GOLDMAN SACHS GROUP INC, POS AM, 2000-02-14

GOLDMAN SACHS GROUP INC
POS AM, 2000-02-14
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2000

REGISTRATION NO. 333-90677
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549
------------------------

POST-EFFECTIVE AMENDMENT NO. 1

TO
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>

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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
GAIL S. BERNEY
THE GOLDMAN SACHS GROUP, INC.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 902-1000
(NAMES, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)

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

COPIES TO:
RICARDO A. MESTRES, JR.
ROBERT W. REEDER III
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time 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. [ ]

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.

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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE POST-EFFECTIVE AMENDMENT TO THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.

Subject to Completion. Dated February 14, 2000.

2,168,353 Shares

THE GOLDMAN SACHS GROUP, INC.
Common Stock
[GOLDMAN SACHS LOGO]
------------------------

This prospectus relates to 2,168,353 shares of common stock of The Goldman
Sachs Group, Inc. to be offered for sale by the charitable organizations
described under the heading "Selling Shareholders". The distribution of the
common stock by these charitable organizations may be effected from time to
time, including:

- in underwritten public offerings;

- in ordinary brokerage transactions on securities exchanges, including the
New York Stock Exchange;

- to or through brokers or dealers who may act as principal or agent; or

- in one or more negotiated transactions.

The brokers or dealers through or to whom the shares of common stock may be
sold may be deemed underwriters of the shares within the meaning of the
Securities Act of 1933, in which event all brokerage commissions or discounts
and other compensation received by those brokers or dealers may be deemed to be
underwriting compensation. To the extent required, the names of the underwriters
and applicable commissions or discounts and any other required information with
respect to any particular sale will be set forth in an accompanying prospectus
supplement. Those underwriters may include affiliates of The Goldman Sachs
Group, Inc., including Goldman, Sachs & Co. See "Plan of Distribution" for a
further description of how the selling stockholders may dispose of the shares
covered by this prospectus.

Goldman Sachs will not receive any of the proceeds from sales of the shares
of common stock made by the selling shareholders pursuant to this prospectus.

Goldman Sachs' common stock is listed on the New York Stock Exchange under
the symbol "GS". On February 11, 2000 the last reported sales price for the
common stock on the New York Stock Exchange was $85.125.

See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of the common stock.

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

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.

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GOLDMAN, SACHS & CO.

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Prospectus dated February , 2000.

<PAGE> 3

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.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in the common stock. You should read the entire prospectus
carefully, especially the risks of investing in the common stock discussed under
"Risk Factors" on pages 7-15.

THE GOLDMAN SACHS GROUP, INC.

Goldman Sachs is a leading global investment banking and securities firm
that provides a wide range of financial services worldwide to a substantial and
diversified client base. Our activities are divided into two business segments:

- - Global Capital Markets; 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 seek to achieve this goal by
maintaining an intense commitment to our clients, focusing on our core
businesses and key opportunities, and operating as an integrated franchise.

For our fiscal year ended November 26, 1999, our net revenues were $13.3
billion and our net earnings were $2.7 billion. As of November 26, 1999, our
total assets were $250.5 billion and our stockholders' equity was $10.1 billion.

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, we have 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 26, 1999, we operated offices in over
20 countries and 37% of our 15,361 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.

SUMMARY FINANCIAL DATA

(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
---------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net revenues
Global Capital Markets.................................... $5,513 $5,747 $10,132
Asset Management and Securities Services.................. 1,934 2,773 3,213
------ ------ -------
Total net revenues.......................................... $7,447 $8,520 $13,345
====== ====== =======
</TABLE>

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STRATEGY AND PRINCIPAL BUSINESS LINES

Our strategy is to grow our three core businesses -- Investment Banking and
Trading and Principal Investments, which together comprise Global Capital
Markets, 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.

GLOBAL CAPITAL MARKETS

INVESTMENT BANKING. Investment Banking represented 33% of fiscal 1999 net
revenues. We are a market leader in both the Financial Advisory and Underwriting
businesses, serving over 3,000 clients worldwide. Financial Advisory includes
advisory assignments with respect to mergers and acquisitions, divestitures,
corporate defense activities, restructurings and spin-offs. Underwriting
includes public offerings and private placements of equity and debt securities.

TRADING AND PRINCIPAL INVESTMENTS. Trading and Principal Investments
represented 43% of fiscal 1999 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

The Asset Management and Securities Services segment represented 24% of
fiscal 1999 net revenues. We provide global investment management and advisory
services; earn commissions on agency transactions; manage merchant banking
funds; and provide prime brokerage, securities lending and financing services.
As of November 26, 1999, we had $258.0 billion of assets under management. We
manage merchant banking funds that had $17.3 billion of capital commitments as
of November 26, 1999.

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 we earn
commissions.

OUR HEADQUARTERS

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

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SUMMARY CONSOLIDATED FINANCIAL DATA

The summary historical consolidated income statement and balance sheet data
set forth below have been derived from our consolidated financial statements and
their notes. Our consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent public accountants, as of November 27,
1998 and November 26, 1999 and for the years ended November 28, 1997, November
27, 1998 and November 26, 1999. These financial statements are included
elsewhere in this prospectus, together with the reports thereon of
PricewaterhouseCoopers LLP.

The summary historical consolidated income statement and balance sheet data
set forth below as of November 24, 1995, November 29, 1996 and November 28,
1997, and for the years ended November 24, 1995 and November 29, 1996 have been
derived from our consolidated financial statements that are not included in this
prospectus.

The pro forma data set forth below for the year ended November 26, 1999
have been derived from the pro forma data set forth in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Pro Forma Operating Results".

The summary consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and their notes.

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SUMMARY CONSOLIDATED FINANCIAL DATA

BALANCE SHEET DATA
Total assets(2)......................................... $100,066 $152,046 $178,401 $217,380 $250,491
Long-term borrowings.................................... 13,358 12,376 15,667 19,906 20,952
Partners' capital....................................... 4,905 5,309 6,107 6,310 --
Stockholders' equity.................................... -- -- -- -- 10,145

COMMON SHARE DATA
Earnings per share
Basic................................................. -- -- -- -- $ 5.69
Diluted............................................... -- -- -- -- 5.57
Average common shares outstanding
Basic................................................. -- -- -- -- 476
Diluted............................................... -- -- -- -- 486

PRO FORMA DATA (UNAUDITED)(3)
Pro forma net earnings.................................. -- -- -- -- $ 2,550
Pro forma diluted earnings per share.................... -- -- -- -- 5.27

SELECTED DATA (UNAUDITED)
Assets under supervision
Assets under management............................... $ 52,358 $ 94,599 $135,929 $194,821 $258,045
Other client assets................................... 57,716 76,892 102,033 142,018 227,424
-------- -------- -------- -------- --------
Total assets under supervision.......................... $110,074 $171,491 $237,962 $336,839 $485,469
======== ======== ======== ======== ========
</TABLE>

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

(1) Our pre-tax earnings in 1999 reflect payments for services rendered by
managing directors who, prior to our conversion to corporate form, were
profit participating limited partners. In prior years, these payments were
accounted for as distributions of partners' capital rather than as
compensation and benefits expense. As a result, these payments are not
reflected in operating expenses in 1995, 1996, 1997 or 1998 and, therefore,
the pre-tax earnings in these years are not comparable to 1999.

(2) Total assets and liabilities were increased as of November 27, 1998 and
November 26, 1999 as a result of certain provisions of Statement of
Financial Accounting Standards No. 125.

(3) Reflects such adjustments as are necessary, in the opinion of management,
for a fair presentation of the results of operations and average diluted
common shares outstanding of Goldman Sachs on a pro forma basis. For more
detailed information concerning these adjustments, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Pro Forma Operating Results".

(4) Reflects nonrecurring expenses of $2.26 billion associated with our
conversion to corporate form and the charitable contribution to The Goldman
Sachs Foundation of $200 million made at the time of our initial public
offering.

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<PAGE> 8

RISK FACTORS

An investment in the common stock involves a number of risks, some of
which, including market, liquidity, credit, operational, legal and regulatory
risks, could be substantial and are inherent in our businesses. You should
carefully consider the following information about these risks, together with
the other information in this prospectus, before buying shares of common stock.

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
financial markets in the United States and elsewhere have achieved record or
near record levels, and the favorable business environment in which we operate
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. Even in the absence of a market
downturn, we are exposed to substantial risk of loss due to market volatility.

We May Incur Significant Losses from Our Trading and Investment Activities Due
to Market Fluctuations and Volatility

We generally maintain large trading and investment positions, including
merchant banking investments, in the fixed income, currency, commodity and
equity markets, and in real estate and other assets. To the extent that we own
assets, i.e., have 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 we have sold assets we do not own,
i.e., have short positions, in any of those markets, an upturn in those markets
could expose us to potentially unlimited losses as we attempt to cover our short
positions by acquiring assets in a rising market. We 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 we expect 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 we did not anticipate or
against which we are not hedged, we might realize a loss in those paired
positions. In addition, we maintain 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.

Our Investment Banking Revenues May Decline in Adverse Market or Economic
Conditions

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

We May Generate Lower Revenues from Commissions and Asset Management Fees

A market downturn would likely 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

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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.

Even in the absence of a market downturn, below-market performance by our
mutual funds may result in increased withdrawals and reduced inflows, which
would reduce the revenue we receive from our asset management business.

Holding Large and Concentrated Positions May Expose Us to Large Losses

Concentration of risk in the past has increased the losses that we have
incurred in our arbitrage, market-making, block trading, underwriting and
lending businesses and may continue to do so in the future. Goldman Sachs has
committed substantial amounts of capital to these businesses, which often
require Goldman Sachs to take large positions in the securities of a particular
issuer or issuers in a particular industry, country or region. Moreover, the
trend in all major capital markets is towards larger and more frequent
commitments of capital in many of these activities. In particular, as described
under "Business -- Global Capital Markets -- 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.

Our Hedging Strategies May Not Prevent Losses

If any of the variety of instruments and strategies we utilize to hedge our
exposure to various types of risk are not effective, we may incur losses. Many
of our 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. Unexpected
market developments may affect our hedging strategies. 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.

A Prolonged Market Downturn Could Impair Our Operating Results

While we 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.

Market Risk May Increase the Other Risks That We Face

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.

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 hedging strategies and other risk management techniques may not
be fully effective in mitigating our risk exposure in all market environments or
against all types of risk, including risks that are unidentified or
unanticipated. Some of our methods of managing risk are based upon

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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
some of our risk measures indicated were likely to occur. 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.

Other risk management methods depend upon evaluation of information
regarding markets, clients or other matters that is publicly available or
otherwise accessible by Goldman Sachs. 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 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.

An Inability to Access the Debt Markets Could Impair Our Liquidity

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 capital markets, or an inability to access the repurchase and
securities lending markets, 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 Goldman Sachs 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 us 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 Goldman Sachs, 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, some 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.

An Inability to Access the Short-Term Debt Markets Could Impair Our Liquidity

We depend on the issuance of commercial paper and promissory notes as a
principal source of unsecured short-term funding for our operations. As of
November 26, 1999, Goldman Sachs had $20.5 billion of outstanding commercial
paper and promissory notes with a weighted-average maturity of approximately 90
days. Our liquidity depends to an important degree on our ability to refinance
these borrowings on a continuous basis. Investors who hold our outstanding
commercial paper and promissory notes have no obligation to purchase new
instruments when the outstanding instruments mature.

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Our Liquidity Could Be Adversely Affected If Our Ability to Sell Assets Is
Impaired

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
some of our 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 if other market participants
are 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
some assets were adversely affected by simultaneous attempts by a number of
institutions to sell similar assets.

A Reduction in Our Credit Ratings Could Adversely Affect Our Liquidity and
Competitive Position and Increase Our Borrowing Costs

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 Goldman Sachs on
"credit watch" with negative implications at any time. Credit ratings are also
important to Goldman Sachs 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 and competitive position. 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.

We May Suffer Significant Losses from Our Credit Exposures

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, we have also experienced, due to
competitive factors, pressure to assume longer-term credit risk, extend credit
against less liquid collateral and price more aggressively the credit risks that
we take.

Our Clients and Counterparties May Be Unable to Perform Their Obligations to Us
as a Result of Economic or Political Conditions

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.

10
<PAGE> 12

See "-- We Are Exposed to Special Risks in Emerging and Other Markets" for a
further discussion of our exposure to these risks.

Defaults by a Large Financial Institution Could Adversely Affect Financial
Markets Generally and Us Specifically

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, losses 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, and could adversely affect Goldman Sachs.

The Information That We Use in Managing Our Credit Risk May Be Inaccurate or
Incomplete

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 foresee or 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.

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
Goldman Sachs could have a material adverse financial effect or cause
significant reputational harm to Goldman Sachs, which in turn could seriously
harm our business prospects.

Our Exposure to Legal Liability Is Significant

We face significant legal risks 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 Goldman Sachs are not enforceable. Particularly
in our rapidly growing business focused on high net worth individuals, we are
increasingly exposed to claims against Goldman Sachs for recommending
investments that are not con-

11
<PAGE> 13

sistent 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 Proceedings"
for a discussion of some of the legal matters in which we are currently
involved.

Extensive Regulation of Our Businesses Limits Our Activities and May Subject Us
to Significant Penalties

Goldman Sachs, as a participant in the financial services industry, is
subject to extensive regulation by governmental and self-regulatory
organizations in the United States and in virtually all other jurisdictions in
which it operates around the world.

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 Goldman Sachs and are not designed to protect our
shareholders. Consequently, these regulations often serve to limit our
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. Among other things, we
could be fined or prohibited from engaging in some of our business activities.
See "Business -- Regulation" for a further discussion of the regulatory
environment in which we conduct our businesses.

Legal Restrictions on Our Clients May Reduce the Demand for Our Services

New laws or regulations or changes in enforcement of existing laws or
regulations applicable to our 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 our clients and, therefore, the services we provide on their
behalf.

EMPLOYEE MISCONDUCT COULD HARM
GOLDMAN SACHS 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 Goldman Sachs to transactions that exceed
authorized limits or present unacceptable risks, or hiding from Goldman Sachs
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 some of our businesses in recent years, such as underwriting fees
on investment grade debt offerings and privatizations. 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.

We Face Increased Competition Due to a Trend Toward Consolidation

In recent years, there has been substantial consolidation and convergence
among

12
<PAGE> 14

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. Recently enacted federal financial reform
legislation significantly expands the activities permissible for firms
affiliated with a U.S. bank. This legislation may accelerate consolidation and
increase competition in the financial services industry and will enable banking
organizations to compete more effectively across a broad range of activities.

Consolidation Has Increased Our 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.

Our Ability to Expand Internationally Will Depend on Our Ability to Compete
Successfully with Local Financial Institutions

We believe that some of our most significant challenges and opportunities
will arise outside the United States. 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. Some of these
institutions are larger and better capitalized, and have a stronger local
presence and a longer operating history in these markets.

Our Revenues May Decline Due to 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 our commission and trading revenues, reduce our
participation in the trading markets and associated access to market information
and lead to the creation of new and stronger competitors.

WE ARE EXPOSED TO SPECIAL RISKS IN
EMERGING AND OTHER MARKETS

In conducting 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. These risks 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 businesses has been conducted in
emerging and other markets. As we expand our businesses in these areas, our
exposure to these risks will increase.

Turbulence in Emerging Markets May Adversely Affect Our Businesses

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

13
<PAGE> 15

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. A continuation of these situations could adversely affect
global economic conditions and world markets and, in turn, could adversely
affect our businesses. Among the risks are regional or global market downturns
and, as noted above, increasing liquidity and credit risks, particularly in
Japan where we have significant exposure.

Compliance with Local Laws and Regulations May Be Difficult

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 our reputation generally. We are also
subject to the risk that transactions we structure might not be legally
enforceable in all cases. See "-- Legal and Regulatory Risks Are Inherent and
Substantial in Our Businesses -- Our Exposure to Legal Liability Is Significant"
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

Our 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 our initial public offering and the conversion of
Goldman Sachs from partnership to corporate form, the managing directors who
were profit participating limited partners received substantial amounts of
common stock in exchange for their interests in Goldman Sachs. Because these
shares of common stock were received in exchange for partnership interests,
ownership of these shares is not dependent upon these managing directors'
continued employment. While these shares are subject to certain restrictions on
transfer under a shareholders' agreement and under our plan of incorporation,
the transfer restrictions under the shareholders' agreement and the plan of
incorporation may be waived, as described under "Certain Relationships and
Related Transactions -- Shareholders' Agreement -- Transfer Restrictions" and
"-- Waivers". These transfer restrictions were waived with respect to the
donation of shares of common stock by our former profit participating limited
partners to charitable foundations and public charities. These charitable
organizations may sell the donated shares pursuant to this prospectus as
described under "Selling Shareholders". We also waived the restrictions on
transfer to permit charitable donations by our former retired limited partners.
See "Shares Eligible for Future Sale" for a discussion of this waiver.

The steps we have taken to encourage the continued service of our managing
directors may not be effective. For a description of the compensation plan for
our senior professionals implemented in connection with our initial public
offering, see "Management -- The Partner Compensation Plan".

In connection with our initial public offering and conversion of Goldman
Sachs from partnership to corporate form, employees, other than the managing
directors who were profit participating limited partners, received grants of
restricted stock units, stock options or interests in a defined contribution
plan. The incentives to attract, retain and motivate employees provided by these
awards or by future arrangements may not be as effective as the opportunity,
which existed prior to conversion, to become a partner of Goldman Sachs. See
"Management -- The Employee Initial Public Offering Awards" for a description of
these awards.

14
<PAGE> 16

GOLDMAN SACHS IS CONTROLLED BY ITS MANAGING DIRECTORS WHOSE INTERESTS MAY DIFFER
FROM THOSE OF OTHER SHAREHOLDERS

As of January 21, 2000, our managing directors collectively owned
275,764,110 shares of common stock, or 62.5% of the total shares of common stock
outstanding. Of these shares, 273,584,282 shares are subject to a shareholders'
agreement, which provides for coordinated voting by the parties. Further, both
Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, which
together owned 43,400,473 shares of common stock, or 9.9% of the total shares of
common stock outstanding, as of January 21, 2000, have agreed to vote their
shares of common stock in the same manner as a majority of the shares held by
our managing directors are voted. See "Certain Relationships and Related
Transactions -- Shareholders' Agreement -- Voting" and "-- Voting Agreement" for
a discussion of these voting arrangements.

As a result of these arrangements, the managing directors currently are
able to elect our entire board of directors, control the management and policies
of Goldman Sachs and, in general, determine, without the consent of the other
shareholders, the outcome of any corporate transaction or other matter submitted
to the shareholders for approval, including mergers, consolidations and the sale
of all or substantially all of the assets of Goldman Sachs. The managing
directors currently are able to prevent or cause a change in control of Goldman
Sachs.

Provisions of Our Organizational Documents May Discourage an Acquisition of
Goldman Sachs

Our organizational documents contain provisions that impede the removal of
directors and may discourage a third party from making a proposal to acquire us.
For example, our board of directors may, without the consent of shareholders,
issue preferred stock with greater voting rights than the common stock. See
"Description of Capital Stock -- Certain Anti-Takeover Matters" for a discussion
of these anti-takeover provisions.

OUR SHARE PRICE MAY DECLINE DUE TO THE
LARGE NUMBER OF SHARES ELIGIBLE
FOR FUTURE SALE

Sales of substantial amounts of common stock, or the possibility of such
sales, may adversely affect the price of the common stock and impede our ability
to raise capital through the issuance of equity securities. See "Shares Eligible
for Future Sale" for a discussion of possible future sales of common stock.

15
<PAGE> 17

USE OF PROCEEDS

All of the shares of our common stock offered by this prospectus will be
sold by charitable organizations. As a result, we will not receive any of the
proceeds from the sale of these shares. We will, however, pay some of the
expenses related to the sale of the shares by the charitable organizations
pursuant to this prospectus. We estimate that the expenses we will pay will
total approximately $1.8 million.

PRICE RANGE OF OUR COMMON STOCK AND DIVIDENDS

Our common stock commenced trading on the New York Stock Exchange under the
symbol "GS" on May 4, 1999. Prior to that date, there was no public market for
our common stock. The following table sets forth, for the periods indicated, the
high and low closing prices per share for our common stock as reported by the
Consolidated Tape Association and the dividend declared per share of common
stock and nonvoting common stock:

<TABLE>
<CAPTION>
DIVIDEND
DECLARED
FISCAL YEAR 1999 HIGH LOW PER SHARE
- ---------------- ------ ------ ---------
<S> <C> <C> <C>
Second fiscal quarter (from May 4, 1999 to May 28, 1999).... $74.13 $64.50 --
Third fiscal quarter (May 29, 1999 to August 27, 1999)...... 72.25 55.81 $0.12
Fourth fiscal quarter (August 28, 1999 to November 26,
1999)..................................................... 82.81 57.69 0.12
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR 2000
- ----------------
<S> <C> <C> <C>
First fiscal quarter (November 27, 1999 through February 11,
2000)..................................................... 94.19 74.60 0.12(1)
</TABLE>

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

(1) This dividend is payable on February 24, 2000 to voting and nonvoting common
stockholders of record on January 24, 2000.

On February 11, 2000, the last reported sale price for our common stock on
the New York Stock Exchange was $85.125 per share. As of January 17, 2000, there
were approximately 591 holders of record of our common stock.

The holders of our common stock and nonvoting common stock share
proportionately on a per share basis in all dividends and other distributions
declared by our board of directors.

The declaration of dividends by Goldman Sachs is subject to the discretion
of our board of directors. Our board of directors will take into account such
matters as general business conditions, our financial results, capital
requirements, contractual, legal and regulatory restrictions on the payment of
dividends by us to our shareholders or by our subsidiaries to us, the effect on
our debt ratings and such other factors as our board of directors may deem
relevant. See "Business -- Regulation" for a discussion of potential regulatory
limitations on our receipt of funds from our regulated subsidiaries.

16
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL DATA

The selected historical consolidated income statement and balance sheet
data set forth below have been derived from Goldman Sachs' consolidated
financial statements and their notes. Goldman Sachs' consolidated financial
statements have been audited by PricewaterhouseCoopers LLP, independent public
accountants, as of November 27, 1998 and November 26, 1999 and for the years
ended November 28, 1997, November 27, 1998 and November 26, 1999. These
financial statements are included elsewhere in this prospectus, together with
the reports thereon of PricewaterhouseCoopers LLP.

The selected historical consolidated income statement and balance sheet
data set forth below as of November 24, 1995, November 29, 1996 and November 28,
1997 and for the years ended November 24, 1995 and November 29, 1996 have been
derived from consolidated financial statements of Goldman Sachs 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" and the consolidated financial statements and their notes.

<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED NOVEMBER
-------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
($ and share amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues............................ $ 14,324 $ 17,289 $ 20,433 $ 22,478 $ 25,363
Interest expense.......................... 9,841 11,160 12,986 13,958 12,018
-------- -------- -------- -------- --------
Net revenues.............................. 4,483 6,129 7,447 8,520 13,345
Compensation and benefits(1).............. 2,005 2,421 3,097 3,838 6,459
Other operating expenses.................. 1,110 1,102 1,336 1,761 4,894(6)
-------- -------- -------- -------- --------
Pre-tax earnings(1)....................... $ 1,368 $ 2,606 $ 3,014 $ 2,921 $ 1,992(6)
======== ======== ======== ======== ========
BALANCE SHEET DATA
Total assets(2)........................... $100,066 $152,046 $178,401 $217,380 $250,491
Long-term borrowings...................... 13,358 12,376 15,667 19,906 20,952
Total liabilities(2)...................... 94,686 145,753 171,864 210,996 240,346
Partners' capital......................... 4,905 5,309 6,107 6,310 --
Stockholders' equity...................... -- -- -- -- 10,145
COMMON SHARE DATA
Earnings per share
Basic.................................. -- -- -- -- $ 5.69
Diluted................................ -- -- -- -- 5.57
Average common shares outstanding
Basic.................................. -- -- -- -- 476
Diluted................................ -- -- -- -- 486
Dividends per common share (paid)(3)...... -- -- -- -- $ 0.24
Book value per share...................... -- -- -- -- 20.94
PRO FORMA DATA (UNAUDITED)(4)
Pro forma net earnings.................... -- -- -- -- $ 2,550
Pro forma diluted earnings per share...... -- -- -- -- 5.27
Pro forma diluted shares.................. -- -- -- -- 484
</TABLE>

17
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL DATA

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

(2) Total assets and liabilities were increased as of November 27, 1998 and
November 26, 1999 as a result of certain provisions of Statement of
Financial Accounting Standards No. 125.

(3) Represents two quarterly dividends of $0.12 per common share each. See
"Price Range of Our Common Stock and Dividends" for a discussion of the
factors that our board of directors may consider in declaring future
dividends.

(4) Reflects such adjustments as are necessary, in the opinion of management,
for a fair presentation of the results of operations and average diluted
common shares outstanding of Goldman Sachs on a pro forma basis. For more
detailed information concerning these adjustments, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Pro Forma Operating Results".

(5) Excludes employees of Goldman Sachs' property management subsidiaries.
Substantially all of the costs of these employees are reimbursed to Goldman
Sachs by the real estate investment funds to which these subsidiaries
provide property management services. For more detailed information
regarding our employees, see "Business -- Employees".

(6) Reflects nonrecurring expenses of $2.26 billion associated with our
conversion to corporate form and the charitable contribution to The Goldman
Sachs Foundation of $200 million made at the time of our initial public
offering.

18
<PAGE> 20

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

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

Our activities are divided into two segments:

GLOBAL CAPITAL MARKETS. This segment comprises Investment Banking, which
includes Financial Advisory and Underwriting, and Trading and Principal
Investments, which includes Fixed Income, Currency and Commodities (FICC),
Equities and Principal Investments (Principal Investments primarily represents
net revenues from our merchant banking investments); and

ASSET MANAGEMENT AND SECURITIES SERVICES. This segment comprises Asset
Management, Securities Services and Commissions.

All references to 1999, 1998 and 1997 refer to our fiscal year ended, or
the date, as the context requires, November 26, 1999, November 27, 1998 and
November 28, 1997, respectively.

When we use the terms "Goldman Sachs", "we" and "our", we mean, prior to
our conversion to corporate form, The Goldman Sachs Group, L.P., a Delaware
limited partnership, and its consolidated subsidiaries and, after our conversion
to corporate form, The Goldman Sachs Group, Inc., a Delaware corporation, and
its consolidated subsidiaries.

INITIAL PUBLIC OFFERING

On May 7, 1999, we converted from a partnership to a corporation and
completed our initial public offering. In that offering, we sold 51,000,000
shares of common stock.

BUSINESS ENVIRONMENT

We operated in a particularly favorable business environment in 1999, as
global equity and many fixed income markets recovered from the turbulent
conditions of the second half of 1998, though government bond markets in the
United States and Europe experienced a significant rise in yields. The improved
business environment provided a positive climate for our investment banking
activities, as well as for our customer-driven and proprietary trading
activities. Economic and market conditions were also favorable for wealth
creation, which contributed positively to growth in our asset management
businesses.

The macroeconomic environment in 1999 was particularly healthy in the
United States, where strong economic growth and low unemployment continued to be
combined with low levels of inflation. Major U.S. equity markets reached record
levels during the year as corporate earnings growth was strong and activity in
the new issues and mergers and acquisitions arenas increased markedly. The pace
of economic growth and the restoration of more normal conditions in financial
markets prompted the Federal Reserve to raise interest rates three times during
the second half of 1999, returning interest rates to levels in existence before
the 1998 financial market crisis.

European equity markets posted solid gains in 1999 as economic growth
improved and cross-border business combinations increased to record levels
following the introduction of the European Economic and Monetary Union (EMU) in
January. The new European Central Bank held short-term interest rates at low
levels for most of the year, despite a weakening in the euro against the U.S.
dollar. In Asia, the economic recovery in Japan resulted in an appreciation of
the yen versus the U.S. dollar and led Japanese equity markets higher. Financial
markets throughout Asia benefited from renewed economic growth in the region.

RESULTS OF OPERATIONS

The composition of our net revenues has varied over time as financial
markets and the scope of our operations have changed. The composition of net
revenues can also vary over the shorter term due to fluctuations in

19
<PAGE> 21

U.S. and global economic and market conditions. As a result, period-to-period
comparisons may not be meaningful. In addition, Goldman Sachs' conversion to
corporate form has affected, and will continue to affect, our operating results
in several significant ways:

1. FORMER PARTNER COMPENSATION. As a corporation, payments for services
rendered by managing directors who, prior to our conversion to corporate form,
were profit participating limited partners are included in compensation and
benefits expense. In prior years, these payments were accounted for as
distributions of partners' capital rather than as compensation and benefits
expense. As a result, our 1998 and 1997 compensation and benefits expense
understate the cost of doing business in corporate form.

2. ONGOING STOCK-BASED COMPENSATION. As part of compensation, restricted stock
units and other forms of stock-based compensation can be awarded to employees.
Of the total restricted stock units that were granted at the end of 1999,
approximately 50% require future service as a condition to the delivery of the
underlying shares of common stock. In accordance with Accounting Principles
Board Opinion No. 25, the restricted stock units with future service
requirements will generally be recorded as compensation expense over the
four-year service period following the date of grant as follows: 52%, 28%, 14%
and 6% in years one, two, three and four, respectively.

3. AMORTIZATION OF EMPLOYEE INITIAL PUBLIC OFFERING AWARDS. We have recorded,
and will continue to record over the five-year vesting period following the date
of grant, noncash expense related to the amortization of certain restricted
stock units awarded to employees in connection with our initial public offering.
These restricted stock units had a value of $1.76 billion on the date of grant,
approximately 26% of which will be amortized as a noncash expense, after giving
effect to forfeitures, in the 12 months following the date of grant. The
remaining 74% of the value of these restricted stock units will be amortized
over the next four years as follows: 26%, 26%, 15% and 7% in years two, three,
four and five, respectively. See "Management -- The Employee Initial Public
Offering Awards" for a discussion of restricted stock units awarded to our
employees in connection with our initial public offering.

4. INCOME TAXES. As a corporation, our operating results have become, and will
continue to be, subject to U.S. federal, state and local corporate income taxes
and, therefore, to a higher tax rate than we incurred as a partnership. Our
effective tax rate for the period from May 7, 1999 to the end of the fiscal
year, excluding the effect of nonrecurring items, was 40%.

For a further discussion of the effect of these items on our actual and pro
forma operating results, see "-- Operating Expenses" and "-- Pro Forma Operating
Results" below and the notes to the consolidated financial statements included
elsewhere in this prospectus.

20
<PAGE> 22

OVERVIEW

The following table sets forth a summary of our financial results:

FINANCIAL OVERVIEW
(in millions, except per share amounts)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-------------------------------
1999(5) 1998 1997
------- ---- ----
<S> <C> <C> <C>
Net revenues...................................... $13,345 $8,520 $7,447
Pre-tax earnings(1)(2)(3)......................... 1,992 2,921 3,014
Net earnings(2)................................... 2,708 2,428 2,746
Diluted earnings per share........................ 5.57 -- --
Pro forma pre-tax earnings(4)..................... 4,250 -- --
Pro forma net earnings(4)......................... 2,550 -- --
Pro forma diluted earnings per share(4)........... 5.27 -- --
</TABLE>

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

(1) Management believes that for periods prior to our conversion to corporate
form, the best measure by which to assess Goldman Sachs' profitability is
pre-tax earnings because, as a partnership, we generally were not subject to
U.S. federal or state income taxes.

(2) Our pre-tax earnings and net earnings in 1999 were reduced by nonrecurring
items recognized in connection with our conversion to corporate form. For a
further discussion of these nonrecurring items, see "-- Operating Expenses"
and "-- Provision for Taxes" below.

(3) Our pre-tax earnings in 1999 reflect payments for services rendered by
managing directors who, prior to our conversion to corporate form, were
profit participating limited partners. In prior years, these payments were
accounted for as distributions of partners' capital rather than as
compensation and benefits expense. As a result, these payments are not
reflected in our operating expenses in 1998 or 1997 and, therefore, the
pre-tax earnings in these years are not comparable with 1999.

(4) Pro forma disclosures reflect the results of Goldman Sachs as if our
conversion to corporate form and related transactions had taken place at the
beginning of 1999. See "-- Pro Forma Operating Results" below for a
discussion of the pro forma adjustments.

(5) Includes 23 weeks as a partnership and 29 weeks as a corporation.

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

1999 VERSUS 1998. Net revenues were $13.35 billion, an increase of 57%
compared with 1998. Global Capital Markets experienced significant net revenue
growth in both Trading and Principal Investments, as substantially all
components of the business recovered from the global market turmoil of the
second half of 1998, and Investment Banking, where we benefited from
unprecedented levels of activity in mergers and acquisitions and equity new
issues worldwide. Net revenues in Asset Management and Securities Services
increased 16% compared with 1998, primarily due to growth in assets under
management, increased equities commissions and higher average customer balances
in securities lending and margin lending.

Our net earnings of $2.71 billion, or $5.57 per diluted share, in 1999 were
reduced by $672 million, or $1.38 per diluted share, due to nonrecurring items
recognized in connection with our conversion to corporate form. For a further
discussion of the nonrecurring charges and benefits affecting our operating
results in 1999, see "-- Operating Expenses" and "-- Provision for Taxes" below.

1998 VERSUS 1997. Our net revenues were $8.52 billion in 1998, an increase
of 14% compared with 1997. Net revenue growth was strong in Asset Management and
Securities Services, which increased 43%, primarily due to increased equities
commissions, higher customer balances in securities lending and margin lending
and growth in assets under management. Net revenues in Global Capital Markets
increased 4% as strong net revenue growth in Investment Banking, resulting from
higher levels of mergers and acquisitions

21
<PAGE> 23

activity, was substantially offset by lower net revenues in Trading and
Principal Investments, primarily due to a 30% reduction in FICC net revenues.

Pre-tax earnings in 1998 were $2.92 billion, a 3% decrease compared with
$3.01 billion in the prior year. This decrease was due to losses incurred in our
Trading and Principal Investments business during the global market turmoil of
the second half of 1998.

The following table sets forth the net revenues, operating expenses and
pre-tax earnings of our segments:

RESULTS BY SEGMENT

(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Global Capital Markets
Net revenues............................................ $10,132 $5,747 $5,513
Operating expenses...................................... 6,232 3,978 3,228
------- ------ ------
Pre-tax earnings........................................ $ 3,900 $1,769 $2,285
======= ====== ======
Asset Management and Securities Services
Net revenues............................................ $ 3,213 $2,773 $1,934
Operating expenses...................................... 2,396 1,621 1,205
------- ------ ------
Pre-tax earnings........................................ $ 817 $1,152 $ 729
======= ====== ======
Total
Net revenues............................................ $13,345 $8,520 $7,447
Operating expenses...................................... 11,353(1) 5,599 4,433
------- ------ ------
Pre-tax earnings........................................ $ 1,992 $2,921 $3,014
======= ====== ======
</TABLE>

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

(1) Includes the following expenses that have not been allocated to our
segments: (i) nonrecurring employee initial public offering awards of $2.26
billion, (ii) the ongoing amortization of employee initial public offering
awards of $268 million and (iii) a charitable contribution to The Goldman
Sachs Foundation of $200 million made at the time of our initial public
offering.

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

Net revenues in our segments include allocations of interest income and
expense to specific securities, commodities and other positions in relation to
the cash generated by, or funding requirements of, the underlying positions. Net
interest is allocated to the Trading and Principal Investments component of
Global Capital Markets and the Securities Services component of Asset Management
and Securities Services. See Note 13 to the consolidated financial statements
included elsewhere in this prospectus for further information regarding our
segments.

The pre-tax earnings of our segments in 1999 reflect payments for services
rendered by managing directors who, prior to our conversion to corporate form,
were profit participating limited partners. In prior years, these payments were
accounted for as distributions of partners' capital rather than as compensation
and benefits expense. As a result, these payments are not reflected in the
operating expenses of our segments in 1998 and 1997 and, therefore, the pre-tax
earnings of our segments in these years are not comparable with 1999.

GLOBAL CAPITAL MARKETS

The components of the Global Capital Markets segment are set forth below:

INVESTMENT BANKING. Goldman Sachs provides a broad range of investment
banking services to a diverse group of corporations, financial institutions,
governments and individuals. Our investment banking activities are divided into
two categories:

- - FINANCIAL ADVISORY. Financial Advisory includes advisory assignments with
respect

22
<PAGE> 24

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.

TRADING AND PRINCIPAL INVESTMENTS. Our Trading and Principal Investments
business facilitates transactions with a diverse group of corporations,
financial institutions, governments and individuals and takes proprietary
positions through market making in and trading of fixed income and equity
products, currencies, commodities, and swaps and other derivatives. Trading and
Principal Investments is divided into three categories:

- - FICC. We make markets in and trade fixed income products, currencies and
commodities, structure and enter into a wide variety of derivative
transactions, and engage in proprietary trading and arbitrage activities;

- - EQUITIES. We make markets in and trade equities and equity-related products,
structure and enter into equity derivative transactions, and engage in
proprietary trading and equity arbitrage; and

- - PRINCIPAL INVESTMENTS. Principal Investments primarily represents net
revenues from our merchant banking investments.

Net revenues from Principal Investments do not include management fees and
the increased share of the income and gains from our merchant banking funds to
which Goldman Sachs is entitled when the return on investments exceeds certain
threshold returns to fund investors. These management fees and increased shares
of income and gains are included in the net revenues of Asset Management and
Securities Services.

Substantially all of our inventory is marked-to-market daily and,
therefore, its value and our net revenues are subject to fluctuations based on
market movements. In addition, net revenues derived from our 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 our Global Capital
Markets segment:

GLOBAL CAPITAL MARKETS NET REVENUES

(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
---------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Financial Advisory.................................... $ 2,270 $1,774 $1,184
Underwriting.......................................... 2,089 1,594 1,403
------- ------ ------
Investment Banking.................................... 4,359 3,368 2,587
------- ------ ------
FICC.................................................. 2,862 1,438 2,055
Equities.............................................. 1,961 795 573
Principal Investments................................. 950 146 298
------- ------ ------
Trading and Principal Investments..................... 5,773 2,379 2,926
------- ------ ------
Total................................................. $10,132 $5,747 $5,513
======= ====== ======
</TABLE>

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

1999 VERSUS 1998. Net revenues in Global Capital Markets were $10.13
billion, an increase of 76% compared with 1998, reflecting substantial growth in
all major components of the business. Pre-tax earnings were $3.90 billion in
1999 compared with $1.77 billion in 1998. Operating expenses increased 57%,
principally due to the inclusion of compensation expense related to services
rendered by managing directors who, prior to our conversion to corporate form,
were profit participating limited partners, higher levels of incentive
compensation commensurate with growth in net revenues, and increased costs

23
<PAGE> 25

associated with global expansion and higher levels of business activity.

INVESTMENT BANKING. Investment Banking generated net revenues of $4.36
billion for the full year, a 29% increase over 1998. Net revenue growth was
strong in both Financial Advisory and Underwriting as our global presence and
strong client base enabled us to capitalize on record levels of global mergers
and acquisitions and new issue activity. Net revenue growth was driven by strong
performances across all regions, particularly in the communications, media and
entertainment, high technology, energy and power, and healthcare sectors.

Financial Advisory revenues increased 28% compared with 1998. Goldman Sachs
maintained its leading position in the advisory business and benefited from an
increase in mergers and acquisitions activity across many industry sectors, in
both Europe and the United States. Worldwide mergers and acquisitions activity
rose to record levels with transactions valued at over $3 trillion announced
during the period from January 1, 1999 to November 30, 1999.(1) Underwriting
revenues increased 31% compared with 1998. Equity underwriting revenues
benefited from favorable global economic conditions, which led major equity
market indices higher and new issue activity to record levels. Our debt
underwriting business generally benefited from a more stable economic
environment in 1999.

TRADING AND PRINCIPAL INVESTMENTS. Net revenues in Trading and Principal
Investments were $5.77 billion compared with $2.38 billion in 1998, as
substantially all components of the business recovered from the global market
turmoil of the second half of 1998.

Net revenues in FICC nearly doubled compared with 1998, primarily due to
growth in our credit-sensitive businesses and commodities that was partially
offset by lower net revenues in currencies. The credit-sensitive businesses
(which include high-yield debt, bank loans and investment-grade corporate debt)
benefited from improved economic conditions as credit spreads and market
liquidity returned to more normal levels following the dislocation experienced
during the second half of 1998. Net revenue growth in commodities benefited from
increased customer activity, while reduced activity and volatility in the global
foreign exchange markets contributed to a decline in net revenues from
currencies.

The significant net revenue growth in Equities was primarily due to
strength in arbitrage and convertibles and increased customer flow in
derivatives and global shares. Net revenue growth in arbitrage and convertibles
was driven by improved market conditions following the turmoil in global markets
during the second half of 1998 and by increased mergers and acquisitions and
other corporate activity. Equity derivatives net revenues were substantially
higher primarily as a result of increased customer activity worldwide. Increased
transaction volumes in global equity markets contributed to the net revenue
growth in our global shares businesses.

Net revenues from Principal Investments increased dramatically due to
mark-to-market gains on certain merchant banking investments, particularly in
the high technology and telecommunications sectors.

1998 VERSUS 1997. Net revenues in Global Capital Markets were $5.75
billion, an increase of 4% compared with 1997, as strong net revenue growth in
Investment Banking was substantially offset by a reduction in net revenues in
Trading and Principal Investments. Pre-tax earnings were $1.77 billion in 1998,
a 23% decrease compared with 1997, as many of our businesses were adversely
affected by market conditions from mid-August 1998 to mid-October 1998.
Operating expenses increased 23%, primarily due to increased compensation
related to growth in employment levels and additional expenses associated with
temporary staff and consultants.

INVESTMENT BANKING. Investment Banking achieved net revenues of $3.37
billion in 1998, an increase of 30% compared with 1997. Net revenue growth was
strong in

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

(1) Source: Thomson Financial Securities Data, formerly known as Securities Data
Company.

24
<PAGE> 26

Financial Advisory and, to a lesser extent, in Underwriting as we capitalized on
higher levels of activity in many industry groups, including communications,
media and entertainment, financial institutions, general industrials and retail.
Net revenue growth in Investment Banking was strong in all major regions in 1998
compared with the prior year.

Financial Advisory revenues increased 50% compared with 1997, due to
increased revenues from mergers and acquisitions advisory assignments, which
principally resulted from consolidation within various 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.

TRADING AND PRINCIPAL INVESTMENTS. Net revenues in Trading and Principal
Investments were $2.38 billion in 1998, a decrease of 19% compared with 1997.
This decrease in net revenues was concentrated in the second half of the year,
when the Russian economic crisis, the turmoil in Asian and Latin American
emerging markets, and the resulting move to higher credit quality fixed income
securities by many investors led to substantial declines in global financial
markets. 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 with 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 with 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 products,
particularly in Europe. Net revenues from European shares increased as Goldman
Sachs 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 with 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 investments compared with the prior year.

ASSET MANAGEMENT AND SECURITIES SERVICES

The components of the Asset Management and Securities Services segment are
set forth below:

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

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

- - COMMISSIONS. Commissions includes agency transactions for clients on major
stock and futures exchanges and revenues from the increased share of the
income and gains derived from our merchant banking funds.

25
<PAGE> 27

The following table sets forth the net revenues of our Asset Management and
Securities Services segment:

ASSET MANAGEMENT AND SECURITIES SERVICES NET REVENUES
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Asset Management....................................... $ 919 $ 675 $ 458
Securities Services.................................... 772 730 487
Commissions............................................ 1,522 1,368 989
------ ------ ------
Total.................................................. $3,213 $2,773 $1,934
====== ====== ======
</TABLE>

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

Our assets under supervision consist 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 consist of assets in
brokerage accounts of primarily high-net-worth individuals, on which we earn
commissions.

The following table sets forth our assets under supervision:

ASSETS UNDER SUPERVISION
(in millions)

<TABLE>
<CAPTION>
AS OF NOVEMBER
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Assets under management......................... $258,045 $194,821 $135,929
Other client assets............................. 227,424 142,018 102,033
-------- -------- --------
Total........................................... $485,469 $336,839 $237,962
======== ======== ========
</TABLE>

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

1999 VERSUS 1998. Net revenues in Asset Management and Securities Services
were $3.21 billion, an increase of 16% compared with 1998. All major components
of the business contributed to the net revenue growth in 1999. Pre-tax earnings
in Asset Management and Securities Services were $817 million in 1999 compared
with $1.15 billion in 1998. Operating expenses increased, principally due to the
inclusion of compensation expense related to services rendered by managing
directors who, prior to our conversion to corporate form, were profit
participating limited partners and increased costs associated with the
continuing expansion of the business.

Asset Management revenues increased 36%, primarily reflecting a 32%
increase in average assets under management as well as favorable changes in the
composition of assets managed. In 1999, approximately 55% of the increase in
assets under management was attributable to net asset inflows, with the
remaining 45% reflecting market appreciation. Securities Services net revenues
increased 6%, due to higher average customer balances in securities lending and
margin lending, partially offset by reduced spreads in our fixed income matched
book. Commissions rose by 11% as fees earned on higher transaction volumes in
global equity markets were partially offset by a reduction in our increased
share of gains from our merchant banking funds.

1998 VERSUS 1997. Net revenues in Asset Management and Securities Services

26
<PAGE> 28

were $2.77 billion in 1998, an increase of 43% compared with 1997. All major
components of the segment exhibited strong net revenue growth. Pre-tax earnings
were $1.15 billion in 1998, an increase of 58% compared with 1997. Operating
expenses increased 35% as higher employment levels led to increased compensation
and benefits expenses.

Asset Management revenues increased 47% during this period, reflecting a
41% increase in average assets under management compared with 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 our
securities borrowing and lending businesses. Commissions increased 38% as
generally strong and highly volatile equity markets resulted in increased
transaction volumes in listed equity securities. Revenues from the increased
share of income and gains from our merchant banking funds also contributed
significantly to the increase in Commissions.

OPERATING EXPENSES

In recent years, our operating expenses have increased as a result of
numerous factors, including higher levels of employment and compensation,
expansion of our asset management business, increased worldwide activities,
greater levels of business complexity, and additional systems and consulting
costs relating to various technology initiatives.

Our operating expenses in 1999, excluding the nonrecurring charges
associated with our initial public offering, increased significantly in part
because, as a corporation, payments for services rendered by managing directors
who, prior to our conversion to corporate form, were profit participating
limited partners are included in compensation and benefits expense. In prior
years, these payments were accounted for as distributions of partners' capital
rather than as compensation and benefits expense. As a result, our 1998 and 1997
compensation and benefits expense understate the cost of doing business in
corporate form.

