Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-219206
The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus 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 28, 2018.
GS Finance Corp.
$
Callable Quarterly CMS Spread-Linked Notes due
guaranteed by
The Goldman Sachs Group, Inc.
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The notes will mature on the stated maturity date (expected to be October , 2030).
We may redeem your notes at 100% of their face amount plus any accrued and unpaid interest on any quarterly interest payment
date on or after October , 2020.
On the stated maturity date, we will pay you an amount in cash equal to the face amount of your notes plus accrued and unpaid interest. The notes will pay interest quarterly, beginning approximately three months after the original issue date. For each of the first four
interest periods, interest will be paid at a rate of 7.25% per annum. For each interest period thereafter, the amount of interest you will be paid each quarter will be based on the product of (i) 20 times (ii) the CMS spread (the difference between the 30-year CMS rate minus the 2-year CMS rate on the relevant interest determination date, which will be the second U.S. Government securities business day preceding the respective interest period), subject to the maximum interest
rate of 20% per annum and the minimum interest rate of 0% per annum. The 30-year CMS rate and the 2-year CMS rate are based on hypothetical interest rate swaps referencing
3-month USD LIBOR. LIBOR is being modified, see page S-9.
For each quarterly interest period after the fourth interest period, the interest rate per annum for such interest period will
equal:
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if (i) the CMS spread times (ii) 20 is greater than or equal to 20%, the maximum interest rate of 20%;
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if (i) the CMS spread times (ii) 20 is less than 20% but greater than 0%, (i) the CMS spread times (ii) 20; or
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if (i) the CMS spread times (ii) 20 is equal to or less than 0%, the minimum interest rate of 0%.
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After the first four interest periods, the interest rate per annum will be subject to a maximum interest
rate of 20%.
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 S-6.
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 $946 and $996 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:
amount
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October , 2018
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Original issue price:
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100% of the face
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Underwriting discount:
amount
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% of the face amount*
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Net proceeds to issuer:
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% of the face
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* See “Supplemental Plan of Distribution” on page S-29 for additional information regarding the fees comprising the underwriting
discount.
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
Prospectus Supplement No. dated , 2018.
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The issue price, underwriting discount and net proceeds listed on the cover page hereof relate to the notes we sell initially. We may decide to sell
additional notes after the date of this prospectus 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 offered 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
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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 $946 and $996 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).
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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 prospectus supplement and the accompanying documents listed below. This prospectus supplement constitutes a supplement to the documents listed below and should be read in
conjunction with such documents:
The information in this prospectus 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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We refer to the notes we are offering by this prospectus supplement as the “offered notes” or the
“notes”. Each of the offered notes has the terms described below and under “Specific Terms of Your Notes” on page S-13. Please note that in this prospectus 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, and
references to the “accompanying prospectus supplement” mean the accompanying prospectus supplement, dated July 10, 2017, for Medium-Term Notes, Series E, in each case of GS Finance Corp. and The Goldman Sachs Group, Inc. References to the
“indenture” in this prospectus supplement mean 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.
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Key Terms
Issuer: GS Finance Corp.
Guarantor: The Goldman Sachs Group, Inc.
CMS spread: on any interest determination date, the 30-year CMS rate minus the 2-year CMS rate
30-year CMS rate: for any interest determination date, the 30-year
U.S. dollar interest rate swap rate (as described on page S-14) on such day, subject to adjustment as described elsewhere in this prospectus supplement
2-year CMS rate: for any interest determination date, the 2-year U.S.
dollar interest rate swap rate (as described on page S-14) on such day, subject to adjustment as described elsewhere in this prospectus supplement
CMS rates: the 30-year CMS rate and the 2-year CMS rate. The 30-year CMS rate and 2-year CMS rate are based on hypothetical interest rate swaps referencing 3-month USD LIBOR. LIBOR is being modified, see page S-9.
Discontinuance of a CMS rate: if the calculation agent determines on
an interest determination date that a CMS rate has been discontinued, then the calculation agent will use a substitute or successor rate that it has determined in its sole discretion is most comparable to the applicable CMS rate, provided that if
the calculation agent determines there is an industry-accepted successor rate, then the calculation agent shall use such successor rate. If the calculation agent has determined a substitute or successor rate in accordance with the foregoing, the
calculation agent in its sole discretion may determine the business day convention, the applicable business days and the interest determination dates to be used, and any other relevant methodology for calculating such substitute or successor
rate, including any adjustment factor needed to make such substitute or successor rate comparable to the applicable CMS rate, in a manner that is consistent with industry-accepted practices for such substitute or successor rate
Face amount: each note will have a face amount equal to $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
prospectus supplement
Supplemental discussion of U.S. federal income tax consequences: We currently expect to treat the notes as debt instruments subject to the special rules governing contingent payment debt instruments for U.S. federal income tax purposes. Under this
treatment, it is the opinion of Sidley Austin llp that if you are a U.S. individual or taxable entity, you generally should be required to pay taxes on ordinary
income from the notes over their term based on the comparable yield for the notes, subject to any positive and
negative adjustments based on the actual interest payments on the notes. In addition, any gain you may recognize on the sale, exchange, redemption
or maturity of the notes will be taxed as ordinary interest income.
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 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. 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 S-10 of this prospectus supplement.
Trade date: expected to be October , 2018
Original issue date (settlement date) (to be set on the trade date):
expected to be October , 2018
Stated maturity date (to be set on the trade date): expected to be
October , 2030, subject to our early redemption right and to adjustment as described under "Specific Terms of Your Notes — Payment of Principal on Stated Maturity Date — Stated Maturity Date" on page S-14
Specified currency: U.S. dollars (“$”)
Denominations: $1,000 and integral multiples of $1,000 in excess
thereof
Interest payment dates (to be set on the trade date): expected to be
January , April , July and October of each year, beginning on January , 2019 and ending on the stated maturity date, subject to adjustments as described elsewhere in the prospectus supplement
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 accrued and unpaid interest to but excluding such redemption date,
subject to at least five business days’ prior notice.
Redemption date: the interest payment date that is expected to fall on
October , 2020 and each interest payment date occurring thereafter.
