424B3 1 y49386e424b3.txt PROS SUPP 178 TO PROS 5/8/2000 & SUPP 5/10/2000 1 Filed Pursuant to Rule 424(b)(3) Registration No. 333-36178 PROSPECTUS SUPPLEMENT NO. 178 TO THE PROSPECTUS DATED MAY 8, 2000 AND THE PROSPECTUS SUPPLEMENT DATED MAY 10, 2000. $18,000,000 [GOLDMAN SACHS LOGO] THE GOLDMAN SACHS GROUP, INC. Medium-Term Notes, Series B ------------------------- Exchangeable Notes due 2008 (Exchangeable for Common Stock of EMC Corporation) ------------------------- Each note being offered has the terms described beginning on page S-6, including the following: SUMMARY OF TERMS: ISSUER: The Goldman Sachs Group, Inc. INDEX STOCK AND INDEX STOCK ISSUER: common stock of EMC Corporation FACE AMOUNT: as specified in the note; $18,000,000 in the aggregate for all the offered notes ORIGINAL ISSUE PRICE: 100% of the face amount TRADE DATE: May 10, 2001 ORIGINAL ISSUE DATE (SETTLEMENT DATE): May 17, 2001 STATED MATURITY DATE: May 17, 2008, unless extended for up to six business days PRINCIPAL AMOUNT: on the stated maturity date, Goldman Sachs will pay the holder of the note cash equal to 100% of the outstanding face amount of the note, unless the holder exercises the exchange right, Goldman Sachs exercises the call right or an automatic exchange occurs INTEREST RATE: 0%; the note will not bear interest prior to maturity EXCHANGE RIGHT: the holder may elect to exchange the note, in whole or in part at any time, for index stock at the exchange rate, provided that Goldman Sachs may pay the holder the cash value of that stock instead of delivering that stock EXCHANGE RATE: 17.6995 shares of index stock for each $1,000 of outstanding face amount exchanged, subject to antidilution adjustment CALL RIGHT: Goldman Sachs may redeem the offered notes in whole, but not in part, at any time on or after May 17, 2003, at 100% of the outstanding face amount, provided, however, that the holder will be entitled to the benefit, if any, of an automatic exchange REFERENCE PRICE OF INDEX STOCK: $40.07 per share NET PROCEEDS TO THE GOLDMAN SACHS GROUP, INC.: 99.60% of the face amount CALCULATION AGENT: Goldman, Sachs & Co. BUSINESS DAY: as described on page S-17 LISTING: the offered notes will not be listed on any securities exchange or quotation system ------------------------- See "Additional Risk Factors Specific to Your Note" beginning on page S-2 to read about investment risks relating to the offered notes. ------------------------- 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 SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------- Goldman Sachs may use this prospectus supplement in the initial sale of the offered notes. In addition, Goldman, Sachs & Co. or any other affiliate of Goldman Sachs may use this prospectus supplement in a market-making transaction in an offered note after its initial sale. UNLESS GOLDMAN SACHS OR ITS AGENT INFORMS THE PURCHASER OTHERWISE IN THE CONFIRMATION OF SALE, THIS PROSPECTUS SUPPLEMENT IS BEING USED IN A MARKET-MAKING TRANSACTION. GOLDMAN, SACHS & CO. ------------------------- Prospectus Supplement dated May 10, 2001. 2 ADDITIONAL RISK FACTORS SPECIFIC TO YOUR NOTE An investment in your note is subject to the risks described below, as well as the risks described under "Considerations Relating to Indexed Securities" in the accompanying prospectus dated May 8, 2000. Your note is a riskier investment than ordinary debt securities. Also, your note is not equivalent to investing directly in the stock to which your note is indexed. You should carefully consider whether the offered notes are suited to your particular circumstances. THE MARKET PRICE OF YOUR NOTE MAY BE INFLUENCED BY MANY UNPREDICTABLE FACTORS The following factors, many of which are beyond our control, will influence the value of your note: - the market price of the index stock; - the volatility -- i.e., the frequency and magnitude of changes in the market price of the index stock; -- As indicated under "EMC Corporation -- Historical Trading Price Information", the market price of the index stock has been highly volatile during recent periods. It is impossible to predict whether the price of the index stock will rise or fall; - the dividend rate on the index stock; - economic, financial, regulatory and political events that affect stock markets generally and the market segment of which the index stock is a part, and which may affect the market price of the index stock; - interest and yield rates in the market; - the time remaining until your note matures; and - our creditworthiness. These factors will influence the price you will receive if you sell your note prior to maturity. You cannot predict the future performance of the index stock based on its historical performance. TRADING AND OTHER TRANSACTIONS BY GOLDMAN SACHS IN THE INDEX STOCK MAY IMPAIR THE VALUE OF YOUR NOTE As we describe under "Use of Proceeds and Hedging" below, we, through Goldman, Sachs & Co. or one or more of our other affiliates, have hedged our obligations under the offered notes by purchasing the index stock and may adjust the hedge by, among other things, purchasing or selling the index stock, at any time and from time to time. Any of these hedging activities may adversely affect the price of the index stock and, therefore, the value of your note. It is possible that we, through our affiliates, could receive substantial returns with respect to our hedging activities while the value of your note may decline. See "Use of Proceeds and Hedging" for a further discussion of securities transactions in which we or one or more of our affiliates may engage. Goldman, Sachs & Co. and our other affiliates may also engage in trading in the index stock for their proprietary accounts, for other accounts under their management and to facilitate transactions, including block transactions, on behalf of customers. Any of these activities of Goldman, Sachs & Co. or our other affiliates could adversely affect the price of the index stock and, therefore, the value of your note. Goldman, Sachs & Co. and our other affiliates may also issue or underwrite other securities or financial or derivative instruments with returns linked or related to changes in the value of the index stock. By introducing competing products into the marketplace in this manner, our affiliates could adversely affect the value of your note. The indenture governing your note does not contain any restriction on our ability or the ability of any of our affiliates to sell, pledge or otherwise convey all or any portion of the index stock acquired by us or them. Neither we nor our affiliates will pledge or otherwise hold shares of the index stock for your benefit in order to enable you to exchange S-2 3 your note for shares under any circumstances. Consequently, in the event of our bankruptcy, insolvency or liquidation, any index stock owned by us will be subject to the claims of our creditors generally and will not be available for your benefit specifically. YOUR NOTE DOES NOT BEAR PERIODIC INTEREST You will not receive any periodic interest payments on your note. Even if the amount payable on your note on the stated maturity date exceeds the face amount of your note, the over-all return you earn on your note may be less than you would have earned by investing in a debt security that bears interest at a prevailing market rate. Moreover, under applicable United States tax law as described under "Supplemental Discussion of United States Income Taxes", you will have to pay tax on deemed interest amounts even though your note does not bear periodic interest. IF THE MARKET PRICE OF THE INDEX STOCK CHANGES, THE MARKET VALUE OF YOUR NOTE MAY NOT CHANGE IN THE SAME MANNER Your note may trade quite differently from the index stock. Changes in the market price of the index stock may not result in comparable changes in the market value of your note. YOU HAVE NO SHAREHOLDER RIGHTS Investing in your note will not make you a holder of the index stock. Neither you nor any other holder or owner of your note will have any voting rights, any right to receive dividends or other distributions or any other rights with respect to the index stock. OUR BUSINESS ACTIVITIES MAY CREATE CONFLICTS OF INTEREST BETWEEN YOU AND US As we have noted above, Goldman, Sachs & Co. and our other affiliates have engaged in, and expect to engage in, trading activities related to the index stock that are not for your account or on your behalf. These trading activities may present a conflict between your interest in your note and the interests Goldman, Sachs & Co. and our other affiliates will have in their proprietary accounts, in facilitating transactions, including block trades, for their customers and in accounts under their management. These trading activities, if they influence the price of the index stock, could be adverse to your interests as a beneficial owner of your note. Goldman, Sachs & Co. and our other affiliates may, at present or in the future, engage in business with the issuer of the index stock, including making loans to or equity investments in that company or providing advisory services to that company. These services could include merger and acquisition advisory services. These activities may present a conflict between the obligations of Goldman, Sachs & Co. or another affiliate of Goldman Sachs and your interests as a beneficial owner of a note. Moreover, one or more of our affiliates have published and in the future expect to publish research reports with respect to the issuer of the index stock. Any of these activities by any of our affiliates may affect the price of the index stock and, therefore, the value of your note. AS CALCULATION AGENT, GOLDMAN, SACHS & CO. WILL HAVE THE AUTHORITY TO MAKE DETERMINATIONS THAT COULD AFFECT THE MARKET VALUE OF YOUR NOTE, WHEN YOUR NOTE MATURES AND THE AMOUNT YOU RECEIVE AT MATURITY As calculation agent for your note, Goldman, Sachs & Co. will have discretion in making various determinations that affect your note, including determining whether and how to make antidilution adjustments to the exchange rate; determining the closing price of the index stock, which we will use to calculate how much cash we must pay if your note is exchanged and we choose not to deliver index stock; and determining whether to postpone the stated maturity date, or any day on which your note is to be redeemed or exchanged, because of a market disruption event. See "Specific Terms of Your Note -- Antidilution Adjustments" and "-- Special Calculation Provisions" below. The exercise of this discretion by Goldman, Sachs & Co. could adversely affect the value of your note and may present Goldman, Sachs & Co. with a conflict of interest of the kind described above under "-- Our Business Activities May S-3 4 Create Conflicts of Interest Between You and Us" above. THERE IS NO AFFILIATION BETWEEN THE INDEX STOCK ISSUER AND US, AND WE ARE NOT RESPONSIBLE FOR THE INDEX STOCK ISSUER'S DISCLOSURE Goldman Sachs is not affiliated with the issuer of the index stock. As we have told you above, however, we or our affiliates may currently or from time to time in the future engage in business with the index stock issuer. Nevertheless, neither we nor any of our affiliates assumes any responsibility for the adequacy or accuracy of the information about the index stock issuer contained in this prospectus supplement or in any of the index stock issuer's publicly available filings. You, as an investor in your note, should make your own investigation into the index stock issuer. See "EMC Corporation" below for additional information about the index stock issuer. The index stock issuer is not involved in this offering of your note in any way and has no obligation of any sort with respect to your note. Thus, the index stock issuer has no obligation to take your interests into consideration for any reason, including in taking any corporate actions that might affect the value of your note. YOUR NOTE MAY NOT HAVE AN ACTIVE TRADING MARKET Your note will not be listed on any securities exchange or quotation system, and there may be little or no secondary market for your note. Even if a secondary market for your note develops, it may not provide significant liquidity and we expect that transaction costs in any secondary market would be high. As a result, the difference between bid and asked prices for your note in any secondary market could be substantial. YOU HAVE LIMITED ANTIDILUTION PROTECTION Goldman, Sachs & Co., as calculation agent for your note, will adjust the exchange rate for stock splits, reverse stock splits, stock dividends, extraordinary dividends and other events that affect the index stock issuer's capital structure, but only in the situations we describe in "Specific