Goldman Sachs Reports Second Quarter Results; Net Revenues Exceed $10 Billion for the Second Consecutive Quarter

The Goldman Sachs Group, Inc. (NYSE: GS) today reportednet revenues of $10.10 billion for its second quarter ended May 26,2006. Net earnings for the quarter were $2.40 billion (1) and dilutedearnings per common share were $4.97 (1), in each case excludingincremental non-cash expenses of $138 million related to theaccounting for certain share-based awards under SFAS No. 123-R (1).Including these non-cash expenses, net earnings were $2.31 billion anddiluted earnings per common share were $4.78 for the second quarter.These results compare with $1.71 for the second quarter of 2005 and$5.41 (1), excluding incremental non-cash expenses of $237 millionrelated to SFAS No. 123-R (1), for the first quarter of 2006.Including these non-cash expenses, diluted earnings per common sharewere $5.08 for the first quarter of 2006.

Excluding the non-cash expenses of $138 million, annualized return
on average tangible common shareholders' equity (2) was 40.8% (1) and
annualized return on average common shareholders' equity was 33.9% (1)
for the second quarter. Including these non-cash expenses, annualized
return on average tangible common shareholders' equity (2) was 39.0%
and annualized return on average common shareholders' equity was 32.5%
for the second quarter.

Business Highlights

-- Goldman Sachs continued its leadership in investment banking,
ranking first in worldwide announced and completed mergers and
acquisitions, equity and equity-related offerings, public
common stock offerings and initial public offerings for the
calendar year-to-date. (3)

-- Investment Banking produced net revenues of $1.53 billion, its
second best quarter and its best quarterly performance in six
years.

-- Fixed Income, Currency and Commodities (FICC) generated record
quarterly net revenues of $4.32 billion, 15% higher than the
previous record, reflecting strong performance across all
major businesses.

-- Equities produced quarterly net revenues of $2.35 billion, its
second best quarter.

-- Asset Management generated net revenues of $954 million, its
second best quarter and 38% higher than the second quarter of
2005. Assets under management increased to a record $593
billion, 21% higher than a year ago, including net asset
inflows of $15 billion during the quarter.

-- Securities Services produced record quarterly net revenues of
$656 million, 34% higher than the previous record.

______________

"We are pleased with our very strong results in the second quarter
and our record performance for the first half of the year," said Lloyd
C. Blankfein, President and Chief Operating Officer. "We have
continued to benefit from the strength, breadth and depth of our
client franchise. Recent market volatility has served as a reminder of
the vital importance of investor confidence to the smooth functioning
of the global financial system, but we take comfort from the
continuation of strong global economic growth."

Net Revenues

Investment Banking
------------------

Net revenues in Investment Banking were $1.53 billion, 87% higher
than the second quarter of 2005, reflecting growth across all regions,
and 4% higher than the first quarter of 2006. Net revenues in
Financial Advisory were $608 million, 58% higher than the second
quarter of 2005, primarily reflecting strong growth in industry-wide
completed mergers and acquisitions. Net revenues in the firm's
Underwriting business were $918 million, 114% higher than the second
quarter of 2005. Net revenues were significantly higher in equity
underwriting, primarily reflecting an increase in industry-wide equity
and equity-related offerings, and in debt underwriting, primarily due
to an increase in leveraged finance activity. The firm's investment
banking backlog increased during the quarter.

Trading and Principal Investments
---------------------------------

Net revenues in Trading and Principal Investments were $6.96
billion, up from $2.81 billion in the second quarter of 2005 and
essentially unchanged from the first quarter of 2006.

Net revenues in FICC were $4.32 billion compared with $1.52
billion in the second quarter of 2005, reflecting significantly higher
net revenues in commodities, credit products and interest rate
products. The increase in commodities reflected a $700 million gain
related to the sale of East Coast Power, L.L.C., one of the firm's
power generation facilities, as well as strong results across the
business. In addition, net revenues were higher in currencies and
mortgages. During the quarter, FICC operated in a favorable
environment generally characterized by strong customer-driven
activity, favorable market opportunities, tight credit spreads and
volatile markets.

Net revenues in Equities were $2.35 billion compared with $1.11
billion in the second quarter of 2005, reflecting significantly higher
net revenues across all regions in shares and derivatives. In
addition, net revenues in the firm's principal strategies business
improved compared with the second quarter of 2005. During the quarter,
the business operated in an environment characterized by strong
customer-driven activity and generally favorable market opportunities,
although conditions became more challenging in May.