Interest rate: for the first four interest periods, the interest rate
is expected to be 7.25% per annum. For each interest period thereafter, subject to our early redemption right, the interest rate will be based upon the CMS spread on the relevant interest determination date for such interest period and will be a
rate per annum equal to:
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if (i) the CMS spread times (ii) 20 is greater than or equal to the maximum interest rate, the maximum interest rate;
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if (i) the CMS spread times (ii) 20 is less than the maximum interest rate but greater than the minimum interest rate, (i) the CMS spread times (ii) 20; or
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if (i) the CMS spread times (ii) 20 is equal to or less than the minimum interest rate, the minimum interest rate.
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Maximum interest rate: 20% per annum
Minimum interest rate: 0% per annum
Day count convention: 30/360 (ISDA)
Business day convention: following unadjusted
Regular record dates: the scheduled business day immediately preceding
each interest payment date
Defeasance: not applicable
No listing: the offered notes will not be listed or displayed on any securities exchange or
interdealer market quotation system
Business day: as described under “Specific Terms of Your Notes —
Special Calculation Provisions — Business Day" on page S-16
U.S. Government securities business day: any day except for a Saturday,
Sunday or a day on which the Securities Industry and Financial Markets Association recommends that the fixed income department of its members be closed for the entire day for purposes of trading in U.S. government securities
Interest determination dates: for each interest period after the first
four interest periods, the second U.S. Government securities business day preceding such interest period
Interest period: the period from and including each interest payment
date (or the original issue date, in the case of the initial interest period) to but excluding the next succeeding interest payment date (or the stated maturity date, in the case of the final interest period)
Calculation agent: Goldman Sachs & Co. LLC (“GS&Co.”)
CUSIP no.: 40056E4Q8
ISIN no.: US40056E4Q86
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
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An investment in your notes is subject to the risks described below, as well as the risks and
considerations described in the accompanying prospectus and in the accompanying prospectus supplement. You should carefully review these risks and considerations as well as the terms of the notes described herein and in the accompanying
prospectus and the accompanying prospectus supplement. Your notes are a riskier investment than ordinary debt securities. You should carefully consider whether the offered notes are suited to your particular circumstances.
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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 “— The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” below.
The difference between the estimated value of your notes as of the time the terms of your notes are set on the
trade date and the original issue price is a result of certain factors, including principally the underwriting discount and commissions, the expenses incurred in creating, documenting and marketing the notes, and an estimate of the difference
between the amounts we pay to GS&Co. and the amounts GS&Co. pays to us in connection with your notes. We pay to GS&Co. amounts based on what we would pay to holders of a non-structured note with a similar maturity. In return for such
payment, GS&Co. pays to us the amounts we owe under your notes.
In addition to the factors discussed above, the value and quoted price of your notes at any time will reflect
many factors and cannot be predicted. If GS&Co. makes a market in the notes, the price quoted by GS&Co. would reflect any changes in market conditions and other relevant factors, including any deterioration in our creditworthiness or
perceived creditworthiness or the creditworthiness or perceived creditworthiness of The Goldman Sachs Group, Inc. These changes may adversely affect the value of your notes, including the price you may receive for your notes in any market making
transaction. To the extent that GS&Co. makes a market in the notes, the quoted price will reflect the estimated value determined by reference to GS&Co.’s pricing models at that time, plus or minus its then current bid and ask spread for
similar sized trades of structured notes (and subject to the declining excess amount described above).
Furthermore, if you sell your notes, you will likely be charged a commission for secondary market transactions, or the price
will likely reflect a dealer discount. This commission or discount will further reduce the proceeds you would receive for your notes in a secondary market sale.
There is no assurance that GS&Co. or any other party will be willing to purchase your notes at any price and, in this
regard, GS&Co. is not obligated to make a market in the notes. See “— Your Notes May Not Have an Active Trading Market” below.
The Notes Are Subject to the Credit Risk of the Issuer
Although the interest payments on the notes after the first four interest periods will be based in part on the relationship
between the 30-year CMS rate and the 2-year CMS rate, 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.
If the CMS Spread Changes, the Market Value of Your Notes May Not Change in the Same Manner
The price of your notes may move differently than the CMS spread. The CMS spread will vary during the term of the notes based on
the relationship between the 30-year CMS rate and the 2-year CMS rate as well as the market’s expectation of this relationship in the future. Changes in the CMS spread may not result in a comparable change in the market value of your notes. Even
if the CMS spread times 20 is greater than the minimum interest rate during some portion of the life of the offered notes after the first four interest periods, the market value of your notes may not increase in the same manner. We discuss some
of the reasons for this disparity under “— The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” below.
Because of the long-dated maturity of your notes, the expected future performance of the CMS spread will have a greater impact
on the market value of your notes than if your notes had an earlier maturity date. In particular, the expected future performance of the CMS spread may cause the market value of your notes to decrease even though the CMS spread times 20 may be greater than the minimum interest rate during some portion of the life of the offered notes. Moreover, expectations about the performance of the CMS spread in the
future are subject to a great degree of uncertainty and may be based on assumptions about the future that may prove to be incorrect. Even if the expected future performance of the CMS spread is favorable to your notes, this uncertainty may result
in market participants substantially discounting this future performance when determining the market value of your notes.
If the CMS Spread Is Less Than or Equal to 0.00% on the Relevant Interest Determination Date for Any Interest Period After the
First Four Interest Periods, No Interest Will Be Paid for that Interest Period
Because of the formula used to calculate the interest rate applicable to your notes, in the event that on the relevant interest determination date
for any interest period after the first four interest periods the 30-year CMS rate does not exceed the 2-year CMS rate, no interest will be paid for such interest period, even if the CMS spread on subsequent days is greater than 0.00%. Therefore, if the 30-year CMS rate does not exceed the 2-year CMS rate for a prolonged period
of time over the life of your notes after the first four interest periods, including interest determination dates, you will receive no interest during the affected interest periods. 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.
