Filed Pursuant to Rule 424(b)(3)
Registration No. 333-112367
Prospectus Supplement to the Prospectus dated February 6, 2004
and the Prospectus Supplement dated February 6, 2004 -- No. 432
[GOLDMAN SACHS LOGO]
THE GOLDMAN SACHS GROUP, INC.
Medium-Term Notes, Series B
----------------------
$7,750,000
Floating Rate Exchangeable Basket-Linked Notes
due 2009
(Linked to a Basket of Seven Stocks)
----------------------
Each note being offered has the terms described beginning on page S-7, including
the following:
SUMMARY OF TERMS:
ISSUER: The Goldman Sachs Group, Inc.
BASKET: the common stocks of Abbott Laboratories, Allergan, Inc., Johnson &
Johnson, Merck & Co., Inc., Pfizer Inc., Schering-Plough Corporation and Wyeth,
with each stock having a relative weighting on the trade date of 14.285714%, as
described on page S-8
FACE AMOUNT: as specified in the note; $7,750,000 in the aggregate for all the
offered notes
ORIGINAL ISSUE PRICE: 100% of the face amount
TRADE DATE: September 14, 2004
ORIGINAL ISSUE DATE (SETTLEMENT DATE): September 21, 2004
STATED MATURITY DATE: September 21, 2009, unless extended for up to six business
days
INTEREST RATE (COUPON): the offered notes are floating rate notes
BASE RATE: LIBOR, as determined by the calculation agent
INDEX MATURITY: six months
INITIAL BASE RATE: 2.06%
SPREAD: minus 2.00% per annum
MINIMUM RATE: 0%
INTEREST RESET DATES: September 21 and March 21 of each year, commencing on
March 21, 2005, unless adjusted for non-business days
INTEREST DETERMINATION DATES: the second London business day preceding the
related interest reset date
INTEREST PAYMENT DATES: September 21 and March 21 of each year, commencing on
March 21, 2005, unless adjusted for non-business days
REGULAR RECORD DATES: the business day before the related interest payment date
as long as the note is in global form
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, we exercise the call right or an
automatic exchange occurs
EXCHANGE RIGHT: the holder may elect to exchange the outstanding face amount of
the note, in whole or in part at any time, for a cash amount equal to the
exchange value on the exchange notice date times the face amount exchanged
divided by $1,000
EXCHANGE VALUE: a cash amount equal to the product of the exchange rate times
the closing level of the basket on the exchange notice date
EXCHANGE RATE: 8.7527
CALL RIGHT: we may, in our sole discretion, redeem the offered notes in whole,
but not in part, at any time after September 21, 2006, at a redemption price
equal to 100% of the outstanding face amount plus accrued interest to the
redemption date, provided, however, that the holder will be entitled to the
benefit, if any, of an automatic exchange. If we call the offered notes, we will
give notice to the holders not less than 5 nor more than 15 business days before
the call date
REFERENCE BASKET LEVEL (AS DETERMINED ON THE TRADE DATE): 100
CLOSING LEVEL OF BASKET: on any trading day, the sum of the products of each
basket stock's closing price on that day times that basket stock's reference
amount. The initial reference amount of each basket stock, which is subject to
adjustment for anti-dilution, is indicated on page S-9
LISTING: the offered notes will not be listed on any securities exchange or
quotation system
NET PROCEEDS TO THE ISSUER: 99.65% of the face amount
BUSINESS DAY: as described on page S-20
TRADING DAY: as described on page S-20.
CALCULATION AGENT: Goldman, Sachs & Co.
CUSIP NO.: 38143UAK7
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YOUR INVESTMENT IN THE NOTES INVOLVES CERTAIN RISKS. IN PARTICULAR,
ASSUMING NO CHANGES IN MARKET CONDITIONS OR OTHER RELEVANT FACTORS, THE VALUE OF
YOUR NOTE ON THE DATE OF THIS PROSPECTUS SUPPLEMENT (AS DETERMINED BY REFERENCE
TO PRICING MODELS USED BY GOLDMAN, SACHS & CO.) IS SIGNIFICANTLY LESS THAN THE
ORIGINAL ISSUE PRICE. WE ENCOURAGE YOU TO READ "ADDITIONAL RISK FACTORS SPECIFIC
TO YOUR NOTE" ON PAGE S-2 SO THAT YOU MAY BETTER UNDERSTAND THOSE RISKS.
----------------------
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 September 14, 2004.
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 February 6, 2004. Your note is a riskier
investment than ordinary debt securities. Also, your note is not equivalent to
investing directly in the basket stocks, i.e., the stocks comprising the basket
to which your note is linked. You should carefully consider whether the offered
notes are suited to your particular circumstances.
ASSUMING NO CHANGES IN MARKET CONDITIONS OR ANY OTHER RELEVANT FACTORS, THE
VALUE OF YOUR NOTE ON THE DATE OF THIS PROSPECTUS SUPPLEMENT (AS DETERMINED BY
REFERENCE TO PRICING MODELS USED BY GOLDMAN, SACHS & CO.) IS SIGNIFICANTLY LESS
THAN THE ORIGINAL ISSUE PRICE
The value or quoted price of your note at any time, however, will reflect
many factors and cannot be predicted. If Goldman, Sachs & Co. makes a market in
the offered notes, the price quoted by Goldman, Sachs & Co. would reflect any
changes in market conditions and other relevant factors, and the quoted price
could be higher or lower than the original issue price, and may be higher or
lower than the value of your note as determined by reference to pricing models
used by Goldman, Sachs & Co.
If at any time a third party dealer quotes a price to purchase your note
or otherwise values your note, that price may be significantly different (higher
or lower) than any price quoted by Goldman, Sachs & Co. You should read "-- The
Market Value of Your Note May Be Influenced by Many Unpredictable Factors"
below.
Furthermore, if you sell your note, you will likely be charged a
commission for secondary market transactions, or the price will likely reflect a
dealer discount.
There is no assurance that Goldman, Sachs & Co. or any other party will be
willing to purchase your note; and, in this regard, Goldman, Sachs & Co. is not
obligated to make a market in the notes. See "-- Your Note May Not Have an
Active Trading Market" below.
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 basket level, which depends on the market value of the basket stocks;
- - the correlation of price movements on the basket stocks;
- - the volatility -- i.e., the frequency and magnitude of changes in the level of
the basket;
-- As indicated under "Basket Stocks -- Historical Trading Price Information",
the market prices of the basket stocks have fluctuated during recent
periods. It is impossible to predict whether the basket level will rise or
fall over any given period of time;
-- In addition, we cannot predict that future changes to the market prices of
the basket stocks will be correlated as in the past;
- - the dividend rates on the basket stocks;
- - economic, financial, regulatory, political, military and other events that
affect stock markets generally and the respective market segments of which the
basket stocks are a part, and which may affect the level of the basket;
- - 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.
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If you sell your note prior to maturity, you may receive less than the
outstanding face amount of your note. For more information about the value of
your note in the secondary market, see "-- Assuming No Changes in Market
Conditions Or Any Other Relevant Factors, the Value of Your Note on the Date of
this Prospectus Supplement (As Determined By Reference to Pricing Models Used by
Goldman, Sachs & Co.) Is Significantly Less Than the Original Issue Price"
above. You cannot predict the future performance of the basket or any basket
stock based on its historical performance.
THE RETURN ON YOUR NOTE WILL NOT REFLECT
ANY DIVIDENDS PAID ON THE BASKET STOCKS
The calculation agent will calculate the level of the basket by reference
to the prices of the basket stocks without taking account of the value of
dividends paid on those stocks. As a result, the return on your note will not
reflect the return you would realize if you actually owned the basket stocks and
received the dividends paid on those stocks. You will not receive any dividends
that may be paid on any of the basket stocks by the basket stock issuers. See
"-- You Have No Shareholder Rights or Rights to Receive any Stock" below for
additional information.
YOUR NOTE BEARS A LOW RATE OF
PERIODIC INTEREST
The interest rate that your note bears is below the prevailing market rate
for our debt securities that are not indexed to stock. Even if the amount
payable on your note on the stated maturity date exceeds the face amount of your
note, the overall return you earn on your note may be less than you would have
earned by investing in a non-indexed debt security that bears interest at the
prevailing market rate. Moreover, under applicable United States tax law as
described under "Supplemental Discussion of Federal Income Tax Consequences"
below, you will have to pay tax on deemed interest amounts even though your note
bears a low rate of periodic interest.