27
<PAGE> 29

The following table sets forth our operating expenses and number of
employees:

OPERATING EXPENSES AND EMPLOYEES
($ in millions)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Compensation and benefits, excluding employee
initial public offering awards.................... $ 6,459 $3,838 $3,097
Nonrecurring employee initial public offering
awards(1)......................................... 2,257 -- --
Amortization of employee initial public offering
awards............................................ 268 -- --
Brokerage, clearing and exchange fees............... 446 424 357
Market development.................................. 364 287 206
Communications and technology....................... 306 265 208
Depreciation and amortization....................... 337 242 178
Occupancy........................................... 314 207 168
Professional services and other..................... 402 336 219
Charitable contribution............................. 200 -- --
------- ------- -------
Total operating expenses............................ $11,353 $5,599 $4,433
======= ======= =======
Employees at year end(2)............................ 15,361 13,033 10,622
</TABLE>

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

(1) Includes expense of $666 million related to the initial irrevocable
contribution of shares of common stock to a defined contribution plan.

(2) Excludes employees of Goldman Sachs' property management subsidiaries.
Substantially all of the costs of these employees are reimbursed to Goldman
Sachs by the real estate investment funds to which these subsidiaries
provide property management services. For more detailed information
regarding our employees, see "Business -- Employees".

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

1999 VERSUS 1998. Operating expenses were $11.35 billion in 1999, a
substantial increase over 1998, primarily due to nonrecurring charges associated
with Goldman Sachs' conversion to corporate form and related transactions, the
inclusion of compensation expense related to services rendered by managing
directors who were profit participating limited partners, higher levels of
compensation commensurate with higher net revenues and amortization of employee
initial public offering awards. The nonrecurring charges included $2.26 billion
for employee initial public offering awards and $200 million for the charitable
contribution to The Goldman Sachs Foundation made at the time of our initial
public offering.

Compensation and benefits expense was $6.46 billion, an increase of 68%
compared with 1998. The ratio of compensation and benefits to net revenues was
48% in 1999. Employment levels increased 18% during the year, reflecting growth
in our core businesses. Expenses associated with our temporary staff and
consultants were $430 million in 1999, an increase of 30% compared with 1998,
reflecting increased global expansion and consulting costs associated with
technology initiatives, including preparations for the Year 2000.

Brokerage, clearing and exchange fees increased 5%, primarily due to higher
transaction volumes in equity derivatives, U.S. and European equities, and
commodities. Market development expenses increased 27%, principally due to
higher levels of business activity and increased spending on advertising.
Communications and technology expenses increased 15%, reflecting higher
telecommunications and market data costs associated with growth in employment
levels and additional spending on technology initia-

28
<PAGE> 30

tives, including preparations for the Year 2000. Depreciation and amortization
increased 39%, due to additional capital expenditures on leasehold improvements
and technology-related and telecommunications equipment in support of higher
levels of business activity. Occupancy expenses increased 52%, reflecting
additional office space needed to accommodate growth in employment levels.
Professional services and other expenses increased 20% due to Goldman Sachs'
increased business activity.

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 our temporary staff and consultants were
$330 million in 1998, an increase of 85% compared with 1997, reflecting greater
business activity, Goldman Sachs' global expansion, and consulting costs
associated with various technology initiatives, including preparations for the
Year 2000 and the establishment of 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 Goldman
Sachs' 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.

PROVISION FOR TAXES

The net tax benefit of $716 million in 1999 included nonrecurring net
benefits of $1.78 billion recognized during the second quarter. These
nonrecurring net benefits included $825 million related to our conversion to
corporate form, $880 million related to the granting of employee initial public
offering awards and $80 million related to the contribution of $200 million to
The Goldman Sachs Foundation made at the time of our initial public offering.
Goldman Sachs' effective tax rate for the period from May 7, 1999 to the end of
1999, excluding the effect of these nonrecurring items, was 40%. Our effective
tax rate can vary from year to year depending on, among other factors, the
geographic and business mix of our earnings. See Note 11 to the consolidated
financial statements included elsewhere in this prospectus for further
information regarding our provision for taxes.

Prior to our conversion to corporate form, we generally were not subject to
U.S. federal and state income taxes. As a partnership, we were primarily subject
to local unincorporated business taxes and taxes in non-U.S. jurisdictions on
certain of our operations.

29
<PAGE> 31

PRO FORMA OPERATING RESULTS

The following table sets forth our pro forma condensed consolidated
statement of earnings for the year ended November 1999:

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

($ in millions, except per share amounts)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 1999
---------------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
<S> <C> <C> <C>
Total revenues............................. $25,363 $ -- $25,363
Interest expense........................... 12,018 7(a) 12,025
------- -------- -------
Revenues, net of interest expense........ 13,345 (7) 13,338
Compensation and benefits, excluding
employee initial public offering
awards................................... 6,459 -- 6,459
Nonrecurring employee initial public
offering awards.......................... 2,257 (2,257)(b) --
Amortization of employee initial public
offering awards.......................... 268 192(c) 460
Other operating expenses................... 2,369 (200)(d) 2,169
------- -------- -------
Total operating expenses......... 11,353 (2,265) 9,088
Pre-tax earnings........................... 1,992 2,258 4,250
(Benefit)/provision for taxes.............. (716) 2,416(e) 1,700
------- -------- -------
Net earnings............................... $ 2,708 $ (158) $ 2,550
======= ======== =======
Ratio of earnings to fixed charges......... 1.16x 1.35x
Average common shares outstanding
Basic.................................... 475,883,756 (505,283)(f) 475,378,473
Diluted.................................. 485,803,960 (1,877,905)(g) 483,926,055
Earnings per share
Basic.................................... $5.69 $5.36
Diluted.................................. 5.57 5.27
</TABLE>

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

BASIS OF PRESENTATION. The pro forma condensed consolidated statement of
earnings was prepared as if our conversion to corporate form and related
transactions had taken place at the beginning of 1999.

For purposes of calculating 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.

The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The pro forma condensed
consolidated statement of earnings and accompanying notes should be read in
conjunction with the consolidated financial statements and their notes.

The pro forma condensed consolidated statement of earnings is not
necessarily indicative of the results of operations that might have occurred had
our conversion to corporate form and related transactions actually taken place
at the beginning of 1999, or that may be expected to occur in the future.

NOTES TO PRO FORMA ADJUSTMENTS

(a) Adjustment to reflect the additional interest expense on junior
subordinated debentures issued to retired limited partners in exchange for their
interests in The Goldman Sachs Group, L.P. and certain affiliates.

30
<PAGE> 32

(b) Adjustment to eliminate the nonrecurring effect of the expense related
to restricted stock units, awarded to employees in connection with our
conversion to corporate form, for which future service is not required as a
condition to the delivery of the underlying common stock, and the initial
irrevocable contribution of shares of common stock to our defined contribution
plan. For a description of the restricted stock units and the contribution to
our defined contribution plan, see "Management -- The Employee Initial Public
Offering Awards".

(c) Adjustment to reflect additional amortization for the full fiscal year
related to certain restricted stock units awarded to employees in connection
with our conversion to corporate form, which vest in equal installments in years
three, four and five following the date of grant (May 7, 1999). These restricted
stock units had a value of $1.76 billion at date of grant, approximately 26% of
which will be amortized as a noncash expense, after giving effect to
forfeitures, in the 12 months following the date of grant. The remaining 74% of
the value of these restricted stock units will be amortized over the next four
years as follows: 26%, 26%, 15% and 7% in years two, three, four and five,
respectively. For a description of the restricted stock units, see
"Management -- The Employee Initial Public Offering Awards".

(d) Adjustment to eliminate the expense related to the charitable
contribution to The Goldman Sachs Foundation made at the time of our initial
public offering.

(e) Adjustment to reflect a pro forma provision for taxes for Goldman Sachs
in corporate form at an effective tax rate of 40%.

(f) Adjustment to reflect the effect of share activity, primarily related
to the acquisition of The Hull Group in September 1999, which is averaged over
the period beginning on May 4, 1999 (the day trading in our common stock
commenced) for actual purposes, and over the entire year for pro forma purposes.

(g) Adjustment to diluted average common shares outstanding, which includes
both common stock and nonvoting common stock outstanding, to reflect the
additional dilutive effect of the common stock deliverable pursuant to the
restricted stock units and stock options, awarded to employees in connection
with our conversion to corporate form, for which future service is required as a
condition to the delivery of the underlying common stock. For purposes of
calculating pro forma diluted average common shares outstanding, we used the
initial public offering price of $53 per share from the beginning of 1999 until
May 4, 1999. Thereafter, we used actual daily closing prices.

GEOGRAPHIC DATA

For a summary of the net revenues, pre-tax earnings and identifiable assets
of Goldman Sachs by geographic region, see Note 13 to the consolidated financial
statements included elsewhere in this prospectus.

CASH FLOWS

Our cash flows are primarily related to the operating and financing
activities undertaken in connection with our trading and market-making
transactions.

YEAR ENDED NOVEMBER 1999. Cash and cash equivalents increased to $3.06
billion in 1999. Cash of $12.59 billion was used for operating activities,
primarily to fund higher net trading assets due to increased levels of business
activity. Cash of $654 million was used for investing activities, primarily for
the purchase of telecommunications and technology-related equipment, leasehold
improvements and the acquisition of The Hull Group in September 1999. Financing
activities provided $13.46 billion of cash, reflecting an increase in long-term
borrowings and net repurchase agreements, and proceeds from the issuance of
common stock.

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.

31
<PAGE> 33

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 our 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.

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, Goldman Sachs
has established a comprehensive structure to oversee its liquidity and funding
policies.

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

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

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. Goldman Sachs
seeks to maintain diversified funding sources with both banks and nonbank
lenders globally. Management believes that Goldman Sachs' relationships with its
lenders are critical to its liquidity.

Goldman Sachs also has access to diversified funding sources with numerous
creditors, including banks, insurance companies, mutual funds, bank trust
departments and other asset managers. We monitor our creditors to maintain broad
and diversified credit.

We access liquidity in a variety of markets in the United States as well as
in Europe and Asia. We make extensive use of the repurchase agreement markets
and have raised debt publicly as well as in the private placement and commercial
paper markets, and through Eurobonds, money broker loans, commodity-based
financings, letters of credit and promissory notes. We seek to structure our
liabilities to avoid significant amounts of debt coming due on any one day or
during any single week or year. In addition, we maintain and update 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 our Finance
Committee.

ASSET LIQUIDITY. Goldman Sachs maintains a highly liquid balance sheet.
Many of our assets are readily funded in the repurchase agreement markets, which
generally have proven to be a consistent source of funding, even in periods of
market stress. A substantial portion of our inventory turns over rapidly and is
marked-to-market daily. We maintain long-term borrowings and stockholders'
equity substantially in excess of our less liquid assets.

32
<PAGE> 34

DYNAMIC LIQUIDITY MANAGEMENT. Goldman Sachs 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. We have traditionally been able to fund our liquidity needs
through security-based and collateralized funding, such as repurchase
transactions and securities lending, as well as short-term and long-term
borrowings and equity capital. To further evaluate the adequacy of our liquidity
management policies and guidelines, we perform weekly "stress funding"
simulations of disruptions to our access to unsecured credit.

EXCESS LIQUIDITY. In addition to maintaining a highly liquid balance sheet
and a significant amount of longer term liabilities to assure liquidity even
during adverse conditions, we seek 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
$17.99 billion during 1999 and $14.17 billion during 1998.

LIQUIDITY RATIO MAINTENANCE. It is Goldman Sachs' 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 our unencumbered assets and
our short-term unsecured liabilities. The maintenance of this liquidity ratio is
intended to ensure that we could fund our positions on a fully secured basis in
the event that we were unable to replace our unsecured debt maturing within one
year. Under this policy, we seek 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 Goldman Sachs is raised by
the parent company, The Goldman Sachs Group, Inc. The parent company then lends
the necessary funds to its subsidiaries and affiliates. We carefully manage our
intercompany exposure by generally requiring intercompany loans to have
maturities equal to or shorter than the maturities of the aggregate borrowings
of the parent company. This policy ensures that the subsidiaries' obligations to
the parent company will generally mature in advance of the parent company's
third-party long-term borrowings. In addition, many of the advances made to our
subsidiaries and affiliates are secured by marketable securities or other liquid
collateral. We generally fund our equity investments in subsidiaries with equity
capital.

THE BALANCE SHEET

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

33
<PAGE> 35

The following table sets forth our total assets, adjusted assets, leverage
ratios and book value per share:

<TABLE>
<CAPTION>
AS OF NOVEMBER
----------------------
1999 1998
---- ----
($ in billions, except
per share amounts)
<S> <C> <C>
Total assets............................................. $ 250 $ 217
Adjusted assets(1)....................................... 188 145
Leverage ratio(2)........................................ 24.7x 34.5x
Adjusted leverage ratio(3)............................... 18.5x 23.0x
Book value per share(4).................................. $20.94 --
</TABLE>

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

(1) Adjusted assets represent total assets less securities purchased under
agreements to resell, certain securities borrowed transactions and the
increase in total assets related to certain provisions of Statement of
Financial Accounting Standards No. 125.

(2) Leverage ratio equals total assets divided by equity capital.

(3) Adjusted leverage ratio equals adjusted assets divided by equity capital.

(4) Book value per share was based on common shares outstanding, including
restricted stock units granted to employees with no future service
requirements, of 484,566,184 as of November 1999.

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

As of November 1999 and November 1998, we held $2.62 billion and $2.21
billion, respectively, in high-yield debt and emerging market securities and
$1.80 billion and $1.59 billion, respectively, in bank loans. These assets may
be relatively illiquid during times of market stress. We seek to diversify our
holdings of these assets by industry and by geographic location.

As of November 1999, the aggregate carrying value of our principal
investments held directly or through our merchant banking funds was $2.88
billion, which consisted of corporate principal investments with an aggregate
carrying value of $1.95 billion and real estate investments with an aggregate
carrying value of $928 million.

CREDIT RATINGS

Goldman Sachs 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 our credit ratings. Credit ratings are also important
to us 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.

The following table sets forth our credit ratings as of November 1999:

<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
DEBT DEBT
---------- ---------
<S> <C> <C>
Moody's Investors Service, Inc..................... P-1 A1
Standard & Poor's Ratings Services................. A-1+ A+
Fitch IBCA, Inc.................................... F1+ AA-
CBRS Inc........................................... A-1 (High) A+
</TABLE>

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

LONG-TERM DEBT

As of November 1999, our consolidated long-term borrowings were $20.95
billion. Substantially all of these borrowings were unsecured and consisted
principally of senior borrowings with maturities extending to 2024. The weighted
average maturity of our long-term borrowings as of November 1999 was
approximately five years. Substantially all of our long-term borrowings are
swapped into

34
<PAGE> 36

U.S. dollar obligations with short-term floating rates of interest in order to
minimize our exposure to interest rates and foreign exchange movements. See Note
5 to the consolidated financial statements included elsewhere in this prospectus
for further information regarding our long-term borrowings.

REGULATED SUBSIDIARIES

Many of our principal subsidiaries are subject to extensive regulation in
the United States and elsewhere. Goldman, Sachs & Co., a registered U.S.
broker-dealer, is regulated by the SEC, the Commodity Futures Trading
Commission, the Chicago Board of Trade, the NYSE and the NASD. Goldman Sachs
International, a registered U.K. broker-dealer, is subject to regulation by the
Securities and Futures Authority Limited and the Financial Services Authority.
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 Goldman Sachs are regulated by securities, investment advisory,
banking, and other regulators and authorities around the world, such as the
Bundesbank of Germany. Compliance with the rules of these regulators may prevent
us from receiving distributions, advances or repayment of liabilities from these
subsidiaries. See "Business -- Regulation" and Note 12 to the consolidated
financial statements included elsewhere in this prospectus for further
information regarding our regulated subsidiaries.

RISK MANAGEMENT

Goldman Sachs 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

Goldman Sachs seeks to monitor and control its risk exposure through a
variety of separate but complementary financial, credit, operational and legal
reporting systems. We believe that we have effective procedures for evaluating
and managing the market, credit and other risks to which we are exposed.
Nonetheless, the effectiveness of our 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
our 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 our
earnings, increases in our credit exposure 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 our businesses.

Goldman Sachs 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 our exposures.

In addition, a number of committees are responsible for establishing
trading limits, for monitoring adherence to these limits and for general
oversight of our risk management process. These committees, which are described
below, meet regularly and consist of senior members of both our
revenue-producing units and departments that are independent of our
revenue-producing units.

MANAGEMENT COMMITTEE. All risk control functions ultimately report to the
Management Committee. Through both direct and delegated authority, the
Management Committee approves all of Goldman Sachs' operating activities,
trading risk parameters, and customer review guidelines.

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<PAGE> 37

RISK COMMITTEES. The Firmwide Risk Committee:

- - 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 analyses. The Asset Management Control Oversight
and the Asset Management Risk committees oversee various operational, credit,
pricing and business practice issues.

GLOBAL COMPLIANCE AND CONTROL COMMITTEE. The Global Compliance and Control
Committee provides oversight of our compliance and control functions, including
internal audit; reviews our 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 Goldman Sachs,
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
our capital, liquidity and funding needs and for setting certain inventory
position limits.

Segregation of duties and management oversight are fundamental elements of
our risk management process. In addition to the committees described above,
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. Furthermore,
the Controllers Department, in conjunction with the Firmwide Risk Department,
independently reviews, on a regular basis, internal valuation models and the
pricing of positions determined by individual business units.

RISK LIMITS

Business unit risk limits are established by the various risk committees
and may be further allocated 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.

MARKET RISK

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

36
<PAGE> 38

Categories of market risk include exposures to interest rates, currency
rates, equity prices and commodity prices.

A description of each market risk category is set forth below:

- - 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.

We seek to manage these risk exposures through diversifying exposures,
controlling position sizes and establishing hedges in related securities or
derivatives. For example, we 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 our exposure to market risk. These tools
include:

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

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

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

- - scenario analyses that measure the potential effect on our trading net
revenues of abnormal market movements.

We also estimate the broader potential impact of certain macroeconomic
scenarios, including a sustained downturn, on our investment banking and
merchant banking activities.

VaR. VaR is the potential loss in value of Goldman Sachs' trading
positions due to adverse market movements 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 our 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 our overall trading positions.
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.

The modeling of the risk characteristics of our 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 ap-

37
<PAGE> 39

proximations could produce materially different VaR estimates.

We use historical data to estimate our 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. 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, we
assume that asset returns are normally distributed. Nonlinear risk exposures on
options and the potentially mitigating impact of intraday changes in related
hedges would likely produce nonnormal asset returns. Different distributional
assumptions could produce a materially different VaR.

The following table sets forth the daily VaR for substantially all of our
trading positions:

DAILY VaR
(in millions)

<TABLE>
<CAPTION>
AS OF NOVEMBER YEAR ENDED NOVEMBER 1999
--------------- ------------------------
RISK CATEGORIES 1999 1998 AVERAGE HIGH LOW
- --------------- ---- ---- ------- ---- ---
<S> <C> <C> <C> <C> <C>
Interest rates.......................... $ 13 $ 27 $ 23 $35 $10
Currency rates.......................... 4 9 9 25 4
Equity prices........................... 18 25 23 37 18
Commodity prices........................ 12 7 9 13 3
Diversification effect(1)............... (22) (25) (25) -- --
---- ---- ----
Firmwide................................ $ 25(2) $ 43 $ 39 56 23
==== ==== ====
</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.

(2) Not necessarily indicative of future VaR levels.

38
<PAGE> 40

The following chart sets forth the daily VaR for substantially all of our
trading positions during 1999:

Description of VaR Chart: Depicted on page 39 of the registration statement is a
chart setting forth the daily VaR for substantially all of our trading positions
during 1999. The horizontal axis is market to indicated the start of each fiscal
quarter. The vertical axis is marked to indicate VaR in millions of dollars. The
values displayed in the chart start the fiscal year at $43 million, and end the
fiscal year at $25 million. The maximum VaR, of approximately $56 million, was
reached on February 16, 1999, and the minimum VaR, of approximately $23 million,
was reached on November 24, 1999.

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

The general decline in our VaR during 1999 reflects lower levels of market
volatility and a decrease in trading exposures, particularly with respect to
interest rates. As described above, the historical data used to estimate VaR is
weighted to give greater importance to more recent observations and,
accordingly, our VaR levels in the beginning of 1999 were significantly affected
by the market turmoil of the second half of 1998.

TRADING NET REVENUES DISTRIBUTION

Substantially all of our inventory positions are marked-to-market on a
daily basis and changes are recorded in net revenues.

The following chart sets forth the frequency distribution for substantially
all of our daily trading net revenues for the year ended November 1999:

DAILY TRADING REVENUES

<TABLE>
<CAPTION>
DAILY TRADING NET REVENUES ($ IN MILLIONS) NUMBER OF DAYS
- ------------------------------------------ --------------
<S> <C>
Less than (20).............................................. 2
(20)-(10)................................................... 6
(10)-0...................................................... 19
0-10........................................................ 40
10-20....................................................... 58
20-30....................................................... 60
30-40....................................................... 40
40-50....................................................... 17
Greater than 50............................................. 9
</TABLE>

39
<PAGE> 41

As part of our overall risk control process, daily trading net revenues are
compared with the VaR calculated as of the end of the prior business day. During
1999, trading losses incurred on a single day exceeded our 95% one-day VaR on
only one occasion.

NONTRADING RISK

The market risk on our nontrading financial instruments, including our
merchant banking investments, is measured using a sensitivity analysis that
estimates the potential reduction in our net revenues associated with a 10%
decline in the S&P 500. This sensitivity analysis is based on certain
assumptions regarding the relationship between changes in the S&P 500 and
changes in the fair value of the individual nontrading financial instruments.
Different assumptions could produce materially different risk estimates. As of
November 1999, our nontrading market risk was approximately $200 million.

CREDIT RISK

Credit risk represents the loss that we would incur if a counterparty, or
an issuer of securities or other instruments we hold, fails to perform under its
contractual obligations to us. To reduce our credit exposures, we seek to enter
into netting agreements with counterparties that permit us to offset receivables
and payables with such counterparties. In addition, we attempt to further reduce
credit risk by entering into agreements that enable us to obtain collateral from
a counterparty or to terminate or reset the terms of transactions after
specified time periods or upon the occurrence of credit-related events, by
seeking third-party guarantees of the counterparty's obligations, and through
the use of credit derivatives.

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. For
most products, we measure and limit credit exposures by reference to both
current and potential exposure. We measure potential exposure based on projected
worst-case market movements over the life of a transaction within a 95%
confidence interval. We further seek to measure credit exposure through the use
of scenario analyses and other quantitative tools. Our 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 management, including the Firmwide Risk and Credit
Policy committees, with information regarding overall credit risk by product,
industry sector, country and region.

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 Goldman Sachs in privately negotiated
contracts, which are often referred to as over-the-counter derivatives, or they
may be listed and traded on an exchange.

Most of our derivative transactions are entered into for trading purposes.
We use derivatives in our trading activities to facilitate customer
transactions, to take proprietary positions and as a means of risk management.
We also enter into nontrading derivative contracts to manage the interest rate
and currency exposure on our long-term borrowings.

Derivatives are used in many of our businesses, and we believe 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 our other
nonderivative risk.

Derivative contracts are reported on a net-by-counterparty basis on our
consolidated statements of financial condition where management believes a legal
right of setoff exists under an enforceable netting agreement. For an
over-the-counter derivative, our credit exposure is directly with our
counterparty and continues until the maturity or termination of such contract.

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<PAGE> 42

The following table sets forth the distribution, by credit rating, of
substantially all of our credit exposure with respect to over-the-counter
derivatives as of November 1999, after taking into consideration the effect of
netting agreements. The categories shown reflect our internally determined
public rating agency equivalents.

OVER-THE-COUNTER DERIVATIVE CREDIT EXPOSURES
($ in millions)

<TABLE>
<CAPTION>
PERCENTAGE OF
COLLATERAL EXPOSURE EXPOSURE
CREDIT RATING EQUIVALENT EXPOSURE HELD(2) NET OF COLLATERAL NET OF COLLATERAL
- ------------------------ -------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
AAA/Aaa............................... $ 2,603 $ 452 $ 2,151 11%
AA/Aa2................................ 5,132 557 4,575 24
A/A2.................................. 9,663 2,211 7,452 39
BBB/Baa2.............................. 3,246 516 2,730 14
BB/Ba2 or lower....................... 2,618 625 1,993 11
Unrated(1)............................ 2,486 2,228 258 1
------- ------ ------- ---
$25,748 $6,589 $19,159 100%
======= ====== ======= ===
</TABLE>

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

(1) In lieu of making an individual assessment of the credit of unrated
counterparties, we make a determination that the collateral held in respect
of such obligations is sufficient to cover a substantial portion of our
exposure. In making this determination, we take into account various
factors, including legal uncertainties and market volatility.

(2) Collateral consists predominantly of cash and U.S. government and agency
securities and is usually received under agreements entitling Goldman Sachs
to require additional collateral upon specified increases in exposure or the
occurrence of adverse credit events.

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

Derivative 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. We attempt 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 RISKS

OPERATIONAL RISK. Goldman Sachs 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 our 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 our own systems or as a result of the
failure of an agent acting on our 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 Information Technology in creating systems to enable
appropriate supervision and management of its policies. The Global Operations
Department is also responsible, together with other areas of Goldman Sachs,
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 our relationships with our clearance and settlement agents, regularly
reviews agents' performance and meets with these agents to review operational
issues.

YEAR 2000. Goldman Sachs has dedicated resources over the past several
years to address the potential hardware, software,

41
<PAGE> 43

and other computer and technology issues and related concerns associated with
the transition to the Year 2000 and to confirm that our service providers took
similar measures. As a result of those efforts, we have not experienced any
material disruptions in our operations in connection with, or following, the
transition to the Year 2000. We currently estimate that our Year 2000 costs will
total approximately $185 million, of which $170 million had been spent through
November 1999.

ACCOUNTING DEVELOPMENTS

In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of Financial Accounting
Standards Board Statement No. 133 -- an amendment of Financial Accounting
Standards Board Statement No. 133", which deferred to fiscal years beginning
after June 15, 2000 the effective date of the accounting and reporting
requirements of Statement of Financial Accounting Standards No. 133. Statement
of Financial Accounting Standards 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. We intend to adopt the provisions of Statement of
Financial Accounting Standards No. 133 deferred by Statement of Financial
Accounting Standards No. 137 in fiscal 2001 and are currently assessing their
effect.

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 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.
Statement of Position 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. We previously expensed the cost of all
software development in the period it was incurred. The adoption of Statement of
Position No. 98-1 is not expected to have a material effect on our results of
operations or financial condition. We intend to adopt the provisions of
Statement of Position No. 98-1 in fiscal 2000.

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<PAGE> 44

BUSINESS

OVERVIEW

Goldman Sachs is a leading global investment banking and securities firm
that provides a wide range of services worldwide to a substantial and
diversified client base that includes corporations, financial institutions,
governments and high-net-worth individuals. As of November 1999, we operated
offices in over 20 countries and 37% of our 15,361 employees were based outside
the United States.

Goldman Sachs is the successor to a commercial paper business founded in
1869 by Marcus Goldman. Since then, we have expanded 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, The Goldman Sachs Group, L.P. was formed to serve as the parent
company of the Goldman Sachs organization. On May 7, 1999, The Goldman Sachs
Group, Inc. succeeded to the business of The Goldman Sachs Group, L.P. and
completed an initial public offering of its common stock.

Financial information concerning our business segments and geographic
regions for each of 1999, 1998 and 1997 is set forth in Note 13 of the
consolidated financial statements included elsewhere in this prospectus.

BUSINESS SEGMENTS

Our activities are divided into two segments:

- - Global Capital Markets; and

- - Asset Management and Securities Services.

These segments consist of various product and service offerings that are
set forth in the following chart:

PRIMARY PRODUCTS AND ACTIVITIES BY BUSINESS SEGMENT

<TABLE>
<CAPTION>
ASSET MANAGEMENT AND
GLOBAL CAPITAL MARKETS SECURITIES SERVICES
- ------------------------------------------------------------ ----------------------------
TRADING AND PRINCIPAL
INVESTMENT BANKING INVESTMENTS
- ---------------------------- ----------------------------
<S> <C> <C>
- -- Equity and debt -- Bank loans -- Commissions
underwriting -- Commodities -- Institutional and
- -- Financial restructuring -- Currencies high-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 -- Increased share of
-- Proprietary arbitrage merchant banking fund income
and gains
-- Mutual funds
-- Prime brokerage
-- Securities lending
</TABLE>

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<PAGE> 45

GLOBAL CAPITAL MARKETS

The Global Capital Markets segment, which represented 76% of 1999 net
revenues, consists of the following:

- - INVESTMENT BANKING. Investment Banking consists of our Financial Advisory and
Underwriting businesses; and

- - TRADING AND PRINCIPAL INVESTMENTS. Trading and Principal Investments consists
of our Fixed Income, Currency and Commodities ("FICC"), Equities and Principal
Investments businesses.

INVESTMENT BANKING

Investment Banking represented 33% of 1999 net revenues. We provide a broad
range of investment banking services to a diverse group of corporations,
financial institutions, governments and individuals and seek to develop and
maintain long-term relationships with these clients as their lead investment
bank.

Our current structure, which is organized along regional, product 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.

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

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

FINANCIAL ADVISORY. Goldman Sachs is a leading investment bank in
worldwide mergers and acquisitions. Our mergers and acquisitions capabilities
are evidenced by our significant share of assignments in large, complex
transactions for which we provide multiple services, including "one-stop"
acquisition financing, currency hedging and cross-border structuring expertise.

UNDERWRITING. We underwrite 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.

Equity Underwriting. Equity underwriting has been a long-term core
strength of Goldman Sachs. As with mergers and acquisitions, we have been
particularly successful in winning mandates for large, complex equity
underwritings. We believe our leadership in large initial public offerings
reflects our expertise in complex transactions, research strengths, track record
and distribution capabilities. We have also acted as lead manager on many of the
largest initial public offerings in the international arena.

We believe that a key factor in our equity underwriting success is the
close working relationship among the investment bankers, research analysts and
sales force as coordinated by our Equity Capital Markets group. With
institutional sales professionals and 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.

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.

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<PAGE> 46

We have employed a focused approach in debt underwriting, emphasizing high
value-added areas in servicing our clients.

TRADING AND PRINCIPAL INVESTMENTS

Trading and Principal Investments represented 43% of 1999 net revenues. Our
Trading and Principal Investments business facilitates transactions with a
diverse group of corporations, financial institutions, governments and
individuals 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. We
believe our willingness and ability to take risk distinguishes us and
substantially enhances our client relationships.

Trading and Principal Investments is divided into three categories:

- - FIXED INCOME, CURRENCY AND COMMODITIES. Goldman Sachs 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. Goldman Sachs 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 net
revenues from our merchant banking investments.

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 uses 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

45
<PAGE> 47

are a member of the major futures exchanges, and also have interbank dealer
status in the currency markets in New York, London, Tokyo and Hong Kong. Our
willingness to make markets in a broad range of fixed income, currency and
commodity products and their derivatives is crucial both to our client
relationships and to support our underwriting business by providing secondary
market liquidity. 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.

EQUITIES. Goldman Sachs 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.
Goldman Sachs is a member of most of the major stock exchanges, including New
York, London, Frankfurt, Tokyo and Hong Kong.

As agent, we execute 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, we generate net revenues from our
customer-driven business in three ways. First, in large, highly liquid principal
markets, such as the over-the-counter market for equity securities, we undertake
a high volume of transactions for modest spreads. 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, we also benefit from
structuring complex transactions.

Goldman Sachs was a pioneer and is currently active in the execution of
large block trades (trades of 50,000 or more shares) in the United States and
abroad. We have been able to capitalize on our expertise in block trading, our
global distribution network and our 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. Block transactions,
however, expose us 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 -- Holding Large and Concentrated Positions May Expose Us to Large Losses"
for a discussion of the risks associated with holding a large position in a
single issuer, and "Risk Factors -- The Financial Services Industry Is Intensely
Competitive and Rapidly Consolidating" for a discussion of the competitive risks
that we face.

We are active in the listed options and futures markets, and we structure,
distribute and execute over-the-counter derivatives on market indices, industry
groups and individual company stocks to facilitate customer transactions and our
proprietary activities. We develop quantitative strategies and render advice
with respect to portfolio hedging and restructuring and asset allocation
transactions. We also create specially tailored instruments to enable
sophisticated investors to undertake hedging strategies and establish or
liquidate investment positions. We are one of the leading participants in the
trading and development of equity derivative instruments. We are an active
participant in the trading of futures and options on most of the major exchanges
in the United States, Europe and Asia.

We remain committed to being at the forefront of technological innovation
in the global capital markets. To pursue our strategy of expanding our
electronic market-making capabilities, on September 24, 1999, Goldman Sachs
completed its acquisition of The Hull Group, a leading global electronic market
maker in exchange-traded equity derivatives and an active market maker in equity
securities worldwide.

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<PAGE> 48

In addition, 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 we are not acting as
an advisor and on relative value trades. These special situations include
mergers and acquisitions, corporate restructurings, recapitalizations and legal
and regulatory events.

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 the second
half of 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 Goldman Sachs, from the trading desks to the
Firmwide Risk Committee. For a further discussion of our risk management
policies and procedures, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Risk Management".

PRINCIPAL INVESTMENTS. In connection with our merchant banking activities,
we invest by making principal investments directly and through funds that we
raise and manage. As of November 1999, we had committed $3.06 billion, of which
$2.33 billion had been funded, of the $17.27 billion total equity capital
committed for our 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 1999, the
aggregate carrying value of our principal investments held directly or through
our merchant banking funds was approximately $2.88 billion, which consisted of
corporate principal investments with an aggregate carrying value of
approximately $1.95 billion and real estate investments with an aggregate
carrying value of approximately $928 million.

ASSET MANAGEMENT AND
SECURITIES SERVICES

The components of the Asset Management and Securities Services segment,
which represented 24% of 1999 net revenues, are set forth below:

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

ASSET MANAGEMENT

Goldman Sachs 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 consist 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 consist of assets in brokerage accounts of
primarily high-net-worth individuals, on which we earn commissions.

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<PAGE> 49

Our growth in assets under supervision is set forth in the graph below:

ASSETS UNDER SUPERVISION
(in billions)

[ASSETS UNDER SUPERVISION BAR GRAPH]

<TABLE>
<CAPTION>
YEAR ASSETS UNDER MANAGEMENT OTHER CLIENT ASSETS TOTAL
- ---- ----------------------- ------------------- -----

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

As of November 1999, equities and alternative investments represented 59%
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 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
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
ASSET CLASS
Equity...................................................... $ 98 $ 69 $ 52
Fixed income and currency................................... 58 50 36
Money markets............................................... 48 46 31
Alternative investment(1)................................... 54 30 17
---- ---- ----
Total....................................................... $258 $195 $136
==== ==== ====
</TABLE>

- ---------------
(1) Includes private equity, real estate, quantitative asset allocation and
other funds that we manage.

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

Since the beginning of 1996, we have increased the resources devoted to our
Asset Management business, including the addition of over 1,000 employees. In
addition, Goldman Sachs has made three asset management acquisitions in order to
expand its geographic reach and broaden its global equity and alternative
investment portfolio management capabilities.

CLIENTS. Our primary clients are institutions, high-net-worth individuals
and retail investors. We access clients through both direct and third-party
channels. Our institutional clients include corporations, insurance companies,
pension funds, foundations and endowments. 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.

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<PAGE> 50

The table below sets forth the amount of assets under supervision by
distribution channel and client category as of November 1999:

ASSETS UNDER SUPERVISION BY DISTRIBUTION CHANNEL
(in billions)

<TABLE>
<CAPTION>
ASSETS UNDER
SUPERVISION(1) PRIMARY INVESTMENT VEHICLES
-------------- ---------------------------
<S> <C> <C>
- Directly distributed
-- Institutional.......................... $151 Separate managed accounts
-- High-net-worth individuals............. 262 Commingled vehicles
Brokerage accounts
Limited partnerships
Separate managed accounts
- Third-party distributed
-- Institutional and retail............... 56 Mutual funds
----
Total....................................... $469
====
</TABLE>

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

(1) Excludes $16 billion in our merchant banking funds.

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

MERCHANT BANKING

Goldman Sachs has established a successful record in the corporate and real
estate merchant banking business, with $17.27 billion of committed capital as of
November 1999, of which $13.03 billion has been funded. We have committed $3.06
billion and funded $2.33 billion of these amounts. Our clients, including
pension plans, endowments, charitable institutions and high-net-worth
individuals, have provided the remainder.

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.
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 1999, our corporate merchant banking
funds had total committed capital of $9.50 billion. Other funds, with total
committed capital of $7.77 billion as of November 1999, invest in real estate
operating companies and debt and equity interests in real estate assets.

Merchant banking activities generate three revenue streams. First, we
receive 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 are included in our Asset Management revenues. Second,
after that fund has achieved a minimum return for fund investors, we receive an
increased share of the fund's income and gains that is a percentage, typically
20%, of the capital appreciation and gains from the fund's investments. Revenues
from the increased share of the funds' income and gains are included in
Commissions. Finally, Goldman Sachs, 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 the Trading and Principal Investments
component of Global Capital Markets.

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 our
matched book businesses.

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<PAGE> 51

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 also provide
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.

Securities lending activities principally involve the borrowing and lending
of equity securities to cover customer and Goldman Sachs' short sales and to
finance Goldman Sachs' long positions. In addition, we are an active participant
in the securities lending broker-to-broker business and the third-party agency
lending business.

COMMISSIONS

Goldman Sachs generates commissions by executing agency transactions on
major stock and futures exchanges worldwide. We effect 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 includes the increased share of
income and gains from merchant banking funds as well as commissions earned from
brokerage transactions. For a discussion regarding our increased share of the
income and gains from our merchant banking funds, see "-- Merchant Banking"
above.

In anticipation of continued growth in electronic connectivity and on-line
trading, Goldman Sachs has made strategic investments in alternative trading
systems to gain experience and participate in the development of this market.
See "-- Internet Strategy" below for a further discussion of these investments,
and see "Risk Factors -- The Financial Services Industry Is Intensely
Competitive and Rapidly Consolidating -- Our Revenues May Decline Due to
Competition from Alternative Trading Systems" for a discussion of the
competitive risks posed by alternative trading systems generally.

GLOBAL INVESTMENT RESEARCH

Our 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, we have committed
resources on a global scale to develop a leading position in the industry for
our investment research products.

Global Investment Research employs a team approach that as of November 1999
provided research coverage of approximately 2,400 companies worldwide, 52
economies and 26 stock markets. This is accomplished by four groups:

- - the Commodities Research group, which provides research on the global
commodity markets;

- - 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;

- - 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; and

- - the Portfolio Strategy group, which forecasts equity market returns and
provides recommendations on both as set allocation and industry
representation.

INTERNET STRATEGY

We believe that Internet technology and electronic commerce will, over
time, change the ways that securities and other financial products are traded
and distributed, creating both opportunities and challenges for our businesses.
In response, we have established a program of internal development and external
investment.

Internally, we are extending our global electronic trading and information
distribution

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<PAGE> 52

capabilities to our clients via the Internet. These capabilities cover many of
our fixed income, currency, commodity, equities and mutual fund products in
markets around the world. We are also using the Internet to improve the ease and
quality of communication with our institutional and high-net-worth clients. For
example, investors have on-line access to our investment research, mutual fund
data and valuation models. In addition, our high-net-worth clients are
increasingly accessing their portfolio information over the Internet. We have
also recently established GS-Online(SM), which, in conjunction with Goldman,
Sachs & Co., acts as an underwriter of securities offerings via the Internet and
other electronic means. GS-Online(SM) will deal initially only with other
underwriters and syndicate members and not with members of the public.

Recently, we established an internal working group to focus primarily on
utilizing the Internet to enhance and support our wealth management business.
Externally, we have invested in electronic commerce concerns such as Bridge
Information Systems, Inc., TradeWeb LLC, Archipelago, L.L.C., The BRASS Utility,
L.L.C., OptiMark Technologies, Inc. and Wit Capital Group, Inc. Through these
investments, we gain an increased understanding of business developments and
opportunities in this emerging sector. For a discussion of how Goldman Sachs
could be adversely affected by these developments, see "Risk Factors -- The
Financial Services Industry Is Intensely Competitive and Rapidly
Consolidating -- Our Revenues May Decline Due to Competition from Alternative
Trading Systems".

INFORMATION TECHNOLOGY

Technology is fundamental to our overall business strategy. Goldman Sachs
is committed to the ongoing development, maintenance and use of technology
throughout the organization. We have 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 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 our 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 our
risk into its underlying exposures, 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 our 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 this data, allows for quick
analysis at the level of individual trades and interacts with other Goldman
Sachs systems.

Technology has also been a significant factor in improving the overall
efficiency of many areas of Goldman Sachs. By automating many trading procedures
and operational and accounting processes, we have

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<PAGE> 53

substantially increased our efficiency and accuracy.

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. We strive to maintain a work environment
that fosters professionalism, excellence, diversity and cooperation among our
employees worldwide.

Instilling the Goldman Sachs culture in all employees is a continuous
process, in which training plays an important part. All employees are offered
the opportunity to participate in education and periodic seminars that we
sponsor at various locations throughout the world. Another important part of
instilling the Goldman Sachs culture is our employee review process. Employees
are reviewed by supervisors, co-workers and employees they supervise in a
360-degree review process that is integral to our team approach.

As of November 1999, we had 15,361 employees, which excludes employees of
Goldman Sachs' two property management subsidiaries. Substantially all of the
costs of these property management employees are reimbursed to Goldman Sachs by
the real estate investment funds to which these subsidiaries provide property
management services.

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 others on a
regional, product or niche basis. Our competition is based on a number of
factors, including transaction execution, our products and services, innovation,
reputation and price.

We also face intense competition in attracting and retaining 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.

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.

Recently enacted federal financial modernization legislation significantly
expands the activities permissible for firms affiliated with a U.S. bank. The
legislation, among other things, enables U.S. banks and insurance firms to
affiliate, facilitates affiliations between U.S. banks and securities firms, and
expands the permissible principal investing activities of U.S. banking
organizations. See "Risk Factors -- The Financial Services Industry Is Intensely
Competitive and Rapidly Consolidating -- We Face Increased Competition Due to a
Trend Toward Consolidation" for a discussion of the potential impact of this
legislation.

The 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.

We believe that some of our most significant challenges and opportunities
will arise outside the United States. In order to take

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advantage of these opportunities, we will have to compete successfully with
financial institutions based in important non-U.S. markets, particularly in
Europe. Some of these institutions are larger and better capitalized, and have a
stronger local presence and a longer operating history in these markets.

We have experienced intense price competition in some of our 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 through other alternative trading
systems may increase the pressure on trading commissions. It appears that this
trend toward alternative trading systems will continue and probably accelerate.
Similarly, underwriting spreads in certain privatizations have been subject to
considerable pressure. 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, as a participant in the securities and commodity futures and
options industries, is 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. They are not, however, charged 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. Goldman, Sachs & 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. Self-regulatory organizations,
such as the Chicago Board of Trade, the NYSE and the NASD, adopt rules and
examine broker-dealers such as Goldman, Sachs & Co. In addition, state
securities and other regulators also have regulatory or oversight authority over
Goldman, Sachs & Co. Similarly, our businesses are also subject to regulation by
various non-U.S. governmental and regulatory bodies and self-regulatory
authorities in virtually all countries where we have 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, our
subsidiaries have been subject to investigations and proceedings, and sanctions
have been imposed for infractions of various regulations relating to our
activities, none of which has had a material adverse effect on us or our
businesses.

The commodity futures and options industry in the United States is subject
to regulation under the Commodity Exchange Act, as amended. The Commodity
Futures Trading Commission is the federal agency charged with the administration
of the Commodity Exchange Act and the regulations thereunder. Goldman, Sachs &
Co. is registered with the Commodity Futures Trading Commission as a futures
commission merchant, commodity pool operator and commodity trading advisor.

As a registered broker-dealer and member of various self-regulatory
organizations,
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Goldman, Sachs & Co. is subject to the SEC's uniform net capital rule, Rule
15c3-1. This rule specifies the minimum level of net capital a broker-dealer
must maintain and also requires that part of its assets be kept in relatively
liquid form. Goldman, Sachs & Co. is also subject to the net capital
requirements of the Commodity Futures Trading Commission and various securities
and commodity exchanges. See Note 12 to the consolidated financial statements
included elsewhere in this prospectus, for a discussion of our 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 SEC's 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 its uniform net capital rule
and related regulations that permit the registration of over-the-counter
derivatives dealers as broker-dealers. An over-the-counter 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. We have established Goldman Sachs Financial
Markets, L.P. and registered this company with the SEC as an over-the-counter
derivatives dealer to conduct in a more capital-efficient manner certain
over-the-counter derivative businesses previously conducted in other affiliates.

Goldman Sachs is an active participant in the international fixed income
and equity markets. Many of our affiliates that participate in those markets are
subject to comprehensive regulations that include some form of capital adequacy
rule and other customer protection rules. Goldman Sachs provides investment
services in and from the United Kingdom under a regulatory regime that is
undergoing comprehensive restructuring aimed at implementing the Financial
Services Authority as the United Kingdom's unified financial services regulator.
The relevant Goldman Sachs entities in London are at present regulated by the
Securities and Futures Authority Limited in respect of their investment banking,
individual asset management, brokerage and principal trading activities, and the
Investment Management Regulatory Organization in respect of their institutional
asset management and fund management activities. Some 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 during 2000, the responsibilities of the Securities and Futures
Authority Limited and Investment Management Regulatory Organization will be
taken over by the Financial Services Authority. 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 Commodity Futures Trading
Commission rules. European Union directives also permit local regulation in each
jurisdiction, including those in which we operate, to be more restrictive than
the requirements of such directives and these local requirements can result in
certain competitive disadvantages to Goldman Sachs. In addition, 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 in Japan, the Securities and Futures Commission in Hong
Kong, the Bundesbank in Germany, as well as French and Swiss banking
authorities, among others, regulate various of our subsidiaries and also have
capital standards and other requirements comparable to the rules of the SEC.

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Compliance with net capital requirements of these and other regulators
could limit those operations of our 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 our ability to withdraw
capital from our regulated subsidiaries, which in turn could limit our ability
to repay debt or pay dividends on our common stock.