Terms of Your Note -- Antidilution Adjustments". The calculation agent is not required to make an adjustment for every corporate event that may affect the index stock. For example, the calculation agent will not adjust the exchange rate for events such as an offering of the index stock for cash by the index stock issuer, a tender or exchange offer for the index stock at a premium to its then-current market price by the index stock issuer or a tender or exchange offer for less than all the outstanding index stock by a third party. Those events may nevertheless adversely affect the market price of the index stock and, therefore, adversely affect the value of your note. The index stock issuer or a third party could make an offering or a tender or exchange offer, or the index stock issuer could take any other action, that adversely affects the value of the index stock and your note but does not result in an antidilution adjustment for your benefit. WE CAN REDEEM YOUR NOTE AT OUR OPTION We will be permitted to redeem your note at our option at any time on or after May 17, 2003. Even if we do not exercise our option to redeem your note, our ability to do so may adversely affect the value of your note. WE CAN POSTPONE THE STATED MATURITY DATE, ANY EXERCISE OF THE EXCHANGE RIGHT AND ANY CALL DATE IF A MARKET DISRUPTION EVENT OCCURS If the calculation agent determines that, on the determination date, a market disruption event has occurred or is continuing, the determination date will be postponed until the first business day on which no market disruption event occurs or is continuing. As a result, the stated maturity date for your note will also be postponed, although not by more than six business days. Thus, you may not receive the payment -- or, if your note is to be exchanged, any delivery of index stock -- that we are obligated to make on the stated maturity date until after the originally scheduled due date. In addition, if the calculation agent determines that a market disruption event has occurred or is continuing S-4 5 on any day on which the holder seeks to exercise the exchange right, the exercise will be postponed to the first business day on which no market disruption event occurs or is continuing, although not by more than five business days. Similarly, if we exercise our call right and notify the holder of the date we select for redemption, we may nevertheless postpone the call date for up to five business days because of a market disruption event. If your note is to be exchanged and we elect to pay the cash value of the index stock we would otherwise be obligated to deliver, the amount of cash we pay will be based on the closing price of the index stock on the day the exchange right is deemed to be exercised. If that price is not available on that day because of a market disruption event or for any other reason, the calculation agent will nevertheless determine that price based on its assessment, made in its sole discretion, of the market value of the index stock at that time. The calculation agent may take similar steps in connection with an automatic exchange. CERTAIN CONSIDERATIONS FOR INSURANCE COMPANIES AND EMPLOYEE BENEFIT PLANS Any insurance company or fiduciary of a pension plan or other employee benefit plan that is subject to the prohibited transaction rules of the Employee Retirement Income Security Act of 1974, as amended, which we call "ERISA", or the Internal Revenue Code of 1986, as amended, including an IRA or a Keogh plan (or a governmental plan to which similar prohibitions apply), and that is considering purchasing the offered notes with the assets of the insurance company or the assets of such a plan, should consult with its counsel regarding whether the purchase or holding of the offered notes could become a "prohibited transaction" under ERISA, the Internal Revenue Code or any substantially similar prohibition in light of the representations a purchaser or holder in any of the above categories is deemed to make by purchasing and holding the offered notes. This is discussed in more detail under "Employee Retirement Income Security Act" below. S-5 6 SPECIFIC TERMS OF YOUR NOTE Please note that in this section entitled "Specific Terms of Your Note", references to "The Goldman Sachs Group, Inc.", "we", "our" and "us" mean only The Goldman Sachs Group, Inc. and do not include its consolidated subsidiaries, while references to "Goldman Sachs" mean The Goldman Sachs Group, Inc. together with its consolidated subsidiaries. References to "holders" mean those who own notes registered in their own names, on the books that we or the trustee maintain for this purpose, and not indirect holders who own beneficial interests in notes registered in street name or in notes issued in book-entry form through The Depository Trust Company. Please review the special considerations that apply to indirect holders in the accompanying prospectus, under "Legal Ownership and Book-Entry Issuance". Also, references to the "accompanying prospectus" mean the accompanying Prospectus dated May 8, 2000, as supplemented by the accompanying Prospectus Supplement dated May 10, 2000, of The Goldman Sachs Group, Inc. We refer to the notes offered in this prospectus supplement, including your note, as the offered notes. The offered notes are part of a series of debt securities, entitled "Medium-Term Notes, Series B", that we may issue under the indenture from time to time. This prospectus supplement summarizes specific financial and other terms that apply to the offered notes, including your note; terms that apply generally to all Series B medium-term notes are described in "Description of Notes We May Offer" in the accompanying prospectus. The terms described here supplement those described in the accompanying prospectus and, if the terms described here are inconsistent with those described there, the terms described here are controlling. In addition to those described on the front cover page, the following terms will apply to your note: NO INTEREST: we will pay no interest on your note. SPECIFIED CURRENCY: U.S. dollars FORM OF NOTE: - global form only: yes, at DTC - non-global form available: no DENOMINATIONS: any note registered in the name of a holder must have a face amount of $1,000 or any multiple of $1,000. DEFEASANCE APPLIES AS FOLLOWS: - full defeasance: no - covenant defeasance: no OTHER TERMS: - the default amount will be payable on any acceleration of the maturity of your note as described below under "-- Special Calculation Provisions" - antidilution provisions will apply to your note as described below under "-- Antidilution Adjustments" - a business day for your note will not be the same as a business day for our other Series B medium-term notes, as described below under "-- Special Calculation Provisions" In this prospectus supplement, when we refer to the index stock, we mean the common stock of EMC Corporation and, when we refer to the index stock issuer, we mean that company, except as noted below under "-- Antidilution Adjustments -- Reorganization Events -- Distribution Property". Please note that the information about the original issue date, original issue price and net proceeds to The Goldman Sachs Group, Inc. on the front cover page relates only to the initial sale of the notes. If you have purchased your note in a market-making transaction after the initial sale, information about the price and date of sale to you will be provided in a separate confirmation of sale. S-6 7 We describe the terms of your note in more detail below. PAYMENT OF PRINCIPAL ON STATED MATURITY DATE On the stated maturity date, we will pay as principal, to the holder of your note, cash in an amount equal to 100% of the outstanding face amount of your note, unless: - the holder exercises the right to exchange your note as described below under "-- Holder's Exchange Right" or - we exercise our right to redeem your note as described below under "-- Our Call Right" or - your note is automatically exchanged as described below under "-- Automatic Exchange". If your note is exchanged in part, we will make the cash payment described above on the portion that remains outstanding on the stated maturity date. STATED MATURITY DATE The stated maturity date will be May 17, 2008 unless that day is not a business day, in which case the stated maturity date will be the next following business day. If the fifth business day before this applicable day is not the determination date referred to below, however, then the stated maturity date will be the fifth business day following the determination date, provided that the stated maturity date will never be later than the fifth business day after May 17, 2008 or, if May 17, 2008 is not a business day, later than the sixth business day after May 17, 2008. The calculation agent may postpone the determination date -- and therefore the stated maturity date -- if a market disruption event occurs or is continuing on a day that would otherwise be the determination date. We describe market disruption events below under "-- Special Calculation Provisions". DETERMINATION DATE The determination date will be the fifth business day prior to May 17, 2008, unless the calculation agent determines that a market disruption event occurs or is continuing on that fifth prior business day. In that event, the determination date will be the first following business day on which the calculation agent determines that a market disruption event does not occur and is not continuing. In no event, however, will the determination date be later than May 17, 2008 or, if May 17, 2008 is not a business day, later than the first business day after May 17, 2008. HOLDER'S EXCHANGE RIGHT If the holder of your note satisfies the conditions described under "-- Exercise Requirements" below, the holder may elect to exchange the outstanding face amount of your note, in whole or in part at any time and from time to time, for index stock at the exchange rate. If the holder does so, we may choose, at our sole option, either to deliver the requisite amount of index stock to the holder or to pay cash to the holder in an amount equal to the value of that stock. The cash value will equal the number of shares of the index stock we would otherwise be obligated to deliver in exchange for your note, multiplied by the closing price of the index stock on the exchange notice date. Delivery of index stock or a cash payment will be made on the exchange date and in the manner we describe under "-- Manner of Payment and Delivery" below. We describe the exchange notice date, the exchange date and the closing price under "-- Exercise Requirements" and "-- Special Calculation Terms" below. If we choose to pay cash instead of delivering index stock, we will notify the holder of our election no later than the business day after the exchange notice date. THUS, IF THE HOLDER EXERCISES THE EXCHANGE RIGHT AND WE DO NOT NOTIFY THE HOLDER ON THE BUSINESS DAY AFTER THE EXCHANGE NOTICE DATE OF OUR INTENTION TO PAY CASH, WE WILL DELIVER SHARES OF THE INDEX STOCK ON THE EXCHANGE DATE, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED UNDER " -- CONSEQUENCES OF A MARKET DISRUPTION EVENT" AND "-- AUTOMATIC EXCHANGE" BELOW. If we give the notice described above with respect to your note, we will do so by telephone or telecopier to the number specified by the person who submits the notice of exchange for your note. S-7 8 The notice of exchange is described under "-- Exercise Requirements" below. Partial exchanges will be permitted only if the portion of the face amount exchanged is a multiple of $1,000 and only if the unexchanged portion is an authorized denomination, as described under "-- Denominations" above. If we exercise our call right, the holder will be entitled to the benefit, if any, of an automatic exchange but otherwise will no longer be permitted to exercise the exchange right. We describe these matters under "-- Our Call Right" and "-- Automatic Exchange" below. EXCHANGE RATE The exchange rate will equal 17.6995 shares of index stock for each $1,000 of the outstanding face amount of your note that the holder elects to exchange. The exchange rate may be adjusted, with respect to both the amount and type of consideration, as a result of dilution events, as we describe below under "-- Antidilution Adjustments". In addition, if an exchange would otherwise involve a fractional share of the index stock, we will pay cash instead of the fractional share, in an amount equal to that fraction multiplied by the closing price of the index stock on the exchange notice date. EXERCISE REQUIREMENTS To exercise the exchange right, the following requirements must be satisfied on any day that qualifies as a