8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
September 12, 2006

THE GOLDMAN SACHS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	No. 001-14965	No. 13-4019460
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

85 Broad Street New York, New York	10004
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 902-1000

N/A

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 2.02 Results of Operations and Financial Condition.
	Item 8.01 Other Events.
	Item 9.01 Financial Statements and Exhibits.
SIGNATURE
EX-99.1: PRESS RELEASE

Item 2.02 Results of Operations and Financial Condition.

On September 12, 2006, The Goldman Sachs Group, Inc. (the Registrant) reported its earnings for its fiscal third quarter ended August 25, 2006. A copy of the Registrant’s press release containing this information is being furnished as Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by reference.

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Exchange Act.

Item 8.01 Other Events.

On September 12, 2006, the Registrant reported net revenues of $7.46 billion for its third quarter ended August 25, 2006. Net earnings for the quarter were $1.68 billion ⁽¹⁾ and diluted earnings per common share were $3.45 ⁽¹⁾, in each case excluding incremental non-cash expenses of $133 million related to the accounting for certain share-based awards under SFAS No. 123-R ⁽¹⁾. Including these non-cash expenses, net earnings were $1.59 billion and diluted earnings per common share were $3.26 for the third quarter of 2006. These results compare with $3.25 for the third quarter of 2005 and $4.97 ⁽¹⁾, excluding incremental non-cash expenses of $138 million related to SFAS No. 123-R ⁽¹⁾, for the second quarter of 2006. Including these non-cash expenses, diluted earnings per common share were $4.78 for the second quarter of 2006.

Excluding the non-cash expenses of $133 million, annualized return on average tangible common shareholders’ equity ⁽²⁾ was 26.5% ⁽¹⁾ and annualized return on average common shareholders’ equity was 22.2% ⁽¹⁾ for the third quarter. Including these non-cash expenses, annualized return on average tangible common shareholders’ equity ⁽²⁾ was 24.9% and annualized return on average common shareholders’ equity was 20.9% for the third quarter.

Net Revenues

Investment Banking

Net revenues in Investment Banking were $1.29 billion, 27% higher than the third quarter of 2005 and 16% lower than the second quarter of 2006. Net revenues in Financial Advisory were $609 million, 9% higher than the third quarter of 2005, reflecting increased client activity. Net revenues in the firm’s Underwriting business were $679 million, 49% higher than the third quarter of 2005. Net revenues were significantly higher in debt underwriting, primarily due to an increase in leveraged finance activity, and in equity underwriting. The firm’s investment banking backlog was essentially unchanged during the quarter.

2

Trading and Principal Investments

Net revenues in Trading and Principal Investments were $4.72 billion, 7% lower than the third quarter of 2005 and 32% lower than a particularly strong second quarter of 2006.

Net revenues in Fixed Income, Currency and Commodities (FICC) were $2.74 billion, 4% higher than a strong third quarter of 2005, reflecting higher net revenues in commodities and mortgages, partially offset by lower net revenues in currencies. In addition, net revenues in credit products were strong, but lower compared with the third quarter of 2005, while net revenues in interest rate products were essentially unchanged. Although FICC performed well, the business operated in a less favorable environment, as customer-driven activity declined from the first half of the year and volatility levels were generally low.

Net revenues in Equities were $1.55 billion, 3% lower than the third quarter of 2005, primarily reflecting significantly lower net revenues in principal strategies and, to a lesser extent, shares. These declines were partially offset by higher net revenues in derivatives and the contribution from the firm’s insurance business, which was acquired in 2006. During the quarter, Equities operated in an environment in which equity prices lacked direction and customer-driven activity declined from the first half of the year.

Principal Investments recorded net revenues of $430 million, reflecting a $261 million gain related to the firm’s investment in the convertible preferred stock of Sumitomo Mitsui Financial Group, Inc. (SMFG) and $169 million in gains and overrides from other principal investments.

Asset Management and Securities Services

Net revenues in Asset Management and Securities Services were $1.46 billion, 20% higher than the third quarter of 2005 and 10% lower than the second quarter of 2006.

Asset Management net revenues were $918 million, 26% higher than the third quarter of 2005. The increase was primarily driven by significantly higher management and other fees, principally due to growth in assets under management. During the quarter, assets under management increased 6% to $629 billion, reflecting non-money market net asset inflows of $27 billion, principally in alternative investment and fixed income assets, money market net asset inflows of $3 billion ⁽³⁾ and market appreciation of $6 billion, primarily in equity and fixed income assets.

Securities Services net revenues were $537 million, 13% higher than the third quarter of 2005, as the firm’s prime brokerage business continued to generate strong results, primarily reflecting significantly higher global customer balances in securities lending and margin lending.

3

Expenses

Operating expenses were $5.10 billion, 5% higher than the third quarter of 2005 and 22% lower than the second quarter of 2006.

Compensation and Benefits

Compensation and benefits expenses were $3.51 billion compared with $3.64 billion in the third quarter of 2005. Employment levels increased 7% 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 $508 million was recognized in the first nine months of 2006. The ratio of compensation and benefits to net revenues, excluding the non-cash expenses of $508 million, was 48.0% ⁽¹⁾ for the first nine months of 2006, compared with 49.0% ⁽¹⁾ for the first six months of 2006 and 50.0% for the first nine months of 2005. Including the non-cash expenses of $508 million, the ratio of compensation and benefits to net revenues was 49.8% for the first nine months of 2006.

Non-Compensation Expenses

Non-compensation expenses were $1.59 billion, 29% higher than the third quarter of 2005. Excluding non-compensation expenses related to consolidated investment entities held for investment purposes ⁽⁴⁾, non-compensation expenses were 26% higher than the third quarter of 2005. More than 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 2006.