The Amount of Interest Payable on Your Notes After the First Four Interest Periods Will Not Be Affected by the CMS Spread on
Any Day Other Than the Interest Determination Date for the Applicable Interest Period
For each interest period after the first four interest periods, the amount of interest payable on each interest payment date is
calculated based on the CMS spread on the interest determination date for the applicable interest period. Although the actual CMS spread on an interest payment date or at other times after the first four interest periods may be higher than the
CMS spread on the interest determination date, you will not benefit from the CMS spread at any time other than on such interest determination date.
The Amount of Interest Payable On The Notes In Any Quarter Is Capped
For each of the first four interest periods, interest will be paid at a rate of 7.25% per annum (equal to a quarterly interest
payment of $18.125 for each $1,000 face amount of notes). After the first four interest periods, the interest rate will be subject to the maximum interest rate of 20% per annum, which will limit the amount of interest you may receive on each
interest payment date. Because of the formula used to calculate the interest rate on your notes, if (i) the CMS spread times (ii) 20 is greater than or equal to 20%
per annum, the interest rate after the first four interest periods will be capped at 20% per annum (equal to a maximum quarterly interest payment of $50 for each $1,000 face amount of notes). Thus, you will not benefit from any increases in the
CMS spread above 1%. Furthermore, since the interest rate is determined quarterly, if the interest rate for at least one interest period after the first four interest periods during any year is less than 20% per annum, your actual return for such
year will be less than 20% per annum, even if the interest rate is 20% per annum for the remaining interest periods during such year. Thus, the notes may provide less interest income than an investment in a similar instrument.
The Historical Levels of the CMS Spread Are Not an Indication of the Future Levels of the CMS Spread
In the past, the level of the CMS spread has experienced significant fluctuations. You should note that historical levels,
fluctuations and trends of the CMS spread are not necessarily indicative of future levels. Any historical upward or downward trend in the CMS spread is not an indication that the CMS spread is more or less likely to increase or decrease at any
time after the first four interest periods, and you should not take the historical levels of the CMS spread as an indication of its future performance.
Recent Regulatory Investigations Regarding Potential Manipulation of ISDAfix May Adversely Affect Your Notes
It has been reported that the U.K. Financial Conduct Authority and the U.S. Commodity Futures Trading Commission are working together to investigate
potential manipulation of ISDAfix. If such manipulation occurred, it may have resulted in this rate or the quarterly difference in such rate being artificially lower (or higher) than it would otherwise have been. Any changes or reforms affecting
the determination or supervision of ISDAfix in light of these investigations, may result in a sudden or prolonged increase or decrease in reported ISDAfix or the quarterly difference in ISDAfix, which could have an adverse impact on the trading
market for ISDAfix-benchmarked securities such as your notes, the value of your notes and any payments on your notes.
The CMS Rates Are Based on Hypothetical Interest Rate Swaps Referencing 3-Month USD LIBOR; U.K. Regulators Will No Longer
Persuade or Compel Banks to Submit Rates for Calculation of LIBOR After 2021; Interest Rate Benchmark May Be Discontinued
The CMS rates represent the fixed rate of interest payable on hypothetical interest rate swaps with a floating
leg based on 3-month USD LIBOR. On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (FCA), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of
LIBOR (which includes the 3-month USD LIBOR rate) after 2021. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Notwithstanding the foregoing, it appears highly likely
that LIBOR will be discontinued or modified by 2021. It is not possible to predict the effect that this announcement or any such discontinuance or modification will have on the 3-month USD LIBOR rate, the CMS rates or your notes. If the
calculation agent determines on an interest determination date that a CMS rate has been discontinued, then the calculation agent will use a substitute or successor rate that it has determined in
its sole discretion is most comparable to the applicable CMS rate, provided that if the calculation agent determines there is an industry-accepted successor rate, then the calculation agent shall use such successor rate. If the calculation
agent has determined a substitute or successor rate in accordance with the foregoing, the calculation agent in its sole discretion may determine the business day convention, the applicable business days and the interest determination dates to
be used, and any other relevant methodology for calculating such substitute or successor rate, including any adjustment factor needed to make such substitute or successor rate comparable to the applicable CMS rate, in a manner that is
consistent with industry-accepted practices for such substitute or successor rate. See “Summary Information — Key Terms — Discontinuance of a CMS rate” on page S-3.
Even if a CMS Rate is Not Discontinued, Such Rate May Not Be Published on an Interest Determination and, If Such Rate is Not
Published, it May Be Calculated Based on Dealer Quotations or by the Calculation Agent in its Sole Discretion
Even if a CMS rate is not discontinued, it is possible that such rate may not be available on an interest
determination date because such rate is not published by the Intercontinental Exchange (ICE). Non-publication by ICE of the applicable CMS rate (ICE Swap Rate) could occur for a number of reasons, such as a lack of available market data and an
inability to use available market data to estimate rates for index maturities that are not available, or for other reasons. For example, on February 6, 2018, no CMS Rate (ICE Swap Rate) was published for any index maturity. If the 30-year CMS
rate or the 2-year CMS rate cannot be determined using the Reuters ICESWAP1 page due to the non-publication of such rate on a relevant interest determination date, the calculation agent will determine such rate on the basis of the mid-market
semi-annual swap rate quotations provided by five leading swap dealers in the New York City interbank market at approximately 11:00 a.m., New York City time, on that date. If fewer than three quotations are provided as requested (as occurred in
relation to the February 6, 2018 non-publication of the 30-year CMS rate), the 30-year CMS rate or the 2-year CMS rate, as applicable, will be determined by the calculation agent in its sole discretion. See “Specific Terms of Your Notes — CMS
Rate” on page S‑14. At any time, you may request from the calculation agent the interest rate in effect for your notes. If you would like to know the interest rate in effect for your notes at any time, please call GS&Co. at (212) 902-0300.
Regulation and Reform of “Benchmarks”, Including LIBOR and Other Types of Benchmarks, May Cause Such
“Benchmarks” to Perform Differently Than in the Past, or to Disappear Entirely, or Have Other Consequences Which Cannot be Predicted
LIBOR and other interest rate, equity, foreign exchange rate and other types of indices which are deemed to be “benchmarks” are
the subject of recent national, international and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented. These reforms may cause such “benchmarks” to perform
differently than in the past, or to disappear entirely, or have other consequences which cannot be predicted. Any such consequence could have a material adverse effect on your notes.
