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.
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Subject to Completion. Dated September 26, 2018
GS Finance Corp.$
Callable Monthly iShares® MSCI Emerging Markets ETF-Linked Range Accrual Notes due
guaranteed by
The Goldman Sachs Group, Inc.
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Subject to our redemption right described below, interest, if any, on your notes will be paid monthly on the 3rd day of each month, commencing
on the first interest payment date (expected to be November 3, 2018) and ending on the stated maturity date (expected to be October 3, 2028). The amount of interest that you will be paid each month will be based on the number of scheduled
trading days, each a “reference date”, on which the closing level of the iShares® MSCI Emerging Markets ETF (ETF) is greater than or equal to 80% of the initial ETF level. To determine your annualized interest rate with respect to each interest payment date, we will divide the number of reference dates in the immediately preceding interest period on which the above condition is met by the total number of reference dates in that interest period. We will then
multiply the resulting fraction by the interest factor of between 10.65% and 11.15% (set on the trade date). Your monthly interest payment for each $1,000 face
amount of your notes will equal the product of the applicable annualized interest rate times
$1,000 times an accrued interest factor. The accrued interest factor is determined in accordance with the 30/360 (ISDA) day count convention. See page PS-7. Unless the above condition is met on each reference date in a monthly interest period, the interest rate with
respect to the next interest payment date will be less than between 10.65% and 11.15% per annum, and if it is never met, the interest rate with respect to such interest payment date will be 0%.
The return on your notes is linked to the performance of the ETF, and not to that of the MSCI Emerging Markets Index (index) on which the ETF is
based. The ETF follows a strategy of “representative sampling”, which means the ETF’s holdings are not the same as those of the index. The performance of the ETF may significantly diverge from that of the index.
We may redeem your notes at 100% of their face amount plus any accrued and unpaid interest on any monthly interest payment date beginning in
April 2019.
If we do not redeem your notes, the amount that you will be paid on your notes on the stated maturity date, in addition to any accrued and
unpaid interest, is based solely on the performance of the ETF as measured from the trade date (expected to be September 28, 2018) to and including the determination date (expected to be September 19, 2028). If the final ETF level on the
determination date is greater than or equal to 60% of the initial ETF level, you
will receive the face amount of your notes. If the final ETF level is less than 60% of the initial ETF level, the amount you receive will depend on the index return but
will be less than the face amount of your notes, as described below. You will not benefit from any increase in the final ETF level above the initial ETF level, and you could lose your entire investment in the notes if the final ETF level
is zero.
To determine your payment at maturity, excluding any interest payment, we will calculate the index return, which is the percentage increase or
decrease in the final ETF level from the initial ETF level. On the stated maturity date, for each $1,000 face amount of your notes, you will receive an amount in cash equal to:
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if the index return is greater than or equal to -40% (the final ETF level is greater than or equal to 60% of the initial ETF level), $1,000; or
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if the index return is less than -40% (the final ETF level is less than 60% of the initial ETF level), the sum of (i) $1,000 plus (ii) the product of (a) the index return times (b) $1,000.
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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-12.
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 $960 and $999 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.
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Original issue date:
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expected to be October 3, 2018
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Original issue price:
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100% of the face amount
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Underwriting discount:
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% of the face amount
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Net proceeds to the issuer:
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% of the face amount
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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 , 2018.
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.
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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 $960 and $999 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.
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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 and 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.
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Callable Monthly iShares® MSCI Emerging Markets
ETF-Linked Range Accrual Notes due
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INVESTMENT THESIS
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For investors who want the opportunity for a potentially higher annualized interest rate than on a comparable fixed or floating rate debt security and believe that (i) the level of
the underlier on any scheduled trading day from and including the issue date to but excluding the final interest determination date will not be less than 80% of the initial underlier level and (ii) the final underlier level will not
decline by more than 40% relative to the initial underlier level.
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For investors who (i) are willing to bear a loss if the final underlier level declines by more than 40% relative to the initial underlier level and (ii) are willing to receive
interest at a rate of less than between 10.65% and 11.15% per annum (set on the trade date), and possibly 0% per annum, if the underlier level does not meet or exceed the underlier barrier level on each reference date.
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For investors who understand that, due to the issuer’s early redemption right, the term of their notes could be anywhere from six to one hundred twenty months.
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DETERMINING PAYMENT ON THE NOTES
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The monthly interest payment for each $1,000 face amount of the notes will equal:
Subject to the issuer’s early redemption right, at maturity, excluding any interest payment, for each $1,000 face amount the investor will
receive:
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if the final underlier level is greater than or equal to the trigger buffer level, 100% of the face amount; or
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if the final underlier level is less than the trigger buffer level, the sum of (i) 100% of the face amount plus (ii) the product of the underlier return times the face amount.
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If the final underlier level is less than the trigger buffer level, the return on the notes will be
negative and the investor could lose their entire investment in the notes.