Provision For Taxes

The effective income tax rate was 33.3% for the first nine months of 2006, down from 33.6% for the first six months of 2006 and up from 32.0% for fiscal year 2005. The increase in the effective tax rate for the first nine months of 2006 compared with fiscal year 2005 was primarily due to the impact of audit settlements in 2005 and lower estimated tax credits in 2006.

4

Capital

As of August 25, 2006, total capital was $162.82 billion, consisting of $33.49 billion in total shareholders’ equity (common equity of $30.39 billion and preferred stock of $3.10 billion) and $129.33 billion in long-term borrowings. ⁽⁵⁾ Book value per common share was $67.87 based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 447.8 million at period end. Tangible book value per common share was $57.27. ⁽²⁾

On July 24, 2006, The Goldman Sachs Group, Inc. issued an additional $500 million of perpetual Floating Rate Non-Cumulative Preferred Stock, Series D (Series D Preferred Stock).

The firm repurchased 3.8 million shares of its common stock at an average price of $148.90 per share, for a total cost of $573 million during the quarter. On September 11, 2006, the Board of Directors of The Goldman Sachs Group, Inc. (the Board) authorized the repurchase of an additional 60.0 million shares of common stock pursuant to the firm’s existing share repurchase program. The remaining share authorization under the firm’s existing common stock repurchase program, including the newly authorized amount, is 73.3 million shares.

Dividends

The Board declared a dividend of $0.35 per common share to be paid on November 20, 2006 to common shareholders of record on October 23, 2006. The Board also declared dividends of $395.85, $387.50, $395.85 and $390.74 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 November 10, 2006 to preferred shareholders of record on October 26, 2006.

Cautionary Note Regarding Forward-Looking Statements

This Report on Form 8-K 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.

5

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

	Three Months Ended							% Change From
	Aug. 25,		May 26,			Aug. 26,		May 26,			Aug. 26,
	2006		2006			2005		2006			2005
Investment Banking
Financial Advisory	$	609	$	608		$	559		—	%		9	%
Equity underwriting		270		482			199		(44	)		36
Debt underwriting		409		436			257		(6	)		59
Total Underwriting		679		918			456		(26	)		49
Total Investment Banking		1,288		1,526			1,015		(16	)		27
Trading and Principal Investments
FICC		2,739		4,316			2,626		(37	)		4
Equities trading		707		1,416			872		(50	)		(19	)
Equities commissions		844		936			721		(10	)		17
Total Equities		1,551		2,352			1,593		(34	)		(3	)
SMFG		261		(61	)		498		N.M.			(48	)
Other corporate and real estate gains and losses		134		280			205		(52	)		(35	)
Overrides		35		74			140		(53	)		(75	)
Total Principal Investments		430		293			843		47			(49	)
Total Trading and Principal Investments		4,720		6,961			5,062		(32	)		(7	)
Asset Management and Securities Services
Management and other fees		822		850			672		(3	)		22
Incentive fees		96		104			59		(8	)		63
Total Asset Management		918		954			731		(4	)		26
Securities Services		537		656			477		(18	)		13
Total Asset Management and Securities Services		1,455		1,610			1,208		(10	)		20
Total net revenues	$	7,463	$	10,097		$	7,285		(26	)		2

	Nine Months Ended				% Change From
	Aug. 25,		Aug. 26,		Aug. 26,
	2006		2005		2005
Investment Banking
Financial Advisory	$	1,953	$	1,359		44	%
Equity underwriting		1,035		499		107
Debt underwriting		1,297		865		50
Total Underwriting		2,332		1,364		71
Total Investment Banking		4,285		2,723		57
Trading and Principal Investments
FICC		10,795		6,634		63
Equities trading		3,730		2,073		80
Equities commissions		2,622		2,175		21
Total Equities		6,352		4,248		50
SMFG		605		752		(20	)
Other corporate and real estate gains and losses		614		460		33
Overrides		199		164		21
Total Principal Investments		1,418		1,376		3
Total Trading and Principal Investments		18,565		12,258		51
Asset Management and Securities Services
Management and other fees		2,422		1,947		24
Incentive fees		939		222		N.M.
Total Asset Management		3,361		2,169		55
Securities Services		1,684		1,346		25
Total Asset Management and Securities Services		5,045		3,515		44
Total net revenues	$	27,895	$	18,496		51

6

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
	Aug. 25,			May 26,			Aug. 26,			May 26,			Aug. 26,
	2006			2006			2005			2006			2005
Revenues
Investment banking	$	1,285		$	1,521		$	998			(16	)%		29	%
Trading and principal investments		4,368			6,921			4,842			(37	)		(10	)
Asset management and securities services		975			1,016			772			(4	)		26
Interest income		9,351			8,544			5,721			9			63
Total revenues		15,979			18,002			12,333			(11	)		30
Interest expense		8,395			7,761			4,940			8			70
Cost of power generation (6)		121			144			108			(16	)		12
Revenues, net of interest expense and cost of power generation		7,463			10,097			7,285			(26	)		2
Operating expenses
Compensation and benefits		3,510			5,086			3,642			(31	)		(4	)
Brokerage, clearing and exchange fees		454			403			271			13			68
Market development		117			121			92			(3	)		27
Communications and technology		141			131			124			8			14
Depreciation and amortization		126			127			125			(1	)		1
Amortization of identifiable intangible assets		50			44			31			14			61
Occupancy		221			199			200			11			11
Professional fees		135			123			117			10			15
Other expenses		347			339			278			2			25
Total non-compensation expenses		1,591			1,487			1,238			7			29
Total operating expenses		5,101			6,573			4,880			(22	)		5
Pre-tax earnings		2,362			3,524			2,405			(33	)		(2	)
Provision for taxes		768			1,212			788			(37	)		(3	)
Net earnings		1,594			2,312			1,617			(31	)		(1	)
Preferred stock dividends		39			26			9			N.M.			N.M.
Net earnings applicable to common shareholders	$	1,555		$	2,286		$	1,608			(32	)		(3	)
Earnings per common share
Basic	$	3.46		$	5.08		$	3.40			(32	)%		2	%
Diluted		3.26			4.78			3.25			(32	)		—
Diluted, excluding the impact of the continued amortization of prior year share-based awards in 2006 (1)		3.45			4.97			3.25			(31	)		6
Average common shares outstanding
Basic		449.4			449.7			473.3			—			(5	)
Diluted		477.4			478.3			494.2			—			(3	)
Selected Data
Employees at period end (7) (8)		25,647			24,013			23,195			7			11
Ratio of compensation and benefits to net revenues		47.0	%		50.4	%		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)		45.2			49.0			50.0