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. Additionally, we have a 15-year lease for
approximately 605,000 square feet at 180 Maiden Lane in New York, New York, that
expires in March 2014. In total, we lease over 3.6 million square feet in the
New York area. We have additional offices in the United States and elsewhere in
the Americas. Together, these offices comprise approximately 680,000 square feet
of leased space.

In the first quarter of 2000, we executed a contract to purchase
approximately six acres of unimproved land in Jersey City, New Jersey. We expect
to develop this land to complement our offices in lower Manhattan. The initial
phase of development is expected to include approximately 1.4 million usable
square feet of office space, with occupancy planned for early 2003.

We also have offices in Europe, Asia, Africa and Australia. In Europe, we
have offices that totaled approximately 788,000 square feet as of the end of
January 2000. Our largest presence in Europe is in London, where we leased
approximately 609,000 square feet through various leases as of the end of
January 2000, with the principal one for Peterborough Court expiring in 2016. An
additional 453,000 square feet of leased space in London is expected to be
occupied during 2000 and 2001.

In Asia, we have offices that total approximately 563,000 square feet. Our
largest offices in this region are in Tokyo and Hong Kong. In Tokyo, we
currently lease approximately 234,000 square feet under renewable leases with
current terms extending, in some cases, to June 2005. In Hong Kong, we currently
lease approximately 222,000 square feet under a lease that expires in 2012.
There are significant expansion efforts underway in Tokyo and Singapore.

Our space requirements have increased significantly over the last several
years. Currently, Goldman Sachs is at or near capacity at most of its locations.
As a result, we have been actively leasing additional space to support our
anticipated growth. Based on our progress to date, we believe that we will be
able to acquire additional space to meet our anticipated needs.

LEGAL PROCEEDINGS

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

Goldman, Sachs & Co. has been named as a defendant in a purported class
action lawsuit commenced on December 6, 1996 and pending in the U.S. District
Court for the District of New Jersey. This lawsuit was brought on behalf of
purchasers of common stock of MobileMedia Corporation in an underwritten
offering in 1995 and purchasers of senior subordinated notes of MobileMedia
Communications Inc. in a concurrent underwritten offering. Defendants are
MobileMedia Corporation, certain of its officers and direc-

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tors, and the lead underwriters, including Goldman, Sachs & Co. MobileMedia
Corporation is currently reorganizing in bankruptcy.

Goldman, Sachs & Co. underwrote 2,242,500 shares of common stock, for a
total price of approximately $53 million, and Goldman Sachs International
underwrote 718,750 shares, for a total price of approximately $17 million.
Goldman, Sachs & 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 Corporation's bankruptcy, the
action against it has been stayed. Defendants' motion to dismiss was denied in
October 1998.

The parties have entered into a stipulation of settlement, which was
approved by the court on February 7, 2000, but the time to appeal has yet to
expire.

ANTITRUST MATTERS

Goldman, Sachs & Co. is one of numerous financial services companies that
have been named as defendants in certain purported class actions brought in the
U.S. District Court for the Southern District of New York 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 on August 21, 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. On May 7, 1999, the defendants moved to dismiss the amended
complaint.

Several other actions were commenced, beginning on November 3, 1998, that
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. On March 15,
1999, the plaintiffs filed a consolidated amended complaint. The defendants
moved to dismiss the consolidated amended complaint on April 29, 1999.

Goldman, Sachs & Co. received a Civil Investigative Demand on April 29,
1999 from the U.S. Department of Justice requesting information with respect to
its investigation of an alleged conspiracy among securities underwriters to fix
underwriting fees.

Hull Trading Co. L.L.C., an affiliate of The Goldman Sachs Group, Inc., is
one of numerous market makers in listed equity options which have been named as
defendants, together with five national securities exchanges, in a purported
class action brought in the U.S. District Court for the Southern District of New
York on behalf of persons who purchased or sold listed equity options. The
consolidated class action complaint, filed on October 4, 1999 (which
consolidated certain previously pending actions and added Hull Trading Co.
L.L.C. and other market makers as defendants), generally alleges that the
defendants engaged in a conspiracy to preclude the multiple listing of certain
equity options on the exchanges and seeks treble damages under the antitrust
laws as well as injunctive relief. On January 28, 2000, the defendants moved to
dismiss the consolidated class action complaint.

ROCKEFELLER CENTER PROPERTIES, INC. LITIGATION

Several former shareholders of Rockefeller Center Properties, Inc. brought
purported class actions in the U.S. District Court for the District of Delaware
and the Delaware Court of Chancery arising from the acquisition of Rockefeller
Center Properties, Inc. by an investor group in July 1996. The defendants in the
actions include, among others, Goldman, Sachs & Co., Whitehall Real Estate
Partnership V, a fund advised by Goldman, Sachs & Co., a Goldman, Sachs & Co.

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managing director and other members of the investor group. The federal court
actions, which have since been consolidated, were filed beginning on November
15, 1996, and the state court action was filed on May 29, 1998.

The complaints generally allege that the proxy statement disseminated to
former Rockefeller Center Properties, Inc. 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 district court granted summary
judgment dismissing all the claims in the federal action. The plaintiffs
appealed those rulings.

On July 19, 1999, the U.S. Court of Appeals for the Third Circuit rendered
its decision affirming in part and vacating in part the lower court's entry of
summary judgment dismissing the action. With respect to the claim as to which
summary judgment was vacated, the appellate court held that the district court
had committed a procedural error in converting the defendants' motion to dismiss
into a motion for summary judgment and remanded for the district court to
reconsider that claim under appropriate standards applicable to motions to
dismiss. Plaintiffs have since sought leave to amend the complaint as to the
remanded claim. The defendants have moved to dismiss the remanded claim and are
opposing the plaintiffs' motion to amend it further.

The state action has been stayed pending disposition of the federal action.

REICHHOLD CHEMICALS LITIGATION

Reichhold Chemicals, Inc. and Reichhold Norway ASA brought a claim on March
30, 1998 in the Commercial Court in London against Goldman Sachs International
in relation to the plaintiffs' 1997 purchase of the polymer division of one of
Goldman Sachs International's Norwegian clients, Jotun A/S. The plaintiffs claim
that they overpaid by $40 million based upon misrepresentations concerning the
financial performance of the polymer division.

In November 1998, the Commercial Court granted Goldman Sachs
International's application for a stay of the action pending the outcome of
arbitration proceedings between Reichhold Chemicals, Inc. and Reichhold Norway
ASA, on the one hand, and Jotun A/S in Norway, on the other. That stay order was
upheld by an appellate court on June 28, 1999.

MATTERS RELATING TO MUNICIPAL SECURITIES

Goldman, Sachs & 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 Goldman,
Sachs & Co. to certain municipal bond issuers in connection with the advanced
refunding of municipal securities. Goldman, Sachs & Co. understands that certain
municipal bond issuers to which Goldman, Sachs & 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 Goldman, Sachs & 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.

Goldman, Sachs & Co. is also one of many municipal underwriting firms that
have been named as defendants in a purported class action brought on November
24, 1998 in the U.S. District Court for the Middle District of Florida 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
amended complaint alleges that the securities were excessively "marked up" in
violation of the Investment Advisers Act and

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Florida law, and that the defendants violated the federal antitrust laws in
connection with the prices at which escrow securities were sold to municipal
issuers. The complaint seeks to recover the difference between the actual and
alleged "fair" prices of the escrow securities and to treble the alleged damages
with respect to the antitrust claim. On October 29, 1999, the defendants moved
to dismiss the complaint.

AMF SECURITIES LITIGATION

The Goldman Sachs Group, L.P., Goldman, Sachs & Co. and a Goldman, Sachs &
Co. managing director have been named as defendants in several purported class
action lawsuits beginning on April 27, 1999 in the U.S. District Court for the
Southern District of New York. The lawsuits, which have been consolidated, were
brought on behalf of purchasers of stock of AMF Bowling, Inc. in an underwritten
initial public offering of 15,525,000 shares of common stock in November 1997 at
a price of $19.50 per share. Defendants are AMF Bowling, Inc., certain officers
and directors of AMF Bowling, Inc. (including the Goldman, Sachs & Co. managing
director), and the lead underwriters of the offering (including Goldman, Sachs &
Co.). The consolidated amended complaint alleges violations of the disclosure
requirements of the federal securities laws and seeks compensatory damages
and/or rescission. The complaint asserts that The Goldman Sachs Group, L.P. and
the Goldman, Sachs & Co. managing director are liable as controlling persons
under the federal securities laws because certain funds managed by Goldman Sachs
owned a majority of the outstanding common stock of AMF Bowling, Inc. and the
managing director served as its chairman at the time of the offering. On
December 22, 1999, the defendants moved to dismiss the complaint.

IRIDIUM SECURITIES LITIGATION

Goldman, Sachs & Co. has been named as a defendant in two purported class
action lawsuits commenced, beginning on May 26, 1999, in the U.S. District Court
for the District of Columbia. These lawsuits were brought on behalf of
purchasers of Class A common stock of Iridium World Communications, Ltd. in a
January 1999 underwritten secondary offering of 7,500,000 shares of Class A
common stock at a price of $33.40 per share, as well as in the secondary market.
The defendants in the actions include Iridium, certain of its officers and
directors, Motorola, Inc. (an investor in Iridium) and the lead underwriters in
the offering, including Goldman, Sachs & Co.

The complaints in both actions allege violations of the disclosure
requirements of the federal securities laws and seek compensatory and/or
rescissory damages. Goldman, Sachs & Co. underwrote 996,500 shares of common
stock and Goldman Sachs International underwrote 320,625 shares of common stock
for a total offering price of approximately $44 million.

On August 13, 1999, Iridium World Communications, Ltd. filed for protection
under the U.S. bankruptcy laws.

HUD LITIGATION

In September 1999, Goldman, Sachs & Co. was notified by the civil division
of the United States Attorney's Office for the District of Columbia that it is a
named defendant, along with other unidentified entities, in a civil action
brought by a private party in the U.S. District Court for the District of
Columbia under the qui tam provisions of the federal False Claims Act in
connection with certain auctions of competitive loans on behalf of the U.S.
Department of Housing and Urban Development. Goldman, Sachs & Co. has not been
provided with the complaint, which has been filed under seal, but has been
informed that the complaint alleges, among other things, that (i) Goldman, Sachs
& Co. and its bidding partners improperly directed approximately $4.7 billion of
government-owned notes for prices below that which would have been obtained in
full and fair competition, (ii) the U.S. Department of Housing and Urban
Development's financial advisor in connection with such auctions provided
Goldman, Sachs & Co. and its bidding partners with information not available to
competing bidders relating to the details of competing bids, the value of the
assets being sold and the

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structure of the sales, and (iii) in one instance, Goldman, Sachs & Co. and its
bidding partners were awarded assets despite not being the highest bidder.
Pursuant to the False Claims Act, the complaint remains under seal pending the
government's investigation and consideration as to whether to intervene in the
action. The complaint does not state a monetary amount of damages. Under the
False Claims Act, any damage award could be trebled.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is information concerning our directors and executive
officers:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Henry M. Paulson, Jr. 53 Director, Chairman and Chief Executive Officer
Robert J. Hurst 54 Director and Vice Chairman
John A. Thain 44 Director, President and Co-Chief Operating Officer
John L. Thornton 46 Director, President and Co-Chief Operating Officer
Sir John Browne 51 Director
John H. Bryan 63 Director
James A. Johnson 56 Director
Ruth J. Simmons 54 Director
John L. Weinberg 75 Director
Robert J. Katz 52 General Counsel and Executive Vice President
Gregory K. Palm 51 General Counsel and Executive Vice President
Leslie C. Tortora 43 Chief Information Officer and Executive Vice President
David A. Viniar 44 Chief Financial Officer and Executive Vice President
Barry L. Zubrow 46 Chief Administrative Officer and Executive Vice
President
</TABLE>

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

Executive officers are appointed by and serve at the pleasure of our board
of directors. A brief biography of each director and executive officer follows.

Mr. Paulson has been a director of The Goldman Sachs Group, Inc. since
August 1998, and has been its Chairman and Chief Executive Officer since May
1999. He was Co-Chairman and Chief Executive Officer or Co-Chief Executive
Officer of The Goldman Sachs Group, L.P. from June 1998 to May 1999 and served
as Chief Operating Officer from December 1994 to June 1998. From December 1990
to November 1994, he was Co-Head of Investment Banking. Mr. Paulson is a member
of the Board of Directors of the New York Stock Exchange. He is also Chairman of
the Board of Directors of the Peregrine Fund, Inc. and Co-Chairman of the
Asia/Pacific Council of The Nature Conservancy. Mr. Paulson also serves on the
Advisory Board of the J.L. Kellogg Graduate School of Management at Northwestern
University, is a member of the Board of Directors of the Associates of Harvard
Business School and is Chairman of the Advisory Board of the Tsinghua University
School of Economics and Management.

Mr. Hurst has been a director of The Goldman Sachs Group, Inc. since August
1998, and has been its Vice Chairman since May 1999. He was Vice Chairman of The
Goldman Sachs Group, L.P. from February 1997 to May 1999 and served as Head or
Co-Head of Investment Banking from December 1990 to November 1999. He is also a
director of VF Corporation and IDB Holding Corporation Ltd. Mr. Hurst is a
member of the Board of Overseers of the Wharton School. He is also a member of
the Council on Foreign Relations and a member of the Committee for Economic
Development. He is Chairman of the Board of the Jewish Museum and a Trustee and
Vice President of the Whitney Museum of American Art.

Mr. Thain has been a director of The Goldman Sachs Group, Inc. since August
1998, and has been its President and Co-Chief Operating Officer since May 1999.
He was President of The Goldman Sachs Group, L.P. from March 1999 to May 1999
and Co-Chief Operating Officer from January 1999 to May 1999. From December 1994
to March 1999, he served as Chief Financial Officer and Head of Operations,
Technology and Finance, the predecessor to the current Operations, Finance &
Resources and Information Technology divisions. From July 1995 to September
1997, he was also Co-Chief Executive Officer for European Operations. In 1990,

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Mr. Thain transferred from the Fixed Income Division, where he established and
served as Co-Head of the Mortgage Securities Department, to Operations,
Technology and Finance to assume responsibility for Controllers and Treasury.
Mr. Thain is also a member of the Federal Reserve Bank of New York's
International Capital Markets Advisory Committee, a member of the INSEAD -- U.S.
National Advisory Board, and a member of the Dean's Advisory
Council -- MIT/Sloan School of Management.

Mr. Thornton has been a director of The Goldman Sachs Group, Inc. since
August 1998, and has been its President and Co-Chief Operating Officer since May
1999. He was President of The Goldman Sachs Group, L.P. from March 1999 to May
1999 and Co-Chief Operating Officer from January 1999 to May 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
Holdings PLC and the Pacific Century Group, Inc. In addition, he is a member of
the Council on Foreign Relations, the Hotchkiss School Board of Trustees, the
Asia Society Board of Trustees, the Yale University Investment Committee and the
Advisory Board of the Yale School of Management.

Sir John Browne has been a director of The Goldman Sachs Group, Inc. since
May 1999. He has been Group Chief Executive of BP Amoco p.l.c. since January
1999. He was Group Chief Executive of The British Petroleum Company from 1995 to
1999, having served as a Managing Director since 1991. Sir John is also a
director of the Intel Corporation, a member of the supervisory board of
DaimlerChrysler AG and a trustee of the British Museum.

Mr. Bryan has been a director of The Goldman Sachs Group, Inc. since
November 1999. He has been Chairman of the Board and Chief Executive Officer of
Sara Lee Corporation since 1976. He is a director of Bank One Corporation, BP
Amoco p.l.c. and General Motors Corporation. Mr. Bryan is a past Chairman and a
director of the Grocery Manufacturers of America, Inc., a member of The Business
Council and the Business Roundtable and a director and past national Chairman of
the Business Committee for the Arts. He is a past Chairman of Catalyst and a
trustee of the University of Chicago, Chairman of the Board of Trustees of The
Art Institute of Chicago and former Chairman of the Chicago Council on Foreign
Relations.

Mr. Johnson has been a director of The Goldman Sachs Group, Inc. since May
1999. Mr. Johnson is Chairman and Chief Executive Officer of Johnson Capital
Partners, a private investment company. From January through December 1999, he
was Chairman of the Board of Directors of Fannie Mae. He was Chairman and Chief
Executive Officer of Fannie Mae from February 1991 through December 1998. Mr.
Johnson is also a director of the Cummins Engine Company, Dayton Hudson
Corporation, United Health Group and Kaufman and Broad Home Corporation,
Chairman of the John F. Kennedy Center for the Performing Arts and Chairman of
the Board of Trustees of The Brookings Institution.

Dr. Simmons has been a director of The Goldman Sachs Group, Inc. since
January 2000. She has been President since 1995 of Smith College, a private
liberal arts college for women located in Northampton, Massachusetts. She was
Vice Provost of Princeton University from 1992 to 1995 and Provost of Spelman
College from 1990 to 1991. Dr. Simmons is a director of Metropolitan Life
Insurance Company, Pfizer Inc. and Texas Instruments Inc., a member of The
Conference Board, a fellow of the American Academy of Arts and Sciences and a
member of the Council on Foreign Relations. She is a member of the Advisory
Council to the Bill and Melinda Gates Millennium Scholars Foundation.

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Mr. Weinberg has been a director of The Goldman Sachs Group, Inc. since May
1999. He was Senior Chairman of The Goldman Sachs Group, L.P. from December 1990
to May 1999. From 1984 to 1990, he was Senior Partner and Chairman of Goldman,
Sachs & Co. and (from its inception in May 1989) of The Goldman Sachs Group,
L.P. From 1976 to 1984, he served both as Senior Partner and Co-Chairman of
Goldman, Sachs & Co. Mr. Weinberg is also a director of Knight-Ridder, Inc.,
Providian Financial Corp. and Tricon Global Restaurants, Inc. He is a member of
The Conference Board, the Council on Foreign Relations and The Business Council,
and is a fellow of the American Academy of Arts and Sciences. Mr. Weinberg is a
Life Governor of The New York-Presbyterian Hospital.

Mr. Katz has been General Counsel, Secretary to the Board of Directors and
an Executive Vice President of The Goldman Sachs Group, Inc. since May 1999. He
was General Counsel of The Goldman Sachs Group, L.P. or its predecessor from
1988 to May 1999. From 1980 to 1988, Mr. Katz was a partner in Sullivan &
Cromwell. Mr. Katz is Chairman-elect of the Board of Trustees of Horace Mann
School, a member of the University Council and of the College of Arts and
Sciences, Advisory Council of Cornell University, a Trustee of Prep for Prep, a
Trustee emeritus of the Allen-Stevenson School and a member of the National
Campaign Board of the Shoah Foundation.

Mr. Palm has been General Counsel and an Executive Vice President of The
Goldman Sachs Group, Inc. since May 1999. He was General Counsel of The Goldman
Sachs Group, L.P. from 1992 to May 1999. He has senior oversight responsibility
for Legal, Compliance and Management Controls, and is Co-Chairman of the Global
Compliance and Control Committee. Mr. Palm also is a member of the American Law
Institute and the Legal Advisory Committee of the New York Stock Exchange. From
1982 to 1992, Mr. Palm was a partner in Sullivan & Cromwell.

Ms. Tortora has been Chief Information Officer and an Executive Vice
President of The Goldman Sachs Group, Inc. since May 1999 and has been Head of
Information Technology since March 1999. She was Chief Information Officer of
The Goldman Sachs Group, L.P. from March 1999 to May 1999. She headed Goldman
Sachs' global technology efforts from 1994 to March 1999. Prior to joining
Goldman Sachs in 1994, she was a director of Technical Services at General
Electric Company.

Mr. Viniar has been Chief Financial Officer and an Executive Vice President
of The Goldman Sachs Group, Inc. since May 1999 and has been Co-Head of
Operations, Finance and Resources since March 1999. He was Chief Financial
Officer of The Goldman Sachs Group, L.P. from March 1999 to May 1999. From July
1998 until March 1999, he was Deputy Chief Financial Officer and from 1994 until
July 1998, 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. Viniar is a member of the Board of Trustees of Children's Aid and Family
Services, and serves on the Board of Trustees of Union College.

Mr. Zubrow has been Chief Administrative Officer and an Executive Vice
President of The Goldman Sachs Group, Inc. since May 1999 and has been Co-Head
of Operations, Finance and Resources since March 1999. He was Chief
Administrative Officer of The Goldman Sachs Group, L.P. from March 1999 to May
1999. From 1994 until then, he was 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. Mr. Zubrow is a
Vice-Chairman of the Board of Managers of Haverford College. He is also a member
of the Board of Directors of the Juvenile Law Center and a member of the
Visiting Committee of The Law School of the University of Chicago.

There are no family relationships among any directors or executive officers
of Goldman Sachs.

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INFORMATION REGARDING THE BOARD OF DIRECTORS

Our charter provides 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
and Dr. Simmons are members of Class I, Sir John Browne and Messrs. Johnson and
John L. Weinberg are members of Class II and Messrs. Bryan, Hurst and Paulson
are 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.

Our board of directors meets at least quarterly.

DIRECTOR COMPENSATION

Directors who are not employees of or advisors to Goldman Sachs or an
affiliate receive the annual retainer and committee and meeting fees as follows:

<TABLE>
<S> <C>
Annual Retainer................... $35,000
Committee Chair (in addition to
Committee Member Fee)........... $10,000
Committee Member.................. $15,000
Attendance at Board or Committee
Meeting......................... $ 1,000
Annual Restricted Stock Unit Grant
(beginning in 2000) (number of
units).......................... 2,000
</TABLE>

For the 1999 calendar year, the annual retainer was payable in our common
stock and the committee fees were payable at the election of the non-employee
director in either cash or common stock; all of the non-employee directors
elected to receive common stock. Beginning with the 2000 calendar year, the
annual retainer and the committee fees will be paid in fully vested restricted
stock units issued under our 1999 stock incentive plan, based upon the closing
sales price of the common stock as of the dates on which the annual retainer or
committee fees would otherwise be paid, unless we elect to pay cash instead. The
meeting fees are payable in cash. Each non-employee director was also awarded an
initial grant of 3,000 fully vested restricted stock units under our 1999 stock
incentive plan upon becoming a director, and, as indicated in the table above,
has been awarded an additional grant of 2,000 such restricted stock units in
2000. Restricted stock units awarded to non-employee directors generally will
provide for delivery of the underlying shares of common stock on the last
business day in May in the year following the non-employee director's retirement
from the board.

Directors who are also employees of or advisors to Goldman Sachs or an
affiliate receive no compensation for serving as a director of Goldman Sachs.

Mr. John L. Weinberg provides senior advisory services to Goldman Sachs,
receives annual compensation of $2 million and participates in various employee
benefit plans. The agreement under which Mr. Weinberg performs these services
expires November 24, 2000, unless earlier terminated on 90-days' notice.

COMMITTEES OF THE BOARD OF DIRECTORS

Our board of directors has an Audit Committee, composed of directors who
are not employed by Goldman Sachs or affiliated with management. Sir John
Browne, Messrs. John H. Bryan and James A. Johnson, and Dr. Simmons are the
current members of our Audit Committee. Our Audit Committee, chaired by Sir John
Browne, is responsible for recommending for approval by our board of directors a
firm of independent auditors whose duty it is to audit our consolidated
financial statements for the fiscal year in which they are appointed. The Audit
Committee, among other things, also monitors the activities of our internal
auditors and our independent accountants, reviews the results

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and scope of the audit services provided by our independent auditors and reviews
the results of the internal and external audit work to assess the adequacy and
appropriateness of our financial and accounting controls.

Our board of directors also has a Compensation Committee, composed of
directors who are not employed by Goldman Sachs or affiliated with management.
Sir John Browne, Messrs. John H. Bryan and James A. Johnson, and Dr. Simmons are
the current members of our Compensation Committee. Our Compensation Committee,
chaired by Mr. Johnson, is responsible for reviewing and approving compensation
levels for all of our senior executives. The Compensation Committee is also
responsible for overseeing the committees appointed by our board of directors to
administer our 1999 stock incentive plan, our partner compensation plan and our
defined contribution plan.

Our board of directors does not have a nominating committee.

Our board of directors may from time to time establish other committees to
facilitate the management of Goldman Sachs.
EXECUTIVE COMPENSATION

The following table sets forth for the period May 7, 1999, the date of
completion of our initial public offering, through the end of fiscal 1999, the
compensation for such period for Goldman Sachs' chief executive officer and for
each of the five most highly compensated executive officers of Goldman Sachs,
other than the chief executive officer, serving as executive officers at the end
of fiscal 1999. These six persons are referred to collectively as the "named
executive officers".

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION Awards(c)
----------------------- ----------------
RESTRICTED STOCK ALL OTHER
EXECUTIVE YEAR SALARY(B) BONUS UNIT AWARDS Compensation(d)
- --------- ---- --------- ----- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Henry M. Paulson, Jr......... 1999 $300,000 $16,062,153 $8,828,701 $ 8,332
Director, Chairman and 1998(a)
Chief Executive Officer

John A. Thain................ 1999 $300,000 $13,755,986 $7,513,538 $20,077
Director, President and 1998(a)
Co-Chief Operating Officer

John L. Thornton............. 1999 $300,000 $13,755,986 $7,513,538 $20,119
Director, President and 1998(a)
Co-Chief Operating Officer

Robert J. Hurst.............. 1999 $300,000 $12,248,193 $6,644,391 $11,778
Director and Vice Chairman 1998(a)

Leslie C. Tortora............ 1999 $300,000 $ 7,347,523 $3,840,035 $20,077
Chief Information Officer

David A. Viniar.............. 1999 $300,000 $ 7,347,523 $3,840,035 $20,077
Chief Financial Officer
</TABLE>

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

(a) We previously reported aggregate compensation for the fiscal year ended
November 27, 1998 for the following named executive officers: Mr.
Paulson -- $12,700,000; Mr. Hurst -- $11,300,000; Mr. Thain -- $11,200,000;
and Mr. Thornton -- $9,900,000. We also reported aggregate compensation of
$12,800,000 for fiscal 1998 for Jon S. Corzine, who served as Co-Chairman
and Co-Chief Executive Officer of The Goldman Sachs Group, L.P. during
fiscal 1998 to January 1999. This compensation did not include that portion
of each such person's total partnership return from The Goldman Sachs Group,

(Footnotes continued on following page)

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<PAGE> 66

L.P. in fiscal 1998 attributable to a return on his share of invested
capital or to his share of the income from investments made by The Goldman
Sachs Group, L.P. in prior years that was allocated to the individuals who
were partners in those years. The return on invested capital for each such
person was determined using a rate of 12%, the actual fixed rate of return
that was paid in fiscal 1998 to The Goldman Sachs Group, L.P.'s retired
limited partners on their long-term capital.

(b) Salary for a full fiscal year for each named executive officer is $600,000.
The salary for fiscal 1999 has been adjusted to reflect the salary actually
paid to the named executive officers for the period that Goldman Sachs was a
public company in fiscal 1999.

(c) The value of the restricted stock units shown in the table was determined by
multiplying the number of restricted stock units awarded to each named
executive officer by the closing price-per-share of common stock on the New
York Stock Exchange on November 26, 1999, the date the restricted stock
units were granted ($77.3125). The number of restricted stock units awarded
to each named executive officer was determined by dividing a dollar amount
determined for each named executive officer pursuant to a formula based on
the named executive officer's total compensation by the average of the
closing price-per-share of the common stock on the New York Stock Exchange
over the ten trading-day period up to and including the last day of the
fiscal year ($79.21). The dollar amounts on which the awards of restricted
stock units to the named executive officers were based and the number of
restricted stock units awarded were: Mr. Paulson -- $9,045,374 (114,195
restricted stock units); Mr. Thain -- $7,697,921 (97,184 restricted stock
units); Mr. Thornton -- $7,697,921 (97,184 restricted stock units); Mr.
Hurst -- $6,807,453 (85,942 restricted stock units); Ms.
Tortora -- $3,934,220 (49,669 restricted stock units); Mr.
Viniar -- $3,934,220 (49,669 restricted stock units). Each restricted stock
unit generally constitutes an unfunded, unsecured promise to deliver a share
of common stock in January 2004 (although delivery may be accelerated in
certain circumstances). 50% of the restricted stock units granted to the
named executive officers were vested when they were granted and the
remaining 50% will vest ratably over the next four years (although vesting
may be accelerated in certain circumstances). In general, non-vested
restricted stock units are forfeited on termination of employment, except in
limited cases such as retirement. All restricted stock units, whether or not
vested, may be forfeited if the holder's employment is terminated for
"cause" and in certain other circumstances. Each restricted stock unit
includes a "dividend equivalent right", pursuant to which the holder of the
restricted stock unit is entitled to receive with respect to each restricted
stock unit an amount equal to any ordinary cash dividends paid to the holder
of a share of common stock approximately when such dividends are paid to
shareholders.

(d) Includes contributions of $2,500 on behalf of each named executive officer
to The Employees' Profit Sharing Retirement Income Plan, contributions to
the Money Purchase Pension Plan and a premium paid in respect of Term Life
Insurance. The Money Purchase Pension Plan contribution and the Term Life
Insurance premium are respectively listed as follows: Mr. Paulson -- $5,646,
$186; Mr. Thain -- $17,500, $77; Mr. Thornton -- $17,500, $119; Mr.
Hurst -- $9,092, $186; Ms. Tortora -- $17,500, $77; and Mr.
Viniar -- $17,500, $77.

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

In addition to the amounts disclosed in the table above, each of Messrs.
Paulson, Hurst, Thain, Thornton and Viniar and Ms. Tortora has accrued benefits
under the employees' pension plan entitling him or her to receive annual
benefits upon retirement at age 65 of $10,533, $10,533, $7,074, $11,801, $6,906
and $3,744, 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.

Aggregate compensation paid to key employees who are not named executive
officers may exceed that paid to the named executive officers.

EMPLOYMENT, NONCOMPETITION AND
PLEDGE AGREEMENTS

In connection with our initial public offering, we entered into employment
agreements with each profit participating limited partner who continued as a
managing director and pledge agreements and agreements relating to
noncompetition and other covenants with all of the managing directors who were
profit participating limited partners, whether or not they retired, including,
in both cases, each

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<PAGE> 67

managing director who is a member of our board of directors or is an executive
officer.

The following are descriptions of the material terms of the employment,
noncompetition and pledge agreements with the managing directors who were profit
participating limited partners. You should, however, 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 each continuing managing director
who was a profit participating limited partner to devote his or her entire
working time to the business and affairs of Goldman Sachs and generally may be
terminated at any time for any reason by either that managing director or
Goldman Sachs on 90 days' prior written notice.

Goldman Sachs 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 managing director who was a profit participating
limited partner is required to protect and use "confidential information" in
accordance with the restrictions placed by Goldman Sachs on its use and
disclosure.

NONCOMPETITION. During the period ending 12 months after the date a
managing director who was a profit participating limited partner ceases to be
employed by Goldman Sachs, that managing director 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 that managing director's
activities at Goldman Sachs.

When we refer to a "competitive enterprise", we are referring to 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 we
are engaged.

NONSOLICITATION. During the period ending 18 months after the date a
managing director who was a profit participating limited partner ceases to be
employed by Goldman Sachs, that managing director may not, directly or
indirectly, in any manner:

- - solicit any client with whom that managing director worked, or whose identity
became known to him or her in connection with his or her employment with
Goldman Sachs, to transact business with a competitive enterprise or reduce or
refrain from doing any business with Goldman Sachs;

- - interfere with or damage any relationship between Goldman Sachs and any client
or prospective client; or

- - solicit any employee of Goldman Sachs to apply for, or accept employment with,
any competitive enterprise.

TRANSFER OF CLIENT RELATIONSHIPS. Each managing director who was a profit
participating limited partner is required, upon termination of his or her
employment, to take all actions and do all things reasonably requested by
Goldman Sachs during a 90-day cooperation period to maintain for Goldman Sachs
the business, goodwill and business relationships with Goldman Sachs' clients
with which he or she worked.

LIQUIDATED DAMAGES. In the case of any breach of the noncompetition or
nonsolicitation provisions prior to May 2004, the breaching managing director
will be liable for liquidated damages. The amount of liquidated damages for each
managing director who initially served on the board of directors, the Management
Committee or the Partnership Committee of Goldman Sachs is $15 million, and the
amount of liquidated damages for each other managing director who was a profit
participating limited partner is $10 mil-

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<PAGE> 68

lion. 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 damages provisions of each noncompetition agreement are
secured by a pledge of stock or other assets with an initial value equal to 100%
of the applicable liquidated damages amount.

Each pledge agreement will terminate on the earliest to occur of:

- - the death of the relevant managing director;

- - the expiration of the 24-month period following the termination of the
employment of the relevant managing director; or

- - May 2004.

NONEXCLUSIVITY AND ARBITRATION

The liquidated damages and pledge arrangements discussed above are not
exclusive of any injunctive relief that Goldman Sachs may be entitled to for a
breach of a noncompetition agreement and, after the termination of the pledge
agreement, Goldman Sachs 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 INITIAL PUBLIC OFFERING AWARDS

BACKGROUND

In connection with our initial public offering, we provided awards to our
employees and a limited number of consultants and advisors, other than managing
directors who were profit participating limited partners, in one or more of the
following forms:

- - substantially all employees received a grant of restricted stock units awarded
based on a formula with respect to an aggregate of 30,025,946 shares of common
stock;

- - certain senior employees, principally managing directors who were not profit
participating limited partners, were selected to participate in the defined
contribution plan described below, to which Goldman Sachs made an initial
irrevocable contribution of 12,555,866 shares of common stock;

- - certain employees received a grant of restricted stock units awarded on a
discretionary basis with respect to an aggregate of 33,292,869 shares of
common stock; and

- - certain employees received a grant of options to purchase shares of common
stock awarded on a discretionary basis with respect to an aggregate of
40,127,592 shares of common stock.

The restricted stock units awarded to employees on a discretionary and a
formula basis confer only the rights of a general unsecured creditor of Goldman
Sachs and no rights as a shareholder of Goldman Sachs until the common stock
underlying such award is delivered. While these restricted stock units are
outstanding, amounts equal to regular cash dividends that would have been paid
on the common stock underlying these units if the common stock had been actually
issued are paid in cash at about the same time that the dividends are paid
generally to the shareholders. These amounts are recorded as compensation
expense since the underlying shares of common stock have not been issued.

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".

See Note 10 to the consolidated financial statements included elsewhere in
this prospectus for further information regarding these awards.

CHANGE IN CONTROL

If a change in control occurs and within 18 months thereafter a grantee's
or participant's employment is terminated by Goldman Sachs other than for cause
(as defined in the applicable award agreement) or the grantee

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<PAGE> 69

or participant terminates employment for good reason (as defined in the
applicable award agreement):

- - the common stock underlying any outstanding restricted stock units will be
delivered;

- - any outstanding unexercised options to purchase shares of common stock will
become exercisable; and

- - under the defined contribution plan, any unvested portion of the common stock
attributable to the initial contribution by Goldman Sachs to the defined
contribution plan will vest and be distributed.

"Change in control" means the consummation of a business combination
involving The Goldman Sachs Group, Inc., unless immediately following the
business combination, either:

- - at least 50% of the total voting power of the surviving entity or its parent
entity, if applicable, is represented by securities of The Goldman Sachs
Group, Inc. 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) of The Goldman Sachs Group, Inc. at the time of the
board of directors' approval of the execution of the initial agreement
providing for the transaction.

THE STOCK INCENTIVE PLAN

The following is a description of the material terms of the 1999 stock
incentive plan. See also Note 10 to the consolidated financial statements
included elsewhere in this prospectus for further information regarding the
stock incentive plan. You should, however, refer to the exhibits that are a part
of the registration statement for a copy of the stock incentive plan. See
"Available Information".

TYPES OF AWARDS. The stock incentive plan provides for grants of incentive
stock options (within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended), nonqualified stock options, stock appreciation rights,
dividend equivalent rights, restricted stock, restricted stock units and other
awards. The stock incentive plan also permits the making of loans to purchase
shares of common stock.

SHARES SUBJECT TO THE STOCK INCENTIVE PLAN; OTHER LIMITATIONS ON
AWARDS. Subject to adjustment as described below, the total number of shares of
common stock of The Goldman Sachs Group, Inc. that may be issued under the stock
incentive plan through its fiscal year ending in 2002 may not exceed 300,000,000
shares and, in each fiscal year thereafter, may not exceed five percent (5%) of
the issued and outstanding shares of common stock, determined as of the last day
of the immediately preceding fiscal year, increased by the number of shares
available for awards in previous fiscal years but not covered by awards granted
in such years. These shares may be authorized but unissued common stock or
authorized and issued common stock held in Goldman Sachs' treasury or otherwise
acquired for the purposes of the stock incentive plan. If any award is forfeited
or is otherwise terminated or 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 or other 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 stock incentive
plan. No more than 200,000,000 shares of common stock may be available for
delivery in connection with the exercise of incentive stock options. The maximum
number of shares of common stock with respect to which options or stock
appreciation rights may be granted to an individual grantee in 2000 is 3,850,000
shares of common stock and, in each fiscal year that follows, is 110% of the
maximum number of shares of common stock applicable for the preceding fiscal
year.

Our Stock Incentive Plan Committee has the authority to adjust the terms of
any outstanding awards and the number of shares of common stock issuable under
the stock

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<PAGE> 70

incentive plan 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 Stock Incentive Plan Committee determines affects our
capitalization.

ELIGIBILITY. Awards may be made to any director, officer or employee of
Goldman Sachs, including any prospective employee, and to any consultant or
advisor to Goldman Sachs selected by the Stock Incentive Plan Committee.

ADMINISTRATION. The Stock Incentive Plan Committee, consisting of Messrs.
Paulson, Hurst, Thain and Thornton, administers the stock incentive plan. Our
Compensation Committee oversees the Stock Incentive Plan Committee and makes
awards to our executive officers.

The Stock Incentive Plan Committee has the authority to construe, interpret
and implement the stock incentive plan, and prescribe, amend and rescind rules
and regulations relating to the stock incentive plan. The determination of the
Stock Incentive Plan Committee on all matters relating to the stock incentive
plan or any award agreement is final and binding.

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The Stock Incentive Plan
Committee may grant incentive stock options and nonqualified stock options to
purchase shares of common stock from Goldman Sachs (at the price set forth in
the award agreement), and stock appreciation rights in such amounts, and subject
to such terms and conditions, as the Stock Incentive Plan Committee may
determine. No grantee of an option or stock appreciation right will have any of
the rights of a shareholder of The Goldman Sachs Group, Inc. with respect to
shares subject to their award until the issuance of the shares.

RESTRICTED STOCK. The Stock Incentive Plan Committee may grant restricted
shares of common stock in amounts, and subject to terms and conditions, as the
Stock Incentive Plan 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 Stock Incentive Plan Committee may include in
the award agreement.

RESTRICTED STOCK UNITS. The Stock Incentive Plan Committee may grant
restricted stock units in amounts, and subject to terms and conditions, as the
Stock Incentive Plan Committee may determine. Recipients of restricted stock
units have only the rights of a general unsecured creditor of Goldman Sachs and
no rights as a shareholder of The Goldman Sachs Group, Inc. until the common
stock underlying the restricted stock units is delivered.

OTHER EQUITY-BASED AWARDS. The Stock Incentive Plan 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 Stock Incentive Plan
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 Stock Incentive Plan Committee may provide in any
award agreement for provisions relating to a change in control of The Goldman
Sachs Group, Inc. 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 Stock Incentive Plan 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
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 Stock Incentive Plan Committee, no award or right
granted to any person under the stock incentive plan is

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assignable or transferable other than by will or by the laws of descent and
distribution, and all awards and rights are 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 stock incentive plan and the Stock Incentive Plan Committee
may amend the terms of any award in any respect.

THE DEFINED CONTRIBUTION PLAN

The defined contribution plan is not intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended, and is not subject to
the Employee Retirement Income Security Act of 1974, as amended.

The following is a description of the material terms of the defined
contribution plan. See also Note 9 to the consolidated financial statements,
included elsewhere in this prospectus, for further information regarding the
defined contribution plan. You should, however, refer to the exhibits that are a
part of the registration statement for a copy of the defined contribution plan.
See "Available Information".

ELIGIBILITY AND PARTICIPATION. Our board of directors or the Defined
Contribution Plan Committee, a committee appointed by our board of directors,
select the employees to participate in the defined contribution plan.

CONTRIBUTIONS. Goldman Sachs made an initial irrevocable contribution to
the Defined Contribution Plan Trust, the trust underlying the defined
contribution plan, of 12,555,866 shares of common stock simultaneously with the
consummation of our initial public offering. Goldman Sachs may contribute
additional shares of common stock or cash to the Defined Contribution Plan Trust
from time to time in its sole discretion. We made an additional contribution of
111,181 shares of common stock in calendar year 1999, and we currently intend to
make ongoing contributions to the defined contribution plan.

ALLOCATION OF CONTRIBUTIONS. Each participant has an account in his or her
name. There is also a separate, unallocated account to which any forfeitures of
common stock are credited pending reallocation to participants. The Defined
Contribution Plan Committee designates 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
Goldman Sachs on the last day of each plan year pro rata to each such
participant's share of Goldman Sachs contributions, for that plan year, or on
such other formulaic basis as the Defined Contribution Plan Committee may
determine.

VOTING AND TENDERING OF COMMON STOCK. Shares of common stock allocated to
participants who are parties to the shareholders' agreement referred to below
will be voted in accordance with the shareholders' agreement and will be
tendered by the trustee of the Defined Contribution Plan 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 Defined Contribution Plan Trust in accordance
with confidential instructions provided by the participant. Shares held in
participants' accounts with respect to which the trustee of the Defined
Contribution Plan 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 or
tendered by the trustee in the same proportion as the shares of common stock
allocated to participants' accounts with respect to which voting or tendering
instructions are received.

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<PAGE> 72

DIVIDENDS. Any cash dividends on shares of common stock allocated to a
participant's account are 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 defined contribution plan, 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 in
June 2002, June 2003 and June 2004 if the participant satisfies certain
conditions and the participant's employment with Goldman Sachs has not been
terminated, with certain exceptions for termination due to death or following a
change in control.

With respect to contributions to the defined contribution plan (other than
the initial contribution), the Defined Contribution Plan 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 distributable.

ADMINISTRATION OF THE DEFINED CONTRIBUTION PLAN. The defined contribution
plan is administered by the Defined Contribution Plan Committee, consisting of
Messrs. Paulson, Hurst, Thain and Thornton. Our Compensation Committee oversees
the Defined Contribution Plan Committee and makes awards to our executive
officers.

AMENDMENTS. Subject to limitations with respect to contributions
previously made to the defined contribution plan, our board of directors
reserves the right to modify, alter, amend or terminate the defined contribution
plan or the Defined Contribution Plan Trust. No modification or amendment of the
defined contribution plan may be made which would cause or permit any part of
the assets of the Defined Contribution Plan 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 Defined
Contribution Plan Trust to revert to or become the property of Goldman Sachs.

LIMIT ON LIABILITY. All distributions under the defined contribution plan
are paid or provided solely from the assets of the Defined Contribution Plan
Trust and Goldman Sachs has no responsibility or liability to any participant or
beneficiary relating to the common stock or other assets of the Defined
Contribution Plan Trust. The agreement establishing the Defined Contribution
Plan Trust provides that no creditor of Goldman Sachs will have any rights to
the assets of the Defined Contribution Plan Trust.

THE PARTNER COMPENSATION PLAN

OVERVIEW

To perpetuate the sense of partnership and teamwork that exists among our
senior professionals, and to reinforce the alignment of employee and shareholder
interests, our board of directors adopted a partner compensation plan for the
purpose of compensating senior professionals. The partner compensation plan is
administered by the Partner Compensation Plan Committee, consisting of Messrs.
Paulson, Hurst, Thain and Thornton. Our Compensation Committee oversees the
Partner Compensation Plan Committee.

Individuals are selected to participate in the partner compensation plan
for a one- or two-fiscal year cycle. Upon selection to the partner compensation
plan, participants are allocated a percentage interest in a pool for annual
bonus payments in addition to base salaries. The size of the pool is established
by the Partner Compensation Plan Committee annually, taking into account our
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 participant's annual bonus payments to our results as
a whole, as opposed to the results of any participant's individual business
unit, we believe it provides additional incentives for teamwork. Further, we
believe that the tying of the bonus payments to overall financial results more
closely aligns the interests of the participants with our shareholders. Finally,
we believe that the retention of a percentage of

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<PAGE> 73

the pool for allocation among participants at fiscal year end in amounts
determined at the sole discretion of the Partner Compensation Plan Committee
provides appropriate compensation flexibility.

The following is a description of the material terms of the partner
compensation plan. You should, however, 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 our historical practice of partnership elections, the
initial cycle is through the end of fiscal 2000. The participants in this
initial cycle consist of the continuing managing directors who were profit
participating limited partners. Prior to the one- or two-fiscal year cycle
commencing with fiscal 2001, and on or before each succeeding cycle, 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 annual or 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 is determined by the Partner Compensation
Plan Committee, taking into account measures of our 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 and benefits to net
revenues.

Prior to the commencement of the first fiscal year in any one- or
two-fiscal year cycle, the Partner Compensation Plan Committee determines both
the salaries of and the percentage of the partner compensation plan pool that
may be allocable to any particular participant. (This determination was made
prior to the consummation of our initial public offering in the case of the
initial cycle.) The percentage allocated to any particular participant is
expected to be applicable for each fiscal year within the applicable cycle. Any
remaining portion of the partner compensation plan pool not so allocated is
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 are satisfied in cash
or as awards under the stock incentive plan, as determined by the Partner
Compensation Plan Committee and recommended to the Stock Incentive Plan
Committee.

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<PAGE> 74

SELLING SHAREHOLDERS

Our board of directors, and the shareholders' committee under the
shareholders' agreement, have waived certain transfer restrictions in order to
permit the former profit participating limited partners in The Goldman Sachs
Group, L.P. to make charitable contributions of shares of common stock. See
"Risk Factors -- Goldman Sachs Is Controlled by Its Managing Directors Whose
Interests May Differ from Those of Other Shareholders" and "Certain
Relationships and Related Transactions -- Shareholders' Agreement -- Waivers"
for a discussion of the transfer restrictions waived by our board of directors
and the shareholders' committee. These charitable contributions were made only
to charitable foundations and public charities that are charitable organizations
as described in the Internal Revenue Code, whether or not organized in the
United States, and only after the initial effective date of the registration
statement of which this prospectus is a part.