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DETAILS OF THE ISSUER’S EARLY REDEMPTION RIGHT
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We may redeem the notes at 100% of their face amount, plus any accrued and unpaid interest, on any interest payment date beginning in April 2019.
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While we may choose to call the notes on any monthly interest payment date beginning in April 2019, we are more likely to call the notes if:
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the underlier level stays above the underlier barrier level;
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interest rates decline or do not increase; or
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the issuer’s credit spread decreases.
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KEY TERMS
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Issuer:
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GS Finance Corp.
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Guarantor:
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The Goldman Sachs Group, Inc.
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Underlier:
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iShares® MSCI Emerging Markets ETF (Bloomberg symbol, “EEM UP Equity”)
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Face Amount:
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$ in the aggregate; each note will have a face amount equal to $1,000
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Trade Date:
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Expected to be September 28, 2018
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Settlement Date:
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Expected to be October 3, 2018
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Determination Date:
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Expected to be September 19, 2028
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Stated Maturity Date:
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Expected to be October 3, 2028
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Early Redemption Right:
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We have the right to redeem the notes, in whole but not in part, at a price equal to 100% of the face amount plus any accrued and unpaid interest to but excluding such redemption date, on each interest payment date on or after April 3, 2019
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Redemption Dates:
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The interest payment date that is expected to fall on April 3, 2019 and each interest payment date occurring thereafter
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Interest Determination Dates:
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The tenth scheduled trading day prior to each interest payment date
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Interest Payment Dates:
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Expected to be the 3rd day of each month, beginning on November 3, 2018 and ending on the stated maturity date
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Initial Underlier Level:
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To be determined on the trade date
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Final Underlier Level:
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The closing level of the underlier on the determination date
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Underlier Return:
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The quotient of (i) the final underlier level minus the initial underlier level divided by (ii) the initial underlier level, expressed as a positive or negative
percentage.
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Underlier Barrier Level:
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80% of the initial underlier level
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Trigger Buffer Level:
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60% of the initial underlier level
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Day Count Convention:
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30/360 (ISDA)
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Business Day Convention:
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Following unadjusted
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| Interest Factor: | Expected to be between 10.65% and 11.15% |
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Accrued Interest Factor:
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Calculated in accordance with the day count convention with respect to each period from and including each interest payment date (or the original issue date, in
the case of the first interest payment date) to but excluding the next succeeding interest payment date
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CUSIP/ISIN:
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40056E2F4 / US40056E2F40
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HYPOTHETICAL INTEREST PAYMENT
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Underlier Level Generally Increases Over the Life of the Notes, And the
Final Underlier Level Is Greater Than the Trigger Buffer Level
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Interest Payments: Interest will accrue at the full interest rate of between 10.65% and 11.15% per
annum (set on the trade date).
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Call Feature: The issuer is more likely to call the notes prior to maturity.
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Payment at Maturity: Since the final underlier level is greater than the trigger buffer level, the
investor will receive the face amount at maturity.
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Underlier Level Increases and Decreases Over The Life of the Notes,
But the Final Underlier Level Is Greater Than the Trigger Buffer Level
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Interest Payments: The interest rate will be between 10.65% and 11.15% per annum (set on the trade
date) only during the periods when the closing level of the underlier is always greater than or equal to the underlier barrier level.
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Call Feature: The issuer is somewhat more likely to call the notes prior to maturity when the underlier
level is greater than the underlier barrier level.
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Payment at Maturity: Since the final underlier level is greater than the trigger buffer level, the
investor will receive the face amount at maturity.
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Underlier Level Increases and Decreases Over The Life of the Notes, But
the Final Underlier Level Is Less Than the Trigger Buffer Level
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Interest Payments: The interest rate will be between 10.65% and 11.15% per annum (set on the trade
date) only during the periods when the closing level of the underlier is always greater than or equal to the underlier barrier level.
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Call Feature: The issuer is somewhat less likely to call the notes prior to maturity when the
underlier level is less than the underlier barrier level.
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Payment at Maturity: Since the final underlier level is
less than the trigger buffer level, the investor will lose a significant portion of their investment.
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Underlier Level Generally Decreases Over The Life of the Notes, And
the Final Underlier Level Is Less Than the Trigger Buffer Level
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Interest Payments: The monthly interest payments are mostly zero.
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Call Feature: The issuer is not likely to call the notes prior to maturity.
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Payment at Maturity: Since the final underlier level is less than the trigger buffer level, the
investor will lose a significant portion of their investment.
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RISKS
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Please read the section entitled “Additional Risk Factors Specific to Your Notes” of this pricing supplement as well as the risks and considerations
described in the accompanying prospectus dated July 10, 2017, in the accompanying prospectus supplement dated July 10, 2017, under “Additional Risk Factors Specific to the Callable Range Accrual Notes” in the accompanying product supplement no.
1,754 dated July 10, 2017, and under “Additional Risk Factors Specific to the Notes” in the accompanying general terms supplement no. 1,734 dated July 10, 2017.