THE LOWER PERFORMANCE OF ONE OR MORE OF
THE BASKET STOCKS MAY OFFSET AN INCREASE IN THE OTHER BASKET STOCKS
The basket is composed of seven different basket stocks. Declines in the
market price of one or more basket stocks may offset increases in market prices
of the other basket stocks. As a result, the return on the basket -- and thus on
your note, excluding interest -- may be zero, even though some of the basket
stocks may have positive returns.
IF THE LEVEL OF THE BASKET CHANGES,
THE MARKET VALUE OF YOUR NOTE MAY
NOT CHANGE IN THE SAME MANNER
Your note may trade quite differently from the basket. Changes in the
level of the basket may not result in a comparable change in the market value of
your note. We discuss some of the reasons for this disparity under "-- The
Market Price of Your Note May Be Influenced by Many Unpredictable Factors"
above.
YOU HAVE NO SHAREHOLDER RIGHTS
OR RIGHTS TO RECEIVE ANY STOCK
Investing in your note will not make you a holder of any of the basket
stocks. Neither you nor any other holder or owner of your note will have any
voting rights, any right to receive dividends or other distributions or any
other rights with respect to the basket stocks. Your note will be paid in cash,
and you will have no right to receive delivery of any basket stocks.
WE CAN REDEEM YOUR NOTE AT OUR OPTION
After September 21, 2006, we will be permitted to redeem your note at our
option. 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.
TRADING AND OTHER TRANSACTIONS BY
GOLDMAN SACHS IN THE BASKET STOCKS
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
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affiliates have hedged our obligations under the offered notes by purchasing the
basket stocks. We also expect to adjust the hedge by, among other things,
purchasing or selling any of the basket stocks, and perhaps listed or
over-the-counter options or futures on one or more of the basket stocks or other
instruments linked to one or more of the basket stocks at any time and from time
to time, and to unwind the hedge by selling any of the foregoing, on or before
the determination date for your note. We may also enter into, adjust and unwind
hedging transactions relating to other notes whose returns are linked to one or
more of the basket stocks. Any of these hedging activities may adversely affect
the basket level -- directly or indirectly by affecting the price of the basket
stocks -- and, therefore, the market value of your note and the amount we will
pay if your note is exchanged. 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" below for
a further discussion of transactions in which we or one or more of our
affiliates may engage.
Goldman, Sachs & Co. and our other affiliates may also engage in trading
in one or more of the basket stocks or instruments whose returns are linked to
one or more of the basket stocks for their proprietary accounts, for other
accounts under their management or to facilitate transactions, including block
transactions, on behalf of customers. Any of these activities of Goldman, Sachs
& Co. or our other affiliates could adversely affect the basket level --
directly or indirectly by affecting the price of the basket stocks -- and,
therefore, the market value of your note and the amount we will pay if your note
is exchanged. We may also issue, and 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
one or more of the basket stocks. By introducing competing products into the
marketplace in this manner, we or our affiliates could adversely affect the
market value of your note and the amount we will pay if your note is exchanged.
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, in trading activities related to the basket
stocks 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 level of the basket, could be adverse to your interests as a
beneficial owner of your note.
Goldman, Sachs & Co. and our other affiliates may, at present or in the
future, engage in business with the issuers of the basket stocks, including
making loans to or equity investments in those companies or providing advisory
services to those companies. These services could include merger and acquisition
advisory services. These activities may present a conflict between the
obligations of Goldman, Sachs & Co. or another affiliate of Goldman Sachs and
your interests as a beneficial owner of a note. Moreover, one or more of our
affiliates have published and in the future expect to publish research reports
with respect to some or all of the issuers of the basket stocks. Any of these
activities by any of our affiliates may affect the level of the basket 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 IF YOUR
NOTE IS EXCHANGED
As calculation agent for your note, Goldman, Sachs & Co. will have
discretion in making various determinations that affect your
S-4
note, including determining the closing level of the basket, which we will use
to determine how much cash we must pay if your note is exchanged; 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; and
determining whether and how to make anti-dilution adjustments to the reference
amounts. See "Specific Terms of Your Note" 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 under "-- Our Business Activities May Create Conflicts of Interest
Between You and Us" above. We may change the calculation agent at any time
without notice, and Goldman, Sachs & Co. may resign as calculation agent at any
time upon 60 days' written notice to Goldman Sachs.
THERE IS NO AFFILIATION BETWEEN THE
BASKET STOCK ISSUERS AND US, AND WE ARE
NOT RESPONSIBLE FOR ANY DISCLOSURE BY
ANY OF THE BASKET STOCK ISSUERS
Goldman Sachs is not affiliated with the issuers of the basket stocks. 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 basket stock issuers.
Nevertheless, neither we nor any of our affiliates assumes any responsibility
for the accuracy or the completeness of any information about the basket stock
issuers. You, as an investor in your note, should make your own investigation
into the basket stock issuers. See "The Basket Stocks" below for additional
information about the basket stocks.
The basket stock issuers are not involved in this offering of your note in
any way and none of them have any obligation of any sort with respect to your
note. Thus, the basket stock issuers have no obligation to take your interests
into consideration for any reason, including when 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 or displayed on any securities exchange or
included in any interdealer market 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 ANTI-DILUTION PROTECTION
Goldman, Sachs & Co., as calculation agent for your note, will adjust the
applicable reference amount of each basket stock -- i.e., the amount of the
basket stock included in the basket -- for stock splits, reverse stock splits,
stock dividends, extraordinary dividends and other events that affect a basket
stock issuer's capital structure, but only in the situations we describe in
"Specific Terms of Your Note -- Anti-dilution Adjustments". The reference
amounts are described under "Specific Terms of Your Note -- The Basket" below.
The calculation agent is not required to make an adjustment for every corporate
event that may affect the basket stocks. For example, the calculation agent will
not adjust a reference amount for events such as an offering of a basket stock
for cash by the basket stock issuer, a tender or exchange offer for a basket
stock at a premium to its then-current market price by the basket stock issuer
or a tender or exchange offer for less than all of an outstanding basket stock
by a third party. Those events or other actions by a basket stock issuer or a
third party may nevertheless adversely affect the market price of a basket stock
and, therefore, adversely affect the value of your note. A basket stock issuer
or a third party could make an offering or a tender or exchange offer, or a
basket stock issuer could take any other action, that adversely affects the
value of that basket stock and your note but does not result in an anti-
dilution adjustment for your benefit.
S-5
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 trading 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 cash payment that we are obligated to deliver on the
stated maturity date until several days after the originally scheduled due date.
In addition, if the calculation agent determines that a market disruption
event has occurred or is continuing on any day on which the holder seeks to
exercise the exchange right, the exercise will be postponed to the first trading
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, then the amount of cash we pay will be
based on the closing level of the basket on the day the exchange right is deemed
to be exercised. If that level is not available because of a market disruption
event or for any other reason and the exercise is postponed to the last possible
day, the calculation agent will nevertheless determine that level based on its
assessment, made in its sole discretion, of the level of the basket on that
date. 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.
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SPECIFIC TERMS OF YOUR NOTE
Please note that in this section entitled "Specific Terms of Your Note",
references to "The Goldman Sachs Group, Inc.", "we", "our" and "us" mean only
The Goldman Sachs Group, Inc. and do not include its consolidated subsidiaries,
while references to "Goldman Sachs" mean The Goldman Sachs Group, Inc. together
with its consolidated subsidiaries. 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 those 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
owners of beneficial interests in the accompanying prospectus, under "Legal
Ownership and Book-Entry Issuance". Also, references to the "accompanying
prospectus" mean the accompanying Prospectus dated February 6, 2004, as
supplemented by the accompanying Prospectus Supplement dated February 6, 2004,
of The Goldman Sachs Group, Inc.
We refer to the notes we are offering by this prospectus supplement as the
"offered notes" or the "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 as described in the accompanying prospectus. The
offered notes are also "indexed debt securities", as defined in the accompanying
prospectus.
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 supplement and "Description of Debt
Securities 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 terms described on the front cover page of this
prospectus supplement, the following terms will apply to your note:
SPECIFIED CURRENCY:
- - U.S. dollars
FORM OF NOTE:
- - global form only: yes, at DTC
- - non-global form available: no
DENOMINATIONS: each 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 under "-- Special Calculation Provisions" below;
- - anti-dilution provisions will apply to your note as described under
"-- Anti-dilution Adjustments" below; and
- - 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 under "-- Special Calculation
Provisions" below.
