Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-219206
The information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement is not an offer to sell nor does it seek an
offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
![](image00005.jpg) |
Subject to Completion. Dated January 2, 2019.
GS Finance Corp.
$
ETF-Linked Notes due
guaranteed by
The Goldman Sachs Group, Inc.
|
|
The notes will not bear interest. The amount that you will be paid
on your notes on the stated maturity date (expected to be August 3, 2022) is based on the lesser performing of the iShares® MSCI EAFE ETF and the iShares® MSCI
Emerging Markets ETF as measured from the trade date (expected to be January 31, 2019) to and including the determination date (expected to be July 29, 2022).
The return on your notes is linked
to the performances of the iShares® MSCI EAFE ETF and the iShares® MSCI Emerging Markets ETF (each, an ETF), and not to that of the MSCI EAFE Index or the MSCI Emerging Markets Index (each, an index) on which
the respective ETFs are based. The ETFs follow a strategy of “representative sampling”, which in each case means the ETF’s holdings are not the same as those of its index. The performance of any ETF may significantly diverge from that of
its index.
If the final level of each ETF on the determination date is greater than or equal to its initial level (set on the trade date), the return on your
notes will be positive.
If the final level of any ETF is less than its initial level, but the final
level of each ETF is greater than or equal to 70% of its initial level, you will receive the face amount of your notes.
If the final level of any ETF is less than 70% of its initial level, the return on your notes will be negative.
The amount that you will be paid on your notes at maturity is based on the performance of the ETF with the lowest ETF return. The ETF return for
each ETF is the percentage increase or decrease in the final level of such ETF from its initial level. On the stated maturity date, for each $1,000 face amount of your notes, you will receive an amount in cash equal to:
· |
if the ETF return of each ETF is greater than or equal to 0% (the final level of each ETF is greater than or equal to its initial level), the sum of (i) $1,000 plus
(ii) the product of (a) $1,000 times (b) between 2.3 and 2.5 (set on the
trade date) times (c) the lesser performing ETF return;
|
· |
if the ETF return of any ETF is less
than 0%, but the ETF return of each ETF is greater than or equal to
-30% (the final level of any ETF is less than its initial level but the final level
of each ETF is greater than or equal to 70% of its initial level), $1,000; or
|
· |
if the ETF return of any ETF is less than
-30% (the final level of any ETF is less than 70% of its initial level), the sum of (i) $1,000 plus (ii) the product of (a) the lesser performing ETF return times
(b) $1,000. You will receive less than the face amount of your notes.
|
You should read the disclosure herein to better understand the terms and
risks of your investment, including the credit risk of GS Finance Corp. and The Goldman Sachs Group, Inc. See page PS-11.
The estimated value of your notes at the time the terms of your notes are set on the trade date is expected to be between $930 and $970 per $1,000 face amount. For a discussion of the estimated value and
the price at which Goldman Sachs & Co. LLC would initially buy or sell your notes, if it makes a market in the notes, see the following page.
Original issue date:
|
expected to be February 5, 2019
|
Original issue price:
|
100% of the face amount*
|
Underwriting discount:
|
% of the face amount*
|
Net proceeds to the issuer:
|
% of the face amount
|
* The original issue price will be % for certain
investors; see “Supplemental Plan of Distribution; Conflicts of Interest” on page PS-4.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. The notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
Goldman Sachs & Co. LLC
Pricing Supplement No. dated , 2019.
The issue price, underwriting discount and net proceeds listed above relate to the notes we sell initially. We may decide to sell additional notes after the date of
this pricing supplement, at issue prices and with underwriting discounts and net proceeds that differ from the amounts set forth above. The return (whether positive or negative) on your investment in notes will depend in part on the issue price
you pay for such notes.
GS Finance Corp. may use this prospectus in the initial sale of the notes. In addition, Goldman Sachs & Co. LLC or any other affiliate of GS Finance Corp. may use
this prospectus in a market-making transaction in a note after its initial sale. Unless GS Finance Corp. or its agent informs the purchaser otherwise in
the confirmation of sale, this prospectus is being used in a market-making transaction.
|
Estimated Value of Your Notes
The estimated value of your notes at the time the terms of your notes are set on the trade date (as determined by reference to pricing models used by Goldman Sachs & Co. LLC (GS&Co.) and
taking into account our credit spreads) is expected to be between $930 and $970 per $1,000 face amount, which is less than the original issue price. The
value of your notes at any time will reflect many factors and cannot be predicted; however, the price (not including GS&Co.’s customary bid and ask
spreads) at which GS&Co. would initially buy or sell notes (if it makes a market, which it is not obligated to do) and the value that GS&Co. will
initially use for account statements and otherwise is equal to approximately the estimated value of your notes at the time of pricing, plus an additional amount (initially equal to $ per $1,000 face amount).
Prior to , the price (not including GS&Co.’s customary bid and ask spreads) at
which GS&Co. would buy or sell your notes (if it makes a market, which it is not obligated to do) will equal approximately the sum of (a) the then-current estimated value of your notes (as determined by reference to GS&Co.’s
pricing models) plus (b) any remaining additional amount (the additional amount will decline to zero on a straight-line basis from the time of pricing through ). On and after , the price (not including GS&Co.’s
customary bid and ask spreads) at which GS&Co. would buy or sell your notes (if it makes a market) will equal approximately the then-current estimated value of your notes determined by reference to such pricing models.
|
|
|
About Your Prospectus
The notes are part of the Medium-Term Notes, Series E program of GS Finance Corp. and are fully and unconditionally guaranteed by The
Goldman Sachs Group, Inc. This prospectus includes this pricing supplement and the accompanying documents listed below. This pricing supplement constitutes a supplement to the documents listed below, does not set forth all of the terms of
your notes and therefore should be read in conjunction with such documents:
The information in this pricing supplement supersedes any conflicting information in the documents listed above. In addition, some of the
terms or features described in the listed documents may not apply to your notes.
We refer to the notes we are offering by this pricing supplement as the “offered notes” or the “notes”. Each of the offered notes has the terms described below.
Please note that in this pricing supplement, references to “GS Finance Corp.”, “we”, “our” and “us” mean only GS Finance Corp. and do not include its subsidiaries or affiliates, references to “The Goldman Sachs Group, Inc.”, our parent
company, mean only The Goldman Sachs Group, Inc. and do not include its subsidiaries or affiliates and references to “Goldman Sachs” mean The Goldman Sachs Group, Inc. together with its consolidated subsidiaries and affiliates, including
us. The notes will be issued under the senior debt indenture, dated as of October 10, 2008, as supplemented by the First Supplemental Indenture, dated as of February 20, 2015, each among us, as issuer, The Goldman Sachs Group, Inc., as
guarantor, and The Bank of New York Mellon, as trustee. This indenture, as so supplemented and as further supplemented thereafter, is referred to as the “GSFC 2008 indenture” in the accompanying prospectus supplement. The notes will be
issued in book-entry form and represented by a master global note.
|
|
(Terms From Pricing Supplement No. Incorporated Into Master Note No. 2)
|
These terms and conditions relate to pricing supplement no. dated , 2019 of GS Finance Corp. and The Goldman
Sachs Group, Inc. with respect to the issuance by GS Finance Corp. of its ETF-Linked Notes due and the guarantee thereof by The Goldman Sachs Group, Inc.
The provisions below are hereby incorporated into master note no. 2, dated August 22, 2018. References herein to “this
note” shall be deemed to refer to “this security” in such master note no. 2, dated August 22, 2018. Certain defined terms may not be capitalized in these terms and conditions even if they are capitalized in master note no. 2, dated August
22, 2018. Defined terms that are not defined in these terms and conditions shall have the meanings indicated in such master note no. 2, dated August 22, 2018, unless the context otherwise requires.
|
|
CUSIP / ISIN: 40056ESC3 / US40056ESC39
Company (Issuer): GS Finance Corp.
Guarantor: The Goldman Sachs Group, Inc.
Underliers (each individually, an underlier): the
iShares® MSCI EAFE ETF (current Bloomberg symbol: “EFA UP Equity”), or any successor underlier, and the iShares® MSCI Emerging Markets ETF (current Bloomberg symbol: “EEM UP Equity”), or any successor underlier, as each may
be modified, replaced or adjusted from time to time as provided herein
Underlying indices (each individually, an underlying index):
with respect to the iShares® MSCI EAFE ETF, the MSCI EAFE Index, and with respect to the iShares® MSCI Emerging Markets ETF, the MSCI Emerging Markets Index
Face amount: $ in the aggregate on the original issue date; the
aggregate face amount may be increased if the company, at its sole option, decides to sell an additional amount on a date subsequent to the trade date
Authorized denominations: $1,000 or any integral multiple of $1,000 in
excess thereof
Principal amount: On the stated maturity date, the company will pay,
for each $1,000 of the outstanding face amount, an amount, if any, in cash equal to the cash settlement amount.
Cash settlement amount:
· |
if the final underlier level of each underlier is greater than or equal to its initial underlier level, the sum
of (i) $1,000 plus (ii) the product of (a) $1,000 times (b) the upside participation rate times (c) the lesser performing underlier return;
|
· |
if the final underlier level of any underlier is less than its initial underlier level but the final underlier level of each underlier is greater than or equal to its trigger buffer
level, $1,000; or
|
· |
if the final underlier level of any underlier is less than its trigger buffer level, the sum of (i) $1,000 plus
(ii) the product of (a) $1,000 times (b) the lesser performing underlier return
|
Initial underlier level (set on the trade date): with respect to an
underlier, the closing level of such underlier on the trade date
Final underlier level: with respect to an underlier, the closing level of such underlier on the determination date, subject to adjustment as provided in “—Consequences of a market disruption event or non-trading day” and “—
Discontinuance or modification of an underlier” below
Underlier return: with respect to an underlier on the determination
date, the quotient of (i) its final underlier level minus its initial underlier level divided by (ii) its initial underlier level, expressed as a positive or negative percentage
Upside participation rate (set on the trade date):
expected to be between 230% and 250%
Lesser performing underlier return: the underlier return of the lesser
performing underlier
Lesser performing underlier: the underlier with the lowest underlier
return
Trigger buffer level: for each underlier, 70% of its
initial underlier level
Trade date: expected to be January 31, 2019
Original issue date (set on the trade date): expected to be February 5, 2019
Determination date (set on the trade date): expected to be July 29, 2022, unless the calculation agent determines that, with respect to any underlier, a market disruption event occurs or is continuing on that day or that day is not otherwise a trading
day. In the event the originally scheduled determination date is a non-trading day with respect to any underlier, the determination date will be the first day thereafter that is a trading day for all underliers (the “first qualified trading day”)
provided that no market disruption event occurs or is continuing with respect to an underlier on that day. If a market disruption event with respect to an underlier occurs or is continuing on the originally scheduled determination date or the
first qualified trading day, the determination date will be the first following trading day on which the calculation agent determines that each underlier has had at least one trading day (from and including the originally scheduled determination
date or the first qualified trading day, as applicable) on which no market disruption event has occurred or is continuing and the closing level of each underlier will be determined on or prior to the postponed determination date as set forth
under “— Consequences of a market disruption event or a non-trading day” below. (In such case, the determination date may differ from the date on which the level of an underlier is determined for the purpose of the calculations to be performed on
the determination date.) In no event, however, will the determination date be postponed to a date later than the originally scheduled stated maturity date or, if the originally scheduled stated maturity date is not a business day, later than the
first business day after the originally scheduled stated maturity date, either due to the occurrence of serial non-trading days or due to the occurrence of one or more market disruption events. On such last possible determination date, if a
market disruption event occurs or is continuing with respect to an underlier that has not yet had such a trading day on which no market disruption event has occurred or is continuing or if such last possible day is not a trading day with respect
to such underlier, that day will nevertheless be the determination date.
