semi-annual rebalancing.
Fast Addition or Deletion of Component Stocks
Stocks may be added to or deleted from the GSTI(TM) Composite Index at a
time other than at the semi-annual rebalancings according to the "fast add or
delete" rule. All changes to constituent stocks of the GSTI(TM) Composite Index
made in accordance with this rule are announced by CBOE at least five trading
days prior to the effective date of the fast add or delete unless unforeseen
circumstances require a shorter period.
Any company whose stock starts trading between semi-annual rebalancings is
eligible to be fast added to the GSTI(TM) Composite Index if the following
criteria are met as determined by the Underlying Index calculator: all the
inclusion criteria described above under "-- GSTI(TM) Composite Index Design"
are met, except that no minimum turnover ratio is required and the stock must
rank in the top quartile of market capitalization of the GSTI(TM) Composite
Index based on the previous month-end closing prices. Thereafter, the actual
decision to fast add any newly eligible stocks is made at the discretion of the
GSTI(TM) Committee.
If two companies represented in the GSTI(TM) Composite Index merge or if a
company represented in the GSTI(TM) Composite Index merges with a company not
then included in the GSTI(TM) Composite Index, the merged company remains in the
GSTI(TM) Composite Index if it meets all the GSTI(TM) Composite Index inclusion
criteria. If the target company is then in the GSTI(TM) Composite Index, it is
fast deleted after the
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<PAGE> 26
close of trading on the CBOE on the date the merger is completed.
If a GSTI(TM) Composite Index constituent company is acquired by a
non-GSTI(TM) Composite Index company, the acquiring company may be added to the
GSTI(TM) Composite Index if it meets the inclusion criteria; otherwise the
target company will be fast deleted. Any such additions or deletions will be
effective after the close on the date the acquisition is completed.
If a company represented in the GSTI(TM) Composite Index spins-off another
company, the parent and the spun-off company (considered individually) will
remain in the GSTI(TM) Composite Index if each of them meets the GSTI(TM)
Composite Index inclusion criteria. If either the parent or the spun-off company
fails to meet the inclusion criteria, it is removed from the GSTI(TM) Composite
Index.
In the event that a company represented in the GSTI(TM) Composite Index
files for bankruptcy, its stock is removed from the GSTI(TM) Composite Index
effective after the close on the date of the filing or after the close of the
next CBOE trading day. In the event that trading in a GSTI(TM) Composite Index
constituent stock is suspended for 30 trading days, CBOE will remove that
company from the GSTI(TM) Composite Index unless an announcement has been made
that the stock will commence trading within the next 10 trading days. Any such
removal will be pre-announced and, for purposes of minimizing impact to the
GSTI(TM) Composite Index, the stock to be removed will be removed at the value
at which it last traded.
GSTI(TM) SUB-INDEX MAINTENANCE
The GSTI(TM) Sub-Indexes (including the GIN Index and the GIP Index) are
maintained by CBOE with input from the GSTI(TM) Committee as described below. At
each semi-annual rebalancing, CBOE determines changes to the GSTI(TM) Composite
Index according to the criteria discussed under "-- GSTI(TM) Composite Index
Maintenance" above. Based on this determination, CBOE provides to the GSTI(TM)
Committee, after the close of trading on the day after each rebalancing date, a
list of all constituent stock changes to the GSTI(TM) Composite Index. Based on
this list of changes, the GSTI(TM) Committee determines any changes to the
GSTI(TM) Sub-Indexes. The GSTI(TM) Committee also retains discretion to add or
delete stocks from the GSTI(TM) Sub-Indexes at each semi-annual rebalancing or
to change a stock's industry classification at any time. At the discretion of
the GSTI(TM) Committee, a stock may also be removed from a GSTI(TM) Sub-Index
due to a lack of industry representation in the relevant GSTI(TM) Sub-Index at
any time. The component stocks of any GSTI(TM) Sub-Index are intended to be
representative of the industry sector represented by that GSTI(TM) Sub-Index.
The GSTI(TM) Committee's decision regarding any changes to any component stocks
of any GSTI(TM) Sub-Index is provided to CBOE by Goldman, Sachs & Co. after
regular U.S. trading hours and before trading commences on the next trading day
after CBOE provides the list of GSTI(TM) Composite Index constituent changes to
the GSTI(TM) Committee, as described above. CBOE, in turn, disseminates the
information concerning the components of the GSTI(TM) Sub-Indexes to the public
at least five days prior to the effective date, unless unforeseen circumstances
require a shorter period.