Principal Investments recorded net revenues of $293 million,
reflecting $354 million in gains and overrides from corporate and real
estate principal investments, partially offset by a $61 million loss
related to the firm's investment in the convertible preferred stock of
Sumitomo Mitsui Financial Group, Inc. (SMFG).

Asset Management and Securities Services
----------------------------------------

Net revenues in Asset Management and Securities Services were
$1.61 billion, 37% higher than the second quarter of 2005. Net
revenues decreased 19% compared with the first quarter of 2006,
reflecting lower incentive fees in Asset Management.

Asset Management net revenues were $954 million, 38% higher than
the second quarter of 2005. The increase was driven by significantly
higher management and other fees, primarily due to growth in assets
under management, as well as higher incentive fees. During the
quarter, assets under management increased 4% to $593 billion,
reflecting net asset inflows of $15 billion, spread across all asset
classes, as well as market appreciation of $7 billion, primarily in
alternative investment and fixed income assets.

Securities Services net revenues were $656 million, 34% higher
than the second quarter of 2005, as the firm's prime brokerage
business continued to generate strong results, reflecting
significantly higher global customer balances in securities lending
and margin lending as well as higher seasonal activity levels in
Europe.

Expenses

Operating expenses were $6.57 billion, 85% higher than the second
quarter of 2005 and essentially unchanged from the first quarter of
2006.

Compensation and Benefits
-------------------------

Compensation and benefits expenses were $5.09 billion compared
with $2.40 billion in the second quarter of 2005, primarily reflecting
higher net revenues. Employment levels increased 2% during the
quarter.

In the first quarter of 2006, the firm adopted SFAS No. 123-R,
which requires that share-based awards granted to retirement-eligible
employees, including those subject to non-compete agreements, be
expensed in the year of grant. In addition to expensing current year
awards, prior year awards must continue to be amortized over the
relevant service period. Therefore, although there is no incremental
economic cost to the firm, compensation and benefits in 2006 will
include both amortization of prior year awards as well as new awards
granted to retirement-eligible employees for services rendered in
2006.

The majority of the expense related to the continued amortization
of prior year awards will be recognized in 2006. The estimated annual
expense for 2006 is approximately $650 million, of which $375 million
was recognized in the first half of 2006. The ratio of compensation
and benefits to net revenues, excluding the non-cash expenses of $375
million, was 49.0% (1) for the first half of 2006, compared with 50.0%
for the first half of 2005. Including the non-cash expenses of $375
million, the ratio of compensation and benefits to net revenues was
50.8% for the first half of 2006.

Non-Compensation Expenses
-------------------------

Non-compensation expenses were $1.49 billion, 28% higher than the
second quarter of 2005. Excluding non-compensation expenses related to
consolidated investment entities held for investment purposes (4),
non-compensation expenses were 23% higher than the second quarter of
2005. One-half of this increase was attributable to higher brokerage,
clearing and exchange fees, primarily in Equities. Other expenses were
higher primarily due to costs related to the firm's insurance
business, which was acquired in the first quarter of 2006, and net
provisions for litigation and regulatory proceedings of $19 million.

Provision For Taxes
-------------------

The effective income tax rate for the first half of 2006 was
33.6%, up from 32.8% for the first quarter of 2006 and 32.0% for the
fiscal year 2005. The increase in the effective tax rate for the first
half of 2006 compared with the first quarter of 2006 was primarily due
to the effect of lower estimated tax credits. The increase in the
effective tax rate for the first half of 2006 compared with the fiscal
year 2005 was primarily due to the impact of audit settlements in 2005
and lower estimated tax credits in 2006.

Capital

As of May 26, 2006, total capital was $157.39 billion, consisting
of $31.80 billion in total shareholders' equity (common equity of
$29.20 billion and preferred stock of $2.60 billion) and $125.59
billion in long-term borrowings. (5) Book value per common share was
$64.92 based on common shares outstanding, including restricted stock
units granted to employees with no future service requirements, of
449.8 million at period end. Tangible book value per common share was
$54.36. (2)

On May 24, 2006, The Goldman Sachs Group, Inc. issued $850 million
of perpetual Floating Rate Non-Cumulative Preferred Stock, Series D
(Series D Preferred Stock).

