GOLDMAN SACHS GROUP INC, S-3/A, 2000-07-17

GOLDMAN SACHS GROUP INC
S-3/A, 2000-07-17
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 2000

REGISTRATION NO. 333-40810

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SECURITIES AND EXCHANGE COMMISSION

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

AMENDMENT NO. 1

FORM S-3
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>
DELAWARE 13-4019460
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

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

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

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

COPIES TO:

<TABLE>
<S> <C>
RICARDO A. MESTRES, JR. ALAN L. BELLER
ROBERT W. REEDER III CHRISTOPHER E. AUSTIN
SULLIVAN & CROMWELL CHRISTOPHER J. WALTON
125 BROAD STREET CLEARY, GOTTLIEB, STEEN & HAMILTON
NEW YORK, NEW YORK 10004 ONE LIBERTY PLAZA
(212) 558-4000 NEW YORK, NEW YORK 10006
(212) 225-2000
</TABLE>

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

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box. [
]

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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 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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<PAGE> 2

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

Subject to Completion. Dated July 17, 2000.

40,000,000 Shares
THE GOLDMAN SACHS GROUP, INC.
[GOLDMAN SACHS LOGO] Common Stock
----------------------

This is an offering of shares of common stock of The Goldman Sachs Group,
Inc. This prospectus relates to an offering of 35,000,000 shares in the United
States and Canada. In addition, 4,000,000 shares are being offered outside the
United States, Canada and the Asia/Pacific region and 1,000,000 shares are being
offered in the Asia/Pacific region.

All of the shares are being offered by the selling shareholders identified
in this prospectus. Goldman Sachs will not receive any of the proceeds from the
sale of the shares.

Goldman Sachs' common stock is listed on the New York Stock Exchange under
the symbol "GS". The last reported sale price of the common stock on July 14,
2000 was $104.19 per share.

See "Risk Factors" beginning on page 9 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 ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial price to public..................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to the selling shareholders...... $ $
</TABLE>

To the extent that the underwriters sell more than 40,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
6,000,000 shares from certain of the selling shareholders at the initial price
to public less the underwriting discount.
----------------------

The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.

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

Global Coordinator

GOLDMAN, SACHS & CO.

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

<TABLE>
<S> <C> <C>
GOLDMAN, SACHS & CO.
BANC OF AMERICA SECURITIES LLC BEAR, STEARNS & CO. INC. CHASE H&Q
CREDIT SUISSE FIRST BOSTON DEUTSCHE BANC ALEX. BROWN DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS MERRILL LYNCH & CO. J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES
ROBERTSON STEPHENS SALOMON SMITH BARNEY
</TABLE>

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

Prospectus dated , 2000.
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information....................................... 2
Prospectus Summary.......................................... 3
Risk Factors................................................ 9
Use of Proceeds............................................. 20
Price Range of Our Common Stock and Dividends............... 20
Selling Shareholders........................................ 21
Description of Capital Stock................................ 27
Underwriting................................................ 33
Validity of Common Stock.................................... 36
Experts..................................................... 36
Cautionary Statement Pursuant to The Private Securities
Litigation Reform Act of 1995............................. 36
</TABLE>

<PAGE> 4

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-3 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 the reference
is only a summary 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.

The SEC's rules allow us to "incorporate by reference" information into
this prospectus. This means that we can disclose important information to you by
referring you to another document. Any information referred to in this way is
considered part of this prospectus from the date we file that document. Any
reports filed by us with the SEC after the date of this prospectus and before
the date that the offering of the shares of common stock offered through this
prospectus is terminated will automatically update and, where applicable,
supersede any information contained in this prospectus or incorporated by
reference in this prospectus.

The Goldman Sachs Group, Inc. incorporates by reference into this
prospectus the following documents or information filed with the SEC (File No.
001-14965):

(1) Annual Report on Form 10-K for the fiscal year ended November 26,
1999;

(2) Quarterly Report on Form 10-Q for the fiscal quarter ended February
25, 2000;

(3) Quarterly Report on Form 10-Q for the fiscal quarter ended May 26,
2000;

(4) Current Report on Form 8-K, dated March 21, 2000;

(5) Current Report on Form 8-K, dated May 4, 2000;

(6) Current Report on Form 8-K, dated May 10, 2000;

(7) Current Report on Form 8-K/A, dated May 12, 2000;

(8) Current Report on Form 8-K, dated June 20, 2000;

(9) The description of common stock contained in the Registration
Statement on Form 8-A, dated April 27, 1999, of The Goldman Sachs
Group, Inc., filed with the SEC under Section 12(b) of the
Securities Exchange Act of 1934; and

(10) All documents filed by The Goldman Sachs Group, Inc. under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
after the time of filing of the initial registration statement and
before effectiveness of the registration statement, and after the
date of this prospectus and before the termination of the
offerings.

We will provide without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon his or her written or oral
request, a copy of any or all documents referred to above which have been or may
be incorporated by reference into this prospectus, excluding exhibits to those
documents unless they are specifically incorporated by reference into those
documents. You can request those documents from our Director of Investor
Relations, 10 Hanover Square, New York, New York 10005, telephone (212)
357-2674.

2
<PAGE> 5

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 9-19.

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, and, for the six months ended
May 26, 2000, our net revenues were $8.6 billion and our net earnings were $1.6
billion. As of May 26, 2000, our stockholders' equity was $11.9 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.

WHY WE ARE REGISTERING THE SHARES

We are undertaking the offerings to address three important objectives:
increased public float, broader ownership of our common stock and the orderly
entry of shares into the market.

3
<PAGE> 6

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. We expect to achieve the growth in
our core businesses principally through internal expansion and also through
acquisitions.

GLOBAL CAPITAL MARKETS

INVESTMENT BANKING. Investment Banking represented 33% of fiscal 1999 net
revenues and 33% of net revenues for the six months ended May 26, 2000. 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 and 40% of net revenues for the six
months ended May 26, 2000. 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 and 27% of net revenues for the six months ended May
26, 2000. 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 May 31, 2000,
we had $277 billion of assets under management. We manage merchant banking funds
that had $20.17 billion of capital commitments as of May 26, 2000.

