GOLDMAN SACHS GROUP INC, S-1, 1999-03-31

GOLDMAN SACHS GROUP INC
S-1, 1999-03-31
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1999

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

THE GOLDMAN SACHS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 6211 13-4019460
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

------------------------

85 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 902-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ROBERT J. KATZ
GREGORY K. PALM
GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 902-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

RICARDO A. MESTRES, JR.
JOHN P. MEAD
DAVID B. HARMS
ROBERT W. REEDER III
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If the delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1)(2) UNIT(3) PRICE(3) FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Medium-Term Notes.................... $15,000,000,000 100% $15,000,000,000 $4,170,000
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The amount to be registered equals the aggregate principal amount of the
Medium-Term Notes. If any Medium-Term Notes are issued at an original issue
discount or with a principal amount that cannot be determined at issuance or
is denominated in a foreign currency or currency unit, the aggregate
principal amount of the Medium-Term Notes will be an amount that results in
an aggregate initial offering price for the Medium-Term Notes equivalent to
U.S. $15,000,000,000.

(2) This registration statement also covers an undeterminable amount of the
Medium-Term Notes that may be reoffered and resold on an ongoing basis after
their initial sale in market-making transactions by affiliates of the
registrant.

(3) Estimated solely for purposes of determining the registration fee.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

This registration statement contains a prospectus relating to both of the
following:

- the offering of newly issued Medium-Term Notes, Series B (the "Notes"),
of The Goldman Sachs Group, Inc. ("GS Inc.") on an ongoing basis, at an
aggregate initial public offering price of up to $15,000,000,000; and

- market-making transactions that may occur on an ongoing basis in Notes
that have been previously issued in the offering described above.

When the prospectus is delivered to an investor in the initial offering
described above, the investor will be informed of that fact. When the prospectus
is delivered to an investor who is not so informed, it is delivered in a
market-making transaction.

As part of the initial offering described above, GS Inc. intends to sell
one or more Notes in a manner permitted by Rule 430A under the Securities Act of
1933. This registration statement includes the forms of prospectus supplements
that may be used in making offers and sales under Rule 430A. When a sale under
Rule 430A occurs, GS Inc. will file the applicable form pursuant to Rule 424(b)
under the Securities Act of 1933. Prospectus supplements used in connection with
other offers and sales of Notes may be in different forms and contain other
information.

i
<PAGE> 3
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

Rule 424(b)(1)

Registration Statement No. 333-

Subject to Completion. Dated March 31, 1999.

Prospectus Supplement No. to the Prospectus dated , 1999.

THE GOLDMAN SACHS GROUP, INC.

Medium-Term Notes, Series B
------------------------

The Note being purchased has the following terms:

PRINCIPAL AMOUNT:

STATED MATURITY:

SPECIFIED CURRENCY (if not U.S. dollars):

- principal:
- interest:
- Exchange Rate Agent:*

ORIGINAL ISSUE DATE:**

ORIGINAL ISSUE PRICE (%):**

NET PROCEEDS TO GOLDMAN SACHS (%):**

ORIGINAL ISSUE DISCOUNT NOTE:**

- total amount of OID:
- yield to maturity:
- initial accrual period OID:

FORM OF NOTE:

- global form only:
- non-global form available:

REDEMPTION AND REPAYMENT:

- redemption commencement date:
- repayment date(s):
- redemption or repayment price(s):

IF INTEREST RATE IS FIXED:

- annual rate:
- interest payment date(s):
- regular record date(s):

IF INTEREST RATE IS FLOATING:

- base rate:

- commercial paper rate:
- prime rate:
- LIBOR:
- Telerate LIBOR Page:
- Reuters Screen LIBOR Page:
- Index Currency (if not U.S. dollars):
- EURIBOR:
- treasury rate:
- CMT rate:
- Telerate Page 7051:
- Telerate Page 7052 (weekly/monthly):
- CMT Index Maturity (if not two years):
- CD rate:
- federal funds rate:
- 11th district rate:
- Index Maturity:
- spread:
- spread multiplier:
- initial base rate:
- maximum rate:
- minimum rate:
- interest reset date(s):
- interest determination date(s):
- interest payment date(s):
- interest calculation date(s):
- Calculation Agent:*

DEFEASANCE APPLIES AS FOLLOWS:

- full defeasance:
- covenant defeasance:

- ---------------
If an item in this prospectus supplement is left blank or says "N/A", the
item is not applicable unless otherwise indicated.

* This information, if any, names the Exchange Rate Agent and the Calculation
Agent as of the original issue date of the Note. Goldman Sachs may change
these agents after that date without notice.

** This information, if any, relates only to the initial sale of the Note. If
the Note is sold in a market-making transaction after its initial sale,
information about the price paid and the date of the sale will be provided in
a separate confirmation of sale.
------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

This prospectus supplement summarizes specific financial and other terms of
the Note; terms that apply generally to the Notes as a series 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. The terms used here have the meanings described
in the attached prospectus, unless otherwise specified.

Goldman Sachs may use this prospectus supplement in the initial sale of the
Note. In addition, Goldman, Sachs & Co. or any other affiliate of Goldman Sachs
may use this prospectus supplement in a market-making transaction in the Note
after its initial sale. UNLESS GOLDMAN SACHS OR AN AGENT INFORMS THE PURCHASER
OTHERWISE, THIS PROSPECTUS SUPPLEMENT IS BEING USED IN A MARKET-MAKING
TRANSACTION.
GOLDMAN, SACHS & CO.
------------------------

Prospectus Supplement dated , 1999.

<PAGE> 4

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

Rule 424(b)(1)
Registration Statement
No. 333-
Subject to Completion. Dated March 31, 1999.

Prospectus Supplement No. to the Prospectus dated , 1999.

THE GOLDMAN SACHS GROUP, INC.
Medium-Term Notes, Series B

-------------------------

[INDEX NAME] % Index-Linked Note due

-------------------------

The Note being purchased involves investment risks that should be
considered carefully. See "Additional Risk Factors Specific to Your Note"
beginning on page S-8.

The Note is one of the Medium-Term Notes, Series B, and has the following
terms:

FACE AMOUNT: $

PRINCIPAL AMOUNT: on the Stated Maturity Date, Goldman Sachs will pay the Holder
cash equal to 100% of the outstanding Face Amount, unless the Holder exercises
the Exchange Right, Goldman Sachs exercises the Call Right or an Automatic
Exchange occurs

STATED MATURITY DATE: unless extended to a date not later than
[stated maturity + 7 days]

INDEX:

EXCHANGE RATE: [This rate will equal (i) 1 (or if the original issue
price is more or less than 100%, that price expressed as a decimal) divided by
(ii) the Index level at the time of pricing times a factor greater than 1 and
less than 2]

EXCHANGE RIGHT: the Holder may exchange the Note, in whole or from time to time
in part, for cash in an amount equal to the Exchange Rate times the Final
Index Value, for each $1 of Face Amount exchanged

CALL RIGHT: Goldman Sachs may redeem the Note in whole, but not in part, on or
after , at % of the outstanding Face Amount, plus accrued
interest to the redemption date

FIXED INTEREST RATE:
- annual rate: %
- interest payment dates: May and November of each year, beginning
November , 1999
- regular record dates: the Business Day before the related interest payment
date, while the Note is in global form, or May and November of each
year, if the Note ceases to be in global form

SPECIFIED CURRENCY (IF NOT U.S. DOLLARS):
- principal:
- interest:

ORIGINAL ISSUE DATE*:

ORIGINAL ISSUE PRICE*: 100%

NET PROCEEDS TO GOLDMAN SACHS*: % of the Face Amount

FINAL INDEX VALUE: the closing level of the Index on the Exchange Notice Date or
the Determination Date, as the case may be

LISTING: the Note has been approved for listing on under the symbol
" "

FORM OF NOTE:
- global form only:
- non-global form available:

CALCULATION AGENT**: Goldman, Sachs & Co.

DEFEASANCE APPLIES AS FOLLOWS:
- full defeasance: N/A
- covenant defeasance: N/A

OTHER TERMS: other special provisions apply to the Note as described beginning
on page S-2; these include:
- Default Amount payable on acceleration
- modified Business Day

(continued on next page)
<PAGE> 5

- ---------------
If an item in this prospectus supplement is left blank or says "N/A", the
item is not applicable unless otherwise indicated.

* This information relates only to the initial sale of the Note. If the Note is
sold in a market-making transaction after its initial sale, information about
the price paid and the date of sale will be provided in a separate
confirmation of sale.

** This information names the Calculation Agent as of the original issue date of
the Note. Goldman Sachs may change the Calculation Agent after that date
without notice.
-------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------

Goldman Sachs may use this prospectus supplement in the initial offering
and sale of the Note. In addition, Goldman, Sachs & Co. or any other affiliate
of Goldman Sachs may use this prospectus supplement in a market-making
transaction in the Note after its initial sale. UNLESS GOLDMAN SACHS OR AN AGENT
INFORMS THE PURCHASER OTHERWISE, THIS PROSPECTUS SUPPLEMENT IS BEING USED IN A
MARKET-MAKING TRANSACTION.

GOLDMAN, SACHS & CO.
-------------------------

Prospectus Supplement dated , 1999.
<PAGE> 6

SPECIFIC TERMS OF YOUR NOTE

Please note that in this prospectus supplement, the terms "GS INC.", "WE", "OUR"
and "US" refer only to The Goldman Sachs Group, Inc. and do not include its
consolidated subsidiaries, while the term the "FIRM" refers to GS Inc. together
with its consolidated subsidiaries. Also, the term "HOLDERS" means those who own
Notes registered in their own names, on the books that we or the Trustee
maintain 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 DTC. 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".

In this prospectus supplement, we use terms that have special meaning under your
Note. We define these terms where they appear in bold, italicized type. For some
of these terms, the definitions are listed on the cover page or below under
"-- Special Calculation Terms". We also use terms that are defined in the
attached prospectus.

Your Note is one of a series of debt securities, entitled "Medium-Term
Notes, Series B" that we may issue under the Indenture from time to time.
Although the terms of your Note differ from those of the other Series B Notes,
Holders of specified percentages in principal amount of all Series B Notes,
together in some cases with other series of our debt securities, will be able to
take action affecting the entire Series B, including your Note. We discuss these
matters in the attached prospectus under "Description of Notes We May Offer".

In this prospectus supplement, we refer to or any other firm that
publishes the Index or a successor index as the "INDEX SPONSOR".

PAYMENT OF PRINCIPAL ON STATED MATURITY DATE

On the Stated Maturity Date, we will pay as the principal amount cash equal
to 100% of the outstanding Face Amount of your Note, unless:

- the Holder exercises the right to exchange the Note or the Note is
automatically exchanged as described below under "-- Holder's Exchange
Right" or

- we exercise our right to redeem the Note as described below under "-- Our
Call Right".

If your Note is exchanged in part, we will make this payment on the portion that
remains outstanding on the Stated Maturity Date.

The "STATED MATURITY DATE" will be unless that day is not a
Business Day, in which case the Stated Maturity Date will be the next following
Business Day. If the third Business Day before this applicable day is not the
Determination Date, however, then the Stated Maturity Date will be the third
Business Day following the Determination Date, provided that the Stated Maturity
Date will never be later than [stated maturity + 7 days].

INTEREST PAYMENTS

Interest will accrue on the outstanding Face Amount of your Note and will
be calculated and paid as described in the attached prospectus, except that the
interest payment and regular record dates will be those specified on the front
cover of this prospectus supplement and, if the Holder exercises the Exchange
Right, the following four rules will apply to the exchanged portion of the Note:

- If the Exchange Notice Date occurs on an interest payment date, interest
will accrue on the exchanged portion to, but excluding, that interest
payment date. We will pay the accrued interest on that interest payment
date to whoever was the Holder on the related regular record date.

- If the Exchange Notice Date occurs after an interest payment date but on
or

S-2
<PAGE> 7

before the next regular record date, interest will accrue and be paid on
the exchanged portion to, and excluding, that prior interest payment date
and not for the later period that precedes the Exchange Notice Date,
except in the following situation. If we exercise our Call Right and the
Exchange Notice Date occurs on or after the Call Notice Date, interest
will accrue on the exchanged portion to, but excluding, the Exchange
Notice Date. We will pay this accrued interest when the exchange payment
is due, to the Holder receiving the exchange payment.

- If the Exchange Notice Date occurs on or before the first regular record
date, interest will not accrue or be paid on the exchanged portion of the
Note, unless we exercise our Call Right and the Exchange Notice Date
occurs on or after the Call Notice Date. In that situation, interest will
accrue and be paid on the exchanged portion as provided in the second
rule, above.

- If the Exchange Notice Date occurs after a regular record date but before
the related interest payment date, interest will accrue on the exchanged
portion to, but excluding, that interest payment date. We will pay this
accrued interest on that interest payment date, to whoever was the Holder
on the related regular record date. On the Exchange Notice Date, however,
the Holder receiving the exchange payment will be required to pay us the
amount of interest payable on the exchanged portion on that interest
payment date, except in the following situation. If we exercise our Call
Right and the Exchange Notice Date occurs on or after the Call Notice
Date, then the Holder will not be required to pay us that amount. As long
as your Note is in global form, the regular record date will be the
Business Day before the related interest payment date. As a result, this
rule should have no practical effect unless and until your Note ceases to
be in global form. We describe the situations in which we may terminate a
global Note in the attached prospectus under "Description of Notes We May
Offer -- What Is a Global Note?".

Because of the rules described above, if you decide to exchange your Note,
you may lose the right to receive interest on your Note for the interest period
in which the exchange occurs.

HOLDER'S EXCHANGE RIGHT

If the Holder satisfies the delivery requirements described below, the
Holder may exchange the Note, in whole or from time to time in part, for cash in
an amount equal to the Exchange Rate times the Final Index Value, for each $1 of
Face Amount exchanged. Partial exchanges will be permitted only if the portion
of the Face Amount exchanged equals $1,000 or a multiple of $1,000.

If we exercise our Call Right, the Holder will not be permitted to exchange
the Note unless the Exchange Notice Date occurs before the Call Date.

DELIVERY REQUIREMENTS

To exchange a Note, the Holder must deliver on an Exchange Day to the
Trustee, with a copy to the Calculation Agent, in the case of the first item
below:

- a properly completed and signed Notice of Exchange, in the form attached
to this prospectus supplement, specifying the Face Amount of the Note to
be exchanged,

- the certificate representing the Note, if the Note is not in global form,
and

- if the Exchange Notice Date is after a regular record date and before the
related interest payment date, an amount equal to the interest payable on
the exchanged portion of the Note on the interest payment date, unless a
Call Notice Date occurs on or before the Exchange Notice Date, as
provided in the fourth rule described under "-- Interest Payments" above.

S-3
<PAGE> 8

If these deliveries occur by 11:00 A.M., New York City time, on an Exchange Day,
that day will be the "EXCHANGE NOTICE DATE" for the exchange. If these
deliveries occur after that time on an Exchange Day, the next Exchange Day will
be the Exchange Notice Date for the exchange.

We define the term "Exchange Day" below under "-- Special Calculation
Terms".

If the Note is in global form, no delivery of a Notice of Exchange will be
effective unless both the following requirements are met:

- the Trustee must receive all required items from the Depositary or its
nominee, as the Holder of the Note, through the facilities of the
Depositary in accordance with the applicable procedures of the
Depositary; and

- the Calculation Agent must receive a copy of the duly completed and
signed Notice of Exchange from the bank or broker through which you hold
your interest in the Note, by facsimile sent to the number and location
stated in the attached form of notice, or to any other number or location
that the Calculation Agent may provide to the Holder for this purpose in
the future.

If the Note ceases to be in global form, deliveries otherwise required to
be made through the Depositary will instead have to be made by or on behalf of
the person who is then the Holder of the Note, to the Trustee by mail or another
acceptable method. The requirement that the Calculation Agent receive a copy of
the Notice of Exchange will continue to apply.

The Calculation Agent will, in its sole discretion, resolve any questions
that may arise as to the validity of a Notice of Exchange or as to whether the
required deliveries have been made. Once given, a Notice of Exchange may not be
revoked.

DATE OF PAYMENT

We will pay the cash due on the exchange on the third Business Day after
the Exchange Notice Date. If we exercise our Call Right so that interest accrues
on the exchanged portion of the Note to the Exchange Notice Date and is payable
to whoever is the Holder on that date, as provided in the second or third rule
described above under "-- Interest Payments", we will also pay that interest on
that third Business Day.

ONLY HOLDER MAY EXERCISE EXCHANGE RIGHT

If your Note is issued in global form, the Depositary or its nominee is the
Holder of your Note and therefore is the only entity that can exercise the
Exchange Right. If you would like the Holder to exercise the Exchange Right, you
should give proper and timely instructions to the bank or broker through which
you hold your interest in the Note, requesting that it notify the Depositary to
exercise the Exchange Right on your behalf. Different firms have different
deadlines for accepting instructions from their customers, and you should take
care to act promptly enough to insure that your request is given effect by the
Depositary before the deadline for exercise. Similar concerns apply if you hold
your Note in street name.

Book-entry, street name and other indirect holders should contact their
banks and brokers for information about how to exercise the Exchange Right
in a timely manner.

AUTOMATIC EXCHANGE

If the Holder does not exercise the Exchange Right for the entire Note
before the Determination Date, the following will apply. On the Determination
Date, the Calculation Agent will determine the amount of cash that would be
payable if the remaining portion of the Note were exchanged on that day. If that
amount exceeds the sum of:

- the Face Amount of the remaining portion of the Note plus

- the amount of accrued and unpaid interest that would be payable on that
portion on the Stated Maturity Date, if that portion were not exchanged
or redeemed,

then, the remaining portion will automatically be exchanged for cash equal to
such greater

S-4
<PAGE> 9

amount, even though the Holder does not exercise the Exchange Right. We will
treat the Determination Date as the Exchange Notice Date.

Despite the foregoing, if we exercise our Call Right and the Call Date
occurs on or before the Determination Date, there will be no automatic exchange.

OUR CALL RIGHT

We may redeem your Note, in whole but not in part, at any time on or after
at our option, for cash at a redemption price equal to % of the
outstanding Face Amount, plus accrued interest to the redemption date.

If we choose to redeem your Note, we will notify the Holder and the Trustee
not less than five nor more than 15 days before the date we select for
redemption, in the manner described in the attached prospectus. The day we give
the notice will be the "CALL NOTICE DATE" and the day we select for redemption,
which must be on or after , will be the "CALL DATE".

On the Call Date, we will pay the redemption price in cash, together with
accrued and unpaid interest to the Call Date. The Holder will remain entitled to
exercise the Exchange Right on any day before the Call Date. The Holder will not
be entitled to exercise an Exchange Right on or after the Call Date.

Except as described in the preceding paragraph or above under "-- Holder's
Exchange Right", we will not be permitted to redeem the Note and the Holder will
not be entitled to require us to repay the Note before the Stated Maturity Date.

DISCONTINUANCE OR MODIFICATION OF THE INDEX

If the Index Sponsor discontinues publication of the Index and the Index
Sponsor or anyone else publishes a substitute index that the Calculation Agent
believes is comparable to the Index, then the Exchange Rate will be determined
by reference to the successor index. When we refer to the Index, we mean the
Index or any successor index then in effect.

If the publication of the Index is discontinued and no one publishes a
successor index, or if a Market Disruption Event occurs or is continuing on the
Determination Date, the Exchange Rate will be computed by the Calculation Agent
using a universe of underlying stocks and a computation methodology that the
Calculation Agent determines will as closely as reasonably possible replicate
the Index.

If at any time the method of calculating the Index is changed in a material
respect, or if the Index is in any other way modified so that it does not, in
the opinion of the Calculation Agent, fairly represent the Index as it was
before such changes or modifications were made, then the Calculation Agent shall
make such adjustments as it believes are necessary in order to arrive at a
calculation of a stock index comparable to the Index and will calculate the
Exchange Rate with reference to the Index, as so adjusted.

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 define the Default Amount below under "-- Special Calculation
Terms".

For the purpose of determining whether the Holders of our Medium-Term
Notes, Series B, of which your Note is one, are entitled to take any action
under the Indenture, we will treat the outstanding Face Amount of your Note as
the outstanding principal amount of your Note. The kinds of action that Holders
may take are described in the attached prospectus, under "Description of Notes
We May Offer -- Default, Remedies and Waiver of Default" and "-- Modification
and Waiver of Covenants".

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 succeeding day that is a Business Day, with the same effect as if
paid on the original due
S-5
<PAGE> 10

date. For your Note, however, the term
"Business Day" has a different meaning than it does for other Notes of this
series. We discuss this term under "-- Special Calculation Terms" below.

ROLE OF CALCULATION AGENT

The Calculation Agent will make all determinations regarding interest
payments, the Exchange Rate, Market Disruption Events, the Default Amount,
calculation of the Index and the amount of cash to be delivered in exchange for
your Note. Absent manifest error, all determinations of the Calculation Agent
will be final and binding on you and us.

SPECIAL CALCULATION TERMS

"BUSINESS DAY" means any Business Day, as defined in the attached
prospectus, that is not a day on which [identify principal exchange] is
authorized by law or executive order to close.

"DEFAULT AMOUNT" for your Note means, on any day, an amount, in the
specified currency for the principal of your Note, equal to the cost of having a
Qualified Financial Institution, 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, 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" will be the period beginning on the day the
Default Amount first becomes due and ending on the third Business Day after that
due 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 provided 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 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 outstanding Face Amount of your Note.

"DETERMINATION DATE" means the third Business Day before the Stated
Maturity Date, unless a Market Disruption Event occurs or is continuing on that
Business Day. In that event, the Determination Date will be the first following
Business Day on which a Market Disruption Event does not occur and is not
continuing. In no event, however, will the Determination Date be later than the
third Business Day before [stated maturity + 7 days].

S-6
<PAGE> 11

"EXCHANGE DAY" means, with respect to any portion of your Note, any
Business Day during the period beginning on and including the original issue
date to but excluding the earlier of:

- the Determination Date and

- the Call Date.

If a Market Disruption Event occurs or is continuing on what would otherwise be
an Exchange Day, then that Exchange Day will be the first following Business Day
on which a Market Disruption Event does not occur and is not continuing. In no
event, however, will any Exchange Day be later than the fourth Business Day
before [stated maturity + 7 days].

"MARKET DISRUPTION EVENT" means any of the following:

- a suspension of trading, absence of trading or material limitation on
trading in 25 or more of the securities included in the Index on their
primary markets for more than two hours of trading or during the one-half
hour before the close of trading in those markets, as determined by the
Calculation Agent in its sole discretion, or

- a suspension of trading, absence of trading or material limitation on
trading in option contracts relating to the Index or to 25 or more of the
securities included in the Index, if available, in the primary markets
for those contracts during the one-half hour before the close of trading
in those markets, as determined by the Calculation Agent in its sole
discretion, or

- 25 or more of the securities included in the Index do not trade on what
were their primary markets, 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 GS Inc. or
any of its affiliates to unwind all or a material portion of a hedge with
respect to your Note.

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 relevant option
contracts.

For this purpose, an "absence of trading" in the primary securities market
on which option contracts related to the Index or to any security included in
the Index, or on which any security included in the Index, is traded will not
include any time when that market is itself closed for trading under ordinary
circumstances. In addition, limitations under NYSE Rule 80A -- or any applicable
rule adopted by a regulatory or self-regulatory organization of similar scope as
determined by the Calculation Agent -- on trading in option contracts on the
Index, or on any security included in the Index, if available, in the primary
market for those contracts, by reason of:

- a price change exceeding limits set by that market, or

- an imbalance of orders relating to those contracts, or

- a disparity in bid and ask quotes relating to those contracts

will constitute a suspension or material limitation of trading in option
contracts related to the Index or a security.

"QUALIFIED FINANCIAL INSTITUTION" means, at any time, 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 or any successor, or any other
comparable rating then used by that relevant 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 relevant rating agency.

S-7
<PAGE> 12

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
Index or the securities included in the Index. You should carefully consider
whether the Note is suited to your particular circumstances.

THE MARKET PRICE OF YOUR NOTE MAY BE INFLUENCED BY MANY UNPREDICTABLE FACTORS

The following factors, many of which are beyond our control, will influence
the value of your Note:

- the value of the Index,

- the volatility -- i.e., the frequency and magnitude of changes in the
value of the Index,

- economic, financial, regulatory and political events that affect stock
markets generally and the market segment of which the securities included
in the Index is a part, and which may affect the value of the Index,

- interest rates and yields in the market,

- the time remaining until you can exchange your Note for cash, the time
remaining until we can redeem your Note and the time remaining until your
Note matures and

- our creditworthiness.

These factors will influence the price you will receive if you sell your Note
prior to maturity. You cannot predict the future performance of the Index based
on its historical performance.

TRADING AND OTHER TRANSACTIONS BY THE FIRM MAY ADVERSELY AFFECT THE VALUE OF
YOUR NOTE

As we have described under "Use of Proceeds and Hedging" below, we, through
GS&Co. or one or more of our other affiliates, may have hedged our obligations
under your Note by, among other things, purchasing some or all of the securities
included in the Index, options on the Index or other instruments, and we may
adjust the hedge by, among other things, purchasing or selling some or all of
the securities in the Index, options on the Index or other instruments, at any
time and from time to time. Any of these hedging activities may adversely affect
the value of the Index and, therefore, the value of your 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.

GS&Co. and our other affiliates may also engage in trading related to such
securities or the Index for their proprietary accounts, for other accounts under
their management and to facilitate transactions, including block transactions,
on behalf of customers. Any of these activities of GS&Co. or our other
affiliates could adversely affect the level of the Index and, therefore, the
value of your Note. GS&Co. and our other affiliates may also issue or underwrite
other securities or financial or derivative instruments with returns linked or
related to changes in the level of the Index. By introducing competing products
into the market place in this manner, our affiliates could adversely affect the
value of your Note.

POTENTIAL CONFLICTS OF INTEREST BETWEEN YOU AND OUR AFFILIATES

As we have noted above, GS&Co. and our other affiliates expect to engage in
trading activities related to the Index and the securities included in the Index
that are not for your account or on your behalf. These trading activities may
present a conflict of interest between your interests and the interests GS&Co.
and our other affiliates 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

S-8
<PAGE> 13

value of the Index or the securities included in
the Index, could be adverse to your interests as a beneficial owner of the Note.

DISCRETION OF GS&CO. AS CALCULATION AGENT

As Calculation Agent, GS&Co. has discretion in making determinations
relating to changes in the Index, the value of the Index, Market Disruption
Events and any exercise of the Exchange Right. See "Specific Terms of Your
Note -- Discontinuance or Modification of the Index" and "-- Holder's Exchange
Right". The exercise of this discretion by GS&Co. could adversely affect the
value of your Note and may present GS&Co. with a conflict of interest of the
kind described above under "-- Potential Conflicts of Interest Between You and
Our Affiliates".

YOUR NOTE MAY NOT BE ACTIVELY TRADED

There may be little or no secondary market for your Note. Also, it is
impossible to predict whether your Note will trade in any secondary market that
may develop. Even if a market develops for your Note, it may not provide
significant liquidity and we expect that transaction costs in any secondary
market to be high. As a result, the difference between bid and asked prices for
your Note could be substantial.

CALL FEATURE

On and after , we will be permitted to redeem your Note at our
option. Even if we do not exercise that option, our ability to do so may
adversely affect the 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 day on which no Market Disruption Event has
occurred or is continuing. As a result, the Stated Maturity Date will also be
postponed, although not more than seven days. Thus, you may not receive the cash
that we are obligated to pay on the Stated Maturity Date until several days
after the originally scheduled due date.

S-9
<PAGE> 14

USE OF PROCEEDS AND HEDGING

We will use the net proceeds we receive from the sale of your Note for the
purposes we describe in the attached prospectus under "Use of Proceeds". We or
our affiliates may also use a portion of those proceeds in transactions intended
to hedge our obligations under your Note as described below.

In anticipation of the sale of your Note, the Firm may have entered into
hedging transactions prior to the date of this prospectus supplement. From time
to time after today, we may:

- acquire or dispose of securities included in the Index,

- take short positions in securities included in the Index -- i.e., we may
sell securities of the kind that we do not own or that we borrow for
delivery to purchaser,

- take or dispose of positions in listed or over-the-counter options or
other instruments based on the Index or securities included in the Index
and/or

- take or dispose of positions in listed or over-the-counter options or
other instruments based on indices designed to track the performance of
components of the U.S. equity market.

The Firm may acquire a long or short position in securities similar to your Note
from time to time and may, in its sole discretion, hold or resell those
securities.

The Firm may close out its hedge on or before the Determination Date. That
step may involve sales of securities included in the Index, listed or
over-the-counter options on the Index or listed or over-the-counter options or
other instruments based on indices designed to track the performance of
components of the U.S. equity market.

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 THE FIRM MAY ADVERSELY AFFECT THE
VALUE OF YOUR NOTE" AND "-- POTENTIAL CONFLICTS OF INTEREST BETWEEN YOU AND OUR
AFFILIATES" FOR A DISCUSSION OF THESE ADVERSE EFFECTS.

S-10
<PAGE> 15

[INDEX NAME]

The following information has been derived solely from publicly available
sources. We have not independently verified the accuracy of any of this
information and we assume no responsibility for the accuracy or completeness of
this information.

WHAT IS THE INDEX?

The Index is published by the Index Sponsor and is intended to provide an
indication of the movement of [prices] [total return] of a [describe universe of
underlying securities]. The calculation of the value of the Index is discussed
below in further detail. As of , 1999, the companies
included in the Index represented approximately % of the aggregate market
value of common stocks traded on the [stock exchange]. The Index Sponsor chooses
companies for inclusion in the Index with the aim of achieving a distribution by
broad industry groupings that approximates the distribution of these groupings
in the stock population of the [stock exchange], which the Index Sponsor uses as
an assumed model for the entire market. The Index Sponsor considers, among other
things: the extent to which a company represents the industry group to which it
is assigned, the extent to which the market price of that company's stock is
generally responsive to changes in the affairs of its industry and the trading
activity of the stock of that company. The Index Sponsor may from time to time
add companies to, or delete companies from, the Index to achieve those
objectives.

COMPUTATION OF THE INDEX

The Index Sponsor currently computes the Index as of a particular time as
follows [insert formula or methodology].

While the Index Sponsor currently calculates the Index in the way described
above, the Index Sponsor may modify or change that method in a way that may
affect the value of the Note.

The Index Sponsor adjusts its method of calculating the Index to eliminate
the effect of changes in the market value of a stock that it determines to be
arbitrary or not due to true market fluctuations. These changes may result from
such causes as the issuance of stock dividends, stock splits, the granting to
shareholders of rights to purchase additional shares of such stock, the purchase
of such stock by employees pursuant to employee benefit plans, certain
consolidations and acquisitions, the granting to shareholders of rights to
purchase other securities of the company and other reasons.

LICENSE AGREEMENT

The Index Sponsor and GS&Co. have entered into a non-exclusive license
agreement providing for the license to GS&Co. and its affiliates, in exchange
for a fee, of the right to use the Index in connection with the offer and sale
of securities.

The Note is not sponsored, endorsed, sold or promoted by the Index Sponsor.
The Index Sponsor makes no representation or warranty, express or implied, to
you or anyone else having an interest in the Note, regarding the advisability of
investing in securities generally or in the Note particularly or the ability of
the Index to track general stock market performance. The Index Sponsor's only
relationship to the Firm is the licensing of trademarks and trade names of the
Index Sponsor. The Index Sponsor determines, composes and calculates the Index
without regard to the Firm or the Note. The Index Sponsor has no obligation to
take into account your interest, or that of anyone else having an interest, in
the Note in determining, composing or calculating the Index. The Index Sponsor
is not responsible for and has not participated in the determination of the
terms, prices or amount of the Note and will not be responsible for or
participate in any determination or calculation regarding the amount payable on
any exchange of the Note. The Index Sponsor has no obligation or liability in
connection with the administration, marketing or trading of the Note.

THE INDEX SPONSOR DOES NOT GUARANTEE THE ACCURACY OR THE

S-11
<PAGE> 16

COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED IN THE INDEX. THE INDEX SPONSOR
ASSUMES NO LIABILITY FOR ANY ERRORS OR OMISSIONS.

HISTORICAL INFORMATION

The following table sets forth the quarterly high and low closing levels of
the Index for the four calendar quarters in 1996, 1997 and 1998, and for the
first calendar quarter in 1999. We obtained the closing levels listed below from
Bloomberg Financial Services, without independent verification.

You should not take the historical levels of the Index as an indication of
future performance. We cannot give you any assurance that the levels of the
Index will increase sufficiently for you to receive an amount in excess of the
Face Amount of your Note if you exercise the Exchange Right at any time.

<TABLE>
<CAPTION>
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
1996
Quarter ended March 31...........................
Quarter ended June 30............................
Quarter ended September 30.......................
Quarter ended December 31........................
1997
Quarter ended March 31...........................
Quarter ended June 30............................
Quarter ended September 30.......................
Quarter ended December 31........................
1998
Quarter ended March 31...........................
Quarter ended June 30............................
Quarter ended September 30.......................
Quarter ended December 31........................
1999
Quarter ended March 31...........................
Closing level of the Index on ,
1999..........................................
</TABLE>

S-12
<PAGE> 17

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

THE FOLLOWING DISCUSSION SUPPLEMENTS THE DISCUSSION OF UNITED STATES
TAXATION SET FORTH IN THE PROSPECTUS WITH RESPECT TO UNITED STATES
HOLDERS. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE
UNITED STATES FEDERAL INCOME TAX AND ANY OTHER TAX TREATMENT
OF YOUR NOTES.

Your Note will be subject to special rules governing contingent payment
obligations. 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 income in respect of your Note prior to
your receipt of cash attributable to such income.

The rules governing contingent payment obligations do not provide any rule
for determining the maturity date for debt instruments (such as your Notes) that
provide for a call right or exchange 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 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 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.

You will recognize gain or loss upon the sale, exchange, redemption or
maturity of your Note in an amount equal to the difference, if any, between the
fair market value of the amount 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 decreased by the amount of
interest payments you received with respect to your Note.

Any gain you recognize upon the sale, exchange, 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, as
capital loss.

S-13
<PAGE> 18

SUPPLEMENTAL PLAN OF DISTRIBUTION

Goldman Sachs has agreed to sell to GS&Co., and GS&Co. has agreed to
purchase from Goldman Sachs, $ aggregate Face Amount of the Note
described in this prospectus supplement. GS&Co. intends to resell the Note at
the original issue price. In the future, GS&Co. or other affiliates of Goldman
Sachs may repurchase and resell the Note 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 our plan of
distribution and possible market-making activities, see "Plan of Distribution of
Notes" in the attached prospectus.

S-14
<PAGE> 19

NOTICE OF EXCHANGE

Dated:
[Trustee]

with a copy to:

Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attn: (212- - )
(212- - )
Fax: (212- - )

Re: [Index name] Index-Linked Note due (the "Note")

Dear Sirs:

The undersigned is, or is acting on behalf of, the beneficial owner of the
Medium-Term Note, Series B, of The Goldman Sachs Group, Inc. specified above.
The undersigned hereby irrevocably elects to exercise the Exchange Right as
described in the prospectus supplement dated , 1999 to the
prospectus dated , 1999 with respect to the outstanding Face Amount
of the Note indicated below. The exercise is to be effective on the Business Day
on which the Trustee has received this Notice of Exchange, together with all
other items required to be delivered with the notice, and the Calculation Agent
has received a copy of this Notice of Exchange, unless these required items have
not been received until after 11:00 A.M., New York City time, on that Business
Day, in which case the exercise will be effective as of the next Business Day.
We understand, however, that the effective date in all cases must be a Business
Day before the earlier of (i) the Determination Date and (ii) the Call Date. The
effective date will be the Exchange Notice Date.

If the Note is in global form, the Depositary or its nominee is the Holder
of the Note and this Notice of Exchange is being delivered to the Trustee
through the facilities of the Depositary in accordance with the applicable
procedures of the Depositary. In addition, the undersigned is delivering a copy
of this Notice of Exchange directly to the Calculation Agent by facsimile
transmission to its number stated above, or such other number as the Calculation
Agent may have designated for this purpose to the Holder.

If the Note is not in global form, the undersigned or the beneficial owner
is the Holder of the Note, and this Notice of Exchange is being delivered
directly to the Trustee with a copy to the Calculation Agent.

If the undersigned is not the beneficial owner of the Note, the undersigned
hereby represents that it has been duly authorized by the beneficial owner to
act on behalf of the beneficial owner.

Capitalized terms used and not defined in this notice have the meanings
given to them in the prospectus supplement.

S-15
<PAGE> 20

The Calculation Agent should acknowledge receipt of the copy of this Notice
of Exchange, in the place provided below, on the Business Day of receipt, noting
the date and time of receipt. The Trustee should deliver the cash consideration
payable on exchange on the third Business Day after the Exchange Notice Date in
accordance with the terms of the Note, as described in the prospectus
supplement.

Face Amount of Note
to be exchanged:

$
(must be a multiple of $1,000)
Very truly yours,

--------------------------------------
(Name of beneficial owner or
person authorized to act on its
behalf)

--------------------------------------
(Title)

--------------------------------------
(Fax)

Receipt of the above Notice of Exchange
is hereby acknowledged

GOLDMAN, SACHS & CO., as Calculation Agent

By:
--------------------------------------------------------
(Title)

Date and time of receipt:

, (date)
(time)

S-16
<PAGE> 21
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

Subject to Completion. Dated March 31, 1999. Rule 424(b)(1)
Registration Statement
No. 333-

Prospectus Supplement No. to the Prospectus dated , 1999.

THE GOLDMAN SACHS GROUP, INC.

Medium-Term Notes, Series B
-------------------------
% Mandatory Exchangeable Note due
(Subject to Mandatory Exchange into Shares of Common Stock of [Stock Issuer])
-------------------------

The Note being purchased involves investment risks that should be
considered carefully. See "Additional Risk Factors Specific to Your Note"
beginning on page S-9.

The Note being purchased is one of the Medium-Term Notes, Series B, and has
the following terms:

FACE AMOUNT: $

PRINCIPAL AMOUNT: on the Stated Maturity Date, Goldman Sachs will exchange the
Note for Stock at the Exchange Rate or, at the option of Goldman Sachs, for
the cash value of that Stock based on the Final Closing Price

STATED MATURITY DATE: unless extended to a date not later than
[stated maturity + 7 days]

STOCK ISSUER:

STOCK:

INITIAL STOCK PRICE: $

EXCHANGE RATE: subject to antidilution adjustment, this rate will equal either:

- if the Final Closing Price is greater than or equal to the Threshold
Appreciation Price, a number of shares of Stock equal to the Threshold
Fraction for each $ [Initial Stock Price] of the outstanding Face
Amount of the Note, or
- if the Final Closing Price is less than the Threshold Appreciation Price,
one share of Stock for each $ [Initial Stock Price] of the outstanding
Face Amount of the Note

FIXED INTEREST RATE:
- annual rate: %
- interest payment dates: February , May , August and November of each
year, beginning August , 1999
- regular record dates: February , May , August and November of each
year

SPECIFIED CURRENCY (IF NOT IN U.S. DOLLARS)
- principal:
- interest:

ORIGINAL ISSUE DATE*:

ORIGINAL ISSUE PRICE*: %

NET PROCEEDS TO GOLDMAN SACHS*: % of the Face Amount

THRESHOLD APPRECIATION PRICE: $ [the Initial Stock Price times a number
between 1 and 2]

THRESHOLD FRACTION: the Threshold Appreciation Price divided by the Final
Closing Price

FINAL CLOSING PRICE: the Closing Price of one share of Stock on the
Determination Date

LISTING: the Note has been approved for listing on under
the symbol " "

FORM OF NOTE:
- global form only:
- non-global form available:

DENOMINATIONS: multiples of the Initial Stock Price

CALCULATION AGENT**: Goldman, Sachs & Co.

DEFEASANCE APPLIES AS FOLLOWS:
- full defeasance: N/A
- covenant defeasance: N/A

OTHER TERMS: other special provisions apply to the Note as described beginning
on page S-2; these include:
- Default Amount payable on acceleration
- antidilution provisions
- modified Business Day

(continued on next page)

<PAGE> 22

- ---------------

If an item in this prospectus supplement is left blank or says "N/A", the
item is not applicable unless otherwise indicated.

** This information names the Calculation Agent as of the original issue date of
the Note. Goldman Sachs may change the Calculation Agent after that date
without notice.
-------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------

GOLDMAN, SACHS & CO.
-------------------------

Prospectus Supplement dated , 1999.
<PAGE> 23

SPECIFIC TERMS OF YOUR NOTE

Please note that in this prospectus supplement, the terms "GS INC.", "WE","OUR"
and "US" refer only to The Goldman Sachs Group, Inc. and do not include its
consolidated subsidiaries, while the term the "FIRM" refers to GS Inc. together
with its consolidated subsidiaries. Also, the term "HOLDERS" means those who own
Notes registered in their own names, on the books that we or the Trustee
maintain 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 DTC. 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".

In this prospectus supplement, we use terms that have special meaning under your
Note. We define these terms where they appear in BOLD, ITALICIZED type. For some
of these terms, the definitions are listed on the cover page or below under
"-- Special Calculation Terms". We also use terms that are defined in the
attached prospectus.

Your Note is one of a series of debt securities, entitled "Medium-Term
Notes, Series B" that we may issue under the Indenture from time to time.
Although the terms of your Note differ from those of the other Notes in Series
B, Holders of specified percentages in principal amount of all Series B Notes,
together in some cases with other series of our debt securities, will be able to
take action affecting the entire Series B, including your Note. We discuss these
matters in the attached prospectus under "Description of Notes We May Offer".

In this prospectus supplement, we refer to as the "STOCK ISSUER".

PAYMENT OF PRINCIPAL ON STATED MATURITY DATE

On the Stated Maturity Date, we will exchange your Note for Stock at the
Exchange Rate. Alternatively, at our sole option, we may pay you cash in an
amount equal to the Exchange Rate multiplied by the Final Closing Price. If we
choose to deliver cash, we will notify you of our election at least ten Business
Days prior to the Stated Maturity Date; if we do not notify you, we will deliver
Stock.

The Exchange Rate is equal to either:

- if the Final Closing Price is less than the Threshold Appreciation Price,
one share of Stock for each $ [Initial Stock Price] of the
outstanding Face Amount of the Note.

The Exchange Rate may be adjusted, with respect to both amount and type of
consideration, as a result of dilution events, as we describe below under
"-- Antidilution Adjustments".

If an exchange would otherwise involve a fractional share of Stock, we will
pay cash instead of the fractional share, in an amount equal to that fraction
multiplied by the Final Closing Price. The shares of Stock, together with any
cash payable for a fractional share, and after giving effect to any antidilution
adjustments, represents the principal amount of your Note.

S-2
<PAGE> 24

INTEREST PAYMENTS

ANTIDILUTION ADJUSTMENTS

The Calculation Agent will adjust the Exchange Rate as described below, but
only if an event requiring adjustment occurs during the period beginning on and
including the date of this prospectus supplement and ending on and including the
Determination Date, except as specified below.

The Calculation Agent will not make any adjustments to the Exchange Rate
other than those specified below. Those adjustments do not cover all events that
could affect the Exchange Rate, such as an issuer tender or exchange offer for
the Stock at a premium to its market price or a tender or exchange offer made by
a third party for less than all the outstanding Stock. We describe the risks
relating to dilution under "Additional Risk Factors Specific to Your Note -- You
Have Limited Antidilution Protection".

The Calculation Agent does not have to adjust the Exchange Rate unless the
adjustment would require a change of at least 0.1% in the Exchange Rate then in
effect. The Exchange Rate resulting from any adjustment will be rounded to the
nearest one thousandth with five ten-thousandths being rounded upward -- e.g.,
0.1234 will be rounded down to 0.123 and 0.1235 will be rounded up to 0.124.

The Calculation Agent will make all determinations with respect to any
adjustment of the Exchange Rate, including any determination as to whether an
event requiring adjustment has occurred or as to the value of any Exchange
Property, and will do so in its sole discretion. In the absence of manifest
error, those determinations will be conclusive for all purposes and binding on
you and us, without any liability on the part of the Calculation Agent. The
Calculation Agent will provide information about the adjustments it makes upon
written request by the Holder.

In the case of any adjustment to the Exchange Rate as a result of an event
described under any of the following six subheadings, the Final Closing Price
will be adjusted in the same manner. The required adjustment will be made on the
Determination Date by multiplying the Final Closing Price by each number or
fraction determined under the applicable Exchange Rate adjustment procedures
described below and using that adjusted Final Closing Price in determining the
Exchange Rate.

The antidilution adjustments described below will be made only for the
events described under the following six subheadings. In addition, the
adjustments for stock splits, reverse stock splits, stock dividends, cash
dividends and other distributions and events described below are meant to apply
only if those events actually occur, and as often as they occur.

YOU SHOULD NOTE THAT, REGARDLESS OF THE ANTIDILUTION PROVISIONS DESCRIBED
IN THIS PROSPECTUS SUPPLEMENT, THE CASH OR STOCK YOU RECEIVE ON THE STATED
MATURITY DATE, VALUED AS OF THE DETERMINATION DATE, WILL NOT UNDER ANY
CIRCUMSTANCES EXCEED THE THRESHOLD APPRECIATION PRICE FOR EACH $ [INITIAL
STOCK PRICE] OF THE OUTSTANDING FACE AMOUNT OF YOUR NOTE.

STOCK SPLITS

A "STOCK SPLIT" is an increase in the number of a corporation's outstanding
shares of stock without any change in its stockholders' equity. Each outstanding
share will be worth less as a result of a stock split.

If the Stock is subject to a stock split, then at the opening of business
on the first day on which the Stock trades without the right to receive the
stock split, the Calculation Agent will adjust the Exchange Rate to equal the
sum of the prior Exchange Rate plus the product of (i) the number of new shares
issued in the stock split with respect to one share of the Stock and (ii) the
prior Ex-

S-3
<PAGE> 25

change Rate. The Exchange Rate will not be adjusted, however, unless that first
day described above occurs on or before the Determination Date.

REVERSE STOCK SPLITS

A "REVERSE STOCK SPLIT" is a decrease in the number of a corporation's
outstanding shares of stock without any change in its stockholders' equity. Each
outstanding share will be worth more as a result of a reverse stock split.

If the Stock is subject to a reverse stock split, then once the reverse
stock split becomes effective, the Calculation Agent will adjust the Exchange
Rate to equal the product of the prior Exchange Rate and the quotient of (i) the
number of shares of outstanding Stock resulting from the reverse stock split
divided by (ii) the number of shares of Stock outstanding immediately before the
reverse stock split becomes effective. The Exchange Rate will not be adjusted,
however, unless the reverse stock split becomes effective on or before the
Determination Date.

STOCK DIVIDENDS

In a "STOCK DIVIDEND", a corporation issues additional shares of its stock
to all holders of its outstanding stock in proportion to the shares they own.
Each outstanding share will be worth less as a result of a stock dividend.

If the Stock is subject to a stock dividend, then at the opening of
business on the ex-dividend date, the Calculation Agent will adjust the Exchange
Rate to equal the prior Exchange Rate plus the product of (i) the number of
shares issued in the stock dividend with respect to one share of the Stock and
(ii) the prior Exchange Rate. The Exchange Rate will not be adjusted, however,
unless the ex-dividend date, occurs on or before the Determination Date.

The "EX-DIVIDEND DATE" for any dividend or other distribution is the first
day on which the Stock trades without the right to receive that dividend or
other distribution.

OTHER DIVIDENDS AND DISTRIBUTIONS

The Exchange Rate will not be adjusted to reflect dividends or other
distributions paid with respect to the Stock, other than:

- stock dividends described above,

- distributions that are spin-off events described in "-- Reorganization
Events" below,

- issuances of rights and warrants as described in "-- Rights and Warrants"
below and

- extraordinary dividends described below.

A dividend or other distribution with respect to the Stock will be deemed
to be an "EXTRAORDINARY DIVIDEND" if its value exceeds that of the immediately
preceding non-extraordinary dividend, if any, for the Stock by an amount equal
to at least % of the Closing Price of the Stock on the first Business Day
before the ex-dividend date.

If an extraordinary dividend occurs, the Calculation Agent will adjust the
Exchange Rate at the opening of business on the ex-dividend date to equal the
product of (i) the prior Exchange Rate and (ii) a fraction, the numerator of
which is the Closing Price of the Stock on the Business Day before the ex-
dividend date and the denominator of which is the amount by which that Closing
Price exceeds the extraordinary dividend amount. The Exchange Rate will not be
adjusted, however, unless the ex-dividend date occurs on or before the
Determination Date.

The "EXTRAORDINARY DIVIDEND AMOUNT" with respect to an extraordinary
dividend for the Stock equals:

- for an extraordinary dividend that is paid in lieu of a regular quarterly
dividend, the amount per share of Stock of the extraordinary dividend
minus the amount per share of the immediately preceding dividend, if any,
that was not an extraordinary dividend for the Stock, or

- for an extraordinary dividend that is not paid in lieu of a regular
quarterly divi-

S-4
<PAGE> 26

dend, the amount per share of the extraordinary dividend.

To the extent an extraordinary dividend is not paid in cash, the value of
the non-cash component will be determined by the Calculation Agent.

A distribution on the Stock that is a spin-off event described below under
"-- Reorganization Events" and also an extraordinary dividend will result in an
adjustment to the Exchange Rate only as described in "-- Reorganization Events"
and not as described here.

RIGHTS AND WARRANTS

If the Stock Issuer issues rights or warrants to all holders of the Stock
to subscribe for or purchase the Stock at an exercise price per share less than
the Closing Price of the Stock on the record date for determining the holders of
the Stock entitled to receive such rights and warrants, then the Exchange Rate
will be adjusted by multiplying that rate by the following fraction:

- the numerator will be the number of shares of Stock outstanding at the
close of business on that record date, plus the number of additional
shares of Stock offered for subscription or purchase under those rights
or warrants, and

- the denominator will be the number of shares of Stock outstanding at the
close of business on that record date, plus the number of additional
shares of Stock that the aggregate offering price of the total number of
shares of Stock so offered for subscription or purchase would purchase at
the Closing Price of the Stock on that record date, with that number of
additional shares being determined by multiplying the total number of
shares so offered by the exercise price of those rights or warrants and
dividing the resulting product by the Closing Price on the record date.

The Exchange Rate will not be adjusted, however, unless the record date
described above occurs before the Determination Date.

REORGANIZATION EVENTS

Each of the following is a "REORGANIZATION EVENT":

- the Stock is reclassified or changed

- the Stock Issuer has been subject to a merger, consolidation or other
combination and either is not the surviving entity or is the surviving
entity but all the outstanding Stock is exchanged for or converted into
Exchange Property

- a statutory share exchange involving the outstanding Stock and the
securities of another entity occurs, other than as part of an event
described above

- the Stock Issuer sells or otherwise transfers its property and assets as
an entirety or substantially as an entirety to another entity

- the Stock Issuer effects a "SPIN-OFF" -- that is, issues to all holders
of its Stock equity securities of another issuer, other than as part of
an event described above

- the Stock Issuer is liquidated, dissolved or wound up or is subject to a
proceeding under any applicable bankruptcy, insolvency or other similar
law

- another entity completes a tender or exchange offer for all the
outstanding Stock.

If a Reorganization Event occurs, then the Exchange Rate will be adjusted so
that the Note becomes exchangeable for:

- in an exchange of the Note for cash -- cash equal to the value of each
type of Exchange Property distributed for one share of Stock in the
Reorganization Event, multiplied in each case by the prior Exchange Rate,
or

- in an exchange of the Note for Stock -- each type of Exchange Property
distributed for one share of Stock in the Reorganization Event, in each
case multiplied by the prior Exchange Rate.

In an exchange of the Note for cash, the Calculation Agent will determine the
value of
S-5
<PAGE> 27

each type of Exchange Property, in its sole discretion. For any Exchange
Property consisting of securities, the Calculation Agent will use the Closing
Price for the security on the Determination Date. If more than one type of
Exchange Property is involved, the Exchange Rate will be adjusted so that the
Note is exchangeable for each type in the same proportion as the value of each
type bears to the total value of the Exchange Property per share of Stock. If a
holder of Stock may elect to receive different types or combinations of types of
Exchange Property in the Reorganization Event, the Exchange Property will be
deemed to include the types and amounts of each type distributed to a holder
that makes no election.

The Exchange Rate will not be adjusted for any Reorganization Event,
however, unless the event becomes effective -- or, if the event is a spin-off,
unless the ex-dividend date for the spin-off occurs -- on or before the
Determination Date.

"EXCHANGE PROPERTY" means the cash, securities and other property or assets
distributed in respect of one share of outstanding Stock in a Reorganization
Event and, in the case of a spin-off, includes the share of Stock in respect of
which the distribution is made. After a Reorganization Event occurs, the
Exchange Property distributed in the event will be subject to adjustment to the
same extent as the Stock, and thereafter references to the Stock will mean the
Exchange Property and references to the Stock Issuer will mean any successor
entity in the Reorganization Event.

DEFAULT AMOUNT ON ACCELERATION

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. The same will apply to any delivery of Stock that would
otherwise be due on a day that is not a Business Day. For your Note, however,
the term "Business Day" has a different meaning than it does for other Notes of
this Series B. We discuss this term under "-- Special Calculation Terms" below.

ROLE OF CALCULATION AGENT

The Calculation Agent will make all determinations regarding interest
payments, the Exchange Rate, antidilution adjustments, Market Disruption Events,
the Default Amount and the number of shares and the amount of cash, including
the cash value of any fractional share, to be delivered in exchange for your
Note. Absent manifest error, all determinations of the Calculation Agent will be
final and binding on you and us.

SPECIAL CALCULATION TERMS

"BUSINESS DAY" means any Business Day, as defined in the attached
prospectus, that is not a day on which the principal securities exchange for the
Stock is authorized by law or executive order to close.

"CLOSING PRICE" for any security on any day means the closing sale price or
last reported sale price, regular way, for the security, on a per-share basis:

- on the principal national securities exchange on which that security is
listed for trading on that day, or

S-6
<PAGE> 28

- if that security is not listed on any national securities exchange, on
the Nasdaq National Market System on that day, or

- if that security is not quoted in the Nasdaq National Market System on
that day, on any other U.S. national market system that is the primary
market for the trading of that security.

If that security is not listed or traded as described above, then the Closing
Price for that security on any day will be the average, as determined by the
Calculation Agent, of the bid prices for the security obtained from as many
dealers in that security selected by the Calculation Agent as will make those
bid prices available to the Calculation Agent. The number of dealers need not
exceed three and may include the Calculation Agent or any of its or our
affiliates.

- 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.

"DEFAULT QUOTATION PERIOD" will be 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.

"MARKET DISRUPTION EVENT" means any of the following:

- a suspension, absence or material limitation of trading in the Stock on
its primary market 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 of trading or material limitation of trading in
option contracts relating to the Stock, if available, in the primary
market for those contracts during the one-half hour before the close of
trading in that market, as determined by the Calculation Agent in its
sole discretion, or

- the Stock does not trade on what was the primary market for the Stock, as
determined by the Calculation Agent in its sole discretion,

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 contracts
relating to the Stock.

For this purpose, an "absence of trading" in the primary securities market
on which option contracts related to the Stock are traded will not include any
time when that market is itself closed for trading under ordinary circumstances.
In addition, limitations under NYSE Rule 80A -- or any applicable rule adopted
by a regulatory or self-regulatory organization of similar scope as determined
by the Calculation Agent -- on trading in option contracts on the Stock, if
available, in the primary market for those contracts, by reason of:

- a price change exceeding limits set by that market, or

- an imbalance of orders relating to those contracts, or

- a disparity in bid and ask quotes relating to those contracts

will constitute a suspension or material limitation of trading in option
contracts related to the Stock.

References to the Stock in this definition include securities that are part
of any Exchange Property, as determined by the Calculation Agent in its sole
discretion.

- A-1 or higher by Standard & Poor's Ratings or any successor, or any other
comparable rating then used by that relevant 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 relevant rating agency.

S-8
<PAGE> 30

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
Stock. You should carefully consider whether the Note is suited to your
particular circumstances.

THE MARKET PRICE OF YOUR NOTE MAY BE
INFLUENCED BY MANY UNPREDICTABLE FACTORS

The following factors, many of which are beyond our control, will influence
the value of your Note:

- the market price of the Stock;

- the volatility -- i.e., the frequency and magnitude of changes in the
market price of the Stock;

-- As indicated under " -- Historical Information", the market
price of the Stock has been highly volatile during recent periods.
It is impossible to predict whether the price of the Stock will
rise or fall.

- the dividend rate on the Stock;

- economic, financial, regulatory and political events that affect stock
markets generally and the market segment of which the Stock is a part,
and which may affect the market price of the Stock;

- interest and yield rates in the market;

- the time remaining until your Note matures; and

- our creditworthiness.

These factors will influence the price you will receive if you sell your Note
prior to maturity. You cannot predict the future performance of the Stock based
on its historical performance.

TRADING AND OTHER TRANSACTIONS BY THE FIRM
IN THE STOCK MAY ADVERSELY AFFECT THE VALUE
OF YOUR NOTE

As we have described under "Use of Proceeds and Hedging" below, we, through
GS&Co. or one or more of our other affiliates, have hedged our obligations under
your Note by, among other things, purchasing the Stock and may adjust the hedge
by, among other things, purchasing or selling Stock, at any time and from time
to time. Any of these hedging activities may adversely affect the price of the
Stock and, therefore, the value of your 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.

GS&Co. and our other affiliates may also engage in trading in the Stock for
their proprietary accounts, for other accounts under their management and to
facilitate transactions, including block transactions, on behalf of customers.
Any of these activities of GS&Co. or our other affiliates could adversely affect
the price of the Stock and, therefore, the value of your Note. GS&Co. and our
other affiliates may also issue or underwrite other securities or financial or
derivative instruments with returns linked or related to changes in the value of
the Stock. By introducing competing products into the market place in this
manner, our affiliates could adversely affect the value of your Note.

The Indenture relating to your Note does not contain any restriction on our
ability or the ability of any of our affiliates to sell, pledge or otherwise
convey all or any portion of the Stock acquired by us or them. Neither we nor
our affiliates will pledge or otherwise hold shares of Stock for your benefit in
order to enable you to exchange them for your Note under any circumstances.
Consequently, in the event of our bankruptcy, insolvency or liquidation, any
Stock owned by us will be

S-9
<PAGE> 31

subject to the claims of our other creditors, but not you.

THE PRINCIPAL OF YOUR NOTE IS NOT PROTECTED

The principal of your Note is not protected. Thus, you may lose your entire
investment in your Note.

THE APPRECIATION POTENTIAL OF YOUR NOTE IS LIMITED

Your ability to participate in the appreciation of the Stock is limited.
The Note is structured so that in no event will you receive cash or Stock,
valued as of the Determination Date, in excess of the Threshold Appreciation
Price for each $ of the outstanding Face Amount of your Note.

RELATIONSHIP OF YOUR NOTE AND THE STOCK

Prior to the Stated Maturity Date, the value of the Note may NOT have a
one-to-one relationship with changes in the price of the Stock. Even if the
price of the Stock exceeds the Threshold Appreciation Price, the market price of
the Note will usually be less than the Threshold Appreciation Price, except on
the Stated Maturity Date.

YOU HAVE NO SHAREHOLDER RIGHTS

You are not a holder of the Stock. Neither the Holder of the Note nor you
will have voting rights or the right to receive any dividends or other
distributions or any other rights with respect to the Stock.

POTENTIAL CONFLICTS OF INTEREST BETWEEN YOU
AND OUR AFFILIATES

As we have noted above, GS&Co. and our other affiliates expect to engage in
trading activities related to the Stock that are not for your account or on your
behalf. These trading activities may present a conflict of interest between your
interests and the interests GS&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 price of the Stock, could be adverse to your
interests as a beneficial owner of the Note.

GS&Co. and our other affiliates may, at present or in the future, engage in
business with the Stock Issuer, including making loans to or equity investments
in the Stock Issuer or providing advisory services to the Stock Issuer. These
services could include merger and acquisition advisory services. These
activities may present a conflict between the obligations of GS&Co. or another
affiliate of the Firm and your interests as a beneficial owner of the Note.
Moreover, GS&Co. [has published and] anticipates that it will in the future
publish research reports with respect to the Stock Issuer. Any of these
activities by GS&Co. or another of our affiliates may affect the price of the
Stock and, therefore, the value of your Note.

DISCRETION OF GS&CO. AS CALCULATION AGENT

As Calculation Agent, GS&Co. has discretion in making determinations
relating to antidilution adjustments, the Closing Price of the Stock and Market
Disruption Events. See "Specific Terms of Your Note -- Antidilution
Adjustments". The exercise of this discretion by GS&Co. could adversely affect
the value of your Note and may present GS&Co. with a conflict of interest of the
kind described above under "-- Potential Conflicts of Interest Between You and
Our Affiliates".

THERE IS NO AFFILIATION BETWEEN US AND
THE STOCK ISSUER; WE ARE NOT RESPONSIBLE
FOR THE STOCK ISSUER'S DISCLOSURE

We and our affiliates are not affiliated with the Stock Issuer. As we have
told you above, however, we or our affiliates may currently or from time to time
in the future engage in business with the Stock Issuer. Nevertheless, neither we
nor any of our affiliates assume any responsibility for the adequacy or accuracy
of the information contained in this prospectus supplement about the Stock
Issuer or in any of the Stock Issuer's publicly available filings. You, as an
investor in the Note, should make your own investigation into the Stock Issuer.
See
S-10
<PAGE> 32

" " for additional information about the Stock Issuer.

The Stock Issuer is not involved in the offering of your Note in any way
and has no obligation of any sort with respect to your Note. Thus, the Stock
Issuer has no obligation to take your interests into consideration for any
reason, including in taking any corporate actions that might affect the value of
your Note.

YOUR NOTE MAY NOT BE ACTIVELY TRADED

YOU HAVE LIMITED ANTIDILUTION PROTECTION

GS&Co., as Calculation Agent, will adjust the Exchange Rate for stock
splits, reverse stock splits, stock dividends, extraordinary dividends and other
events that affect the Stock Issuer's capital structure, but only in the
situations we describe in "Specific Terms of Your Note -- Antidilution
Adjustments". The Calculation Agent is not required to make an adjustment for
every corporate event that may affect the Stock. For example, the Calculation
Agent will not adjust the Exchange Rate for events such as, an offering of the
Stock for cash, a tender or exchange offer for the Stock by the Stock Issuer at
a premium to its then-current market price or a tender or exchange offer by a
third party for less than all the outstanding Stock. Those events may
nevertheless adversely affect the price of the Stock and, therefore, adversely
affect the value of your Note. We cannot assure you that a third party will not
make a tender or exchange offer of this kind, or that the Stock Issuer will not
make an offering of Stock or a tender or exchange offer or take any other action
that adversely affects the value of the Stock or your Note but that does not
result in an antidilution adjustment for your benefit.

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 day on which no Market Disruption Event has
occurred or is continuing. As a result, the Stated Maturity Date will also be
postponed, although not more than seven days. Thus, you may not receive the cash
or Stock that we are obligated to deliver on the Stated Maturity Date until
several days after the originally scheduled due date.

S-11
<PAGE> 33

USE OF PROCEEDS AND HEDGING

In anticipation of the sale of your Note, the Firm has entered into hedging
transactions prior to the date of this prospectus supplement. From time to time
after today, we may:

- acquire or dispose of the Stock or other securities of the Stock Issuer,

- take short positions in the Stock or other securities of the Stock
Issuer -- i.e., we may sell securities of the kind that we do not own or
that we borrow for delivery to purchaser,

- take or dispose of positions in listed or over-the-counter options or
other instruments based on the Stock and/or

- take or dispose of positions in listed or over-the-counter options or
other instruments based on indices designed to track the performance of
the NYSE or other components of the U.S. equity market.

The Firm may acquire a long or short position in securities similar to your Note
from time to time and may, in its sole discretion, hold or resell those
securities.

The Firm may close out its hedge on or before the Determination Date. That
step may involve sales of the Stock, listed or over-the-counter options on the
Stock or listed or over-the-counter options or other instruments based on
indices designed to track the performance of the NYSE or other components of the
U.S. equity market.

S-12
<PAGE> 34

[ISSUER NAME]

According to publicly available documents, [insert brief description of
issuer's line of business].

WHERE INFORMATION ABOUT THE STOCK ISSUER
CAN BE OBTAINED

The Stock is registered under the Exchange Act. Companies with securities
registered under the Exchange Act are required to file financial and other
information specified by the SEC periodically. Information filed with the SEC
can be inspected and copied at the public reference facilities maintained by the
SEC at

- Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,

- Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661, and

- Seven World Trade Center, 13th Floor, New York, New York 10048.

Copies of this material can also be obtained from the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, information filed by the Stock Issuer with the SEC electronically
can be reviewed through a web site maintained by the SEC. The address of the
SEC's web site is http://www.sec.gov. Information filed with the SEC by the
Stock Issuer under the Exchange Act can be located by reference to its SEC file
number .

Information about the Stock Issuer may also be obtained from other sources
such as press releases, newspaper articles and other publicly disseminated
documents.

We do not make any representation or warranty as to the accuracy or
completeness of any materials referred to above, including any filings made by
the Stock Issuer with the SEC.

WE OBTAINED THE INFORMATION ABOUT THE STOCK ISSUER IN THIS PROSPECTUS SUPPLEMENT
FROM THE STOCK ISSUER'S PUBLIC FILINGS

This prospectus supplement relates only to your Note and does not relate to
the Stock or other securities of the Stock Issuer. We have derived all
information about the Stock Issuer in this prospectus supplement from the
publicly available documents referred to in the preceding subsection. We have
not participated in the preparation of any of those documents or made any "due
diligence" investigation or any inquiry of the Stock Issuer with respect to the
Stock Issuer in connection with the offering of your Note. We do not make any
representation that the publicly available documents or any other publicly
available information about the Stock Issuer are accurate or complete.
Furthermore, we do not know whether all events occurring before the date of this
prospectus supplement -- including events that would affect the accuracy or
completeness of the publicly available documents referred to above, the trading
price of the Stock and, therefore, the Closing Price and the Exchange
Rate -- have been publicly disclosed. Subsequent disclosure of any events of
this kind or the disclosure of or failure to disclose material future events
concerning the Stock Issuer could affect the value you will receive at Maturity
and, therefore, the market value of your Note.

Neither we nor any of our affiliates make any representation to you as to
the performance of the Stock.

We or our affiliates may currently or from time to time engage in business
with the Stock Issuer, including making loans to or equity investments in the
Stock Issuer or providing advisory services to the Stock Issuer, including
merger and acquisition advisory services. In the course of that business, we or
our affiliates may acquire non-public information about the Stock Issuer and, in
addition, one or more of our affiliates may publish research reports about the
Stock Issuer. As an investor in the Note, you should undertake such independent
investigation of the Stock Issuer as in your judgment is

S-13
<PAGE> 35

appropriate to make an informed decision with respect to an investment in the
Note.

HISTORICAL INFORMATION

The Stock is traded on the under the symbol
" ". The following table sets forth the quarterly high and low
Closing Prices for the Stock for the four calendar quarters in 1996, 1997 and
1998, and for the first calendar quarter in 1999. We obtained the Closing Prices
listed below from Bloomberg Financial Services, without independent
verification.

You should not take the historical prices of the Stock as an indication of
future performance. We cannot give you any assurance that the price of the Stock
will increase sufficiently for you to receive an amount in excess of the Face
Amount of your Note at Maturity.

1997
Quarter ended March 31...........................
Quarter ended June 30............................
Quarter ended September 30.......................
Quarter ended December 31........................

1998
Quarter ended March 31...........................
Quarter ended June 30............................
Quarter ended September 30.......................
Quarter ended December 31........................

1999
Quarter ended March 31...........................

Closing Price on , 1999..............
</TABLE>

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<PAGE> 36

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW
YOUR NOTE SHOULD BE TREATED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. AS A
RESULT, THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF YOUR INVESTMENT IN
YOUR NOTE ARE HIGHLY UNCERTAIN. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
IN DETERMINING THE TAX CONSEQUENCES OF YOUR INVESTMENT IN YOUR NOTE, INCLUDING
THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL OR OTHER TAX LAWS.

You will be obligated pursuant to the terms of the Indenture (in the
absence of an administrative determination or judicial ruling to the contrary)
to characterize your Note for all tax purposes as a forward contract to purchase
Stock at the Stated Maturity Date, under the terms of which contract (i) at the
time of issuance of your Note you deposit irrevocably with us a fixed amount of
cash equal to the purchase price of your Note to assure the fulfillment of your
purchase obligation described in clause (iii) below, which deposit will
unconditionally and irrevocably be applied at the Stated Maturity Date to
satisfy such obligation, (ii) until the Stated Maturity Date we will be
obligated to pay interest on such deposit at a rate equal to the stated rate of
interest on your Note as compensation to you for our use of such cash deposit
during the term of the Note, and (iii) at the Stated Maturity Date such cash
deposit unconditionally and irrevocably will be applied by us in full
satisfaction of your obligation under the forward purchase contract, and we will
deliver to you the number of shares of Stock (or, at our option, an amount of
cash equal to the value of the shares of Stock) that you are entitled to receive
at that time pursuant to the terms of your Note. (You should note that cash
proceeds of this offering will not be segregated by us during the term of your
Note, but instead will be commingled with our other assets.) Consistent with the
above characterization, (i) amounts paid to us in respect of the original issue
of Notes will be treated as allocable in their entirety to the amount of the
cash deposit attributable to such Note, and (ii) amounts denominated as interest
that are payable with respect to your Note will be characterized as interest
payable on the amount of such deposit, includible annually in your income in
accordance with your method of accounting.

If your Note is characterized as described above, your tax basis in your
Note generally would equal your cost for your Note. Upon the sale or exchange of
your Note, you would recognize gain or loss equal to the difference between the
amount realized on the sale or exchange and your tax basis in your Note. The
gain or loss generally will be long-term capital gain or loss (except to the
extent attributable to accrued but unpaid interest) if you hold the Note for
more than one year. If we elect to deliver shares of Stock at the Maturity Date,
you will not recognize gain or loss on the purchase of the Stock. You would have
a tax basis in the Stock equal to your tax basis in your Note (less the portion
of the tax basis of your Note allocable to any fractional share, as described in
the next sentence) and would have a holding period in the Stock beginning on the
date after the Stated Maturity Date. You would recognize short-term capital gain
or loss with respect to cash received in lieu of fractional shares, in an amount
equal to the difference between the cash received and the portion of the basis
of your Note allocable to fractional shares. If we deliver cash at the Stated
Maturity Date, you will generally recognize long-term capital gain or loss equal
to the difference between the amount of cash received and your tax basis in the
Note.

S-15
<PAGE> 37

Alternatively, the Internal Revenue Service could treat your Note as a
single debt instrument subject to special rules governing contingent payment
obligations. Under those rules, the amount of interest you are required to take
into account for each accrual period would be determined by constructing a
projected payment schedule for the 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 may have the effect of requiring you
to include interest in income in respect of your Note prior to your receipt of
cash attributable to such income.

If the rules governing contingent payment obligations apply, you will
recognize gain or loss upon the sale or maturity of your Note (including if you
receive Stock at such time) in an amount equal to the difference, if any,
between the fair market value of the amount you receive at such time (which, in
the case of Stock, will equal the fair market value of the Stock at the Stated
Maturity Date) 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 decreased by the amount of interest payments you received with
respect to your Note. Your holding period in any Stock you receive upon the
maturity of your Note will begin on the day after the Stated Maturity Date.

If the rules governing contingent payment obligations apply, any gain you
recognize upon the sale 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, as capital loss.

It is possible that the Internal Revenue Service could seek to characterize
your Note in a manner that results in tax consequences to you different from
those described above. For example, the Internal Revenue Service could seek to
allocate less than all of the amounts you paid for your Note to the cash deposit
described above and treat the cash deposit as a debt instrument acquired at a
discount. In that case, you would be required to include such original issue
discount in income as it accrues in addition to stated interest on your Note.
You should consult your tax advisors as to possible alternative
characterizations of your Note for United States federal income tax purposes.

SUPPLEMENTAL PLAN OF DISTRIBUTION

Goldman Sachs has agreed to sell to GS&Co., and GS&Co. has agreed to
purchase from Goldman Sachs, $ aggregate Face Amount of the Note
described in this prospectus supplement. GS&Co. intends to resell the Note at
the original issue price. In the future, GS&Co. or other affiliates of Goldman
Sachs may repurchase and resell the Note 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 of
Notes" in the attached prospectus.

S-16
<PAGE> 38
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

Subject to Completion. Dated March 31, 1999.

$15,000,000,000

THE GOLDMAN SACHS GROUP, INC.

Medium-Term Notes, Series B

[GOLDMAN SACHS LOGO]
------------------------

TERMS OF SALE

The following terms may apply to the Notes that The Goldman Sachs Group,
Inc. may sell at one or more times. The final terms of each Note will be
included in a prospectus supplement. Goldman Sachs will receive between
$14,981,250,000 and $14,887,500,000 of the proceeds from the sale of the Notes,
after paying the Agents' commissions of between $18,750,000 and $112,500,000.

- stated maturity of 12 months or longer

- fixed or floating interest rate, zero-coupon or issued with original
issue discount; a floating interest rate may be based on:

- commercial paper rate

- prime rate

- LIBOR

- EURIBOR

- treasury rate

- CMT rate

- CD rate

- federal funds rate

- eleventh district cost of funds rate

- amount of principal or interest may be determined by reference to an
index or formula

- may be book-entry form only

- may be subject to redemption at the option of Goldman Sachs or repayment
at the option of the holder

- not amortized or subject to a sinking fund

- interest on fixed rate Notes paid semi-annually

- interest on floating rate Notes paid monthly, quarterly, semi-annually or
annually

- denominations of $1,000 and multiples of $1,000

- may be denominated in a currency other than U.S. dollars or in a
composite currency

- settlement in immediately available funds

Goldman Sachs does not plan to list the Notes for trading on a securities
exchange.

See "Risk Factors" beginning on page 12 to read about certain factors you
should consider before investing in any Notes.
------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------

Goldman Sachs may sell the Notes directly or through one or more Agents or
dealers, including the Agent listed below. The Agents are not required to sell
any particular amount of the Notes.

Goldman Sachs may use this prospectus in the initial sale of any Note. In
addition, Goldman, Sachs & Co. or any other affiliate of Goldman Sachs may use
this prospectus in a market-making transaction in any Note after its initial
sale. UNLESS GOLDMAN SACHS OR AN AGENT INFORMS THE PURCHASER OTHERWISE, THIS
PROSPECTUS IS BEING USED IN A MARKET-MAKING TRANSACTION.
GOLDMAN, SACHS & CO.
------------------------

Prospectus dated , 1999.

<PAGE> 39

OUR BUSINESS PRINCIPLES

1. Our clients' interests always come first. Our experience shows that if we
serve our clients well, our own success will follow.

2. Our assets are our people, capital and reputation. If any of these is ever
diminished, the last is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.

3. Our goal is to provide superior returns to our shareholders. Profitability
is critical to achieving superior returns, building our capital and attracting
and keeping our best people. Significant employee stock ownership aligns the
interests of our employees and our shareholders.

4. We take great pride in the professional quality of our work. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.

5. We stress creativity and imagination in everything we do. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.

6. We make an unusual effort to identify and recruit the very best person for
every job. Although our activities are measured in billions of dollars, we
select our people one by one. In a service business, we know that without the
best people, we cannot be the best firm.