Stated maturity date (set on the trade date): expected to be August 3, 2022, unless that day is not a business day, in which case the stated maturity date will be postponed to the next following business day. The stated maturity date will also be
postponed if the determination date is postponed as described under “— Determination date” above. In such a case, the stated maturity date will be postponed by the same number of business day(s) from but excluding the originally scheduled
determination date to and including the actual determination date.
Closing level: on any trading day, with respect to an underlier, the closing sale price or last reported sale price, regular way, for such underlier, on a per-share or other unit basis:
· |
on the principal national securities exchange on which such underlier is listed for trading
on that day, or
|
· |
if such underlier is not listed on any national securities exchange on that day, on any other
U.S. national market system that is the primary market for the trading of such underlier.
|
If an underlier is not listed or traded as described above,
then the closing level for such underlier on any day will be the average, as determined by the calculation agent, of the bid prices for such underlier obtained from as many dealers in such underlier selected by the calculation agent as will
make those bid prices available to the calculation agent. The number of dealers need not exceed three and may include the calculation agent or any of its or the company’s affiliates.
The closing level of an underlier is
subject to adjustment as described under “— Anti-dilution adjustments” below.
Trading day: with respect to an underlier, a day on which (a) the exchange on which such underlier has its primary listing is open for trading and (b) the price of one share of such underlier is quoted by
the exchange on which such underlier has its primary listing
Successor underlier: with respect to an underlier, any substitute
underlier approved by the calculation agent as a successor as provided under “— Discontinuance or modification of an underlier” below
Underlier investment advisor: with respect to an underlier, at any
time, the person or entity, including any successor investment advisor, that serves as an investment advisor to such underlier as then in effect
Underlier stocks: with respect to an underlier, at any time, the stocks
that comprise such underlier as then in effect, after giving effect to any additions, deletions or substitutions
Market disruption event: With respect to any given
trading day, any of the following will be a market disruption event with respect to an underlier:
|
· |
a suspension, absence or material limitation of trading in the underlier on its primary market for more than two consecutive hours of trading or during the one-half hour before the
close of trading in that market, as determined by the calculation agent in its sole discretion,
|
|
· |
a suspension, absence or material limitation of trading in option or futures contracts relating to the underlier in the primary market for those contracts for more than two
consecutive hours of trading or during the one-half hour before the close of trading in that market, as determined by the calculation agent in its sole discretion, or
|
|
· |
the underlier does not trade on what was the primary market for the underlier, as determined by the calculation agent in its sole discretion,
|
and, in the case of any of these events, the calculation
agent determines in its sole discretion that such event could materially interfere with the ability of the company or any of its affiliates or a similarly situated person to unwind all or a material portion of a hedge that could be effected
with respect to this note.
The following events will not be market disruption events:
|
· |
a limitation on the hours or numbers of days of trading, but only if the limitation results from an announced change in the regular business hours of the relevant market, and
|
|
· |
a decision to permanently discontinue trading in option or futures contracts relating to an underlier.
|
For this purpose, an “absence of trading” in the primary
securities market on which shares of an underlier are traded, or on which option or futures contracts, if available, relating to an underlier are traded, will not include any time when that market is itself closed for trading under ordinary
circumstances. In contrast, a suspension or limitation of trading in shares of an underlier or in option or futures contracts, if available, relating to the underlier in the primary market for that underlier or those contracts, by reason of:
|
· |
a price change exceeding limits set by that market,
|
|
· |
an imbalance of orders relating to the shares of the underlier or those contracts, or
|
|
· |
a disparity in bid and ask quotes relating to the shares of the underlier or those contracts,
|
will constitute a suspension or material
limitation of trading in shares of the underlier or those contracts in that market.
A market disruption event with respect to one underlier will not, by itself, constitute a market disruption event for the other
unaffected underlier.
As is the case throughout this pricing supplement, references to the underlier in this description of market disruption events
includes any successor underlier as it may be modified, replaced or adjusted from time to time.
Consequences of a market disruption event or a non-trading
day: With respect to any underlier, if a market disruption event occurs or is continuing on a day that would otherwise be the determination date, or such day
is not a trading day, then the determination date will be postponed as described under “— Determination date” above. If the determination date is postponed to the last possible date due to the occurrence of serial non-trading days, the level of
each underlier will be the calculation agent’s assessment of such level, in its sole discretion, on such last possible postponed determination date. If the determination date is postponed due to a market disruption event with respect to any
underlier, the final underlier level with respect to the determination date will be calculated based on (i) for any underlier that is not affected by a market disruption event on the originally scheduled determination date or the first qualified
trading day thereafter (if applicable), the closing level of the underlier on that date, (ii) for any underlier that is affected by a market disruption event on the originally scheduled determination date or the first qualified trading day
thereafter (if applicable), the closing level of the underlier on the first following trading day on which no market disruption event exists for such underlier and (iii) the calculation agent’s assessment, in its sole discretion, of the level of
any underlier on the last possible postponed determination date with respect to such underlier as to which a market disruption event continues through the last possible postponed determination date. As a result, this could result in the final
underlier level on the determination date of each underlier being determined on different calendar dates. For the avoidance of doubt, once the closing level for an underlier is determined for the determination date, the occurrence of a later
market disruption event or non-trading day will not alter such calculation.
Discontinuance or modification of an underlier: If an underlier is
delisted from the exchange on which the underlier has its primary listing and its underlier investment advisor or anyone else publishes a substitute underlier that the calculation agent determines is comparable to such underlier and approves as a
successor underlier, or if the calculation agent designates a substitute underlier, then the calculation agent will determine the cash settlement amount on the stated maturity date by reference to such successor underlier.
If the calculation agent determines that an underlier is delisted or withdrawn from the exchange on which the underlier has its primary listing and there is no
successor underlier, the calculation agent will determine
the cash settlement amount on the stated maturity date by a computation methodology that the calculation agent determines will as closely as
reasonably possible replicate such underlier.
If the calculation agent determines that an underlier, the underlier stocks comprising that underlier or the method of calculating that underlier is
changed at any time in any respect — including any split or reverse split of the underlier, a material change in the investment objective of the underlier and any addition, deletion or substitution and any reweighting or rebalancing of the
underlier and whether the change is made by the underlier investment advisor under its existing policies or following a modification of those policies, is due to the publication of a successor underlier, is due to events affecting one or more of
the underlier stocks or their issuers or is due to any other reason — then the calculation agent will be permitted (but not required) to make such adjustments in such underlier or the method of its calculation as it believes are appropriate to
ensure that the levels of such underlier used to determine the cash settlement amount on the stated maturity date is equitable.
All determinations and adjustments to be made by the calculation agent with respect to an underlier may be made by the calculation agent in its sole
discretion. The calculation agent is not obligated to make any such adjustments.
Anti-dilution adjustments: the calculation agent will have discretion
to adjust the closing level of an underlier if certain events occur (including those described above under “— Discontinuance or modification of an underlier”). In the event that any event other than a delisting or withdrawal from the relevant
exchange occurs, the calculation agent shall determine whether and to what extent an adjustment should be made to the level of such underlier or any other term. The calculation agent shall have no obligation to make an adjustment for any such
event.
Calculation agent: Goldman Sachs & Co. LLC (“GS&Co.”)
Tax characterization: The holder, on behalf of itself and any other
person having a beneficial interest in this note, hereby agrees with the company (in the absence of a change in law, an administrative determination or a judicial ruling to the contrary) to characterize this note for all U.S. federal income tax
purposes as a pre-paid derivative contract in respect of the underliers.
Overdue principal rate: the effective Federal Funds rate
The following examples are provided for purposes of illustration only. They should not be taken as an indication or prediction of
future investment results and are intended merely to illustrate the impact that various hypothetical closing levels of the underliers on the determination date could have on the cash settlement amount at maturity assuming all other variables
remain constant.
The examples below are based on a range of underlier levels that are entirely hypothetical; no one can predict what the closing
level of any underlier will be on any day throughout the life of your notes and what the final underlier level of the lesser performing underlier will be on the determination date. The underliers have been highly volatile in the past — meaning
that the underlier levels have changed substantially in relatively short periods — and their performance cannot be predicted for any future period.
The information in the following examples reflects hypothetical rates of return on the offered notes assuming that they are purchased on the original issue date at the
face amount and held to the stated maturity date. If you sell your notes in a secondary market prior to the stated maturity date, your return will depend upon the market value of your notes at the time of sale, which may be affected by a number
of factors that are not reflected in the examples below, such as interest rates, the volatility of the underliers, the creditworthiness of GS Finance Corp., as issuer, and the creditworthiness of The Goldman Sachs Group, Inc., as guarantor. In
addition, the estimated value of your notes at the time the terms of your notes are set on the trade date (as determined by reference to pricing models used by GS&Co.) is less than the original issue price of your notes. For more information
on the estimated value of your notes, see “Additional Risk Factors Specific to Your Notes — The Estimated Value of Your Notes At the Time the Terms of Your Notes Are Set On the Trade Date (as Determined By Reference to Pricing Models Used By
GS&Co.) Is Less Than the Original Issue Price Of Your Notes” on page PS-11 of this pricing supplement. The information in the examples also reflects the key terms and assumptions in the box below.
|
Key Terms and Assumptions
|
|
|
Face amount
|
$1,000
|
|
|
Upside participation rate
|
230%
|
|
|
Trigger buffer level
|
with respect to each underlier, 70% of its initial underlier level
|
|
|
Neither a market disruption event nor a non-trading day occurs on the originally scheduled determination date
|
|
|
No change in or affecting any underlier, any
underlier stock, any policy of the applicable underlier investment advisor or any method by which the applicable underlying index sponsor calculates its underlying index
|
|
|
Notes purchased on original issue date at the face amount and held to the stated maturity date
|
|
Moreover, we have not yet set the initial underlier levels that will serve as the baseline for determining the amount that we will
pay on your notes, if any, at maturity. We will not do so until the trade date. As a result, the actual initial underlier levels may differ substantially from the underlier levels prior to the trade date. They may also differ substantially from
the underlier levels at the time you purchase your notes.
For these reasons, the actual performance of the underliers over the life of your notes, as well as the amount payable at maturity,
if any, may bear little relation to the hypothetical examples shown below or to the historical underlier levels shown elsewhere in this pricing supplement. For information about the underlier levels during recent periods, see “The Underliers —
Historical Closing Levels of the Underliers” on page PS-18. Before investing in the notes, you should consult publicly available information to determine the underlier levels between the date of this pricing supplement and the date of your
purchase of the notes.