7

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

	Nine Months Ended						% Change From
	Aug. 25,			Aug. 26,			Aug. 26,
	2006			2005			2005
Revenues
Investment banking	$	4,276		$	2,667			60	%
Trading and principal investments		17,976			11,545			56
Asset management and securities services		3,545			2,270			56
Interest income		25,430			14,764			72
Total revenues		51,227			31,246			64
Interest expense		22,969			12,411			85
Cost of power generation (6)		363			339			7
Revenues, net of interest expense and cost of power generation		27,895			18,496			51
Operating expenses
Compensation and benefits		13,897			9,248			50
Brokerage, clearing and exchange fees		1,208			797			52
Market development		338			268			26
Communications and technology		396			365			8
Depreciation and amortization		378			371			2
Amortization of identifiable intangible assets		128			93			38
Occupancy		613			534			15
Professional fees		367			322			14
Other expenses		995			704			41
Total non-compensation expenses		4,423			3,454			28
Total operating expenses		18,320			12,702			44
Pre-tax earnings		9,575			5,794			65
Provision for taxes		3,190			1,800			77
Net earnings		6,385			3,994			60
Preferred stock dividends		91			9			N.M.
Net earnings applicable to common shareholders	$	6,294		$	3,985			58
Earnings per common share
Basic	$	13.92		$	8.23			69	%
Diluted		13.12			7.89			66
Diluted, excluding the impact of the continued amortization of prior year share-based awards in 2006 (1)		13.83			7.89			75
Average common shares outstanding
Basic		452.1			484.3			(7	)
Diluted		479.7			505.2			(5	)
Selected Data
Ratio of compensation and benefits to net revenues		49.8	%		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)		48.0			50.0
Annualized return on average tangible common shareholders’ equity (2)		35.6			25.3
Annualized return on average tangible common shareholders’ equity, excluding the impact of the continued amortization of prior year share-based awards in 2006 (1)		37.6			25.3
Annualized return on average common shareholders’ equity		29.6			20.7
Annualized return on average common shareholders’ equity, excluding the impact of the continued amortization of prior year share-based awards in 2006 (1)		31.4			20.7

8

NON-COMPENSATION EXPENSES
(UNAUDITED)
$ in millions

	Three Months Ended						% Change From
	Aug. 25,		May 26,		Aug. 26,		May 26,			Aug. 26,
	2006		2006		2005		2006			2005
Non-compensation expenses of consolidated investments (4)	$	153	$	119	$	100		29	%		53	%
Non-compensation expenses excluding consolidated investments
Brokerage, clearing and exchange fees		454		403		271		13			68
Market development		108		113		86		(4	)		26
Communications and technology		139		129		122		8			14
Depreciation and amortization		103		110		114		(6	)		(10	)
Amortization of identifiable intangible assets		48		44		31		9			55
Occupancy		188		171		186		10			1
Professional fees		132		121		114		9			16
Other expenses		266		277		214		(4	)		24
Subtotal		1,438		1,368		1,138		5			26
Total non-compensation expenses, as reported	$	1,591	$	1,487	$	1,238		7			29

	Nine Months Ended				% Change From
	Aug. 25,		Aug. 26,		Aug. 26,
	2006		2005		2005
Non-compensation expenses of consolidated investments (4)	$	371	$	164		126	%
Non-compensation expenses excluding consolidated investments
Brokerage, clearing and exchange fees		1,208		797		52
Market development		313		258		21
Communications and technology		391		363		8
Depreciation and amortization		325		354		(8	)
Amortization of identifiable intangible assets		126		93		35
Occupancy		528		508		4
Professional fees		358		318		13
Other expenses		803		599		34
Subtotal		4,052		3,290		23
Total non-compensation expenses, as reported	$	4,423	$	3,454		28

9

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

Average Daily VaR ⁽⁹⁾
$ in millions

	Three Months Ended
	Aug. 25,			May 26,			Aug. 26,
	2006			2006			2005
Risk Categories
Interest rates	$	55		$	49		$	38
Equity prices		61			83			40
Currency rates		21			29			19
Commodity prices		31			31			25
Diversification effect (10)		(76	)		(80	)		(46	)
Total	$	92		$	112		$	76

Assets Under Management ⁽¹¹⁾
$ in billions

	As of						% Change From
	Aug. 31,		May 31,		Aug. 31,		May 31,			Aug. 31,
	2006		2006		2005		2006			2005
Alternative investments	$	139	$	128	$	107		9	%		30	%
Equity		193		185		159		4			21
Fixed income		186		172		156		8			19
Total non-money market assets		518		485		422		7			23
Money markets		111		108		98		3			13
Total assets under management	$	629	$	593	$	520		6			21

	Three Months Ended
	Aug. 31,			May 31,		Aug. 31,
	2006			2006		2005
Balance, beginning of period	$	593		$	571	$	490
Net asset inflows / (outflows)
Alternative investments		13			6		2
Equity		4			3		10
Fixed income		10			4		6
Total non-money market net asset inflows / (outflows)		27			13		18
Money markets		3	(3)		2		—
Total net asset inflows / (outflows)		30			15		18
Net market appreciation / (depreciation)		6			7		12
Balance, end of period	$	629		$	593	$	520