The following table sets forth, as of the date of this prospectus, the
names of the charitable organizations that may be selling shareholders under
this prospectus and the maximum number of donated shares of common stock that
each such charitable organization may sell using this prospectus. To the best of
Goldman Sachs' knowledge, no charitable organization listed below beneficially
owns more than one percent of the outstanding shares of common stock either
before or after the sales contemplated by this prospectus. Each sale of shares
by any selling shareholder may, if required, be accompanied by a supplement to
this prospectus setting forth the name of the selling shareholder using that
prospectus supplement, the number of shares being sold and a supplemental plan
of distribution describing the specific manner of sale of those shares.

<TABLE>
<CAPTION>
SHARES COVERED
NAME OF SELLING SHAREHOLDER BY THIS PROSPECTUS
--------------------------- ------------------
<S> <C>
American Friends of New College, Ltd. ...................... 1,308
First Baptist Church of Greenport........................... 308
Forest Bluff School......................................... 1,308
Hispanic Culture Foundation................................. 1,961
Hotchkiss School............................................ 30,729
Maryville Academy........................................... 3,269
Massachusetts Institute of Technology....................... 15,691
St. Bernard's Church........................................ 1,308
University of Chicago....................................... 33,671
World TEAM Sports........................................... 2,615
Yale University............................................. 18,961
Zarephath Community Chapel.................................. 12,537
Private foundations established by directors and executive
officers of Goldman Sachs, as a group..................... 347,520
Other private foundations(1)................................ 1,697,167
---------
Total.................................................. 2,168,353
=========
</TABLE>

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

(1) Includes 90 private foundations established by certain former profit
participating limited partners of The Goldman Sachs Group, L.P., some of
whom are currently managing directors of Goldman Sachs. Each of these
foundations received a donation of less than 117,000 shares, and these
foundations in the aggregate beneficially own less than 1.2% of the
outstanding shares of common stock.

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<PAGE> 75

PRINCIPAL SHAREHOLDERS

The following table sets forth as of January 21, 2000 certain information
regarding the beneficial ownership of our common stock by:

- - each person who is known to Goldman Sachs to be the beneficial owner of more
than 5% of our common stock;

- - each director and named executive officer of Goldman Sachs; and

- - all directors and executive officers of Goldman Sachs as a group.

For purposes of this table, information as to the shares of common stock is
calculated based on 441,429,384 shares of common stock outstanding as of January
21, 2000. 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. As a result, this table excludes
shares of common stock underlying the restricted stock units awarded to our
executive officers as described under "Management -- Executive Compensation".
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.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AS OF
JANUARY 21, 2000(1)
----------------------
NAME NUMBER PERCENT
- ---- ------ -------
<S> <C> <C>
5% Shareholders:
Parties to Shareholders' Agreement........................ 275,764,110(2) 62.5%
c/o The Goldman Sachs Group, Inc.
85 Broad Street
New York, New York 10004
Kamehameha Activities Association(3)...................... 21,975,421 5.0
Sumitomo Bank Capital Markets, Inc.(4).................... 21,425,052 4.9
Directors and named executive officers:
Henry M. Paulson, Jr.(5).................................. 3,943,939 *
Robert J. Hurst(5)........................................ 3,769,357 *
John A. Thain(5).......................................... 3,050,659 *
John L. Thornton(5)....................................... 2,969,389 *
Sir John Browne(6)........................................ 5,535 *
John H. Bryan(6).......................................... 8,053 *
James A. Johnson(6)....................................... 7,535 *
Ruth J. Simmons(6)........................................ 5,000 *
John L. Weinberg(7)....................................... 444,444 *
Leslie C. Tortora(5)...................................... 1,726,550 *
David A. Viniar(5)........................................ 1,649,902 *
All directors and executive officers as a group
(14 persons)(8)........................................... 23,977,212 5.4
</TABLE>

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<PAGE> 76

- ---------------
* Less than 1% of the outstanding shares of common stock.

(1) Except as discussed in footnotes (5), (7) and (8) below, all directors,
named executive officers and other executive officers have sole voting power
and sole dispositive power over all shares of common stock beneficially
owned by them. No individual director, named executive officer or other
executive officer beneficially owned in excess of 1% of the outstanding
common stock.

(2) Each party to the shareholders' agreement referred to below disclaims
beneficial ownership of the shares subject to the shareholders' agreement
held by any other party to the agreement and disclaims beneficial ownership
of the 21,425,052 shares of common stock and 7,440,362 shares of nonvoting
common stock owned by Sumitomo Bank Capital Markets, Inc. and the 21,975,421
shares of common stock owned by Kamehameha Activities Association, which
amounts have been excluded from the amount set forth above. See "Certain
Relationships and Related Transactions -- Shareholders' Agreement" and
" -- Voting Agreement" for a discussion of the shareholders' agreement and
the voting agreement. 273,584,282 of the shares of common stock that are
subject to the shareholders' agreement are entitled to vote in the
preliminary vote described under "Certain Relationships and Related
Transactions -- Shareholders' Agreement -- Voting".

Sumitomo Bank Capital Markets, Inc. in the ordinary course of business
enters into derivative contracts and other transactions with Goldman Sachs.
These contracts and other transactions are negotiated on an arm's-length
basis and contain customary terms and conditions.

(3) This information has been derived from Amendment No. 1 to the Schedule 13D
of Kamehameha Activities Association filed with the SEC on December 22,
1999. 567 South King Street, Suite 150, Honolulu, Hawaii 96813. Kamehameha
Activities Association in the ordinary course of business is an investor in
a number of Goldman Sachs' merchant banking funds and from time to time is a
party to other transactions with Goldman Sachs. These investments and
transactions are negotiated on an arm's-length basis and contain customary
terms and conditions.

(4) This information has been derived from Amendment No. 1 to the Schedule 13D
of Sumitomo Bank Capital Markets, Inc., filed with the SEC on December 20,
1999. The 21,425,052 shares held by Sumitomo Bank Capital Markets, Inc.
exclude 7,440,362 shares of nonvoting common stock held by Sumitomo Bank
Capital Markets, Inc., which, although immediately convertible into common
stock, cannot currently be converted by Sumitomo Bank Capital Markets, Inc.
due to restrictions imposed under the Bank Holding Company Act of 1956, as
amended. Please see Amendment No. 1 to the Schedule 13D filed by Sumitomo
Bank Capital Markets, Inc. and any amendments thereto for information
relating to such shares. The shares of nonvoting common stock are described
under "Description of Capital Stock -- Nonvoting Common Stock".

(5) 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 referred to below that are owned by other parties to the
shareholders' agreement. While each of Messrs. Paulson, Hurst, Thain,
Thornton and Viniar and Ms. Tortora is a party to the shareholders'
agreement and each of Messrs. Paulson, Hurst, Thain and Thornton is a member
of the Shareholders' Committee, each disclaims beneficial ownership of the
shares of common stock that are subject to the shareholders' agreement other
than those specified for each such person individually, and each disclaims
beneficial ownership of the shares of common stock subject to the voting
agreements between Sumitomo Bank Capital Markets, Inc. and Kamehameha
Activities Association, respectively, on the one hand, and Goldman Sachs, on
the other hand. See "Certain Relationships and Related
Transactions -- Shareholders' Agreement" and "-- Voting Agreement" for a
discussion of the shareholders' agreement and the voting agreements.

Includes shares of common stock beneficially owned by the private charitable
foundations of our named executive officers, as follows: Mr.
Hurst -- 83,302; Mr. Thain -- 65,610; Mr. Thornton -- 86,303; Ms.
Tortora -- 26,152; and Mr. Viniar -- 13,077. Each of these named executive
officers disclaims beneficial ownership of these shares.

(6) Includes 5,000 fully vested restricted stock units awarded to each of Sir
John Browne, Messrs. Bryan and Johnson and Dr. Simmons under our 1999 stock
incentive plan, as described under "Management -- Information Regarding the
Board of Directors -- Director Compensation". Since these re-

(Footnotes continued on following page)

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<PAGE> 77

stricted stock units are fully vested, we have included the shares of common
stock underlying these restricted stock units in the foregoing table even
though these shares are not deliverable within 60 days.

(7) Includes 13,076 shares of common stock beneficially owned by Mr. Weinberg's
private charitable foundation. Mr. Weinberg disclaims beneficial ownership
of these shares.

(8) 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 that are owned by other parties to the shareholders
agreement, and each disclaims beneficial ownership of the shares of common
stock subject to the voting agreements between Sumitomo Bank Capital
Markets, Inc. and Kamehameha Activities Association, respectively, on the
one hand, and Goldman Sachs, on the other hand. See "Certain Relationships
and Related Transactions -- Shareholders' Agreement" and "-- Voting
Agreement" for a discussion of the shareholders' agreement and the voting
agreements.

Includes 347,520 shares of common stock beneficially owned by the private
charitable foundations of certain of our executive officers. Each of these
executive officers disclaims beneficial ownership of these shares.

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<PAGE> 78

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following are descriptions of the material provisions of the agreements
and other documents discussed below. You should, however, refer to the exhibits
that are a part of the registration statement for a copy of each agreement and
document. See "Available Information".

INCORPORATION TRANSACTIONS

Simultaneously with the consummation of our initial public offering, we
completed a number of transactions in order to have The Goldman Sachs Group,
Inc. succeed to the business of The Goldman Sachs Group, L.P. The principal
incorporation transactions are summarized below.

Pursuant to our plan of incorporation:

- - The managing directors who were profit participating limited partners
exchanged their interests in The Goldman Sachs Group, L.P. and certain
affiliates for 265,019,073 shares of common stock;

- - The retired limited partners of Goldman Sachs exchanged their interests in The
Goldman Sachs Group, L.P. and certain affiliates for $891 million in cash,
$295 million principal amount of junior subordinated debentures and 47,270,551
shares of common stock;

- - Sumitomo Bank Capital Markets, Inc. exchanged its interests in The Goldman
Sachs Group, L.P. and Goldman, Sachs & Co. for 30,425,052 shares of common
stock and 7,440,362 shares of nonvoting common stock, and sold 9,000,000
shares of common stock in our initial public offering; and

- - Kamehameha Activities Association exchanged its interests in The Goldman Sachs
Group, L.P. for 30,975,421 shares of common stock, and sold 9,000,000 shares
of common stock in our initial public offering.

SHAREHOLDERS' AGREEMENT

PERSONS AND SHARES COVERED

Each former profit participating limited partner, other than Sumitomo Bank
Capital Markets, Inc. and Kamehameha Activities Association, and each other
person who was a managing director on May 7, 1999 or has become a managing
director since that date is a party to the shareholders' agreement. In addition,
each new managing director will become a party to the shareholders' agreement.

The shares covered by the shareholders' agreement include generally all
shares of common stock acquired from Goldman Sachs by a party to the
shareholders' agreement, including:

- - any shares of common stock that were received by the managing directors who
were profit participating limited partners pursuant to the incorporation
transactions, except for certain shares that aggregate less than 140,000
shares;

- - any shares of common stock received from the defined contribution plan;

- - any shares of common stock received pursuant to the restricted stock units
awarded to employees based on a formula, the restricted stock units awarded on
a discretionary basis or the options to purchase shares of common stock
awarded on a discretionary basis;

- - any shares of common stock received pursuant to the restricted stock units
awarded in 1999 and described under "Management -- Executive Compensation";
and

- - unless otherwise determined by our board of directors and the Shareholders'
Committee referred to below, any shares of common stock received from Goldman
Sachs through any other employee compensation, benefit or similar plan.

Shares of common stock purchased in the open market or in an underwritten
public offering are not subject to the shareholders' agreement. The
Shareholders' Committee may also exclude from the application of all or part of
the shareholders' agreement all or any portion of the common stock acquired by a
managing director who is a new employee of Goldman Sachs.

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<PAGE> 79

TRANSFER RESTRICTIONS

Each party to the shareholders' agreement agrees, among other things, to
have sole beneficial ownership while he or she is a managing director of at
least 25% of the cumulative number of his or her shares that are beneficially
owned or acquired, and are or become subject to the shareholders' agreement.

The former profit participating limited partners, other than Sumitomo Bank
Capital Markets, Inc. and Kamehameha Activities Association, are subject to
additional restrictions on their ability to transfer shares received in
connection with the incorporation transactions described under "-- Incorporation
Transactions". Under these additional restrictions, each of these persons agreed
that he or she will not transfer any of these shares, other than up to 140,000
shares in the aggregate that are excluded from these restrictions, until May
2002. These restrictions will lapse in equal installments in May 2002, May 2003
and May 2004.

All transfer restrictions applicable to a party to the shareholders'
agreement terminate upon death.

WAIVERS

Except in the case of a third-party tender or exchange offer, the
additional transfer restrictions applicable to profit participating limited
partners, other than Sumitomo Bank Capital Markets, Inc. and Kamehameha
Activities Association, may be waived or terminated at any time by the
Shareholders' Committee. The Shareholders' Committee also has the power to waive
the other transfer restrictions to permit parties to the shareholders' agreement
to:

- - participate as sellers in underwritten public offerings of common stock and
tender and exchange offers and share repurchase programs by Goldman Sachs;

- - transfer shares to charities, including charitable foundations;

- - transfer shares held in employee benefit plans; and

- - transfer shares in specific transactions (for example, to immediate family
members and trusts) or circumstances.

The Shareholders' Committee waived the restrictions on transfer pursuant to
the second bullet point above in order to permit our former profit participating
limited partners to donate some of their shares of common stock to charitable
foundations and public charities.

In the case of a third-party tender or exchange offer, all transfer
restrictions may be waived or terminated:

- - if our 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 referred to below; or

- - if our board of directors is recommending rejection of the tender or exchange
offer, by 66 2/3% of the outstanding voting interests referred to below.

In the case of a tender or exchange offer by Goldman Sachs, 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 Goldman Sachs, 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. Each share
subject to the shareholders' agreement 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 share subject to the shareholders' agreement 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. Prior to January
1, 2001, "voting interests" means all shares that are subject to the
shareholders' agreement. Thereafter, "voting interests" means all shares subject
to the shareholders' agreement held by all managing directors.

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<PAGE> 80

OTHER RESTRICTIONS

The shareholders' agreement also prevents the persons subject to the
shareholders' agreement from engaging in the following activities relating to
any securities of Goldman Sachs with any person who is not a person subject to
the shareholders' agreement or a director or employee of Goldman Sachs:

- - participating in a proxy solicitation;

- - depositing any shares subject to the shareholders' agreement in a voting trust
or subjecting any of these shares to any voting agreement or arrangement;

- - forming, joining or in any way participating in a "group"; or

- - proposing certain transactions with Goldman Sachs or seeking the removal of
any of our directors or any change in the composition of our board of
directors.

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 referred to above. The additional transfer
restrictions applicable to profit participating limited partners, other than
Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, will
not terminate upon the expiration or termination of the shareholders' agreement
unless previously waived or terminated or unless subsequently waived or
terminated by our board of directors. The shareholders' agreement may generally
be amended at any time by a majority of the outstanding voting interests
referred to above.

Unless otherwise terminated, in the event of any transaction in which a
third party succeeds to the business of Goldman Sachs and in which persons
subject to the shareholders' agreement 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 Goldman Sachs under the shareholders' agreement.

INFORMATION REGARDING THE SHAREHOLDERS' COMMITTEE

The terms and provisions of the shareholders' agreement are administered by
the Shareholders' Committee. The Shareholders' Committee consists of Messrs.
Paulson, Hurst, Thain and Thornton. It is possible that over time all or a
majority of the members of the Shareholders' Committee will not be members of
our board of directors.

Members of the Shareholders' Committee are entitled to indemnification from
Goldman Sachs in their capacities as members of the Shareholders' Committee as
described under "Description of Capital Stock -- Limitation of Liability and
Indemnification Matters".

VOTING AGREEMENT

Both Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities
Association 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 Goldman
Sachs are voted. The obligations of Sumitomo Bank Capital Markets, Inc. and
Kamehameha Activities Association under the voting agreements are enforceable by
The Goldman Sachs Group, Inc. The managing directors have no right to enforce
the voting agreements.

INSTRUMENT OF INDEMNIFICATION

In connection with our initial public offering, Goldman Sachs entered into
an instrument of indemnification. The instrument of indemnification covers
certain former partners of Goldman Sachs, including the managing directors who
were profit participating limited partners, each executive officer of Goldman
Sachs, the retired limited partners, Sumitomo Bank Capital Markets, Inc. and
Kamehameha Activities Association. 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 of
The Goldman Sachs Group, L.P. or certain of its affiliates or subsidiaries or is
serving or served, at the request of The Goldman Sachs

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<PAGE> 81

Group, L.P. or certain of its affiliates or subsidiaries, in any of these
capacities in another enterprise, Goldman Sachs 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 Goldman Sachs under the tax indemnification agreement described below. The
indemnification obligation of Goldman Sachs under the instrument of
indemnification also extends to the indemnification obligations that certain
indemnitees, including each executive officer of The Goldman Sachs Group, Inc.,
may have to other indemnitees.

The instrument of indemnification also provides that Goldman Sachs will,
subject to certain exceptions, release each indemnitee from all actions, suits
or other claims that The Goldman Sachs Group, L.P. may have had or which Goldman
Sachs, as a successor to The Goldman Sachs Group, L.P., may have arising out of
an indemnitee's partnership or other interest in The Goldman Sachs Group, L.P.
or certain of its affiliates or subsidiaries or arising out of the conduct of
such indemnitee while engaged in the conduct of the business of The Goldman
Sachs Group, L.P. or its affiliates or subsidiaries.

DIRECTOR AND OFFICER INDEMNIFICATION

We entered into an agreement that provides indemnification to our directors
and officers and to the directors and certain officers of the general partner of
The Goldman Sachs Group, L.P., members of our Management Committee or our
Partnership Committee or the former Executive Committee of The Goldman Sachs
Group, L.P. and all other persons requested or authorized by our board of
directors or the board of directors of the general partner of The Goldman Sachs
Group, L.P. to take actions on our behalf, The Goldman Sachs Group, L.P. or the
general partner of The Goldman Sachs Group, L.P. in connection with the plan of
incorporation, the registration statement for our initial public offering and
certain other registration statements for all losses, damages, costs and
expenses incurred by the indemnified person arising out of the relevant
registration statements or the transactions contemplated by the plan of
incorporation. We have also entered into a similar indemnification agreement
with our directors, some of our officers and all other persons requested or
authorized by our board of directors or any committee thereof to take actions on
our behalf in connection with the registration statement of which this
prospectus is a part and certain other registration statements. These agreements
are in addition to our indemnification obligations under our by-laws as
described under "Description of Capital Stock -- Limitation of Liability and
Indemnification Matters".

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 former partners of The Goldman Sachs
Group, L.P., rather than Goldman Sachs, generally will be liable for adjustments
to taxes (including U.S. federal and state income taxes) attributable to the
operations of The Goldman Sachs Group, L.P. and its affiliates prior to our
initial public offering. In connection with our initial public offering, we
entered into a tax indemnification agreement to indemnify certain former limited
partners of The Goldman Sachs Group, L.P., including the managing directors who
were profit participating limited partners, each then-current director and
executive officer of The Goldman Sachs Group, Inc., the retired limited
partners, Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities
Association, against certain increases in each tax indemnitee's taxes that
relate to activities of The Goldman Sachs Group, L.P. or certain of its
affiliates in respect of periods prior to our initial public offering. We are
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 such payment of additional taxes by Goldman Sachs is offset by
any tax benefit received by the tax indemnitee.

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The tax indemnification agreement includes provisions that permit Goldman
Sachs to control any tax proceeding or contest which might result in Goldman
Sachs being required to make a payment under the tax indemnification agreement.

The incorporation transactions described under "-- Incorporation
Transactions" were structured in a manner that is not expected to result in a
significantly disproportionate tax or other burden to any former partner of The
Goldman Sachs Group, L.P. If the incorporation transactions have a
disproportionate effect on any partner, Goldman Sachs may, but is not required
to, make special payments and arrangements with any person who incurs a
disproportionate tax or other burden.

OTHER TRANSACTIONS

Goldman Sachs, in the ordinary course of business, maintains margin
accounts for certain of its directors and executive officers. Any credit
extended to any director or executive officer pursuant to his or her margin
account was made on substantially the same terms, including interest and
collateral, as those generally prevailing at the time for comparable third-party
extensions of credit, and did not involve more than the usual risk of
collectibility or present unfavorable terms.

We have established funds in order to permit our managing directors to
participate in our merchant banking investments. Many of our managing directors,
their spouses or entities owned or controlled by the managing directors have
invested their personal funds in these investment vehicles. Distributions of
greater than $60,000 from these funds to our executive officers or those persons
or entities affiliated with them (which reflect investments made over several
years) in fiscal 1999 were as follows: Mr. Paulson -- $5,094,509; Mr.
Hurst -- $795,558; Mr. Katz -- $215,622; Mr. Palm -- $678,976; Mr.
Viniar -- $188,308; and Mr. Zubrow -- $171,061. In addition, certain of our
executive officers from time to time invest their personal funds directly in
other funds managed by Goldman Sachs on the same terms and with the same
conditions as the other investors in these funds, who are not our directors or
executive officers.

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DESCRIPTION OF CAPITAL STOCK

Pursuant to our amended and restated certificate of incorporation, our
authorized capital stock consists of 4,350,000,000 shares, each with a par value
of $0.01 per share, of which:

- - 150,000,000 shares are designated as preferred stock;

- - 4,000,000,000 shares are designated as common stock, 441,429,384 shares of
which were outstanding as of January 21, 2000; and

- - 200,000,000 shares are designated as nonvoting common stock, 7,440,362 shares
of which were outstanding as of January 21, 2000.

All outstanding shares of common stock and nonvoting common stock are validly
issued, fully paid and nonassessable.

The shareholders' agreement contains provisions relating to the voting and
disposition of certain shares of common stock. See "Certain Relationships and
Related Transactions -- Shareholders' Agreement" for a discussion of those
provisions.

PREFERRED STOCK

Our authorized capital stock includes 150,000,000 shares of preferred
stock. Our board of directors is authorized to divide the preferred stock into
series and, with respect to each series, to determine the designations and the
powers, preferences and rights, and the qualifications, limitations and
restrictions thereof, including the dividend rights, conversion or exchange
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking fund provisions and the number of shares constituting the series. Our
board of directors could, without shareholder approval, issue preferred stock
with voting and other rights that could adversely affect the voting power of the
holders of common stock and which could have certain anti-takeover effects.

Subject to the rights of the holders of any series of preferred stock, the
number of authorized shares of any series of preferred stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
resolution adopted by our board of directors and approved by the affirmative
vote of the holders of a majority of the voting power of all outstanding shares
of capital stock entitled to vote on the matter, voting together as a single
class.

COMMON STOCK

Each holder of common stock is entitled to one vote for each share owned of
record on all matters submitted to a vote of shareholders. There are no
cumulative voting rights. Accordingly, the holders of a majority of the shares
of common stock voting for the election of directors can elect all the directors
if they choose to do so, subject to any voting rights of holders of preferred
stock to elect directors. For a discussion of the ability of the parties to the
shareholders' agreement to elect all of our directors, see "Risk Factors --
Goldman Sachs Is Controlled by Its Managing Directors Whose Interests May Differ
from Those of Other Shareholders".

Subject to the preferential rights of any holders of any outstanding series
of preferred stock, the holders of common stock, together with the holders of
the nonvoting common stock, are entitled to such dividends and distributions,
whether payable in cash or otherwise, as may be declared from time to time by
our board of directors from legally available funds. Subject to the preferential
rights of holders of any outstanding series of preferred stock, upon our
liquidation, dissolution or winding-up and after payment of all prior claims,
the holders of common stock, with the shares of the common stock and the
nonvoting common stock being considered as a single class for this purpose, will
be entitled to receive pro rata all our assets. Any dividend in shares of common
stock paid on or with respect to shares of common stock may be paid only with
shares of common stock. Other than the shareholder protection rights discussed
below, holders of common stock have no redemption or conversion rights or
preemptive rights to purchase or subscribe for securities of Goldman Sachs.

NONVOTING COMMON STOCK

The nonvoting common stock has the same rights and privileges as, and ranks
equally and shares proportionately with, and is identical in all respects as to
all matters to,

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the common stock, except that the nonvoting common stock has no voting rights
other than those voting rights required by law. All of the outstanding shares of
nonvoting common stock are beneficially owned by Sumitomo Bank Capital Markets,
Inc. on the date of this prospectus.

Our board of directors will not declare or pay dividends, and no dividend
will be paid, with respect to any outstanding share of common stock or nonvoting
common stock, unless, simultaneously, the same dividend is paid with respect to
each share of common stock and nonvoting common stock, except that in the case
of any dividend in the form of capital stock of a subsidiary of Goldman Sachs,
the capital stock of the subsidiary distributed to holders of common stock may
differ from the capital stock of the subsidiary distributed to holders of the
nonvoting common stock to the extent and only to the extent that the common
stock and the nonvoting common stock differ. Any dividend paid on or with
respect to nonvoting common stock may be paid only with shares of nonvoting
common stock.

The nonvoting common stock will, upon transfer by Sumitomo Bank Capital
Markets, Inc. to a third party, and in certain other circumstances, convert into
shares of common stock on a one-for-one basis. The nonvoting common stock has
standard anti-dilution provisions.

SHAREHOLDER PROTECTION RIGHTS

Each share of common stock and non-voting common stock has attached to it a
shareholder protection right. The shareholder protection rights are currently
represented only by the certificates for the shares and will not trade
separately from the shares unless and until:

- - it is announced by Goldman Sachs that a person or group has become the
beneficial owner of 15% or more of the outstanding common stock (other than
persons deemed to beneficially own common stock solely because they are
parties to the shareholders' agreement, members of the Shareholders' Committee
or certain other persons)(an "acquiring person"); or

- - ten business days (or such later date as our board of directors may fix by
resolution) after the date a person or group commences a tender or exchange
offer that would result in such person or group becoming an acquiring person.

If and when the shareholder protection rights separate and prior to the date of
the announcement by Goldman Sachs that any person has become an acquiring
person, each shareholder protection right will entitle the holder to purchase,
in the case of shareholder protection rights relating to the common stock,
1/100 of a share of Series A participating preferred stock or, in the case of
shareholder protection rights relating to the nonvoting common stock, 1/100 of a
share of Series B participating preferred stock, in each case, for an exercise
price of $250. Each 1/100 of a share of Series A participating preferred stock
and Series B participating preferred stock would have economic and voting terms
equivalent to one share of common stock and nonvoting common stock,
respectively.

Upon the date of the announcement by Goldman Sachs that any person or group
has become an acquiring person, each shareholder protection right (other than
shareholder protection rights beneficially owned by the acquiring person or
their transferees, which shareholder protection rights become void) will entitle
its holder to purchase, for the exercise price, a number of shares of common
stock or, in the case of shareholder protection rights relating to nonvoting
common stock, a number of shares of nonvoting common stock having a market value
of twice the exercise price. Also, if, after the date of the announcement by
Goldman Sachs that any person has become an acquiring person, the acquiring
person controls our board of directors and:

- - Goldman Sachs is involved in a merger or similar form of business combination
and (i) any term of the transaction provides for different treatment of the
shares of capital stock held by the acquiring person as compared to the shares
of capital stock held by all other shareholders or (ii) the person with whom
such transaction occurs is the acquiring person or an affiliate thereof; or

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- - Goldman Sachs sells or transfers assets representing more than 50% of its
assets or generating more than 50% of its operating income or cash flow to any
person other than Goldman Sachs or its wholly owned subsidiaries,

then each shareholder protection right will entitle its holder to purchase, for
the exercise price, a number of shares (A) with respect to shareholder
protection rights relating to the common stock, of capital stock with the
greatest voting power in respect of the election of directors and (B) with
respect to shareholder protection rights relating to the nonvoting common stock,
of capital stock identical to the stock described in clause (A) except with
voting provisions identical to that of the nonvoting common stock, of either the
acquiring person or the other party to such transaction, depending on the
circumstances of the transaction, having a market value of twice the exercise
price. If any person or group acquires from 15% to and including 50% of the
common stock, our board of directors may, at its option, exchange each
outstanding shareholder protection right, except for those held by an acquiring
person or their transferees, for one share of common stock or, in the case of
shareholder protection rights relating to nonvoting common stock, one share of
nonvoting common stock.

The shareholder protection rights may be redeemed by our board of directors
for $0.01 per shareholder protection right prior to the date of the announcement
by Goldman Sachs that any person has become an acquiring person. Our charter
permits this redemption right to be exercised by our board of directors (or
certain directors specified or qualified by the terms of the instrument
governing the shareholder protection rights).

The shareholder protection rights will not prevent a takeover of Goldman
Sachs. However, these rights may cause substantial dilution to a person or group
that acquires 15% or more of the common stock unless the shareholder protection
rights are first redeemed by our board of directors.

LIMITATION OF LIABILITY AND
INDEMNIFICATION MATTERS

Our charter provides that a director of Goldman Sachs will not be liable to
Goldman Sachs or its shareholders for monetary damages for breach of fiduciary
duty as a director, except in certain cases where liability is mandated by the
Delaware General Corporation Law. Our by-laws provide for indemnification, to
the fullest extent permitted by law, of any person made or threatened to be made
a party to any action, suit or proceeding by reason of the fact that such person
is or was a director or officer of Goldman Sachs, or is or was a director of a
subsidiary of Goldman Sachs, or is or was a member of the Shareholders'
Committee acting under the shareholders' agreement or, at the request of Goldman
Sachs, serves or served as a director or officer of or in any other capacity
for, or in relation to, any other enterprise, against all expenses, liabilities,
losses and claims actually incurred or suffered by such person in connection
with the action, suit or proceeding. Our by-laws also provide that, to the
extent authorized from time to time by our board of directors, Goldman Sachs may
provide to any one or more employees and other agents of Goldman Sachs or any
subsidiary or other enterprise, rights of indemnification and to receive payment
or reimbursement of expenses, including attorneys' fees, that are similar to the
rights conferred by the by-laws on directors and officers of Goldman Sachs or
any subsidiary or other enterprise.

CHARTER PROVISIONS APPROVING CERTAIN ACTIONS

Our charter provides that our board of directors may determine to take the
following actions, in its sole discretion, and Goldman Sachs and each
shareholder of Goldman Sachs will, to the fullest extent permitted by law, be
deemed to have approved and ratified, and waived any claim relating to, the
taking of any of these actions:

- - causing Goldman Sachs to register with the SEC for resale shares of common
stock held by our directors, employees and former directors and employees and
our subsidiaries and affiliates and former partners and employees of The
Goldman Sachs Group, L.P. and its subsidiaries and affiliates as discussed
under "Shares Eligible for Future Sale -- Registration Rights Instrument" and
"-- Other Registration Rights"; and

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- - making payments to, and other arrangements with, certain former limited
partners of Goldman Sachs, including managing directors who were profit
participating limited partners, in order to compensate them for, or to
prevent, significantly disproportionate adverse tax or other consequences as
discussed under "Certain Relationships and Related Transactions -- Tax
Indemnification Agreement and Related Matters".

SECTION 203 OF THE
DELAWARE GENERAL CORPORATION LAW

Goldman Sachs is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or a transaction resulting in a
financial benefit to the interested stockholder. An "interested stockholder" is
a person who, together with affiliates and associates, owns (or, in certain
cases, within three years prior, did own) 15% or more of the corporation's
outstanding voting stock. Under Section 203, a business combination between
Goldman Sachs and an interested stockholder is prohibited unless it satisfies
one of the following conditions:

- - prior to the time the stockholder became an interested stockholder, the board
of directors of Goldman Sachs must have previously approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder;

- - on consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of
the voting stock of Goldman Sachs outstanding at the time the transaction
commenced (excluding, for purposes of determining the number of shares
outstanding, shares owned by persons who are directors and officers); or

- - the business combination is approved by the board of directors of Goldman
Sachs and authorized at an annual or special meeting of the stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder.

Our board of directors has adopted a resolution providing that neither the
shareholders' agreement nor the voting agreements of Sumitomo Bank Capital
Markets, Inc. and Kamehameha Activities Association will create an "interested
stockholder".

CERTAIN ANTI-TAKEOVER MATTERS

Our charter and by-laws include a number of provisions that may have the
effect of encouraging persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with our board of directors rather
than pursue non-negotiated takeover attempts. These provisions include:

CLASSIFIED BOARD OF DIRECTORS

Our charter provides for a board of directors divided into three classes,
with one class to be elected each year to serve for a three-year term. The terms
of the initial classes of directors will terminate on the date of the annual
meetings of shareholders in 2000, 2001 and 2002. As a result, at least two
annual meetings of shareholders may be required for the shareholders to change a
majority of our board of directors. In addition, the shareholders of Goldman
Sachs can only remove directors for cause by the affirmative vote of the holders
of not less than 80% of the outstanding shares of capital stock of Goldman Sachs
entitled to vote in the election of directors. Vacancies on our board of
directors may be filled only by our board of directors. The classification of
directors and the inability of shareholders to remove directors without cause
and to fill vacancies on the board of directors makes it more difficult to
change the composition of our board of directors, but promotes a continuity of
existing management.

CONSTITUENCY PROVISION

In accordance with our charter, a director of Goldman Sachs may (but is not
required to) in taking any action (including an action that may involve or
relate to a change or

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potential change in control of Goldman Sachs) consider, among other things, the
effects that Goldman Sachs' actions may have on other interests or persons
(including its employees, former partners of The Goldman Sachs Group, L.P. and
the community) in addition to our shareholders.

ADVANCE NOTICE REQUIREMENTS

Our by-laws establish advance notice procedures with regard to shareholder
proposals relating to the nomination of candidates for election as directors or
new business to be brought before meetings of shareholders of Goldman Sachs.
These procedures provide that notice of such shareholder proposals must be
timely given in writing to the Secretary of Goldman Sachs prior to the meeting
at which the action is to be taken. Generally, to be timely, notice must be
received at the principal executive offices of Goldman Sachs not less than 90
days nor more than 120 days prior to the first anniversary date of the annual
meeting for the preceding year. The notice must contain certain information
specified in the by-laws.

SPECIAL MEETINGS OF SHAREHOLDERS

Our charter and by-laws deny shareholders the right to call a special
meeting of shareholders. Our charter and by-laws provide that special meetings
of the shareholders may be called only by a majority of the board of directors.

NO WRITTEN CONSENT OF SHAREHOLDERS

Our charter requires all shareholder actions to be taken by a vote of the
shareholders at an annual or special meeting, and does not permit our
shareholders to act by written consent, without a meeting.

MAJORITY VOTE NEEDED FOR SHAREHOLDER PROPOSALS

Our by-laws require that any shareholder proposal be approved by a majority
of all of the outstanding shares of common stock and not by only a majority of
the shares present at the meeting and entitled to vote. This requirement may
make it more difficult to approve shareholder resolutions.

AMENDMENT OF BY-LAWS AND CHARTER

Our charter requires the approval of not less than 80% of the voting power
of all outstanding shares of Goldman Sachs' capital stock entitled to vote to
amend any by-law by shareholder action or the charter provisions described in
this section. Those provisions make it more difficult to dilute the anti-
takeover effects of our by-laws and our charter.

BLANK CHECK PREFERRED STOCK

Our charter provides for 150,000,000 authorized shares of preferred stock.
The existence of authorized but unissued shares of preferred stock may enable
the board of directors to render more difficult or to discourage an attempt to
obtain control of Goldman Sachs by means of a merger, tender offer, proxy
contest or otherwise. For example, if in the due exercise of its fiduciary
obligations, the board of directors were to determine that a takeover proposal
is not in the best interests of Goldman Sachs, the board of directors could
cause shares of preferred stock to be issued without shareholder approval in one
or more private offerings or other transactions that might dilute the voting or
other rights of the proposed acquiror or insurgent shareholder or shareholder
group. In this regard, the charter grants our board of directors broad power to
establish the rights and preferences of authorized and unissued shares of
preferred stock. The issuance of shares of preferred stock could decrease the
amount of earnings and assets available for distribution to holders of shares of
common stock and nonvoting common stock. The issuance may also adversely affect
the rights and powers, including voting rights, of such holders and may have the
effect of delaying, deterring or preventing a change in control of Goldman
Sachs. The board of directors currently does not intend to seek shareholder
approval prior to any issuance of shares of preferred stock, unless otherwise
required by law.

LISTING

The common stock is listed on the NYSE.

TRANSFER AGENT

The transfer agent for the common stock is ChaseMellon Shareholder
Services, L.L.C.

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SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of common stock in the public market,
or the perception that such sales may occur, could adversely affect the
prevailing market price of the common stock. As of January 21, 2000, there were
470,991,539 shares of common stock outstanding, including shares of common stock
underlying the restricted stock units awarded based on a formula for which
future service is not required as a condition to the delivery of the underlying
shares of common stock, but excluding 7,440,362 shares of nonvoting common
stock. As of January 21, 2000, and after giving effect to the charitable
contributions referred to in this prospectus, a substantial number of our
outstanding shares of common stock were eligible for future sale as described
below.

- - 256,909,975 shares held by the managing directors who were profit
participating limited partners are transferable beginning May 2002, unless
these restrictions are waived by our board of directors and the shareholders'
committee. See "Certain Relationships and Related Transactions --
Shareholders' Agreement";

- - 21,425,052 shares held by Sumitomo Bank Capital Markets, Inc., together with
the 7,440,362 shares of nonvoting common stock that it holds, are transferable
only as described under "-- Sumitomo Bank Capital Markets, Inc. and Kamehameha
Activities Association Registration Rights", unless these restrictions are
waived by our board of directors;

- - 21,975,421 shares held by Kamehameha Activities Association are transferable
only as described under "-- Sumitomo Bank Capital Markets, Inc. and Kamehameha
Activities Association Registration Rights", unless these restrictions are
waived by our board of directors;

- - 46,084,357 shares were held by the former retired limited partners, of which
30,236,022 shares are transferable beginning May 2000, and the remainder of
which will be transferable beginning May 2002, unless these restrictions are
waived by our board of directors;

- - 12,667,047 shares held by the defined contribution plan will not be
distributable to the plan participants until on or about June 2002, January
2003 and June 2003, assuming the relevant conditions have been satisfied. See
"Management -- The Employee Initial Public Offering Awards" for a description
of the defined contribution plan;

- - 29,562,155 shares of common stock underlying the restricted stock units
awarded based on a formula generally will be deliverable beginning June 2000,
assuming the relevant conditions are satisfied, as described in
"Management -- The Employee Initial Public Offering Awards -- Background"; and

- - 4,024,637 shares of common stock issued in the acquisition of The Hull Group
are transferable beginning May 2002, unless these restrictions are waived by
our board of directors.

In order to permit charitable donations by our former retired limited
partners, our board of directors lifted the transfer restrictions on 1,084,316
of their shares of common stock. These donations were subject to the same
restrictions that applied to the donations by our former profit participating
limited partners; they were made only to private foundations and public
charities that are charitable organizations as described in the Internal Revenue
Code, whether or not organized in the United States. See "Certain Relationships
and Related Transactions -- Shareholders' Agreements -- Waivers". These shares
of common stock are freely transferable to the public.

Shares of common stock underlying the restricted stock units awarded on a
discretionary basis are deliverable beginning June 2002, assuming the relevant
conditions have been satisfied. The options to purchase shares of common stock
awarded on a discretionary basis are exercisable beginning June 2002, assuming
the relevant conditions have been satisfied. See "Management--The Employee
Initial Public Offering Awards" for a discussion of the terms of the restricted
stock units awarded based on a formula, the restricted stock units awarded on a
discretion-

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ary basis and the options to purchase shares of common stock awarded on a
discretionary basis.

We have registered the reoffer and resale of the shares of common stock
issued pursuant to the defined contribution plan, restricted stock units awarded
based on a formula, restricted stock units awarded on a discretionary basis and
options to purchase shares of common stock awarded on a discretionary basis. As
a result, any shares of common stock delivered under these awards will, subject
to any restrictions under the shareholders' agreement, be freely transferable to
the public unless the shares of common stock are acquired by an "affiliate" of
Goldman Sachs. Any shares of common stock acquired by an "affiliate" of Goldman
Sachs will be transferable to the public in accordance with the SEC's Rule 144.

The shares of common stock received by the managing directors who were
profit participating limited partners, Sumitomo Bank Capital Markets, Inc. and
Kamehameha Activities Association constitute "restricted securities" for
purposes of the Securities Act of 1933. As a result, absent registration under
the Securities Act of 1933 or compliance with Rule 144 thereunder or an
exemption therefrom, these shares of common stock are not freely transferable to
the public. For a description of the registration rights granted to Sumitomo
Bank Capital Markets, Inc. and Kamehameha Activities Association and the
restrictions on the transfer of their shares of common stock, see "-- Sumitomo
Bank Capital Markets, Inc. and Kamehameha Activities Association Registration
Rights" below and for a description of the registration rights granted in
connection with the shares of common stock offered pursuant to this prospectus
and that may be granted to the managing directors who were profit participating
limited partners, see "-- Registration Rights Instrument" and "-- Other
Registration Rights" below.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who beneficially owns
"restricted securities" may not sell those securities until they have been
beneficially owned for at least one year. Thereafter, the person would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:

- - 1% of the number of shares of common stock then outstanding (which equaled
approximately 4.4 million shares as of January 21, 2000); or

- - the average weekly trading volume of the common stock on the NYSE during the
four calendar weeks preceding the filing with the SEC of a notice on the SEC's
Form 144 with respect to such sale.

Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice and availability of current public
information about Goldman Sachs.

Under Rule 144(k), a person who is not, and has not been at any time during
the 90 days preceding a sale, an affiliate of Goldman Sachs and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate) is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. While the
shares of common stock received by the retired limited partners constitute
"restricted securities", these shares will be freely transferable by the retired
limited partners in accordance with Rule 144(k) upon the lapse or waiver of the
transfer restrictions described above.

SUMITOMO BANK CAPITAL MARKETS, INC. AND
KAMEHAMEHA ACTIVITIES ASSOCIATION
REGISTRATION RIGHTS

Goldman Sachs is a party to agreements with Sumitomo Bank Capital Markets,
Inc. and The Sumitomo Bank, Limited under which Sumitomo Bank Capital Markets,
Inc. and The Sumitomo Bank, Limited may require Goldman Sachs to register under
the Securities Act of 1933 certain of Sumitomo Bank Capital Markets, Inc.'s
shares of common stock, which includes shares of common stock receivable upon
the conversion of the nonvoting common stock. Goldman Sachs is

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a party to similar agreements with Kamehameha Activities Association.

Except for certain transfers to wholly owned subsidiaries, each
registration rights holder has agreed that it will only dispose of common stock
(i) by means of a widely dispersed underwritten public offering and (ii)
pursuant to the exercise of the registration rights set forth below.

Each registration rights holder has the right:

- - on up to ten occasions (but not more than twice every 12 months) to require
Goldman Sachs to register shares of common stock under the Securities Act of
1933; and

- - to include its shares of common stock in any registered public offering in
which the managing directors participate.

Prior to May 2000, the registration rights holders are not permitted to
transfer shares of common stock or nonvoting common stock. Between May 2000 and
May 2002, each registration rights holder may use its available registration
rights described above to sell:

- - in each 12-month period following May 2000 and May 2001, up to 20% of the
shares of common stock received by such registration rights holder in the
incorporation transactions (such holder's "original block"); and

- - with the consent of Goldman Sachs, common stock constituting up to an
additional 13 1/3% of such holder's original block.

In each 12-month period following May 2002, each registration rights holder
may use its available registration rights described above to sell common stock
constituting up to 33 1/3% of its original block.

These rights are not available for nonvoting common stock.

In addition to the rights described above, each registration rights holder
will also be entitled to sell additional shares of common stock to the extent
that managing directors who were profit participating limited partners sell
shares of common stock in an amount which in any one-year period represents, in
the aggregate, a greater percentage of the number of shares of common stock
issued to these managing directors in the incorporation transactions than the
percentages specified above (i.e., 0% during year one, 20% during years two and
three, and 33 1/3% thereafter). The exercise by the registration rights holders
of their respective rights under their registration rights agreement may, if we
determine that such exercise would interfere with a public offering by us, be
delayed by us for up to 90 days.

The registration rights agreements provide that the expenses of an offering
of common stock are generally the responsibility of each participating
registration rights holder selling common stock, apportioned on a pro rata
basis. Under the registration rights agreements, Goldman Sachs has agreed to
indemnify each participating registration rights holder against certain
liabilities, including those arising under the Securities Act of 1933.

The registration rights agreements also provide that if Goldman Sachs makes
a general offer to purchase shares of common stock held by the managing
directors who were profit participating limited partners, then a registration
rights holder will be permitted to participate in such transaction on a pro rata
basis with these managing directors. In addition, a registration rights holder
may tender its shares of common stock in any tender or exchange offer
recommended for approval by our board of directors (or as to which our board of
directors makes no recommendation).

REGISTRATION RIGHTS INSTRUMENT

In connection with the proposed donation of shares of common stock by our
former profit participating limited partners to charitable foundations and
public charities, which foundations and charities may sell those shares pursuant
to this prospectus as described under "Selling Shareholders", our board of
directors has adopted a registration rights instrument and a supplemental
registration rights instrument. The following is a description of the material
terms of the registration rights instrument, as supplemented.

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You should, however, refer to the exhibits that are a part of the registration
statement for a copy of the registration rights instrument and the supplemental
registration rights instrument. See "Available Information".

Pursuant to the registration rights instrument, as supplemented, we have
agreed to register the shares of common stock covered by this prospectus for
resale by charitable foundations and public charities.

We have agreed in the registration rights instrument, as supplemented, to
pay all of the fees and expenses relating to the offering by the charitable
organizations, other than any agency fees and commissions or underwriting
commissions or discounts or any transfer taxes incurred by the charitable
organizations in connection with their resales. We also have agreed to indemnify
the charitable organizations against certain liabilities, including those
arising under the Securities Act of 1933.

We may amend the registration rights instrument and the supplemental
registration rights instrument in any manner we deem appropriate, without the
consent of any charitable organization. However, we may not make any amendment
that would cause the shares of common stock covered by this prospectus to fail
to be "qualified appreciated stock" within the meaning of Section 170 of the
Internal Revenue Code. In addition, we may not make any amendment that would
materially and adversely affect the rights of any charitable organization
without the consent of a majority of the materially and adversely affected
charitable organizations.

OTHER REGISTRATION RIGHTS

The managing directors who were profit participating limited partners were
not granted the right to require Goldman Sachs to register the shares of common
stock that they received in connection with the incorporation transactions under
the Securities Act of 1933. However, the plan of incorporation and our charter
permit our board of directors to grant registration rights to these managing
directors. As a result, the board of directors may at any time and from time to
time grant registration rights to these managing directors. Our board of
directors exercised its authority under these instruments in connection with
adopting the registration rights instrument and the supplemental registration
rights instrument described above under "-- Registration Rights Instrument".