Also, the hypothetical examples shown below do not take into account the effects of applicable taxes. Because of the U.S. tax treatment applicable
to your notes, tax liabilities could affect the after-tax rate of return on your notes to a comparatively greater extent than the after-tax return on the underlier stocks.
The levels in the left column of the table below represent hypothetical final underlier levels of the lesser performing underlier and are expressed
as percentages of the initial underlier level of the lesser performing underlier. The amounts in the right column represent the hypothetical cash settlement amounts, based on the corresponding hypothetical final underlier level of the lesser
performing underlier (expressed as a percentage of the initial underlier level of the lesser performing underlier), and are expressed as percentages of the face amount of a note (rounded to the nearest one-thousandth of a percent). Thus, a
hypothetical cash settlement amount of 100.000% means that the value of the cash payment that we would deliver for each $1,000 of the outstanding face amount of the offered notes on the stated maturity date would equal 100.000% of the face amount
of a note, based on the corresponding hypothetical final underlier level of the lesser performing underlier (expressed as a percentage of the initial underlier level of the lesser performing underlier) and the assumptions noted above.
Hypothetical Final Underlier Level of the
Lesser Performing Underlier
|
Hypothetical Cash Settlement Amount
at Maturity
|
(as Percentage of Initial Underlier Level)
|
(as Percentage of Face Amount)
|
130.000%
|
169.000%
|
120.000%
|
146.000%
|
110.000%
|
123.000%
|
100.000%
|
100.000%
|
90.000%
|
100.000%
|
80.000%
|
100.000%
|
70.000%
|
100.000%
|
69.999%
|
69.999%
|
30.000%
|
30.000%
|
20.000%
|
20.000%
|
10.000%
|
10.000%
|
0.000%
|
0.000%
|
If, for example, the final underlier level of the lesser performing underlier were determined to be 20.000% of its initial underlier level, the
cash settlement amount that we would deliver on your notes at maturity would be 20.000% of the face amount of your notes, as shown in the table above. As a result, if you purchased your notes on the original issue date at the face amount and held
them to the stated maturity date, you would lose 80.000% of your investment (if you purchased your notes at a premium to face amount you would lose a correspondingly higher percentage of your investment).
The following chart shows a graphical illustration of the hypothetical cash settlement amounts that we would pay on your notes on the stated
maturity date, if the final underlier level of the lesser performing underlier were any of the hypothetical levels shown on the horizontal axis. The hypothetical cash settlement amounts in the chart are expressed as percentages of the face amount
of your notes and the hypothetical final underlier levels of the lesser performing underlier are expressed as percentages of its initial underlier level. The chart shows that any hypothetical final underlier level of the lesser performing
underlier of less than 70.000% (the section left of the 70.000% marker on the horizontal axis) would result in a hypothetical cash settlement amount of less than 100.000% of the face amount of your notes (the section below the 100.000% marker on
the vertical axis) and, accordingly, in a loss of principal to the holder of the notes.
![](graphic1.jpg)
The cash settlement amounts shown above are entirely hypothetical; they are based on market prices for the underlier stocks that may not be
achieved on the determination date and on assumptions that may prove to be erroneous. The actual market value of your notes on the stated maturity date or at any other time, including any time you may wish to sell your notes, may bear little
relation to the hypothetical cash settlement amounts shown above, and these amounts should not be viewed as an indication of the financial return on an investment in the offered notes. The hypothetical cash settlement amounts on notes held to the
stated maturity date in the examples above assume you purchased your notes at their face amount and have not been adjusted to reflect the actual issue price you pay for your notes. The return on your investment (whether positive or negative) in
your notes will be affected by the amount you pay for your notes. If you purchase your notes for a price other than the face amount, the return on your investment will differ from, and may be significantly lower than, the hypothetical returns
suggested by the above examples. Please read “Additional Risk Factors Specific to the Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” on page S-3 of the accompanying general terms supplement no. 1,734.
Payments on the notes are economically equivalent to the amounts that would be paid on a combination of other instruments. For example, payments on the notes are
economically equivalent to a combination of an interest-bearing bond bought by the holder and one or more options entered into between the holder and us (with one or more implicit option premiums paid over time). The discussion in this paragraph
does not modify or affect the terms of the notes or the U.S. federal income tax treatment of the notes, as described elsewhere in this pricing supplement.
|
We cannot predict the actual final underlier levels or what the market value of your notes will be on any particular
trading day, nor can we predict the relationship between the closing levels of the underliers and the market value of your notes at any time prior to the stated maturity date. The actual amount that you will receive, if any, at maturity
and the rate of return on the offered notes will depend on the actual initial underlier levels and upside participation rate, which we will set on the trade date, and the actual final underlier levels determined by the calculation agent
as described above. Moreover, the assumptions on which the hypothetical returns are based may turn out to be inaccurate. Consequently, the amount of cash to be paid in respect of your notes, if any, on the stated maturity date may be
very different from the information reflected in the examples above.
|
|
ADDITIONAL RISK FACTORS SPECIFIC TO YOUR NOTES
|
An investment in your notes is subject to the risks described below, as well as the risks and considerations described in
the accompanying prospectus, in the accompanying prospectus supplement and under “Additional Risk Factors Specific to the Notes” in the accompanying general terms supplement no. 1,734. You should carefully review these risks and
considerations as well as the terms of the notes described herein and in the accompanying prospectus, the accompanying prospectus supplement and the accompanying general terms supplement no. 1,734. Your notes are a riskier investment than
ordinary debt securities. Also, your notes are not equivalent to investing directly in the underlier stocks, i.e., with respect to an underlier to which your notes are linked, the stocks comprising such underlier. You should carefully
consider whether the offered notes are suited to your particular circumstances.
|
|
The Estimated Value of Your Notes At the Time the Terms of Your Notes Are Set On the Trade Date (as Determined
By Reference to Pricing Models Used By GS&Co.) Is Less Than the Original Issue Price Of Your Notes
The original issue price for your notes exceeds the estimated value of your notes as of the time the terms of your notes are set on
the trade date, as determined by reference to GS&Co.’s pricing models and taking into account our credit spreads. Such estimated value on the trade date is set forth above under “Estimated Value of Your Notes”; after the trade date, the
estimated value as determined by reference to these models will be affected by changes in market conditions, the creditworthiness of GS Finance Corp., as issuer, the creditworthiness of The Goldman Sachs Group, Inc., as guarantor, and other
relevant factors. The price at which GS&Co. would initially buy or sell your notes (if GS&Co. makes a market, which it is not obligated to do), and the value that GS&Co. will initially use for account statements and otherwise, also
exceeds the estimated value of your notes as determined by reference to these models. As agreed by GS&Co. and the distribution participants, this excess (i.e., the additional amount described under “Estimated Value of Your Notes”) will
decline to zero on a straight line basis over the period from the date hereof through the applicable date set forth above under “Estimated Value of Your Notes”. Thereafter, if GS&Co. buys or sells your notes it will do so at prices that
reflect the estimated value determined by reference to such pricing models at that time. The price at which GS&Co. will buy or sell your notes at any time also will reflect its then current bid and ask spread for similar sized trades of
structured notes.
In estimating the value of your notes as of the time the terms of your notes are set on the trade date, as disclosed above under
“Estimated Value of Your Notes”, GS&Co.’s pricing models consider certain variables, including principally our credit spreads, interest rates (forecasted, current and historical rates), volatility, price-sensitivity analysis and the time to
maturity of the notes. These pricing models are proprietary and rely in part on certain assumptions about future events, which may prove to be incorrect. As a result, the actual value you would receive if you sold your notes in the secondary
market, if any, to others may differ, perhaps materially, from the estimated value of your notes determined by reference to our models due to, among other things, any differences in pricing models or assumptions used by others. See “Additional
Risk Factors Specific to the Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” on page S-3 of the accompanying general terms supplement no. 1,734.
The difference between the estimated value of your notes as of the time the terms of your notes are set on the trade date and the
original issue price is a result of certain factors, including principally the underwriting discount and commissions, the expenses incurred in creating, documenting and marketing the notes, and an estimate of the difference between the amounts we
pay to GS&Co. and the amounts GS&Co. pays to us in connection with your notes. We pay to GS&Co. amounts based on what we would pay to holders of a non-structured note with a similar maturity. In return for such payment, GS&Co.
pays to us the amounts we owe under your notes.
In addition to the factors discussed above, the value and quoted price of your notes at any time will reflect many factors and cannot be
predicted. If GS&Co. makes a market in the notes, the price quoted by GS&Co. would reflect any changes in market conditions and other relevant factors, including any deterioration in our creditworthiness or perceived creditworthiness or
the creditworthiness or perceived creditworthiness of The Goldman Sachs Group, Inc. These changes may adversely affect the value of your notes, including the price you may receive for your notes in any market making transaction. To the extent
that GS&Co. makes a market in the notes, the quoted price will reflect the estimated value determined by reference to
GS&Co.’s pricing models at that time, plus or minus its then current bid and ask spread for similar sized trades of structured notes (and subject to the declining excess amount described above).
Furthermore, if you sell your notes, you will likely be charged a commission for secondary market transactions, or the price will
likely reflect a dealer discount. This commission or discount will further reduce the proceeds you would receive for your notes in a secondary market sale.
There is no assurance that GS&Co. or any other party will be willing to purchase your notes at any price and, in this regard,
GS&Co. is not obligated to make a market in the notes. See “— Your Notes May Not Have an Active Trading Market” below.
The Notes Are Subject to the Credit Risk of the Issuer and the Guarantor
Although the return on the notes will be based on the performance of each underlier, the payment of any amount due on the notes is subject to the
credit risk of GS Finance Corp., as issuer of the notes, and the credit risk of The Goldman Sachs Group, Inc. as guarantor of the notes. The notes are our unsecured obligations. Investors are dependent on our ability to pay all amounts due on
the notes, and therefore investors are subject to our credit risk and to changes in the market’s view of our creditworthiness. Similarly, investors are dependent on the ability of The Goldman Sachs Group, Inc., as guarantor of the notes, to pay
all amounts due on the notes, and therefore are also subject to its credit risk and to changes in the market’s view of its creditworthiness. See “Description of the Notes We May Offer — Information About Our Medium-Term Notes, Series E Program —
How the Notes Rank Against Other Debt” on page S-4 of the accompanying prospectus supplement and “Description of Debt Securities We May Offer — Guarantee by The Goldman Sachs Group, Inc.” on page 42 of the accompanying prospectus.
You May Lose Your Entire Investment in the Notes
You can lose your entire investment in the notes. The cash settlement amount on your notes, if any, on the stated maturity date
will be based on the performance of the lesser performing of the underliers as measured from their initial underlier levels set on the
trade date to their closing levels on the determination date. If the final underlier level of any underlier is less than its trigger buffer level, you will have a loss for each $1,000 of the face amount of your notes equal to the
product of (i) $1,000 times (ii) the lesser performing underlier return. Thus, you may lose your entire
investment in the notes, which would include any premium to face amount you paid when you purchased the notes.
Also, the market price of your notes prior to the stated maturity date
may be significantly lower than the purchase price you pay for your notes. Consequently, if you sell your notes before the stated maturity date, you may receive far less than the amount of your investment in the notes.