Principal Investments
$ in millions

	As of August 25, 2006
	Corporate		Real Estate		Total
Private	$	2,359	$	616	$	2,975
Public		848		5		853
Subtotal		3,207		621		3,828
SMFG convertible preferred stock (12)		4,938		—		4,938
Industrial and Commercial Bank of China ordinary shares (13)		2,605		—		2,605
Total	$	10,750	$	621	$	11,371

10

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			Nine Months			Three Months
	Ended			Ended			Ended
	August 25, 2006			August 25, 2006			May 26, 2006
	(unaudited, $ in millions)
Net earnings	$	1,594		$	6,385		$	2,312
Impact of the continued amortization of prior year share-based awards, net of tax		90			340			91
Net earnings, excluding the impact of the continued amortization of prior year share-based awards		1,684			6,725			2,403
Preferred stock dividends		(39	)		(91	)		(26	)
Net earnings applicable to common shareholders, excluding the impact of the continued amortization of prior year share-based awards	$	1,645		$	6,634		$	2,377

	Three Months		Nine Months		Three Months
	Ended		Ended		Ended
	August 25, 2006		August 25, 2006		May 26, 2006
	(unaudited)
Diluted earnings per common share	$	3.26	$	13.12	$	4.78
Impact of the continued amortization of prior year share-based awards, net of tax		0.19		0.71		0.19
Diluted earnings per common share, excluding the impact of the continued amortization of prior year share-based awards	$	3.45	$	13.83	$	4.97

	Average for the
	Three Months			Nine Months			Three Months
	Ended			Ended			Ended
	August 25, 2006			August 25, 2006			May 26, 2006
	(unaudited, $ in millions)
Total shareholders’ equity	$	32,618		$	30,498		$	30,082
Preferred stock		(2,850	)		(2,190	)		(1,963	)
Common shareholders’ equity		29,768			28,308			28,119
Impact of the continued amortization of prior year share-based awards, net of tax		(147	)		(98	)		(105	)
Common shareholders’ equity, excluding the impact of the continued amortization of prior year share-based awards		29,621			28,210			28,014
Goodwill and identifiable intangible assets, excluding power contracts and the value of business acquired (see footnote 2 below)		(4,745	)		(4,709	)		(4,694	)
Tangible common shareholders’ equity (see footnote 2 below), excluding the impact of the continued amortization of prior year share-based awards	$	24,876		$	23,501		$	23,320

11

Footnotes (continued)

	Three Months			Nine Months			Three Months			Six Months
	Ended			Ended			Ended			Ended
	August 25, 2006			August 25, 2006			May 26, 2006			May 26, 2006
	(unaudited, $ in millions)
Compensation and benefits	$	3,510		$	13,897		$	5,086		$	10,387
Impact of the continued amortization of prior year share-based awards		(133	)		(508	)		(138	)		(375	)
Compensation and benefits, excluding the impact of the continued amortization of prior year share-based awards	$	3,377		$	13,389		$	4,948		$	10,012
Total net revenues	$	7,463		$	27,895		$	10,097		$	20,432
Ratio of compensation and benefits to net revenues, excluding the impact of the continued amortization of prior year share-based awards		45.2	%		48.0	%		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 and management does not deduct VOBA from common shareholders’ equity, in each case 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 meaningful 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 Months			Nine Months			Nine Months
	Ended			Ended			Ended
	August 25, 2006			August 25, 2006			August 26, 2005			August 25, 2006
	(unaudited, $ in millions)
Total shareholders’ equity	$	32,618		$	30,498		$	26,100		$	33,493
Preferred stock		(2,850	)		(2,190	)		(375	)		(3,100	)
Common shareholders’ equity		29,768			28,308			25,725			30,393
Goodwill and identifiable intangible assets, excluding power contracts and VOBA		(4,745	)		(4,709	)		(4,746	)		(4,748	)
Tangible common shareholders’ equity	$	25,023		$	23,599		$	20,979		$	25,645

(3)	Includes the transfer of $8 billion of money market assets under management to bank deposits at Goldman Sachs Bank USA, a wholly owned subsidiary of The Goldman Sachs Group, Inc. Bank deposits are not included in assets under management.
(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 $16.41 billion, consisting of $6.23 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 $10.18 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.”

12

Footnotes (continued)

(7)	Excludes 9,901, 9,369 and 7,308 employees as of August 2006, May 2006 and August 2005, respectively, of consolidated entities held for investment purposes. Compensation and benefits includes $83 million, $61 million and $52 million for the three months ended August 25, 2006, May 26, 2006 and August 26, 2005, respectively, attributable to these consolidated entities.
(8)	Beginning with fiscal year 2006, includes 1,281 and 1,225 employees as of August 2006 and May 2006, respectively, of Goldman Sachs’ consolidated property management and loan servicing subsidiaries. August 2005 has been restated to conform to the current presentation and includes 1,163 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 August 2005 has been restated to conform to the current presentation. Substantially all assets under management are valued as of calendar month end.
(12)	Excludes an economic hedge on the unrestricted shares of common stock underlying the investment. As of August 25, 2006, the fair value of this hedge was $3.07 billion. Includes the impact of foreign exchange revaluation on the investment, for which the firm also maintains an economic hedge.
(13)	Includes economic interests of $1.65 billion as of August 25, 2006 assumed by investment funds managed by Goldman Sachs.

13

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

The following exhibit is furnished as part of this Report on Form 8-K:

99.1 Press Release of the Registrant dated September 12, 2006 containing financial information for its fiscal third quarter ended August 25, 2006.