Any of the international, national or other proposals for reform or the general increased regulatory scrutiny of “benchmarks”
could increase the costs and risks of administering or otherwise participating in the setting of a “benchmark” and complying with any such regulations or requirements. Such factors may have the effect of discouraging market participants from
continuing to administer or contribute to certain “benchmarks”, trigger changes in the rules or methodologies used in certain “benchmarks” or lead to the disappearance of certain “benchmarks”. The disappearance of a “benchmark” or changes in the
manner of administration of a “benchmark” could result in discretionary valuation by the calculation agent or other consequence in relation to your notes. Any such consequence could have a material adverse effect on the value of and return on
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
The amount you will be paid for your notes on the stated maturity date will not be adjusted based on the issue
price you pay for the notes. If you purchase notes at a price that differs from the face amount of the notes, then the return on your investment in such notes held to the stated maturity date or the date of early redemption will differ from, and
may be substantially less than, the return on notes purchased at face amount. If you purchase your notes at a premium to face amount and hold them to the stated maturity date or the date of early redemption, the return on your investment in the
notes will be lower than it would have been had you purchased the notes at face amount or a discount to face amount.
The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors
When we refer to the market value of your notes, we mean the value that you could receive for your notes if you chose to sell
them in the open market before the stated maturity date. A number of factors, many of which are beyond our control, will influence the market value of your notes, including:
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the 30-year CMS rate and the 2-year CMS rate;
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the expected future performance of the CMS spread;
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the volatility – i.e., the frequency and magnitude of changes – in the level of the CMS spread;
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economic, financial, regulatory, political, military and other events that affect CMS rates generally;
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interest rates and yield rates in the market;
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the time remaining until your notes mature; and
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our creditworthiness and the creditworthiness of The Goldman Sachs Group, Inc., whether actual or perceived, and including actual or anticipated upgrades or downgrades in our credit
ratings or the credit ratings of The Goldman Sachs Group, Inc. or changes in other credit measures.
|
These factors, and many other factors, will influence the price you will receive if you sell your notes before maturity,
including the price you may receive for your notes in any market making transaction. If you sell your notes before maturity, you may receive less than the face amount of your notes.
You cannot predict the future performance of the CMS spread based on its historical performance. The actual performance of the
CMS spread over the life of the offered notes after the first four interest periods, as well as the interest payable on each interest payment date after the first four interest payment dates, may bear little or no relation to the hypothetical
levels of the CMS spread or to the hypothetical examples shown elsewhere in this prospectus supplement.
Anticipated Hedging Activities by Goldman Sachs or Our Distributors May Negatively Impact Investors in the Notes and Cause Our
Interests and Those of Our Clients and Counterparties to be Contrary to Those of Investors in the Notes
Goldman Sachs expects to hedge our obligations under the notes by purchasing listed or over-the-counter options, futures and/or
other instruments linked to the CMS spread. Goldman Sachs also expects to adjust the hedge by, among other things, purchasing or selling any of the foregoing, and perhaps other instruments linked to the CMS spread, at any time and from time to
time, and to unwind the hedge by selling any of the foregoing on or before any interest determination date for your notes. Alternatively, Goldman Sachs may hedge all or part of our obligations under the notes with unaffiliated distributors of
the notes which we expect will undertake similar market activity. Goldman Sachs may also enter into, adjust and unwind hedging
transactions relating to other rate-linked notes whose returns are linked to changes in the level of the CMS spread.
In addition to entering into such transactions itself, or distributors entering into such transactions, Goldman
Sachs may structure such transactions for its clients or counterparties, or otherwise advise or assist clients or counterparties in entering into such transactions. These activities may be undertaken to achieve a variety of objectives, including:
permitting other purchasers of the notes or other securities to hedge their investment in whole or in part; facilitating transactions for other clients or counterparties that may have business objectives or investment strategies that are
inconsistent with or contrary to those of investors in the notes; hedging the exposure of Goldman Sachs to the notes including any interest in the notes that it reacquires or retains as part of the offering process, through its market-making
activities or otherwise; enabling Goldman Sachs to comply with its internal risk limits or otherwise manage firmwide, business unit or product risk; and/or enabling Goldman Sachs to take directional views as to relevant markets on behalf of
itself or its clients or counterparties that are inconsistent with or contrary to the views and objectives of the investors in the notes.
Any of these hedging or other activities may adversely affect the levels of the CMS spread and therefore the
market value of your notes and the amount we will pay on your notes, if any. In addition, you should expect that these transactions will cause Goldman Sachs or its clients, counterparties or distributors to have economic interests and incentives
that do not align with, and that may be directly contrary to, those of an investor in the notes. Neither Goldman Sachs nor any distributor will have any obligation to take, refrain from taking or cease taking any action with respect to these
transactions based on the potential effect on an investor in the notes, and may receive substantial returns on hedging or other activities while the value of your notes declines. In addition, if the distributor from which you purchase notes is to
conduct hedging activities in connection with the notes, that distributor may otherwise profit in connection with such hedging activities and such profit, if any, will be in addition to the compensation that the distributor receives for the sale
of the notes to you. You should be aware that the potential to earn fees in connection with hedging activities may create a further incentive for the distributor to sell the notes to you in addition to the compensation they would receive for the
sale of the notes.
As Calculation Agent, GS&Co. Will Have the Authority to Make Determinations that Could Affect the Value of Your Notes and
the Amount You May Receive On Any Interest Payment Date
As calculation agent for your notes, GS&Co. will have discretion in making certain determinations that affect your notes,
including determining the CMS spread on any interest determination date in certain circumstances, which we will use to determine the amount, if any, we will pay on any applicable interest payment date after the first four interest payment dates.