In this prospectus supplement, when we refer to the basket stocks, we mean
the common stocks of Abbott Laboratories, Allergan, Inc., Johnson & Johnson,
Merck & Co., Inc., Pfizer Inc., Schering-Plough Corporation and Wyeth, and when
we refer to the basket stock issuers, we mean those companies, except as noted
below under "-- Anti-dilution Adjustments -- Reorganization
Events -- Distribution Property".
Please note that the information about the settlement or trade date, issue
price,
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discounts or commissions and net proceeds to The Goldman Sachs Group, Inc. on
the front cover page or elsewhere in this prospectus supplement relates only to
the initial issuance and sale of the notes. If you have purchased your note in a
market-making transaction after the initial issuance and sale of the notes, any
such relevant information about the sale to you will be provided in a separate
confirmation of sale.
We describe the terms of your note in more detail below.
INTEREST RATE (COUPON)
Interest will accrue on the outstanding face amount of your note and will
be calculated and paid as described in the accompanying prospectus supplement
dated February 6, 2004 under "Description of Notes We May Offer -- Interest
Rates -- Floating Rate Notes."
BASE RATE
The base rate for your note will be LIBOR, as determined by the
calculation agent as described in the accompanying prospectus supplement dated
February 6, 2004 under "Interest Rates -- Floating Rate Notes -- LIBOR Notes",
which will be the arithmetic mean of the offered rates appearing on the
Moneyline Telerate LIBOR page unless that page by its terms cites only one rate,
in which case that rate, as of 11:00 A.M., London time, on the relevant interest
determination date.
INTEREST RESET DATES
The rate of interest on your note will be reset semi-annually on September
21 and March 21 of each year, commencing on March 21, 2005, unless adjusted for
non-business days as described in the accompanying prospectus supplement dated
February 6, 2004 under "Description of the Notes We May Offer -- Interest
Rates -- Floating Rate Notes -- Interest Reset Dates." If the stated maturity
date does not occur on September 21, 2009, however, the interest reset date
scheduled for September 21, 2009 will instead occur on the stated maturity date.
INTEREST DETERMINATION DATES
The second London business day preceding each interest reset date will be
the interest determination date, as described in the accompanying prospectus
supplement dated February 6, 2004 under "Description of Notes We May
Offer -- Interest Rates -- Floating Rate Notes -- Interest Determinations
Dates."
INTEREST PERIODS
The initial interest period will be the period from and including
September 21, 2004 to, but excluding, the initial interest reset date and the
subsequent interest periods will be the periods from and including an interest
reset date to, but excluding the next interest reset date.
INTEREST PAYMENT DATES
Interest payment dates will be September 21 and March 21 of each year,
commencing on March 21, 2005, unless adjusted for non-business days as described
in the accompanying prospectus supplement dated February 6, 2004 under
"Description of Notes We May Offer -- Interest Rates -- Floating Rate
Notes -- Interest Payment Dates." If the stated maturity date does not occur on
September 21, 2009, however, the interest payment date scheduled for September
21, 2009 will instead occur on the stated maturity date.
THE BASKET
The basket is a unit of measure comprised of the common stocks of the
seven issuers listed in the following table, with the seven stocks having equal
weightings based on the initial basket stock values per share indicated in the
third column below.
The reference amount for each basket stock is the number of shares of that
basket stock included in the basket so that the value of the basket stock
equaled 14.285714% of the total value of the basket on the trade date, based on
the initial basket stock values shown in the table below. The reference amount
for each basket stock is subject to
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adjustment, both as to the amount and type of property comprising the reference
amount, as described under "-- Anti-dilution Adjustments" below.
The closing level of the basket on any trading day will equal the sum of
the products of each basket stock's closing price on that day times that basket
stock's reference amount. The closing level of the basket on the trade date was
100.0319.
As described under "-- Holder's Exchange Right" below, the amount of cash
that will be payable in exchange for each $1,000 of outstanding face amount of
an offered note on an exchange date will be calculated by multiplying the
closing level of the basket on the exchange notice date by the exchange rate, or
8.7527. Thus, the portion of this cash amount attributable to each basket stock
will equal the value, based on the closing price on the relevant date, of a
number of shares of the basket stock equal to the corresponding reference amount
on that date times the exchange rate. These numbers of shares, based on the
initial reference amounts, are shown in the last column of the table below.
<Table>
<Caption>
Closing Initial Number of
Initial Initial Basket Stock Price on Initial Shares Used for Cash
Weighting Stock Value September 14, Reference Payment per $1,000
Basket Stock Amount per Share 2004 Amount Face Amount of Note
------------ --------- -------------- -------------- --------- --------------------
Abbott Laboratories 14.285714 $42.7611 42.94 0.3341 2.924277
Allergan, Inc. 14.285714 $74.5001 75.06 0.1918 1.678768
Johnson & Johnson 14.285714 $58.3883 58.35 0.2447 2.141786
Merck & Co., Inc. 14.285714 $45.7329 45.55 0.3124 2.734343
Pfizer Inc. 14.285714 $32.4791 32.12 0.4398 3.849437
Schering-Plough
Corporation 14.285714 $19.2834 19.47 0.7408 6.484000
Wyeth 14.285714 $38.8633 38.73 0.3676 3.217493
</Table>
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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 September 21, 2009, unless that date is
not a business day, in which case the stated maturity date will be the next
following business day. If the fifth trading day before this applicable day is
not the determination date described below, however, then the stated maturity
date will be the fifth business day following the determination date, provided
that the stated maturity date will never be later than the fifth business day
after September 21, 2009 or, if September 21, 2009 is not a business day, later
than the sixth business day after September 21, 2009. The calculation agent may
postpone the determination date -- and therefore the stated maturity date -- if
a market disruption event occurs or is continuing on any day that would
otherwise be the determination date. We describe market disruption events under
"-- Special Calculation Provisions" below.
DETERMINATION DATE
The determination date will be the fifth trading day before September 21,
2009, unless the calculation agent determines that a
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market disruption event occurs or is continuing on that fifth prior trading day.
In that event, the determination date will be the first following trading 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 September 21, 2009 or, if September 21, 2009 is not a business
day, later than the first business day after September 21, 2009.
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 a cash amount equal to the exchange value on the exchange
notice date times the face amount exchanged divided by $1,000. The cash payment
will be made on the exchange date and in the manner we describe under "-- Manner
of Payment" below. We describe the exchange notice date, the exchange date and
the closing level under "-- Exercise Requirements" and "-- Special Calculation
Provisions" 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.
If you decide to exchange your note, you may lose the right to receive
interest on your note for the interest period in which the exchange occurs, as
described under "-- Interest Payments" below.
EXCHANGE VALUE
The exchange value will be a cash amount equal to the product of the
exchange rate of 8.7527 times the closing level of the basket on the exchange
notice date. The calculation agent will determine the closing level of the
basket on the exchange notice date described below.
EXERCISE REQUIREMENTS
To exercise the exchange right, the following requirements must be
satisfied on any day that qualifies as both a trading day and 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 trading day, this requirement will be deemed satisfied
as of 11:00 A.M. on the same trading day. To ensure 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, and if the exchange date occurs after a
regular record date and before the related interest payment date, the trustee
must receive cash in an amount equal to the interest payable on the exchanged
portion of your note on the interest payment date, as provided in the fourth
rule described under "-- Interest Payments" below.
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If your note is not in global form, deliveries of certificates and cash 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
day that qualifies as both a trading day and a business day, that day will be
the exchange notice date for the exchange. If the required deliveries occur
after that time, the next day that qualifies as both a trading day and a
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 pay the cash
due on the exchange on the fifth business day after the exchange notice date. 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 and trading 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 following trading 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 the closing level of the basket
that must be used to determine
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the exchange 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 level based on its assessment, made in its
sole discretion, of the value of the basket stocks on that day.
OUR CALL RIGHT
We may, in our sole discretion, redeem the offered notes in whole but not
in part, at any time after September 21, 2006, at our option, for cash at 100%
of the outstanding face amount plus any accrued and unpaid interest to the call
date.
We may, in our sole discretion, redeem the offered notes as early as the
first day after September 21, 2006. This will be the case even if the interest
payment date scheduled for September 21, 2006 would otherwise be deferred to a
later date due to adjustment for non-business days. In that event, the interest
payable on redemption will nevertheless accrue only to the call date.