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.

4
<PAGE> 7

THE OFFERINGS

<TABLE>
<S> <C> <C>
Common stock offered by the selling shareholders(1)
U.S. offering.......................................... 35,000,000 shares
International offering................................. 4,000,000 shares
Asia/Pacific offering.................................. 1,000,000 shares
------------
Total............................................. 40,000,000 shares
============
Common stock outstanding before and after the
offerings(2).............................................. 447,122,476 shares
Basic common shares outstanding before and after the
offerings(3).............................................. 480,370,020 shares
</TABLE>

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

(1) Unless otherwise indicated, all information in this prospectus is provided
assuming no exercise of the underwriters' options to purchase 6,000,000
additional shares.

(2) Excludes 7,440,362 shares of nonvoting common stock, 67,759,316 shares of
common stock underlying restricted stock units and 39,050,001 shares of
common stock underlying stock options, in each case, as of July 14, 2000.

(3) Includes 7,440,362 shares of nonvoting common stock and 25,807,182 shares of
common stock underlying restricted stock units for which future service is
not required as a condition to the delivery of the underlying shares of
common stock, in each case, as of July 14, 2000.

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

Use of Proceeds............ We will not receive any of the proceeds from sales
of common stock in the offerings.

Risk Factors............... For a discussion of factors you should consider
before buying shares of common stock, see "Risk
Factors".

New York Stock Exchange
Symbol................... GS

5
<PAGE> 8

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 26,
1999 and November 27, 1998 and for the years ended November 26, 1999, November
27, 1998 and November 28, 1997. These financial statements, together with the
reports thereon of PricewaterhouseCoopers LLP, are incorporated by reference in
this prospectus.

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

The pro forma data set forth below for the periods ended November 26, 1999
and May 28, 1999 have been derived from the pro forma data set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report on Form 10-K for the fiscal year ended November
26, 1999 and our Quarterly Report on Form 10-Q for the fiscal quarter ended May
26, 2000, both of which are incorporated by reference in this prospectus.

The summary historical consolidated income statement and balance sheet data
set forth below as of May 26, 2000 and May 28, 1999 have not been audited and
have been derived from our consolidated financial statements and their notes in
our Quarterly Report on Form 10-Q for the fiscal quarter ended May 26, 2000,
which is incorporated by reference in this prospectus.

The summary consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and their notes in our
Annual Report on Form 10-K for the fiscal year ended November 26, 1999 and our
Quarterly Report on Form 10-Q for the fiscal quarter ended May 26, 2000, both of
which are incorporated by reference in this prospectus.

6
<PAGE> 9

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
AS OF OR FOR SIX
MONTHS ENDED MAY AS OF OR FOR YEAR ENDED NOVEMBER
-------------------- -----------------------------------------------------
(UNAUDITED)
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
($ and share amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Investment Banking.............. $ 2,830 $ 1,904 $ 4,359 $ 3,368 $ 2,587 $ 2,113 $ 1,595
Trading and Principal
Investments................... 3,487 3,075 5,773 2,379 2,926 2,693 1,744
-------- -------- -------- -------- -------- -------- --------
Global Capital Markets............ 6,317 4,979 10,132 5,747 5,513 4,806 3,339
Asset Management and Securities
Services........................ 2,331 1,485 3,213 2,773 1,934 1,323 1,144
-------- -------- -------- -------- -------- -------- --------
Net revenues...................... $ 8,648 $ 6,464 $ 13,345 $ 8,520 $ 7,447 $ 6,129 $ 4,483
Compensation and benefits(1)...... 4,324 3,228 6,459 3,838 3,097 2,421 2,005
Other operating expenses.......... 1,587 3,535(6) 4,894(6) 1,761 1,336 1,102 1,110
-------- -------- -------- -------- -------- -------- --------
Pre-tax earnings/(loss)(1)........ 2,737 (299) 1,992 2,921 3,014 2,606 1,368

BALANCE SHEET DATA
Total assets(2)................... $278,319 $244,632 $250,491 $217,380 $178,401 $152,046 $100,066
Long-term borrowings.............. 24,734 21,851 20,952 19,906 15,667 12,376 13,358
Partners' capital................. -- -- -- 6,310 6,107 5,309 4,905
Stockholders' equity.............. 11,905 7,856 10,145 -- -- -- --

COMMON SHARE DATA
Earnings per share
Basic........................... $ 3.39 $ 2.84 $ 5.69 -- -- -- --
Diluted......................... 3.23 2.81 5.57 -- -- -- --
Average common shares outstanding
Basic........................... 484 475 476 -- -- -- --
Diluted......................... 508 480 486 -- -- -- --
Dividends per common share........ $ 0.24(7) $ -- $ 0.24(7) -- -- -- --
Book value per share.............. 24.60 16.55 20.94 -- -- -- --

PRO FORMA DATA (UNAUDITED)(3)
Pro forma net earnings............ -- $ 1,156 $ 2,550 -- -- -- --
Pro forma diluted earnings per
share........................... -- 2.42 5.27 -- -- -- --

SELECTED DATA (UNAUDITED)
Employees
United States................... 10,237 8,544 9,746 8,349 6,879 5,818 5,356
International................... 6,275 4,910 5,615 4,684 3,743 3,159 2,803
-------- -------- -------- -------- -------- -------- --------
Total employees(4)................ 16,512 13,454 15,361 13,033 10,622 8,977 8,159
======== ======== ======== ======== ======== ======== ========
Assets under supervision(5)
Assets under management......... $276,610 $206,553 $258,045 $194,821 $135,929 $ 94,599 $ 52,358
Other client assets............. 235,103 176,369 227,424 142,018 102,033 76,892 57,716
-------- -------- -------- -------- -------- -------- --------
Total assets under supervision.... $511,713 $382,922 $485,469 $336,839 $237,962 $171,491 $110,074
======== ======== ======== ======== ======== ======== ========
</TABLE>

7
<PAGE> 10

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

(1) Our pre-tax earnings in 2000 and 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 1998, 1997, 1996 or 1995 and, therefore,
the pre-tax earnings in these years are not comparable to 2000 and 1999.