7. We offer our people the opportunity to move ahead more rapidly than is
possible at most other places. We have yet to find the limits to the
responsibility that our best people are able to assume. Advancement depends
solely on ability, performance and contribution to the Firm's success, without
regard to race, color, religion, sex, age, national origin, disability, sexual
orientation, or any other impermissible criterion or circumstance.

8. We stress teamwork in everything we do. While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of the
interests of the Firm and its clients.

9. The dedication of our people to the Firm and the intense effort they give
their jobs are greater than one finds in most other organizations. We think that
this is an important part of our success.

10. We consider our size an asset that we try hard to preserve. We want to be
big enough to undertake the largest project that any of our clients could
contemplate, yet small enough to maintain the loyalty, the intimacy and the
esprit de corps that we all treasure and that contribute greatly to our success.

11. We constantly strive to anticipate the rapidly changing needs of our
clients and to develop new services to meet those needs. We know that the world
of finance will not stand still and that complacency can lead to extinction.

12. We regularly receive confidential information as part of our normal client
relationships. To breach a confidence or to use confidential information
improperly or carelessly would be unthinkable.

13. Our business is highly competitive, and we aggressively seek to expand our
client relationships. However, we must always be fair competitors and must never
denigrate other firms.

14. Integrity and honesty are at the heart of our business. We expect our
people to maintain high ethical standards in everything they do, both in their
work for the Firm and in their personal lives.

2
<PAGE> 40

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in the Notes. You should read the entire
prospectus carefully, especially the risks of investing in the Notes discussed
under "Risk Factors" on pages 12-25.

THE GOLDMAN SACHS GROUP, INC.

Goldman Sachs is a leading global investment banking and securities firm
with three principal business lines:

- Investment Banking;
- Trading and Principal Investments; and
- Asset Management and Securities Services.

Our goal is to be the advisor of choice for our clients and a leading
participant in global financial markets. We provide services worldwide to a
substantial and diversified client base, which includes corporations, financial
institutions, governments and high net worth individuals.

For our fiscal year ended November 27, 1998, our net revenues were $8.5
billion and our pre-tax earnings were $2.9 billion. As of the end of fiscal
1998, our total assets were $217.4 billion and our partners' capital was $6.3
billion.

We have over time produced strong earnings growth and attractive returns on
partners' capital through different economic and market conditions. Over the
last 15 years, our pre-tax earnings have grown from $462 million in 1983 to $2.9
billion in 1998, representing a compound annual growth rate of 13%. Economic and
market conditions can, however, significantly affect our performance. For
example, in the second half of fiscal 1998, the Firm's performance was adversely
affected by turbulence in global financial markets.

We have achieved this growth, which has been generated without the benefit
of a large acquisition, by maintaining an intense commitment to our clients,
focusing on our core businesses and key opportunities and operating as an
integrated franchise.

Because we believe that the needs of our clients are global and that
international markets have high growth potential, we have built upon our
strength in the United States to achieve leading positions in other parts of the
world. Today, the Firm has a strong global presence as evidenced by the
geographic breadth of our transactions, leadership in our core products and the
size of our international operations. As of the end of fiscal 1998, we operated
offices in 23 countries and 36% of our 13,000 employees were based outside the
United States.

We are committed to a distinctive culture and set of core values. These
values are reflected in our Business Principles, which emphasize placing our
clients' interests first, integrity, commitment to excellence and innovation,
and teamwork.

3
<PAGE> 41

SUMMARY FINANCIAL DATA
($ in millions)

<TABLE>
<CAPTION>
AS OF OR FOR
YEAR ENDED NOVEMBER
--------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenues:
Investment Banking.................................... $ 2,113 $ 2,587 $ 3,368
Trading and Principal Investments..................... 2,693 2,926 2,379
Asset Management and Securities Services.............. 1,323 1,934 2,773
-------- -------- --------
Total net revenues...................................... $ 6,129 $ 7,447 $ 8,520
======== ======== ========
Pre-tax earnings(1)..................................... $ 2,606 $ 3,014 $ 2,921
Total assets............................................ 152,046 178,401 217,380
Adjusted assets(2)...................................... 93,279 119,883 144,906
Partners' capital....................................... 5,309 6,107 6,310
Ratio of earnings to fixed charges(1)(3)................ 1.23x 1.23x 1.21x
</TABLE>

- ---------------
Read the table above in conjunction with the footnotes to "Selected Consolidated
Financial Data" as well as the following footnotes:
(1) Since the Firm has been a partnership, payments to the Firm's profit
participating limited partners have been accounted for as distributions of
partners' capital rather than as compensation expense. As a result, the
Firm's pre-tax earnings and compensation and benefits expense have not
reflected any payments for services rendered by its profit participating
limited partners. Accordingly, pre-tax earnings understate the expected
operating costs to be incurred by the Firm after its conversion to corporate
form as described below. As a corporation, the Firm will include payments
for services rendered by its former profit participating limited partners in
compensation and benefits expense. For financial information that reflects
pro forma compensation and benefits expense as if we had been a corporation,
see "Pro Forma Consolidated Financial Information".
(2) Adjusted assets represent total assets less securities purchased under
agreements to resell, certain securities borrowed transactions and, with
respect to November 27, 1998, an increase of $11.64 billion in total assets
related to the adoption of the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 125 that were deferred by SFAS No. 127.
(3) For purposes of the ratio of earnings to fixed charges, "earnings" represent
pre-tax earnings plus fixed charges and "fixed charges" represent interest
expense plus that portion of rent expense that, in our opinion, approximates
the interest factor included in rent expense. For a pro forma ratio of
earnings to fixed charges reflecting our conversion to corporate form,
please see "Pro Forma Consolidated Financial Information". The ratio of
earnings to fixed charges does not give effect to this offering of Notes or
our underwritten debt offering described below.
------------------------

STRATEGY AND PRINCIPAL BUSINESS LINES

Our strategy is to grow our three core businesses -- Investment Banking,
Trading and Principal Investments, and Asset Management and Securities
Services -- in markets throughout the world. Our leadership position in
investment banking provides us with access to governments, financial
institutions and corporate clients globally. Trading and principal investing has
been an important part of our culture and earnings, and we remain committed to
these businesses irrespective of their volatility. Managing wealth is one of the
fastest growing segments of the financial services industry and we are
positioning our asset management and securities services businesses to take
advantage of that growth. Our assets under supervision, for example, have grown
from $92.7 billion as of the end of fiscal 1994 to $336.8 billion as of the end
of fiscal 1998, representing a compound annual growth rate of 38%.

INVESTMENT BANKING

Investment Banking represented 39% of fiscal 1998 net revenues and 35% of
fiscal 1997 net revenues. We are a market leader in both the financial advisory
and underwriting

4
<PAGE> 42

businesses, serving over 3,000 clients worldwide. For the period January 1, 1994
to December 31, 1998, we had the industry-leading market share of 25.3% in
worldwide mergers and acquisitions advisory services, having advised on over
$1.7 trillion of transactions. Over the same period, we also achieved number one
market shares of 15.2% in underwriting worldwide initial public offerings and
14.4% in underwriting worldwide common stock issues. The source for this market
share information is Securities Data Company.

TRADING AND PRINCIPAL INVESTMENTS

Trading and Principal Investments represented 28% of fiscal 1998 net
revenues and 39% of fiscal 1997 net revenues. We make markets in equity and
fixed income products, currencies and commodities; enter into swaps and other
derivative transactions; engage in proprietary trading and arbitrage; and make
principal investments. In trading, we focus on building lasting relationships
with our most active clients while maintaining leadership positions in our key
markets. We believe our research, market-making and proprietary activities
enhance our understanding of markets and ability to serve our clients.

ASSET MANAGEMENT AND SECURITIES SERVICES

Asset Management and Securities Services represented 33% of fiscal 1998 net
revenues and 26% of fiscal 1997 net revenues. We provide global investment
management and advisory services; earn commissions on agency transactions; earn
management fees and derive overrides from our merchant banking funds; and
provide prime brokerage, securities lending and financing services. As of the
end of fiscal 1998, the Firm had $336.8 billion of assets under supervision, of
which $194.8 billion represented assets under management. Our asset management
business is rapidly growing, with net asset inflows that averaged over $125
million per business day during fiscal 1998. We manage merchant banking funds
that had $15.5 billion of capital commitments as of the end of fiscal 1998.

Assets under supervision are comprised of assets under management and other
client assets. Assets under management typically generate fees based on a
percentage of their value. Other client assets are comprised of assets in
brokerage accounts of primarily high net worth individuals, on which the Firm
earns commissions.

We pursue our strategy to grow our three core businesses through an
emphasis on:

EXPANDING HIGH VALUE-ADDED BUSINESSES

To achieve strong growth and high returns, we seek to build leadership
positions in high value-added services for our clients. For example, we have
substantially increased the number of professionals in investment banking to
improve and expand our ability to execute mergers and acquisitions, initial
public offerings and high-yield financings. In trading, we structure and execute
large and complex transactions for institutional investors, pension funds and
corporate clients around the world. In asset management, we emphasize equity and
alternative investment products and use our established international presence
to build a global asset management franchise.

INCREASING THE STABILITY OF OUR EARNINGS

We seek to balance the stability of our earnings with return on equity and
long-term earnings growth. We believe our trading businesses are key ingredients
to our success. While we plan to continue to grow our trading businesses, the
financial market shocks of the past year underscored the importance of our
strategy to emphasize growth in our investment banking, asset management and
securities services businesses. Through a greater relative emphasis on these
businesses, we plan to gradually increase the stability of our earnings.

PURSUING INTERNATIONAL OPPORTUNITIES

We believe that our global reach will allow us to take advantage of growth
in international markets. In Europe, for example, the recent establishment of
the Economic and Monetary Union is expected, over time, to create a large
pan-European market rivaling

5
<PAGE> 43

the U.S. capital markets in size and liquidity. We believe this will generate
increased activity across our businesses in the region. In Asia, we expect
increased mergers and acquisitions advisory opportunities as a result of
corporate restructurings and increased trading opportunities as we meet the
liquidity needs of our clients. In the longer term, we anticipate additional
opportunities in asset management activities due to an expected shift towards
privatization of pension systems and changing demographics.

LEVERAGING THE FRANCHISE

We believe our various businesses are generally stronger and more
successful because they are part of the Goldman Sachs franchise. Our culture of
teamwork fosters cooperation among our businesses, which allows us to provide
our clients with a full range of products and services on a coordinated basis.
Our investment bankers, for example, refer clients who are selling their
businesses to those in the Firm who manage wealth. In addition, our merchant
banking investments in companies lead to future clients for investment banking.

COMPETITIVE STRENGTHS

STRONG CLIENT RELATIONSHIPS

We focus on building long-term client relationships. In fiscal 1998, over
75% of our Investment Banking revenues represented business from existing
clients of the Firm. We also aggressively pursue new client relationships as
evidenced by the over 400 investment banking transactions we completed for
first-time clients in fiscal 1998. In our trading businesses, we structure and
execute transactions across a wide array of markets and countries to meet our
clients' needs. In our asset management business, we managed assets for three of
the five largest pension pools in the United States as ranked as of September
30, 1998 by Pensions & Investments and maintain accounts for 41% of the 1998
"Forbes 400 List of the Richest Americans".

DISTINCTIVE PEOPLE AND CULTURE

Our most important asset is our people. We seek to reinforce our employees'
commitment to our culture and values through recruiting, training, a
comprehensive review system and a compensation philosophy that rewards teamwork.
We were ranked number seven in Fortune magazine's "The 100 Best Companies to
Work for in America" in January 1999 and were ranked number three in Fortune
magazine's 1999 "The Top 50 MBA Dream Companies", the highest-ranked investment
banking and securities firm in each case.

GLOBAL REACH

Over the past decade, we have made a significant commitment to building a
worldwide business. We have achieved leading positions in major international
markets by capitalizing on our product knowledge and global research, as well as
by building a local presence where appropriate. In doing so, we have become one
of the few truly global investment banking and securities firms with the ability
to execute large and complex cross-border transactions. We had the number one
market share of 23.2% in cross-border mergers and acquisitions for the period
from January 1, 1994 to December 31, 1998, according to Securities Data Company.
In addition, in Japan, we were the largest non-Japanese mutual fund manager as
of January 31, 1999, according to The Investment Trusts Association.

OUR HEADQUARTERS

Our headquarters are located at 85 Broad Street, New York, New York 10004,
telephone (212) 902-1000.

6
<PAGE> 44

INDUSTRY AND ECONOMIC OUTLOOK

We believe that significant growth and profit opportunities exist in the
financial services industry over the long term. These opportunities derive from
long-term trends, including financial market deregulation, the globalization of
the world economy, the increasing focus of companies on shareholder value,
consolidations in various industries, growth in investable funds and
accelerating technology and financial product innovation. We believe that over
the last 15 years these trends, coupled with generally declining interest rates
and favorable market conditions, have contributed to a substantially higher rate
of growth in activity in the financial services industry than the growth in
overall economic activity. While the future economic environment may not be as
favorable as that experienced in the last 15 years and there may be periods of
adverse economic and market conditions, we believe that these trends should
continue to affect the financial services industry positively over the long
term.

The following table sets forth selected key industry indicators:

KEY INDUSTRY INDICATORS
($ in billions, except GDP)
(volume in millions of shares)

<TABLE>
<CAPTION>
AS OF OR FOR
YEAR ENDED DECEMBER 31,
----------------------------------- CAGR(6)
1983 1988 1993 1998 '83-'98
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Worldwide GDP ($ in trillions)(1)....... $ 10 $ 18 $ 24 $ 29(7) 8%(7)
Worldwide mergers and acquisitions(2)... 96 527 460 2,522 24
Worldwide equity issued(2).............. 50 51 172 269 12
Worldwide debt issued(2)................ 146 631 1,546 2,932 22
Worldwide equity market
capitalization(3)..................... 3,384 9,728 14,016 23,541(7) 15(7)
NYSE average daily volume............... 85 162 265 674 15
Worldwide pension assets(4)............. $1,900 $3,752 $ 6,560 $ 9,694(7) 12(7)
U.S. mutual fund assets(5).............. 293 810 2,075 5,530 22
</TABLE>

- ---------------
(1) Gross domestic product. Source: The Economist Intelligence Unit, January
1999.
(2) Source: Securities Data Company.
(3) Source: International Finance Corporation.
(4) Source: InterSec Research Corp.
(5) Source: Investment Company Institute.
(6) Compound annual growth rate.
(7) Data as of December 31, 1997; compound annual growth rate 1983-1997.

7
<PAGE> 45

THE OFFERING

We refer to our initial offering of the Notes as the "Offering". If you
purchase a Note, we will describe the specific terms of that Note in a
supplement to this prospectus, which we refer to as a "prospectus supplement".
Please refer to "Description of Notes We May Offer" in this prospectus for more
information about the Notes.

Notes offered................. Medium-Term Notes, Series B.

Issuer........................ The Goldman Sachs Group, Inc.

Stated maturity............... 12 months or more from original issue date, as
stated in the applicable prospectus supplement.

Amount initially offered...... Aggregate offering price of up to
$15,000,000,000 or its equivalent in any other
currencies or currency units.

Ranking....................... General, unsecured and unsubordinated
obligations.

Interest features............. A Note may bear interest at a fixed rate or a
floating rate, which may be determined by
reference to a formula or index, or may bear no
interest, as stated in the applicable
prospectus supplement.

Redemption/repayment
features...................... A Note may be subject to redemption at our
option, repayment at your option or both, if
specified in the applicable prospectus
supplement.

Currency features............. Payments of principal or interest on a Note may
be made in currencies or currency units other
than U.S. dollars, if specified in the
applicable prospectus supplement.

Index features................ The amount of principal or interest payable on
a Note may be determined by reference to a
formula or index, if specified in the
applicable prospectus supplement.

Plan of distribution.......... In connection with their original issuance, we
will offer and sell the Notes directly, through
Agents named in the applicable prospectus
supplement, or to Agents so named for resale.
After a Note has been originally issued, Agents
affiliated with us may acquire and resell the
Note in market-making transactions.

Book-entry issuance and
settlement.................. We will issue the Notes only in book-entry
form -- i.e., as global Notes registered in the
name of The Depository Trust Company, New York,
New York, or its nominee, unless otherwise
stated in the applicable prospectus supplement.
Each sale of a Note in global form will settle
in immediately available funds through DTC.

Use of proceeds............... We intend to use the net proceeds from the
sales of Notes to provide additional funds for
our operations and for other general corporate
purposes.

8
<PAGE> 46

OUR COMMON STOCK OFFERING

Shortly before the closing of this Offering, the Firm will convert from
partnership to corporate form, with GS Inc. as the successor parent company, and
GS Inc. will complete an initial public offering of its Common Stock. In that
offering, GS Inc. expects to sell 42,000,000 shares for its own account and two
of its shareholders expect to sell a total of 18,000,000 shares for their
accounts. In addition, GS Inc. will grant the underwriters of that offering
options to purchase up to 9,000,000 additional shares of Common Stock. We refer
to that offering as the "Common Stock Offering".

We expect to receive net proceeds from the Common Stock Offering of
approximately $1.8 billion, based on an assumed initial public offering price
that may change and after deducting the underwriting discounts and estimated
offering expenses payable by the Company in the Common Stock Offering. This
amount also assumes that the underwriters' options to purchase additional shares
are not exercised. We intend to use those proceeds in the manner described below
under "Use of Proceeds".

The Firm is managed by its principal owners. Simultaneously with our
conversion from partnership to corporate form and our Common Stock Offering, we
will make equity-based awards to substantially all of our employees. Following
those transactions, our employees, including former partners, will
own approximately 66% of the Company. None of our employees will be selling
shares in the Common Stock Offering. We will also complete a number of other
transactions in order to convert from partnership to corporate form at the time
of the closing of the Common Stock Offering. For a more detailed description of
these and other transactions, see "Certain Relationships and Related
Transactions -- Incorporation and Related Transactions", "Management -- The
Employee IPO Awards" and "Pro Forma Consolidated Financial Information".

OUR UNDERWRITTEN DEBT OFFERING

Shortly after the closing of the Common Stock Offering, we plan to sell
approximately $1,000,000,000 aggregate principal amount of debt securities other
than the Notes in an underwritten public offering. Those other debt securities
would be general, unsecured obligations of GS Inc., would rank equally in right
of payment with the Notes and would have a stated maturity of
years. We refer to that offering as the "Underwritten Debt Offering". If we
complete the Underwritten Debt Offering, we intend to use the net proceeds of
that offering for the purposes described in "Use of Proceeds". We may decide to
postpone or cancel the Underwritten Debt Offering or to conduct it on terms
other than those described above. Thus, we may not receive the proceeds
described above.

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<PAGE> 47

SUMMARY CONSOLIDATED FINANCIAL DATA

The summary historical consolidated income statement and balance sheet data
set forth below have been derived from the Firm's consolidated financial
statements and the notes thereto. The Firm's consolidated financial statements
have been audited by PricewaterhouseCoopers LLP, independent public accountants,
as of November 28, 1997 and November 27, 1998 and for the years ended November
29, 1996, November 28, 1997 and November 27, 1998. These financial statements
are included elsewhere in this prospectus, together with the report thereon of
PricewaterhouseCoopers LLP.

The summary historical consolidated income statement and balance sheet data
set forth below as of November 25, 1994, November 24, 1995 and November 29, 1996
and for the years ended November 25, 1994 and November 24, 1995 have been
derived from audited consolidated financial statements of the Firm not included
in this prospectus.

The pro forma data set forth below as of and for the year ended November
27, 1998 have been derived from the pro forma data set forth in "Pro Forma
Consolidated Financial Information" included elsewhere in this prospectus.

The summary consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Pro Forma Consolidated Financial Information" and the consolidated
financial statements and the notes thereto.

PRO FORMA DATA (UNAUDITED)(4):
Pro forma net earnings............................ -- -- -- -- $ 1,316
Pro forma ratio of earnings to fixed charges(5)... -- -- -- -- 1.16x
Pro forma stockholders' equity as adjusted for the
Common Stock Offering........................... -- -- -- -- $ 6,291

SELECTED DATA AND RATIOS (UNAUDITED):
Ratio of earnings to fixed charges(1)(5).......... 1.06x 1.14x 1.23x 1.23x 1.21x
Assets under supervision:
Assets under management......................... $43,671 $ 52,358 $ 94,599 $135,929 $194,821
Other client assets............................. 49,061 57,716 76,892 102,033 142,018
------- -------- -------- -------- --------
Total assets under supervision.................... $92,732 $110,074 $171,491 $237,962 $336,839
======= ======== ======== ======== ========
</TABLE>

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<PAGE> 48

(1) Since the Firm has been a partnership, payments to the Firm's profit
participating limited partners have been accounted for as distributions of
partners' capital rather than as compensation expense. As a result, the
Firm's pre-tax earnings and compensation and benefits expense have not
reflected any payments for services rendered by its profit participating
limited partners. Accordingly, pre-tax earnings understate the expected
operating costs to be incurred by the Firm after its conversion to
corporate form. As a corporation, the Firm will include payments for
services rendered by its former profit participating limited partners in
compensation and benefits expense. For financial information that reflects
pro forma compensation and benefits expense as if we had been a
corporation, see "Pro Forma Consolidated Financial Information".

(2) Total assets and liabilities as of November 27, 1998 were increased by
$11.64 billion due to the adoption of the provisions of SFAS No. 125 that
were deferred by SFAS No. 127. For a discussion of SFAS Nos. 125 and 127,
see "Accounting Developments" in Note 2 to the consolidated financial
statements.

(3) Adjusted assets represent total assets less securities purchased under
agreements to resell, certain securities borrowed transactions and, with
respect to November 27, 1998, an increase of $11.64 billion in total assets
related to the adoption of the provisions of SFAS No. 125 that were
deferred by SFAS No. 127.

(4) Reflects such adjustments as are necessary, in the opinion of management,
for a fair presentation of the results of operations and stockholders'
equity of the Firm on a pro forma basis. See "Pro Forma Consolidated
Financial Information" for more detailed information concerning these
adjustments.

(5) For purposes of the ratio of earnings to fixed charges, "earnings"
represent pre-tax earnings plus fixed charges and "fixed charges" represent
interest expense plus that portion of rent expense that, in our opinion,
approximates the interest factor included in rent expense. Neither the pro
forma ratio of earnings to fixed charges nor the historical ratio of
earnings to fixed charges gives effect to this Offering of Notes or the
Underwritten Debt Offering.

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<PAGE> 49

RISK FACTORS

An investment in securities of the Firm, such as the Notes, involves a
number of risks, some of which, including market, liquidity, credit,
operational, legal and regulatory risks, could be substantial and are inherent
in the businesses of the Firm. You should carefully consider the following
information about these risks, together with the other information in this
prospectus, before investing in the Notes.

MARKET FLUCTUATIONS COULD ADVERSELY AFFECT
OUR BUSINESSES IN MANY WAYS

As an investment banking and securities firm, our businesses are materially
affected by conditions in the financial markets and economic conditions
generally, both in the United States and elsewhere around the world. The equity
and debt markets in the United States and elsewhere have achieved record or near
record levels, and this favorable business environment will not continue
indefinitely. In the event of a market downturn, our businesses could be
adversely affected in many ways, including those described below. Our revenues
are likely to decline in such circumstances and, if we were unable to reduce
expenses at the same pace, our profit margins would erode. For example, in the
second half of fiscal 1998, we recorded negative net revenues from our Trading
and Principal Investments business and from mid-August to mid-October the number
of equity underwritings and announced mergers and acquisitions transactions in
which we participated declined substantially due to adverse economic and market
conditions. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Business Environment" for a discussion of the market
environment in which we operated during that period. Even in the absence of a
market downturn, the Firm is exposed to substantial risk of loss due to market
volatility.

Losses from Trading and Investment Activity

The Firm generally maintains large trading and investment positions in the
fixed income, currency, commodity and equity markets. To the extent that the
Firm owns assets, i.e., has long positions, in any of those markets, a downturn
in those markets could result in losses from a decline in the value of those
long positions. Conversely, to the extent that the Firm has sold assets it does
not own, i.e., has short positions, in any of those markets, an upturn in those
markets could expose the Firm to potentially unlimited losses as it attempts to
cover its short positions by acquiring assets in a rising market. The Firm may
from time to time have a trading strategy consisting of holding a long position
in one asset and a short position in another, from which the Firm expects to
earn revenues based on changes in the relative value of the two assets. If,
however, the relative value of the two assets changes in a direction or manner
that the Firm does not anticipate or against which it is not hedged, the Firm
might realize a loss in those paired positions. We incurred significant losses
in our Trading and Principal Investments business in the second half of fiscal
1998 from this type of "relative value" trade. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Business
Environment" for a discussion of those losses and the market environment in
which we operated during that period. In addition, the Firm maintains
substantial trading positions that can be adversely affected by the level of
volatility in the financial markets, i.e., the degree to which trading prices
fluctuate over a particular period, in a particular market, regardless of market
levels.

Lower Revenues from Investment Banking Activity

Unfavorable financial or economic conditions would likely reduce the number
and size of transactions in which we provide underwriting, mergers and
acquisitions advisory and other services. Our Investment Banking revenues, in
the form of financial advisory and underwriting fees, are directly related to
the number and size of the transactions in which we participate and would
therefore be adversely affected by a sustained market downturn. In particular,
our results of operations would be adversely affected by a significant

12
<PAGE> 50

reduction in the number or size of mergers and acquisitions transactions.

Lower Revenues from Commissions and Asset Management Fees

A market downturn could lead to a decline in the volume of transactions
that we execute for our customers and, therefore, to a decline in the revenues
we receive from commissions and spreads. In addition, because the fees that we
charge for managing our clients' portfolios are in many cases based on the value
of those portfolios, a market downturn that reduces the value of our clients'
portfolios or increases the amount of withdrawals would reduce the revenue we
receive from our asset management business.

Concentration of Risk

The Firm has committed substantial amounts of capital to its arbitrage,
market-making, block trading, underwriting and lending businesses. These
activities often require the Firm to take large positions in the securities of a
particular issuer or issuers in a particular industry, country or region. In the
past, concentration of risk has increased the losses that we have incurred in
these activities. Moreover, the trend in all major capital markets is towards
larger and more frequent commitments of capital in many of these activities. For
example, as described under "Business -- Trading and Principal Investments --
Equities", we are experiencing an increase in the number and size of block
trades that we execute, and we expect this trend to continue.

Ineffectiveness of Hedges

We utilize a variety of instruments and strategies to hedge our exposure to
various types of risk. Many of these strategies are based on historical trading
patterns and correlations. For example, if we hold a long position in an asset,
we may hedge this position by taking a short position in an asset where the
short position has, historically, moved in a direction that would offset a
change in value in the long position. However, these strategies may not be fully
effective in mitigating our risk exposure in all market environments or against
all types of risk. We have often hedged our exposure to corporate fixed income
securities by taking a short position in U.S. Treasury securities, since
historically the value of U.S. Treasury securities has changed in a manner
similar to changes in the value of corporate fixed income securities. Due to the
"flight to quality" in mid-August to mid-October 1998, however, the prices for
corporate fixed income securities declined while the prices for U.S. Treasury
securities increased and, as a result, we incurred losses on both positions.
Unexpected market developments also affected other hedging strategies during
this time, and unanticipated developments could impact these or different
hedging strategies in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Management" for a
discussion of the policies and procedures we use to identify, monitor and manage
the risks we assume in conducting our businesses and of refinements we have made
to our risk management policies and procedures as a result of our recent
experience.

Prolonged Market Downturn

While the Firm encountered extremely difficult market conditions in
mid-August to mid-October 1998, the financial markets rebounded late in the
fourth quarter of fiscal 1998. At some time in the future, there may be a more
sustained period of market decline or weakness that will leave us operating in a
difficult market environment and subject us to the risks that we describe in
this section for a longer period of time.

Other Risks Increased by Market Risk

In addition to the potentially adverse effects on our businesses described
above, market risk could exacerbate other risks that we face. For example, if we
incur substantial trading losses, our need for liquidity could rise sharply
while our access to liquidity could be impaired. In addition, in conjunction
with a market downturn, our customers and counterparties could incur substantial
losses of their own, thereby weakening their financial condition and increasing
our credit risk to them. Our liquidity risk and credit risk are described below.

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<PAGE> 51

OUR RISK MANAGEMENT POLICIES AND
PROCEDURES MAY LEAVE US EXPOSED TO
UNIDENTIFIED OR UNANTICIPATED RISK

We have devoted significant resources to develop our risk management
policies and procedures and expect to continue to do so in the future.
Nonetheless, our policies and procedures to identify, monitor and manage risks
may not be fully effective. Certain of our methods of managing risk are based
upon our use of observed historical market behavior. As a result, these methods
may not predict future risk exposures, which could be significantly greater than
the historical measures indicate. For example, the market movements of the late
third and early fourth quarters of fiscal 1998 were larger and involved greater
divergences in relative asset values than we anticipated. This caused us to
experience trading losses that were greater and recurred more frequently than
certain of our risk measures indicated were likely to occur. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Business Environment" for a discussion of the market environment in which we
operated during the second half of fiscal 1998 and "-- Risk Management" for a
discussion of the policies and procedures we use to identify, monitor and manage
the risks we assume in conducting our businesses and of refinements we have made
to our risk management policies and procedures as a result of our recent
experience.

Other risk management methods depend upon evaluation of information
regarding markets, clients or other matters that is publicly available or
otherwise accessible by the Firm. This information may not in all cases be
accurate, complete, up-to-date or properly evaluated. Management of operational,
legal and regulatory risk requires, among other things, policies and procedures
to record properly and verify a large number of transactions and events, and
these policies and procedures may not be fully effective.

LIQUIDITY RISK COULD IMPAIR OUR ABILITY
TO FUND OPERATIONS AND JEOPARDIZE OUR
FINANCIAL CONDITION

Liquidity, i.e., ready access to funds, is essential to our businesses. In
addition to maintaining a cash position, we rely on three principal sources of
liquidity: borrowing in the debt markets; access to certain other funding
sources, such as the repurchase and securities lending markets; and selling
securities and other assets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity" for a discussion of
our sources of liquidity.

Continuous Borrowing Needs

We depend on continuous access to the debt capital markets to finance our
day-to-day operations. An inability to raise money in the long-term or
short-term debt markets, or to engage in repurchase agreements or securities
lending, could have a substantial negative effect on our liquidity. Our access
to debt in amounts adequate to finance our activities could be impaired by
factors that affect the Firm in particular or the financial services industry in
general. For example, lenders could develop a negative perception of our
long-term or short-term financial prospects if we incurred large trading losses,
if the level of our business activity decreased due to a market downturn, if
regulatory authorities took significant action against the Firm or if we
discovered that one of our employees had engaged in serious unauthorized or
illegal activity. Our ability to borrow in the debt markets also could be
impaired by factors that are not specific to the Firm, such as a severe
disruption of the financial markets or negative views about the prospects for
the investment banking, securities or financial services industries generally.

We also depend on banks to finance our day-to-day operations. As a result
of the recent consolidation in the banking industry, certain of our lenders have
merged or consolidated with other banks and financial institutions. While we
have not been materially adversely affected to date, it is possible that further
consolidation could lead to a loss of a number of our key banking relationships
and a reduction in the amount of credit extended to us.

Dependence on Access to Short-Term Debt Markets

The Firm depends on the issuance of commercial paper and promissory notes
as a

14
<PAGE> 52
principal source of unsecured short-term funding for its operations. As of the
end of fiscal 1998, the Firm had $20.8 billion of outstanding commercial paper
and promissory notes with a weighted average maturity of approximately 63 days.
The Firm's liquidity depends to an important degree on its ability to refinance
these borrowings on a continuous basis. Investors who hold the Firm's
outstanding commercial paper and promissory notes have no obligation to purchase
new instruments when the outstanding instruments mature.

Dependence on Ability to Sell Assets

If we were unable to borrow in the debt capital markets, we would need to
liquidate assets in order to meet our maturing liabilities. In certain market
environments, such as times of market volatility or uncertainty, overall market
liquidity may decline. In a time of reduced liquidity, we may be unable to sell
certain assets, or we may have to sell assets at depressed prices, which could
adversely affect our results of operations and financial condition.

Our ability to sell our assets may be impaired by other market participants
seeking to sell similar assets into the market at the same time. In the late
third and early fourth quarters of fiscal 1998, for example, the markets for
certain assets were adversely affected by simultaneous attempts by a number of
institutions to sell similar assets.

Dependence on Credit Ratings

Our borrowing costs and our access to the debt capital markets depend
significantly on our credit ratings. These ratings are assigned by rating
agencies, which may reduce or withdraw their ratings or place the Firm on
"credit watch" with negative implications at any time. Credit ratings are also
important to the Firm when competing in certain markets and when seeking to
engage in longer-term transactions, including over-the-counter derivatives. A
reduction in our credit ratings could increase our borrowing costs and limit our
access to the capital markets. This, in turn, could reduce our earnings and
adversely affect our liquidity. In addition, a reduction in the credit rating of
the Notes could adversely affect their market value or your ability to sell the
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity -- Credit Ratings" for additional information
concerning our credit ratings.

CREDIT RISK EXPOSES US TO LOSSES CAUSED
BY FINANCIAL OR OTHER PROBLEMS
EXPERIENCED BY THIRD PARTIES

We are exposed to the risk that third parties that owe us money, securities
or other assets will not perform their obligations. These parties include our
trading counterparties, customers, clearing agents, exchanges, clearing houses
and other financial intermediaries as well as issuers whose securities we hold.
These parties may default on their obligations to us due to bankruptcy, lack of
liquidity, operational failure or other reasons. This risk may arise, for
example, from holding securities of third parties; entering into swap or other
derivative contracts under which counterparties have long-term obligations to
make payments to us; executing securities, futures, currency or commodity trades
that fail to settle at the required time due to non-delivery by the counterparty
or systems failure by clearing agents, exchanges, clearing houses or other
financial intermediaries; and extending credit to our clients through bridge or
margin loans or other arrangements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Management -- Credit Risk"
for a further discussion of the credit risks to which we are exposed.

Increased Credit Exposure in Recent Years

In recent years, we have significantly expanded our swaps and other
derivatives businesses and placed a greater emphasis on providing credit and
liquidity to our clients. As a result, our credit exposures have increased in
amount and in duration. In addition, as competition in the financial services
industry has increased, we have experienced pressure to assume longer-term
credit risk, extend credit against less liquid collateral and price more
aggressively the credit risks that we take.

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<PAGE> 53

Country Risk

Country, regional and political risks are components of credit risk, as
well as market risk. Economic or political pressures in a country or region,
including those arising from local market disruptions or currency crises, may
adversely affect the ability of clients or counterparties located in that
country or region to obtain foreign exchange or credit and, therefore, to
perform their obligations to us. See "-- We Are Exposed to Risks in Emerging and
Other Markets" for a further discussion of our exposure to these risks.

Systemic Risk

The commercial soundness of many financial institutions may be closely
interrelated as a result of credit, trading, clearing or other relationships
between the institutions. As a result, concerns about, or a default by, one
institution could lead to significant liquidity problems or losses in, or
defaults by, other institutions. This is sometimes referred to as "systemic
risk" and may adversely affect financial intermediaries, such as clearing
agencies, clearing houses, banks, securities firms and exchanges, with which we
interact on a daily basis.

The possibility of default by a major market participant in the second half
of fiscal 1998 and concerns throughout the financial industry regarding the
resulting impact on markets led us to participate in an industry-wide consortium
that invested in Long-Term Capital Portfolio, L.P., which is described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity -- The Balance Sheet". Actual defaults, increases in
perceived default risk and other similar events could arise in the future and
could have an adverse effect on the financial markets and on the Firm.

Uncertainty in Managing Credit Risk

Although we regularly review our credit exposure to specific clients and
counterparties and to specific industries, countries and regions that we believe
may present credit concerns, default risk may arise from events or circumstances
that are difficult to detect, such as fraud. We may also fail to receive full
information with respect to the trading risks of a counterparty. In addition, in
cases where we have extended credit against collateral, we may find that we are
undersecured, for example, as a result of sudden declines in market values that
reduce the value of collateral.

FIRM AND THIRD-PARTY COMPUTER SYSTEMS
MAY NOT ACHIEVE YEAR 2000 READINESS --
YEAR 2000 READINESS DISCLOSURE

With the year 2000 approaching, many institutions around the world are
reviewing and modifying their computer systems to ensure that they are Year 2000
compliant. The issue, in general terms, is that many existing computer systems
and microprocessors (including those in non-information technology equipment and
systems) use only two digits to identify a year in the date field with the
assumption that the first two digits of the year are always "19". Consequently,
on January 1, 2000, computers that are not Year 2000 compliant may read the year
as 1900. Systems that calculate, compare or sort using the incorrect date may
malfunction.

Because the Firm is dependent, to a very substantial degree, upon the
proper functioning of its computer systems, a failure of its systems to be Year
2000 compliant would have a material adverse effect on the Firm. Failure of this
kind could, for example, cause settlement of trades to fail, lead to incomplete
or inaccurate accounting, recording or processing of trades in securities,
currencies, commodities and other assets, result in generation of erroneous
results or give rise to uncertainty about our exposure to trading risks and our
need for liquidity. If not remedied, potential risks include business
interruption or shutdown, financial loss, regulatory actions, reputational harm
and legal liability.

In addition, the Firm depends upon the proper functioning of third-party
computer and non-information technology systems. These parties include trading
counterparties, financial intermediaries such as securities and commodities
exchanges, depositories, clearing agencies, clearing houses and commercial banks
and vendors such as providers of telecommunication services and other utilities.

16
<PAGE> 54
We are in the process of assessing counterparties, intermediaries and vendors
with whom we have important financial or operational relationships to determine
the extent of their Year 2000 preparedness. We have not yet received sufficient
information from all parties about their remediation plans to assess the
effectiveness of their efforts. Moreover, in many cases, we are not in a
position to verify the accuracy or completeness of the information we receive
from third parties and as a result are dependent on their willingness and
ability to disclose, and to address, their Year 2000 problems. In addition, in
some international markets in which we do business, the level of awareness and
remediation efforts relating to the Year 2000 issue may be less advanced than in
the United States.

If third parties with whom we interact have Year 2000 problems that are not
remedied, problems could include the following:

- - in the case of vendors, disruption of important services upon which the Firm
depends, such as telecommunications and electrical power;

- - in the case of third-party data providers, receipt of inaccurate or
out-of-date information that would impair our ability to perform critical data
functions, such as pricing our securities or other assets;

- - in the case of financial intermediaries, such as exchanges and clearing
agents, failed trade settlements, inability to trade in certain markets and
disruption of funding flows;

- - in the case of banks and other lenders, disruption of capital flows
potentially resulting in liquidity stress; and

- - in the case of counterparties and customers, financial and accounting
difficulties for those parties that expose the Firm to increased credit risk
and lost business.

Disruption or suspension of activity in the world's financial markets is also
possible.

In addition, we believe that uncertainty about the success of remediation
efforts generally may cause many market participants to reduce the level of
their market activities temporarily as they assess the effectiveness of these
efforts during a "phase-in" period beginning in late 1999. We believe that
lenders are likely to take similar steps, which will result in a reduction in
available funding sources. Consequently, there may be a downturn in customer and
general market activity for a short period of time before and after January 1,
2000. If this occurs, our net revenues may be adversely affected, possibly
materially, depending on how long the reduction in activity continues and how
broadly it affects the markets. In addition, we expect to reduce our own trading
activities and the size of our balance sheet in order to manage the number and
type of our transactions that settle during this period and our related funding
needs. This also could reduce our net revenues. We cannot predict the magnitude
of the impact that these kinds of reductions would have on our businesses.

We may also be exposed to litigation with our customers and counterparties
as a result of Year 2000 problems. For example, litigation could arise from
problems relating to our internal systems or to external systems on which we
depend, as well as from problems involving companies in which our clients or the
funds we manage hold investments.

The Firm is implementing a worldwide program to prepare its computer
systems to be Year 2000 compliant. We have substantially completed most phases
of this process with respect to our mission-critical systems, and we expect to
complete this process with respect to our remaining systems during 1999. We also
plan to participate in numerous industry-sponsored and other tests of both our
mission-critical and non-mission-critical systems during the first half of 1999.
We currently estimate that the total cost of implementing our Year 2000 program
will be between $140 million and $150 million, which includes the costs of
technology personnel but does not include the costs of most non-technology
personnel. Over half of this amount has been spent to date. We expect most of
the remaining expenditures to cover remediation, testing and contingency
planning during 1999. The Firm's Year 2000 program may not be effective and our
estimates about the timing and cost of completing our
17
<PAGE> 55

program may not be accurate. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Management -- Operational
and Year 2000 Risks -- Year 2000 Readiness Disclosure" for more detailed
information concerning our current state of readiness.

OTHER OPERATIONAL RISKS MAY DISRUPT OUR
BUSINESSES, RESULT IN REGULATORY ACTION
AGAINST US OR LIMIT OUR GROWTH

We face operational risk arising from mistakes made in the confirmation or
settlement of transactions or from transactions not being properly recorded,
evaluated or accounted for. Our businesses are highly dependent on our ability
to process, on a daily basis, a large number of transactions across numerous and
diverse markets in many currencies, and the transactions we process have become
increasingly complex. Consequently, we rely heavily on our financial, accounting
and other data processing systems. If any of these systems do not operate
properly or are disabled, we could suffer financial loss, a disruption of our
businesses, liability to clients, regulatory intervention or reputational
damage. The inability of our systems to accommodate an increasing volume of
transactions could also constrain our ability to expand our businesses. In
recent years, we have substantially upgraded and expanded the capabilities of
our data processing systems and other operating technology, and we expect that
we will need to continue to upgrade and expand in the future to avoid disruption
of, or constraints on, our operations.

LEGAL AND REGULATORY RISKS ARE INHERENT AND
SUBSTANTIAL IN OUR BUSINESSES

Substantial legal liability or a significant regulatory action against the
Firm could have a material financial effect on the Firm or cause significant
reputational harm to the Firm, which in turn could seriously harm our business
prospects.

Exposure to Legal Liability; Rising Litigation Costs

We face significant legal risk in our businesses and the volume and amount
of damages claimed in litigation against financial intermediaries are
increasing. These risks include potential liability under securities or other
laws for materially false or misleading statements made in connection with
securities and other transactions, potential liability for the "fairness
opinions" and other advice we provide to participants in corporate transactions
and disputes over the terms and conditions of complex trading arrangements. We
also face the possibility that counterparties in complex or risky trading
transactions will claim that we improperly failed to tell them of the risks or
that they were not authorized or permitted to enter into these transactions with
us and that their obligations to the Firm are not enforceable. Particularly in
our rapidly growing business focused on high net worth individuals, we are
increasingly exposed to claims against the Firm for recommending investments
that are not consistent with a client's investment objectives or engaging in
unauthorized or excessive trading. During a prolonged market downturn, we would
expect these types of claims to increase. We are also subject to claims arising
from disputes with employees for alleged discrimination or harassment, among
other things. These risks often may be difficult to assess or quantify and their
existence and magnitude often remain unknown for substantial periods of time. We
incur significant legal expenses every year in defending against litigation, and
we expect to continue to do so in the future. See "Business -- Legal Matters"
for a discussion of certain legal matters in which we are currently involved.

Extensive Regulation of the Firm

The financial services industry is subject to extensive regulation. In the
United States alone, our businesses are regulated by the Securities and Exchange
Commission, the Commodity Futures Trading Commission and various other federal
and state governmental authorities. In addition, the Firm is subject to
regulation by various self-regulatory organizations such as the National
Association of Securities Dealers, Inc., the NYSE and other exchanges. The Firm
is also subject to regulation by governmental and self-regulatory organizations
in virtually all other jurisdictions in which it operates around the world.
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<PAGE> 56

The requirements imposed by our regulators are designed to ensure the
integrity of the financial markets and to protect customers and other third
parties who deal with the Firm and are not designed to protect shareholders of
the Firm. Consequently, these regulations often serve to limit the Firm's
activities, including through net capital, customer protection and market
conduct requirements. We face the risk of significant intervention by regulatory
authorities, including extended investigation and surveillance activity,
adoption of costly or restrictive new regulations and judicial or administrative
proceedings that may result in substantial penalties to the Firm. Among other
things, the Firm could be fined or prohibited from engaging in certain business
activities. See "Business -- Regulation" for a further discussion of the
regulatory environment in which we conduct our businesses.

Legal Restrictions on Our Clients

New laws or regulations or changes in enforcement of existing laws or
regulations applicable to the Firm's clients may also adversely affect our
businesses. For example, changes in antitrust enforcement could affect the level
of mergers and acquisitions activity and changes in regulation could restrict
the activities of the Firm's clients and, therefore, the Firm's services on
their behalf.

WE DEPEND ON FUNDS FROM OUR
REGULATED SUBSIDIARIES

Because GS Inc. will be a holding company, it will depend on dividends,
distributions and other payments from its subsidiaries to fund all payments on
its debt obligations, including its obligations to make payments on the Notes.
Many of those subsidiaries, including Goldman, Sachs & Co., our principal U.S.
subsidiary, are subject to laws that authorize regulatory bodies to block or
reduce the flow of funds from those subsidiaries to us. Regulatory action of
that kind could adversely affect GS Inc.'s ability to make payments on the
Notes.

In addition, Goldman, Sachs & Co. is structured as a partnership in which
we are a general partner, and we may structure other subsidiaries the same way.
A general partner of a partnership may be liable for the partnership's
obligations. Therefore, if, for example, there were a bankruptcy or liquidation
proceeding with respect to any partnership subsidiary in which we are a general
partner and the assets of that subsidiary were insufficient to meet all its
outstanding liabilities and obligations, our own assets could become available
to the subsidiary's creditors.

HOLDERS OF NOTES MAY BE ADVERSELY AFFECTED BECAUSE WE ARE A HOLDING COMPANY

As a holding company, our right to participate in a distribution of assets
of any of our subsidiaries, whether on liquidation, reorganization or otherwise,
will be subject to the prior claims of the creditors of that subsidiary. The
ability of holders of Notes to benefit from distributions of assets from our
subsidiaries will also be subject to those prior claims. Consequently, the Notes
will be effectively subordinated to all existing and future liabilities and
obligations of our subsidiaries. This means that, if any of our subsidiaries
were to become bankrupt or insolvent, its assets would be used to satisfy its
own liabilities and obligations before we could use its assets to make payment
on our own liabilities and obligations, including the Notes.

WE MAY BE ABLE TO OBTAIN WAIVERS OF SOME OF OUR COVENANTS UNDER THE NOTES
WITHOUT YOUR APPROVAL

The indenture governing the Notes permits us to issue an unlimited amount
of debt securities in different series from time to time. The Notes will be a
single, distinct series of debt securities under the indenture. If we want to
make some types of changes to the indenture or obtain a waiver of compliance
with our covenants under it, we must obtain the approval of the holders of a
majority in principal amount of all series of debt securities that we issue
under the indenture and that are affected by the change or waiver, taken
together as a single class. In many cases, the approval of those holders will be
sufficient for us to make the change or to obtain the waiver, even if it affects
the Notes and the holders of a majority in principal amount of the Notes do not
grant their approval. For a description of provisions governing consents and
waivers, see
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<PAGE> 57

"Description of Notes We May Offer -- Modification and Waiver of
Covenants -- Changes Requiring Majority Approval".

EMPLOYEE MISCONDUCT COULD HARM THE FIRM
AND IS DIFFICULT TO DETECT AND DETER

There have been a number of highly publicized cases involving fraud or
other misconduct by employees in the financial services industry in recent
years, and we run the risk that employee misconduct could occur. Misconduct by
employees could include binding the Firm to transactions that exceed authorized
limits or present unacceptable risks, or hiding from the Firm unauthorized or
unsuccessful activities, which, in either case, may result in unknown and
unmanaged risks or losses. Employee misconduct could also involve the improper
use or disclosure of confidential information, which could result in regulatory
sanctions and serious reputational or financial harm. It is not always possible
to deter employee misconduct and the precautions we take to prevent and detect
this activity may not be effective in all cases.

THE FINANCIAL SERVICES INDUSTRY IS INTENSELY
COMPETITIVE AND RAPIDLY CONSOLIDATING

The financial services industry -- and all of our businesses -- are
intensely competitive, and we expect them to remain so. We compete on the basis
of a number of factors, including transaction execution, our products and
services, innovation, reputation and price. We have experienced intense price
competition in certain businesses in recent years, such as underwriting fees on
investment grade debt offerings and privatizations. We believe we may experience
pricing pressures in these and other areas in the future as some of our
competitors seek to obtain market share by reducing prices.

Trend Toward Consolidation and Increasing Competition

In recent years, there has been substantial consolidation and convergence
among companies in the financial services industry. In particular, a number of
large commercial banks, insurance companies and other broad-based financial
services firms have established or acquired broker-dealers or have merged with
other financial institutions. Many of these firms have the ability to offer a
wide range of products, from loans, deposit-taking and insurance to brokerage,
asset management and investment banking services, which may enhance their
competitive position. They also have the ability to support investment banking
and securities products with commercial banking, insurance and other financial
services revenues in an effort to gain market share, which could result in
pricing pressure in our businesses.

Increased Need for Capital

This trend toward consolidation and convergence has significantly increased
the capital base and geographic reach of our competitors. This trend has also
hastened the globalization of the securities and other financial services
markets. As a result, we have had to commit capital to support our international
operations and to execute large global transactions.

Competition in Non-U.S. Markets

We believe that some of our most significant challenges and opportunities
will arise outside the United States, as described under "Industry and Economic
Outlook". In order to take advantage of these opportunities, we will have to
compete successfully with financial institutions based in important non-U.S.
markets, particularly in Europe. Certain of these institutions are larger,
better capitalized and have a stronger local presence and a longer operating
history in these markets.

Competition from Alternative Trading Systems

Securities and futures transactions are now being conducted through the
Internet and other alternative, non-traditional trading systems, and it appears
that the trend toward alternative trading systems will continue and probably
accelerate. A dramatic increase in computer-based or other electronic trading
may adversely affect the Firm's commission and trading revenues, reduce the
Firm's participation in the trading markets and associated access to market
information and lead to the creation of new and stronger competitors.

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<PAGE> 58

WE ARE EXPOSED TO RISKS IN
EMERGING AND OTHER MARKETS

We conduct our businesses in major markets around the world, including many
developing markets in Asia, Latin America and Eastern Europe. We are subject to
political, economic, legal, operational and other risks that are inherent in
operating in other countries, which range from difficulties in settling
transactions in emerging markets to possible nationalization, expropriation,
price controls and other restrictive governmental actions. We also face the risk
that exchange controls or similar restrictions imposed by foreign governmental
authorities may restrict our ability to convert local currency received or held
by us in their countries into U.S. dollars or other currencies, or to take those
dollars or other currencies out of those countries.

To date, a relatively small part of our business has been conducted in
emerging and other markets. As we expand our businesses in these areas, our
exposure to these risks will increase.

In the last several years, various emerging market countries have
experienced severe economic and financial disruptions, including significant
devaluations of their currencies and low or negative growth rates in their
economies. The possible effects of these conditions include an adverse impact on
our businesses and increased volatility in financial markets generally.
Moreover, economic or market problems in a single country or region are
increasingly affecting other markets generally. For example, the economic crisis
in Russia in August 1998 adversely affected other emerging markets and led to
turmoil in financial markets worldwide. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Business
Environment" for a discussion of the business environment in which we operated
during the second half of fiscal 1998. A continuation of these situations could
adversely affect global economic conditions and world markets and, in turn,
could adversely affect the Firm's businesses. Among the risks are regional or
global market downturns and, as noted above, increasing liquidity and credit
risks, particularly in Japan where the economy continues to be weak and we have
significant exposure.

Moreover, in many countries, the laws and regulations applicable to the
securities and financial services industries are uncertain and evolving, and it
may be difficult for us to determine the exact requirements of local laws in
every market. Our inability to remain in compliance with local laws in a
particular foreign market could have a significant and negative effect not only
on our businesses in that market but also on the Firm's reputation generally.
These uncertainties may also make it difficult for us to structure our
transactions in such a way that the results we expect to achieve are legally
enforceable in all cases. See "-- Legal and Regulatory Risks Are Inherent and
Substantial in Our Businesses -- Exposure to Legal Liability; Rising Litigation
Costs" for additional information concerning these matters and
"Business -- Regulation" for a discussion of the regulatory environment in which
we conduct our businesses.

OUR CONVERSION TO CORPORATE FORM
MAY ADVERSELY AFFECT OUR ABILITY TO RECRUIT,
RETAIN AND MOTIVATE KEY EMPLOYEES

The Firm's performance is largely dependent on the talents and efforts of
highly skilled individuals. Competition in the financial services industry for
qualified employees is intense. Our continued ability to compete effectively in
our businesses depends on our ability to attract new employees and to retain and
motivate our existing employees.

In connection with the Common Stock Offering and the Firm's conversion from
partnership to corporate form, the profit participating limited partners who are
active in the Firm's businesses will receive substantial amounts of Common Stock
in exchange for their interests in the Firm. Because these shares of Common
Stock will be received in exchange for partnership interests, ownership of these
shares will not be dependent upon these partners' continued employment. However,
these shares will be subject to certain restrictions on transfer under a
shareholders' agreement and a portion may be pledged to support these partners'
obligations under noncompetition agreements. The transfer restrictions under the
shareholders' agreement

21
<PAGE> 59

may, however, be waived, as described under "Certain Relationships and Related
Transactions -- Shareholders' Agreement -- Transfer Restrictions" and
"-- Waivers". The steps taken by the Firm to encourage the continued service of
these individuals in the Firm's businesses after the Common Stock Offering may
not be effective. For a description of the compensation plan for our senior
professionals to be implemented after the Common Stock Offering, see
"Management -- The Partner Compensation Plan".

In connection with the Common Stock Offering and the Firm's conversion from
partnership to corporate form, employees other than the profit participating
limited partners who are active in the Firm's businesses will receive
equity-based awards. The incentives to attract, retain and motivate employees
provided by these awards or by future arrangements, including equity-based
arrangements, may not be as effective as the opportunity, which existed prior to
conversion, to become a partner of the Firm. See "Management -- The Employee IPO
Awards" for a description of these equity-based awards.

THE FIRM WILL BE CONTROLLED BY ITS
PRINCIPAL SHAREHOLDERS

Upon consummation of the Common Stock Offering, the Firm's Managing
Directors initially will be able to elect the entire Board of Directors and
control the management and policies of the Company. See "Certain Relationships
and Related Transactions -- Shareholders' Agreement -- Voting" and "-- Voting
Agreement" for a discussion of the Firm's voting arrangements.

THERE HAS BEEN NO PRIOR MARKET
FOR THE NOTES

The Note you are purchasing is a newly issued security with no established
trading market. We do not intend to list the Notes on a securities exchange.
While Goldman, Sachs & Co. has advised us that it intends to make a market in
the Notes, it is not obligated to do so and may discontinue market-making at any
time without notice.

AN INVESTMENT IN INDEXED NOTES
PRESENTS SIGNIFICANT RISKS NOT ASSOCIATED
WITH OTHER TYPES OF NOTES

Indexed Notes may present a high level of risk, and investors in certain
indexed Notes may lose their entire investment. In addition, the treatment of
indexed Notes for U.S. federal income tax purposes is often unclear due to the
absence of any authority specifically addressing the issues presented by any
particular indexed Note. Thus, if you are an investor in indexed Notes, you
should be capable of independently evaluating the federal income tax
consequences of purchasing an indexed Note that apply in your particular
circumstances. You should also read "United States Taxation" for a discussion of
U.S. tax matters.

Loss of Principal or Interest

The principal amount of an indexed Note payable at maturity, and/or the
amount of interest payable on an interest payment date, will be determined by
reference to one or more stocks, including baskets of stocks, and stock indices.
We refer to each of these as an "index". The direction and magnitude of the
change in the value of the relevant index will determine the principal amount of
an indexed Note payable at maturity and/or the amount of interest payable on an
interest payment date. The terms of a particular indexed Note may or may not
include a guaranteed return of a percentage of the face amount at maturity or a
minimum interest rate. Thus, if you purchase an indexed Note, you may lose all
or a portion of the principal you invest and may receive no interest on your
investment.

The Issuer of Index Stock Could Take Actions That May Adversely Affect the Notes

The issuer of a stock that serves as an index or part of an index for an
indexed Note will have no involvement in the offer and sale of the Note and no
obligations to the holder of the Note. The issuer may take actions, such as a
merger or sale of assets, without regard to the interests of the holder. Any of
these actions could adversely affect the value of a Note indexed to that stock.

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<PAGE> 60

Volatility

Some indices are highly volatile, which means that their value may change
significantly, up or down, over a short period of time. The amount of principal
or interest that can be expected to become payable on an indexed Note may vary
substantially from time to time. Because the amount of principal or interest
payable on an indexed Note is generally calculated based on the value of the
relevant index on a specified date or over a limited period of time, volatility
in the index increases the risk that the return on the indexed Notes may be
adversely affected by a fluctuation in the level of the relevant index.

The volatility of an index may be affected by political or economic events,
including governmental actions, or by the activities of participants in the
relevant markets. Any of these events or activities could adversely affect the
value of an indexed Note.

Composition and Availability of Indices

Some indices may consist of or refer to several different stocks. The
compiler of such an index typically reserves the right to alter the composition
of the index and the manner in which the value of the index is calculated. An
alteration may result in a decrease in the value of or return on an indexed Note
that is linked to the index.

An index of this kind may become unavailable due to events such as war,
natural disasters, cessation of publication of the index or a suspension or
disruption of trading in any stock on which the index is based. If an index
becomes unavailable, we may delay determining the amount payable as principal or
interest on an indexed Note or we may use an alternative method to determine the
value of the unavailable index. Alternative methods of valuation are generally
intended to produce a value similar to the value resulting from reference to the
relevant index. However, it is unlikely that any alternative method of valuation
we use will produce a value identical to the value that the actual index would
produce. If we use an alternative method of valuation for a Note linked to an
index of this kind, the value of the Note, or the rate of return on it, may be
lower than it otherwise would be.

Some indexed Notes are linked to indices that are not commonly used or have
been developed only recently. The lack of a trading history may make it
difficult to anticipate the volatility or other risks associated with an indexed
Note of this kind. In addition, trading in these indices or their underlying
stocks may be limited, which could increase their volatility and decrease the
value of the related indexed Notes or the rates of returns on them.

Hedging Activities of the Firm

In order to hedge an exposure on a particular indexed Note, we may,
directly or through our affiliates, enter into transactions involving the stocks
that underlie the index for that Note, or derivative instruments, such as
options, on those stocks. Transactions of this kind could affect the value of
the indexed Note in a manner adverse to the investor. It is possible that we
could achieve substantial returns from our hedging transactions while the value
of the indexed Note may decline.

Information About Indices

If we issue an indexed Note, we may include historical information about
the relevant index in the applicable prospectus supplement. Any information
about indices that we may provide will be furnished as a matter of information
only and you should not regard the information as indicative of the range of, or
trends in fluctuations in, the relevant index that may occur in the future.

Potential Conflicts of Interest

Goldman, Sachs & Co. and other affiliates of the Firm may have conflicts of
interest with respect to some indexed Notes. Goldman, Sachs & Co. and our other
affiliates may engage in trading, including trading for hedging purposes, for
their proprietary accounts or for other accounts under their management, in
indexed Notes and in the stocks on which the index is based or in other
derivative instruments related to the index. These trading activities could
adversely affect the value of indexed Notes. Goldman, Sachs & Co. and our other
affiliates may also issue or underwrite securities or derivative instruments
that are linked to the same index as one or more indexed Notes. By introducing
competing

23
<PAGE> 61

products into the marketplace in this manner,
the Firm could adversely affect the value of an indexed Note.

In addition to being the Calculation Agent, to the extent that Goldman,
Sachs & Co. or another of our affiliates calculates or compiles a particular
index, it may have considerable discretion in performing the calculation or
compilation. Exercising discretion in this manner could adversely affect the
value of an indexed Note based on the index or the rate of return on the Note.

NOTES DENOMINATED IN A FOREIGN CURRENCY
MAY NOT BE AN APPROPRIATE
INVESTMENT FOR YOU

If you intend to invest in a Note whose principal and/or interest is
payable in a currency other than U.S. dollars, you should consult your own
financial and legal advisors as to the currency risks entailed by your
investment. Notes of this kind are not an appropriate investment for investors
who are unsophisticated with respect to foreign currency transactions.

The information in this prospectus is directed to investors who are U.S.
residents, and does not address risks for investors who are not U.S. residents.
If you are not a U.S. resident, you should consult your own financial and legal
advisors.

Exchange Rates and Exchange Controls

An investment in a Note with a specified currency other than U.S. dollars
entails significant risks that are not associated with a similar investment in a
Note payable solely in U.S. dollars. These risks include the possibility of
significant changes in rates of exchange between the U.S. dollar and the various
foreign currencies or composite currencies and the possibility of the imposition
or modification of foreign exchange controls or other conditions by either the
U.S. or foreign governments. These risks generally depend on factors over which
we have no control, such as economic and political events and the supply of and
demand for the relevant currencies. In recent years, rates of exchange between
the U.S. dollar and several foreign currencies have been highly volatile, and
this volatility may be expected to continue and perhaps spread to other
currencies in the future.

Fluctuations in any particular exchange rate that have occurred in the past
are not necessarily indicative, however, of fluctuations in the rate that may
occur during the term of any Note. Depreciation of a specified currency in which
a Note is denominated against the U.S. dollar could result in a decrease in the
effective yield of the Note and, in certain circumstances, could result in a
loss to the investor on a U.S. dollar basis.

Foreign exchange rates can either float or be fixed by sovereign
governments. From time to time, governments use a variety of techniques, such as
intervention by a country's central bank or imposition of regulatory controls or
taxes, to affect the exchange rate of their currencies. Governments may also
issue a new currency to replace an existing currency or alter the exchange rate
or exchange characteristics by devaluation or revaluation of a currency. Thus, a
special risk in purchasing non-U.S. dollar denominated Notes is that their U.S.
dollar-equivalent yields or payouts could be affected by governmental actions.
In addition, the ability of a holder to move currency freely out of the country
in which it is paid or to convert the currency at a freely determined market
rate could be limited by governmental actions. There will be no adjustment or
change in the terms of these Notes in the event that exchange rates should
become fixed or be allowed to float, in the event of any devaluation,
revaluation or imposition of exchange or other regulatory controls or taxes, or
in the event of other developments affecting the U.S. dollar or any other
applicable specified currency.

Governments have imposed from time to time and may in the future impose
exchange controls or other conditions with respect to the exchange or transfer
of a specified currency that could affect exchange rates as well as the
availability of a specified currency for a Note at its maturity or on any other
payment date. Even if there are no actual exchange controls or other conditions
in place for a specified currency, it is possible that the currency would not be
available on a day when payment in that currency is due. In that event, we will
be
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<PAGE> 62

entitled to make all payments due, including payments due at maturity or on the
redemption or repayment date if the Notes are redeemed or repaid earlier, in
U.S. dollars, using the most recently available exchange rate, as we describe
below under "Description of Notes We May Offer -- Payment Mechanics".

Governing Law and Judgments

The Notes will be governed by New York law. A judgment for money in an
action based on a Note denominated in a foreign currency in a federal or state
court in the United States ordinarily would be enforced in the United States
only in U.S. dollars. The date used to determine the rate of conversion of the
currency in which any particular Note is denominated into U.S. dollars will
depend upon various factors, including which court renders the judgment. Under
Section 27 of the New York Judiciary Law, for example, a state court in the
State of New York rendering a judgment on a Note denominated in a foreign
currency would be required to render the judgment in the specified currency, and
the judgment would be converted into U.S. dollars at the exchange rate
prevailing on the date of entry of the judgment. That rate will likely differ
from the exchange rate used under the terms that apply to the Notes.

Information About Exchange Rates

If we issue a Note denominated in other than U.S. dollars, we may include
in the applicable prospectus supplement a currency supplement that provides
information about historical exchange rates for the specified currency. Any
information about exchange rates that we may provide will be furnished as a
matter of information only and you should not regard the information as
indicative of the range of or trends in fluctuations in currency exchange rates
that may occur in the future.

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<PAGE> 63

USE OF PROCEEDS

We intend to use the net proceeds from the sales of Notes to provide
additional funds for our operations and for other general corporate purposes.

We will receive the net proceeds only from sales of the Notes made in
connection with their original issuance. We do not expect to receive any
proceeds from subsequent resales of Notes by Goldman, Sachs & Co. ("GS&Co.") or
any of our other affiliates in market-making transactions. We expect our
affiliates to retain the proceeds of their market-making resales and not pay
them to us.

We intend to use the net proceeds from the Common Stock Offering to provide
additional funds for our operations and for other general corporate purposes,
including the purchase of short-term marketable securities. We intend to use the
net proceeds from the Underwritten Debt Offering to provide additional funds for
our operations and for other general corporate purposes, including the repayment
of short-term obligations.

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<PAGE> 64

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following Pro Forma Consolidated Financial Information is based upon
the historical consolidated financial statements of the Firm. In addition to the
Common Stock Offering, this information reflects the pro forma effects of the
following items:

- - the incorporation transactions (the "Incorporation Transactions") and the
related transactions described under "Certain Relationships and Related
Transactions -- Incorporation and Related Transactions";

- - compensation to Managing Directors who were profit participating limited
partners active in the Firm's businesses (the "PLPs");

- - equity-based compensation;

- - the provision for corporate income taxes;

- - the redemption of the Firm's senior limited partnership interests (the
"SLPs");

- - certain cash distributions by The Goldman Sachs Group, L.P. ("Group L.P.") to
its partners in the first and second quarters of fiscal 1999 in accordance
with the Firm's partnership agreement, including distributions for partner
income taxes related to the Firm's earnings in fiscal 1998; and

- - the recognition of certain net tax assets.

These items are collectively referred to as the "Pro Forma Adjustments".

The Pro Forma Consolidated Income Statement Information does not give
effect to certain of these items because of their non-recurring nature. These
are:

- - the restricted stock units awarded to employees on a formula basis (the
"Formula RSUs");

- - the initial irrevocable contribution of shares of Common Stock to a
nonqualified defined contribution plan (the "DCP");

- - the recognition of certain net tax assets; and

- - a cash contribution to a Goldman Sachs charitable foundation (the "Charitable
Contribution").

The Pro Forma Consolidated Balance Sheet Information, however, does give effect
to these non-recurring items.

This Pro Forma Consolidated Financial Information, including the pro forma
ratio of earnings to fixed charges, does not give effect to this Offering or the
Underwritten Debt Offering.

The Pro Forma Adjustments are based upon available information and certain
assumptions that management believes are reasonable. The Pro Forma Consolidated
Financial Information and accompanying notes should be read in conjunction with
the consolidated financial statements and notes thereto.

THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION PRESENTED IS NOT
NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS OR FINANCIAL CONDITION THAT
MIGHT HAVE OCCURRED HAD THE PRO FORMA ADJUSTMENTS ACTUALLY TAKEN PLACE AS OF THE
DATES SPECIFIED, OR THAT MAY BE EXPECTED TO OCCUR IN THE FUTURE.

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<PAGE> 65

PRO FORMA CONSOLIDATED INCOME STATEMENT INFORMATION
(unaudited)
(in millions, except per share data)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 27, 1998
-------------------------------------------------------------------------
PRO FORMA
ADJUSTMENT AS ADJUSTED
FOR THE FOR THE
PRO FORMA COMMON STOCK COMMON STOCK
HISTORICAL ADJUSTMENTS PRO FORMA OFFERING OFFERING
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues......................... $22,478 $ -- $22,478 $ -- $22,478
Interest expense, principally on short-
term funding......................... 13,958 28(a) 13,986 -- 13,986
------- ------- ------- ----- -------
Revenues, net of interest expense...... 8,520 (28) 8,492 -- 8,492
Compensation and benefits, excluding
Employee IPO Awards.................. 3,838 303(b) 4,141 -- 4,141
Employee IPO Awards.................... -- 360(c) 360 -- 360
Other operating expenses............... 1,761 -- 1,761 -- 1,761
------- ------- ------- ----- -------
Total operating expenses............... 5,599 663 6,262 -- 6,262
Pre-tax earnings....................... 2,921 (691) 2,230 -- 2,230
Provision for taxes.................... 493 421(d) 914 -- 914
------- ------- ------- ----- -------
Net earnings........................... $ 2,428 $(1,112) $ 1,316 $ -- $ 1,316
======= ======= ======= ===== =======

Ratio of earnings to fixed charges..... 1.21x 1.16x 1.16x

Common Shares outstanding:
Basic................................ 426(e) 42(f) 468
Diluted.............................. 430(e) 42(f) 472
Earnings per Share:
Basic................................ $ 3.09 $ 2.81
Diluted.............................. 3.06 2.79
</TABLE>

PRO FORMA CONSOLIDATED BALANCE SHEET INFORMATION
(unaudited)
(in millions, except per share data)

<TABLE>
<CAPTION>
AS OF NOVEMBER 27, 1998
--------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENT AS ADJUSTED
FOR THE FOR THE
PRO FORMA COMMON STOCK COMMON STOCK
HISTORICAL ADJUSTMENTS PRO FORMA OFFERING OFFERING
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets................ $217,380 $(1,510)(g)(h)(i)(k)(l) $215,870 $1,788(f) $217,658
Long-term borrowings........ 19,906 371 (a) 20,277 -- 20,277
Total liabilities........... 210,996 371 (a) 211,367 -- 211,367
Partners' capital........... 6,384 (6,384)(a)(h)(i)(j)(k) -- -- --
Stockholders' equity........ -- 4,503 (g)(j)(l) 4,503 1,788(f) 6,291
Book value per share........ $ 10.58 $ 13.45
</TABLE>

The accompanying notes are an integral part of the Pro Forma Consolidated
Financial Information.
28
<PAGE> 66

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

NOTE 1: BASIS OF PRESENTATION

As permitted by the rules and regulations of the Securities and Exchange
Commission (the "SEC"), the Pro Forma Consolidated Financial Information is
presented on a condensed basis. The Pro Forma Consolidated Balance Sheet
Information was prepared as if the Pro Forma Adjustments had occurred as of
November 27, 1998. Historical partners' capital includes partners' capital
allocated for income taxes and potential withdrawals. Book value per share
equals stockholders' equity divided by Common Shares outstanding of 425,709,041
prior to the Common Stock Offering and 467,709,041 as adjusted for the Common
Stock Offering. These amounts include the Nonvoting Common Stock, shares of
Common Stock irrevocably contributed to the DCP and shares of Common Stock
underlying the Formula RSUs. "Common Stock" means the shares of common stock of
GS Inc., par value $.01 per share. "Nonvoting Common Stock" means the shares of
nonvoting common stock of GS Inc., par value $.01 per share. "Common Shares"
means the Common Stock and the Nonvoting Common Stock. The Nonvoting Common
Stock will have no voting rights (except as required by law) but will otherwise
have the same rights and privileges, including dividend rights, as the Common
Stock.

The Pro Forma Consolidated Income Statement Information for the fiscal year
ended November 27, 1998 was prepared as if the Pro Forma Adjustments had taken
place at the beginning of fiscal 1998.

For pro forma purposes, the Common Stock Offering and, where applicable,
the related transactions reflect an assumed initial public offering price of
$45.00 per share.

For purposes of the pro forma ratio of earnings to fixed charges,
"earnings" represent pre-tax earnings plus fixed charges and "fixed charges"
represent interest expense plus that portion of rent expense that, in our
opinion, approximates the interest factor included in rent expense. The pro
forma ratio of earnings to fixed charges does not give effect to this Offering
of Notes or the Underwritten Debt Offering.

NOTE 2: PRO FORMA ADJUSTMENTS

(a) THE RETIRED LIMITED PARTNERS OF THE FIRM (THE "RLPS") EXCHANGE FOR
DEBENTURES. Adjustment to reflect the issuance of junior subordinated
debentures (the "Junior Subordinated Debentures") to the RLPs in exchange for
their interests in Group L.P. and certain affiliates. These Junior Subordinated
Debentures will have a principal amount of $295 million, an initial carrying
value of $371 million and an effective interest rate of 7.5%.

(b) COMPENSATION AND BENEFITS, EXCLUDING EMPLOYEE IPO AWARDS. Adjustment
to reflect (i) total compensation and benefits related to services rendered by
the former PLPs of the Firm offset by (ii) the effect of equity-based
compensation, issued in lieu of cash compensation, 50% of which will be expensed
over the four-year period following the year of grant. The estimated total
compensation attributable to the former PLPs of the Firm is based upon measures
of financial performance described under "Management -- The Partner Compensation
Plan -- Determination of Salary and Bonus".

(c) EMPLOYEE IPO AWARDS. Adjustment to reflect the amortization of the
30,604,685 restricted stock units awarded to employees on a discretionary basis
(the "Discretionary RSUs"). These Discretionary RSUs will have a value of $1.4
billion, approximately 26% of which will be amortized as a non-cash expense in
the year of grant. The remaining Discretionary RSUs will be amortized over the
four years following the year of grant.

The stock options to purchase 40,000,400 shares of Common Stock awarded to
employees on a discretionary basis (the "Discretionary Options") will be
accounted for pursuant to Accounting Principles Board Opinion ("APB") No. 25, as
permitted by paragraph 5 of SFAS No. 123. Since these options will have no
intrinsic value on the date of grant, no compensation expense will be recognized
pursuant to APB No. 25. The estimated fair value of these Discretionary Options
on the date of grant is $600 million using a Black-Scholes option pricing model.
If SFAS No. 123 had been applied, compensation expense of $157 million would
have been

29
<PAGE> 67
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)

included in the Pro Forma Consolidated Income Statement Information. See
"Management -- The Employee IPO Awards" for a description of these awards.

(d) PRO FORMA PROVISION FOR INCOME TAXES. Adjustment to reflect a pro
forma provision for income taxes for the Company in corporate form at an
effective tax rate of 41%.

(e) PRO FORMA COMMON SHARES. Common Shares outstanding after giving effect
to the Pro Forma Adjustments. Basic Common Shares outstanding of 425,709,041
prior to the Common Stock Offering includes the Nonvoting Common Stock, shares
of Common Stock irrevocably contributed to the DCP and shares of Common Stock
underlying the Formula RSUs. Diluted Common Shares outstanding of 429,704,653
prior to the Common Stock Offering reflects the dilutive effect of the Common
Stock deliverable pursuant to the Discretionary RSUs.

(f) ADJUSTMENT FOR THE COMMON STOCK OFFERING. Common Shares as adjusted to
reflect the issuance of 42,000,000 shares of Common Stock offered by the Firm in
the Common Stock Offering. Net proceeds to the Firm from the Common Stock
Offering reflect the deduction of underwriting discounts and estimated expenses
payable by the Firm in connection with the Common Stock Offering. The adjustment
for the Common Stock Offering excludes 9,000,000 shares of Common Stock issuable
upon exercise of the underwriters' options to purchase additional shares in the
Common Stock Offering.

(g) CHARITABLE CONTRIBUTION. Adjustment to reflect the Charitable
Contribution of $200 million.

(h) RLPS EXCHANGE FOR CASH. Adjustment to reflect the payment of $892
million in cash to the RLPs in exchange for their interests in Group L.P. and
certain affiliates.

(i) SLPS REDEMPTION FOR CASH. Adjustment to reflect the redemption of the
SLPs for cash of $904 million by Group L.P. prior to the Incorporation
Transactions.

(j) PLP, RLP, SUMITOMO BANK CAPITAL MARKETS, INC. ("SBCM") AND KAMEHAMEHA
ACTIVITIES ASSOCIATION ("KAA") EXCHANGE FOR COMMON SHARES. Adjustment of $3,530
million to reflect the issuance of 264,680,458 shares of Common Stock to PLPs,
47,264,592 shares of Common Stock to RLPs, 31,612,076 shares of Common Stock and
6,238,094 shares of Nonvoting Common Stock to SBCM and 30,962,950 shares of
Common Stock to KAA, in exchange for their respective interests in Group L.P.
and certain affiliates.

