PRICING SUPPLEMENT TO THE PROSPECTUS SUPPLEMENT NO. 410
DATED JULY 6, 2004 -- NO. 474
[GOLDMAN SACHS LOGO] THE GOLDMAN SACHS GROUP, INC.
Medium-Term Notes, Series B
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$10,842,040
5.9% Trigger Mandatory Exchangeable Notes due November 2005
(Exchangeable for Common Stock of Pfizer Inc.)
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This pricing supplement and the accompanying prospectus supplement no.
410, relating to the trigger mandatory exchangeable notes, should be read
together. Because the trigger mandatory exchangeable notes are part of a series
of our debt securities called Medium-Term Notes, Series B, this pricing
supplement and the accompanying prospectus supplement no. 410 should also be
read with the accompanying prospectus dated February 6, 2004, as supplemented by
the accompanying prospectus supplement dated February 6, 2004. Terms used here
have the meanings given them in the accompanying prospectus supplement no. 410,
unless the context requires otherwise.
The trigger mandatory exchangeable notes offered by this pricing
supplement, which we call the "offered notes" or the "notes", have the terms
described in the accompanying prospectus supplement no. 410, as supplemented or
modified by the following:
ISSUER: The Goldman Sachs Group, Inc. STATED MATURITY DATE: November 7, 2005,
unless extended for up to six business
days
FACE AMOUNT: each offered note will INTEREST RATE (COUPON): 5.9% per year
have a face amount equal to $24.04,
which is the initial index stock INTEREST PAYMENT DATES: the 7th calendar
price; the aggregate face amount for day of each month, until maturity,
all the offered notes is $10,842,040 commencing on March 7, 2005
INITIAL INDEX STOCK PRICE: $24.04
REGULAR RECORD DATES: for the interest
ORIGINAL ISSUE PRICE: 100% of the payment dates specified above, five
face amount business days before each interest
payment date
NET PROCEEDS TO THE ISSUER: 99.95%
of the face amount
TRADE DATE: January 31, 2005 INDEX STOCK AND INDEX STOCK ISSUER:
common stock of Pfizer Inc.
SETTLEMENT DATE (ORIGINAL ISSUE CUSIP NO.: 38143Y764
DATE): February 7, 2005
Your investment in the notes involves certain risks. In particular,
assuming no changes in market conditions or any other relevant factors, the
value of your note on the date of this pricing 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" beginning on page S-3 of this pricing supplement and on
page S-3 of the accompanying prospectus supplement no. 410 so that you may
better understand those risks. The offered notes are not principal protected and
the payment amount is capped.
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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 PRICING SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Goldman Sachs may use this pricing supplement in the initial sale of the
offered notes. In addition, Goldman, Sachs & Co. or any other affiliate of
Goldman Sachs may use this pricing 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 PRICING
SUPPLEMENT IS BEING USED IN A MARKET-MAKING TRANSACTION.
GOLDMAN, SACHS & CO.
------------------------------------------
PRICING SUPPLEMENT DATED JANUARY 31, 2005.
PRINCIPAL AMOUNT: On the stated maturity date, each offered
note will be exchanged for index stock at
the exchange rate or, at the option of
Goldman Sachs, for the cash value of that
stock based on the final index stock
price.
EXCHANGE RATE: If the final index stock price equals or
exceeds the cap price, then the exchange
rate will equal the cap fraction times one
share of index stock for each $24.04 of
the outstanding face amount, regardless of
whether the market price of the index
stock falls below the threshold price at
any time during the measurement period.
If the market price of the index stock
does not fall below the threshold price at
any time during the measurement period,
then:
- if the final index stock price
is less than the cap price but
equals or exceeds the initial
stock price, the exchange rate
will equal one share of the
index stock for each $24.04 of
the outstanding face amount; or
- if the final index stock price
is less than the initial index
stock price, the exchange rate
will equal the threshold
fraction times one share of
index stock for each $24.04 of
the outstanding face amount.
If the market price of the index stock
falls below the threshold price at any
time during the measurement period, then:
- the exchange rate will equal one
share of the index stock for
each $24.04 of the outstanding
face amount.