The firm repurchased 6.5 million shares of its common stock at an
average price of $156.59 per share, for a total cost of $1.02 billion
during the quarter. The remaining share authorization under the firm's
existing common stock repurchase program is 17.2 million shares.

Dividends

The Board of Directors of The Goldman Sachs Group, Inc. (the
Board) declared a dividend of $0.35 per common share to be paid on
August 24, 2006 to common shareholders of record on July 25, 2006. The
Board also declared dividends of $377.58, $387.50, $377.58 and $318.36
per share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, respectively
(represented by depositary shares, each representing a 1/1000th
interest in a share of preferred stock), to be paid on August 10, 2006
to preferred shareholders of record on July 26, 2006.

______________

Goldman Sachs is a leading global investment banking, securities
and investment management firm that provides a wide range of services
worldwide to a substantial and diversified client base that includes
corporations, financial institutions, governments and high-net-worth
individuals. Founded in 1869, it is one of the oldest and largest
investment banking firms. The firm is headquartered in New York and
maintains offices in London, Frankfurt, Tokyo, Hong Kong and other
major financial centers around the world.

Cautionary Note Regarding Forward-Looking Statements
----------------------------------------------------

This press release contains "forward-looking statements." These
statements are not historical facts but instead represent only the
firm's belief regarding future events, many of which, by their nature,
are inherently uncertain and outside of the firm's control. It is
possible that the firm's actual results and financial condition may
differ, possibly materially, from the anticipated results and
financial condition indicated in these forward-looking statements. For
a discussion of some of the risks and important factors that could
affect the firm's future results, see "Risk Factors" in Part I, Item
1A of the firm's Annual Report on Form 10-K for the fiscal year ended
November 25, 2005.

Statements about the firm's investment banking transaction backlog
also may constitute forward-looking statements. Such statements are
subject to the risk that the terms of these transactions may be
modified or that they may not be completed at all; therefore, the net
revenues that the firm expects to earn from these transactions may
differ, possibly materially, from those currently expected. Important
factors that could result in a modification of the terms of a
transaction or a transaction not being completed include, in the case
of underwriting transactions, a decline in general economic
conditions, volatility in the securities markets generally or an
adverse development with respect to the issuer of the securities and,
in the case of financial advisory transactions, a decline in the
securities markets, an adverse development with respect to a party to
the transaction or a failure to obtain a required regulatory approval.
For a discussion of other important factors that could adversely
affect the firm's investment banking transactions, see "Risk Factors"
in Part I, Item 1A of the firm's Annual Report on Form 10-K for the
fiscal year ended November 25, 2005.

Conference Call
---------------

A conference call to discuss the firm's results, outlook and
related matters will be held at 11:00 am (ET). The call will be open
to the public. Members of the public who would like to listen to the
conference call should dial 1-888-281-7154 (U.S. domestic) and
1-706-679-5627 (international). The number should be dialed at least
10 minutes prior to the start of the conference call. The conference
call will also be accessible as an audio webcast through the Investor
Relations section of the firm's Web site,
www.gs.com/our_firm/investor_relations/. There is no charge to access
the call. For those unable to listen to the live broadcast, a replay
will be available on the firm's Web site or by dialing 1-800-642-1687
(U.S. domestic) or 1-706-645-9291 (international) passcode number
8887728, beginning approximately two hours after the event. Please
direct any questions regarding obtaining access to the conference call
to Goldman Sachs Investor Relations, via e-mail, at
gs-investor-relations@gs.com.


THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SEGMENT NET REVENUES
(UNAUDITED)
$ in millions

Three Months Ended % Change From
------------------------- ----------------
May 26, Feb. 24, May 27, Feb. 24, May 27,
2006 2006 2005 2006 2005
-------- -------- ------- -------- -------
Investment Banking
------------------
Financial Advisory $ 608 $ 736 $ 386 (17)% 58 %

Equity underwriting 482 283 114 70 N.M.
Debt underwriting 436 452 315 (4) 38
-------- -------- ------- -------- -------
Total Underwriting 918 735 429 25 114
-------- -------- ------- -------- -------
Total Investment
Banking 1,526 1,471 815 4 87
-------- -------- ------- -------- -------
Trading and Principal
Investments
---------------------
FICC 4,316 3,740 1,519 15 184

Equities trading 1,416 1,607 372 (12) N.M.
Equities commissions 936 842 733 11 28
-------- -------- ------- -------- -------
Total Equities 2,352 2,449 1,105 (4) 113