Further, if GS&Co. determines on an interest determination date that a CMS rate has been discontinued, then GS&Co. will use a substitute or successor rate that it has determined in its sole discretion is most comparable to the applicable
CMS rate, provided that if GS&Co. determines there is an industry-accepted successor rate, then GS&Co. shall use such successor rate. If GS&Co. has determined a substitute or successor rate in accordance with the foregoing, GS&Co.
in its sole discretion may determine the business day convention, the applicable business days and the interest determination dates to be used, and any other relevant methodology for
calculating such substitute or successor rate, including any adjustment factor needed to make such substitute or successor rate comparable to the applicable CMS rate, in a manner that is consistent with industry-accepted practices for such
substitute or successor rate. See “Summary Information — Key Terms — Discontinuance of a CMS rate” on page S-3. The exercise of this discretion by GS&Co. could adversely affect the value of your notes and may present GS&Co. with a
conflict of interest. We may change the calculation agent at any time without notice and GS&Co. may resign as calculation agent at any time upon 60 days’ written notice to us.
Your Notes May Not Have an Active Trading Market
Your notes will not be listed or displayed on any securities exchange or included in any interdealer market quotation system, and there may be little
or no secondary market for your notes. Even if a secondary market for your notes develops, it may not provide significant liquidity and we expect that transaction costs in any secondary market would be high. As a result, the difference between
bid and asked prices for your notes in any secondary market could be substantial.
We Are Able to Redeem Your Notes at Our Option
We have the right to redeem your notes, in whole but not in part, at 100% of their outstanding face amount plus any accrued and unpaid interest up to but excluding the redemption date, on the interest payment date expected to fall on October , 2020 and on each interest
payment date occurring thereafter, upon at least five business days’ prior notice. 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 one and five years.
Certain Considerations for Insurance Companies and Employee Benefit Plans
Any insurance company or fiduciary of a pension plan or other employee benefit plan that is subject to the prohibited
transaction rules of the Employee Retirement Income Security Act of 1974, as amended, which we call “ERISA”, or the Internal Revenue Code of 1986, as amended, including an IRA or a Keogh plan (or a governmental plan to which similar prohibitions
apply), and that is considering purchasing the offered notes with the assets of the insurance company or the assets of such a plan, should consult with its counsel regarding whether the purchase or holding of the offered notes could become a
“prohibited transaction” under ERISA, the Internal Revenue Code or any substantially similar prohibition in light of the representations a purchaser or holder in any of the above categories is deemed to make by purchasing and holding the offered
notes. This is discussed in more detail under “Employee Retirement Income Security Act” below.
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
prospectus supplement. The issue price of the notes in the subsequent sale may differ substantially (higher or lower) from the issue price you paid as provided on the cover of this prospectus supplement.
Your Notes Will Be Treated as Debt Instruments Subject to Special Rules Governing Contingent Payment Debt Instruments for U.S.
Federal Income Tax Purposes
We expect to treat the notes as debt instruments subject to special rules governing contingent payment debt instruments for U.S.
federal income tax purposes. If you are a U.S. individual or taxable entity, you generally will be required to pay taxes on ordinary income from the notes over their term based on the comparable yield for the notes, subject to any positive and
negative adjustments based on the actual interest payments on the notes. This comparable yield is determined solely to calculate the amount on which you will be taxed prior to maturity and is neither a prediction nor a guarantee of what the
actual yield will be. In addition, any gain you may recognize on the sale, exchange, redemption or maturity of the notes will be taxed as ordinary interest income. If you are a secondary purchaser of the notes, the tax consequences to you may be
different. Please see “Supplemental Discussion of Federal Income Tax Consequences” below for a more detailed discussion. 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.
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.
|
We refer to the notes we are offering by this prospectus supplement as the “offered notes” or the
“notes”. Please note that in this prospectus 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, and references to the “accompanying prospectus supplement” mean the accompanying prospectus supplement, dated July 10,
2017, for Medium-Term Notes, Series E, in each case of GS Finance Corp. and The Goldman Sachs Group, Inc. Please note that in this section entitled “Specific Terms of Your Notes”, references to “holders” mean those who own notes
registered in their own names, on the books that we or the trustee maintain for this purpose, and not those who own beneficial interests in notes registered in street name or in notes issued in book-entry form through The Depository Trust
Company. Please review the special considerations that apply to owners of beneficial interests in the accompanying prospectus, under “Legal Ownership and Book-Entry Issuance”.
|
The offered notes are part of a series of debt securities, entitled “Medium-Term Notes, Series E”, that we may
issue under the indenture from time to time as described in the accompanying prospectus supplement and accompanying prospectus. The offered notes are also “indexed debt securities”, as defined in the accompanying prospectus.
This prospectus supplement summarizes specific financial and other terms that apply to the offered notes, including your notes;
terms that apply generally to all Series E medium-term notes are described in “Description of Notes We May Offer” in the accompanying prospectus supplement. The terms described here supplement those described in the accompanying prospectus
supplement and the accompanying prospectus and, if the terms described here are inconsistent with those described there, the terms described here are controlling.
In addition to those terms described under “Summary Information” in this prospectus supplement, the following terms will apply
to your notes:
Specified currency:
| · |
U.S. dollars (“$”)
|
Form of note:
| · |
global form only: yes, at DTC
|
| · |
non-global form available: no
|
Denominations: each note registered in the name of a holder must
have a face amount of $1,000 or an integral multiple of $1,000 in excess thereof
Defeasance applies as follows:
| · |
full defeasance: no
|
| · |
covenant defeasance: no
|
Other terms:
| · |
a business day for your notes will not be the same as a business day for our other Series E medium-term notes, as described under “— Special Calculation Provisions” below
|
Please note that the information about the settlement or trade date, issue price, discount or commission and net proceeds to GS Finance Corp. on the
front cover page or elsewhere in this prospectus supplement relates only to the initial issuance and sale of the offered notes. We may decide
to sell additional notes on one or more dates after the date of this prospectus supplement, at issue prices, underwriting discounts and net proceeds
that differ from the amounts set forth on the front cover page or elsewhere in this prospectus supplement. If you have purchased your notes in a market-making transaction after the initial issuance and sale of the offered notes, any such relevant
information about the sale to you will be provided in a separate confirmation of sale.
We describe the terms of your notes in more detail below.