14

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	THE GOLDMAN SACHS GROUP, INC. (Registrant)
Date: September 12, 2006	By:	/s/ David A. Viniar
		Name:	David A. Viniar
		Title:	Chief Financial Officer

15

EX-99.1

Exhibit 99.1

The Goldman Sachs Group, Inc.½85 Broad Street½New York, New York 10004
 
GOLDMAN SACHS REPORTS THIRD QUARTER RESULTS
   NET REVENUES WERE $7.5 BILLION, THIRD HIGHEST QUARTER

NEW YORK, September 12, 2006 — The Goldman Sachs Group, Inc. (NYSE: GS) today reported net revenues of $7.46 billion for its third quarter ended August 25, 2006. Net earnings for the quarter were $1.68 billion ⁽¹⁾ and diluted earnings per common share were $3.45 ⁽¹⁾, in each case excluding incremental non-cash expenses of $133 million related to the accounting for certain share-based awards under SFAS No. 123-R ⁽¹⁾. Including these non-cash expenses, net earnings were $1.59 billion and diluted earnings per common share were $3.26 for the third quarter of 2006. These results compare with $3.25 for the third quarter of 2005 and $4.97 ⁽¹⁾, excluding incremental non-cash expenses of $138 million related to SFAS No. 123-R ⁽¹⁾, for the second quarter of 2006. Including these non-cash expenses, diluted earnings per common share were $4.78 for the second quarter of 2006.

Excluding the non-cash expenses of $133 million, annualized return on average tangible common shareholders’ equity ⁽²⁾ was 26.5% ⁽¹⁾ and annualized return on average common shareholders’ equity was 22.2% ⁽¹⁾ for the third quarter. Including these non-cash expenses, annualized return on average tangible common shareholders’ equity ⁽²⁾ was 24.9% and annualized return on average common shareholders’ equity was 20.9% for the third quarter.

Business Highlights

• During the third quarter, Goldman Sachs surpassed its previous annual record for net revenues and earnings per common share.

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

• Fixed Income, Currency and Commodities (FICC) generated its third highest quarterly net revenues of $2.74 billion.

• Assets under management increased to a record $629 billion, 21% higher than a year ago, including net asset inflows of $30 billion during the quarter.

• Securities Services produced its second best quarterly net revenues of $537 million.

“We are pleased to be reporting the third best revenue quarter in our history,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “This is particularly noteworthy given our record performance for the first half of the year. While market conditions were more challenging this quarter, our results underscore the strength and depth of our client franchise.”

            Media Relations:  Peter Rose  212-902-5400   ½   Investor Relations:  John Andrews  212-357-2674

Net Revenues

Investment Banking

Net revenues in Investment Banking were $1.29 billion, 27% higher than the third quarter of 2005 and 16% lower than the second quarter of 2006. Net revenues in Financial Advisory were $609 million, 9% higher than the third quarter of 2005, reflecting increased client activity. Net revenues in the firm’s Underwriting business were $679 million, 49% higher than the third quarter of 2005. Net revenues were significantly higher in debt underwriting, primarily due to an increase in leveraged finance activity, and in equity underwriting. The firm’s investment banking backlog was essentially unchanged during the quarter.

Trading and Principal Investments

Net revenues in Trading and Principal Investments were $4.72 billion, 7% lower than the third quarter of 2005 and 32% lower than a particularly strong second quarter of 2006.

Net revenues in FICC were $2.74 billion, 4% higher than a strong third quarter of 2005, reflecting higher net revenues in commodities and mortgages, partially offset by lower net revenues in currencies. In addition, net revenues in credit products were strong, but lower compared with the third quarter of 2005, while net revenues in interest rate products were essentially unchanged. Although FICC performed well, the business operated in a less favorable environment, as customer-driven activity declined from the first half of the year and volatility levels were generally low.

Net revenues in Equities were $1.55 billion, 3% lower than the third quarter of 2005, primarily reflecting significantly lower net revenues in principal strategies and, to a lesser extent, shares. These declines were partially offset by higher net revenues in derivatives and the contribution from the firm’s insurance business, which was acquired in 2006. During the quarter, Equities operated in an environment in which equity prices lacked direction and customer-driven activity declined from the first half of the year.

Principal Investments recorded net revenues of $430 million, reflecting a $261 million gain related to the firm’s investment in the convertible preferred stock of Sumitomo Mitsui Financial Group, Inc. (SMFG) and $169 million in gains and overrides from other principal investments.

2

Asset Management and Securities Services

Net revenues in Asset Management and Securities Services were $1.46 billion, 20% higher than the third quarter of 2005 and 10% lower than the second quarter of 2006.

Asset Management net revenues were $918 million, 26% higher than the third quarter of 2005. The increase was primarily driven by significantly higher management and other fees, principally due to growth in assets under management. During the quarter, assets under management increased 6% to $629 billion, reflecting non-money market net asset inflows of $27 billion, principally in alternative investment and fixed income assets, money market net asset inflows of $3 billion ⁽⁴⁾ and market appreciation of $6 billion, primarily in equity and fixed income assets.

Securities Services net revenues were $537 million, 13% higher than the third quarter of 2005, as the firm’s prime brokerage business continued to generate strong results, primarily reflecting significantly higher global customer balances in securities lending and margin lending.

Expenses

Operating expenses were $5.10 billion, 5% higher than the third quarter of 2005 and 22% lower than the second quarter of 2006.

Compensation and Benefits

Compensation and benefits expenses were $3.51 billion compared with $3.64 billion in the third quarter of 2005. Employment levels increased 7% 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 $508 million was recognized in the first nine months of 2006. The ratio of compensation and benefits to net revenues, excluding the non-cash expenses of $508 million, was 48.0% ⁽¹⁾ for the first nine months of 2006, compared with 49.0% ⁽¹⁾ for the first six months of 2006 and 50.0% for the first nine months of 2005. Including the non-cash expenses of $508 million, the ratio of compensation and benefits to net revenues was 49.8% for the first nine months of 2006.