(2) Total assets and liabilities were increased as of May 26, 2000, May 28,
1999, November 26, 1999 and November 27, 1998 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" in
our Annual Report on Form 10-K for the fiscal year ended November 26, 1999
and our Quarterly Report on Form 10-Q for the fiscal quarter ended May 26,
2000, both of which are incorporated by reference in this prospectus.

(4) 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.

(5) Substantially all assets under supervision are valued as of the relevant
calendar month end.

(6) Includes nonrecurring employee initial public offering awards of $2.26
billion and a charitable contribution to The Goldman Sachs Foundation of
$200 million made at the time of our initial public offering.

(7) 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.

8
<PAGE> 11

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.

9
<PAGE> 12

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 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, merchant banking,
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, 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.

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.

10
<PAGE> 13

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

We have devoted significant resources to developing 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 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.

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.

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. Our
liquidity depends to an important degree on our ability to refinance these
borrowings on a continuous basis. Investors who hold our
11
<PAGE> 14

outstanding commercial paper and promissory notes have no obligation to purchase
new instruments when the outstanding instruments mature.

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.

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.

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
12
<PAGE> 15

disruptions or currency crises, may adversely affect the ability of clients or
counterparties located in that country or region to obtain foreign exchange or
credit and, therefore, to perform their obligations to us. See "-- We Are
Exposed to 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

13
<PAGE> 16

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 consistent with a client's investment objectives or engaging in unauthorized
or excessive trading. During a prolonged market downturn, we would expect these
types of claims to increase. We are also subject to claims arising from disputes
with employees for alleged discrimination or harassment, among other things.
These risks often may be difficult to assess or quantify and their existence and
magnitude often remain unknown for substantial periods of time. We incur
significant legal expenses every year in defending against litigation, and we
expect to continue to do so in the future.

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.

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

14
<PAGE> 17

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 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.

TECHNOLOGY IS CHANGING OUR BUSINESSES AND PRESENTING US WITH NEW CHALLENGES

Technology is fundamental to our overall business strategy. The rapid
growth of the Internet and e-commerce, and the introduction of new technology,
are changing our businesses and presenting us with new challenges.

Our Revenues May Decline from Volatility or a Downturn in the Technology Sector

We have made a significant commitment to providing investment banking
advisory and underwriting services to the technology and related sectors,
including communications, media and entertainment. If investment banking
activity in these sectors were to decrease, our financial results could be
adversely affected.

In addition to our advisory activities, we have made substantial
investments in technology and related businesses through our merchant banking
activities. Volatility or a downturn in these sectors is likely to affect
adversely the value of these investments. For example, the market declines in
technology and telecommunications stocks in the second fiscal quarter of 2000
contributed to negative net revenues of $321 million in our principal
investments.

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<PAGE> 18

Our Revenues May Decline or Expenditures May Increase 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, disintermediate the
firm from certain transaction flows, reduce our participation in the trading
markets and the associated access to market information and lead to the creation
of new and stronger competitors. We may also be required to make additional
expenditures in order to develop or invest in new trading systems or otherwise
to invest in technology to maintain our competitive position.

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 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.

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.

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<PAGE> 19

OUR BUSINESSES MAY BE ADVERSELY AFFECTED BY AN INABILITY 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. We also compete for employees with high
technology companies and other companies outside of the financial services
industry. 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 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. Since our initial public offering, we have also made, and anticipate
making in the future, other equity-based awards to our employees. The incentives
to attract, retain and motivate employees provided by these awards may not be
effective.

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 substantially all of 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 at any time and from time
to time and have been waived in connection with the offerings. See "-- Our Share
Price May Decline Due to the Large Number of Shares Eligible for Future Sale"
for a discussion of the ability of the shareholders' committee that administers
the shareholders' agreement to waive the transfer restrictions. The
shareholders' committee consists, and is likely to continue to consist, of
persons who are parties to the shareholders' agreement and who are both
employees and members of the board of directors of The Goldman Sachs Group, Inc.

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

Collectively, our managing directors beneficially own over 265,000,000
shares of common stock, or in excess of 60% of the total shares of common stock
outstanding. They will beneficially own over 245,000,000 shares of common stock,
or in excess of 50% of the total shares of common stock outstanding, upon
completion of the offerings. Substantially all of these 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 own approximately 10% of the total shares of voting
common stock outstanding, and will own approximately 6% of the total shares of
voting and nonvoting common stock outstanding upon completion of the offerings,
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.

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.

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<PAGE> 20

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

Future sales of substantial amounts of common stock in the public market or
otherwise, or the perception that such sales may occur, could adversely affect
the prevailing market price of the common stock. A substantial number of shares
of common stock are eligible for future sale as described below:

- Over 250,000,000 shares beneficially owned by the managing directors who
were profit participating limited partners are transferable in three
annual installments beginning in May 2002; the transfer restrictions on
16,128,400 of these shares (or 22,032,459 shares if the underwriters'
options to purchase additional shares are exercised in full) were waived
to permit certain of these managing directors to participate in the
offerings; additional earlier sales could occur with the consent of the
shareholders' committee;

- 12,621,804 shares beneficially owned by Sumitomo Bank Capital Markets,
Inc. and 10,987,711 shares beneficially owned by Kamehameha Activities
Association may be sold in the offerings; with respect to their remaining
shares (16,243,610 shares beneficially owned by Sumitomo Bank Capital
Markets, Inc. (including 7,440,362 shares of nonvoting common stock) and
10,987,710 shares beneficially owned by Kamehameha Activities
Association), Sumitomo Bank Capital Markets, Inc. and Kamehameha
Activities Association have the right commencing May 8, 2001 to cause
Goldman Sachs to register up to 13,105,596 of their shares of common
stock in the aggregate, plus an additional 9,178,778 shares in the
aggregate with the consent of Goldman Sachs, and up to 22,284,374 shares
in the aggregate in each subsequent year; earlier sales could occur with
the consent of our board of directors;

- Over 15,000,000 shares beneficially owned by the former retired limited
partners are transferable beginning in May 2002; earlier sales could
occur with the consent of our board of directors;

- Approximately 20,000,000 shares are deliverable to our employees pursuant
to restricted stock units granted in connection with our initial public
offering in two annual installments beginning in June 2001, assuming the
relevant conditions are satisfied; and

- Approximately 83,000,000 shares are deliverable to our employees in three
annual installments beginning on or about the third anniversary of our
initial public offering pursuant to restricted stock units and upon
exercise of stock options granted in connection with our initial public
offering and pursuant to contributions made to our defined contribution
plan in connection with our initial public offering, in each case,
assuming the relevant conditions are satisfied.