The Amount Payable on Your Notes Is Not Linked to the Levels of the Underliers at Any Time Other than the Determination Date
The final underlier level of each underlier will be based on the closing level of such underlier on the determination date (subject
to adjustment as described elsewhere in this pricing supplement). Therefore, if the closing level of one underlier dropped precipitously on the determination date, the cash settlement amount for your notes may be significantly less than it would
have been had the cash settlement amount been linked to the closing level of the underlier prior to such drop. Although the actual closing levels of the underliers on the stated maturity date or at other times during the life of your notes may
be higher than the closing levels of the underliers on the determination date, you will not benefit from the closing levels of the underliers at any time other than on the determination date.
The Cash Settlement Amount Will Be Based Solely on the Lesser Performing Underlier
The cash settlement amount will be based on the lesser performing underlier without regard to the performance of the other underlier. As a result,
you could lose all or some of your initial investment if the lesser performing underlier return is negative, even if there is an increase in the level of the other underlier. This could be the case even if the other underlier increased by an
amount greater than the decrease in the lesser performing underlier.
The Return on Your Notes May Change Significantly Despite Only a Small Change in the Level of the Lesser
Performing Underlier
If the final underlier level of the lesser performing underlier is less than its trigger buffer level, you will receive less than
the face amount of your notes and you could lose all or a substantial portion of your investment in the notes. This means that while a decrease in the final underlier level of the lesser performing underlier to its trigger buffer level will not
result in a loss of principal on the notes, a decrease in the final underlier level of the lesser performing underlier to less than its trigger buffer level will result in a loss of a significant portion of the face amount of the notes despite
only a small change in the level of the lesser performing underlier.
Your Notes Will Not Bear Interest
You will not receive any interest payments on your notes. As a result, even if the cash settlement amount payable for your notes on
the stated maturity date exceeds the face amount of your notes, the overall return you earn on your notes may be less than you would have earned by investing in a non-indexed debt security of comparable maturity that bears interest at a
prevailing market rate.
If You Purchase Your Notes at a Premium to Face Amount, the Return on Your Investment Will Be Lower Than the
Return on Notes Purchased at Face Amount and the Impact of Certain Key Terms of the Notes Will Be Negatively Affected
The cash settlement amount will not be adjusted based on the issue price you pay for the notes. If you purchase notes at a price
that differs from the face amount of the notes, then the return on your investment in such notes held to the stated maturity date will differ from, and may be substantially less than, the return on notes purchased at face amount. If you purchase
your notes at a premium to face amount and hold them to the stated maturity date, the return on your investment in the notes will be lower than it would have been had you purchased the notes at face amount or a discount to face amount.
The Policies of the Investment Advisor of the Underliers, Blackrock Fund Advisors, and the Sponsor of the
Underlying Indices, MSCI, Could Affect the Amount Payable on Your Notes and Their Market Value
The investment advisor of the underliers, Blackrock Fund
Advisors (“BFA”), may from time to time be called upon to make certain policy decisions or judgments with respect to the implementation of policies of the investment advisor concerning the calculation of the net asset value of the underliers,
additions, deletions or substitutions of securities in the underliers and the manner in which changes affecting the underlying index for any underlier is reflected in that underlier that could affect the market price of the shares of that
underlier, and therefore, the amount payable on your notes on the stated maturity date. The amount payable on your notes and their market value could also be affected if the investment advisor changes these policies, for example, by changing
the manner in which it calculates the net asset value of an underlier, or if the investment advisor discontinues or suspends calculation or publication of the net asset value of an underlier, in which case it may become difficult or
inappropriate to determine the market value of your notes.
If events such as these occur, the calculation agent —
which initially will be GS & Co. — may determine the closing level of the underliers on the determination date — and thus the amount payable on the stated maturity date, if any — in a manner, in its sole discretion, it considers
appropriate. We describe the discretion that the calculation agent will have in determining the closing level of the underliers on the determination date and the amount payable on your notes more fully under “Terms and Conditions —
Discontinuance or modification of an underlier” on page PS-7 of this pricing supplement.
In addition, MSCI, the underlier sponsor of the
underlying indices owns each underlying index and is responsible for the design and maintenance of the underlying indices. The policies of the underlying index sponsor concerning the calculation of a particular underlying index, including
decisions regarding the addition, deletion or substitution of the equity securities included in that underlying index, could affect the level of that underlying index and, consequently, could affect the market prices of shares of the related
underlier and, therefore, the amount payable on your notes and their market value.
There Are Risks
Associated with the Underliers
Although the shares of the underliers are listed for
trading on NYSE Arca, Inc. (the “NYSE Arca”) and a number of similar products have been traded on the NYSE Arca or other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the
shares of any underlier or that there will be liquidity in the trading market.
In addition, each underlier is subject to management risk,
which is the risk that the underlier investment advisor’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. For example, the underlier investment advisor for an
underlier may select up to 10% of an underlier’s assets to be invested in shares of equity securities that are not included in its underlying index. No underlier is actively managed and each underlier may be affected by a general decline in
market segments relating to its underlying index. Each underlier investment advisor invests in securities included in, or representative of, the underlying index regardless of their investment merits. The underlier investment advisor does not
attempt to take defensive positions in declining markets.
In addition, the underliers are subject to
custody risk, which refers to the risks in the process of clearing and settling trades and to the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less developed markets make trades
harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country’s securities market is, the
greater the likelihood of custody problems.
Further, under continuous listing
standards adopted by the NYSE Arca, each underlier will be required to confirm on an ongoing basis that the components of its underlying index satisfy the applicable listing requirements. In the event that its underlying index does not comply
with the applicable listing requirements, such underlier would be required to rectify such non-compliance by requesting that the underlying index sponsor modify such underlying index, adopting a new underlying index or obtaining relief from the
Securities and Exchange Commission. There can be no assurance that the underlying index sponsor would so modify the underlying index or that relief would be obtained from the Securities and Exchange Commission and, therefore, non-compliance
with the continuous listing standards may result in each underlier being delisted by the NYSE Arca.
Each Underlier and
Its Underlying Index are Different and the Performance of Each Underlier May Not Correlate With the Performance of its Underlying Index
Each underlier uses a representative sampling strategy
(more fully described under “The Underliers”) to attempt to track the performance of its underlying index. Each underlier may not hold all or substantially all of the equity securities included in its underlying index and may hold securities or
assets not included in its underlying index. Therefore, while the performance of each underlier is generally linked to the performance of its underlying index, the performance of each underlier is also linked in part to shares of equity
securities not included in its underlying index and to the performance of other assets, such as futures contracts, options and swaps, as well as cash and cash equivalents, including shares of money market funds affiliated with its underlier
investment advisor.
Imperfect correlation between an underlier’s portfolio
securities and those in its underlying index, rounding of prices, changes to its underlying index and regulatory requirements may cause tracking error, which is the divergence of an underlier’s performance from that of its underlying index.
In addition, the performance of each underlier will
reflect additional transaction costs and fees that are not included in the calculation of its underlying index and this may increase the tracking error of each underlier. Also, corporate actions with respect to the sample of equity securities
(such as mergers and spin-offs) may impact the performance differential between each underlier and its underlying index. Finally, because the shares of each underlier are traded on the NYSE Arca and are subject to market supply and investor
demand, the market value of one share of an underlier may differ from the net asset value per share of that underlier.
For all of the foregoing reasons, the performance of any
underlier may not correlate with the performance of its underlying index. Consequently, the cash settlement amount payable on your notes will not be the same
as investing directly in each underlier or
in each underlying index or in any of the respective underlier stocks or in any of the respective stocks comprising such underlying index, and will not be the same as investing in a debt security with a payment at maturity linked to the
performance of each underlying index.
An Investment in the
Offered Notes Is Subject to Risks Associated with Foreign Securities Markets
The value of your notes is linked, in
part, to the iShares® MSCI EAFE ETF, which is comprised of stocks from one or more
foreign securities markets, and, in part, to the iShares® MSCI Emerging Markets ETF,
which holds stocks traded in the equity markets of emerging market countries. Investments linked to the value of foreign equity securities involve particular risks. Any foreign securities market may be less liquid, more volatile and affected by
global or domestic market developments in a different way than are the U.S. securities market or other foreign securities markets. Both government intervention in a foreign securities market, either directly or indirectly, and
cross-shareholdings in foreign companies, may affect trading prices and volumes in that market. Also, there is generally less publicly available information about foreign companies than about those U.S. companies that are subject to the
reporting requirements of the U.S. Securities and Exchange Commission. Further, foreign companies are subject to accounting, auditing and financial reporting standards and requirements that differ from those applicable to U.S. reporting
companies.
The prices of securities in a foreign
country are subject to political, economic, financial and social factors that are unique to such foreign country's geographical region. These factors include: recent changes, or the possibility of future changes, in the applicable foreign
government's economic and fiscal policies; the possible implementation of, or changes in, currency exchange laws or other laws or restrictions applicable to foreign companies or investments in foreign equity securities; fluctuations, or the
possibility of fluctuations, in currency exchange rates; and the possibility of outbreaks of hostility, political instability, natural disaster or adverse public health developments. The United Kingdom has voted to leave the European Union
(popularly known as “Brexit”). The effect of Brexit is uncertain, and Brexit has and may continue to contribute to volatility in the prices of securities of companies located in Europe and currency exchange rates, including the valuation of the
euro and British pound in particular. Any one of these factors, or the combination of more than one of these factors, could negatively affect such foreign securities market and the price of securities therein. Further, geographical regions may react to global
factors in different ways, which may cause the prices of securities in a foreign securities market to fluctuate in a way that differs from those of securities in the U.S. securities market or other foreign securities markets. Foreign economies
may also differ from the U.S. economy in important respects, including growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency, which may have a positive or negative effect on foreign securities
prices.
Because foreign exchanges may be open on
days when the underliers are not traded, the value of the securities underlying the underliers may change on days when shareholders will not be able to purchase or sell shares of the underliers. This could result in premiums or discounts to an
underlier’s net asset value that may be greater than those experienced by an underlier that does not hold foreign assets.
The countries whose markets are represented by the iShares® MSCI Emerging Markets ETF include Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Greece,
Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates. Countries with emerging markets may have relatively unstable
governments, may present the risks of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have less protection of property rights than more developed countries. The economies
of countries with emerging markets may be based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities
markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times. It will also likely be more costly and
difficult for the underliers sponsor to enforce the laws or regulations of a foreign country or trading facility, and it is possible that the foreign country or trading facility may not have laws or regulations which adequately protect the
rights and interests of investors in the stocks included in the underliers.
Your Investment in
the Notes Will Be Subject to Foreign Currency Exchange Rate Risk
The underliers hold assets that are denominated in non-U.S.
dollar currencies. The value of the assets held by the underliers that are denominated in non-U.S. dollar currencies will be adjusted to reflect their U.S. dollar value by converting the price of such assets from the non-U.S. dollar currency to
U.S. dollars. Consequently, if the value of the U.S. dollar strengthens against the non-U.S. dollar currency in which an asset is denominated, the level of an underlier may not increase even if the non-dollar value of the asset held by such
underlier increases.