business day and before the exchange right expires: - Both the trustee and the calculation agent must receive a properly completed and signed notice of exchange, in the form attached to this prospectus supplement, specifying the outstanding face amount of your note to be exchanged. Delivery must be made by facsimile as provided in the attached notice of exchange. - If your note is in global form, you or the bank or broker through which you hold your interest in the portion of your note being exchanged must enter an order to have that interest transferred on the books of the depositary to the account of the trustee at the depositary and the trustee must receive and accept the transfer, all in accordance with the applicable procedures of the depositary. If the trustee receives and accepts the transfer by 3:00 P.M., New York City time, on any business day, this requirement will be deemed satisfied as of 11:00 A.M. on the same business day. To insure timely receipt and acceptance, transfer orders should be entered with the depositary well in advance of the 3:00 P.M. deadline. - If your note is not in global form, the trustee must receive the certificate representing your note. If your note is not in global form, deliveries of certificates to the trustee must be made by mail or another method acceptable to the trustee, to the address stated in the attached form of notice of exchange or at any other location that the trustee may provide to the holder for this purpose in the future. The calculation agent will, in its sole discretion, resolve any questions that may arise as to the validity of a notice of exchange or as to whether and when the required deliveries have been made. Once given, a notice of exchange may not be revoked. -------------------------------------------------------------------------------- Questions about the exercise requirements should be directed to the trustee, at the number and location stated in the attached notice of exchange. -------------------------------------------------------------------------------- EXCHANGE NOTICE DATE. If the required deliveries described under "-- Exercise Requirements" above occur by 11:00 A.M., New York City time, on a business day, that day will be the exchange notice date for the exchange. If the required deliveries occur after that time on a business day, the next business day will be the exchange notice date for the exchange. In all cases, however, the required deliveries must occur before the exchange right expires as described below. EXCHANGE DATE. If the exchange right is exercised, we will deliver the index stock or pay the cash due on the exchange on the fifth business day after the exchange notice date. S-8 9 We refer to that due date as the exchange date. EXPIRATION OF EXCHANGE RIGHT. In all cases, the required deliveries described under "-- Exercise Requirements" above must occur no later than 11:00 A.M., New York City time, on the business day before the determination date or on any call notice date, whichever is earlier. Immediately after that time, the exchange right will expire and may not be exercised, although the holder will be entitled to receive the benefit, if any, of an automatic exchange as described under "-- Automatic Exchange" below. ONLY HOLDER MAY EXERCISE EXCHANGE RIGHT. If your note is issued in global form, the depositary or its nominee is the holder of your note and therefore is the only entity that can exercise the exchange right with respect to your note. If you would like the holder to exercise the exchange right, you should give proper and timely instructions to the bank or broker through which you hold your interest in your note, requesting that it notify the depositary to exercise the exchange right on your behalf. Different firms have different deadlines for accepting instructions from their customers, and you should take care to act promptly enough to ensure that your request is given effect by the depositary before the deadline for exercise. Similar concerns apply if you hold your note in street name. -------------------------------------------------------------------------------- Book-entry, street name and other indirect holders should contact their banks and brokers for information about how to exercise the exchange right in a timely manner. -------------------------------------------------------------------------------- CONSEQUENCES OF A MARKET DISRUPTION EVENT The exchange right provisions described above are subject to the following consequences of a market disruption event. If a market disruption event occurs or is continuing on a day that would otherwise be an exchange notice date, then that exchange notice date will be postponed to the next business day on which a market disruption event does not occur and is not continuing. In no event, however, will any exchange notice date be postponed by more than five business days. If the exchange notice date is postponed, the related exchange date will also be postponed, to the fifth business day after the exchange notice date. If the exchange notice date is postponed to the last possible day, but a market disruption event occurs or is continuing on that day, that day will nevertheless be the exchange notice date. If we elect to pay the cash value of the index stock otherwise deliverable on the related exchange date but the closing price of the index stock that must be used to determine the cash value is not available on the exchange notice date, either because of a market disruption event or for any other reason, the calculation agent will nevertheless determine that closing price based on its assessment, made in its sole discretion, of the market value of the index stock on that day. In addition, if a market disruption event occurs or is continuing on the exchange notice date or on any later day through and including the exchange date, we may choose to pay cash instead of delivering index stock on the exchange date, even if we have not notified the holder of our election to pay cash as described above. OUR CALL RIGHT We may redeem the offered notes, including your note, in whole but not in part, at any time on or after May 17, 2003, at our option, for cash at 100% of the outstanding face amount. If we choose to exercise our call right described above, we will notify the holder of your note and the trustee not less than 5 nor more than 15 business days before the date we select for redemption, in the manner described in the accompanying prospectus. The day we give the notice, which will be a business day, will be the call notice date and the day we select for redemption, which we will set forth in the call notice, will be the call date, at least initially. After we give a call notice specifying the call date, we may nevertheless postpone the call date without further notice for up to five business days because of a market disruption event, as described under "-- Automatic Exchange -- Consequences of a Market Disruption Event" S-9 10 below. We will not give a call notice that results in a call date later than the stated maturity date. If we exercise our call right, the holder will be entitled to the benefit, if any, of an automatic exchange as described under "-- Automatic Exchange" below. If an automatic exchange occurs in that situation, we will not redeem your note as described above. If we give the holder a call notice and an automatic exchange does not occur, then we will redeem the entire outstanding face amount of your note as follows. On the call date, we will pay the redemption price in cash, in the manner described under "Manner of Payment and Delivery" below. Except as described above in this subsection or under "-- Holder's Exchange Right", we will not be permitted to redeem your note and the holder will not be entitled to require us to repay your note before the stated maturity date. AUTOMATIC EXCHANGE An automatic exchange of your note may occur as follows on either the stated maturity date or a call date. ON STATED MATURITY DATE If the holder does not exercise the exchange right for the entire outstanding face amount of your note by 11:00 A.M., New York City time, on the business day before the determination date and we do not exercise our call right, the following will apply. On the determination date, the calculation agent will determine the cash value of the index stock for which the remaining portion of your note would be exchanged on the stated maturity date, assuming that date had been an exchange date. To determine the cash value of that stock, the calculation agent will multiply the number of shares of the index stock we would otherwise have been obligated to deliver in exchange for your note, if that date was an exchange date, by the closing price of the index stock on the determination date, except in the limited circumstances described under "-- Consequences of a Market Disruption Event" below. If the cash value described above exceeds the face amount of your note then outstanding, then, regardless of the holder's wishes and without any notice being given or other action being taken by the holder, the remaining portion of your note will automatically be exchanged as follows. On the stated maturity date, either we will deliver to the holder the shares of index stock for which that portion is exchangeable, as described above, or, at our option, we will pay to the holder the cash value of that stock, based on the closing price described above. We will be entitled to select either of these alternatives at our option and we will notify the holder of our selection on the determination date. If an automatic exchange would otherwise involve delivery of a fractional share of index stock, we will instead pay the cash value of the fractional share, based on the price used to determine the cash value of the index stock described above. If the cash value described above does not exceed the outstanding face amount, then we will pay the principal amount on the stated maturity date. We describe this payment under "-- Payment of Principal on Stated Maturity Date" above. ON CALL DATE If we exercise our call right, the holder will receive the benefit, if any, of an automatic exchange as follows. Prior to the call date, the calculation agent will determine the cash value of the index stock for which the remaining portion of your note would be exchanged on the call date, assuming that date had been an exchange date. To determine the cash value of that stock, the calculation agent will multiply the number of shares of the index stock we would otherwise have been obligated to deliver in exchange for your note, if that date was an exchange date, by the closing price of the index stock on the call notice date, except in the limited circumstances described under "-- Consequences of a Market Disruption Event" below. S-10 11 If the cash value described above exceeds the redemption price that would be payable to the holder on the call date, then regardless of the holder's wishes and without any notice being given or other action being taken by the holder, the remaining portion of your note will automatically be exchanged as follows. On the call date, either we will deliver to the holder the shares of index stock for which that portion is exchangeable, as described above, or, at our option, we will pay to the holder the cash value of that stock, based on the closing price described above. We will be entitled to select either of these alternatives at our option, and we will specify our selection in the Call Notice. If an automatic exchange would otherwise involve delivery of a fractional share of index stock, we will instead pay the cash value of the fractional share, based on the price used to determine the cash value of the index stock described above. If the cash value referred to above does not exceed the redemption price, then we will redeem your note in accordance with our call right. We describe this right under "-- Our Call Right" above. CONSEQUENCES OF A MARKET DISRUPTION EVENT As described above, the calculation agent will use the closing price of the index stock on a particular day -- which we call a pricing date -- to determine the amount of cash that would be payable in an automatic exchange on the stated maturity date or a call date. This procedure will be subject to the following two rules, however: - If a market disruption event occurs or is continuing on a day that would otherwise be a pricing date, then the calculation agent will instead use the closing price on the first business day after that day on which no market disruption event occurs or is continuing. That first business day, however, may not be later than the determination date, in the case of an automatic exchange on the stated maturity