The exchange rate is subject to
anti-dilution adjustment as described in
the accompanying prospectus supplement no.
410.
Please note that the amount you receive
for each $24.04 of outstanding face amount
on the stated maturity date will not
exceed the cap price and that it could be
substantially less than $24.04. You could
lose your entire investment in the offered
notes.
INITIAL INDEX STOCK PRICE: $24.04 per share.
FINAL INDEX STOCK PRICE: The closing price of one share of the
index stock on the determination date,
subject to anti-dilution adjustment.
CAP PRICE: The initial index stock price times 1.10,
which equals $26.444 per share.
CAP FRACTION: The cap price divided by the final index
stock price.
THRESHOLD PRICE: The initial index stock price times 0.80,
which equals $19.232 per share.
S-2
THRESHOLD FRACTION: The initial index stock price divided by
the final index stock price.
MEASUREMENT PERIOD: Any trading day from but not including the
trade date up to and including the
determination date.
DETERMINATION DATE: The fifth business day prior to the stated
maturity date unless extended for up to
five business days.
BUSINESS DAY: As described on page S-17 of the
accompanying prospectus supplement no.
410.
TRADING DAY: A day on which the principal securities
market of the index stock is open for
business.
NO LISTING: The offered notes will not be listed on
any securities exchange or interdealer
market quotation system.
ADDITIONAL RISK FACTORS SPECIFIC ASSUMING NO CHANGES IN MARKET CONDITIONS
TO YOUR NOTE: OR ANY OTHER RELEVANT FACTORS, THE VALUE
OF YOUR NOTE ON THE DATE OF THIS PRICING
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 "Additional Risk
Factors Specific to Your Note -- The
Market Price of Your Note May Be
Influenced by Many Unpredictable Factors"
in the accompanying prospectus supplement
no. 410.
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 "Additional Risk Factors Specific to
Your Note -- Your Note May Not Have an
Active Trading Market" in the accompanying
prospectus supplement no. 410.
S-3
PFIZER INC.: According to its publicly available
documents, Pfizer Inc. is a
research-based, global pharmaceutical
company. Information filed with the SEC by
Pfizer Inc. under the Exchange Act can be
located by referencing its SEC file
number: 001-03619.
HISTORICAL TRADING PRICE The index stock is traded on the New York
INFORMATION: Stock Exchange under the symbol "PFE". The
following table shows the quarterly high,
low and final closing prices for the index
stock as traded on the New York Stock
Exchange for the four calendar quarters in
each of 2003 and 2004 and the first
calendar quarter in 2005, through January
31, 2005. We obtained the trading price
information shown below from Bloomberg
Financial Services, without independent
verification.
HIGH LOW CLOSE
-------- ------- -------
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 ended September 30............ $ 34.16 $ 29.62 $ 30.60
Quarter ended December 31............. $ 31.30 $ 24.29 $ 26.89
2005
Quarter ending March 31
(through January 31, 2005)........... $ 26.45 $ 24.16 $ 24.16
Closing price on January 31, 2005..... $ 24.16
As indicated above, the market price of
the index stock has been highly volatile
during recent periods. It is impossible to
predict whether the price of the index
stock will rise or fall, and you should
not view the historical prices of the
index stock as an indication of future
performance. See "Additional Risk Factors
Specific to Your Note -- The Market Price
of Your Note May Be Influenced by Many
Unpredictable Factors" in the accompanying
prospectus supplement no. 410.
S-4
HYPOTHETICAL PAYMENT AMOUNT: The tables below show the hypothetical
payment amounts that we would deliver on
the stated maturity date in exchange for
each $24.04 of the outstanding face amount
of your note, if the final index stock
price were any of the hypothetical prices
shown in the left column. For this
purpose, we have assumed that there will
be no anti-dilution adjustments to the
exchange rate and no market disruption
events. The first table shows the
hypothetical payment amounts in the case
where the market price of the index stock
does not fall below $19.232, the threshold
price, at any time during the measurement
period. The second table shows the
hypothetical payment amounts in the case
where the market price does fall below
$19.232 at any time during the measurement
period.