Foreign currency exchange rates vary over time, and may
vary considerably during the term of your notes. Changes in a particular exchange rate result from the interaction of many factors directly or indirectly affecting economic and political conditions. Of particular importance are:
· |
existing and expected rates of inflation;
|
· |
existing and expected interest rate levels;
|
· |
the balance of payments among countries;
|
· |
the extent of government surpluses or deficits in the relevant foreign country and the United
States; and
|
· |
other financial, economic, military and political factors.
|
All of these factors are, in turn, sensitive to the
monetary, fiscal and trade policies pursued by the governments of the relevant foreign countries and the United States and other countries important to international trade and finance.
The market price of the notes and levels of the underliers
could also be adversely affected by delays in, or refusals to grant, any required governmental approval for conversions of a local currency and remittances abroad or other de facto restrictions on the repatriation of U.S. dollars.
It has been reported that the U.K.
Financial Conduct Authority and regulators from other countries are in the process of investigating the potential manipulation of published currency exchange rates. If such manipulation has occurred or is continuing, certain published exchange
rates may have been, or may be in the future, artificially lower (or higher) than they would otherwise have been. Any such manipulation could have an adverse impact on any payments on, and the value of, your notes and the trading market for
your notes. In addition, we cannot predict whether any changes or reforms affecting the determination or publication of exchange rates or the supervision of currency trading will be implemented in connection with these investigations. Any
such changes or reforms could also adversely impact your notes.
The Return on Your
Notes Will Not Reflect Any Dividends Paid on the Underliers or the Underlier Stocks
The return on your notes will not reflect the return you
would realize if you actually owned the underliers and received the distributions paid on the shares of such underliers. You will not receive any dividends that may be paid on any of the underlier stocks by the underlier stock issuers or the shares of the underliers. See “— You Have No Shareholder Rights or
Rights to Receive Any Shares of the Underliers or Any Underlier Stock” below for additional information.
You Have No Shareholder Rights or
Rights to Receive Any Shares of the Underliers or Any Underlier Stock
Investing in your notes will not make you
a holder of any shares of the underliers or any underlier stocks. Neither you nor any other holder or owner of your notes will have any rights with respect to the underliers or the underlier stocks, including any voting rights, any right to
receive dividends or other distributions, any rights to make a claim against the underliers or the underlier stocks or any other rights of a holder of any shares of the underliers or the underlier stocks. Your notes will be paid in cash and you
will have no right to receive delivery of any shares of the underliers or any underlier stocks.
Your Notes May Not
Have an Active Trading Market
Your notes will not be listed or displayed on any
securities exchange or included in any interdealer market quotation system, and there may be little or no secondary market for your notes. Even if a secondary market for your notes develops, it may not provide significant liquidity and we
expect that transaction costs in any
secondary market would be high. As a
result, the difference between bid and asked prices for your notes in any secondary market could be substantial.
We May Sell an
Additional Aggregate Face Amount of the Notes at a Different Issue Price
At our sole option, we may decide to sell
an additional aggregate face amount of the notes subsequent to the date of this pricing supplement. The issue price of the notes in the subsequent sale may differ substantially (higher or lower) from the issue price you paid as provided on the
cover of this pricing supplement.
The Tax Consequences of an Investment in Your Notes Are Uncertain
The tax consequences of an investment in your notes are uncertain, both as to the timing and character of any inclusion in income
in respect of your notes.
The Internal Revenue Service announced on December 7, 2007 that it is considering issuing guidance regarding the tax treatment of an instrument such
as your notes, and any such guidance could adversely affect the value and the tax treatment of your notes. Among other things, the Internal Revenue Service may decide to require the holders to accrue ordinary income on a current basis and
recognize ordinary income on payment at maturity, and could subject non-U.S. investors to withholding tax. Furthermore, in 2007, legislation was introduced in Congress that, if enacted, would have required holders that acquired instruments such
as your notes after the bill was enacted to accrue interest income over the term of such instruments even though there will be no interest payments over the term of such instruments. It is not possible to predict whether a similar or identical
bill will be enacted in the future, or whether any such bill would affect the tax treatment of your notes. We describe these developments in more detail under “Supplemental Discussion of U.S. Federal Income Tax Consequences – United States
Holders – Possible Change in Law” below. You should consult your tax advisor about this matter. Except to the extent otherwise provided by law, GS Finance Corp. intends to continue treating the notes for U.S. federal income tax purposes in
accordance with the treatment described under “Supplemental Discussion of U.S. Federal Income Tax Consequences” on page PS-28 below unless and until such time as Congress, the Treasury Department or the Internal Revenue Service determine that
some other treatment is more appropriate. Please also consult your tax advisor concerning the U.S. federal income tax and any other applicable tax consequences to you of owning your notes in your particular circumstances.
Your Notes May Be Subject to the Constructive Ownership Rules
There exists a risk that the constructive ownership rules of Section 1260 of the Internal Revenue Code could apply to your notes. If your notes were
subject to the constructive ownership rules, then any long-term capital gain that you realize upon the sale, exchange or maturity of your notes would be re-characterized as ordinary income (and you would be subject to an interest charge on
deferred tax liability with respect to such re-characterized capital gain) to the extent that such capital gain exceeds the amount of “net underlying long-term capital gain” (as defined in Section 1260 of the Internal Revenue Code). Because the
application of the constructive ownership rules is unclear you are strongly urged to consult your tax advisor with respect to the possible application of the constructive ownership rules to your investment in the notes.
Foreign Account Tax Compliance Act (FATCA) Withholding May Apply to Payments on Your Notes, Including as a Result of the
Failure of the Bank or Broker Through Which You Hold the Notes to Provide Information to Tax Authorities
Please see the discussion under “United States Taxation — Taxation of Debt Securities — Foreign Account Tax Compliance Act (FATCA) Withholding” in
the accompanying prospectus for a description of the applicability of FATCA to payments made on your notes.
The iShares® MSCI EAFE ETF
The shares of the iShares® MSCI EAFE ETF (the “ETF”) are issued by iShares® Trust, a registered investment company.
|
· |
The ETF is a tracking ETF that seeks investment results which correspond generally to the
price and yield performance, before fees and expenses, of its underlying index.
|
|
· |
The index it tracks is the MSCI EAFE Index (the “underlying index”).
|
|
· |
Investment Advisor: BlackRock Fund Advisors (“BFA”).
|
|
· |
The ETF’s shares trade on the NYSE Arca under the ticker symbol “EFA”.
|
|
· |
The iShares® Trust’s SEC CIK Number is 0001100663.
|
|
· |
The ETF’s inception date was August 14, 2001.
|
|
· |
The ETF’s shares are issued or redeemed only in creation units of 600,000 shares or multiples
thereof.
|
We obtained the following fee information from the iShares® website without independent verification. The investment advisor is paid
a management fee from the ETF based on the ETF’s allocable portion of an aggregate management fee based on the aggregate average daily net assets of the ETF and a set of other specified iShares® funds (the “funds”) as follows: 0.35% per annum of the aggregate net assets of the funds less than or equal to $30.0
billion, plus 0.32% per annum of the aggregate net assets of the funds on amounts in excess of $30.0 billion, up to and including $60.0 billion, plus 0.28% per annum of the aggregate net assets of the funds on amounts in excess of $60.0 billion, up to and including $90.0 billion, plus 0.252% per annum of the aggregate net assets of the funds on amounts in excess of $90.0 billion, up to and including $120.0 billion, plus 0.227% per annum of the aggregate net assets of the funds on amounts in excess of $120.0 billion, up to and including $150.0 billion, plus
0.204% per annum of the aggregate net assets of the funds on amounts in excess of $150.00 billion. As of September 30, 2018, the aggregate expense ratio of the ETF was 0.32% per
annum.
For additional information regarding iShares® Trust or BFA, please consult the reports (including the Annual Report to
Shareholders on Form N-CSR for the period ended July 31, 2018) and other information iShares® Trust files with the SEC. In addition, information regarding the ETF, including its top portfolio holdings, may be obtained from other sources including, but
not limited to, press releases, newspaper articles, other publicly available documents, and the iShares® website at us.ishares.com/product_info/fund/overview/EFA.htm. We are not incorporating by reference the website, the sources listed above or any material they include in this pricing supplement.
Investment Objective
The ETF seeks to provide investment
results that correspond generally to the price and yield performance, before fees and expenses, of the underlying index. The ETF’s investment objective and the underlying index may be changed without the approval of BFA’s shareholders.
The following table displays the top holdings and
weightings by industry sector of the ETF. (Sector designations are determined by the ETF sponsor using criteria it has selected or developed. Index and ETF sponsors may use very different standards for determining sector designations. In
addition, many companies operate in a number of sectors, but are listed in only one sector and the basis on which that sector is selected may also differ. As a result, sector comparisons between indices or ETFs with different sponsors may
reflect differences in methodology as well as actual differences in the sector composition of the indices or ETFs.) We obtained the information in the tables below from the ETF website without independent verification.
Notwithstanding the ETF’s investment
objective, the return on your notes will not reflect any dividends paid on the ETF shares, on the securities purchased by the ETF or on the securities that comprise the underlying index.
iShares® MSCI EAFE ETF Top Ten Holdings as of December 28, 2018
ETF Stock Issuer
|
Percentage (%)
|
NESTLE SA
|
1.98%
|
NOVARTIS AG
|
1.48%
|
ROCHE HOLDING PAR AG
|
1.39%
|
HSBC HOLDINGS PLC
|
1.31%
|
ROYAL DUTCH SHELL PLC
|
1.07%
|
TOYOTA MOTOR CORP
|
1.05%
|
BP PLC
|
1.02%
|
TOTAL SA
|
1.01%
|
ROYAL DUTCH SHELL PLC CLASS B
|
0.88%
|
AIA GROUP LTD
|
0.79%
|
Total
|
11.98%
|
iShares® MSCI EAFE ETF Weighting by Sector as of December 28, 2018*ǂ
Sector
|
Percentage (%)
|
Financials
|
19.33%
|
Industrials
|
14.18%
|
Consumer Staples
|
11.48%
|
Health Care
|
11.34%
|
Consumer Discretionary
|
11.12%
|
Materials
|
7.32%
|
Information Technology
|
5.91%
|
Energy
|
5.83%
|
Communication
|
5.51%
|
Real Estate
|
3.70%
|
Utilities
|
3.73%
|
Cash and/or Derivatives
|
0.55%
|
Total
|
100.00%
|
* Percentages may not sum to 100% due to rounding.
ǂ The Global Industry Classification Structure, which MSCI utilizes to classify the constituents of the MSCI EAFE Index, was
updated in September 2018. Please see “ ― The MSCI® EAFE Index” below for additional information about these updates.
iShares® MSCI EAFE ETF Weighting by Country as of December 28, 2018*
Country
|
Percentage (%)
|
Japan
|
24.17%
|
United Kingdom
|
17.24%
|
France
|
10.93%
|
Germany
|
8.80%
|
Switzerland
|
8.64%
|
Australia
|
6.91%
|
Hong Kong
|
3.85%
|
Netherlands
|
3.40%
|
Spain
|
3.08%
|
Sweden
|
2.67%
|
Italy
|
2.25%
|
Denmark
|
1.75%
|
Singapore
|
1.36%
|
Finland
|
1.04%
|
Cash and/or Derivatives
|
0.55%
|
Other
|
3.36%
|
Total
|
100.00%
|
* Percentages may not sum to 100% due to rounding.