date, or later than the fifth business day after the call notice date, in the case of an automatic exchange on the call date. We refer to that first business day as a deferred pricing date and to the latest business day on which a deferred pricing date can occur as the latest possible pricing date. - If a market disruption event occurs or is continuing on a day that would otherwise be a pricing date and on each subsequent business day through and including the latest possible pricing date, the calculation agent will nevertheless determine the closing price of the index stock, and the deferred pricing date will occur, on the latest possible pricing date. If the closing price is not available on that date, either because of a market disruption event or for any other reason, the calculation agent will determine the closing price based on its assessment, made in its sole discretion, of the market value of the index stock on the latest possible pricing date. The calculation agent will use the closing price on the latest possible pricing date, however determined, instead of the closing price described earlier. In determining the amount of cash that would be payable in an automatic exchange on a call date, the calculation agent may use the closing price on a deferred pricing date, as described in the two rules above. If that happens, the call date will be the later of the original call date and the fifth business day after the deferred pricing date. Consequently, if we exercise our call right and give the holder a call notice specifying the call date, we may nevertheless postpone the call date up to five business days after the specified date because of a market disruption event. We may do so without further notice to the holder or any other person and whether your note is redeemed or an automatic exchange occurs on the call date. We will not exercise our call right, however, in a manner that would result in the call date being later than the stated maturity date. In addition, if a market disruption event occurs or is continuing on a determination date or on any later day through and including the stated maturity date, we may choose to pay cash instead of delivering index stock on the stated maturity date, even if we have notified the holder of our election to deliver index stock as described under "Automatic Exchange" above. S-11 12 Similarly, if a market disruption event occurs or is continuing on the call notice date or on any later day through and including the call date, we may choose to pay cash instead of delivering index stock on the call date, even if we have notified the holder of our election to deliver index stock as described under "Automatic Exchange" above. ANTIDILUTION ADJUSTMENTS The calculation agent will adjust the exchange rate as described below, but only if an event described under one of the six subsections beginning with "-- Stock Splits" below occurs and only if the relevant event occurs during the period described under the applicable subsection. The adjustments described below do not cover all events that could affect the exchange rate. We describe the risks relating to dilution under "Additional Risk Factors Specific to Your Note -- You Have Limited Antidilution Protection" above. HOW ADJUSTMENTS WILL BE MADE If more than one event requiring adjustment occurs, the calculation agent will adjust the exchange rate for each event, sequentially, in the order in which the events occur, and on a cumulative basis. Thus, having adjusted the exchange rate for the first event, the calculation agent will adjust the exchange rate for the second event, applying the required adjustment to the exchange rate as already adjusted for the first event, and so on for each event. With respect to any portion of your note to be exchanged, including any portion subject to an automatic exchange, the calculation agent will make the required determinations and adjustments no later than the related exchange notice date. For this purpose, the exchange notice date for an automatic exchange will be the business day for which the closing price or other market value of the index stock is used to determine the amount of cash payable in that exchange. The calculation agent will adjust the exchange rate for each reorganization event described in "-- Reorganization Events" below. For any other dilution event described below, however, the calculation agent will not have to adjust the exchange rate unless the adjustment would result in a change of at least 0.1% in the exchange rate that would apply without the adjustment. The exchange rate resulting from any adjustment will be rounded up or down, as appropriate, to the nearest ten-thousandth, with five hundred-thousandths being rounded upward -- e.g., 0.12344 will be rounded down to 0.1234 and 0.12345 will be rounded up to 0.1235. If an event requiring antidilution adjustment occurs, the calculation agent will make the adjustment with a view to offsetting, to the extent practical, any change in the economic position of the holder and The Goldman Sachs Group, Inc., relative to your note, that results solely from that event. The calculation agent may, in its sole discretion, modify the antidilution adjustments as necessary to ensure an equitable result. The calculation agent will make all determinations with respect to antidilution adjustments, including any determination as to whether an event requiring adjustment has occurred, as to the nature of the adjustment required and how it will be made or as to the value of any property distributed in a reorganization event, and will do so in its sole discretion. In the absence of manifest error, those determinations will be conclusive for all purposes and will be binding on you and us, without any liability on the part of the calculation agent. The calculation agent will provide information about the adjustments it makes upon written request by the holder. STOCK SPLITS A stock split is an increase in the number of a corporation's outstanding shares of stock without any change in its stockholders' equity. Each outstanding share will be worth less as a result of a stock split. If the index stock is subject to a stock split, then the calculation agent will adjust the exchange rate to equal the sum of the prior exchange rate -- i.e., the exchange rate before that adjustment -- plus the product of (1) the number of new shares issued in the stock split with respect to one share of the index stock times (2) the prior exchange rate. The exchange rate will not be adjusted, S-12 13 however, unless the first day on which the index stock trades without the right to receive the stock split occurs after the date of this prospectus supplement and on or before the relevant exchange notice date. REVERSE STOCK SPLITS A reverse stock split is a decrease in the number of a corporation's outstanding shares of stock without any change in its stockholders' equity. Each outstanding share will be worth more as a result of a reverse stock split. If the index stock is subject to a reverse stock split, then the calculation agent will adjust the exchange rate to equal the product of the prior exchange rate and the quotient of (1) the number of outstanding shares of the index stock outstanding immediately after the reverse stock split becomes effective divided by (2) the number of shares of the index stock outstanding immediately before the reverse stock split becomes effective. The exchange rate will not be adjusted, however, unless the reverse stock split becomes effective after the date of this prospectus supplement and on or before the relevant exchange notice date. STOCK DIVIDENDS In a stock dividend, a corporation issues additional shares of its stock to all holders of its outstanding stock in proportion to the shares they own. Each outstanding share will be worth less as a result of a stock dividend. If the index stock is subject to a stock dividend, then the calculation agent will adjust the exchange rate to equal the sum of the prior exchange rate plus the product of (1) the number of shares issued in the stock dividend with respect to one share of the index stock times (2) the prior exchange rate. The exchange rate will not be adjusted, however, unless the ex-dividend date occurs after the date of this prospectus supplement and on or before the relevant exchange notice date. The ex-dividend date for any dividend or other distribution is the first day on which the index stock trades without the right to receive that dividend or other distribution. OTHER DIVIDENDS AND DISTRIBUTIONS The exchange rate will not be adjusted to reflect dividends or other distributions paid with respect to the index stock, other than: - stock dividends described above, - issuances of transferable rights and warrants as described in "-- Transferable Rights and Warrants" below, - distributions that are spin-off events described in "-- Reorganization Events" below, and - extraordinary dividends described below. A dividend or other distribution with respect to the index stock will be deemed to be an extraordinary dividend if its per-share value exceeds that of the immediately preceding non-extraordinary dividend, if any, for the index stock by an amount equal to at least 10% of the closing price of the index stock on the first business day before the ex-dividend date. If an extraordinary dividend occurs, the calculation agent will adjust the exchange rate to equal the product of (1) the prior exchange rate times (2) a fraction, the numerator of which is the closing price of the index stock on the business day before the ex-dividend date and the denominator of which is the amount by which that closing price exceeds the extraordinary dividend amount. The exchange rate will not be adjusted, however, unless the ex-dividend date occurs after the date of this prospectus supplement and on or before the relevant exchange notice date. The extraordinary dividend amount with respect to an extraordinary dividend for the index stock equals: - for an extraordinary dividend that is paid in lieu of a regular quarterly dividend, the amount of the extraordinary dividend per share of the index stock minus the amount per share of the immediately preceding dividend, if any, that was not an S-13 14 extraordinary dividend for the index stock, or - for an extraordinary dividend that is not paid in lieu of a regular quarterly dividend, the amount per share of the extraordinary dividend. To the extent an extraordinary dividend is not paid in cash, the value of the non-cash component will be determined by the calculation agent. A distribution on the index stock that is a stock dividend, an issuance of transferable rights or warrants or a spin-off event and also an extraordinary dividend will result in an adjustment to the exchange rate only as described in "-- Stock Dividends", above, "-- Transferable Rights and Warrants" below or "-- Reorganization Events" below, as the case may be, and not as described here. TRANSFERABLE RIGHTS AND WARRANTS If the index stock issuer issues transferable rights or warrants to all holders of the index stock to subscribe for or purchase index stock at an exercise price per share that is less than the closing price of the index stock on the business day before the ex-dividend date for the issuance, then the exchange rate will be adjusted by multiplying the prior exchange rate by the following fraction: - the numerator will be the number of shares of the index stock outstanding at the close of business on the day before that ex-dividend date plus the number of additional shares of the index stock offered for subscription or purchase under those transferable rights or warrants and - the denominator will be the number of shares of the index stock outstanding at the close of business on the day before that ex-dividend date plus the number of additional shares of the index stock that the aggregate offering price of the total number of shares of the index stock so offered for subscription or purchase would purchase at the closing price of the index stock on the business day before that ex-dividend date, with that number of additional shares being determined by multiplying the total number of shares so offered by the exercise price of those transferable rights or warrants and dividing the resulting product by the closing price on the business day before that ex- dividend date. The exchange rate will not be adjusted, however, unless the ex-dividend date described above occurs after the date of this prospectus supplement and on or before the relevant exchange notice date. REORGANIZATION EVENTS Each of the following is a reorganization event: - the index stock is reclassified or changed, - the index stock issuer has been