3

Non-Compensation Expenses

Non-compensation expenses were $1.59 billion, 29% higher than the third quarter of 2005. Excluding non-compensation expenses related to consolidated investment entities held for investment purposes ⁽⁵⁾, non-compensation expenses were 26% higher than the third quarter of 2005. More than 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 2006.

Provision For Taxes

The effective income tax rate was 33.3% for the first nine months of 2006, down from 33.6% for the first six months of 2006 and up from 32.0% for fiscal year 2005. The increase in the effective tax rate for the first nine months of 2006 compared with fiscal year 2005 was primarily due to the impact of audit settlements in 2005 and lower estimated tax credits in 2006.

Capital

As of August 25, 2006, total capital was $162.82 billion, consisting of $33.49 billion in total shareholders’ equity (common equity of $30.39 billion and preferred stock of $3.10 billion) and $129.33 billion in long-term borrowings. ⁽⁶⁾ Book value per common share was $67.87 based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 447.8 million at period end. Tangible book value per common share was $57.27. ⁽²⁾

On July 24, 2006, The Goldman Sachs Group, Inc. issued an additional $500 million of perpetual Floating Rate Non-Cumulative Preferred Stock, Series D (Series D Preferred Stock).

The firm repurchased 3.8 million shares of its common stock at an average price of $148.90 per share, for a total cost of $573 million during the quarter. On September 11, 2006, the Board of Directors of The Goldman Sachs Group, Inc. (the Board) authorized the repurchase of an additional 60.0 million shares of common stock pursuant to the firm’s existing share repurchase program. The remaining share authorization under the firm’s existing common stock repurchase program, including the newly authorized amount, is 73.3 million shares.

Dividends

The Board declared a dividend of $0.35 per common share to be paid on November 20, 2006 to common shareholders of record on October 23, 2006. The Board also declared dividends of $395.85, $387.50, $395.85 and $390.74 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 November 10, 2006 to preferred shareholders of record on October 26, 2006.

4

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 4464784, 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.

5

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

	Three Months Ended							% Change From
	Aug. 25,		May 26,			Aug. 26,		May 26,			Aug. 26,
	2006		2006			2005		2006			2005
Investment Banking
Financial Advisory	$	609	$	608		$	559		—	%		9	%
Equity underwriting		270		482			199		(44	)		36
Debt underwriting		409		436			257		(6	)		59
Total Underwriting		679		918			456		(26	)		49
Total Investment Banking		1,288		1,526			1,015		(16	)		27
Trading and Principal Investments
FICC		2,739		4,316			2,626		(37	)		4
Equities trading		707		1,416			872		(50	)		(19	)
Equities commissions		844		936			721		(10	)		17
Total Equities		1,551		2,352			1,593		(34	)		(3	)
SMFG		261		(61	)		498		N.M.			(48	)
Other corporate and real estate gains and losses		134		280			205		(52	)		(35	)
Overrides		35		74			140		(53	)		(75	)
Total Principal Investments		430		293			843		47			(49	)
Total Trading and Principal Investments		4,720		6,961			5,062		(32	)		(7	)
Asset Management and Securities Services
Management and other fees		822		850			672		(3	)		22
Incentive fees		96		104			59		(8	)		63
Total Asset Management		918		954			731		(4	)		26
Securities Services		537		656			477		(18	)		13
Total Asset Management and Securities Services		1,455		1,610			1,208		(10	)		20
Total net revenues	$	7,463	$	10,097		$	7,285		(26	)		2

	Nine Months Ended				% Change From
	Aug. 25,		Aug. 26,		Aug. 26,
	2006		2005		2005
Investment Banking
Financial Advisory	$	1,953	$	1,359		44	%
Equity underwriting		1,035		499		107
Debt underwriting		1,297		865		50
Total Underwriting		2,332		1,364		71
Total Investment Banking		4,285		2,723		57
Trading and Principal Investments
FICC		10,795		6,634		63
Equities trading		3,730		2,073		80
Equities commissions		2,622		2,175		21
Total Equities		6,352		4,248		50
SMFG		605		752		(20	)
Other corporate and real estate gains and losses		614		460		33
Overrides		199		164		21
Total Principal Investments		1,418		1,376		3
Total Trading and Principal Investments		18,565		12,258		51
Asset Management and Securities Services
Management and other fees		2,422		1,947		24
Incentive fees		939		222		N.M.
Total Asset Management		3,361		2,169		55
Securities Services		1,684		1,346		25
Total Asset Management and Securities Services		5,045		3,515		44
Total net revenues	$	27,895	$	18,496		51

6

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
	Aug. 25,			May 26,			Aug. 26,			May 26,			Aug. 26,
	2006			2006			2005			2006			2005
Revenues
Investment banking	$	1,285		$	1,521		$	998			(16	)%		29	%
Trading and principal investments		4,368			6,921			4,842			(37	)		(10	)
Asset management and securities services		975			1,016			772			(4	)		26
Interest income		9,351			8,544			5,721			9			63
Total revenues		15,979			18,002			12,333			(11	)		30
Interest expense		8,395			7,761			4,940			8			70
Cost of power generation (7)		121			144			108			(16	)		12
Revenues, net of interest expense and cost of power generation		7,463			10,097			7,285			(26	)		2
Operating expenses
Compensation and benefits		3,510			5,086			3,642			(31	)		(4	)
Brokerage, clearing and exchange fees		454			403			271			13			68
Market development		117			121			92			(3	)		27
Communications and technology		141			131			124			8			14
Depreciation and amortization		126			127			125			(1	)		1
Amortization of identifiable intangible assets		50			44			31			14			61
Occupancy		221			199			200			11			11
Professional fees		135			123			117			10			15
Other expenses		347			339			278			2			25
Total non-compensation expenses		1,591			1,487			1,238			7			29
Total operating expenses		5,101			6,573			4,880			(22	)		5
Pre-tax earnings		2,362			3,524			2,405			(33	)		(2	)
Provision for taxes		768			1,212			788			(37	)		(3	)
Net earnings		1,594			2,312			1,617			(31	)		(1	)
Preferred stock dividends		39			26			9			N.M.			N.M.
Net earnings applicable to common shareholders	$	1,555		$	2,286		$	1,608			(32	)		(3	)
Earnings per common share
Basic	$	3.46		$	5.08		$	3.40			(32	)%		2	%
Diluted		3.26			4.78			3.25			(32	)		—
Diluted, excluding the impact of the continued amortization of prior year share-based awards in 2006 (1)		3.45			4.97			3.25			(31	)		6
Average common shares outstanding
Basic		449.4			449.7			473.3			—			(5	)
Diluted		477.4			478.3			494.2			—			(3	)
Selected Data
Employees at period end (8) (9)		25,647			24,013			23,195			7			11
Ratio of compensation and benefits to net revenues		47.0	%		50.4	%		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)		45.2			49.0			50.0