We also pay a portion of our employees' compensation in equity-based awards
and issue equity-based awards to help retain and motivate our employees. Shares
may be delivered under these awards from time to time, in accordance with the
applicable vesting and delivery provisions. In addition, on June 21, 2000,
approximately 6,000,000 shares of common stock were delivered pursuant to
restricted stock units granted to our employees in connection with our initial
public offering.

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<PAGE> 21

We intend to establish a program, beginning in the fourth fiscal quarter of
2000, to permit our former profit participating limited partners to sell, in a
coordinated manner, a portion of their shares in accordance with the volume and
manner of sale limitations of Rule 144 under the Securities Act of 1933. We also
intend to permit our former profit participating limited partners to pledge a
portion of their shares of common stock to obtain approximately $500 million in
loans to make investments in Goldman Sachs' merchant banking funds.

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<PAGE> 22

USE OF PROCEEDS

We will not receive any of the proceeds from the sale of shares of our
common stock in the offerings.

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 to February 25,
2000)..................................................... 94.19 74.50 0.12
Second fiscal quarter (February 26, 2000 to May 26, 2000)... 121.31 69.81 0.12
Third fiscal quarter (May 27, 2000 through July 16, 2000)... 104.25 72.00 0.12(1)
</TABLE>

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

(1) This dividend is payable on August 24, 2000 to voting and nonvoting common
stockholders of record on July 24, 2000. Purchasers of shares of common
stock in the offerings will not be entitled to this dividend.

On July 14, 2000, the last reported sales price for our common stock on the
New York Stock Exchange was $104.19 per share. As of June 23, 2000, there were
1,711 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.

On March 20, 2000, our board of directors approved a common stock
repurchase program authorizing the repurchase of up to 15 million shares of our
common stock. The repurchase program will be effected from time to time,
depending on market conditions and other factors, through open market purchases
and privately negotiated transactions.

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<PAGE> 23

SELLING SHAREHOLDERS

The following table sets forth:

- the name of each selling shareholder;

- the number of shares and the percentage of common stock beneficially
owned by each selling shareholder before the offerings, if such selling
shareholder owns more than one percent;

- the number of shares of common stock being offered in the offerings by
each selling shareholder; and

- the number of shares and the percentage of common stock to be
beneficially owned by each selling shareholder after the completion of
the offerings, if such selling shareholder will own more than one
percent.

Unless otherwise specified below, each selling shareholder, other than
Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, is a
current or former managing director of Goldman Sachs and is a party to the
shareholders' agreement.

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<PAGE> 24

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
OFFERINGS OFFERINGS
-------------------- NUMBER OF --------------------
NAME NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
---- ---------- ------- -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Alexander C. Dibelius......... * * 24,481 * *
John O. Downing............... * * 129,467 * *
C. Steven Duncker............. * * 48,550 * *
Glenn P. Earle................ * * 72,332 * *
Paul S. Efron................. * * 38,840 * *
Pieter Maarten Feenstra....... * * 40,216 * *
Lawton W. Fitt................ * * 112,455 * *
David B. Ford................. * * 71,207 * *
Edward C. Forst............... * * 32,367 * *
Christopher G. French......... * * 39,391 * *
Richard A. Friedman........... * * 226,567 * *
Joseph D. Gatto............... * * 113,267 * *
Peter C. Gerhard.............. * * 135,070 * *
Jeffrey B. Goldenberg......... * * 25,524 * *
Jacob D. Goldfield............ * * 205,203 * *
Amy O. Goodfriend............. * * 25,893 * *
Andrew M. Gordon.............. * * 32,367 * *
Geoffrey T. Grant............. * * 68,904 * *
Joseph D. Gutman.............. * * 46,940 * *
Robert S. Harrison............ * * 79,110 * *
Thomas J. Healey.............. * * 142,100 * *
Sylvain M. Hefes.............. * * 159,440(11) * *
David B. Heller............... * * 64,733 * *
Mary C. Henry................. * * 71,094 * *
Jacquelyn M. Hoffman-Zehner... * * 55,658 * *
M. Blair Hull(3).............. * * 243,599(11) * *
Timothy J. Hunter(4).......... * * 4,531(11) * *
Fern Hurst(5)................. * * 32,367 * *
Robert J. Hurst(6)............ * * 184,490 * *
Timothy J. Ingrassia.......... * * 39,492 * *
Reuben Jeffery III............ * * 143,700 * *
Stefan J. Jentzsch............ * * 36,420 * *
Barry A. Kaplan............... * * 71,228 * *
Robert J. Katz(7)............. * * 178,016 * *
Kevin W. Kennedy.............. * * 209,289 * *
Douglas W. Kimmelman.......... * * 69,610 * *
Bradford C. Koenig............ * * 79,039 * *
Jonathan L. Kolatch........... * * 84,177 * *
David G. Lambert.............. * * 56,251 * *
Thomas D. Lasersohn........... * * 38,566 * *
Matthew G. L'Heureux.......... * * 37,545 * *
Lawrence H. Linden............ * * 132,344 * *
Robert Litterman.............. * * 106,951 * *
Robert H. Litzenberger........ * * 38,806 * *
James Lodas(4)................ * * 1,942(11) * *
Jonathan M. Lopatin........... * * 93,992 * *
Michael R. Lynch.............. * * 168,307 * *
Ronald G. Marks............... * * 72,561 * *
Eff W. Martin................. * * 191,440 * *
</TABLE>