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
trading 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" 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, together
with any accrued and unpaid interest to the call date, in the manner described
under "-- Manner of Payment" 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 in accordance with the
exercise requirements described under "-- Holder's Exchange Right -- Exercise
Requirements" above, for the entire outstanding face amount of your note by
11:00 A.M., New York City time, on the business day and trading 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
automatic exchange value for the outstanding face amount of the note as if your
note was voluntarily exchanged and the determination date was the exchange
notice date. To determine this automatic exchange value, the calculation agent
will multiply the closing level of the basket on the determination date by the
exchange rate and by the outstanding face amount and will divide the resulting
product by $1,000, except in the limited circumstances described under
"-- Consequences of a Market Disruption Event" below.
If the automatic exchange value described above exceeds the sum of:
- - the face amount of your note then outstanding, plus
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- - the amount of the regular interest installment that would become due on the
outstanding face amount of your note on the stated maturity date if your note
were not exchanged or redeemed,
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, we will pay
to the holder the automatic exchange value, based on the closing level of the
basket described above. The holder will not be entitled to receive the regular
interest installment that would become due on your note on the stated maturity
date in the absence of an automatic exchange. We discuss this matter under
"-- Interest Payments" below.
If the automatic exchange value described above does not exceed the sum of
the outstanding face amount and the regular interest installment described
above, then we will pay the principal amount, together with accrued interest, 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 automatic exchange value of your note as if
your note was to be voluntarily exchanged and the call notice date was the
exchange notice date. To determine this automatic exchange value, the
calculation agent will multiply the closing level of the basket on the call
notice date by the exchange rate and by the outstanding face amount and will
divide the resulting product by $1,000, except in the limited circumstances
described under "-- Consequences of a Market Disruption Event" below.
If the automatic exchange value described above exceeds the sum of:
- - the redemption price that would be payable to the holder on the call date,
plus
- - the amount of interest that would accrue on the outstanding face amount of
your note from and after the last interest payment date before the call date
to 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, we will pay to the
holder the automatic exchange value based on the closing level of the basket
described above. The holder will not be entitled to receive any interest that
accrues on your note from and after the last interest payment date to the call
date. We discuss this matter under "-- Interest Payments" below.
If the automatic exchange value referred to above does not exceed the sum
of the redemption price and accrued interest described above, 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 level of
the basket 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 level of the basket on the first trading day after that day on which
no market disruption event occurs or is continuing. That first trading 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 trading 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.
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- - If a market disruption event occurs or is continuing on a day that would
otherwise be a pricing date and on each subsequent trading day through and
including the latest possible pricing date, the calculation agent will
nevertheless determine the closing price of the basket stocks, and the closing
level of the basket and the deferred pricing date will occur, on the latest
possible pricing date. If the closing level of the basket 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 level of the basket
based on its assessment, made in its sole discretion, of the value of the
basket stocks on the latest possible pricing date. The calculation agent will
use the closing level of the basket on the latest possible pricing date,
however determined, instead of the closing level of the basket 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 level of the
basket 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.
CONSEQUENCES OF A VOLUNTARY EXCHANGE
If the holder exercises the exchange right, the following four rules will
apply to the exchanged portion of your note:
- - IF THE EXCHANGE DATE OCCURS ON AN INTEREST PAYMENT DATE, interest will accrue
on the exchanged portion to, but excluding, that interest payment date. We
will pay the accrued interest on that interest payment date to whoever is the
holder on the related regular record date.
- - IF THE EXCHANGE DATE OCCURS AFTER AN INTEREST PAYMENT DATE BUT ON OR BEFORE
THE NEXT REGULAR RECORD DATE, interest will accrue and be paid on the
exchanged portion only to, and excluding, that prior interest payment date and
not for the later period that precedes the exchange date.
- - IF THE EXCHANGE DATE OCCURS ON OR BEFORE THE FIRST REGULAR RECORD DATE,
interest will not accrue or be paid on the exchanged portion of your note.
- - IF THE EXCHANGE DATE OCCURS AFTER A REGULAR RECORD DATE BUT BEFORE THE RELATED
INTEREST PAYMENT DATE, interest will accrue on the exchanged portion to, but
excluding, that interest payment date. We will pay this accrued interest on
that interest payment date, to whoever is the holder on the related regular
record date. On the exchange notice date, however, the holder exercising the
exchange right will be required to pay us the amount of interest that will
become payable on the exchanged portion of your note on that interest payment
date.
As long as your note is in global form, the regular record date will be
the business day before the related interest payment date, so that no exchange
date can occur between those two dates. Consequently, the fourth rule above will
have no practical effect on your note unless and until your note ceases to be in
global form. We describe the situations in which we may terminate a global note
in the accompanying prospectus under "Legal Ownership and Book-Entry
Issuance -- What Is a Global Security?".
Because of the rules described above, if you decide to exchange your note,
you may lose the right to receive interest on your note for the interest period
in which the exchange occurs.
CONSEQUENCES OF AN AUTOMATIC EXCHANGE
The four rules described in the prior subsection do not apply if an
automatic exchange occurs. IF AN AUTOMATIC EXCHANGE
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OCCURS, EITHER ON THE STATED MATURITY DATE OR EARLIER BECAUSE WE EXERCISE OUR
CALL RIGHT, WE WILL NOT PAY ANY INTEREST THAT ACCRUES ON THE EXCHANGED PORTION
OF YOUR NOTE FROM AND AFTER THE LAST INTEREST PAYMENT DATE PRIOR TO THE
AUTOMATIC EXCHANGE -- I.E., FROM AND AFTER THE LAST INTEREST PAYMENT DATE PRIOR
TO THE STATED MATURITY DATE OR THE CALL DATE, AS THE CASE MAY BE. As described
above under "-- Our Call Right", we will not be entitled to redeem your note
until after September 21, 2006.
ANTI-DILUTION ADJUSTMENTS
Initially, the reference amount for each basket stock will be the amount
specified under "-- The Basket" above. However, the calculation agent will
adjust the reference amount for each basket stock if any of the six dilution
events described below occurs with respect to that basket stock.
For example, if an adjustment is required because of a two-for-one stock
split or a one-for-two reverse stock split, then the reference amount for that
basket stock might be adjusted to be double or one-half of the initial amount
specified above, as the case may be.
Similarly, if an adjustment is required with respect to a basket stock
because of a reorganization event in which property other than the basket
stock -- e.g., cash and securities of another issuer -- is distributed in
respect of the basket stock, then the calculation agent will adjust both the
type and amount of property constituting the relevant reference amount. In this
example, the new reference amount will consist of both the amount of cash and
the amount of securities distributed in the reorganization event in respect of
the old reference amount.
The calculation agent will adjust the reference amount for each basket
stock as described below, but only if an event described under one of the six
subsections beginning with "-- Stock Splits" below occurs with respect to that
basket stock and only if the relevant event occurs during the period described
under the applicable subsection. The reference amount for each basket stock will
be subject to the adjustments described below, independently and separately,
with respect to the dilution events that affect the stock.
The adjustments described below do not cover all events that could affect
a basket stock, such as an issuer tender or exchange offer for a basket stock at
a premium to its market price or a tender or exchange offer made by a third
party for less than all outstanding shares of a basket stock issuer. We describe
the risks relating to dilution under "Additional Risk Factors Specific to Your
Note -- You Have Limited Anti-dilution Protection" above.
HOW ADJUSTMENTS WILL BE MADE
If more than one event requiring adjustment occurs with respect to a
reference amount for a basket stock, the calculation agent will adjust that
reference amount for each event, sequentially, in the order in which the events
occur, and on a cumulative basis. Thus, having adjusted the reference amount for
the first event, the calculation agent will adjust the reference amount for the
second event, applying the required adjustment to the reference amount as
already adjusted for the first event, and so on for each event.
The calculation agent will adjust a reference amount for each
reorganization event described under "-- Reorganization Events" below. For any
other dilution event described below, however, the calculation agent will not be
required to adjust a reference amount unless the adjustment would result in a
change of at least 0.1% in the reference amount that would apply without the
adjustment. The applicable reference amount 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 anti-dilution 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
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note, that results solely from that event. The calculation agent may, in its
sole discretion, modify the anti-dilution adjustments as necessary to ensure an
equitable result.
The calculation agent will make all determinations with respect to
anti-dilution 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 a basket stock is subject to a stock split, then the calculation agent
will adjust the applicable reference amount to equal the sum of the prior
reference amount -- i.e., the reference amount 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 basket stock times (2) the prior reference amount.