Additionally, at the semi-annual rebalancing of the GSTI(TM) Composite
Index, stocks with GSTI(TM) Sub-Index weights that exceed their cap in the
relevant GSTI Sub-Index will be restored to their appropriate capped weight.
When a stock is "fast added" to the GSTI(TM) Composite Index, the stock
may also be added to one or more GSTI(TM) Sub-Indexes. The decision to add that
new GSTI(TM) Composite Index stock to any GSTI(TM) Sub-Index is made by the
GSTI(TM) Committee. If added to a GSTI(TM) Sub-Index, the stock's weight cannot
exceed the appropriate cap for that GSTI(TM) Sub-Index. If a stock is "fast
deleted" from the GSTI(TM) Composite Index, it will be removed from all GSTI(TM)
Sub-Indexes at the same time.
In the case of a merger of a GSTI(TM) Sub-Index constituent company, and
if the post-merger company is determined by CBOE, in accordance with the rules
relating to the
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<PAGE> 27
GSTI(TM) Indexes, to be eligible to remain in the GSTI(TM) Composite Index, then
the GSTI(TM) Committee will decide the GSTI(TM) Sub-Index classification of the
merged company. For example, if neither pre-merger entity was in the relevant
GSTI(TM) Sub-Index and if the weight of the merged company would exceed the
relevant cap for the GSTI(TM) Sub-Index to which it is assigned, the weight of
the company will be capped at the time that the merger is completed. All other
stocks in the affected GSTI(TM) Sub-Index will remain unchanged until they are
adjusted, if required, on the next semi-annual rebalancing date.
HISTORICAL CLOSING LEVELS OF THE
GIN INDEX AND THE GIP INDEX
The initial GIN Index value and the initial GIP Index value was set, in
each case, at 100 at the close of trading on April 30, 1996. CBOE first
calculated and published the GIN Index and the GIP Index in the third quarter of
1996. The tables below set forth the closing levels of the GIN Index and the GIP
Index, respectively, for the last two calendar quarters in 1996, for the four
calendar quarters in 1997 and 1998, for the first three calendar quarters in
1999 and for the fourth calendar quarter in 1999 through November 24, 1999, all
as published by CBOE. We obtained the closing levels listed in the table below
from Bloomberg Financial Services, without independent verification.
Since its inception, the levels of the GIN Index and the GIP Index have
experienced significant fluctuations. Any historical upward or downward trend in
the closing levels of the GIN Index or the GIP Index during any period shown
below is not an indication that the GIN Index or the GIP Index is more or less
likely to increase or decrease at any time during the term of your note. You
should not take the historical levels of the GIN Index or the GIP Index as an
indication of future performance. We cannot give you any assurance that the
future performance of the GIN Index, the GIP Index or the Underlying Index, or
the Underlying Index stocks, will result in you receiving an amount greater than
the outstanding face amount of your note on the stated maturity date.
On September 17, 1999, the GIN Index and the GIP Index were amended in
several respects. These amendments included a revision of the rules of the
GSTI(TM) Composite Index and the GSTI(TM) Sub-Indexes to include a supplemental
sector and industry classification system developed and maintained by the
Goldman Sachs Investment Research department and the reduction of the weight cap
of the GSTI(TM) Sub-Indexes, including the GIN Index and the GIP Index,
components from 25% to 12.5%. As a result of these amendments, Amazon.com Inc.
and EBAY, Inc. were added to the GIN Index effective after the close of trading,
September 17, 1999, under the provisions of the rules for fast additions to the
GSTI(TM) Composite Index and GSTI(TM) Sub-Indexes. Given these changes, the
following historical levels may be even less of an indication of future
performance of the GIN Index and the GIP Index.