22
<PAGE> 25

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
OFFERINGS OFFERINGS
-------------------- NUMBER OF --------------------
NAME NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
---- ---------- ------- -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
John P. McNulty............... * * 214,876 * *
E. Scott Mead................. * * 122,993 * *
T. Willem Mesdag.............. * * 32,367 * *
Eric M. Mindich............... * * 134,386 * *
Steven T. Mnuchin............. * * 135,930 * *
Karsten N. Moller............. * * 73,149(11) * *
Thomas K. Montag.............. * * 132,233 * *
Robert B. Morris III.......... * * 169,820 * *
Michael P. Mortara............ * * 254,868 * *
Sharmin Mossavar-Rahmani...... * * 113,283 * *
Edward A. Mule................ * * 113,283 * *
Thomas S. Murphy, Jr.......... * * 38,840 * *
Avi M. Nash................... * * 38,840 * *
Daniel M. Neidich............. * * 261,904 * *
Kipp M. Nelson................ * * 86,543 * *
Robin Neustein................ * * 174,061 * *
Suzanne M. Nora Johnson....... * * 139,532 * *
Michael E. Novogratz.......... * * 37,064 * *
Alok Oberoi................... * * 64,733(11) * *
Terence J. O'Neill............ * * 130,590 * *
Timothy J. O'Neill............ * * 152,771 * *
Donald C. Opatrny, Jr......... * * 196,140 * *
Robert J. O'Shea.............. * * 135,423 * *
Greg M. Ostroff............... * * 39,123 * *
Robert J. Pace................ * * 37,417 * *
Gregory K. Palm(8)............ * * 166,593 * *
Scott M. Pinkus............... * * 180,004 * *
John J. Powers................ * * 161,833 * *
Michael A. Price.............. * * 38,648 * *
Scott Prince.................. * * 38,184 * *
Stephen D. Quinn.............. * * 136,339 * *
Michael G. Rantz.............. * * 122,086 * *
Girish V. Reddy............... * * 57,254 * *
Arthur J. Reimers III......... * * 149,929 * *
James P. Riley, Jr............ * * 182,446 * *
Simon M. Robertson............ * * 111,876 * *
J. David Rogers............... * * 80,917 * *
Emmanuel Roman................ * * 39,123(11) * *
Ralph F. Rosenberg............ * * 37,108 * *
Stuart M. Rothenberg.......... * * 78,900 * *
Michael S. Rubinoff........... * * 38,488 * *
Richard M. Ruzika............. * * 37,007 * *
Jeri Lynn Ryan(5)............. * * 21,658 * *
Michael D. Ryan............... * * 32,367 * *
Joseph Sassoon................ * * 121,251 * *
Muneer A. Satter.............. * * 68,532 * *
Jonathan S. Savitz............ * * 37,930 * *
Peter Savitz.................. * * 101,684 * *
Howard B. Schiller............ * * 79,212 * *
</TABLE>

23
<PAGE> 26

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
OFFERINGS OFFERINGS
-------------------- NUMBER OF --------------------
NAME NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
---- ---------- ------- -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Antoine Schwartz.............. * * 40,457 * *
Eric S. Schwartz.............. * * 133,528 * *
Charles B. Seelig, Jr......... * * 135,368 * *
Steven M. Shafran............. * * 56,504 * *
Richard G. Sherlund........... * * 112,714 * *
Michael S. Sherwood........... * * 129,113 * *
Howard A. Silverstein......... * * 89,332 * *
Dinakar Singh................. * * 37,916 * *
Christian J. Siva-Jothy....... * * 35,603 * *
Cody J Smith.................. * * 95,172 * *
Jonathan S. Sobel............. * * 37,831 * *
Marc A. Spilker............... * * 70,508 * *
Daniel W. Stanton............. * * 119,757 * *
Esta E. Stecher............... * * 98,590 * *
Cathrine S. Steck(5).......... * * 29,130 * *
Fredric E. Steck.............. * * 38,840 * *
Hsueh J. Sung................. * * 39,918(11) * *
Peter D. Sutherland S.C....... * * 145,031(11) * *
Gene T. Sykes................. * * 129,467 * *
Mark R. Tercek................ * * 81,969 * *
Donald F. Textor.............. * * 125,735 * *
John R. Tormondsen............ * * 48,550 * *
Leslie C. Tortora(9).......... * * 165,109 * *
John L. Townsend III.......... * * 133,632 * *
Byron D. Trott................ * * 77,680 * *
Robert B. Tudor III........... * * 38,744 * *
Malcolm B. Turnbull........... * * 40,457(11) * *
John E. Urban................. * * 25,893 * *
Lee G. Vance.................. * * 158,393 * *
George H. Walker IV........... * * 38,929 * *
Thomas B. Walker III.......... * * 179,463 * *
Patrick J. Ward............... * * 229,699 * *
George W. Wellde, Jr.......... * * 129,467 * *
Kendrick R. Wilson III........ * * 100,363 * *
Jon Winkelried................ * * 214,643 * *
Steven J. Wisch............... * * 69,390 * *
Richard E. Witten............. * * 129,467 * *
Tracy R. Wolstencroft......... * * 113,487 * *
Danny O. Yee.................. * * 99,464 * *
Gregory H. Zehner............. * * 69,795 * *
Joseph R. Zimmel.............. * * 175,345 * *
Barry L. Zubrow(10)........... * * 194,200 * *
Mark A. Zurack................ * * 93,525 * *
----------
Total.................... 40,000,000
==========
</TABLE>

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

* Before the offerings this selling shareholder owns, and after the
completion of the offerings he or she will own, less than 1% of the
outstanding shares of common stock of The Goldman Sachs Group, Inc.

24
<PAGE> 27

(1) Includes 7,440,362 shares of common stock that Sumitomo Bank Capital
Markets, Inc. would receive upon the conversion of its 7,440,362 shares of
nonvoting common stock. For a description of the nonvoting common stock,
see "Description of Capital Stock -- Nonvoting Common Stock".

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.

(2) Kamehameha Activities Association is the owner of the shares to be offered.
The Estate of Bernice Pauahi Bishop, an affiliate of Kamehameha Activities
Association, is joining in and consenting to the sale.

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.