The reference amount will not be adjusted, however, unless the first day on
which the basket 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 a basket stock is subject to a reverse stock split, then the
calculation agent will adjust the applicable reference amount to equal the
product of the prior reference amount and the quotient of (1) the number of
outstanding shares of the basket stock outstanding immediately after the reverse
stock split becomes effective divided by (2) the number of shares of the basket
stock outstanding immediately before the reverse stock split becomes effective.
The reference amount 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 a basket stock is subject to a stock dividend, then the calculation
agent will adjust the applicable reference amount to equal the sum of the prior
reference amount plus the product of (1) the number of shares issued in the
stock dividend with respect to one share of the basket stock times (2) the prior
reference amount. The reference amount 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 with respect
to a basket stock is the first day on which the basket stock trades without the
right to receive that dividend or other distribution.
OTHER DIVIDENDS AND DISTRIBUTIONS
A reference amount will not be adjusted to reflect dividends or other
distributions paid with respect to a basket stock, other than:
- - stock dividends described above,
- - issuances of transferable rights and warrants as described under
"-- Transferable Rights and Warrants" below,
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- - distributions that are spin-off events described in "-- Reorganization Events"
below, and
- - extraordinary dividends described below.
A dividend or other distribution with respect to a basket 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 basket
stock by an amount equal to at least 10% of the closing price of the basket
stock on the first relevant trading day before the ex-dividend date.
If an extraordinary dividend occurs with respect to a basket stock, the
calculation agent will adjust the applicable reference amount to equal the
product of (1) the prior reference amount times (2) a fraction, the numerator of
which is the closing price of the basket stock on the relevant trading 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 reference
amount 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 a basket 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 basket
stock minus the amount per share of the immediately preceding dividend, if
any, that was not an extraordinary dividend for the basket 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 a basket 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 applicable reference amount only as
described under "-- 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 a basket stock issuer issues transferable rights or warrants to all
holders of that basket stock to subscribe for or purchase the basket stock at an
exercise price per share that is less than the closing price of the basket stock
on the relevant trading day before the ex-dividend date for the issuance, then
the applicable reference amount will be adjusted by multiplying the prior
reference amount by the following fraction:
- - the numerator will be the number of shares of the basket stock outstanding at
the close of business on the day before that ex-dividend date plus the number
of additional shares of the basket stock offered for subscription or purchase
under those transferable rights or warrants and
- - the denominator will be the number of shares of the basket stock outstanding
at the close of business on the day before that ex-dividend date plus the
number of additional shares of the basket stock that the aggregate offering
price of the total number of shares of the basket stock so offered for
subscription or purchase would purchase at the closing price of the basket
stock on the relevant trading 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
relevant trading day before that ex-dividend date.
A reference amount 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.
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REORGANIZATION EVENTS
Each of the following is a reorganization event with respect to a basket
stock:
- - the basket stock is reclassified or changed,
- - the basket 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 basket stock is exchanged for or converted into other
property,
- - a statutory share exchange involving the outstanding basket stock and the
securities of another entity occurs, other than as part of an event described
in the two bullet points above,
- - the basket stock issuer sells or otherwise transfers its property and assets
as an entirety or substantially as an entirety to another entity,
- - the basket stock issuer effects a spin-off -- that is, issues to all holders
of the basket stock equity securities of another issuer, other than as part of
an event described in the four bullet points above,
- - the basket 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
basket stock of the basket stock issuer.
ADJUSTMENTS FOR REORGANIZATION EVENTS. If a reorganization event occurs
with respect to a basket stock, then the calculation agent will adjust the
applicable reference amount so as to consist of the amount and type of
property -- whether it be cash, securities or other property -- distributed in
the reorganization event in respect of that reference amount as in effect before
that reorganization event. 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. 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.
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 applicable basket 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 a
reference amount to consist of the distribution property distributed in the
event, as described above, the calculation agent will make further anti-
dilution 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 applicable basket 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
S-18
with respect to that component, as if it alone were the reference amount.
For example, if a basket stock issuer merges into another company and each
share of the basket stock is converted into the right to receive two common
shares of the surviving company and a specified amount of cash, the applicable
reference amount will be adjusted to consist of two common shares and the
specified amount of cash for each share of the relevant basket stock (adjusted
proportionately for any partial share) comprising that reference amount before
the adjustment. The calculation agent will adjust the common share component of
the new reference amount to reflect any later stock split or other event,
including any later reorganization event, that affects the common shares of the
surviving company, to the extent described in this subsection entitled
"-- Anti-dilution Adjustments" as if the common shares were the basket stock. In
that event, the cash component will not be adjusted but will continue to be a
component of the reference amount.
DISTRIBUTION PROPERTY. When we refer to distribution property, we mean the
cash, securities and other property distributed in a reorganization event in
respect of the initial reference amount for the relevant basket stock as
specified in the table under "-- The Basket" above -- or in respect of whatever
the applicable reference amount for that stock may then be if any anti-dilution
adjustment has been made in respect of a prior event. In the case of a spin-off,
the distribution property also includes the applicable reference amount of the
basket stock 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 applicable basket stock as described
above. Consequently, in this prospectus supplement, when we refer to a basket
stock, we mean any distribution property that is distributed in a reorganization
event and comprises the adjusted reference amount. Similarly, when we refer to a
basket 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, instead of the amount payable on the stated maturity date
as described earlier. We describe the default amount under "-- Special
Calculation Provisions" below.
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 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 Debt Indentures and
Waiver of Covenants".
MANNER OF PAYMENT
Any payment 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 in accordance with the applicable procedures of the depositary.
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
S-19
business day may instead be paid on the next day that is a business day, with
the same effect as if paid on the original due date. For your note, however, the
term business day has a different meaning than it does for other Series B
medium-term notes. We discuss this term under "-- Special Calculation
Provisions" below.
ROLE OF CALCULATION AGENT
The calculation agent, in its sole discretion, will make all
determinations regarding the closing level of the basket and the closing prices
of the basket stocks, anti-dilution adjustments, market disruption events,
automatic exchanges, the interest rate, business days, trading days, the default
amount and the amount payable in respect of 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 Goldman, Sachs & Co., our affiliate, is currently serving
as the calculation agent as of the original issue date of your note. We may
change the calculation agent for your note at any time after the original issue
date without notice, and Goldman, Sachs & Co. may resign as calculation agent at
any time upon 60 days' written notice to Goldman Sachs.
SPECIAL CALCULATION PROVISIONS
BUSINESS DAY
When we refer to a business day with respect to your note, we mean a day
that is not a Saturday, a Sunday or a day on which banking institutions in The
City of New York generally are authorized or obligated by law regulation or
executive order to close. Contrary to what is said in the accompanying
prospectus, a business day for purposes of your note need not be a business day
in London.
We will use this modified definition of business day in determining each
interest payment date and interest reset date, as well as the stated maturity
date and any call date or exchange date, for your note, all as described in this
prospectus supplement. However, we will not use this modified definition with
regard to interest determination dates. Each interest determination date will be
the second London business day before the applicable interest reset date. For
this purpose, "London business day" means any day on which dealings in the index
currency are transacted in the London interbank market.
TRADING DAY
When we refer to a trading day with respect to your note, we mean a day on
which the New York Stock Exchange (or, if different, all of the respective
principal securities markets for the basket stocks) is open for trading.
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 on 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.
DEFAULT AMOUNT
The default amount for your note on any day will be an amount, in the
specified
S-20
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 of 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 day the default amount first becomes due.
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 is 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 any of the basket
stocks on its primary market, in each case for more than two hours of trading
or during the one-half hour before the close of trading in that market, as
determined by the calculation agent in its sole discretion, or
- - a suspension, absence or material limitation of trading in option or futures
contracts relating to any of the basket stocks, if available, in the primary
market for those
S-21
contracts, in each case for more than two hours of trading or during the
one-half hour before the close of trading in that market, as determined by the
calculation agent in its sole discretion, or
- - any of the basket stocks do not trade on what was the primary market for that
basket stock, as determined by the calculation agent in its sole discretion,
and, in the case of any of these events, the calculation agent determines in its
sole discretion that the event could materially interfere with the ability of
The Goldman Sachs Group, Inc. or any of its affiliates or a similarly situated
party to unwind all or a material portion of a hedge that could be effected with
respect to the offered notes. For more information about hedging by The Goldman
Sachs Group, Inc. and/or any of its affiliates, see "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 or futures
contracts relating to any basket stock.