7

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

	Nine Months Ended						% Change From
	Aug. 25,			Aug. 26,			Aug. 26,
	2006			2005			2005
Revenues
Investment banking	$	4,276		$	2,667			60	%
Trading and principal investments		17,976			11,545			56
Asset management and securities services		3,545			2,270			56
Interest income		25,430			14,764			72
Total revenues		51,227			31,246			64
Interest expense		22,969			12,411			85
Cost of power generation (7)		363			339			7
Revenues, net of interest expense and cost of power generation		27,895			18,496			51
Operating expenses
Compensation and benefits		13,897			9,248			50
Brokerage, clearing and exchange fees		1,208			797			52
Market development		338			268			26
Communications and technology		396			365			8
Depreciation and amortization		378			371			2
Amortization of identifiable intangible assets		128			93			38
Occupancy		613			534			15
Professional fees		367			322			14
Other expenses		995			704			41
Total non-compensation expenses		4,423			3,454			28
Total operating expenses		18,320			12,702			44
Pre-tax earnings		9,575			5,794			65
Provision for taxes		3,190			1,800			77
Net earnings		6,385			3,994			60
Preferred stock dividends		91			9			N.M.
Net earnings applicable to common shareholders	$	6,294		$	3,985			58
Earnings per common share
Basic	$	13.92		$	8.23			69	%
Diluted		13.12			7.89			66
Diluted, excluding the impact of the continued amortization of prior year share-based awards in 2006 (1)		13.83			7.89			75
Average common shares outstanding
Basic		452.1			484.3			(7	)
Diluted		479.7			505.2			(5	)
Selected Data
Ratio of compensation and benefits to net revenues		49.8	%		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)		48.0			50.0
Annualized return on average tangible common shareholders’ equity (2)		35.6			25.3
Annualized return on average tangible common shareholders’ equity, excluding the impact of the continued amortization of prior year share-based awards in 2006 (1)		37.6			25.3
Annualized return on average common shareholders’ equity		29.6			20.7
Annualized return on average common shareholders’ equity, excluding the impact of the continued amortization of prior year share-based awards in 2006 (1)		31.4			20.7

8

NON-COMPENSATION EXPENSES
(UNAUDITED)
$ in millions

	Three Months Ended						% Change From
	Aug. 25,		May 26,		Aug. 26,		May 26,			Aug. 26,
	2006		2006		2005		2006			2005
Non-compensation expenses of consolidated investments (5)	$	153	$	119	$	100		29	%		53	%
Non-compensation expenses excluding consolidated investments
Brokerage, clearing and exchange fees		454		403		271		13			68
Market development		108		113		86		(4	)		26
Communications and technology		139		129		122		8			14
Depreciation and amortization		103		110		114		(6	)		(10	)
Amortization of identifiable intangible assets		48		44		31		9			55
Occupancy		188		171		186		10			1
Professional fees		132		121		114		9			16
Other expenses		266		277		214		(4	)		24
Subtotal		1,438		1,368		1,138		5			26
Total non-compensation expenses, as reported	$	1,591	$	1,487	$	1,238		7			29

	Nine Months Ended				% Change From
	Aug. 25,		Aug. 26,		Aug. 26,
	2006		2005		2005
Non-compensation expenses of consolidated investments (5)	$	371	$	164		126	%
Non-compensation expenses excluding consolidated investments
Brokerage, clearing and exchange fees		1,208		797		52
Market development		313		258		21
Communications and technology		391		363		8
Depreciation and amortization		325		354		(8	)
Amortization of identifiable intangible assets		126		93		35
Occupancy		528		508		4
Professional fees		358		318		13
Other expenses		803		599		34
Subtotal		4,052		3,290		23
Total non-compensation expenses, as reported	$	4,423	$	3,454		28

9

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

Average Daily VaR ⁽¹⁰⁾
$ in millions

	Three Months Ended
	Aug. 25,			May 26,			Aug. 26,
	2006			2006			2005
Risk Categories
Interest rates	$	55		$	49		$	38
Equity prices		61			83			40
Currency rates		21			29			19
Commodity prices		31			31			25
Diversification effect (11)		(76	)		(80	)		(46	)
Total	$	92		$	112		$	76
Assets Under Management (12) $ in billions
	As of									% Change From
	Aug. 31,			May 31,			Aug. 31,			May 31,			Aug. 31,
	2006			2006			2005			2006			2005
Alternative investments	$	139		$	128		$	107			9	%		30	%
Equity		193			185			159			4			21
Fixed income		186			172			156			8			19
Total non-money market assets		518			485			422			7			23
Money markets		111			108			98			3			13
Total assets under management	$	629		$	593		$	520			6			21
	Three Months Ended
	Aug. 31,			May 31,			Aug. 31,
	2006			2006			2005
Balance, beginning of period	$	593		$	571		$	490
Net asset inflows / (outflows)
Alternative investments		13			6			2
Equity		4			3			10
Fixed income		10			4			6
Total non-money market net asset inflows / (outflows)		27			13			18
Money markets		3	(4)		2			—
Total net asset inflows / (outflows)		30			15			18
Net market appreciation / (depreciation)		6			7			12
Balance, end of period	$	629		$	593		$	520
Principal Investments $ in millions
	As of August 25, 2006
	Corporate			Real Estate			Total
Private	$	2,359		$	616		$	2,975
Public		848			5			853
Subtotal		3,207			621			3,828
SMFG convertible preferred stock (13)		4,938			—			4,938
Industrial and Commercial Bank of China ordinary shares (14)		2,605			—			2,605
Total	$	10,750		$	621		$	11,371