(3) This selling shareholder is a former employee of Goldman Sachs and a former
owner of our Hull subsidiary.

(4) This selling shareholder is a vice president of Goldman Sachs and a former
owner of our Hull subsidiary.

(5) This selling shareholder is not an employee of Goldman Sachs, but is a
party to the shareholders' agreement.

(6) This selling shareholder is a director and the Vice Chairman of The Goldman
Sachs Group, Inc.

(7) This selling shareholder is General Counsel and an Executive Vice President
of The Goldman Sachs Group, Inc.

(8) This selling shareholder is General Counsel and an Executive Vice President
of The Goldman Sachs Group, Inc.

(9) This selling shareholder is the Chief Information Officer and an Executive
Vice President of The Goldman Sachs Group, Inc.

(10) This selling shareholder is the Chief Administrative Officer and an
Executive Vice President of The Goldman Sachs Group, Inc.

(11) Includes shares held by a family limited partnership, trust, limited
liability company or corporation of which the selling shareholder and/or
his immediate family members are the sole partners, beneficiaries or equity
owners.

The shareholders' committee under the shareholders' agreement has agreed to
waive certain transfer restrictions, and our board of directors has granted
registration rights as described below, in order to permit the former profit
participating limited partners in The Goldman Sachs Group, L.P. to sell
16,128,400 shares in the offerings (or 22,032,459 shares if the underwriters'
options to purchase additional shares are exercised in full). See "Risk
Factors -- Our Share Price May Decline Due to the Large Number of Shares
Eligible for Future Sale" for a discussion of the transfer restrictions to be
waived by the shareholders' committee and "Description of Capital
Stock -- Charter Provisions Approving Certain Actions" for a description of the
authority under which our board of directors granted our former profit
participating limited partners registration rights.

The 16,128,400 shares of common stock offered for sale by our former profit
participating limited partners (or 22,032,459 shares if the underwriters'
options to purchase additional shares are exercised in full) represent
approximately 6.3% of the total shares beneficially owned by them (or
approximately 8.6% if the underwriters' options to purchase additional shares
are exercised in full). No former profit participating limited partner is
selling in excess of 15% of the shares of common stock he or she beneficially
owns. None of Henry M. Paulson, Jr., Chairman and Chief Executive Officer, John
A. Thain and John L. Thornton, Presidents and Co-Chief Operating Officers, and
David A. Viniar, Chief Financial Officer, is selling shares in the offerings.

REGISTRATION RIGHTS INSTRUMENT

Our board of directors has exercised its authority under our plan of
incorporation and charter to adopt a supplement to our existing registration
rights instrument to register the shares of

25
<PAGE> 28

common stock being offered by our former profit participating limited partners
and the former owners of our Hull subsidiary. You should refer to the exhibits
that are part of the registration statement for a copy of the registration
rights instrument and the supplemental registration rights instrument. See
"Available Information". We also have agreed in the registration rights
instrument, as supplemented, to indemnify these sellers against certain
liabilities, including liabilities arising under the Securities Act of 1933.

26
<PAGE> 29

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, 447,122,476 shares
of which were outstanding as of July 14, 2000; and

- 200,000,000 shares are designated as nonvoting common stock, 7,440,362
shares of which were outstanding as of July 14, 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 "Risk Factors -- Our
Businesses May Be Adversely Affected by an Inability to Recruit, Retain and
Motivate Key Employees" and "-- Goldman Sachs Is Controlled by Its Managing
Directors Whose Interests May Differ from Those of Other Shareholders" 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 plurality 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
27
<PAGE> 30

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, ranks
equally and shares proportionately with, and is identical in all respects as to
all matters to, 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 nonvoting 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
28
<PAGE> 31

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

- 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
29
<PAGE> 32

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 "Risk Factors -- Our Share Price May
Decline Due to the Large Number of Shares Eligible for Future Sale"; and

- 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
arising out of our incorporation.

Our board of directors has exercised its authority under the charter
provision discussed above to grant registration rights to certain selling
shareholders in the offerings as described under "Selling
Shareholders -- Registration Rights Instrument".

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 the preceding three years, 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".

30
<PAGE> 33

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. 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 or 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 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.

NO ABILITY OF SHAREHOLDERS TO CALL SPECIAL MEETINGS

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

31
<PAGE> 34

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.

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.

32
<PAGE> 35

UNDERWRITING

The Goldman Sachs Group, Inc., the selling shareholders and the
underwriters for the U.S. offering (the "U.S. underwriters") named below have
entered into an underwriting agreement with respect to the shares being offered
in the United States and Canada. Subject to certain conditions, each U.S.
underwriter has severally agreed to purchase the number of shares indicated in
the following table. Goldman, Sachs & Co., Banc of America Securities LLC, Bear,
Stearns & Co. Inc., Chase Securities Inc., Credit Suisse First Boston
Corporation, Deutsche Bank Securities Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, FleetBoston Robertson Stephens Inc., Lehman Brothers
Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities
Inc., Morgan Stanley & Co. Incorporated, PaineWebber Incorporated, Prudential
Securities Incorporated and Salomon Smith Barney Inc. are the representatives of
the U.S. underwriters.

<TABLE>
<CAPTION>
U.S. Underwriters Number of Shares
----------------- ----------------
<S> <C>
Goldman, Sachs & Co. .................................
Banc of America Securities LLC........................
Bear, Stearns & Co. Inc...............................
Chase Securities Inc..................................
Credit Suisse First Boston Corporation................
Deutsche Bank Securities Inc. ........................
Donaldson, Lufkin & Jenrette Securities Corporation...
FleetBoston Robertson Stephens Inc....................
Lehman Brothers Inc...................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated....
J.P. Morgan Securities Inc............................
Morgan Stanley & Co. Incorporated.....................
PaineWebber Incorporated..............................
Prudential Securities Incorporated....................
Salomon Smith Barney Inc..............................
----------
Total....................................... 35,000,000
==========
</TABLE>

If the U.S. underwriters sell more shares than the total number set forth
in the table above, the U.S. underwriters have an option to buy up to an
additional 5,250,000 shares from our former profit participating limited
partners and the former owners of our Hull subsidiary to cover such sales. They
may exercise that option for 30 days. If any shares are purchased pursuant to
this option, the U.S. underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the U.S. underwriters by the selling shareholders.
Such amounts are shown assuming both no exercise and full exercise of the U.S.
underwriters' option to purchase 5,250,000 additional shares.

