Company Name: Goldman Sachs Group, Inc.
Public Availability Date: Feb. 22, 2000

[LETTER OF INQUIRY]

January 31, 2000

Michael Hyatte,

Office of the Chief Counsel,

Division of Corporation Finance

Securities and Exchange Commission

450 Fifth Street, N.W.,

Washington, D.C. 20549.

Re: Rule 144(a)(3) under the

Securities Act of 1933

Dear Mr. Hyatte:

On behalf of our client, The Goldman Sachs Group, Inc. ("GS Group"), we are writing to seek interpretive advice that the shares of common stock, par value $.01 per share ("Common Stock"), of GS Group, issuable pursuant to restricted stock units, awarded by GS Group to its employees without registration under the Securities Act of 1933 (the "Securities Act") based on the absence of an "offer" or "sale" for purposes of Section 2(a)(3) of the Securities Act, are not "restricted securities" within the meaning of Rule 144(a)(3).

Background

GS Group completed its initial public offering ("IPO") on May 7, 1999. The Common Stock is traded on the New York Stock Exchange under the symbol "GS." As of December 31, 1999, GS Group had over 448 million outstanding shares of Common Stock. Since May 10, 1999, the average weekly trading volume of the Common Stock has been approximately 4.5 million shares.

In connection with the IPO, GS Group awarded 30,025,946 restricted stock units to substantially all of its employees based on a formula (the "Formula RSUs") and 33,292,869 restricted stock units to its employees on a discretionary basis (the "Discretionary RSUs" and, together with the Formula RSUs, the "RSUs"). Subject to customary anti-dilution adjustments, one share of Common Stock is deliverable pursuant to each RSU. The shares of Common Stock issuable pursuant to the Formula RSUs are deliverable, subject to the satisfaction of the relevant conditions, in equal installments on or about the first, second or third anniversaries of the IPO; the shares of Common Stock issuable pursuant to the Discretionary RSUs are deliverable, subject to the satisfaction of the relevant conditions, in equal installments on or about the third, fourth and fifth anniversaries of the IPO.

Many of the these RSUs were awarded to employees without registration under the Securities Act on the basis that the awards did not constitute "offers" or "sales" for purposes of Section 2(a)(3) of the Securities Act. ^* Our request for interpretive advice with respect to Rule 144(a)(3) relates only to these restricted stock units (the "Employee RSUs"). ^** No RSUs were granted to any of the former profit participating limited partners of GS Groups predecessor, The Goldman Sachs Group, L.P.

The shares of Common Stock deliverable pursuant to the Employee RSUs are deliverable as follows: 8,670,935 (approximately 1.9% of the outstanding Common Stock) in June 2000; 8,675,069 (approximately 1.9% of the outstanding Common Stock) in June 2001; 17,376,710 (approximately 3.9% of the outstanding Common Stock) in June 2002; 8,698,640 (approximately 1.9% of the outstanding Common Stock) in June 2003; and 8,699,773 (approximately 1.9% of the outstanding Common Stock) in June 2004. This information overstates the number of shares that will be delivered under the Employee RSUs for several reasons.

First, as of December 31, 1999, 809,998 Employee RSUs have already been forfeited and GS Group expects that there will be additional forfeitures in the future as employees leave or fail to satisfy the relevant conditions. Second, GS Group expects that it will withhold shares of Common Stock to satisfy the applicable tax withholding obligations of holders of the RSUs. For example, assuming a U.S. tax withholding rate of 28% and that each U.S. holder of an Employee RSU has a number of shares withheld to meet his or her statutory minimum U.S. tax withholding obligation, 1,704,156, 1,706,879, 3,425,863, 1,717,036 and 1,717,811 shares of Common Stock will be withheld in June 2000, June 2001, June 2002, June 2003 and June 2004, respectively. GS Group also expects that it will withhold shares of Common Stock to satisfy the foreign tax withholding obligations of certain non-U.S. holders. Last, as shares of Common Stock are delivered pursuant to the RSUs, the number of outstanding shares of Common Stock will increase (and hence the number of shares of Common Stock deliverable pursuant to the RSUs as a percentage of the outstanding shares of Common Stock will decline).

Analysis

The Securities and Exchange Commission (the "Commission") has indicated that unregistered securities that are distributed to participants pursuant to an employee benefit plan may be sold to the public if: (1) the issuer is subject to the periodic reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2) the stock distributed to employees is actively traded in the open market; and (3) the number of shares being distributed is relatively small in relation to the number of shares of that class issued and outstanding. See Release No. 33-6188, 1 Fed. Sec. L. Rep. (CCH) 1051, at 2073-27 (Feb. 1, 1980). We believe that all of these conditions are met in the case of the Employee RSUs.

GS Group is subject to the reporting requirements of Section 13 of the Exchange Act and the Common Stock is actively traded on the New York Stock Exchange, thereby satisfying the first two conditions. We also believe that the number of shares of Common Stock deliverable pursuant to the Employee RSUs is "relatively small" in relation to the number of issued and outstanding shares of Common Stock.