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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. Also, references to the “accompanying prospectus” mean the accompanying prospectus, dated July 10, 2017, references to the “accompanying prospectus supplement” mean the
accompanying prospectus supplement, dated July 10, 2017, for Medium-Term Notes, Series E, references to the “accompanying general terms supplement no. 1,734” mean the accompanying general terms supplement no. 1,734, dated July 10,
2017, and references to the “accompanying product supplement no. 1,754” mean the accompanying product supplement no. 1,754, dated July 10, 2017, in each case of GS Finance Corp. and The Goldman Sachs Group, Inc. 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.
This section is meant as a summary and should be read in conjunction with the section entitled “General Terms of
the Callable Range Accrual Notes” on page S-25 of the accompanying product supplement no. 1,754 and “Supplemental Terms of the Notes” on page S-16 of the accompanying general terms supplement no. 1,734. Please note that certain
features, as noted below, described in the accompanying product supplement no. 1,754 and general terms supplement no. 1,734 are not applicable to the notes. This pricing supplement supersedes any conflicting provisions of the
accompanying product supplement no. 1,754 or the accompanying general terms supplement no. 1,734.
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Key Terms
Issuer: GS Finance Corp.
Guarantor: The Goldman Sachs Group, Inc.
Underlier: iShares® MSCI Emerging Markets ETF (Bloomberg
symbol, “EEM UP Equity)
Underlying index: MSCI Emerging Markets Index, as
published by MSCI, Inc. (“MSCI”)
Specified currency: U.S. dollars (“$”)
Terms to be specified in accordance with the accompanying product supplement no. 1,754:
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type of notes: notes linked to an underlier
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redemption right or price dependent redemption right: yes, as described below
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reference rate: not applicable
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rate trigger range: not applicable
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trigger buffer level: yes, as described below
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buffer level: not applicable
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Face amount: each note will have a face amount of $1,000; $
in the aggregate for all the offered notes; the aggregate face amount of the offered notes may be increased if the issuer, at its sole option, decides to sell an additional amount of the offered notes on a date subsequent to the date of this
pricing supplement
Purchase at amount other than face amount: the amount we will pay you
at the stated maturity date for your notes or upon any early redemption of your notes, will not be adjusted based on the issue price you pay for your notes, so if you acquire notes at a premium (or discount) to face amount and hold them to the stated maturity date or date of early redemption, it could affect your investment in a number of ways. The return on your investment in such notes will be lower (or higher) than it would have been
had you purchased the notes at face amount. Also, the stated trigger buffer level would not offer the same measure of protection to your investment as would be the case
if you had purchased the notes at face amount. See “Additional Risk Factors Specific to Your Notes — 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” on page PS-14 of this pricing supplement.
Supplemental discussion of U.S. federal
income tax consequences: 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 each note for all tax
purposes as an income-bearing pre-paid derivative contract in respect of the underlier, as described under “Supplemental Discussion of Federal Income Tax Consequences” on page S-31 of the accompanying product supplement no. 1,754. Pursuant to
this approach, it is the opinion of Sidley Austin llp that it is likely that any interest payment will be taxed as ordinary income in accordance with your
regular method of accounting for U.S. federal income tax purposes. If you are a United States alien holder of the notes, we intend to withhold on interest payments made to you at a 30% rate or at a lower rate specified by an applicable income
tax treaty. In addition, upon the sale, exchange, redemption or maturity of your notes, it would be reasonable for you to recognize capital gain or loss equal to the difference, if any, between the amount of cash you receive at such time
(excluding amounts attributable to any interest payment) and your tax basis in your notes. 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 FATCA withholding.
However, according to published guidance, the withholding tax described above will not apply to payments of gross proceeds from the sale, exchange, redemption or other disposition of the notes made before January 1, 2019.
Cash settlement amount (on the stated maturity date): for each $1,000
face amount of your notes, in addition to any accrued and unpaid interest, we will pay you on the stated maturity date, subject to our early redemption right, an amount in cash equal to:
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if the final underlier level is greater than or equal to the trigger buffer level, $1,000; or
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if the final underlier level is less than the trigger buffer level, the sum of (1) $1,000 plus (2) the product of (i) $1,000 times (ii) the underlier return
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Early redemption right: we have the right to redeem your notes, in
whole but not in part, on each redemption date at a price equal to 100% of the face amount plus any accrued and unpaid interest to but excluding such redemption date,
subject to at least ten business days prior notice, as further described under “General Terms of the Callable Range Accrual Notes – Redemption of the Notes” on page S-25 of the accompanying product supplement no. 1,754
Redemption dates: the interest payment date that is expected to fall on
April 3, 2019 and each interest payment date occurring thereafter
Interest rate: the interest rate with respect to any interest payment
date will be determined on the immediately preceding interest determination date, based on the closing level of the underlier on each reference date during the interest period immediately preceding such interest payment date. The interest rate
will be equal to the product of (1) the interest factor times (2) the quotient of (i) the number of reference dates during the applicable interest period when the closing level of the underlier is greater than or equal to the underlier barrier level divided
by (ii) the number of reference dates in such interest period, subject to adjustment as described under “General Terms of the Callable Range Accrual Notes – Interest Payments” on page S-25 of the accompanying product supplement no.