(k) CASH DISTRIBUTIONS. Adjustment to reflect certain cash distributions
by Group L.P. to its partners, including SBCM and KAA, in the first and second
quarters of fiscal 1999 in accordance with the Firm's partnership agreement,
including distributions for partner income taxes related to the Firm's earnings
in fiscal 1998.

The Firm expects that cash distributions for partner income taxes in the
first and second quarters of fiscal 1999 related to the Firm's earnings in
fiscal 1999 will be significant due, in part, to certain expenses that are not
deductible to the partners in these periods. The Company expects to record a
substantial tax asset on the consummation of the Common Stock Offering related
to these expenses. These cash distributions and the related tax asset are not
reflected in the Pro Forma Consolidated Balance Sheet Information.

(l) NET TAX ASSETS. Adjustment to reflect the addition to equity
associated with the recognition of $1,173 million in net tax assets under SFAS
No. 109. These net tax assets relate to (i) the conversion of Group L.P. to
corporate form, (ii) the 31,306,667 Formula RSUs and the initial irrevocable
contribution of 13,644,204 shares of Common Stock contributed to the DCP and
(iii) the Charitable Contribution. As discussed in Note 2(k) above, the Company
expects to record a substantial tax asset on the consummation of the Common
Stock Offering related to certain expenses that are not deductible to the
partners in fiscal 1999. This additional tax asset is not reflected in the Pro
Forma Consolidated Balance Sheet Information.

30
<PAGE> 68

CAPITALIZATION

The following table sets forth the consolidated capitalization of the Firm
as of November 27, 1998 on a pro forma basis after giving effect to the Pro
Forma Adjustments, and as further adjusted for:

- - the sale of 42,000,000 shares of Common Stock by the Company in the Common
Stock Offering at an assumed initial public offering price of $45.00 per
share, the midpoint of the currently assumed range of initial public offering
prices for that offering, and after deduction of the underwriting discounts
and estimated expenses payable by the Company in the Common Stock Offering;
and

- - the sale of $1.0 billion aggregate principal amount of our debt securities in
the Underwritten Debt Offering.

The table below does not give effect to this medium-term note program.

This table should be read in conjunction with the consolidated financial
statements and the notes thereto and the Pro Forma Consolidated Financial
Information and the notes thereto, and assumes no exercise of the underwriters'
options to purchase additional shares in the Common Stock Offering.

<TABLE>
<CAPTION>
AS OF NOVEMBER 27,
1998
-----------------------
PRO FORMA AS ADJUSTED
FOR THE COMMON STOCK
OFFERING AND THE
UNDERWRITTEN DEBT
OFFERING
---------------------
($ in millions)
<S> <C>
Short-term borrowings (including commercial paper)(1)....... $ 27,430
=========
Long-term borrowings(2):
Senior debt, other than the Notes(3)...................... $ 20,906
Junior Subordinated Debentures(4)......................... 371
---------
Total long-term borrowings......................... 21,277
Stockholders' equity:
Preferred Stock, par value $.01 per share;
shares authorized, no shares issued and outstanding..... --
Common Stock, par value $.01 per share; 2,000,000,000
shares authorized, 430,164,280 shares issued and
outstanding(5).......................................... 4
Restricted stock units; 61,911,352 units issued and
outstanding(6).......................................... 2,786
Nonvoting Common Stock, par value $.01 per share;
shares authorized and 6,238,094 shares issued and
outstanding............................................. 0
Additional paid-in capital................................ 5,927
Retained earnings......................................... (1,049)
Unearned compensation(7).................................. (1,377)
---------
Total stockholders' equity......................... 6,291
---------
Total capitalization............................. $ 27,568
=========
</TABLE>

- ---------------
(1) Includes current portion of long-term borrowings of $2,955 million. See Note
4 to the consolidated financial statements for further information regarding
the Firm's short-term borrowings.
(2) See Note 5 to the consolidated financial statements for further information
regarding the Firm's long-term borrowings.
(3) Includes subordinated debt of GS&Co. of $275 million.
(4) Consists of Junior Subordinated Debentures issued to the RLPs as part of the
Incorporation Transactions. See "Certain Relationships and Related
Transactions -- Incorporation and Related Transactions" for further
information regarding the Incorporation Transactions.
(5) Common Stock outstanding includes 13,644,204 shares of Common Stock
irrevocably contributed to the DCP. Common Stock outstanding does not
include 40,000,400 shares of Common Stock deliverable pursuant to the
Discretionary Options. See "Management -- The Employee IPO Awards" for more
detailed information regarding these awards.
(6) Restricted stock units includes 31,306,667 shares of Common Stock underlying
the Formula RSUs and 30,604,685 shares of Common Stock underlying the
Discretionary RSUs.
(7) Unearned compensation relates to the award of the Discretionary RSUs.

31
<PAGE> 69

SELECTED CONSOLIDATED FINANCIAL DATA

The selected historical consolidated income statement and balance sheet
data set forth below have been derived from the Firm's consolidated financial
statements and the notes thereto. The Firm's consolidated financial statements
have been audited by PricewaterhouseCoopers LLP, independent public accountants,
as of November 28, 1997 and November 27, 1998 and for the years ended November
29, 1996, November 28, 1997 and November 27, 1998. These financial statements
are included elsewhere in this prospectus, together with the report thereon of
PricewaterhouseCoopers LLP.

The selected historical consolidated income statement and balance sheet
data set forth below as of November 25, 1994, November 24, 1995 and November 29,
1996 and for the years ended November 25, 1994 and November 24, 1995 have been
derived from audited consolidated financial statements of the Firm not included
in this prospectus.

The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Pro Forma Consolidated Financial Information" and the consolidated
financial statements and the notes thereto.

<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED NOVEMBER
---------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
($ in millions)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues......................................... $12,452 $ 14,324 $ 17,289 $ 20,433 $ 22,478
Interest expense....................................... 8,915 9,841 11,160 12,986 13,958
------- -------- -------- -------- --------
Net revenues........................................... 3,537 4,483 6,129 7,447 8,520
Compensation and benefits(1)........................... 1,789 2,005 2,421 3,097 3,838
Other operating expenses............................... 1,240 1,110 1,102 1,336 1,761
------- -------- -------- -------- --------
Pre-tax earnings(1).................................... $ 508 $ 1,368 $ 2,606 $ 3,014 $ 2,921
======= ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets(2)........................................ $95,296 $100,066 $152,046 $178,401 $217,380
Adjusted assets (unaudited)(3)......................... 75,772 73,552 93,279 119,883 144,906
Long-term borrowings................................... 14,418 13,358 12,376 15,667 19,906
Total liabilities(2)................................... 89,981 94,686 145,753 171,864 210,996
Partners' capital...................................... 4,771 4,905 5,309 6,107 6,310

PRO FORMA DATA (UNAUDITED):(4)
Pro forma net earnings................................. -- -- -- -- $ 1,316
Pro forma ratio of earnings to fixed charges(5)........ -- -- -- -- 1.16x
Pro forma stockholders' equity as adjusted for the
Common Stock Offering................................ -- -- -- -- $ 6,291

SELECTED DATA AND RATIOS (UNAUDITED):
Ratio of earnings to fixed charges(1)(5)............... 1.06x 1.14x 1.23x 1.23x 1.21x
Employees:
United States........................................ 5,822 5,356 5,818 6,879 8,349
International........................................ 3,176 2,803 3,159 3,743 4,684
------- -------- -------- -------- --------
Total employees(6)..................................... 8,998 8,159 8,977 10,622 13,033
======= ======== ======== ======== ========
Assets under supervision:
Assets under management.............................. $43,671 $ 52,358 $ 94,599 $135,929 $194,821
Other client assets.................................. 49,061 57,716 76,892 102,033 142,018
------- -------- -------- -------- --------
Total assets under supervision......................... $92,732 $110,074 $171,491 $237,962 $336,839
======= ======== ======== ======== ========
</TABLE>

32
<PAGE> 70

(1) Since the Firm has been a partnership, payments to the Firm's profit
participating limited partners have been accounted for as distributions of
partners' capital rather than as compensation expense. As a result, the
Firm's pre-tax earnings and compensation and benefits expense have not
reflected any payments for services rendered by its profit participating
limited partners. Accordingly, pre-tax earnings understate the expected
operating costs to be incurred by the Firm after its conversion to corporate
form. As a corporation, the Firm will include payments for services rendered
by its former profit participating limited partners in compensation and
benefits expense. For financial information that reflects pro forma
compensation and benefits expense as if we had been a corporation, see "Pro
Forma Consolidated Financial Information".

(5) For purposes of the ratio of earnings to fixed charges, "earnings" represent
pre-tax earnings plus fixed charges and "fixed charges" represent interest
expense plus that portion of rent expense that, in our opinion, approximates
the interest factor included in rent expense. Neither the pro forma ratio of
earnings to fixed charges nor the historical ratio of earnings to fixed
charges gives effect to this Offering of Notes or the Underwritten Debt
Offering.

(6) Excludes employees of the Firm's two property management subsidiaries, The
Archon Group, L.P. ("Archon") and Archon Group (France) S.C.A. ("Archon
France"). Substantially all of the costs of these employees are reimbursed
to the Firm by the real estate investment funds to which the two companies
provide property management services. In addition, as of November 27, 1998,
the Firm had 3,400 temporary staff and consultants. For more detailed
information regarding the Firm's employees, see "Business -- Employees".

33
<PAGE> 71

RECENT DEVELOPMENTS

Goldman Sachs' pre-tax earnings were $1.19 billion in the first quarter
ended February 26, 1999, compared to $1.02 billion in the first quarter of last
year. Net revenues for the quarter were $2.99 billion and operating expenses
were $1.80 billion. In the first quarter of 1998, net revenues were $2.47
billion and operating expenses were $1.45 billion.

The Firm's investment banking business performed well during the quarter,
particularly in financial advisory and debt underwriting, and assets under
management continued to increase. The Firm's trading business achieved a strong
performance, recovering significantly in the first quarter of 1999 from the
difficult conditions experienced in the second half of 1998.

Partners' capital increased to approximately $6.6 billion as of February
26, 1999 from $6.3 billion as of November 27, 1998.

34
<PAGE> 72

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The Firm is a global investment banking and securities firm that provides a
wide range of services worldwide to a substantial and diversified client base.

The Firm's activities are divided into three principal business lines:

- - Investment Banking, which includes financial advisory services and
underwriting;

- - Trading and Principal Investments, which includes fixed income, currency and
commodities ("FICC"), equities and principal investments (principal
investments reflect primarily the Firm's investments in its merchant banking
funds); and

- - Asset Management and Securities Services, which includes asset management,
securities services and commissions.

All references to 1996, 1997 and 1998 refer to the Firm's fiscal year
ended, or the date, as the context requires, November 29, 1996, November 28,
1997 and November 27, 1998, respectively.

The "Company", the "Firm", "Goldman Sachs", "we" and "our" mean, prior to
the principal incorporation transactions that are described under "Certain
Relationships and Related Transactions -- Incorporation and Related
Transactions -- Incorporation Transactions" (the "Incorporation Transactions"),
The Goldman Sachs Group, L.P., a Delaware limited partnership ("Group L.P."),
and its consolidated subsidiaries and, after the Incorporation Transactions, The
Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc."), and its
consolidated subsidiaries.

BUSINESS ENVIRONMENT

Economic and market conditions can significantly affect the Firm's
performance. For a number of years leading up to the second half of 1998, the
Firm operated in a generally favorable macroeconomic environment characterized
by low inflation, low interest rates and strong equity markets in the United
States and many international markets. This favorable economic environment
provided a positive climate for the Firm's investment banking activities, as
well as for the Firm's customer-driven and proprietary trading activities.
Economic conditions were also favorable for wealth creation which contributed
positively to growth in the Firm's asset management businesses.

From mid-August to mid-October 1998, the Russian economic crisis, the
turmoil in Asian and Latin American emerging markets and the resulting "flight
to quality" by many investors led to substantial declines in global financial
markets. Investors broadly sold credit-sensitive products, such as corporate and
high-yield debt, and bought higher-rated instruments, such as U.S. Treasury
securities, which caused credit spreads to widen dramatically. This market
turmoil also caused a widespread decline in global equity markets.

As a major dealer in fixed income securities, the Firm maintains
substantial inventories of corporate and high-yield debt. In the second half of
1998, the Firm sought to hedge the interest rate risk on these positions through
short positions in U.S. Treasury securities. As a result, the Firm suffered
losses from both the decline in the prices of corporate and high-yield debt
instruments that it owned and the increase in the prices of the U.S. Treasury
securities in which the Firm had short positions.

These market shocks also led to trading losses in the Firm's fixed income
relative value trading positions. Relative value trading positions are intended
to profit from a perceived temporary dislocation in the relationship between the
values of different financial instruments. From mid-August to mid-October 1998,
the components of these relative value positions moved in directions that the
Firm did not anticipate and the volatilities of certain positions increased to
three times prior levels. When the Firm and other market participants with
similar positions simultaneously sought to reduce positions and exposures, this
caused a substantial reduction in market liquidity and a continuing decline in
prices.

35
<PAGE> 73

In the second half of 1998, the Firm also experienced losses in equity
arbitrage and in the value of certain merchant banking investments.

Later in the fourth quarter of 1998, market conditions improved as the U.S.
Federal Reserve cut interest rates, the International Monetary Fund finalized a
credit agreement with Brazil and a consortium of 14 financial institutions,
including Goldman Sachs, recapitalized Long-Term Capital Portfolio, L.P.
("LTCP"). For a further discussion of LTCP, see "-- Liquidity -- The Balance
Sheet" below.

The Firm's earnings in the second half of 1998 were adversely affected by
market conditions from mid-August to mid-October. In this difficult business
environment, Trading and Principal Investments recorded net revenues of $464
million in the third quarter of 1998 and net revenues of negative $663 million
in the fourth quarter of 1998. As a result, Trading and Principal Investments
did not make a significant contribution to pre-tax earnings in 1998.

RESULTS OF OPERATIONS

Management believes that the best measure by which to assess the Firm's
historical profitability is pre-tax earnings because, as a partnership, the Firm
generally has not been subject to U.S. federal or state income taxes. See
"-- Provision for Taxes" below and Note 2 to the consolidated financial
statements for a further discussion of the Firm's provision for taxes.

Since the Firm has been a partnership, payments to the Firm's profit
participating limited partners have been accounted for as distributions of
partners' capital rather than as compensation expense. As a result, the Firm's
compensation and benefits expense has not reflected any payments for services
rendered by its profit participating limited partners and has therefore
understated the expected operating costs to be incurred by the Firm after the
Common Stock Offering. As a corporation, the Firm will include these payments to
its former profit participating limited partners in compensation and benefits
expense, as discussed in "Pro Forma Consolidated Financial Information".
Moreover, in connection with the Common Stock Offering, the Firm will record the
effect of certain non-recurring items in the second quarter of 1999. These
non-recurring items are:

- - the award of the Formula RSUs;

- - the initial irrevocable contribution of shares of Common Stock to the DCP;

- - the recognition of certain net tax assets; and

- - the Charitable Contribution.

As a result, the Firm expects to record a substantial pre-tax loss in the second
quarter of 1999.

The composition of the Firm's historical net revenues has varied over time
as financial markets and the scope of the Firm's operations have changed. The
composition of net revenues can also vary over the shorter term due to
fluctuations in economic and market conditions. As a result, period-to-period
comparisons may not be meaningful. See "Risk Factors" for a discussion of
various factors that could affect the Firm's future performance.

OVERVIEW

The following table sets forth the Firm's net revenues and pre-tax
earnings:

FINANCIAL OVERVIEW
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenues........................................... $6,129 $7,447 $8,520
Pre-tax earnings....................................... 2,606 3,014 2,921
</TABLE>

36
<PAGE> 74

1998 VERSUS 1997. The Firm's net revenues were $8.52 billion in 1998, an
increase of 14% compared to 1997. Net revenue growth was strong in Investment
Banking, which increased 30%, due to higher levels of mergers and acquisitions
activity, and in Asset Management and Securities Services, which increased 43%,
due to increased commissions, higher customer balances in securities services
and increased asset management fees. Net revenues in Trading and Principal
Investments decreased 19% compared to the prior year, due primarily to a 30%
reduction of net revenues in FICC. Pre-tax earnings in 1998 were $2.92 billion
compared to $3.01 billion in the prior year.

1997 VERSUS 1996. The Firm's net revenues were $7.45 billion in 1997, an
increase of 22% compared to 1996. Net revenue growth was strong in Asset
Management and Securities Services, which increased 46%, due to increased
commissions and asset management fees and higher customer balances in securities
services. Net revenues in Investment Banking increased 22%, due to increased
levels of mergers and acquisitions and debt underwriting activity. Net revenues
in Trading and Principal Investments increased 9% over the prior year, due to
higher net revenues in FICC and principal investments. Pre-tax earnings were
$3.01 billion in 1997, an increase of 16% over the prior year.

The following table sets forth the net revenues of the Firm's principal
business lines:

NET REVENUES BY PRINCIPAL BUSINESS LINE
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Investment Banking..................................... $2,113 $2,587 $3,368
Trading and Principal Investments...................... 2,693 2,926 2,379
Asset Management and Securities Services............... 1,323 1,934 2,773
------ ------ ------
Total net revenues..................................... $6,129 $7,447 $8,520
====== ====== ======
</TABLE>

------------------------

Net revenues in the Firm's principal business lines represent total
revenues less allocations of interest expense to specific securities,
commodities and other positions in relation to the level of financing incurred
by each position. Interest expense is allocated to Trading and Principal
Investments and the securities services component of Asset Management and
Securities Services. Net revenues may not be indicative of the relative
profitability of any principal business line.

INVESTMENT BANKING

The Firm provides a broad range of investment banking services to a diverse
group of corporations, financial institutions, governments and individuals. The
Firm's investment banking activities are divided into two categories:

- - FINANCIAL ADVISORY. Financial advisory includes advisory assignments with
respect to mergers and acquisitions, divestitures, corporate defense
activities, restructurings and spin-offs; and

- - UNDERWRITING. Underwriting includes public offerings and private placements of
equity and debt securities.

37
<PAGE> 75

The following table sets forth the net revenues of the Firm's Investment
Banking business:

INVESTMENT BANKING NET REVENUES
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Financial advisory..................................... $ 931 $1,184 $1,774
Underwriting........................................... 1,182 1,403 1,594
------ ------ ------
Total Investment Banking............................... $2,113 $2,587 $3,368
====== ====== ======
</TABLE>

------------------------

1998 VERSUS 1997. The Investment Banking business achieved net revenues of
$3.37 billion in 1998, an increase of 30% compared to 1997. Net revenue growth
was strong in financial advisory and, to a lesser extent, in underwriting as the
Firm's global presence and strong client base enabled it to capitalize on higher
levels of activity in many industry groups, including communications, media and
entertainment, financial institutions, general industrials and retail. Net
revenue growth in the Firm's Investment Banking business was strong in all major
regions in 1998 compared to the prior year.

Financial advisory revenues increased 50% compared to 1997 due to increased
revenues from mergers and acquisitions advisory assignments, which principally
resulted from consolidation within certain industries and generally favorable
U.S. and European stock markets. Despite a substantial decrease in the number of
industry-wide underwriting transactions in August and September of 1998,
underwriting revenues increased 14% for the year, primarily due to increased
revenues from equity and high-yield corporate debt underwriting activities.

1997 VERSUS 1996. The Investment Banking business achieved net revenues of
$2.59 billion in 1997, an increase of 22% compared to 1996. Net revenue growth
was strong in both financial advisory and underwriting, particularly in the
financial institution, general industrial and real estate groups.

Financial advisory revenues increased 27% compared to 1996 primarily due to
increased revenues from mergers and acquisitions activity in the market as a
whole. Underwriting revenues increased 19% primarily due to increased revenues
from investment grade and high-yield debt underwriting, which resulted from
lower interest rates. Revenues from equity underwriting activities increased
modestly over 1996 levels.

TRADING AND PRINCIPAL INVESTMENTS

- - FICC. The Firm makes markets in and trades fixed income products, currencies
and commodities, structures and enters into a wide variety of derivative
transactions and engages in proprietary trading and arbitrage activities;

- - EQUITIES. The Firm makes markets in and trades equities and equity-related
products, structures and enters into equity derivative transactions and
engages in proprietary trading and equity arbitrage; and

- - PRINCIPAL INVESTMENTS. Principal investments primarily represents the Firm's
net revenues from its investments in its merchant banking funds.

Net revenues from principal investments do not include management fees and
over-

38
<PAGE> 76

rides from the Firm's merchant banking funds. Overrides represent an increased
share of a fund's income and gains to the Firm when the return on investments
exceeds certain threshold returns to fund investors. These management fees and
overrides are included in the net revenues of Asset Management and Securities
Services.

Substantially all of the Firm's inventory is marked-to-market daily and,
therefore, its value and the Firm's net revenues are subject to fluctuations
based on market movements. In addition, net revenues derived from the Firm's
principal investments in privately held concerns and in real estate may
fluctuate significantly depending on the revaluation or sale of these
investments in any given period.

The following table sets forth the net revenues of the Firm's Trading and
Principal Investments business:

TRADING AND PRINCIPAL INVESTMENTS NET REVENUES
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
FICC................................................... $1,749 $2,055 $1,438
Equities............................................... 730 573 795
Principal investments.................................. 214 298 146
------ ------ ------
Total Trading and Principal Investments................ $2,693 $2,926 $2,379
====== ====== ======
</TABLE>

------------------------

1998 VERSUS 1997. Net revenues in Trading and Principal Investments were
$2.38 billion in 1998, a decrease of 19% compared to 1997. This decrease in net
revenues was concentrated in the second half of the year. See "-- Business
Environment" above for a discussion of the losses suffered in Trading and
Principal Investments in the second half of 1998. For the full year, significant
net revenue reductions in FICC and principal investments were partially offset
by increased net revenues in equities.

Net revenues in FICC decreased 30% compared to 1997 due to an
extraordinarily difficult environment in the second half of 1998. The net
revenue reduction in FICC was concentrated in fixed income arbitrage and
high-yield debt trading, which experienced losses in 1998 due to a reduction in
liquidity and widening credit spreads in the second half of the year. An
increase in net revenues from market making and trading in fixed income
derivatives, currencies and commodities partially offset this decline.

Net revenues in equities increased 39% compared to 1997 as higher net
revenues in derivatives and European shares were partially offset by losses in
equity arbitrage. The derivatives business generated significantly higher net
revenues due, in part, to strong customer demand for over-the-counter ("OTC")
products, particularly in Europe. Net revenues from European shares increased as
the Firm benefited from generally favorable equity markets and increased
customer demand. The equity arbitrage losses were due principally to the
underperformance of various equity positions versus their benchmark hedges, to
widening of spreads in a variety of relative value trades and to lower prices
for event-oriented securities resulting from a reduction in announced mergers
and acquisitions and other corporate activity in the second half of 1998.

Net revenues from principal investments declined 51% compared to 1997 as
investments in certain publicly held companies decreased in value during the
second half of 1998. This decrease was partially offset by an increase in gains
on the disposition of certain investments.

1997 VERSUS 1996. The Trading and Principal Investments business achieved
net revenues of $2.93 billion in 1997, an increase of 9% compared to 1996.
Strong performances in FICC and principal investments more

39
<PAGE> 77

than offset a net revenue reduction in equities.

Net revenues in FICC increased 17% compared to 1996 due principally to
higher net revenues from market making and trading in currencies, fixed income
derivatives and commodities. Fixed income arbitrage activities also contributed
to net revenue growth in FICC. Net revenues from market making in and trading of
emerging market debt securities and corporate bonds declined in 1997 compared to
1996.

Net revenues in equities decreased 22% in 1997 compared to 1996 due
principally to reductions in net revenues from derivatives and convertibles
resulting from volatility in the global equity markets in October and November
1997 and declining asset values in Japan in late November 1997. This reduction
was partially offset by increased net revenues from higher customer trading
volume in certain European OTC markets.

Net revenues from principal investments increased 39% in 1997 compared to
1996 as certain companies in which the Firm invested through its merchant
banking funds completed initial public offerings and the Firm's positions in
other publicly held companies increased in value.

ASSET MANAGEMENT AND SECURITIES SERVICES
Asset Management and Securities Services is comprised of the following:

- - ASSET MANAGEMENT. Asset management generates management fees by providing
investment advisory services to a diverse and rapidly growing client base of
institutions and individuals;

- - SECURITIES SERVICES. Securities services includes prime brokerage, financing
services and securities lending and the Firm's matched book businesses, all of
which generate revenue primarily in the form of fees or interest rate spreads;
and

- - COMMISSIONS. Commission-based businesses include agency transactions for
clients on major stock and futures exchanges. Overrides derived from the
Firm's merchant banking funds are also included in commissions.

The following table sets forth the net revenues of the Firm's Asset
Management and Securities Services business:

ASSET MANAGEMENT AND SECURITIES SERVICES NET REVENUES
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Asset management....................................... $ 242 $ 458 $ 675
Securities services.................................... 354 487 730
Commissions............................................ 727 989 1,368
------ ------ ------
Total Asset Management and Securities Services......... $1,323 $1,934 $2,773
====== ====== ======
</TABLE>

------------------------

The Firm's assets under supervision are comprised of assets under
management and other client assets. Assets under management typically generate
fees based on a percentage of their value and include the Firm's mutual funds,
separate accounts managed for institutional and individual investors, the Firm's
merchant banking funds and other alternative investment funds. Other client
assets are comprised of assets in brokerage accounts of primarily high net worth
individuals, on which the Firm earns commissions.

40
<PAGE> 78

The following table sets forth the Firm's assets under supervision:

ASSETS UNDER SUPERVISION
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Assets under management......................... $ 94,599 $135,929 $194,821
Other client assets............................. 76,892 102,033 142,018
-------- -------- --------
Total assets under supervision.................. $171,491 $237,962 $336,839
======== ======== ========
</TABLE>

------------------------

1998 VERSUS 1997. The Asset Management and Securities Services business
achieved net revenues of $2.77 billion in 1998, an increase of 43% compared to
1997. All major components of the business line exhibited strong net revenue
growth.

Asset management revenues increased 47% during this period, reflecting a
41% increase in average assets under management over 1997. In 1998,
approximately 80% of the increase in assets under management was attributable to
net asset inflows, with the remaining 20% reflecting market appreciation. Net
revenues from securities services increased 50% primarily due to growth in the
Firm's securities borrowing and lending businesses. Commission revenues
increased 38% as generally strong and highly volatile equity markets resulted in
increased transaction volumes in listed equity securities. Merchant banking
overrides also contributed significantly to the increase in commission revenues.

1997 VERSUS 1996. The Asset Management and Securities Services business
achieved net revenues of $1.93 billion in 1997, an increase of 46% compared to
1996. All major components of the business line exhibited strong net revenue
growth.

Asset management revenues increased 89% during this period, reflecting a
73% increase in average assets under management due to strong net asset inflows,
market appreciation and assets added through the acquisitions of Liberty
Investment Management in January 1997 and Commodities Corporation in June 1997.
Net revenue growth in securities services was 38%, principally reflecting growth
in the Firm's securities borrowing and lending businesses. Commission revenues
increased 36% as customer trading volumes increased significantly on many of the
world's principal stock exchanges, including those in the United States where
industry-wide volumes increased substantially in the third and fourth quarters
of 1997. Merchant banking overrides also contributed significantly to the
increase in commission revenues.

OPERATING EXPENSES

In recent years, the Firm's operating expenses have increased as a result
of numerous factors, including higher levels of compensation, expansion of the
Firm's asset management business, expansion of the Firm's global operations,
greater levels of business activity and complexity and additional systems and
consulting costs relating to various technology initiatives.

Since the Firm has been a partnership, payments to the Firm's profit
participating limited partners have been accounted for as distributions of
partners' capital rather than as compensation expense. As a result, the Firm's
compensation and benefits expense has not reflected any payments for services
rendered by its profit participating limited partners. Accordingly, the Firm's
compensation and benefits, the principal component of its operating expenses,
will increase significantly after the Common Stock Offering since, as a
corporation, the Firm will include these payments to its former profit
participating

41
<PAGE> 79

limited partners in compensation and benefits expense. For financial information
that reflects pro forma compensation and benefits expense as if the Firm had
been a corporation, see "Pro Forma Consolidated Financial Information".
The following table sets forth the Firm's operating expenses and number of
employees:

OPERATING EXPENSES AND EMPLOYEES
($ in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
----------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Compensation and benefits............................ $2,421 $ 3,097 $ 3,838
Brokerage, clearing and exchange fees................ 278 357 424
Market development................................... 137 206 287
Communications and technology........................ 173 208 265
Depreciation and amortization........................ 172 178 242
Occupancy............................................ 154 168 207
Professional services and other...................... 188 219 336
------ ------- -------
Total operating expenses............................. $3,523 $ 4,433 $ 5,599
====== ======= =======
Employees at fiscal year-end(1)...................... 8,977 10,622 13,033
</TABLE>

- ---------------
(1) Excludes employees of the Firm's two property management subsidiaries,
Archon and Archon France. Substantially all of the costs of these employees
are reimbursed to the Firm by the real estate investment funds to which the
two companies provide property management services. In addition, as of
November 1998, the Firm had approximately 3,400 temporary staff and
consultants. For more detailed information regarding the Firm's employees,
see "Business -- Employees".

------------------------

1998 VERSUS 1997. Operating expenses were $5.60 billion in 1998, an
increase of 26% over 1997, primarily due to increased compensation and benefits
expense.

Compensation and benefits increased as a percentage of net revenues to 45%
from 42% in 1997, principally as a result of increases in employment levels and
in expenses associated with temporary staff and consultants. Employment levels
increased 23% during the year, with particularly strong growth in asset
management. Expenses associated with the Firm's temporary staff and consultant
populations were $330 million in 1998, an increase of 85% compared to 1997,
reflecting greater business activity, the Firm's global expansion and consulting
costs associated with various technology initiatives, including preparations for
the Year 2000 and the establishment of the European Economic and Monetary Union
(the "EMU").

Brokerage, clearing and exchange fees increased 19%, primarily due to
higher transaction volumes in European and U.S. equities and futures contracts.
Market development expenses increased 39% and professional services and other
expenses increased 53%, due to higher levels of business activity and the Firm's
global expansion. Communications and technology expenses increased 27%,
reflecting higher telecommunications and market data costs associated with
higher employment levels and additional spending on technology initiatives.
Depreciation and amortization increased 36%, principally due to capital
expenditures on telecommunications and technology-related equipment and
leasehold improvements. Occupancy expenses increased 23%, reflecting additional
office space needed to accommodate higher employment levels.

1997 VERSUS 1996. Operating expenses were $4.43 billion in 1997, an
increase of 26% over 1996, primarily due to increased compensation and benefits
expense.

42
<PAGE> 80

Compensation and benefits increased as a percentage of net revenues to 42%
from 40% in 1996. This increase primarily reflected higher compensation due to
higher profit levels and an 18% increase in employment levels across the Firm
due to higher levels of market activity and the Firm's global expansion into new
businesses and markets. Expenses associated with the Firm's temporary staff and
consultant populations also contributed to the increase in compensation and
benefits as a percentage of net revenues. These expenses were $178 million in
1997, an increase of 55% compared to 1996, reflecting greater business activity,
the Firm's global expansion and consulting costs associated with various
technology initiatives.

Brokerage, clearing and exchange fees increased 28%, primarily due to
higher transaction volumes in global equities, derivatives and currencies.
Market development expenses increased 50% and professional services and other
expenses increased 16%, due to higher levels of business activity and the Firm's
global expansion. Communications and technology expenses increased 20%,
reflecting higher telecommunications and market data costs associated with
higher employment levels and additional spending on technology initiatives.
Depreciation and amortization increased 3%. Occupancy expenses increased 9%,
reflecting additional office space needed to accommodate higher employment
levels.

PROVISION FOR TAXES

Group L.P., as a partnership, generally has not been subject to U.S.
federal and state income taxes. The earnings of Group L.P. and certain of its
subsidiaries have been subject to the 4% New York City unincorporated business
tax. In addition, certain of the Firm's non-U.S. subsidiaries have been subject
to income taxes in their local jurisdictions. The amount of the Firm's provision
for income and unincorporated business taxes has varied significantly from year
to year depending on the mix of earnings among the Firm's subsidiaries. For
information on the pro forma effective tax rate of the Firm under corporate
form, see "Pro Forma Consolidated Financial Information".

GEOGRAPHIC DATA

For a summary of the total revenues, net revenues, pre-tax earnings and
identifiable assets of the Firm by geographic region, see Note 9 to the
consolidated financial statements.

CASH FLOWS

The Firm's cash flows are primarily related to the operating and financing
activities undertaken in connection with its trading and market-making
transactions.

YEAR ENDED NOVEMBER 1998

Cash and cash equivalents increased to $2.84 billion in 1998. Cash of $62
million was provided by operating activities. Cash of $656 million was used for
investing activities, primarily for leasehold improvements and the purchase of
telecommunications and technology-related equipment and certain financial
instruments. Financing activities provided $2.10 billion of cash, reflecting an
increase in the net issuance of long-term and short-term borrowings, partially
offset by a decrease in net repurchase agreements, distributions to partners,
cash outflows related to partners' capital allocated for income taxes and
potential withdrawals and the termination of the Firm's Profit Participation
Plans. See Note 8 to the consolidated financial statements for a discussion of
the termination of the Profit Participation Plans.

YEAR ENDED NOVEMBER 1997

Cash and cash equivalents decreased to $1.33 billion in 1997. Operating
activities provided cash of $70 million. Cash of $693 million was used for
investing activities, primarily for the purchase of certain financial
instruments and technology-related equipment. Cash of $258 million was used for
financing activities, principally due to a decrease in net repurchase
agreements, distributions to partners and cash outflows related to partners'
capital allocated for income taxes and potential withdrawals, partially offset
by the net issuance of long-term and short-term borrowings.

43
<PAGE> 81

YEAR ENDED NOVEMBER 1996

Cash and cash equivalents increased to $2.21 billion in 1996. Cash of
$14.63 billion was used for operating activities, primarily to fund higher net
trading assets due to increased levels of business activity. Cash of $218
million was used for investing activities, primarily for the purchase of
technology-related equipment and leasehold improvements. Financing activities
provided $16.10 billion of cash, reflecting an increase in net repurchase
agreements and the net issuance of long-term borrowings, partially offset by
distributions to partners and cash outflows related to partners' capital
allocated for income taxes and potential withdrawals.

LIQUIDITY

MANAGEMENT OVERSIGHT OF LIQUIDITY

Management believes that one of the most important issues for a company in
the financial services sector is access to liquidity. Accordingly, the Firm has
established a comprehensive structure to oversee its liquidity and funding
policies.

The Finance Committee has responsibility for establishing and assuring
compliance with the Firm's asset and liability management policies and has
oversight responsibility for managing liquidity risk, the size and composition
of the balance sheet and the credit ratings of the Firm. See "-- Risk
Management -- Risk Management Structure" below for a further description of the
Firm's committees that participate in the risk management process. The Finance
Committee meets monthly, and more often when necessary, to evaluate the Firm's
liquidity position and funding requirements.

The Firm's Treasury Department manages the capital structure, funding,
liquidity and relationships with creditors and rating agencies on a global
basis. The Treasury Department works jointly with the Firm's global funding desk
in managing the Firm's borrowings. The global funding desk is primarily
responsible for the transactional short-term funding activity of the Firm.

LIQUIDITY POLICIES

In order to maintain an appropriate level of liquidity, management has
implemented several liquidity policies as outlined below.

DIVERSIFICATION OF FUNDING SOURCES AND LIQUIDITY PLANNING. The Firm
maintains diversified funding sources with both banks and non-bank lenders
globally. Management believes that the Firm's relationships with its lenders are
critical to its liquidity. The Firm maintains close contact with its primary
lenders to keep them advised of significant developments affecting the Firm.

The Firm also has access to diversified funding sources with over 800
creditors, including banks, insurance companies, mutual funds, bank trust
departments and other asset managers. The Firm monitors its creditors to
maintain broad and diversified credit, and no single creditor represented more
than 5% of the Firm's uncollateralized funding sources as of November 1998.
Uncollateralized funding sources principally include the Firm's short-term and
long-term borrowings and letters of credit.

The Firm accesses liquidity in a variety of markets in the United States as
well as in Europe and Asia. In addition, the Firm makes extensive use of the
repurchase agreement market and has raised debt in the private placement, Rule
144A and commercial paper markets, as well as through Eurobonds, moneybroker
loans, commodity-based financings, letters of credit and promissory notes. The
Firm also intends to begin raising debt in the public securities market,
including through this Offering and the Underwritten Debt Offering. The Firm
seeks to structure its liabilities to avoid significant amounts of debt coming
due on any one day or during any single week or year. In addition, the Firm
maintains and updates annually a liquidity crisis plan that provides guidance in
the event of a liquidity crisis. The annual update of this plan is reviewed and
approved by the Finance Committee.

ASSET LIQUIDITY. The Firm maintains a highly liquid balance sheet. Many of
the Firm's assets are readily funded in the repurchase agreement markets, which
generally

44
<PAGE> 82

have proven to be a consistent source of funding, even in periods of market
stress. Substantially all of the Firm's inventory turns over rapidly and is
marked-to-market daily. The Firm maintains long-term borrowings and partners'
capital substantially in excess of its less liquid assets.

DYNAMIC LIQUIDITY MANAGEMENT. The Firm seeks to manage the composition of
its asset base and the maturity profile of its funding to ensure that it can
liquidate its assets prior to its liabilities coming due, even in times of
liquidity stress. The Firm has traditionally been able to fund its liquidity
needs through collateralized funding, such as repurchase transactions and
securities lending, as well as short-term and long-term borrowings and partners'
capital. To further evaluate the adequacy of its liquidity management policies
and guidelines, the Firm performs weekly "stress funding" simulations of
disruptions to the Firm's access to unsecured credit.

EXCESS LIQUIDITY. In addition to maintaining a highly liquid balance sheet
and a significant portion of longer-term liabilities to assure liquidity even
during adverse conditions, the Firm seeks to maintain a liquidity cushion that
consists principally of unencumbered U.S. government and agency obligations to
ensure the availability of immediate liquidity. This pool of highly liquid
assets averaged $14.17 billion during 1998 and $12.54 billion during 1997.

LIQUIDITY RATIO MAINTENANCE. It is the Firm's policy to further manage its
liquidity by maintaining a "liquidity ratio" of at least 100%. This ratio
measures the relationship between the loan value of the Firm's unencumbered
assets and its short-term unsecured liabilities. The maintenance of this
liquidity ratio is intended to ensure that the Firm could fund its positions on
a fully secured basis in the event that the Firm were unable to replace its
unsecured debt maturing within one year. Under this policy, the Firm seeks to
maintain unencumbered assets in an amount that, if pledged or sold, would
provide the funds necessary to replace unsecured obligations that are scheduled
to mature (or where holders have the option to redeem) within the coming year.

INTERCOMPANY FUNDING. Most of the liquidity of the Firm is raised by Group
L.P., which then lends the necessary funds to its subsidiaries and affiliates.
The Firm carefully manages its intercompany exposure by generally requiring
intercompany loans to have maturities equal to or shorter than the maturities of
the aggregate borrowings of Group L.P. This policy ensures that the
subsidiaries' obligations to Group L.P. will generally mature in advance of
Group L.P.'s third-party long-term borrowings. In addition, many of the advances
made to the Firm's subsidiaries and affiliates are secured by marketable
securities or other liquid collateral. The Firm generally funds its equity
investments in subsidiaries with partners' capital.

THE BALANCE SHEET

The Firm maintains a highly liquid balance sheet that fluctuates
significantly between financial statement dates. In the fourth quarter of 1998,
the Firm temporarily decreased its total assets to reduce risk and increase
liquidity in response to difficult conditions in the global financial markets.

The Firm's total assets were $217.38 billion as of November 1998 and
$178.40 billion as of November 1997. Adjusted assets were $144.91 billion as of
November 1998 and $119.88 billion as of November 1997.

The Firm's balance sheet size as of November 1998 increased by $11.64
billion due to the adoption of the provisions of SFAS No. 125 that were deferred
by SFAS No. 127. For a discussion of SFAS Nos. 125 and 127, see "-- Accounting
Developments" below and Note 2 to the consolidated financial statements.

As of November 1998, the Firm held approximately $1.04 billion in
high-yield debt securities and $1.49 billion in bank loans, all of which are
valued on a mark-to-market basis. These assets may be relatively illiquid during
times of market stress. The Firm seeks to diversify its holdings of these assets
by industry and by geographic location.

45
<PAGE> 83

As of November 1998, the Firm held approximately $1.17 billion of emerging
market securities and $109 million in loans to emerging market countries, all of
which are valued on a mark-to-market basis. Of the $1.28 billion in emerging
market securities and loans, approximately $968 million were sovereign
obligations, many of which are collateralized as to principal at stated
maturity.

In September 1998, a consortium of 14 banks and brokerage firms, including
Goldman Sachs, made an equity investment in LTCP, a major market participant.
The objectives of this investment were to provide sufficient capital to permit
LTCP to continue active management of its positions and, over time, to reduce
risk exposures and leverage, to return capital to the participants in the
consortium and ultimately to realize the potential value of the portfolio. The
Firm invested $300 million in LTCP.

CREDIT RATINGS

The Firm relies upon the debt capital markets to fund a significant portion
of its day-to-day operations. The cost and availability of debt financing is
influenced by the Firm's credit ratings. Credit ratings are also important to
the Firm when competing in certain markets and when seeking to engage in
longer-term transactions, including OTC derivatives. A reduction in the Firm's
credit ratings could increase its borrowing costs and limit its access to the
capital markets. This, in turn, could reduce the Firm's earnings and adversely
affect its liquidity.

LONG-TERM DEBT

As of November 1998, the Firm's consolidated long-term borrowings were
$19.91 billion. Substantially all of these borrowings were unsecured and
consisted principally of senior borrowings with maturities extending to 2024.
The weighted average maturity of the Firm's long-term borrowings as of November
1998 was approximately four years. Substantially all of the Firm's long-term
borrowings are swapped into U.S. dollar obligations with short-term floating
rates of interest in order to minimize the Firm's exposure to interest rates and
foreign exchange movements. See Note 5 to the consolidated financial statements
for further information regarding the Firm's long-term borrowings.

REGULATED SUBSIDIARIES

Many of the Firm's principal subsidiaries are subject to extensive
regulation in the United States and elsewhere. GS&Co., a registered U.S.
broker-dealer, is regulated by the Securities and Exchange Commission, the
Commodity Futures Trading Commission ("CFTC"), the Chicago Board of Trade, the
New York Stock Exchange, Inc. ("NYSE") and the National Association of
Securities Dealers, Inc. ("NASD"). Goldman Sachs International ("GSI"), a
registered U.K. broker-dealer, is subject to regulation by the Securities and
Futures Authority Limited ("SFA") and the Financial Services Authority ("FSA").
Goldman Sachs (Japan) Ltd., a Tokyo-based broker-dealer, is subject to
regulation by the Japanese Ministry of Finance, the Financial Supervisory
Agency, the Tokyo Stock Exchange, the Tokyo International Financial Futures
Exchange and the Japan Securities Dealers Association. Several other
subsidiaries of the Firm are regulated by securities, investment advisory,
banking and other regulators and authorities around the world. Compliance with
the rules of these regulators may prevent the Firm from receiving distributions,
advances or repayment of liabilities from these subsidiaries. See Note 8 to the
consolidated financial statements for further information regarding the Firm's
regulated subsidiaries.

RISK MANAGEMENT

The Firm has a comprehensive risk management process to monitor, evaluate
and manage the principal risks assumed in conducting its activities. These risks
include market, credit, liquidity, operational, legal and reputational
exposures.

RISK MANAGEMENT STRUCTURE

The Firm seeks to monitor and control its risk exposure through a variety
of separate but complementary financial, credit, operational and legal reporting
systems. The Firm

46
<PAGE> 84

believes that it has effective procedures for evaluating and managing the
market, credit and other risks to which it is exposed. Nonetheless, the
effectiveness of the Firm's policies and procedures for managing risk exposure
can never be completely or accurately predicted or fully assured. For example,
unexpectedly large or rapid movements or disruptions in one or more markets or
other unforeseen developments can have a material adverse effect on the Firm's
results of operations and financial condition. The consequences of these
developments can include losses due to adverse changes in inventory values,
decreases in the liquidity of trading positions, higher volatility in the Firm's
earnings, increases in the Firm's credit risk to customers and counterparties
and increases in general systemic risk. See "Risk Factors -- Market Fluctuations
Could Adversely Affect Our Businesses in Many Ways" for a discussion of the
effect that market fluctuations can have on the Firm's businesses.

The Firm has established risk control procedures at several levels
throughout the organization. Trading desk managers have the first line of
responsibility for managing risk within prescribed limits. These managers have
in-depth knowledge of the primary sources of risk in their individual markets
and the instruments available to hedge the Firm's exposures. In addition, a
number of committees described in the following table are responsible for
establishing trading limits, monitoring adherence to these limits and for
general oversight of the Firm's risk management process.

47
<PAGE> 85

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
COMMITTEE FUNCTION
- ---------------------------------------------------------------------------------------------------
<S> <C>
Management Committee All risk control functions ultimately report to the
Management Committee. Through both direct and delegated
authority, the Management Committee approves all of the
Firm's:
- operating activities;
- trading risk parameters; and
- customer review guidelines.
- ---------------------------------------------------------------------------------------------------
Risk Committees The Firmwide Risk Committee:
- periodically reviews the activities of existing
businesses;
- approves new businesses and products;
- approves divisional market risk limits and reviews
business unit market risk limits;
- approves inventory position limits for selected country
exposures and business units;
- approves sovereign credit risk limits and credit risk
limits by ratings group; and
- reviews scenario analyses based on abnormal or
"catastrophic" market movements.

The FICC Risk Committee sets market risk limits for
individual business units and sets issuer-specific net
inventory position limits.

The Equities Risk Committee sets market risk limits for
individual business units that consist of gross and net
inventory position limits and, for equity derivatives,
limits based on market move scenario analysis.

The Asset Management Control Oversight Committee and the
Asset Management Risk Committee oversee various
operational, credit, pricing and business practices
issues.
- ---------------------------------------------------------------------------------------------------
Global Compliance and Control The Global Compliance and Control Committee provides
Committee oversight of the Firm's compliance and control functions,
including internal audit, reviews the Firm's legal,
reputational, operational and control risks, and
periodically reviews the activities of existing
businesses.
- ---------------------------------------------------------------------------------------------------
Commitments Committee The Commitments Committee approves:
- equity and non-investment grade debt underwriting
commitments;
- loans extended by the Firm; and
- unusual financing structures and transactions that
involve significant capital exposure.

The Commitments Committee has delegated to the Credit
Department the authority to approve underwriting
commitments for investment grade debt and certain other
products.
- ---------------------------------------------------------------------------------------------------
Credit Policy Committee The Credit Policy Committee establishes and reviews broad
credit policies and parameters that are implemented by the
Credit Department.
- ---------------------------------------------------------------------------------------------------
Finance Committee The Finance Committee is responsible for oversight of the
Firm's capital, liquidity and funding needs and for
setting certain inventory position limits.
- ---------------------------------------------------------------------------------------------------
</TABLE>

48
<PAGE> 86

Segregation of duties and management oversight are fundamental elements of
the Firm's risk management process. Accordingly, departments that are
independent of the revenue producing units, such as the Firmwide Risk, Credit,
Controllers, Global Operations, Central Compliance, Management Controls and
Legal Departments, in part perform risk management functions, which include
monitoring, analyzing and evaluating risk.

MARKET RISK

The potential for changes in the market value of the Firm's trading
positions is referred to as "market risk". The Firm's trading positions result
from underwriting, market making and proprietary trading activities.

The broadly defined categories of market risk include exposures to interest
rates, currency rates, equity prices and commodity prices.

- - Interest rate risks primarily result from exposures to changes in the level,
slope and curvature of the yield curve, the volatility of interest rates,
mortgage prepayment speeds and credit spreads.

- - Currency rate risks result from exposures to changes in spot prices, forward
prices and volatilities of currency rates.

- - Equity price risks result from exposures to changes in prices and volatilities
of individual equities, equity baskets and equity indices.

- - Commodity price risks result from exposures to changes in spot prices, forward
prices and volatilities of commodities, such as electricity, natural gas,
crude oil, petroleum products and precious and base metals.

The Firm seeks to manage these risk exposures through diversifying
exposures, controlling position sizes and establishing hedges in related
securities or derivatives. For example, the Firm may hedge a portfolio of common
stock by taking an offsetting position in a related equity-index futures
contract. The ability to manage an exposure may, however, be limited by adverse
changes in the liquidity of the security or the related hedge instrument and in
the correlation of price movements between the security and related hedge
instrument.

In addition to applying business judgment, senior management uses a number
of quantitative tools to manage the Firm's exposure to market risk. These tools
include:

- - risk limits based on a summary measure of market risk exposure referred to as
Value-at-Risk or "VaR";

- - risk limits based on a scenario analysis that measures the potential effect of
a significant widening of credit spreads on the Firm's trading net revenues;

- - inventory position limits for selected business units and country exposures;
and

- - scenario analyses which measure the potential effect on the Firm's trading net
revenues of abnormal market movements.

The Firm also estimates the broader potential impact of a sustained market
downturn on its investment banking and merchant banking activities.

VaR. VaR is the potential loss in value of the Firm's trading positions
due to adverse movements in markets over a defined time horizon with a specified
confidence level.

For the VaR numbers reported below, a one-day time horizon and a 95%
confidence level were used. This means that there is a one in 20 chance that
daily trading net revenues will fall below the expected daily trading net
revenues by an amount at least as large as the reported VaR. Thus, shortfalls
from expected trading net revenues on a single trading day greater than the
reported VaR would be anticipated to occur, on average, about once a month.
Shortfalls on a single day can exceed reported VaR by significant amounts.
Shortfalls can also accumulate over a longer time horizon such as a number of
consecutive trading days. For a discussion of the limitations of the Firm's risk
measures, see "Risk Factors -- Our Risk Management Policies and Procedures May
Leave Us Exposed to Unidentified or Unanticipated Risk".

The VaR numbers below are shown separately for interest rate, currency,
equity and commodity products, as well as for the Firm's overall trading
positions.

49
<PAGE> 87

These VaR numbers include the underlying product positions and related
hedges, which may include positions in other product areas. For example, the
hedge of a foreign exchange forward may include an interest rate futures
position and the hedge of a long corporate bond position may include a short
position in the related equity.

VaR METHODOLOGY, ASSUMPTIONS AND LIMITATIONS. The modeling of the risk
characteristics of the Firm's trading positions involves a number of assumptions
and approximations. While management believes that these assumptions and
approximations are reasonable, there is no uniform industry methodology for
estimating VaR, and different assumptions and/or approximations could produce
materially different VaR estimates.

The Firm uses historical data to estimate its VaR and, to better reflect
asset volatilities and correlations, these historical data are weighted to give
greater importance to more recent observations. Given its reliance on historical
data, VaR is most effective in estimating risk exposures in markets in which
there are no sudden fundamental changes or shifts in market conditions. An
inherent limitation of VaR is that past changes in market risk factors, even
when weighted toward more recent observations, may not produce accurate
predictions of future market risk. For example, the asset volatilities to which
the Firm was exposed in the second half of 1998 were substantially larger than
those reflected in the historical data used during that time period to estimate
the Firm's VaR. Moreover, VaR calculated for a one-day time horizon does not
fully capture the market risk of positions that cannot be liquidated or offset
with hedges within one day.

VaR also should be evaluated in light of the methodology's other
limitations. For example, when calculating the VaR numbers shown below, the Firm
assumes that asset returns are normally distributed. Non-linear risk exposures
on options and the potentially mitigating impact of intra-day changes in related
hedges would likely produce non-normal asset returns. Different distributional
assumptions could produce a materially different VaR.

The following table sets forth the Firm's daily VaR for substantially all
of its trading positions:

DAILY VaR
(in millions)

<TABLE>
<CAPTION>
AS OF
NOVEMBER
RISK CATEGORIES 1998
--------------- --------
<S> <C>
Interest rates............................................ $ 27.3
Currency rates............................................ 9.0
Equity prices............................................. 25.3
Commodity prices.......................................... 7.0
Diversification effect(1)................................. (25.7)
------
Firmwide.................................................. $ 42.9
======
</TABLE>

- ---------------
(1) Equals the difference between Firmwide daily VaR and the sum of the daily
VaRs for the four risk categories. This effect arises because the four
market risk categories are not perfectly correlated.
------------------------

For a discussion of what the Firm's daily VaR would have been as of
November 1998 had the Firm used its volatility and correlation data as of May
29, 1998, see "Business -- Trading and Principal Investments -- Trading Risk
Management -- Risk Reduction".

NON-TRADING RISK

The market risk associated with the Firm's non-trading financial
instruments, including its investments in its merchant banking funds, is
measured using a sensitivity analysis that estimates the potential reduction

50
<PAGE> 88

in the Firm's net revenues associated with hypothetical market movements. As of
November 1998, non-trading market risk was not material.

RECENT ENHANCEMENTS TO RISK MANAGEMENT

While VaR continues to be a core tool in the Firm's risk management
process, management has increased its emphasis on the supplemental measures
described below:

- - CREDIT SPREAD LIMITS. In addition to VaR, the Firmwide Risk Committee now
sets market risk limits based on a scenario analysis of widening credit
spreads similar to those experienced in the second half of 1998; and

- - SCENARIO ANALYSES. Management is using scenario analyses that reflect more
extreme market conditions, such as large increases in market volatility as
well as substantial and sustained adverse movements in the volatility and
correlation of the Firm's relative value positions.

Notwithstanding these measures, the Firm continues to hold trading
positions that are substantial in both number and size, and is subject to
significant market risk. In addition, management may choose to increase the
Firm's risk levels in the future. See "Risk Factors -- Market Fluctuations Could
Adversely Affect Our Businesses in Many Ways" and "-- Our Risk Management
Policies and Procedures May Leave Us Exposed to Unidentified or Unanticipated
Risk" for a discussion of the risks associated with the Firm's trading
positions.

VALUATION OF TRADING INVENTORY

Substantially all of the Firm's inventory positions are marked-to-market on
a daily basis and changes are recorded in net revenues. The individual business
units are responsible for pricing the positions they manage. The Controllers
Department, in conjunction with the Firmwide Risk Department, regularly performs
pricing reviews.

TRADING NET REVENUES DISTRIBUTION

The following chart sets forth the frequency distribution for substantially
all of the Firm's daily trading net revenues for the year ended November 1998:

Daily Trading Net Revenues
in Millions of Dollars Number of Days
- ------------------------------------------------------------
<S> <C>
less than (60)................................. 9
(60) - (40).................................... 5
(40) - (20).................................... 22
(20) - 0....................................... 31
0-20........................................... 87
20-40.......................................... 67
40-60.......................................... 24
greater than 60................................ 6

</TABLE>

51
<PAGE> 89

CREDIT RISK

Credit risk represents the loss that the Firm would incur if a counterparty
or issuer of securities or other instruments it holds fails to perform its
contractual obligations to the Firm. To reduce its credit exposures, the Firm
seeks to enter into netting agreements with counterparties that permit the Firm
to offset receivables and payables with such counterparties. The Firm does not
take into account any such agreements when calculating credit risk, however,
unless management believes a legal right of setoff exists under an enforceable
master netting agreement.

For most businesses, counterparty credit limits are established by the
Credit Department, which is independent of the revenue-producing departments,
based on guidelines set by the Firmwide Risk and Credit Policy Committees. The
Firm's global credit management systems monitor current and potential credit
exposure to individual counterparties and on an aggregate basis to
counterparties and their affiliates. The systems also provide the Firm's
management with information regarding overall credit risk by product, industry
sector, country and region.

RISK LIMITS

Business unit risk limits are established by the risk committees and may be
further segmented by the business unit managers to individual trading desks.

Market risk limits are monitored on a daily basis by the Firmwide Risk
Department and are reviewed regularly by the appropriate risk committee. Limit
violations are reported to the appropriate risk committee and the appropriate
business unit managers.

Inventory position limits are monitored by the Controllers Department and
position limit violations are reported to the appropriate business unit managers
and the Finance Committee. When inventory position limits are used to monitor
market risk, they are also monitored by the Firmwide Risk Department and
violations are reported to the appropriate risk committee.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments, such as futures, forwards,
swaps or option contracts, that derive their value from underlying assets,
indices, reference rates or a combination of these factors. Derivative
instruments may be entered into by the Firm in privately negotiated contracts
("OTC derivatives"), or they may be listed and traded on an exchange.

Most of the Firm's derivative transactions are entered into for trading
purposes. The Firm uses derivatives in its trading activities to facilitate
customer transactions, to take proprietary positions and as a means of risk
management. The Firm also enters into non-trading derivative contracts to manage
the interest rate and currency exposure on its long-term borrowings.

Derivatives are used in many of the Firm's businesses, and the Firm
believes that the associated market risk can only be understood relative to the
underlying assets or risks being hedged, or as part of a broader trading
strategy. Accordingly, the market risk of derivative positions is managed with
all of the Firm's other non-derivative risk.

Derivative contracts are reported on a net-by-counterparty basis on the
Firm's consolidated statements of financial condition where management believes
a legal right of setoff exists under an enforceable master netting agreement.

For an OTC derivative, the Firm's credit exposure is directly with its
counterparty and continues until the maturity or termination of such contract.

The following table sets forth the distribution, by credit rating, of
substantially all of the Firm's exposure with respect to OTC derivatives as of
November 1998, after taking into consideration the effect of netting agreements.
The categories shown reflect the internally determined public rating agency
equivalents used by the Firm.

52
<PAGE> 90

OTC DERIVATIVES CREDIT EXPOSURE
($ in millions)

<TABLE>
<CAPTION>
CREDIT RATING EQUIVALENT AMOUNT PERCENTAGE
- ------------------------ ------ ----------
<S> <C> <C>
AAA/Aaa..................................... $ 2,170 12%
AA/Aa2...................................... 5,571 30
A/A2........................................ 4,876 26
BBB/Baa2.................................... 3,133 17
BB/Ba2 or lower............................. 1,970 11
Unrated(1).................................. 730 4
------- ---
$18,450 100%
======= ===
</TABLE>

- ---------------
(1) In lieu of making an individual assessment of such counterparties' credit,
the Firm makes a determination that the collateral held in respect of such
obligations is sufficient to cover the Firm's exposure. In making this
determination, the Firm takes into account various factors, including legal
uncertainties and market volatility.

------------------------

As of November 1998, the Firm held approximately $2.97 billion in
collateral against these OTC derivatives exposures. This collateral consists
predominantly of cash and U.S. government and agency securities and is usually
received by the Firm pursuant to agreements entitling the Firm to require
additional collateral upon certain increases in exposure or the occurrence of
negative credit events.

In addition to obtaining collateral and seeking netting agreements, the
Firm attempts to mitigate default risk on derivatives by entering into
agreements that enable the Firm to terminate or reset the terms of transactions
after certain time periods or upon the occurrence of credit-related events, and
by seeking third-party guarantees of the obligations of some counterparties.

Derivatives transactions may also involve the legal risk that they are not
authorized or appropriate for a counterparty, that documentation has not been
properly executed or that executed agreements may not be enforceable against the
counterparty. The Firm attempts to minimize these risks by obtaining advice of
counsel on the enforceability of agreements as well as on the authority of a
counterparty to effect the derivative transaction.

OPERATIONAL AND YEAR 2000 RISKS

OPERATIONAL RISK. The Firm may face reputational damage, financial loss or
regulatory risk in the event of an operational failure or error. A systems
failure or failure to enter a trade properly into the Firm's records may result
in an inability to settle transactions in a timely manner or a breach of
regulatory requirements. Settlement errors or delays may cause losses due to
damages owed to counterparties or movements in prices. These operational and
systems risks may arise in connection with the Firm's own systems or as a result
of the failure of an agent acting on the Firm's behalf.

The Global Operations Department is responsible for establishing,
maintaining and approving policies and controls with respect to the accurate
inputting and processing of transactions, clearance and settlement of
transactions, the custody of securities and other instruments and the detection
and prevention of employee errors or improper or fraudulent activities. Its
personnel work closely with the Information Technology Department in creating
systems to enable appropriate supervision and management of its policies. The
Global Operations Department is also responsible, together with other areas of
the Firm, including the Legal and Compliance Departments, for ensuring
compliance with applicable regulations with respect to the clearance and
settlement of transactions and the margining of positions. The Network
Management Department oversees the Firm's relationships with its clearance and
settlement agents, regularly reviews agents' performance

53
<PAGE> 91

and meets with these agents to review operational issues.

YEAR 2000 READINESS DISCLOSURE. The Firm has determined that it will be
required to modify or replace portions of its information technology systems,
both hardware and software, and its non-information technology systems so that
they will properly recognize and utilize dates beyond December 31, 1999. The
Firm presently believes that with modifications to existing software,
conversions to new software and replacement of some hardware, the Year 2000
issue will be satisfactorily resolved in its own systems worldwide. However, if
such modifications and conversions are not made or are not completed on a timely
basis, the Year 2000 issue would have a material adverse effect on the Firm.
Moreover, even if these changes are successful, failure of third parties to
which the Firm is financially or operationally linked to address their own Year
2000 problems would also have a material adverse effect on the Firm. For a
description of the Year 2000 issue and some of the related risks, including
possible "worst-case" scenarios, see "Risk Factors -- Firm and Third-Party
Computer Systems May Not Achieve Year 2000 Readiness -- Year 2000 Readiness
Disclosure".

Recognizing the broad scope and complexity of the Year 2000 problem, the
Firm established a Year 2000 Oversight Committee to promote awareness and ensure
the active participation of senior management. This Committee, together with
numerous sub-committees chaired by senior managers throughout the Firm and the
Firm's Global Year 2000 Project Office, is responsible for planning, managing
and monitoring the Firm's Year 2000 efforts on a global basis. The Firm's
Management Controls Department assesses the scope and sufficiency of the Firm's
Year 2000 Program and verifies that the principal aspects of the Firm's Year
2000 program are being implemented according to plan.

The Firm's Year 2000 plans are based on a five phase approach, which
includes awareness; inventory, assessment and planning; remediation; testing;
and implementation. The awareness phase (in which the Firm defined the scope and
components of the problem, its methodology and approach and obtained senior
management support and funding) was completed in September 1997. The Firm also
completed the inventory, assessment and planning phase for its systems in
September 1997. By the end of December 1998, the Firm had completed the
remediation phase for approximately 99% of its mission-critical systems and had
completed the application testing and implementation phases for approximately
95% of its mission-critical systems. The Firm plans to complete all three of
these phases for approximately 99% of its mission-critical systems by the end of
March 1999 and for the remaining 1% by the end of June 1999. During the first
half of calendar 1999, the Firm is scheduled to conduct internal integration
testing with respect to critical securities and transaction flows in order to
validate that its systems can successfully perform critical business functions
beginning in January 2000. With respect to its non-mission-critical systems, the
Firm expects to complete its Year 2000 efforts during calendar 1999.

For technology products that are supplied by third-party vendors, the Firm
has completed an inventory, ranked products according to their importance, and
developed a strategy for achieving Year 2000 readiness for substantially all
non-compliant versions of software and hardware. While this process included
collecting information from vendors, the Firm is not relying solely on vendors'
verifications that their products are Year 2000 compliant or ready. The Firm is
also testing vendor-supplied products that it considers mission-critical to help
determine whether they will perform properly and support the Firm's systems
beginning in January 2000. As of December 31, 1998, the Firm's mission-critical
mainframe computers and products had been tested and substantial progress had
been made in testing the Firm's telecommunications and non-mainframe technology
infrastructure. Since telecommunications carriers have indicated that they will
not test with individual companies, the Firm is relying on information provided
by these vendors as to whether they are Year 2000 compliant.

54
<PAGE> 92

The Firm is also addressing Year 2000 issues that may exist outside its own
technology activities, including its facilities, external service providers and
other third parties with which it interfaces. The Firm has inventoried and
ranked its customers, business and trading partners, utilities, exchanges,
depositories, clearing and custodial banks and other third parties with which
the Firm has important financial and operational relationships.

By the end of December 1998, the Firm had participated in approximately 50
"external", i.e., industry-wide or point-to-point, tests with exchanges and
clearing houses as well as the "Beta" test sponsored by the Securities Industry
Association ("SIA") for its U.S. members in July 1998, which the Firm
successfully completed. By the end of June 1999, the Firm expects to have
participated in approximately 110 additional external tests, including the SIA
"Streetwide" test occurring in March and April 1999 and other major industry
tests in those global markets where the Firm conducts significant business.

Acknowledging that a Year 2000 failure, whether internal or external, could
have an adverse effect on the ability to conduct day-to-day business, the Firm
is employing a comprehensive and global approach to contingency planning. The
Firm's contingency planning objective is to identify potential system failure
points that support processes that are critical to the Firm's mission and to
develop contingency plans for those failures that may reasonably be expected to
occur, with the general goal of ensuring, to the maximum extent practical, that
minimum acceptable levels of service can be maintained by the Firm. In the event
of system failures, the Firm's contingency plans will not guarantee that
existing levels of service will be fully maintained, especially if these
failures involve external systems or processes over which the Firm has little or
no direct control or involve multiple failures across a variety of systems.

The Firm anticipates that contingency plans for its core business units
will be completed during June 1999, and by September 30, 1999 for the rest of
the Firm. In addition, the Firm is developing contingency plans for funding and
balance sheet management and other related activities. The Firm expects its
contingency plans to include establishing additional sources of liquidity that
could be drawn upon in the event of systems disruption. The Firm is also
developing a crisis management group to guide it through the transition period.
The Firm expects to reduce trading activity in the period leading up to January
2000 to minimize the impact of potential Year 2000-related failures. A reduction
in trading activity by the Firm or by other market participants in anticipation
of possible Year 2000 problems could adversely affect the Firm's results of
operations, as discussed under "Risk Factors -- Firm and Third-Party Computer
Systems May Not Achieve Year 2000 Readiness -- Year 2000 Readiness Disclosure".

The Firm has incurred and expects to continue to incur expenses allocable
to internal staff, as well as costs for outside consultants, to complete the
remediation and testing of internally-developed systems and the replacement and
testing of third-party products and services, including non-technology products
and services, in order to achieve Year 2000 compliance. These costs are also
attributable to the Firm's Year 2000 contingency planning efforts. The Firm
currently estimates that these costs will total between $140 million and $150
million, over half of which has been spent to date. These estimates include the
cost of technology personnel but do not include the cost of most non-technology
personnel involved in the Firm's Year 2000 effort. The remaining cost of the
Firm's Year 2000 program is expected to be incurred in 1999 and early 2000. The
Year 2000 program costs will continue to be funded through operating cash flow.
These costs are expensed as incurred. The Firm does not expect that the costs
associated with implementing its Year 2000 program will have a material adverse
effect on its results of operations, financial condition, liquidity or capital
resources.

The costs of the Year 2000 program and the date on which the Firm plans to
complete the Year 2000 modifications are based on current estimates, which
reflect numerous assumptions about future events, including the continued
availability of certain resources,

55
<PAGE> 93

the timing and effectiveness of third-party remediation plans and other factors.
The Firm can give no assurance that these estimates will be achieved, and actual
results could differ materially from the Firm's plans. Specific factors that
might cause material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct relevant computer source codes and embedded chip technology, the
results of internal and external testing and the timeliness and effectiveness of
remediation efforts of third parties.

In order to focus attention on the Year 2000 problem, management has
deferred several technology projects that address other issues. However, the
Firm does not believe that this deferral will have a material adverse effect on
its results of operations or financial condition.

ACCOUNTING DEVELOPMENTS

In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", effective for transactions occurring after
December 31, 1996. SFAS No. 125 establishes standards for distinguishing
transfers of financial assets that are accounted for as sales from transfers
that are accounted for as secured borrowings.

The provisions of SFAS No. 125 relating to repurchase agreements,
securities lending transactions and other similar transactions were deferred by
the provisions of SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", and became effective for transactions
entered into after December 31, 1997. This Statement requires that the
collateral obtained in certain types of secured lending transactions be recorded
on the balance sheet with a corresponding liability reflecting the obligation to
return such collateral to its owner. Effective January 1, 1998, the Firm adopted
the provisions of SFAS No. 125 that were deferred by SFAS No. 127. The adoption
of this standard increased the Firm's total assets and liabilities by $11.64
billion as of November 1998.

In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
("EPS"), effective for periods ending after December 15, 1997, with restatement
required for all prior periods. SFAS No. 128 establishes new standards for
computing and presenting EPS. This Statement replaces primary and fully diluted
EPS with "basic EPS", which excludes dilution, and "diluted EPS", which includes
the effect of all potentially dilutive common shares and other dilutive
securities. Because the Firm has not historically reported EPS, this Statement
will have no impact on the Firm's historical financial statements. This
Statement will, however, apply to financial statements of the Firm prepared
after the Common Stock Offering. See "Pro Forma Consolidated Financial
Information" for a calculation of pro forma EPS.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", effective for fiscal years beginning after December 15, 1997, with
reclassification of earlier periods required for comparative purposes. SFAS No.
130 establishes standards for the reporting and presentation of comprehensive
income and its components in the financial statements. The Firm intends to adopt
this standard in the first quarter of fiscal 1999. This Statement is limited to
issues of reporting and presentation and, therefore, will not affect the Firm's
results of operations or financial condition.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997, with reclassification of earlier periods required for
comparative purposes. SFAS No. 131 establishes the criteria for determining an
operating segment and establishes the disclosure requirements for reporting
information about operating segments. The Firm intends to adopt this standard at
the end of fiscal 1999. This Statement is limited to issues of reporting and
presentation and, therefore, will not affect the Firm's results of operations or
financial condition.

56
<PAGE> 94

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", effective for fiscal years
beginning after December 15, 1997, with restatement of disclosures for earlier
periods required for comparative purposes. SFAS No. 132 revises certain
employers' disclosures about pension and other post-retirement benefit plans.
The Firm intends to adopt this standard at the end of fiscal 1999. This
Statement is limited to issues of reporting and presentation and, therefore,
will not affect the Firm's results of operations or financial condition.

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use", effective for fiscal years beginning after December 15, 1998.
SOP No. 98-1 requires that certain costs of computer software developed or
obtained for internal use be capitalized and amortized over the useful life of
the related software. The Firm currently expenses the cost of all software
development in the period in which it is incurred. The Firm intends to adopt
this Statement in fiscal 2000 and is currently assessing its effect.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. This Statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial condition and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative instrument depends on its intended use and the resulting
designation. The Firm intends to adopt this standard in fiscal 2000 and is
currently assessing its effect.

57
<PAGE> 95

INDUSTRY AND ECONOMIC OUTLOOK

As a global provider of financial services, the Firm is affected by overall
macroeconomic and market conditions in various regions around the world. For a
number of years, we have operated in a generally favorable macroeconomic
environment characterized by low inflation, low and declining interest rates and
strong equity markets. In particular, the U.S. economy, the largest in the world
and an important influence on overall world economic activity, has been
undergoing one of the longest periods of post-war economic expansion. As of
December 1998, the current U.S. expansion had lasted 93 months compared to a
post-war average period of expansion of 46 months.

Recognizing that the favorable macroeconomic and market environments will
be subject to periodic reversals, which may significantly and adversely affect
our businesses, we believe that significant growth and profit opportunities
exist for financial intermediaries in the United States and abroad. These
opportunities derive from several long-term trends, including the following:

- - DEREGULATION. Financial market deregulation, including the elimination of
bank deposit interest rate ceilings and the expansion of commercial banks and
other financial institutions into securities underwriting activities, has
resulted in the creation of new and broader sources of credit, which have
reduced the variability and the cyclicality in the supply of credit. This, in
turn, has in the past reduced volatility in economic activity, leading to
longer economic expansions with increased investment spending, thereby
resulting in higher levels of capital raising;

- - GLOBALIZATION. Heightened global competition has created a need for
cross-border capabilities and economies of scale, resulting in increased joint
venture and mergers and acquisitions activity;

- - FOCUS ON SHAREHOLDER VALUE. Increasing focus on shareholder value has fueled
an increase in restructuring and strategic initiatives, thereby yielding
additional financial advisory and capital-raising opportunities;

- - CONSOLIDATION. Moderate growth, limited pricing flexibility and the need for
economies of scale have substantially increased consolidation opportunities in
certain industries, and record levels of profit have provided companies with
the resources to pursue strategic combinations, thereby creating substantial
demand for mergers and acquisitions advisory services and subsequent capital
raising;

- - DEMOGRAPHICS. Changing demographics in the United States and other developed
economies have increased the pool of savings available for private investment
and the need for increased funding of pension plans due to the aging of the
population, creating substantial demand for investment products and services;
and

- - FINANCIAL PRODUCT INNOVATION. Technology and financial expertise have led to
the development of new financial products better tailored to the risk/reward
requirements of investors, thereby increasing trading flows and proprietary
investment opportunities.

We believe that over the last 15 years these trends, coupled with generally
declining interest rates and favorable market conditions, have contributed to a
substantially higher rate of growth in activity in the financial services
industry than the growth in overall economic activity. The future economic
environment may not be as favorable as that experienced in the last 15 years
and, in particular, the period of declining interest rates in the United States
may not continue. There may also be periods of adverse economic and market
conditions. Nonetheless, we believe that these trends should continue to affect
the financial services industry positively over the long term. However, see
"Risk Factors -- Market Fluctuations Could Adversely Affect Our Businesses in
Many Ways" for a discussion of the effect that adverse economic conditions and
market fluctuations can have on the Firm's businesses.

58
<PAGE> 96

The following table sets forth selected key industry indicators:

KEY INDUSTRY INDICATORS
($ in billions, except GDP)
(volume in millions of shares)

<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED DECEMBER 31,
-------------------------------------- CAGR
1983 1988 1993 1998 '83-'98
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
GENERAL ECONOMIC ACTIVITY:
($ in trillions)
Worldwide GDP(1).......................... $ 10 $ 18 $ 24 $ 29(8) 8%(8)
U.S. GDP(2)............................... 4 5 7 9 6

ADVISORY ACTIVITIES/FINANCING:
Worldwide mergers and acquisitions(3)..... 96 527 460 2,522 24
Worldwide equity issued(3)................ 50 51 172 269 12
Worldwide debt issued(3).................. 146 631 1,546 2,932 22

WORLD EQUITY MARKETS:
Worldwide equity market
capitalization(4)....................... 3,384 9,728 14,016 23,541(8) 15(8)
U.S. market capitalization(4)............. 1,898 2,794 5,136 11,309(8) 14(8)
FT/S&P Actuaries World Indices(TM) -- The
World Index(5).......................... NA 129 178 359 11
Dow Jones Industrial Average.............. 1,259 2,169 3,754 9,181 14
S&P 500................................... 165 278 466 1,229 14
NYSE average daily volume................. 85 162 265 674 15

INVESTED FUNDS:
Worldwide pension assets(6)............... $1,900 $3,752 $ 6,560 $ 9,694(8) 12(8)
Number of U.S. mutual funds(7)............ 1,026 2,715 4,558 7,343 14
U.S. mutual fund assets(7)................ $ 293 $ 810 $ 2,075 $ 5,530 22
</TABLE>

- ---------------
(1) Gross domestic product. Source: The Economist Intelligence Unit, January
1999.
(2) Source: U.S. Department of Commerce, Bureau of Economic Analysis.
(3) Source: Securities Data Company.
(4) Source: International Finance Corporation.
(5) Index is calculated on a local currency basis based on total returns. CAGR
is based on 1988-1998 data. The FT/S&P Actuaries World Indices are owned by
FTSE International Limited, GS&Co. and Standard & Poor's Ratings Services.
The Indices are compiled by FTSE International and Standard & Poor's Ratings
Services in conjunction with the Faculty of Actuaries and the Institute of
Actuaries.
(6) Source: InterSec Research Corp.
(7) Source: Investment Company Institute.
(8) Data as of December 31, 1997; CAGR 1983-1997.
-------------------------

We believe scale, global resources and leading market positions are
important competitive advantages for financial intermediaries in this
environment. In addition, we believe that circumstances in certain regions
should provide opportunities for financial intermediaries.