10

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			Nine Months			Three Months
	Ended			Ended			Ended
	August 25, 2006			August 25, 2006			May 26, 2006
	(unaudited, $ in millions)
Net earnings	$	1,594		$	6,385		$	2,312
Impact of the continued amortization of prior year share-based awards, net of tax		90			340			91
Net earnings, excluding the impact of the continued amortization of prior year share-based awards		1,684			6,725			2,403
Preferred stock dividends		(39	)		(91	)		(26	)
Net earnings applicable to common shareholders, excluding the impact of the continued amortization of prior year share-based awards	$	1,645		$	6,634		$	2,377

	Three Months		Nine Months		Three Months
	Ended		Ended		Ended
	August 25, 2006		August 25, 2006		May 26, 2006
			(unaudited)
Diluted earnings per common share	$	3.26	$	13.12	$	4.78
Impact of the continued amortization of prior year share-based awards, net of tax		0.19		0.71		0.19
Diluted earnings per common share, excluding the impact of the continued amortization of prior year share-based awards	$	3.45	$	13.83	$	4.97

	Average for the
	Three Months			Nine Months			Three Months
	Ended			Ended			Ended
	August 25, 2006			August 25, 2006			May 26, 2006
	(unaudited, $ in millions)
Total shareholders’ equity	$	32,618		$	30,498		$	30,082
Preferred stock		(2,850	)		(2,190	)		(1,963	)
Common shareholders’ equity		29,768			28,308			28,119
Impact of the continued amortization of prior year share-based awards, net of tax		(147	)		(98	)		(105	)
Common shareholders’ equity, excluding the impact of the continued amortization of prior year share-based awards		29,621			28,210			28,014
Goodwill and identifiable intangible assets, excluding power contracts and the value of business acquired (see footnote 2 below)		(4,745	)		(4,709	)		(4,694	)
Tangible common shareholders’ equity (see footnote 2 below), excluding the impact of the continued amortization of prior year share-based awards	$	24,876		$	23,501		$	23,320

11

Footnotes (continued)

	Three Months			Nine Months			Three Months			Six Months
	Ended			Ended			Ended			Ended
	August 25, 2006			August 25, 2006			May 26, 2006			May 26, 2006
				(unaudited, $ in millions)
Compensation and benefits	$	3,510		$	13,897		$	5,086		$	10,387
Impact of the continued amortization of prior year share-based awards		(133	)		(508	)		(138	)		(375	)
Compensation and benefits, excluding the impact of the continued amortization of prior year share-based awards	$	3,377		$	13,389		$	4,948		$	10,012
Total net revenues	$	7,463		$	27,895		$	10,097		$	20,432
Ratio of compensation and benefits to net revenues, excluding the impact of the continued amortization of prior year share-based awards		45.2	%		48.0	%		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 and management does not deduct VOBA from common shareholders’ equity, in each case 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 meaningful 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 Months			Nine Months			Nine Months
	Ended			Ended			Ended
	August 25, 2006			August 25, 2006			August 26, 2005			August 25, 2006
				(unaudited, $ in millions)
Total shareholders’ equity	$	32,618		$	30,498		$	26,100		$	33,493
Preferred stock		(2,850	)		(2,190	)		(375	)		(3,100	)
Common shareholders’ equity		29,768			28,308			25,725			30,393
Goodwill and identifiable intangible assets, excluding power contracts and VOBA		(4,745	)		(4,709	)		(4,746	)		(4,748	)
Tangible common shareholders’ equity	$	25,023		$	23,599		$	20,979		$	25,645

(3)	Thomson Financial — January 1, 2006 through August 25, 2006.
(4)	Includes the transfer of $8 billion of money market assets under management to bank deposits at Goldman Sachs Bank USA, a wholly owned subsidiary of The Goldman Sachs Group, Inc. Bank deposits are not included in assets under management.
(5)	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.
(6)	Long-term borrowings includes nonrecourse debt of $16.41 billion, consisting of $6.23 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 $10.18 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.
(7)	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.”

12

Footnotes (continued)

(8)	Excludes 9,901, 9,369 and 7,308 employees as of August 2006, May 2006 and August 2005, respectively, of consolidated entities held for investment purposes. Compensation and benefits includes $83 million, $61 million and $52 million for the three months ended August 25, 2006, May 26, 2006 and August 26, 2005, respectively, attributable to these consolidated entities.
(9)	Beginning with fiscal year 2006, includes 1,281 and 1,225 employees as of August 2006 and May 2006, respectively, of Goldman Sachs’ consolidated property management and loan servicing subsidiaries. August 2005 has been restated to conform to the current presentation and includes 1,163 employees.
(10)	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.
(11)	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.
(12)	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 August 2005 has been restated to conform to the current presentation. Substantially all assets under management are valued as of calendar month end.
(13)	Excludes an economic hedge on the unrestricted shares of common stock underlying the investment. As of August 25, 2006, the fair value of this hedge was $3.07 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 August 25, 2006 assumed by investment funds managed by Goldman Sachs.

13