1,754.
Interest factor (to be set on the trade date): expected to be between
10.65% and 11.15%
Interest period: each period from and including each interest
determination date (or the original issue date in the case of the initial interest period) to but excluding the next succeeding interest determination date
Interest determination dates: the tenth scheduled trading day prior to
each interest payment date
Interest payment dates (to be set on the trade date): expected to be
the 3rd day of each month, beginning on November 3, 2018 and ending on the stated maturity date, subject to adjustment as described under “General Terms of the Callable Range Accrual Notes – Interest Payments” on page S-25 of the accompanying
product supplement no. 1,754
Day count convention: 30/360 (ISDA), which means the number of days in the interest accrual period in respect of which payment is being made divided by 360, calculated on a formula basis as follows, as described in Section 4.16(f) of the
2006 ISDA Definitions published by the International Swaps and Derivatives Association, without regard to any subsequent amendments or supplements:
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[360 × (Y2 – Y1)] + [30 × (M2 – M1)] + (D2 –D1)
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360
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where:
“Y1” is the year, expressed as a number, in which the first day of the interest accrual
period falls;
“Y2” is the year, expressed as a number, in which the day immediately following the last
day included in the interest accrual period falls;
“M1” is the calendar month, expressed as a number, in which the first day of the interest accrual period falls;
“M2” is the calendar
month, expressed as a number, in which the day immediately following the last day included in the interest accrual period falls;
“D1” is the first calendar day, expressed as a number, of the interest accrual period,
unless such number would be 31, in which case D1 will
be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last day
included in the interest accrual period, unless such number would be 31 and D1 is greater than 29, in which case D2 will be 30.
Accrued interest factor: calculated in accordance with the day count
convention with respect to each period from and including each interest payment date (or the original issue date, in the case of the first interest payment date) to but excluding the next succeeding interest payment date (each such period, an “interest accrual period”).
Initial underlier level (to be set on the trade date):
Underlier barrier level: 80% of the initial underlier level
Final underlier level: the closing level of the
underlier on the determination date, subject to anti-dilution adjustments as described under “Supplemental Terms of the Notes — Anti-dilution Adjustments for Exchange-Traded Funds” on page S-28 of the accompanying general terms supplement no.
1,734, except in the limited circumstances described under “Supplemental Terms of the Notes — Consequences of a Market Disruption Event or a Non-Trading Day” on page S-23 of the accompanying general terms supplement no. 1,734 and subject to
adjustment as provided under “Supplemental Terms of the Notes — Discontinuance or Modification of an Underlier” on page S-27 of the accompanying general terms supplement no. 1,734
Closing level: as described under “Supplemental Terms of the Notes — Special Calculation
Provisions — Closing Level” on page S-31 of the accompanying general terms supplement no. 1,734, subject to anti-dilution adjustments as described under “Supplemental Terms of the Notes — Anti-dilution Adjustments for Exchange-Traded Funds” on page S-28 of the accompanying general terms
supplement
Underlier return: the quotient of (1) the final underlier level minus the initial underlier level divided by (2) the initial underlier level, expressed as a percentage
Trigger buffer level: 60% of the initial underlier
level
No listing: the offered notes will not be listed on
any securities exchange or interdealer quotation system
Business day: as described under “Supplemental Terms
of the Notes — Special Calculation Provisions — Business Day” on page S-30 of the accompanying general terms supplement no. 1,734
Trading day: as described under “Supplemental Terms
of the Notes — Special Calculation Provisions — Trading Day” on page S-31 of the accompanying general terms supplement no. 1,734
Trade date: expected to be September 28, 2018
Original issue date (settlement date) (to be set on the trade
date): expected to be October 3, 2018
Determination date (to be set on the trade date):
expected to be September 19, 2028, subject to adjustment as described under “Supplemental Terms of the Notes —Determination Date” on page S-17 of the accompanying general terms supplement no. 1,734
Stated maturity date (to be set on the trade date):
expected to be October 3, 2028, subject to adjustment as described under “Supplemental Terms of the Notes — Stated Maturity Date” on page S-16 of the accompanying general terms supplement no. 1,734
Reference date: for each interest period, each day that is a
scheduled trading day
Business day convention: following unadjusted
Regular record dates: the scheduled business day immediately preceding
each interest payment date
Use of proceeds and hedging: as described under “Use of Proceeds”
and “Hedging” on page S-30 of the accompanying product supplement no. 1,754
ERISA: as described under “Employee Retirement
Income Security Act” on page S-38 of the accompanying product supplement no. 1,754
Supplemental plan of distribution; conflicts of interest: as
described under “Supplemental Plan of Distribution” on page S-39 of the accompanying product supplement no. 1,754 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 Goldman Sachs & Co. LLC (“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. 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.