SMFG (61) 405 73 N.M. N.M.
Other corporate
and real estate
gains and losses 280 200 107 40 162
Overrides 74 90 9 (18) N.M.
-------- -------- ------- -------- -------
Total Principal
Investments 293 695 189 (58) 55

-------- -------- ------- -------- -------
Total Trading
and Principal
Investments 6,961 6,884 2,813 1 147
-------- -------- ------- -------- -------

Asset Management and
Securities Services
--------------------
Management and
other fees 850 750 657 13 29
Incentive fees 104 739 32 (86) N.M.
-------- -------- ------- -------- -------
Total Asset Management 954 1,489 689 (36) 38

Securities Services 656 491 489 34 34

-------- -------- ------- -------- -------
Total Asset
Management
and Securities
Services 1,610 1,980 1,178 (19) 37
-------- -------- ------- -------- -------

-------- -------- ------- -------- -------
Total net revenues $10,097 $10,335 $4,806 (2) 110
======== ======== ======= ======== =======


Six Months Ended % Change From
----------------- -------------
May 26, May 27, May 27,
2006 2005 2005
-------- -------- -------------
Investment Banking
------------------
Financial Advisory $ 1,344 $ 800 68 %

Equity underwriting 765 300 155
Debt underwriting 888 608 46
-------- -------- -------------
Total Underwriting 1,653 908 82

-------- -------- -------------
Total Investment Banking 2,997 1,708 75
-------- -------- -------------

Trading and Principal Investments
---------------------------------
FICC 8,056 4,008 101

Equities trading 3,023 1,201 152
Equities commissions 1,778 1,454 22
-------- -------- -------------
Total Equities 4,801 2,655 81

SMFG 344 254 35
Other corporate and real estate gains
and losses 480 255 88
Overrides 164 24 N.M.
-------- -------- -------------
Total Principal Investments 988 533 85

-------- -------- -------------
Total Trading and Principal
Investments 13,845 7,196 92
-------- -------- -------------

Asset Management and Securities
Services
-------------------------------
Management and other fees 1,600 1,275 25
Incentive fees 843 163 N.M.
-------- -------- -------------
Total Asset Management 2,443 1,438 70

Securities Services 1,147 869 32

-------- -------- -------------
Total Asset Management and Securities
Services 3,590 2,307 56
-------- -------- -------------

-------- -------- -------------
Total net revenues $20,432 $11,211 82
======== ======== =============


THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
In millions, except per share amounts and employees


Three Months Ended % Change From
------------------------- -----------------
May 26, Feb. 24, May 27, Feb. 24, May 27,
2006 2006 2005 2006 2005
-------- -------- ------- -------- --------

Revenues
--------
Investment banking $ 1,521 $ 1,470 $ 796 3 % 91 %
Trading and principal
investments 6,921 6,687 2,562 3 170
Asset management and
securities services 1,016 1,554 724 (35) 40
Interest income 8,544 7,535 4,867 13 76
-------- -------- ------- -------- --------
Total revenues 18,002 17,246 8,949 4 101

Interest expense 7,761 6,813 4,022 14 93
Cost of power
generation (6) 144 98 121 47 19
-------- -------- ------- -------- --------
Revenues, net of
interest expense and
cost of power
generation 10,097 10,335 4,806 (2) 110
-------- -------- ------- -------- --------

Operating expenses
------------------
Compensation and
benefits 5,086 5,301 2,403 (4) 112

Brokerage, clearing and
exchange fees 403 351 274 15 47
Market development 121 100 94 21 29
Communications and
technology 131 124 123 6 7
Depreciation and
amortization 127 125 128 2 (1)
Amortization of
identifiable intangible
assets 44 34 31 29 42
Occupancy 199 193 186 3 7
Professional fees 123 109 109 13 13
Other expenses 339 309 214 10 58
-------- -------- ------- -------- --------
Total non-compensation
expenses 1,487 1,345 1,159 11 28

-------- -------- ------- -------- --------
Total operating expenses 6,573 6,646 3,562 (1) 85
-------- -------- ------- -------- --------

Pre-tax earnings 3,524 3,689 1,244 (4) 183
Provision for taxes 1,212 1,210 379 - N.M.
-------- -------- ------- -------- --------
Net earnings 2,312 2,479 865 (7) 167