The ability of our board of directors to grant registration rights to the
managing directors who were profit participating limited partners, together with
the ability of the Shareholders' Committee under the shareholders' agreement to
waive the transfer restrictions related to the managing directors who were
profit participating limited partners thereunder and under the plan of
incorporation, could, if exercised, permit these managing directors to sell
significant amounts of common stock. See "Risk Factors -- Our Share Price May
Decline Due to the Large Number of Shares Eligible for Future Sale" for a
further discussion of the risks associated with these actions.

VALIDITY OF COMMON STOCK

The validity of the common stock offered hereby has been passed upon for
The Goldman Sachs Group, Inc. by Sullivan & Cromwell, New York, New York.
Certain legal matters have been passed upon for The Goldman Sachs Group, Inc. by
one of its General Counsel, Robert J. Katz or Gregory K. Palm.

90
<PAGE> 92

EXPERTS

The consolidated financial statements of Goldman Sachs as of November 27,
1998 and November 26, 1999 and for each of the three years in the period ended
November 26, 1999 included in this prospectus and the financial statement
schedule included in the registration statement have been 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, balance sheet and common share data included in
"Selected Consolidated Financial Data" for each of the five years in the period
ended November 26, 1999 included in this prospectus have been 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

The Goldman Sachs Group, Inc. is 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 us 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. Our filings
with the SEC are also available to the public through the SEC's Internet site at
http://www.sec.gov and through the NYSE, 20 Broad Street, New York, New York
10005, on which our common stock is listed.

We have filed a registration statement on Form S-1 with the SEC relating to
the shares of common stock covered by this prospectus. This prospectus is a part
of the registration statement and does not contain all of the information in the
registration statement. Whenever a reference is made in this prospectus to a
contract or other document of Goldman Sachs, please be aware that such reference
is not necessarily complete and that you should refer to the exhibits that are a
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.

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

We have included in this prospectus statements that may constitute
"forward-looking statements" within the meaning of the safe harbor provisions of
The Private Securities Litigation Reform Act of 1995. These forward-looking
statements are not historical facts but instead represent only our belief
regarding future events, many of which, by their nature, are inherently
uncertain and outside of our control. It is possible that our actual results may
differ, possibly materially, from the anticipated results indicated in these
forward-looking statements.

Information regarding important factors that could cause actual results to
differ, perhaps materially, from those in our forward-looking statements is
contained under the caption "Risk Factors" in this prospectus.

91
<PAGE> 93

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements as of November 26, 1999
and November 27, 1998 and for the three years in the
period ended November 26, 1999
Report of Independent Accountants........................... F-2
Consolidated Statements of Earnings......................... F-3
Consolidated Statements of Financial Condition.............. F-4
Consolidated Statements of Changes in Stockholders' Equity
and Partners' Capital..................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Consolidated Statements of Comprehensive Income............. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>

F-1
<PAGE> 94

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Shareholders,
The Goldman Sachs Group, Inc.:

In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of earnings, changes in
stockholders' equity and partners' capital, cash flows and comprehensive income
(included on pages F-3 to F-30 of this prospectus) present fairly, in all
material respects, the consolidated financial position of The Goldman Sachs
Group, Inc. and Subsidiaries (the "firm") as of November 26, 1999 and November
27, 1998, and the results of their consolidated operations and their
consolidated cash flows for each of the three fiscal years in the period ended
November 26, 1999, in conformity with accounting principles generally accepted
in the United States. 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
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit 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 28, 1997, November 29, 1996 and November 24, 1995, and the related
consolidated statements of earnings, changes in partners' capital and cash flows
for the years ended November 29, 1996 and November 24, 1995 (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
consolidated financial data for each of the five years in the period ended
November 26, 1999 (included on pages 17 and 18 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 21, 2000.

F-2
<PAGE> 95

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
---------------------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Global capital markets
Investment banking.................................... $ 4,359 $ 3,368 $ 2,587
Trading and principal investments..................... 5,758 2,015 2,303
Asset management and securities services................ 2,524 2,085 1,456
Interest income......................................... 12,722 15,010 14,087
----------- ------- -------
Total revenues........................................ 25,363 22,478 20,433
Interest expense........................................ 12,018 13,958 12,986
----------- ------- -------
Revenues, net of interest expense..................... 13,345 8,520 7,447

Operating expenses
Compensation and benefits, excluding employee initial
public offering awards................................ 6,459 3,838 3,097
Nonrecurring employee initial public offering
awards(1)............................................. 2,257 -- --
Amortization of employee initial public offering
awards................................................ 268 -- --
Brokerage, clearing and exchange fees................... 446 424 357
Market development...................................... 364 287 206
Communications and technology........................... 306 265 208
Depreciation and amortization........................... 337 242 178
Occupancy............................................... 314 207 168
Professional services and other......................... 402 336 219
Charitable contribution................................. 200 -- --
----------- ------- -------
Total operating expenses.............................. 11,353 5,599 4,433
Pre-tax earnings........................................ 1,992 2,921 3,014
(Benefit)/provision for taxes........................... (716) 493 268
----------- ------- -------
Net earnings............................................ $ 2,708 $ 2,428 $ 2,746
=========== ======= =======
Earnings per share
Basic................................................. $ 5.69 -- --
Diluted............................................... 5.57 -- --
Average common shares outstanding
Basic................................................. 475,883,756 -- --
Diluted............................................... 485,803,960 -- --
</TABLE>

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

(1) Includes expense of $666 million related to the initial irrevocable
contribution of shares of common stock to a defined contribution plan.

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 96

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
AS OF NOVEMBER
--------------------
1999 1998
---- ----
(IN MILLIONS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
Assets
Cash and cash equivalents................................... $ 3,055 $ 2,836
Cash and securities segregated in compliance with U.S.
federal and other regulations............................. 9,135 7,887
Receivables from brokers, dealers and clearing
organizations............................................. 4,490 4,321
Receivables from customers and counterparties............... 30,140 14,953
Securities borrowed......................................... 78,418 69,158
Securities purchased under agreements to resell............. 37,106 37,484
Right to receive securities................................. 1,604 7,564
Financial instruments owned, at fair value
Commercial paper, certificates of deposit and time
deposits................................................ 1,435 1,382
U.S. government, federal agency and sovereign
obligations............................................. 22,193 24,789
Corporate debt............................................ 9,821 10,744
Equities and convertible debentures....................... 16,381 11,066
State, municipal and provincial obligations............... 756 918
Derivative contracts...................................... 30,661 21,299
Physical commodities...................................... 562 481
Other assets................................................ 4,734 2,498
-------- --------
$250,491 $217,380
======== ========
Liabilities and Equity
Short-term borrowings, including commercial paper........... $ 37,756 $ 27,430
Payables to brokers, dealers and clearing organizations..... 2,129 730
Payables to customers and counterparties.................... 57,405 46,208
Securities loaned........................................... 9,169 11,088
Securities sold under agreements to repurchase.............. 40,183 36,257
Obligation to return securities............................. 1,595 9,783
Financial instruments sold, but not yet purchased, at fair
value U.S. government, federal agency and sovereign
obligations............................................... 19,170 22,360
Corporate debt............................................ 2,642 1,441
Equities and convertible debentures....................... 14,002 6,406
Derivative contracts...................................... 28,488 24,722
Physical commodities...................................... 586 966
Other liabilities and accrued expenses...................... 6,269 3,699
Long-term borrowings........................................ 20,952 19,906
-------- --------
240,346 210,996
Commitments and contingencies
Partners' capital allocated for income taxes and potential
withdrawals............................................... -- 74
Partners' capital........................................... -- 6,310
Preferred stock, par value $0.01 per share; 150,000,000
shares authorized, no shares issued and outstanding....... -- --
Common stock, par value $0.01 per share; 4,000,000,000
shares authorized, 441,421,899 shares issued and
outstanding............................................... 4 --
Restricted stock units; 76,048,404 units issued and
outstanding............................................... 4,339 --
Nonvoting common stock, par value $0.01 per share;
200,000,000 shares authorized, 7,440,362 shares issued and
outstanding............................................... -- --
Additional paid-in capital.................................. 7,359 --
Retained earnings........................................... 444 --
Unearned compensation....................................... (2,038) --
Accumulated other comprehensive income...................... 37 --
-------- --------
10,145 6,310
-------- --------
$250,491 $217,380
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 97

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY AND PARTNERS' CAPITAL

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-------------------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Partners' capital
Balance, beginning of year................................ $ 6,310 $ 6,107 $ 5,309
Transfer of beginning partners' capital allocated for
income taxes and potential withdrawals.................. 74 -- --
Net earnings.............................................. 2,264(1) 2,428 2,746
Capital contributions..................................... 48 9 89
Return on capital and certain distributions to partners... (306) (619) (557)
Termination of profit participation plans................. -- (368) --
Transfers to partners' capital allocated for income taxes
and potential withdrawals, net.......................... -- (1,247) (1,480)
Distributions of remaining partners' capital.............. (4,520)(2) -- --
Exchange of partnership interests for shares of common
stock................................................... (3,901) -- --
Transfer to accumulated other comprehensive income........ 31 -- --
------- ------- -------
Balance, end of year...................................... -- 6,310 6,107

Common stock, par value $0.01 per share
Balance, beginning of year................................ -- -- --
Common stock issued....................................... 4 -- --
------- ------- -------
Balance, end of year...................................... 4 -- --

Restricted stock units
Balance, beginning of year................................ -- -- --
Restricted stock units granted, net of forfeitures of $42
million................................................. 4,339 -- --
------- ------- -------
Balance, end of year...................................... 4,339 -- --

Nonvoting common stock, par value $0.01 per share
Balance, beginning of year................................ -- -- --
Nonvoting common stock issued............................. -- -- --
------- ------- -------
Balance, end of year...................................... -- -- --

Additional paid-in capital
Balance, beginning of year................................ -- -- --
Exchange of partnership interests for shares of common
stock................................................... 3,901 -- --
Issuance of common stock.................................. 2,891 -- --
Issuance of common stock contributed to a defined
contribution plan....................................... 674 -- --
Dividends paid............................................ (107)(3) -- --
------- ------- -------
Balance, end of year...................................... 7,359 -- --

Retained earnings
Balance, beginning of year................................ -- -- --
Net earnings.............................................. 444(4) -- --
------- ------- -------
Balance, end of year...................................... 444 -- --

Unearned compensation
Balance, beginning of year................................ -- -- --
Restricted stock units granted, net of forfeitures of $23
million................................................. (2,311) -- --
Amortization of restricted stock units.................... 273 -- --
------- ------- -------
Balance, end of year...................................... (2,038) -- --

Accumulated other comprehensive income
Balance, beginning of year................................ -- -- --
Transfer from partners' capital........................... (31) -- --
Currency translation adjustment........................... 68 -- --
------- ------- -------
Balance, end of year...................................... 37 -- --
------- ------- -------
$10,145 $ 6,310 $ 6,107
======= ======= =======
</TABLE>

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

(1) Represents net earnings of the partnership from November 28, 1998 through
May 6, 1999.

(2) Represents the retired limited partners' exchanges of partnership interests
for cash and junior subordinated debentures, the redemption of senior
limited partnership interests for cash and other distributions of partners'
capital in accordance with the partnership agreement.

(3) Represents two quarterly dividends of $0.12 per common share each.

(4) Represents net earnings of the corporation from May 7, 1999 through November
26, 1999.

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 98

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings.............................................. $ 2,708 $ 2,428 $ 2,746
Noncash items included in net earnings
Depreciation and amortization........................... 337 242 178
Deferred income taxes................................... (1,387) 23 32
Stock-based compensation................................ 2,989 -- --
Changes in operating assets and liabilities
Cash and securities segregated in compliance with U.S.
federal and other regulations........................... (1,248) (2,984) (670)
Net receivables from brokers, dealers and clearing
organizations........................................... 1,453 (789) (1,599)
Net payables to customers and counterparties.............. (3,990) 14,664 5,029
Securities borrowed, net.................................. (11,179) (21,158) (10,814)
Financial instruments owned, at fair value................ (13,718) 148 (7,439)
Financial instruments sold, but not yet purchased, at fair
value................................................... 9,059 7,559 11,702
Other, net................................................ 2,387 (71) 905
-------- -------- --------
Net cash (used for)/provided by operating activities.... (12,589) 62 70
Cash flows from investing activities
Property, leasehold improvements and equipment............ (656) (476) (259)
Financial instruments owned, at fair value................ 189 (180) (360)
Acquisitions, net of cash acquired........................ (187) -- (74)
-------- -------- --------
Net cash used for investing activities.................. (654) (656) (693)
Cash flows from financing activities
Short-term borrowings, net................................ 755 2,193 1,082
Securities sold under agreements to repurchase, net....... 4,304 (5,909) (4,717)
Issuance of long-term borrowings.......................... 11,000 10,527 7,734
Repayment of long-term borrowings......................... (753) (2,058) (1,855)
Capital contributions..................................... 48 9 89
Dividends paid............................................ (107) -- --
Returns on capital and certain distributions to
partners................................................ (306) (619) (557)
Termination of the profit participation plans............. -- (368) --
Proceeds from issuance of common stock.................... 2,633 -- --
Partners' capital distributions, net...................... (4,112) -- --
Partners' capital allocated for income taxes and potential
withdrawals............................................. -- (1,673) (2,034)
-------- -------- --------
Net cash provided by/(used for) financing activities.... 13,462 2,102 (258)
Net increase/(decrease) in cash and cash equivalents.... 219 1,508 (881)
Cash and cash equivalents, beginning of year.............. 2,836 1,328 2,209
-------- -------- --------
Cash and cash equivalents, end of year.................... $ 3,055 $ 2,836 $ 1,328
======== ======== ========
</TABLE>

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

SUPPLEMENTAL DISCLOSURES:

Cash payments for interest approximated the related expense for each of the
fiscal years presented. Payments of income taxes were $463 million for the year
ended November 1999 and were immaterial for the years ended November 1998 and
1997.

Noncash activities:

In connection with the firm's conversion to corporate form, junior subordinated
debentures of $371 million were issued to retired limited partners in exchange
for their partnership interests.

Common stock issued in connection with acquisitions was $245 million in 1999.

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 99

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings................................................ $2,708 $2,428 $2,746
Other comprehensive income, net of tax
Currency translation adjustment........................... 37 (31) (28)
------ ------ ------
Comprehensive income........................................ $2,745 $2,397 $2,718
====== ====== ======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE> 100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1/DESCRIPTION OF BUSINESS

The Goldman Sachs Group, Inc. (Group Inc.), a Delaware corporation,
together with its consolidated subsidiaries (collectively, the firm), is a
global investment banking and securities firm that provides a wide range of
financial services worldwide to a substantial and diversified client base. On
May 7, 1999, the firm converted from a partnership to a corporation and
completed its initial public offering.

The firm's activities are divided into two business segments:

ASSET MANAGEMENT AND SECURITIES SERVICES. This segment comprises Asset
Management, Securities Services and Commissions.

NOTE 2/SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Group Inc.
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-year
presentation. All material intercompany transactions and balances have been
eliminated.

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, 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 1999, 1998 and 1997 refer
to the firm's fiscal year ended, or the date, as the context requires, November
26, 1999, November 27, 1998 and November 28, 1997, 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 non-U.S. 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 netting agreement. The firm takes possession of securities
purchased under agreements to resell, monitors the market value of these
securities on a daily basis and obtains additional collateral as appropriate.

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.

F-8
<PAGE> 101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. The consolidated statement of financial condition as of November 1999
generally reflects purchases and sales of financial instruments, including
agency transactions, on a trade date basis. The consolidated statement of
financial condition as of November 1998 generally reflects these transactions on
a settlement date basis. Recording these transactions on a trade date basis
would not have resulted in a material adjustment to the consolidated statement
of financial condition as of November 1998.

Substantially all financial instruments used in the firm's trading and
nontrading 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, or if liquidating the firm's
position is reasonably expected to affect market prices, 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 nontrading assets and liabilities is discussed further in Notes 3, 4
and 5.

PRINCIPAL INVESTMENTS

Principal investments are carried at fair value, generally based upon
quoted market prices or 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
generally included in "Trading and principal investments" on the consolidated
statements of earnings.

Derivatives used for nontrading 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 these
derivatives 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 nontrading 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 manage-

F-9
<PAGE> 102

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ment believes a legal right of setoff exists under an enforceable 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 at
acquisition date is recorded as goodwill and amortized over periods of 15 to 20
years on a straight-line basis.

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.

EARNINGS PER SHARE

Earnings per share (EPS) is computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". Basic EPS
is calculated by dividing net earnings by the weighted average number of common
shares outstanding. Common shares outstanding includes common stock and
nonvoting common stock as well as restricted stock units for which no future
service is required as a condition to the delivery of the underlying common
stock. Diluted EPS includes the determinants of basic EPS and, in addition,
reflects the dilutive effect of common stock deliverable pursuant to the
restricted stock units and stock options for which future service is required as
a condition to the delivery of the underlying common stock.

STOCK-BASED COMPENSATION

The firm has elected to account for stock-based employee compensation plans
in accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees", as permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation". In accordance with APB No. 25, compensation expense
is not recognized for stock options that have no intrinsic value on the date of
grant. Compensation expense is recognized immediately for restricted stock units
for which future service is not required as a condition to the delivery of the
underlying shares of common stock. For restricted stock units with future
service requirements, compensation expense is recognized over the relevant
vesting period using an accelerated amortization methodology.

INCOME TAXES

The firm accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which requires the recognition of tax benefits or
expenses on the temporary differences between the financial reporting and tax
bases of its assets and liabilities. As a partnership, the firm was primarily
subject to unincorporated business taxes and taxes in foreign jurisdictions on
certain of its operations. As a corporation, the earnings of the firm are
subject to U.S. federal, foreign, state and local taxes. As a result of its
conversion to corporate form, the firm recognized the tax effect of the change
in its income tax rate on both its deferred tax assets and liabilities and the
earnings attributable to the period from May 7, 1999 to the end of the fiscal
year. The firm's tax assets and liabilities are presented as a component of
"Other assets" and "Other liabilities and accrued expenses", respectively, on
the consolidated statements of financial condition.

F-10
<PAGE> 103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FOREIGN CURRENCY TRANSLATION

Assets and liabilities denominated in non-U.S. currencies are translated at
rates of exchange prevailing on the date of the statement of financial
condition, and revenues and expenses are translated at average rates of exchange
for the fiscal year. Gains or losses on translation of the financial statements
of a non-U.S. operation, where the functional currency is other than the U.S.
dollar, are reflected as a separate component of equity. Gains or losses on
foreign currency transactions are included in the consolidated statements of
earnings.

As a partnership, the firm reported the cumulative translation adjustment
as a component of "Partners' capital allocated for income taxes and potential
withdrawals" on the consolidated statement of financial condition. Effective
with the firm's conversion to corporate form, the cumulative translation
adjustment is reported as "Accumulated other comprehensive income" on the
consolidated statement of financial condition.

ACCOUNTING DEVELOPMENTS

In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133 -- an amendment of FASB Statement No.
133", which deferred to fiscal years beginning after June 15, 2000 the effective
date of the accounting and reporting requirements of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". 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 the provisions of
SFAS No. 133 deferred by SFAS No. 137 in fiscal 2001 and is currently assessing
their effect.

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 previously expensed the cost of all software
development in the period it was incurred. The adoption of SOP No. 98-1 is not
expected to have a material effect on the firm's results of operations or
financial condition. The firm intends to adopt the provisions of SOP No. 98-1 in
fiscal 2000.

NOTE 3/FINANCIAL INSTRUMENTS

Financial instruments, including both cash instruments and derivatives, are
used to manage market risk, facilitate customer transactions, engage in
proprietary 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 con-

F-11
<PAGE> 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

dition. Nontrading assets and liabilities are generally carried at fair value or
amounts that approximate fair value.

Nontrading 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.

Nontrading 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. The fair value of the firm's long-term borrowings and associated
hedges is discussed in Note 5.

TRADING AND PRINCIPAL INVESTMENTS

The firm's Trading and Principal Investments business, a component of the
Global Capital Markets segment, 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 include allocations of interest income and expense to specific
securities, commodities and other positions in relation to the cash generated
by, or funding requirements of, the underlying positions.

The following table sets forth the net revenues of Trading and Principal
Investments:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
FICC................................................... $2,862 $1,438 $2,055
Equities............................................... 1,961 795 573
Principal Investments.................................. 950 146 298
------ ------ ------
Total.................................................. $5,773 $2,379 $2,926
====== ====== ======
</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. 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.

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.

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 underwrit-

F-12
<PAGE> 105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ing, market-making and proprietary trading activities.

Categories of market risk include exposures to interest rates, currency
rates, equity prices and commodity prices. A description of each market risk
category is set forth below:

- 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.

These risk exposures are managed through diversification, by controlling
position sizes and by 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 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 held by the firm
fails to perform its contractual obligations to the firm. To reduce credit
exposures, the firm seeks to enter into netting agreements with counterparties
that permit the firm to offset receivables and payables with such
counterparties. In addition, the firm attempts to further reduce credit risk by
entering into agreements that enable us to obtain collateral from a
counterparty, to terminate or reset the terms of transactions after specified
time periods or upon the occurrence of credit-related events, by seeking
third-party guarantees of the counterparty's obligations, and through the use of
credit derivatives.

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 1999 and 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 other sovereign
obligations.

DERIVATIVE ACTIVITIES

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 nontrading derivative contracts to manage
the interest rate and currency exposure on its long-term borrowings. Nontrading
derivatives related to the firm's long-term borrowings are discussed in Note 5.

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 obliga-

F-13
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

tions, 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.

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
------------------------
1999 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Interest Rate
Financial futures and forward settlement
contracts....................................... $ 422,465 $ 406,302
Swap agreements................................... 2,581,100 1,848,977
Written option contracts.......................... 509,841 423,561

Equity
Financial futures and forward settlement
contracts....................................... 10,082 7,405
Swap agreements................................... 3,423 2,752
Written option contracts.......................... 113,653 54,856

Currency and Commodity
Financial futures and forward settlement
contracts....................................... 460,941 420,138
Swap agreements................................... 110,159 51,502
Written option contracts.......................... 193,989 183,929
</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
--------------------
1999 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Purchased Option Contracts
Interest rate........................................ $484,104 $509,770
Equity............................................... 114,680 59,571
Currency and commodity............................... 210,421 186,748
</TABLE>

The firm utilizes replacement cost as a 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 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

F-14
<PAGE> 107

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

some cases, entering into enforceable netting agreements.

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
------------------------------------------------
1999 1998
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Year End
Forward settlement contracts............. $ 4,555 $ 4,625 $ 4,061 $ 4,201
Swap agreements.......................... 12,052 11,587 10,000 11,475
Option contracts......................... 14,018 12,274 7,140 9,038
------- ------- ------- -------
Total.................................... $30,625 $28,486 $21,201 $24,714
======= ======= ======= =======
Monthly Average
Forward settlement contracts............. $ 3,877 $ 3,619 $ 4,326 $ 3,979
Swap agreements.......................... 10,414 11,210 7,340 8,158
Option contracts......................... 9,249 9,707 6,696 8,958
------- ------- ------- -------
Total.................................... $23,540 $24,536 $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
------------------
1999 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Commercial paper....................................... $ 9,403 $10,008
Promissory notes....................................... 11,061 10,763
Bank loans and other(1)................................ 17,292 6,659
------- -------
Total(2)............................................... $37,756 $27,430
======= =======
</TABLE>

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

(1) As of November 1999 and November 1998, short-term borrowings included $10.82
billion and $2.96 billion, respectively, of long-term borrowings maturing
within one year.

(2) As of November 1999 and November 1998, weighted average interest rates for
short-term borrowings, including commercial paper, were 5.66% and 5.19%,
respectively.

The firm maintains unencumbered securities with a market value in excess of
all uncollateralized short-term borrowings.

F-15
<PAGE> 108

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
------------------
1999 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Fixed Rate Obligations(1)
U.S. dollar.......................................... $ 8,236 $ 5,260
Non-U.S. dollar...................................... 1,980 2,066
Floating Rate Obligations(2)
U.S. dollar.......................................... 9,697 11,858
Non-U.S. dollar...................................... 1,039 722
------- -------
Total(3)............................................... $20,952 $19,906
======= =======
</TABLE>

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

(1) During 1999 and 1998, interest rates on U.S. dollar fixed rate obligations
ranged from 5.56% to 12.00% and from 5.74% to 10.10%, respectively. During
1999 and 1998, non-U.S. dollar fixed rate obligations interest rates ranged
from 0.85% to 9.51% and from 1.90% to 9.51%, respectively.

(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 one to 30 years from the date of issue.

Long-term borrowings by maturity date are set forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
----------------------------------------------------------------
1999 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
1999....................... $ -- $ -- $ -- $ 2,443 $ 199 $ 2,642
2000....................... 2,527 114 2,641 4,293 272 4,565
2001....................... 3,145 327 3,472 2,261 148 2,409
2002....................... 1,638 594 2,232 1,669 265 1,934
2003....................... 1,522 404 1,926 1,409 412 1,821
2004....................... 1,857 134 1,991 1,310 43 1,353
2005 - Thereafter.......... 7,244 1,446 8,690 3,733 1,449 5,182
------- ------ ------- ------- ------ -------
Total...................... $17,933 $3,019 $20,952 $17,118 $2,788 $19,906
======= ====== ======= ======= ====== =======
</TABLE>

The firm enters into nontrading 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.

F-16
<PAGE> 109

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The effective weighted average interest rates for long-term borrowings,
after hedging activities, are set forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
-----------------------------------
1999 1998
---------------- ---------------
AMOUNT RATE AMOUNT RATE
------ ---- ------ ----
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed rate obligations........................ $ 650 10.17% $ 222 8.09%
Floating rate obligations..................... 20,302 6.03 19,684 5.63
------- -------
Total............................... $20,952 6.16 $19,906 5.66
======= =======
</TABLE>

As of November 1999 and November 1998, the notional amounts of the related
swap agreements used for nontrading purposes were $12.94 billion and $10.21
billion, respectively.

The fair value and carrying value of these agreements are set forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
------------------------------------------------
1999 1998
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Fair value................................. $ 3 $159 $519 $7
Carrying value............................. 36 2 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.

F-17
<PAGE> 110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LEASES

The firm has obligations under long-term noncancelable lease agreements,
principally for office space, expiring on various dates through 2019. Certain
agreements are subject to periodic escalation charges for increases in real
estate taxes and other charges. Minimum rental commitments, net of minimum
sublease rentals, under noncancelable leases for 2000 and the succeeding four
years and thereafter

and rent charged to operating expense for the last three years are set forth
below:

<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Minimum Rental Commitments
2000.................................................... $ 203
2001.................................................... 183
2002.................................................... 182
2003.................................................... 181
2004.................................................... 154
2005 - Thereafter....................................... 836
------
Total................................................... $1,739
======
Net Rent Expense
1999.................................................... $ 154
1998.................................................... 104
1997.................................................... 87
</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. In
connection with these activities, the firm had commitments to invest up to $1.09
billion and $1.39 billion in corporate and real estate merchant banking
investment funds and a bridge loan fund as of November 1999 and November 1998,
respectively.

In connection with loan origination and participation, the firm had loan
commitments of $9.38 billion and $1.51 billion as of November 1999 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 $575 million and $790 million
relating to its fund management activities as of November 1999 and November
1998, respectively.

The firm had pledged securities of $35.83 billion and $22.88 billion as
collateral for securities borrowed of approximately equivalent value as of
November 1999 and November 1998, respectively.

The firm had commitments to enter into repurchase and resale agreements of
$30.58 billion and $46.26 billion as of November 1999 and November 1998,
respectively.

The firm provides letters of credit issued by various banks to
counterparties in lieu of securities or cash to satisfy various collateral and
margin deposit requirements. Letters of credit outstanding were $10.30 billion
and $8.81 billion as of November 1999 and November 1998, respectively.

NOTE 7/EQUITY CAPITAL

On May 7, 1999, the firm converted from a partnership to a corporation and
completed its initial public offering. In that offering, the firm sold
51,000,000 shares of common stock. In addition, the firm completed a number of
transactions to have Group Inc. suc-

F-18
<PAGE> 111

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ceed to the business of The Goldman Sachs Group, L.P. These transactions
included the exchange of the partnership interests of the participating limited
partners (PLPs), retired limited partners, Sumitomo Bank Capital Markets, Inc.
and Kamehameha Activities Association for shares of common stock. As of November
1999, the firm had equity of $10.15 billion.

Shares of nonvoting common stock are convertible into shares of common
stock on a one-for-one basis upon transfer by Sumitomo Bank Capital Markets,
Inc., the beneficial owner of such shares as of November 1999, to a third party,
and in certain other circumstances.

As of November 1998, the firm had $6.31 billion in partners' capital, which
included both the general partner's and limited partners' capital. Partners'
capital allocated for income taxes and potential withdrawals represented
management's estimate of net amounts distributable, primarily to the PLPs, under
the Partnership Agreement, for items including, among other things, income taxes
and capital withdrawals.

NOTE 8/EARNINGS PER SHARE

The computations of basic and diluted EPS are set forth below:

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 1999
-------------
(IN MILLIONS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C>
Numerator for basic and diluted EPS -- earnings
available to common stockholders.................... $2,708
===========
Denominator for basic EPS -- weighted average number
of common shares.................................... 475,883,756
Effect of dilutive securities
Restricted stock units.............................. 5,657,350
Stock options....................................... 4,262,854
-----------
Dilutive potential common shares...................... 9,920,204
-----------
Denominator for diluted EPS -- weighted average number
of common shares and dilutive potential common
shares.............................................. 485,803,960
===========
Basic EPS............................................. $ 5.69
Diluted EPS........................................... 5.57
</TABLE>

NOTE 9/EMPLOYEE BENEFIT PLANS

The firm sponsors various pension plans and certain other postretirement
benefit plans, primarily healthcare and life insurance, which cover most
employees worldwide. The firm also provides certain benefits to former or
inactive employees prior to retirement. A summary of these plans is set forth
below:

DEFINED BENEFIT PENSION PLANS AND POSTRETIREMENT PLANS

The firm maintains a defined benefit pension plan for substantially all
U.S. employees. Employees of certain non-U.S. subsidiaries participate in
various local defined benefit plans. These plans generally provide benefits
based on years of credited service and a percentage of the employee's eligible
compensation. In addition, the firm has unfunded postretirement benefit plans
that provide medical and life insurance for eligible retirees, employees and
dependents in the United States.

F-19
<PAGE> 112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables provide a summary of the changes in the plans'
projected benefit obligations and the fair value of assets for 1999 and 1998,
and a statement of the funded status of the plans as of November 1999 and
November 1998:

<TABLE>
<CAPTION>
NOVEMBER 1999 NOVEMBER 1998
------------------------------- -------------------------------
U.S. NON-U.S. POST- U.S. NON-U.S. POST-
PENSION PENSION RETIREMENT PENSION PENSION RETIREMENT
------- -------- ---------- ------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Benefit Obligation
Balance, beginning of year............. $108 $120 $ 60 $ 90 $ 77 $ 52
Service cost........................... 4 15 3 3 11 2
Interest cost.......................... 8 5 4 7 4 4
Actuarial (gain)/loss.................. (10) (4) (4) 10 30 4
Benefits paid.......................... (2) (4) (2) (2) (1) (2)
Effect of foreign exchange rates....... -- 6 -- -- (1) --
---- ---- ---- ---- ---- ----
Balance, end of year................... $108 $138 $ 61 $108 $120 $ 60
==== ==== ==== ==== ==== ====
Fair Value of Plan Assets
Balance, beginning of year............. $133 $ 75 $ -- $131 $ 56 $ --
Actual return on plan assets........... 17 11 -- 4 11 --
Firm contributions..................... -- 26 2 -- 10 3
Benefits paid.......................... (2) (4) (2) (2) (1) (3)
Effect of foreign exchange rates....... -- 2 -- -- (1) --
---- ---- ---- ---- ---- ----
Balance, end of year................... $148 $110 $ -- $133 $ 75 $ --
==== ==== ==== ==== ==== ====
Prepaid/(Accrued) Benefit Cost
Funded Status.......................... $ 40 $(28) $(61) $ 25 $(45) $(60)
Unrecognized actuarial loss............ 2 14 5 20 23 9
Unrecognized transition obligation..... (37) 23 -- (40) 22 --
Unrecognized prior service cost........ -- -- (2) -- -- (2)
---- ---- ---- ---- ---- ----
Prepaid/(accrued) benefit cost......... $ 5 $ 9 $(58) $ 5 $ -- $(53)
==== ==== ==== ==== ==== ====
</TABLE>

For plans in which the accumulated benefit obligation exceeded plan assets,
the projected benefit obligation and aggregate accumulated benefit obligation
was $138 million and $121 million as of November 1999, respectively, and $85
million and $85 million as of November 1998, respectively. The fair value of
plan assets for these plans was $110 million and $57 million as of November 1999
and November 1998, respectively. For plans in which the accumulated benefit
obligation exceeded the fair value of plan assets, the effect of recognizing
this amount would not have been material to the consolidated statements of
financial condition or comprehensive income.

F-20
<PAGE> 113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of pension expense/(income) and postretirement expense are
set forth below:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 1999 YEAR ENDED NOVEMBER 1998
------------------------------- -------------------------------
U.S. NON-U.S. POST- U.S. NON-U.S. POST-
PENSION PENSION RETIREMENT PENSION PENSION RETIREMENT
------- -------- ---------- ------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Service cost........................... $ 4 $15 $3 $ 3 $11 $2
Interest cost.......................... 8 5 4 7 4 4
Expected return on plan assets......... (10) (5) -- (10) (4) --
Net amortization....................... (2) 3 -- (3) 2 --
---- --- -- ---- --- --
Total.................................. $ -- $18 $7 $ (3) $13 $6
==== === == ==== === ==
</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
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Defined Benefit Pension Plans
U.S. Plans
Discount rate............................................. 7.5% 7.0% 7.5%
Rate of increase in future compensation levels............ 5.0 5.0 5.0
Expected long-term rate of return on plan assets.......... 7.5 7.5 7.5
International Plans
Discount rate............................................. 4.6 5.0 5.7
Rate of increase in future compensation levels............ 4.3 4.7 5.3
Expected long-term rate of return on plan assets.......... 6.0 6.0 7.0
Postretirement Plans
Discount rate............................................. 7.5 7.0 7.5
Rate of increase in future compensation levels............ 5.0 5.0 5.0
</TABLE>

For measurement purposes, a 6.6% annual rate of increase in the per capita
cost of covered healthcare benefits was assumed for the fiscal year ending
November 2000. The rate was assumed to decrease gradually to 5.0% for the fiscal
year ending November 2008 and remain at that level thereafter.

The assumed cost of healthcare has an effect on the amounts reported for
the firm's healthcare plans. A 1% change in the assumed healthcare cost trend
rate would have the following effects:

<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cost................................................... $1 $1 $(1) $(1)
Obligation............................................. 9 9 (8) (7)
</TABLE>

DEFINED CONTRIBUTION PLANS

The firm contributes to employer-sponsored U.S. and international defined
contribution plans. The firm's contribution to these plans was $94 million, $70
million and $68 million for 1999, 1998 and 1997, respectively.

The firm has also established a nonqualified defined contribution plan (the
Plan) for certain senior employees. Shares of common

F-21
<PAGE> 114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock contributed to the Plan in 1999 and outstanding as of November 1999 were
12,660,685. The shares of common stock will vest and generally be distributable
to the participant on specified future dates if the participant satisfies
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 a change in control. Dividends on the underlying shares of common stock are
paid currently to the participants. Forfeited shares remain in the Plan and are
reallocated to other participants. Contributions to the Plan are expensed on the
date of grant. Plan expense in 1999 was $674 million, including $666 million
granted in connection with the firm's initial public offering.

NOTE 10/EMPLOYEE INCENTIVE PLANS

STOCK INCENTIVE PLAN

The firm sponsors a stock incentive plan that provides for grants of
incentive stock options, nonqualified stock options, stock appreciation rights,
dividend equivalent rights, restricted stock, restricted stock units and other
stock-based awards. The stock incentive plan also permits the making of loans to
purchase shares of common stock.

The total number of shares of common stock that may be issued under the
stock incentive plan through fiscal 2002 may not exceed 300,000,000 shares and,
in each fiscal year thereafter, may not exceed 5% of the issued and outstanding
shares of common stock, determined as of the last day of the immediately
preceding fiscal year, increased by the number of shares available for awards in
previous fiscal years but not covered by awards granted in such years. As of
November 1999, 183,440,631 shares were available for grant under the stock
incentive plan.

RESTRICTED STOCK UNITS

The firm issued restricted stock units to employees in 1999 under the stock
incentive plan, primarily in connection with its initial public offering and as
part of year-end compensation. Of the total restricted stock units outstanding
as of November 1999, (i) 40,344,481 units required future service as a condition
to the delivery of the underlying shares of common stock, and (ii) 35,703,923
units did not require future service. In all cases, delivery of the underlying
shares of common stock is conditioned on the grantee's satisfying certain other
requirements outlined in the award agreements.

The activity related to these restricted stock units during 1999 is set
forth below:

<TABLE>
<CAPTION>
RESTRICTED STOCK UNITS OUTSTANDING
-----------------------------------
NO FUTURE SERVICE FUTURE SERVICE
REQUIRED REQUIRED
----------------- --------------
(IN MILLIONS, EXCEPT UNIT AMOUNTS)
<S> <C> <C>
Outstanding, beginning of year....................... -- --
Granted............................................ 36,127,314 40,780,999
Forfeited.......................................... (355,177) (436,518)
Delivered.......................................... (68,214) --
----------- -----------
Outstanding, end of year............................. 35,703,923 40,344,481
=========== ===========
Noncash compensation expense, net of forfeitures..... $2,042 $273
</TABLE>

F-22
<PAGE> 115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The future noncash compensation expense related to the restricted stock
units for which future service is required is set forth below:

<TABLE>
<CAPTION>
COMPENSATION
EXPENSE
------------
(IN MILLIONS)
<S> <C>
2000.................................................. $ 733
2001.................................................. 610
2002.................................................. 429
2003.................................................. 214
2004.................................................. 52
------
Total................................................. $2,038
======
</TABLE>

STOCK OPTIONS

Stock options granted to employees during 1999 will generally become
exercisable in equal installments on or about the third, fourth and fifth
anniversaries of the date of grant 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 a change in control. Once service requirements have been
met, these options will generally remain exercisable, subject to satisfaction of
certain conditions, until the tenth anniversary of the date of grant. Pursuant
to APB No. 25, compensation expense was not recognized for those options that
had no intrinsic value on the date of grant. The dilutive effect of these
options is included in diluted common shares outstanding under SFAS No. 128.

The activity of these stock options during 1999 is set forth below:

<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE WEIGHTED AVERAGE
OUTSTANDING EXERCISE PRICE REMAINING LIFE (YEARS)
----------- ---------------- ----------------------
<S> <C> <C> <C>
Outstanding, beginning of
year.......................... -- $ -- --
Granted....................... 40,863,172 52.91 --
Exercised..................... -- -- --
Forfeited..................... (503,506) 53.00 --
----------
Outstanding, end of year........ 40,359,666 52.91 9.42
==========
</TABLE>

The weighted average fair value of options granted through November 1999
was $16.13 per option. Fair value is estimated as of the grant date based on a
binomial option pricing model using the following weighted average assumptions:

<TABLE>
<S> <C>
Risk-free interest rate.................................... 6.1%
Expected life.............................................. 7 years
Expected volatility........................................ 30.0%
Dividend yield............................................. 1.0%
</TABLE>

PRO FORMA EFFECT OF SFAS NO. 123

If the firm were to recognize compensation expense under the fair
value-based method of SFAS No. 123 with respect to options granted, net earnings
would have

F-23
<PAGE> 116

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

decreased resulting in pro forma net earnings and EPS as follows:

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 1999
-------------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Net earnings, as reported....................... $2,708
Pro forma net earnings.......................... 2,650
EPS, as reported
Basic........................................... $ 5.69
Diluted......................................... 5.57
Pro forma EPS
Basic........................................... $ 5.57
Diluted......................................... 5.45
</TABLE>

In the table above, pro forma compensation expense associated with option
grants is recognized over the relevant vesting period. The effect of applying
SFAS No. 123 in the pro forma disclosure above is not representative of the
potential pro forma effect on net earnings in future periods.

NOTE 11/INCOME TAXES

Prior to its conversion to corporate form, the firm operated as a
partnership and generally was not subject to U.S. federal and state income
taxes. The earnings of the firm, however, were subject to local unincorporated
business taxes. In addition, certain non-U.S. subsidiaries were subject to
income taxes in their local jurisdictions. The partners of the firm's
predecessor partnership were taxed on their proportionate share of the
partnership's taxable income or loss. Effective with the conversion from a
partnership to a corporation on May 7, 1999, the firm became subject to U.S.
federal, state and local corporate income taxes.

The components of the net tax (benefit)/expense reflected on the
consolidated statements of earnings are set forth below:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-----------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current Taxes
U.S. federal............................................. $ 16 $ 16 $ 5
State and local.......................................... 67 28 87
Non-U.S. ................................................ 588 426 144
------- ---- ----
Total current tax expense...................... 671 470 236

Deferred Taxes
U.S. federal............................................. (688) -- --
State and local.......................................... (342) (3) (4)
Non-U.S. ................................................ (357) 26 36
------- ---- ----
Total deferred tax (benefit)/expense........... (1,387) 23 32
------- ---- ----
Net tax (benefit)/expense................................ $ (716) $493 $268
======= ==== ====
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the financial reporting and tax bases of assets and liabilities. These
temporary differences result in taxable or deductible amounts in future years
and are measured using the tax rates and laws that will be in effect when such
differences are expected to reverse. In

F-24
<PAGE> 117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

connection with the conversion from a partnership to a corporation, the firm
recognized a deferred tax benefit related to the revaluation of net deferred tax
assets recorded as a partnership. Additionally, deferred tax assets were
recorded as a result of acquisitions during 1999.

Significant components of the firm's deferred tax assets and liabilities
are set forth below:

<TABLE>
<CAPTION>
AS OF NOVEMBER
--------------
1999 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Deferred Tax Assets
Compensation and benefits................................... $1,397 $44
Foreign tax credits......................................... 140 --
Depreciation and amortization............................... 57 14
Other, net.................................................. 226 14
------ ---
1,820 72
Less: valuation allowance(1)................................ (83) --
------ ---
Total deferred tax assets......................... 1,737 72
------ ---
Deferred Tax Liabilities
Unrealized gains............................................ 257 33
------ ---
Total deferred tax liabilities.................... 257 33
------ ---
Net deferred tax assets..................................... $1,480 $39
====== ===
</TABLE>

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

(1) Relates primarily to the ability to recognize tax benefits associated with
non-U.S. operations.

A reconciliation of the U.S. federal statutory income tax rate to the
firm's effective income tax rate is set forth below:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
----------------------------
1999 1998(1) 1997(1)
---- ------- -------
<S> <C> <C> <C>
U.S. federal statutory income tax rate................. 35.0% --% --%
Increase related to:
State and local taxes, net of U.S. income tax
effects.............................................. 5.0 0.9 2.8
Foreign................................................ -- 15.5 6.0
Other.................................................. -- 0.5 0.1
----- ---- ---
Rate before one-time events............................ 40.0 16.9 8.9
Revaluation of deferred tax assets upon change in tax
status............................................... (41.4)(2) -- --
Rate benefit for partnership period.................... (37.7)(3) -- --
Other.................................................. 3.2 -- --
----- ---- ---
Total tax (benefit)/expense............................ (35.9)% 16.9% 8.9%
===== ==== ===
</TABLE>

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

(1) The U.S. federal statutory income tax rate is not applicable to 1998 or 1997
because the firm operated as a partnership and generally was not subject to
corporate federal income taxes. U.S. federal taxes paid by subsidiary
corporations are included in "Other" for 1998 and 1997.

(2) The deferred tax benefit recognized upon the firm's change in tax status
from partnership to corporate form primarily reflects the revaluation of the
deferred tax assets and liabilities at the firm's corporate income tax rate.

(3) The rate benefit for the partnership period relates to the firm's earnings
prior to its conversion to corporate form, which generally were not subject
to corporate income taxes.

F-25
<PAGE> 118

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12/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 1999 and November 1998, GS&Co.
had regulatory net capital, as defined, of $2.92 billion and $3.25 billion,
respectively, which exceeded the amounts required by $2.31 billion and $2.70
billion, respectively.

GSI, a registered U.K. broker-dealer and subsidiary of Group Inc., 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 1999 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 1999 and November 1998, these subsidiaries were in compliance
with their local capital adequacy requirements.

NOTE 13/BUSINESS SEGMENTS

In reporting to management, the firm's operating results are categorized
into the following two principal segments: Global Capital Markets; and Asset
Management and Securities Services.

GLOBAL CAPITAL MARKETS

The Global Capital Markets segment includes services related to the
following:

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.

TRADING AND PRINCIPAL INVESTMENTS. The firm's Trading and Principal
Investments business facilitates transactions with a diverse group of
corporations, financial institutions, governments and individuals and takes
proprietary positions through market making in and trading of fixed income and
equity products, currencies, commodities, and swaps and other derivatives.
Trading and Principal Investments is divided into three categories:

- - 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 net
revenues from the firm's merchant banking investments.

ASSET MANAGEMENT AND SECURITIES SERVICES

The Asset Management and Securities Services segment includes services
related to the following:

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

- - SECURITIES SERVICES. Securities Services includes prime brokerage, financing
ser-

F-26
<PAGE> 119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

vices 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. Commissions include agency transactions for clients on major
stock and futures exchanges and revenues from the increased share of the
income and gains derived from the firm's merchant banking funds.

BASIS OF PRESENTATION

In reporting segments, certain of the firm's business lines have been
aggregated where they have similar economic characteristics and are similar in
each of the following areas: (i) the nature of the services they provide, (ii)
their methods of distribution, (iii) the types of clients they serve and (iv)
the regulatory environments in which they operate.

The firm allocates revenues and expenses between the two segments. Due to
the integrated nature of the business segments, estimates and judgments have
been made in allocating certain revenue and expense items. Transactions between
segments are based on specific criteria or approximate third-party rates. Total
operating expenses include corporate items that have not been allocated to
either business segment. The allocation process is based on the manner in which
management views the business of the firm.

The segment information presented in the table below is prepared according
to the following methodologies:

- - Revenues and expenses directly associated with each segment are included in
determining pre-tax earnings.