Representative Sampling
BFA uses a representative sampling
indexing strategy to manage the ETF. This strategy involves investing in a representative sample of securities that collectively has an investment profile similar to that of the underlying index. The securities selected are expected to have, in
the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the underlying
index.
The ETF generally invests at least 90% of
its assets in the securities of the underlying index and in depositary receipts representing securities of the underlying index. The ETF may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash
equivalents, including shares of money market funds advised by BFA or its affiliates, as well as in securities not included in the underlying index, but which BFA believes will help the ETF track the underlying index. Also, the ETF may lend
securities representing up to one-third of the value of the ETF’s total assets (including the value of the collateral received).
Tracking Error
The performance of the ETF and the
underlying index may vary due to a variety of factors, including differences between the securities and other instruments held in the ETF’s portfolio and those included in the underlying index, pricing differences (including differences between
a security’s price at the local market close and the ETF’s valuation of a security at the time of calculation of the ETF’s net asset value), differences in transaction costs, the ETF’s holding of uninvested cash, differences in timing of the
accrual of or the valuation of dividends or interest, tax gains or losses, changes to the underlying index or the costs to the ETF of complying with various new or existing regulatory requirements. Tracking error also may result because the ETF
incurs fees and expenses, while the underlying index does not. BFA expects that, over time, the ETF’s tracking error will not exceed 5%. The ETF’s use of a representative sampling indexing strategy can be expected to produce a larger tracking
error than would result if the ETF used a replication
indexing strategy in which an ETF invests
in substantially all of the securities in its index in approximately the same proportions as in the underlying index.
As of November 30, 2018, iShares® reported the following average annual returns on the market price of the ETF’s shares and
the MSCI EAFE Index. The market price of the ETF’s shares takes into account distributions on the shares and the returns shown account for changes in the mid-point of the bid and ask prices at 4:00 p.m., Eastern time on the relevant date. ETF
shares: 1 year, -7.68%; 3 years, 4.09%; 5 years, 1.84%; 10 years, 7.38%; since inception, 4.85%; MSCI EAFE Index: 1 year, -7.94%; 3 years, 4.12%; 5 years, 1.84%; 10 years, 7.47%; since ETF inception, 4.90%.
Industry
Concentration Policy
The ETF will concentrate its investments (i.e., hold 25% or
more of its total assets) in a particular industry or group of industries to approximately the same extent that the underlying index is concentrated.
The MSCI EAFE Index
The MSCI EAFE Index (the underlying index)
is a stock index calculated, published and disseminated daily by MSCI Inc., which we refer to as “MSCI”, through numerous data vendors, on the MSCI website and in real time on Bloomberg Financial Markets and Reuters Limited.
Net Total Return Methodology
The ETF tracks the net total return
version of the underlying index. A net total return index represents the total return earned in a portfolio that tracks the price return version of the index and reinvests dividend income, net of certain withholding taxes, in the overall
index, not in the specific stock paying the dividend. The difference between the price return calculation and the net total return calculation of an index is that, with respect to the price return calculation, changes in the index level reflect
changes in stock prices, whereas with respect to the net total return calculation of the index, changes in the index level reflect both movements in stock prices and the reinvestment of dividend income net of certain withholding taxes.
MSCI’s net total return methodology
reinvests net cash dividends in the index the day the security is quoted ex-dividend, or on the ex-date (converted to U.S. dollars, as applicable). Certain dividends, including special/extraordinary dividends and commemorative dividends, are
reinvested in the index if, a day prior to the ex-date, the dividend impact on price is less than 5%. If the impact is 5% or more, the dividend will be reflected in the index through a price adjustment. A specific price adjustment is always
applied for stock dividends that are issued at no cost to the shareholders, an extraordinary capital repayment or a dividend paid in the shares of another company. Cash payments related to corporate events, such as mergers and acquisitions, are
considered on a case-by-case basis.
Notwithstanding the ETF’s investment
objective, the return on your notes will not reflect any dividends paid on the ETF shares, on the securities purchased by the ETF or on the securities that comprise the underlying index.
MSCI divides the companies included in the
index into eleven Global Industry Classification Sectors: Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Real Estate and Utilities. As of the
close of business on September 21, 2018, MSCI and S&P Dow Jones Indices LLC updated the Global Industry Classification Sector structure. Among other things, the update broadened the Telecommunications Services sector and renamed it the
Communication Services sector. The renamed sector includes the previously existing Telecommunication Services Industry group, as well as the Media Industry group, which was moved from the Consumer Discretionary sector and renamed the Media
& Entertainment Industry group. The Media & Entertainment Industry group contains three industries: Media, Entertainment and Interactive Media & Services. The Media industry continues to consist of the Advertising, Broadcasting,
Cable & Satellite and Publishing sub-industries. The Entertainment industry contains the Movies & Entertainment sub-industry (which includes online entertainment streaming companies in addition to companies previously classified in such
industry prior to September 21, 2018) and the Interactive Home Entertainment sub-industry (which includes companies previously classified in the Home Entertainment Software sub-industry prior to September 21, 2018 (when the Home Entertainment
Software sub-industry was a sub-industry in the Information Technology sector)), as well as producers of interactive gaming products, including mobile gaming applications). The Interactive Media & Services industry and sub-industry includes
companies
engaged in content and information
creation or distribution through proprietary platforms, where revenues are derived primarily through pay-per-click advertisements, and includes search engines, social media and networking platforms, online classifieds and online review
companies. The Global Industry Classification Sector structure changes are effective for the MSCI EAFE Index as of the open of business on December 3, 2018 to coincide with the November 2018 semi-annual index review.
The above information supplements the
description of the underlying index found in the accompanying general terms supplement no. 1,734. For more details about the underlying index, the underlying index sponsor and license agreement between the underlying index sponsor and the
issuer, see “The Underliers — MSCI Indices” on page S-46 of the accompanying general terms supplement no. 1,734. Additional information about the underlying index is available on the following website: msci.com/index-methodology. We are not
incorporating by reference the website or any material it includes in this pricing supplement.
The MSCI indices are the exclusive property of MSCI Inc. (“MSCI”). MSCI and the
MSCI index names are service mark(s) of MSCI or its affiliates and are licensed for use for certain purposes by GS Finance Corp. and its affiliates. These securities, based on such index, have not been passed on by MSCI as to their legality or
suitability, and are not issued, sponsored, endorsed, sold or promoted by MSCI, and MSCI bears no liability with respect to any such securities. No purchaser, seller or holder of the securities, or any other person or entity, should use or
refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote the securities without first contacting MSCI to determine whether MSCI’s permission is required. Under no circumstances may any person or entity
claim any affiliation with MSCI without the prior written permission of MSCI. The general terms supplement contains a more detailed description of the limited relationship MSCI has with GS Finance Corp. and any related securities.
The iShares® MSCI Emerging Markets ETF
The shares of the iShares® MSCI Emerging Markets ETF are issued by iShares, Inc., a registered investment company. The
iShares® MSCI Emerging Markets ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index. The iShares® MSCI Emerging Markets ETF
trades on the NYSE Arca under the ticker symbol “EEM”. BlackRock Fund Advisors (“BFA”) serves as the investment advisor to the iShares® MSCI Emerging Markets ETF.
The following tables display the top holdings and weighting by sector and country of the iShares® MSCI Emerging Markets
ETF. A list of constituent stocks can be found at us.iShares.com/product_info/fund/overview/EEM.htm. We are not incorporating by reference the website or any material it includes in this pricing supplement. This information has been obtained
from the iShares® website without independent verification.
iShares® MSCI Emerging Markets ETF Top Ten Holdings as of December 28, 2018
ETF Stock Issuer
|
Percentage (%)
|
TENCENT HOLDINGS LTD
|
4.71%
|
TAIWAN SEMICONDUCTOR MANUFACTURING
|
3.76%
|
ALIBABA GROUP HOLDING ADP REPRESEN
|
3.76%
|
SAMSUNG ELECTRONICS LTD
|
3.47%
|
NASPERS LIMITED N LTD
|
1.85%
|
CHINA CONSTRUCTION BANK CORP H
|
1.62%
|
CHINA MOBILE LTD
|
1.21%
|
INDUSTRIAL AND COMMERCIAL BANK OF
|
1.00%
|
RELIANCE INDUSTRIE LTD
|
0.95%
|
HOUSING DEVELOPMENT FINANCE CORPOR
|
0.94%
|
Total
|
23.27%
|
iShares® MSCI Emerging Markets ETF Weighting by Sector as of December 28, 2018*ǂ
Sector
|
Percentage (%)
|
Financials
|
24.62%
|
Information Technology
|
14.21%
|
Communication
|
14.05%
|
Consumer Discretionary
|
10.52%
|
Energy
|
7.93%
|
Materials
|
7.66%
|
Consumer Staples
|
6.70%
|
Industrials
|
5.51%
|
Real Estate
|
2.96%
|
Health Care
|
2.81%
|
Utilities
|
2.67%
|
Cash and/or Derivatives
|
0.36%
|
Total
|
100.00%
|
* Percentages may not sum to 100% due to rounding.
ǂ The Global Industry Classification Structure, which MSCI utilizes to classify the constituents of the MSCI Emerging Markets
Index, was updated in September 2018. Please see below for additional information about these updates.
iShares® MSCI Emerging Markets ETF Weighting by Country as of December 28, 2018*
Country
|
Percentage (%)
|
China
|
30.18%
|
Korea (South)
|
13.78%
|
Taiwan
|
11.39%
|
India
|
9.36%
|
Brazil
|
7.51%
|
South Africa
|
6.23%
|
Russian Federation
|
3.68%
|
Mexico
|
2.78%
|
Malaysia
|
2.43%
|
Thailand
|
2.42%
|
Indonesia
|
2.29%
|
Poland
|
1.25%
|
Philippines
|
1.11%
|
Chile
|
1.10%
|
Qatar
|
1.09%
|
Cash and/or Derivatives
|
0.36%
|
Other
|
3.05%
|
Total
|
100.01%
|
* Percentages may not sum to 100% due to rounding.
As of November 30, 2018, iShares® reported the following average annual returns on the market price of the ETF’s shares and the MSCI
Emerging Markets Index. The market price of the ETF’s shares takes into account distributions on the shares and the returns shown account for changes in the mid-point of the bid and ask prices at 4:00 p.m., Eastern time on the relevant date. ETF
shares: 1 year, -9.11%; 3 years, 8.67%; 5 years, 1.37%; 10 years, 8.05%; since inception, 10.44%; MSCI Emerging Markets Index: 1 year, -9.09%; 3 years, 9.41%; 5 years, 1.90%; 10 years, 9.13%; since ETF inception, 10.89%.
Notwithstanding the iShares® MSCI Emerging Markets ETF’s investment objective, the return on your notes will not reflect
any dividends paid on the shares of the iShares® MSCI Emerging Markets ETF, on the securities purchased by the iShares® MSCI Emerging Markets ETF or on the securities that comprise the MSCI Emerging Markets Index.