Preferred stock dividends 26 26 - - N.M.
-------- -------- ------- -------- --------
Net earnings applicable
to common shareholders $ 2,286 $ 2,453 $ 865 (7) 164
======== ======== ======= ======== ========

Earnings per common share
-------------------------
Basic $ 5.08 $ 5.36 $ 1.78 (5)% 185 %
Diluted 4.78 5.08 1.71 (6) 180
Diluted, excluding the
impact of the continued
amortization of prior
year share-based awards
in 2006 (1) 4.97 5.41 1.71 (8) 191

Average common shares
outstanding
---------------------
Basic 449.7 457.3 485.4 (2) (7)
Diluted 478.3 483.3 506.2 (1) (6)

Selected Data
-------------
Employees at period
end (7)(8) 24,013 23,641 21,800 2 10

Ratio of compensation
and benefits to net
revenues 50.4 % 51.3 % 50.0 %
Ratio of compensation
and benefits to net
revenues, excluding the
impact of the continued
amortization of prior
year share-based awards
in 2006 (1) 49.0 49.0 50.0



THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
In millions, except per share amounts


Six Months Ended % Change From
----------------- -------------
May 26, May 27, May 27,
2006 2005 2005
-------- -------- -------------
Revenues
--------
Investment banking $ 2,991 $ 1,669 79 %
Trading and principal investments 13,608 6,703 103
Asset management and securities
services 2,570 1,498 72
Interest income 16,079 9,043 78
-------- -------- -------------
Total revenues 35,248 18,913 86

Interest expense 14,574 7,471 95
Cost of power generation (6) 242 231 5
-------- -------- -------------
Revenues, net of interest expense and
cost of power generation 20,432 11,211 82
-------- -------- -------------

Operating expenses
------------------
Compensation and benefits 10,387 5,606 85

Brokerage, clearing and exchange fees 754 526 43
Market development 221 176 26
Communications and technology 255 241 6
Depreciation and amortization 252 246 2
Amortization of identifiable
intangible assets 78 62 26
Occupancy 392 334 17
Professional fees 232 205 13
Other expenses 648 426 52
-------- -------- -------------
Total non-compensation expenses 2,832 2,216 28

-------- -------- -------------
Total operating expenses 13,219 7,822 69
-------- -------- -------------

Pre-tax earnings 7,213 3,389 113
Provision for taxes 2,422 1,012 139
-------- -------- -------------
Net earnings 4,791 2,377 102

Preferred stock dividends 52 - N.M.
-------- -------- -------------
Net earnings applicable to common
shareholders $ 4,739 $ 2,377 99
======== ======== =============

Earnings per common share
-------------------------
Basic $ 10.45 $ 4.85 115 %
Diluted 9.86 4.65 112
Diluted, excluding the impact of the
continued amortization of prior year
share-based awards in 2006 (1) 10.38 4.65 123

Average common shares outstanding
---------------------------------
Basic 453.5 489.8 (7)
Diluted 480.8 510.7 (6)

Selected Data
-------------
Ratio of compensation and benefits to
net revenues 50.8 % 50.0 %
Ratio of compensation and benefits to
net revenues, excluding the impact of
the continued amortization of prior
year share-based awards in 2006 (1) 49.0 50.0

Annualized return on average tangible
common shareholders' equity (2) 41.4 22.6
Annualized return on average tangible
common shareholders' equity,
excluding the impact of the continued
amortization of prior year
share-based awards in 2006 (1) 43.7 22.6

Annualized return on average common
shareholders' equity 34.3 18.5
Annualized return on average common
shareholders' equity, excluding the
impact of the continued amortization
of prior year share-based awards
in 2006 (1) 36.2 18.5



NON-COMPENSATION EXPENSES
(UNAUDITED)
$ in millions

Three Months Ended % Change From
------------------------- ----------------
May 26, Feb. 24, May 27, Feb. 24, May 27,
2006 2006 2005 2006 2005
-------- -------- ------- -------- -------

Non-compensation expenses
of consolidated
investments (4) $ 119 $ 99 $ 49 20 % 143 %

Non-compensation expenses
excluding consolidated
investments
Brokerage, clearing and
exchange fees 403 351 274 15 47
Market development 113 92 90 23 26
Communications and
technology 129 123 123 5 5
Depreciation and
amortization 110 112 124 (2) (11)
Amortization of
identifiable intangible
assets 44 34 31 29 42
Occupancy 171 169 174 1 (2)
Professional fees 121 105 108 15 12
Other expenses 277 260 186 7 49
-------- -------- ------- -------- -------
Subtotal 1,368 1,246 1,110 10 23