Paid by the Selling Shareholders

<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share................................... $ $
Total....................................... $ $
</TABLE>

33
<PAGE> 36

Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial price
to public. If all of the shares are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.

The Goldman Sachs Group, Inc. and the selling shareholders have entered
into underwriting agreements with underwriters for the sale of 4,000,000 shares
outside of the United States, Canada and the Asia/Pacific region and 1,000,000
shares in the Asia/Pacific region. The terms and conditions of all three
offerings are the same and the sale of shares in all three offerings are
conditioned on each other. Goldman Sachs International, ABN AMRO Rothschild,
Bayerische Hypo- und Vereinsbank AG, Cazenove & Co., Commerzbank
Aktiengesellschaft, Deutsche Bank AG London, ING Barings Limited, as agent for
ING Bank N.V., London Branch, Kleinwort Benson Limited, MEDIOBANCA - Banca di
Credito Finanziario S.p.A., Paribas, Societe Generale and UBS AG, acting through
its business group UBS Warburg, are representatives of the underwriters for the
international offering outside the United States, Canada and the Asia/Pacific
region (the "international underwriters") and Goldman Sachs (Asia) L.L.C., BOCI
Asia Limited, China Development Industrial Bank Inc., China International
Capital Corporation (Hong Kong) Limited, Daiwa SB Capital Markets Hong Kong
Limited, The Development Bank of Singapore Ltd, HSBC Investment Bank Asia
Limited, Jardine Fleming Securities Limited, Kokusai Securities (Hong Kong)
Limited, Kotak Mahindra (International) Limited, The Nikko Merchant Bank
(Singapore) Limited, Nomura International (Hong Kong) Limited, Samsung
Securities Co., Ltd. and Were Stockbroking Limited are representatives of the
underwriters for the Asia/Pacific region offering (the "Asia/Pacific
underwriters"). Our former profit participating limited partners and the former
owners of our Hull subsidiary have granted the international and Asia/Pacific
underwriters options similar to that described above to purchase up to an
aggregate of an additional 750,000 shares.

The underwriters for each of the three offerings have entered into an
agreement in which they have agreed to restrictions on where and to whom they
and any dealer purchasing from them may offer shares as a part of the
distribution of the shares. The underwriters have also agreed that they may sell
shares among each of the underwriting groups.

The offer and sale by the underwriters of the shares of common stock is
subject to the underwriters having received and accepted the shares from the
selling shareholders. In addition, the underwriters may, in their sole
discretion, reject all or any part of any order for the shares which is received
by them. The underwriters expect to deliver the shares in New York, New York on
the date indicated on the cover of this prospectus in exchange for payment in
immediately available funds.

The Goldman Sachs Group, Inc. has agreed not to dispose of or hedge any of
its common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This agreement does not apply to
(i) sales by any shareholder, including sales effected by or through Goldman,
Sachs & Co., (ii) any employee benefit plan or employment contract or (iii)
shares of common stock underlying any convertible or exchangeable security or
issued in connection with a merger, consolidation, share exchange or other
business combination or with the acquisition of a business or other assets.

In connection with the offerings, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions

34
<PAGE> 37

and purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offerings. "Covered" short sales are sales made in an amount not
greater than the underwriters' options to purchase additional shares from
certain selling shareholders in the offerings. The underwriters may close out
any covered short position by either exercising their options to purchase
additional shares or purchasing shares in the open market. In determining the
source of shares to close out the covered short position, the underwriters will
consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase shares through
the overallotment options. "Naked" short sales are any sales in excess of the
purchase options. The underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is more likely to
be created if the underwriters are concerned that there may be downward pressure
on the price of the common stock in the open market after pricing that could
adversely affect investors who purchase in the offerings. Stabilizing
transactions consist of various bids for or purchases of common stock made by
the underwriters in the open market prior to the completion of the offerings.

The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
common stock, and together with the imposition of the penalty bid, may
stabilize, maintain or otherwise affect the market price of the common stock. As
a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued at any time. These transactions may be effected on the
NYSE, in the over-the-counter market or otherwise.

Because Goldman, Sachs & Co. is a member of the NYSE and because of its
relationship to The Goldman Sachs Group, Inc., it is generally not permitted
under the rules of the NYSE to make markets in or recommendations regarding the
purchase or sale of the common stock.

Also, because Goldman, Sachs & Co. is a subsidiary of The Goldman Sachs
Group, Inc., the U.S. offering is being conducted in accordance with Rule 2720
of the NASD.

The underwriters may not confirm sales to discretionary accounts without
the prior specific written approval of the customer.

The Goldman Sachs Group, Inc. is paying all the expenses of the offerings,
excluding the expenses of counsel to the selling shareholders and underwriting
discounts and commissions. Our expenses are estimated at $4.5 million.

The Goldman Sachs Group, Inc. and the selling shareholders have agreed to
indemnify the several underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.

Certain of the underwriters and their affiliates have in the past provided,
and may in the future from time to time provide, investment banking and general
financing and banking services to The Goldman Sachs Group, Inc. and its
affiliates for which they have in the past received, and may in the future
receive, customary fees. The Goldman Sachs Group, Inc. and its affiliates have
in the past provided, and may in the future from time to time provide, similar
services to the underwriters and their affiliates on customary terms and for
customary fees.

This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the underwriters outside of the United States, to persons
located in the United States.

35
<PAGE> 38

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 and for
the underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
Certain legal matters will be passed upon for The Goldman Sachs Group, Inc. by
Gregory K. Palm, General Counsel. Sullivan & Cromwell has in the past
represented, and continues to represent, one or more of the underwriters and
their affiliates in a variety of matters. Cleary, Gottlieb, Steen & Hamilton has
in the past represented, and continues to represent, The Goldman Sachs Group,
Inc. in a variety of matters.