- - Net revenues in the firm's segments include allocations of interest income and
expense to specific securities, commodities and other positions in relation to
the cash generated by, or funding requirements of, the underlying positions.
Net interest is allocated to the Trading and Principal Investments component
of Global Capital Markets and the Securities Services component of Asset
Management and Securities Services. Net interest is included within segment
net revenues as it is consistent with the way in which management assesses
segment performance.

- - Overhead expenses not directly allocable to specific segments are allocated
ratably based on direct segment expenses.

- - The nonrecurring expenses associated with the firm's conversion to corporate
form and related transactions are not allocated to individual segments as
management excludes them in evaluating segment performance.

F-27
<PAGE> 120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SEGMENT OPERATING RESULTS

Management believes that the following information provides a reasonable
representation of each segment's contribution to consolidated pre-tax earnings
and total assets:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Global Capital Markets
Net revenues(1)............................... $ 10,132 $ 5,747 $ 5,513
Operating expenses(2)......................... 6,232 3,978 3,228
-------- -------- --------
Pre-tax earnings(3)........................... $ 3,900 $ 1,769 $ 2,285
======== ======== ========
Segment assets................................ $127,515 $102,724 $ 99,974
======== ======== ========
Asset Management and Securities Services
Net revenues(1)............................... $ 3,213 $ 2,773 $ 1,934
Operating expenses(2)......................... 2,396 1,621 1,205
-------- -------- --------
Pre-tax earnings(3)........................... $ 817 $ 1,152 $ 729
======== ======== ========
Segment assets................................ $121,693 $114,293 $ 78,193
======== ======== ========
Total
Net revenues(1)............................... $ 13,345 $ 8,520 $ 7,447
Operating expenses(2)......................... 11,353(5) 5,599 4,433
-------- -------- --------
Pre-tax earnings.............................. $ 1,992 $ 2,921 $ 3,014
======== ======== ========
Total assets(4)............................... $250,491 $217,380 $178,401
======== ======== ========
</TABLE>

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

(1) Net revenues include net interest as set forth in the table below:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
------------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Global Capital Markets...................................... $ 15 $ 364 $ 623
Asset Management and Securities Services.................... 689 688 478
---- ------ ------
Total net interest.......................................... $704 $1,052 $1,101
==== ====== ======
</TABLE>

(2) Operating expenses include depreciation and amortization as set forth in the
table below:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
------------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Global Capital Markets...................................... $228 $158 $119
Asset Management and Securities Services.................... 109 84 59
---- ---- ----
Total depreciation and amortization......................... $337 $242 $178
==== ==== ====
</TABLE>

(3) The pre-tax earnings of the firm's segments in 1999 reflect payments for
services rendered by managing directors who, prior to the firm's conversion
to corporate form, were profit participating limited partners. In prior
years, these payments were accounted for as distributions of partners'
capital rather than as compensation and benefits expense. As a result, these
payments are not reflected in the operating expenses of the firm's segments
in 1998 and 1997 and, therefore, the pre-tax earnings of the firm's segments
in these years are not comparable with 1999.

(4) Includes deferred tax assets relating to the firm's conversion to corporate
form and certain other assets that management believes are not allocable to
a particular segment.

(5) Includes the following expenses that have not been allocated to the firm's
segments: (i) nonrecurring employee initial public offering awards of $2.26
billion, (ii) the ongoing amortization of employee initial public offering
awards of $268 million and (iii) the charitable contribution to The Goldman
Sachs Foundation of $200 million made at the time of the firm's initial
public offering.

F-28
<PAGE> 121

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the net revenues of the firm's two segments:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
---------------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Financial Advisory.................................... $ 2,270 $1,774 $1,184
Underwriting.......................................... 2,089 1,594 1,403
------- ------ ------
Investment Banking.................................... 4,359 3,368 2,587
------- ------ ------
FICC.................................................. 2,862 1,438 2,055
Equities.............................................. 1,961 795 573
Principal Investments................................. 950 146 298
------- ------ ------
Trading and Principal Investments..................... 5,773 2,379 2,926
------- ------ ------
Total Global Capital Markets.......................... 10,132 5,747 5,513
------- ------ ------
Asset Management...................................... 919 675 458
Securities Services................................... 772 730 487
Commissions........................................... 1,522 1,368 989
------- ------ ------
Total Asset Management and Securities Services........ 3,213 2,773 1,934
------- ------ ------
Total net revenues.................................... $13,345 $8,520 $7,447
======= ====== ======
</TABLE>

GEOGRAPHIC INFORMATION

Due to the highly integrated nature of international financial markets, the
firm manages its businesses based on the profitability of the enterprise as a
whole. Accordingly, management believes that profitability by geographic region
is not necessarily meaningful.

The firm's revenues, expenses and identifiable assets are generally
allocated based on the country of domicile of the legal entity providing the
service.

F-29
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the total net revenues, pre-tax earnings,
and identifiable assets of the firm and its consolidated subsidiaries by
geographic region allocated on the basis described above:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-------------------------------------
1999 1998 1997
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Net Revenues
United States.............................. $ 8,536 $ 5,133 $ 4,724
Other Americas............................. 327 308 379
United Kingdom............................. 3,103 1,893 1,570
Other Europe............................... 375 333 190
Asia....................................... 1,004 853 584
--------- --------- ---------
Total net revenues......................... $ 13,345 $ 8,520 $ 7,447
========= ========= =========
Pre-tax Earnings(1)
United States.............................. $ 2,878 $ 1,315 $ 1,737
Other Americas............................. 184 209 302
United Kingdom............................. 1,203 746 625
Other Europe............................... 198 216 89
Asia....................................... 254 435 261
Other...................................... (2,725)(3) -- --
--------- --------- ---------
Total pre-tax earnings..................... $ 1,992 $ 2,921 $ 3,014
========= ========= =========
Identifiable Assets
United States.............................. $ 238,875 $ 213,971 $ 189,622
Other Americas............................. 6,118 6,596 8,512
United Kingdom............................. 119,350 94,025 69,260
Other Europe............................... 11,737 8,820 7,555
Asia....................................... 18,088 19,536 13,085
Eliminations and other(2).................. (143,677) (125,568) (109,633)
--------- --------- ---------
Total identifiable assets.................. $ 250,491 $ 217,380 $ 178,401
========= ========= =========
</TABLE>

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

(1) The pre-tax earnings of the firm in 1999 reflect payments for services
rendered by managing directors who, prior to the firm's conversion to
corporate form, were profit participating limited partners. In prior years,
these payments were accounted for as distributions of partners' capital
rather than as compensation and benefits expense. As a result, these
payments are not reflected in the firm's operating expenses in 1998 and 1997
and, therefore, the pre-tax earnings in these years are not comparable with
1999.

(2) Reflects eliminations and certain assets that are not allocable to a
particular geographic region.

(3) Includes the following expenses that have not been allocated to the firm's
geographic regions: (i) nonrecurring employee initial public offering awards
of $2.26 billion, (ii) the ongoing amortization of employee initial public
offering awards of $268 million and (iii) the charitable contribution to The
Goldman Sachs Foundation of $200 million made at the time of the firm's
initial public offering.

NOTE 14/SUBSEQUENT EVENTS

On December 20, 1999, the Board of Directors of Group Inc. declared a
dividend of $0.12 per share to be paid on February 24, 2000 to voting and
nonvoting common shareholders of record on January 24, 2000.

F-30
<PAGE> 123

SUPPLEMENTAL FINANCIAL INFORMATION

QUARTERLY RESULTS (UNAUDITED)

The following represents the firm's unaudited quarterly results for 1999
and 1998. These quarterly results conform with generally accepted accounting
principles and reflect all adjustments, consisting only of normal recurring
adjustments, that are, in the opinion of management, necessary for a fair
presentation of the results.

<TABLE>
<CAPTION>
1999 FISCAL QUARTER
---------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total revenues............................ $5,856 $ 6,355 $6,440 $6,712
Interest expense.......................... 2,861 2,886 3,032 3,239
------ ------- ------ ------
Revenues, net of interest expense......... 2,995 3,469 3,408 3,473
Operating expenses........................ 1,807 4,956 2,326 2,264
------ ------- ------ ------
Pre-tax earnings/(loss)................... 1,188 (1,487)(1) 1,082 1,209
Provision/(benefit) for taxes............. 181 (1,827)(2) 444 486
------ ------- ------ ------
Net earnings............................ $1,007 $ 340 $ 638 $ 723
====== ======= ====== ======
Earnings per share
Basic................................... -- $ 0.72 $ 1.34 $ 1.51
Diluted................................. -- 0.71 1.32 1.48
Dividends paid per share.................. -- -- 0.12 0.12
</TABLE>

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

(1) Includes nonrecurring expenses of $2.26 billion associated with the firm's
conversion to corporate form and the firm's charitable contribution to The
Goldman Sachs Foundation of $200 million made at the time of the firm's
initial public offering.

(2) Includes a net tax benefit of $825 million related to the firm's conversion
to corporate form, a benefit of $880 million related to the granting of
employee initial public offering awards and a benefit of $80 million related
to the charitable contribution to The Goldman Sachs Foundation.

<TABLE>
<CAPTION>
1998 FISCAL QUARTER
------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Total revenues............................... $5,903 $6,563 $5,735 $4,277
Interest expense............................. 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-31
<PAGE> 124

PLAN OF DISTRIBUTION

The selling shareholders, and their pledgees, donees, transferees or other
successors in interest, may offer and sell, from time to time, some or all of
the shares of common stock covered by this prospectus. We have registered the
shares of common stock covered by this prospectus for offer and sale by the
selling shareholders so that those shares may be freely sold to the public by
them. Registration of the shares of common stock covered by this prospectus does
not mean, however, that those shares necessarily will be offered or sold. We
will not receive any proceeds from any sale by the selling shareholders of the
securities. See "Use of Proceeds". We will pay all costs, expenses and fees in
connection with the registration of the shares of common stock, including fees
of our counsel and accountants, fees payable to the SEC and listing fees. We
estimate those fees and expenses to be approximately $1.8 million. The selling
shareholders will pay all underwriting discounts and commissions and similar
selling expenses, if any, attributable to the sale of the shares of common stock
covered by this prospectus.

The selling shareholders, including their pledgees, donees, transferees or
other successors in interest, may sell the shares of common stock covered by
this prospectus from time to time, at market prices prevailing at the time of
sale, at prices related to market prices, at a fixed price or prices subject to
change or at negotiated prices, by a variety of methods including the following:

- - in privately negotiated transactions;

- - through broker-dealers, who may act as agents or principals;

- - in a block trade in which a broker-dealer will attempt to sell a block of
shares of common stock as agent but may position and resell a portion of the
block as principal to facilitate the transaction;

- - through one or more underwriters on a firm commitment or best-efforts basis;

- - directly to one or more purchasers;

- - through agents; or

- - in any combination of the above.

In effecting sales, brokers or dealers engaged by the selling shareholders
may arrange for other brokers or dealers to participate. Broker-dealer
transactions may include:

- - purchases of the shares of common stock by a broker-dealer as principal and
resales of the shares of common stock by the broker-dealer for its account
pursuant to this prospectus;

- - ordinary brokerage transactions; or

- - transactions in which the broker-dealer solicits purchasers.

At any time a particular offer of the shares of common stock covered by
this prospectus is made, a revised prospectus or prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of
shares of common stock covered by this prospectus being offered and the terms of
the offering, including the name or names of any underwriters, dealers, brokers
or agents, any discounts, commissions, concessions and other items constituting
compensation from the selling shareholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers. Such prospectus supplement,
and, if necessary, a post-effective amendment to the registration statement of
which this prospectus is a part, will be filed with the SEC to reflect the
disclosure of additional information with respect to the distribution of the
shares of common stock covered by this prospectus.

In connection with the sale of the shares of common stock covered by this
prospectus through underwriters, underwriters may receive compensation in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of shares of common stock for whom they may act as agent.
Underwriters may sell to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.

P-1
<PAGE> 125

Goldman, Sachs & Co., a subsidiary of The Goldman Sachs Group, Inc., may be one
such underwriter.

The common stock is listed on the NYSE under the symbol "GS".

Because Goldman, Sachs & Co. is a member of the NYSE and because of its
relationship to The Goldman Sachs Group, Inc., it is not permitted under the
rules of the NYSE to make markets in or recommendations regarding the purchase
or sale of the common stock.

Any underwriters, broker-dealers or agents participating in the
distribution of the shares of common stock covered by this prospectus may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and any commissions received by any of those underwriters, broker-dealers or
agents may be deemed to be underwriting commissions under the Securities Act of
1933.

We have agreed, in the registration rights instrument, to indemnify the
selling shareholders and each person or entity which participates as or may be
deemed to be an underwriter in the offering or sale of the selling shareholders'
shares of common stock against certain liabilities (and to contribute to
payments in respect of those liabilities), including liabilities arising under
the Securities Act of 1933. See "Shares Eligible for Future Sale -- Registration
Rights Instrument" for a further description of the terms of the registration
rights instrument.

Some of the shares of common stock covered by this prospectus may be sold
in private transactions or under Rule 144 under the Securities Act of 1933
rather than pursuant to this prospectus.

This prospectus may also be used in connection with sales by Goldman, Sachs
& Co. of up to 1,084,316 shares of common stock donated to charitable
organizations by our retired limited partners.

P-2
<PAGE> 126

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

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 to buy only the shares offered hereby, 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.......................... 7
Use of Proceeds....................... 16
Price Range of Our Common Stock and
Dividends........................... 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 43
Management............................ 60
Selling Shareholders.................. 73
Principal Shareholders................ 74
Certain Relationships and Related
Transactions........................ 77
Description of Capital Stock.......... 82
Shares Eligible for Future Sale....... 87
Validity of Common Stock.............. 90
Experts............................... 91
Available Information................. 91
Cautionary Statement Pursuant to The
Private Securities Litigation Reform
Act of 1995......................... 91
Index to Consolidated Financial
Statements.......................... F-1
Plan of Distribution.................. P-1
</TABLE>

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

2,168,353 Shares

THE GOLDMAN SACHS
GROUP, INC.

Common Stock
------------------

[GOLDMAN SACHS LOGO]

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

-------------------------------------------------------
-------------------------------------------------------
<PAGE> 127

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) to be incurred by the
Registrant in connection with the distribution of the securities registered
under this registration statement:

<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 166,110
NASD fees................................................... 30,500
Legal fees and expenses..................................... 600,000
Fees and expenses of qualification under state securities
laws (including legal fees)............................... 10,000
Accounting fees and expenses................................ 100,000
Printing and engraving fees................................. 600,000
Miscellaneous............................................... 293,390
----------
Total............................................. $1,800,000
==========
</TABLE>

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
who is or was a director of any of its subsidiaries, is or was a member of the
Shareholders' Committee (as defined in the prospectus included in this
registration statement) 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,
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 has entered into
agreements with certain directors, officers and employees who are asked to serve
in specified capacities at subsidiaries and other entities.
II-1
<PAGE> 128

The Registrant has entered into an agreement that provides indemnification
to its directors and officers and to the directors and certain officers of the
general partner of The Goldman Sachs Group, L.P., members of its Management
Committee or its Partnership Committee or the former Executive Committee of The
Goldman Sachs Group, L.P. and all other persons requested or authorized by the
Registrant's board of directors or the board of directors of the general partner
of The Goldman Sachs Group, L.P. to take actions on behalf of the Registrant,
The Goldman Sachs Group, L.P. or the general partner of The Goldman Sachs Group,
L.P. in connection with the plan of incorporation and certain registration
statements for all losses, damages, costs and expenses incurred by the
indemnified person arising out of the relevant registration statements or the
transactions contemplated by the plan of incorporation. The Registrant has also
entered into a similar indemnification agreement with its directors, some of its
officers and all other persons requested or authorized by the Registrant's board
of directors or any committee thereof to take actions on behalf of the
Registrant in connection with this registration statement and certain other
registration statements. These agreements are in addition to the Registrant's
indemnification obligations under its by-laws.

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.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In connection with its conversion to corporate form, the Registrant issued:
(i) 265,019,073 shares of the Registrant's common stock, par value $0.01 per
share, to certain managing directors who were profit participating limited
partners of The Goldman Sachs Group, L.P. in exchange for all of these managing
directors' interests in The Goldman Sachs Group, L.P. and certain other
affiliates; (ii) 47,270,551 shares of common stock and $295 million principal
amount of 12% junior subordinated debentures of the Registrant to certain
retired limited partners of The Goldman Sachs Group, L.P. in exchange for all of
such limited partners' interests in The Goldman Sachs Group, L.P. and certain
other affiliates; (iii) 30,425,052 shares of common stock and 7,440,362 shares
of the Registrant's nonvoting common stock, par value $0.01 per share, to
Sumitomo Bank Capital Markets, Inc. in exchange for its interests in The Goldman
Sachs Group, L.P. and Goldman, Sachs & Co.; and (iv) 30,975,421 shares of common
stock to Kamehameha Activities Association in exchange for its interests in The
Goldman Sachs Group, L.P. Also, simultaneously with its conversion to corporate
form on May 7, 1999, the Registrant made awards of restricted stock units and/or
stock options to substantially all of its employees and made an irrevocable
contribution of shares 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 to the managing directors who were profit
participating limited partners, retired limited partners, Sumitomo Bank Capital
Markets, Inc. and Kamehameha Activities Association were not registered under
the Securities Act of 1933, because the offering and sale (i) was made in
reliance on the exemption provided by Section 4(2) of the Securities

II-2
<PAGE> 129

Act of 1933 and Rule 506 thereunder for transactions by an issuer not involving
a public offering (with the recipients representing their intentions to acquire
the securities for their own accounts and not with a view to the distribution
thereof and acknowledging that the securities were issued in a transaction not
registered under the Securities Act of 1933) or (ii) were made outside the
United States pursuant to Regulation S under the Securities Act of 1933 to
persons who were not citizens or residents of the United States. The foregoing
employee awards and contribution of common stock were not registered under the
Securities Act of 1933 because the awards and contribution either did not
involve an offer or sale for purposes of Section 2(a)(3) of the Securities Act
of 1933, in reliance on the fact that the awards were made to a relatively broad
class of employees who provided no consideration in exchange for their awards,
or were offered and sold in transactions not involving a public offering, exempt
from registration under the Securities Act of 1933 pursuant to Section 4(2) and
in compliance with Rule 506 thereunder.

On April 13, 1999, the Registrant entered into an arrangement with a group
of 10 employees pursuant to which a portion of a performance-based bonus that is
payable to such employees in 2002 will be paid in shares of common stock of the
Registrant valued at $53.00 per share. Under this arrangement, up to 386,500
shares of common stock may be issued. The offering and sale of these 386,500
shares of common stock was made pursuant to Rule 701 under the Securities Act of
1933.

On September 24, 1999, the Registrant issued 4,024,637 shares of common
stock in connection with its acquisition of The Hull Group, Inc. These shares
were issued in a transaction not involving a public offering in reliance on the
exemption provided by Section 4(2) of the Securities Act of 1933 and Rule 506
thereunder for transactions by an issuer not involving a public offering (with
the recipients representing their intentions to acquire the shares for their own
accounts and not with a view to the distribution thereof and acknowledging that
the shares were issued in a transaction not registered under the Securities Act
of 1933).

During the period from May 7, 1999 to February 11, 2000 the Registrant
issued a series of $1 billion aggregate principal amount of Medium-Term Notes,
Series A, with a thirteen-month final maturity, exchangeable monthly for a new
like security. This series was issued in a transaction not involving a public
offering in reliance upon the exemption provided by Section 4(2) of the
Securities Act of 1933 and Rule 506 thereunder for transactions by an issuer not
involving a public offering (with the purchasers representing their intentions
to acquire the notes for their own accounts and not with a view to the
distribution thereof and acknowledging that the notes were not registered under
the Securities Act of 1933). Goldman, Sachs & Co. acted as the sole placement
agent for this offering.

During the period from May 7, 1999 to February 11, 2000, the Registrant
issued its Euro Medium-Term Notes, Series C, with maturities ranging from 12
months to 180 months, in an aggregate face or principal amount equivalent to
$547 million (including certain of those notes which were not denominated in
U.S. dollars). All of these notes were offered and sold outside the United
States pursuant to Regulation S under the Securities Act of 1933 to persons who
were not citizens or residents of the United States. Goldman Sachs International
acted as the sole placement agent for these offerings.

During the period from May 7, 1999 to February 11, 2000, the Registrant
issued its debt securities (other than its Euro Medium-Term Notes, Series C,
referred to above), with a maturity of 60 months, in an aggregate principal
amount equivalent to $229.6 million (those debt securities were denominated in
Japanese yen). All of those debt securities were offered and sold outside the
United States pursuant to Regulation S under the Securities Act of 1933 to
persons who were not citizens or residents of the United States. Goldman Sachs
International, Nomura International and Norinchukin International plc acted as
placement agents for that offering.

During the period from May 7, 1999 to February 11, 2000, the Registrant
issued its Medium-Term Notes, Series C, with maturities of 12 months, in an
aggregate face or principal

II-3
<PAGE> 130

amount equivalent to $42.8 million. All of these notes were issued in
transactions not involving a public offering in reliance upon the exemption
provided by Rule 144A under the Securities Act of 1933. Goldman, Sachs & Co.
acted as the sole placement agent for these offerings.

During the period from May 7, 1999 to February 11, 2000, the Registrant
issued an aggregate principal amount of $5.3 billion of extendable commercial
notes. These notes have an initial maturity of not more than 90 days and bear
commercial paper interest rates during that period. They are extendable at the
Registrant's option to a total maturity of 13 months and bear interest at a
floating rate depending on the Registrant's credit rating during the extension
period. These notes were issued in a transaction not involving a public offering
in reliance upon the exemption provided by Section 4(2) of the Securities Act of
1933. Goldman, Sachs & Co. acted as the sole placement agent for these
offerings.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<C> <S>
2.1 Plan of Incorporation.*
2.2 Agreement and Plan of Merger of The Goldman Sachs
Corporation into The Goldman Sachs Group, Inc.**
2.3 Agreement and Plan of Merger of The Goldman Sachs Group,
L.P. into The Goldman Sachs Group, Inc.**
3.1 Certificate of Incorporation of The Goldman Sachs Group,
Inc.*
3.2 Amended and Restated Certificate of Incorporation of The
Goldman Sachs Group, Inc.**
3.3 Amended and Restated By-Laws of The Goldman Sachs Group,
Inc.**
4.1 Specimen of certificate representing The Goldman Sachs
Group, Inc.'s common stock, par value $0.01 per share.*
4.2 Stockholder Protection Rights Agreement, dated as of April
5, 1999, between The Goldman Sachs Group, Inc. and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent
(incorporated by reference to Exhibit 5 to the Registrant's
registration statement on Form 8-A filed on June 29, 1999).
Certain instruments defining the rights of holders of
long-term debt securities of the Registrant and its
subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of
Regulation S-K. The Registrant hereby undertakes to furnish
to the SEC, upon request, copies of any such instruments.
5.1 Opinion of Sullivan & Cromwell, counsel to The Goldman Sachs
Group, Inc.***
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., as
amended.*
10.3 Lease, dated as of August 22, 1997, between Ten Hanover LLC
and The Goldman Sachs Group, L.P.*
10.4 Lease, dated as of July 16, 1998, between TCC Acquisition
Corp. and The Goldman Sachs 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, (iii) Restamove Limited, (iv) The Goldman
Sachs Group, L.P. and (v) Itochu Corporation.*
</TABLE>

II-4
<PAGE> 131

<TABLE>
<C> <S>
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)
Goldman Sachs International, (iii) Restamove Limited, (iv)
The Goldman Sachs 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) Goldman Sachs International and
(iii) The Goldman Sachs 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) The Goldman
Sachs Group, L.P.*
10.8 Agreement relating to One Carter Lane, London EC4, dated
March 25, 1998, among Britel Fund Trustees Limited, Goldman
Sachs International, The Goldman Sachs 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, Goldman Sachs International, Goldman Sachs Property
Management, The Goldman Sachs 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,
Goldman Sachs International and The Goldman Sachs 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 The Goldman Sachs 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 Letter Agreement with Mr. John L. Weinberg.*
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 Form of Award Agreement (Formula RSUs).**
10.23 Form of Award Agreement (Discretionary RSUs).**
10.24 Form of Option Agreement (Discretionary Options).**
10.25 Tax Indemnification Agreement, dated as of May 7, 1999, by
and among The Goldman Sachs Group, Inc. and various
parties.**
10.26 Form of Shareholders' Agreement among The Goldman Sachs
Group, Inc. and various parties.
10.27 Instrument of Indemnification.**
10.28 Form of Indemnification Agreement.
</TABLE>

II-5
<PAGE> 132

<TABLE>
<C> <S>
10.29 Subscription Agreement, dated as of April 24, 1992, among
the Trustees of the Estate of Bernice Pauahi Bishop, Pauahi
Holdings Corporation, Royal Hawaiian Shopping Center, Inc.
and The Goldman Sachs Group, L.P.*
10.30 Subscription Agreement, dated as of November 21, 1994, among
the Trustees of the Estate of Bernice Pauahi Bishop, Pauahi
Holdings Corporation, Royal Hawaiian Shopping Center, Inc.
and The Goldman Sachs Group, L.P.*
10.31 Letter Agreement, dated March 15, 1999, among Kamehameha
Activities Association and The Goldman Sachs Group, L.P.
(the "Kamehameha Letter Agreement").*
10.32 Amended and Restated Subscription Agreement, dated March 28,
1989, among The Sumitomo Bank, Limited, Sumitomo Bank
Capital Markets, Inc., Goldman, Sachs & Co. and The Goldman
Sachs Group, L.P.*
10.33 Letter Agreement, dated March 15, 1999, among The Sumitomo
Bank, Limited, Sumitomo Bank Capital Markets, Inc. and The
Goldman Sachs Group, L.P. (the "Sumitomo Letter
Agreement").*
10.34 Lease, dated September 24, 1992, from LDT Partners to
Goldman Sachs International.*
10.35 Amendment to Kamehameha Letter Agreement (filed as Exhibit
10.31), dated April 30, 1999, among Kamehameha Activities
Association, The Trustees of the Estate of Bernice Pauahi
Bishop, The Goldman Sachs Group, L.P. and The Goldman Sachs
Group, Inc.**
10.36 Amendment to Sumitomo Letter Agreement (filed as Exhibit
10.33), dated April 30, 1999, among The Sumitomo Bank,
Limited, Sumitomo Bank Capital Markets, Inc., The Goldman
Sachs Group, L.P., The Goldman Sachs Group, Inc. and
Goldman, Sachs & Co.**
10.37 Voting Agreement, dated as of April 30, 1999, by and among
The Goldman Sachs Group, Inc., on the one hand, and The
Trustees of the Estate of Bernice Pauahi Bishop and
Kamehameha Activities Association, on the other hand.**
10.38 Voting Agreement, dated as of April 30, 1999, by and among
The Goldman Sachs Group, Inc., on the one hand, and The
Sumitomo Bank, Limited and Sumitomo Bank Capital Markets,
Inc., on the other hand.**
10.39 Indenture, dated as of May 19, 1999, between The Goldman
Sachs Group, Inc. and The Bank of New York, as trustee
(incorporated by reference to Exhibit 6 to the Registrant's
registration statement on Form 8-A filed on June 29, 1999).
10.40 Letter Agreement, dated August 18, 1999, between The Goldman
Sachs Group, Inc. and Mr. James A. Johnson (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the period ended August 27, 1999).
10.41 Letter Agreement, dated August 18, 1999, between The Goldman
Sachs Group, Inc. and Sir John Browne (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the period ended August 27, 1999).
10.42 Letter Agreement, dated November 9, 1999, between The
Goldman Sachs Group, Inc. and Mr. John H. Bryan.***
10.43 Registration Rights Instrument, dated as of December 10,
1999 (incorporated by reference to Exhibit G to Amendment
No. 1 to Schedule 13D, filed December 17, 1999, relating to
the Registrant's common stock).
10.44 Form of Indemnification Agreement.
10.45 Supplemental Registration Rights Instrument, dated as of
December 10, 1999 (incorporated by reference to Exhibit H to
Amendment No. 1 to Schedule
13D, filed December 17, 1999, relating to the Registrant's
common stock).
</TABLE>

II-6
<PAGE> 133

<TABLE>
<C> <S>
10.46 Letter Agreement, dated January 21, 2000, between The
Goldman Sachs Group, Inc. and Dr. Ruth J. Simmons
(incorporated by reference to Exhibit 10.45 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended November 26, 1999).
11.1 Statement re computation of per share earnings (incorporated
by reference to Exhibit 11.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended November 26,
1999).
21.1 List of subsidiaries of The Goldman Sachs Group, Inc.
(incorporated by reference to Exhibit 21.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended November 26, 1999).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5.1
above).***
24.1 Powers of Attorney.***
</TABLE>

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

* Incorporated by reference to the corresponding exhibit to the Registrant's
registration statement on Form S-1 (No. 333-74449).

** Incorporated by reference to the corresponding exhibit to the Registrant's
registration statement on Form S-1 (No. 333-75213).

*** Previously filed.

(b) FINANCIAL STATEMENT SCHEDULES

Condensed financial information of The Goldman Sachs Group, Inc. and report
of PricewaterhouseCoopers LLP thereon.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(a)(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 of 1933;

(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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) may be
reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if the change in volume represents no
more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.

(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 of 1933, 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 offered which remain unsold at the termination
of the offering.

II-7
<PAGE> 134

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 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 of 1933 and will be governed by the final
adjudication of such issue.

II-8
<PAGE> 135

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 1 to the Registration
Statement (No. 333-90677) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, New York on the 11th day of
February, 2000.

THE GOLDMAN SACHS GROUP, INC.

By: /s/ DAVID A. VINIAR

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

Name: David A. Viniar

Title: Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement (No. 333-90677) has
been signed by the following persons in the capacities indicated on the 11th day
of February, 2000:

<TABLE>
<CAPTION>
TITLE SIGNATURE
----- ---------

<S> <C>
Director, Chairman of the Board and
Chief Executive Officer (Principal Executive
Officer) *
----------------------------------------------
Henry M. Paulson, Jr.

Director and Vice Chairman *
----------------------------------------------
Robert J. Hurst

Director, President and Co-Chief Operating Officer *
----------------------------------------------
John A. Thain

Director, President and Co-Chief Operating Officer *
----------------------------------------------
John L. Thornton

Director *
----------------------------------------------
Sir John Browne

Director *
----------------------------------------------
John H. Bryan

Director *
----------------------------------------------
James A. Johnson

Director
----------------------------------------------
Ruth J. Simmons

Director *
----------------------------------------------
John L. Weinberg

Chief Financial Officer (Principal Financial Officer) *
----------------------------------------------
David A. Viniar

Principal Accounting Officer *
----------------------------------------------
Sarah G. Smith

*By: /s/ DAVID A. VINIAR
----------------------------------------------
Name: David A. Viniar
Attorney-in-Fact
</TABLE>

II-9
<PAGE> 136

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Shareholders,
The Goldman Sachs Group, Inc.:

Our audits of the consolidated financial statements referred to in our
report dated January 21, 2000 included on page F-2 of this prospectus also
included an audit of the financial statement schedule listed in Item 16(b)
herein. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

/s/ PRICEWATERHOUSECOOPERS LLP

New York, New York

January 21, 2000.

S-1
<PAGE> 137

SCHEDULE IV

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE GOLDMAN SACHS GROUP, INC.

CONDENSED STATEMENTS OF EARNINGS (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
--------------------------
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Revenues
Equity in earnings of subsidiaries.......................... $1,231 $1,780 $2,378
Principal investments....................................... 1,139 540 339
Interest income, principally from affiliates................ 3,305 4,369 2,943
------ ------ ------
Total revenues............................................ 5,675 6,689 5,660
Interest expense............................................ 3,338 4,201 2,858
------ ------ ------
Revenues, net of interest expense......................... 2,337 2,488 2,802

Operating Expenses
Compensation and benefits................................... 251 9 12
Other....................................................... 109 43 29
Charitable contribution..................................... 200 -- --
------ ------ ------
Total operating expenses.................................. 560 52 41
Pre-tax earnings............................................ 1,777 2,436 2,761
(Benefit)/provision for taxes............................... (931) 8 15
------ ------ ------
Net earnings................................................ $2,708 $2,428 $2,746
====== ====== ======
</TABLE>

The accompanying note is an integral part of these condensed financial
statements.

S-2
<PAGE> 138

SCHEDULE IV

THE GOLDMAN SACHS GROUP, INC.

CONDENSED STATEMENTS OF FINANCIAL CONDITION (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
AS OF NOVEMBER
--------------------
1999 1998
---- ----
(in millions, except
share and per share
amounts)
<S> <C> <C>
Assets
Cash and cash equivalents................................... $ 1 $ 11
Financial instruments owned, at fair value.................. 3,476 2,147
Receivables from affiliates................................. 41,511 33,562
Subordinated loan receivables from affiliates............... 9,048 8,668
Investment in subsidiaries.................................. 7,526 5,077
Other assets................................................ 2,284 1,123
------- -------
$63,846 $50,588
======= =======
Liabilities and Equity
Short-term borrowings, including commercial paper........... $32,286 $23,364
Payables to affiliates...................................... 207 1,679
Other liabilities and accrued expenses...................... 572 147
Long-term borrowings
With third parties........................................ 20,262 18,584
With affiliates........................................... 374 430
------- -------
53,701 44,204
Commitments and contingencies
Partners' capital allocated for income taxes and potential
withdrawals............................................... -- 74
Partners' capital........................................... -- 6,310
Preferred stock, par value $0.01 per share; 150,000,000
shares authorized, no shares issued and outstanding....... -- --
Common stock, par value $0.01 per share; 4,000,000,000
shares authorized, 441,421,899 shares issued and
outstanding............................................... 4 --
Restricted stock units; 76,048,404 units issued and
outstanding............................................... 4,339 --
Nonvoting common stock, par value $0.01 per share;
200,000,000 shares authorized, 7,440,362 shares issued and
outstanding............................................... -- --
Additional paid-in capital.................................. 7,359 --
Retained earnings........................................... 444 --
Unearned compensation....................................... (2,038) --
Accumulated other comprehensive income...................... 37 --
------- -------
10,145 6,310
------- -------
$63,846 $50,588
======= =======
</TABLE>

The accompanying note is an integral part of these condensed financial
statements.

S-3
<PAGE> 139

SCHEDULE IV

THE GOLDMAN SACHS GROUP, INC.

CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
-----------------------------
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings.............................................. $ 2,708 $ 2,428 $ 2,746
Noncash items included in net earnings
Equity in earnings of subsidiaries...................... (1,231) (1,780) (2,378)
Depreciation and amortization........................... 71 35 19
Deferred income taxes................................... (1,030) -- --
Other, net.............................................. 46 -- --
Changes in operating assets and liabilities
Financial instruments owned, at fair value................ (1,575) (8) (395)
Other, net................................................ 553 (501) (98)
------- ------- -------
Net cash (used for)/provided by operating activities.... (458) 174 (106)
Cash flows from investing activities
Financial instruments owned, at fair value................ 246 (243) (331)
Receivables from affiliates, net.......................... (6,416) (8,235) (4,320)
Subordinated loan receivables from affiliates............. (380) (1,779) (1,528)
Investment in subsidiaries, net........................... (850) 1,362 2,147
Property, leasehold improvements and equipment............ (292) (145) (4)
Acquisition............................................... (196) -- --
------- ------- -------
Net cash used for investing activities.................. (7,888) (9,040) (4,036)
Cash flows from financing activities
Short-term borrowings, net................................ 12 2,586 39
Issuance of long-term borrowings.......................... 10,755 10,289 7,498
Repayment of long-term borrowings......................... (587) (1,698) (1,005)
Capital contributions..................................... 48 9 89
Dividends paid............................................ (107) -- --
Returns on capital and certain distributions to
partners................................................ (306) (619) (557)
Termination of the profit participation plan.............. -- (21) --
Proceeds from issuance of common stock.................... 2,633 -- --
Partners' capital distributions, net...................... (4,112) -- --
Partners' capital allocated for income taxes and potential
withdrawals............................................. -- (1,673) (2,034)
------- ------- -------
Net cash provided by financing activities............... 8,336 8,873 4,030
Net (decrease)/increase in cash and cash equivalents...... (10) 7 (112)
Cash and cash equivalents, beginning of year................ 11 4 116
------- ------- -------
Cash and cash equivalents, end of year...................... $ 1 $ 11 $ 4
======= ======= =======
</TABLE>

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

SUPPLEMENTAL DISCLOSURES:

Cash payments for interest approximated the related expense for each of the
fiscal years presented. Payments of income taxes were immaterial.

Noncash activities:

Receivables from affiliates includes $2.94 billion of stock-based compensation
awards granted to employees of affiliated entities.

In connection with the firm's conversion to corporate form, junior subordinated
debentures of $371 million were issued to the retired limited partners in
exchange for their partnership interests.

Common stock issued in connection with the acquisition was $245 million in 1999.

The accompanying note is an integral part of these condensed financial
statements.

S-4
<PAGE> 140

SCHEDULE IV

THE GOLDMAN SACHS GROUP, INC.

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, Inc. should be read in conjunction with the consolidated financial
statements of The Goldman Sachs Group, Inc. and subsidiaries and the notes
thereto.

Investments in subsidiaries are accounted for using the equity method.

These 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, 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> 141

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
2.1 Plan of Incorporation.*
2.2 Agreement and Plan of Merger of The Goldman Sachs
Corporation into The Goldman Sachs Group, Inc.**
2.3 Agreement and Plan of Merger of The Goldman Sachs Group,
L.P. into The Goldman Sachs Group, Inc.**
3.1 Certificate of Incorporation of The Goldman Sachs Group,
Inc.*
3.2 Amended and Restated Certificate of Incorporation of The
Goldman Sachs Group, Inc.**
3.3 Amended and Restated By-Laws of The Goldman Sachs Group,
Inc.**
4.1 Specimen of certificate representing The Goldman Sachs
Group, Inc.'s common stock, par value $0.01 per share.*
4.2 Stockholder Protection Rights Agreement, dated as of April
5, 1999, between The Goldman Sachs Group, Inc. and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent
(incorporated by reference to Exhibit 5 to the Registrant's
registration statement on Form 8-A filed on June 29, 1999).
Certain instruments defining the rights of holders of
long-term debt securities of the Registrant and its
subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of
Regulation S-K. The Registrant hereby undertakes to furnish
to the SEC, upon request, copies of any such instruments.
5.1 Opinion of Sullivan & Cromwell, counsel to The Goldman Sachs
Group, Inc.***
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., as
amended.*
10.3 Lease, dated as of August 22, 1997, between Ten Hanover LLC
and The Goldman Sachs Group, L.P.*
10.4 Lease, dated as of July 16, 1998, between TCC Acquisition
Corp. and The Goldman Sachs 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, (iii) Restamove Limited, (iv) The Goldman
Sachs 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)
Goldman Sachs International, (iii) Restamove Limited, (iv)
The Goldman Sachs 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) Goldman Sachs International and
(iii) The Goldman Sachs Group, L.P.).*
</TABLE>

<PAGE> 142

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
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) The Goldman
Sachs Group, L.P.*
10.8 Agreement relating to One Carter Lane, London EC4, dated
March 25, 1998, among Britel Fund Trustees Limited, Goldman
Sachs International, The Goldman Sachs 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, Goldman Sachs International, Goldman Sachs Property
Management, The Goldman Sachs 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,
Goldman Sachs International and The Goldman Sachs 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 The Goldman Sachs 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 Letter Agreement with John L. Weinberg.*
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 Form of Award Agreement (Formula RSUs).**
10.23 Form of Award Agreement (Discretionary RSUs).**
10.24 Form of Option Agreement (Discretionary Options).**
10.25 Tax Indemnification Agreement, dated as of May 7, 1999, by
and among The Goldman Sachs Group, Inc. and various
parties.**
10.26 Form of Shareholders' Agreement among The Goldman Sachs
Group, Inc. and various parties.
10.27 Instrument of Indemnification.**
10.28 Form of Indemnification Agreement.
10.29 Subscription Agreement, dated as of April 24, 1992, among
the Trustees of the Estate of Bernice Pauahi Bishop, Pauahi
Holdings Corporation, Royal Hawaiian Shopping Center, Inc.
and The Goldman Sachs Group, L.P.*
</TABLE>

<PAGE> 143

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
10.30 Subscription Agreement, dated as of November 21, 1994, among
the Trustees of the Estate of Bernice Pauahi Bishop, Pauahi
Holdings Corporation, Royal Hawaiian Shopping Center, Inc.
and The Goldman Sachs Group, L.P.*
10.31 Letter Agreement, dated March 15, 1999, among Kamehameha
Activities Association and The Goldman Sachs Group, L.P.
(the "Kamehameha Letter Agreement").*
10.32 Amended and Restated Subscription Agreement, dated March 28,
1989, among The Sumitomo Bank, Limited, Sumitomo Bank
Capital Markets, Inc., Goldman, Sachs & Co. and The Goldman
Sachs Group, L.P.*
10.33 Letter Agreement, dated March 15, 1999, among The Sumitomo
Bank, Limited, Sumitomo Bank Capital Markets, Inc. and The
Goldman Sachs Group, L.P. (the "Sumitomo Letter
Agreement").*
10.34 Lease, dated September 24, 1992, from LDT Partners to
Goldman Sachs International.*
10.35 Amendment to Kamehameha Letter Agreement (filed as Exhibit
10.31), dated April 30, 1999, among Kamehameha Activities
Association, The Trustees of the Estate of Bernice Pauahi
Bishop, The Goldman Sachs Group, L.P. and The Goldman Sachs
Group, Inc.**
10.36 Amendment to Sumitomo Letter Agreement (filed as Exhibit
10.33), dated April 30, 1999, among The Sumitomo Bank,
Limited, Sumitomo Bank Capital Markets, Inc., The Goldman
Sachs Group, L.P., The Goldman Sachs Group, Inc. and
Goldman, Sachs & Co.**
10.37 Voting Agreement, dated as of April 30, 1999, by and among
The Goldman Sachs Group, Inc., on the one hand, and The
Trustees of the Estate of Bernice Pauahi Bishop and
Kamehameha Activities Association, on the other hand.**
10.38 Voting Agreement, dated as of April 30, 1999, by and among
The Goldman Sachs Group, Inc., on the one hand, and The
Sumitomo Bank, Limited and Sumitomo Bank Capital Markets,
Inc., on the other hand.**
10.39 Indenture, dated as of May 19, 1999, between The Goldman
Sachs Group, Inc. and The Bank of New York, as trustee
(incorporated by reference to Exhibit 6 to the Registrant's
registration statement on Form 8-A filed on June 29, 1999).
10.40 Letter Agreement, dated August 18, 1999, between The Goldman
Sachs Group, Inc. and Mr. James A. Johnson (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the period ended August 27, 1999).
10.41 Letter Agreement, dated August 18, 1999, between The Goldman
Sachs Group, Inc. and Sir John Browne (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the period ended August 27, 1999).
10.42 Letter Agreement, dated November 9, 1999, between The
Goldman Sachs Group, Inc. and Mr. John H. Bryan.***
10.43 Registration Rights Instrument, dated as of December 10,
1999 (incorporated by reference to Exhibit G to Amendment
No. 1 to Schedule 13D, filed December 17, 1999, relating to
the Registrant's common stock).
</TABLE>

<PAGE> 144

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
10.44 Form of Indemnification Agreement.
10.45 Supplemental Registration Rights Instrument, dated as of
December 10, 1999 (incorporated by reference to Exhibit H to
Amendment No. 1 to Schedule
13D, filed December 17, 1999, relating to the Registrant's
common stock).
10.46 Letter Agreement, dated January 21, 2000, between The
Goldman Sachs Group, Inc. and Dr. Ruth J. Simmons
(incorporated by reference to Exhibit 10.45 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended November 26, 1999).
11.1 Statement re computation of per share earnings (incorporated
by reference to Exhibit 11.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended November 26,
1999).
21.1 List of subsidiaries of The Goldman Sachs Group, Inc.
(incorporated by reference to Exhibit 21.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended November 26, 1999).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5.1
above).***
24.1 Powers of Attorney.***
</TABLE>

- ---------------
* Incorporated by reference to the corresponding exhibit to the Registrant's
registration statement on Form S-1 (No. 333-74449).
** Incorporated by reference to the corresponding exhibit to the Registrant's
registration statement on Form S-1 (No. 333-75213).
*** Previously filed.

<PAGE> 1
EXHIBIT 10.26

SHAREHOLDERS' AGREEMENT

This Shareholders' Agreement (this "Agreement"), among The
Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc."), and the Covered
Persons listed on Appendix A hereto, as such Appendix A may be amended from time
to time pursuant to the provisions hereof.

WITNESSETH:

WHEREAS, the Covered Persons are beneficial owners of shares
of Common Stock, par value $0.01 per share, of GS Inc. (the "Common Stock").

WHEREAS, the Covered Persons desire to address herein certain
relationships among themselves with respect to the voting and disposition of
their shares of Common Stock and various other matters and desire to give to the
Shareholders' Committee (hereinafter defined) the power to enforce their
agreements with respect thereto.

NOW, THEREFORE, in consideration of the premises and of the
mutual agreements, covenants and provisions herein contained, the parties hereto
agree as follows:

ARTICLE I
DEFINITIONS AND OTHER MATTERS

Section 1.1 Definitions. The following words and phrases as
used herein shall have the following meanings, except as otherwise expressly
provided or unless the context otherwise requires:

(a) A Covered Person "acquires" Covered Shares when such
Covered Person first acquires beneficial ownership over such Covered
Shares.

(b) This "Agreement" shall have the meaning ascribed to such
term in the Recitals.

(c) A "beneficial owner" of a security includes any person
who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares: (i) voting
power, which includes the power to vote, or to direct the voting of,
such security and/or (ii) investment power, which includes the power to
dispose, or to direct the disposition of, such security, but for
purposes of this Agreement a person shall not be deemed a beneficial
owner of
<PAGE> 2
(A) Common Stock solely by virtue of the application of Exchange Act
Rule 13d-3(d) or Exchange Act Rule 13d-5 as in effect on the date
hereof (B) Common Stock solely by virtue of the possession of the legal
right to vote securities under applicable state or other law (such as
by proxy or power of attorney) or (C) Common Stock held of record by a
"private foundation" subject to the requirements of Section 509 of the
Code. "Beneficially own" and "beneficial ownership" shall have
correlative meanings.

(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the applicable rulings and regulations
thereunder.

(e) "Common Stock" shall have the meaning ascribed to such
term in the Recitals.

(f) "Company" shall mean GS Inc., together with its
Subsidiaries.

(g) "Continuing Provisions" shall have the meaning ascribed to
such term in Section 7.1(b).