-------- -------- ------- -------- -------
Total non-compensation
expenses, as reported $ 1,487 $ 1,345 $1,159 11 28
======== ======== ======= ======== =======



Six Months Ended % Change From
----------------- -------------
May 26, May 27, May 27,
2006 2005 2005
-------- -------- -------------

Non-compensation expenses of
consolidated investments (4) $ 218 $ 64 N.M. %

Non-compensation expenses excluding
consolidated investments
Brokerage, clearing and exchange fees 754 526 43
Market development 205 172 19
Communications and technology 252 241 5
Depreciation and amortization 222 240 (8)
Amortization of identifiable
intangible assets 78 62 26
Occupancy 340 322 6
Professional fees 226 204 11
Other expenses 537 385 39
-------- -------- -------------
Subtotal 2,614 2,152 21

-------- -------- -------------
Total non-compensation expenses, as
reported $ 2,832 $ 2,216 28
======== ======== =============



THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(UNAUDITED)

Average Daily VaR (9)
$ in millions

Three Months Ended
-------------------------
May 26, Feb. 24, May 27,
2006 2006 2005
-------- -------- -------
Risk Categories
Interest rates $ 49 $ 40 $ 33
Equity prices 83 69 26
Currency rates 29 18 19
Commodity prices 31 30 24
Diversification
effect (10) (80) (65) (42)
-------- -------- -------
Total $ 112 $ 92 $ 60
======== ======== =======


Assets Under Management (11)
$ in billions

As of % Change From
------------------------- ----------------
May 31, Feb. 28, May 31, Feb. 28, May 31,
2006 2006 2005 2006 2005
-------- -------- ------- -------- -------

Money markets $ 108 $ 106 $ 98 2 % 10 %
Fixed income 172 165 147 4 17
Equity 185 181 142 2 30
Alternative investments 128 119 103 8 24
-------- -------- ------- -------- -------
Total $ 593 $ 571(12)$ 490 4 21
======== ======== ======= ======== =======


Three Months Ended
-------------------------
May 31, Feb. 28, May 31,
2006 2006 2005
-------- -------- -------

Balance, beginning of period $ 571 $ 532 $ 482

Net asset inflows / (outflows)
Money markets 2 5 (1)
Fixed income 4 8 5
Equity 3 5 2
Alternative investments 6 7 4
-------- -------- -------
Total net asset inflows / (outflows) 15 25(12) 10

Net market appreciation / (depreciation) 7 14 (2)

-------- -------- -------
Balance, end of period $ 593 $ 571 $ 490
======== ======== =======


Principal Investments
$ in millions

As of May 26, 2006
------------------------------
Corporate Real Estate Total
--------- ----------- --------

Private $ 2,291 $ 609 $ 2,900
Public 826 3 829
--------- ----------- --------
Subtotal 3,117 612 3,729
SMFG convertible preferred stock (13) 4,617 - 4,617
Industrial and Commercial Bank of China
Limited (14) 2,591 - 2,591
--------- ----------- --------
Total $ 10,325 $ 612 $10,937
========= =========== ========


Footnotes

(1) Statement of Financial Accounting Standards (SFAS) No. 123-R,
"Share-Based Payment," focuses primarily on accounting for
transactions in which an entity obtains employee services in
exchange for share-based payments. In the first quarter of 2006,
the firm adopted SFAS No. 123-R, which requires that share-based
awards granted to retirement-eligible employees, including those
subject to non-compete agreements, be expensed in the year of
grant. In addition to expensing current year awards, prior year
awards must continue to be amortized over the relevant service
period. Therefore, although there is no incremental economic cost
to the firm, compensation and benefits expenses in fiscal 2006
will include both amortization of prior year awards and new
awards granted to retirement-eligible employees for services
rendered in fiscal 2006. Management believes that presenting the
firm's results excluding the impact of the continued amortization
of prior year share-based awards granted to retirement-eligible
employees increases the comparability of period-to-period
operating results and allows for a more meaningful representation
of the relationship of current period compensation to net
revenues.