We expect to deliver the notes against payment therefor in New York, New York on October 3, 2018. 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.
Calculation agent: GS&Co.
CUSIP no.: 40056E2F4
ISIN no.: US40056E2F40
FDIC: 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
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 (i) the method we will use to determine the interest rate with respect to any given interest payment date based on the closing level of the underlier on the applicable reference
dates in the immediately preceding interest period, (ii) the method we will use to calculate the amount of interest accrued between interest payment dates and (iii) the impact that the various hypothetical closing levels of the underlier 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 underlier
level will be on any day throughout the life of your notes, what the final underlier level will be on the determination date and what the interest rate will be on any interest payment date. The underlier has been highly volatile in the past —
meaning that the underlier level has changed substantially in relatively short periods — and its performance cannot be predicted for any future period.
The information in the following examples reflects the method we will use to calculate the interest rate applicable to any interest
payment date and the 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
underlier, 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-12 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
|
||
|
Trigger buffer level
|
60% of the initial underlier level
|
||
|
Underlier barrier level
|
80% of the initial underlier level
|
||
|
Interest factor
|
10.65%
|
||
|
The day count convention calculation results in an accrued interest factor of approximately 0.08333
The notes are not called
Neither a market disruption event nor a non-trading day occurs on the originally scheduled determination date
|
|||
|
No market disruption event or non-trading day occurs on any reference date
No change in or affecting any of the underlier stocks or the method by which the underlier sponsor calculates the underlier
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 level that will serve as the baseline for determining the interest payable at
each interest payment date, the underlier return and the amount that we will pay on your notes at maturity, if any, subject to our early redemption right. We will not do so until the trade date. As a result, the actual initial underlier level may
differ substantially from the current level of such underlier prior to the trade date. They may also differ substantially from the level of the underlier at the time you purchase your notes.
For these reasons, the actual performance of the underlier over the life of your notes, the actual underlier level on any reference date in any
interest period, as well as the interest payable at each interest payment date, may bear little relation to the hypothetical examples shown below or to the historical levels of the underlier shown elsewhere in this pricing supplement. For
information about the levels of the underlier during recent periods, see “The Underlier — Historical Closing Levels of the Underlier” on page PS-17. Before investing in the notes, you should consult publicly available information to determine the
underlier level between the date of this pricing supplement and the date of your purchase of the notes.
The following table and examples illustrate the method we will use to calculate the interest rate with respect to an interest payment date, subject
to the key terms and assumptions above. The numbers in the first column represent the number of reference dates (“N”) during any given interest period for which the closing level of the underlier is greater than or equal to the underlier barrier
level. The levels in the fourth column represent the hypothetical interest amount, as a percentage of the face amount of each note (rounded to the nearest one-hundredth of a percent), that would be payable with respect to a given interest period
in which the closing level of the underlier is greater than or equal to the underlier barrier level for a given number of reference dates (as specified in the first column).
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.
|
N* (A)
|
Assumed number of
eligible trading days in
an interest period (B)
|
Fraction (A/B) x 10.65%
|
Amount of interest to
be paid on the related
interest payment date
(using 30/360 (ISDA)
convention)
|
|
0
|
20
|
0.00000000
|
0.00%
|
|
5
|
20
|
0.02662500
|
0.22%
|
|
10
|
20
|
0.05325000
|
0.44%
|
|
15
|
20
|
0.07987500
|
0.67%
|
|
20
|
20
|
0.10650000
|
0.89%
|
* The number of days for which the closing level of the underlier is greater than or equal to the underlier barrier level in a
given interest period is subject to numerous adjustments, as described under “General Terms of the Callable Range Accrual Notes – Interest Payments” on page S-25 of the accompanying product supplement no. 1,754.
The levels in the left column of the table below represent hypothetical final underlier levels and are expressed as percentages of the initial
underlier level. The amounts in the right column represent the hypothetical cash settlement amounts, based on the corresponding hypothetical final underlier level (expressed as a percentage of the initial underlier level), 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 (expressed as a percentage of the initial underlier level)
and the assumptions noted above.
|
Hypothetical Final Underlier Level
|
Hypothetical Cash Settlement
Amount*
|
|
(as Percentage of Initial Underlier Level)
|
(as Percentage of Face Amount)
|
|
200.000%
|
100.000%
|
|
175.000%
|
100.000%
|
|
150.000%
|
100.000%
|
|
125.000%
|
100.000%
|
|
100.000%
|
100.000%
|
|
95.000%
|
100.000%
|
|
90.000%
|
100.000%
|
|
60.000%
|
100.000%
|
|
59.999%
|
59.999%
|
|
40.000%
|
40.000%
|
|
25.000%
|
25.000%
|
|
0.000%
|
0.000%
|
* Does not include interest, if any, payable on the stated maturity date
If, for example, the final underlier level were determined to be 25.000% of the initial underlier level, the cash settlement amount that we would deliver on your notes
at maturity would be 25.000% 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 75.000%
of your investment (if you purchased your notes at a premium to face amount you would lose a correspondingly higher percentage of your investment). In addition, if the final underlier level were determined to be 150.000% of the initial underlier
level, the cash settlement amount that we would deliver on your notes at maturity would be limited to 100.000% of each $1,000 face amount of your notes, as shown in the table above. As a result, if you held your notes to the stated maturity date, you would not benefit from any increase in the final underlier level over the initial underlier level.