subject to a merger, consolidation or other combination and either is not the surviving entity or is the surviving entity but all the outstanding index stock is exchanged for or converted into other property, - a statutory share exchange involving the outstanding index stock and the securities of another entity occurs, other than as part of an event described above, - the index stock issuer sells or otherwise transfers its property and assets as an entirety or substantially as an entirety to another entity, - the index stock issuer effects a spin-off -- that is, issues to all holders of the index stock equity securities of another issuer, other than as part of an event described above, - the index stock issuer is liquidated, dissolved or wound up or is subject to a proceeding under any applicable bankruptcy, insolvency or other similar law, or - another entity completes a tender or exchange offer for all the outstanding index stock. ADJUSTMENTS FOR REORGANIZATION EVENTS. If a reorganization event occurs, then the calculation agent will adjust the exchange rate by adjusting the reference amount. This term refers to the amount and type of property deliverable on an exchange S-14 15 date in exchange for each $1,000 of outstanding face amount of your note. Initially the reference amount will be the amount of index stock specified under "exchange rate" on the front cover of this prospectus supplement. However, if the exchange rate is adjusted because of a dilution event, then the reference amount will be adjusted in a corresponding manner. For example, if an exchange rate adjustment is required because of a stock split, reverse stock split, stock dividend, extraordinary dividend or issuance of rights or warrants, then the reference amount might be adjusted to be, for example, double or half the amount of index stock specified on the front cover, depending on the event requiring adjustment. Similarly, if adjustment is required because of a reorganization event in which cash and securities are distributed, for example, the reference amount will be adjusted to be the amount of cash and the amount of securities distributed in the event in respect of the amount of index stock specified on the front cover, if there has been no prior adjustment of the exchange rate. If there has been a prior adjustment, the reference amount will be adjusted to be the amount of cash and the amount of securities distributed in the event in respect of, for example, double or half the specified amount of index stock or whatever else the reference amount might be when the distribution occurs. If a reorganization event occurs, the reference amount will be adjusted so as to consist of the amount and type of property -- whether it be cash, securities or other property -- distributed in the event in respect of the prior reference amount. If more than one type of property is distributed, the reference amount will be adjusted so as to consist of each type of property distributed in respect of the prior reference amount, in a proportionate amount so that the value of each type of property comprising the new reference amount as a percentage of the total value of the new reference amount equals the value of that type of property as a percentage of the total value of all property distributed in the reorganization event in respect of the prior reference amount. We refer to the property distributed in a reorganization event as distribution property, a term we describe in more detail below. For the purpose of making an adjustment required by a reorganization event, the calculation agent will determine the value of each type of distribution property, in its sole discretion. For any distribution property consisting of a security, the calculation agent will use the closing price for the security on the relevant exchange notice date. The calculation agent may value other types of property in any manner it determines, in its sole discretion, to be appropriate. If a holder of the index stock may elect to receive different types or combinations of types of distribution property in the reorganization event, the distribution property will consist of the types and amounts of each type distributed to a holder that makes no election, as determined by the calculation agent in its sole discretion. If a reorganization event occurs and the calculation agent adjusts the reference amount to consist of the distribution property distributed in the event as described above, the calculation agent will make further antidilution adjustments for later events that affect the distribution property, or any component of the distribution property, comprising the new reference amount. The calculation agent will do so to the same extent that it would make adjustments if the index stock were outstanding and were affected by the same kinds of events. If a subsequent reorganization event affects only a particular component of the reference amount, the required adjustment will be made with respect to that component, as if it alone were the reference amount. For example, if the index stock issuer merges into another company and each share of the index stock is converted into the right to receive two common shares of the surviving company and a specified amount of cash, the reference amount will be adjusted to consist of two common shares and the specified amount of cash. The calculation agent will adjust the common share component of the new reference amount to reflect any later stock split or other event, S-15 16 including any later reorganization event, that affects the common shares of the surviving company, to the extent described in this subsection entitled "-- Antidilution Adjustments" as if the common shares were the index stock. In that event, the cash component will not be adjusted but will continue to be a component of the reference amount. Consequently, if the holder exercises the exchange right or an automatic exchange occurs, the holder will be entitled to receive, for each $1,000 of the outstanding face amount of your note being exchanged, all components of the reference amount in effect on the relevant exchange notice date, with each component having been adjusted on a sequential and cumulative basis for all relevant events requiring adjustment on or before the relevant exchange notice date, unless we elect to pay cash in the exchange. If the exchange right is exercised or an automatic exchange occurs and we elect to pay cash in the exchange, we will do so based on the closing price of the index stock on the exchange notice date as long as the reference amount consists only of index stock. If a reorganization event occurs and the reference amount consists of property other than index stock, then the amount of cash we pay -- for each $1,000 of the outstanding face amount of your note being exchanged -- will equal the total value of the adjusted reference amount, as in effect on the exchange notice date. The calculation agent will determine the value of each component of the adjusted reference amount in the manner described above. In this prospectus supplement, whenever we say that the calculation agent will adjust the exchange rate in respect of a dilution event, we mean that the calculation agent will adjust the reference amount in the manner described in this subsection if the dilution event is a reorganization event. The calculation agent will not make any adjustment for a reorganization event, however, unless the event becomes effective -- or, if the event is a spin-off, unless the ex-dividend date for the spin-off occurs -- after the date of this prospectus supplement and on or before the relevant exchange notice date. DISTRIBUTION PROPERTY. When we refer to distribution property, we mean the cash, securities and other property or assets distributed in a reorganization event in respect of an amount of outstanding index stock equal to the amount specified on the front cover under "exchange rate" -- or in respect of whatever the reference amount may then be if any antidilution adjustment has been made in respect of a prior event. In the case of a spin-off, the distribution property also includes the specified amount of index stock -- or other applicable reference amount -- in respect of which the distribution is made. If a reorganization event occurs, the distribution property distributed in the event will be substituted for the index stock as described above. Consequently, in this prospectus supplement, when we refer to the index stock, we mean any distribution property that is distributed in a reorganization event and comprises the adjusted reference amount. Similarly, when we refer to the index stock issuer, we mean any successor entity in a reorganization event. DEFAULT AMOUNT ON ACCELERATION If an event of default occurs and the maturity of your note is accelerated, we will pay the default amount in respect of the principal of your note at the maturity. We describe the default amount below under "-- Special Calculation Provisions". For the purpose of determining whether the holders of our Series B medium-term notes, which include the offered notes, are entitled to take any action under the indenture, we will treat the outstanding face amount of each offered note as the outstanding principal amount of that note. Although the terms of the offered notes differ from those of the other Series B medium-term notes, holders of specified percentages in principal amount of all Series B medium-term notes, together in some cases with other series of our debt securities, will be able to take action affecting all the Series B medium-term notes, including the offered notes. This action may involve changing some of the terms that apply to the Series B medium-term S-16 17 notes, accelerating the maturity of the Series B medium-term notes after a default or waiving some of our obligations under the indenture. We discuss these matters in the accompanying prospectus under "Description of Debt Securities We May Offer -- Default, Remedies and Waiver of Default" and "-- Modification of the Indentures and Waiver of Covenants". MANNER OF PAYMENT AND DELIVERY Any payment or delivery on your note at maturity, on any exchange date or on any call date will be made to an account designated by the holder of your note and approved by us, or at the office of the trustee in New York City, but only when your note is surrendered to the trustee at that office. We also may make any payment or delivery in accordance with the applicable procedures of the depositary. We may make any delivery of index stock or distribution property ourselves or cause our agent to do so on our behalf. MODIFIED BUSINESS DAY As described in the accompanying prospectus, any payment on your note that would otherwise be due on a day that is not a business day may instead be paid on the next day that is a business day, with the same effect as if paid on the original due date. The same will apply to any delivery of the index stock that would otherwise be due on a day that is not a business day. For your note, however, the term business day has a different meaning than it does for other Series B medium-term notes. We discuss this term under "-- Special Calculation Provisions" below. ROLE OF CALCULATION AGENT The calculation agent will make all determinations regarding the exchange rate, anti-dilution adjustments, market disruption events, automatic exchange, the closing price or other value of the index stock, the default amount and the amount of the index stock, cash or distribution property to be delivered in exchange for your note. Absent manifest error, all determinations of the calculation agent will be final and binding on you and us, without any liability on the part of the calculation agent. Please note that the firm named as the calculation agent in this prospectus supplement is the firm serving in that role as of the original issue date of your note. We may change the calculation agent after the original issue date without notice. SPECIAL CALCULATION PROVISIONS BUSINESS DAY When we refer to a business day with respect to your note, we mean a day that is a business day of the kind described in the accompanying prospectus but that is not a day on which the principal securities market for the index stock is authorized by law or executive order to close. CLOSING PRICE The closing price for any security on any day will equal the closing sale price or last reported sale price, regular way, for the security, on a per-share or other unit basis: - on the principal national securities exchange on which that security is listed for trading on that day, or - if that security is not listed on any national securities exchange, on the Nasdaq National Market System on that day, or - if that security is not quoted in the Nasdaq National Market System on that day, on any other U.S. national market system that is the primary market for the trading of that security. If that security is not listed or traded as described above, then the closing price for that security on any day will be the average, as determined by the calculation agent, of the bid prices for the security obtained from as many dealers in that security selected by the calculation agent as will make those bid prices available to the calculation agent. The number of dealers need not exceed three and may include the calculation agent or any of its or our affiliates. S-17 18 DEFAULT AMOUNT The default amount for your note on any day will be an amount, in the specified currency for the principal of your note, equal to the cost of having a qualified financial institution, of the kind and selected as described below, expressly assume all our payment and other obligations with respect to your note as of that day and as if no default or acceleration had occurred, or to undertake other obligations providing substantially equivalent economic value to you with respect to your note. That cost will equal: - the lowest amount that a qualified financial institution would charge to effect this assumption or undertaking, plus - the reasonable expenses, including reasonable attorneys' fees, incurred by the holder of your note in preparing any documentation necessary for this assumption or undertaking. During the default quotation period for your note, which we describe below, the holder and/or we may request a qualified financial institution to provide a quotation of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the other party in writing of the quotation. The amount referred to in the first bullet point above will equal the lowest -- or, if there is only one, the only -- quotation obtained, and as to which notice is so given, during the default quotation period. With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds, to the assumption or undertaking by the qualified financial institution providing the quotation and notify the other party in writing of those grounds within two business days after the last day of the default quotation period, in which case that quotation will be disregarded in determining the default amount. DEFAULT QUOTATION PERIOD. The default quotation period is the period beginning on the day the default amount first becomes due and ending on the third business day after that day, unless: - no quotation of the kind referred to above is obtained, or - every quotation of that kind obtained is objected to within five business days after the due day as described above. If either of these two events occurs, the default quotation period will continue until the third business day after the first business day on which prompt notice of a quotation is given as described above. If that quotation is objected to as described above within five business days after that first business day, however, the default quotation period will continue as described in the prior sentence and this sentence. In any event, if the default quotation period and the subsequent two business day objection period have not ended before the determination date, then the default amount will equal the principal amount of your note. QUALIFIED FINANCIAL INSTITUTIONS. For the purpose of determining the default amount at any time, a qualified financial institution must be a financial institution organized under the laws of any jurisdiction in the United States of America, Europe or Japan, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date of issue and rated either: - A-1 or higher by Standard & Poor's Ratings Group or any successor, or any other comparable rating then used by that rating agency, or - P-1 or higher by Moody's Investors Service, Inc. or any successor, or any other comparable rating then used by that rating agency. MARKET DISRUPTION EVENT Any of the following will be a market disruption event: - a suspension, absence or material limitation of trading in the index stock on its primary market for more than two hours of trading or during the one-half hour before the close of trading in that market, as determined by S-18 19 the calculation agent in its sole discretion, or - a suspension, absence of trading or material limitation of trading in option contracts relating to the index stock, if available, in the primary market for those contracts for more than two hours of trading or during the one-half hour before the close of trading in that market, as determined by the calculation agent in its sole discretion, or - the index stock does not trade on what was the primary market for the index stock, as determined by the calculation agent in its sole discretion, and, in any of these events, the calculation agent determines in its sole discretion that the event materially interferes with the ability of The Goldman Sachs Group, Inc. or any of its affiliates to unwind all or a material portion of a hedge with respect to the offered notes that we or our affiliates have effected or may effect as described below under "Use of Proceeds and Hedging" below. The following events will not be market disruption events: - a limitation on the hours or numbers of days of trading, but only if the limitation results from an announced change in the regular business hours of the relevant market, and - a decision to permanently discontinue trading in the option contracts relating to the index stock. For this purpose, an "absence of trading" in the primary securities market on which option contracts related to the index stock are traded will not include any time when that market is itself closed for trading under ordinary circumstances. In contrast, a suspension or limitation of trading in option contracts related to the index stock, if available, in the primary market for those contracts, by reason of: - a price change exceeding limits set by that market, or - an imbalance of orders relating to those contracts, or - a disparity in bid and ask quotes relating to those contracts will constitute a suspension or material limitation of trading in option contracts related to the index stock in the primary market for those contracts. In this subsection about market disruption events, references to the index stock include securities that are part of any adjusted reference amount, as determined by the calculation agent in its sole discretion. S-19 20 HYPOTHETICAL RETURNS ON YOUR NOTE In the table below, we compare the total return on owning the index stock to the total return on owning your note, in each case during the seven-year period from the trade date to the stated maturity date. The information in the table is based on hypothetical market values for the index stock and your note at the end of this seven-year period, and on the assumptions set forth in the box below. In the paragraphs following the table, we explain how we have calculated these hypothetical returns. ASSUMPTIONS Original issue price, expressed as a percentage of the face amount 100% Exchange rate 17.6995 shares Reference price of index stock $40.07 Premium (as a percentage of the reference price of index stock) 41.0% No dividends paid Automatic exchange in full on the stated maturity date -- i.e., no prior redemption or voluntary exchange No antidilution adjustments to exchange rate No market disruption event occurs
We calculate the total return on your note based on the exchange rate of 17.6995 shares of the index stock for each $1,000 of the outstanding face amount of your note. This exchange rate was determined by dividing $1,000 by the product of the reference price of the index stock times one plus a premium of 41.0%. Because the exchange rate has been determined in this manner, the closing price of the index stock must increase by the stated maturity date to an amount equal to the reference price times one plus the premium in order for the cash value of the index stock that would be deliverable in exchange for any portion of your note on the stated maturity date to equal the face amount of the exchanged portion. There is no assurance that the closing price will increase to that extent by the stated maturity date. The index stock is traded on the New York Stock Exchange. For information about the market price of the index stock in recent periods, see "EMC Corporation -- Historical Trading Price Information" below. As stated above, the following table assumes that no dividends will be paid on the index stock. We do not know, however, whether or to what extent the issuer of the index stock will pay dividends in the future. These are matters that will be determined by the issuer of the index stock and not by us. Consequently, the amount of dividends actually paid on the index stock by its issuer, and, therefore, the rate of return on the index stock, during the life of the offered notes may differ substantially from the information reflected in the table below. The following table is provided for purposes of illustration only. It should not be taken as an indication or prediction of future investment results and is intended merely to illustrate the impact that various hypothetical market values at the end of the indicated period could have on the rates of return on the index stock and your note, assuming all other variables remained constant. S-20 21
INDEX STOCK -------------------------------------------------- YOUR NOTE HYPOTHETICAL ------------------------------ CLOSING PRICE ON HYPOTHETICAL HYPOTHETICAL STATED MATURITY MARKET VALUE ON CLOSING PRICE ON DATE AS % OF HYPOTHETICAL STATED MATURITY HYPOTHETICAL STATED MATURITY ASSUMED TOTAL DATE AS % OF TOTAL DATE REFERENCE PRICE RETURN FACE AMOUNT RETURN ---------------- ---------------- ------------ --------------- ------------ 20.04 50% -50.0% 100.0% 0.00% 24.04 60% -40.0% 100.0% 0.00% 28.05 70% -30.0% 100.0% 0.00% 32.06 80% -20.0% 100.0% 0.00% 36.06 90% -10.0% 100.0% 0.00% ----------------------------------------------------------------------------------- 40.07 100% 0.0% 100.0% 0.00% ----------------------------------------------------------------------------------- 44.08 110% 10.0% 100.0% 0.00% 48.08 120% 20.0% 100.0% 0.00% 52.09 130% 30.0% 100.0% 0.00% 56.10 140% 40.0% 100.0% 0.00% 60.11 150% 50.0% 106.4% 6.38% 64.11 160% 60.0% 113.5% 13.48% 68.12 170% 70.0% 120.6% 20.57% 72.13 180% 80.0% 127.7% 27.66% 76.13 190% 90.0% 134.8% 34.75% 80.14 200% 100.0% 141.8% 41.84%
------------------------- The hypothetical total return on the index stock represents the difference between (i) the hypothetical closing price of one share of index stock on the stated maturity date and (ii) the reference price of the index stock. This difference is expressed as a percentage of the reference price. The hypothetical total return on your note represents the difference between (i) the hypothetical market value of your note on the stated maturity date and (ii) the hypothetical market value of your note on the trade date. This difference is expressed as a percentage of the hypothetical market value on the trade date. For this purpose, we have assumed that the market value of your note on the trade date will equal the outstanding face amount but that the market value on the stated maturity date will equal the greater of the outstanding face amount and the cash value of the index stock that we would be obligated to deliver on that date in an automatic exchange. There will be no automatic exchange on the stated maturity date, however, unless the cash value of the index stock to be delivered on that date exceeds the outstanding face amount of your note. Therefore, we have assumed that unless the cash value of that stock exceeds the outstanding face amount of your note, the market value of your note on the stated maturity date will equal the outstanding face amount. We have also assumed that the closing price of the index stock will be the same on the determination date and the stated maturity date. S-21 22 -------------------------------------------------------------------------------- We cannot predict the market price of the index stock or the market value of your note, nor can we predict the relationship between the two. Moreover, the assumptions we have made in connection with the illustration set forth above may not reflect actual events. Consequently, the total return that an investor in a note would actually achieve, as well as how that return would compare to the total return that an investor in the index stock would actually achieve, may be very different from the information reflected in the table above. -------------------------------------------------------------------------------- S-22 23 USE OF PROCEEDS