For this purpose, an "absence of trading" in the primary securities market
on which a basket stock is traded, or on which option or futures contracts
relating to a basket 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 a basket stock or in option or futures
contracts relating to a basket stock, if available, in the primary market for
that stock or those contracts, by reason of:
- - a price change exceeding limits set by that market, or
- - an imbalance of orders relating to that stock or those contracts, or
- - a disparity in bid and ask quotes relating to that stock or those contracts,
will constitute a suspension or material limitation of trading in that stock or
those contracts in that market.
In this subsection about market disruption events, references to any
basket stock include securities that are part of any adjusted reference amount
for that basket stock, as determined by the calculation agent in its sole
discretion.
S-22
HYPOTHETICAL RETURNS ON YOUR NOTE
In the table below, we compare the total pretax return on owning the
basket stocks (having the same relative weightings as they do in the basket) to
the total pretax return on owning your note, in each case during the period from
the trade date to the stated maturity date. The information in the table is
based on hypothetical market values for the basket stocks and your note at the
end of this 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.
KEY TERMS AND ASSUMPTIONS
<Table>
Original issue price, expressed
as a percentage of the face
amount 100%
Exchange rate 8.7527
Reference basket level (as
determined on the trade date) 100
Premium (as a percentage of the
reference basket level) 14.25%
Annual basket stock dividend
yield, expressed as a
percentage of the reference
amounts of the basket stocks
(assumed) 1.97%
No dilution event or other
change in or affecting any of
the basket stocks (assumed)
Automatic exchange in full on
the stated maturity
date -- i.e., no prior
redemption or voluntary
exchange (assumed)
No market disruption event
occurs (assumed)
</Table>
We calculate the total return on your note based on an exchange rate of
8.7527 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
basket level times an amount equal to one plus a premium of 14.25%. Because the
exchange rate has been determined in this manner, the closing level of the
basket must increase by the determination date to an amount equal to the
reference basket level times an amount equal to one plus the premium in order
for the cash value 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 basket level will increase to
that extent by the determination date.
The seven basket stocks are traded on the New York Stock Exchange. For
information about the market price of the basket stocks in recent periods, see
"Basket Stocks -- Historical Trading Price Information" below.
As stated above, the following table assumes that dividends will be paid
on the basket stocks. We do not know, however, whether or to what extent the
issuers of the basket stocks will pay dividends in the future. These are matters
that will be determined by the issuers of the basket stocks and not by us.
Consequently, the amount of dividends actually paid on the basket stocks by
their issuers, and, therefore, the rate of return on the basket stocks 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 viewed as an indication or prediction of future investment
results. Rather, it 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 basket and your note, assuming all other variables
remained constant.
S-23
<Table>
<Caption>
Basket Your Note
- ----------------------------------------------------- ----------------------------------
Hypothetical Closing
Basket Level on
Hypothetical Stated Maturity Date Hypothetical Market
Closing Basket as % of Reference Hypothetical Value on Stated Hypothetical
Level on Stated Basket Level on Pretax Total Maturity Date as % Pretax Total
Maturity Date Trade Date Return of Face Amount Return
- --------------- -------------------- ------------ ------------------- ------------
$ -- 0% -90.2% 100.00% 0.0%
$ 50.00 50% -40.2% 100.00% 0.0%
$ 60.00 60% -30.2% 100.00% 0.0%
$ 70.00 70% -20.2% 100.00% 0.0%
$ 80.00 80% -10.2% 100.00% 0.0%
$ 90.00 90% -0.2% 100.00% 0.0%
$100.00 100% 9.9% 100.00% 0.0%
$114.25 114.25% 24.1% 100.00% 0.0%
$120.00 120% 29.9% 105.0% 5.0%
$130.00 130% 39.9% 113.8% 13.8%
$140.00 140% 49.9% 122.5% 22.5%
$150.00 150% 59.9% 131.3% 31.3%
$160.00 160% 69.9% 140.0% 40.0%
$170.00 170% 79.9% 148.8% 48.8%
$180.00 180% 89.9% 157.5% 57.5%
$190.00 190% 99.9% 166.3% 66.3%
$200.00 200% 109.9% 175.1% 75.1%
</Table>
----------------------
The hypothetical total return on the basket represents the difference
between (i) the hypothetical closing level of the basket on the stated maturity
date plus the dividends that would be paid at the assumed dividend yield rate
during the period from the trade date to the stated maturity date, without
reinvestment of those dividends, and (ii) the reference basket level. This
difference is expressed as a percentage of the reference basket level.
The hypothetical total return on your note assumes no interest payments
are received through the term of the note, and represents the difference between
(i) the hypothetical market value of your note on the stated maturity date plus
the amount of interest (at an assumed interest rate of 0%) that would be payable
on your note during the period from the trade date to the stated maturity date,
without reinvestment of that interest, 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 equals 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 automatic exchange value that we
would be obligated to pay on that date in an automatic exchange. There will be
no automatic exchange on the stated maturity date, however, unless the automatic
exchange value to be paid on that date exceeds the sum of the outstanding face
amount plus the amount of the regular interest installment payable on your note
on that date. Moreover, if an automatic exchange occurs, the holder will not be
entitled to receive that final regular interest installment. Therefore, we have
assumed that unless the automatic exchange value exceeds that sum, the market
value of your note on the stated maturity date will equal the outstanding face
amount. We have also assumed that the closing level of the basket will be the
same on the determination date and the stated maturity date.
The actual market value of your note on the stated maturity date or at any
other time,
S-24
including any time you may wish to sell your note, may bear little or no
relation to the hypothetical values shown above, and those values should not be
viewed as an indication of the financial return on an investment in the offered
notes or on an investment in the basket stocks. The pretax rates of return shown
above are entirely hypothetical; they are based on market values that may not be
achieved on the relevant date and on assumptions that may prove to be erroneous
and do not take into account the effects of any applicable taxes. Please read
"Additional Risk Factors Specific to Your Note" above.
Payments on this note are economically equivalent to the amounts that
would be paid on a combination of other instruments. For example, payments on
the note are economically equivalent to the amounts that would be paid on a
combination of an interest-bearing bond and an option, in each case, bought by
the holder (with an implicit option premium paid over time by the holder). The
discussion in this paragraph does not modify or affect the terms of the note or
the United States income tax treatment of the note as described under
"Supplemental Discussion of Federal Income Tax Consequences" below.
We cannot predict the level of the basket or the market value of your
note, nor can we predict the relationship between the two. Moreover, the
assumptions on which the hypothetical returns are based may turn out to be
inaccurate. 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 basket stocks would actually achieve,
may be very different from the information reflected in the table above.
S-25
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 expect also to 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 basket stocks.
In addition, from time to time after we issue the offered notes, we and/or our
affiliates expect to enter into additional hedging transactions involving the
basket stocks and other instruments based on one or more of the basket stocks,
and to unwind those we have entered into, in connection with the offered notes
and perhaps in connection with other notes we issue, some of which may have
returns linked to one or more of the basket stocks. Consequently, with regard to
your note, from time to time, we and/or our affiliates:
- - expect to acquire or dispose of positions in one or more of the basket stocks
and perhaps other securities of the basket stock issuers,
- - may take short positions in one or more of the basket stocks or other
securities of the basket stock issuers -- 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 the purchaser,
- - may take or dispose of positions in listed or over-the-counter options,
futures or other instruments based on one or more of the basket stocks, and/or
- - may take or dispose of positions in listed or over-the-counter options,
futures or other instruments based on indices designed to track the
performance of the New York Stock Exchange, the American 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 your note from time to time and may, in our or their sole
discretion, hold or resell those securities.
In the future, we and/or our affiliates expect to close out hedge
positions relating to your note and perhaps relating to other notes with returns
linked to one or more of the basket stocks. We expect these steps to involve
sales of one or more of the basket stocks on or shortly before the determination
date. These steps also may involve sales and/or purchases of one or more of the
basket stocks, listed or over-the-counter options or futures on one or more of
the basket stocks or listed or over-the-counter options, futures or other
instruments based on indices designed to track the performance of the New York
Stock Exchange, the American 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 Basket Stocks May Impair the Value of Your Note" and "-- Our
Business Activities May Create Conflicts of Interest Between You and Us"
above for a discussion of these adverse effects.
S-26
THE BASKET STOCKS
DESCRIPTION OF BASKET STOCK ISSUERS
According to its publicly available documents, the principal business of
Abbott Laboratories is the discovery, development, manufacture and sale of a
broad and diversified line of health care products.