As of the close on May 31, 2018, MSCI began a multi-step process to include, in the MSCI Emerging Markets Index, large cap China A shares that are not in trading
suspension. As part of the first step of the inclusion process, which resulted from the May 2018 quarterly index review, MSCI added such large cap China A shares to the MSCI Emerging Markets Index at 2.5% of their foreign inclusion
factor-adjusted market capitalization. In connection with the August 2018 quarterly index review, MSCI implemented the second step of the inclusion process by increasing the foreign inclusion factor-adjusted market capitalization of those
existing China A share constituents from 2.5% to 5%. With the implementation of this second step, and the inclusion of additional China A shares in connection with the August 2018 quarterly index review, China A shares were initially expected to
represent approximately 0.75% of the MSCI Emerging Markets Index.
MSCI has announced that, beginning in June 2019, it expects to include the MSCI Saudi Arabia Index in the MSCI Emerging Markets
Index, representing on a pro forma basis a weight of approximately 2.6% of the MSCI Emerging Markets Index with 32 securities, following a two-step inclusion process. The first inclusion step is expected to coincide with the May 2019 semi-annual
review and the second inclusion step is expected to take place as part of the August 2019 quarterly index review. In addition, MSCI has announced the reclassification of the MSCI Argentina Index from a “frontier market” to an “emerging market”,
and the MSCI Argentina Index is expected to be included in the MSCI Emerging Markets Index coinciding with the May 2019 semi-annual index review. MSCI expects to continue to restrict the inclusion in the MSCI Argentina Index to only foreign
listings of Argentinian companies, such as American depositary receipts.
As of the close of business on September 21, 2018, MSCI and S&P Dow Jones Indices LLC updated the Global Industry Classification Sector structure.
Among other things, the update broadened the Telecommunications Services sector and renamed it the Communication Services sector. The renamed
sector includes the previously existing
Telecommunication Services Industry group, as well as the Media Industry group, which was moved from the Consumer Discretionary sector and renamed the Media & Entertainment Industry group. The Media & Entertainment Industry group
contains three industries: Media, Entertainment and Interactive Media & Services. The Media industry continues to consist of the Advertising, Broadcasting, Cable & Satellite and Publishing sub-industries. The Entertainment industry
contains the Movies & Entertainment sub-industry (which includes online entertainment streaming companies in addition to companies previously classified in such industry prior to September 21, 2018) and the Interactive Home Entertainment
sub-industry (which includes companies previously classified in the Home Entertainment Software sub-industry prior to September 21, 2018 (when the Home Entertainment Software sub-industry was a sub-industry in the Information Technology
sector)), as well as producers of interactive gaming products, including mobile gaming applications). The Interactive Media & Services industry and sub-industry includes companies engaged in content and information creation or distribution
through proprietary platforms, where revenues are derived primarily through pay-per-click advertisements, and includes search engines, social media and networking platforms, online classifieds and online review companies. The Global Industry
Classification Sector structure changes are effective for the MSCI Emerging Markets Index as of the open of business on December 3, 2018 to coincide with the November 2018 semi-annual index review.
The above information
supplements the description of the ETF found in the accompanying general terms supplement no. 1,734. This information was derived from information prepared by the investment advisor, however, the percentages we have listed above are approximate
and may not match the information available on the investment advisor's website due to subsequent corporate actions or other activity relating to a particular stock. For more details about the ETF, the investment advisor and license agreement between the investment advisor
and the issuer, see “The Underliers — The iShares® MSCI Emerging
Markets ETF” on page S-90 of the
accompanying general terms supplement no. 1,734.
iShares® is a registered trademark of BlackRock Institutional Trust Company, N.A. ("BITC"). The securities are not
sponsored, endorsed, sold, or promoted by BITC. BITC makes no representations or warranties to the owners of the securities or any member of the public regarding the advisability of investing in the securities. BITC has no obligation or
liability in connection with the operation, marketing, trading or sale of the securities.
The MSCI Indexes are the exclusive property of MSCI Inc. ("MSCI"). The securities referred to herein are not sponsored, endorsed, or promoted by
MSCI, and MSCI bears no liability with respect to any such securities.
Historical Closing Levels of the Underliers
The closing levels of the underliers have fluctuated in the past and may, in the future, experience significant fluctuations. Any historical upward
or downward trend in the closing level of any underlier during the period shown below is not an indication that such underlier is more or less likely to increase or decrease at any time during the life of your notes.
You should not take the historical closing levels of an underlier as an
indication of the future performance of an underlier. We cannot give you any assurance that the future performance of any underlier or the underlier stocks will result in you receiving the outstanding face amount of your notes on the
stated maturity date.
Neither we nor any of our affiliates make any representation to you as to the performance of the underliers. Before investing in the offered notes,
you should consult publicly available information to determine the relevant underlier levels between the date of this pricing supplement and the date of your purchase of the offered notes. The actual performance of an underlier over the life of
the offered notes, as well as the cash settlement amount at maturity may bear little relation to the historical levels shown below.
The graphs below show the daily historical closing levels of each underlier from December 28, 2008 through December 28, 2018. We obtained the
levels in the graphs below from Bloomberg Financial Services, without independent verification.
Historical Performance of the iShares® MSCI EAFE ETF
Historical Performance of the iShares® MSCI Emerging Markets ETF
SUPPLEMENTAL DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES
The following section supplements the discussion of U.S. federal income taxation in the accompanying prospectus supplement.
The following section is the opinion of Sidley Austin llp,
counsel to GS Finance Corp. and The Goldman Sachs Group, Inc. In addition, it is the opinion of Sidley Austin llp that the characterization of the notes for U.S.
federal income tax purposes that will be required under the terms of the notes, as discussed below, is a reasonable interpretation of current law.
This section does not apply to you if you are a member of a class of holders subject to special rules, such as:
· |
a dealer in securities or currencies;
|
· |
a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;
|
· |
a life insurance company;
|
· |
a tax exempt organization;
|
· |
a regulated investment company;
|
· |
an accrual method taxpayer subject to special tax accounting rules as a result of its use of financial statements;
|
· |
a person that owns a note as a hedge or that is hedged against interest rate risks;
|
· |
a person that owns a note as part of a straddle or conversion transaction for tax purposes; or
|
· |
a United States holder (as defined below) whose functional currency for tax purposes is not the U.S. dollar.
|
Although this section is based on the U.S. Internal Revenue Code of 1986, as amended, its legislative history, existing and
proposed regulations under the Internal Revenue Code, published rulings and court decisions, all as currently in effect, no statutory, judicial or administrative authority directly addresses how your notes should be treated for U.S. federal
income tax purposes, and as a result, the U.S. federal income tax consequences of your investment in your notes are uncertain. Moreover, these laws are subject to change, possibly on a retroactive basis.
|
You should consult your tax advisor concerning the
U.S. federal income tax and any other applicable tax consequences of your investments in the notes, including the application of state, local or other tax laws and the possible effects of changes in federal or other tax laws.
|
|
United States Holders
This section applies to you only if you are a United States holder that holds your notes as a capital asset for tax purposes. You are a United
States holder if you are a beneficial owner of each of your notes and you are:
· |
a citizen or resident of the United States;
|
· |
a domestic corporation;
|
· |
an estate whose income is subject to U.S. federal income tax regardless of its source; or
|
· |
a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial
decisions of the trust.
|
Tax Treatment. You will be obligated pursuant to the terms of the
notes — in the absence of a change in law, an administrative determination or a judicial ruling to the contrary — to characterize your notes for all tax purposes as pre-paid derivative contracts in respect of the underliers. Except as otherwise
stated below, the discussion herein assumes that the notes will be so treated.
Upon the sale, exchange or maturity of your notes, you should recognize capital gain or loss equal to the difference, if any, between the amount of
cash you receive at such time and your tax basis in your notes. Your tax basis in the notes will generally be equal to the amount that you paid for the notes. If you hold your notes for more than one year, the gain or loss generally will be
long-term capital gain or loss. If you hold your notes for one year or less, the gain or loss generally will be short-term capital gain or loss. Short-term capital gains are generally subject to tax at the marginal tax rates applicable to
ordinary income.
In addition, the constructive ownership rules of Section 1260 of the Internal Revenue Code could possibly apply to your notes. If your notes were
subject to the constructive ownership rules, then any long-term capital gain that you realize upon the sale, exchange or maturity of your notes would be re-characterized as ordinary income (and you would be subject to an interest charge on
deferred tax liability with respect to such re-characterized capital gain) to the extent that such capital gain exceeds the amount of “net underlying long-term capital gain” (as defined in Section 1260 of the Internal Revenue Code). Because the
application of the constructive ownership rules is unclear you are strongly urged to consult your tax advisor with respect to the possible application of the constructive ownership rules to your investment in the notes.
No statutory, judicial or administrative authority directly discusses how your notes should be treated for U.S. federal income
tax purposes. As a result, the U.S. federal income tax consequences of your investment in the notes are uncertain and alternative characterizations are possible. Accordingly, we urge you to consult your tax advisor in determining the tax
consequences of an investment in your notes in your particular circumstances, including the application of state, local or other tax laws and the possible effects of changes in federal or other tax laws.
Alternative Treatments. There is no judicial or administrative
authority discussing how your notes should be treated for U.S. federal income tax purposes. Therefore, the Internal Revenue Service might assert that a treatment other than that described above is more appropriate. For example, the Internal
Revenue Service could treat your notes as a single debt instrument subject to special rules governing contingent payment debt instruments. Under those rules, the amount of interest you are required to take into account for each accrual period
would be determined by constructing a projected payment schedule for the notes and applying rules similar to those for accruing original issue discount on a hypothetical noncontingent debt instrument with that projected payment schedule. This
method is applied by first determining the comparable yield – i.e., the yield at which we would issue a noncontingent fixed rate debt instrument with terms and conditions similar to your notes – and then determining a payment schedule as of the
issue date that would produce the comparable yield. These rules may have the effect of requiring you to include interest in income in respect of your notes prior to your receipt of cash attributable to that income.
If the rules governing contingent payment debt instruments apply, any gain you recognize upon the sale, exchange or maturity of your notes would be
treated as ordinary interest income. Any loss you recognize at that time would be ordinary loss to the extent of interest you included as income in the current or previous taxable years in respect of your notes, and, thereafter, capital loss.
If the rules governing contingent payment debt instruments apply, special rules would apply to a person who purchases notes at a price other than
the adjusted issue price as determined for tax purposes.
It is also possible that your notes could be treated in the manner described above, except that any gain or loss that you recognize at maturity
would be treated as ordinary gain or loss. You should consult your tax advisor as to the tax consequences of such characterization and any possible alternative characterizations of your notes for U.S. federal income tax purposes.
It is possible that the Internal Revenue Service could seek to characterize your notes in a manner that results in tax consequences to you that are
different from those described above. You should consult your tax advisor as to the tax consequences of any possible alternative characterizations of your notes for U.S. federal income tax purposes.