EUROPE

The EMU commenced on January 1, 1999 and created a monetary union in Europe
with a single currency. As a result, we believe that over time a pan-European
capital market will develop that is likely to rival that of the United States in
size and liquidity. Financial intermediaries generally are expected to ben-

59
<PAGE> 97

efit from a number of anticipated developments including:

- - pan-European consolidation and financial restructuring yielding an increase in
mergers and acquisitions activity;

- - an increase in third-party assets under management and a major shift towards
investments in equity securities due to an expected move to private pension
fund systems, changing demographics and the elimination of intra-EMU currency
risk;

- - a reallocation of equity portfolios to reflect pan-European indices;

- - the establishment of a European high-yield market to fund the growth of
emerging high-growth industries and to satisfy investors' demands for higher
yield; and

- - increased equity issuance and higher equity trading volumes.

ASIA

Since 1997, the currency weakness and disruptions, the deterioration in
certain of the region's banking systems, the weakness in the property sector in
many of the region's countries, as well as slowing consumer income growth, have
led to a significant and continuing weakening of these economies and their stock
markets. These developments have adversely affected the economic and market
conditions in the region and at times have affected economic and market
conditions elsewhere. We believe, however, that financial intermediaries could
have significant opportunities in this region if stability improves and the
economies, which represent approximately 60% of the world's population, resume
their growth. In the near term, these potential opportunities could include:

- - an increase in mergers and acquisitions and other financial advisory services
in connection with corporate restructurings;

- - an increase in trading opportunities as financial intermediaries meet the
liquidity needs of their clients; and

- - an increase in capital raising as Asian corporations and governments access
the international capital markets rather than the regional banking system to
refinance and to fund future growth.

In the longer term, these potential opportunities could include:

- - the emergence of corporate and real estate principal investment opportunities
as a result of corporate and government restructurings; and

- - an increase in third-party assets under management and a major shift towards
investments in equity securities due to an anticipated move to private
pension fund systems, changing demographics and the relaxation of foreign
exchange restrictions.

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<PAGE> 98

BUSINESS

OVERVIEW

Goldman Sachs is a leading global investment banking and securities firm
with three principal business lines:

- - Investment Banking;
- - Trading and Principal Investments; and
- - Asset Management and Securities Services.

For 1998, our net revenues were $8.5 billion and our pre-tax earnings were
$2.9 billion. As of November 1998, our total assets were $217.4 billion and our
partners' capital was $6.3 billion.

We have over time produced strong earnings growth and attractive returns on
partners' capital through different economic and market conditions. Over the
last 15 years, our pre-tax earnings have grown from $462 million in 1983 to $2.9
billion in 1998, representing a CAGR of 13%. Economic and market conditions can,
however, significantly affect our performance. For example, in the second half
of 1998, the Firm's performance was adversely affected by turbulence in global
financial markets.

Because we believe that the needs of our clients are global and that
international markets have high growth potential, we have built upon our
strength in the United States to achieve leading positions in other parts of the
world. Today, the Firm has a strong global presence as evidenced by the
geographic breadth of our transactions, leadership in our core products and the
size of our international operations. As of November 1998, we operated offices
in 23 countries and 36% of our 13,000 employees were based outside the United
States.

The Firm is managed by its principal owners. Simultaneously with the
closing of the Common Stock Offering, we will make equity-based awards to
substantially all of our employees. Following the Common Stock Offering, our
employees, including former partners, will own approximately 66% of the Company.
None of our employees will be selling shares in the Common Stock Offering.

The Firm is the successor to a commercial paper business founded in 1869 by
Marcus Goldman. Since then, we have grown our business as a participant and
intermediary in securities and other financial activities to become one of the
leading firms in the industry.

In 1989, Group L.P. was formed to serve as the parent company of the
Goldman Sachs organization. As of November 30, 1996, Group L.P. was
restructured. On that date, the non-retiring former general partners of Group
L.P. converted their general partner interests into limited partner interests
and became profit participating limited partners of Group L.P. Concurrently, The
Goldman Sachs Corporation was admitted as Group L.P.'s sole general partner. The
common stock of The Goldman Sachs Corporation is owned by the profit
participating limited partners, all of whom are active in the Firm's businesses.

GS Inc. was formed to succeed to the business of Group L.P. Simultaneously
with the closing of the Common Stock Offering, we will complete a number of
transactions in order to convert from partnership to corporate form. See
"Certain Relationships and Related Transactions -- Incorporation and Related
Transactions" for additional information concerning these transactions.

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<PAGE> 99

MARKET SHARE DATA

Except as otherwise indicated, all amounts with respect to the volume,
number and market share of mergers and acquisitions and underwriting
transactions and related ranking information have been derived from information
compiled and classified by Securities Data Company ("SDC"). SDC obtains and
gathers its information from sources it considers reliable, but SDC does not
guarantee the accuracy or completeness of the information. In the case of
mergers and acquisitions, data are based upon the dollar value of announced
transactions for the period indicated, taken as a whole, with full credit to
each of the advisors to each party in a transaction. In the case of
underwritings, data are based upon the dollar value of total proceeds raised
(exclusive of any option to purchase additional shares) with equal credit to
each bookrunner for the period indicated, taken as a whole. As a result of this
method of compiling data, percentages may add to more than 100%.

STRATEGY AND PRINCIPAL BUSINESS LINES

Our strategy is to grow our three core businesses -- Investment Banking,
Trading and Principal Investments, and Asset Management and Securities
Services -- in markets throughout the world. Our leadership position in
investment banking provides us with access to governments, financial
institutions and corporate clients globally. Trading and principal investing has
been an important part of our culture and earnings, and we remain committed to
these businesses irrespective of their volatility. Managing wealth is one of the
fastest growing segments of the financial services industry and we are
positioning our asset management and securities services businesses to take
advantage of that growth. Our assets under supervision, for example, have grown
from $92.7 billion as of November 1994 to $336.8 billion as of November 1998,
representing a compound annual growth rate of 38%.

Our business lines are comprised of various product and service offerings
that are set forth in the following chart:

PRIMARY PRODUCTS AND ACTIVITIES BY BUSINESS LINE

<TABLE>
<CAPTION>
TRADING AND PRINCIPAL ASSET MANAGEMENT AND
INVESTMENT BANKING INVESTMENTS SECURITIES SERVICES
------------------ --------------------- --------------------
<S> <C> <C>
- -- Equity and debt -- Bank loans -- Commissions
underwriting -- Commodities -- Institutional and high
- -- Financial restructuring -- Currencies net worth asset
advisory services -- Equity and fixed income management
- -- Mergers and acquisitions derivatives -- Margin lending
advisory services -- Equity and fixed income -- Matched book
- -- Real estate advisory securities -- Merchant banking fees
services -- Principal investments and overrides
-- Proprietary arbitrage -- Mutual funds
-- Prime brokerage
-- Securities lending
</TABLE>

------------------------

INVESTMENT BANKING

Investment Banking represented 39% of 1998 net revenues and 35% of 1997 net
revenues. We are a market leader in both the financial advisory and underwriting
businesses, serving over 3,000 clients worldwide. For the period January 1, 1994
to December 31, 1998, we had the industry-leading market share of 25.3% in
worldwide mergers and acquisitions advisory services, having advised on over
$1.7 trillion of transactions. Over the same period, we also achieved number one
market shares of 15.2% in underwriting worldwide initial public offerings and
14.4% in underwriting worldwide common stock issues.

TRADING AND PRINCIPAL INVESTMENTS

Trading and Principal Investments represented 28% of 1998 net revenues and
39% of 1997 net revenues. We make markets in equity and fixed income products,
currencies and commodities; enter into swaps and other derivative transactions;
engage in proprietary

62
<PAGE> 100

trading and arbitrage; and make principal investments. In trading, we focus on
building lasting relationships with our most active clients while maintaining
leadership positions in our key markets. We believe our research, market-making
and proprietary activities enhance our understanding of markets and ability to
serve our clients.

ASSET MANAGEMENT AND SECURITIES SERVICES

Asset Management and Securities Services represented 33% of 1998 net
revenues and 26% of 1997 net revenues. We provide global investment management
and advisory services; earn commissions on agency transactions; earn management
fees and derive overrides from our merchant banking funds; and provide prime
brokerage, securities lending and financing services. As of November 1998, the
Firm had $336.8 billion of assets under supervision, of which $194.8 billion
represented assets under management. Our asset management business is rapidly
growing, with net asset inflows that averaged over $125 million per business day
during 1998. We manage merchant banking funds that had $15.5 billion of capital
commitments as of November 1998.

We pursue our strategy to grow our three core businesses through an
emphasis on:

EXPANDING HIGH VALUE-ADDED BUSINESSES

INCREASING THE STABILITY OF OUR EARNINGS

PURSUING INTERNATIONAL OPPORTUNITIES

We believe that our global reach will allow us to take advantage of growth
in international markets. In Europe, for example, the recent establishment of
the EMU is expected, over time, to create a large pan-European market rivaling
the U.S. capital markets in size and liquidity. We believe this will generate
increased activity across our businesses in the region. In Asia, we expect
increased mergers and acquisitions advisory opportunities as a result of
corporate restructurings and increased trading opportunities as we meet the
liquidity needs of our clients. In the longer term, we anticipate additional
opportunities in asset management activities due to an expected shift towards
privatization of pension systems and changing demographics.

LEVERAGING THE FRANCHISE

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<PAGE> 101

COMPETITIVE STRENGTHS

STRONG CLIENT RELATIONSHIPS

We focus on building long-term client relationships. In 1998, over 75% of
our Investment Banking revenues represented business from existing clients of
the Firm. We also aggressively pursue new client relationships as evidenced by
the over 400 investment banking transactions we completed for first-time clients
in 1998. In our trading businesses, we structure and execute transactions across
a wide array of markets and countries to meet our clients' needs. In our asset
management business, we managed assets for three of the five largest pension
pools in the United States as ranked as of September 30, 1998 by Pensions &
Investments and maintain accounts for 41% of the 1998 "Forbes 400 List of the
Richest Americans".

DISTINCTIVE PEOPLE AND CULTURE

Our most important asset is our people. We seek to reinforce our employees'
commitment to our culture and values through recruiting, training, a
comprehensive 360-degree review system and a compensation philosophy that
rewards teamwork. We were ranked number seven in Fortune magazine's "The 100
Best Companies to Work for in America" in January 1999 and were ranked number
three in Fortune magazine's 1999 "The Top 50 MBA Dream Companies", the
highest-ranked investment banking and securities firm in each case.

GLOBAL REACH

Over the past decade, we have made a significant commitment to building a
worldwide business. We have achieved leading positions in major international
markets by capitalizing on our product knowledge and global research, as well as
by building a local presence where appropriate. In doing so, we have become one
of the few truly global investment banking and securities firms with the ability
to execute large and complex cross-border transactions. We had the number one
market share of 23.2% in cross-border mergers and acquisitions for the period
from January 1, 1994 to December 31, 1998. In addition, in Japan, we were the
largest non-Japanese mutual fund manager as of January 31, 1999, according to
The Investment Trusts Association.

------------------------

SUMMARY FINANCIAL DATA
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenues:
Investment Banking........................................ $2,113 $2,587 $3,368
Trading and Principal Investments......................... 2,693 2,926 2,379
Asset Management and Securities Services.................. 1,323 1,934 2,773
------ ------ ------
Total net revenues.......................................... $6,129 $7,447 $8,520
====== ====== ======
</TABLE>

------------------------

INVESTMENT BANKING

The Firm provides a broad range of investment banking services to a diverse
group of over 3,000 clients worldwide, including corporations, financial
institutions, governments and individuals. Our investment banking activities are
divided into two categories:

- - FINANCIAL ADVISORY. Financial advisory includes advisory assignments with
respect to mergers and acquisitions, divestitures, corporate defense
activities, restructurings and spin-offs; and

64
<PAGE> 102

- - UNDERWRITING. Underwriting includes public offerings and private placements
of equity and debt securities.

The following table sets forth the net revenues of the Firm's Investment
Banking business:

INVESTMENT BANKING NET REVENUES
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Financial advisory.......................................... $ 931 $1,184 $1,774
Underwriting................................................ 1,182 1,403 1,594
------ ------ ------
Total Investment Banking.................................... $2,113 $2,587 $3,368
====== ====== ======
</TABLE>

------------------------

In Investment Banking, we provide our clients with quality advice and
execution as part of our effort to develop and maintain long-term relationships
as their lead investment bank.

ORGANIZATION

We have continuously adapted our organizational structure to meet changing
market dynamics and our clients' needs. Our current structure, which is
organized along regional, execution and industry groups, seeks to combine
client-focused investment bankers with execution and industry expertise. Because
our businesses are global, we have adapted our organization to meet the demands
of our clients in each geographic region. Through our commitment to teamwork, we
believe that we provide services in an integrated fashion for the benefit of our
clients.

We believe an important competitive advantage in our marketing effort is
Investment Banking Services ("IBS"), a core group of professionals who focus on
developing and maintaining strong client relationships. These bankers, who are
organized regionally and/or by industry group, work with senior executives of
our clients to identify areas where Goldman Sachs can provide capital-raising,
financial advisory or other products and services. The broad base of experience
and knowledge of our IBS professionals enables them to analyze our clients'
objectives efficiently and to bring to bear the appropriate resources of the
Firm to satisfy those objectives.

The Firm's Corporate Finance, Debt and Equity Capital Markets, Leveraged
Finance and Mergers and Acquisitions groups bring product expertise and
innovation to clients in a variety of industries. These groups are responsible
for the execution of specific client transactions as well as the building of
strong client relationships.

In an effort to serve our clients' needs in targeted industries, we have
established several industry focus groups. These include: Chemicals;
Communications, Media and Entertainment; Energy and Power; Financial
Institutions; Healthcare; High Technology; Hotels and Gaming; Real Estate;
Retailing; and Transportation. Drawing on specialized knowledge of
industry-specific trends, these groups provide the full range of investment
banking products and services to our clients.

Reflecting our commitment to innovation, Investment Banking has established
a New Products group whose professionals focus on creating new financial
products. These professionals have particular expertise in integrating finance
with accounting, tax and securities laws and work closely with other investment
banking teams to provide innovative solutions to difficult client problems. Our
structuring expertise has proven to be particularly valuable in addressing
client needs in areas such as complex cross-border mergers and acquisitions and
convertible and other hybrid equity financings.

FINANCIAL ADVISORY

Financial advisory includes a broad range of advisory assignments with
respect to mergers and acquisitions, divestitures, corpo-

65
<PAGE> 103
rate defense activities, restructurings and spin-offs. Goldman Sachs is a
leading investment bank in worldwide mergers and acquisitions. During calendar
1998, we advised on 340 mergers and acquisitions transactions with a combined
value of $957 billion.

The Firm's mergers and acquisitions capabilities are evidenced by its
significant share of assignments in large, complex transactions where it
provides multiple services, including "one-stop" acquisition financing, currency
hedging and cross-border structuring expertise. Goldman Sachs advised on seven
of the ten largest mergers and acquisitions transactions through December 31,
1998. We have also been successful in Europe, including in intra-country
transactions, and we are a leading mergers and acquisitions advisor in France,
Germany and Spain.

The following table illustrates the Firm's leadership in the mergers and
acquisitions advisory market for the indicated period taken as a whole:

GOLDMAN SACHS' MERGERS AND ACQUISITIONS MARKET DATA
For the period January 1, 1994 through December 31, 1998
($ in billions)

<TABLE>
<CAPTION>
MARKET NUMBER OF
CATEGORY RANK(1) SHARE VOLUME TRANSACTIONS
-------- ------- ------ ------ ------------
<S> <C> <C> <C> <C>
Worldwide......................................... 1 25.3% $1,715 1,334
Worldwide, transactions over $500 million......... 1 34.8 1,593 470
Worldwide, transactions over $1 billion........... 1 38.4 1,470 297
United States..................................... 1 32.8 1,316 907
United States, transactions over $500 million..... 1 41.3 1,228 339
United States, transactions over $1 billion....... 1 44.3 1,142 221
</TABLE>

- ---------------
(1) Rank in any one year during the period presented may vary from the rank for
the period taken as a whole.
------------------------

Mergers and acquisitions is an example of how one activity can generate
cross-selling opportunities for other areas of the Firm. For example, a client
we are advising in a purchase transaction may seek our assistance in obtaining
financing and in hedging interest rate or foreign currency risks associated with
the acquisition. In the case of dispositions, owners and senior executives of
the acquired company often will seek asset management services. In these cases,
our high net worth relationship managers provide comprehensive advice on
investment alternatives and execute the client's desired strategy.

UNDERWRITING

Since January 1, 1994, Goldman Sachs has served as lead manager in
transactions that have raised more than $900 billion of capital for clients
worldwide. The Firm underwrites a wide range of securities and other
instruments, including common and preferred stock, convertible securities,
investment grade debt, high-yield debt, sovereign and emerging markets debt,
municipal debt, bank loans, asset-backed securities and real estate-related
securities, such as mortgage-backed securities and the securities of real estate
investment trusts.

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<PAGE> 104

EQUITY UNDERWRITING. Equity underwriting has been a long-term core
strength of the Firm. The following table illustrates the Firm's leadership
position in equity underwriting for the indicated period taken as a whole:

GOLDMAN SACHS' EQUITY UNDERWRITING MARKET DATA
For the period January 1, 1994 through December 31, 1998
($ in billions)

<TABLE>
<CAPTION>
TOTAL
MARKET PROCEEDS NUMBER OF
CATEGORY RANK(1) SHARE RAISED ISSUES(2)
-------- ------- ------ -------- ---------
<S> <C> <C> <C> <C>
Worldwide Initial Public Offerings ("IPOs").............. 1 15.2% $ 44 300
Worldwide IPOs, proceeds over $500 million............... 1 23.3 25 59
Worldwide public common stock offerings.................. 1 14.4 101 634
U.S. IPOs................................................ 1 15.3 31 179
U.S. IPOs, proceeds over $500 million.................... 1 30.1 16 29
U.S. public common stock offerings....................... 2 14.3 71 381
</TABLE>

- ---------------
(1) Rank in any one year during the period presented may vary from the rank for
the period taken as a whole.
(2) The number of issues reflects the number of tranches; an offering by a
single issuer could have multiple tranches.

------------------------

As with mergers and acquisitions, we have been particularly successful in
winning mandates for large, complex equity underwritings. As evidenced in the
chart above, our market share of IPOs with total proceeds over $500 million is
substantially higher than our market share of all IPOs. We believe our
leadership in large IPOs reflects our expertise in complex transactions,
research strengths, track record and distribution capabilities. In the
international arena, we have also acted as lead manager on many of the largest
IPOs. We were named the Asian Equity House of the Year by International
Financing Review in 1998.

We believe that a key factor in our equity underwriting success is the
close working relationship between the investment bankers, research analysts and
sales force as coordinated by our Equity Capital Markets group. Goldman Sachs'
equities sales force is one of the most experienced and effective sales
organizations in the industry. With 350 institutional sales professionals and
420 high net worth relationship managers located in every major market around
the world, Goldman Sachs has relationships with a large and diverse group of
investors.

Global Investment Research is critical to our ability to succeed in the
equity underwriting business. We believe that high quality equity research is a
significant competitive advantage in the market for new equity issues. In this
regard, Goldman Sachs' research has been consistently ranked among the
industry's global leaders. See "-- Global Investment Research" for detailed
information regarding our Global Investment Research Department.

DEBT UNDERWRITING. We engage in the underwriting and origination of
various types of debt instruments that we broadly categorize as follows:
investment grade debt for corporations, governments, municipalities and
agencies; leveraged finance, which includes high-yield debt and bank loans for
non-investment grade issuers; emerging market debt, which includes corporate and
sovereign issues; and asset-backed securities. We have employed a focused
approach in debt underwriting, emphasizing high value-added areas in servicing
our clients.

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<PAGE> 105

We believe that the leveraged finance market is a key growth opportunity
for our debt underwriting business. Over the last three years, we have more than
doubled the number of debt underwriting professionals dedicated to this area.

The table below sets forth our rank, market position, our total proceeds
raised and the number of debt transactions in which we have acted as underwriter
in the following areas for the indicated period taken as a whole:

GOLDMAN SACHS' DEBT UNDERWRITING MARKET DATA
For the period January 1, 1994 through December 31, 1998
($ in billions)

<TABLE>
<CAPTION>
TOTAL
MARKET PROCEEDS NUMBER OF
CATEGORY(1) RANK(5) SHARE RAISED ISSUES(6)
----------- ------- ------ -------- ---------
<S> <C> <C> <C> <C>
Worldwide debt(2).................................. 3 8.4% $695 4,684
Worldwide straight debt(3)......................... 3 8.9 559 4,165
U.S. investment grade straight debt(3)............. 3 12.0 419 3,590
U.S. investment grade industrial straight
debt(3).......................................... 1 19.5 81 517
U.S. high-yield debt(4)............................ 5 8.0 33 184
</TABLE>

- ---------------
(1) All categories include publicly registered and Rule 144A issues.
(2) Includes non-convertible preferred stock, mortgage-backed securities,
asset-backed securities and taxable municipal debt.
(3) "Straight debt" excludes non-convertible preferred stock, mortgage-backed
securities, asset-backed securities and municipal debt.
(4) Excludes issues with both investment grade and non-investment grade ratings,
often referred to as "split-rated issues".
(5) Rank in any one year during the period presented may vary from the rank for
the period taken as a whole.
(6) The number of issues reflects the number of tranches; an offering by a
single issuer could have multiple tranches.

------------------------

TRADING AND PRINCIPAL INVESTMENTS

The Firm's Trading and Principal Investments business facilitates customer
transactions and takes proprietary positions through market making in and
trading of fixed income and equity products, currencies, commodities, and swaps
and other derivatives. In order to meet the needs of our clients, our Trading
and Principal Investments business is diversified across a wide range of
products. For example, we make markets in traditional investment grade debt
securities, structure complex derivatives and securitize mortgages and insurance
risk. A fundamental tenet of our approach is that we believe our willingness and
ability to take risk distinguishes us and substantially enhances our client
relationships. Our Trading and Principal Investments business includes the
following:

- - FIXED INCOME, CURRENCY AND COMMODITIES. The Firm makes markets in and trades
fixed income products, currencies and commodities, structures and enters into
a wide variety of derivative transactions and engages in proprietary trading
and arbitrage activities;

- - PRINCIPAL INVESTMENTS. Principal investments primarily represents the Firm's
net revenues from its investments in its merchant banking funds.

68
<PAGE> 106

The following table sets forth the net revenues of the Firm's Trading and
Principal Investments business:

TRADING AND PRINCIPAL INVESTMENTS NET REVENUES
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
FICC........................................................ $1,749 $2,055 $1,438
Equities.................................................... 730 573 795
Principal investments....................................... 214 298 146
------ ------ ------
Total Trading and Principal Investments..................... $2,693 $2,926 $2,379
====== ====== ======
</TABLE>

------------------------

FIXED INCOME, CURRENCY AND COMMODITIES

FICC is a large and diversified operation through which we engage in a
variety of customer-driven market making and proprietary trading and arbitrage
activities. FICC's principal products are:

- - Bank loans
- - Commodities
- - Currencies
- - Derivatives
- - Emerging market debt
- - Global government securities
- - High-yield securities
- - Investment grade corporate securities
- - Money market instruments
- - Mortgage securities and loans
- - Municipal securities

We generate trading net revenues from our customer-driven business in three
ways. First, in large, highly liquid markets we undertake a high volume of
transactions for modest spreads. Second, by capitalizing on our strong market
relationships and capital position, we also undertake transactions in less
liquid markets where spreads are generally larger. Finally, we generate net
revenues from structuring and executing transactions that address complex client
needs.

In our proprietary activities, we assume a variety of risks and devote
substantial resources to identify, analyze and benefit from these exposures. We
leverage our strong research capabilities and capitalize on our proprietary
analytical models to analyze information and make informed trading judgments. We
seek to benefit from perceived disparities in the value of assets in the trading
markets and from macroeconomic and company-specific trends.

FICC has established itself as a leading market participant by using a
three-part approach to deliver high quality service to its clients. First, we
offer broad market making, research and market knowledge to our clients on a
global basis. Second, we create innovative solutions to complex client problems
by drawing upon our structuring and trading expertise. Third, we use our
expertise to take positions in markets when we believe the return is at least
commensurate with the risk.

A core activity in FICC is market making in a broad array of securities and
products. For example, we are a primary dealer in many of the largest government
bond markets around the world, including the United States, Japan, the United
Kingdom and Canada; we are a member of the major futures exchanges; and we have
interbank dealer status in the currency markets in New York, London, Tokyo and
Hong Kong. The Firm's willingness to make markets in a broad range of fixed
income, currency and commodity products and their derivatives is crucial both to
the Firm's client relationships and to support its underwriting business by
providing secondary market liquidity. Our clients value counterparties that are
active in the marketplace and are willing to provide liquidity and
research-based points of view. In addition, we believe that our significant
investment in research capabilities and proprietary analytical models are
critical to our ability to provide advice to our clients.

69
<PAGE> 107

Our research capabilities include quantitative and qualitative analyses of
global economic, currency and financial market trends, as well as credit
analyses of corporate and sovereign fixed income securities.

Our clients often confront complex problems that require creative
approaches. We assist our clients who seek to hedge or reallocate their risks
and profit from expected price movements. To do this we bring to bear the
ability of our experienced professionals to understand the needs of our clients
and our ability to manage the risks associated with complex solutions to
problems. In recognition of our ability to meet these client needs, we were
ranked by Institutional Investor in February 1999 as the number two derivatives
dealer for the second straight year. In addition, we were named by Euroweek in
January 1999 as the "Best provider of swaps and other derivatives".

EQUITIES

The Firm engages in a variety of market-making, proprietary trading and
arbitrage activities in equity securities and equity-related products (such as
convertible securities and equity derivative instruments) on a global basis.
Goldman Sachs makes markets and positions blocks of stock to facilitate
customers' transactions and to provide liquidity in the marketplace. The Firm is
a member of most of the major stock exchanges, including New York, London,
Frankfurt, Tokyo and Hong Kong.

As agent, the Firm executes brokerage transactions in equity securities for
institutional and individual customers that generate commission revenues.
Commissions earned on agency transactions are recorded in Asset Management and
Securities Services.

In equity trading, as in FICC, the Firm generates net revenues from our
customer-driven business in three ways. First, in large, highly liquid principal
markets, such as the OTC market for equity securities, we undertake a high
volume of transactions for modest spreads. In the Nasdaq National Market, we
were the second largest market maker by aggregate volume in the top 100 most
actively traded stocks in calendar 1998. Second, by capitalizing on our strong
market relationships and capital position, we also undertake large transactions,
such as block trades and positions in securities, in which we benefit from
spreads that are generally larger. Finally, the Firm also benefits from
structuring complex transactions.

Goldman Sachs was a pioneer and is a leader in the execution of large block
trades (trades of 50,000 or more shares) in the United States and abroad. In
calendar 1998, we executed over 50 block trades of at least $100 million each.
The Firm has been able to capitalize on its expertise in block trading, its
global distribution network and its willingness to commit capital to effect
increasingly large and complex customer transactions. We expect corporate
consolidation and restructuring and increased demand for certainty and speed of
execution by sellers and issuers of securities to increase both the frequency
and size of sales of large blocks of equity securities. We believe that we are
well positioned to benefit from this trend. Block transactions, however, expose
the Firm to increased risks, including those arising from holding large and
concentrated positions and decreasing spreads. See "Risk Factors -- Market
Fluctuations Could Adversely Affect Our Businesses in Many Ways -- Concentration
of Risk" for a discussion of the risks associated with holding a large position
in a single issuer and "-- The Financial Services Industry Is Intensely
Competitive and Rapidly Consolidating" for a discussion of the competitive risks
that we face.

The Firm is active in the listed options and futures markets and
structures, distributes and executes OTC derivatives on market indices, industry
groups and individual company stocks to facilitate customer transactions and its
proprietary activities. We develop quantitative strategies and render advice
with respect to portfolio hedging and restructuring and asset allocation
transactions. The Firm also creates specially tailored instruments to enable
sophisticated investors to undertake hedging strategies and establish or
liquidate investment positions. The Firm is one of the leading participants in
the trading and development of equity derivative instruments. The Firm is an
active participant in the trading of
70
<PAGE> 108

futures and options on most of the major exchanges in the United States, Europe
and Asia.

Equity arbitrage has long been an important part of our equity franchise.
Our strategy is based on making investments on a global basis through a
diversified portfolio across different markets and event categories. This
business focuses on event-oriented special situations where the Firm is not
acting as an advisor and relative value trades. These special situations include
mergers and acquisitions, corporate restructurings, recapitalizations and legal
and regulatory events. Equity arbitrage leverages the Firm's global
infrastructure and network of research analysts to analyze carefully a broad
range of trading and investment strategies across a wide variety of markets.
Investment decisions are the product of rigorous fundamental, situational and,
frequently, regulatory and legal analysis. Although market conditions led us to
decrease the number and size of positions maintained by our equity arbitrage
business during 1998, we believe that over time, as opportunities present
themselves, our equity arbitrage business will likely increase its activity.

TRADING RISK MANAGEMENT

We believe that our trading and market-making capabilities are key
ingredients to our success. While these businesses have generally earned
attractive returns, we have in the past incurred significant trading losses in
periods of market turbulence such as in 1994 and 1998. Our trading risk
management process seeks to balance our ability to profit from trading positions
with our exposure to potential losses. Risk management includes input from all
levels of the Firm, from the trading desks to the Firmwide Risk Committee. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Management" for a further discussion of our risk management
policies and procedures.

1998 EXPERIENCE. From mid-August to mid-October 1998, the Russian economic
crisis, the turmoil in Asian and Latin American emerging markets and the
resulting "flight to quality" by many investors led to substantial declines in
global financial markets. Investors broadly sold credit-sensitive products, such
as corporate and high-yield debt, and bought higher-rated instruments, such as
U.S. Treasury securities, which caused credit spreads to widen dramatically.
This market turmoil also caused a widespread decline in global equity markets.

As a major dealer in fixed income securities, we maintain substantial
inventories of corporate and high-yield debt. In the second half of 1998, we
sought to hedge the interest rate risk on these positions through short
positions in U.S. Treasury securities. As a result, we suffered losses from both
the decline in the prices of corporate and high-yield debt instruments that we
owned and the increase in the prices of the U.S. Treasury securities in which we
had short positions.

These market shocks also led to trading losses in our fixed income relative
value trading positions. Relative value trading positions are intended to profit
from a perceived temporary dislocation in the relationship between the values of
different financial instruments. From mid-August to mid-October 1998, the
components of these relative value positions moved in directions that we did not
anticipate and the volatilities of certain positions increased to three times
prior levels. When we and other market participants with similar positions
simultaneously sought to reduce positions and exposures, this caused a
substantial reduction in market liquidity and a continuing decline in prices.

In the second half of 1998, we also experienced losses in equity arbitrage
and in the value of certain merchant banking investments.

RISK REDUCTION. Over the course of this period, we actively reduced our
positions and exposure to severe market disruptions of the type described above.
Our current scenario models estimate our exposure to a substantial widening in
credit spreads and adverse movements in relative value trades of the type
experienced in mid-August to mid-October 1998. These models indicate that, as of
November 1998, our exposure to a potential reduction in net trading revenues as
a result

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of these events was over 40% lower than in August 1998. In addition, the daily
VaR of substantially all of our trading positions declined from $47 million as
of May 29, 1998 to $43 million as of November 1998. The November 1998 daily VaR
reflects the reduction in positions discussed above, offset by the higher market
volatility, changes in correlation and other market conditions experienced in
the second half of 1998. If the daily VaR as of November 1998 had been
determined using the volatility and correlation data as of May 29, 1998, the
daily VaR would have been $31 million. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Risk Management" for a
discussion of VaR and its limitations.

As part of the continuous effort to refine our risk management policies and
procedures, we have recently made a number of adjustments to the way that we
evaluate risk and set risk limits. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Management -- Market Risk"
for a further discussion of our policies and procedures for evaluating market
risk and setting related limits.

Notwithstanding these actions, the Firm continues to hold trading positions
that are substantial in both number and size, and is subject to significant
market risk. In addition, management may choose to increase the Firm's risk
levels in the future. See "Risk Factors -- Market Fluctuations Could Adversely
Affect Our Businesses in Many Ways" and "-- Our Risk Management Policies and
Procedures May Leave Us Exposed to Unidentified or Unanticipated Risk" for a
discussion of the risks associated with the Firm's trading positions.

PRINCIPAL INVESTMENTS

In connection with its merchant banking activities, the Firm invests with
its clients by making principal investments in funds that it raises and manages.
As of November 1998, the Firm had committed $2.8 billion, of which $1.7 billion
had been funded, of the $15.5 billion total equity capital committed for its
merchant banking funds. The funds' investments generate capital appreciation or
depreciation and, upon disposition, realized gains or losses. See "-- Asset
Management and Securities Services -- Merchant Banking" for a discussion of our
merchant banking funds. As of November 1998, the Firm's aggregate carrying value
of its principal investments held directly or through its merchant banking funds
was approximately $1.4 billion, which was comprised of corporate principal
investments with an aggregate carrying value of approximately $609 million and
real estate investments with an aggregate carrying value of approximately $753
million.

ASSET MANAGEMENT AND SECURITIES SERVICES

Asset Management and Securities Services is comprised of the following:

- - ASSET MANAGEMENT. Asset management generates management fees by providing
investment advisory services to a diverse and rapidly growing client base of
institutions and individuals;

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The following table sets forth the net revenues of the Firm's Asset
Management and Securities Services business:

ASSET MANAGEMENT AND SECURITIES SERVICES NET REVENUES
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Asset management............................................ $ 242 $ 458 $ 675
Securities services......................................... 354 487 730
Commissions................................................. 727 989 1,368
------ ------ ------
Total Asset Management and Securities Services.............. $1,323 $1,934 $2,773
====== ====== ======
</TABLE>

------------------------

ASSET MANAGEMENT

The Firm is seeking to build a premier global asset management business. We
offer a broad array of investment strategies and advice across all major asset
classes: global equity, fixed income (including money markets), currency and
alternative investment products (i.e., investment vehicles with non-traditional
investment objectives and/or strategies). Assets under supervision are comprised
of assets under management and other client assets. Assets under management
typically generate fees based on a percentage of their value and include our
mutual funds, separate accounts managed for institutional and individual
investors, our merchant banking funds and other alternative investment funds.
Other client assets are comprised of assets in brokerage accounts of primarily
high net worth individuals, on which we earn commissions.

Over the last five years, the Firm has rapidly grown its assets under
supervision, as set forth in the graph below:

ASSETS UNDER SUPERVISION
(in billions)

<TABLE>
<CAPTION>
Assets under
management Other client assets Totals
<S> <C> <C> <C>
'1994' 44 49 $ 93
'1995' 52 58 110
'1996' 94 77 171
'1997' 136 102 238
'1998' 195 142 337
</TABLE>

------------------------

As of November 1998, equities and alternative investments represented 51%
of our total assets under management. Since 1996, these two asset classes have
been the primary drivers of our growth in assets under management. The Firm had
net asset inflows that averaged over $125 million per business day during 1998,
excluding market appreciation. In 1998, approximately 80% of the increase in
assets under management was

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attributable to net asset inflows, with the remaining 20% reflecting market
appreciation.

The following table sets forth the amount of assets under management by
asset class:

ASSETS UNDER MANAGEMENT BY ASSET CLASS
(in billions)

<TABLE>
<CAPTION>
AS OF NOVEMBER
------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ASSET CLASS
Equity.............................................. $ 6 $ 9 $ 34 $ 52 $ 69
Fixed income and currency........................... 17 19 26 36 50
Money markets....................................... 18 20 27 31 46
Alternative investment(1)........................... 3 4 8 17 30
--- ---- ---- ---- ----
Total............................................... $44 $ 52 $ 95 $136 $195
=== ==== ==== ==== ====
</TABLE>

- ---------------
(1) Includes private equity, real estate, quantitative asset allocation and
other funds that are managed by the Firm.

------------------------

Since the beginning of 1996, we have increased the resources devoted to the
asset management business, including adding over 850 employees. In addition,
over the past three years, the Firm has made three asset management acquisitions
in order to expand its geographic reach and broaden its global equity and
alternative investment portfolio management capabilities.

The Firm's global reach has been important in growing assets under
management. From November 1996 to November 1998, our assets under management,
excluding our merchant banking funds, sourced from outside the United States
grew by over $30 billion. As of November 1998, we managed approximately $40
billion sourced from Europe.

In Japan, deregulation, high individual savings rates and low local rates
of return have been important drivers of growth for our asset management
business during the 1990s. Over the last three years, we have built a
significant asset management business in Japan, and, as of January 31, 1999, we
managed $24 billion of assets sourced from Japan. In Japan, as of January 31,
1999, we were the largest non-Japanese investment trust manager, according to
The Investment Trusts Association, and we managed four of the top 15 open-ended
mutual funds ranked by mutual fund assets, according to IFIS Inc. We believe
that substantial opportunities exist to grow our asset management business in
Japan, by increasing our institutional client base and expanding the third-party
distribution network through which we offer our mutual funds.

CLIENTS. Our primary clients are institutions, high net worth individuals
and retail investors. We access clients through both direct and third-party
channels.

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<PAGE> 112

The table below sets forth the amount of assets under supervision by
distribution channel and client category as of November 1998:

ASSETS UNDER SUPERVISION BY DISTRIBUTION CHANNEL
(in billions)

<TABLE>
<CAPTION>
ASSETS UNDER
SUPERVISION(1) PRIMARY INVESTMENT VEHICLES
-------------- ---------------------------
<S> <C> <C>
- - Directly distributed
-- Institutional.............. $ 121 Separate managed accounts
Commingled vehicles

-- High net worth
individuals................ 156 Brokerage accounts
Limited partnerships
Separate managed accounts
- - Third-party distributed
-- Institutional and retail... 48 Mutual funds
------
Total........................... $ 325
======
</TABLE>

- ---------------
(1) Excludes $12 billion in our merchant banking funds.
------------------------

Our institutional clients include corporations, insurance companies,
pension funds, foundations and endowments. We managed assets for three of the
five largest pension pools in the United States as ranked as of September 30,
1998 by Pensions & Investments and we have 17 clients for whom we manage at
least $1 billion each.

In the individual high net worth area, we have established approximately
10,000 high net worth accounts worldwide, including accounts with 41% of the
1998 "Forbes 400 List of the Richest Americans". We believe this is a high
growth opportunity because this market (defined as the market for individual
investors with a net worth in excess of $5 million) is highly fragmented,
growing rapidly and accounts for approximately $10 trillion of investable assets
according to a study by McKinsey & Co. At the center of our effort is a team of
over 420 relationship managers, located in 12 U.S. and six international
offices. These professionals have an average of over seven years of experience
at the Firm and have exhibited low turnover and superior productivity relative
to the industry average.

In the third-party distribution channel, we distribute our mutual funds on
a worldwide basis through banks, brokerage firms, insurance companies and other
financial intermediaries. As of December 31, 1998, we were the third largest
manager in the U.S. institutional money market sector according to information
compiled by Strategic Insight. In Japan, we also utilize a third-party
distribution network consisting principally of the largest Japanese brokerage
firms.

MERCHANT BANKING

The Firm has an established successful record in the corporate and real
estate merchant banking business, having raised $15.5 billion of committed
capital for 15 private investment funds, as of November 1998, of which $9.0
billion had been funded. The Firm has committed $2.8 billion and funded $1.7
billion of these amounts; clients of the Firm, including pension plans,
endowments, charitable institutions and high net worth individuals, have
provided the remainder. Some of these investment funds pursue, on a global
basis, long-term investments in equity and debt securities in privately
negotiated transactions, leveraged buyouts and acquisitions. As of November
1998, these funds had total committed capital of $7.7 billion, which includes
two funds with $1.0 billion of committed capital that are in the process of

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being wound down. Other funds, with total committed capital of $7.8 billion as
of November 1998, invest in real estate operating companies and debt and equity
interests in real estate assets.

Our strategy with respect to each merchant banking fund is to invest
opportunistically to build a portfolio of investments that is diversified by
industry, product type, geographic region and transaction structure and type.
Our merchant banking funds leverage the Firm's long-standing relationships with
companies, investors, entrepreneurs and financial intermediaries around the
world to source potential investment opportunities. In addition, our merchant
banking funds and their portfolio companies have generated business for other
areas of the Firm, including equity underwriting, leveraged and other financing
fees and merger advisory fees.

Located in eight offices around the world, our investment professionals
identify, manage and sell investments on behalf of our merchant banking funds.
The Firm has two subsidiaries that manage real estate assets, Archon and Archon
France. In addition, our merchant banking professionals work closely with other
areas of the Firm and benefit from the expertise of specialists in debt and
equity research, investment banking, leveraged and mortgage finance and equity
capital markets.

Merchant banking activities generate three revenue streams. First, the Firm
receives a management fee that is generally a percentage of a fund's committed
capital, invested capital, total gross acquisition cost or asset value. These
annual management fees, which are included in our asset management revenues,
have historically been a recurring source of revenue. Second, the Firm receives
from each fund, after that fund has achieved a minimum return for fund
investors, an increased share of the fund's income and gains ("override") which
is a percentage, typically 20%, of the capital appreciation and gains from the
fund's investments. Revenues from overrides are included in commissions. Third,
the Firm, as a substantial investor in these funds, is allocated its
proportionate share of the funds' unrealized appreciation or depreciation
arising from changes in fair value as well as gains and losses upon realization.
These items are included in Trading and Principal Investments.

SECURITIES SERVICES

Securities services consists predominantly of Global Securities Services,
which provides prime brokerage, financing services and securities lending to a
diversified U.S. and international customer base, including hedge funds, pension
funds and high net worth individuals. Securities services also includes the
Firm's matched book businesses.

We offer prime brokerage services to our clients, allowing them the
flexibility to trade with most brokers while maintaining a single source for
financing and portfolio reports. Our prime brokerage activities provide
multi-product clearing and custody in 50 markets, consolidated multi-currency
accounting and reporting and offshore fund administration and servicing for our
most active clients. Additionally, we provide financing to our clients through
margin loans collateralized by securities held in the client's account. In
recent years, the Firm has significantly increased its prime brokerage client
base.

Securities lending activities principally involve the borrowing and lending
of equity securities to cover customer and Firm short sales and to finance the
Firm's long positions. In addition, we are an active participant in the
securities lending broker-to-broker business and the third-party agency lending
business. Trading desks in New York, Boston, London, Tokyo and Hong Kong provide
24-hour coverage in equity markets worldwide. We believe the rapidly developing
international stock lending market presents a significant growth opportunity for
us.

Lenders of securities include pension plan sponsors, mutual funds,
insurance companies, investment advisors, endowments, bank trust departments and
individuals. We have entered into exclusive relationships with certain lenders
that have given us access to large pools of securities, certain of which are
often hard to locate in the general lender market, thereby providing us with a
competitive advantage. The Firm believes that a significant cause of the growth
in short sales,

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which require the borrowing of securities, has been the rapid increase in
complex trading strategies such as index arbitrage, convertible bond and warrant
arbitrage, option strategies, and sector and market neutral strategies where
shares are sold short to hedge exposure from derivative instruments.

COMMISSIONS

The Firm generates commissions by executing agency transactions on major
stock and futures exchanges worldwide. The Firm effects agency transactions for
clients located throughout the world. In recent years, aggregate commissions
have increased as a result of growth in transaction volume on the major
exchanges. As discussed above, commissions also include overrides from merchant
banking funds and commissions earned from brokerage transactions for high net
worth individuals. For a discussion regarding overrides, see "-- Merchant
Banking" above, and for a discussion regarding high net worth individuals, see
"-- Asset Management -- Clients" above.

In anticipation of continued growth in electronic connectivity and online
trading, the Firm has made strategic investments in alternative trading systems
to gain experience and participate in the development of this market. See "Risk
Factors -- The Financial Services Industry Is Intensely Competitive and Rapidly
Consolidating -- Competition from Alternative Trading Systems" for a discussion
of the competitive risks posed by these alternative trading systems.

GLOBAL INVESTMENT RESEARCH

The Global Investment Research Department provides fundamental research on
economies, debt and equity markets, commodities markets, industries and
companies on a worldwide basis. For over two decades, the Firm has committed the
resources on a global scale to develop an industry-leading position for its
investment research products. We believe that investment research is a
significant factor in the Firm's strong competitive position in debt and equity
underwritings and in its generation of commission revenues.

Major investors worldwide recognize the Firm for its value-added research
products, which are highly rated in client polls across the Americas, Europe and
Asia. The Firm's Research Department is the only one to rank in the top three in
each of the last 15 calendar years in Institutional Investor's "All-America
Research Team" survey. In December 1998, the Research Department also achieved
top honors for global investment research from Institutional Investor. In
Europe, based on the Institutional Investor "1999 All-Europe Research Team"
survey, the Research Department ranked number one for coverage of pan-European
sectors and number three in European Strategy and Economics.

Global Investment Research employs a team approach that provides equity
research coverage of approximately 2,300 companies worldwide, 53 economies and
26 stock markets. This is accomplished through four groups:

- - the Economic Research group, which formulates macroeconomic forecasts for
economic activity, foreign exchange, and interest rates based on the globally
coordinated views of its regional economists;

- - the Portfolio Strategy group, which forecasts equity market returns and
provides recommendations on both asset allocation and industry representation;

- - the Company/Industry group, which provides fundamental analysis, forecasts and
investment recommendations for companies and industries worldwide. Equity
research analysts are organized regionally by sector and globally into more
than 20 industry teams, which allows for extensive collaboration and knowledge
sharing on important investment themes; and

- - the Commodities Research group, which provides research on the global
commodity markets.

INFORMATION TECHNOLOGY

Technology is fundamental to our overall business strategy. The Firm is
committed to the ongoing development, maintenance and use of technology
throughout the organization, with expenditures, including employee

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costs, of approximately $970 million in 1998 and a budget of $1.2 billion in
1999. The Firm has developed significant software and systems over the past
several years. Our technology initiatives can be broadly categorized into three
efforts:

- - enhancing client service through increased connectivity and the provision of
high value-added, tailored services;

- - risk management; and

- - overall efficiency and control.

We have tailored our services to our clients by providing them with
electronic access to our products and services. For example, we developed the GS
Financial Workbench(SM), an Internet web site that clients and employees can use
to download research reports, access earnings and valuation models, submit
trades, monitor accounts, build and view presentations, calculate derivative
prices and view market data. First made available in early 1995, the GS
Financial Workbench(SM) represents a joint effort among all of our business
areas to create one comprehensive site for clients and employees to access the
Firm's products and services.

We have also developed software that enables us to monitor and analyze our
market and credit risks. This risk management software not only analyzes market
risk on Firmwide, divisional and trading desk levels, but also breaks down the
Firm's risk into its underlying exposures, thereby permitting management to
evaluate exposures on the basis of specific interest rate, currency rate, equity
price or commodity price changes. To assist further in the management of the
Firm's credit exposures, data from many sources are aggregated daily into credit
management systems that give senior management and professionals in the Credit
and Controllers Departments the ability to receive timely information with
respect to credit exposures worldwide, including netting information, and the
ability to analyze complex risk situations effectively. Our software accesses
these data, allows for quick analysis at the level of individual trades and
interacts with other systems in the Firm.

Technology has been a significant factor in improving the overall
efficiency of many areas of the Firm. By automating many trading procedures, we
have substantially increased our efficiency and accuracy.

The Firm currently has projects under way to ensure that the Firm's
technology is Year 2000 compliant. See "Risk Factors -- Firm and Third-Party
Computer Systems May Not Achieve Year 2000 Readiness -- Year 2000 Readiness
Disclosure" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Risk Management -- Operational and Year 2000
Risks -- Year 2000 Readiness Disclosure" for a further discussion of the risks
we face in achieving Year 2000 readiness and our progress to date.

EMPLOYEES

Management believes that one of the strengths and principal reasons for the
success of Goldman Sachs is the quality and dedication of its people and the
shared sense of being part of a team. The Firm was ranked number seven in
Fortune magazine's "The 100 Best Companies to Work for in America" in January
1999 and was ranked number three in Fortune magazine's 1999 "The Top 50 MBA
Dream Companies", the highest ranking investment banking and securities firm in
each case. The Firm strives to maintain a work environment that fosters
professionalism, excellence, diversity and cooperation among its employees
worldwide.

Instilling the Goldman Sachs culture in all employees is a continuous
process, of which training is an essential part. The Firm recently opened a
34,000 square foot training center in New York City, near its world
headquarters. All employees are offered the opportunity to participate in
Firm-sponsored education and periodic seminars that are held at various
locations throughout the world. The Firm also sponsors off-site meetings for the
various business units that are designed to promote collaboration among
co-workers.

Another important part of instilling the Goldman Sachs culture in all
employees is the Firm's employee review process. Employees are reviewed by
supervisors, co-workers and

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employees they supervise in a 360-degree review process that is integral to the
Firm's team approach. In 1998, over 140,000 reviews were completed, evidencing
the comprehensive nature of this process.

The Firm also believes that good citizenship is an important part of being
a member of the Goldman Sachs team. To that end, the Firm established its
Community TeamWorks initiative in 1997. As part of Community TeamWorks, all
employees are offered the opportunity to spend a day working at a charitable
organization of their choice while continuing to receive their full salary for
that day. In 1998, approximately two-thirds of the Firm's employees participated
in Community TeamWorks. The commitment of the Firm's partners to the community
is also demonstrated by their having given over $90 million in each of the last
two years to charities, including private foundations.

As of November 1998, we had approximately 13,000 employees. In addition,
Archon and Archon France, subsidiaries of the Firm that provide real estate
services for the Firm's real estate investment funds, had approximately 1,000
and 170 employees, respectively, as of November 1998. The Firm is reimbursed for
substantially all of the costs of these employees by these funds.

See "Management -- The Employee IPO Awards" for a discussion of the steps
taken by the Firm to encourage the continued service of its employees after the
Common Stock Offering and see "Risk Factors -- Our Conversion to Corporate Form
May Adversely Affect Our Ability to Recruit, Retain and Motivate Key Employees"
for a discussion of the factors that may have an adverse impact on the
effectiveness of these efforts.

COMPETITION

The financial services industry -- and all of our businesses -- are
intensely competitive, and we expect them to remain so. Our competitors are
other brokers and dealers, investment banking firms, insurance companies,
investment advisors, mutual funds, hedge funds, commercial banks and merchant
banks. We compete with some of our competitors globally and with some others on
a regional, product or niche basis. We compete on the basis of a number of
factors, including transaction execution, our products and services, innovation,
reputation and price.

Competition is also intense for the attraction and retention of qualified
employees. Our ability to continue to compete effectively in our businesses will
depend upon our ability to attract new employees and retain and motivate our
existing employees. See "-- Employees" for a discussion of our efforts in this
regard.

In recent years there has been substantial consolidation and convergence
among companies in the financial services industry. In particular, a number of
large commercial banks, insurance companies and other broad-based financial
services firms have established or acquired broker-dealers or have merged with
other financial institutions. Many of these firms have the ability to offer a
wide range of products, from loans, deposit-taking and insurance to brokerage,
asset management and investment banking services, which may enhance their
competitive position. They also have the ability to support investment banking
and securities products with commercial banking, insurance and other financial
services revenues in an effort to gain market share, which could result in
pricing pressure in our businesses.

We believe that some of our most significant challenges and opportunities
will arise outside the United States. See "Industry and Economic Outlook" for a
discussion of these challenges and opportunities. In order to take advantage of
these opportunities, we will have to compete successfully with financial
institutions based in important non-U.S. markets, particularly in Europe.
Certain of these institutions are larger, better capitalized and
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have a stronger local presence and a longer operating history in these markets.

We have experienced intense price competition in certain businesses in
recent years. For example, equity and debt underwriting discounts have been
under pressure for a number of years and the ability to execute trades
electronically, through the Internet and other alternative trading systems may
increase the pressure on trading commissions. It appears that this trend toward
alternative trading systems will continue and perhaps accelerate. Similarly,
underwriting spreads in Latin American and other privatizations have been
subject to considerable pressure in the last year. We believe that we may
experience pricing pressures in these and other areas in the future as some of
our competitors seek to obtain market share by reducing prices.

See "Risk Factors -- The Financial Services Industry Is Intensely
Competitive and Rapidly Consolidating" for a discussion of the competitive risks
we face in our businesses.

REGULATION

Goldman Sachs' business is, and the securities and commodity futures and
options industries generally are, subject to extensive regulation in the United
States and elsewhere. As a matter of public policy, regulatory bodies in the
United States and the rest of the world are charged with safeguarding the
integrity of the securities and other financial markets and with protecting the
interests of customers participating in those markets, not with protecting the
interests of Goldman Sachs' shareholders or creditors. In the United States, the
SEC is the federal agency responsible for the administration of the federal
securities laws. GS&Co. is registered as a broker-dealer and as an investment
adviser with the SEC and as a broker-dealer in all 50 states and the District of
Columbia. Certain self-regulatory organizations, such as the NYSE, adopt rules
and examine broker-dealers, such as GS&Co. In addition, state securities and
certain other regulators also have regulatory or oversight authority over GS&Co.
Similarly, Goldman Sachs' business is also subject to regulation by various
non-U.S. governmental and regulatory bodies and self-regulatory authorities in
virtually all countries where the Firm has offices.

Broker-dealers are subject to regulations that cover all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure, record-keeping, the financing of customers' purchases and the conduct
of directors, officers and employees. Additional legislation, changes in rules
promulgated by self-regulatory organizations or changes in the interpretation or
enforcement of existing laws and rules, either in the United States or
elsewhere, may directly affect the mode of operation and profitability of
Goldman Sachs.

The U.S. and non-U.S. government agencies and self-regulatory
organizations, as well as state securities commissions in the United States, are
empowered to conduct administrative proceedings that can result in censure,
fine, the issuance of cease-and-desist orders or the suspension or expulsion of
a broker-dealer or its directors, officers or employees. Occasionally, the
Firm's subsidiaries have been subject to investigations and proceedings, and
sanctions have been imposed for infractions of various regulations relating to
the Firm's activities, none of which has had a material adverse effect on
Goldman Sachs or its business.

The commodity futures and options industry in the United States is subject
to regulation under the Commodity Exchange Act, as amended ("CEA"). The CFTC is
the federal agency charged with the administration of the CEA and the
regulations thereunder. GS&Co. is registered with the CFTC as a futures
commission merchant, commodity pool operator and commodity trading advisor.

As a registered broker-dealer and member of various self-regulatory
organizations, GS&Co. is subject to the SEC's Rule 15c3-1 (the "Uniform Net
Capital Rule"). The Uniform Net Capital Rule specifies the minimum level of net
capital a broker-dealer must maintain and also requires that at least a minimum
part of its assets be kept in relatively liquid form. GS&Co. is also subject to
the net capital requirements of the CFTC and various securities and commodity
exchanges.

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See Note 8 to the consolidated financial statements for a discussion of the
Firm's net capital.

The SEC and various self-regulatory organizations impose rules that require
notification when net capital falls below certain predefined criteria, dictate
the ratio of subordinated debt to equity in the regulatory capital composition
of a broker-dealer and constrain the ability of a broker-dealer to expand its
business under certain circumstances. Additionally, the Uniform Net Capital Rule
imposes certain requirements that may have the effect of prohibiting a
broker-dealer from distributing or withdrawing capital and requiring prior
notice to the SEC for certain withdrawals of capital.

In January 1999, the SEC adopted revisions to the Uniform Net Capital Rule
and related regulations that permit the registration of OTC derivatives dealers
as broker-dealers. An OTC derivatives dealer can, upon adoption of a risk
management framework in accordance with the new rules, utilize a capital
requirement based upon proprietary models for estimating market risk exposures.
The Firm has established Goldman Sachs Financial Markets, L.P. and is in the
process of registering this company with the SEC as an OTC derivatives dealer to
conduct in a more capital efficient manner certain OTC derivative businesses now
conducted in other affiliates.

Goldman Sachs is an active participant in the international fixed income
and equity markets. Many of the Firm's affiliates that participate in those
markets are subject to comprehensive regulations that include some form of
capital adequacy rule and other customer protection rules. For example, Goldman
Sachs provides investment services in and from the United Kingdom under a
regulatory regime that is undergoing comprehensive restructuring aimed at
implementing the FSA as the United Kingdom's unified regulator. The relevant
Goldman Sachs entities in London are at present regulated by the SFA in respect
of their investment banking, individual asset management, brokerage and
principal trading activities, and the Investment Management Regulatory
Organization ("IMRO") in respect of their institutional asset management and
fund management activities. Certain of these Goldman Sachs entities are also
regulated by the London Stock Exchange and other U.K. securities and commodities
exchanges of which they are members. It is expected, however, that commencing in
2000 the responsibilities of the SFA and IMRO will be taken over by the FSA. The
investment services that are subject to oversight by U.K. regulators are
regulated in accordance with European Union directives requiring, among other
things, compliance with certain capital adequacy standards, customer protection
requirements and conduct of business rules. These standards, requirements and
rules are similarly implemented, under the same directives, throughout the
European Union and are broadly comparable in scope and purpose to the regulatory
capital and customer protection requirements imposed under the SEC and CFTC
rules. European Union directives also permit local regulation in each
jurisdiction, including those in which the Firm operates, to be more restrictive
than the requirements of such directives and these local requirements can result
in certain competitive disadvantages to the Firm. In addition, the Japanese
Ministry of Finance and the Financial Supervisory Agency in Japan as well as
German, French and Swiss banking authorities, among others, regulate various of
the Firm's subsidiaries and also have capital standards and other requirements
comparable to the rules of the SEC.

Compliance with net capital requirements of these and other regulators
could limit those operations of the Firm's subsidiaries that require the
intensive use of capital, such as underwriting and trading activities and the
financing of customer account balances, and also could restrict the Firm's
ability to withdraw capital from its regulated subsidiaries, which in turn could
limit the Firm's ability to repay debt, including the Notes. See "Risk
Factors -- Legal and Regulatory Risks Are Inherent and Substantial in Our
Businesses" and "-- We Depend on Funds from Our Regulated Subsidiaries" for a
discussion of limitations on our ability to receive funds from regulated
subsidiaries.

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LEGAL MATTERS

We are involved in a number of judicial, regulatory and arbitration
proceedings (including those described below) concerning matters arising in
connection with the conduct of our businesses. We believe, based on currently
available information, that the results of such proceedings, in the aggregate,
will not have a material adverse effect on our financial condition, but might be
material to our operating results for any particular period, depending, in part,
upon the operating results for such period.

MOBILEMEDIA SECURITIES LITIGATION

GS&Co. has been named as a defendant in a purported class action lawsuit
commenced in December 1996 and pending in federal court in New Jersey. This
lawsuit was brought on behalf of purchasers of common stock of MobileMedia
Corporation ("MobileMedia") in an underwritten offering in 1995 and purchasers
of senior subordinated notes of MobileMedia Communications Inc. in a concurrent
underwritten offering. Defendants are MobileMedia, certain of its officers and
directors, and the lead underwriters, including GS&Co. MobileMedia is currently
reorganizing in bankruptcy.

GS&Co. underwrote 2,242,500 shares of common stock, for a total price of
approximately $53 million, and GSI underwrote 718,750 shares, for a total price
of approximately $17 million. GS&Co. underwrote approximately $38 million in
principal amount of the senior subordinated notes.

The consolidated class action complaint alleges violations of the
disclosure requirements of the federal securities laws and seeks compensatory
and/or rescissory damages. In light of MobileMedia's bankruptcy, the action
against it has been stayed. Defendants' motion to dismiss was denied in October
1998.

UNDERWRITERS ANTITRUST LITIGATION

GS&Co. is one of numerous financial services companies that have been named
as defendants in certain purported class actions brought in New York federal
court by purchasers of securities in public offerings, who claim that the
defendants engaged in conspiracies in violation of federal antitrust laws in
connection with these offerings. The plaintiffs in each instance seek treble
damages as well as injunctive relief. One of the actions, which was commenced in
August 1998, alleges that the defendants have conspired to discourage or
restrict the resale of securities for a period after the offerings, including by
imposing "penalty bids". Defendants moved to dismiss the complaint in November
1998. The plaintiffs amended their complaint in February 1999, modifying their
claims in various ways, including limiting the proposed class to retail
purchasers of public offerings. Several other actions, commenced in November and
December 1998, allege that the defendants, many of whom are also named in the
other action discussed above, have conspired to fix at 7% the discount that
underwriting syndicates receive from issuers of shares in certain offerings.

ROCKEFELLER CENTER PROPERTIES, INC. LITIGATION

Several former shareholders of Rockefeller Center Properties, Inc. ("RCPI")
brought purported class actions in the federal and state courts in Delaware
arising from the acquisition of RCPI by an investor group in July 1996. The
defendants in the actions include, among others, GS&Co., Whitehall Real Estate
Partnership V, a fund advised by GS&Co., a GS&Co. Managing Director and other
members of the investor group. The federal court actions, which have since been
consolidated, were filed beginning in November 1996, and the state court action
was filed in June 1998.

The complaints generally allege that the proxy statement disseminated to
former RCPI stockholders in connection with the transaction was deficient, in
violation of the disclosure requirements of the federal securities laws. The
plaintiffs are seeking, among other things, unspecified damages, rescission of
the acquisition, and/or disgorgement.

In a series of decisions, the federal court has granted summary judgment
dismissing all the claims in the federal action. The plaintiffs have appealed
those rulings.

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The state action has been stayed pending disposition of the federal action.

REICHHOLD CHEMICALS LITIGATION

Reichhold Chemicals, Inc. and Reichhold Norway ASA (collectively,
"Reichhold") brought a claim in March 1998 in the Commercial Court in London
against GSI in relation to Reichhold's 1997 purchase of the polymer division of
one of GSI's Norwegian clients, Jotun A/S. Reichhold claims that it overpaid by
$40 million based upon misrepresentations concerning the financial performance
of the polymer division.

In November 1998, the Commercial Court granted GSI's application for a stay
of the action pending the outcome of arbitration proceedings between Reichhold
and Jotun A/S in Norway. The stay order is currently being reviewed by an
appellate court.

MATTERS RELATING TO MUNICIPAL SECURITIES

GS&Co., together with a number of other firms active in the municipal
securities area, has received requests beginning in June 1995 for information
from the SEC and certain other federal and state agencies and authorities with
respect to the pricing of escrow securities sold by GS&Co. to certain municipal
bond issuers in connection with the advanced refunding of municipal securities.
GS&Co. understands that certain municipal bond issuers to which GS&Co. sold
escrow securities have also received such inquiries.

There have been published reports that an action under the Federal False
Claims Act was filed in February 1995 alleging unlawful and undisclosed
overcharges in certain advance refunding transactions by a private plaintiff on
behalf of the United States and that GS&Co., together with a number of other
firms, is a named defendant in that action. The complaint was reportedly filed
under seal while the government determines whether it will pursue the claims
directly.

GS&Co. is also one of many municipal underwriting firms that have been
named as defendants in a purported class action brought in Florida federal court
by the Clerk of Collier County, Florida on behalf of municipal issuers which
purchased escrow securities since October 1986 in connection with advance
refundings. The complaint alleges that the securities were excessively "marked
up" in violation of the Investment Advisers Act and Florida law, and seeks to
recover the difference between the actual and alleged "fair" prices. The
plaintiff has undertaken to file an amended complaint before the defendants
respond.

PROPERTIES

Our principal executive offices are located at 85 Broad Street, New York,
New York, and comprise approximately 969,000 square feet of leased space,
pursuant to a lease agreement expiring in June 2008 (with an option to renew for
up to 20 additional years). We also occupy over 500,000 square feet at each of 1
New York Plaza and 10 Hanover Square in New York, New York, pursuant to lease
agreements expiring in September 2004 (with an option to renew for ten years)
and June 2018, respectively. We also have a 15-year lease for approximately
590,000 square feet at 180 Maiden Lane in New York, New York, that expires in
March 2014. In total, the Firm leases over 3.1 million square feet in the New
York area, having more than doubled its space since November 1996. We have
additional offices in the United States and elsewhere in the Americas. Together,
these offices comprise approximately 560,000 square feet of leased space.

Consistent with the Firm's global approach to its business, we also have
offices in Europe, Asia, Africa and Australia. In Europe, we have offices that
total approximately 685,000 square feet. The Firm's largest presence in Europe
is in London, where we lease approximately 536,000 square feet through various
leases, with the principal one, for Peterborough Court, expiring in 2016. An
additional 396,000 square feet of leased space in London is expected to be
occupied during 2001.

In Asia, we have offices that total approximately 360,000 square feet. Our
largest offices in these regions are in Tokyo and Hong Kong. In Tokyo, we
currently lease approxi-

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mately 175,000 square feet under a lease that expires in June 2005. In Hong
Kong, we currently lease approximately 103,000 square feet under a lease that
expires in May 2000. We recently entered into a new 12-year lease in Hong Kong
for approximately 190,000 square feet. There are also significant expansion
efforts underway in Tokyo and Singapore.

The Firm's space requirements have increased significantly over the last
several years. Currently, the Firm is at or near capacity at most of its
locations. As a result, the Firm has been actively leasing additional space to
support its anticipated growth. Based on the Firm's progress to date, the Firm
believes that it will be able to acquire additional space to meet its
anticipated needs.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is information concerning the persons who will be the
directors and executive officers of the Company as of the date of this
prospectus. The Company anticipates appointing additional directors who are not
employees of the Company or affiliated with management after the date of this
prospectus.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Henry M. Paulson, Jr. 52 Director, Chairman and Chief Executive Officer
Robert J. Hurst 53 Director and Vice Chairman
John A. Thain 43 Director, President and Co-Chief Operating Officer
John L. Thornton 45 Director, President and Co-Chief Operating Officer
John L. Weinberg 74 Director
Robert J. Katz 51 General Counsel
Gregory K. Palm 50 General Counsel
Robin Neustein 45 Chief of Staff
Leslie M. Tortora 42 Chief Information Officer
David A. Viniar 43 Chief Financial Officer
Barry L. Zubrow 46 Chief Administrative Officer
</TABLE>

------------------------

Executive officers are appointed by and serve at the pleasure of the Board
of Directors. A brief biography of each director and executive officer follows.

Mr. Paulson has been Co-Chairman and Chief Executive Officer or Co-Chief
Executive Officer of Group L.P. since June 1998 and served as Chief Operating
Officer from December 1994 to June 1998. From 1990 to November 1994, he was
Co-Head of Investment Banking.

Mr. Hurst has been Vice Chairman of Group L.P. since February 1997 and has
served as Head or Co-Head of Investment Banking since 1990. He is also a
director of VF Corporation and IDB Holding Corporation Ltd.

Mr. Thain has been President of Group L.P. since March 1999 and Co-Chief
Operating Officer since January 1999. From December 1994 to March 1999, he
served as Chief Financial Officer and Head of Operations, Technology and
Finance. From July 1995 to September 1997, he was also Co-Chief Executive
Officer for European Operations. In 1990, Mr. Thain transferred from FICC to
Operations, Technology and Finance to assume responsibility for Controllers and
Treasury. From 1985 to 1990, Mr. Thain was in FICC where he established and
served as Co-Head of the Mortgage Securities Department. Mr. Thain is a director
of The Depository Trust Company.

Mr. Thornton has been President of Group L.P. since March 1999 and Co-Chief
Operating Officer of Group L.P. since January 1999. From August 1998 until
January 1999, he had oversight responsibility for International Operations. From
September 1996 until August 1998, he was Chairman, Goldman Sachs -- Asia, in
addition to his senior strategic responsibilities in Europe. From July 1995 to
September 1997, he was Co-Chief Executive Officer for European Operations. From
1994 to 1995, he was Co-Head of Investment Banking in Europe and from 1992 to
1994 was Head of European Investment Banking Services. Mr. Thornton is also a
director of the Ford Motor Company, BSkyB PLC, Laura Ashley PLC and the Pacific
Century Group.

Mr. Weinberg has been Senior Chairman of Group L.P. since 1990. From 1984
to 1990, he was Senior Partner and Chairman and, from 1976 to 1984, he served
both as Senior Partner and Co-Chairman. Mr. Weinberg is a director of
Knight-Ridder, Inc., Providian Financial Corp. and Tricon Global Restaurants,
Inc.
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<PAGE> 123

Mr. Katz has been General Counsel of Group L.P. since 1988. From 1980 to
1988, Mr. Katz was a partner in Sullivan & Cromwell.

Mr. Palm has been General Counsel of Group L.P. since 1992. He also has
senior oversight responsibility for Compliance and Management Controls, and is
Co-Chairman of the Global Compliance and Control Committee. From 1982 to 1992,
Mr. Palm was a partner in Sullivan & Cromwell.

Ms. Neustein has been Chief of Staff to the senior partners of Group L.P.
since 1992. From 1991 to 1992, Ms. Neustein managed strategic projects for the
senior partners. Prior to then, she was in Investment Banking.

Ms. Tortora has been Chief Information Officer of Group L.P. and the Head
of Information Technology since March 1999. She has headed the Firm's global
technology efforts since 1994.

Mr. Viniar has been Chief Financial Officer of Group L.P. and Co-Head of
Operations, Finance and Resources since March 1999. From July 1998 until then,
he was the Firm's Deputy Chief Financial Officer and from 1994 until then, he
was Head of Finance, with responsibility for Controllers and Treasury. From 1992
to 1994, Mr. Viniar was Head of Treasury and immediately prior to then was in
the Structured Finance Department of Investment Banking.

Mr. Zubrow has been Chief Administrative Officer of Group L.P. and Co-Head
of Operations, Finance and Resources since March 1999. From 1994 until then he
was the Firm's chief credit officer and Head of the Credit Department. From 1992
to 1994, Mr. Zubrow was Head of the Midwest Group in the Corporate Finance
Department of Investment Banking.

In addition, Mr. Corzine, 52, currently is a Director and Co-Chairman of
the Company, but will resign both positions immediately prior to the date of the
Common Stock Offering. Mr. Corzine has been Co-Chairman of Group L.P. since June
1998 and served as Chairman and Chief Executive Officer of Group L.P. from
December 1994 to June 1998 and Co-Chief Executive Officer from June 1998 to
January 1999. Mr. Corzine is a member of the NASD's Board of Governors.

There are no family relationships between any of the executive officers or
directors of the Company.

THE MANAGEMENT AND PARTNERSHIP
COMMITTEES

In January 1999, the Management and Partnership Committees were constituted
as part of the Firm's overall governance structure. The Management Committee,
which is chaired by Mr. Paulson, has responsibility for policy, strategy and
management of the Firm's businesses. In addition to Messrs. Paulson, Thain,
Thornton and Hurst, Ms. Neustein and Ms. Tortora, the members of this Committee
and their principal positions within the Firm are: Lloyd C. Blankfein (Co-Head,
FICC), Richard A. Friedman (Co-Head, Merchant Banking), Steven "Mac" M. Heller
(Co-Chief Operating Officer, Investment Banking), Robert S. Kaplan (Co-Chief
Operating Officer, Investment Banking), John P. McNulty (Co-Head, Asset
Management), Michael P. Mortara (Co-Head, FICC), Daniel M. Neidich (Co-Head,
Merchant Banking), Mark Schwartz (President, Goldman Sachs -- Japan), Robert K.
Steel (Co-Head, Equities), and Patrick J. Ward (Co-Head, Equities and Deputy
Chairman -- Europe). Mr. Katz is counsel to the Management Committee.

The Partnership Committee, which is chaired by Messrs. Thain and Thornton,
oversees personnel development and career management issues. It focuses on such
matters as recruiting, training, performance evaluation, diversity, mobility and
succession planning and, together with the Management Committee, is expected to
become integral in the process of selecting and compensating Managing Directors.
In addition to Messrs. Thain and Thornton and Ms. Neustein, the members of this
Committee and their principal positions within the Firm are: David W. Blood
(Head, Asset Management -- Europe), Gary D. Cohn (Head, FICC Commodities and
Emerging Markets), W. Mark Evans (Co-Head, Investment Research),
Jacob D. Goldfield (Head, FICC -- Europe),

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<PAGE> 124

David B. Heller (Head, Equities Derivatives Trading), Philip D. Murphy
(President, Goldman Sachs -- Asia), Simon M. Robertson (President, Goldman
Sachs -- Europe), Esta E. Stecher (Head, Tax), John S. Weinberg (Co-Head,
Investment Banking Services), Peter A. Weinberg (Co-Chief Operating Officer,
Investment Banking and Deputy Chairman -- Europe), and Jon Winkelried (Head,
Leveraged Finance). Mr. Palm is counsel to the Partnership Committee.

INFORMATION REGARDING THE BOARD OF DIRECTORS

The Company's Amended and Restated Certificate of Incorporation will
provide for a classified Board of Directors consisting of three classes. The
term of the initial Class I directors will terminate on the date of the 2000
annual meeting of shareholders, the term of the initial Class II directors will
terminate on the date of the 2001 annual meeting of shareholders and the term of
the initial Class III directors will terminate on the date of the 2002 annual
meeting of shareholders. Messrs. Thain and Thornton will be members of Class I,
Mr. Weinberg will be a member of Class II and Messrs. Hurst and Paulson will be
members of Class III. Beginning in 2000, at each annual meeting of shareholders,
successors to the class of directors whose term expires at that annual meeting
will be elected for a three-year term and until their respective successors have
been elected and qualified. A director may be removed only for cause by the
affirmative vote of the holders of not less than 80% of the outstanding shares
of capital stock entitled to vote in the election of directors.

It is anticipated that the Board of Directors will meet at least quarterly.
Members of the Board of Directors who are employees of the Company or any of its
subsidiaries will not be compensated for service on the Board of Directors or
any committee thereof.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors will have an Audit Committee, composed of directors
who are not employed by the Company or affiliated with management. The Audit
Committee will review the results and scope of the audit and other services
provided by the Company's independent auditors as well as review the Company's
accounting and control procedures and policies.

The Board of Directors will also have a Compensation Committee. The
Compensation Committee will oversee the compensation and benefits of the
management and employees of the Company and will consist entirely of
non-employee directors.

The Board of Directors may from time to time establish other committees to
facilitate the management of the Company.

EXECUTIVE COMPENSATION

Prior to the Common Stock Offering, our business was carried on in
partnership form. As a result, meaningful individual compensation information
for directors and executive officers of the Company based on operating in
corporate form is not available for periods prior to the Common Stock Offering.

The following table sets forth the annual salaries that the Company intends
to pay the Company's Chief Executive Officer and four of the executive officers
named under "-- Directors and Executive Officers" (the "Named Executive
Officers") during fiscal 1999. The Named Executive Officers will also be
entitled to participate in the Partner Compensation Plan and are eligible to
receive awards under the 1999 Stock Incentive Plan, which are described below.

The amounts payable under the Partner Compensation Plan will be dependent
upon the Company's operating results, and awards under the 1999 Stock Incentive
Plan (other than the awards described under "-- The Employee IPO Awards") will
be determined after the Common Stock Offering. As a result, it is currently not
possible for the Company to estimate the amount of such payments or awards.
However, the amounts payable under the Partner Compensation Plan are expected
substantially to exceed the base salaries indicated. For a discussion of this
Plan, see "-- The Partner Compensation Plan" below. None of the Named Executive
Officers will receive any of the awards described under "-- The Employee IPO
Awards" or initially participate in the DCP.