(h) "Covered Persons" shall mean those persons from time to
time listed on Appendix A hereto, and all persons who may become
parties to this Agreement and whose name is required to be listed on
Appendix A hereto, in each case in accordance with the terms hereof.

(i) A Covered Person's "Covered Shares" shall mean any shares
of Common Stock acquired from the Company by such Covered Person and
beneficially owned by such Covered Person at the time in question, but
shall not include (i) Common Stock beneficially owned as a result of
(A) an acquisition, directly or indirectly, from the Company in an
underwritten public offering or (B) conversion of securities
convertible into Common Stock, where beneficial ownership of the
convertible securities was acquired in a transaction described in
clause (A) above, (ii) Excluded Shares (as defined in the Plan of
Incorporation), (iii) any other Common Stock excluded from the
definition of Covered Shares by action of the Board of Directors of GS
Inc. prior to the IPO Date or (iv) any other Common Stock acquired
under a deferred compensation or employee benefit plan and excluded
from the definition of Covered Shares by action of the Board of
Directors of GS Inc. and the Shareholders' Committee after the IPO
Date. "Covered Shares" shall also include the securities that are
defined to be "Covered Shares" in Section 6.4.

-2-
<PAGE> 3
(j) The term "employee" shall mean any person employed by the
Company who receives compensation, other than a person receiving
compensation in the nature of a consulting fee, a pension or a
retainer.

(k) "Employee Covered Person" shall mean a Covered Person who
is an employee of the Company at the time in question.

(l) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended to date and as further amended from time to time.

(m) A reference to an "Exchange Act Rule" shall mean such rule
or regulation of the Securities and Exchange Commission under the
Exchange Act, as in effect from time to time or as replaced by a
successor rule thereto.

(n) "General Transfer Restrictions" shall have the meaning
ascribed to such term in Section 2.2 hereof.

(o) "GS Inc." shall have the meaning ascribed to such term in
the Recitals.

(p) "IPO Date" shall mean the closing date of the initial
public offering of the Common Stock.

(q) "Permitted Basket Transaction" shall mean the purchase or
sale of, or the establishment of a long or short position in, a basket
or index of securities (or of a derivative financial instrument with
respect to a basket or index of securities) that includes securities of
GS Inc., in each case if such purchase, sale or establishment is
permitted under the Company's policy on hedging with respect to
securities of GS Inc. as announced from time to time.

(r) A "person" shall include, as applicable, any individual,
estate, trust, corporation, partnership, limited liability company,
unlimited liability company, foundation, association or other entity.

(s) "Plan of Incorporation" shall mean the plan for the
incorporation and reorganization of the business of The Goldman Sachs
Group, L.P. approved by the Schedule II Limited Partners thereof on
March 8, 1999, as amended from time to time.

(t) "PLP Transfer Restrictions" shall have the meaning
ascribed to such term in Section 2.1 hereof.

-3-
<PAGE> 4
(u) "Preliminary Vote" shall have the meaning ascribed to such
term in Section 4.1 hereof.

(v) "Restricted Person" shall mean any person that is not (i)
a Covered Person or (ii) a director, officer or employee of the Company
acting in such person's capacity as a director, officer or employee;
provided, however, that for purposes of Section 6.1(c) only, the term
"Restricted Person" shall not include Sumitomo Bank Capital Markets,
Inc. and/or Kamehameha Activities Association to the extent that either
or both of such parties are included in such group solely by virtue of
their being parties to Voting Agreements, each dated as of April 30,
1999, with GS Inc., as amended from time to time.

(w) "Shareholders' Committee" shall mean the body constituted
to administer the terms and provisions of this Agreement pursuant to
Article V hereof.

(x) "Sole Beneficial Owner" shall mean a person who is the
beneficial owner of Covered Shares, who does not share beneficial
ownership of such Covered Shares with any other person (other than
pursuant to this Agreement or applicable community property laws) and
who is the only person (other than pursuant to applicable community
property laws) with a direct economic interest in the Covered Shares.
An economic interest of the Company as pledgee shall be disregarded for
this purpose.

(y) "Subsidiary" shall mean any person in which GS Inc. owns,
directly or indirectly, a majority of the equity economic or voting
ownership interest.

(z) "The Goldman Sachs Defined Contribution Plan" shall mean
The Goldman Sachs Defined Contribution Plan adopted by the Board of
Directors of GS Inc. on May 7, 1999, as amended or supplemented from
time to time, and any successors to such Plan.

(aa) "Transfer" shall mean any sale, transfer, pledge,
hypothecation or other disposition, whether direct or indirect, whether
or not for value, and shall include any disposition of the economic or
other risks of ownership of Common Stock, including short sales of
securities of GS Inc., option transactions (whether physical or cash
settled) with respect to securities of GS Inc., use of equity or other
derivative financial instruments relating to securities of GS Inc. and
other hedging arrangements with respect to securities of GS Inc., in
each such case other than Permitted Basket Transactions.
Notwithstanding the foregoing, bona fide pledges of Common Stock
approved by GS Inc. and foreclosures pursuant thereto shall not
constitute Transfers within the meaning of this definition.

-4-
<PAGE> 5
(ab) "Transfer Restrictions" shall mean the General Transfer
Restrictions and the PLP Transfer Restrictions.

(ac) "vote" shall include actions taken or proposed to be
taken by written consent.

(ad) "Voted Covered Shares" shall have the meaning ascribed to
such term in Section 4.2(a).

(ae) "Voting Interests" shall have the meaning ascribed to
such term in Section 4.1 hereof.

Section 1.2 Gender. For the purposes of this Agreement, the
words "he," "his" or "himself" shall be interpreted to include the masculine,
feminine and corporate, other entity or trust form.

ARTICLE II
LIMITATIONS ON TRANSFER OF SHARES

Section 2.1 General. Each Covered Person agrees that such
Covered Person shall not Transfer any Covered Shares beneficially owned by such
Covered Person, except in accordance with all of the following: (a) the terms of
this Agreement, (b) the restrictions on transferability of Common Stock
contained in the Plan of Incorporation (the "PLP Transfer Restrictions"), if
applicable, and (c) the terms of any other contract or agreement with the
Company or other undertaking by which such Covered Person is bound and to which
such Covered Shares are subject.

Section 2.2 General Transfer Restrictions. Each Covered Person
agrees that for so long as such Covered Person is an Employee Covered Person
such Covered Person shall at all times be the Sole Beneficial Owner of at least
that number of Covered Shares which equals 25% of the aggregate number of
Covered Shares (a) beneficially owned by such Covered Person at the time such
Covered Person became a Covered Person and (b) beneficial ownership of which is
acquired by such Covered Person thereafter, with no reduction in such aggregate
number for Covered Shares disposed of by such Covered Person (the "General
Transfer Restrictions"). For purposes of this Section 2.2 only, Covered Shares
held by the trust underlying The Goldman Sachs Defined Contribution Plan and
allocated to a Covered Person shall not be deemed to be beneficially owned by
such Covered Person until such Covered Shares are distributed to such Covered
Person in accordance with the terms of The Goldman Sachs Defined Contribution
Plan. For purposes of this Section 2.2 only, when a delivery of Covered Shares
is made by GS Inc. or by the trustee of the trust underlying The Goldman Sachs

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Defined Contribution Plan to a Covered Person net of Covered Shares to be
withheld for tax purposes or to be paid for the receipt of such delivered
Covered Shares, the recipient of such delivered number of Covered Shares shall
be treated as if such Covered Person acquired the total (gross) number of
Covered Shares to be delivered before giving effect to any such withholding or
payment.

Section 2.3 Compliance with Certain Restrictions.

(a) Each Covered Person agrees that, with respect to all
Common Stock beneficially owned by such Covered Person, such Covered
Person shall comply with the restrictions on transfer imposed by
Section 6(e) of the Underwriting Agreement, dated as of May 3, 1999,
among GS Inc. and the several underwriters named therein, whether or
not said Section refers to such Covered Person by name.

(b) Each Employee Covered Person agrees that, with respect to
all Common Stock beneficially owned by such Employee Covered Person,
and each Covered Person who is not an Employee Covered Person agrees
that, with respect to all Covered Shares beneficially owned by such
Covered Person which could not then be Transferred without contravening
the PLP Transfer Restrictions, at the request of GS Inc. such Covered
Person shall comply with any future restrictions on transfer imposed by
or with the consent of GS Inc. from time to time in connection with any
future offerings of securities of GS Inc., whether by GS Inc. or by any
securityholder of GS Inc. and whether or not such restrictions on
transfer refer to such Covered Person by name.

(c) Each Employee Covered Person agrees that, with respect to
all Common Stock beneficially owned by such Employee Covered Person,
such Employee Covered Person will comply with any restrictions imposed
by the Company from time to time to enable the Company or any party to
an agreement with the Company to account for a business combination by
the pooling of interests method.

Section 2.4 Holding of Covered Shares in Custody and in
Nominee Name; Legend on Certificates; Entry of Stop Transfer Orders.

(a) Each Covered Person understands and agrees that all
Covered Shares beneficially owned by each Employee Covered Person and
all Covered Shares which could not then be Transferred without
contravening the PLP Transfer Restrictions beneficially owned by each
Covered Person who is not an Employee Covered Person (in each case
other than Covered Shares held of record by a trustee in a compensation
or benefit plan administered by the Company and other

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Covered Shares that have been pledged to the Company to secure the
performance of such Covered Person's obligations under any agreement
with the Company) shall be registered in the name of a nominee for such
Covered Person and shall be held in the custody of a custodian until
otherwise determined by the Shareholders' Committee or the Board of
Directors of GS Inc. or until such time as such Covered Shares are
released pursuant to Section 2.4(e) or Section 2.4(f) hereof (whichever
occurs first), and each Covered Person agrees to assign, endorse and
register for transfer into such nominee name or deliver to such
custodian any such Covered Shares which are not so registered or so
held, as the case may be. The form of the custody agreement and the
identity of the custodian and nominee must be satisfactory in form and
substance to the Shareholders' Committee and GS Inc.

(b) Whenever the nominee holder shall receive any dividend or
other distribution upon any Covered Shares other than in Covered
Shares, the Shareholders' Committee will give or cause to be given
notice or direction to the applicable nominee and/or custodian referred
to in paragraph (a) to permit the prompt distribution of such dividend
or distribution to the beneficial owner of such Covered Shares, net of
any tax withholding amounts required to be withheld by the nominee,
unless the distribution of such dividend or distribution is restricted
by the terms of another agreement between the Covered Person and the
Company known to the Shareholders' Committee.

(c) Each Covered Person understands and agrees that any
outstanding certificate representing Covered Shares beneficially owned
by an Employee Covered Person or representing Covered Shares which
could not then be Transferred without contravening the PLP Transfer
Restrictions beneficially owned by a Covered Person who is not an
Employee Covered Person, and any agreement or other instrument
evidencing restricted stock units, options or other rights to receive
or acquire Covered Shares beneficially owned by such Covered Person,
may bear a legend noted conspicuously on each such certificate,
agreement or other instrument reading substantially as follows:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE PROVISIONS OF EITHER OR BOTH OF A SHAREHOLDERS' AGREEMENT
AMONG THE GOLDMAN SACHS GROUP, INC. ("GS INC.") AND THE
PERSONS NAMED THEREIN AND A PLAN OF INCORPORATION OF THE
GOLDMAN SACHS GROUP, L.P., COPIES OF WHICH ARE ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICE OF GS INC. AND WHICH, AMONG OTHER
MATTERS, PLACE RESTRICTIONS ON THE DISPOSITION AND VOTING OF
SUCH SECURITIES. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE

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SOLD, EXCHANGED, TRANSFERRED, ASSIGNED, PLEDGED, PARTICIPATED,
HYPOTHECATED OR OTHERWISE DISPOSED OF ONLY IN ACCORDANCE
THEREWITH."

(d) Each Covered Person agrees and consents to the entry of
stop transfer orders against the transfer of Covered Shares subject to
Transfer Restrictions except in compliance with this Agreement.

(e) The Shareholders' Committee shall develop procedures for
releasing all Covered Shares of each Covered Person who is not an
Employee Covered Person which could then be Transferred without
contravening any Transfer Restrictions to or at the direction of such
Covered Person free and clear of all restrictions and legends described
in this Section 2.4.

(f) The Shareholders' Committee shall also develop procedures
for releasing (free and clear of all restrictions and legends described
in this Section 2.4) a specified number of Covered Shares of an
Employee Covered Person upon the request of any Covered Person and to
or at the direction of such Employee Covered Person, provided that such
request is accompanied by a certificate of such requesting Covered
Person (i) indicating such requesting Covered Person's intention to
Transfer promptly such specified number of Covered Shares and (ii)
establishing that such specified number of Covered Shares are then
permitted to be Transferred without contravening any Transfer
Restrictions (which evidence must be satisfactory to the Shareholders'
Committee).

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARTIES

Each Covered Person severally represents and warrants for
himself that:

(a) Such Covered Person has (and with respect to Covered
Shares to be acquired, will have) good, valid and marketable title to
the Covered Shares, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind, other than
pursuant to this Agreement, the Plan of Incorporation or another
agreement with the Company by which such Covered Person is bound and to
which the Covered Shares are subject; and

(b) (if the Covered Person is other than a natural person,
with respect to subsections (i) through (x), and if the Covered Person
is a natural person, with respect to subsections (iv) through (x)
only): (i) such Covered Person is duly organized and validly existing
in good standing under the laws of the jurisdiction

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of such Covered Person's formation; (ii) such Covered Person has full
right, power and authority to enter into and perform this Agreement;
(iii) the execution and delivery of this Agreement and the performance
of the transactions contemplated herein have been duly authorized, and
no further proceedings on the part of such Covered Person are necessary
to authorize the execution, delivery and performance of this Agreement;
and this Agreement has been duly executed by such Covered Person; (iv)
the person signing this Agreement on behalf of such Covered Person has
been duly authorized by such Covered Person to do so; (v) this
Agreement constitutes the legal, valid and binding obligation of such
Covered Person, enforceable against such Covered Person in accordance
with its 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); (vi) neither the execution and delivery of this Agreement
by such Covered Person nor the consummation of the transactions
contemplated herein conflicts with or results in a breach of any of the
terms, conditions or provisions of any agreement or instrument to which
such Covered Person is a party or by which the assets of such Covered
Person are bound (including without limitation the organizational
documents of such Covered Person, if such Covered Person is other than
a natural person), or constitutes a default under any of the foregoing,
or violates any law or regulation; (vii) such Covered Person has
obtained all authorizations, consents, approvals and clearances of all
courts, governmental agencies and authorities, and any other person, if
any (including the spouse of such Covered Person with respect to the
interest of such spouse in the Covered Shares of such Covered Person if
the consent of such spouse is required), required to permit such
Covered Person to enter into this Agreement and to consummate the
transactions contemplated herein; (viii) there are no actions, suits or
proceedings pending, or, to the knowledge of such Covered Person,
threatened against or affecting such Covered Person or such Covered
Person's assets in any court or before or by any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality which, if adversely determined, would impair
the ability of such Covered Person to perform this Agreement; (ix) the
performance of this Agreement will not violate any order, writ,
injunction, decree or demand of any court or federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality to which such Covered Person is subject; and (x) no
statement, representation or warranty made by such Covered Person in
this Agreement, nor any information provided by such Covered Person for
inclusion in a report filed pursuant to Section 6.3 hereof or in a
registration statement filed by GS Inc. contains or will contain any
untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements,
representations or warranties contained herein or information provided
therein not misleading.

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Each Covered Person severally agrees for himself that the
foregoing provision of this Article III shall be a continuing representation and
covenant of such Covered Person during the period that such person shall be a
Covered Person and shares of Common Stock of such person shall be Covered
Shares, and such Covered Person shall take all actions as shall from time to
time be necessary to cure any breach or violation and to obtain any
authorizations, consents, approvals and clearances in order that such
representations shall be true and correct during the foregoing period.

ARTICLE IV
VOTING AGREEMENT

Section 4.1 Preliminary Vote of Covered Persons. Prior to any
vote of the stockholders of GS Inc. there shall be a separate, preliminary vote,
on each matter upon which a stockholder vote is proposed to be taken (each, a
"Preliminary Vote"), of the Covered Shares beneficially owned by (a) through
December 31, 2000, all Covered Persons, and (b) on and after January 1, 2001,
the Employee Covered Persons (including in both clause (a) and (b) and for the
purpose of this Article IV shares of Common Stock held by the trust underlying
The Goldman Sachs Defined Contribution Plan and allocated to Covered Persons (in
the case of clause (a)) and Employee Covered Persons (in the case of clause (b))
who are participants therein) (such Covered Shares at any such time, the "Voting
Interests"). The Preliminary Vote shall be conducted pursuant to procedures
established by the Shareholders' Committee.

Section 4.2 Voting of the Voting Interests.

(a) Other than in elections of directors, every Covered Share
beneficially owned by an Employee Covered Person, every Covered Share
which could not then be Transferred without contravening the PLP
Transfer Restrictions beneficially owned by any Covered Person who is
not an Employee Covered Person and every Covered Share held by the
trust underlying The Goldman Sachs Defined Contribution Plan and
allocated to a Covered Person (collectively, the "Voted Covered
Shares") shall be voted in accordance with the vote of the majority of
the votes cast on the matter in question by the Voting Interests in the
Preliminary Vote.

(b) In elections of directors, every Voted Covered Share shall
be voted in favor of the election of those persons, equal in number to
the number of such positions to be filled, receiving the highest
numbers of votes cast by the Voting Interests in the Preliminary Vote.

Section 4.3 Irrevocable Proxy and Power of Attorney.

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(a) By his signature hereto, each Covered Person hereby gives
the Shareholders' Committee, with full power of substitution and
resubstitution, an irrevocable proxy to vote or otherwise act with
respect to all of the Covered Person's Voted Covered Shares, as fully,
to the same extent and with the same effect as such Covered Person
might or could do under any applicable laws or regulations governing
the rights and powers of stockholders of a Delaware corporation and (i)
directs that such proxy shall be voted in connection with such matters
as are the subject of a Preliminary Vote as provided in this Agreement
--in accordance with such Preliminary Vote, (ii) authorizes the holder
of such proxy to vote on such other matters as may come before a
meeting of stockholders of GS Inc. or any adjournment thereof and as
are related, directly or indirectly, to the matter which was the
subject of the Preliminary Vote -- as the aforementioned persons see
fit in their discretion but in a manner consistent with the Preliminary
Vote, and (iii) authorizes the holder of such proxy to vote on such
other matters as may come before a meeting of stockholders of GS Inc.
or any adjournment thereof (including matters related to adjournment
thereof) -- as the aforementioned persons see fit in their discretion
but not to cast any vote under this clause (iii) which is inconsistent
with the Preliminary Vote or which would achieve an outcome that would
frustrate the intent of the Preliminary Vote. Each such Covered Person
hereby affirms that this proxy is given as a term of this Agreement and
as such is coupled with an interest and is irrevocable. It is further
understood and agreed by each such Covered Person that this proxy may
be exercised by the aforementioned persons with respect to all Voted
Covered Shares of such Covered Person for the period beginning on the
date hereof and ending on the date this Agreement shall have been
terminated pursuant to Section 7.1(a) hereof.

(b) By his signature hereto, each Covered Person appoints the
Shareholders' Committee, with full power of substitution and
resubstitution, his true and lawful attorney-in-fact to direct, in
accordance with the provisions of this Article IV, the voting of any
Voted Covered Shares held of record by any other person but
beneficially owned by such Covered Person (including Voted Covered
Shares held by the trust underlying The Goldman Sachs Defined
Contribution Plan and allocated to such Covered Person), granting to
such attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that such attorney or
attorneys may deem necessary, advisable or appropriate to carry out
fully the intent of Section 4.2 and Section 4.3(a) as such Covered
Person might or could do personally, hereby ratifying and confirming
all acts and things that such attorney or attorneys may do or cause to
be done by virtue of this power of attorney. It is understood and
agreed by each such Covered Person that this appointment, empowerment
and authorization may be exercised by the aforementioned persons with
respect to all Voted Covered Shares of such Covered Person, and held of
record by another person, for the period beginning on

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the date hereof and ending on the date this Agreement shall have been
terminated pursuant to Section 7.1(a) hereof.

ARTICLE V
SHAREHOLDERS' COMMITTEE

Section 5.1 Constituency. The Shareholders' Committee shall at
any time consist of each of those individuals who are both Employee Covered
Persons and members of the Board of Directors of GS Inc. and who agree to serve
as members of the Shareholders' Committee.

Section 5.2 Additional Members. If there are less than three
individuals who are both Employee Covered Persons and members of the Board of
Directors of GS Inc. and who agree to serve as members of the Shareholders'
Committee, the Shareholders' Committee shall consist of each such individual
plus such additional individuals who are Employee Covered Persons and who are
selected pursuant to procedures established by the Shareholders' Committee as
shall assure a Shareholders' Committee of not less than three members who are
Employee Covered Persons.

Section 5.3 Determinations of and Actions by the Shareholders'
Committee.

(a) All determinations necessary or advisable under this
Agreement (including determinations of beneficial ownership) shall be
made by the Shareholders' Committee, whose determinations shall be
final and binding. The Shareholders' Committee's determinations under
this Agreement and the Plan of Incorporation and actions (including
waivers) hereunder and thereunder need not be uniform and may be made
selectively among Covered Persons (whether or not such Covered Persons
are similarly situated).

(b) Each Covered Person recognizes and agrees that the members
of the Shareholders' Committee in acting hereunder shall at all times
be acting in their individual capacities and not as directors or
officers of the Company and in so acting or failing to act shall not
have any fiduciary duties to the Covered Persons as a member of the
Shareholders' Committee by virtue of the fact that one or more of such
members may also be serving as a director or officer of the Company or
otherwise.

(c) The Shareholders' Committee shall act through a majority
vote of its members and such actions may be taken in person at a
meeting or by a written instrument signed by all of the members.

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Section 5.4 Certain Obligations of the Shareholders'
Committee. The Shareholders' Committee shall be obligated (a) to attend as
proxy, or cause a person designated by it and acting as lawful proxy to attend
as proxy, each meeting of the stockholders of GS Inc. and to vote or to cause
such designee to vote the Covered Shares over which it has the power to vote in
accordance with the results of the Preliminary Vote as set forth in Section 4.2,
and (b) to develop procedures governing Preliminary Votes and other votes and
actions to be taken pursuant to this Agreement.

ARTICLE VI
OTHER AGREEMENTS OF THE PARTIES

Section 6.1 Standstill Provisions. Each Covered Person agrees
that such Covered Person shall not, directly or indirectly, alone or in concert
with any other person, (a) make, or in any way participate in, any
"solicitation" of "proxies" (as such terms are defined in Exchange Act Rule
14a-1) relating to any securities of the Company to or with any Restricted
Person; (b) deposit any Covered Shares in a voting trust or subject any Covered
Shares to any voting agreement or arrangement that includes as a party any
Restricted Person; (c) form, join or in any way participate in a group (as
contemplated by Exchange Act Rule 13d-5(b)) with respect to any securities of
the Company (or any securities the ownership of which would make the owner
thereof a beneficial owner of securities of the Company (for this purpose as
determined by Exchange Act Rule 13d-3 and Exchange Act Rule 13d-5)) that
includes as a party any Restricted Person; (d) make any announcement subject to
Exchange Act Rule 14a-1(l)(2)(iv) to any Restricted Person; (e) initiate or
propose any "shareholder proposal" subject to Exchange Act Rule 14a-8; (f)
together with any Restricted Person, make any offer or proposal to acquire any
securities or assets of GS Inc. or any of its Subsidiaries or solicit or propose
to effect or negotiate any form of business combination, restructuring,
recapitalization or other extraordinary transaction involving, or any change in
control of, GS Inc., its Subsidiaries or any of their respective securities or
assets; (g) together with any Restricted Person, seek the removal of any
directors or a change in the composition or size of the board of directors of GS
Inc.; (h) together with any Restricted Person, in any way participate in a call
for any special meeting of the stockholders of GS Inc.; or (i) assist, advise or
encourage any person with respect to, or seek to do, any of the foregoing.

Section 6.2 Expenses.

(a) GS Inc. shall be responsible for all expenses of the
members of the Shareholders' Committee incurred in the operation and
administration of this Agreement, including expenses of proxy
solicitation for and tabulation of the Preliminary Vote, expenses
incurred in preparing appropriate filings and correspondence with the
Securities and Exchange Commission, lawyers', accountants',

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agents', consultants', experts', investment banking and other
professionals' fees, expenses incurred in enforcing the provisions of
this Agreement, expenses incurred in maintaining any necessary or
appropriate books and records relating to this Agreement and expenses
incurred in the preparation of amendments to and waivers of provisions
of this Agreement.

(b) Each Covered Person shall be responsible for all expenses
of such Covered Person incurred in connection with the compliance by
such Covered Person with his obligations under this Agreement,
including expenses incurred by the Shareholders' Committee or GS Inc.
in enforcing the provisions of this Agreement relating to such
obligations.

Section 6.3 Filing of Schedule 13D or 13G.

(a) In the event that a Covered Person is required to file a
report of beneficial ownership on Schedule 13D or 13G with respect to
the Covered Shares beneficially owned by him (for this purpose as
determined by Exchange Act Rule 13d-3 and Exchange Act Rule 13d-5),
such Covered Person agrees that, unless otherwise directed by the
Shareholders' Committee, such Covered Person will not file a separate
such report, but will file a report together with the other Covered
Persons, containing the information required by the Exchange Act, and
such Covered Person understands and agrees that such report shall be
filed on his behalf by the Shareholders' Committee or any member
thereof. Such Covered Person shall cooperate fully with the other
Covered Persons and the Shareholders' Committee to achieve the timely
filing of any such report and any amendments thereto as may be
required, and such Covered Person agrees that any information
concerning such Covered Person which such Covered Person furnishes in
connection with the preparation and filing of such report will be
complete and accurate.

(b) By his signature hereto, each Covered Person appoints the
Shareholders' Committee and each member thereof, with full power of
substitution and resubstitution, his true and lawful attorney-in-fact
to execute such reports and any and all amendments thereto and to file
such reports with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission,
granting to such attorneys, and each of them, full power and authority
to do and perform each and every act and thing whatsoever that such
attorney or attorneys may deem necessary, advisable or appropriate to
carry out fully the intent of this Section 6.3 as such Covered Person
might or could do personally, hereby ratifying and confirming all acts
and things that such attorney or attorneys may do or cause to be done
by virtue of this power of attorney. Each Covered Person hereby further
designates such attorneys as such Covered Person's

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agents authorized to receive notices and communications with respect to
such reports and any amendments thereto. It is understood and agreed by
each such Covered Person that this appointment, empowerment and
authorization may be exercised by the aforementioned persons for the
period beginning on the date hereof and ending on the date such Covered
Person is no longer subject to the provisions of this Agreement (and
shall extend thereafter for such time as is required to reflect that
such Covered Person is no longer a party to this Agreement).

Section 6.4 Adjustment upon Changes in Capitalization;
Adjustments upon Changes of Control; Representatives, Successors and Assigns.

(a) In the event of any change in the outstanding Common Stock
by reason of stock dividends, stock splits, reverse stock splits,
spin-offs, split-ups, recapitalizations, combinations, exchanges of
shares and the like, the term "Covered Shares" shall refer to and
include the securities received or resulting therefrom, but only to the
extent such securities are received in exchange for or in respect of
Covered Shares. Upon the occurrence of any event described in the
immediately preceding sentence, the Shareholders' Committee shall make
such adjustments to or interpretations of the restrictions of Section
2.2 (and, if it so determines, any other provisions hereof) as it shall
deem necessary or desirable to carry out the intent of such
provision(s). If the Shareholders' Committee deems it desirable, any
such adjustments may take effect from the record date, the "when issued
trading date", the "ex dividend date" or another appropriate date.

(b) In the event of any business combination, restructuring,
recapitalization or other extraordinary transaction involving GS Inc.,
its Subsidiaries or any of their respective securities or assets as a
result of which the Covered Persons shall hold voting securities of a
person other than GS Inc., the Covered Persons agree that this
Agreement shall also continue in full force and effect with respect to
such voting securities of such other person formerly representing or
distributed in respect of Covered Shares of GS Inc., and the terms
"Covered Shares," "Common Stock" and "Voting Interests," and "GS Inc."
and "Company," shall refer to such voting securities formerly
representing or distributed in respect of Covered Shares of GS Inc. and
such person, respectively. Upon the occurrence of any event described
in the immediately preceding sentence, the Shareholders' Committee
shall make such adjustments to or interpretations of the restrictions
of Section 2.2 (and, if it so determines, any other provisions hereof)
as it shall deem necessary or desirable to carry out the intent of such
provision(s). If the Shareholders' Committee deems it desirable, any
such adjustments may take effect from the record date or another
appropriate date.

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(c) This Agreement shall be binding upon and inure to the
benefit of the respective legatees, legal representatives, successors
and assigns of the Covered Persons (and GS Inc. in the event of a
transaction described in Section 6.4(b) hereof); provided, however,
that a Covered Person may not assign this Agreement or any of his
rights or obligations hereunder without the prior written consent of GS
Inc., and any assignment without such consent by a Covered Person shall
be void; and provided further that no assignment of this Agreement by
GS Inc. or to a successor of GS Inc. (by operation of law or otherwise)
shall be valid unless such assignment is made to a person which
succeeds to the business of GS Inc.
substantially as an entirety.

Section 6.5 Further Assurances. Each Covered Person agrees to
execute such additional documents and take such further action as may be
reasonably necessary to effect the provisions of this Agreement.

ARTICLE VII
MISCELLANEOUS

Section 7.1 Term of the Agreement; Termination of Certain
Provisions.

(a) The term of this Agreement shall continue until the first
to occur of January 1, 2050 and such time as this Agreement is
terminated by the affirmative vote of not less than 66 2/3% of the
outstanding Voting Interests. If this Agreement is terminated prior to
the expiration or termination of the restrictions on transfer referred
to in Section 2.3(a), such restrictions on transfer shall continue to
apply in accordance with the provisions of Section 6(e) of the
Underwriting Agreement referred to in Section 2.3(a) unless waived or
terminated as provided in said Underwriting Agreement. If this
Agreement is terminated prior to the expiration or termination of the
PLP Transfer Restrictions, the PLP Transfer Restrictions shall continue
to apply in accordance with the provisions of the Plan of Incorporation
unless waived or terminated as provided in the Plan of Incorporation.

(b) Unless this Agreement is theretofore terminated pursuant
to Section 7.1(a) hereof, any Covered Person who ceases to be an
employee for any reason other than death shall no longer be bound by
the provisions of Section 2.2 and Section 6.1 hereof (unless such
Covered Person is subject to the PLP Transfer Restrictions in which
case Section 6.1 shall continue to apply until December 31, 2000) but
shall be bound by all other provisions of this Agreement until such
time as such Covered Person holds all Covered Shares free from PLP
Transfer Restrictions. Thereafter, such Covered Person shall no longer
be bound by the provisions of this Agreement (other than Sections 5.3,
6.2, 6.3, 6.5, 7.4, 7.5, 7.6,

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7.8, 7.10 and 7.11 (the "Continuing Provisions")), and such Covered
Person's name shall be removed from Appendix A to this Agreement.

(c) Unless this Agreement is theretofore terminated pursuant
to Section 7.1(a) hereof, the estate of any Covered Person who ceases
to be an employee by reason of death or any Covered Person who ceases
to be an employee for any reason other than death and who subsequently
dies shall from and after the date of such death be bound only by the
restrictions on transfer imposed by Section 2.3(a) hereof and the
Continuing Provisions; and upon the expiration of the restrictions in
Section 2.3(a), the estate of such Covered Person shall no longer be
bound by the provisions of this Agreement (other than the Continuing
Provisions), and such Covered Person's name shall be removed from
Appendix A to this Agreement.

Section 7.2 Amendments.

(a) Except as provided in this Section 7.2, provisions of this
Agreement may be amended only by the affirmative vote of a majority of
the outstanding Voting Interests.

(b) This Section 7.2(b), Section 7.1(a) and Section 7.3(a)(i)
may be amended only by the affirmative vote of 66 2/3% of the
outstanding Voting Interests. Any amendment of any other provision of
this Agreement that would have the effect, in connection with a tender
or exchange offer by any person other than the Company as to which the
Board of Directors of GS Inc. is recommending rejection, of permitting
Transfers which would not be permitted by the terms of this Agreement
as theretofore in effect shall also require the affirmative vote of
66 2/3% of the outstanding Voting Interests.

(c) This Section 7.2(c), Article V, Section 7.3(b) and any
other provision the amendment (or addition) of which has the effect of
materially changing the rights or obligations of the Shareholders'
Committee hereunder may be amended (or added) either (i) with the
approval of the Shareholders' Committee and the affirmative vote of a
majority of the Voting Interests or (ii) by the affirmative vote of
66 2/3% of the outstanding Voting Interests.

(d) In addition to any other vote or approval that may be
required under this Section 7.2, any amendment to the General Transfer
Restrictions that would make such General Transfer Restrictions
materially more onerous to a Covered Person will not be enforceable
against that Covered Person unless that Covered Person has consented to
such amendment.

-17-
<PAGE> 18
(e) In addition to any other vote or approval that may be
required under this Section 7.2, any amendment of this Agreement that
has the effect of changing the obligations of GS Inc. hereunder to make
such obligations materially more onerous to GS Inc. shall require the
approval of GS Inc.

(f) In addition to any other vote or approval that may be
required under this Section 7.2, any amendment that has the effect of
amending the provisions of Section 2.3(a), 2.3(b) or 2.3(c) shall
require the approval of GS Inc.

(g) Each Covered Person understands that it is intended that
each managing director of the Company will be a Covered Person under
this Agreement or will become a Covered Person upon his appointment to
such position, and each Covered Person further understands that from
time to time certain other persons may become Covered Persons and
certain Covered Persons will cease to be bound by the provisions of
this Agreement pursuant to the terms hereof. Accordingly, this
Agreement may be amended by action of the Shareholders' Committee from
time to time and without the approval of any other person, but solely
for the purposes of (i) adding to Appendix A such persons as shall be
made party to this Agreement pursuant to the terms hereof or shall (A)
be appointed managing directors of the Company and (B) execute a
counterpart of the signature page of this Agreement, such addition to
be effective as of the time of such action or appointment and (ii)
removing from Appendix A such persons as shall cease to be bound by the
provisions of this Agreement pursuant to Sections 7.1(b) or (c) hereof,
which additions and removals shall be given effect from time to time by
appropriate changes to Appendix A.

Section 7.3 Waivers. The Transfer Restrictions and the other
provisions of this Agreement may be waived only as provided in this
Section 7.3.

(a) The holders of the outstanding Voting Interests may waive
the Transfer Restrictions and the other provisions of this Agreement
without the consent of any other person as follows:

(i) The Transfer Restrictions may be waived, in
connection with any tender or exchange offer by
any person other than the Company as to which
the Board of Directors of GS Inc. is
recommending rejection at the time of such
waiver, only by the affirmative vote of 66 2/3%
of the outstanding Voting Interests;

(ii) The Transfer Restrictions may be waived, in
connection with any tender or exchange offer by
any person other than the

-18-
<PAGE> 19
Company as to which the Board of Directors
of GS Inc. is recommending acceptance or is
not making any recommendation with respect
to acceptance at the time of such waiver,
only by the affirmative vote of a majority
of the outstanding Voting Interests;

(iii) The Transfer Restrictions may be waived, in
connection with any tender or exchange offer
by the Company, by the affirmative vote of a
majority of the outstanding Voting
Interests;

(iv) In all circumstances other than those set
forth in Section 7.3(a)(i), (ii) and (iii),
the provisions of this Agreement may be
waived only by the affirmative vote of a
majority of the outstanding Voting
Interests; provided, however, that the
holders of the outstanding Voting Interests
may not waive the provisions of this
Agreement in the circumstances set forth in
Section 7.3(b); and

(v) In addition to any other action that may be
required under this Section 7.3(a), any
waiver that has the effect of waiving the
provisions of Section 2.3(a), 2.3(b) or
2.3(c) shall require the approval of GS Inc.

(b) The Shareholders' Committee may waive the Transfer
Restrictions and the other provisions of this Agreement without the
consent of any other person as follows:

(i) The Shareholders' Committee may waive the
Transfer Restrictions and the other
provisions of this Agreement to permit: (A)
Covered Persons to participate as sellers in
underwritten public offerings of, and stock
repurchase programs and tender offers by GS
Inc. for, Common Stock; (B) Transfers of
Covered Shares to organizations described in
Section 501(c)(3) of the Code, including
gifts to "private foundations" subject to
the requirements of Section 509 of the Code;
(C) Transfers of Covered Shares held in
employee benefit plans of the Company either
generally or in particular situations; and
(D) particular Covered Persons or all
Covered Persons to Transfer Covered Shares
in particular situations (such as Transfers
to family members, partnerships or trusts),
but not generally (provided that in each of
(A) through (D),

-19-
<PAGE> 20
waivers of the restrictions imposed by Section
2.3(a), 2.3(b) and 2.3(c) shall also require
the prior written consent of GS Inc.);

(ii) The Shareholders' Committee may waive the PLP
Transfer Restrictions in all circumstances
other than in connection with a tender or
exchange offer by any person other than the
Company; and

(iii) The Shareholders' Committee may waive any or
all of the Transfer Restrictions and the other
provisions of this Agreement with respect to
Covered Shares owned by a person at the time
the person becomes a managing director of the
Company or acquired by the person in connection
with such person's becoming a managing director
of the Company; provided that such person was
not an employee of the Company prior to the
granting of such waiver by the Shareholders'
Committee.

(c) GS Inc. agrees that the PLP Transfer Restrictions shall be
deemed to be waived under the Plan of Incorporation if they are waived
as provided in this Agreement.

(d) In connection with any waiver granted under this
Agreement, the Shareholders' Committee or the holders of the percentage
of Voting Interests required for the waiver, as the case may be, may
impose such conditions as they determine on the granting of such
waivers.

(e) The failure of the Company or the Shareholders' Committee
at any time or times to require performance of any provision of this
Agreement shall in no manner affect the rights at a later time to
enforce the same. No waiver by the Company or the Shareholders'
Committee of the breach of any term contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
breach or the breach of any other term of this Agreement.

Section 7.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

-20-
<PAGE> 21
Section 7.5 Resolution of Disputes.

(a) The Shareholders' Committee shall have the sole and
exclusive power to enforce the provisions of this Agreement. The
Shareholders' Committee may in its sole discretion request GS Inc. to
conduct such enforcement, and GS Inc. agrees to conduct such
enforcement as requested and directed by the Shareholders' Committee.

(b) Without diminishing the finality and conclusive effect of
any determination by the Shareholders' Committee of any matter under
this Agreement which is provided herein to be determined or proposed by
the Shareholders' Committee (and subject to the provisions of
paragraphs (c) and (d) hereof), any dispute, controversy or claim
arising out of or relating to or concerning the provisions of this
Agreement shall be finally settled by arbitration in New York City
before, and in accordance with the rules then obtaining of, the New
York Stock Exchange, Inc. ("NYSE"), or if the NYSE declines to
arbitrate the matter, the American Arbitration Association ("AAA") in
accordance with the commercial arbitration rules of the AAA.

(c) Notwithstanding the provisions of paragraph (b), and in
addition to its right to submit any dispute or controversy to
arbitration, the Shareholders' Committee may bring, or may cause GS
Inc. to bring, on behalf of the Shareholders' Committee or on behalf of
one or more Covered Persons, an action or special proceeding in a state
or federal court of competent jurisdiction sitting in the State of
Delaware, whether or not an arbitration proceeding has theretofore been
or is ever initiated, for the purpose of temporarily, preliminarily or
permanently enforcing the provisions of this Agreement and, for the
purposes of this paragraph (c), each Covered Person (i) expressly
consents to the application of paragraph (d) to any such action or
proceeding, (ii) agrees that proof shall not be required that monetary
damages for breach of the provisions of this Agreement would be
difficult to calculate and that remedies at law would be inadequate and
(iii) irrevocably appoints each General Counsel of GS Inc., c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801 as such Covered Person's agent for
service of process in connection with any such action or proceeding,
who shall promptly advise such Covered Person of any such service of
process.

(d) (i) EACH COVERED PERSON HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE
STATE OF DELAWARE OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO OR CONCERNING THIS AGREEMENT THAT IS NOT OTHERWISE
ARBITRATED ACCORDING TO THE PROVISIONS OF PARAGRAPH (B)

-21-
<PAGE> 22
HEREOF. This includes any suit, action or proceeding to compel
arbitration or to enforce an arbitration award. The parties acknowledge
that the forum designated by this paragraph (d) has a reasonable
relation to this Agreement, and to the parties' relationship with one
another. Notwithstanding the foregoing, nothing herein shall preclude
the Shareholders' Committee or GS Inc. from bringing any action or
proceeding in any other court for the purpose of enforcing the
provisions of this Section 7.5.

(ii) The agreement of the parties as to forum is independent
of the law that may be applied in the action, and they each agree to
such forum even if the forum may under applicable law choose to apply
non-forum law. The parties hereby waive, to the fullest extent
permitted by applicable law, any objection which they now or hereafter
may have to personal jurisdiction or to the laying of venue of any such
suit, action or proceeding brought in any court referred to in
paragraph (d)(i). The parties undertake not to commence any action
arising out of or relating to or concerning this Agreement in any forum
other than a forum described in paragraph (d)(i). The parties agree
that, to the fullest extent permitted by applicable law, a final and
non-appealable judgment in any such suit, action or proceeding in any
such court shall be conclusive and binding upon the parties.

Section 7.6 Relationship of Parties. The terms of this
Agreement are intended not to create a separate entity for U.S. federal income
tax purposes, and nothing in this Agreement shall be read to create any
partnership, joint venture or separate entity among the parties or to create any
trust or other fiduciary relationship between them.

Section 7.7 Notices.

(a) Any communication, demand or notice to be given hereunder
will be duly given (and shall be deemed to be received) when delivered
in writing by hand or first class mail or by telecopy to a party at its
address as indicated below:

If to a Covered Person,

c/o The Goldman Sachs Group, Inc.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3876
Attention: General Counsel;

If to the Shareholders' Committee, at

Shareholders' Committee under the Shareholders'
Agreement,

-22-
<PAGE> 23
dated May 7, 1999
c/o The Goldman Sachs Group, Inc.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3876
Attention: General Counsel;

and

If to GS Inc., at

The Goldman Sachs Group, Inc.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3876

Attention: General Counsel.

GS Inc. shall be responsible for notifying each Covered Person
of the receipt of a communication, demand or notice under this
Agreement relevant to such Covered Person at the address of such
Covered Person then in the records of GS Inc. (and each Covered Person
shall notify GS Inc. of any change in such address for communications,
demands and notices).

(b) Unless otherwise provided to the contrary herein, any
notice which is required to be given in writing pursuant to the terms
of this Agreement may be given by telecopy.

Section 7.8 Severability. If any provision of this Agreement
is finally held to be invalid, illegal or unenforceable, (a) the remaining terms
and provisions hereof shall be unimpaired and (b) the invalid or unenforceable
term or provision shall be deemed replaced by a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision.

Section 7.9 Right to Determine Tender Confidentially. In
connection with any tender or exchange offer for all or any portion of the
outstanding Common Stock, subject to compliance with all applicable restrictions
on Transfer in this Agreement, the Plan of Incorporation or any other agreement
with GS Inc., each Covered Person will have the right to determine
confidentially whether such Covered Person's Covered Shares will be tendered in
such tender or exchange offer.

-23-
<PAGE> 24
Section 7.10 No Third-Party Rights. Nothing expressed or
referred to in this Agreement will be construed to give any person other than
the parties to this Agreement any legal or equitable right, remedy, or claim
under or with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.

Section 7.11 Section Headings. The headings of sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation.

Section 7.12 Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.

-24-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have duly executed or
caused to be duly executed this Agreement as of the dates indicated.

THE GOLDMAN SACHS GROUP, INC.

By _________________________________
Name:
Title:

Dated: May 7, 1999

[Signature Page 1 and Signature Page 2 Follow]
<PAGE> 26
Signature Page 1
to
Shareholders' Agreement

Bradley I. Abelow
Paul M. Achleitner
Jonathan R. Aisbitt
Andrew M. Alper
Armen A. Avanessians
David M. Baum
Ron E. Beller
Milton R. Berlinski
Lloyd C. Blankfein
David W. Blood
Peter L. Briger Jr.
Richard J. Bronks
Lawrence R. Buchalter
Michael J. Carr
Christopher J. Carrera
Mary Ann Casati
Andrew A. Chisholm
Zachariah Cobrinik
Abby Joseph Cohen
Gary D. Cohn
Christopher A. Cole
Carlos A. Cordeiro
Henry Cornell
E. Gerald Corrigan
Jon S. Corzine
Claudio Costamagna
Frank L. Coulson, Jr.
Randolph L. Cowen
Philip M. Darivoff
Timothy D. Dattels
Gavyn Davies
David A. Dechman
Paul C. Deighton
Robert V. Delaney
Joseph Della Rosa
Alexander C. Dibelius
John O. Downing
Connie K. Duckworth
C. Steven Duncker
Gordon E. Dyal
Glenn P. Earle
<PAGE> 27
Signature Page 1
to
Shareholders' Agreement (cont.)

Paul S. Efron
J. Michael Evans
W. Mark Evans
Pieter Maarten Feenstra
Lawton W. Fitt
David B. Ford
Edward C. Forst
Christopher G. French
Richard A. Friedman
Joseph D. Gatto
Peter C. Gerhard
Nomi P. Ghez
Joseph H. Gleberman
Richard J. Gnodde
Jeffrey B. Goldenberg
Jacob D. Goldfield
Amy O. Goodfriend
Andrew M. Gordon
Geoffrey T. Grant
Eric P. Grubman
Joseph D. Gutman
Robert S. Harrison
Thomas J. Healey
Sylvain M. Hefes
David B. Heller
Steven M. Heller
David L. Henle
Mary C. Henry
Robert E. Higgins
M. Roch Hillenbrand
Jacquelyn M. Hoffman-Zehner
Robert J. Hurst
Francis J. Ingrassia
Timothy J. Ingrassia
Reuben Jeffery III
Stefan J. Jentzsch
Chansoo Joung
Ann F. Kaplan
Barry A. Kaplan
Robert S. Kaplan
Scott B. Kapnick
<PAGE> 28
Signature Page 1
to
Shareholders' Agreement (cont.)