EXPERTS

The financial statements of Goldman Sachs as of November 26, 1999 and
November 27, 1998 and for each of the three years in the period ended November
26, 1999 incorporated by reference in this prospectus and the financial
statement schedule incorporated by reference in the registration statement have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The historical income statement, balance sheet and common share data
included in "Selected Consolidated Financial Data" for each of the five fiscal
years in the period ended November 26, 1999 incorporated by reference in this
prospectus have been so incorporated by reference in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

With respect to the unaudited condensed consolidated financial statements
of Goldman Sachs as of and for the three and six months ended May 26, 2000 and
the three months ended February 25, 2000 and for the three and six months ended
May 28, 1999 and the three months ended February 26, 1999, incorporated by
reference in this prospectus, PricewaterhouseCoopers LLP reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports dated June 30, 2000
and April 5, 2000, respectively, incorporated by reference herein state that
they did not audit and they do not express an opinion on the unaudited condensed
consolidated financial statements. Accordingly, the degree of reliance on their
reports on such information should be restricted in light of the limited nature
of the review procedures applied. PricewaterhouseCoopers LLP is not subject to
the liability provisions of Section 11 of the Securities Act of 1933 for their
reports on the unaudited condensed consolidated financial statements because
each of these reports is not a "report" or a "part" of the registration
statement prepared or certified by PricewaterhouseCoopers LLP within the meaning
of Sections 7 and 11 of the Securities Act of 1933.

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

We have included or incorporated by reference 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.

36
<PAGE> 39

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

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 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>
Available Information.................. 2
Prospectus Summary..................... 3
Risk Factors........................... 9
Use of Proceeds........................ 20
Price Range of Our Common Stock and
Dividends............................ 20
Selling Shareholders................... 21
Description of Capital Stock........... 27
Underwriting........................... 33
Validity of Common Stock............... 36
Experts................................ 36
Cautionary Statement Pursuant to The
Private Securities Litigation Reform
Act of 1995.......................... 36
</TABLE>

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

40,000,000 Shares

THE GOLDMAN SACHS
GROUP, INC.

Common Stock

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

[GOLDMAN SACHS LOGO]

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

GOLDMAN, SACHS & CO.

BANC OF AMERICA SECURITIES LLC

BEAR, STEARNS & CO. INC.

CHASE H&Q

CREDIT SUISSE FIRST BOSTON

DEUTSCHE BANC ALEX. BROWN

DONALDSON, LUFKIN & JENRETTE

LEHMAN BROTHERS

MERRILL LYNCH & CO.

J.P. MORGAN & CO.

MORGAN STANLEY DEAN WITTER

PAINEWEBBER INCORPORATED

PRUDENTIAL SECURITIES

ROBERTSON STEPHENS

SALOMON SMITH BARNEY

Representatives of the Underwriters

-------------------------------------------------------
-------------------------------------------------------
<PAGE> 40

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. 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........................................ $1,074,744
NASD fees................................................... 30,500
Legal fees and expenses..................................... 250,000
Fees and expenses of qualification under state securities
laws (including legal fees)............................... 20,000
Accounting fees and expenses................................ 25,000
Printing and engraving fees................................. 2,500,000
Miscellaneous............................................... 599,756
----------
Total............................................. $4,500,000
==========
</TABLE>

ITEM 15. 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 (the composition of which is described 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

II-1
<PAGE> 41

directors, officers and employees who are asked to serve in specified capacities
at subsidiaries and other entities.

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 16. EXHIBITS

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement to be entered into by the
selling shareholders, The Goldman Sachs Group, Inc. and the
underwriters.
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.**
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.***
4.3 Registration Rights Instrument, dated as of December 10,
1999.****
4.4 Form of Supplemental Registration Rights Instrument.
5.1 Opinion of Sullivan & Cromwell, counsel to The Goldman Sachs
Group, Inc.
15.1 Letter re Unaudited Interim Financial Information.*****
</TABLE>

II-2
<PAGE> 42

<TABLE>
<C> <S>
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5.1
above).
24.1 Power of Attorney.*****
</TABLE>

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

* Incorporated by reference to the corresponding exhibit to the
Registrant's registration statement on Form S-1 (File No. 333-74449).

** Incorporated by reference to the corresponding exhibit to the
Registrant's registration statement on Form S-1 (File No. 333-75213).

*** Incorporated by reference to Exhibit 5 to the Registrant's registration
statement on Form 8-A (File No. 001-14965) filed on June 29, 1999.

**** Incorporated by reference to Exhibit G to Amendment No. 1 to Schedule 13D
(File No. 005-56295), filed on December 17, 1999, relating to the
Registrant's common stock.

***** Previously filed.

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; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in this 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.

(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the

II-3
<PAGE> 43

offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(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.

(c) (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 44

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement (File No. 333-40810) to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, New York on
the 17th day of July, 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 Amendment
No. 1 to the Registration Statement (File No. 333-40810) has been signed by the
following persons in the capacities indicated on the 17th day of July, 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-5
<PAGE> 45

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement to be entered into by the
selling shareholders, The Goldman Sachs Group, Inc. and the
underwriters.
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.**
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.***
4.3 Registration Rights Instrument, dated as of December 10,
1999.****
4.4 Form of Supplemental Registration Rights Instrument.
5.1 Opinion of Sullivan & Cromwell, counsel to The Goldman Sachs
Group, Inc.
15.1 Letter re Unaudited Interim Financial Information.*****
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5.1
above).
24.1 Power of Attorney.*****
</TABLE>

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* Incorporated by reference to the corresponding exhibit to the
Registrant's registration statement on Form S-1 (File No. 333-74449).

** Incorporated by reference to the corresponding exhibit to the
Registrant's registration statement on Form S-1 (File No. 333-75213).

*** Incorporated by reference to Exhibit 5 to the Registrant's registration
statement on Form 8-A (File No. 001-14965) filed on June 29, 1999.

**** Incorporated by reference to Exhibit G to Amendment No. 1 to Schedule 13D
(File No. 005-56295), filed on December 17, 1999, relating to the
Registrant's common stock.

***** Previously filed.