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<PAGE> 125

SUMMARY SALARY TABLE

<TABLE>
<CAPTION>
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY(1)
--------------------------- ---- ---------
<S> <C> <C>
Henry M. Paulson, Jr.,...................................... 1999 $600,000
Director, Chairman and Chief Executive Officer
Robert J. Hurst,............................................ 1999 600,000
Director and Vice Chairman
John A. Thain,.............................................. 1999 600,000
Director, President and Co-Chief Operating Officer
John L. Thornton,........................................... 1999 600,000
Director, President and Co-Chief Operating Officer
David A. Viniar,............................................ 1999 600,000
Chief Financial Officer
</TABLE>

- ---------------
(1) The actual salary paid to the Named Executive Officers will be a prorated
portion of these amounts for fiscal 1999.

----------------------

Aggregate compensation paid to key employees who are not Named Executive
Officers may exceed that paid to the Named Executive Officers. Each of Messrs.
Paulson, Hurst, Thain, Thornton and Viniar have accrued benefits under The
Goldman, Sachs & Co. Employees' Pension Plan (the "Pension Plan") entitling them
to receive annual benefits upon retirement at age 65 of $10,533, $10,533,
$7,074, $11,801 and $6,906, respectively. These benefits had accrued prior to
November 1992 and none of the Named Executive Officers has earned additional
benefits under the Pension Plan since November 1992.

EMPLOYMENT, NONCOMPETITION AND
PLEDGE AGREEMENTS

The Company is entering into employment agreements ("Employment
Agreements") with each PLP who continues as a Managing Director and pledge
agreements ("Pledge Agreements") and agreements relating to noncompetition and
other matters ("Noncompetition Agreements") with all of the PLPs, whether or not
they retire, including, in both cases, each PLP who is a director or an
executive officer.

The following descriptions of the agreements with the PLPs are not
necessarily complete. You should refer to the exhibits that are a part of the
registration statement for a copy of the form of each agreement. See "Available
Information".

EMPLOYMENT AGREEMENTS

Each Employment Agreement has an initial term extending through November
24, 2000 (thereafter no set term), requires the continuing PLP to devote his or
her entire working time to the business and affairs of the Firm and generally
may be terminated at any time by either the continuing PLP or the Firm on 90
days' prior written notice.

The Firm has entered into similar employment agreements with all other
Managing Directors, except that they have no set term.

NONCOMPETITION AGREEMENTS

Each Noncompetition Agreement provides as follows:

CONFIDENTIALITY. Each PLP is required to protect and use "confidential
information" in accordance with the restrictions placed by the Firm on its use
and disclosure.

NONCOMPETITION. During the period ending 12 months after the date the PLP
ceases to be employed by the Firm, the PLP may not:

- - form, or acquire a 5% or greater ownership, voting or profit participation
interest in, any Competitive Enterprise; or

- - associate with any Competitive Enterprise and in connection with such
association engage in, or directly or indirectly manage or supervise personnel
engaged in, any activity that had a relationship to the PLP's activities at
the Firm.

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<PAGE> 126

"Competitive Enterprise" is any business enterprise that engages in any
activity, or owns a significant interest in any entity that engages in any
activity, that competes with any activity in which the Firm is engaged.

NONSOLICITATION. During the period ending 18 months after the date the PLP
ceases to be employed by the Firm, the PLP may not, directly or indirectly, in
any manner:

- - solicit any client with whom the PLP worked, or whose identity became known to
the PLP in connection with his or her employment with the Firm, to transact
business with a Competitive Enterprise or reduce or refrain from doing any
business with the Firm;

- - interfere with or damage any relationship between the Firm and any client or
prospective client; or

- - solicit any employee of the Firm to apply for, or accept employment with, any
Competitive Enterprise.

TRANSFER OF CLIENT RELATIONSHIPS. Each PLP is required, upon termination
of the PLP's employment, to take all actions and do all things reasonably
requested by the Firm during a 90-day cooperation period to maintain for the
Firm the business, goodwill and business relationships with the Firm's clients
with which the PLP worked.

LIQUIDATED DAMAGES. In the case of any breach of the noncompetition or
nonsolicitation provisions by the PLP prior to the fifth anniversary of the date
of the consummation of the Common Stock Offering (the "IPO Date"), the PLP will
be liable for liquidated damages. The amount of liquidated damages for each PLP
who initially serves on the Board of Directors, the Management Committee or the
Partnership Committee of the Firm is $15 million, and the amount of liquidated
damages for each other PLP is $10 million. These liquidated damages are in
addition to the forfeiture of any future equity-based awards that may occur as a
result of the breach of any noncompetition or nonsolicitation provisions
contained in those awards.

PLEDGE AGREEMENT

The liquidated damage provisions of each Noncompetition Agreement will be
secured by a pledge of stock or other assets with an initial value equal to 100%
of each PLP's liquidated damages amount.

Each Pledge Agreement will terminate on the earliest to occur of:

- - the PLP's death;

- - the expiration of the 24-month period following the termination of the PLP's
employment; or

- - the fifth anniversary of the IPO Date.

NONEXCLUSIVITY AND ARBITRATION

The liquidated damages and pledge arrangements discussed above are not
exclusive of any injunctive relief that the Firm may be entitled to for a breach
of a Noncompetition Agreement and, after the termination of the Pledge
Agreement, the Firm will be entitled to all available remedies for a breach of a
Noncompetition Agreement.

The Employment, Noncompetition and Pledge Agreements generally provide that
any disputes thereunder will be resolved by binding arbitration.

THE EMPLOYEE IPO AWARDS

On the IPO Date, the Company intends to provide equity-based awards to
employees of the Firm and a limited number of consultants and advisors other
than PLPs in one or more of the following forms:

- - substantially all employees will receive a grant of Formula RSUs, with respect
to which up to an aggregate of 31,306,667 shares of Common Stock will be
deliverable;

- - certain senior employees, principally non-PLP Managing Directors, will be
selected to participate in the DCP described below, to which the Company will
make an initial irrevocable contribution of 13,644,204 shares of Common Stock;

- - certain employees will receive a grant of Discretionary RSUs, with respect to
which

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<PAGE> 127

up to an aggregate of 30,604,685 shares of Common Stock will be deliverable;
and

- - certain employees will receive a grant of Discretionary Options, with respect
to which up to an aggregate of 40,000,400 shares of Common Stock will be
deliverable.

The Formula RSUs, the Discretionary RSUs and the Discretionary Options will
be granted under the 1999 Stock Incentive Plan described below. The award of
Formula RSUs and Discretionary RSUs described below will confer only the rights
of a general unsecured creditor of the Firm and no rights as a shareholder of
the Company until the Common Stock underlying such award is delivered. Any
shares of Common Stock acquired by a Managing Director pursuant to the awards
will be subject to the Shareholders' Agreement described in "Certain
Relationships and Related Transactions -- Shareholders' Agreement".

FORMULA AWARDS

The Common Stock underlying the Formula RSUs generally will be deliverable
in equal installments on or about the first, second and third anniversaries of
the IPO Date, although the Common Stock may be deliverable earlier in the event
of certain terminations of employment following a change in control. While no
additional service will be required to obtain delivery of the underlying Common
Stock (i.e., the award is "vested"), delivery of the Common Stock will be
conditioned on the grantee's satisfying certain requirements, including not
being terminated under the circumstances described in the award agreement prior
to delivery of the Common Stock and not violating any Firm policy (including in
respect of confidentiality and hedging) or otherwise acting in a manner
detrimental to the Firm (including violating noncompetition or nonsolicitation
provisions of the award). While the RSUs are outstanding, amounts equal to
regular cash dividends that would be paid on the Common Stock underlying the
Formula RSUs, as if the Common Stock had been actually issued, will be paid in
cash at the same time that the dividends are paid generally to the shareholders.

DISCRETIONARY AWARDS

DISCRETIONARY RSUS. The Discretionary RSUs will vest, and the underlying
Common Stock will be delivered, in equal installments on or about the third,
fourth and fifth anniversaries of the IPO Date if the grantee has satisfied
certain conditions and the grantee's employment with the Firm has not been
terminated, with certain exceptions for terminations of employment due to death,
retirement, extended absence or following a change in control. While the RSUs
are outstanding, amounts equal to regular cash dividends that would be paid on
the Common Stock underlying the Discretionary RSUs, as if the Common Stock had
been actually issued, will be paid in cash at the same time that the dividends
are paid generally to the shareholders.

DISCRETIONARY OPTIONS. The Discretionary Options will be granted with an
exercise price generally equal to the initial public offering price per share in
the Common Stock Offering, although in certain non-U.S. jurisdictions certain
employees may be granted Discretionary Options with a lower exercise price. The
Discretionary Options will generally be exercisable in equal installments
commencing on or about the third, fourth and fifth anniversaries of the IPO Date
if the grantee has satisfied certain conditions and the grantee's employment
with the Firm has not been terminated, with certain exceptions for terminations
of employment due to death, retirement, extended absence or following a change
in control. Discretionary Options will thereafter generally remain exercisable,
subject to satisfaction of certain conditions, until the tenth anniversary of
the IPO Date or, if earlier, upon expiration of a period, as specified in the
award agreement, following termination of employment.

CONTRIBUTION TO DCP. On the IPO Date, GS Inc. will make an initial
irrevocable contribution of 13,644,204 shares of Common Stock to the DCP.
Certain senior employees, principally Managing Directors who are not

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PLPs, will be selected to participate in the DCP. The right to receive shares
will vest, and the underlying Common Stock will be distributed to participants
in the DCP, in equal installments on or about the third, fourth and fifth
anniversaries of the initial contribution if the participant has satisfied
certain conditions and the participant's employment with the Firm has not been
terminated, with certain exceptions for terminations of employment due to death
or following a change in control. Dividends paid on shares allocated to
participants will be distributed currently.

CHANGE IN CONTROL

The Formula RSUs, the Discretionary RSUs, the Discretionary Options and the
DCP provide that (i) if a change in control occurs and (ii) within 18 months
thereafter a grantee's or participant's employment is terminated by the Firm
other than for cause or the grantee or participant terminates employment for
good reason, in each case, as determined by the Firm:

- - the Common Stock underlying any outstanding Formula RSUs will be delivered;

- - any outstanding Discretionary RSUs will vest and the Common Stock underlying
the Discretionary RSUs will be delivered;

- - any outstanding unexercised Discretionary Options will become exercisable and
will be exercisable for a period of one year following such termination of
employment (but in no event later than the tenth anniversary of the IPO Date)
and thereafter terminate; and

- - under the DCP, any unvested portion of the Common Stock attributable to the
initial contribution by the Company to the DCP will vest and be distributed.

"Change in control" means the consummation of a merger, consolidation,
statutory share exchange or similar form of corporate transaction involving GS
Inc. or sale or other disposition of all or substantially all of the assets of
GS Inc. to an entity that is not an affiliate of GS Inc. that, in each case,
requires shareholder approval under the law of GS Inc.'s jurisdiction of
organization, unless immediately following such transaction, either:

- - at least 50% of the total voting power of the surviving entity or its parent
entity is represented by GS Inc.'s securities that were outstanding
immediately prior to the transaction; or

- - at least 50% of the members of the board of directors of the surviving entity,
or its parent entity, if applicable, following the transaction were incumbent
directors (including directors whose election or nomination was approved by
the incumbent directors) at the time of the Board of Directors' approval of
the execution of the initial agreement providing for the transaction.

"Cause" includes, among other things, the grantee's or participant's
conviction of certain misdemeanors or felonies, violation of applicable laws,
and violation of any Firm policy, including policies with respect to hedging and
confidentiality.

"Good reason" means a materially adverse alteration in the grantee's or
participant's position or in the nature or status of the grantee's or
participant's responsibilities from those in effect immediately prior to the
change in control, as determined by the Firm, or certain relocations by the Firm
of a grantee's or participant's principal place of employment.

THE 1999 STOCK INCENTIVE PLAN

The following description of The Goldman Sachs 1999 Stock Incentive Plan
(the "SIP") is not necessarily complete. You should refer to the exhibits that
are a part of the registration statement for a copy of the SIP. See "Available
Information".

TYPES OF AWARDS. The SIP provides for grants of incentive stock options
("ISOs") (within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code")), nonqualified stock options, stock appreciation
rights ("SARs"), dividend equivalent rights, restricted stock, restricted stock
units ("RSUs") and other equity-based awards (collectively, "Awards"). The SIP

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also permits the making of loans to purchase shares of Common Stock.

SHARES SUBJECT TO THE SIP; OTHER LIMITATIONS ON AWARDS. The total number
of shares of Common Stock of the Company that may be issued under the SIP may
not exceed shares. These shares may be authorized but unissued Common
Stock or authorized and issued Common Stock held in the Company's treasury. If
any Award is forfeited or otherwise terminates or is canceled without the
delivery of shares of Common Stock, if shares of Common Stock are surrendered or
withheld from any Award to satisfy a grantee's income tax withholding
obligations or, if shares of Common Stock owned by a grantee are tendered to pay
the exercise price of Awards, then such shares will again become available under
the SIP.

The SIP Committee (as defined below) has the authority to adjust the terms
of any outstanding Awards and the number of shares of Common Stock issuable
under the SIP for any increase or decrease in the number of issued shares of
Common Stock resulting from a stock split, reverse stock split, stock dividend,
spin-off, combination or reclassification of the Common Stock, or any other
event that the SIP Committee determines affects the Firm's capitalization.

ELIGIBILITY. Awards may be made to any director, officer or employee of
the Firm, including any prospective employee, and to any consultant or advisor
to the Firm selected by the SIP Committee.

ADMINISTRATION. The SIP will be administered by the Board of Directors or
a committee appointed by the Board of Directors (the "SIP Committee").

The SIP Committee will have the authority to construe, interpret and
implement the SIP, and prescribe, amend and rescind rules and regulations
relating to the SIP. The determination of the SIP Committee on all matters
relating to the SIP or any Award agreement will be final and binding.

STOCK OPTIONS AND SARS. The SIP Committee may grant ISOs and nonqualified
stock options (collectively, "options") to purchase shares of Common Stock from
the Company (at the price set forth in the Award agreement), and SARs in such
amounts, and subject to such terms and conditions, as the SIP Committee may
determine. No grantee of an option or SAR will have any of the rights of a
shareholder of GS Inc. with respect to shares subject to their Award until the
issuance of the shares.

RESTRICTED STOCK. The SIP Committee may grant restricted shares of Common
Stock in amounts, and subject to terms and conditions, as the SIP Committee may
determine. The grantee will have the rights of a shareholder with respect to the
restricted stock, subject to any restrictions and conditions as the SIP
Committee may include in the Award agreement.

RESTRICTED STOCK UNITS. The SIP Committee may grant RSUs in amounts, and
subject to terms and conditions, as the SIP Committee may determine. Recipients
of RSUs have only the rights of a general unsecured creditor of the Firm and no
rights as a shareholder of GS Inc. until the Common Stock underlying the RSUs is
delivered.

OTHER EQUITY-BASED AWARDS. The SIP Committee may grant other types of
equity-based Awards, including the grant of unrestricted shares, in amounts, and
subject to terms and conditions, as the SIP Committee may determine. These
Awards may involve the transfer of actual shares of Common Stock, or the payment
in cash or otherwise of amounts based on the value of shares of Common Stock,
and may include Awards designed to comply with, or take advantage of certain
benefits of, the local laws of non-U.S. jurisdictions.

CHANGE IN CONTROL. The SIP Committee may provide in any Award agreement
for provisions relating to a "change in control" of the Company or any of its
subsidiaries or affiliates, including, without limitation, the acceleration of
the exercisability of, or the lapse of restrictions with respect to, the Award.

DIVIDEND EQUIVALENT RIGHTS. The SIP Committee may in its discretion
include in the Award agreement a dividend equivalent right entitling the grantee
to receive amounts equal to the dividends that would be paid, during
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the time such Award is outstanding, on the shares of Common Stock covered by
such Award as if such shares were then outstanding.

NONASSIGNABILITY. Except to the extent otherwise provided in the Award
agreement or approved by the SIP Committee, no Award or right granted to any
person under the SIP will be assignable or transferable other than by will or by
the laws of descent and distribution, and all Awards and rights will be
exercisable during the life of the grantee only by the grantee or the grantee's
legal representative.

AMENDMENT AND TERMINATION. Except as otherwise provided in an Award
agreement, the Board of Directors may from time to time suspend, discontinue,
revise or amend the SIP and the SIP Committee may amend the terms of any Award
in any respect.

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SIP. The following is a brief
description of the material U.S. federal income tax consequences generally
arising with respect to Awards.

The grant of an option or SAR will create no tax consequences for the
participant or the Company. Upon exercising an option, other than an ISO, the
participant will generally recognize ordinary income equal to the difference
between the exercise price and the fair market value of the shares acquired on
the date of exercise and the Company generally will be entitled to a tax
deduction in the same amount. A participant generally will not recognize taxable
income upon exercising an ISO and the Company will not be entitled to any tax
deduction with respect to an ISO if the participant holds the shares for the
applicable periods specified in the Code.

With respect to other Awards, upon the payment of cash or the issuance of
shares or other property that is either not restricted as to transferability or
not subject to a substantial risk of forfeiture (e.g., delivery under the RSUs),
the participant will generally recognize ordinary income equal to the cash or
the fair market value of shares or other property delivered. The Company
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant.

THE DEFINED CONTRIBUTION PLAN

The Goldman Sachs Defined Contribution Plan (the "DCP") is not intended to
be qualified under Section 401(a) of the Code and is not subject to the Employee
Retirement Income Security Act of 1974, as amended.

The following description of the DCP is not necessarily complete. You
should refer to the exhibits that are a part of the registration statement for a
copy of the DCP. See "Available Information".

ELIGIBILITY AND PARTICIPATION. The Board of Directors or a committee
appointed by the Board of Directors (the "DCP Committee") will select the
employees to participate in the DCP.

CONTRIBUTIONS. The Company will make an initial irrevocable contribution
to the trust underlying the DCP (the "Trust") of 13,644,204 shares of Common
Stock simultaneously with the completion of the Common Stock Offering. The
Company may contribute additional shares of Common Stock or cash to the Trust
from time to time in its sole discretion. The Company currently intends to make
ongoing contributions to the DCP and to reallocate forfeitures under the DCP to
participants.

ALLOCATION OF CONTRIBUTIONS. There will be established an account in the
name of each participant (the "Account") and a separate account (the
"Unallocated Account") to which any forfeitures of Common Stock will be credited
pending reallocation to participants. The DCP Committee will designate the
number of shares of Common Stock allocable to the Account of each participant.
Any Common Stock remaining in the Unallocated Account as of the last day of each
plan year due to forfeitures and any distributions received on Common Stock
credited to the Unallocated Account, will be reallocated among the Accounts of
participants who are employed by the Company on the last day of each plan year
pro rata to each such participant's share of the Company contributions for that
plan

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year, or on such other formulaic basis as the DCP Committee may determine.

VOTING AND TENDERING OF COMMON STOCK. Shares of Common Stock allocated to
participants who are parties to the Shareholders' Agreement will be voted in
accordance with the Shareholders' Agreement and will be tendered by the trustee
of the Trust in accordance with confidential instructions provided by the
participants if the transfer restrictions under the Shareholders' Agreement are
waived (and will not be tendered if the transfer restrictions are not waived).
See "Certain Relationships and Related Transactions -- Shareholders' Agreement"
for a discussion of those provisions. Any shares of Common Stock allocated to
Accounts of participants who are not subject to the Shareholders' Agreement will
be voted and tendered by the trustee of the Trust in accordance with
confidential instructions provided by the participant. Shares held in Accounts
with respect to which the trustee of the Trust does not receive voting or
tendering directions will not be voted or tendered.

Shares of Common Stock held in the Unallocated Account will be voted by the
trustee in the same proportion as the shares of Common Stock allocated to
participants' Accounts with respect to which voting instructions are received.

DIVIDENDS. Any cash dividends on shares of Common Stock allocated to a
participant's Account will be distributed to each participant after the end of
the calendar quarter in which such dividend is received.

VESTING AND DISTRIBUTION. With respect to the initial contribution of
Common Stock to the DCP, the right to receive shares of Common Stock allocated
to a participant's Account generally will become vested, and the Common Stock
generally will be distributable, in equal installments on or about the third,
fourth and fifth anniversaries of the date of such contribution if the
participant satisfies certain conditions and the participant's employment with
the Firm has not been terminated, with certain exceptions for termination due to
death or following a change in control.

With respect to contributions to the DCP (other than the initial
contribution), the DCP Committee may determine the dates on which the right to
receive Common Stock (or cash) allocated to a participant's Account will vest
and be distributed.

ADMINISTRATION OF THE DCP. The DCP will be administered by the DCP
Committee. The Board of Directors may, however, determine allocations of
contributions or resolve to otherwise administer the DCP.

AMENDMENTS. Subject to limitations with respect to contributions
previously made to the DCP, the Board of Directors reserves the right to modify,
alter, amend or terminate the DCP or the Trust. No modification or amendment of
the DCP may be made which would cause or permit any part of the assets of the
Trust to be used for, or diverted to, purposes other than for the exclusive
benefit of participants or their beneficiaries, or which would cause any part of
the assets of the Trust to revert to or become the property of the Firm.

LIMIT ON LIABILITY. All distributions under the DCP will be paid or
provided solely from the assets of the Trust and the Company will have no
responsibility or liability to any participant or beneficiary relating to the
Common Stock or other assets of the Trust. The agreement establishing the Trust
will provide that no creditor of the Company will have any rights to the assets
of the Trust.

U.S. FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description
of the material U.S. federal income tax consequences generally arising with
respect to participation in the DCP. A participant in the DCP will recognize
ordinary income upon the vesting of shares of Common Stock allocated to such
participant's Account in an amount equal to the fair market value of the vested
shares. The Company will generally be entitled to a deduction equal to the fair
market value of the shares at the time of the contribution in the taxable year
in which the participant recognizes income under the DCP in respect of the
vesting of shares of Common Stock.

THE PARTNER COMPENSATION PLAN

OVERVIEW

To perpetuate the sense of partnership and teamwork that exists among the
Firm's

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senior professionals, and to reinforce the alignment of employee and shareholder
interests, the Board of Directors has adopted The Goldman Sachs Partner
Compensation Plan (the "Partner Compensation Plan") for the purpose of
compensating senior professionals. The Partner Compensation Plan will be
administered by the Board of Directors or a committee appointed by the Board of
Directors (the "Partner Compensation Plan Committee").

Individuals will be selected to participate in the Partner Compensation
Plan for a one- or two-fiscal year cycle ("Contract Period"). Upon selection to
the Partner Compensation Plan, participants will be allocated a percentage
interest in a pool for annual bonus payments in addition to base salaries. The
size of the pool will be established by the Partner Compensation Plan Committee
annually, taking into account the Firm's results of operations and other
measures of financial performance. The Partner Compensation Plan Committee may
also retain an unallocated percentage of the pool that it may allocate among
participants at fiscal year end in its sole discretion. By linking the Partner
Compensation Plan participant's annual bonus payments to the Firm's results as a
whole, as opposed to the results of any participant's individual business unit,
the Firm believes it will provide additional incentives for teamwork. Further,
the Firm believes that the tying of the bonus payments to overall financial
results will more closely align the interests of the participants with the
Firm's shareholders. Finally, the Firm believes that the retention of a
percentage of the pool for allocation among participants at fiscal year end in
amounts determined at the sole discretion of the Partner Compensation Plan
Committee will provide appropriate compensation flexibility.

The following description of the Partner Compensation Plan is not
necessarily complete. You should refer to the exhibits that are a part of the
registration statement for a copy of the Partner Compensation Plan. See
"Available Information".

ELIGIBILITY AND PARTICIPATION

Consistent with the Firm's historical practice of partnership elections,
the initial Contract Period will be through the end of fiscal 2000. Although the
employees who will participate in the initial Contract Period have not yet been
designated, it is expected that the participants will consist of the continuing
PLPs. Prior to the Contract Period commencing with fiscal 2001, and on or before
each succeeding Contract Period, the Partner Compensation Plan Committee will
determine the participants in the Partner Compensation Plan. Individual
participants may also be added from time to time outside the biennial selection
process.

DETERMINATION OF SALARY AND BONUS

The aggregate amount of compensation to be included in the Partner
Compensation Plan for each fiscal year will be determined by the Partner
Compensation Plan Committee, taking into account measures of the Company's
financial performance it deems appropriate, including, but not limited to,
earnings per share, return on average common equity, pre-tax income, pre-tax
operating income, net revenues, net income, profits before taxes, book value per
share, stock price, earnings available to common shareholders and ratio of
compensation to net revenues.

Prior to the commencement of the first fiscal year in any Contract Period,
and prior to the completion of the Common Stock Offering in the case of the
initial Contract Period, the Partner Compensation Plan Committee will determine
both the salaries of and the percentage of the Partner Compensation Plan pool
that may be allocable to any particular participant (the "Allocation
Percentage"). The Allocation Percentage so determined is expected to be
applicable for each fiscal year within a Contract Period. Any remaining portion
of the Partner Compensation Plan pool not so allocated will be allocated to
individual participants at the end of the fiscal year in amounts determined by
the Partner Compensation Plan Committee.

Amounts payable under the Partner Compensation Plan will be satisfied in
cash or as equity-based Awards under the SIP, as determined by the Partner
Compensation Plan Committee and recommended to the SIP Committee.

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PRINCIPAL SHAREHOLDERS

The following table sets forth as of the date of this prospectus certain
information regarding the beneficial ownership of the Company's Common Stock by:

- - each director and Named Executive Officer of the Company; and

- - all directors and executive officers of the Company as a group.

This information gives effect to the Incorporation Transactions, the Related
Transactions and the Common Stock Offering.

Except as otherwise indicated, the persons or entities listed below have
sole voting and investment power with respect to Common Shares beneficially
owned by them. None of our employees will be selling shares in the Common Stock
Offering.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(3)
-------------------
NAME NUMBER PERCENT(4)
- ---- ------ ----------
<S> <C> <C>
Directors and Named Executive Officers:
Henry M. Paulson, Jr.(1).................................. *
Robert J. Hurst(1)........................................ *
John A. Thain(1).......................................... *
John L. Thornton(1)....................................... *
John L. Weinberg(1)....................................... *
David A. Viniar(1)........................................ *

All directors and executive officers as a group (11
persons)(2)...............................................
</TABLE>

- ---------------
* Less than 1% of the outstanding shares of Common Stock.

(1) c/o The Goldman Sachs Group, Inc., 85 Broad Street, New York, New York
10004. Excludes any shares of Common Stock subject to the Shareholders'
Agreement that are owned by other parties to the Shareholders' Agreement.
While each of Messrs. Paulson, Hurst, Thain, Thornton and Viniar is a party
to the Shareholders' Agreement and, other than Mr. Viniar, is a member of
the Shareholders' Committee, each disclaims beneficial ownership of the
shares of Common Stock subject to the Shareholders' Agreement other than
those specified above for each such person individually. See "Certain
Relationships and Related Transactions -- Shareholders' Agreement" for a
discussion of the Shareholders' Agreement.

(2) Each executive officer is a party to the Shareholders' Agreement and each
disclaims beneficial ownership of the shares of Common Stock subject to the
Shareholders' Agreement other than those specified above. See "Certain
Relationships and Related Transactions -- Shareholders' Agreement" for a
discussion of the Shareholders' Agreement.

(3) For purposes of this table, information as to the shares of Common Stock
assumes that the underwriters' options to purchase additional shares in the
Common Stock Offering are not exercised. For purposes of this table,
"beneficial ownership" is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, pursuant to which a person or group of
persons is deemed to have "beneficial ownership" of any shares of Common
Stock that such person has the right to acquire within 60 days after the
date of this prospectus. For purposes of computing the percentage of
outstanding shares of Common Stock held by each person or group of persons
named above, any shares which such person or persons has the right to
acquire within 60 days after the date of this prospectus are deemed to be
outstanding but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.

(4) Based on 461,470,947 shares of Common Stock outstanding immediately after
the closing of the Common Stock Offering. This amount includes 31,306,667
shares of Common Stock underlying the Formula RSUs.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following descriptions of certain provisions of agreements and other
documents discussed below are not necessarily complete. You should refer to the
exhibits that are a part of the registration statement for a copy of each
agreement and document. See "Available Information".

INCORPORATION AND RELATED TRANSACTIONS

Simultaneously with the consummation of the Common Stock Offering, we will
complete a number of transactions in order to have the Company succeed to the
business of Group L.P.

The principal incorporation transactions (the "Incorporation Transactions")
and related transactions (the "Related Transactions") are summarized below.

INCORPORATION TRANSACTIONS

Pursuant to a plan of incorporation (the "Plan of Incorporation"):

- - The Goldman Sachs Corporation ("GS Corp."), which is the general partner of
Group L.P., will merge into GS Inc. In this transaction, the PLPs who are
shareholders of GS Corp. will receive Common Stock and the other shareholders
of GS Corp. will receive Common Stock, Junior Subordinated Debentures or cash
(or a combination thereof);

- - The PLPs will exchange their interests in Group L.P. and certain affiliates
for 264,680,458 shares of Common Stock (these amounts include shares issuable
to PLPs in the merger of GS Corp. into GS Inc.);

- - The RLPs will exchange their interests in Group L.P. and certain affiliates
for cash, Junior Subordinated Debentures or Common Stock (or a combination
thereof). It is expected that these transactions will result in the payment of
approximately $892 million in cash and the issuance of $295 million principal
amount of Junior Subordinated Debentures and of 47,264,592 shares of Common
Stock (these amounts include the securities and cash issuable to the RLPs in
the merger of GS Corp. into GS Inc.);

- - SBCM will exchange its interests in Group L.P. and GS&Co. for 31,612,076
shares of Common Stock and 6,238,094 shares of Nonvoting Common Stock;

- - KAA will exchange its interests in Group L.P. for 30,962,950 shares of Common
Stock; and

- - After all the interests of Group L.P. have been transferred to GS Inc., Group
L.P. will be merged into GS Inc.

RELATED TRANSACTIONS

- - The Formula RSUs, Discretionary RSUs and Discretionary Options will be
granted, the initial irrevocable contribution of shares of Common Stock to the
DCP will be made and certain senior employees, principally Managing Directors
who are not PLPs, will be selected to participate in the DCP; and

- - After the completion of the Common Stock Offering, we will make a $200 million
cash contribution to a Goldman Sachs charitable foundation.

SHAREHOLDERS' AGREEMENT

PERSONS AND SHARES COVERED

Each PLP and each other person who is or becomes a Managing Director on the
IPO Date or thereafter will be a party to the Shareholders' Agreement
(collectively, the "Covered Persons"). After completion of the Common Stock
Offering, approximately shares of Common Stock will be subject to the
Shareholders' Agreement.

The shares covered by the Shareholders' Agreement (the "Covered Shares")
will include generally all shares of Common Stock acquired from the Company by a
Covered Person. Covered Shares will include:

- - any shares of Common Stock received by the PLPs pursuant to the Incorporation
Transactions (except for certain shares that aggregate less than
shares);

- - any shares of Common Stock received by Covered Persons from the DCP;

- - any shares of Common Stock received by Covered Persons pursuant to the Formula
or Discretionary RSUs or the Discretionary Options; and

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- - unless otherwise determined by the Board of Directors, any shares of Common
Stock received by the Covered Persons from the Company through any other
employee compensation, benefit or similar plan.

Covered Shares will not include any shares of Common Stock purchased by a
Covered Person in the open market or in a subsequent underwritten public
offering.

TRANSFER RESTRICTIONS

Each Covered Person will agree in the Shareholders' Agreement, among other
things, to:

- - have beneficial ownership of Covered Shares at least equal to 25% of the
cumulative number of Covered Shares beneficially owned by him or her at the
time he or she became a Covered Person or acquired by him or her thereafter
and with no credit for dispositions (the "General Transfer Restrictions") for
so long as he or she is a Covered Person and an employee of the Company (an
"Employee Covered Person"); and

- - comply with the underwriters' 180-day lockup arrangement in connection with
the Common Stock Offering.

The PLPs will also be subject to limitations on their ability to transfer
Covered Shares received in connection with the Incorporation Transactions. Under
these restrictions, each PLP has agreed that he or she will not transfer the
Covered Shares received pursuant to the Plan of Incorporation until the third
anniversary of the IPO Date (the "PLP Transfer Restrictions" and, together with
the General Transfer Restrictions, the "Transfer Restrictions"). The PLP
Transfer Restrictions will lapse as to such Covered Shares in equal installments
on each of the third, fourth and fifth anniversaries of the IPO Date. The
Transfer Restrictions applicable to a Covered Person terminate upon the death of
the Covered Person.

WAIVERS

Except in the case of a third-party tender or exchange offer, the PLP
Transfer Restrictions may be waived or terminated at any time by the
Shareholders' Committee. The Shareholders' Committee also has the power to waive
the General Transfer Restrictions to permit Covered Persons to:

- - participate as sellers in underwritten public offerings of Common Stock and
tender and exchange offers and share repurchase programs by the Company;

- - transfer Covered Shares to charities, including charitable foundations;

- - transfer Covered Shares held in employee benefit plans; and

- - transfer Covered Shares in specific transactions (for example, to immediate
family members and trusts) or circumstances.

In the case of a third-party tender or exchange offer, the Transfer
Restrictions may be waived or terminated:

- - if the Board of Directors is recommending acceptance or is not making any
recommendation with respect to acceptance of the tender or exchange offer, by
a majority of the Voting Interests (as defined below under "-- Voting"); or

- - if the Board of Directors is recommending rejection of the tender or exchange
offer, by 66 2/3% of the outstanding Voting Interests.

In the case of a tender or exchange offer by the Firm, a majority of the
outstanding Voting Interests may also elect to waive or terminate the Transfer
Restrictions.

VOTING

Prior to any vote of the shareholders of the Company, the Shareholders'
Agreement requires a separate, preliminary vote of the Voting Interests on each
matter upon which a vote of the shareholders is proposed to be taken (the
"Preliminary Vote"). Each Covered Share held by an Employee Covered Person and
each other Covered Share subject to the PLP Transfer Restrictions ("Voted
Covered Shares") will be voted in accordance with the majority of the votes cast
by the Voting Interests in the Preliminary Vote. In elections of directors, each
Voted Covered Share will be voted in favor of the election of those persons
receiving the highest numbers of votes cast by the Voting Interests in the
Preliminary Vote. "Voting Interests" are

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Covered Shares beneficially owned by all Covered Persons through December 31,
2000 and thereafter are Covered Shares beneficially owned by all Employee
Covered Persons.

OTHER RESTRICTIONS

The Shareholders' Agreement also prevents the Covered Persons from engaging
in certain activities relating to any securities of the Company with any person
who is not a Covered Person or a director, officer or employee of the Company
("Restricted Persons"). Among other things, a Covered Person may not:

- - participate in a proxy solicitation to or with a Restricted Person;

- - deposit any Covered Shares in a voting trust or subject any Covered Shares to
any voting agreement or arrangement that includes any Restricted Person;

- - form, join or in any way participate in a "group" with any Restricted Person;
or

- - together with any Restricted Person, propose certain transactions with the
Company or seek the removal of any directors of the Company or any change in
the composition of the Board of Directors of the Company.

TERM, AMENDMENT AND CONTINUATION

The Shareholders' Agreement is to continue in effect until the earlier of
January 1, 2050, and the time it is terminated by the vote of 66 2/3% of the
outstanding Voting Interests. The PLP Transfer Restrictions will not terminate
upon the expiration or termination of the Shareholders' Agreement unless
previously waived or terminated or unless subsequently waived or terminated by
the Board of Directors. The Shareholders' Agreement may generally be amended at
any time by a majority of the outstanding Voting Interests.

Unless otherwise terminated, in the event of any transaction in which a
third party succeeds to the business of the Company and in which Covered Persons
hold securities of the third party, the Shareholders' Agreement will remain in
full force and effect as to the securities of the third party, and the third
party shall succeed to the rights and obligations of the Company under the
Shareholders' Agreement.

INFORMATION REGARDING THE SHAREHOLDERS' COMMITTEE

The terms and provisions of the Shareholders' Agreement will be
administered by the Shareholders' Committee. The Shareholders' Committee will
initially consist of those Covered Persons who are both employees of the Firm
and members of the Board of Directors of the Company. It is possible that over
time all or a majority of the members of the Shareholders' Committee will not be
members of the Board of Directors of the Company.

Members of the Shareholders' Committee are entitled to indemnification from
the Company in their capacities as members of the Shareholders' Committee.

VOTING AGREEMENT

Both SBCM and KAA have agreed to vote their shares of Common Stock in the
same manner as a majority of the shares of Common Stock held by the Managing
Directors of the Company are voted. The obligations of SBCM and KAA under the
Voting Agreement are enforceable by the Company. The Managing Directors will
have no right to enforce the SBCM and KAA voting agreements.

INSTRUMENT OF INDEMNIFICATION

In connection with the Common Stock Offering, the Company will enter into
an Instrument of Indemnification (the "Instrument of Indemnification"). The
Instrument of Indemnification will cover certain former partners of the Firm,
including the PLPs, each current director and executive officer of GS Inc., the
RLPs, SBCM and KAA (each an "Indemnitee"). Under the Instrument of
Indemnification, in the event any Indemnitee is, or is threatened to be, made a
party to any action, suit or proceeding by reason of the fact that such
Indemnitee was a general or limited partner, shareholder, member, director,
officer, employee or agent (each, a "Designated Capacity") of Group L.P. or
certain of its affiliates or subsidiaries or is serving or served, at the
request of Group L.P. or certain of its affiliates or subsidiaries,

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in a Designated Capacity in another enterprise, the Company is, subject to
certain exceptions, obligated to indemnify and hold such Indemnitee harmless
from any losses, damages or expenses incurred by such Indemnitee in the action,
suit or proceeding. The Instrument of Indemnification does not duplicate the
obligations of the Company under the Tax Indemnification Agreement described
below. The indemnification obligation of the Company under the Instrument of
Indemnification also extends to the indemnification obligations that certain
Indemnitees, including each current director and executive officer of GS Inc.,
may have to other Indemnitees.

The Instrument of Indemnification also provides that the Company will,
subject to certain exceptions, release each Indemnitee from all actions, suits
or other claims that Group L.P. may have had or which the Company, as a
successor to Group L.P., may have arising out of an Indemnitee's partnership or
other interest in Group L.P. or certain of its affiliates or subsidiaries or
arising out of the conduct of such Indemnitee engaged in the conduct of the
business of Group L.P. or its affiliates or subsidiaries.

DIRECTOR AND OFFICER INDEMNIFICATION

The Company will enter into agreements that provide indemnification to the
Company's directors and certain officers. These agreements are in addition to
the Company's indemnification obligations under its By-Laws. The agreements,
among other things, will indemnify the Company's directors and certain officers
to the fullest extent permitted by law for certain expenses (including
attorneys' fees) and all losses, claims, liabilities, judgments, fines and
settlement amounts incurred by such person arising out of or in connection with
such person's service as a director or officer of the Company with respect to
the Incorporation Transactions and the Common Stock Offering.

TAX INDEMNIFICATION AGREEMENT AND
RELATED MATTERS

An entity that has historically operated in corporate form generally is
liable for any adjustments to the corporation's taxes for periods prior to its
initial public offering. In contrast, the partners of Group L.P., rather than
the Company, will be liable for any adjustments to many taxes (including U.S.
federal and state income taxes) attributable to the operations of Group L.P. and
its affiliates prior to the Common Stock Offering. In connection with the Common
Stock Offering, the Company will enter into an agreement (the "Tax
Indemnification Agreement") to indemnify certain former limited partners of
Group L.P., including the PLPs, each current director and executive officer of
GS Inc., the RLPs, SBCM and KAA (collectively, the "Tax Indemnitees"), against
certain increases in each Tax Indemnitee's taxes that relate to activities of
Group L.P. or certain of its affiliates in respect of periods prior to the
Common Stock Offering ("Increased Taxes"). The Company will be required to make
additional payments to offset any taxes payable by a Tax Indemnitee in respect
of payments made pursuant to the Tax Indemnification Agreement only to the
extent the payments made to that Tax Indemnitee exceed a fixed amount. Any
payment of Increased Taxes by the Company will be offset by any tax benefit
received by the Tax Indemnitee.

The Tax Indemnification Agreement includes provisions that permit the
Company to control any tax proceeding or contest which might result in the
Company being required to make a payment under the Tax Indemnification
Agreement.

The Incorporation Transactions are structured in a manner that is not
expected to result in a significantly disproportionate tax or other burden to
any partner of Group L.P. If the Incorporation Transactions were to have a
disproportionate effect on any partner, the Company may, but is not required to,
make special payments and arrangements with any person who incurs a
disproportionate tax or other burden.

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DESCRIPTION OF NOTES WE MAY OFFER

Please note that in this section entitled "Description of Notes We May Offer",
the terms "GS INC.", "WE", "OUR" and "US" refer only to The Goldman Sachs Group,
Inc. and do not include its consolidated subsidiaries, while the term the "FIRM"
refers to GS Inc. together with its consolidated subsidiaries. Also, in this
section, the term "HOLDERS" means those who own Notes registered in their own
names, on the books that we or the Trustee maintain for this purpose, and not
those who own beneficial interests in Notes registered in "street name" or in
Notes issued in book-entry form through The Depository Trust Company. Owners of
beneficial interests in the Notes should read the subsection entitled "-- Legal
Ownership of Notes".

INFORMATION ABOUT OUR MEDIUM-TERM
NOTE PROGRAM

As required by U.S. federal law for all bonds and notes of companies that
are publicly offered, the Notes are governed by a document called the
"INDENTURE". The Indenture is a contract between us and ,
which acts as "TRUSTEE". The Trustee has two main roles:

- - First, the Trustee can enforce your rights against us if we default. There are
limitations on the extent to which the Trustee acts on your behalf, which we
describe later under "-- Default, Remedies and Waiver of Default"; and

- - Second, the Trustee performs administrative duties for us, such as sending you
interest payments and notices.

The Indenture permits us to issue different series of debt securities from
time to time. The Notes will be a single, distinct series of debt securities. We
may, however, issue Notes in such amounts, at such times and on such terms as we
wish. The Notes will differ from one another, and from other series, in their
terms.

This section summarizes the material terms that will apply generally to the
Notes as a series. Each particular Note will have financial and other terms
specific to it, and the specific terms of each Note will be described in a
prospectus supplement attached to the front of this prospectus. Those terms may
vary from the terms described here. As you read this section, therefore, please
remember that the specific terms of your Note as described in your prospectus
supplement will supplement and, if applicable, may modify or replace the general
terms described in this section. The statements we make in this section may not
apply to your Note.

When we refer to a "SERIES OF DEBT SECURITIES", we mean a series, such as
the Notes, issued under the Indenture. When we refer to "YOUR PROSPECTUS
SUPPLEMENT", we mean the prospectus supplement describing the specific terms of
the Note you purchase.

AMOUNTS THAT WE MAY ISSUE

The Indenture does not limit the aggregate amount of debt securities that
we may issue, nor does it limit the number of series or the aggregate amount of
any particular series. We have initially authorized the issuance of Notes in
such amounts as will not result in Notes having an aggregate initial offering
price greater than $15,000,000,000, or an equivalent amount in any other
currency or currency unit. We may, however, increase this authorized amount at
any time without your consent.

The Indenture and the Notes do not limit our ability to incur other
indebtedness or to issue other securities. Also, we are not subject to financial
or similar restrictions by the terms of the Notes, except as described under
"-- Restrictive Covenant and Defeasance -- Restriction on Liens" below.

HOW THE NOTES RANK AGAINST OTHER DEBT

The Notes will not be secured by any property or assets of the Firm. Thus,
by owning a Note, you are one of our unsecured creditors.

The Notes will not be subordinated to any of our other debt obligations.
This means

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that, in a bankruptcy or liquidation proceeding against us, the Notes would rank
equally in right of payment with all other unsecured and unsubordinated debt of
GS Inc.

An investment in the Notes involves risks because we are a holding company
and because our principal U.S. subsidiary, GS&Co., is a partnership in which we
are a general partner. We summarize these risks above under "Risk Factors -- We
Depend on Funds from Our Regulated Subsidiaries" and "-- Holders of Notes May Be
Adversely Affected Because We Are a Holding Company".

THIS SECTION IS ONLY A SUMMARY

The Indenture and its associated documents, including your Note, contain
the full legal text of the matters described in this section and your prospectus
supplement. The Indenture and the Notes are governed by New York law. A copy of
the Indenture has been filed with the SEC as part of our registration statement.
See "Available Information" below for information on how to obtain a copy.

Because this section and your prospectus supplement provide only a summary,
they do not describe every aspect of the Indenture and your Note. For example,
in this section and your prospectus supplement, we use terms that have been
given special meaning in the Indenture. In this section, however, we describe
the meaning of only the more important of those terms.

When we define a specialized term used in this section, it appears in BOLD,
ITALICIZED type, except as noted below in "-- Interest Rates -- Floating Rate
Notes".

FEATURES COMMON TO ALL NOTES

STATED MATURITY AND MATURITY

The day on which the principal amount of your Note is scheduled to become
due is called the "STATED MATURITY" of the principal and is specified in your
prospectus supplement. The principal may become due sooner, by reason of
redemption or acceleration after a default. The day on which the principal
actually becomes due, whether at the stated maturity or earlier, is called the
"MATURITY" of the principal.

We also use the terms "stated maturity" and "maturity" to refer to the
dates when other payments become due. For example, we may refer to a regular
interest payment date when an installment of interest is scheduled to become due
as the "stated maturity" of that installment. When we refer to the "stated
maturity" or the "maturity" of a Note without specifying a particular payment,
we mean the stated maturity or maturity, as the case may be, of the principal.

CURRENCY OF NOTES

Amounts that become due and payable on your Note will be payable in a
currency, composite currency, basket of currencies or currency unit or units
specified in your prospectus supplement.

We call this currency, composite currency, basket of currencies or currency
unit or units, a "SPECIFIED CURRENCY". The specified currency for your Note will
be U.S. dollars, unless your prospectus supplement states otherwise. A specified
currency may include the euro. Some Notes may have different specified
currencies for principal and interest.

You will have to pay for your Notes by delivering the requisite amount of
the specified currency for the principal to GS&Co. or another dealer that we
name in your prospectus supplement, unless other arrangements have been made
between you and us or you and that dealer. We will make payments on your Notes
in the specified currency, except as described below in "-- Payment Mechanics".

TYPES OF NOTES

We will issue the following three types of Notes:

- - FIXED RATE NOTES. A Note of this type will bear interest at a fixed rate
described in the applicable prospectus supplement. This type includes "ZERO
COUPON NOTES", which bear no interest and are instead issued at a price lower
than the principal amount.
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- - FLOATING RATE NOTES. A Note of this type will bear interest at rates that are
determined by reference to an interest rate formula. In some cases, the rates
may also be adjusted by adding or subtracting a spread or multiplying by a
spread multiplier and may be subject to a minimum rate or a maximum rate. The
various interest rate formulas and these other features are described below in
"-- Interest Rates -- Floating Rate Notes". If your Note is a floating rate
Note, the formula and any adjustments that apply to the interest rate will be
specified in your prospectus supplement.

- - INDEXED NOTES. A Note of this type provides that the principal amount payable
at its maturity, and/or the amount of interest payable on an interest payment
date, will be determined by reference to one or more stocks, including baskets
of stocks and stock indices, or to any other index described in the applicable
prospectus supplement. If you are a Holder of an indexed Note, you may receive
a principal amount at maturity that is greater than or less than the face
amount of your Note depending upon the value of the applicable index at
maturity. That value may fluctuate over time. Some indexed Notes may also be
exchangeable, at the option of the Holder or GS Inc., into stock of an issuer
other than GS Inc. If you purchase an indexed Note, your prospectus supplement
will include information about the relevant index and about how amounts that
are to become payable will be determined by reference to that index. Before
you purchase any indexed Note, you should read carefully the section entitled
"Risk Factors -- An Investment in Indexed Notes Presents Significant Risks Not
Associated with Other Types of Notes" and any other risk factors which are
specified in the applicable prospectus supplement.

A fixed rate Note, a floating rate Note or an indexed Note may be an
"ORIGINAL ISSUE DISCOUNT NOTE". A Note of this type is issued at a price lower
than its principal amount and provides that, upon redemption or acceleration of
its maturity, an amount less than its principal amount will be payable. A Note
issued at a discount to its principal may, for U.S. federal income tax purposes,
be considered an original issue discount Note, regardless of the amount payable
upon redemption or acceleration of maturity. See "United States
Taxation -- United States Holders -- Original Issue Discount" below for a brief
description of the U.S. federal income tax consequences of owning an original
issue discount Note.

INFORMATION IN THE PROSPECTUS SUPPLEMENT

Your prospectus supplement will describe one or more of the following terms
of your Note:

- - the stated maturity;

- - the specified currency or currencies for principal and interest, if not U.S.
dollars;

- - the price at which we originally issue your Note, expressed as a percentage of
the principal amount, and the original issue date;

-- If you purchase your Note in a market-making transaction, you will
receive information about the price you pay and your trade and
settlement dates in a separate confirmation of sale. A "MARKET-MAKING
TRANSACTION" is one in which GS&Co. or another of our affiliates resells
a Note that it has previously acquired from another holder. A
market-making transaction in a particular Note occurs after the original
issuance and sale of the Note.

- - whether your Note is a fixed rate Note, a floating rate Note or an indexed
Note and also whether it is an original issue discount Note;

- - if your Note is a fixed rate Note, the yearly rate at which your Note will
bear interest, if any, and the interest payment dates, if different from those
set forth below under "-- Interest Rates -- Fixed Rate Notes";

- - if your Note is a floating rate Note, the interest rate basis, which may be
one of the nine base rates described in "-- Interest Rates -- Floating Rate
Notes" below; any applicable index currency or maturity, spread or spread
multiplier or initial, maxi-
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mum or minimum rate; the interest reset, determination, calculation and
payment dates; and the Calculation Agent, all of which we describe under
"-- Interest Rates -- Floating Rate Notes" below;

- - if your Note is an original issue discount Note, the yield to maturity;

- - if your Note is an indexed Note, the principal amount, if any, we will pay you
at maturity, the amount of interest, if any, we will pay you on an interest
payment date or the formula we will use to calculate these amounts, if any,
and whether your Note will be exchangeable for or payable in stock of an
issuer other than GS Inc. or other property;

- - whether your Note may be redeemed at our option or repaid at the Holder's
option prior to the stated maturity and, if so, other relevant terms such as
the redemption commencement date, repayment date(s), redemption price(s) and
redemption period(s), all of which we describe under "-- Redemption and
Repayment" below;

- - whether we will issue or make available your Note in non-book-entry form; and

- - any other terms of your Note that are not inconsistent with the provisions of
the Indenture, which other terms could be different from those described in
this prospectus.

LEGAL OWNERSHIP OF NOTES

We refer to those who have Notes registered in their own names, on the
books that we or the Trustee maintain for this purpose, as the "Holders" of
those Notes. These persons are the legal holders of the Notes. We refer to those
who, indirectly through others, own beneficial interests in Notes that are not
registered in their own names as "INDIRECT HOLDERS" of those Notes. As we
discuss below, indirect holders are not legal holders, and investors in Notes
issued in book-entry form or in street name will be indirect holders.

BOOK-ENTRY HOLDERS

We will issue each Note in book-entry form only, unless we specify
otherwise in the applicable prospectus supplement. This means Notes will be
represented by one or more global Notes registered in the name of a financial
institution that holds them as depositary on behalf of other financial
institutions that participate in the depositary's book-entry system. These
participating institutions, in turn, hold beneficial interests in the Notes on
behalf of themselves or their customers.

Under the Indenture, only the person in whose name a Note is registered is
recognized as the Holder of that Note. Consequently, for Notes issued in global
form, we will recognize only the depositary as the Holder of the Notes and we
will make all payments on the Notes to the depositary. The depositary passes
along the payments it receives to its participants, which in turn pass the
payments along to their customers who are the beneficial owners. The depositary
and its participants do so under agreements they have made with one another or
with their customers; they are not obligated to do so under the terms of the
Notes.

As a result, investors will not own Notes directly. Instead, they will own
beneficial interests in a global Note, through a bank, broker or other financial
institution that participates in the depositary's book-entry system or holds an
interest through a participant. As long as the Notes are issued in global form,
investors will be indirect holders, and not Holders, of the Notes.

STREET NAME HOLDERS

In the future we may terminate a global Note or issue Notes initially in
non-global form. In these cases, investors may choose to hold their Notes in
their own names or in "street name". Notes held by an investor in street name
would be registered in the name of a bank, broker or other financial institution
that the investor chooses, and the investor would hold only a beneficial
interest in those Notes through an account he or she maintains at that
institution.

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For Notes held in street name, we will recognize only the intermediary
banks, brokers and other financial institutions in whose names the Notes are
registered as the Holders of those Notes and we will make all payments on those
Notes to them. These institutions pass along the payments they receive to their
customers who are the beneficial owners, but only because they agree to do so in
their customer agreements or because they are legally required to do so.
Investors who hold Notes in street name will be indirect holders, not Holders,
of those Notes.

LEGAL HOLDERS

Our obligations, as well as the obligations of the Trustee and those of any
third parties employed by us or the Trustee, run only to the Holders of the
Notes. We do not have obligations to investors who hold beneficial interests in
global Notes, in street name or by any other indirect means. This will be the
case whether an investor chooses to be an indirect holder of a Note or has no
choice because we are issuing the Notes only in global form.

For example, once we make a payment or give a notice to the Holder, we have
no further responsibility for that payment or notice even if that Holder is
required, under agreements with depositary participants or customers or by law,
to pass it along to the indirect holders but does not do so. Similarly, if we
want to obtain the approval of the Holders for any purpose -- e.g., to amend the
Indenture or to relieve us of the consequences of a default or of our obligation
to comply with a particular provision of the Indenture -- we would seek the
approval only from the Holders, and not the indirect holders, of the Notes.
Whether and how the Holders contact the indirect holders is up to the Holders.

When we refer to "YOU", we mean those who invest in the Notes being offered
by this prospectus, whether they are the Holders or only indirect holders of
those Notes. When we refer to "YOUR NOTES", we mean the Notes in which you hold
a direct or indirect interest.

SPECIAL CONSIDERATIONS FOR INDIRECT HOLDERS

If you hold Notes through a bank, broker or other financial institution,
either in book-entry form or in street name, you should check with your own
institution to find out:

- - how it handles securities payments and notices;

- - whether it imposes fees or charges;

- - how it would handle a request for the Holders' consent, if ever required;

- - whether and how you can instruct it to send you Notes registered in your own
name so you can be a Holder, if that is permitted in the future;

- - how it would exercise rights under the Notes if there were a default or other
event triggering the need for Holders to act to protect their interests; and

- - if the Notes are in book-entry form, how the depositary's rules and procedures
will affect these matters.

WHAT IS A GLOBAL NOTE?

We will issue each Note in book-entry form only, unless we specify
otherwise in the applicable prospectus supplement. Each Note issued in
book-entry form will be represented by a "GLOBAL NOTE" that we deposit with and
register in the name of a financial institution or its nominee, that we select.
The financial institution that we select for this purpose is called the
"DEPOSITARY". Unless we specify otherwise in the applicable prospectus
supplement, The Depository Trust Company, New York, New York, known as "DTC",
will be the Depositary for all Notes issued in book-entry form.

A global Note may represent one or any other number of individual Notes.
Generally, all Notes represented by the same global Note will have the same
terms. We may, however, issue a global Note that represents multiple Notes that
have different terms and are issued at different times. We call this kind of
global Note a "MASTER GLOBAL NOTE".

A global Note may not be transferred to or registered in the name of anyone
other

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than the Depositary or its nominee, unless special termination situations arise.
We describe those situations below under "-- Special Situations When a Global
Note Will Be Terminated". As a result of these arrangements, the Depositary, or
its nominee, will be the sole registered owner and Holder of all Notes
represented by a global Note, and investors will be permitted only to own
beneficial interests in a global Note. Beneficial interests must be held by
means of an account with a broker, bank or other financial institution that in
turn has an account with the Depositary or with another institution that does.
Thus, an investor whose Note is represented by a global Note will not be a
Holder of the Note, but only an indirect holder of a beneficial interest in the
global Note.

If the prospectus supplement for a particular Note indicates that the Note
will be issued in "global form only", then the Note will be represented by a
global Note at all times unless and until the global Note is terminated in one
of the special situations we describe below under "-- Special Situations When a
Global Note Will be Terminated". The global Note may be a master global Note,
although your prospectus supplement will not indicate whether it is a master
global Note.

SPECIAL CONSIDERATIONS FOR GLOBAL NOTES

As an indirect holder, an investor's rights relating to a global Note will
be governed by the account rules of the investor's financial institution and of
the Depositary, as well as general laws relating to securities transfers. We do
not recognize this type of investor as a Holder of Notes and instead deal only
with the Depositary that holds the global Note.

If Notes are issued only in the form of a global Note, an investor should
be aware of the following:

- - An investor cannot get the Notes registered in his or her own name, and cannot
get non-global certificates for his or her interest in the Notes, except in
the special situations we describe below;

- - An investor will be an indirect holder and must look to his or her own bank or
broker for payments on the Notes and protection of his or her legal rights
relating to the Notes, as we describe under "-- Legal Ownership of Notes"
above;

- - An investor may not be able to sell interests in the Notes to some insurance
companies and other institutions that are required by law to own their
securities in non-book-entry form;

- - The Depositary's policies, which may change from time to time, will govern
payments, transfers, exchanges and other matters relating to an investor's
interest in a global Note. We and the Trustee have no responsibility for any
aspect of the Depositary's actions or for its records of ownership interests
in a global Note. We and the Trustee also do not supervise the Depositary in
any way;

- - The Depositary will require that those who purchase and sell interests in a
global Note within its book-entry system use immediately available funds and
your broker or bank may require you to do so as well; and

- - Financial institutions that participate in the Depositary's book-entry system,
and through which an investor holds its interest in the global Notes, may also
have their own policies affecting payments, notices and other matters relating
to the Notes. There may be more than one financial intermediary in the chain
of ownership for an investor. We do not monitor and are not responsible for
the actions of any of those intermediaries.

SPECIAL SITUATIONS WHEN A GLOBAL NOTE WILL BE TERMINATED

In a few special situations described below, a global Note will be
terminated and interests in it will be exchanged for certificates in non-global
form representing the Notes it represented. After that exchange, the choice of
whether to hold the Notes directly or in street name will be up to the investor.
Investors must consult their own banks or brokers to find out how to have their
interests in a global Note transferred on termination to their own names, so
that they will be Holders. We have described the rights of Holders and street
name investors above under "-- Legal Ownership of Notes".
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The special situations for termination of a global Note are:

- - when the Depositary notifies us that it is unwilling, unable or no longer
qualified to continue as Depositary for that global Note and we do not appoint
another institution to act as Depositary within 60 days;

- - when we notify the Trustee that we wish to terminate that global Note; or

- - when an Event of Default has occurred with regard to Notes represented by that
global Note and has not been cured or waived; we discuss defaults later under
"-- Default, Remedies and Waiver of Default".

When a global Note is terminated, only the Depositary, and not we or the
Trustee, is responsible for deciding the names of the institutions in whose
names the Notes represented by the global Note will be registered and,
therefore, who will be the Holders of those Notes.

INTEREST RATES

This subsection describes the different kinds of interest rates that may
apply to your Note, if it bears interest.

FIXED RATE NOTES

Each fixed rate Note, except any zero coupon Note, will bear interest from
its original issue date or from the most recent date to which interest on the
Note has been paid or made available for payment. Interest will accrue on the
principal of a fixed rate Note at the fixed yearly rate stated in the applicable
prospectus supplement, until the principal is paid or made available for
payment. Unless otherwise specified in the applicable prospectus supplement,
interest on a fixed rate Note will be payable semiannually each May 15 and
November 15, which will be the interest payment dates for a fixed rate Note, and
at maturity. Each payment of interest due on an interest payment date or the
date of maturity will include interest accrued from and including the last date
to which interest has been paid, or made available for payment, or from the
issue date if none has been paid, or made available for payment, to but
excluding the interest payment date or the date of maturity. We will compute
interest on fixed rate Notes on the basis of a 360-day year of twelve 30-day
months. We will pay interest on each interest payment date and at maturity as
described below under "-- Payment Mechanics".

FLOATING RATE NOTES

In this subsection, we use several specialized terms relating to the manner
in which floating interest rates are calculated. We define these terms, which
are capitalized and appear in BOLD, ITALICIZED type the first time they appear,
in "-- Special Rate Calculation Terms" at the end of this subsection.

Also, please remember that the specific terms of your Note as described in
your prospectus supplement will supplement and, if applicable, may modify or
replace the general terms regarding the floating rates of interest described in
this subsection. The statements we make in this subsection may not apply to your
Note.

Each floating rate Note will bear interest from its original issue date or
from the most recent date to which interest on the Note has been paid or made
available for payment. Interest will accrue on the principal of a floating rate
Note at the yearly rate determined pursuant to the interest rate formula stated
in the applicable prospectus supplement, until the principal is paid or made
available for payment. We will pay interest on each interest payment date and at
maturity as described below under "-- Payment Mechanics".

INTEREST RATE BASIS. We currently expect to issue floating rate Notes that
bear interest at a rate based on one or more of the following "BASE RATES":

- - commercial paper rate;

- - prime rate;

- - LIBOR;

- - EURIBOR;

- - treasury rate;

- - CMT rate;

- - CD rate;

- - federal funds rate; and/or

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- - 11th district rate.

We describe each of these base rates in further detail below in this subsection.
If you purchase a floating rate Note, your prospectus supplement will specify
the type of base rate that applies to your Note.

RATE ADJUSTMENTS AND LIMITS. In some cases, the base rate for a floating rate
Note may be adjusted:

- - by adding or subtracting a specified number of basis points called the
"SPREAD", with one basis point being 0.01%; or

- - by multiplying by a specified percentage called the "SPREAD MULTIPLIER".

The actual interest rate, after any adjustment, may also be subject to either or
both of the following limits:

- - a "MAXIMUM RATE" -- i.e., a specified upper limit that the actual rate in
effect at any time may not exceed; and/or

- - a "MINIMUM RATE" -- i.e., a specified lower limit that the initial rate in
effect at any time may not fall below.

If you purchase a floating rate Note, your prospectus supplement will specify
whether any of these adjustments or limits apply to your Note and, if so, what
they are.

Whether or not a maximum rate applies, the interest rate on a floating rate
Note will in no event be higher than the maximum rate permitted by New York law,
as it may be modified by U.S. law of general application. Under current New York
law, the maximum rate of interest, with some exceptions, for any loan in an
amount less than $250,000 is 16% and for any loan in the amount of $250,000 or
more but less than $2,500,000 is 25% per year on a simple interest basis. These
limits do not apply to loans of $2,500,000 or more.

The rest of this subsection describes how the interest rate and the
interest payment dates will be determined, and how interest will be calculated,
on a floating rate Note.

INTEREST RESET DATES. The rate of interest on a floating rate Note will be
reset, by the Calculation Agent described below, daily, weekly, monthly,
quarterly, semi-annually or annually. The date on which the interest rate resets
and the reset rate becomes effective is called the "INTEREST RESET DATE". Except
as otherwise specified in the applicable prospectus supplement, the interest
reset date will be as follows:

- - for floating rate Notes that reset daily, each BUSINESS DAY;

- - for floating rate Notes that reset weekly and are not treasury rate Notes, the
Wednesday of each week;

- - for treasury rate Notes that reset weekly, the Tuesday of each week, except as
otherwise described in the last paragraph under "-- Interest Determination
Dates" below;

- - for floating rate Notes that reset monthly, the third Wednesday of each month;

- - for floating rate Notes that reset quarterly, the third Wednesday of March,
June, September and December of each year;

- - for floating rate Notes that reset semi-annually, the third Wednesday of each
of two months of each year as specified in the applicable prospectus
supplement; and

- - for floating rate Notes that reset annually, the third Wednesday of one month
of each year as specified in the applicable prospectus supplement.

For a floating rate Note, the interest rate in effect on any particular day will
be the interest rate determined with respect to the latest interest reset date
that occurs on or before that day. There are several exceptions, however, to the
reset provisions described above.

The base rate in effect from the original issue date to the first interest
reset date will be the "INITIAL BASE RATE" specified in the applicable
prospectus supplement. For floating rate Notes that reset daily or weekly, the
base rate in effect for each day following the second Business Day prior to an
interest payment date to, but excluding, the interest payment date, and for each
day following the second Business Day prior to the maturity to, but excluding,
the maturity, will be the base rate in effect on that second Business Day.
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If any interest reset date for a floating rate Note would otherwise be a
day that is not a Business Day, the interest reset date will be postponed to the
next day that is a Business Day. For a LIBOR Note, however, if that Business Day
is in the next succeeding calendar month, the interest reset date will be the
immediately preceding Business Day.

INTEREST DETERMINATION DATES. The interest rate that takes effect on an
interest reset date will be determined by the Calculation Agent by reference to
a particular date called the "INTEREST DETERMINATION DATE". Except as otherwise
specified in the applicable prospectus supplement:

- - For all floating rate Notes other than LIBOR Notes, EURIBOR Notes, treasury
rate Notes and 11th district rate Notes, the interest determination date
relating to a particular interest reset date will be the second Business Day
before the interest reset date.

- - For LIBOR Notes, the interest determination date relating to a particular
interest reset date will be the second LONDON BUSINESS DAY preceding the
interest reset date, unless the INDEX CURRENCY is pounds sterling, in which
case the interest determination date will be the interest reset date. We call
the interest determination date for a LIBOR Note the "LIBOR INTEREST
DETERMINATION DATE".

- - For EURIBOR Notes, the interest determination date relating to a particular
interest reset date will be the second EURO BUSINESS DAY preceding the
interest reset date. We call the interest determination date for a EURIBOR
Note the "EURIBOR INTEREST DETERMINATION DATE".

- - For treasury rate Notes, the interest determination date relating to a
particular interest reset date, which we call a "TREASURY INTEREST
DETERMINATION DATE", will be the day of the week in which the interest reset
date falls on which "TREASURY BILLS" -- i.e., direct obligations of the U.S.
government -- would normally be auctioned. Treasury bills are usually sold at
auction on the Monday of each week, unless that day is a legal holiday, in
which case the auction is usually held on the following Tuesday, except that
the auction may be held on the preceding Friday. If as the result of a legal
holiday an auction is held on the preceding Friday, that Friday will be the
treasury interest determination date relating to the interest reset date
occurring in the next succeeding week. If the auction is held on a day that
would otherwise be an interest reset date, then the interest reset date will
instead be the first Business Day following the auction date.

- - For 11th district rate Notes, the interest determination date relating to a
particular interest reset date will be the last working day, in the first
calendar month before that interest reset date, on which the Federal Home Loan
Bank of San Francisco publishes the monthly average cost of funds paid by
member institutions of the Eleventh Federal Home Loan Bank District for the
second calendar month before that interest reset date. We call the interest
determination date for an 11th district rate Note the "11TH DISTRICT INTEREST
DETERMINATION DATE".

INTEREST CALCULATION DATES. As described above, the interest rate that
takes effect on a particular interest reset date will be determined by reference
to the corresponding interest determination date. Except for LIBOR Notes and
EURIBOR Notes, however, the determination of the rate will actually be made on
the corresponding interest calculation date. The "INTEREST CALCULATION DATE"
will be the earlier of the following:

- - the tenth calendar day after the interest determination date or, if that tenth
calendar day is not a Business Day, the next succeeding Business Day; and

- - the Business Day immediately preceding the interest payment date or the
maturity, whichever is the day on which the next payment of interest will be
due.

INTEREST PAYMENT DATES. The "INTEREST PAYMENT DATES" for a floating rate
Note will depend on when the interest rate is reset and, unless we specify
otherwise in the

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applicable prospectus supplement, will be as follows:

- - for floating rate Notes that reset daily, weekly or monthly, the third
Wednesday of each month or the third Wednesday of March, June, September and
December of each year, as specified in the applicable prospectus supplement;

- - for floating rate Notes that reset quarterly, the third Wednesday of March,
June, September and December of each year;

- - for floating rate Notes that reset semi-annually, the third Wednesday of the
two months of each year specified in the applicable prospectus supplement; or

- - for floating rate Notes that reset annually, the third Wednesday of the month
specified in the applicable prospectus supplement.

Regardless of these rules, if a Note is originally issued after the regular
record date and before the date that would otherwise be the first interest
payment date, the first interest payment date will be the date that would
otherwise be the second interest payment date. We have defined the term "regular
record date" below under "-- Payment Mechanics -- Who Receives Payment?".

In addition, the following special provision will apply to a floating rate
Note with regard to any interest payment date other than one that falls on the
maturity. If the interest payment date would otherwise fall on a day that is not
a Business Day, then the interest payment date will be the next day that is a
Business Day. However, if the floating rate Note is a LIBOR Note or a EURIBOR
Note and the next Business Day falls in the next calendar month, then the
interest payment date will be advanced to the next preceding day that is a
Business Day. In all cases, an interest payment date that falls on the maturity
will not be changed.

CALCULATION OF INTEREST. Calculations relating to floating rate Notes will
be made by the "CALCULATION AGENT", an institution that we appoint as our agent
for this purpose. The prospectus supplement for a particular floating rate Note
will name the institution that we have appointed to act as Calculation Agent for
that Note as of its original issue date. GS&Co. will initially be the
Calculation Agent for all the Notes. We may appoint a different institution to
serve as Calculation Agent from time to time without your consent and without
notifying you of the change.

For each floating rate Note, the Calculation Agent will determine, on the
corresponding interest calculation or determination date, as applicable, the
interest rate that takes effect on each interest reset date. In addition, the
Calculation Agent will calculate the amount of interest that has accrued during
each "INTEREST PERIOD" -- i.e., the period from and including the original issue
date, or the last date to which interest has been paid or made available for
payment, to but excluding the payment date. For each interest period, the
Calculation Agent will calculate the amount of accrued interest by multiplying
the face amount of the floating rate Note by an accrued interest factor for the
interest period. This factor will equal the sum of the interest factors
calculated for each day during the interest period. The interest factor for each
day will be expressed as a decimal and will be calculated by dividing the
interest rate (also expressed as a decimal) applicable to that day:

- - by 360, in the case of commercial paper rate Notes, prime rate Notes, LIBOR
Notes, EURIBOR Notes, CD rate Notes, federal funds rate Notes and 11th
district rate Notes; or

- - by the actual number of days in the year, in the case of treasury rate Notes
and CMT rate Notes.

Upon the request of the Holder of any floating rate Note, the Calculation
Agent will provide for that Note the interest rate then in effect -- and, if
determined, the interest rate that will become effective on the next interest
reset date. The Calculation Agent's determination of any interest rate, and its
calculation of the amount of interest for any interest period, will be final and
binding in the absence of manifest error.

All percentages resulting from any calculation relating to a Note will be
rounded upward or downward, as appropriate, to the

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next higher or lower one hundred-thousandth of a percentage point (e.g.,
9.876541% (or .09876541) being rounded down to 9.87654% (or .0987654) and
9.876545% (or .09876545) being rounded up to 9.87655% (or .0987655)). All
amounts used in or resulting from any calculation relating to a floating rate
Note will be rounded upward to the nearest cent, in the case of U.S. dollars, or
to the nearest corresponding hundredth of a unit, in the case of a currency
other than U.S. dollars, with one-half cent or one-half of a corresponding
hundredth of a unit or more being rounded upward.

In determining the base rate that applies to a floating rate Note during a
particular interest period, the Calculation Agent may obtain rate quotes from
various banks or dealers active in the relevant market, as described in the
following subsections. Those reference banks and dealers may include the
Calculation Agent itself and its affiliates, as well as any Agent and its
affiliates, and they may include affiliates of GS Inc.

COMMERCIAL PAPER RATE NOTES

If you purchase a commercial paper rate Note, your Note will bear interest
at a base rate equal to the commercial paper rate and adjusted by the spread or
spread multiplier, if any, specified in your prospectus supplement.

"COMMERCIAL PAPER RATE" means the MONEY MARKET YIELD of the rate, for the
relevant interest determination date, for commercial paper having the INDEX
MATURITY specified in your prospectus supplement, as published in H.15(519)
under the heading "Commercial Paper -- Nonfinancial". If the commercial paper
rate cannot be determined as described above, the following procedures will
apply.

- - If the rate described above is not published in H.15(519) by 3:00 P.M., New
York City time, on the relevant interest calculation date, then the commercial
paper rate will be the rate, for the relevant interest determination date, for
commercial paper having the Index Maturity specified in your prospectus
supplement, as published in H.15 DAILY UPDATE or any other recognized
electronic source used for displaying that rate, under the heading "Commercial
Paper -- Nonfinancial".

- - If the rate described above is not published in H.15(519), H.15 Daily Update
or another recognized electronic source by 3:00 P.M., New York City time, on
the relevant interest calculation date (unless the calculation is made earlier
and the rate is available from one of those sources at that time), the
commercial paper rate will be the Money Market Yield of the arithmetic mean of
the following offered rates for U.S. dollar commercial paper that has the
relevant Index Maturity and is placed for an industrial issuer whose bond
rating is "AA", or the equivalent, from a nationally recognized rating agency:
the rates offered as of 11:00 A.M., New York City time, on the relevant
interest determination date, by three leading U.S. dollar commercial paper
dealers in New York City selected by the Calculation Agent.

- - If fewer than three dealers selected by the Calculation Agent are quoting as
described above, the commercial paper rate for the new interest period will be
the commercial paper rate in effect for the prior interest period. If the
initial base rate has been in effect for the prior interest period, however,
it will remain in effect for the new interest period.

PRIME RATE NOTES

If you purchase a prime rate Note, your Note will bear interest at a base
rate equal to the prime rate and adjusted by the spread or spread multiplier, if
any, specified in your prospectus supplement.

"PRIME RATE" means the rate, for the relevant interest determination date,
published in H.15(519) under the heading "Bank Prime Loan". If the prime rate
cannot be determined as described above, the following procedures will apply.

- - If the rate described above is not published in H.15(519) by 3:00 P.M., New
York City time, on the relevant interest calculation date, then the prime rate
will be the rate, for the relevant interest determination date, as published
in H.15 Daily Update or
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another recognized electronic source used for the purpose of displaying that
rate, under the heading "Bank Prime Loan".

- - If the rate described above is not published in H.15(519), H.15 Daily Update
or another recognized electronic source by 3:00 P.M., New York City time, on
the relevant interest calculation date (unless the calculation is made earlier
and the rate is available from one of those sources at that time),then the
prime rate will be the arithmetic mean of the following rates as they appear
on the REUTERS SCREEN US PRIME 1 PAGE: the rate of interest publicly announced
by each bank appearing on that page as that bank's prime rate or base lending
rate, as of 11:00 A.M., New York City time, on the relevant interest
determination date.

- - If fewer than four of these rates appear on the Reuters Screen US PRIME 1
Page, the prime rate will be the arithmetic mean of the prime rates or base
lending rates, as of the close of business on the relevant interest
determination date, of three major banks in New York City selected by the
Calculation Agent. For this purpose, the Calculation Agent will use rates
quoted on the basis of the actual number of days in the year divided by a
360-day year.

- - If fewer than three banks selected by the Calculation Agent are quoting as
described above, the prime rate for the new interest period will be the prime
rate in effect for the prior interest period. If the initial base rate has
been in effect for the prior interest period, however, it will remain in
effect for the new interest period.