The prices in the left column represent
hypothetical closing prices for one share
of index stock on the determination date
and are expressed as percentages of the
initial index stock price, which equals
$24.04 per share. The amounts in the right
column represent the hypothetical cash
value of the index stock to be exchanged,
based on the corresponding hypothetical
final index stock prices, and are
expressed as percentages of the initial
index stock price. Thus, a hypothetical
payment amount of 100% means that the cash
value of the index stock that we would
deliver in exchange for each $24.04 of the
outstanding face amount of your note on
the stated maturity date would equal 100%
of the initial index stock price, or
$24.04, based on the corresponding
hypothetical final index stock price and
the assumptions noted above.
If the market price of the index stock
does not fall below the threshold price at
any time during the measurement period:
HYPOTHETICAL FINAL INDEX HYPOTHETICAL PAYMENT
STOCK PRICE AS % OF AMOUNTS AS % OF
INITIAL INDEX STOCK PRICE $24.04 FACE AMOUNT
- ------------------------- --------------------
175% 110%
150% 110%
120% 110%
110% 110%
100% 100%
80% 100%
If the market price of the index stock
does fall below the threshold price at any
time during the measurement period:
S-5
HYPOTHETICAL FINAL INDEX HYPOTHETICAL PAYMENT
STOCK PRICE AS % OF AMOUNTS AS % OF
INITIAL INDEX STOCK PRICE $24.04 FACE AMOUNT
- ------------------------- --------------------
175% 110%
150% 110%
120% 110%
110% 110%
100% 100%
90% 90%
80% 80%
70% 70%
50% 50%
0% 0%
The payment amounts shown above are
entirely hypothetical; they are based on
market prices for the index stock that may
not be achieved on the determination date
and on assumptions that may prove to be
erroneous. The actual market value of your
note on the stated maturity date or at any
other time, including any time you may
wish to sell your note, may bear little
relation to the hypothetical payment
amounts shown above, and those amounts
should not be viewed as an indication of
the financial return on an investment in
the offered notes or on an investment in
the index stock. Please read "Additional
Risk Factors Specific to Your Note" and
"Hypothetical Payment Amounts on Your
Note" in the accompanying prospectus
supplement no. 410.
Payments on your note are economically
equivalent to the amounts that would be
paid on a combination of other
instruments. For example, payments on your
note are economically equivalent to the
amounts that would be paid on a
combination of an interest-bearing bond
bought, and an option sold, by the holder
(with an implicit option premium paid over
time to the holder). The discussion in
this paragraph does not modify or affect
the terms of the offered notes or the
United States income tax treatment of the
offered notes as described under
"Supplemental Discussion of Federal Income
Tax Consequences" in the accompanying
prospectus supplement no. 410 and below.
S-6
SUPPLEMENTAL DISCUSSION OF FEDERAL
INCOME TAX CONSEQUENCES: The following section supplements the
discussion of U.S. federal income taxation
in the accompanying prospectus and
prospectus supplement no. 410 with respect
to United States holders. Except as
described below, the discussion of U.S.
federal income taxation in the
accompanying prospectus supplement no. 410
does not apply to your note.
The following section is the opinion of
Sullivan & Cromwell LLP, counsel to The
Goldman Sachs Group, Inc. In addition, it
is the opinion of Sullivan & Cromwell LLP
that the characterization of the note for
U.S. federal income tax purposes that will
be required under the terms of the note,
as discussed below, is a reasonable
interpretation of current law. This
section applies to you only if you are a
United States holder (as defined in the
accompanying prospectus supplement no.
410) that holds your note as a capital
asset for tax purposes. This section does
not apply to you if you are a member of a
class of holders subject to special rules,
as described in the accompanying
prospectus supplement no. 410.
Although this section is based on the U.S.
Internal Revenue Code of 1986, as amended,
its legislative history, existing and
proposed regulations under the Internal
Revenue Code, published rulings and court
decisions, all as currently in effect, no
statutory, judicial or administrative
authority directly discusses how your note
should be treated for U.S. federal income
tax purposes and as a result, the U.S.
federal income tax consequences of your
investment in your note are uncertain.
Moreover, these laws are subject to
change, possibly on a retroactive basis.