Possible Change in Law
On December 7, 2007, the Internal Revenue Service released a notice stating that the Internal Revenue Service and the Treasury Department are actively considering
issuing guidance regarding the proper U.S. federal income tax treatment of an instrument such as the offered notes, including whether holders should be required to accrue ordinary income on a current basis and whether gain or loss should be
ordinary or capital. It is not possible to determine what guidance they will ultimately issue, if any. It is possible, however, that under such guidance, holders of the notes will ultimately be required to accrue income currently and this could
be applied on a retroactive basis. The Internal Revenue Service and the Treasury Department are also considering other relevant issues, including whether foreign holders of such instruments should be subject to withholding tax on any deemed
income accruals and whether the special “constructive ownership rules” of Section 1260 of the Internal Revenue Code might be applied to such instruments. Holders are urged to consult their tax advisors concerning the significance, and the
potential impact, of
the above considerations. Except to the extent otherwise provided by law, we intend to continue treating the notes for U.S. federal income tax
purposes in accordance with the treatment described above under “Tax Treatment” unless and until such time as Congress, the Treasury Department or the Internal Revenue Service determine that some other treatment is more appropriate. You are urged
to consult your tax advisor as to the possibility that any legislative or administrative action may adversely affect the tax treatment and the value of your notes.
Furthermore, in 2007, legislation was introduced in Congress that, if enacted, would have required holders that acquired instruments such as your
notes after the bill was enacted to accrue interest income over the term of such instruments even though there will be no interest payments over the term of such instruments. It is not possible to predict whether a similar or identical bill will
be enacted in the future, or whether any such bill would affect the tax treatment of your notes.
It is impossible to predict what any such legislation or administrative or regulatory guidance might provide, and whether the effective date of any
legislation or guidance will affect notes that were issued before the date that such legislation or guidance is issued. You are urged to consult your tax advisor as to the possibility that any legislative or administrative action may adversely
affect the tax treatment of your notes.
Backup Withholding and Information Reporting
Please see the discussion under “United States Taxation — Taxation of Debt Securities — Backup Withholding and Information Reporting—United States
Holders” in the accompanying prospectus for a description of the applicability of the backup withholding and information reporting rules to payments made on your notes.
United States Alien Holders
This section applies to you only if you are a United States alien holder. You are a United States alien holder if you are the beneficial owner of
notes and are, for U.S. federal income tax purposes:
· |
a nonresident alien individual;
|
· |
a foreign corporation; or
|
· |
an estate or trust that in either case is not subject to U.S. federal income tax on a net income basis on income or gain from the notes.
|
You will be subject to generally applicable information reporting and backup withholding requirements as discussed in the accompanying prospectus
under “United States Taxation — Taxation of Debt Securities — Backup Withholding and Information Reporting — United States Alien Holders” with respect to payments on your notes at maturity and, notwithstanding that we do not intend to treat the
notes as debt for tax purposes, we intend to backup withhold on such payments with respect to your notes unless you comply with the requirements necessary to avoid backup withholding on debt instruments (in which case you will not be subject to
such backup withholding) as set forth under “United States Taxation — Taxation of Debt Securities — United States Alien Holders” in the accompanying prospectus.
As discussed above, alternative characterizations of the notes for U.S. federal income tax purposes are possible. Should an alternative
characterization of the notes, by reason of a change or clarification of the law, by regulation or otherwise, cause payments at maturity with respect to the notes to become subject to withholding tax, we will withhold tax at the applicable
statutory rate and we will not make payments of any additional amounts. Prospective United States alien holders of the notes should consult their tax advisors in this regard.
Furthermore, on December 7, 2007, the Internal Revenue
Service released Notice 2008-2 soliciting comments from the public on various issues, including whether instruments such as your notes should be subject to withholding. It is therefore possible that rules will be issued in the future, possibly
with retroactive effect, that would cause payments on your notes at maturity to be subject to withholding, even if you comply with certification requirements as to your foreign status.
In addition, the Treasury Department has issued regulations under which amounts
paid or deemed paid on certain financial instruments (“871(m) financial instruments”) that are treated as attributable to U.S.-source dividends could be treated, in whole or in part depending on the circumstances, as a “dividend equivalent”
payment that is subject to tax at a rate of 30% (or a lower rate under an applicable treaty), which in the case of any amounts you receive upon sale, exchange or maturity of your notes, could be collected via withholding. If these regulations
were to apply to the notes, we may be required to withhold such taxes if any U.S.-source dividends are paid on the underliers during the term of the notes. We could also require you to make certifications (e.g., an applicable Internal Revenue
Service Form W-8) prior to the maturity of the notes in order to avoid or minimize withholding obligations, and we could withhold accordingly (subject to your potential right to claim a
refund from the Internal Revenue Service) if such certifications were not received or were not satisfactory. If withholding was required, we would not be required to pay any additional
amounts with respect to amounts so withheld. These regulations generally will apply to 871(m) financial instruments (or a combination of financial
instruments treated as having been entered into in connection with each other) issued (or significantly modified and treated as retired and reissued) on or after January 1, 2021, but will also apply to certain 871(m) financial instruments (or a
combination of financial instruments treated as having been entered into in connection with each other) that have a delta (as defined in the applicable Treasury regulations) of one and are issued (or significantly modified and treated as retired
and reissued) on or after January 1, 2017. In addition, these regulations will not apply to financial instruments that reference a “qualified index” (as defined in the regulations). We have determined that, as of the issue date of your notes,
your notes will not be subject to withholding under these rules. In certain limited circumstances, however, you should be aware that it is possible for United States alien holders to be liable for tax under these rules with respect to a
combination of transactions treated as having been entered into in connection with each other even when no withholding is required. You should consult your tax advisor concerning these regulations, subsequent official guidance and regarding any
other possible alternative characterizations of your notes for U.S. federal income tax purposes.
Foreign Account Tax Compliance Act (FATCA) Withholding
Pursuant to Treasury regulations, Foreign Account Tax Compliance Act (FATCA) withholding (as described in “United States Taxation—Taxation of Debt
Securities—Foreign Account Tax Compliance Act (FATCA) Withholding” in the accompanying prospectus) will generally apply to obligations that are issued on or after July 1, 2014; therefore, the notes will generally be subject to the FATCA
withholding rules.
SUPPLEMENTAL PLAN OF DISTRIBUTION; CONFLICTS OF INTEREST
See “Supplemental Plan of Distribution” on page S-96 of the accompanying general terms supplement no. 1,734 and “Plan of Distribution — Conflicts of Interest” on page
94 of the accompanying prospectus. GS Finance Corp. estimates that its share of the total offering expenses, excluding underwriting discounts and commissions, will be approximately $ .
GS Finance Corp. expects to agree to sell to GS&Co., and GS&Co. expects to agree to purchase from GS Finance Corp., the
aggregate face amount of the offered notes specified on the front cover of this pricing supplement. GS&Co. proposes initially to offer the notes to the public at the original issue price set forth on the cover page of this pricing supplement,
and to certain securities dealers at such price less a concession not in excess of % of the face amount. The original issue price for notes purchased by certain retirement accounts and certain fee-based advisory accounts will be %
of the face amount of the notes, which will reduce the underwriting discount specified on the cover of this pricing supplement with respect to such notes to %. GS&Co. is an affiliate of GS Finance Corp. and The Goldman Sachs
Group, Inc. and, as such, will have a “conflict of interest” in this offering of notes within the meaning of Financial Industry Regulatory Authority, Inc. (FINRA) Rule 5121. Consequently, this offering of notes will be conducted in compliance
with the provisions of FINRA Rule 5121. GS&Co. will not be permitted to sell notes in this offering to an account over which it exercises discretionary authority without the prior specific written approval of the account holder. GS&Co.
will also pay a fee in connection with the distribution of the notes to SIMON Markets LLC, a broker-dealer affiliated with GS Finance Corp.
We expect to deliver the notes against payment therefor in New York, New York on February 5, 2019. Under Rule 15c6-1 of the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade notes on any date prior to two business days before delivery will be required to specify alternative settlement arrangements to prevent a failed settlement.
We have been advised by GS&Co. that it intends to make a market in the notes. However, neither GS&Co. nor any of our other
affiliates that makes a market is obligated to do so and any of them may stop doing so at any time without notice. No assurance can be given as to the liquidity or trading market for the notes.
The notes will not be listed on any securities exchange or interdealer quotation system.
We have not authorized anyone to provide any information or to make any representations other than those contained or incorporated
by reference in this pricing supplement, the accompanying general terms supplement no. 1,734, the accompanying prospectus supplement or the accompanying prospectus. We take no responsibility for, and can provide no assurance as to the
reliability of, any other information that others may give you. This pricing supplement, the accompanying general terms supplement no. 1,734, the accompanying prospectus supplement and the accompanying prospectus is an offer to sell only the
notes offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this pricing supplement, the accompanying general terms supplement no. 1,734, the accompanying prospectus
supplement and the accompanying prospectus is current only as of the respective dates of such documents.
Pricing Supplement
|
Page
|
|
PS-3
|
|
PS-7
|
|
PS-11
|
|
PS-18
|
|
PS-28
|
|
PS-32
|
General Terms Supplement No. 1,734 dated July 10, 2017
|
|
Additional Risk Factors Specific to the Notes
|
S-1
|
Supplemental Terms of the Notes
|
S-16
|
The Underliers
|
S-36
|
S&P 500® Index
|
S-40
|
MSCI Indices
|
S-46
|
Hang Seng China Enterprises Index
|
S-55
|
Russell 2000® Index
|
S-61
|
FTSE® 100 Index
|
S-69
|
EURO STOXX 50® Index
|
S-75
|
TOPIX
|
S-82
|
The Dow Jones Industrial Average®
|
S-87
|
The iShares® MSCI Emerging Markets ETF
|
S-91
|
Use of Proceeds
|
S-94
|
Hedging
|
S-94
|
Employee Retirement Income Security Act
|
S-95
|
Supplemental Plan of Distribution
|
S-96
|
Conflicts of Interest
|
S-98
|
|
Prospectus Supplement dated July 10, 2017
|
Use of Proceeds
|
S-2
|
Description of Notes We May Offer
|
S-3
|
Considerations Relating to Indexed Notes
|
S-15
|
United States Taxation
|
S-18
|
Employee Retirement Income Security Act
|
S-19
|
Supplemental Plan of Distribution
|
S-20
|
Validity of the Notes and Guarantees
|
S-21
|
|
Prospectus dated July 10, 2017
|
|
Available Information
|
2
|
Prospectus Summary
|
4
|
Risks Relating to Regulatory Resolution Strategies and Long-Term Debt Requirements
|
8
|
Use of Proceeds
|
11
|
Description of Debt Securities We May Offer
|
12
|
Description of Warrants We May Offer
|
45
|
Description of Units We May Offer
|
60
|
GS Finance Corp.
|
65
|
Legal Ownership and Book-Entry Issuance
|
67
|
Considerations Relating to Floating Rate Debt Securities
|
72
|
Considerations Relating to Indexed Securities
|
73
|
Considerations Relating to Securities Denominated or Payable in or Linked to a Non-U.S. Dollar Currency
|
74
|
United States Taxation
|
77
|
Plan of Distribution
|
92
|
Conflicts of Interest
|
94
|
Employee Retirement Income Security Act
|
95
|
Validity of the Securities and Guarantees
|
95
|
Experts
|
96
|
Review of Unaudited Condensed Consolidated Financial Statements by Independent Registered Public Accounting Firm
|
96
|
Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995
|
96
|
$
GS Finance Corp.
ETF-Linked Notes due
guaranteed by
The Goldman Sachs
Group, Inc.
Goldman Sachs & Co. LLC