LIBOR NOTES

If you purchase a LIBOR Note, your Note will bear interest at a base rate
equal to "LIBOR", which means the London interbank offered rate for deposits in
U.S. dollars or any other currency, as specified in your prospectus supplement.
In addition, the applicable LIBOR base rate will be adjusted by the spread or
spread multiplier, if any, specified in your prospectus supplement. LIBOR will
be determined in the following manner:

- - LIBOR will be either:

-- the offered rate appearing on the TELERATE LIBOR PAGE; or

-- the arithmetic mean of the offered rates appearing on the REUTERS SCREEN
LIBOR PAGE unless that page by its terms cites only one rate, in which
case that rate;

in either case, as of 11:00 A.M., London time, on the relevant LIBOR interest
determination date, for deposits of the relevant Index Currency having the
relevant Index Maturity beginning on the relevant interest reset date. Your
prospectus supplement will indicate the Index Currency, the Index Maturity and
the reference page that apply to your LIBOR Note. If no reference page is
specified in your prospectus supplement, Telerate LIBOR Page will apply to your
LIBOR Note.

- - If Telerate LIBOR Page applies and the rate described above does not appear on
that page, or if Reuters Screen LIBOR Page applies and fewer than two of the
rates described above appears on that page or no rate appears on any page on
which only one rate normally appears, then LIBOR will be determined on the
basis of the rates, at approximately 11:00 A.M., London time, on the relevant
LIBOR interest determination date, at which deposits of the following kind are
offered to prime banks in the London interbank market by four major banks in
that market selected by the Calculation Agent: deposits of the Index Currency
having the relevant Index Maturity, beginning on the relevant interest reset
date, and in a REPRESENTATIVE AMOUNT. The Calculation Agent will request the
principal London office of each of these banks to provide a quotation of its
rate. If at least two quotations are provided, LIBOR for the relevant LIBOR
interest determination date will be the arithmetic mean of the quotations.

- - If fewer than two quotations are provided as described above, LIBOR for the
relevant LIBOR interest determination date will be the arithmetic mean of the
rates for loans

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of the following kind to leading European banks quoted, at approximately 11:00
A.M., in the principal financial center for the country of the Index Currency,
on that LIBOR interest determination date, by three major banks in that
financial center selected by the Calculation Agent: loans of the Index
Currency having the relevant Index Maturity, beginning on the relevant
interest reset date, and in a Representative Amount.

- - If fewer than three banks selected by the Calculation Agent are quoting as
described above, LIBOR for the new interest period will be LIBOR in effect for
the prior interest period. If the initial base rate has been in effect for the
prior interest period, however, it will remain in effect for the new interest
period.

EURIBOR NOTES

If you purchase a "EURIBOR NOTE", your Note will bear interest at a base
rate equal to the interest rate for deposits in euros designated as "EURIBOR"
and sponsored jointly by the European Banking Federation and ACI -- the
Financial Market Association (or any company established by the joint sponsors
for purposes of compiling and publishing that rate). In addition, the EURIBOR
base rate will be adjusted by the spread or spread multiplier, if any, specified
in your prospectus supplement. EURIBOR will be determined in the following
manner:

- - EURIBOR will be the offered rate for deposits in euros having the Index
Maturity specified in your prospectus supplement, beginning on the second EURO
BUSINESS DAY after the relevant EURIBOR interest determination date, as that
rate appears on TELERATE PAGE 248 as of 11:00 A.M., Brussels time, on the
relevant EURIBOR interest determination date.

- - If the rate described above does not appear on Telerate Page 248, EURIBOR will
be determined on the basis of the rates, at approximately 11:00 A.M., Brussels
time, on the relevant EURIBOR interest determination date, at which deposits
of the following kind are offered to prime banks in the EURO-ZONE interbank
market by the principal Euro-Zone office of each of four major banks in that
market selected by the Calculation Agent: euro deposits having the relevant
Index Maturity, beginning on the relevant interest reset date, and in a
Representative Amount. The Calculation Agent will request the principal
Euro-Zone office of each of these banks to provide a quotation of its rate. If
at least two quotations are provided, EURIBOR for the relevant EURIBOR
interest determination date will be the arithmetic mean of the quotations.

- - If fewer than two quotations are provided as described above, EURIBOR for the
relevant EURIBOR interest determination date will be the arithmetic mean of
the rates for loans of the following kind to leading Euro-Zone banks quoted,
at approximately 11:00 A.M., Brussels time on that EURIBOR interest
determination date, by three major banks in the Euro-Zone selected by the
Calculation Agent: loans of euros having the relevant Index Maturity,
beginning on the relevant interest reset date, and in a Representative Amount.

- - If fewer than three banks selected by the Calculation Agent are quoting as
described above, EURIBOR for the new interest period will be EURIBOR in effect
for the prior interest period. If the initial base rate has been in effect for
the prior interest period, however, it will remain in effect for the new
interest period.

TREASURY RATE NOTES

If you purchase a treasury rate Note, your Note will bear interest at a
base rate equal to the treasury rate and adjusted by the spread or spread
multiplier, if any, specified in your prospectus supplement.

"TREASURY RATE" means the rate for the auction, on the relevant treasury
interest determination date, of treasury bills having the Index Maturity
specified in your prospectus supplement, as that rate appears on Telerate Page
56 or 57 under the heading "Investment Rate". If the treasury rate cannot be
determined in this manner, the following procedures will apply.

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- - If the rate described above does not appear on either page at 3:00 P.M., New
York City time, on the relevant interest calculation date (unless the
calculation is made earlier and the rate is available from that source at that
time), the treasury rate will be the "BOND EQUIVALENT YIELD" of the rate, for
the relevant interest determination date, for the type of treasury bill
described above, as published in H.15 Daily Update, or another recognized
electronic source used for displaying that rate, under the heading "U.S.
Government Securities/Treasury Bills/Auction High".

- - If the rate described in the prior paragraph is not published in H.15 Daily
Update or another recognized electronic source by 3:00 P.M., New York City
time, on the relevant interest calculation date (unless the calculation is
made earlier and the rate is available from one of those sources at that
time), the treasury rate will be the Bond Equivalent Yield of the auction
rate, for the relevant treasury interest determination date and the type of
treasury bill described above, as announced by the U.S. Department of the
Treasury.

- - If the auction rate described in the prior paragraph is not so announced by
3:00 P.M., New York City time, on the relevant interest calculation date, or
if no such auction is held for the relevant week, then the treasury rate will
be the Bond Equivalent Yield of the rate, for the relevant treasury interest
determination date, for treasury bills of the kind described above, as
published in H.15(519) under the heading "U.S. Government Securities/Treasury
Bills/Secondary Market".

- - If the rate described in the prior paragraph is not published in H.15(519) by
3:00 P.M., New York City time, on the relevant interest calculation date, then
the treasury rate will be the rate, for the relevant treasury interest
determination date and treasury bills of the kind described above, as
published in H.15 Daily Update, or another recognized electronic source used
for displaying that rate, under the heading "U.S. Government
Securities/Treasury Bills/Secondary Market".

- - If the rate described in the prior paragraph is not published in H.15 Daily
Update or another recognized electronic source by 3:00 P.M., New York City
time, on the relevant interest calculation date (unless the calculation is
made earlier and the rate is available from one of those sources at that
time), the treasury rate will be the Bond Equivalent Yield of the arithmetic
mean of the following secondary market bid rates for the issue of treasury
bills with a remaining maturity closest to the specified Index Maturity: the
rates bid as of approximately 3:30 P.M., New York City time, on the relevant
treasury interest determination date, by three primary U.S. government
securities dealers in New York City selected by the Calculation Agent.

- - If fewer than three dealers selected by the Calculation Agent are quoting as
described in the prior paragraph, the treasury rate in effect for the new
interest period will be the treasury rate in effect for the prior interest
period. If the initial base rate has been in effect for the prior interest
period, however, it will remain in effect for the new interest period.

CMT RATE NOTES

If you purchase a CMT rate Note, your Note will bear interest at a base
rate equal to the CMT rate and adjusted by the spread or spread multiplier, if
any, specified in your prospectus supplement.

"CMT RATE" means the following rate displayed on the DESIGNATED CMT
TELERATE PAGE under the heading " . . . Treasury Constant Maturities . . .
Federal Reserve Board Release H.15 . . . Mondays Approximately 3:45 P.M.",
under the column for the DESIGNATED CMT INDEX MATURITY:

- - if the Designated CMT Telerate Page is Telerate Page 7051, the rate for the
relevant interest determination date; or

- - if the Designated CMT Telerate Page is Telerate Page 7052, the weekly or
monthly average, as specified in your prospectus supplement, for the week that
ends immediately before the week in which the relevant interest determination
date falls, or for

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the month that ends immediately before the month in which the relevant interest
determination date falls, as applicable.

If the CMT rate cannot be determined in this manner, the following procedures
will apply.

- - If the applicable rate described above is not displayed on the relevant
Designated CMT Telerate Page at 3:00 P.M., New York City time, on the relevant
interest calculation date (unless the calculation is made earlier and the rate
is available from that source at that time), then the CMT rate will be the
applicable treasury constant maturity rate described above -- i.e., for the
Designated CMT Index Maturity and for either the relevant interest
determination date or the weekly or monthly average, as applicable -- as
published in H.15(519).

- - If the applicable rate described above is not published in H.15(519) by 3:00
P.M., New York City time, on the relevant interest calculation date, then the
CMT rate will be the treasury constant maturity rate, or other U.S. treasury
rate, for the Designated CMT Index Maturity and with reference to the relevant
interest determination date, that:

-- is published by the Board of Governors of the Federal Reserve System, or
the U.S. Department of the Treasury, and

-- is determined by the Calculation Agent to be comparable to the
applicable rate formerly displayed on the Designated CMT Telerate Page
and published in H.15(519).

- - If the rate described in the prior paragraph is not published by 3:00 P.M.,
New York City time, on the relevant interest calculation date, then the CMT
rate will be the yield to maturity of the arithmetic mean of the following
secondary market offered rates for the most recently issued treasury notes
having an original maturity of approximately the Designated CMT Index Maturity
and a remaining term to maturity of not less than the Designated CMT Index
Maturity minus one year: the offered rates, as of approximately 3:30 P.M., New
York City time, on the relevant interest determination date, of three primary
U.S. government securities dealers in New York City selected by the
Calculation Agent. In selecting these offered rates, the Calculation Agent
will request quotations from five of these primary dealers and will disregard
the highest quotation -- or, if there is equality, one of the highest -- and
the lowest quotation -- or, if there is equality, one of the lowest. "TREASURY
NOTES" means direct, non-callable, fixed rate obligations of the U.S.
government.

- - If the Calculation Agent is unable to obtain three quotations of the kind
described in the prior paragraph, the CMT rate will be the yield to maturity
of the arithmetic mean of the following secondary market offered rates for
treasury notes with an original maturity longer than the Designated CMT Index
Maturity, with a remaining term to maturity closest to the Designated CMT
Index Maturity and in a Representative Amount: the offered rates, as of
approximately 3:30 P.M., New York City time, on the relevant interest
determination date, of three primary U.S. government securities dealers in New
York City selected by the Calculation Agent. In selecting these offered rates,
the Calculation Agent will request quotations from five of these primary
dealers and will disregard the highest quotation -- or, if there is equality,
one of the highest -- and the lowest quotation -- or, if there is equality,
one of the lowest. If two treasury notes with an original maturity longer than
the CMT Designated Index Maturity have remaining terms to maturity that are
equally close to the Designated CMT Index Maturity, the Calculation Agent will
obtain quotations for the treasury note with the shorter remaining term to
maturity.

- - If fewer than five but more than two of these primary dealers are quoting as
described in the prior paragraph, then the CMT rate for the relevant interest
determination date will be based on the arithmetic mean of the offered rates
so obtained, and neither the highest nor the lowest of those quotations will
be disregarded.

- - If two or fewer primary dealers selected by the Calculation Agent are quoting
as
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described above, the CMT rate in effect for the new interest period will be
the CMT rate in effect for the prior interest period. If the initial base rate
has been in effect for the prior interest period, however, it will remain in
effect for the new interest period.

CD RATE NOTES

If you purchase a CD rate Note, your Note will bear interest at a base rate
equal to the CD rate and adjusted by the spread or spread multiplier, if any,
specified in your prospectus supplement.

"CD RATE" means the rate, on the relevant interest determination date, for
negotiable U.S. dollar certificates of deposit having the Index Maturity
specified in your prospectus supplement, as published in H.15(519) under the
heading "CDs (Secondary Market)". If the CD rate cannot be determined in this
manner, the following procedures will apply.

- - If the rate described above is not published in H.15(519) by 3:00 P.M., New
York City time, on the relevant interest calculation date, then the CD rate
will be the rate described above as published in H.15 Daily Update, or another
recognized electronic source used for displaying that rate, under the heading
"CDs (Secondary Market)".

- - If the rate described above is not published in H.15(519), H.15 Daily Update
or another recognized electronic source by 3:00 P.M., New York City time, on
the relevant interest calculation date (unless the calculation is made earlier
and the rate is available from one of those sources at that time), the CD rate
will be the arithmetic mean of the following secondary market offered rates
for negotiable U.S. dollar certificates of deposit of major U.S. money center
banks with a remaining maturity closest to the specified Index Maturity, and
in a Representative Amount: the rates offered as of 10:00 A.M., New York City
time, on the relevant interest determination date, by three leading nonbank
dealers in negotiable U.S. dollar certificates of deposit in New York City, as
selected by the Calculation Agent.

- - If fewer than three dealers selected by the Calculation Agent are quoting as
described above, the CD rate in effect for the new interest period will be the
CD rate in effect for the prior interest period. If the initial base rate has
been in effect for the prior interest period, however, it will remain in
effect for the new interest period.

FEDERAL FUNDS RATE NOTES

If you purchase a federal funds rate Note, your Note will bear interest at
a base rate equal to the federal funds rate and adjusted by the spread or spread
multiplier, if any, specified in your prospectus supplement.

"FEDERAL FUNDS RATE" means the rate for U.S. dollar federal funds on the
relevant interest determination date, as published in H.15 (519) under the
heading "Federal Funds (Effective)", as that rate is displayed on Telerate Page
120. If the federal funds rate cannot be determined in this manner, the
following procedures will apply.

- - If the rate described above is not displayed on Telerate Page 120 at 3:00
P.M., New York City time, on the relevant interest calculation date (unless
the calculation is made earlier and the rate is available from that source at
that time), then the federal funds rate will be the rate described above as
published in H.15 Daily Update, or another recognized electronic source used
for displaying that rate, under the heading "Federal Funds (Effective)".

- - If the rate described above is not displayed on Telerate Page 120 and is not
published in H.15(519), H.15 Daily Update or another recognized electronic
source by 3:00 P.M., New York City time, on the relevant interest calculation
date (unless the calculation is made earlier and the rate is available from
one of those sources at that time), the federal funds rate will be the
arithmetic mean of the rates for the last transaction in overnight, U.S.
dollar federal funds arranged, before 9:00 A.M., New York City time, on the
relevant interest determination date, by three leading brokers of U.S. dollar
federal funds transactions in New York City selected by the Calculation Agent.

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- - If fewer than three brokers selected by the Calculation Agent are quoting as
described above, the federal funds rate in effect for the new interest period
will be the federal funds rate in effect for the prior interest period. If the
initial base rate has been in effect for the prior interest period, however,
it will remain in effect for the new interest period.

11TH DISTRICT RATE NOTES

If you purchase an 11th district rate Note, your note will bear interest at
a base rate equal to the 11th district rate and adjusted by the spread or spread
multiplier, if any, specified in your prospectus supplement.

"11TH DISTRICT RATE" means the rate equal to the monthly weighted average
cost of funds for the calendar month immediately before the relevant 11th
district interest determination date, as displayed on Telerate Page 7058 under
the heading "11th District" as of 11:00 A.M., San Francisco time, on that date.
If the 11th district rate cannot be determined in this manner, the following
procedures will apply.

- - If the rate described above does not appear on Telerate Page 7058 on the
relevant 11th district interest determination date, then the 11th district
rate for that date will be the monthly weighted average cost of funds paid by
institutions that are members of the Eleventh Federal Home Loan Bank District
for the calendar month immediately before the relevant 11th district interest
determination date, as most recently announced by the Federal Home Loan Bank
of San Francisco as that cost of funds.

- - If the Federal Home Loan Bank of San Francisco fails to announce the cost of
funds described in the prior paragraph on or before the relevant 11th district
interest determination date, the 11th district rate in effect for the new
interest period will be the 11th district rate in effect for the prior
interest period. If the initial base rate has been in effect for the prior
interest period, however, it will remain in effect for the new interest
period.

SPECIAL RATE CALCULATION TERMS

In this subsection entitled "-- Interest Rates", we use several capitalized
terms that have special meanings relevant to calculating floating interest
rates. We define these terms as follows:

"BOND EQUIVALENT YIELD" means a yield expressed as a percentage and
calculated in accordance with the following formula:

<TABLE>
<S> <C> <C> <C> <C>
D x N
Bond Equivalent Yield = ------------- x 100
360 - (D x M)
</TABLE>

where

- - "D" means the annual rate for treasury bills quoted on a bank discount basis
and expressed as a decimal;

- - "N" means 365 or 366, as the case may be; and

- - "M" means the actual number of days in the applicable interest reset period.

"BUSINESS DAY" means, for any Note, a day that meets all the following
applicable requirements:

- - for all Notes, is a Monday, Tuesday, Wednesday, Thursday or Friday that is not
a day on which banking institutions in New York City generally are authorized
or obligated by law, regulation or executive order to close;

- - if the Note is a LIBOR Note, is also a London Business Day;

- - if the Note has a specified currency other than U.S. dollars or euros, is also
a day on which banking institutions are not authorized or obligated by law,
regulation or executive order to close in the principal financial center of
the country issuing the specified currency; and

- - if the Note is a EURIBOR Note or has a specified currency of euros, or is a
LIBOR Note for which the Index Currency is euros, is also a Euro Business Day.

"DESIGNATED CMT INDEX MATURITY" means the Index Maturity for a CMT rate
Note and will be the original period to maturity of a U.S. treasury
security -- either 1, 2, 3, 5, 7, 10, 20 or 30 years -- specified in the
applicable pricing supplement. If no such original matur-

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ity period is so specified, the Designated CMT Index Maturity will be 2 years.

"DESIGNATED CMT TELERATE PAGE" means the Telerate Page specified in the
applicable prospectus supplement that displays treasury constant maturities as
reported in H.15(519). If no Telerate Page is so specified, then the applicable
page will be Telerate Page 7052. If Telerate Page 7052 applies but the
applicable prospectus supplement does not specify whether the weekly or monthly
average applies, the weekly average will apply.

"EURO BUSINESS DAY" means any day on which the Trans-European Automated
Real-Time Gross Settlement Express Transfer (TARGET) System, or any successor
system, is open for business.

"EURO-ZONE" means, at any time, the region comprised of the member states
of the European Economic and Monetary Union that, as of that time, have adopted
a single currency in accordance with the Treaty on European Union of February
1992.

"H.15(519)" means the weekly statistical release entitled "Statistical
Release H.15 (519)", or any successor publication, published by the Board of
Governors of the Federal Reserve System.

"H.15 DAILY UPDATE" means the daily update of H.15(519) available through
the worldwide-web site of the Board of Governors of the Federal Reserve System,
at http://www.bog.frb.us/releases/h15/update, or any successor site or
publication.

"INDEX CURRENCY" means, with respect to a LIBOR Note, the currency
specified as such in the applicable prospectus supplement. The Index Currency
may be U.S. dollars or any other currency, and will be U.S. dollars unless
another currency is specified in the applicable prospectus supplement.

"INDEX MATURITY" means, with respect to a floating rate Note, the period to
maturity of the instrument or obligation on which the interest rate formula is
based, as specified in the applicable prospectus supplement.

"LONDON BUSINESS DAY" means any day on which dealings in the relevant Index
Currency are transacted in the London interbank market.

"MONEY MARKET YIELD" means a yield expressed as a percentage and calculated
in accordance with the following formula:

<TABLE>
<S> <C> <C> <C> <C>
D x 360
Money Market Yield = ------------- x 100
360 - (D x M)
</TABLE>

where

- - "D" means the annual rate for commercial paper quoted on a bank discount basis
and expressed as a decimal; and

- - "M" means the actual number of days in the relevant interest period.

"REPRESENTATIVE AMOUNT" means an amount that, in the Calculation Agent's
judgment, is representative of a single transaction in the relevant market at
the relevant time.

"REUTERS SCREEN LIBOR PAGE" means the display on the Reuters Monitor Money
Rates Service, or any successor service, on the page designated as "LIBO" or any
replacement page or pages on which London interbank rates of major banks for the
relevant Index Currency are displayed.

"REUTERS SCREEN US PRIME 1 PAGE" means the display on the "US PRIME 1" page
on the Reuters Monitor Money Rates Service, or any successor service, or any
replacement page or pages on that service, for the purpose of displaying prime
rates or base lending rates of major U.S. banks.

"TELERATE LIBOR PAGE" means Telerate Page 3750 or any replacement page or
pages on which London interbank rates of major banks for the relevant Index
Currency are displayed.

"TELERATE PAGE" means the display on Bridge Telerate, Inc., or any
successor service, on the page or pages specified in this prospectus or the
applicable prospectus supplement, or any replacement page or pages on that
service.

If, when we use the terms Designated CMT Telerate Page, H.15(519), H.15
Daily Update, Reuters Screen LIBOR Page, Reuters

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Screen US PRIME 1 Page, Telerate LIBOR Page or Telerate Page, we refer to a
particular heading or headings on any of those pages, those references include
any successor or replacement heading or headings as determined by the
Calculation Agent.

REDEMPTION AND REPAYMENT

Unless otherwise indicated in your prospectus supplement, your Note will
not be entitled to the benefit of any sinking fund -- that is, we will not
deposit money on a regular basis into any separate custodial account to repay
your Notes. In addition, we will not be entitled to redeem your Note before its
stated maturity unless your prospectus supplement specifies a "REDEMPTION
COMMENCEMENT DATE". You will not be entitled to require us to buy your Note from
you, before its stated maturity, unless your prospectus supplement specifies one
or more "REPAYMENT DATES".

If your prospectus supplement specifies a redemption commencement date or a
repayment date, it will also specify one or more "REDEMPTION PRICES" or
"REPAYMENT PRICES", which will be expressed as a percentage of the principal
amount of your Note. It may also specify one or more "REDEMPTION PERIODS" during
which the redemption prices relating to a redemption of Notes during those
periods will apply.

If your prospectus supplement specifies a redemption commencement date,
your Note will be redeemable at our option at any time on or after that date. If
we redeem your Note, we will do so at the specified redemption price, together
with interest accrued to the redemption date. If different prices are specified
for different redemption periods, the price we pay will be the price that
applies to the redemption period during which your Note is redeemed.

If your prospectus supplement specifies a repayment date, your Note will be
repayable at your option on the specified repayment date at the specified
repayment price, together with interest accrued to the repayment date.

In the event that we exercise an option to redeem any Note, we will give to
the Trustee and the Holder written notice of the principal amount of the Note to
be redeemed, not less than 30 days nor more than 60 days before the applicable
redemption date. We will give the notice in the manner described below in
"-- Notices".

If a Note represented by a global Note is subject to repayment at the
Holder's option, the Depositary or its nominee, as the Holder, will be the only
person that can exercise the right to repayment. Any indirect holders who own
beneficial interests in the global Note and wish to exercise a repayment right
must give proper and timely instructions to their banks or brokers through which
they hold their interests, requesting that they notify the Depositary to
exercise the repayment right on their behalf. Different firms have different
deadlines for accepting instructions from their customers, and you should take
care to act promptly enough to ensure that your request is given effect by the
Depositary before the applicable deadline for exercise.

Street name and other indirect holders should contact their banks or
brokers for information about how to exercise a repayment right in a
timely manner.

In the event that the option of the Holder to elect repayment as described
above is deemed to be a "tender offer" within the meaning of Rule 14e-1 under
the Securities Exchange Act of 1934, we will comply with Rule 14e-1 as then in
effect to the extent applicable.

We or our affiliates may purchase Notes from investors who are willing to
sell from time to time, either in the open market at prevailing prices or in
private transactions at negotiated prices. Notes that we or they purchase may,
at our discretion, be held, resold or cancelled.

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MERGERS AND SIMILAR TRANSACTIONS

We are generally permitted to merge or consolidate with another firm. We
are also permitted to sell substantially all our assets to another firm. We may
not take any of these actions, however, unless all the following conditions are
met:

- - If the successor firm in the transaction is not GS Inc., the successor firm
must be organized as a corporation, partnership, trust, limited liability
company or other similar entity and must expressly assume GS Inc.'s
obligations under the Notes and the Indenture. The successor firm may be
organized under the laws of any jurisdiction, whether in the United States or
elsewhere.

- - Immediately after the transaction, no default under the Notes has occurred and
is continuing. For this purpose, "default under the Notes" means an Event of
Default or any event that would be an Event of Default if the requirements for
giving us default notice and for our default having to continue for a specific
period of time were disregarded. We describe these matters below under
"-- Default, Remedies and Waiver of Default".

If the conditions described above are satisfied, we will not need to obtain
the approval of the Holders in order to merge or consolidate or to sell all or
substantially all our assets. Also, these conditions will apply only if we wish
to merge or consolidate with another firm or sell all or substantially all our
assets. We will not need to satisfy these conditions if we enter into other
types of transactions, including any transaction in which we acquire the stock
or assets of another firm, any transaction that involves a change of control of
GS Inc. but in which we do not merge or consolidate and any transaction in which
we sell less than substantially all our assets.

Also, if we merge, consolidate or sell all or substantially all of our
assets and the successor firm is a non-U.S. entity, we will not be obligated to
compensate you for any resulting adverse tax consequences to the Notes.

RESTRICTIVE COVENANT AND DEFEASANCE

RESTRICTION ON LIENS

In the Indenture, we promise not to create or guarantee any debt for
borrowed money that is secured by a lien on our voting or profit participating
equity ownership interests in our subsidiary, GS&Co. (or in any subsidiary
owning those interests), unless we also secure the Notes on an equal or priority
basis with the other secured debt. Our promise, however, is subject to an
important exception: we may secure debt for borrowed money with liens on those
interests without securing the Notes if our Board of Directors determines that
the liens do not materially detract from or interfere with the then-present
value or control of those interests.

Except as noted above, the Indenture does not restrict our ability to put
liens on our interests in our subsidiaries other than GS&Co., nor does it
restrict our ability to sell or otherwise dispose of our interests in any of our
subsidiaries, including GS&Co.

DEFEASANCE AND COVENANT DEFEASANCE

Unless we say otherwise in the applicable prospectus supplement, the
provisions for full defeasance and covenant defeasance described below apply to
each Note as indicated in the applicable prospectus supplement. In general, we
expect these provisions to apply to each Note that is not a floating rate or
indexed Note and to each Note that has a specified currency of U.S. dollars.

FULL DEFEASANCE. If there is a change in U.S. federal tax law, as
described below, we can legally release ourselves from all payment and other
obligations on your Note. This is called "FULL DEFEASANCE". To do so, each of
the following must occur:

- - We must deposit in trust for the benefit of all Holders a combination of money
and U.S. government or U.S. government agency notes or bonds that will
generate enough cash to make interest, principal and any other payments on
your Note on their various due dates;

- - There must be a change in current U.S. federal tax law or an Internal Revenue

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Service ruling that lets us make the above deposit without causing you to be
taxed on your Note any differently than if we did not make the deposit and
just repaid the Note ourselves. Under current federal tax law, the deposit and
our legal release from the Note would be treated as though we took back your
Note and gave you your share of the cash and notes or bonds deposited in
trust. In that event, you could recognize gain or loss on your Note; and

- - We must deliver to the Trustee a legal opinion of our counsel confirming the
tax law change described above.

If we ever did accomplish full defeasance, you would have to rely solely on
the trust deposit for payments on your Note. You could not look to us for
payment in the event of any shortfall.

COVENANT DEFEASANCE. Under current U.S. federal tax law, we can make the
same type of deposit described above and be released from certain restrictive
covenants relating to your Note. This is called "COVENANT DEFEASANCE". In that
event, you would lose the protection of those restrictive covenants. In order to
achieve covenant defeasance, we must do both of the following:

- - We must deposit in trust for the benefit of the Holders a combination of money
and U.S. government or U.S. government agency notes or bonds that will
generate enough cash to make interest, principal and any other payments on
your Note on their various due dates.

- - We must deliver to the Trustee a legal opinion of our counsel confirming that
under current U.S. federal income tax law we may make the above deposit
without causing you to be taxed on your Note any differently than if we did
not make the deposit and just repaid the Note ourselves.

If we accomplish covenant defeasance with regard to your Note, the
following provisions of the Indenture and the Notes would no longer apply:

- - Our promise not to create liens on our voting or profit participating equity
ownership interests in GS&Co. described above under "-- Restriction on Liens"
and any other covenants that your prospectus supplement may state are
applicable to your Note; and

- - The Events of Default resulting from a breach of covenants, described below in
the fourth item under "-- Default, Remedies and Waiver of Default -- Events of
Default".

If we accomplish covenant defeasance, you can still look to us for
repayment of your Note in the event of any shortfall in the trust deposit. In
fact, if one of the remaining Events of Default occurred, such as our
bankruptcy, and your Note became immediately due and payable, there may be a
shortfall. Depending on the event causing the default, you may not be able to
obtain payment of the shortfall.

DEFAULT, REMEDIES AND WAIVER OF DEFAULT

You will have special rights if an Event of Default with respect to your
Note occurs and is not cured, as described in this subsection.

EVENTS OF DEFAULT

With respect to your Note, the term "EVENT OF DEFAULT" means any of the
following:

- - We do not pay the principal or any premium on any Note on its due date;

- - We do not pay interest on any Note within 30 days after its due date;

- - We do not deposit a sinking fund payment with regard to any Note on its due
date, but only if the payment is required in the applicable prospectus
supplement;

- - We remain in breach of our covenant described under "-- Restrictive Covenant
and Defeasance -- Restriction on Liens" above, or any other covenant we make
in the Indenture for the benefit of the Notes, for 60 days after we receive a
notice of default stating that we are in breach. The notice must be sent by
the Trustee or the Holders of not less than 10% in principal amount of the
Notes;

- - We file for bankruptcy or other events of bankruptcy, insolvency or
reorganization re-

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lating to GS Inc. occur. Those events must arise under U.S. federal or state
law, unless we merge, consolidate or sell our assets as described above and
the successor firm is a non-U.S. entity. If that happens, then those events
must arise under U.S. federal or state law or the law of the jurisdiction in
which the successor firm is legally organized; or

- - If your prospectus supplement states that any additional Event of Default
applies to your Note, that Event of Default occurs.

REMEDIES IF AN EVENT OF DEFAULT OCCURS

If an Event of Default has occurred and has not been cured or waived, the
Trustee or the Holders of not less than 25% in principal amount of all Notes may
declare the entire principal amount of all the Notes to be due immediately. If
an Event of Default occurs because of events in bankruptcy, insolvency or
reorganization relating to GS Inc., the entire principal amount of all the Notes
will be automatically accelerated, without any action by the Trustee or any
Holder.

Each of the situations described above is called an "ACCELERATION OF THE
MATURITY" of the affected Notes. If the maturity of any Notes is accelerated and
a judgment for payment has not yet been obtained, the Holders of a majority in
principal amount of the Notes affected by the acceleration may cancel the
acceleration for all the affected Notes.

If an Event of Default occurs, the Trustee will have special duties. In
that situation, the Trustee will be obligated to use those of its rights and
powers under the Indenture, and to use the same degree of care and skill in
doing so, that a prudent person would use in that situation in conducting his or
her own affairs.

Except as described in the prior paragraph, the Trustee is not required to
take any action under the Indenture at the request of any Holders unless the
Holders offer the Trustee reasonable protection from expenses and liability.
This is called an "INDEMNITY". If reasonable indemnity is provided, the Holders
of a majority in principal amount of all Notes may direct the time, method and
place of conducting any lawsuit or other formal legal action seeking any remedy
available to the Trustee. These majority Holders may also direct the Trustee in
performing any other action under the Indenture with respect to the Notes.

Before you bypass the Trustee and bring your own lawsuit or other formal
legal action or take other steps to enforce your rights or protect your
interests relating to the Notes, the following must occur:

- - You must give the Trustee written notice that an Event of Default has
occurred, and the Event of Default must not have been cured or waived.

- - The Holders of not less than 25% in principal amount of all Notes must make a
written request that the Trustee take action because of the default, and they
or you must offer reasonable indemnity to the Trustee against the cost and
other liabilities of taking that action.

- - The Trustee must not have taken action for 60 days after the above steps have
been taken.

- - During those 60 days, the Holders of a majority in principal amount of the
Notes must not have given the Trustee directions that are inconsistent with
the written request of the Holders of not less than 25% in principal amount of
all Notes.

You are, however, entitled at any time to bring a lawsuit for the payment of
money due on your Note on or after its due date.

WAIVER OF DEFAULT

The Holders of not less than a majority in principal amount of the Notes
may waive a default for all the Notes. If this happens, the default will be
treated as if it has not occurred. No one can waive a payment default on your
Note, however, without the approval of the particular Holder of that Note.

WE WILL GIVE THE TRUSTEE INFORMATION ABOUT DEFAULTS ANNUALLY

We will furnish to the Trustee every year a written statement of two of our
officers

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certifying that to their knowledge we are in compliance with the Indenture and
the Notes, or else specifying any default.

Book-entry and other indirect holders should consult their banks or brokers
for information on how to give notice or direction to or make a request of the
Trustee and how to declare or cancel an acceleration of the maturity.

MODIFICATION AND WAIVER OF COVENANTS

There are three types of changes we can make to the Indenture and the
Notes.

CHANGES REQUIRING EACH HOLDER'S APPROVAL

First, there are changes that cannot be made without the approval of each
Holder of a Note affected by the change. Here is a list of those types of
changes:

- - change the stated maturity for any principal or interest payment on a Note;

- - reduce the principal amount, the amount payable on acceleration of the
maturity after a default, the interest rate or the redemption price for a
Note;

- - permit redemption of a Note if not previously permitted;

- - impair any right a Holder may have to require repayment of its Note;

- - impair any right that a Holder of an indexed Note may have to exchange the
Note for securities or other property;

- - change the currency of any payment on a Note;

- - change the place of payment on a Note, if it is in non-global form;

- - impair a Holder's right to sue for payment of any amount due on its Note;

- - reduce the percentage in principal amount of the Notes and any other affected
series of debt securities, taken together, the approval of whose Holders is
needed to change the Indenture or the Notes;

- - reduce the percentage in principal amount of the Notes and any other affected
series of debt securities, taken separately or together, as the case may be,
the consent of whose Holders is needed to waive our compliance with the
Indenture or to waive defaults; and

- - change the provisions of the Indenture dealing with modification and waiver in
any other respect, except to increase any required percentage referred to
above or to add to the provisions that cannot be changed or waived without
approval.

CHANGES NOT REQUIRING APPROVAL

The second type of change does not require any approval by Holders of
Notes. This type is limited to clarifications and changes that would not
adversely affect the Notes in any material respect. Nor do we need any approval
to make changes that affect only debt securities to be issued under the
Indenture after the changes take effect.

We may also make changes or obtain waivers that do not adversely affect a
particular Note, even if they affect other Notes or other debt securities. In
those cases, we do not need to obtain the approval of the Holder of that Note;
we need only obtain any required approvals from the Holders of the affected
Notes or other debt securities.

CHANGES REQUIRING MAJORITY APPROVAL

Any other change to the Indenture and the Notes would require the following
approval:

- - If the change affects only the Notes, it must be approved by the Holders of a
majority in principal amount of the Notes.

- - If the change affects the Notes as well as one or more other series of debt
securities issued under the Indenture, it must be approved by the Holders of a
majority in principal amount of the Notes and all other series affected by the
change, with the Notes and all the other series voting together as one class
for this purpose.

In each case, the required approval must be given by written consent.

The same majority approval would be required for us to obtain a waiver of
any of

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our covenants in the Indenture. Our covenants include the promises we make about
merging and putting liens on our interests in GS&Co., which we describe above
under "-- Mergers and Similar Transactions" and "-- Restrictive Covenant and
Defeasance". If the Holders approve a waiver of a covenant, we will not have to
comply with it. The Holders, however, cannot approve a waiver of any provision
in a particular Note, or in the Indenture as it affects that Note, that we
cannot change without the approval of the Holder of that Note as described above
in "-- Changes Requiring Each Holder's Approval", unless that Holder approves
the waiver.

Book-entry and other indirect holders should consult their banks or brokers
for information on how approval may be granted or denied if we seek to change
the Indenture or the Notes or request a waiver.

SPECIAL RULES FOR ACTION BY HOLDERS

When Holders take any action under the Indenture, such as giving a notice
of default, declaring an acceleration, approving any change or waiver or giving
the Trustee an instruction, we will apply the following rules. We may apply
similar rules to other series of debt securities issued under the Indenture.

ONLY OUTSTANDING NOTES ARE ELIGIBLE

Only Holders of outstanding Notes will be eligible to participate in any
action by Holders. Also, we will count only outstanding Notes in determining
whether the various percentage requirements for taking action have been met. For
these purposes, a Note will not be "outstanding":

- - if it has been surrendered for cancellation;

- - if we have deposited or set aside, in trust for its Holder, money for its
payment or redemption;

- - if we have fully defeased it as described above under "-- Restrictive Covenant
and Defeasance -- Defeasance and Covenant Defeasance -- Full Defeasance"; or

- - if we or one of our affiliates, such as GS&Co., is the beneficial owner.

In some situations, Holders of debt securities of other series may be eligible
to participate in an action by Holders of Notes. In that event, we may follow
special rules in calculating the principal amount of their debt securities that
is to be treated as outstanding for the purposes described above. This may
happen, for example, if the principal amount is payable in a foreign currency,
increases over time or is not to be fixed until maturity.

DETERMINING RECORD DATES

We will generally be entitled to set any day as a record date for the
purpose of determining the Holders that are entitled to take action under the
Indenture. In certain limited circumstances, only the Trustee will be entitled
to set a record date for action by Holders. If we or the Trustee set a record
date for an approval or other action to be taken by Holders, that vote or action
may be taken only by persons or entities who are Holders on the record date and
must be taken during the period that we specify for this purpose, or that the
Trustee specifies if it sets the record date. We or the Trustee, as applicable,
may shorten or lengthen this period from time to time. This period, however, may
not extend beyond the 180th day after the record date for the action. In
addition, record dates for any global Note may be set in accordance with
procedures established by the Depositary from time to time. Accordingly, record
dates for global Notes may differ from those for other Notes.

ELIGIBLE PRINCIPAL AMOUNT OF SOME NOTES

For any Note of the kind described below, we will decide how much principal
amount to attribute to the Note as follows:

- - For an original issue discount Note, we will use the principal amount that
would be due and payable on the action date if the maturity of the Note were
accelerated to that date because of a default;

- - For a Note whose principal amount is not known, we will use any amount that we
indicate in the prospectus supplement for

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that Note. The principal amount of a Note may not be known, for example,
because it is based on an index that changes from time to time and the
principal amount is not to be determined until a later date; or

- - For Notes with a principal amount denominated in one or more foreign
currencies or currency units, we will use the U.S. dollar equivalent, which we
will determine.

FORM, EXCHANGE AND TRANSFER

If the Notes cease to be issued in global form, those Notes will be issued:

- - only in fully registered form;

- - without interest coupons; and

- - unless we indicate otherwise in your prospectus supplement, in denominations
of $1,000 and that are multiples of $1,000.

Holders may exchange their Notes for Notes of smaller denominations or
combined into fewer Notes of larger denominations, as long as the total
principal amount is not changed. This is called an "EXCHANGE".

Holders may exchange or transfer their Notes at the office of the Trustee.
We have appointed the Trustee to act as our agent for registering Notes in the
names of Holders and transferring Notes. We may appoint another entity to
perform these functions or perform them ourselves.

Holders will not be required to pay a service charge to transfer or
exchange their Notes, but they may be required to pay for any tax or other
governmental charge associated with the exchange or transfer. The transfer or
exchange will be made only if our transfer agent is satisfied with the Holder's
proof of legal ownership.

If we have designated additional transfer agents for your Note, they will
be named in your prospectus supplement. We may appoint additional transfer
agents or cancel the appointment of any particular transfer agent. We may also
approve a change in the office through which any transfer agent acts.

If any Notes are redeemable and we redeem less than all those Notes, we may
block the transfer or exchange of those Notes during the period beginning 15
days before the day we mail the notice of redemption and ending on the day of
that mailing, in order to freeze the list of Holders to prepare the mailing. We
may also refuse to register transfers of or exchange any Note selected for
redemption, except that we will continue to permit transfers and exchanges of
the unredeemed portion of any Note being partially redeemed.

If a Note is issued as a global Note, only the Depositary will be entitled
to transfer and exchange the Note as described in this subsection, since it will
be the sole Holder of the Note.

PAYMENT MECHANICS

WHO RECEIVES PAYMENT?

If interest is due on a Note on an interest payment date, we will pay the
interest to the person or entity in whose name the Note is registered at the
close of business on the regular record date (see below) relating to the
interest payment date. If interest is due at maturity but on a day that is not
an interest payment date, we will pay the interest to the person or entity
entitled to receive the principal of the Note. If principal or another amount
besides interest is due on a Note at maturity, we will pay the amount to the
Holder of the Note against surrender of the Note at a proper place of payment
(or, in the case of a global Note, in accordance with the applicable policies of
the Depositary).

Unless we specify otherwise in the applicable prospectus supplement, the
"REGULAR RECORD DATE" relating to an interest payment date for any fixed rate
Note will be the May 1 or November 1 next preceding that interest payment date,
and for any floating rate Note will be the 15th calendar day before that
interest payment date, in each case whether or not the record date is a Business
Day. For the purpose of determining the Holder at the "close of business" on a
regular record date when business is not being conducted, the close of business
will mean 5:00 P.M., New York City time, on that day.

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HOW WE WILL MAKE PAYMENTS DUE IN U.S. DOLLARS

We will follow the practice described in this subsection when paying
amounts due in U.S. dollars. Payments of amounts due in other currencies will be
made as described in the next subsection.

PAYMENTS ON GLOBAL NOTES. We will make payments on a global Note in
accordance with the applicable policies of the Depositary as in effect from time
to time. Under those policies, we will pay directly to the Depositary, or its
nominee, and not to any indirect holders who own beneficial interests in the
global Note. An indirect holder's right to receive those payments will be
governed by the rules and practices of the Depositary and its participants, as
described under "-- What Is a Global Note?".

PAYMENTS ON NON-GLOBAL NOTES. We will make payments on a Note in
non-global form as follows. We will pay interest that is due on an interest
payment date by check mailed on the interest payment date to the Holder at his
or her address shown on the Trustee's records as of the close of business on the
regular record date. We will make all other payments by check at the Paying
Agent described below, against surrender of the Note. All payments by check will
be made in "next-day" funds -- i.e., funds that become available on the day
after the check is cashed.

Alternatively, if a non-global Note has a face amount of at least
$1,000,000 and the Holder asks us to do so, we will pay any amount that becomes
due on the Note by wire transfer of immediately available funds to an account at
a bank in New York City, on the due date. To request wire payment, the Holder
must give the Paying Agent appropriate wire transfer instructions at least five
Business Days before the requested wire payment is due. In the case of any
interest payment due on an interest payment date, the instructions must be given
by the person or entity who is the Holder on the relevant regular record date.
In the case of any other payment, payment will be made only after the Note is
surrendered to the Paying Agent. Any wire instructions, once properly given,
will remain in effect unless and until new instructions are given in the manner
described above.

Book-entry and other indirect holders should consult their banks or brokers
for information on how they will receive payments on their Notes.

HOW WE WILL MAKE PAYMENTS DUE IN OTHER CURRENCIES

We will follow the practice described in this subsection when paying
amounts that are due in a specified currency other than U.S. dollars.

PAYMENTS ON GLOBAL NOTES. We will make payments on a global Note in
accordance with the applicable policies of the Depositary as in effect from time
to time. We understand that these policies, as currently in effect at DTC, are
as follows.

Unless otherwise indicated in your prospectus supplement, if you are an
indirect holder of global Notes denominated in a specified currency other than
U.S. dollars and if you elect to receive payments in a specified currency other
than U.S. dollars, you must notify the participant through which your interest
in the global Note is held of your election:

- - on or before the applicable regular record date, in the case of a payment of
interest, or

- - on or before the 16th day prior to stated maturity, or any redemption or
repayment date, in the case of payment of principal or any premium.

You may elect to receive all or only a portion of any interest, principal
or premium payment in a specified currency other than U.S. dollars.

Your participant must, in turn, notify DTC of your election on or before
the third DTC business day after that regular record date, in the case of a
payment of interest, and on or before the 12th DTC business day prior to stated
maturity, or on the redemption or repayment date if your Note is redeemed or
repaid earlier, in the case of a payment of principal or any premium.
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DTC, in turn, will notify the Paying Agent of your election in accordance
with DTC's procedures.

If complete instructions are received by the participant and forwarded by
the participant to DTC, and by DTC to the Paying Agent, on or before the dates
noted above, the Paying Agent, in accordance with DTC's instructions, will make
the payments to you or your participant by wire transfer of immediately
available funds to an account maintained by the payee with a bank located in the
country issuing the specified currency or in another jurisdiction outside the
United States acceptable to us and the Paying Agent.

If the foregoing steps are not properly completed, you will receive
payments in U.S. dollars.

Indirect holders of a global Note denominated in a currency other than U.S.
dollars should consult their banks or brokers for information on how to
request payment in the specified currency.

PAYMENTS ON NON-GLOBAL NOTES. Except as described in the last paragraph
under this heading, we will make payments on Notes in non-global form in the
applicable specified currency. We will make these payments by wire transfer of
immediately available funds to any account requested by the Holder, provided the
account is at a bank located in the country issuing the specified currency or is
in another jurisdiction outside the United States acceptable to us and the
Trustee. To designate an account for wire payment, the Holder must give the
Paying Agent appropriate wire instructions at least five Business Days before
the requested wire payment is due. In the case of any interest payment due on an
interest payment date, the instructions must be given by the person or entity
who is the Holder on the regular record date. In the case of any other payment,
the payment will be made only after the Note is surrendered to the Paying Agent.
Any instructions, once properly given, will remain in effect unless and until
new instructions are properly given in the manner described above.

If a Holder fails to give instructions as described above, we will notify
the Holder at the address in the Trustee's records and will make the payment
within five Business Days after the Holder provides appropriate instructions.
Any late payment made in these circumstances will be treated under the Indenture
as if made on the due date, and no interest will accrue on the late payment from
the due date to the date paid.

Although a payment on a Note in non-global form may be due in a specified
currency other than U.S. dollars, we will make the payment in U.S. dollars if
the Holder asks us to do so. To request U.S. dollar payment, the Holder must
provide appropriate written notice to the Trustee at least five Business Days
before the next due date for which payment in U.S. dollars is requested. In the
case of any interest payment due on an interest payment date, the request must
be made by the person or entity who is the Holder on the regular record date.
Any request, once properly made, will remain in effect unless and until revoked
by notice properly given in the manner described above.

Book-entry and other indirect holders of a Note with a specified currency
other than U.S. dollars should contact their banks or brokers for information
about how to receive payments in the specified currency or in U.S. dollars.

CONVERSION TO U.S. DOLLARS. When we are asked by a Holder to make payments
in U.S. dollars of an amount due in another currency, either on a global Note or
a non-global Note as described above, we will determine the U.S. dollar amount
the Holder receives as follows. The Exchange Rate Agent described below will
request currency bid quotations expressed in U.S. dollars from three or, if
three are not available, then two, recognized foreign exchange dealers in New
York City, any of which may be an Agent or the Exchange Rate Agent, as of 11:00
A.M., New York City time, on the second Business Day before the payment date.
Currency bid quotations will be requested on an aggregate basis, for all

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Holders of Notes and other debt securities, if any, requesting U.S. dollar
payments of amounts due on the same date in the same specified currency. The
U.S. dollar amount the Holder receives will be based on the highest acceptable
currency bid quotation received by the Exchange Rate Agent. If the Exchange Rate
Agent determines that at least two acceptable currency bid quotations are not
available on that second Business Day, the payment will be made in the specified
currency.

To be acceptable, a quotation must be given as of 11:00 A.M., New York City
time, on the second Business Day before the due date and the quoting dealer must
commit to execute a contract at the quotation. If some but not all of the
relevant Notes are LIBOR Notes or EURIBOR Notes, the second preceding Business
Day will be determined for this purpose as if none of those Notes were LIBOR
Notes or EURIBOR Notes.

A Holder that requests payment in U.S. dollars will bear all associated
currency exchange costs, which will be deducted from the payment.

CURRENCY EXCHANGE CONTROLS. If we are obligated to make any payment in a
specified currency other than U.S. dollars, and the specified currency is not
available due to the imposition of exchange controls or other circumstances
beyond our control, we will be entitled to satisfy our obligation by making the
payment in U.S. dollars on the basis of the most recently available exchange
rate.

For a specified currency other than U.S. dollars, the "EXCHANGE RATE" will
be the noon buying rate for cable transfers in New York City for the specified
currency.

The foregoing will apply to any Note, whether in global or non-global form,
and to any payment, including a payment at maturity. Any payment made under the
circumstances and in a manner described above will not result in a default under
any Note or the Indenture.

THE EURO. The euro, which may be a specified currency for some Notes, is
the currency that was introduced as of January 1, 1999, at the start of the
third stage of European Economic and Monetary Union ("EMU"), pursuant to the
Treaty on European Union of February 1992 , which is also known as the
"Maastricht Treaty". On January 1, 1999, the euro became the legal currency for
the 11 member states participating in EMU. The national currencies of these 11
member states will continue to be legal tender in their respective states during
a transition period from January 1, 1999 to December 31, 2001 and for a maximum
of six months thereafter, but as sub-units of the euro. The conversion rates for
these national currencies and the euro were irrevocably fixed as of December 31,
1998.

EXCHANGE RATE AGENT. If we issue a Note in a specified currency other than
U.S. dollars, we will appoint a financial institution to act as the "EXCHANGE
RATE AGENT" and will name the institution initially appointed when the Note is
originally issued in the applicable prospectus supplement. We may select GS&Co.
or another of our affiliates to perform this role. We may change the Exchange
Rate Agent from time to time without your consent and without notifying you of
the change.

All determinations made by the Exchange Rate Agent will be at its sole
discretion unless we state in the applicable prospectus supplement that any
determination is subject to our approval. In the absence of manifest error,
those determinations will be conclusive for all purposes and binding on you and
us, without any liability on the part of the Exchange Rate Agent.

PAYMENT WHEN OFFICES ARE CLOSED

If any payment is due on a Note on a day that is not a Business Day, we
will make the payment on the next day that is a Business Day. Payments postponed
to the next Business Day in this situation will be treated under the Indenture
as if they were made on the original due date. Postponement of this kind will
not result in a default under any Note or the Indenture, and no interest will
accrue on the postponed amount from the original due date to the next day that
is a Business Day.

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PAYING AGENT

We may appoint one or more financial institutions to act as our paying
agents, at whose designated offices Notes in non-global entry form may be
surrendered for payment at their maturity. We call each of those offices a
"PAYING AGENT". We may add, replace or terminate Paying Agents from time to
time. We may also choose to act as our own Paying Agent. Initially, we have
appointed the Trustee, at its corporate trust office in New York City, as the
Paying Agent. We must notify you of changes in the Paying Agents.

UNCLAIMED PAYMENTS

Regardless of who acts as Paying Agent, all money paid by us to a Paying
Agent that remains unclaimed at the end of two years after the amount is due to
a Holder will be repaid to us. After that two-year period, the Holder may look
only to us for payment and not to the Trustee, any other Paying Agent or anyone
else.

NOTICES

Notices to be given to Holders of a global Note will be given only to the
Depositary, in accordance with its applicable policies as in effect from time to
time. Notices to be given to Holders of Notes not in global form will be sent by
mail to the respective addresses of the Holders as they appear in the Trustee's
records, and will be deemed given when mailed. Neither the failure to give any
notice to a particular Holder, nor any defect in a notice given to a particular
Holder, will affect the sufficiency of any notice given to another Holder.

Book-entry and other indirect holders should consult their banks or brokers
for information on how they will receive notices.

OUR RELATIONSHIP WITH THE TRUSTEE

is initially serving as the Trustee for the Notes and all
other series of debt securities to be issued under the Indenture.
has provided commercial banking and other services for us and our
affiliates in the past and may do so in the future. Among other things,
provides us with a line of credit, holds debt securities issued
by us and serves as trustee or agent with regard to other debt obligations of
the Firm.

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UNITED STATES TAXATION

This summary describes the principal United States federal income tax
consequences of owning Notes. It applies to you only if you acquire Notes in the
Offering and you hold your Notes as capital assets for tax purposes. This
summary does not apply to you if you are a member of a class of holders subject
to special rules, such as:

- - a dealer in securities or currencies;

- - a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;

- - a bank;

- - a life insurance company;

- - a tax-exempt organization;

- - a person that holds Notes that are a hedge or that are hedged against interest
rate or currency risks;

- - a person that holds Notes as part of a straddle or conversion transaction for
tax purposes; or

- - a person whose functional currency for tax purposes is not the U.S. dollar.

This summary deals only with Notes that are due to mature 30 years or less from
the date on which they are issued. The United States federal income tax
consequences of owning Notes that are due to mature more than 30 years from
their date of issue will be discussed in an applicable prospectus supplement.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"CODE"), its legislative history, existing and proposed regulations under the
Code, and published rulings and court decisions, all as currently in effect.
These laws are subject to change, possibly on a retroactive basis.

Please consult your own tax advisor concerning the consequences of owning
these Notes in your particular circumstances under the Code and the laws of
any other taxing jurisdiction.

UNITED STATES HOLDERS

This section describes the tax consequences to a United States Holder. You
are a "UNITED STATES HOLDER" if you are a beneficial owner of a Note that is:

- - a citizen or resident of the United States;

- - a domestic corporation;

- - an estate whose income is subject to United States federal income tax
regardless of its source; or

- - a trust if a United States court can exercise primary supervision over the
trust's administration and one or more United States persons are authorized to
control all substantial decisions of the trust.

If you are not a United States Holder, this section does not apply to you and
you should refer to "-- United States Alien Holders" below.

PAYMENTS OF INTEREST

Except as described below in the case of interest on a "discount Note" that
is not "qualified stated interest", each as defined below under "-- Original
Issue Discount -- General", you will be taxed on any interest on your Note,
whether payable in U.S. dollars or a "FOREIGN CURRENCY", including a composite
currency or basket of currencies other than U.S. dollars, as ordinary income at
the time you receive the interest or it accrues, depending on your method of
accounting for tax purposes.

CASH BASIS TAXPAYERS. If you are a taxpayer that uses the cash receipts
and disbursements method of accounting for tax purposes and you receive an
interest payment that is denominated in, or determined by reference to, a
foreign currency, you must recognize income equal to the U.S. dollar value of
the interest payment, based on the exchange rate in effect on the date of
receipt, regardless of whether you actually convert the payment into U.S.
dollars.

ACCRUAL BASIS TAXPAYERS. If you are a taxpayer that uses an accrual method
of accounting for tax purposes, you may

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determine the amount of income that you recognize with respect to an interest
payment denominated in, or determined by reference to, a foreign currency by
using one of two methods. Under the first method, you will determine the amount
of income accrued based on the average exchange rate in effect during the
interest accrual period or, with respect to an accrual period that spans two
taxable years, that part of the period within the taxable year.

If you elect the second method, you would determine the amount of income
accrued on the basis of the exchange rate in effect on the last day of the
accrual period or, in the case of an accrual period that spans two taxable
years, the exchange rate in effect on the last day of the part of the period
within the taxable year. Additionally, under this second method, if you receive
a payment of interest within five business days of the last day of your accrual
period or taxable year, you may instead translate the interest accrued into U.S.
dollars at the exchange rate in effect on the day that you actually receive the
interest payment. If you elect the second method, it will apply to all debt
instruments that you hold at the beginning of the first taxable year to which
the election applies and to all debt instruments that you subsequently acquire.
You may not revoke this election without the consent of the Internal Revenue
Service.

When you actually receive an interest payment, including a payment
attributable to accrued but unpaid interest upon the sale or retirement of your
Note, denominated in, or determined by reference to, a foreign currency for
which you accrued an amount of income, you will recognize ordinary income or
loss measured by the difference, if any, between the exchange rate that you used
to accrue interest income and the exchange rate in effect on the date of
receipt, regardless of whether you actually convert the payment into U.S.
dollars. However, you may not treat this ordinary income gain or loss as an
adjustment to the interest income you receive.

ORIGINAL ISSUE DISCOUNT

GENERAL. If you own a Note, other than a "SHORT-TERM NOTE" with a term of
one year or less, it will be treated as a "DISCOUNT NOTE" issued at an original
issue discount if the amount by which the Note's stated redemption price at
maturity exceeds its issue price is more than a de minimis amount. Generally, a
Note's "ISSUE PRICE" will be the first price at which a substantial amount of
Notes included in the issue of which the Note is a part is sold to persons other
than bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents, or wholesalers. A Note's "STATED
REDEMPTION PRICE AT MATURITY" is the total of all payments provided by the Note
that are not payments of qualified stated interest. Generally, an interest
payment on a Note is "QUALIFIED STATED INTEREST" if it is one of a series of
stated interest payments on a Note that are unconditionally payable at least
annually at a single fixed rate, with certain exceptions for lower rates paid
during some periods, applied to the outstanding principal amount of the Note.
There are special rules for "variable rate Notes" that are discussed under
"-- Variable Rate Notes".

In general, your Note is not a discount Note if the amount by which its
stated redemption price at maturity exceeds its issue price is less than the "DE
MINIMIS AMOUNT" of 1/4 of 1% of its stated redemption price at maturity
multiplied by the number of complete years to its maturity. Your Note will have
"DE MINIMIS ORIGINAL ISSUE DISCOUNT" if the amount of the excess is less than
the de minimis amount. If your Note has de minimis original issue discount, you
must include the de minimis amount in income as stated principal payments are
made on the Note, unless you make the election described below under
"-- Election to Treat All Interest as Original Issue Discount". You can
determine the includible amount with respect to each such payment by multiplying
the total amount of

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your Note's de minimis original issue discount by a fraction equal to:

- - the amount of the principal payment made

divided by

- - the total remaining stated principal amount of the Note immediately before the
principal payment is made.

Generally, if your discount Note matures more than one year from its date
of issue, you must include original issue discount in income before you receive
cash attributable to that income. The amount of "OID" that you must include in
income is calculated using a constant-yield method, and generally you will
include increasingly greater amounts of OID in income over the life of your
Note. More specifically, you can calculate the amount of "ACCRUED OID" that you
must include in income by adding the daily portions of OID with respect to your
discount Note for each day during the taxable year or portion of the taxable
year that you hold your discount Note. You can determine the daily portion by
allocating to each day in any "ACCRUAL PERIOD" a pro rata portion of the OID
allocable to that accrual period. You may select an accrual period of any length
with respect to your Note and you may vary the length of each accrual period
over the term of your Note. However, no accrual period may be longer than one
year and each scheduled payment of interest or principal on the Note must occur
on either the first or final day of an accrual period.

You can determine the amount of OID allocable to an accrual period by:

- - multiplying your discount Note's adjusted issue price at the beginning of the
accrual period by your Note's yield to maturity; and then

- - subtracting from this figure the sum of the payments of qualified stated
interest on your Note allocable to the accrual period.

You must determine the Note's yield to maturity on the basis of compounding at
the close of each accrual period and adjusting for the length of each accrual
period. Further, you can determine your discount Note's "ADJUSTED ISSUE PRICE"
at the beginning of any accrual period by:

- - adding your Note's issue price and any accrued OID for each prior accrual
period; and then

- - subtracting any payments previously made on your Note that were not qualified
stated interest payments.

If an interval between payments of qualified stated interest on your Note
contains more than one accrual period, then, when you determine the amount of
OID allocable to an accrual period, you must allocate the amount of qualified
stated interest payable at the end of the interval, including any qualified
stated interest that is payable on the first day of the accrual period
immediately following the interval, pro rata to each accrual period in the
interval based on their relative lengths. In addition, you must increase the
adjusted issue price at the beginning of each accrual period in the interval by
the amount of any qualified stated interest that has accrued prior to the first
day of the accrual period but that is not payable until the end of the interval.
You may compute the amount of OID allocable to an initial short accrual period
by using any reasonable method if all other accrual periods, other than a final
short accrual period, are of equal length.

The amount of OID allocable to the final accrual period is equal to the
difference between:

- - the amount payable at the maturity of your Note, other than any payment of
qualified stated interest; and

- - your Note's adjusted issue price as of the beginning of the final accrual
period.

ACQUISITION PREMIUM. If you purchase your Note for an amount that is less
than or equal to the sum of all amounts, other than qualified stated interest,
payable on your Note after the purchase date but is greater than the amount of
your Note's adjusted issue price, as determined above under "-- General", the
excess is "ACQUISITION PREMIUM". If you do not make the election described below
under "-- Election to Treat All Interest as Original Issue Discount", then

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you must reduce the daily portions of OID by an amount equal to:

- - the excess of your adjusted basis in the Note immediately after purchase

over

- - the adjusted issue price of the Note

divided by:

- - the excess of the sum of all amounts payable (other than qualified stated
interest) on the Note after the purchase date

over

- - the Note's adjusted issue price.

MARKET DISCOUNT. You will be treated as if you purchased your Note, other
than a short-term Note, at a market discount, and your Note will be a "MARKET
DISCOUNT NOTE" if:

- - you purchase your Note for less than its issue price as determined above under
"-- General"; and

- - the Note's stated redemption price at maturity or, in the case of a discount
Note, the Note's revised issue price, exceeds the price you paid for your Note
by at least 1/4 of 1% of your Note's stated redemption price at maturity or
revised issue price, respectively, multiplied by the number of complete years
to the Note's maturity. To determine the "REVISED ISSUE PRICE" of your Note
for these purposes, you generally add any OID that has accrued on your Note to
its issue price.

If your Note's stated redemption price at maturity or, in the case of a
discount Note, its revised issue price, does not exceed the price you paid for
the Note by 1/4 of 1% multiplied by the number of complete years to the Note's
maturity, the excess constitutes "DE MINIMIS MARKET DISCOUNT", and the rules
discussed below are not applicable to you.

You must treat any gain you recognize on the maturity or disposition of
your market discount Note as ordinary income to the extent of the accrued market
discount on your Note. Alternatively, you may elect to include market discount
in income currently over the life of your Note. If you make this election, it
will apply to all debt instruments with market discount that you acquire on or
after the first day of the first taxable year to which the election applies. You
may not revoke this election without the consent of the Internal Revenue
Service.

You will accrue market discount on your market discount Note on a
straight-line basis unless you elect to accrue market discount using a
constant-yield method. If you make this election to include market discount in
income currently, it will apply only to the Note with respect to which it is
made and you may not revoke it. If you own a market discount Note and do not
make this election, you will generally be required to defer deductions for
interest on borrowings allocable to your Note in an amount not exceeding the
accrued market discount on your Note until the maturity or disposition of your
Note.

If you are an accrual-method taxpayer, you should be aware that the Clinton
Administration has recently proposed legislation that would require you to
include market discount in income currently over the life of your Note, subject
to certain limitations. If enacted, this proposal would only be effective if you
acquire your market discount Note on or after the date of enactment. We do not
yet know whether this proposal will be enacted or when it will become effective
if enacted.

PRE-ISSUANCE ACCRUED INTEREST. An election may be made to decrease the
issue price of your Note by the amount of pre-issuance accrued interest if:

- - a portion of the initial purchase price of your Note is attributable to
pre-issuance accrued interest;

- - the first stated interest payment on your Note is to be made within one year
of your Note's issue date; and

- - the payment will equal or exceed the amount of pre-issuance accrued interest.

If this election is made, a portion of the first stated interest payment
will be treated as a return of the excluded pre-issuance accrued interest and
not as an amount payable on your Note.

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NOTES SUBJECT TO CONTINGENCIES INCLUDING OPTIONAL REDEMPTION. Your Note is
subject to a contingency if it provides for an alternative payment schedule or
schedules applicable upon the occurrence of a contingency or contingencies,
other than a remote or incidental contingency, whether such contingency relates
to payments of interest or of principal. In such a case, you must determine the
yield and maturity of your Note by assuming that the payments will be made
according to the payment schedule most likely to occur if:

- - the timing and amounts of the payments that comprise each payment schedule are
known as of the issue date; and

- - one of such schedules is significantly more likely than not to occur.

If there is no single payment schedule that is significantly more likely than
not to occur, other than because of a mandatory sinking fund, you must include
income on your Note in accordance with the general rules that govern contingent
payment obligations. These rules will be discussed in the applicable prospectus
supplement.

Notwithstanding the general rules for determining yield and maturity, if
your Note is subject to contingencies, and either you or we have an
unconditional option or options that, if exercised, would require payments to be
made on the Note under an alternative payment schedule or schedules, then in the
case of an option or options of ours, we will be deemed to exercise or not
exercise an option or combination of options in the manner that minimizes the
yield on your Note and, in the case of an option or options that you hold, you
will be deemed to exercise or not exercise an option or combination of options
in the manner that maximizes the yield on your Note. If both you and we hold
options described in the preceding sentence, those rules will apply to each
option in the order in which they may be exercised. You may determine the yield
on your Note for the purposes of those calculations by using any date on which
your Note may be redeemed or repurchased as the maturity date and the amount
payable on the date that you chose in accordance with the terms of your Note as
the principal amount payable at maturity.

If a contingency, including the exercise of an option, actually occurs or
does not occur contrary to an assumption made according to the above rules then,
except to the extent that a portion of your Note is repaid as a result of this
"CHANGE IN CIRCUMSTANCES" and solely to determine the amount and accrual of OID,
you must redetermine the yield and maturity of your Note by treating your Note
as having been retired and reissued on the date of the change in circumstances
for an amount equal to your Note's adjusted issue price on that date.

ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. You may elect
to include in gross income all interest that accrues on your Note using the
constant-yield method described above under "-- General", with the modifications
described below. For purposes of this election, interest will include stated
interest, OID, de minimis original issue discount, market discount, de minimis
market discount and unstated interest, as adjusted by any amortizable bond
premium, described below under "-- Notes Purchased at a Premium", or acquisition
premium.

If you make this election for your Note, then, when you apply the
constant-yield method:

- - the issue price of your Note will equal your cost;

- - the issue date of your Note will be the date you acquired it; and

- - no payments on your Note will be treated as payments of qualified stated
interest.

Generally, this election will apply only to the Note for which you make it;
however, if the Note for which this election is made has amortizable bond
premium, you will be deemed to have made an election to apply amortizable bond
premium against interest for all debt instruments with amortizable bond premium,
other than debt instruments the interest on which is excludible from gross
income, that you hold as of the beginning of the taxable year to which the
election applies or any taxable year thereafter. Additionally, if you make this
election for a market discount Note, you will be treated as having made the
election discussed above under "-- Market
134
<PAGE> 172

Discount" to include market discount in income currently over the life of all
debt instruments that you currently hold or later acquire. You may not revoke
any election to apply the constant-yield method to all interest on a Note or the
deemed elections with respect to amortizable bond premium or market discount
Notes without the consent of the Service.

VARIABLE RATE NOTES. Your Note will be a "VARIABLE RATE NOTE" if:

- - your Note's issue price does not exceed the total noncontingent principal
payments by more than the lesser of:

1. .015 multiplied by the product of the total noncontingent principal
payments and the number of complete years to maturity from the issue date,
or

2. 15 percent of the total noncontingent principal payments; and

- - your Note provides for stated interest, compounded or paid at least annually,
only at:

1. one or more qualified floating rates,

2. a single fixed rate and one or more qualified floating rates,

3. a single objective rate, or

4. a single fixed rate and a single objective rate that is a qualified inverse
floating rate.

Your Note will have a variable rate that is a "QUALIFIED FLOATING RATE" if:

- - variations in the value of the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds in the currency
in which your Note is denominated; or

- - the rate is equal to such a rate multiplied by either:

1. a fixed multiple that is greater than 0.65 but not more than 1.35, or

2. a fixed multiple that is greater than 0.65 but not more than 1.35,
increased or decreased by a fixed rate; and

- - the value of the rate on any date during the term of your Note is set no
earlier than three months prior to the first day on which that value is in
effect and no later than one year following that first day.

If your Note provides for two or more qualified floating rates that are
within 0.25 percentage points of each other on the issue date or can reasonably
be expected to have approximately the same values throughout the term of the
Note, the qualified floating rates together constitute a single qualified
floating rate.

Your Note will not have a qualified floating rate, however, if the rate is
subject to certain restrictions (including caps, floors, governors, or other
similar restrictions) unless such restrictions are fixed throughout the term of
the Note or are not reasonably expected to significantly affect the yield on the
Note.

Your Note will have a variable rate that is a single "OBJECTIVE RATE" if:

- - the rate is not a qualified floating rate;

- - the rate is determined using a single, fixed formula that is based on
objective financial or economic information that is not within the control of
or unique to the circumstances of the issuer or a related party; and

Your Note will not have a variable rate that is an objective rate, however,
if it is reasonably expected that the average value of the rate during the first
half of your Note's term will be either significantly less than or significantly
greater than the average value of the rate during the final half of your Note's
term.

An objective rate as described above is a "QUALIFIED INVERSE FLOATING RATE"
if:

- - the rate is equal to a fixed rate minus a qualified floating rate; and

- - the variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds.

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<PAGE> 173

Your Note will also have a single qualified floating rate or an objective
rate if interest on your Note is stated at a fixed rate for an initial period of
one year or less followed by either a qualified floating rate or an objective
rate for a subsequent period, and either:

- - the fixed rate and the qualified floating rate or objective rate have values
on the issue date of the Note that do not differ by more than 0.25 percentage
points; or

- - the value of the qualified floating rate or objective rate is intended to
approximate the fixed rate.

Commercial paper rate Notes, prime rate Notes, LIBOR Notes, EURIBOR Notes,
treasury rate Notes, CMT rate Notes, CD rate Notes, federal funds rate Notes,
and 11th district rate Notes generally will be treated as variable rate Notes
under these rules.

In general, if your variable rate Note provides for stated interest at a
single qualified floating rate or objective rate (or one of those rates after a
single fixed rate for an initial period), all stated interest on your Note is
qualified stated interest. In this case, the amount of OID, if any, is
determined by using, for a qualified floating rate or qualified inverse floating
rate, the value as of the issue date of the qualified floating rate or qualified
inverse floating rate, or, for any other objective rate, a fixed rate that
reflects the yield reasonably expected for your Note.

If your variable rate Note does not provide for stated interest at a single
qualified floating rate or a single objective rate, and also does not provide
for interest payable at a fixed rate other than a single fixed rate for an
initial period, you generally must determine the interest and OID accruals on
your Note by:

- - determining a fixed rate substitute for each variable rate provided under your
variable rate Note;

- - constructing the equivalent fixed rate debt instrument (using the fixed rate
substitute described above);

- - determining the amount of qualified stated interest and OID with respect to
the equivalent fixed rate debt instrument; and

- - adjusting for actual variable rates during the applicable accrual period.

When you determine the fixed rate substitute for each variable rate provided
under the variable rate Note, you generally will use the value of each variable
rate as of the issue date or, for an objective rate that is not a qualified
inverse floating rate, a rate that reflects the reasonably expected yield on
your Note.

If your variable rate Note provides for stated interest either at one or
more qualified floating rates or at a qualified inverse floating rate, and also
provides for stated interest at a single fixed rate other than a single fixed
rate for an initial period, you generally must determine interest and OID
accruals by using the method described in the previous paragraph. However, your
variable rate Note will be treated, for purposes of the first three steps of the
determination, as if your Note had provided for a qualified floating rate, or a
qualified inverse floating rate, rather than the fixed rate. The qualified
floating rate, or qualified inverse floating rate, that replaces the fixed rate
must be such that the fair market value of your variable rate Note as of the
issue date approximates the fair market value of an otherwise identical debt
instrument that provides for the qualified floating rate, or qualified inverse
floating rate, rather than the fixed rate.

SHORT-TERM NOTES. In general, if you are an individual or other cash basis
United States Holder of a short-term Note, you are not required to accrue OID,
as specially defined below for the purposes of this paragraph, for United States
federal income tax purposes unless you elect to do so. However, you may be
required to include any stated interest in income as you receive it. If you are
an accrual basis taxpayer, a taxpayer in a special class, including, but not
limited to, a regulated investment company, common trust fund, or a certain type
of pass-through entity, or a cash basis taxpayer who so elects, you will be
required to accrue OID on short-term Notes on either a straight-line basis or
under the constant-yield method, based on daily compounding. If you are not
required and do not elect to include OID in income currently,
136
<PAGE> 174

any gain you realize on the sale or retirement of your short-term Note will be
ordinary income to the extent of the accrued OID (which will be determined on a
straight-line basis unless you make an election to accrue the OID under the
constant-yield method), through the date of sale or retirement. However, if you
are not required and do not elect to accrue OID on your short-term Notes, you
will be required to defer deductions for interest on borrowings allocable to
your short-term Notes in an amount not exceeding the deferred income until the
deferred income is realized.

When you determine the amount of OID subject to these rules, you must
include all interest payments on your short-term Note, including stated
interest, in your short-term Note's stated redemption price at maturity.

FOREIGN CURRENCY DISCOUNT NOTES. If your discount Note is denominated in,
or determined by reference to, a foreign currency, you must determine OID for
any accrual period on your discount Note in the foreign currency and then
translate the amount of OID into U.S. dollars in the same manner as stated
interest accrued by an accrual basis United States Holder, as described under
"-- United States Holders -- Payments of Interest". You may recognize ordinary
income or loss when you receive an amount attributable to OID in connection with
a payment of interest or the sale or retirement of your Note.

NOTES PURCHASED AT A PREMIUM

If you purchase your Note for an amount in excess of its principal amount,
you may elect to treat the excess as "AMORTIZABLE BOND PREMIUM". If you make
this election, you will reduce the amount required to be included in your income
each year with respect to interest on your Note by the amount of amortizable
bond premium allocable to that year, based on your Note's yield to maturity. If
your Note is denominated in, or determined by reference to, a foreign currency,
you will compute your amortizable bond premium in units of the foreign currency
and your amortizable bond premium will reduce your interest income in units of
the foreign currency. Gain or loss recognized that is attributable to changes in
exchange rates between the time your amortized bond premium offsets interest
income and the time of the acquisition of your Note is generally taxable as
ordinary income or loss. If you make an election to amortize bond premium, it
will apply to all debt instruments, other than debt instruments, the interest on
which is excludible from gross income, that you hold at the beginning of the
first taxable year to which the election applies or thereafter acquire, and you
may not revoke it without the consent of the Service. See also "-- Original
Issue Discount -- Election to Treat All Interest as Original Issue Discount".

PURCHASE, SALE AND RETIREMENT OF THE NOTES

Your "TAX BASIS" in your Note will generally be the U.S. dollar cost, as
defined below, of your Note, adjusted by:

- - adding any OID or market discount, de minimis original issue discount and de
minimis market discount; and then

- - subtracting any payments on your Note that are not qualified stated interest
payments and any amortizable bond premium applied to reduce the interest on
your Note.

If you purchase your Note with foreign currency, the U.S. dollar cost of your
Note will generally be the U.S. dollar value of the purchase price on the date
of purchase. However, if you are a cash basis taxpayer, or an accrual basis
taxpayer if you so elect, and your Note is traded on an established securities
market, as defined in the applicable Treasury regulations, the U.S. dollar cost
of your Note will be the U.S. dollar value of the purchase price on the
settlement date of your purchase.