According to publicly available documents, Allergan, Inc. is a global
health care company that develops and commercializes specialty pharmaceutical
products for the ophthalmic, neurological, dermatological and other specialty
markets.
According to its publicly available documents, Allergan, Inc. is a global
health care company that develops and commercializes specialty pharmaceutical
products for the opthalmic, neurological, dermatological and other specialty
markets.
According to its publicly available documents, Johnson & Johnson is
engaged in the manufacture and sale of a broad range of products in the health
care field.
According to its publicly available documents, Merck & Co., Inc. is a
global research-driven pharmaceutical products company that discovers, develops,
manufactures and markets a broad range of products to improve human and animal
health.
According to its publicly available documents, Pfizer Inc. is a
research-based, global pharmaceutical company that discovers, develops,
manufactures and markets prescription medicines for humans and animals as well
as consumer healthcare products.
According to its publicly available documents, Schering-Plough
Corporation, through its subsidiaries, is engaged in the discovery, development,
manufacturing and marketing of pharmaceutical products worldwide.
According to its publicly available documents, Wyeth is engaged in the
discovery, development, manufacture, distribution and sale of a diversified line
of products in three primary businesses: pharmaceuticals, consumer healthcare
and animal health.
WHERE INFORMATION ABOUT THE BASKET STOCK
ISSUERS CAN BE OBTAINED
Each of the basket stocks 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's public reference room
located at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
You may obtain information on the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. In addition, information filed by each basket
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 each basket stock issuer under the
Exchange Act can be located by referencing its SEC file number: 001-02189
(Abbott Laboratories); 001-10269 (Allergan, Inc.); 001-03215 (Johnson &
Johnson); 000-03305 (Merck & Co., Inc.); 001-03619 (Pfizer Inc.); 001-06571
(Schering-Plough Corporation); 001-01225 (Wyeth).
Information about each basket 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 a
basket stock issuer with the SEC.
S-27
WE OBTAINED THE INFORMATION ABOUT THE
BASKET STOCK ISSUERS IN THIS PROSPECTUS
SUPPLEMENT FROM THE BASKET STOCK
ISSUERS' PUBLIC FILINGS
This prospectus supplement relates only to your note and does not relate
to the basket stocks or other securities of the basket stock issuers. We have
derived all information about the basket stock issuers 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 other inquiry with
respect to any basket stock issuer in connection with the offering of your note.
We do not make any representation that any publicly available document or any
other publicly available information about any basket stock issuer is 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 basket stocks and, therefore, the exchange
value -- have been publicly disclosed. Subsequent disclosure of any events of
this kind or the disclosure of or failure to disclose material future events
concerning any basket 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 basket or basket stocks.
We or any of our affiliates may currently or from time to time engage in
business with the basket stock issuers, including making loans to or equity
investments in the basket stock issuers or providing advisory services to the
basket stock issuers, 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 basket stock issuers and, in addition, one or more of our
affiliates may publish research reports about the basket stock issuers. As an
investor in a note, you should undertake such independent investigation of the
basket stock issuers as in your judgment is appropriate to make an informed
decision with respect to an investment in a note.
HISTORICAL TRADING PRICE INFORMATION
The seven basket stocks are traded on the New York Stock Exchange, under
the symbols "ABT", "AGN", "PFE", "JNJ", "MRK", "SGP" and "WYE", respectively.
The following tables set forth the quarterly high, low and closing prices on the
New York Stock Exchange for each of the seven basket stocks, in each case for
the four calendar quarters in each of 2002 and 2003 and for the three calendar
quarters in 2004, through September 14, 2004. We obtained the trading price
information set forth below from Bloomberg Financial Services, without
independent verification.
You should not take any such historical prices of the basket stocks as an
indication of future performance. We cannot give you any assurance that the
prices of the basket stocks will increase sufficiently for you to receive an
amount in excess of the face amount of your note at maturity.
S-28
ABBOTT LABORATORIES
<Table>
<Caption>
HIGH LOW CLOSE
---- --- -----
2002
Quarter ended March 31.................................... 53.97 48.45 49.20
Quarter ended June 30..................................... 51.44 33.63 35.22
Quarter ended September 30................................ 40.97 29.00 37.79
Quarter ended December 31................................. 42.92 34.28 37.41
2003
Quarter ended March 31.................................... 38.07 32.16 35.18
Quarter ended June 30..................................... 43.49 36.18 40.93
Quarter ended September 30................................ 42.07 35.40 39.80
Quarter ended December 31................................. 44.10 38.37 43.59
2004
Quarter ended March 31.................................... 43.87 36.81 38.44
Quarter ended June 30..................................... 43.18 37.65 40.76
Quarter ending September 30 (through September 14,
2004).................................................. 42.95 38.36 42.94
Closing price on September 14, 2004....................... 42.94
</Table>
ALLERGAN, INC.
<Table>
<Caption>
HIGH LOW CLOSE
---- --- -----
2002
Quarter ended March 31.................................... 71.54 59.92 62.28
Quarter ended June 30..................................... 66.35 54.92 64.31
Quarter ended September 30................................ 64.51 49.55 54.40
Quarter ended December 31................................. 64.90 52.74 57.62
2003
Quarter ended March 31.................................... 71.00 56.96 68.21
Quarter ended June 30..................................... 80.82 67.57 77.10
Quarter ended September 30................................ 81.51 76.70 78.73
Quarter ended December 31................................. 80.66 71.76 76.81
2004
Quarter ended March 31.................................... 89.75 75.83 84.16
Quarter ended June 30..................................... 92.06 84.56 89.52
Quarter ending September 30 (through September 14,
2004).................................................. 89.41 69.32 75.06
Closing price on September 14, 2004....................... 75.06
</Table>
S-29
JOHNSON & JOHNSON
<Table>
<Caption>
HIGH LOW CLOSE
---- --- -----
2002
Quarter ended March 31.................................... 65.49 55.50 64.95
Quarter ended June 30..................................... 64.61 52.26 52.26
Quarter ended September 30................................ 56.20 41.85 54.08
Quarter ended December 31................................. 61.11 53.11 53.71
2003
Quarter ended March 31.................................... 58.67 50.00 57.87
Quarter ended June 30..................................... 58.42 51.54 51.70
Quarter ended September 30................................ 53.60 49.14 49.52
Quarter ended December 31................................. 52.26 48.73 51.66
2004
Quarter ended March 31.................................... 54.65 49.50 50.72
Quarter ended June 30..................................... 57.07 50.52 55.70
Quarter ending September 30 (through September 14,
2004).................................................. 58.35 54.49 58.35
Closing price on September 14, 2004....................... 58.35
</Table>
MERCK & CO., INC
<Table>
<Caption>
HIGH LOW CLOSE
---- --- -----
2002
Quarter ended March 31.................................... 60.92 53.91 54.50
Quarter ended June 30..................................... 55.08 46.42 47.93
Quarter ended September 30................................ 50.92 36.96 43.26
Quarter ended December 31................................. 57.08 41.77 53.58
2003
Quarter ended March 31.................................... 56.67 48.05 51.85
Quarter ended June 30..................................... 59.85 51.83 57.31
Quarter ended September 30................................ 58.58 49.76 50.62
Quarter ended December 31................................. 51.16 40.60 46.20
2004
Quarter ended March 31.................................... 49.08 43.01 44.19
Quarter ended June 30..................................... 48.37 44.58 47.50
Quarter ending September 30 (through September 14,
2004).................................................. 47.05 43.60 45.55
Closing price on September 14, 2004....................... 45.55
</Table>
S-30
PFIZER INC.