S-27
<PAGE> 28
QUARTERLY HIGH, LOW AND CLOSING LEVELS OF THE GIN INDEX
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------ ------ ------
<S> <C> <C> <C>
1996
Initial GIN Index level on April 30, 1996................. 100.00
Quarter ended September 30................................ 109.65 80.97 106.30
Quarter ended December 31................................. 114.23 97.94 99.79
1997
Quarter ended March 31.................................... 114.96 78.73 80.40
Quarter ended June 30..................................... 108.10 75.41 100.88
Quarter ended September 30................................ 127.36 102.84 113.84
Quarter ended December 31................................. 122.03 94.57 108.06
1998
Quarter ended March 31.................................... 130.51 102.94 130.12
Quarter ended June 30..................................... 159.49 126.55 159.49
Quarter ended September 30................................ 184.79 113.53 164.02
Quarter ended December 31................................. 359.29 125.49 338.74
1999
Quarter ended March 31.................................... 553.20 336.53 553.20
Quarter ended June 30..................................... 667.22 372.17 495.55
Quarter ended September 30................................ 523.72 360.16 456.28
Quarter ended December 31
(through November 24, 1999)............................ 617.82 435.85 617.82
Closing level of the GIN Index on November 24, 1999....... 617.82
</TABLE>
S-28
<PAGE> 29
QUARTERLY HIGH, LOW AND CLOSING LEVELS OF THE GIP INDEX
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------ ------ ------
<S> <C> <C> <C>
1996
Initial GIP Index level on April 30, 1996................. 100.00
Quarter ended September 30................................ 108.78 84.54 106.05
Quarter ended December 31................................. 114.64 99.84 106.43
1997
Quarter ended March 31.................................... 121.98 91.46 93.59
Quarter ended June 30..................................... 123.52 90.26 121.89
Quarter ended September 30................................ 145.83 123.75 132.92
Quarter ended December 31................................. 143.33 114.20 120.37
1998
Quarter ended March 31.................................... 150.31 114.45 150.31
Quarter ended June 30..................................... 175.50 147.17 175.50
Quarter ended September 30................................ 198.17 139.67 139.67
Quarter ended December 31................................. 212.46 116.32 209.56
1999
Quarter ended March 31.................................... 240.74 206.37 235.49
Quarter ended June 30..................................... 310.26 230.42 310.26
Quarter ended September 30................................ 333.13 283.91 319.88
Quarter ended December 31
(through November 24, 1999)............................ 465.91 310.05 460.02
Closing level of the GIP Index on November 24, 1999....... 460.02
</TABLE>
CBOE has entered into a calculation agency agreement with Goldman, Sachs &
Co., pursuant to which it calculates the GIN Index and the GIP Index as
described under "-- GSTI(TM) Sub-Index Calculation" above. The offered notes are
not sponsored, endorsed, sold or promoted by CBOE. CBOE makes no representation
or warranty, express or implied, to any owner of the offered notes or any member
of the public regarding the advisability of investing in securities generally or
in the offered notes particularly or in the ability of the GIN Index or the GIP
Index to track the performance of any market segment. CBOE has no obligation to
take the needs of Goldman, Sachs & Co. or any owner of the offered notes into
consideration in calculating the GIN Index or the GIP Index. CBOE is not
responsible for, and has not participated in the determination of the timing of
the sale of the offered notes, prices at which the offered notes are to be sold
initially or quantities of the offered notes to be issued or in the
determination or application of the equation by which the offered notes are to
be converted into cash. CBOE has no obligation or liability in connection with
the administration or marketing of the offered notes.
NONE OF CBOE, THE GOLDMAN SACHS GROUP, INC., GOLDMAN, SACHS & CO. OR ANY
OF OUR OTHER AFFILIATES GUARANTEES THE ACCURACY OR COMPLETENESS OF THE GIN
INDEX, THE GIP INDEX OR THE UNDERLYING INDEX OR ANY INCLUDED DATA AND NONE OF
THEM SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS IN
THOSE INDEXES. NONE OF CBOE, THE GOLDMAN SACHS GROUP, INC., GOLDMAN, SACHS & CO.
OR ANY OF OUR OTHER AFFILIATES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AND EACH
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE,
S-29
<PAGE> 30
WITH RESPECT TO THE GIN INDEX, THE GIP INDEX AND THE UNDERLYING INDEX AND/OR ANY
INCLUDED DATA. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IN NO EVENT
SHALL CBOE, THE GOLDMAN SACHS GROUP, INC., GOLDMAN, SACHS & CO. OR ANY OF OUR
OTHER AFFILIATES HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS, EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS BETWEEN CBOE AND GOLDMAN SACHS.
S-30
<PAGE> 31
USE OF PROCEEDS AND HEDGING
We will use the net proceeds we receive from the sale of the offered notes
for the purposes we describe in the attached prospectus under "Use of Proceeds".
We or our affiliates may also use those proceeds in transactions intended to
hedge our obligations under the offered notes as described below.