Payment of Principal on Stated Maturity Date
With respect to the offered notes that have not been redeemed, on the stated maturity date we will pay you an amount in cash
equal to the outstanding face amount of your notes.
Stated Maturity Date
The stated maturity date will be set on the trade date and is expected to be October , 2030, subject to our early redemption
right. If the stated maturity date falls on a day that is not a business day, payment of principal otherwise due on such day will be made on the next succeeding business day, and no interest on such payment shall accrue for the period from and
after the stated maturity date.
Interest Payments
During the first four interest periods, the interest rate on the notes will be 7.25% per annum. For each interest period
thereafter, the interest rate will be based upon the CMS spread on the relevant interest determination date for such interest period and will be a rate per annum equal to:
| · |
if (i) the CMS spread times (ii) 20 is greater than or equal to the maximum interest rate, the maximum interest rate;
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| · |
if (i) the CMS spread times (ii) 20 is less than the maximum interest rate but greater than the minimum interest rate, (i) the CMS spread times (ii) 20; or
|
| · |
if (i) the CMS spread times (ii) 20 is equal to or less than the minimum interest rate, the minimum interest rate.
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The maximum interest rate is 20% per annum. Based on the formula used to calculate the interest rate on your notes, you will
therefore not benefit from any increases in the CMS spread above 1%. The minimum interest rate is 0% per annum.
The calculation agent will calculate the amount of interest payable on each interest payment date for the applicable interest
period after the first four interest periods in the following manner. For each $1,000 face amount of your notes and for each interest period, the calculation agent will calculate the amount of interest to be paid by calculating the product of (i) the $1,000 face amount times (ii) the interest rate times (iii) the applicable day count convention on a 30/360 (ISDA) basis.
Interest will be paid on your notes on each quarterly interest payment date, which will be set on the trade date. If an interest
payment date (other than the interest payment date that falls on the stated maturity date) falls on a day that is not a business day, the payment due on such interest payment date will be postponed to the next day that is a business day; provided that interest due with respect to such interest payment date shall not accrue from and including such interest payment date to and including the date of payment of
such interest as so postponed. If the stated maturity date falls on a day that is not a business day, payment of interest otherwise due on such day will be made on the next succeeding business day, and no interest on such payment shall accrue for
the period from and after the stated maturity date.
CMS Rate
In this prospectus supplement, when we refer to the 30-year CMS rate or the 2-year CMS rate on an interest determination date, we mean the rate
appearing on the Reuters screen ICESWAP1 page for 30-year or 2-year index maturity, as the case may be, as of approximately 11:00 A.M., New York City time, on such
interest determination date.
If the calculation agent determines on an interest determination date that a
CMS rate has been discontinued, then the calculation agent will use a substitute or successor rate that it has determined in its sole discretion is most comparable to the applicable CMS rate, provided that if the calculation agent
determines there is an industry-accepted successor rate, then the calculation agent shall use such successor rate. If the calculation agent has determined a substitute or successor rate in accordance with the foregoing, the calculation agent in
its sole discretion may determine the business day convention, the applicable business days and the interest determination dates to be used, and any other relevant methodology for calculating such substitute or successor rate, including any
adjustment factor needed to make such substitute or successor rate comparable to the applicable CMS rate, in a manner that is consistent with industry-accepted practices for such substitute or successor rate.
Unless the calculation agent uses a substitute or successor rate as so provided, if the CMS rate cannot be determined in the
manner described above, then:
| · |
The applicable CMS rate for the relevant interest determination date will be determined on the basis of the mid-market semi-annual swap rate quotations provided by five leading swap
dealers in the New York City interbank market at approximately 11:00 A.M., New York City time, on that interest determination date. For this purpose, the semi-annual swap rate means the mean of the bid and offered rates for the
semi-annual fixed leg, calculated on a 30/360 (ISDA) day count basis, of a fixed-for-floating U.S. dollar interest rate swap transaction with a term equal to 30 years or 2 years, as the case may be, commencing on the relevant interest
determination date, with an acknowledged dealer of good credit in the swap market, where the floating leg, calculated on an Actual/360 (ISDA) day count basis, is equivalent to the index rate that is then used in the calculation of the
CMS rate with a designated maturity of three months. The calculation agent will select the five swap dealers in its sole discretion and will request the principal New York City office of each of those dealers to provide a quotation of
its rate.
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| · |
If at least three quotations are provided, the CMS rate for that interest determination date will be the arithmetic mean of the quotations described above, eliminating the highest
and lowest quotations or, in the event of equality, one of the highest and one of the lowest quotations.
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| · |
If fewer than three quotations are provided, the calculation agent will determine the CMS rate for that interest determination date in its sole discretion.
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CMS Spread
For any interest determination date, the CMS spread is the 30-year CMS rate minus the 2-year CMS rate.
Interest Determination Dates
For each interest period after the first four interest periods, the second U.S. Government securities business day preceding such
interest period.
Manner of Payment
Any payment on your notes at maturity or upon redemption will be made to an account designated by the holder of your notes and
approved by us, or at the office of the trustee in New York City, but only when your notes are surrendered to the trustee at that office. We may pay interest on any interest payment date by check mailed to the person who is the holder on the
regular record date. We also may make any payment in accordance with the applicable procedures of the depositary.
Modified Business Day
As described in the accompanying prospectus, any payment on your notes that would otherwise be due on a day that is not a business day may instead be
paid on the next day that is a business day, with the same effect as if paid on the original due date. For your notes, however, the term business day may have a different meaning than it does for other Series E medium-term notes. We discuss this
term under “— Special Calculation Provisions” below.
Role of Calculation Agent
The calculation agent in its sole discretion will make all determinations regarding the CMS spread, the 30-year CMS rate, the
2-year CMS rate, the interest determination dates, the regular record dates, the interest payable on each interest payment date, U.S. Government securities business days, business days, postponement of the stated maturity date and the amount
payable on your notes at maturity or redemption, as applicable. Absent manifest error, all determinations of the calculation agent will be final and binding on you and us, without any liability on the part of the calculation agent.