Erland S. Karlsson
Robert J. Katz
Kevin W. Kennedy
Peter D. Kiernan III
Douglas W. Kimmelman
Bradford C. Koenig
Jonathan L. Kolatch
Peter S. Kraus
David G. Lambert
Thomas D. Lasersohn
Anthony D. Lauto
Matthew G. L'Heureux
Lawrence H. Linden
Robert Litterman
Robert H. Litzenberger
Jonathan M. Lopatin
Michael R. Lynch
Peter G.C. Mallinson
Ronald G. Marks
Eff W. Martin
David J. Mastrocola
John P. McNulty
E. Scott Mead
Sanjeev K. Mehra
T. Willem Mesdag
Eric M. Mindich
Steven T. Mnuchin
Masanori Mochida
Karsten N. Moller
Thomas K. Montag
Wayne L. Moore
Robert B. Morris III
Michael P. Mortara
Sharmin Mossavar-Rahmani
Edward A. Mule
Philip D. Murphy
Thomas S. Murphy, Jr.
Avi M. Nash
Daniel M. Neidich
Kipp M. Nelson
Robin Neustein
<PAGE> 29
Signature Page 1
to
Shareholders' Agreement (cont.)

Suzanne M. Nora Johnson
Michael E. Novogratz
Alok Oberoi
Terence J. O'Neill
Timothy J. O'Neill
Donald C. Opatrny, Jr.
Robert J. O'Shea
Greg M. Ostroff
Terence M. O'Toole
Robert J. Pace
Gregory K. Palm
Henry M. Paulson, Jr.
Scott M. Pinkus
Timothy C. Plaut
Wiet H. Pot
John J. Powers
Michael A. Price
Scott S. Prince
Stephen D. Quinn
Michael G. Rantz
Girish V. Reddy
Arthur J. Reimers
James P. Riley, Jr.
Simon M. Robertson
J. David Rogers
Emmanuel Roman
Ralph F. Rosenberg
Stuart M. Rothenberg
Michael S. Rubinoff
Richard M. Ruzika
John C. Ryan
Michael D. Ryan
Richard A. Sapp
Joseph Sassoon
Tsutomu Sato
Muneer A. Satter
Jonathan S. Savitz
Peter Savitz
Howard B. Schiller
Antoine Schwartz
Eric S. Schwartz
<PAGE> 30
Signature Page 1
to
Shareholders' Agreement (cont.)

Mark Schwartz
Charles B. Seelig, Jr.
Steven M. Shafran
Richard S. Sharp
James M. Sheridan
Richard G. Sherlund
Michael S. Sherwood
Howard A. Silverstein
Dinakar Singh
Christian J. Siva-Jothy
Cody J Smith
Jonathan S. Sobel
Marc A. Spilker
Daniel W. Stanton
Esta E. Stecher
Fredric E. Steck
Robert K. Steel
Hsueh J. Sung
Peter D. Sutherland
Gene T. Sykes
Mark R. Tercek
Donald F. Textor
John A. Thain
John L. Thornton
John R. Tormondsen
Leslie C. Tortora
John L. Townsend, III
Byron D. Trott
Robert B. Tudor III
Thomas E. Tuft
Malcolm B. Turnbull
John E. Urban
Lee G. Vance
David A. Viniar
Barry S. Volpert
George H. Walker
Thomas B. Walker III
Patrick J. Ward
John S. Weinberg
Peter A. Weinberg
George W. Wellde, Jr.
<PAGE> 31
Signature Page 1
to
Shareholders' Agreement (cont.)

Anthony G. Williams
Gary W. Williams
Kendrick R. Wilson III
Jon Winkelried
Steven J. Wisch
Richard E. Witten
Tracy R. Wolstencroft
Yasuyo Yamazaki
Danny O. Yee
Michael J. Zamkow
Yoel Zaoui
Gregory H. Zehner
Jide J. Zeitlin
Joseph R. Zimmel
Barry L. Zubrow
Mark A. Zurack

By:_________________________
Name:
Title: Attorney-in-Fact

Dated: May 7, 1999
<PAGE> 32
Signature Page 2
to
Shareholders' Agreement

____________________________
Name:

Dated: May 7, 1999
<PAGE> 33
APPENDIX A

PARTIES TO THE SHAREHOLDERS' AGREEMENT

NAME

Bradley I. Abelow
Peter C. Aberg
Paul M. Achleitner
Jonathan R. Aisbitt
Elliot M. Alchek
Andrew M. Alper
Philippe J. Altuzarra
Kazutaka P. Arai
David M. Atkinson
Mitchel J. August
Armen A. Avanessians
John S. Barakat
Barbara J. Basser-Bigio
David M. Baum
Robert A. Beckwitt
Jonathan A. Beinner
Ron E. Beller
Tarek M. Ben Halim
Jaime I. Bergel
Todd L. Bergman
Milton R. Berlinski
Andrew S. Berman
Frances R. Bermanzohn
Jeffrey J. Bernstein
Robert A. Berry
Jean-Luc Biamonti
James J. Birch
Lloyd C. Blankfein
David W. Blood
David R. Boles
David A. Bolotsky
Charles W.A. Bott
Charles C. Bradford III
Benjamin S. Bram
Thomas C. Brasco
Peter L. Briger Jr.
<PAGE> 34
APPENDIX A (CONT.)

Craig W. Broderick
Richard J. Bronks
Charles K. Brown
Vern J. Brownell
Peter D. Brundage
Lawrence R. Buchalter
Steven M. Bunson
Timothy B. Bunting
Calvert C. Burkhart
Michael S. Burton
George H. Butcher III
Lawrence V. Calcano
John D. Campbell
Richard M. Campbell-Breeden
Anthony H. Carpet
Michael J.Carr
Christopher J. Carrera
Virginia E. Carter
Calvin R. Carver, Jr.
Mary Ann Casati
Chris Casciato
Douglas W. Caterfino
Michael J. Certo
Varkki P. Chacko
David K. Chang
Thomas P. Chang
Sacha A. Chiaramonte
Andrew A. Chisholm
Robert J. Christie
Peter T. Cirenza
Kent A. Clark
Zachariah Cobrinik
Abby Joseph Cohen
Gary D. Cohn
Christopher A. Cole
Timothy J. Cole
Laura C. Conigliaro
Frank T. Connor
Donna L. Conti
Edith W. Cooper
Philip A. Cooper
John W. Copeland
Carlos A. Cordeiro
<PAGE> 35
APPENDIX A (CONT.)

Henry Cornell
E. Gerald Corrigan
Jon S. Corzine
Claudio Costamagna
Frank L. Coulson, Jr.
Randolph L. Cowen
Neil D. Crowder
John W. Curtis
Stephen C. Daffron
John S. Daly
Philip M. Darivoff
Matthew S. Darnall
Timothy D. Dattels
Gavyn Davies
David A. Dechman
Paul C. Deighton
Juan A. Del Rivero
Robert V. Delaney
Joseph Della Rosa
Emanuel Derman
Andrew C. Devenport
Stephen D. Dias
Alexander C. Dibelius
Simon P. Dingemans
Sandra D'Italia
Paula A. Dominick
Noel B. Donohoe
Jana Hale Doty
Robert G. Doumar, Jr.
John O. Downing
Michael B. Dubno
Connie K. Duckworth
William C. Dudley
Matthieu B. Duncan
C. Steven Duncker
Karlo J. Duvnjak
Jay S. Dweck
Gordon E. Dyal
Isabelle Ealet
Glenn P. Earle
Paul S. Efron
Herbert E. Ehlers
Alexander S. Ehrlich
<PAGE> 36
APPENDIX A (CONT.)

John E. Eisenberg
Glenn D. Engel
Michael P. Esposito
George C. Estey
Mark D. Ettenger
J. Michael Evans
W. Mark Evans
Charles P. Eve
Paul D. Farrell
Elizabeth C. Fascitelli
Pieter Maarten Feenstra
Steven M. Feldman
Laurie R. Ferber
Robert P. Fisher, Jr.
Lawton W. Fitt
Stephen C. Fitzgerald
David N. Fleischer
Jeffrey S. Flug
David B. Ford
Eric O. Fornell
Edward C. Forst
Oliver L. Frankel
Matthew T. Fremont-Smith
Christopher G. French
Richard A. Friedman
C. Douglas Fuge
Joseph D. Gatto
Emmanuel Gavaudan
Eduardo B. Gentil
Peter C. Gerhard
Nomi P. Ghez
H. John Gilbertson, Jr.
Alan R. Gillespie
Joseph H. Gleberman
Richard J. Gnodde
Jeffrey B. Goldenberg
Jacob D. Goldfield
Amy O. Goodfriend
Jay S. Goodgold
Andrew M. Gordon
Robert D. Gottlieb
Geoffrey T. Grant
William M. Grathwohl
<PAGE> 37
APPENDIX A (CONT.)

David J. Greenwald
Louis S. Greig
Christopher Grigg
Douglas C. Grip
Eric P. Grubman
Celeste A. Guth
Joseph D. Gutman
Erol Hakanoglu
Roger C. Harper
Charles T. Harris III
Robert S. Harrison
Shelley A. Hartman
Nobumichi Hattori
Stephen J. Hay
Walter H. Haydock
Isabelle Hayen
Thomas J. Healey
John P. Heanue
Robert C. Heathcote
Sylvain M. Hefes
David B. Heller
Steven M. Heller
R. Douglas Henderson
David L. Henle
Mary C. Henry
Robert E. Higgins
M. Roch Hillenbrand
Maykin Ho
Timothy E. Hodgson
Jacquelyn M. Hoffman-Zehner
Christopher G. Hogg
Gregory T. Hoogkamp
Robert D. Hormats
Robert G. Hottensen, Jr.
James A. Hudis
Terry P. Hughes
Bimaljit S. Hundal
Robert J. Hurst
Francis J. Ingrassia
Timothy J. Ingrassia
Masahiro Iwano
William L. Jacob III
Mark M. Jacobs
<PAGE> 38
APPENDIX A (CONT.)

Richard I. Jaffee
Reuben Jeffery III
Stefan J. Jentzsch
Dan H. Jester
Daniel J. Jick
Robert H. Jolliffe
Robert C. Jones
Reginald L. Jones III
Chansoo Joung
Andrew J. Kaiser
Donald G. Kane II
Ann F. Kaplan
Barry A. Kaplan
David A. Kaplan
Jason S. Kaplan
Robert S. Kaplan
Scott B. Kapnick
Erland S. Karlsson
Carolyn F. Katz
Robert J. Katz
Sofia Katzap
Haruo Kawamura
Tetsuya Kawano
Sion P. Kearsey
R. Mark Keating
John L. Kelly
Kevin M. Kelly
Kevin W. Kennedy
Peter D. Kiernan III
James T. Kiernan, Jr.
Sun Bae Kim
Douglas W. Kimmelman
Colin E. King
Robert C. King, Jr.
Adrian P. Kingshott
Ewan M. Kirk
Michael K. Klingher
Craig A. Kloner
Bradford C. Koenig
Mark J. Kogan
Jonathan L. Kolatch
David J. Kostin
Koji Kotaka
<PAGE> 39
APPENDIX A (CONT.)

Peter S. Kraus
Christoph M. Ladanyi
David G. Lambert
Pierre F. Lapeyre Jr.
Bruce M. Larson
Thomas D. Lasersohn
Anthony D. Lauto
Susan R. Leadem
Andrew D. Learoyd
Donald C. Lee
Kenneth H. M. Leet
Paulo C. Leme
Hughes B. Lepic
Alan B. Levande
Thomas B. Lewis, Jr.
Mark E. Leydecker
Matthew G. L'Heureux
Aaron D. Liberman
Gwen R. Libstag
Stephen C. Lichtenauer
Roger A. Liddell
Richard J. Lieb
Mitchell J. Lieberman
Josephine Linden
Lawrence H. Linden
Robert Litterman
Robert H. Litzenberger
Ernest S. Liu
David J. Lockwood
Jonathan M. Lopatin
Francisco Lopez-Balboa
Victor M. Lopez-Balboa
Antigone Loudiadis
C. Richard Lucy
Michael C. Luethke
Michael R. Lynch
Shogo Maeda
John A. Mahoney
Sean O. Mahoney
Jun Makihara
Russell E. Makowsky
Peter G.C. Mallinson
Charles G. R. Manby
<PAGE> 40
APPENDIX A (CONT.)

Barry A. Mannis
Richard J. Markowitz
Ronald G. Marks
Robert J. Markwick
Eff W. Martin
Jacques Martin
John J. Masterson
David J. Mastrocola
Kathy M. Matsui
Tadanori Matsumura
Heinz Thomas Mayer
Richard X. McArdle
Theresa E. McCabe
Joseph M. McConnell
Mark E. McGoldrick
Stephen J. McGuinness
John C. McIntire
John W. McMahon
Geraldine F. McManus
Audrey A. McNiff
Anne Welsh McNulty
John P. McNulty
E. Scott Mead
David M. Meerschwam
Sanjeev K. Mehra
Richard W. Meister
Amos Meron
T. Willem Mesdag
Kenneth A. Miller
Therese L. Miller
James E. Milligan
Eric M. Mindich
Peter A. Mindnich
Edward S. Misrahi
Steven T. Mnuchin
Kurt C. Mobley
Masanori Mochida
Karsten N. Moller
Thomas K. Montag
Wayne L. Moore
Yukihiro Moroe
Robert B. Morris III
Michael P. Mortara
<PAGE> 41
APPENDIX A (CONT.)

Matthias R. Mosler
Jeffrey M. Moslow
Sharmin Mossavar-Rahmani
Ian Mukherjee
Edward A. Mule
Donald J. Mulvihill
Patrick E. Mulvihill
Richard A. Murley
Philip D. Murphy
Thomas S. Murphy, Jr.
Gaetano J. Muzio
Michiya Nagai
Kiyotaka Nakamura
Avi M. Nash
Trevor Nash
Warwick M. Negus
Daniel M. Neidich
Kipp M. Nelson
Robin Neustein
Duncan L. Niederauer
Suzanne M. Nora Johnson
Christopher K. Norton
Michael E. Novogratz
Jay S. Nydick
Alok Oberoi
Jinsuk T. Oh
John C. O'Hara
Terence J. O'Neill
Timothy J. O'Neill
Richard T. Ong
Ronald M. Ongaro
Donald C. Opatrny, Jr.
Daniel B. O'Rourke
Robert J. O'Shea
Greg M. Ostroff
Terence M. O'Toole
Robert J. Pace
Robert N. Packer
Gregory K. Palm
Mukesh K. Parekh
Melissa B. Patrusky
Henry M. Paulson, Jr.
Alberto M. Piedra Jr.
<PAGE> 42
APPENDIX A (CONT.)

Stephen R. Pierce
Philip J. Pifer
Scott M. Pinkus
Timothy C. Plaut
Andrea Ponti
Wiet H. Pot
Michael J. Poulter
John J. Powers
Michael A. Price
Scott S. Prince
Stephen D. Quinn
John J. Rafter
Dioscoro-Roy I. Ramos
Charlotte P. Ransom
Michael G. Rantz
Joseph Ravitch
Girish V. Reddy
Arthur J. Reimers
Anthony John Reizenstein
James P. Riley, Jr.
Simon M. Robertson
J. David Rogers
John F.W. Rogers
Emmanuel Roman
Pamela P. Root
Ralph F. Rosenberg
Jacob D. Rosengarten
Stuart M. Rothenberg
Michael S. Rubinoff
Paul M. Russo
Richard M. Ruzika
John C. Ryan
Michael D. Ryan
J. Michael Sanders
Allen Sangines-Krause
Richard A. Sapp
Joseph Sassoon
Tsutomu Sato
Muneer A. Satter
Jonathan S. Savitz
Peter Savitz
P. Sheridan Schechner
Gary B. Schermerhorn
<PAGE> 43
APPENDIX A (CONT.)

Mitchell I. Scherzer
Howard B. Schiller
Antoine Schwartz
Eric S. Schwartz
Mark Schwartz
Steven M. Scopellite
David J. Scudellari
Charles B. Seelig, Jr.
Steven M. Shafran
Richard S. Sharp
John P. Shaughnessy
Robert J. Shea, Jr.
James M. Sheridan
Richard G. Sherlund
Michael S. Sherwood
Howard A. Silverstein
Richard P. Simon
Victor R. Simone, Jr.
Dinakar Singh
Ravi Sinha
Allen W. Sinsheimer
Edward M. Siskind
Christian J. Siva-Jothy
Mark F. Slaughter
Cody J Smith
Michael M. Smith
Sarah G. Smith
Randolph C. Snook
Jonathan S. Sobel
Judah C. Sommer
Theodore T. Sotir
Marc A. Spilker
Daniel W. Stanton
Esta E. Stecher
Fredric E. Steck
Robert K. Steel
Robert S. Stellato
Raymond S. Stolz
Steven H. Strongin
Andrew J. Stuart
Patrick Sullivan
Hsueh J. Sung
George M. Suspanic
<PAGE> 44
APPENDIX A (CONT.)

Peter D. Sutherland
Gene T. Sykes
Gary A. Syman
John H. Taylor
Robert E. Taylor
Greg W. Tebbe
Mark R. Tercek
Donald F. Textor
John A. Thain
John L. Thornton
Daisuke Toki
John R. Tormondsen
Leslie C. Tortora
John L. Townsend, III
Mark J. Tracey
Byron D. Trott
Michael A. Troy
Robert B. Tudor III
Thomas E. Tuft
Barry S. Turkanis
Malcolm B. Turnbull
Harkanwar Uberoi
Kaysie P. Uniacke
John E. Urban
Hugo H. Van Vredenburch
Lee G. Vance
John J. Vaske
Oksana Vayner-Ryklin
David A. Viniar
Barry S. Volpert
George H. Walker
Thomas B. Walker III
Nicholas J. Walsh
David R. Walton
Hsueh-Ming Wang
Patrick J. Ward
Haruko Watanuki
Edward F. Watts Jr.
David M. Weil
John S. Weinberg
Peter A. Weinberg
Mark S. Weiss
George W. Wellde, Jr.
<PAGE> 45
APPENDIX A (CONT.)
Bradley W. Wendt
Peter S. Wheeler
Barbara A. White
A. Carver Wickman
Susan A. Willetts
Anthony G. Williams
Gary W. Williams
Todd A. Williams
Kendrick R. Wilson III
Jon Winkelried
Steven J. Wisch
Richard E. Witten
Tracy R. Wolstencroft
Zi Wang Xu
Tetsufumi Yamakawa
Yasuyo Yamazaki
Danny O. Yee
Jaime E. Yordan
W. Thomas York Jr.
Michael J. Zamkow
Paolo Zannoni
Yoel Zaoui
Gregory H. Zehner
Jide J. Zeitlin
Joan H. Zief
Joseph R. Zimmel
James P. Ziperski
Barry L. Zubrow
Mark A. Zurack

<PAGE> 1
EXHIBIT 10.28

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into as of the 7th day of May, 1999, by and between The Goldman Sachs Group,
Inc., a Delaware corporation ("GS Inc.") and each of the Indemnitees listed on
the signature pages to this agreement (each, an "Indemnitee", and collectively,
the "Indemnitees") as such signature pages may be amended and supplemented from
time to time.

WITNESSETH

WHEREAS, GS Inc. has become party to a plan for the incorporation of
the business of The Goldman Sachs Group, L.P. ("GS Group") and the related
reorganization of the business of GS Group, which plan was approved by The
Goldman Sachs Corporation ("GS Corp.") in its capacity as general partner of GS
Group and by the Schedule II Limited Partners of GS Group in March 1999 (such
plan of incorporation together with all exhibits thereto as it or they may be
amended from time to time, the "Plan of Incorporation");

WHEREAS, as part of the Plan of Incorporation, GS Inc. has filed and
proposes to file registration statements (the "Registration Statements") with
the Securities and Exchange Commission for the public offering and sale of
shares of its common stock (including shares issuable in connection with
employee benefit plans) and debt securities (including medium-term notes);

<PAGE> 2
WHEREAS, GS Inc. has requested and will request certain of the
Indemnitees to execute the Registration Statements in the capacity or capacities
listed and to be listed in such Registration Statements; and

WHEREAS, each Indemnitee is or was one or more of the following: (i) an
officer or director of GS Inc., (ii) an officer or director of GS Corp., (iii) a
person requested or authorized by the board of directors or a person authorized
by the board of directors of GS Inc. or GS Corp. to take actions on behalf of GS
Group, GS Inc. or GS Corp. in connection with the Registration Statements or the
Plan of Incorporation or (iv) a member of the Management Committee or
Partnership Committee of GS Inc. or the former Executive Committee of GS Group.

NOW, therefore, in consideration of each Indemnitee's acting and
agreeing to act in the capacities referred to above, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:

1. General. GS Inc. (A) will indemnify and hold harmless each
Indemnitee against any Losses (as hereinafter defined), joint or several, to
which such Indemnitee may become subject, under the Securities Act of 1933, as
amended (the "Act") or otherwise, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statements or any
related Rule 462(b) Registration Statements or any preliminary prospectus or
prospectus comprising a part thereof, or any

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<PAGE> 3
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that GS Inc. shall not be liable in any such case to the extent that
any such Losses arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission relating to such Indemnitee
made in any preliminary prospectus, any registration statement or any prospectus
or any amendment or supplement in reliance upon and in conformity with written
information relating to such Indemnitee furnished to GS Inc. by such Indemnitee
expressly for use therein; and (B) will indemnify and hold harmless each
Indemnitee against any Losses (or actions in respect thereof) which otherwise
arise out of or are based upon or asserted against such Indemnitee in connection
with such Indemnitee's acting in the capacities referred to above in connection
with the transactions contemplated by the Plan of Incorporation, except to the
extent any such Losses referred to in this clause (B) arise out of or are based
upon the type of conduct for which (x) a director would not be exempt from
liability or (y) the indemnification of a director would be limited in respect
of such Losses, in the case of (x) and (y), within the meaning of Article
Twelfth of the Amended and Restated Certificate of Incorporation of GS Inc. or
Section 102(b)(7) of the Delaware General Corporation Law (whether or not such
Indemnitee is a director).

Notwithstanding the foregoing provisions of this Section 1, GS Inc. and
each Indemnitee agree that insofar as indemnification for liabilities arising
under the Act

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<PAGE> 4
may be permitted under this Agreement to an Indemnitee who is a director,
officer or controlling person of GS Inc., in the event that a claim for
indemnification against such liabilities is made by such an Indemnitee (other
than the payment by GS Inc. of expenses incurred or paid by such Indemnitee in
the successful defense of any action, suit or proceeding) in connection with a
Registration Statement, GS Inc. 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 Act, and GS Inc. and such Indemnitee
will be governed by the final adjudication of such question.

2. Losses. As used in this Agreement, the term "Losses" shall include,
without limitation, damages, losses, claims, judgments, liabilities, fines,
penalties, excise taxes, settlements, and costs, attorneys' fees, accountants'
fees, and disbursements and costs of attachment or similar bonds, investigation
costs, defense preparation costs, costs of preparing for and presenting evidence
or testimony, and any expenses of establishing a right to indemnification under
this Agreement. The term "Losses" shall not include taxes except to the extent
taxes are imposed in respect of payments otherwise made pursuant to this
Agreement, in which case such Indemnitee's Losses shall include an amount not
greater than the net taxes payable (taking into account any deductions or other
tax benefits available to such Indemnitee as a result of the Losses in respect
of which such payment is made).

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<PAGE> 5
3. Enforcement. Subject to the provisions of the second paragraph of
Section 1 hereof, if a claim or request by an Indemnitee under this Agreement is
not paid by GS Inc. or on its behalf, within thirty (30) days after a written
claim or request has been received by GS Inc. and, if applicable, the
affirmation in Section 5 hereof has been received by GS Inc., such Indemnitee
may at any time thereafter commence an arbitration proceeding in accordance with
Section 9 hereof against GS Inc. to recover the unpaid amount of the claim or
request and, if successful in whole or in part, such Indemnitee shall be
entitled to be paid also the expenses of prosecuting such proceeding. It shall
be a defense to any such proceeding (other than a proceeding commenced to
enforce a claim for expenses incurred in defending any actual or threatened
proceeding in advance of its final disposition where the required affirmation
and undertaking, if any is required, have been tendered to GS Inc.) that such
Indemnitee has not met the standards of conduct for GS Inc. to indemnify such
Indemnitee herein for the amount claimed, but the burden of proving such defense
shall be on GS Inc. Neither the failure of GS Inc. (including its Board of
Directors, legal counsel or shareholders) to have made a determination prior to
the commencement of such proceeding that indemnification of such Indemnitee is
proper in the circumstances because such Indemnitee has met the applicable
standard of conduct set forth herein, nor an actual determination by GS Inc.
(including its Board of Directors, legal counsel or shareholders) that such
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the proceeding or create a presumption that such Indemnitee has not met the
applicable standard of conduct.

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<PAGE> 6
4. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Agreement to indemnification by GS Inc. for some or a portion
of any Losses, but not for the total amount thereof, GS Inc. shall nevertheless
indemnify such Indemnitee for the portion of such Losses to which such
Indemnitee is entitled.

5. Expenses. Expenses incurred by an Indemnitee in connection with any
proceeding shall be paid by GS Inc. upon request of such Indemnitee that GS Inc.
pay such expenses, but only upon receipt by GS Inc. of (i) a written affirmation
of such Indemnitee's good faith belief that the applicable standard of conduct
necessary for indemnification by GS Inc. has been met, (ii) a written
undertaking by or on behalf of such Indemnitee to reimburse GS Inc. for expenses
if and to the extent that it is ultimately determined that the applicable
standard of conduct has not been met and (iii) satisfactory evidence of the
amount of such expenses.

6. Notice of Claim. Each Indemnitee shall promptly notify GS Inc. in
writing of any claim against such Indemnitee for which indemnification will or
could be sought under this Agreement. In addition, each Indemnitee shall give GS
Inc. such information and cooperation as it may reasonably require and as shall
be within such Indemnitee's power and at such times and places as are not unduly
burdensome for such Indemnitee.

7. Defense of Claim. With respect to any proceeding as to which an
Indemnitee notifies GS Inc. of the commencement thereof:

(a) GS Inc. will be entitled to participate at its own
expense;

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<PAGE> 7
(b) subject to Section 7(c) hereof, GS Inc. shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction against any Indemnitee and any other Indemnitees, be
liable to such Indemnitee and such other Indemnitees for the fees and
expenses of more than one separate law firm (in addition to a single
firm of local counsel);

(c) except as otherwise provided below, to the extent that it
may wish, GS Inc. will be entitled to assume the defense thereof, with
counsel reasonably satisfactory to such Indemnitee, which in GS Inc.'s
sole discretion may be regular counsel to GS Inc. and may be counsel to
other Indemnitees. The Indemnitees also shall have the right to employ
one separate counsel for such Indemnitees in such action, suit or
proceeding if such Indemnitees reasonably conclude that if they did not
there would be a conflict of interest between GS Inc. and such
Indemnitees, and under such circumstances the fees and expenses of such
counsel shall be paid by GS Inc.; and

(d) GS Inc. shall not be liable to indemnify an Indemnitee
under this Agreement for any amounts paid in settlement of any action
or claim effected without GS Inc.'s written consent. GS Inc. shall not
settle any action or claim in any manner which would impose any cost or
limitation on an Indemnitee without such Indemnitee's written consent.

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<PAGE> 8
Neither GS Inc. nor an Indemnitee will unreasonably withhold or delay
its consent to any proposed settlement.

8. Non-exclusivity. The right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
conferred in this Agreement shall not be exclusive of or affected in any way by
any other right which an Indemnitee may have or hereafter may acquire under any
statute, certificate of incorporation, by-laws, agreement, arrangement,
resolution or instrument providing indemnification or expense payment, except
that any payments otherwise required to be made by GS Inc. hereunder shall be
offset by any and all amounts received by an Indemnitee from any other
indemnitor or under one or more liability insurance policies maintained by an
indemnitor or otherwise and shall not be duplicative of any other payments
received by an Indemnitee from GS Inc. in respect of the matter giving rise to
the indemnity hereunder. When an Indemnitee is entitled to indemnification,
expense advancement or reimbursement under this Instrument and any other
agreement, arrangement, resolution or instrument of GS Inc. or The Goldman Sachs
Group, L.P., the Indemnitee may choose to pursue its rights under one or more,
but less than all, of such applicable agreements, arrangements, resolutions or
instruments, in which case such Indemnitee need only comply with the standards
and procedures of the agreements, arrangements, resolutions or instruments under
which it chooses to pursue its rights. Without limiting the foregoing, the
rights of any indemnified person under the resolution of the Executive Committee
of GS Group, adopted on May 12, 1997 (the "Resolution")

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<PAGE> 9
shall remain in full force and effect insofar as an indemnified person has any
rights thereunder with respect to the acts, omissions and status of such person
through the date of this Agreement. The execution and delivery of this
Instrument shall constitute notice, effective as of the date of this Instrument,
that the Resolution is rescinded insofar as it relates to the acts, omissions
and status of such person after the date of this Instrument.

9. Arbitration. (a)Subject to the provisions of the second paragraph of
Section 1 and Section 9(b) hereof, any dispute, controversy or claim between an
Indemnitee and GS Inc. arising out of or relating to or concerning the
provisions of this Agreement shall be finally settled by arbitration in New York
City before, and in accordance with the rules then obtaining of, the New York
Stock Exchange, Inc. ("NYSE") or, if the NYSE declines to arbitrate the matter,
the American Arbitration Association (the "AAA") in accordance with the
commercial arbitration rules of the AAA.

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<PAGE> 10
monetary damages for breach of the provisions of this Agreement would be
difficult to calculate and that remedies at law would be inadequate and (iii)
irrevocably appoints each General Counsel of GS Inc., c/o The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801 as such Indemnitee's agent for service of process in connection with any
such action or proceeding, who shall promptly advise such Indemnitee of any such
service of process.

(c) (i) EACH INDEMNITEE HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE
STATE OF DELAWARE OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO OR CONCERNING THIS AGREEMENT THAT IS NOT OTHERWISE
ARBITRATED ACCORDING TO THE PROVISIONS OF SECTION 9(a) HEREOF. This
includes any suit, action or proceeding to compel arbitration or to
enforce an arbitration award. The parties acknowledge that the forum
designated by this Section 9(c) has a reasonable relation to this
Agreement, and to the parties' relationship with one another.
Notwithstanding the foregoing, nothing herein shall preclude GS Inc.
from bringing any action or proceeding in any other court for the
purpose of enforcing the provisions of this Section 9.

(ii) The agreement of an Indemnitee as to forum is independent
of the law that may be applied in the action, and each Indemnitee
agrees to this forum even if the forum may under applicable law choose
to apply non-forum law. Each Indemnitee hereby waives, to the fullest
extent permitted by applicable law, any

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<PAGE> 11
objection which such Indemnitee now or hereafter may have to personal
jurisdiction or to the laying of venue of any such suit, action or
proceeding in any court referred to in Section 9(c)(i). The parties
undertake not to commence any action arising out of or relating to this
Agreement in any forum other than the forum described in this Section
9(c). The parties agree that, to the fullest extent permitted by
applicable law, a final and non-appealable judgment in any such suit,
action or proceeding in any such court shall be conclusive and binding
upon the parties.

10. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns (including any direct or indirect successor by merger or
consolidation), heirs, executors and administrators.

11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.

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<PAGE> 12
Agreement may also be amended by action of GS Inc. and without the approval of
any other person to remove an Indemnitee; provided that such amendment shall not
be effective unless GS Inc. has provided 30 days prior written notice to the
Indemnitee and, in any event, such amendment shall not affect any rights of such
Indemnitee to be indemnified in respect of Losses associated with the acts,
omissions or status of such Indemnitee through the effective date of such
termination (including the right to subsequent indemnification and expense
advancement and reimbursement relating to such acts, omissions or status).

13. Waiver of Breach. The failure or delay of a party at any time to
require performance by any other party of any provision of this Agreement, even
if known, shall not affect the right of such party to require performance of
that provision or to exercise any right, power, or remedy hereunder, and any
waiver by any party of any breach of any provision of this Agreement shall not
be construed as a waiver of any continuing or succeeding breach of such
provision, a waiver of the provision itself, or a waiver of any right, power, or
remedy under this Agreement. No notice to or demand on any party in any case
shall, of itself, entitle such party to other or further notice or demand in
similar or other circumstances.

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<PAGE> 13
herein constitutes an enforceable obligation between GS Inc. and such
Indemnitee. Consequently, GS Inc. and each Indemnitee hereto agrees that neither
the invalidity nor the unenforceability of any provision of this Agreement shall
affect the other provisions hereof, and this Agreement shall remain in full
force and effect and be construed in all respects as if such invalid or
unenforceable provision were omitted.

15. No Presumption. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that an Indemnitee
did not meet the applicable standard of conduct for indemnification under this
Agreement.

16. Notices. Any communication, demand or notice to be given hereunder
will be duly given when delivered in writing by hand or first class mail to GS
Inc. at its principal executive office or to an Indemnitee at its last address
appearing in the business records of GS Inc. (or to such other addresses as a
party may designate by written notice to GS Inc.).

17. No Assignments. No Indemnitee may assign its rights or obligations
under this Agreement without the prior written consent of GS Inc.

18. No Third Party Rights. Nothing expressed or referred to in this
Agreement will be construed to give any person other than the parties to this
Agreement any legal or equitable right, remedy or claim under or with respect to
this Agreement or any provision of this Agreement. This Agreement and all of its
provisions are for the sole

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<PAGE> 14
and exclusive benefit of the parties to this Agreement and their successors and
permitted assigns.

19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument.

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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first written above.

THE GOLDMAN SACHS GROUP, INC.

By:______________________________
Name:
Title:

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<PAGE> 16
INDEMNITEES:

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<PAGE> 1
Exhibit 10.44

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and
entered into as of the 9th day of November 1999, by and between The Goldman
Sachs Group, Inc., a Delaware corporation ("GS Inc."), and each of the
Indemnitees listed on the signature pages to this Agreement (each, an
"Indemnitee", and collectively, the "Indemnitees") as such signature pages may
be amended and supplemented from time to time pursuant to the terms of this
Agreement.

WITNESSETH

WHEREAS, GS Inc. has filed and proposes to file registration
statements with the Securities and Exchange Commission under the Securities Act
of 1933 (the "Securities Act") for the public offering and sale of securities of
GS Inc., which securities may include shares of its common stock (including
shares to be sold by stockholders of GS Inc. or issuable in connection with
employee benefit plans), debt securities (including medium-term notes),
warrants, preferred stock and/or any other securities of GS Inc. approved by, or
pursuant to action of, the Board of Directors of GS Inc.;

WHEREAS, GS Inc. has in the past requested and will in the
future request certain of the Indemnitees to execute registration statements in
the capacity or capacities listed, or to be listed, in registration statements
and to take actions in connection with registration statements; and

WHEREAS, each Indemnitee is one of the following: (i) an
officer or director of GS Inc. or (ii) a person requested or authorized by the
Board of Directors of GS Inc. or any committee thereof to take actions on behalf
of GS Inc. in connection with a registration statement.

NOW, therefore, in consideration of each Indemnitee's acting
and agreeing to act in the capacities referred to above, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

1. General. GS Inc. will indemnify and hold harmless each
Indemnitee against any Losses (as hereinafter defined), joint or several, to
which such Indemnitee may become subject, under the Securities Act or otherwise,
insofar as such Losses (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (as defined below) or any preliminary
prospectus, prospectus, or prospectus supplement comprising a part thereof or
relating thereto, or any amendment or supplement to any of the foregoing
documents (collectively, the "Offering Documents") or any untrue or alleged
untrue oral statement relating to any offering contemplated by any Offering
<PAGE> 2
Document, or arise out of or are based upon an omission or alleged omission to
state in any Offering Document or such oral statement a material fact required
to be stated therein or necessary to make the statements in any Offering
Document or such oral statement not misleading; provided, however, that GS Inc.
shall not be liable in any such case to the extent that any such Losses arise
out of or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission relating to such Indemnitee made in any Offering
Document or such oral statement in reliance upon and in conformity with written
information relating to such Indemnitee furnished to GS Inc. by such Indemnitee
expressly for use therein. "Registration Statement" means any registration
statement previously filed or hereafter filed by GS Inc. under the Securities
Act on any applicable form (including Forms S-8 and S-4) for the registration of
any securities of GS Inc. under the Securities Act, including, without
limitation, debt and equity securities, guarantees, back-up undertakings,
rights, warrants and options and interests in employee benefit plans, and shall
include any amendment, post-effective or otherwise, thereto and any related
registration statement filed pursuant to Rule 462 under the Securities Act.

Notwithstanding the foregoing provisions of this Section 1, GS
Inc. and each Indemnitee agree that insofar as indemnification for liabilities
arising under the Securities Act may be permitted under this Agreement to an
Indemnitee who is a director, officer or controlling person of GS Inc., in the
event that a claim for indemnification against such liabilities is made by such
an Indemnitee (other than the payment by GS Inc. of expenses incurred or paid by
such Indemnitee in the successful defense of any action, suit or proceeding) in
connection with a Registration Statement, GS Inc. 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 GS Inc. and
such Indemnitee will be governed by the final adjudication of such question.

2. Losses. As used in this Agreement, the term "Losses" shall
include, without limitation, damages, losses, claims, judgments, liabilities,
fines, penalties, excise taxes, settlements, and costs, attorneys' fees,
accountants' fees, and disbursements and costs of attachment or similar bonds,
investigation costs, defense preparation costs, costs of preparing for and
presenting evidence or testimony, and any expenses of establishing a right to
indemnification under this Agreement. The term "Losses" shall not include taxes
except to the extent taxes are imposed in respect of payments otherwise made
pursuant to this Agreement, in which case such Indemnitee's Losses shall include
an amount not greater than the net taxes payable (taking into account any
deductions, credits or other tax benefits available to such Indemnitee as a
result of the Losses in respect of which such payment is made and the payment of
the taxes imposed in respect of such payment).

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3. Enforcement. Subject to the provisions of the second
paragraph of Section 1 hereof, if a claim or request by an Indemnitee under this
Agreement is not paid by GS Inc. or on its behalf, within thirty (30) days after
a written claim or request has been received by GS Inc. and, if applicable, the
written undertaking in Section 5 hereof has been received by GS Inc., such
Indemnitee may at any time thereafter commence an arbitration proceeding in
accordance with Section 9 hereof against GS Inc. to recover the unpaid amount of
the claim or request and, if successful in whole or in part, such Indemnitee
shall be entitled to be paid also the expenses of prosecuting such proceeding.

4. Partial Indemnification; Contribution. If an Indemnitee is
entitled under any provision of this Agreement to indemnification by GS Inc. for
some or a portion of any Losses, but not for the total amount thereof, GS Inc.
shall nevertheless indemnify such Indemnitee for the portion of such Losses to
which such Indemnitee is entitled. If the indemnification provided for in this
Agreement is insufficient or unavailable for any reason, GS Inc. shall
contribute to relevant Losses to the maximum extent permitted by law.

5. Expenses. Expenses incurred by an Indemnitee in connection
with any proceeding shall be paid by GS Inc. upon request of such Indemnitee
that GS Inc. pay such expenses, but only upon receipt by GS Inc. of (i) a
written undertaking by or on behalf of such Indemnitee to reimburse GS Inc. for
expenses if and to the extent that it is ultimately determined that such
indemnification is not permitted by the Securities Act (and that contribution is
unavailable with respect to such payments) and (ii) satisfactory evidence of the
amount of such expenses.

6. Notice of Claim. Each Indemnitee shall promptly notify GS
Inc. in writing of any claim against such Indemnitee for which indemnification
will or could be sought under this Agreement. In addition, each Indemnitee shall
give GS Inc. such information and cooperation as it may reasonably require and
as shall be within such Indemnitee's power and at such times and places as are
not unduly burdensome for such Indemnitee.

7. Defense of Claim. With respect to any proceeding as to
which an Indemnitee notifies GS Inc. of the commencement thereof:

(a) GS Inc. will be entitled to participate at its own
expense;

(b) subject to Section 7(c) hereof, GS Inc. shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction against any Indemnitee and any other Indemnitees, be
liable to such Indemnitee and such other Indemnitees for the fees and
expenses of

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more than one separate law firm (in addition to a single firm of local
counsel);

(d) GS Inc. shall not be liable to indemnify an Indemnitee
under this Agreement for any amounts paid in settlement of any action,
suit or proceeding effected without GS Inc.'s written consent. GS Inc.
shall not settle any action, suit or proceeding in any manner which
would impose any cost or limitation on an Indemnitee or would admit
fault by an Indemnitee without such Indemnitee's written consent. No
Indemnitee shall settle any action, suit, or proceeding without the
prior written consent of GS Inc. Neither GS Inc. nor an Indemnitee will
unreasonably withhold or delay its consent to any proposed settlement.

8. Non-exclusivity. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Agreement shall not be exclusive of or affected in
any way by any other right which an Indemnitee may have or hereafter may acquire
under any statute, certificate of incorporation, by-laws, agreement,
arrangement, resolution or instrument providing indemnification or expense
payment, except that any payments otherwise required to be made by GS Inc.
hereunder shall be offset by any and all amounts received by an Indemnitee from
any other indemnitor or under one or more liability insurance policies
maintained by an indemnitor or otherwise and shall not be duplicative of any
other payments received by an Indemnitee from GS Inc. in respect of the matter
giving rise to the indemnity hereunder. When an Indemnitee is entitled to
indemnification, expense advancement or reimbursement under this Instrument and
any other agreement, arrangement, resolution or instrument of GS Inc., the
Indemnitee may choose to pursue its rights under one or more, but less than all,
of such applicable agreements, arrangements, resolutions or instruments, in
which case such Indemnitee need only comply with the standards and procedures of
the agreements, arrangements, resolutions or instruments under which it chooses
to pursue its rights.

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9. Arbitration.

(a) Subject to the provisions of the second paragraph of
Section 1 and Section 9(b) hereof, any dispute, controversy or claim
between an Indemnitee and GS Inc. arising out of or relating to or
concerning the provisions of this Agreement shall be finally settled by
arbitration in New York City before, and in accordance with the rules
then applying of, the New York Stock Exchange, Inc. ("NYSE") or, if the
NYSE declines to arbitrate the matter or the matter is not otherwise
arbitrable before it, the American Arbitration Association (the "AAA")
in accordance with the commercial arbitration rules of the AAA.

(b) Notwithstanding the provision of Section 9(a) and in
addition to its right to submit any dispute or controversy to
arbitration, GS Inc. may bring an action or special proceeding in a
state or federal court of competent jurisdiction sitting in the State
of Delaware, whether or not an arbitration proceeding has theretofore
been or is ever initiated, for the purpose of temporarily,
preliminarily or permanently enforcing the provisions of this Agreement
or to enforce an arbitration award, and, for the purposes of this
Section 9(b), each Indemnitee (i) expressly consents to the application
of Section 9(c) hereof to any such action or proceeding, (ii) agrees
that proof shall not be required that monetary damages for breach of
the provisions of this Agreement would be difficult to calculate and
that remedies at law would be inadequate and (iii) irrevocably appoints
each General Counsel of GS Inc., c/o The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801 as such Indemnitee's agent for service of process in connection
with any such action or proceeding, who shall promptly advise such
Indemnitee of any such service of process.

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(ii) The agreement of an Indemnitee as to forum is independent
of the law that may be applied in the action, and each Indemnitee
agrees to this forum even if the forum may under applicable law choose
to apply non-forum law. Each Indemnitee hereby waives, to the fullest
extent permitted by applicable law, any objection which such Indemnitee
now or hereafter may have to personal jurisdiction or to the laying of
venue of any such suit, action or proceeding in any court referred to
in Section 9(c)(i). The parties undertake not to commence any action
arising out of or relating to this Agreement in any forum other than
the forum described in this Section 9(c). The parties agree that, to
the fullest extent permitted by applicable law, a final and
non-appealable judgment in any such suit, action or proceeding in any
such court shall be conclusive and binding upon the parties.

10. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns (including any direct or indirect successor by
merger or consolidation), heirs, executors and administrators.

11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.

12. Amendment. Each party understands that from time to time
certain other persons may become Indemnitees and certain Indemnitees will cease
to be Indemnitees to the extent provided in this Section 12. Accordingly, this
Agreement may be amended by action of GS Inc. from time to time to add
additional Indemnitees, without the approval of any other person other than such
proposed additional Indemnitees, each of whom shall execute a counterpart of the
signature page of this Agreement. This Agreement may also be amended by action
of GS Inc. and without the approval of any other person to remove an Indemnitee;
provided that such amendment shall not be effective unless GS Inc. has provided
30 days prior written notice to the Indemnitee and, in any event, such amendment
shall not affect any rights of such Indemnitee to be indemnified in respect of
Losses associated with the acts, omissions or status of such Indemnitee through
the effective date of such termination (including the right to subsequent
indemnification and expense advancement and reimbursement relating to such acts,
omissions or status).

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continuing or succeeding breach of such provision, a waiver of the provision
itself, or a waiver of any right, power, or remedy under this Agreement. No
notice to or demand on any party in any case shall, of itself, entitle such
party to other or further notice or demand in similar or other circumstances.

14. Severability. GS Inc. and each Indemnitee agree that the
agreements and provisions contained in this Agreement are severable and
divisible, that each such agreement and provision does not depend upon any other
provision or agreement for its enforceability, and that each such agreement and
provision set forth herein constitutes an enforceable obligation between GS Inc.
and such Indemnitee. Consequently, GS Inc. and each Indemnitee hereto agrees
that neither the invalidity nor the unenforceability of any provision of this
Agreement shall affect the other provisions hereof, and this Agreement shall
remain in full force and effect and be construed in all respects as if such
invalid or unenforceable provision were omitted.

15. Notices. Any communication, demand or notice to be given
hereunder will be duly given when delivered in writing by hand or first class
mail to GS Inc. at its principal executive office or to an Indemnitee at its
last address appearing in the business records of GS Inc. (or to such other
addresses as a party may designate by written notice to GS Inc.).

16. No Assignments. No Indemnitee may assign its rights or
delegate obligations under this Agreement without the prior written consent of
GS Inc. Any assignment or delegation in violation of this Section 16 shall be
null and void.

17. No Third Party Rights. Nothing expressed or referred to in
this Agreement will be construed to give any person other than the parties to
this Agreement any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions are for the sole and exclusive benefit of the parties to
this Agreement and their successors and permitted assigns.

18. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first written above.

THE GOLDMAN SACHS GROUP, INC.

By: /s/ Gregory K. Palm
--------------------------
Name: Gregory K. Palm
Title: Authorized Person

[Signatures Continued on Next Page]
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INDEMNITEES:

<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 21, 2000, on our
audits of the consolidated financial statements, selected consolidated financial
data and the financial statement schedule of The Goldman Sachs Group, Inc. 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
February 14, 2000.