In anticipation of the sale of the offered notes, we and/or our affiliates
expect to enter into hedging transactions involving purchases of some or all of
the Underlying Index stocks, options or futures on the GIN Index, the GIP Index
or the Underlying Index stocks or other instruments linked to the GIN Index, to
the GIP Index or to the Underlying Index stocks on the trade date. From time to
time, we and/or our affiliates may enter into additional hedging transactions or
unwind those we have entered into. In this regard, we and/or our affiliates may:
- - acquire or dispose of Underlying Index stocks or other securities of an
Underlying Index stock issuer,
- - take short positions in Underlying Index stocks or other securities of an
Underlying Index stock issuer -- i.e., we and/or our affiliates may sell
securities of the kind that we do not own or that we borrow for delivery to a
purchaser,
- - take or dispose of positions in listed and over-the-counter options or futures
on the GIN Index, on the GIP Index or on the Underlying Index stocks or other
instruments linked to the GIN Index, the GIP Index or the Underlying Index
Stocks and/or
- - take or dispose of positions in listed or over-the-counter options or other
instruments based on indexes designed to track the performance of the GIN
Index, the GIP Index, the Underlying Index or other components of the global
equity markets.
We and/or our affiliates may acquire a long or short position in
securities similar to the offered notes from time to time and may, in our or
their sole discretion, hold or resell those securities.
We and/or our affiliates may close out our or their hedge on or before the
determination date. That step may involve sales or purchases of one or more of
the Underlying Index stocks, options or futures on the GIN Index, on the GIP
Index or on the Underlying Index stocks or other instruments linked to the GIN
Index, the GIP Index or the Underlying Index stocks, or options or other
instruments linked to indexes designed to track the performance of the GIN
Index, the GIP Index, the Underlying Index or other components of the global
equity markets.
The hedging activity discussed above may adversely affect the market value
of your note from time to time. See "Additional Risk Factors Specific to
Your Note -- Trading and Other Transactions By Goldman Sachs in Securities
Linked to the Underlying Index Stocks May Impair the Value of Your Note"
and "-- Our Business Activities May Create Conflicts of Interest Between
You and Us" for a discussion of these adverse effects.
S-31
<PAGE> 32
SUPPLEMENTAL DISCUSSION OF UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following section supplements the discussion of U.S. federal income taxation
in the attached prospectus with respect to United States holders. The following
section is the opinion of Sullivan & Cromwell, counsel to The Goldman Sachs
Group, Inc. Please consult your own tax advisor concerning the U.S. federal
income tax and any other applicable tax consequences of owning your note in your
particular circumstances.
Although the matter is not free from doubt, your note should be treated as
a single debt instrument subject to special rules governing contingent payment
obligations for United States federal income tax purposes. Under those rules,
the amount of interest you are required to take into account for each accrual
period will be determined by constructing a projected payment schedule for your
note and applying rules similar to those for accruing original issue discount on
a hypothetical noncontingent debt instrument with that projected payment
schedule. This method is applied by first determining the yield at which we
would issue a noncontingent fixed rate debt instrument with terms and conditions
similar to your note (the "comparable yield") and then determining a payment
schedule as of the issue date that would produce the comparable yield. These
rules will generally have the effect of requiring you to include interest in
respect of your note prior to your receipt of cash attributable to such income.
It is not entirely clear how the rules governing contingent payment
obligations provide for determining the maturity date for debt instruments (such
as your note) that provide for a call right for purposes of computing the
comparable yield and projected payment schedule. It would be reasonable,
however, to compute the comparable yield and projected payment schedule for your
note (and we intend to make the computation in such a manner) based upon an
assumption that your note will remain outstanding until the stated maturity date
and that the projected contingent payment will be made at such time.
The comparable yield and projected payment schedule may be obtained from
us by contacting the Goldman Sachs Treasury Administration Department, Debt
Administration Group, at 212-902-1000. You are required to use the comparable
yield and projected payment schedule determined by us in determining your
interest accruals in respect of your note unless you timely disclose and justify
on your federal income tax return the use of a different comparable yield and
projected payment schedule.
The comparable yield and projected payment schedule is not provided to you
for any purpose other than the determination of your interest accruals in
respect of your note, and we make no representation regarding the amount
of contingent payments with respect to your note.
If you purchase your note for an amount that differs from the note's
adjusted issue price at the time of the purchase, you must determine the extent
to which the difference between the price you paid for your note and its
adjusted issue price is attributable to a change in expectations as to the
projected payment schedule, a change in interest rates, or both, and reasonably
allocate the difference accordingly. The adjusted issue price of your note will
equal your note's original issue price plus any interest deemed to be accrued on
your note (under the rules governing contingent payment obligations) as of the
time you purchase your note.