Please note that GS&Co., our affiliate, is currently serving as the calculation agent as of the date of this prospectus
supplement. We may change the calculation agent for your notes at any time after the date of this prospectus supplement without notice and GS&Co. may resign as calculation agent at any time upon 60 days’ written notice to us.
Our Early Redemption Right
We may redeem your notes, at our option, in whole but not in part, on the interest payment date that is expected to fall on
October , 2020 and on each interest payment date occurring thereafter, for an amount equal to 100% of the face amount plus any accrued and unpaid interest to,
but excluding, the redemption date.
If we choose to exercise our early redemption right described in this prospectus supplement, we will notify the holder of your
notes and the trustee by giving at least five business days’ prior notice. The day we give the notice, which will be a business day, will be the redemption notice date and the immediately following interest payment date, which we will state in
the redemption notice, will be the redemption date. We will not give a redemption notice that results in a redemption date later than the stated maturity date.
If we give the holder a redemption notice, we will redeem the entire outstanding face amount of your notes as follows. On the
redemption date, we will pay to the holder of record on the business day immediately preceding the redemption date, the redemption price in cash, together with any accrued and unpaid interest to, but excluding, the redemption date, in the manner
described under “Manner of Payment” above.
Special Calculation Provisions
Business Day
When we refer to a business day with respect to your notes, we mean a day that is a New York business day as described under
“Description of Debt Securities We May Offer — Calculations of Interest on Debt Securities — Business Days” on page 16 in the accompanying prospectus. A day is a scheduled business day if, as of the trade date, such day is scheduled to be a New
York business day.
U.S. Government securities business day
When we refer to a U.S. Government securities business day with respect to your notes, we
mean any day except for a Saturday, Sunday or a day on which the Securities Industry and Financial Markets Association recommends that the fixed income department of its members be closed for the entire day for purposes of trading in U.S.
government securities.
We intend to lend the net proceeds from the sale of the offered notes to The Goldman Sachs Group, Inc. or its affiliates. The
Goldman Sachs Group, Inc. expects to use the proceeds from such loans for the purposes we describe in the accompanying prospectus under “Use of Proceeds”. We or our affiliates may also use those proceeds in transactions intended to hedge our
obligations under the offered notes as described below.
In anticipation of the sale of the offered notes, we and/or our affiliates expect to enter into hedging transactions involving
purchases of listed or over-the-counter options, futures and other instruments linked to the CMS rates on or before the trade date. In addition, from time to time after we issue the offered notes, we and/or our affiliates may enter into
additional hedging transactions and unwind those we have entered into, in connection with the offered notes and perhaps in connection with other notes we issue, some of which may have returns linked to CMS rates. Consequently, with regard to your
notes, from time to time, we and/or our affiliates:
| · |
expect to acquire, or dispose of positions in listed or over-the-counter options, futures or other instruments linked to CMS rates,
|
| · |
may take short positions in securities of the kind described above — i.e., we and/or our affiliates may sell securities of the kind that we do not own or that we borrow for delivery
to purchaser, and/or
|
| · |
may take or dispose of positions in interest rate swaps, options swaps and treasury bonds.
|
We and/or our affiliates may acquire a long or short position in securities similar to your notes from time to time and may, in
our or their sole discretion, hold or resell those securities.
In the future, we and/or our affiliates expect to close out hedge positions relating to the offered notes and perhaps relating to
other notes with returns linked to the CMS spread.
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The hedging activity discussed above may adversely affect the market
value of your notes from time to time and the amount we will pay on your notes at maturity. See “Additional Risk Factors Specific to Your Notes” above for a discussion of these adverse effects.
|
The graph set forth below illustrates
the historical CMS spreads from September 26, 2008 through September 26, 2018. We obtained the CMS spreads shown in the graph from Reuters, without independent verification.
The historical CMS spreads reflected in
the graph set forth below are based on actual CMS rate movements during the time period. We cannot assure you, however, that this performance will be replicated in the future or that the historical CMS spreads will serve as a reliable indicator
of future performance. The CMS spread has fluctuated in the past and may, in the future, experience significant fluctuations. Any historical upward or downward trend in the CMS spread during the period shown below is not an indication that the
CMS spread is more or less likely to increase or decrease at any time after the first four interest periods. See “Additional Risk Factors Specific to Your Notes — The CMS Rates Are Based on Hypothetical Interest Rate Swaps Referencing
3-Month USD LIBOR; U.K. Regulators Will No Longer Persuade or Compel Banks to Submit Rates for Calculation of LIBOR After 2021; Interest Rate Benchmark May Be Discontinued”, “Additional Risk Factors Specific to Your Notes — Recent Regulatory
Investigations Regarding Potential Manipulation of ISDAfix May Adversely Affect Your Notes,” “Additional Risk Factors Specific to Your Notes — Even if a CMS Rate is Not Discontinued, Such Rate May Not Be Published on an Interest Determination Day
and, If Such Rate is Not Published, it May Be Calculated Based on Dealer Quotations or by the Calculation Agent in its Sole Discretion,” and “Additional Risk Factors Specific to Your Notes — Regulation and Reform of “Benchmarks”, Including LIBOR
and Other Types of Benchmarks, May Cause such “Benchmarks” to Perform Differently Than in the Past, or to Disappear Entirely, or Have Other Consequences Which Cannot be Predicted” for more information relating to the CMS spread.
You should not take the historical CMS spreads provided below as an indication of the future CMS spreads. We cannot give you any
assurance that the future CMS spreads will result in you receiving any interest payments after the first four interest periods and, if you do receive any such interest payments, that such payment will be greater than the interest payments you
would have received if you invested in a non-indexed debt security of comparable maturity that bears interest at a prevailing market rate. Neither we nor any of our affiliates make any representation to you as to the CMS spread.
*The CMS rates were not published by the Intercontinental Exchange on February 11, 2016 or February 6, 2018.
The notes are not sponsored, endorsed, sold or promoted by ICE Benchmark Administration and ICE Benchmark Administration makes no representation regarding the
advisability of investing in the notes.
Hypothetical Examples
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 how the hypothetical interest rates and the hypothetical interest payments would be calculated for each $1,000 face amount of notes after the first four interest payments.