You will generally recognize gain or loss on the sale or retirement of your
Note equal to the difference between the amount you realize on the sale or
retirement and your tax basis in your Note. If your Note is sold or retired for
an amount in foreign currency, the amount you realize will be the U.S. dollar
value of such amount on:

- - the date payment is received, if you are a cash basis taxpayer and the Notes
are not traded on an established securities market,

137
<PAGE> 175

as defined in the applicable Treasury regulation;

- - the date of disposition, if you are an accrual basis taxpayer; or

- - the settlement date for the sale, if you are a cash basis taxpayer, or an
accrual basis United States Holder that so elects, and the Notes are traded on
an established securities market, as defined in the applicable Treasury
regulation.

You will recognize capital gain or loss when you sell or retire your Note,
except to the extent attributable to changes in exchange rates as described in
the next succeeding paragraph or to accrued but unpaid interest, described above
under "-- Original Issue Discount -- Short-Term Notes" or "-- Market Discount",
or subject to the rules governing contingent payment obligations. Capital gain
of a non-corporate United States Holder is generally taxed at a maximum rate of
20% where the property is held for more than one year.

You must treat any portion of the gain or loss that you recognize on the
sale or retirement of a Note as ordinary income or loss to the extent
attributable to changes in exchange rates. However, you only take exchange gain
or loss into account to the extent of the total gain or loss you realize on the
transaction.

EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS

If you receive foreign currency as interest on your Note or on the sale or
retirement of your Note, your tax basis in the foreign currency will equal its
U.S. dollar value when the interest is received or at the time of the sale or
retirement. If you purchase foreign currency, you generally will have a tax
basis equal to the U.S. dollar value of the foreign currency on the date of your
purchase. If you sell or dispose of a foreign currency, including if you use it
to purchase Notes or exchange it for U.S. dollars, any gain or loss recognized
generally will be ordinary income or loss.

INDEXED AND OTHER NOTES

The applicable prospectus supplement will discuss any special United States
federal income tax rules with respect to Notes the payments on which are
determined by reference to any index and other Notes that are subject to the
rules governing contingent payment obligations which are not subject to the
rules governing variable rate Notes.

UNITED STATES ALIEN HOLDERS

This section describes the tax consequences to a United States Alien
Holder. You are a "UNITED STATES ALIEN HOLDER" if you are the beneficial owner
of a Note and are, for United States federal income tax purposes:

- - a nonresident alien individual;

- - a foreign corporation;

- - a foreign partnership; or

- - an estate or trust that in either case is not subject to United States federal
income tax on a net income basis on income or gain from a Note.

If you are a United States Holder, this section does not apply to you.

This discussion assumes that the Note is not subject to the rules of
Section 871(h)(4)(A) of the Code, relating to interest payments that are
determined by reference to the income, profits, changes in the value of property
or other attributes of the debtor or a related party.

Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below, if you are a United States Alien
Holder of a Note:

- - we and our Paying Agents will not deduct United States withholding tax from
payments of principal, premium, if any, and interest, including OID, to you
if, in the case of interest:

1. you do not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of GS Inc. entitled to vote,

138
<PAGE> 176

2. you are not a controlled foreign corporation that is related to us through
stock ownership, and

a. you certify to us or our agent, under penalties of perjury, that you
are not a United States Holder and provide your name and address, or

b. a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business and holds the Note certifies to us or our agent under
penalties of perjury that a similar statement has been received from
you by it or by a similar financial institution between it and you and
furnishes the payor with a copy thereof; and

- - no deduction for any United States federal withholding tax will be made if you
realize any gain on the sale or exchange of your Note.

Further, a Note held by an individual, who at death is not a citizen or resident
of the United States will not be includible in the individual's gross estate for
United States federal estate tax purposes if:

- - the decedent did not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of GS Inc. entitled to vote at
the time of death; and

- - the income on the Note would not have been effectively connected with a United
States trade or business of the decedent at the same time.

If you receive a payment after December 31, 1999, recently finalized
Treasury regulations will apply. Under these "FINAL WITHHOLDING REGULATIONS",
after December 31, 1999, you may use an alternative method to satisfy the
certification requirement described above. Additionally, if you are a partner in
a foreign partnership, after December 31, 1999, you, rather than the foreign
partnership, must provide the certification described above, and the partnership
must provide certain information, including a United States taxpayer
identification number. The Internal Revenue Service will apply a look-through
rule in the case of tiered partnerships.

BACKUP WITHHOLDING AND
INFORMATION REPORTING

UNITED STATES HOLDERS

In general, if you are a non-corporate United States Holder, we are
required to report to the Service all payments of principal, any premium and
interest on your Note, the proceeds of the sale of your Note before maturity
within the United States, and the accrual of OID on a discount Note.
Additionally, backup withholding at a rate of 31% will apply to any payments,
including payments of OID, if you fail to provide an accurate taxpayer
identification number, or you are notified by the Internal Revenue Service that
you have failed to report all interest and dividends required to be shown on
your federal income tax returns.

UNITED STATES ALIEN HOLDERS

You are generally exempt from backup withholding and information reporting,
with respect to any payments of principal, premium or interest, including OID,
made by us or a Paying Agent, provided that you provide the certification
described above under "-- United States Alien Holders", and provided further
that the payor does not have actual knowledge that you are a United States
person. See "-- United States Alien Holders" above for a discussion of the rules
under the Final Withholding Regulations.

In general, payment of the proceeds from the sale of Notes to or through a
United States office of a broker is subject to both United States backup
withholding and information reporting. If, however, you are a United States
Alien Holder, you will not be subject to information reporting and backup
withholding if you certify as to your non-United States status, under penalties
of perjury, or otherwise establish an exemption. Payments of the proceeds from
the sale by a United States Alien Holder of a Note made to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding. However, information reporting,

139
<PAGE> 177

but not backup withholding, may apply to a payment made outside the United
States of the proceeds of a sale of a Note through an office outside the United
States if the broker is:

- - a United States person;

- - a controlled foreign corporation for United States tax purposes;

- - a foreign person 50% or more of whose gross income is effectively connected
with a United States trade or business for a specified three-year period; or

- - with respect to payments made after December 31, 1999, a foreign partnership,
if at any time during its tax year:

1. one or more of its partners are "U.S. persons", as defined in Treasury
regulations, who in the aggregate hold more than 50% of the income or
capital interest in the partnership; or

2. foreign partnership is engaged in a United States trade or business

unless the broker has documentary evidence in its records that the Holder or
beneficial owner is a non-U.S. person or otherwise establishes an exemption.

If you receive payment of the proceeds from the sale of a Note to or
through the United States office of a broker, the payment is subject to
information reporting and backup withholding unless you certify as to your non-
United States status, under penalties of perjury, or otherwise establish an
exemption.

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<PAGE> 178

ERISA

This section is only relevant to you if you are an insurance company, or
the fiduciary of a pension plan or an employee benefit plan proposing to invest
in the Notes.

GS Inc. and certain of its affiliates may each be considered a "party in
interest" within the meaning of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or a "disqualified person" within the meaning of the
Code with respect to many employee benefit plans. Prohibited transactions within
the meaning of ERISA or the Code may arise, for example, if the Notes are
acquired by or with the assets of a pension or other employee benefit plan for
which GS Inc. or any of its affiliates is a service provider, unless those Notes
are acquired pursuant to an exemption for transactions effected on behalf of
that plan by a "qualified professional asset manager" or an "in-house asset
manager" or pursuant to any other available exemption. The assets of a pension
or other employee benefit plan may include assets held in the general account of
an insurance company that are deemed to be "plan assets" under ERISA.

If you are an insurance company, or the fiduciary of a pension plan or an
employee benefit plan and propose to invest in the Notes, you should consult
your legal counsel.

VALIDITY OF THE NOTES

The validity of the Notes offered and sold in this Offering will be passed
upon for the Company by one of the Company's General Counsel, Robert J. Katz or
Gregory K. Palm, and for the Agents by Sullivan & Cromwell, New York, New York.
The opinions of Mr. Katz or Mr. Palm and of Sullivan & Cromwell will be based on
certain assumptions about future actions required to be taken by the Company and
the Trustee in connection with the issuance and sale of each Note, about the
specific terms of each Note and about other matters that may affect the validity
of the Notes but cannot be ascertained on the date of those opinions.

Sullivan & Cromwell has in the past represented and continues to represent
the Company on a regular basis and in a variety of matters. Sullivan & Cromwell
represented the Company in connection with the Common Stock Offering and the
Underwritten Debt Offering, and has performed services for the Company in
connection with this Offering.

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<PAGE> 179

EXPERTS

The financial statements of the Firm as of November 28, 1997 and November
27, 1998 and for each of the three fiscal years in the fiscal period ended
November 27, 1998 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.

The income statement data and balance sheet data (other than adjusted
assets) set forth in "Selected Consolidated Financial Data" for each of the five
fiscal years ended November 27, 1998 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

AVAILABLE INFORMATION

As a result of the Common Stock Offering, GS Inc. will be required to file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any documents filed by GS Inc. at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. GS Inc.'s filings with the SEC will also be available to the public
through the SEC's Internet site at http://www.sec.gov and through the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.

GS Inc. has filed with the SEC a registration statement on Form S-1
relating to the Notes. This prospectus is a part of the registration statement
and does not contain all the information in the registration statement. Whenever
a reference is made in this prospectus to a contract or other document, please
be aware that the reference is not necessarily complete and that you should
refer to the exhibits that are part of the registration statement for a copy of
the contract or other document. You may review a copy of the registration
statement at the SEC's public reference room in Washington, D.C. as well as
through the SEC's Internet site noted above.

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<PAGE> 180

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Statements of Earnings......................... F-3
Consolidated Statements of Financial Condition.............. F-4
Consolidated Statements of Changes in Partners' Capital..... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 181

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners,
The Goldman Sachs Group, L.P.:

In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of earnings, changes in partners'
capital and cash flows (included on pages F-3 to F-23 of this Prospectus)
present fairly, in all material respects, the consolidated financial position of
The Goldman Sachs Group, L.P. and Subsidiaries (the "Firm") as of November 27,
1998 and November 28, 1997, and the results of their consolidated operations and
their consolidated cash flows for the three fiscal years in the period ended
November 27, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Firm's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

We have also previously audited, in accordance with generally accepted auditing
standards, the consolidated statements of financial condition as of November 29,
1996, November 24, 1995 and November 25, 1994, and the related consolidated
statements of earnings, changes in partners' capital and cash flows for the
fiscal years ended November 24, 1995 and November 25, 1994 (none of which are
presented herein); and we expressed unqualified opinions on those consolidated
financial statements. In our opinion, the information set forth in the selected
historical consolidated income statement and balance sheet data (other than
adjusted assets) for each of the five fiscal years in the period ended November
27, 1998 (included on pages 32 and 33 of this Prospectus) is fairly stated, in
all material respects, in relation to the consolidated financial statements from
which it has been derived.

/s/ PricewaterhouseCoopers LLP

New York, New York
January 22, 1999.

F-2
<PAGE> 182

THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-----------------------------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
REVENUES:
Investment banking........................................ $ 2,113 $ 2,587 $ 3,368
Trading and principal investments......................... 2,496 2,303 2,015
Asset management and securities services.................. 981 1,456 2,085
Interest income........................................... 11,699 14,087 15,010
------- ------- -------
Total revenues.................................. 17,289 20,433 22,478
Interest expense, principally on short-term funding....... 11,160 12,986 13,958
------- ------- -------
Revenues, net of interest expense............... 6,129 7,447 8,520
OPERATING EXPENSES:
Compensation and benefits................................. 2,421 3,097 3,838
Brokerage, clearing and exchange fees..................... 278 357 424
Market development........................................ 137 206 287
Communications and technology............................. 173 208 265
Depreciation and amortization............................. 172 178 242
Occupancy................................................. 154 168 207
Professional services and other........................... 188 219 336
------- ------- -------
Total operating expenses........................ 3,523 4,433 5,599
Pre-tax earnings.......................................... 2,606 3,014 2,921
Provision for taxes....................................... 207 268 493
------- ------- -------
Net earnings.............................................. $ 2,399 $ 2,746 $ 2,428
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 183

THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
AS OF NOVEMBER
--------------------
1997 1998
---- ----
(in millions)
<S> <C> <C>
ASSETS:
Cash and cash equivalents................................... $ 1,328 $ 2,836
Cash and securities segregated in compliance with U.S.
federal and other regulations (principally U.S. government
obligations).............................................. 4,903 7,887
Receivables from brokers, dealers and clearing
organizations............................................. 3,754 4,321
Receivables from customers and counterparties............... 10,060 14,953
Securities borrowed......................................... 51,058 69,158
Securities purchased under agreements to resell............. 39,376 37,484
Right to receive securities................................. -- 7,564
Financial instruments owned, at fair value:
Commercial paper, certificates of deposit and time
deposits............................................... 1,477 1,382
U.S. government, federal agency and sovereign
obligations............................................ 25,736 24,789
Corporate debt............................................ 11,321 10,744
Equities and convertible debentures....................... 11,870 11,066
State, municipal and provincial obligations............... 1,105 918
Derivative contracts...................................... 13,788 21,299
Physical commodities...................................... 1,092 481
Other assets................................................ 1,533 2,498
-------- --------
$178,401 $217,380
======== ========
LIABILITIES AND NET WORTH:
Short-term borrowings, including commercial paper........... $ 21,008 $ 27,430
Payables to brokers, dealers and clearing organizations..... 952 730
Payables to customers and counterparties.................... 22,995 36,179
Securities loaned........................................... 17,627 21,117
Securities sold under agreements to repurchase.............. 44,057 36,257
Obligation to return securities............................. -- 9,783
Financial instruments sold, but not yet purchased, at fair
value:
U.S. government, federal agency and sovereign
obligations............................................ 22,371 22,360
Corporate debt............................................ 1,708 1,441
Equities and convertible debentures....................... 6,357 6,406
Derivative contracts...................................... 15,964 24,722
Physical commodities...................................... 78 966
Other liabilities and accrued expenses...................... 3,080 3,699
Long-term borrowings........................................ 15,667 19,906
-------- --------
171,864 210,996
Commitments and contingencies
Partners' capital allocated for income taxes and potential
withdrawals............................................... 430 74
Partners' capital........................................... 6,107 6,310
-------- --------
$178,401 $217,380
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 184

THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-----------------------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
Partners' capital, beginning of year........................ $ 4,905 $ 5,309 $ 6,107
Additions:
Net earnings.............................................. 2,399 2,746 2,428
Capital contributions..................................... 4 89 9
------- ------- -------
Total additions................................... 2,403 2,835 2,437
Deductions:
Returns on capital and certain distributions to
partners............................................... (473) (557) (619)
Termination of the Profit Participation Plans............. -- -- (368)
Transfers to partners' capital allocated for income taxes
and potential withdrawals, net......................... (1,526) (1,480) (1,247)
------- ------- -------
Total deductions.................................. (1,999) (2,037) (2,234)
------- ------- -------
Partners' capital, end of year.............................. $ 5,309 $ 6,107 $ 6,310
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 185

THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-------------------------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 2,399 $ 2,746 $ 2,428
Non-cash items included in net earnings:
Depreciation and amortization........................... 172 178 242
Deferred income taxes................................... 85 32 23
Changes in operating assets and liabilities:
Cash and securities segregated in compliance with U.S.
federal and other regulations.......................... (1,445) (670) (2,984)
Net receivables from brokers, dealers and clearing
organizations.......................................... 169 (1,599) (789)
Net payables to customers and counterparties............ 4,279 2,339 8,116
Securities borrowed, net................................ (17,075) (8,124) (14,610)
Financial instruments owned, at fair value.............. (9,415) (7,439) 148
Financial instruments sold, but not yet purchased, at
fair value............................................. 5,276 11,702 7,559
Other, net.............................................. 926 905 (71)
-------- ------- --------
Net cash (used for)/provided by operating
activities........................................... (14,629) 70 62
-------- ------- --------
Cash flows from investing activities:
Property, leasehold improvements and equipment............ (258) (259) (476)
Financial instruments owned, at fair value................ 115 (360) (180)
Acquisitions, net of cash acquired........................ (75) (74) --
-------- ------- --------
Net cash used for investing activities................ (218) (693) (656)
-------- ------- --------
Cash flows from financing activities:
Short-term borrowings, net................................ 391 1,082 2,193
Securities sold under agreements to repurchase, net....... 16,012 (4,717) (5,909)
Issuance of long-term borrowings.......................... 5,172 7,734 10,527
Repayment of long-term borrowings......................... (3,986) (1,855) (2,058)
Capital contributions..................................... 4 89 9
Returns on capital and certain distributions to
partners................................................ (473) (557) (619)
Termination of the Profit Participation Plans............. -- -- (368)
Partners' capital allocated for income taxes and potential
withdrawals............................................. (1,017) (2,034) (1,673)
-------- ------- --------
Net cash provided by/(used for) financing
activities........................................... 16,103 (258) 2,102
-------- ------- --------
Net increase/(decrease) in cash and cash equivalents...... 1,256 (881) 1,508
Cash and cash equivalents, beginning of year................ 953 2,209 1,328
-------- ------- --------
Cash and cash equivalents, end of year...................... $ 2,209 $ 1,328 $ 2,836
======== ======= ========
</TABLE>

SUPPLEMENTAL DISCLOSURES:

Cash payments for interest approximated the related expense for each of the
fiscal periods presented. Payments of income taxes were not material.

A zero coupon bond of $32 million representing a portion of the acquisition
price of CIN Management Limited was recorded on the consolidated statement of
financial condition as of November 1996 and was excluded from the consolidated
statement of cash flows as it represented a non-cash item.

An increase in total assets and liabilities of $11.64 billion related to the
provisions of SFAS No. 125 that were deferred under SFAS No. 127 was excluded
from the consolidated statement of cash flows for the year ended November 1998
as it represented a non-cash item.

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 186

THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

The Goldman Sachs Group, L.P., a Delaware limited partnership ("Group
L.P."), together with its consolidated subsidiaries (collectively, the "Firm"),
is a global investment banking and securities firm that provides a wide range of
services worldwide to a substantial and diversified client base.

The Firm's activities are divided into three principal business lines:

- Investment Banking, which includes financial advisory services and
underwriting;

- Trading and Principal Investments, which includes fixed income, currency
and commodities ("FICC"), equities and principal investments (principal
investments reflect primarily the Firm's investments in its merchant
banking funds); and

- Asset Management and Securities Services, which includes asset
management, securities services and commissions.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Group L.P.
and its U.S. and international subsidiaries including Goldman, Sachs & Co.
("GS&Co.") and J. Aron & Company in New York, Goldman Sachs International
("GSI") in London and Goldman Sachs (Japan) Ltd. ("GSJL") in Tokyo. Certain
reclassifications have been made to prior year amounts to conform to the current
presentation.

These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles that require management to make
estimates and assumptions regarding trading inventory valuations, partner
retirements, the outcome of pending litigation and other matters that affect the
consolidated financial statements and related disclosures. These estimates and
assumptions are based on judgment and available information and, consequently,
actual results could be materially different from these estimates.

Unless otherwise stated herein, all references to 1996, 1997 and 1998 refer
to the Firm's fiscal year ended, or the date, as the context requires, November
29, 1996, November 28, 1997 and November 27, 1998, respectively.

CASH AND CASH EQUIVALENTS

The Firm defines cash equivalents as highly liquid overnight deposits held
in the ordinary course of business.

REPURCHASE AGREEMENTS AND COLLATERALIZED FINANCING ARRANGEMENTS

Securities purchased under agreements to resell and securities sold under
agreements to repurchase, principally U.S. government, federal agency and
investment-grade foreign sovereign obligations, represent short-term
collateralized financing transactions and are carried at their contractual
amounts plus accrued interest. These amounts are presented on a net-by-
counterparty basis, where management believes a legal right of setoff exists
under an enforceable master netting agreement. The Firm takes possession of
securities purchased under agreements to resell, monitors the market value of
the underlying securities on a daily basis and obtains additional collateral as
appropriate.

F-7
<PAGE> 187
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Securities borrowed and loaned are recorded on the statements of financial
condition based on the amount of cash collateral advanced or received. These
transactions are generally collateralized by either cash, securities or letters
of credit. The Firm takes possession of securities borrowed, monitors the market
value of securities loaned and obtains additional collateral as appropriate.
Income or expense is recognized as interest over the life of the transaction.

FINANCIAL INSTRUMENTS

Gains and losses on financial instruments and commission income and related
expenses are recorded on a trade date basis in the consolidated statements of
earnings. For purposes of the consolidated statements of financial condition
only, purchases and sales of financial instruments, including agency
transactions, are generally recorded on a settlement date basis. Recording such
transactions on a trade date basis would not result in a material adjustment to
the consolidated statements of financial condition.

Substantially all financial instruments used in the Firm's trading and
non-trading activities are carried at fair value or amounts that approximate
fair value and unrealized gains and losses are recognized in earnings. Fair
value is based generally on listed market prices or broker or dealer price
quotations. To the extent that prices are not readily available, fair value is
based on either internal valuation models or management's estimate of amounts
that could be realized under current market conditions, assuming an orderly
liquidation over a reasonable period of time. Certain over-the-counter ("OTC")
derivative instruments are valued using pricing models that consider, among
other factors, current and contractual market prices, time value, and yield
curve and/or volatility factors of the underlying positions. The fair value of
the Firm's trading and non-trading assets and liabilities is discussed further
in Notes 3, 4 and 5.

PRINCIPAL INVESTMENTS

Principal investments are carried at fair value, generally as evidenced by
quoted market prices or by comparable substantial third-party transactions.
Where fair value is not readily ascertainable, principal investments are
recorded at cost or management's estimate of the realizable value.

The Firm is entitled to receive merchant banking overrides (i.e., an
increased share of a fund's income and gains) when the return on the fund's
investments exceeds certain threshold returns. Overrides are based on investment
performance over the life of each merchant banking fund, and future investment
underperformance may require amounts previously distributed to the Firm to be
returned to the funds. Accordingly, overrides are recognized in earnings only
when management determines that the probability of return is remote. Overrides
are included in "Asset Management and Securities Services" on the consolidated
statements of earnings.

DERIVATIVE CONTRACTS

Derivatives used for trading purposes are reported at fair value and are
included in "Derivative contracts" on the consolidated statements of financial
condition. Gains and losses on derivatives used for trading purposes are
included in "Trading and Principal Investments" on the consolidated statements
of earnings.

Derivatives used for non-trading purposes include interest rate futures
contracts and interest rate and currency swap agreements, which are primarily
utilized to convert a substantial portion of the Firm's fixed rate debt into
U.S. dollar-based floating rate obligations. Gains and losses on

F-8
<PAGE> 188
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

these transactions are generally deferred and recognized as adjustments to
interest expense over the life of the derivative contract. Gains and losses
resulting from the early termination of derivatives used for non-trading
purposes are generally deferred and recognized over the remaining life of the
underlying debt. If the underlying debt is terminated prior to its stated
maturity, gains and losses on these transactions, including the associated
hedges, are recognized in earnings immediately.

Derivatives are reported on a net-by-counterparty basis on the consolidated
statements of financial condition where management believes a legal right of
setoff exists under an enforceable master netting agreement.

PROPERTY, LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Depreciation and amortization generally are computed using accelerated cost
recovery methods for all property and equipment and for leasehold improvements
where the term of the lease is greater than the economic useful life of the
asset. All other leasehold improvements are amortized on a straight-line basis
over the term of the lease.

GOODWILL

The cost of acquired companies in excess of the fair value of net assets
acquired at acquisition date is recorded as goodwill and amortized over periods
of 15 to 25 years on a straight-line basis.

PROVISION FOR TAXES

The Firm accounts for income taxes incurred by its corporate subsidiaries
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". The consolidated statements of earnings for the
periods presented include a provision for, or benefit from, income taxes on
income earned, or losses incurred, by Group L.P. and its subsidiaries including
a provision for, or benefit from, unincorporated business tax on income earned,
or losses incurred, by Group L.P. and its subsidiaries conducting business in
New York City. No additional income tax provision is required in the
consolidated statements of earnings because Group L.P. is a partnership and the
remaining tax effects accrue directly to its partners.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of subsidiaries whose functional currency is other
than the U.S. dollar are translated using currency exchange rates prevailing at
the end of the period presented, while revenues and expenses are translated
using average exchange rates during the period. Gains or losses resulting from
the translation of foreign currency financial statements are recorded as
cumulative translation adjustments, and are included as a component of
"Partners' capital allocated for income taxes and potential withdrawals" on the
consolidated statements of financial condition. Gains or losses resulting from
foreign exchange transactions are recorded in earnings.

INVESTMENT BANKING

Underwriting revenues and fees from mergers and acquisitions and other
corporate finance advisory assignments are recorded when the underlying
transaction is completed under the terms of the engagement. Syndicate expenses
related to securities offerings in which the Firm acts as an underwriter or
agent are deferred until the related revenue is recognized.

F-9
<PAGE> 189
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTING DEVELOPMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Costs of Computer Software Developed or Obtained for Internal Use",
effective for fiscal years beginning after December 15, 1998. SOP No. 98-1
requires that certain costs of computer software developed or obtained for
internal use be capitalized and amortized over the useful life of the related
software. The Firm currently expenses the cost of all software development in
the period in which it is incurred. The Firm intends to adopt this Statement in
fiscal 2000 and is currently assessing its effect.

NOTE 3. FINANCIAL INSTRUMENTS

Financial instruments, including both cash instruments and derivatives, are
used to manage market risk, facilitate customer transactions, engage in trading
transactions and meet financing objectives. These instruments can be either
executed on an exchange or negotiated in the OTC market.

Transactions involving financial instruments sold, but not yet purchased,
entail an obligation to purchase a financial instrument at a future date. The
Firm may incur a loss if the market value of the financial instrument
subsequently increases prior to the purchase of the instrument.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Substantially all of the Firm's assets and liabilities are carried at fair
value or amounts that approximate fair value.

Trading assets and liabilities, including derivative contracts used for
trading purposes, are carried at fair value and reported as financial
instruments owned and financial instruments sold, but not yet purchased on the
consolidated statements of financial condition. Non-trading assets and
liabilities are carried at fair value or amounts that approximate fair value.

Non-trading assets include cash and cash equivalents, cash and securities
segregated in compliance with U.S. federal and other regulations, receivables
from brokers, dealers and clearing organizations, receivables from customers and
counterparties, securities borrowed, securities purchased under agreements to
resell, right to receive securities and certain investments, primarily those
made in connection with the Firm's merchant banking activities.

Non-trading liabilities include short-term borrowings, payables to brokers,
dealers and clearing organizations, payables to customers and counterparties,
securities loaned, securities sold under agreements to repurchase, obligation to
return securities, other liabilities and accrued expenses and long-term
borrowings. Fair value of the Firm's long-term borrowings and associated hedges
is discussed in Note 5.

F-11
<PAGE> 191
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

TRADING AND PRINCIPAL INVESTMENTS

The Firm's Trading and Principal Investments business facilitates customer
transactions and takes proprietary positions through market making in and
trading of securities, currencies, commodities and swaps and other derivatives.
Derivative financial instruments are often used to hedge cash instruments or
other derivative financial instruments as an integral part of the Firm's
strategies. As a result, it is necessary to view the results of any activity on
a fully-integrated basis, including cash positions, the effect of related
derivatives and the financing of the underlying positions.

Net revenues represent total revenues less allocations of interest expense
to specific securities, commodities and other positions in relation to the level
of financing incurred by each. The following table sets forth the net revenues
of the Firm's Trading and Principal Investments business:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
FICC................................................... $1,749 $2,055 $1,438
Equities............................................... 730 573 795
Principal investments.................................. 214 298 146
------ ------ ------
Total Trading and Principal Investments................ $2,693 $2,926 $2,379
====== ====== ======
</TABLE>

RISK MANAGEMENT

The Firm seeks to monitor and control its risk exposure through a variety
of separate but complementary financial, credit, operational and legal reporting
systems for individual entities and the Firm as a whole. Management believes
that it has effective procedures for evaluating and managing the market, credit
and other risks to which it is exposed. The Management Committee, the Firm's
primary decision-making body, determines (both directly and through delegated
authority) the types of business in which the Firm engages, approves guidelines
for accepting customers for all product lines, outlines the terms under which
customer business is conducted and establishes the parameters for the risks that
the Firm is willing to undertake in its business.

MARKET RISK. The Firmwide Risk Committee, which reports to senior
management and meets weekly, is responsible for managing and monitoring all of
the Firm's risk exposures. In addition, the Firm maintains segregation of
duties, with credit review and risk-monitoring functions performed by groups
that are independent from revenue-producing departments.

The broadly defined categories of market risk include exposures to interest
rates, currency rates, equity prices and commodity prices.

- - Currency rate risks result from exposures to changes in spot prices, forward
prices and volatilities of currency rates.

F-12
<PAGE> 192
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- - Equity price risks result from exposures to changes in prices and volatilities
of individual equities, equity baskets and equity indices.

These risk exposures are managed through diversification, by controlling
position sizes and by establishing offsetting hedges in related securities or
derivatives. For example, the Firm may hedge a portfolio of common stock by
taking an offsetting position in a related equity-index futures contract. The
ability to manage these exposures may, however, be limited by adverse changes in
the liquidity of the security or the related hedge instrument and in the
correlation of price movements between the security and the related hedge
instrument.

CREDIT RISK. Credit risk represents the loss that the Firm would incur if
a counterparty or issuer of securities or other instruments it holds fails to
perform its contractual obligations to the Firm. To reduce its credit exposures,
the Firm seeks to enter into netting agreements with counterparties that permit
the Firm to offset receivables and payables with such counterparties. The Firm
does not take into account any such agreements when calculating credit risk,
however, unless management believes a legal right of setoff exists under an
enforceable master netting agreement.

Credit concentrations may arise from trading, underwriting and securities
borrowing activities and may be impacted by changes in economic, industry or
political factors. The Firm's concentration of credit risk is monitored actively
by the Credit Policy Committee. As of November 1998, U.S. government and federal
agency obligations represented 7% of the Firm's total assets. In addition, most
of the Firm's securities purchased under agreements to resell are collateralized
by U.S. government, federal agency and sovereign obligations.

DERIVATIVE ACTIVITIES

Derivative contracts are financial instruments, such as futures, forwards,
swaps or option contracts, that derive their value from underlying assets,
indices, reference rates or a combination of these factors. Derivatives may
involve future commitments to purchase or sell financial instruments or
commodities, or to exchange currency or interest payment streams. The amounts
exchanged are based on the specific terms of the contract with reference to
specified rates, securities, commodities or indices.

Derivative contracts exclude certain cash instruments, such as
mortgage-backed securities, interest-only and principal-only obligations and
indexed debt instruments, that derive their values or contractually required
cash flows from the price of some other security or index. Derivatives also
exclude option features that are embedded in cash instruments, such as the
conversion features and call provisions embedded in bonds. The Firm has elected
to include commodity-related contracts in its derivative disclosure, although
not required to do so, as these contracts may be settled in cash or are readily
convertible into cash.

F-13
<PAGE> 193
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The gross notional (or contractual) amounts of derivative financial
instruments represent the volume of these transactions and not the amounts
potentially subject to market risk. In addition, measurement of market risk is
meaningful only when all related and offsetting transactions are taken into
consideration. Gross notional (or contractual) amounts of derivative financial
instruments used for trading purposes with off-balance-sheet market risk are set
forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
----------------------
1997 1998
---- ----
(in millions)
<S> <C> <C>
INTEREST RATE RISK:
Financial futures and forward settlement contracts......... $334,916 $ 406,302
Swap agreements............................................ 918,067 1,848,977
Written option contracts................................... 351,359 423,561

EQUITY PRICE RISK:
Financial futures and forward settlement contracts......... 7,457 7,405
Swap agreements............................................ 1,993 2,752
Written option contracts................................... 51,916 54,856

CURRENCY AND COMMODITY PRICE RISK:
Financial futures and forward settlement contracts......... 355,882 420,138
Swap agreements............................................ 32,355 51,502
Written option contracts................................... 179,481 183,929
</TABLE>

Market risk on purchased option contracts is limited to the market value of
the option; therefore, purchased option contracts have no off-balance-sheet
market risk. The gross notional (or contractual) amounts of purchased option
contracts used for trading purposes are set forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
--------------------
1997 1998
---- ----
(in millions)
<S> <C> <C>
PURCHASED OPTION CONTRACTS:
Interest rate............................................... $301,685 $509,770
Equity...................................................... 24,021 59,571
Currency and commodity...................................... 180,859 186,748
</TABLE>

The Firm utilizes replacement cost as its measure of derivative credit
risk. Replacement cost, as reported in financial instruments owned, at fair
value on the consolidated statements of financial condition, represents amounts
receivable from various counterparties, net of any unrealized losses owed where
management believes a legal right of setoff exists under an enforceable master
netting agreement. Replacement cost for purchased option contracts is the market
value of the contract. The Firm controls its credit risk through an established
credit approval process, by monitoring counterparty limits, obtaining collateral
where appropriate and, in some cases, using legally enforceable master netting
agreements.

F-14
<PAGE> 194
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of derivative financial instruments used for trading
purposes, computed in accordance with the Firm's netting policy, is set forth
below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
------------------------------------------------
1997 1998
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
(in millions)
<S> <C> <C> <C> <C>
PERIOD END:
Forward settlement contracts............................. $ 3,634 $ 3,436 $ 4,061 $ 4,201
Swap agreements.......................................... 4,269 5,358 10,000 11,475
Option contracts......................................... 5,787 7,166 7,140 9,038
------- ------- ------- -------
Total.................................................... $13,690 $15,960 $21,201 $24,714
======= ======= ======= =======
MONTHLY AVERAGE:
Forward settlement contracts............................. $ 3,351 $ 3,162 $ 4,326 $ 3,979
Swap agreements.......................................... 3,397 4,020 7,340 8,158
Option contracts......................................... 4,511 5,059 6,696 8,958
------- ------- ------- -------
Total.................................................... $11,259 $12,241 $18,362 $21,095
======= ======= ======= =======
</TABLE>

NOTE 4. SHORT-TERM BORROWINGS

The Firm obtains secured short-term financing principally through the use
of repurchase agreements and securities lending agreements, collateralized
mainly by U.S. government, federal agency, investment grade foreign sovereign
obligations and equity securities. The Firm obtains unsecured short-term
borrowings through issuance of commercial paper, promissory notes and bank
loans. The carrying value of these short-term obligations approximates fair
value due to their short-term nature.

Short-term borrowings are set forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
------------------
1997 1998
---- ----
(in millions)
<S> <C> <C>
Commercial paper....................................... $ 4,468 $10,008
Promissory notes(1).................................... 10,411 10,763
Bank loans and other(1)................................ 6,129 6,659
------- -------
Total(2)............................................... $21,008 $27,430
======= =======
</TABLE>

- ---------------
(1) As of November 1997 and November 1998, short-term borrowings included $2,454
million and $2,955 million of long-term borrowings maturing within one year,
respectively.

(2) Weighted average interest rates for total short-term borrowings, including
commercial paper, were 5.43% as of November 1997 and 5.19% as of November
1998.

The Firm maintains unencumbered securities with a market value in excess of
all uncollateralized short-term borrowings.

F-15
<PAGE> 195
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. LONG-TERM BORROWINGS

The Firm's long-term borrowings are set forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
-------------------
1997 1998
---- ----
(in millions)
<S> <C> <C>
Fixed-rate obligations(1)
U.S. dollar denominated.............................. $ 5,217 $ 5,260
Non-U.S. dollar denominated.......................... 1,556 2,066
Floating-rate obligations(2)
U.S. dollar denominated.............................. 8,342 11,858
Non-U.S. dollar denominated.......................... 552 722
------- -------
Total long-term borrowings(3).......................... $15,667 $19,906
======= =======
</TABLE>

- ---------------
(1) Interest rate ranges for U.S. dollar and non-U.S. dollar fixed rate
obligations are set forth below:

<TABLE>
<CAPTION>
AS OF
NOVEMBER
---------------
1997 1998
---- ----
<S> <C> <C>
U.S. dollar denominated
High...................................................... 10.10% 10.10%
Low....................................................... 5.82 5.74
Non-U.S. dollar denominated
High...................................................... 9.51 9.51
Low....................................................... 1.90 1.90
</TABLE>

(2) Floating interest rates generally are based on LIBOR, the U.S. treasury bill
rate or the federal funds rate. Certain equity-linked and indexed
instruments are included in floating rate obligations.
(3) Long-term borrowings bear fixed or floating interest rates and have
maturities that range from 1 to 30 years from the date of issue.

Long-term borrowings by maturity date are set forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER 1997 AS OF NOVEMBER 1998
------------------------------ ------------------------------
U.S. NON-U.S. U.S. NON-U.S.
DOLLAR DOLLAR TOTAL DOLLAR DOLLAR TOTAL
------ -------- ----- ------ -------- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
MATURITY DATES:
1998................. $ 1,159 $ 135 $ 1,294 $ -- $ -- $ --
1999................. 2,436 451 2,887 2,443 199 2,642
2000................. 2,544 263 2,807 4,293 272 4,565
2001................. 971 142 1,113 2,261 148 2,409
2002................. 1,376 281 1,657 1,669 265 1,934
2003................. 941 109 1,050 1,409 412 1,821
2004-24.............. 4,132 727 4,859 5,043 1,492 6,535
------- ------ ------- ------- ------ -------
Total................ $13,559 $2,108 $15,667 $17,118 $2,788 $19,906
======= ====== ======= ======= ====== =======
</TABLE>

F-16
<PAGE> 196
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Firm enters into non-trading derivative contracts, such as interest
rate and currency swap agreements, to effectively convert a substantial portion
of its fixed rate long-term borrowings into U.S. dollar-based floating rate
obligations. Accordingly, the aggregate carrying value of these long-term
borrowings and related hedges approximates fair value. The effective weighted
average interest rates for long-term borrowings, after hedging activities, are
set forth below:

<TABLE>
<CAPTION>
AS OF AS OF
NOVEMBER 1997 NOVEMBER 1998
--------------- ----------------
AMOUNT RATE AMOUNT RATE
------ ---- ------ ----
($ in millions)
<S> <C> <C> <C> <C>
Long-term borrowings:
Fixed-rate obligations................ $ 291 7.76% $ 222 8.09%
Floating-rate obligations............. 15,376 5.84 19,684 5.63
------- -------
Total long-term
borrowings................ $15,667 5.88 $19,906 5.66
======= =======
</TABLE>

The notional amounts, fair value and carrying value of the related swap
agreements used for non-trading purposes are set forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
--------------
1997 1998
---- ----
(in millions)
<S> <C> <C>
Notional amount........................................ $8,708 $10,206
</TABLE>

<TABLE>
<CAPTION>
AS OF NOVEMBER
-----------------------------------------------
1997 1998
---------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(in millions)
<S> <C> <C> <C> <C>
Fair value.......................... $212 $4 $519 $7
Carrying value...................... 98 4 98 8
</TABLE>

NOTE 6. COMMITMENTS AND CONTINGENCIES

LITIGATION

The Firm is involved in a number of judicial, regulatory and arbitration
proceedings concerning matters arising in connection with the conduct of its
businesses. Management believes, based on currently available information, that
the results of such proceedings, in the aggregate, will not have a material
adverse effect on the Firm's financial condition, but might be material to the
Firm's operating results for any particular period, depending, in part, upon the
operating results for such period.

LEASES

The Firm has obligations under long-term non-cancelable lease agreements,
principally for office space, expiring on various dates through 2016. Certain
agreements are subject to periodic escalation charges for increases in real
estate taxes and other charges. Minimum rental

F-17
<PAGE> 197
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

commitments, net of minimum sublease rentals, under non-cancelable leases for
1999 and the succeeding four years and rent charged to operating expense for the
last three years are set forth below:

<TABLE>
<CAPTION>
(in millions)
<S> <C>
MINIMUM RENTAL COMMITMENTS:
1999.......................................... $ 142
2000.......................................... 139
2001.......................................... 139
2002.......................................... 136
2003.......................................... 128
Thereafter.................................... 860
------
Total............................... $1,544
======

NET RENT EXPENSE:
1996.......................................... $ 83
1997.......................................... 87
1998.......................................... 104
</TABLE>

OTHER COMMITMENTS

The Firm acts as an investor in merchant banking transactions which
includes making long-term investments in equity and debt securities in privately
negotiated transactions, corporate acquisitions and real estate transactions,
and in connection with a bridge loan fund. In connection with these activities,
the Firm had commitments to invest up to $670 million and $1.39 billion in
corporate and real estate merchant banking investment and bridge loan funds as
of November 1997 and November 1998, respectively.

In connection with loan origination and participation, the Firm had loan
commitments of $5.23 billion and $1.51 billion as of November 1997 and November
1998, respectively. These commitments are agreements to lend to counterparties,
have fixed termination dates and are contingent on all conditions to borrowing
set forth in the contract having been met. Since these commitments may expire
unused, the total commitment amount does not necessarily reflect the actual
future cash flow requirements.

The Firm also had outstanding guarantees of $786 million and $790 million
relating to its fund management activities as of November 1997 and November
1998, respectively.

The Firm had pledged securities of $23.60 billion and $22.88 billion as
collateral for securities borrowed of approximately equivalent value as of
November 1997 and November 1998, respectively.

The Firm obtains letters of credit issued to counterparties by various
banks that are used in lieu of securities or cash to satisfy various collateral
and margin deposit requirements. Letters of credit outstanding were $10.13
billion and $8.81 billion as of November 1997 and November 1998, respectively.

NOTE 7. EMPLOYEE BENEFIT PLANS

The Firm sponsors various pension plans and certain other post-retirement
benefit plans, primarily health care and life insurance, which cover most
employees worldwide. The Firm also provides certain benefits to former or
inactive employees prior to retirement. Plan benefits are

F-18
<PAGE> 198
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

primarily based on the employee's compensation and years of service. Pension
costs are determined actuarially and are funded in accordance with the Internal
Revenue Code. Plan assets are held in a trust and consist primarily of listed
stocks and U.S. bonds. A summary of these plans is set forth below:

DEFINED BENEFIT PENSION PLANS

The components of pension expense/(income) are set forth below:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost, benefits earned during the period............. $ 15 $ 15 $ 14
Interest cost on projected benefit obligation............... 8 10 11
Return on plan assets....................................... (24) (18) (14)
Net amortization............................................ 14 4 (1)
---- ---- ----
Total pension expense............................. $ 13 $ 11 $ 10
==== ==== ====
U.S. plans.................................................. $ (1) $ (3) $ (3)
International plans......................................... 14 14 13
---- ---- ----
Total pension expense............................. $ 13 $ 11 $ 10
==== ==== ====
</TABLE>

The weighted average assumptions used to develop net periodic pension cost
and the actuarial present value of the projected benefit obligation are set
forth below. The assumptions represent a weighted average of the assumptions
used for the U.S. and international plans and are based on the economic
environment of each applicable country.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
U.S. PLANS:
Discount rate............................................... 7.50% 7.50% 7.00%
Rate of increase in future compensation levels.............. 5.00 5.00 5.00
Expected long-term rate of return on plan assets............ 7.50 7.50 7.50
INTERNATIONAL PLANS:
Discount rate............................................... 5.70 5.70 5.00
Rate of increase in future compensation levels.............. 5.30 5.30 4.75
Expected long-term rate of return on plan assets............ 7.00 7.00 6.00
</TABLE>

F-19
<PAGE> 199
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The funded status of the qualified plans is set forth below:

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER
--------------
1997 1998
---- ----
(in millions)
<S> <C> <C>
Actuarial present value of vested benefit obligation........ $(149) $(203)
----- -----
Accumulated benefit obligation.............................. (151) (207)
Effect of future salary increases........................... (16) (21)
----- -----
Projected benefit obligation................................ (167) (228)
Plan assets at fair market value............................ 187 208
----- -----
Projected benefit obligation less than/(greater than) plan
assets.................................................... 20 (20)
Unrecognized net loss....................................... 2 43
Unrecognized net transition gain............................ (20) (18)
----- -----
Prepaid pension cost, end of year........................... $ 2 $ 5
===== =====
PREPAID PENSION COST:
U.S. plans.................................................. $ 2 $ 5
International plans......................................... -- --
----- -----
Prepaid pension cost, end of year........................... $ 2 $ 5
===== =====
</TABLE>

POST-RETIREMENT PLANS

The Firm has unfunded post-retirement benefit plans that provide medical
and life insurance for eligible retirees, employees and dependents. The Firm's
accrued post-retirement benefit liability was $50 million and $53 million as of
November 1997 and November 1998, respectively. The Firm's expense for these
plans was $6 million, $7 million and $6 million in the years ended 1996, 1997
and 1998, respectively.

POST-EMPLOYMENT PLANS

Post-employment benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits, and continuation of health care and life insurance
coverage provided to former or inactive employees after employment but before
retirement. The accrued but unfunded liability under the plans was $12 million
and $10 million as of November 1997 and November 1998, respectively. The Firm's
expense for these plans was $2 million in each of the fiscal years ended 1996,
1997 and 1998.

DEFINED CONTRIBUTION PLANS

The Firm contributes to employer sponsored U.S. and international defined
contribution plans. The Firm's contribution to the U.S. plans was $39 million,
$44 million and $48 million for the years ended 1996, 1997 and 1998,
respectively. The Firm's contribution to the international plans was $7 million,
$14 million and $10 million for the years ended 1996, 1997 and 1998,
respectively.

F-20
<PAGE> 200
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. CAPITAL

PARTNERS' CAPITAL

Partners' capital includes both the general partner's and limited partners'
capital and is subject to certain withdrawal restrictions. As of November 1998,
the Firm had $6.31 billion in partners' capital. Managing directors that are
participating limited partners in Group L.P. ("PLPs") who elect to retire are
entitled to redeem their capital over a period of not less than five years
following retirement, but often reinvest a significant portion of their capital
as limited partners for longer periods. Partners' capital was reduced by $368
million in 1998 due to the termination of the Profit Participation Plans under
which certain employees received payments based on the earnings of the Firm.
Partners' capital allocated for income taxes and potential withdrawals
represents management's estimate of net amounts currently distributable,
primarily to the PLPs, under the Partnership Agreement, for items including,
among other things, income taxes and capital withdrawals.

Sumitomo Bank Capital Markets, Inc. ("SBCM"), a limited partner that had
capital invested of approximately $834 million as of November 1998, may require
Group L.P. to redeem its capital over a five-year period beginning no earlier
than 2007. Kamehameha Activities Association ("KAA"), a limited partner that had
capital invested of approximately $757 million as of November 1998, may require
Group L.P. to redeem $391 million of its capital over a five-year period
beginning no earlier than 2010 and $366 million of its capital over a five-year
period beginning no earlier than 2013.

Institutional Limited Partners (other than SBCM and KAA) had aggregate
capital invested of $755 million as of November 1998. Group L.P. must repay
these Institutional Limited Partners' capital as follows: $270 million in six
equal annual installments commencing in December 2001, $257 million in March
2005, $146 million in November 2013 and $82 million in November 2023.

Group L.P. may defer any required redemption of capital if the redemption
would cause a subsidiary subject to regulatory authority to be in violation of
the rules of such authority or if the withdrawal of funds to satisfy the
redemption from an unregulated subsidiary would have a material effect on such
subsidiary.

REGULATED SUBSIDIARIES

GS&Co. is a registered U.S. broker-dealer subsidiary, which is subject to
the Securities and Exchange Commission's "Uniform Net Capital Rule", and has
elected to compute its net capital in accordance with the "Alternative Net
Capital Requirement" of that rule. As of November 1997 and November 1998, GS&Co.
had regulatory net capital, as defined, of $1.77 billion and $3.25 billion,
respectively, which exceeded the amounts required by $1.37 billion and $2.70
billion, respectively.

GSI, a registered U.K. broker-dealer and subsidiary of Group L.P., is
subject to the capital requirements of the Securities and Futures Authority
Limited and GSJL, a Tokyo-based broker-dealer, is subject to the capital
requirements of the Japanese Ministry of Finance and the Financial Supervisory
Agency. As of November 1997 and November 1998, GSI and GSJL were in compliance
with their local capital adequacy requirements.

Certain other subsidiaries of the Firm are also subject to capital adequacy
requirements promulgated by authorities of the countries in which they operate.
As of November 1997 and November 1998, these subsidiaries were in compliance
with their local capital adequacy requirements.

F-21
<PAGE> 201
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. GEOGRAPHIC DATA

The Firm's activities as an investment banking and securities firm
constitute a single business segment pursuant to SFAS No. 14 "Financial
Reporting for Segments of a Business Enterprise".

Due to the highly integrated nature of international financial markets, the
Firm manages its business based on the profitability of the enterprise as a
whole, not by geographic region. Accordingly, management believes that
profitability by geographic region is not necessarily meaningful.

The total revenues, net revenues, pre-tax earnings and identifiable assets
of Group L.P. and its consolidated subsidiaries by geographic region are
summarized below:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-----------------------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
TOTAL REVENUES:
Americas(1)......................................... $12,864 $15,091 $15,972
Europe.............................................. 3,762 4,463 5,156
Asia................................................ 663 879 1,350
------- ------- -------
Total............................................... $17,289 $20,433 $22,478
======= ======= =======

NET REVENUES:
Americas(1)......................................... $ 4,397 $ 5,104 $ 5,436
Europe.............................................. 1,355 1,739 2,180
Asia................................................ 377 604 904
------- ------- -------
Total............................................... $ 6,129 $ 7,447 $ 8,520
======= ======= =======

PRE-TAX EARNINGS:
Americas(1)......................................... $ 1,963 $ 2,061 $ 1,527
Europe.............................................. 536 683 913
Asia................................................ 107 270 481
------- ------- -------
Total............................................... $ 2,606 $ 3,014 $ 2,921
======= ======= =======
</TABLE>

F-22
<PAGE> 202
THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
AS OF NOVEMBER
-----------------------------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS:
Americas(1).......................................... $ 171,345 $ 206,312 $ 229,412
Europe............................................... 62,172 80,551 106,721
Asia................................................. 6,894 13,240 19,883
Eliminations......................................... (88,365) (121,702) (138,636)
--------- --------- ---------
Total................................................ $ 152,046 $ 178,401 $ 217,380
========= ========= =========
</TABLE>

- ---------------
(1) Americas principally represents the United States.

NOTE 10. QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 1996
------------------------------------
1ST 2ND 3RD 4TH
--- --- --- ---
(in millions)
<S> <C> <C> <C> <C>
Total revenues....................................... $4,030 $4,656 $4,313 $4,290
Interest expense, principally on short-term
funding............................................ 2,566 2,986 2,845 2,763
------ ------ ------ ------
Revenues, net of interest expense.................... 1,464 1,670 1,468 1,527
Operating expenses................................... 899 961 879 784
------ ------ ------ ------
Pre-tax earnings..................................... 565 709 589 743
Provision for taxes.................................. 21 23 31 132
------ ------ ------ ------
Net earnings.................................... $ 544 $ 686 $ 558 $ 611
====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 1997
------------------------------------
1ST 2ND 3RD 4TH
--- --- --- ---
(in millions)
<S> <C> <C> <C> <C>
Total revenues....................................... $4,932 $4,608 $5,957 $4,936
Interest expense, principally on short-term
funding............................................ 2,975 2,934 3,727 3,350
------ ------ ------ ------
Revenues, net of interest expense.................... 1,957 1,674 2,230 1,586
Operating expenses................................... 1,052 1,064 1,298 1,019
------ ------ ------ ------
Pre-tax earnings..................................... 905 610 932 567
Provision for taxes.................................. 44 99 60 65
------ ------ ------ ------
Net earnings.................................... $ 861 $ 511 $ 872 $ 502
====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 1998
------------------------------------
1ST 2ND 3RD 4TH
--- --- --- ---
(in millions)
<S> <C> <C> <C> <C>
Total revenues....................................... $5,903 $6,563 $5,735 $4,277
Interest expense, principally on short-term
funding............................................ 3,431 3,574 3,591 3,362
------ ------ ------ ------
Revenues, net of interest expense.................... 2,472 2,989 2,144 915
Operating expenses................................... 1,450 1,952 1,389 808
------ ------ ------ ------
Pre-tax earnings..................................... 1,022 1,037 755 107
Provision for taxes.................................. 138 190 102 63
------ ------ ------ ------
Net earnings.................................... $ 884 $ 847 $ 653 $ 44
====== ====== ====== ======
</TABLE>

F-23
<PAGE> 203

PLAN OF DISTRIBUTION OF NOTES

PLAN OF DISTRIBUTION FOR THE INITIAL OFFERING AND SALE OF NOTES

Goldman Sachs and GS&Co., as the Agent, have entered into a distribution
agreement with respect to the Notes. Subject to certain conditions, the Agent
has agreed to use its reasonable efforts to solicit purchases of the Notes.
Goldman Sachs has the right to accept offers to purchase Notes and may reject
any proposed purchase of the Notes. The Agent may also reject any offer to
purchase Notes. Goldman Sachs will pay the Agent a commission on any Notes sold
through the Agent. The commission will range from 0.125% to 0.750% of the
principal amount of the Notes, depending on the stated maturity of the Notes.

Goldman Sachs may also sell Notes to the Agent who will purchase the Notes
as principal for its own account. In that case, the Agent will purchase the
Notes at a price equal to the issue price specified in the applicable prospectus
supplement, less a discount. Unless otherwise stated in the applicable
prospectus supplement, the discount will equal the applicable commission on an
agency sale of Notes with the same stated maturity.

The Agent may resell any Notes it purchases as principal to other brokers
or dealers at a discount, which may include all or part of the discount the
Agent received from Goldman Sachs. If all the Notes are not sold at the initial
offering price, the Agent may change the offering price and the other selling
terms.

Goldman Sachs may also sell Notes directly to investors. No commissions
will be paid on Notes sold directly.

The Agent, whether acting as agent or principal, may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933. Goldman Sachs
has agreed to indemnify the Agent against certain liabilities, including
liabilities under the Securities Act.

If the Agent sells Notes to dealers who resell to investors and the Agent
pays the dealers all or part of the discount or commission it receives from
Goldman Sachs, those dealers may also be deemed to be "underwriters" within the
meaning of the Securities Act.

Goldman Sachs estimates that its share of the total expenses of this
Offering, excluding underwriting discounts and commissions whether paid to
GS&Co. or any other Agent, will be approximately $ .

Unless otherwise indicated in the applicable prospectus supplement, the
purchase price of the Notes will be required to be paid in immediately available
funds in New York City.

Goldman Sachs may appoint Agents, other than or in addition to GS&Co., with
respect to certain Notes. Any other Agents will be named in the applicable
prospectus supplements and those Agents will enter into the distribution
agreement referred to above. The other Agents may be affiliates or customers of
Goldman Sachs and may engage in transactions with and perform services for
Goldman Sachs in the ordinary course of business.

GS&Co. is a subsidiary of Goldman Sachs. Rule 2720 of the Conduct Rules of
the National Association of Securities Dealers, Inc. imposes certain
requirements when an NASD member such as GS&Co. distributes an affiliated
company's debt securities. GS&Co. has advised Goldman Sachs that this Offering
will comply with the applicable requirements of Rule 2720.

GS&Co. will not confirm initial sales to accounts over which it exercises
discretionary authority without the prior written approval of the customer.

PLAN OF DISTRIBUTION FOR MARKET-MAKING
RESALES BY AFFILIATES

This prospectus may be used by GS&Co. in connection with offers and sales
of the Notes in market-making transactions. In a market-making transaction,
GS&Co. may resell a Note it acquires from other holders, after the original
offering and sale of the Note. Resales of this kind may occur in the open market
or may be privately negotiated,

U-1
<PAGE> 204

at prices related to prevailing market prices at the time of resale or at
negotiated prices. In these transactions, GS&Co. may act as principal or agent,
including as agent for the counterparty in a transaction in which GS&Co. acts as
principal or as agent for both counterparties in a transaction in which GS&Co.
does not act as principal. GS&Co. may receive compensation in the form of
discounts and commissions, including from both counterparties in some cases.
Other affiliates of Goldman Sachs may also engage in transactions of this kind
and may use this prospectus for this purpose.

Goldman Sachs does not expect to receive any proceeds from market-making
transactions. Goldman Sachs does not expect that GS&Co. or any other affiliate
that engages in these transactions will pay any proceeds from its making resales
to Goldman Sachs.

A market-making transaction will have a settlement date later than the
original issue date of the Note. Information about the trade and settlement
dates, as well as the purchase price, for a market-making transaction will be
provided to the purchaser in a separate confirmation of sale.

Unless otherwise indicated in the applicable prospectus supplement or
confirmation of sale, the purchase price of the Notes will be required to be
paid in immediately available funds in New York City.

Unless Goldman Sachs or an Agent informs you in your confirmation of sale that
your Note is being purchased in its original offering and sale, you may assume
that you are purchasing your Note in a market-making transaction.

MATTERS RELATING TO ORIGINAL SALES AND
MARKET-MAKING RESALES

GS&Co. does not expect the amount of Notes held, as a result of
market-making resales, by accounts over which it exercises discretionary
authority to exceed, at any time, five percent of the aggregate initial offering
price of the Notes.

The Notes are a new issue of securities, and there will be no established
trading market for any Note prior to its original issue date. Goldman Sachs does
not plan to list the Notes on a securities exchange. Goldman Sachs has been
advised by GS&Co. that it intends to make a market in the Notes. However,
neither GS&Co. nor any other affiliate that makes a market is obligated to do so
and any of them may stop doing so at any time without notice. No assurance can
be given as to the liquidity or trading market for the Notes.

In this prospectus, the term "Offering" means the initial offering of the
Notes made in connection with their original issuance. This term does not refer
to any subsequent resales of Notes in market-making transactions.

U-2
<PAGE> 205

- -------------------------------------------------------
- -------------------------------------------------------

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>
Our Business Principles............... 2
Prospectus Summary.................... 3
Risk Factors.......................... 12
Use of Proceeds....................... 26
Pro Forma Consolidated Financial
Information......................... 27
Capitalization........................ 31
Selected Consolidated Financial
Data................................ 32
Recent Developments................... 34
Management's Discussion And Analysis
of Financial Condition And Results
of Operations....................... 35
Industry and Economic Outlook......... 58
Business.............................. 61
Management............................ 85
Principal Shareholders................ 96
Certain Relationships and Related
Transactions........................ 97
Description of Notes We May Offer..... 101
United States Taxation................ 130
ERISA................................. 141
Validity of the Notes................. 141
Experts............................... 142
Available Information................. 142
Index to Consolidated Financial
Statements.......................... F-1
Plan of Distribution of Notes......... U-1
</TABLE>

------------------
Through and including , 1999 (the 40th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------

$15,000,000,000

THE GOLDMAN SACHS
GROUP, INC.

Medium-Term Notes, Series B
------------------

[GOLDMAN SACHS LOGO]

------------------
GOLDMAN, SACHS & CO.
-------------------------------------------------------
-------------------------------------------------------
<PAGE> 206

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following is a statement of the expenses (all of which are estimated
other than the SEC registration fee and the NASD fees), other than underwriting
discounts and commissions, to be incurred in connection with the distribution of
the securities registered under this registration statement.

<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Securities and Exchange Commission registration fee......... $4,170,000
NASD fees................................................... 30,500
Legal fees and expenses..................................... *
Fees and expenses of qualification under state securities
laws (including legal fees)............................... *
Accounting fees and expenses................................ *
Printing and engraving fees................................. *
Rating agency fees.......................................... *
Trustee's fees and expenses................................. *
Miscellaneous............................................... *
----------
Total............................................. $ *
==========
</TABLE>

- ---------------
* To be completed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee of or agent to the registrant. The
statute provides that it is not exclusive of other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. Section 6.4 of the
registrant's By-Laws provides for indemnification by the registrant of any
director or officer (as such term is defined in the By-Laws) of the registrant,
or who is or was a director of any of its Subsidiaries, is or was a member of
the Shareholders' Committee acting pursuant to the Shareholders' Agreement (as
defined in the prospectus included in this registration statement) or, at the
request of the registrant, is or was serving as a director or officer of, or in
any other capacity for, any other enterprise, to the fullest extent permitted by
law. The By-Laws also provide that the registrant shall advance expenses to a
director or officer and, if reimbursement of such expenses is demanded in
advance of the final disposition of the matter with respect to which such demand
is being made, upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if it is ultimately determined that the director
or officer is not entitled to be indemnified by the registrant. To the extent
authorized from time to time by the Board of Directors of the registrant, the
registrant may provide to any one or more employees of the registrant one or
more officers, employees and other agents of any subsidiary or one or more
directors, officers, employees and other agents of any other enterprise, rights
of indemnification and to receive payment or reimbursement of expenses,
II-1
<PAGE> 207

including attorneys' fees, that are similar to the rights conferred in the
By-Laws of the registrant on directors and officers of the registrant or any
subsidiary or other enterprise. The By-Laws do not limit the power of the
registrant or its Board of Directors to provide other indemnification and
expense reimbursement rights to directors, officers, employees, agents and other
persons otherwise than pursuant to the By-Laws. The registrant intends to enter
into agreements with certain directors, officers and employees who are asked to
serve in specified capacities at subsidiaries and other entities.

The registrant will enter into agreements to provide indemnification to its
directors and certain officers. These agreements are in addition to the
registrant's indemnification obligations under its By-Laws. These agreements,
among other things, will indemnify the registrant's directors and certain
officers to the fullest extent permitted by law for certain expenses (including
attorneys' fees) and all losses, claims, liabilities, judgments, fines and
settlement amounts incurred by such person arising out of or in connection with
such person's service as a director or officer of the registrant with respect to
the Incorporation Transactions (as defined in the prospectus included in this
registration statement) and the Common Stock Offering (as defined in the
prospectus included in the registration statement).

Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The registrant's Amended and Restated Certificate of Incorporation
provides for such limitation of liability.

Policies of insurance are maintained by the registrant under which its
directors and officers are insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of, and certain liabilities which might be imposed as a result of,
actions, suits or proceedings to which they are parties by reason of being or
having been such directors or officers.

Reference is also made to Section of the Distribution Agreement filed
as Exhibit 1.1 to the registration statement for information concerning the
Underwriters' obligation to indemnify the registrant and its officers and
directors in certain circumstances.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

As part of the Incorporation Transactions, the registrant will enter into
definitive binding agreements to issue: (i) shares of the registrant's common
stock, par value $.01 per share (the "Common Stock"), to certain profit
participating limited partners (the "PLPs") of The Goldman Sachs Group, L.P.
("Group L.P.") in exchange for all of the PLPs' interests in Group L.P. and
certain other entities; (ii) shares of Common Stock and 12% junior subordinated
debentures (the "Junior Subordinated Debentures") of the registrant to certain
retired limited partners (the "RLPs") of Group L.P. in exchange for all of such
limited partners' interests in Group L.P. and certain other entities; (iii)
shares of Common Stock and shares of the registrant's nonvoting common stock,
par value $.01 per share ("Nonvoting Common Stock") to Sumitomo Bank Capital
Markets, Inc. ("SBCM"); and (iv) shares of Common Stock to Kamehameha Activities
Association ("KAA"). Also simultaneously with the Common Stock Offering (as
defined in the prospectus included in this registration statement), the
registrant will make awards of restricted stock units and/or stock options to
substantially all of its employees and will make an irrevocable contribution of
Common Stock to a nonqualified defined contribution plan. The offering and sale
of the shares of Common Stock, Junior Subordinated Debentures and Nonvoting
Common Stock

II-2
<PAGE> 208

to the PLPs, RLPs, SBCM and KAA will not be registered under the Securities Act
of 1933, as amended (the "Securities Act"), because they will have been offered
and sold in transactions either exempt from registration under the Securities
Act pursuant to Section 4(2) and Rule 506 thereunder or outside the United
States to persons who are not citizens or residents of the United States in
reliance upon Regulation S under the Securities Act. The foregoing employee
awards and contribution of Common Stock will not be registered under the
Securities Act because the awards and contribution either will not involve an
offer or sale for purposes of Section 2(a)(3) of the Securities Act or will be
offered and sold in transactions exempt from registration under the Securities
Act pursuant to Section 4(2) and Rule 506 thereunder.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<C> <S>
1.1 Form of Distribution Agreement.*
2.1 Plan of Incorporation.*
3.1 Form of Amended and Restated Certificate of Incorporation of
the registrant.*
3.2 By-Laws of the registrant.*
4.1 Form of Indenture between the registrant and
.
4.2 Form of debt securities of the registrant (included in
Exhibit 4.1).
5.1 Opinion of General Counsel to the registrant.*
10.1 Lease, dated June 11, 1985, between Metropolitan Life
Insurance Company and Goldman, Sachs & Co.**
10.2 Lease, dated April 5, 1994, between The Chase Manhattan Bank
(National Association) and The Goldman Sachs Group, L.P.
("Group L.P."), as amended.**
10.3 Lease, dated as of August 22, 1997, between Ten Hanover LLC
and Group L.P.**
10.4 Lease, dated as of July 16, 1998, between TCC Acquisition
Corp. and Group L.P.**
10.5 Agreement for Lease, dated April 2, 1998, among (i) JC No. 3
(UK) Limited and Fleet Street Square Management Limited
trading as Fleet Street Partnership, (ii) Goldman Sachs
International ("GSI"), (iii) Restamove Limited, (iv) Group
L.P. and (v) Itochu Corporation.**
10.6 Annexure 1 to Agreement for Lease, dated April 2, 1998,
among (i) JC No. 3 (UK) Limited and Fleet Street Square
Management Limited trading as Fleet Street Partnership, (ii)
GSI, (iii) Restamove Limited, (iv) Group L.P. and (v) Itochu
Corporation (Form of Occupational Lease among (i) JC No. 3
(UK) Limited and Fleet Street Square Management Limited
trading as Fleet Street Partnership, (ii) GSI and (iii)
Group L.P.).**
10.7 Agreement relating to Developer's Fit Out Works to be
carried out at 120 Fleet Street, London, dated April 2,
1998, among (i) JC No. 3 (UK) Limited and Fleet Street
Square Management Limited, (ii) Goldman Sachs Property
Management, (iii) Itochu Corporation and (iv) Group L.P.**
10.8 Agreement relating to One Carter Lane, London EC4, dated
March 25, 1998, among Britel Fund Trustees Limited, GSI,
Group L.P., English Property Corporation plc and MEPC plc.**
10.9 Fit Out Works Agreement relating to One Carter Lane, London
EC4, dated March 25, 1998, among Britel Fund Trustees
Limited, GSI, Goldman Sachs Property Management, Group L.P.,
English Property Corporation plc and MEPC plc.**
10.10 Underlease of premises known as One Carter Lane, London EC4,
dated September 9, 1998, among Britel Fund Trustees Limited,
GSI and Group L.P.**
</TABLE>

II-3
<PAGE> 209
<TABLE>
<C> <S>
10.11 Lease, dated March 5, 1994, among Shine Hill Development
Limited, Shine Belt Limited, Fair Page Limited, Panhy
Limited, Maple Court Limited and Goldman Sachs (Asia)
Finance, as amended.**
10.12 Guarantee, dated November 17, 1993, between Shine Hill
Development Limited and Group L.P.**
10.13 Agreement for Lease, dated November 29, 1998, between Turbo
Top Limited and Goldman Sachs (Asia) Finance.**
10.14 Summary of Tokyo Leases.*
10.15 The Goldman Sachs 1999 Stock Incentive Plan.*
10.16 The Goldman Sachs Defined Contribution Plan.*
10.17 Trust Agreement.*
10.18 The Goldman Sachs Partner Compensation Plan.*
10.19 Form of Employment Agreement.*
10.20 Form of Agreement Relating to Noncompetition and Other
Covenants.*
10.21 Form of Pledge Agreement.*
10.22 Award Agreement (Formula RSUs).*
10.23 Award Agreement (Discretionary RSUs).*
10.24 Form of Option Agreement (Discretionary Options).*
10.25 Form of Tax Indemnification Agreement, dated as of
, 1999, by and among GS Inc. and various
parties.*
10.26 Shareholders' Agreement, dated as of , 1999,
among GS Inc. and various parties.*
10.27 Instrument of Indemnification.*
10.28 Form of Indemnification Agreement.*
12.1 Statement re computation of ratios of earnings to fixed
charges.
21.1 List of subsidiaries of Group L.P.**
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of General Counsel to the registrant (included in
Exhibit 5.1 above).*
23.3 Consent of Securities Data Company.
24.1 Powers of Attorney (included on signature page).
25.1 Statement of Eligibility of Trustee.*
27.1 Financial Data Schedule.
</TABLE>

- ---------------

* To be filed by amendment.

** Incorporated herein by reference to the corresponding exhibit to the
registrant's registration statement on Form S-1 (No. 333-74449).

(b) FINANCIAL STATEMENT SCHEDULES

Condensed financial information of Group L.P. and report of
PricewaterhouseCoopers LLP thereon.

II-4
<PAGE> 210

ITEM 17. UNDERTAKINGS

(A) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(B) The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(C) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted against the
registrant by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

II-5
<PAGE> 211

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York on the
31st day of March, 1999.

THE GOLDMAN SACHS GROUP, INC.

By: /s/ DAVID A. VINIAR
------------------------------------
Name: David A. Viniar
Title: Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John A. Thain, Robert J. Katz, Gregory K.
Palm and David A. Viniar and each of them severally, his true and lawful
attorney-in-fact with power of substitution and resubstitution to sign in his
name, place and stead, in any and all capacities, to do any and all things and
execute any and all instruments that such attorney may deem necessary or
advisable under the U.S. Securities Act of 1933 (the "Securities Act"), and any
rules, regulations and requirements of the U.S. Securities and Exchange
Commission (the "Commission") in connection with the registration under the
Securities Act of the debt securities of the registrant, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign his name in his respective capacity as a member of the Board of Directors
or officer of the registrant, this registration statement and/or such other form
or forms as may be appropriate to be filed with the Commission as any of them
may deem appropriate in respect of the debt securities of the registrant, to any
and all amendments thereto (including post-effective amendments) to this
registration statement, to any related Rule 462(b) registration statement and to
any other documents filed with the Commission, as fully for all intents and
purposes as he might or could do in person, and hereby ratifies and confirms all
said attorneys-in-fact and agents, each acting alone, and his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on March 31, 1999:

<TABLE>
<CAPTION>
TITLE SIGNATURE
----- ---------
<S> <C>

Director and Co-Chairman of the Board /s/ JON S. CORZINE
----------------------------------------------
Jon S. Corzine

Director, Co-Chairman of the Board and Chief
Executive Officer (Principal Executive Officer) /s/ HENRY M. PAULSON, JR.
----------------------------------------------
Henry M. Paulson, Jr.

Director and Vice Chairman /s/ ROBERT J. HURST
----------------------------------------------
Robert J. Hurst

</TABLE>

II-6
<PAGE> 212

<TABLE>
<CAPTION>
TITLE SIGNATURE
----- ---------
<S> <C>
Director, President and Chief Operating Officer /s/ JOHN A. THAIN
----------------------------------------------
John A. Thain

Director, President and Chief Operating Officer /s/ JOHN L. THORNTON
----------------------------------------------
John L. Thornton

Director /s/ JOHN L. WEINBERG
----------------------------------------------
John L. Weinberg

Chief Financial Officer (Principal Financial Officer) /s/ DAVID A. VINIAR
----------------------------------------------
David A. Viniar

Principal Accounting Officer /s/ SARAH G. SMITH
----------------------------------------------
Sarah G. Smith
</TABLE>

II-7
<PAGE> 213

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners,
The Goldman Sachs Group, L.P.:

In connection with our audits of the consolidated financial statements of The
Goldman Sachs Group, L.P. and Subsidiaries as of November 27, 1998 and November
28, 1997, and the three fiscal years in the period ended November 27, 1998,
which financial statements are included on pages F-3 to F-23 of this Form S-1,
we have also audited the financial statement schedule listed in Item 16(b)
herein.

In our opinion, the financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.

/s/ PricewaterhouseCoopers LLP

New York, New York
January 22, 1999.

S-1
<PAGE> 214

SCHEDULE IV

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

THE GOLDMAN SACHS GROUP, L.P.
CONDENSED STATEMENTS OF EARNINGS (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-----------------------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
REVENUES:
Equity earnings of subsidiaries............................. $ 2,184 $ 2,378 $ 1,780
Principal investments....................................... 208 339 540
Interest income, principally from affiliates................ 2,602 2,943 4,369
------- ------- -------
Total revenues......................................... 4,994 5,660 6,689
Interest expense, principally on short-term funding......... 2,547 2,858 4,201
------- ------- -------
Revenues, net of interest expense...................... 2,447 2,802 2,488
OPERATING EXPENSES:
Compensation and benefits................................... 13 12 9
Other....................................................... 33 29 43
------- ------- -------
Total operating expenses............................... 46 41 52
Pre-tax earnings............................................ 2,401 2,761 2,436
Provision for unincorporated business taxes................. 2 15 8
------- ------- -------
Net earnings................................................ $ 2,399 $ 2,746 $ 2,428
======= ======= =======
</TABLE>

See note to condensed financial statements.

S-2
<PAGE> 215

SCHEDULE IV

THE GOLDMAN SACHS GROUP, L.P.

CONDENSED STATEMENTS OF FINANCIAL CONDITION (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
AS OF NOVEMBER
------------------
1997 1998
---- ----
(in millions)
<S> <C> <C>
ASSETS:
Cash and cash equivalents................................... $ 4 $ 11
Financial instruments owned, at fair value.................. 1,896 2,147
Receivables from affiliates................................. 23,767 33,562
Subordinated loan receivables from affiliates............... 6,889 8,668
Investment in subsidiaries.................................. 5,005 5,077
Other....................................................... 434 1,123
------- -------
$37,995 $50,588
======= =======
LIABILITIES AND NET WORTH:
Short-term borrowings, including commercial paper........... $16,597 $23,364
Payables to affiliates...................................... 119 1,679
Other....................................................... 137 147
Long-term borrowings:
With third parties........................................ 14,290 18,584
With affiliates........................................... 315 430
------- -------
31,458 44,204
Partners' capital allocated for income taxes and potential
withdrawals............................................... 430 74
Partners' capital........................................... 6,107 6,310
------- -------
$37,995 $50,588
======= =======
</TABLE>

See note to condensed financial statements.

S-3
<PAGE> 216

SCHEDULE IV

THE GOLDMAN SACHS GROUP, L.P.

CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-----------------------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 2,399 $ 2,746 $ 2,428
Non-cash items included in net earnings:
Equity in earnings of subsidiaries...................... (2,184) (2,378) (1,780)
Depreciation and amortization........................... 25 19 35
Changes in operating assets and liabilities:
Financial instruments owned, at fair value................ (110) (395) (8)
Other, net................................................ (43) (98) (501)
------- ------- -------
Net cash provided by/(used for) operating activities.... 87 (106) 174
------- ------- -------
Cash flows from investing activities:
Financial instruments owned, at fair value................ 126 (331) (243)
Receivables from affiliates, net.......................... (1,476) (4,320) (8,235)
Subordinated loan receivables from affiliates............. (480) (1,528) (1,779)
Investment in subsidiaries................................ 2,031 2,147 1,362
Property, leasehold improvements and equipment............ (1) (4) (145)
------- ------- -------
Net cash provided by/(used for) investing activities.... 200 (4,036) (9,040)
------- ------- -------
Cash flows from financing activities:
Short-term borrowings, net................................ 496 39 2,586
Issuance of long-term borrowings.......................... 4,636 7,498 10,289
Repayment of long-term borrowings......................... (3,886) (1,005) (1,698)
Capital contributions..................................... 4 89 9
Returns on capital and certain distributions to
partners................................................ (473) (557) (619)
Termination of the Profit Participation Plan.............. -- -- (21)
Partners' capital allocated for income taxes and potential
withdrawals, net........................................ (1,017) (2,034) (1,673)
------- ------- -------
Net cash (used for)/provided by financing activities.... (240) 4,030 8,873
------- ------- -------
Net increase/(decrease) in cash and cash equivalents...... 47 (112) 7
Cash and cash equivalents, beginning of year................ 69 116 4
------- ------- -------
Cash and cash equivalents, end of year...................... $ 116 $ 4 $ 11
======= ======= =======
</TABLE>

SUPPLEMENTAL DISCLOSURES:

Cash payments for interest approximated the related expense for each of the
fiscal periods presented. Payments of unincorporated business taxes were not
material.

