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LETTER TO SHAREHOLDERS

SIGNIFICANT TRANSACTIONS
On February 7, 2003, Goldman Sachs entered into a series of related transactions with Sumitomo Mitsui Financial Group, Inc. (SMFG) that include an investment of ¥150.3 billion ($1.25 billion) in convertible preferred stock of SMFG, the provision by SMFG of credit loss protection to Goldman Sachs and a broadening of cooperative initiatives between our two firms. We believe these transactions have strategic significance and real benefit to both organizations and their shareholders. For Goldman Sachs, it enables us to pursue three important objectives. First, it deepens our participation in Japan and Japanese financial markets, through an investment in one of that nation's largest and best-managed institutions. Second, the credit protection component will enhance Goldman Sachs' ability to offer credit commitments to investment-grade clients while mitigating in part the credit risk of doing so. Finally, the agreement with SMFG extends the range of cooperative initiatives between Goldman Sachs and SMFG, and areas on which we anticipate working together will include the disposition of non-performing assets, investment banking and asset management. This transaction is especially meaningful, given the long and successful relationship between our firms, including Sumitomo Bank's historic capital investment of $500 million in Goldman Sachs initiated in 1986.

BOARD OF DIRECTORS/MANAGEMENT CHANGES
In December, we announced that William George, former Chairman and CEO of Medtronic, Inc., was joining our Board of Directors. Bill fills the seat Steve Friedman left when he retired to become Assistant to the President for Economic Policy and Director of the National Economic Council. We will miss Steve's contributions to the Board, although we are gratified that President Bush will have the benefit of his counsel. And we are fortunate to gain a new director of Bill's caliber. Morris Chang and Meg Whitman also resigned as directors late in 2002. We are grateful for their dedication and insights as directors. In February 2003, in light of the announced retirement of Bob Hurst, the Board nominated Lloyd Blankfein, a Vice Chairman of Goldman Sachs with responsibility for our securities businesses, to stand for election to our Board of Directors at the April 1 Annual Meeting. We look forward to having Lloyd as a new director and we thank Bob for his contributions to our Board.

Over the past year we changed the ranks of our senior leadership to meet the challenging business environment and to ensure the best possible service to our clients. Lloyd Blankfein, Bob Steel and Rob Kaplan were appointed Vice Chairmen and asked to take on expanded management responsibilities. In addition, Masanori Mochida, Suzanne Nora Johnson, John Weinberg, Gary Cohn, Chris Cole, Michael Evans, Scott Kapnick, Peter Kraus, Eric Mindich, Tom Montag, Eric Schwartz, Michael Sherwood and Andrew Melnick joined the firm's Management Committee over the course of 2002. These individuals bring a wealth of talent and experience and a diversity of perspectives to the Committee.

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