AND HEDGING We will use the net proceeds we receive from the sale of the offered notes for the purposes we describe in the accompanying prospectus under "Use of Proceeds". We or our affiliates may also use those proceeds in transactions intended to hedge our obligations under the offered notes as described below. In anticipation of the sale of the offered notes, we and/or our affiliates have entered into hedging transactions involving purchases of the index stock or listed and over-the-counter options on the index stock prior to and/or on the trade date. From time to time, we and/or our affiliates may enter into additional hedging transactions or unwind those we have entered into. In this regard, we and/or our affiliates may: - acquire or dispose of the index stock or other securities of the index stock issuer, - take short positions in the index stock or other securities of the index stock issuer -- i.e., we and/or our affiliates may sell securities of the kind that we do not own or that we borrow for delivery to purchaser, - take or dispose of positions in listed or over-the-counter options or other instruments based on the index stock, and/or - take or dispose of positions in listed or over-the-counter options or other instruments based on indices designed to track the performance of the New York Stock Exchange or other components of the U.S. equity market. We and/or our affiliates may acquire a long or short position in securities similar to the offered notes from time to time and may, in our or their sole discretion, hold or resell those securities. We and/or our affiliates may close out our or their hedge on or before the determination date. That step may involve sales or purchases of the index stock, listed or over-the-counter options on the index stock or listed or over-the-counter options or other instruments based on indices designed to track the performance of the New York Stock Exchange or other components of the U.S. equity market. -------------------------------------------------------------------------------- The hedging activity discussed above may adversely affect the market value of your note from time to time. See "Additional Risk Factors Specific to Your Note -- Trading and Other Transactions by Goldman Sachs in the Index Stock May Impair the Value of Your Note" and "-- Our Business Activities May Create Conflicts of Interest Between You and Us" for a discussion of these adverse effects. -------------------------------------------------------------------------------- S-23 24 EMC CORPORATION According to its publicly available documents, EMC Corporation provides enterprise storage systems, software, networks and services. Its products store, retrieve, manage, protect and share information from all major computing environments, including UNIX, Windows NT and mainframe platforms. EMC Corporation operates offices around the world. WHERE INFORMATION ABOUT THE INDEX STOCK ISSUER CAN BE OBTAINED The index stock is registered under the Securities Exchange Act of 1934. Companies with securities registered under the Exchange Act are required to file financial and other information specified by the SEC periodically. Information filed with the SEC can be inspected and copied at the public reference facilities maintained by the SEC at: - Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, - Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661, and - Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of this material can also be obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, information filed by the index stock issuer with the SEC electronically can be reviewed through a web site maintained by the SEC. The address of the SEC's web site is http://www.sec.gov. Information filed with the SEC by the index stock issuer under the Exchange Act can be located by reference to its SEC file number: 1-9853. Information about the index stock issuer may also be obtained from other sources such as press releases, newspaper articles and other publicly disseminated documents. We do not make any representation or warranty as to the accuracy or completeness of any materials referred to above, including any filings made by the index stock issuer with the SEC. WE OBTAINED THE INFORMATION ABOUT THE INDEX STOCK ISSUER IN THIS PROSPECTUS SUPPLEMENT FROM THE INDEX STOCK ISSUER'S PUBLIC FILINGS This prospectus supplement relates only to your note and does not relate to the index stock or other securities of the index stock issuer. We have derived all information about the index stock issuer in this prospectus supplement from the publicly available documents referred to in the preceding subsection. We have not participated in the preparation of any of those documents or made any "due diligence" investigation or any inquiry of the index stock issuer with respect to the index stock issuer in connection with the offering of your note. We do not make any representation that the publicly available documents or any other publicly available information about the index stock issuer are accurate or complete. Furthermore, we do not know whether all events occurring before the date of this prospectus supplement -- including events that would affect the accuracy or completeness of the publicly available documents referred to above, the trading price of the index stock and, therefore, the exchange rate -- have been publicly disclosed. Subsequent disclosure of any events of this kind or the disclosure of or failure to disclose material future events concerning the index stock issuer could affect the value you will receive at maturity and, therefore, the market value of your note. Neither we nor any of our affiliates make any representation to you as to the performance of the index stock. We or any of our affiliates may currently or from time to time engage in business with the index stock issuer, including making loans to or equity investments in the index stock issuer or providing advisory services to the index stock issuer, including merger and acquisition advisory services. In the course of that business, we or any of our affiliates may acquire non-public information about the index stock issuer and, in addition, one or more of our affiliates may publish research reports about the index stock issuer. As an investor in a note, you should undertake such S-24 25 independent investigation of the index stock issuer as in your judgment is appropriate to make an informed decision with respect to an investment in a note. HISTORICAL TRADING PRICE INFORMATION The index stock is traded on the New York Stock Exchange under the symbol "EMC". The following table sets forth the quarterly high, low and closing prices for the index stock on the New York Stock Exchange for the four calendar quarters in each of 1998, 1999 and 2000, the first calendar quarter in 2001 and the second calendar quarter in 2001, through May 10, 2001. We obtained the trading price information set forth below from Bloomberg Financial Services, without independent verification. You should not take the historical prices of the index stock as an indication of future performance. We cannot give you any assurance that the price of the index stock will increase sufficiently for you to receive an amount in excess of the face amount of your note at maturity.
HIGH LOW CLOSE ---- --- ----- 1998 Quarter ended March 31................................... 9.4906 6.1590 9.2461 Quarter ended June 30.................................... 11.4927 8.7876 10.9580 Quarter ended September 30............................... 15.1300 10.8661 13.9840 Quarter ended December 31................................ 20.7846 11.0495 20.7846 1999 Quarter ended March 31................................... 31.7577 20.7846 31.2380 Quarter ended June 30.................................... 32.9956 23.3521 26.8980 Quarter ended September 30............................... 36.4954 26.2253 34.9370 Quarter ended December 31................................ 53.4287 30.8102 53.4287 2000 Quarter ended March 31................................... 69.4451 48.7216 61.1310 Quarter ended June 30.................................... 79.9597 52.8174 75.2530 Quarter ended September 30............................... 101.6613 72.8685 96.9540 Quarter ended December 31................................ 97.7489 54.4068 65.0440 2001 Quarter ended March 31................................... 78.1404 29.0000 29.4000 Quarter ended June 30 (through May 10, 2001)............. 45.1000 25.2000 40.2500 Closing Price on May 10, 2001............................ 40.2500
S-25 26 SUPPLEMENTAL DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES The following section supplements the discussion of U.S. federal income taxation in the accompanying prospectus with respect to United States holders. The following section is the opinion of Sullivan & Cromwell, counsel to The Goldman Sachs Group, Inc. Please consult your own tax advisor concerning the U.S. federal income tax and any other applicable tax consequences of owning your note in your particular circumstances. Although the applicable United States Treasury regulations do not directly address notes such as your note, your note should be treated as a single debt instrument subject to special rules governing contingent payment obligations for United States federal income tax purposes. Under those rules, the amount of interest you are required to take into account for each accrual period will be determined by constructing a projected payment schedule for your note and applying rules similar to those for accruing original issue discount on a hypothetical noncontingent debt instrument with that projected payment schedule. This method is applied by first determining the yield at which we would issue a noncontingent fixed rate debt instrument with terms and conditions similar to your note (the "comparable yield") and then determining as of the issue date a payment schedule that would produce the comparable yield. These rules will generally have the effect of requiring you to include interest in income in respect of your note prior to your receipt of cash attributable to such income. It is not entirely clear how the rules governing contingent payment obligations provide for determining the maturity date for debt instruments (such as your note) that provide for a call right or exchange right for purposes of computing the comparable yield and projected payment schedule. It would be reasonable, however, to compute the comparable yield and projected payment schedule for your note (and we intend to make the computation in such a manner) based upon an assumption that your note will remain outstanding until the stated maturity date and the projected contingent payment will be made at such time. The comparable yield and projected payment schedule may be obtained from us by contacting the Goldman Sachs Treasury Administration Department, Debt Administration Group, at 212-902-1000. You are required to use the comparable yield and projected payment schedule determined by us in determining your interest accruals in respect of your note unless you timely disclose and justify on your federal income tax return the use of a different comparable yield and projected payment schedule. -------------------------------------------------------------------------------- The comparable yield and projected payment schedule is not provided to you for any purpose other than the determination of your interest accruals in respect of your note, and we make no representation regarding the amount of contingent payments with respect to your note. -------------------------------------------------------------------------------- If you purchase your note in the secondary market, you must determine the extent to which the difference between the price you paid for your note and its adjusted issue price is attributable to a change in expectations as to the projected payment schedule, a change in interest rates, or both, and reasonably allocate the difference accordingly. The adjusted issue price of your note will equal your note's original issue price plus any interest deemed to be accrued on your note (under the rules governing contingent payment obligations) as of the time you purchase your note. If the adjusted issue price of your note is greater than the price you paid for your note, you must make positive adjustments increasing the amount of interest that you S-26 27 would otherwise accrue and include in income each year, and the amount of ordinary income (or decreasing the amount of ordinary loss) recognized upon redemption or maturity by the amounts allocated to each of interest and projected payment schedule; if the adjusted issue price of your note is less than the price you