Cash payments of $347 million related to the termination of the Profit
Participation Plans in 1998 were paid by Group L.P.'s subsidiaries and were
excluded from the condensed statement of cash flows above as these payments
represented non-cash items to Group L.P.

See note to condensed financial statements.

S-4
<PAGE> 217

SCHEDULE IV

THE GOLDMAN SACHS GROUP, L.P.

NOTE TO CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The condensed unconsolidated financial statements of The Goldman Sachs
Group, L.P. ("Group L.P.") should be read in conjunction with the consolidated
financial statements of The Goldman Sachs Group, L.P. and Subsidiaries and the
footnotes thereto. Certain reclassifications have been made to prior year
amounts to conform to the current presentation.

Investment in subsidiaries is accounted for using the equity method.

The condensed unconsolidated financial statements have been prepared in
accordance with generally accepted accounting principles that require management
to make estimates and assumptions regarding investment valuations, partner
retirements, the outcome of pending litigation and other matters that affect the
condensed unconsolidated financial statements and related disclosures. These
estimates and assumptions are based on judgment and available information and,
consequently, actual results could be materially different from these estimates.

S-5
<PAGE> 218

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Distribution Agreement.*
2.1 Plan of Incorporation.*
3.1 Form of Amended and Restated Certificate of Incorporation of
the registrant.*
3.2 By-Laws of the registrant.*
4.1 Form of Indenture between the registrant and
.
4.2 Form of debt securities of the registrant (included in
Exhibit 4.1).
5.1 Opinion of General Counsel to the registrant.*
10.1 Lease, dated June 11, 1985, between Metropolitan Life
Insurance Company and Goldman, Sachs & Co.**
10.2 Lease, dated April 5, 1994, between The Chase Manhattan Bank
(National Association) and The Goldman Sachs Group, L.P.
("Group L.P."), as amended.**
10.3 Lease, dated as of August 22, 1997, between Ten Hanover LLC
and Group L.P.**
10.4 Lease, dated as of July 16, 1998, between TCC Acquisition
Corp. and Group L.P.**
10.5 Agreement for Lease, dated April 2, 1998, among (i) JC No. 3
(UK) Limited and Fleet Street Square Management Limited
trading as Fleet Street Partnership, (ii) Goldman Sachs
International ("GSI"), (iii) Restamove Limited, (iv) Group
L.P. and (v) Itochu Corporation.**
10.6 Annexure 1 to Agreement for Lease, dated April 2, 1998,
among (i) JC No. 3 (UK) Limited and Fleet Street Square
Management Limited trading as Fleet Street Partnership, (ii)
GSI, (iii) Restamove Limited, (iv) Group L.P. and (v) Itochu
Corporation (Form of Occupational Lease among (i) JC No. 3
(UK) Limited and Fleet Street Square Management Limited
trading as Fleet Street Partnership, (ii) GSI and (iii)
Group L.P.).**
10.7 Agreement relating to Developer's Fit Out Works to be
carried out at 120 Fleet Street, London, dated April 2,
1998, among (i) JC No. 3 (UK) Limited and Fleet Street
Square Management Limited, (ii) Goldman Sachs Property
Management, (iii) Itochu Corporation and (iv) Group L.P.**
10.8 Agreement relating to One Carter Lane, London EC4, dated
March 25, 1998, among Britel Fund Trustees Limited, GSI,
Group L.P., English Property Corporation plc and MEPC plc.**
10.9 Fit Out Works Agreement relating to One Carter Lane, London
EC4, dated March 25, 1998, among Britel Fund Trustees
Limited, GSI, Goldman Sachs Property Management, Group L.P.,
English Property Corporation plc and MEPC plc.**
10.10 Underlease of premises known as One Carter Lane, London EC4,
dated September 9, 1998, among Britel Fund Trustees Limited,
GSI and Group L.P.**
10.11 Lease, dated March 5, 1994, among Shine Hill Development
Limited, Shine Belt Limited, Fair Page Limited, Panhy
Limited, Maple Court Limited and Goldman Sachs (Asia)
Finance, as amended.**
10.12 Guarantee, dated November 17, 1993, between Shine Hill
Development Limited and Group L.P.**
10.13 Agreement for Lease, dated November 29, 1998, between Turbo
Top Limited and Goldman Sachs (Asia) Finance.**
10.14 Summary of Tokyo Leases.*
10.15 The Goldman Sachs 1999 Stock Incentive Plan.*
10.16 The Goldman Sachs Defined Contribution Plan.*
</TABLE>
<PAGE> 219

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
10.17 Trust Agreement.*
10.18 The Goldman Sachs Partner Compensation Plan.*
10.19 Form of Employment Agreement.*
10.20 Form of Agreement Relating to Noncompetition and Other
Covenants.*
10.21 Form of Pledge Agreement.*
10.22 Award Agreement (Formula RSUs).*
10.23 Award Agreement (Discretionary RSUs).*
10.24 Form of Option Agreement (Discretionary Options).*
10.25 Form of Tax Indemnification Agreement, dated as of
, 1999, by and among GS Inc. and various
parties.*
10.26 Shareholders' Agreement, dated as of , 1999,
among GS Inc. and various parties.*
10.27 Instrument of Indemnification.*
10.28 Form of Indemnification Agreement.*
12.1 Statement re computation of ratios of earnings to fixed
charges.
21.1 List of subsidiaries of Group L.P.**
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of General Counsel to the registrant (included in
Exhibit 5.1 above).*
23.3 Consent of Securities Data Company.
24.1 Powers of Attorney (included on signature page).
25.1 Statement of Eligibility of Trustee.*
27.1 Financial Data Schedule.
</TABLE>

- ---------------

* To be filed by amendment.

** Incorporated herein by reference to the corresponding exhibit to the
registrant's registration statement on Form S-1 (No. 333-74449).

<PAGE> 1
EXHIBIT 4.1

Draft of March 29, 1999

The Goldman Sachs Group, Inc.

Name of Trustee
Trustee

------------

INDENTURE

Dated as of ________, 1999

------------
<PAGE> 2
THE GOLDMAN SACHS GROUP, INC.

CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH 318,
INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939:

TRUST INDENTURE
ACT SECTION INDENTURE SECTION
Section 310(a)(1) ....................................... 609
(a) (2) ....................................... 609
(a) (3) ....................................... Not Applicable
(a) (4) ....................................... Not Applicable
(b) ....................................... 608
610
Section 311(a) ....................................... 613
(b) ....................................... 613
Section 312(a) ....................................... 701
702
(b) ....................................... 702
(c) ....................................... 702
Section 313(a) ....................................... 703
(b) ....................................... 703
(c) ....................................... 703
(d) ....................................... 703
Section 314(a) ....................................... 704
(a) (4) ....................................... 101
1004
(b) ....................................... Not Applicable
(c) (1) ....................................... 102
(c) (2) ....................................... 102
(c) (3) ....................................... Not Applicable
(d) ....................................... Not Applicable
(e) ....................................... 102
Section 315(a) ....................................... 601
(b) ....................................... 602
(c) ....................................... 601
(d) ....................................... 601
(e) ....................................... 514
Section 316(a) ....................................... 101
(a) (1)(A) ....................................... 502
512
(a) (1)(B) ....................................... 513
(a) (2) ....................................... Not Applicable
(b) ....................................... 508
(c) ....................................... 104
Section 317(a) (1)....................................... 503
(a) (2) ....................................... 504
(b) ....................................... 1003
Section 318(a) ....................................... 107

- -------------------

NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.

<PAGE> 3

TABLE OF CONTENTS
----------
PAGE

PARTIES........................................................................1
RECITALS OF THE COMPANY........................................................1

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION

SECTION 101. Definitions.......................................................1
Act ....................................................2
Affiliate....................................................2
Applicable Procedures........................................2
Authenticating Agent.........................................2
Board of Directors...........................................2
Board Resolution.............................................2
Business Day.................................................2
Commission...................................................3
Company ....................................................3
Company Request or Company Order.............................3
Corporate Trust Office.......................................3
corporation..................................................3
Covenant Defeasance..........................................3
Defaulted Interest...........................................3
Defeasance...................................................3
Depositary...................................................3
Event of Default.............................................3
Exchange Act.................................................3
Expiration Date..............................................3
Global Security..............................................4
GS&Co. ....................................................4
Holder ....................................................4
Indenture....................................................4
interest ....................................................4
Interest Payment Date........................................4
Investment Company Act.......................................4
Maturity ....................................................4
Notice of Default............................................4
Officers' Certificate........................................4
Opinion of Counsel...........................................4

- --------------
NOTE: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.

<PAGE> 4

PAGE

Original Issue Discount Security..................................5
Outstanding.......................................................5
Paying Agent......................................................6
Permitted Lien....................................................6
Person .........................................................6
Place of Payment..................................................6
Predecessor Security..............................................6
Redemption Date...................................................6
Redemption Price..................................................6
Regular Record Date...............................................6
Responsible Officer...............................................6
Securities........................................................7
Securities Act....................................................7
Security Register and Security Registrar..........................7
Special Record Date...............................................7
Stated Maturity...................................................7
Subsidiary........................................................7
Trust Indenture Act...............................................7
Trustee .........................................................7
U.S. Government Obligation........................................7
Vice President....................................................7
SECTION 102. Compliance Certificates and Opinions..............................8
SECTION 103. Form of Documents Delivered to Trustee............................8
SECTION 104. Acts of Holders; Record Dates.....................................9
SECTION 105. Notices, Etc., to Trustee and Company............................11
SECTION 106. Notice to Holders; Waiver........................................11
SECTION 107. Conflict with Trust Indenture Act................................12
SECTION 108. Effect of Headings and Table of Contents.........................12
SECTION 109. Successors and Assigns...........................................12
SECTION 110. Separability Clause..............................................12
SECTION 111. Benefits of Indenture............................................12
SECTION 112. Governing Law....................................................13
SECTION 113. Legal Holidays...................................................13

ARTICLE TWO

SECURITY FORMS

SECTION 201. Forms Generally..................................................13
SECTION 202. Form of Face of Security.........................................14
SECTION 203. Form of Reverse of Security......................................15

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<PAGE> 5

PAGE

SECTION 204. Form of Legend for Global Securities.............................18
SECTION 205. Form of Trustee's Certificate of Authentication..................19

ARTICLE THREE

THE SECURITIES

SECTION 301. Amount Unlimited; Issuable in Series.............................19
SECTION 302. Denominations....................................................22
SECTION 303. Execution, Authentication, Delivery and Dating...................22
SECTION 304. Temporary Securities.............................................23
SECTION 305. Registration, Registration of Transfer and Exchange..............24
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.................26
SECTION 307. Payment of Interest; Interest Rights Preserved...................27
SECTION 308. Persons Deemed Owners............................................28
SECTION 309. Cancellation.....................................................28
SECTION 310. Computation of Interest..........................................29

ARTICLE FOUR

SATISFACTION AND DISCHARGE

SECTION 401. Satisfaction and Discharge of Indenture..........................29
SECTION 402. Application of Trust Money.......................................30

ARTICLE FIVE

REMEDIES

SECTION 501. Events of Default................................................30
SECTION 502. Acceleration of Maturity; Rescission and Annulment...............32
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee..33
SECTION 504. Trustee May File Proofs of Claim.................................33
SECTION 505. Trustee May Enforce Claims Without Possession of Securities......34
SECTION 506. Application of Money Collected...................................34
SECTION 507. Limitation on Suits..............................................35
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert..............................35
SECTION 509. Restoration of Rights and Remedies...............................36
SECTION 510. Rights and Remedies Cumulative...................................36
SECTION 511. Delay or Omission Not Waiver.....................................36

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<PAGE> 6
PAGE

SECTION 512. Control by Holders...............................................36
SECTION 513. Waiver of Past Defaults..........................................37
SECTION 514. Undertaking for Costs............................................37
SECTION 515. Waiver of Usury, Stay or Extension Laws..........................37

ARTICLE SIX

THE TRUSTEE

SECTION 601. Certain Duties and Responsibilities..............................38
SECTION 602. Notice of Defaults...............................................38
SECTION 603. Certain Rights of Trustee........................................38
SECTION 604. Not Responsible for Recitals or Issuance of Securities...........39
SECTION 605. May Hold Securities..............................................39
SECTION 606. Money Held in Trust..............................................40
SECTION 607. Compensation and Reimbursement...................................40
SECTION 608. Conflicting Interests............................................40
SECTION 609. Corporate Trustee Required; Eligibility..........................40
SECTION 610. Resignation and Removal; Appointment of Successor................41
SECTION 611. Acceptance of Appointment by Successor...........................42
SECTION 612. Merger, Conversion, Consolidation or Succession to Business......43
SECTION 613. Preferential Collection of Claims Against Company................44
SECTION 614. Appointment of Authenticating Agent..............................44

ARTICLE SEVEN

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 701. Company to Furnish Trustee Names and Addresses of Holders........46
SECTION 702. Preservation of Information; Communications to Holders...........46
SECTION 703. Reports by Trustee...............................................46
SECTION 704. Reports by Company...............................................47

ARTICLE EIGHT

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.............47
SECTION 802. Successor Substituted............................................48

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<PAGE> 7

PAGE

ARTICLE NINE

SUPPLEMENTAL INDENTURES

SECTION 901. Supplemental Indentures Without Consent of Holders...............48
SECTION 902. Supplemental Indentures With Consent of Holders..................50
SECTION 903. Execution of Supplemental Indentures.............................51
SECTION 904. Effect of Supplemental Indentures................................51
SECTION 905. Conformity with Trust Indenture Act..............................51
SECTION 906. Reference in Securities to Supplemental Indentures...............51

ARTICLE TEN

COVENANTS

SECTION 1001. Payment of Principal, Premium and Interest......................52
SECTION 1002. Maintenance of Office or Agency.................................52
SECTION 1003. Money for Securities Payments to Be Held in Trust...............53
SECTION 1004. Statement by Officers as to Default.............................53
SECTION 1005. Restriction on Certain Liens....................................53
SECTION 1006. Waiver of Certain Covenants.....................................54

ARTICLE ELEVEN

REDEMPTION OF SECURITIES

SECTION 1101. Applicability of Article........................................55
SECTION 1102. Election to Redeem; Notice to Trustee...........................55
SECTION 1103. Selection by Trustee of Securities to Be Redeemed...............55
SECTION 1104. Notice of Redemption............................................56
SECTION 1105. Deposit of Redemption Price.....................................57
SECTION 1106. Securities Payable on Redemption Date...........................57
SECTION 1107. Securities Redeemed in Part.....................................58

ARTICLE TWELVE

SINKING FUNDS

SECTION 1201. Applicability of Article........................................58
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities...........58
SECTION 1203. Redemption of Securities for Sinking Fund.......................59

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PAGE

ARTICLE THIRTEEN

DEFEASANCE AND COVENANT DEFEASANCE

SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance....59
SECTION 1302. Defeasance and Discharge........................................60
SECTION 1303. Covenant Defeasance.............................................60
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.................60
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Miscellaneous Provisions.........................62
SECTION 1306. Reinstatement...................................................63

TESTIMONIUM...................................................................64
SIGNATURES AND SEALS..........................................................64
ACKNOWLEDGEMENTS..............................................................65

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<PAGE> 9
INDENTURE, dated as of ________ __, 1999, between The Goldman Sachs
Group, Inc., a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
85 Broad Street, New York, New York 10004 and .............................., a
........................... duly organized and existing under the laws of
........, as Trustee (herein called the "Trustee").

RECITALS OF THE COMPANY

The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as in this Indenture provided.

All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities or of series thereof, as
follows:

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION

SECTION 101. Definitions.

For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:

(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;

(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;

(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles;

(4) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case
may be, of this Indenture;
<PAGE> 10
(5) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision; and

(6) when used with respect to any Security, the words
"convert", "converted" and "conversion" are intended to refer to the
right of the Holder or the Company to convert or exchange such Security
into or for securities or other property in accordance with such terms,
if any, as may hereafter be specified for such Security as contemplated
by Section 301, and these words are not intended to refer to any right
of the Holder or the Company to exchange such Security for other
Securities of the same series and like tenor pursuant to Section 304,
305, 306, 906 or 1107 or another similar provision of this Indenture,
unless the context otherwise requires; and references herein to the
terms of any Security that may be converted mean such terms as may be
specified for such Security as contemplated in Section 301.

"Act", when used with respect to any Holder, has the meaning specified
in Section 104.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

"Applicable Procedures" of a Depositary means, with respect to any
matter at any time, the policies and procedures of such Depositary, if any, that
are applicable to such matter at such time.

"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities of one or more series.

"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.

"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

"Business Day", when used with respect to any Place of Payment, means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or executive order to close; provided that, when used with respect to any
Security, "Business Day" may have

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<PAGE> 11
such other meaning, if any, as may be specified for such Security as
contemplated by Section 301.

"Commission" means the Securities and Exchange Commission, from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.

"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.

"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any two of the following: a Chairman of the
Board, a Vice Chairman of the Board, a President, a Vice President, a Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary of the Company,
or any other officer or officers of the Company designated in writing by or
pursuant to authority of the Board of Directors and delivered to the Trustee
from time to time.

"Corporate Trust Office" means the principal office of the Trustee in
................................................................ at which at any
particular time its corporate trust business shall be administered.

"corporation" means a corporation, association, company (including a
limited liability company), joint-stock company, business trust or other similar
entity.

"Covenant Defeasance" has the meaning specified in Section 1303.

"Defaulted Interest" has the meaning specified in Section 307.

"Defeasance" has the meaning specified in Section 1302.

"Depositary" means, with respect to Securities of any series issuable in
whole or in part in the form of one or more Global Securities, a clearing agency
registered under the Exchange Act that is designated to act as Depositary for
such Securities as contemplated by Section 301.

"Event of Default" has the meaning specified in Section 501.

"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.

"Expiration Date" has the meaning specified in Section 104.

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<PAGE> 12
"Global Security" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 204 (or such
legend as may be specified as contemplated by Section 301 for such Securities).

"GS&Co." means Goldman, Sachs & Co., a New York partnership, or any other
Person that is a Subsidiary and becomes the successor to GS&Co. as a result of a
merger, consolidation or sale of all or substantially all the assets of GS&Co.,
but only for as long as such other Person continues to be a Subsidiary and such
successor.

"Holder" means a Person in whose name a Security is registered in the
Security Register.

"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively. The term "Indenture" shall also include the terms of particular
series of Securities established as contemplated by Section 301.

"interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.

"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an instalment of interest on such Security.

"Investment Company Act" means the Investment Company Act of 1940 and any
statute successor thereto, in each case as amended from time to time.

"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an instalment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.

"Notice of Default" means a written notice of the kind specified in
Section 501(4).

"Officers' Certificate" means a certificate signed by any two of the
following: a Chairman of the Board, a Vice Chairman of the Board, a President, a
Vice President, a Treasurer, an Assistant Treasurer, a Secretary or an Assistant
Secretary of the Company, or any other officer or officers of the Company
designated in a writing by or pursuant to authority of the Board of Directors
and delivered to the Trustee from time to time. One of the officers signing an
Officers' Certificate given pursuant to Section 1004 shall be the principal
executive, financial or accounting officer of the Company.

"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.

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<PAGE> 13
"Original Issue Discount Security" means any Security which provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.

"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:

(1) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;

(2) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has been
made;

(3) Securities as to which Defeasance has been effected pursuant to
Section 1302; and

(4) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities
in respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of an Original Issue
Discount Security which shall be deemed to be Outstanding shall be the amount of
the principal thereof which would be due and payable as of such date upon
acceleration of the Maturity thereof to such date pursuant to Section 502, (B)
if, as of such date, the principal amount payable at the Stated Maturity of a
Security is not determinable, the principal amount of such Security which shall
be deemed to be Outstanding shall be the amount as specified or determined as
contemplated by Section 301, (C) the principal amount of a Security denominated
in one or more foreign currencies, composite currencies or currency units which
shall be deemed to be Outstanding shall be the U.S. dollar equivalent,
determined as of such date in the manner provided as contemplated by Section
301, of the principal amount of such Security (or, in the case of a Security
described in Clause (A) or (B) above, of the amount determined as provided in
such Clause), and (D) Securities owned by the Company or any other obligor upon
the Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, waiver or other action, only
Securities which the Trustee knows to be so owned

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<PAGE> 14
shall be so disregarded. Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor.

"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company.

"Permitted Lien" means each such pledge, lien and other encumbrance as the
Board of Directors determines does not materially detract from or interfere with
the value or control, as of the date of such determination, of the Company's
voting or profit participating equity ownership interests in GS&Co. (or in any
Subsidiary that owns any such interests).

"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.

"Place of Payment", when used with respect to the Securities of any series
and subject to Section 1002, means the place or places where the principal of
and any premium and interest on the Securities of that series are payable as
specified as contemplated by Section 301.

"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.

"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.

"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.

"Regular Record Date" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.

"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer

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<PAGE> 15
to whom such matter is referred because of his knowledge of and familiarity with
the particular subject.

"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.

"Securities Act" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time.

"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.

"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.

"Stated Maturity", when used with respect to any Security or any
instalment of principal thereof or interest thereon, means the date specified in
such Security as the fixed date on which the principal of such Security or such
instalment of principal or interest is due and payable.

"Subsidiary" means any Person a majority of the combined voting power of
the total outstanding ownership interests in which is, at the time of
determination, beneficially owned or held, directly or indirectly, by the
Company or one or more other Subsidiaries. For this purpose, "voting power"
means power to vote in an ordinary election of directors (or, in the case of a
Person that is not a corporation, ordinarily to appoint or approve the
appointment of Persons holding similar positions), whether at all times or only
as long as no senior class of ownership interests has such voting power by
reason of any contingency.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.

"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
or include each Person who is then a Trustee hereunder, and if at any time there
is more than one such Person, "Trustee" as used with respect to the Securities
of any series shall mean the Trustee with respect to Securities of that series.

"U.S. Government Obligation" has the meaning specified in Section 1304.

"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".

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<PAGE> 16
SECTION 102. Compliance Certificates and Opinions.

Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.

Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include,

(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;

(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;

(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and

(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.

SECTION 103. Form of Documents Delivered to Trustee.

In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of, or representation by, counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.

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<PAGE> 17
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

SECTION 104. Acts of Holders; Record Dates.

Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given, made or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.

The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.

The ownership of Securities shall be proved by the Security Register.

Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.

The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, provided that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to

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<PAGE> 18
this paragraph, the Holders of Outstanding Securities of the relevant series on
such record date, and no other Holders, shall be entitled to take the relevant
action, whether or not such Holders remain Holders after such record date;
provided that no such action shall be effective hereunder unless taken on or
prior to the applicable Expiration Date by Holders of the requisite principal
amount of Outstanding Securities of such series on such record date. Nothing in
this paragraph shall be construed to prevent the Company from setting a new
record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be canceled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the relevant series on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities of the relevant series in the manner set forth in
Section 106.

The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 502, (iii) any request to institute
proceedings referred to in Section 507(2) or (iv) any direction referred to in
Section 512, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 106.

With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day; provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities of the relevant series in the manner set forth in
Section 106, on or prior to the existing Expiration Date. If an Expiration Date
is not designated with respect to any record date set pursuant to this Section,
the party hereto which set such record date shall be deemed to have initially
designated the 180th day after

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<PAGE> 19
such record date as the Expiration Date with respect thereto, subject to its
right to change the Expiration Date as provided in this paragraph.
Notwithstanding the foregoing, no Expiration Date shall be later than the 180th
day after the applicable record date.

Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.

SECTION 105. Notices, Etc., to Trustee and Company.

Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,

(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing to
or with the Trustee at its Corporate Trust Office, Attention:
................., or

(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to
it at the address of its principal office specified in the first paragraph of
this instrument or at any other address previously furnished in writing to
the Trustee by the Company.

SECTION 106. Notice to Holders; Waiver.

Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.

In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall

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<PAGE> 20
be made with the approval of the Trustee shall constitute a sufficient
notification for every purpose hereunder.

Where this Indenture provides for Notice of any event to a Holder of a
Global Security, such notice shall be sufficiently given if given to the
Depositary for such Security (or its designee), pursuant to its Applicable
Procedures, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice.

SECTION 107. Conflict with Trust Indenture Act.

If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act which is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
which may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.

SECTION 108. Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

SECTION 109. Successors and Assigns.

All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.

SECTION 110. Separability Clause.

In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

SECTION 111. Benefits of Indenture.

Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.

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<PAGE> 21
SECTION 112. Governing Law.

This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York.

SECTION 113. Legal Holidays.

In any case where any Interest Payment Date, Redemption Date or Maturity
of any Security, or any date on which a Holder has the right to convert his
Security, shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of the Securities
(other than a provision of any Security which specifically states that such
provision shall apply in lieu of this Section)) payment of interest or principal
(and premium, if any), or conversion of such Security need not be made at such
Place of Payment on such date, but may be made on the next succeeding Business
Day at such Place of Payment with the same force and effect as if made on the
Interest Payment Date or Redemption Date, or at the Maturity, or on such date
for conversion, as the case may be.

ARTICLE TWO

SECURITY FORMS

SECTION 201. Forms Generally.

The Securities of each series shall be in substantially the form set forth
in this Article, or in such other form as shall be established by or pursuant to
a Board Resolution or in one or more indentures supplemental hereto, in each
case with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or Depositary therefor or as may, consistently herewith, be
determined by the officers executing such Securities, as evidenced by their
execution thereof. If the form of Securities of any series is established by
action taken pursuant to a Board Resolution, a copy of an appropriate record of
such action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities.

The definitive Securities shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities, as evidenced by their execution of
such Securities.

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<PAGE> 22
SECTION 202. Form of Face of Security.

[Insert any legend required by the Internal Revenue Code and the
regulations thereunder.]

The Goldman Sachs Group, Inc.

No. ......... $ ........

The Goldman Sachs Group, Inc., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to
..............................................., or registered assigns, the
principal sum of ...................................... Dollars on
........................................................ [if the Security is to
bear interest prior to Maturity, insert -- , and to pay interest thereon from
............. or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, semi-annually on ............ and
............ in each year, commencing ........., at the rate of ....% per annum,
until the principal hereof is paid or made available for payment [if applicable,
insert -- , provided that any principal and premium, and any such instalment of
interest, which is overdue shall bear interest at the rate of ...% per annum (to
the extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand]. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the ....... or
....... (whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly provided
for will forthwith cease to be payable to the Holder on such Regular Record Date
and may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in said Indenture].

[If the Security is not to bear interest prior to Maturity, insert -- The
principal of this Security shall not bear interest except in the case of a
default in payment of principal upon acceleration, upon redemption or at Stated
Maturity and in such case the overdue principal and any overdue premium shall
bear interest at the rate of ....% per annum (to the extent that the payment of
such interest shall be legally enforceable), from the dates such amounts are due
until they are paid or made available for payment. Interest on any overdue
principal or premium shall be payable on demand.]

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<PAGE> 23
Payment of the principal of (and premium, if any) and [if applicable,
insert -- any such] interest on this Security will be made at the office or
agency of the Company maintained for that purpose in ............, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company, payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register; and provided, further, that if this Security is a Global
Security, payment may be made pursuant to the Applicable Procedures of the
Depositary as permitted in the Indenture.

Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.

Dated:

The Goldman Sachs Group, Inc.

By:
Name:
Title:

Attest:

.........................................

SECTION 203. Form of Reverse of Security.

This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of ________ __, 1999 (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and ..................., as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), and reference is hereby made to the Indenture for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to

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<PAGE> 24
be, authenticated and delivered. This Security is one of the series designated
on the face hereof [if applicable, insert -- , limited in aggregate principal
amount to $...........].

[If applicable, insert -- The Securities of this series are subject to
redemption upon not less than 30 days' nor more than 60 days' notice, at any
time [if applicable, insert -- on or after .........., 20..], as a whole or in
part, at the election of the Company, at the following Redemption Prices
(expressed as percentages of the principal amount): If redeemed [if applicable,
insert -- on or before ..............., ...%, and if redeemeD] during the
12-month period beginning ............. of the years indicated,

<TABLE>
<CAPTION>
Redemption Redemption
Year Price Year Price
<S> <C> <C> <C>

</TABLE>

and thereafter at a Redemption Price equal to .....% of the principal amount,
together in the case of any such redemption with accrued interest to the
Redemption Date, but interest instalments whose Stated Maturity is on or prior
to such Redemption Date will be payable to the Holders of such Securities, or
one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.]

[If the Security is subject to redemption of any kind, insert -- In the
event of redemption of this Security in part only, a new Security or Securities
of this series and of like tenor for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.]

[If applicable, insert -- The Indenture contains provisions for defeasance
at any time of the entire indebtedness of this Security or certain restrictive
covenants and Events of Default with respect to this Security, in each case upon
compliance with certain conditions set forth in the Indenture.]

[If the Security is not an Original Issue Discount Security, insert -- If
an Event of Default with respect to Securities of this series shall occur and be
continuing, the principal of the Securities of this series may be declared due
and payable in the manner and with the effect provided in the Indenture.]

[If the Security is an Original Issue Discount Security, insert -- If an
Event of Default with respect to Securities of this series shall occur and be
continuing, an amount of principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal to -- insert formula for determining the
amount. Upon payment (i) of the amount of principal so declared due and

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<PAGE> 25
payable and (ii) of interest on any overdue principal, premium and interest (in
each case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and premium and interest, if any, on the Securities of this series
shall terminate.]

The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of all series to be affected (considered together as one
class for this purpose). The Indenture also contains provisions (i) permitting
the Holders of a majority in principal amount of the Securities at the time
Outstanding of all series to be affected under the Indenture (considered
together as one class for this purpose), on behalf of the Holders of all
Securities of such series, to waive compliance by the Company with certain
provisions of the Indenture and (ii) permitting the Holders of a majority in
principal amount of the Securities at the time Outstanding of any series to be
affected under the Indenture (with each such series considered separately for
this purpose), on behalf of the Holders of all Securities of such series, to
waive certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.

As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or trustee, or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.

No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.

As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this

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<PAGE> 26
Security for registration of transfer at the office or agency of the Company in
any place where the principal of and any premium and interest on this Security
are payable, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities of this series and of like tenor, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

The Securities of this series are issuable only in registered form without
coupons in denominations of $1,000 and any multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities of
this series are exchangeable for a like aggregate principal amount of Securities
of this series and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.

No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.

SECTION 204. Form of Legend for Global Securities.

Unless otherwise specified as contemplated by Section 301 for the
Securities evidenced thereby, every Global Security authenticated and delivered
hereunder shall bear a legend in substantially the following form:

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

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<PAGE> 27
SECTION 205. Form of Trustee's Certificate of Authentication.

The Trustee's certificates of authentication shall be in substantially the
following form:

This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.

..........................................,
As Trustee

By.........................................
Authorized Officer

ARTICLE THREE

THE SECURITIES

SECTION 301. Amount Unlimited; Issuable in Series.

The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.

The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 303,
set forth, or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the issuance
of Securities of any series,

(1) the title of the Securities of the series (which shall distinguish the
Securities of the series from Securities of any other series);

(2) any limit upon the aggregate principal amount of the Securities of the
series which may be authenticated and delivered under this Indenture (except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of the series pursuant to Section
304, 305, 306, 906 or 1107 and except for any Securities which, pursuant to
Section 303, are deemed never to have been authenticated and delivered
hereunder);

(3) the Person to whom any interest on a Security of the series shall be
payable, if other than the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest;

(4) the date or dates on which the principal of any Securities of the
series is payable;

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<PAGE> 28
(5) the rate or rates at which any Securities of the series shall bear
interest, if any, the date or dates from which any such interest shall accrue,
the Interest Payment Dates on which any such interest shall be payable and the
Regular Record Date for any such interest payable on any Interest Payment Date;

(6) the place or places where the principal of and any premium and
interest on any Securities of the series shall be payable;

(7) the period or periods within which, the price or prices at which and
the terms and conditions upon which any Securities of the series may be
redeemed, in whole or in part, at the option of the Company and, if other than
by a Board Resolution, the manner in which any election by the Company to redeem
the Securities shall be evidenced;

(8) the obligation, if any, of the Company to redeem or purchase any
Securities of the series pursuant to any sinking fund or analogous provisions or
at the option of the Holder thereof and the period or periods within which, the
price or prices at which and the terms and conditions upon which any Securities
of the series shall be redeemed or purchased, in whole or in part, pursuant to
such obligation;

(9) if other than denominations of $1,000 and any multiple thereof, the
denominations in which any Securities of the series shall be issuable;

(10) if the amount of principal of or any premium or interest on any
Securities of the series may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts shall be determined;

(11) if other than the currency of the United States of America, the
currency, currencies, composite currency, composite currencies or currency units
in which the principal of or any premium or interest on any Securities of the
series shall be payable and the manner of determining the equivalent thereof in
the currency of the United States of America for any purpose, including for
purposes of the definition of "Outstanding" in Section 101;

(12) if the principal of or any premium or interest on any Securities of
the series is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies, composite currencies or currency units other
than that or those in which such Securities are stated to be payable, the
currency, currencies, composite currency, composite currencies or currency units
in which the principal of or any premium or interest on such Securities as to
which such election is made shall be payable, the periods within which and the
terms and conditions upon which such election is to be made and the amount so
payable (or the manner in which such amount shall be determined);

(13) if other than the entire principal amount thereof, the portion of the
principal amount of any Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 502;

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<PAGE> 29
(14) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more dates
prior to the Stated Maturity, the amount which shall be deemed to be the
principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall be
due and payable upon any Maturity other than the Stated Maturity or which shall
be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in
any such case, the manner in which such amount deemed to be the principal amount
shall be determined);

(15) if applicable, that the Securities of the series, in whole or any
specified part, shall be defeasible pursuant to Section 1302 or Section 1303 or
both such Sections and, if other than by a Board Resolution, the manner in which
any election by the Company to defease such Securities shall be evidenced;

(16) if applicable, that any Securities of the series shall be issuable
in whole or in part in the form of one or more Global Securities and, in such
case, the respective Depositaries for such Global Securities, the form of any
legend or legends which shall be borne by any such Global Security in addition
to or in lieu of that set forth in Section 204 and any circumstances in addition
to or in lieu of those set forth in Clause (2) of the last paragraph of Section
305 in which any such Global Security may be exchanged in whole or in part for
Securities registered, and any transfer of such Global Security in whole or in
part may be registered, in the name or names of Persons other than the
Depositary for such Global Security or a nominee thereof;

(17) any addition to or change in the Events of Default which applies to
any Securities of the series and any change in the right of the Trustee or the
requisite Holders of such Securities to declare the principal amount thereof due
and payable pursuant to Section 502;

(18) any addition to or change in the covenants set forth in Article Ten
which applies to Securities of the series;

(19) any provisions necessary to permit or facilitate the issuance,
payment or conversion of any Securities of the series that may be converted
into securities or other property other than Securities of the same series and
of like tenor, whether in addition to, or in lieu of, any payment of principal
or other amount and whether at the option of the Company or otherwise; and

(20) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture, except as permitted by
Section 901(5)).

All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided in or pursuant to the
Board Resolution referred to above and (subject to Section 303) set forth, or
determined in the manner provided, in the Officers' Certificate referred to
above or in any such indenture supplemental hereto.

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<PAGE> 30
If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.

SECTION 302. Denominations.

The Securities of each series shall be issuable only in registered form
without coupons and only in such denominations as shall be specified as
contemplated by Section 301. In the absence of any such specified denomination
with respect to the Securities of any series, the Securities of such series
shall be issuable in denominations of $1,000 and any multiple thereof.

SECTION 303. Execution, Authentication, Delivery and Dating.

The Securities shall be executed on behalf of the Company by a Chairman
of the Board, a Vice Chairman of the Board, a President or a Vice President of
the Company (or any other officer of the Company designated in writing by or
pursuant to authority of the Board of Directors and delivered to the Trustee
from time to time), under its corporate seal reproduced thereon attested by a
Secretary or Assistant Secretary of the Company. The signature of any of these
officers on the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities. If the
form or terms of the Securities of the series have been established by or
pursuant to one or more Board Resolutions as permitted by Sections 201 and 301,
in authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive, and (subject to Section 601) shall be fully protected in
relying upon, an Opinion of Counsel stating,

(1) if the form of such Securities has been established by or pursuant
to Board Resolution as permitted by Section 201, that such form has been
established in conformity with the provisions of this Indenture;

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(2) if the terms of such Securities have been established by or pursuant
to Board Resolution as permitted by Section 301, that such terms have been
established in conformity with the provisions of this Indenture; and

(3) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.

If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.

Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 309, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.

SECTION 304. Temporary Securities.

Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions,

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substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.

If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor one or more definitive
Securities of the same series, of any authorized denominations and of like tenor
and aggregate principal amount. Until so exchanged, the temporary Securities of
any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series and tenor.

SECTION 305. Registration, Registration of Transfer and Exchange.

The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.

Upon surrender for registration of transfer of any Security of a series
at the office or agency of the Company in a Place of Payment for that series,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Securities
of the same series, of any authorized denominations and of like tenor and
aggregate principal amount.

At the option of the Holder, Securities of any series may be exchanged
for other Securities of the same series, of any authorized denominations and of
like tenor and aggregate principal amount, upon surrender of the Securities to
be exchanged at such office or agency. Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.

All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.

Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied

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by a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed, by the Holder thereof or his attorney duly
authorized in writing.

No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.

If the Securities of any series (or of any series and specified tenor)
are to be redeemed in part, the Company shall not be required (A) to issue,
register the transfer of or exchange any Securities of that series (or of that
series and specified tenor, as the case may be) during a period beginning at the
opening of business 15 days before the day of the mailing of a notice of
redemption of any such Securities selected for redemption under Section 1103 and
ending at the close of business on the day of such mailing, or (B) to register
the transfer of or exchange any Security so selected for redemption in whole or
in part, except the unredeemed portion of any Security being redeemed in part.

The provisions of Clauses (1), (2), (3) and (4) below shall apply only
to Global Securities:

(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.

(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (A) such Depositary has notified the Company that it (i) is
unwilling or unable to continue as Depositary for such Global Security or (ii)
has ceased to be a clearing agency registered under the Exchange Act, (B) there
shall have occurred and be continuing an Event of Default with respect to such
Global Security or (C) there shall exist such circumstances, if any, in addition
to or in lieu of the foregoing as have been specified for this purpose as
contemplated by Section 301. If the Company receives a notice of the kind
specified in Clause (A) above, it may designate a successor Depositary for such
Global Security within 60 days after receiving such notice. If the Company
designates a successor Depositary as aforesaid, such Global Security shall
promptly be exchanged in whole for one or more other Global Securities
registered in the name of the successor Depositary, whereupon such designated
successor shall be the Depositary for such successor Global Security or Global
Securities and the provisions of Clauses (1), (2), (3) and (4) of this Section
shall continue to apply thereto.

(3) Subject to Clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued in
exchange for a

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Global Security or any portion thereof shall be registered in
such names as the Depositary for such Global Security shall direct.

(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Section, Section 304, 306, 906 or 1107 or
otherwise, shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Security is registered in the name of a Person
other than the Depositary for such Global Security or a nominee thereof.

SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.

If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.

If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of the same series and of like tenor and principal amount and bearing a number
not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.

Every new Security of any series issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.

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SECTION 307. Payment of Interest; Interest Rights Preserved.

Except as otherwise provided as contemplated by Section 301 with respect
to any series of Securities, interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.

Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:

(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities of such series (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security of such series and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed to
be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be given
to each Holder of Securities of such series in the manner set forth in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Securities of
such series (or their respective Predecessor Securities) are registered
at the close of business on such Special Record Date and shall no longer
be payable pursuant to the following Clause (2).

(2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent
with the requirements of any securities exchange on which such
Securities may be listed, and upon such notice as may be required by
such exchange, if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this Clause, such manner of payment
shall be deemed practicable by the Trustee.

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Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.

In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date), interest
whose Stated Maturity is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on such Regular Record Date. Except as
otherwise expressly provided in the immediately preceding sentence, in the case
of any Security which is converted, interest whose Stated Maturity is after the
date of conversion of such Security shall not be payable. Notwithstanding the
foregoing, the terms of any Security that may be converted may provide that the
provisions of this paragraph do not apply, or apply with such additions, changes
or omissions as may be provided thereby, to such Security.

SECTION 308. Persons Deemed Owners.

Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and any premium and
(subject to Section 307) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.

SECTION 309. Cancellation.

All Securities surrendered for payment, redemption, registration of
transfer or exchange or conversion or for credit against any sinking fund
payment shall, if surrendered to any Person other than the Trustee, be delivered
to the Trustee and shall be promptly canceled by it. The Company may at any time
deliver to the Trustee for cancellation any Securities previously authenticated
and delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Securities previously authenticated
hereunder which the Company has not issued and sold, and all Securities so
delivered shall be promptly canceled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section, except as expressly permitted by this Indenture. All canceled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.

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SECTION 310. Computation of Interest.

Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months.

ARTICLE FOUR

SATISFACTION AND DISCHARGE

SECTION 401. Satisfaction and Discharge of Indenture.

This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of conversion, registration of transfer or
exchange of any Security expressly provided for herein or in the terms of such
Security), and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when

(1) either

(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or

(B) all such Securities not theretofore delivered to the Trustee for
cancellation

(i) have become due and payable, or

(ii) will become due and payable at their Stated Maturity within one
year, or

(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,

and the Company, in the case of (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee as trust funds in trust for
the purpose money in an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal and any premium and interest to
the date of such deposit (in the case of Securities which have become
due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;

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(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and

(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.

SECTION 402. Application of Trust Money.

Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and any premium and
interest for whose payment such money has been deposited with the Trustee. All
moneys deposited with the Trustee pursuant to Section 401 (and held by it or any
Paying Agent) for the payment of Securities subsequently converted shall be
returned to the Company upon Company Request.

ARTICLE FIVE

REMEDIES

SECTION 501. Events of Default.

"Event of Default", wherever used herein with respect to Securities of
any series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):

(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for
a period of 30 days; or

(2) default in the payment of the principal of or any premium on any
Security of that series at its Maturity; or

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(3) default in the deposit of any sinking fund payment, when and as due
by the terms of a Security of that series; or

(4) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in this Section
specifically dealt with or which has expressly been included in this
Indenture solely for the benefit of series of Securities other than that
series), and continuance of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
10% in principal amount of the Outstanding Securities of that series a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder; or

(5) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or State law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial
part of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days (provided that, if any Person becomes the successor to the
Company pursuant to Article Eight and such Person is a corporation,
partnership or trust organized and validly existing under the law of a
jurisdiction outside the United States, each reference in this Clause 5 to
an applicable Federal or State law of a particular kind shall be deemed to
refer to such law or any applicable comparable law of such non-U.S.
jurisdiction, for as long as such Person is the successor to the Company
hereunder and is so organized and existing); or

(6) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or
order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy
or insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under any
applicable Federal or State law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission
by it in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company in furtherance of any
such action (provided that, if any Person becomes the successor to the
Company pursuant to Article Eight and such Person is a corporation,

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partnership or trust organized and validly existing under the law of a
jurisdiction outside the United States, each reference in this Clause 6 to
an applicable Federal or State law of a particular kind shall be deemed to
refer to such law or any applicable comparable law of such non-U.S.
jurisdiction, for as long as such Person is the successor to the Company
hereunder and is so organized and existing); or

(7) any other Event of Default provided with respect to Securities of
that series.

SECTION 502. Acceleration of Maturity; Rescission and Annulment.

If an Event of Default (other than an Event of Default specified in
Section 501(5) or 501(6)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of that series may declare the principal amount of all the Securities of that
series (or, in the case of any Security of that series which specifies an amount
to be due and payable thereon upon acceleration of the Maturity thereof, such
amount as may be specified by the terms thereof) to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal amount (or specified
amount) shall become immediately due and payable. If an Event of Default
specified in Section 501(5) or 501(6) with respect to Securities of any series
at the time Outstanding occurs, the principal amount of all the Securities of
that series (or, in the case of any Security of that series which specifies an
amount to be due and payable thereon upon acceleration of the Maturity thereof,
such amount as may be specified by the terms thereof) shall automatically, and
without any declaration or other action on the part of the Trustee or any
Holder, become immediately due and payable.

At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if

(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay

(A) all overdue interest on all Securities of that series,

(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates prescribed
therefor in such Securities,

(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate or rates prescribed therefor in such
Securities, and

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(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;

and

(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.

The Company covenants that if

(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a
period of 30 days, or

(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,

the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and any premium and interest and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue
principal and premium and on any overdue interest, at the rate or rates
prescribed therefor in such Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.

If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.

SECTION 504. Trustee May File Proofs of Claim.

In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under

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the Trust Indenture Act in order to have claims of the Holders and the Trustee
allowed in any such proceeding. In particular, the Trustee shall be authorized
to collect and receive any moneys or other property payable or deliverable on
any such claims and to distribute the same; and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607.

No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; provided,
however, that the Trustee may, on behalf of the Holders, vote for the election
of a trustee in bankruptcy or similar official and be a member of a creditors'
or other similar committee.

SECTION 505. Trustee May Enforce Claims Without Possession of Securities.

All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses, disburse
ments and advances of the Trustee, its agents and counsel, be for the ratable
benefit of the Holders of the Securities in respect of which such judgment has
been recovered.

SECTION 506. Application of Money Collected.

Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or any premium
or interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:

FIRST: To the payment of all amounts due the Trustee under Section 607;
and

SECOND: To the payment of the amounts then due and unpaid for principal
of and any premium and interest on the Securities in respect of which or for
the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable
on such Securities for principal and any premium and interest, respectively.

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SECTION 507. Limitation on Suits.

No Holder of any Security of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless

(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;

(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;

(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;

(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and

(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;

it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.

SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert.

Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date), and, if the
terms of such Security so provide, to convert such Security in accordance with
its terms, and to institute suit for the enforcement of any such payment and, if
applicable, any such right to convert, and such rights shall not be impaired
without the consent of such Holder.

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SECTION 509. Restoration of Rights and Remedies.

If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.

SECTION 510. Rights and Remedies Cumulative.

Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.

SECTION 511. Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder of any Securities
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.

SECTION 512. Control by Holders.

The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, provided that

(1) such direction shall not be in conflict with any rule of law or with
this Indenture, and

(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.

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SECTION 513. Waiver of Past Defaults.

The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default

(1) in the payment of the principal of or any premium or interest on any
Security of such series, or

(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.

Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.

SECTION 514. Undertaking for Costs.

In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or, if applicable, in
any suit for the enforcement of the right to convert any Security in accordance
with its terms.

SECTION 515. Waiver of Usury, Stay or Extension Laws.

The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

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ARTICLE SIX

THE TRUSTEE

SECTION 601. Certain Duties and Responsibilities.

The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.

SECTION 602. Notice of Defaults.

If a default occurs hereunder with respect to Securities of any series,
the Trustee shall give the Holders of Securities of such series notice of such
default as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(4) with respect to Securities of such series, no such notice to Holders
shall be given until at least 30 days after the occurrence thereof. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default with respect
to Securities of such series.

SECTION 603. Certain Rights of Trustee.

Subject to the provisions of Section 601:

(1) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;

(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order, and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;

(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any

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action hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon an
Officers' Certificate;

(4) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;

(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;

(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and

(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.

SECTION 604. Not Responsible for Recitals or Issuance of Securities.

The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.

SECTION 605. May Hold Securities.

The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.

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SECTION 606. Money Held in Trust.

Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.

SECTION 607. Compensation and Reimbursement.

The Company agrees

(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);

(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and

(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.

SECTION 608. Conflicting Interests.

If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. To the extent
permitted by the Trust Indenture Act, the Trustee shall not be deemed to have a
conflicting interest by virtue of being a trustee under this Indenture with
respect to Securities of more than one series.

SECTION 609. Corporate Trustee Required; Eligibility.

There shall at all times be one (and only one) Trustee hereunder with
respect to the Securities of each series, which may be Trustee hereunder for
Securities of one or more other series. Each Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such, has a combined
capital and surplus of at least $50,000,000 and has its Corporate Trust Office
in the Borough of Manhattan, The City of New York. If any such

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Person publishes reports of condition at least annually, pursuant to law or to
the requirements of its supervising or examining authority, then for the
purposes of this Section and to the extent permitted by the Trust Indenture Act,
the combined capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee with respect to the Securities of any
series shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.

SECTION 610. Resignation and Removal; Appointment of Successor.

No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.

The Trustee may resign at any time with respect to the Securities of one
or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.

The Trustee may be removed at any time with respect to the Securities of
any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.

If at any time:

(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or

(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or

(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,

then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (B) subject to Section 514, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.

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If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that any such successor
Trustee may be appointed with respect to the Securities of one or more or all of
such series and that at any time there shall be only one Trustee with respect to
the Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.

The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series to all Holders
of Securities of such series in the manner provided in Section 106. Each notice
shall include the name of the successor Trustee with respect to the Securities
of such series and the address of its Corporate Trust Office.

SECTION 611. Acceptance of Appointment by Successor.

In case of the appointment hereunder of a successor Trustee with respect
to all Securities, every such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.

In case of the appointment hereunder of a successor Trustee with respect
to the Securities of one or more (but not all) series, the Company, the retiring
Trustee and each successor Trustee with respect to the Securities of one or more
series shall execute and deliver an indenture supplemental hereto wherein each
successor Trustee shall accept such

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appointment and which (1) shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, each successor Trustee all
the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series to which the appointment of such
successor Trustee relates, (2) if the retiring Trustee is not retiring with
respect to all Securities, shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
as to which the retiring Trustee is not retiring shall continue to be vested in
the retiring Trustee, and (3) shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.

Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.

No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.

SECTION 612. Merger, Conversion, Consolidation or Succession to Business.

Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.

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SECTION 613. Preferential Collection of Claims Against Company.

If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).

SECTION 614. Appointment of Authenticating Agent.

The Trustee may appoint an Authenticating Agent or Agents with respect
to one or more series of Securities which shall be authorized to act on behalf
of the Trustee to authenticate Securities of such series issued upon original
issue and upon exchange, registration of transfer, partial conversion or
partial redemption thereof or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by Federal or State authority. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, such Authenticating
Agent shall resign immediately in the manner and with the effect specified in
this Section.

Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with

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the provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment in the manner provided in Section 106 to all Holders
of Securities of the series with respect to which such Authenticating Agent will
serve. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.

The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.

If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:

This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

........................................,
As Trustee

By......................................,

As Authenticating Agent

By.......................................

Authorized Officer

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ARTICLE SEVEN

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.

The Company will furnish or cause to be furnished to the Trustee

(1) semi-annually, not later than May 15 and November 15 in each year, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders of Securities of each series as of the immediately
preceding May 1 or November 1, as the case may be, and

(2) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such
list is furnished;

excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.

SECTION 702. Preservation of Information; Communications to Holders.

The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.

The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.

Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.

SECTION 703. Reports by Trustee.

The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto.

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Reports so required to be transmitted at stated intervals of not more than
12 months shall be transmitted no later than ............ in each calendar year,
commencing in ............

A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when any Securities are listed on any stock exchange.

SECTION 704. Reports by Company.

The Company shall file with the Trustee and the Commission, and transmit
to Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to such Act; provided that any such information,
documents or reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within
15 days after the same is so required to be filed with the Commission.

ARTICLE EIGHT

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.

The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and the Company shall not permit any Person to consolidate with
or merge into the Company, unless:

(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust,
shall be organized and validly existing under the laws of any domestic or
foreign jurisdiction and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of and any premium and
interest on all the Securities and the performance or observance of every
covenant of this Indenture on the part of the Company to be performed or
observed and, for each Security that by its terms provides for conversion,
shall have provided for the right to convert such Security in accordance with
its terms;

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(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or any Subsidiary as
a result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing;

(3) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company would
become subject to a pledge, lien or other similar encumbrance which would not
be permitted by this Indenture, the Company or such successor Person, as the
case may be, shall take such steps as shall be necessary effectively to
secure the Securities equally and ratably with (or prior to) all indebtedness
secured thereby; and

(4) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.

SECTION 802. Successor Substituted.

Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety in accordance with Section
801, the successor Person formed by such consolidation or into which the Company
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein, and thereafter, except in the case of a
lease, the predecessor Person shall be relieved of all obligations and covenants
under this Indenture and the Securities.

ARTICLE NINE

SUPPLEMENTAL INDENTURES

SECTION 901. Supplemental Indentures Without Consent of Holders.

Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:

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(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and
in the Securities; or

(2) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating that such covenants
are expressly being included solely for the benefit of such series) or to
surrender any right or power herein conferred upon the Company; or

(3) to add any additional Events of Default for the benefit of the Holders
of all or any series of Securities (and if such additional Events of Default
are to be for the benefit of less than all series of Securities, stating that
such additional Events of Default are expressly being included solely for the
benefit of such series); or

(4) to add to or change any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to permit or facilitate the issuance
of Securities in uncertificated form; or

(5) to add to, change or eliminate any of the provisions of this Indenture
in respect of one or more series of Securities, provided that any such
addition, change or elimination (A) shall neither (i) apply to any Security
of any series created prior to the execution of such supplemental indenture
and entitled to the benefit of such provision nor (ii) modify the rights of
the Holder of any such Security with respect to such provision or (B) shall
become effective only when there is no such Security Outstanding; or

(6) to secure the Securities pursuant to the requirements of Section
801(3) or Section 1005 or otherwise; or

(7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or

(8) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
611; or

(9) to add to or change any of the provisions of this Indenture with
respect to any Securities that by their terms may be converted into
securities or other property other than Securities of the same series and of
like tenor, in order to permit or facilitate the issuance, payment or
conversion of such Securities; or

(10) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this Clause (9) shall
not adversely affect the interests of the Holders of Securities of any series
in any material respect.

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SECTION 902. Supplemental Indentures With Consent of Holders.

With the consent of the Holders of a majority in principal amount of the
Outstanding Securities of all series affected by such supplemental indenture
(considered together as one class for this purpose), by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities of such series
under this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Security affected
thereby,

(1) change the Stated Maturity of the principal of, or any instalment of
principal of or interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or reduce the amount of the principal of an Original
Issue Discount Security or any other Security which would be due and payable
upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502, or permit the Company to redeem any Security if, absent such
supplemental indenture, the Company would not be permitted to do so, or
change any Place of Payment where, or the coin or currency in which, any
Security or any premium or interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or

(2) if any Security provides that the Holder may require the Company to
repurchase or convert such Security, impair such Holder's right to require
repurchase or conversion of such Security on the terms provided therein, or

(3) reduce the percentage in principal amount of the Outstanding
Securities of any one or more series (considered separately or together as
one class, as applicable), the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or

(4) modify any of the provisions of this Section, Section 513 or Section
1006, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent
of the Holder of each Outstanding Security affected thereby; provided,
however, that this clause shall not be deemed to require the consent of any
Holder with respect to changes in the references to "the Trustee" and
concomitant changes in this Section and Section 1006, or the deletion of this
proviso, in accordance with the requirements of Sections 611 and 901(8).

A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more

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particular series of Securities, or which modifies the rights of the Holders of
Securities of such series with respect to such covenant or other provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Securities of any other series.

It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.

SECTION 903. Execution of Supplemental Indentures.

In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.

SECTION 904. Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.

SECTION 905. Conformity with Trust Indenture Act.

Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.

SECTION 906. Reference in Securities to Supplemental Indentures.

Securities of any series authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.

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ARTICLE TEN

COVENANTS

SECTION 1001. Payment of Principal, Premium and Interest.

The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of and any premium
and interest on the Securities of that series in accordance with the terms of
the Securities and this Indenture.

SECTION 1002. Maintenance of Office or Agency.

The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for payment, where Securities of that series may be surrendered
for registration of transfer or exchange, where Securities may be surrendered
for conversion and where notices and demands to or upon the Company in respect
of the Securities of that series and this Indenture may be served. The Company
will give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.

The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.

With respect to any Global Security, the Corporate Trust Office of the
Trustee shall be the Place of Payment where such Global Security may be
presented or surrendered for payment or for registration of transfer or
exchange, or where successor Securities may be delivered in exchange therefor,
provided, however, that any such payment, presentation, surrender or delivery
effected pursuant to the Applicable Procedures of the Depositary for such Global
Security shall be deemed to have been effected at the Place of Payment for such
Global Security in accordance with the provisions of this Indenture, except as
otherwise may be specified for such Global Security as contemplated by Section
301.

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SECTION 1003. Money for Securities Payments to Be Held in Trust.

If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of or any premium or interest on any of the Securities of that series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal and any premium and interest so becoming due
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.

Whenever the Company shall have one or more Paying Agents for any series
of Securities, it will, prior to each due date of the principal of or any
premium or interest on any Securities of that series, deposit (or, if the
Company has deposited any trust funds with a trustee pursuant to Section
1304(1), cause such trustee to deposit) with a Paying Agent a sum sufficient to
pay such amount, such sum to be held as provided by the Trust Indenture Act, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.

The Company will cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will (1) comply with the provisions of
the Trust Indenture Act applicable to it as a Paying Agent and (2) during the
continuance of any default by the Company (or any other obligor upon the
Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.

The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.

Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or any premium or
interest on any Security of any series and remaining unclaimed for two years
after such principal, premium or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may, at the expense of the Company, cause
to be published once, in

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a newspaper published in the English language, customarily published on each
Business Day and of general circulation in The City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.

SECTION 1004. Statement by Officers as to Default.

The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.

SECTION 1005. Restriction on Certain Liens.

The Company will not create, assume, incur or guarantee any indebtedness
for borrowed money that is secured by a pledge, lien or other similar
encumbrance (except for Permitted Liens) on the Company's voting or profit
participating equity ownership interests in GS&Co. (or in any Subsidiary that
owns any such interests), unless the Company also secures the Securities equally
and ratably with (or, at the option of the Company, prior to) the indebtedness
secured thereby.

SECTION 1006. Waiver of Certain Covenants.

Except as otherwise specified as contemplated by Section 301 for
Securities of a specific series, the Company may, with respect to the Securities
of any one or more series, omit in any particular instance to comply with any
term, provision or condition set forth in any covenant provided pursuant to
Section 301(18), 901(2) or 901(7) for the benefit of the Holders of such series
or in Article Eight or Section 1005 if, before the time for such compliance, the
Holders of a majority in principal amount of the Outstanding Securities of all
series affected by such waiver (considered together as one class for this
purpose) shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such term, provision or condition,
but no such waiver shall extend to or affect such term, provision or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.

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ARTICLE ELEVEN

REDEMPTION OF SECURITIES

SECTION 1101. Applicability of Article.

Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 301 for such Securities) in accordance with
this Article.

SECTION 1102. Election to Redeem; Notice to Trustee.

The election of the Company to redeem any Securities shall be established
in or pursuant to a Board Resolution or in another manner specified as
contemplated by Section 301 for such Securities. In case of any redemption at
the election of the Company of less than all the Securities of any series
(including any such redemption affecting only a single Security), the Company
shall, at least 60 days prior to the Redemption Date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such Redemption Date, of the principal amount of Securities of such
series to be redeemed and, if applicable, of the tenor of the Securities to be
redeemed. In the case of any redemption of Securities prior to the expiration of
any restriction on such redemption provided in the terms of such Securities or
elsewhere in this Indenture, the Company shall furnish the Trustee with an
Officers' Certificate evidencing compliance with such restriction.

SECTION 1103. Selection by Trustee of Securities to Be Redeemed.

If less than all the Securities of any series are to be redeemed (unless
all the Securities of such series and of a specified tenor are to be redeemed or
unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities of such series
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security of such series, provided that
the unredeemed portion of the principal amount of any Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. If less than all the Securities of such series
and of a specified tenor are to be redeemed (unless such redemption affects only
a single Security), the particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series and specified tenor not previously called
for redemption in accordance with the preceding sentence.

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If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be) to be the portion selected for redemption. Securities which have
been converted during a selection of Securities to be redeemed shall be treated
by the Trustee as Outstanding for the purpose of such selection.

The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption as aforesaid and, in case
of any Securities selected for partial redemption as aforesaid, the principal
amount thereof to be redeemed.

The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.

For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.

SECTION 1104. Notice of Redemption.

Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed, at his address appearing in the
Security Register.

All notices of redemption shall state:

(1) the Redemption Date,

(2) the Redemption Price,

(3) if less than all the Outstanding Securities of any series consisting
of more than a single Security are to be redeemed, the identification (and,
in the case of partial redemption of any such Securities, the principal
amounts) of the particular Securities to be redeemed and, if less than all
the Outstanding Securities of any series consisting of a single Security are
to be redeemed, the principal amount of the particular Security to be
redeemed,

(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,

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(5) the place or places where each such Security is to be surrendered for
payment of the Redemption Price,

(6) for any Securities that by their terms may be converted, the terms of
conversion, the date on which the right to convert the Security to be
redeemed will terminate and the place or places where such Securities may be
surrendered for conversion, and

(7) that the redemption is for a sinking fund, if such is the case.

Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.

SECTION 1105. Deposit of Redemption Price.

Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, all the Securities which
are to be redeemed on that date, other than any Securities called for redemption
on that date which have been converted prior to the date of such deposit.

If any Security called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
last paragraph of Section 307 or in the terms of such Security) be paid to the
Company upon Company Request or, if then held by the Company, shall be
discharged from such trust.

SECTION 1106. Securities Payable on Redemption Date.

Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that, unless otherwise specified as
contemplated by Section 301, instalments of interest whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.

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If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the
Security.

SECTION 1107. Securities Redeemed in Part.

Any Security which is to be redeemed only in part shall be surrendered at
a Place of Payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of the same series and of like tenor, of
any authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.

ARTICLE TWELVE

SINKING FUNDS

SECTION 1201. Applicability of Article.

The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 301 for such Securities.

The minimum amount of any sinking fund payment provided for by the terms
of any Securities is herein referred to as a "mandatory sinking fund payment",
and any payment in excess of such minimum amount provided for by the terms of
such Securities is herein referred to as an "optional sinking fund payment". If
provided for by the terms of any Securities, the cash amount of any sinking fund
payment may be subject to reduction as provided in Section 1202. Each sinking
fund payment shall be applied to the redemption of Securities as provided for by
the terms of such Securities.

SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.

The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption) and (2) may apply as a credit Securities
of a series which have been converted in accordance with their terms or which
have been redeemed either at the election of the Company pursuant to the terms
of such Securities or through the application of permitted optional sinking fund
payments pursuant to the terms of such Securities, in each case in satisfaction
of all or any part of any sinking fund payment with

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respect to any Securities of such series required to be made pursuant to the
terms of such Securities as and to the extent provided for by the terms of such
Securities; provided that the Securities to be so credited have not been
previously so credited. The Securities to be so credited shall be received and
credited for such purpose by the Trustee at the Redemption Price, as specified
in the Securities so to be redeemed (or at such other prices as may be specified
for such Securities as contemplated in Section 301), for redemption through
operation of the sinking fund and the amount of such sinking fund payment shall
be reduced accordingly.

SECTION 1203. Redemption of Securities for Sinking Fund.

Not less than 90 days (or such shorter period as shall be satisfactory to
the Trustee) prior to each sinking fund payment date for any Securities, the
Company will deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing sinking fund payment for such Securities pursuant to
the terms of such Securities, the portion thereof, if any, which is to be
satisfied by payment of cash and the portion thereof, if any, which is to be
satisfied by delivering and crediting Securities pursuant to Section 1202 and
will also deliver to the Trustee any Securities to be so delivered. Not less
than 60 days prior to each such sinking fund payment date, the Trustee shall
select the Securities to be redeemed upon such sinking fund payment date in the
manner specified in Section 1103 and cause notice of the redemption thereof to
be given in the name of and at the expense of the Company in the manner provided
in Section 1104. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
1106 and 1107.

ARTICLE THIRTEEN

DEFEASANCE AND COVENANT DEFEASANCE

SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance.

The Company may elect, at its option at any time, to have Section 1302 or
Section 1303 applied to any Securities or any series of Securities, as the case
may be, designated pursuant to Section 301 as being defeasible pursuant to such
Section 1302 or 1303, in accordance with any applicable requirements provided
pursuant to Section 301 and upon compliance with the conditions set forth below
in this Article. Any such election shall be evidenced by a Board Resolution or
in another manner specified as contemplated by Section 301 for such Securities.

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SECTION 1302. Defeasance and Discharge.

Upon the Company's exercise of its option (if any) to have this Section
applied to any Securities or any series of Securities, as the case may be, the
Company shall be deemed to have been discharged from its obligations with
respect to such Securities as provided in this Section on and after the date the
conditions set forth in Section 1304 are satisfied (hereinafter called
"Defeasance"). For this purpose, such Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by such
Securities and to have satisfied all its other obligations under such Securities
and this Indenture insofar as such Securities are concerned (and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging the
same), subject to the following which shall survive until otherwise terminated
or discharged hereunder: (1) the rights of Holders of such Securities to
receive, solely from the trust fund described in Section 1304 and as more fully
set forth in such Section, payments in respect of the principal of and any
premium and interest on such Securities when payments are due, (2) the Company's
obligations with respect to such Securities under Sections 304, 305, 306, 1002
and 1003, (3) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (4) this Article. Subject to compliance with this Article, the
Company may exercise its option (if any) to have this Section applied to any
Securities notwithstanding the prior exercise of its option (if any) to have
Section 1303 applied to such Securities.

SECTION 1303. Covenant Defeasance.

Upon the Company's exercise of its option (if any) to have this Section
applied to any Securities or any series of Securities, as the case may be, (1)
the Company shall be released from its obligations under Section 801(3) and
Section 1005, and any covenants provided pursuant to Section 301(18), 901(2) or
901(7) for the benefit of the Holders of such Securities and (2) the occurrence
of any event specified in Sections 501(4) (with respect to any of Section 801(3)
and Section 1005, and any such covenants provided pursuant to Section 301(18),
901(2) or 901(7)) and 501(7) shall be deemed not to be or result in an Event of
Default, in each case with respect to such Securities as provided in this
Section on and after the date the conditions set forth in Section 1304 are
satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such
Covenant Defeasance means that, with respect to such Securities, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such specified Section (to the extent
so specified in the case of Section 501(4)), whether directly or indirectly by
reason of any reference elsewhere herein to any such Section or by reason of any
reference in any such Section to any other provision herein or in any other
document, but the remainder of this Indenture and such Securities shall be
unaffected thereby.

SECTION 1304. Conditions to Defeasance or Covenant Defeasance.

The following shall be the conditions to the application of Section 1302
or Section 1303 to any Securities or any series of Securities, as the case may
be:

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<PAGE> 69
(1) The Company shall irrevocably have deposited or caused to be deposited
with the Trustee (or another trustee which satisfies the requirements
contemplated by Section 609 and agrees to comply with the provisions of this
Article applicable to it) as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to, the benefits of the Holders of such Securities, (A) money in an
amount, or (B) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, in each case
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the Trustee
(or any such other qualifying trustee) to pay and discharge, the principal of
and any premium and interest on such Securities on the respective Stated
Maturities, in accordance with the terms of this Indenture and such
Securities. As used herein, "U.S. Government Obligation" means (x) any
security which is (i) a direct obligation of the United States of America for
the payment of which the full faith and credit of the United States of
America is pledged or (ii) an obligation of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States of America
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case (i) or
(ii), is not callable or redeemable at the option of the issuer thereof, and
(y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any U.S. Government
Obligation which is specified in Clause (x) above and held by such bank for
the account of the holder of such depositary receipt, or with respect to any
specific payment of principal of or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required
by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depositary receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or the
specific payment of principal or interest evidenced by such depositary
receipt.

(2) In the event of an election to have Section 1302 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this instrument, there has
been a change in the applicable Federal income tax law, in either case (A) or
(B) to the effect that, and based thereon such opinion shall confirm that,
the Holders of such Securities will not recognize gain or loss for Federal
income tax purposes as a result of the deposit, Defeasance and discharge to
be effected with respect to such Securities and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as
would be the case if such deposit, Defeasance and discharge were not to
occur.

(3) In the event of an election to have Section 1303 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Securities will not recognize gain or loss for Federal income
tax purposes as a result of the deposit and Covenant

-61-
<PAGE> 70
Defeasance to be effected with respect to such Securities and will be subject
to Federal income tax on the same amount, in the same manner and at the same
times as would be the case if such deposit and Covenant Defeasance were not
to occur.

(4) The Company shall have delivered to the Trustee an Officer's
Certificate to the effect that neither such Securities nor any other
Securities of the same series, if then listed on any securities exchange,
will be delisted as a result of such deposit.

(5) No event which is, or after notice or lapse of time or both would
become, an Event of Default with respect to such Securities or any other
Securities shall have occurred and be continuing at the time of such deposit
or, with regard to any such event specified in Sections 501(5) and (6), at
any time on or prior to the 90th day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
90th day).

(6) Such Defeasance or Covenant Defeasance shall not cause the Trustee to
have a conflicting interest within the meaning of the Trust Indenture Act
(assuming all Securities are in default within the meaning of such Act).

(7) Such Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.

(8) Such Defeasance or Covenant Defeasance shall not result in the trust
arising from such deposit constituting an investment company within the
meaning of the Investment Company Act unless such trust shall be registered
under the Investment Company Act or exempt from registration thereunder.

(9) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.

SECTION 1305. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Miscellaneous Provisions.

Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee or other qualifying trustee (solely for purposes of this Section and
Section 1306, the Trustee and any such other trustee are referred to
collectively as the "Trustee") pursuant to Section 1304 in respect of any
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any such Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such
Securities, of all sums due and to become due thereon in respect of principal
and any premium and interest, but

-62-
<PAGE> 71
money so held in trust need not be segregated from other funds except to the
extent required by law.

The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Securities.

Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 1304 with
respect to any Securities which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect the Defeasance or Covenant Defeasance, as
the case may be, with respect to such Securities.

SECTION 1306. Reinstatement.

If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article with respect to any Securities by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the obligations under this
Indenture and such Securities from which the Company has been discharged or
released pursuant to Section 1302 or 1303 shall be revived and reinstated as
though no deposit had occurred pursuant to this Article with respect to such
Securities, until such time as the Trustee or Paying Agent is permitted to apply
all money held in trust pursuant to Section 1305 with respect to such Securities
in accordance with this Article; provided, however, that if the Company makes
any payment of principal of or any premium or interest on any such Security
following such reinstatement of its obligations, the Company shall be subrogated
to the rights (if any) of the Holders of such Securities to receive such payment
from the money so held in trust.

-----------------------------

-63-
<PAGE> 72

This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.

THE GOLDMAN SACHS GROUP, INC.

By..............................

Attest:

......................................

[NAME OF TRUSTEE]

By..............................

Attest:

......................................

-64-
<PAGE> 73
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the .... day of ..........., ...., before me personally came
..........................., to me known, who, being by me duly sworn, did
depose and say that he is .................... of The Goldman Sachs Group, Inc.,
one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by authority of
the Board of Directors of said corporation; and that he signed his name thereto
by like authority.

..............................

STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the .... day of ..........., ...., before me personally came
..........................., to me known, who, being by me duly sworn, did
depose and say that he is .................... of
................................., one of the corporations described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation; and that he signed his name thereto by like authority.

..............................

-65-

<PAGE> 1

EXHIBIT 12.1

THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>

Net earnings.......................... $ 500 $ 1,348 $ 2,399 $ 2,746 $ 2,428
Add:
Provision for taxes................. 8 20 207 268 493
Portion of rents representative of
an interest factor............... 27 29 28 29 35
Interest expense on all
indebtedness..................... 8,915 9,841 11,160 12,986 13,958
------ ------- ------- ------- -------
Earnings, as adjusted................. $9,450 $11,238 $13,794 $16,029 $16,914
====== ======= ======= ======= =======
Fixed charges:
Portion of rents representative of
an interest factor............... $ 27 $ 29 $ 28 $ 29 $ 35
Interest expense on all
indebtedness..................... 8,915 9,841 11,160 12,986 13,958
------ ------- ------- ------- -------
Fixed charges......................... $8,942 $ 9,870 $11,188 $13,015 $13,993
====== ======= ======= ======= =======
Ratio of earnings to fixed charges.... 1.06x 1.14x 1.23x 1.23x 1.21x
====== ======= ======= ======= =======
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS
------------------------

We consent to the inclusion in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated January 22, 1999, on our
audits of the consolidated financial statements, selected historical
consolidated income statement and balance sheet data (other than adjusted
assets) and the financial statement schedule of The Goldman Sachs Group, L.P.
and Subsidiaries. We also consent to the references to our firm under the
captions "Experts", "Summary Consolidated Financial Data", and "Selected
Consolidated Financial Data".

/s/ PricewaterhouseCoopers LLP

New York, New York
March 31, 1999.

<PAGE> 1

EXHIBIT 23.3

SECURITIES DATA COMPANY

We hereby consent to the use of the information we provided for use in the
Registration Statement relating to the offering of Medium-Term Notes by The
Goldman Sachs Group, Inc. and to the references to our name in the Registration
Statement, including under the caption "Experts".

Securities Data Company,
A division of Thomson Information Services

/s/ Kenneth J. Seng
- --------------------
Kenneth J. Seng
Director, Account Management
& Client Training

March 26, 1999

<ARTICLE> BD <F1>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-27-1998
<PERIOD-START> DEC-01-1997<F2>
<PERIOD-END> NOV-27-1998
<CASH> 10,723<F3>
<RECEIVABLES> 19,274
<SECURITIES-RESALE> 37,484
<SECURITIES-BORROWED> 69,158
<INSTRUMENTS-OWNED> 70,679
<PP&E> 956<F4>
<TOTAL-ASSETS> 217,380
<SHORT-TERM> 27,430
<PAYABLES> 36,909
<REPOS-SOLD> 36,257
<SECURITIES-LOANED> 21,117
<INSTRUMENTS-SOLD> 55,895
<LONG-TERM> 19,906
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 210,996<F5>
<TRADING-REVENUE> 2,015<F6>
<INTEREST-DIVIDENDS> 15,010
<COMMISSIONS> 1,368<F7>
<INVESTMENT-BANKING-REVENUES> 3,368
<FEE-REVENUE> 717<F7>
<INTEREST-EXPENSE> 13,958
<COMPENSATION> 3,838
<INCOME-PRETAX> 2,921
<INCOME-PRE-EXTRAORDINARY> 2,921
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,428
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The amounts disclosed in the financial data summary should be read in
conjunction with the consolidated financial statements and the notes thereto.
<F2>Represents the first Monday of the period.
<F3>Includes cash and cash equivalents and cash and securities segregated in
compliance with U.S. federal and other regulations as disclosed on the
consolidated statement of financial condition.
<F4>Included in other assets on the consolidated statement of financial
condition.
<F5>Excludes partners' capital and partners' capital allocated for income taxes
and potential withdrawals as disclosed on the consolidated statement of
financial condition.
<F6>Includes revenues from principal investments, which mainly represents
revenues from investments in merchant banking funds.
<F7>Included in revenues from asset management and securities services on the
consolidated statement of earnings.
</FN>

</TABLE>