<Table>
<Caption>
HIGH LOW CLOSE
---- --- -----
2002
Quarter ended March 31.................................... 42.15 39.40 39.74
Quarter ended June 30..................................... 40.11 33.43 35.00
Quarter ended September 30................................ 34.92 25.92 29.02
Quarter ended December 31................................. 33.87 28.30 30.57
2003
Quarter ended March 31.................................... 32.00 28.56 31.16
Quarter ended June 30..................................... 36.18 30.37 34.15
Quarter ended September 30................................ 34.65 29.55 30.38
Quarter ended December 31................................. 35.33 30.56 35.33
2004
Quarter ended March 31.................................... 38.85 33.70 35.05
Quarter ended June 30..................................... 37.62 33.82 34.28
Quarter ending September 30 (through September 14,
2004).................................................. 34.16 31.15 32.12
Closing price on September 14, 2004....................... 32.12
</Table>
SCHERING-PLOUGH CORPORATION
<Table>
<Caption>
HIGH LOW CLOSE
---- --- -----
2002
Quarter ended March 31.................................... 36.00 30.94 31.30
Quarter ended June 30..................................... 30.77 23.30 24.60
Quarter ended September 30................................ 25.50 20.75 21.32
Quarter ended December 31................................. 23.25 17.30 22.20
2003
Quarter ended March 31.................................... 23.68 15.45 17.83
Quarter ended June 30..................................... 20.47 16.82 18.60
Quarter ended September 30................................ 19.35 14.95 15.24
Quarter ended December 31................................. 17.39 14.52 17.39
2004
Quarter ended March 31.................................... 18.97 15.96 16.22
Quarter ended June 30..................................... 18.70 16.10 18.48
Quarter ending September 30 (through September 14,
2004).................................................. 19.98 17.55 19.47
Closing price on September 14, 2004....................... 19.47
</Table>
S-31
WYETH
<Table>
<Caption>
HIGH LOW CLOSE
---- --- -----
2002
Quarter ended March 31.................................... 65.98 61.22 65.65
Quarter ended June 30..................................... 66.21 50.20 51.20
Quarter ended September 30................................ 49.94 29.75 31.80
Quarter ended December 31................................. 38.46 32.05 37.40
2003
Quarter ended March 31.................................... 39.03 33.57 37.82
Quarter ended June 30..................................... 49.16 34.54 45.55
Quarter ended September 30................................ 48.90 41.53 46.10
Quarter ended December 31................................. 47.26 37.75 42.45
2004
Quarter ended March 31.................................... 44.65 36.76 37.55
Quarter ended June 30..................................... 40.38 34.65 36.16
Quarter ending September 30 (through September 14,
2004).................................................. 38.73 33.80 38.73
Closing price on September 14, 2004....................... 38.73
</Table>
S-32
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 LLP, 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.
Your note will 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 for an amount that differs from the note's
adjusted issue price at the time of the purchase, you must determine the extent
to which the difference between the price you paid for your note and its
adjusted issue price is attributable to a change in expectations as to the
projected payment schedule, a change in interest rates, or both, and reasonably
allocate the difference accordingly. The adjusted issue price of your note will
equal your note's original issue price plus any interest deemed to be accrued on
your note (under the rules governing contingent payment obligations) as of the
time you purchase your note, decreased by the amount of interest payments
previously made with respect to your note.
If the adjusted issue price of your note is greater than the price you
paid for your note, you must make positive adjustments increasing the amount of
interest that you would otherwise accrue and include in income each year, and
the amount of ordinary income (or decreasing the amount of ordinary loss)
recognized upon redemption or maturity by the amounts allocated to each of
interest and
S-33
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
amount of cash you receive at such time and your adjusted basis in your note. In
general, your adjusted basis in your note will equal the amount you paid for
your note, increased by the amount of interest you previously accrued with
respect to your note (in accordance with the comparable yield and the projected
payment schedule for your note), decreased by the amount of interest payments
you received with respect to your note and increased or decreased by the amount
of any positive or negative adjustment, respectively, that you are required to
make if you purchase your note in the secondary market.
Any gain you recognize upon the sale, 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-34
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 collectively "Plans", 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, for transactions involving insurance company pooled
separate accounts, for transactions involving bank collective investment funds,
or under another available exemption. The assets of a Plan may include assets
held in the general account of an insurance company that are deemed to be "plan
assets" under ERISA. 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, or exercising any rights related
thereto, to represent that (a) such purchase, holding and exercise 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) and (b) neither The Goldman Sachs Group,
Inc. nor any of its affiliates is a "fiduciary" (within the meaning of Section
3(21) of ERISA) with respect to the purchaser or holder in connection with such
person's acquisition, disposition or holding of the offered notes, or any
exercise related thereto or as a result of any exercise by The Goldman Sachs
Group, Inc. or any of its affiliates of any rights in connection with the
offered notes, and no advice provided by The Goldman Sachs Group, Inc. or any of
its affiliates has formed a primary basis for any investment decision by or on
behalf of such purchaser or holder in connection with the offered notes and the
transactions contemplated with respect to the offered notes.
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-35
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Goldman Sachs Group, Inc. has agreed to sell to Goldman, Sachs & Co.,
and Goldman, Sachs & Co. has agreed to purchase from The Goldman Sachs Group,
Inc., the aggregate face amount of the offered notes specified on the front
cover of this prospectus supplement. Goldman, Sachs & Co. intends to resell the
offered notes at the original issue price. In the future, Goldman, Sachs & Co.
or other affiliates of The Goldman Sachs Group, Inc. may repurchase and resell
the offered notes in market-making transactions, with resales being made at
prices related to prevailing market prices at the time of resale or at
negotiated prices. The Goldman Sachs Group, Inc. estimates that its share of the
total offering expenses, excluding underwriting discounts and commissions, will
be approximately $37,900. For more information about the plan of distribution
and possible market-making activities, see "Plan of Distribution" in the
accompanying prospectus.
S-36
NOTICE OF EXCHANGE
Dated:
The Bank of New York
Corporate Trust Administration
101 Barclay Street, 21W
New York, New York 10286
Attn: Caroline Hyunji
Lee (212-815-4991)
Hector Herrera (212-815-4293)
Fax: (212-815-5802)
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: Floating Rate Exchangeable Basket-Linked Notes due 2009, issued by The
Goldman Sachs Group, Inc. (Linked to a Basket of Seven Stocks)
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 no. 432 dated September
14, 2004 to the prospectus dated February 6, 2004, as supplemented by the
prospectus supplement dated February 6, 2004, 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 trading day on which the trustee has received
this notice of exchange provided such day is also a business day, 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 day, in which case
the exercise will be effective as of the next trading day provided such day is
also a business day. We understand, however, that the effective date in all
cases must be no later than the earlier of (i) the trading 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 are being delivered to the
trustee.
S-37
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 no. 432 dated September 14, 2004. 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 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 minimum of $1,000 and
integral multiples thereof)
Very truly yours,
--------------------------------------
(Name of beneficial owner or person
authorized to act on its behalf)
--------------------------------------
(Title)
--------------------------------------
(Telephone No.)
--------------------------------------
(Fax No.)
--------------------------------------
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-38
- ------------------------------------------------------------
- ------------------------------------------------------------
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
<Table>
<Caption>
Page
----
Additional Risk Factors Specific to Your
Note......................................... S-2
Specific Terms of Your Note.................... S-7
Hypothetical Returns on Your Note.............. S-23
Use of Proceeds and Hedging.................... S-26
The Basket Stocks.............................. S-27
Supplemental Discussion of Federal Income Tax
Consequences................................. S-33
Employee Retirement Income Security Act........ S-35
Supplemental Plan of Distribution.............. S-36
Notice of Exchange............................. S-37
Prospectus Supplement dated February 6, 2004
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
Supplemental Plan of Distribution.............. S-20
Validity of the Notes.......................... S-22
Prospectus
Available Information.......................... 2
Prospectus Summary............................. 4
Ratio of Earnings to Fixed Charges............. 8
Use of Proceeds................................ 8
Description of Debt Securities We May Offer.... 9
Description of Warrants We May Offer........... 31
Description of Purchase Contracts We May
Offer........................................ 48
Description of Units We May Offer.............. 53
Description of Preferred Stock We May Offer.... 58
The Issuer Trusts.............................. 66
Description of Capital Securities and Related
Instruments.................................. 69
Description of Capital Stock of The Goldman
Sachs Group, Inc............................. 93
Legal Ownership and Book-Entry Issuance........ 98
Considerations Relating to Securities Issued in
Bearer Form.................................. 104
Considerations Relating to Indexed
Securities................................... 109
Considerations Relating to Securities
Denominated or Payable in or Linked to a
Non-U.S. Dollar Currency..................... 112
Considerations Relating to Capital
Securities................................... 115
United States Taxation......................... 118
Plan of Distribution........................... 141
Employee Retirement Income Security Act........ 144
Validity of the Securities..................... 144
Experts........................................ 144
Cautionary Statement Pursuant to the Private
Securities Litigation Reform Act of 1995..... 145
</Table>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
$7,750,000
THE GOLDMAN SACHS
GROUP, INC.
Floating Rate Exchangeable
Basket-Linked Notes due 2009
(Linked to a Basket of Seven Stocks)
----------------------
[GOLDMAN SACHS LOGO]
----------------------
GOLDMAN, SACHS & CO.
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