If the adjusted issue price of your note is greater than the price you
paid for your note, you must make positive adjustments increasing the amount of
interest that you would otherwise accrue and include in income each year, and
the amount of ordinary income (or decreasing the amount of ordinary loss)
recognized upon redemption or maturity by
S-32
<PAGE> 33
the amounts allocated to each of interest and projected payment schedule; if the
adjusted issue price of your note is less than the price you paid for your note,
you must make negative adjustments, decreasing the amount of interest that you
must include in income each year, and the amount of ordinary income (or
increasing the amount of ordinary loss) recognized upon redemption or maturity
by the amounts allocated to each of interest and projected payment schedule.
Adjustments allocated to the interest amount are not made until the date the
daily portion of interest accrues.
Because any Form 1099-OID that you receive will not reflect the effects of
positive or negative adjustments resulting from your purchase of a note in the
secondary market, you are urged to consult with your tax advisor as to whether
and how adjustments should be made to the amounts reported on any Form 1099-OID.
You will recognize gain or loss upon the sale, redemption or maturity of
your note in an amount equal to the difference, if any, between the amount of
cash you receive at such time and your adjusted basis in your note. In general,
your adjusted basis in your note will equal the amount you paid for your note,
increased by the amount of interest you previously accrued with respect to your
note (in accordance with the comparable yield and the projected payment schedule
for your note) and increased or decreased by the amount of any positive or
negative adjustment, respectively, that you are required to make if you purchase
your note in the secondary market.
Any gain you recognize upon the sale, redemption or maturity of your note
will be ordinary interest income. Any loss you recognize at such time will be
ordinary loss to the extent of interest you included as income in the current or
previous taxable years in respect of your note, and thereafter, capital loss.
S-33
<PAGE> 34
EMPLOYEE RETIREMENT INCOME SECURITY ACT
If you are an insurance company or the fiduciary of a pension plan or an
employee benefit plan proposing to invest in the offered notes, you should refer
to the matters described under "Employee Retirement Income Security Act" in the
attached prospectus.
S-34
<PAGE> 35
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Goldman Sachs Group, Inc. has agreed to sell to Goldman, Sachs & Co.,
and Goldman, Sachs & Co. has agreed to purchase from The Goldman Sachs Group,
Inc., the aggregate face amount of the offered notes specified on the front
cover of this prospectus supplement. Goldman, Sachs & Co. intends to resell the
offered notes at the original issue price. In the future, Goldman, Sachs & Co.
or other affiliates of The Goldman Sachs Group, Inc. may repurchase and resell
the offered notes in market-making transactions, with resales being made at
prices related to prevailing market prices at the time of resale or at
negotiated prices. For more information about the plan of distribution and
possible market-making activities, see "Plan of Distribution" in the attached
prospectus.
NOTICE TO INVESTORS IN SINGAPORE
Notes may not be offered or sold, nor may any document or other material
in connection with the notes be issued, circulated or distributed, either
directly or indirectly, to persons in Singapore other than (i) under
circumstances in which the offer or sale does not constitute an offer or sale of
the notes to the public in Singapore or (ii) to persons whose ordinary business
it is to buy or sell shares or debentures, whether as principal or agent.
S-35
<PAGE> 36
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IT DESCRIBES, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Additional Risk Factors Specific to
Your Note.......................... S-2
Specific Terms of Your Note........ S-12
Hypothetical Returns on Your
Note............................. S-18
The Underlying Index............... S-21
Use of Proceeds and Hedging........ S-31
Supplemental Discussion of United
States Federal Income Tax
Consequences..................... S-32
Employee Retirement Income Security
Act.............................. S-34
Supplemental Plan of
Distribution..................... S-35
PROSPECTUS
Our Business Principles............ 2
Prospectus Summary................. 3
Risk Factors....................... 11
Use of Proceeds.................... 28
Pro Forma Consolidated Financial
Information...................... 29
Capitalization..................... 36
Selected Consolidated Financial
Data............................. 38
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 40
Industry and Economic Outlook...... 65
Business........................... 68
Management......................... 93
Principal Shareholders............. 106
Certain Relationships and Related
Transactions..................... 108
Description of Notes We May
Offer............................ 113
United States Taxation............. 143
Employee Retirement Income Security
Act.............................. 154
Validity of the Notes.............. 154
Experts............................ 154
Available Information.............. 155
Index to Consolidated Financial
Statements....................... F-1
Plan of Distribution............... U-1
</TABLE>
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- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$
THE GOLDMAN SACHS
GROUP, INC.
CALLABLE INDEX-LINKED NOTES DUE 2005
(LINKED TO THE GSTI(TM) INTERNET INDEX AND THE GSTI(TM) MULTIMEDIA TECHNOLOGY
INDEX)
-------------------------
[GOLDMAN SACHS LOGO]
-------------------------
GOLDMAN, SACHS & CO.
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