The requirement that the amount of securities distributed in reliance upon the interpretive position be "relatively small" in relation to the number of securities issued and outstanding has been interpreted by the Commission to be met if the total amount of securities distributed by an employee benefit plan to its participants during a fiscal year does not exceed one percent of the outstanding securities of the class. See Release No. 33-6281, 1 Fed. Sec. L. Rep. (CCH) 1052, at 2073-39 (Jan. 15, 1981). The Commission also indicated that distributions in excess of 1% may still be "relatively small" if there is data (such as the trading volume) indicating that resales of the distributed shares would not have a measurable impact on the trading market. Id. The staff has applied this standard to permit distributions up to 2.9% of the issuers outstanding common stock, see, e.g., Whitman Corporation, SEC No-Action Letter, 1991 WL 176880 (May 23, 1991) (2.9% of the outstanding common stock); Zenith Electronics Corporation, SEC No-Action Letter, 1989 WL 246230 (June 14, 1989) (2.1% of the outstanding common stock). In one case, the staff considered a distribution of 4.5% of the issuers outstanding common stock to be relatively small. Rubbermaid Incorporated (Available June 7, 1979).

While the number of shares of Common Stock that may be issued pursuant to the Employee RSUs in any one year exceeds one percent of the Common Stock currently outstanding (1.9% in each year, except May 2002, in which 3.9% will be deliverable), we believe that in light of GS Groups large public float, approximately $7.4 billion (based on a $94.1875 per share Common Stock price on December 31, 1999), and the active trading market for the Common Stock, an average daily trading volume of approximately .9 million shares since May 10, 1999, the number of shares deliverable pursuant to the Employee RSUs should be deemed "relatively small" in relation to the issued and outstanding shares of Common Stock. The breadth of the award of the Employee RSUs also supports our position. The Employee RSUs are held by over 12,500 employees. The largest of these holders beneficially owns less than .0001% of the outstanding shares of Common Stock on a fully diluted basis. As discussed above, the number of shares of Common Stock delivered under the Employee RSUs will be further reduced by shares of Common Stock that are withheld to satisfy applicable tax withholding obligations. ^* Finally, we believe that our position is consistent with the volume limitation of Rule 144(e) under the Securities Act. Under Rule 144(e), a minimum of approximately 18 million shares of Common Stock could be sold into the market in any one year based on the current number of outstanding shares of Common Stock (or approximately 18.7 million shares based on the current average weekly trading volume). Thus the full number of shares of Common Stock subject to the Employee RSUs could be sold into the public market consistent with the volume limitation of Rule 144(e) in any one year. Further, our assumption as to the number of shares deliverable under the Employee RSUs is overstated since there already have been, and inevitably will in the future be, forfeitures and the number of outstanding shares of Common Stock will increase as shares of Common Stock are delivered under the outstanding RSUs (and hence the number of shares of Common Stock deliverable pursuant to the RSUs as a percentage of the outstanding shares of Common Stock will decline). Moreover, GS Group may issue additional shares in acquisitions. For example, in the recent acquisition of The Hull Group, GS Group issued 4,024,637 shares of Common Stock.

Based on the foregoing, we respectfully request the staff of the Commission to concur in our view that the shares of Common Stock underlying the Employee RSUs are not restricted securities within the meaning of Rule 144(a)(3) and that, as a result, the shares of Common Stock received by non-affiliates of GS Group pursuant to the Employee RSUs may be sold to the public without registration under the Securities Act and the shares of Common Stock received by affiliates of GS Group pursuant to the Employee RSUs may be sold to the public pursuant to Rule 144, but without regard to the holding period requirement of Rule 144(d).

If you desire any additional information or have any questions concerning the foregoing, please do not hesitate to contact me at (212) 558-3755 or, in my absence, John Mead at (212) 558-3764.

Very truly yours,

Robert W. Reeder

cc: Gregory K. Palm

(The Goldman Sachs Group, Inc.)

Ricardo A. Mestres

John P. Mead

David B. Harms

(Sullivan & Cromwell)

[STAFF REPLY LETTER]

February 22, 2000

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: The Goldman Sachs Group

Incoming letter dated January 31, 1999

Based on the facts presented, the Division agrees that the common stock of the Goldman Sachs Group deliverable to employees in June, 2000, under the terms of the described plan will not be restricted securities within the meaning of rule 144(a)(3) under the Securities Act of 1933. We have noted that the issuer is subject to the reporting requirements of section 13(a) of the Securities Exchange Act of 1934, its common shares are actively traded, and the number of shares to be delivered is relatively small. Employees who are unaffiliated with the issuer may resell such shares without regard to rule 144. Affiliated employee recipients of the shares may resell under rule 144. Because the securities will not be restricted securities, the holding period condition of rule 144 will not apply to these resales.

The market activity and relatively small amount tests must be satisfied in the period securities are issued to participants. Based on current conditions, the number of shares deliverable under the plan in June of 2001, 2002, 2003, and 2004 will likewise be unrestricted securities. If, at the time of delivery, material changes in the number of shares outstanding or in the share trading volume would have occurred, the conclusion that the shares are unrestricted could be impaired.

This position is based on the representations made to the Division in your letter. Different facts or conditions might require another result.

Sincerely,

Michael Hyatte

Special Counsel

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