The following tables set forth a reconciliation of net earnings,
diluted earnings per common share, common shareholders' equity
and the ratio of compensation and benefits to net revenues as
reported, to these items excluding the impact of the continued
amortization of prior year share-based awards granted to
retirement-eligible employees:


Three Months Six Months Three Months
Ended Ended Ended
May 26, May 26, February 24,
2006 2006 2006
------------ ------------ ------------
(unaudited, $ in millions)
Net earnings $2,312 $4,791 $2,479
Impact of the continued
amortization of prior
year share-based awards,
net of tax 91 250 159
------------ ------------ ------------
Net earnings, excluding
the impact of the
continued amortization of
prior year share-based
awards 2,403 5,041 2,638
Preferred stock dividends (26) (52) (26)
------------ ------------ ------------
Net earnings applicable to
common shareholders,
excluding the impact of
the continued
amortization of prior
year share-based awards $2,377 $4,989 $2,612
============ ============ ============


Three Months Six Months Three Months
Ended Ended Ended
May 26, May 26, February 24,
2006 2006 2006
------------ ------------ ------------
(unaudited)
Diluted earnings per
common share $4.78 $9.86 $5.08
Impact of the continued
amortization of prior
year share-based awards,
net of tax 0.19 0.52 0.33
------------ ------------ ------------
Diluted earnings per
common share, excluding
the impact of the
continued amortization of
prior year share-based
awards $4.97 $10.38 $5.41
============ ============ ============


Average for the
--------------------------------------
Three Months Six Months Three Months
Ended Ended Ended
May 26, May 26, February 24,
2006 2006 2006
------------ ------------ ------------
(unaudited, $ in millions)
Total shareholders' equity $30,082 $29,473 $28,724
Preferred stock (1,963) (1,871) (1,750)
------------ ------------ ------------
Common shareholders'
equity 28,119 27,602 26,974
Impact of the continued
amortization of prior
year share-based awards,
net of tax (105) (76) (48)
------------ ------------ ------------
Common shareholders'
equity, excluding the
impact of the continued
amortization of prior
year share-based awards 28,014 27,526 26,926

Goodwill and identifiable
intangible assets,
excluding power contracts
and the value of business
acquired (see footnote
2 below) (4,694) (4,694) (4,687)
------------ ------------ ------------
Tangible common
shareholders' equity (see
footnote 2 below),
excluding the impact of
the continued
amortization of prior
year share-based awards $23,320 $22,832 $22,239
============ ============ ============


Three Months Six Months Three Months
Ended Ended Ended
May 26, May 26, February 24,
2006 2006 2006
------------- ------------ ------------
(unaudited, $
in millions)

Compensation and benefits $5,086 $10,387 $5,301
Impact of the continued
amortization of prior
year share-based awards (138) (375) (237)
------------- ------------ ------------
Compensation and
benefits, excluding the
impact of the continued
amortization of prior
year share-based awards $4,948 $10,012 $5,064
============= ============ ============

Total net revenues $10,097 $20,432 $10,335

Ratio of compensation and
benefits to net revenues,
excluding the impact of
the continued
amortization of prior
year share-based awards 49.0% 49.0% 49.0%


The firm's ratio of compensation and benefits to net revenues,
excluding the impact of the continued amortization of prior
year share-based awards, is computed by dividing compensation
and benefits, excluding the impact of the continued amortization
of prior year share-based awards, by total net revenues.

(2) Tangible common shareholders' equity equals total shareholders'
equity less preferred stock, goodwill and identifiable intangible
assets, excluding power contracts and the value of business
acquired (VOBA). VOBA represents the present value of estimated
future gross profits of the variable annuity and variable life
insurance business acquired in fiscal 2006. In fiscal 2006,
management amended its calculation of tangible common
shareholders' equity. Management no longer deducts identifiable
intangible assets associated with power contracts from common
shareholders' equity and management does not deduct VOBA.
Management does not deduct these assets because, unlike other
intangible assets, the firm does not hold material amounts of
common shareholders' equity to support these assets. Prior
periods have been restated to conform to the current period
presentation.