paid for your note, you must make negative adjustments, decreasing the amount of interest that you must include in income each year, and the amount of ordinary income (or increasing the amount of ordinary loss) recognized upon redemption or maturity by the amounts allocated to each of interest and projected payment schedule. Adjustments allocated to the interest amount are not made until the date the daily portion of interest accrues. Because any Form 1099-OID that you receive will not reflect the effects of positive or negative adjustments resulting from your purchase of a note in the secondary market, you are urged to consult with your tax advisor as to whether and how adjustments should be made to the amounts reported on any Form 1099-OID. You will recognize gain or loss upon the sale, exchange, redemption or maturity of your note in an amount equal to the difference, if any, between the fair market value of the amount of cash or index stock you receive at such time and your adjusted basis in your note. In general, your adjusted basis in your note will equal the amount you paid for your note, increased by the amount of interest you previously accrued with respect to your note (in accordance with the comparable yield and the projected payment schedule for your note) and increased or decreased by the amount of any positive or negative adjustment, respectively, that you are required to make if you purchase your note in the secondary market. Your holding period in any index stock you receive will begin on the day after receipt. Any gain you recognize upon the sale, exchange, redemption or maturity of your note will be ordinary interest income. Any loss you recognize at such time will be ordinary loss to the extent of interest you included as income in the current or previous taxable years in respect of your note, and thereafter, capital loss. S-27 28 EMPLOYEE RETIREMENT INCOME SECURITY ACT This section is only relevant to you if you are an insurance company or the fiduciary of a pension plan or an employee benefit plan (including a governmental plan, an IRA or a Keogh Plan) proposing to invest in the offered notes. The Employee Retirement Income Security Act of 1974, as amended, which we call "ERISA" and the Internal Revenue Code of 1986, as amended, prohibit certain transactions involving the assets of an employee benefit plan and certain persons who are "parties in interest" (within the meaning of ERISA) or "disqualified persons" (within the meaning of the Internal Revenue Code) with respect to the plan; governmental plans may be subject to similar prohibitions. Therefore, a plan fiduciary considering purchasing notes should consider whether the purchase or holding of such instruments might constitute a "prohibited transaction". The Goldman Sachs Group, Inc. and certain of its affiliates each may be considered a "party in interest" or a "disqualified person" with respect to many employee benefit plans by reason of, for example, The Goldman Sachs Group, Inc. (or its affiliate) providing services to such plans. Prohibited transactions within the meaning of ERISA or the Internal Revenue Code may arise, for example, if notes are acquired by or with the assets of a pension or other employee benefit plan that is subject to the fiduciary responsibility provisions of ERISA or Section 4975 of the Internal Revenue Code (including individual retirement accounts and other plans described in Section 4975(e)(1) of the Internal Revenue Code), which we call a "Plan", and with respect to which The Goldman Sachs Group, Inc. or any of its affiliates is a "party in interest" or a "disqualified person", unless those notes are acquired under an exemption for transactions effected on behalf of that Plan by a "qualified professional asset manager" or an "in-house asset manager", for transactions involving insurance company general accounts or under another available exemption. The person making the decision on behalf of a Plan or a governmental plan shall be deemed, on behalf of itself and the Plan, by purchasing and holding the offered notes, to represent that such purchase and holding of the offered notes will not result in a non-exempt prohibited transaction under ERISA or the Internal Revenue Code (or, with respect to a governmental plan, under any similar applicable law or regulation). If you are an insurance company or the fiduciary of a pension plan or an employee benefit plan, and propose to invest in the offered notes, you should consult your legal counsel. S-28 29 SUPPLEMENTAL PLAN OF DISTRIBUTION The Goldman Sachs Group, Inc. has agreed to sell to Goldman, Sachs & Co., and Goldman, Sachs & Co. has agreed to purchase from The Goldman Sachs Group, Inc., the aggregate face amount of the offered notes specified on the front cover of this prospectus supplement. Goldman, Sachs & Co. intends to resell the offered notes at the applicable original issue price to the offered notes to be sold. In the future, Goldman, Sachs & Co. or other affiliates of The Goldman Sachs Group, Inc. may repurchase and resell the offered notes in market-making transactions, with resales being made at prices related to prevailing market prices at the time of resale or at negotiated prices. For more information about the plan of distribution and possible market-making activities, see "Plan of Distribution" in the accompanying prospectus. NOTICE TO INVESTORS IN SINGAPORE Notes may not be offered or sold, nor may any document or other material in connection with the notes be issued, circulated or distributed, either directly or indirectly, to persons in Singapore other than (i) under circumstances in which the offer or sale does not constitute an offer or sale of the notes to the public in Singapore or (ii) to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent. S-29 30 NOTICE OF EXCHANGE Dated: The Bank of New York 101 Barclay Street, 21W Corporate Trust Administration New York, New York 10286 Attn: Tom Tabor (212-815-5381) Hector Herrera (212-815-4293) Fax: (212-815-4803) with a copy to: Goldman, Sachs & Co. 85 Broad Street Options and Derivatives Operations New York, New York 10004 Attn: Sharon Seibold (212-902-7921) Stephen Barnitz (212-357-4217) Fax: (212-902-7993) Re: Exchangeable Notes due 2008, issued by The Goldman Sachs Group, Inc. (Exchangeable for Common Stock of EMC Corporation) Dear Sirs: The undersigned is, or is acting on behalf of, the beneficial owner of a portion of one of the notes specified above, which portion has an outstanding face amount equal to or greater than the amount set forth at the end of this notice of exchange. The undersigned hereby irrevocably elects to exercise the exchange right described in the prospectus supplement dated May 10, 2001 to the prospectus dated May 8, 2000, as supplemented by the prospectus supplement dated May 10, 2000, with respect to the outstanding face amount of the note set forth at the end of this notice of exchange. The exercise is to be effective on the business day on which the trustee has received this notice of exchange, together with all other items required to be delivered on exercise, and the calculation agent has received a copy of this notice of exchange, unless all required items have not been received by 11:00 A.M., New York City time, on that business day, in which case the exercise will be effective as of the next business day. We understand, however, that the effective date in all cases must be no later than the earlier of (i) the business day before the determination date and (ii) any call notice date. The effective date will be the exchange notice date. If the note to be exchanged is in global form, the undersigned is delivering this notice of exchange to the trustee and to the calculation agent, in each case by facsimile transmission to the relevant number stated above, or such other number as the trustee or calculation agent may have designated for this purpose to the holder. In addition, the beneficial interest in the face amount indicated below is being transferred on the books of the depositary to an account of the trustee at the depositary. If the note to be exchanged is not in global form, the undersigned or the beneficial owner is the holder of the note and is delivering this notice of exchange to the trustee and to the calculation agent by facsimile transmission as described above. In addition, the certificate representing the note and any payment required in respect of accrued interest is being delivered to the trustee. S-30 31 If the undersigned is not the beneficial owner of the note to be exchanged, the undersigned hereby represents that it has been duly authorized by the beneficial owner to act on behalf of the beneficial owner. Terms used and not defined in this notice have the meanings given to them in the prospectus supplement specified above. The exchange of the note will be governed by the terms of the note. The calculation agent should internally acknowledge receipt of the copy of this notice of exchange, in the place provided below, on the business day of receipt, noting the date and time of receipt. The consideration to be delivered or paid in the requested exchange should be made on the fifth business day after the exchange notice date in accordance with the terms of the note. Face amount of note to be exchanged: $ --------------------------------------------- (must be a multiple of $1,000) Very truly yours, -------------------------------------- (Name of beneficial owner or person authorized to act on its behalf) -------------------------------------- (Title) -------------------------------------- (Telephone No.) -------------------------------------- (Fax No.) -------------------------------------- (DTC participant account number for delivery of index stock, if any) FOR INTERNAL USE ONLY: Receipt of the above notice of exchange is hereby acknowledged: GOLDMAN, SACHS & CO., as calculation agent By: ---------------------------------------------------- (Title) Date and time of receipt: --------------------------------------------------------- (Date) --------------------------------------------------------- (Time) S-31 32 ------------------------------------------------------ ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IT DESCRIBES, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE. ------------------------- TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ---- Additional Risk Factors Specific to Your Note.................................... S-2 Specific Terms of Your Note............... S-6 Hypothetical Returns on Your Note......... S-20 Use of Proceeds and Hedging............... S-23 EMC Corporation........................... S-24 Supplemental Discussion of Federal Income Tax Consequences........................ S-26 Employee Retirement Income Security Act... S-28 Supplemental Plan of Distribution......... S-29 Notice of Exchange........................ S-30 PROSPECTUS SUPPLEMENT DATED MAY 10, 2000 Use of Proceeds........................... S-2 Description of Notes We May Offer......... S-3 United States Taxation.................... S-20 Employee Retirement Income Security Act... S-20 Supplement Plan of Distribution........... S-20 Validity of the Notes..................... S-22 PROSPECTUS Available Information..................... ii Prospectus Summary........................ 1 Ratio of Earnings to Fixed Charges........ 4 Description of Debt Securities We May Offer................................... 5 Description of Warrants We May Offer...... 27 Description of Purchase Contracts We May Offer................................... 33 Description of Units We May Offer......... 38 Description of Preferred Stock We May Offer................................... 43 Legal Ownership and Book-Entry Issuance... 50 Considerations Relating to Securities Issued in Bearer Form................... 56 Considerations Relating to Indexed Securities.............................. 60 Considerations Relating to Securities Denominated or Payable in or Linked to a Non-U.S. Dollar Currency................ 62 United States Taxation.................... 65 Plan of Distribution...................... 83 Employee Retirement Income Security Act... 86 Validity of the Securities................ 86 Experts................................... 86 Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995................................. 87
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ $18,000,000 THE GOLDMAN SACHS GROUP, INC. EXCHANGEABLE NOTES DUE 2008 (EXCHANGEABLE FOR COMMON STOCK OF EMC CORPORATION) ------------------------- [GOLDMAN SACHS LOGO] ------------------------- GOLDMAN, SACHS & CO. ------------------------------------------------------ ------------------------------------------------------