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 Callable Range Accrual Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” on page S-22 of the
accompanying product supplement no. 1,754.
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 closing level of the underlier on any day, the final underlier level or what the market value of your notes
will be on any particular day, nor can we predict the relationship among the closing level of the underlier and the market value of your notes at any time prior to the stated maturity date. The actual interest payment, if any, that a
holder of the notes will receive at each interest payment date, the actual amount that you will receive at maturity, if any, and the rate of return on the offered notes will depend on the actual initial underlier level and the interest
factor, which we will set on the trade date, and on the actual closing levels of the underlier and the actual final underlier level determined by the calculation agent as described above. Moreover, the assumptions on which the
hypothetical examples are based may turn out to be inaccurate. Consequently, the interest amount to be paid in respect of your notes, if any, and the cash amount to be paid in respect of your notes on the stated maturity date, if any,
may be very different from the information reflected in the examples above.
|
|
|
|
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, under “Additional Risk Factors Specific to the Notes” in the accompanying general terms supplement no. 1,734 and under “Additional Risk Factors Specific to the
Callable Range Accrual Notes” in the accompanying product supplement no. 1,754. 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, the accompanying general terms supplement no. 1,734 and the accompanying product supplement no. 1,754. 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., the stocks comprising the underlier to which your notes are linked. 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
Callable Range Accrual Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” on page S-22 of the accompanying product supplement no. 1,754.
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 “Additional Risk Factors Specific to the Callable Range Accrual Notes — Your Notes May Not Have an Active Trading Market” on page S-22 of the accompanying product supplement no.
1,754.
The Notes Are Subject to the Credit Risk of the Issuer and the Guarantor
Although the interest and return on the notes will be based on the performance of the 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 solely on the performance of the underlier as measured from the initial underlier level set on the trade date to
the closing level on the determination date. If the final underlier level for your notes is less than the trigger
buffer level, you will have a loss for each $1,000 of the face amount of your notes equal to the product of the underlier return times $1,000. 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.
We Are Able to Redeem Your Notes at Our Option
On any monthly interest payment date on or after April 3, 2019, we will be permitted to redeem your notes at our option. Even if we
do not exercise our option to redeem your notes, our ability to do so may adversely affect the value of your notes. It is our sole option whether to redeem your notes prior to maturity and we may or may not exercise this option for any reason.
Because of this redemption option, the term of your notes could be anywhere between six and one hundred twenty months. See “Additional Risk Factors Specific to the Callable Range Accrual Notes — We Are Able to Redeem Your Notes at Our Option” on
page S-21 of the accompanying product supplement no. 1,754.
If the Closing Level of the Underlier Is Less Than the Underlier Barrier Level on Any Reference Date in Any
Interest Period, the Interest Rate With Respect to the Next Interest Payment Date Will Be Reduced
Because of the formula used to calculate the interest rate applicable to your notes, if, on any reference date in any applicable interest period,
the closing level of the underlier is less than the underlier barrier level, the interest rate with respect to the next interest payment date will be reduced. Therefore, if the closing level of the underlier is less than the underlier barrier
level for an entire interest period, you will receive no interest
on the related interest payment date. In such case, even if you receive some interest payments on some or all of the interest
payment dates, 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 you will be paid for your notes on the stated maturity date or the amount we will pay you upon any early
redemption of your notes will not be adjusted based on the issue price you pay for the notes. 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. In addition, the impact of the trigger buffer level on the return on your investment will depend upon the price you pay for your notes relative
to face amount. For example, the trigger buffer level, while still providing some protection for the return on the notes, will allow a greater percentage decrease in your investment in the notes than would have been the case for notes purchased
at face amount or a discount to face amount.
The Policies of the Underlier’s Investment Advisor, BlackRock Fund Advisors, and the Sponsor of The Underlying
Index, MSCI Inc., Could Affect the Amount Payable on Your Notes and Their Market Value
The underlier’s investment advisor, BlackRock Fund Advisors (“BFA” or the “underlier investment advisor”), may from time to time be
called upon to make certain policy decisions or judgments with respect to the implementation of policies of the underlier investment advisor concerning the calculation of the net asset value of the underlier, additions, deletions or substitutions
of securities in the underlier and the manner in which changes affecting the underlying index are reflected in the underlier that could affect the market price of the shares of the 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 underlier investment advisor changes these policies, for example, by changing the manner in which it calculates the net asset value of the
underlier, or if the underlier investment advisor discontinues or suspends calculation or publication of the net asset value of the 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
price of the underlier 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 price of the underlier on the determination date and the amount payable on your notes more fully under “Supplemental Terms of the Notes — Discontinuance or Modification of an Underlier” on page S-23 of the accompanying
general terms supplement no. 1,734.