YOU SHOULD CONSULT YOUR TAX ADVISOR
CONCERNING THE U.S. FEDERAL INCOME TAX AND
OTHER TAX CONSEQUENCES OF YOUR INVESTMENT
IN THE NOTE, INCLUDING THE APPLICATION OF
STATE, LOCAL OR OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
You will be obligated pursuant to the
terms of the note -- in the absence of an
administrative determination or judicial
ruling to the contrary -- to characterize
your note for all tax purposes as a
forward contract to purchase the index
stock at the stated maturity date, under
the terms of which contract:
(1) at the time of issuance of your note
you deposit irrevocably with us a fixed
amount of cash equal to the purchase price
of your note to assure the fulfillment of
your purchase obligation described in
clause (3) below, which deposit will
unconditionally and irrevocably be applied
at the stated maturity date to satisfy
that obligation,
S-7
(2) until the stated maturity date we will be
obligated to pay interest on the deposit at a rate
equal to the stated rate of interest on your note
as compensation to you for our use of the cash
deposit during the term of the note, and
(3) at the stated maturity date the cash deposit
unconditionally and irrevocably will be applied by
us in full satisfaction of your obligation under
the forward purchase contract, and we will deliver
to you the number of shares of the index stock --
or, at our option, an amount of cash equal to the
value of the shares of the index stock -- that you
are entitled to receive at that time pursuant to
the terms of your note.
Although you will be obligated to treat the
payment of the purchase price for your note as a
deposit for U.S. federal income tax purposes, the
cash proceeds that we will receive from the
offering will not be segregated by us during the
term of your note, but instead will be commingled
with our other assets.
Consistent with the above characterization,
amounts paid to us in respect of the original
issue of your note will be treated as allocable in
their entirety to the amount of the cash deposit
attributable to your note, and amounts denominated
as interest that are payable with respect to your
note will be characterized as interest payable on
the amount of the deposit. Interest will be
includible annually in your income in accordance
with your method of accounting.
If your note is characterized as described above,
you are an initial purchaser of your note who has
purchased your note at the original issue price
and we elect to deliver shares of the index stock
at the stated maturity date, you would not
recognize gain or loss on the purchase of the
stock. You would have an aggregate tax basis in
the index stock equal to your tax basis in your
note, less the portion of the tax basis of your
note allocable to any fractional shares, as
described in the next sentence, and would have a
holding period in the index stock beginning on the
date after the stated maturity date. You would
recognize short-term capital gain or loss with
respect to cash received in lieu of any fractional
shares, in an amount equal to the difference
between the cash received and the portion of the
basis of your note allocable to the fractional
shares.
S-8
If we deliver cash at the stated maturity date,
you would generally recognize capital gain or loss
equal to the difference between the amount of cash
received and your tax basis in the note and the
holding period for purposes of such capital gain
and loss will begin on the day following the first
day you held the note.
If your note is characterized as described above
and you purchase your note at a price other than
the adjusted issue price as determined for tax
purposes, you would likely be required to allocate
your purchase price for the note between the
deposit component and forward contract component
of your note. If the amount allocated to the
deposit component of your note is not equal to the
principal amount of the note, you may be subject
to the market discount rules described in the
accompanying prospectus under "United States
Taxation -- Taxation of Debt Securities -- United
States Holders -- Original Issue Discount --
Market Discount". Your note may also be subject to
the amortizable bond premium rules described in
the accompanying prospectus under "United States
Taxation -- Taxation of Debt Securities -- United
States Holders -- Original Issue Discount -- Debt
Securities Purchased at a Premium". You would
generally be treated upon maturity of your note in
the same manner described above with respect to
initial purchasers of notes, except that (1) you
would be required to recognize gain or loss with
respect to the deposit component of your note in
an amount equal to any market discount (including
any de minimis market discount) or premium,
respectively, not previously taken into account by
you with respect to the deposit component of your
notes, and (2) for purposes of computing any gain
or loss recognized at such time or your basis in
any stock received at such time, you would be
required to adjust your purchase price for your
note to take into account any market discount
(including de minimis market discount) or premium
previously taken into account (either over the
term of your note or upon maturity of your note)
with respect to your note. Because the appropriate
U.S. federal income tax treatment of persons who
purchase notes at a price other than the adjusted
issue price as determined for tax purposes is
unclear, those persons are urged to consult their
tax advisors regarding the tax consequences of
their purchase of notes.