Management believes that annualized return on average tangible
common shareholders' equity is a meaningful measure of
performance because it measures the performance of businesses
consistently, whether they were acquired or developed internally.
Annualized return on average tangible common shareholders' equity
is computed by dividing annualized net earnings applicable to
common shareholders by average monthly tangible common
shareholders' equity. The following table sets forth a
reconciliation of average total shareholders' equity to average
tangible common shareholders' equity:

Average for the As of
-------------------------- --------
Three Six Six
Months Months Months
Ended Ended Ended
May 26, May 26, May 27, May 26,
2006 2006 2005 2006
-------- -------- -------- --------
(unaudited, $ in millions)

Total shareholders' equity $30,082 $29,473 $25,967 $31,800
Preferred stock (1,963) (1,871) (214) (2,600)
-------- -------- -------- --------
Common shareholders' equity 28,119 27,602 25,753 29,200
Goodwill and identifiable
intangible assets, excluding
power contracts and VOBA (4,694) (4,694) (4,764) (4,749)
-------- -------- -------- --------
Tangible common shareholders'
equity $23,425 $22,908 $20,989 $24,451
======== ======== ======== ========

(3) Thomson Financial - January 1, 2006 through May 26, 2006.

(4) Consolidated entities held for investment purposes includes
entities that are held strictly for capital appreciation, have a
defined exit strategy and are engaged in activities that are not
closely related to the firm's principal businesses. For example,
these investments include consolidated entities that hold real
estate assets such as golf courses and hotels in Asia, but
exclude investments in entities that primarily hold financial
assets. Management believes that it is meaningful to review
non-compensation expenses excluding expenses related to these
consolidated entities in order to evaluate trends in
non-compensation expenses related to the firm's principal
business activities.

(5) Long-term borrowings includes nonrecourse debt of $15.49 billion,
consisting of $5.23 billion issued by William Street Funding
Corporation (a wholly owned subsidiary of The Goldman Sachs
Group, Inc. formed to raise funding to support loan commitments
to investment-grade clients made by another wholly owned William
Street entity) and $10.26 billion issued by other consolidated
entities. Nonrecourse debt is debt that only the issuing
subsidiary or, if applicable, a subsidiary guaranteeing the debt
is obligated to repay.

(6) Cost of power generation includes all of the direct costs of the
firm's consolidated power generation facilities (e.g., fuel,
operations and maintenance), as well as the depreciation and
amortization associated with the facilities and related
contractual assets. Power generation revenues are included in
"Trading and principal investments."

(7) Excludes 9,369, 8,171 and 6,844 employees as of May 2006,
February 2006 and May 2005, respectively, of consolidated
entities held for investment purposes. Compensation and benefits
includes $61 million, $51 million and $19 million for the three
months ended May 26, 2006, February 24, 2006 and May 27, 2005,
respectively, attributable to these consolidated entities.

(8) Beginning with fiscal year 2006, includes 1,225 and 1,168
employees as of May 2006 and February 2006, respectively, of
Goldman Sachs' consolidated property management and loan
servicing subsidiaries. May 2005 has been restated to conform to
the current presentation and includes 912 employees.

(9) VaR is the potential loss in value of Goldman Sachs' trading
positions due to adverse market movements over a one-day time
horizon with a 95% confidence level. The modeling of the risk
characteristics of the firm's trading positions involves a number
of assumptions and approximations. While management believes that
these assumptions and approximations are reasonable, there is no
standard methodology for estimating VaR, and different
assumptions and/or approximations could produce materially
different VaR estimates. For a further discussion of the
calculation of VaR, see Part II, Item 7A "Quantitative and
Qualitative Disclosures About Market Risk" in the firm's Annual
Report on Form 10-K for the fiscal year ended November 25, 2005.

(10) Equals the difference between total VaR and the sum of the VaRs
for the four risk categories. This effect arises because the four
market risk categories are not perfectly correlated.

(11) In the first fiscal quarter of 2006, the methodology for
classifying certain non-money market assets was changed. The
changes were primarily to reclassify certain assets allocated to
external investment managers out of alternative investment assets
and to reclassify currency assets into alternative investment
assets. The changes did not impact total assets under management
and May 2005 has been restated to conform to the current
presentation. Substantially all assets under management are
valued as of calendar month end.

(12) Includes $3 billion of net asset inflows in connection with the
December 30, 2005 acquisition of the variable annuity and
variable life insurance business of The Hanover Insurance Group,
Inc. (formerly Allmerica Financial Corporation), including its
wholly owned life insurance subsidiary, Allmerica Financial Life
Insurance and Annuity Company.

(13) Excludes an economic hedge on the unrestricted shares of common
stock underlying the investment. As of May 26, 2006, the fair
value of this hedge was $2.33 billion. Includes the impact of
foreign exchange revaluation on the investment, for which the
firm also maintains an economic hedge.

(14) Includes economic interests of $1.65 billion as of May 26, 2006
assumed by investment funds managed by Goldman Sachs.