In addition, MSCI Inc. (the “underlying index sponsor”) owns the underlying index and is responsible for the design and maintenance of
the underlying index. The policies of the underlying index sponsor concerning the calculation of the underlying index, including decisions regarding the addition, deletion or substitution of the equity securities included in the underlying index,
could affect the level of the underlying index and, consequently, could affect the market prices of shares of the underlier and, therefore, the amount payable on your notes and their market value.
There Are Risks Associated with The Underlier
Although the underlier’s shares 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 the underlier or that there will be liquidity in the trading market.
In addition, the 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 may select up to 10% of the underlier’s assets to be invested in shares of equity securities that
are not included in the underlying index. The underlier is also not actively managed and may be affected by a general decline in market segments
relating to the underlying index. The 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 underlier is 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, agent 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, the underlier will be required to confirm on an ongoing basis that the components of the underlying index satisfy the applicable listing requirements. In the event that its underlying index does not comply
with the applicable listing requirements, the 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 the underlier being delisted by the NYSE Arca.
The Underlier and The Underlying Index are Different and the Performance of the Underlier May Not Correlate
with the Performance of the Underlying Index
The underlier uses a representative sampling strategy (more fully described under “The Underlier”) to attempt to track the
performance of the underlying index. The underlier may not hold all or substantially all of the equity securities included in the underlying index and may hold securities or assets not included in the underlying index. Therefore, while the
performance of the underlier is generally linked to the performance of the underlying index, the performance of the underlier is also linked in part to shares of equity securities not included in the 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 the underlier investment advisor.
Imperfect correlation between the underlier’s portfolio securities and those in the underlying index, rounding of prices, changes
to the underlying index and regulatory requirements may cause tracking error, the divergence of the underlier’s performance from that of the underlying index.
In addition, the performance of the underlier will reflect additional transaction costs and fees that are not included in the
calculation of the underlying index and this may increase the tracking error of the underlier. Also, corporate actions with respect to the sample of equity securities (such as mergers and spin-offs) may impact the performance differential between
the underlier and the underlying index. Finally, because the shares of the underlier are traded on the NYSE Arca and are subject to market supply and investor demand, the market value of one share of the underlier may differ from the net asset
value per share of the underlier.
For all of the foregoing reasons, the performance of the underlier may not correlate with the performance of the underlying index.
Consequently, the return on the notes will not be the same as investing directly in the underlier or in the underlying index or in the underlier stocks or in the underlying index stocks, and will not be the same as investing in a debt security
with a payment at maturity linked to the performance of the underlying index.
Investment in the Offered Notes Is Subject to Risks Associated with Foreign Securities Markets
The value of your notes is linked to an underlier that 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 underlier is not traded, the value of the securities underlying the
underlier may change on days when shareholders will not be able to purchase or sell shares of the underlier.
The countries whose markets are represented by the underlier 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 underlier 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 underlier.
Your Investment in the Notes Will Be Subject to Foreign Currency Exchange Rate Risk
The ETF holds assets that are denominated in non-U.S. dollar currencies. The value of the assets held by the ETF 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 the ETF may not increase even if the non-dollar value of the asset held by the ETF 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 level of the ETF 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.
You Have No Shareholder Rights or Rights to Receive Any Underlier Stock
Investing in your notes will not make you a holder of any of the underlier stocks. Neither you nor any other holder or owner of
your notes will have any rights with respect to the underlier stocks, including any voting rights, any right to receive dividends or other distributions, any rights to make a claim against the underlier stocks or any other rights of a holder of
the underlier stocks. Your notes will be paid in cash and you will have no right to receive delivery of any underlier stocks.
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 original 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 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. 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 Federal Income Tax Consequences” on page S-31 of the accompanying product supplement no. 1,754. 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 Federal Income Tax Consequences” on page S-31 of the accompanying product supplement no. 1,754 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.
United States Alien Holders Should Consider the Withholding Tax Implications of Owning the Notes
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 interest
payments and any amounts a United States alien holder receives upon the sale, exchange, redemption or maturity of the 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 underlier during the term of the notes. We could also require a United States alien holder to make certifications (e.g., an applicable Internal Revenue Service Form W-8) prior to any interest
payment or the maturity of the notes in order to avoid or minimize withholding obligations, and we could withhold accordingly (subject to the United States alien
holder’s 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.