S-9
If your note is characterized as described above,
your tax basis in your note generally would equal
your cost for your note, as adjusted for any
accruals of market discount or amortization of
bond premium. Upon the sale or exchange of your
note, you would recognize gain or loss equal to
the difference between the amount realized on the
sale or exchange and your tax basis in your note.
The gain or loss generally will be long-term
capital gain or loss, except to the extent
attributable to accrued but unpaid interest and
any accrued market discount not previously
included in income, if you hold your note for more
than one year. If you hold your note for less than
one year, the gain or loss generally will be
short-term capital gain or loss, except to the
extent attributable to accrued but unpaid interest
and any accrued market discount not previously
included in income.
There is no judicial or administrative authority
discussing how your note should be treated for
U.S. federal income tax purposes. Therefore, the
Internal Revenue Service might assert that
treatment other than that described above is more
appropriate. For example, the Internal Revenue
Service could treat your note as a single debt
instrument subject to special rules governing
contingent payment obligations. Under those rules,
the amount of interest you are required to take
into account for each accrual period would be
determined by constructing a projected payment
schedule for the note and applying rules similar
to those for accruing original issue discount on a
hypothetical noncontingent debt instrument with
that projected payment schedule. This method is
applied by first determining the comparable yield
-- i.e., the yield at which we would issue a
noncontingent fixed rate debt instrument with
terms and conditions similar to your note -- and
then determining a payment schedule as of the
issue date that would produce the comparable
yield. These rules may have the effect of
requiring you to include interest in income in
respect of your note prior to your receipt of cash
attributable to that income.
S-10
If the rules governing contingent payment
obligations apply, you would recognize gain or
loss upon the sale or maturity of your note --
including if you receive index stock at that time
-- in an amount equal to the difference, if any,
between the fair market value of the amount you
receive at that time -- which, in the case of
index stock, would equal the fair market value of
the index stock at the stated maturity date -- and
your adjusted basis in your note. In general, your
adjusted basis in your note would equal the amount
you paid for your note, increased by the amount of
interest you previously accrued with respect to
your note, in accordance with the comparable yield
and the projected payment schedule for your note,
and decreased by the amount of interest payments
you received with respect to your note. Your
holding period in any index stock you receive upon
the maturity of your note would begin on the day
after the stated maturity date.
If the rules governing contingent payment
obligations apply, any gain you recognize upon the
sale or maturity of your note would be ordinary
interest income. Any loss you recognize at that
time would be ordinary loss to the extent of
interest you included as income in the current or
previous taxable years in respect of your note,
and thereafter, as capital loss.
If the rules governing contingent payment
obligations apply, special rules would apply to
persons who purchase a note at a price other than
the adjusted issue price as determined for tax
purposes.
It is possible that the Internal Revenue Service
could seek to characterize your note in a manner
that results in tax consequences to you different
from those described above. For example, the
Internal Revenue Service could seek to allocate
less than all the amounts you paid for your note
to the cash deposit described above and treat the
cash deposit as a debt instrument acquired at a
discount. In that case, you would be required to
include such original issue discount in income as
it accrues in addition to stated interest on your
note. The Internal Revenue Service could also seek
to characterize your note as a notional principal
contract, or as a prepaid forward without a cash
deposit component. You should consult your tax
advisors as to possible alternative
characterizations of your note for U.S. federal
income tax purposes.
S-11
HEDGING: In anticipation of the sale of the offered notes,
we and/or our affiliates have entered into hedging
transactions involving purchases of the index
stock on the trade date. For a description of how
our hedging and other trading activities may
affect the value of your note, see "Additional
Risk Factors Specific to Your Note -- Our Business
Activities May Create Conflicts of Interest
Between You and Us" and "Use of Proceeds and
Hedging" in the accompanying prospectus supplement
no. 410.
S-12