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, redemption 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 rule 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 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 September 24, 2018
|
ETF Stock Issuer
|
Percentage (%)
|
|
TENCENT HOLDINGS LTD
|
4.62%
|
|
TAIWAN SEMICONDUCTOR MANUFACTURING
|
4.06%
|
|
SAMSUNG ELECTRONICS LTD
|
3.95%
|
|
ALIBABA GOUP HOLDING ADR REPRESEN
|
3.65%
|
|
NASPERS LIMITED N LTD
|
1.93%
|
|
CHINA CONSTRUCTION BANK CORP H
|
1.61%
|
|
BAIDU ADR REPTG INC CLASS A
|
1.22%
|
|
CHINA MOBILE LTD
|
1.15%
|
|
PING AN INSURANCE (GROUP) CO OF CH
|
1.00%
|
|
INDUSTRIAL AND COMMERCIAL BANK OF
|
0.96%
|
|
Total
|
24.15%
|
iShares® MSCI Emerging Markets ETF Weighting by Country as of September 24, 2018*
|
Country
|
Percentage (%)
|
|
China
|
30.89%
|
|
Korea (South)
|
14.85%
|
|
Taiwan
|
12.18%
|
|
India
|
8.59%
|
|
South Africa
|
6.24%
|
|
Brazil
|
6.00%
|
|
Russian Federation
|
3.60%
|
|
Mexico
|
3.15%
|
|
Thailand
|
2.47%
|
|
Malaysia
|
2.44%
|
|
Indonesia
|
1.92%
|
|
Poland
|
1.23%
|
|
Chile
|
1.12%
|
|
Cash and/or Derivatives
Other
|
0.34%
5.00%
|
|
Total
|
100.02%
|
* Percentages may not sum to 100% due to rounding.
ǂ It has been announced that the Global Industry Classification Structure, which MSCI utilizes to classify the constituents of the
MSCI Emerging Markets Index, is expected to be updated in September 2018. Please see below for additional information about these updates.
iShares® MSCI Emerging Markets ETF Weighting by Sector as of September 24, 2018*ǂ
|
Sector
|
Percentage (%)
|
|
Information Technology
|
26.98%
|
|
Financials
|
22.98%
|
|
Consumer Discretionary
|
9.17%
|
|
Energy
|
7.92%
|
|
Materials
|
7.90%
|
|
Consumer Staples
|
6.51%
|
|
Industrials
|
5.40%
|
|
Telecommunications
|
4.44%
|
|
Health Care
|
3.05%
|
|
Real Estate
|
2.88%
|
|
Utilities
|
2.43%
|
|
Cash and/or Derivatives
|
0.34%
|
|
Total
|
100.00%
|
* Percentages may not sum to 100% due to rounding.
As of August 31, 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, -1.5%; 3 years, 10.73%; 5 years, 4.63%; 10 years, 2.75%; since inception, 10.99%; MSCI Emerging Markets Index: 1 year, -0.68%; 3 years, 11.42%; 5 years, 5.04%; 10 years, 3.45%; since ETF inception,11.48%.
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 Classification Sector structure changes will be implemented in the MSCI Emerging Markets
Index in connection with the November 2018 semi-annual index review.
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 Underlier
The closing level of the underlier has fluctuated in the past and may, in the future, experience significant fluctuations. Any
historical upward or downward trend in the closing level of the underlier during the period shown below is not an indication that the 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 levels of the underlier as
an indication of the future performance of the underlier. We cannot give you any assurance that the future performance of the underlier or the underlier stocks will result in your receiving any interest payment on any interest payment
date.
Neither we nor any of our affiliates make any representation to you as to the performance of the underlier. Before investing in the
offered notes, you should consult publicly available information to determine the levels of the underlier between the date of this pricing supplement and the date of your purchase of the offered notes. The actual performance of the underlier over
the life of the offered notes, as well as the cash settlement amount, may bear little relation to the historical closing levels shown below.
The graph below shows the daily historical closing levels of the underlier from September 24, 2008 through September 24, 2018. We
obtained the closing levels in the graph below from Bloomberg Financial Services, without independent verification.
Historical Performance of the iShares® MSCI Emerging Markets ETF
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 product supplement no. 1,754, 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 product supplement no. 1,754, 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 product supplement no. 1,754, 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
|
|
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PS-5
|
|
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PS-9
|
|
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PS-12
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|
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PS-19
|
|
|
Product Supplement No. 1,754 dated July 10, 2017
|
|
|
Summary Information
|
S-1
|
|
Hypothetical Returns on the Callable Range Accrual Notes
|
S-7
|
|
Additional Risk Factors Specific to the Callable Range Accrual Notes
|
S-20
|
|
General Terms of the Callable Range Accrual Notes
|
S-25
|
|
Use of Proceeds
|
S-30
|
|
Hedging
|
S-30
|
|
Supplemental Discussion of Federal Income Tax Consequences
|
S-31
|
|
Employee Retirement Income Security Act
|
S-38
|
|
Supplemental Plan of Distribution
|
S-39
|
|
Conflicts of Interest
|
S-42
|
|
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.
Callable Monthly iShares® MSCI Emerging Markets ETF-Linked Range Accrual Notes due
guaranteed by
The Goldman Sachs Group, Inc.
Goldman Sachs & Co. LLC