The examples below are based on a range of CMS spreads that are entirely hypothetical; no one can predict what the CMS spread
will be on any interest determination date, and no one can predict, after the first four interest periods, the interest that will be paid on your notes during any interest period. The CMS spread has been highly volatile in the past — meaning
that the levels of the 30-year CMS rate and the 2-year CMS rate have changed substantially in relatively short periods — and the CMS spread cannot be predicted for any future period.
The information in the following examples reflects the method we will use to calculate the interest rate for a given interest
period after the first four interest periods and the hypothetical interest payment on the offered notes for such interest period assuming that we have not exercised our early redemption right prior to the interest period in which such interest
rate would be applicable. 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 the volatility of the 30-year CMS rate and the 2-year CMS rate, 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 S-6 of this prospectus supplement.
For these reasons, the actual 30-year CMS rate and the 2-year CMS rate on any interest determination date for any interest period
after the first four interest periods, as well as the interest payable at each interest payment date after the first four interest payment dates, may bear little relation to the hypothetical examples shown below. For information about the CMS
spreads during recent periods, see “— Historical CMS Spreads” on page S-18. Before investing in the notes, you should consult publicly available information to determine the 30-year CMS rates and the 2-year CMS rates between the date of this
prospectus supplement and the date of your purchase of the notes.
The actual interest payment for any interest period after the first four interest periods will depend on the actual CMS spread on
each interest determination date. The applicable interest rate for each interest period will be determined quarterly on a per annum basis but will apply only to that interest period. In addition, whether or not you would receive interest at the
hypothetical interest rate below would depend on whether or not we determine to exercise our early redemption right prior to the interest period in which such interest rates would be applicable. These values and assumptions have been chosen
arbitrarily for the purpose of these examples, and should not be taken as indicative of the future performance of the CMS spread. The numbers appearing in the following examples have been rounded for ease of analysis.
|
Hypothetical
30-Year CMS
Rate
|
Hypothetical
2-Year CMS
Rate
|
30-Year CMS
Rate Less 2-
Year CMS
Rate
(the CMS
Spread)
|
Hypothetical
Interest Rate
(Per Annum)
|
Hypothetical
Quarterly
Interest
Payment*
|
|
0.00%
|
8.00%
|
-8.00%
|
0.00%
|
$0.00
|
|
3.00%
|
5.00%
|
-2.00%
|
0.00%
|
$0.00
|
|
5.00%
|
5.00%
|
0.00%
|
0.00%
|
$0.00
|
|
5.00%
|
4.90%
|
0.10%
|
2.00%
|
$5.00
|
|
6.25%
|
6.00%
|
0.25%
|
5.00%
|
$12.50
|
|
6.75%
|
6.25%
|
0.50%
|
10.00%
|
$25.00
|
|
7.00%
|
5.75%
|
1.25%
|
20.00%
|
$50.00
|
|
6.00%
|
3.00%
|
3.00%
|
20.00%
|
$50.00
|
|
9.00%
|
3.00%
|
6.00%
|
20.00%
|
$50.00
|
|
13.00%
|
2.00%
|
11.00%
|
20.00%
|
$50.00
|
*Assumes an interest period of 90 days
The following examples illustrate how the interest rates set forth in the table above are calculated.
Example 1: Based on a hypothetical 30-year CMS rate of 3.00% and a hypothetical 2-year CMS rate of 5.00%, the interest payable for the relevant interest payment date is calculated as follows:
Step 1: Calculate the CMS spread
The CMS spread is calculated as the hypothetical 30-year
CMS rate of 3.00% minus the hypothetical 2-year CMS rate of 5.00%:
CMS spread = -2.00%
Step 2: Calculate the interest rate (per annum)
The per annum interest rate for the relevant interest period equals (i) -2.00% times (ii) 20.00, subject to the maximum interest
rate of 20.00% per annum and the minimum interest rate of 0% per annum. Given that -2.00% times 20.00 equals -40.00%, which is less than 0%, the interest rate for the relevant interest payment date shall be 0%.
Step 3: Calculate the quarterly interest payment for the relevant interest period
The amount of interest payment for the relevant interest period equals the product of (i) the face amount times (ii) the interest rate times
(iii) the applicable day count convention on a 30/360 (ISDA) basis. No adjustments will be made in the event an interest payment date is not a business day. The interest payment for this interest period is $0 because the CMS spread is less than 0%.
Example 2: Based on a hypothetical 30-year CMS rate of 6.25% and a hypothetical 2-year CMS rate of 6.00%, the interest payable for the relevant interest payment date is calculated as follows:
Step 1: Calculate the CMS spread
The CMS spread is calculated as the hypothetical 30-year
CMS rate of 6.25% minus the hypothetical 2-year CMS rate of 6.00%:
6.25% - 6.00% = 0.25%
Step 2: Calculate the interest rate (per annum)
The per annum interest rate for the relevant interest period equals (i) 0.25% times (ii) 20.00, subject to the maximum interest rate of 10.00% per annum and the minimum interest rate of 0% per annum. Given that
0.25% times 20.00 equals 5.00%, which is more than 0% and less than 20.00%, the interest rate for the relevant interest payment date shall be 5.00%.
Step 3: Calculate the quarterly interest payment for the relevant interest period
The amount of interest payment for the relevant interest period equals the product of (i) the face amount times (ii) the interest rate times
(iii) the applicable day count convention on a 30/360 (ISDA) basis. No adjustments will be made in the event an interest payment date is not a business day. The interest payment for this interest period with a hypothetical interest rate of 5.00%
is $12.50 for every $1,000 face amount of notes, calculated as follows:
$1,000 x 5.00% x 90/360 = $12.50
Example 3: Based on a hypothetical 30-year CMS rate of 6.00% and a hypothetical 2-year CMS rate of 3.00%, the interest payable for the relevant interest payment date is calculated as follows:
Step 1: Calculate the CMS spread
The CMS spread is calculated as the hypothetical 30-year
CMS rate of 6.00% minus the hypothetical 2-year CMS rate of 3.00%:
6.00% – 3.00% = 3.00%
Step 2: Calculate the interest rate (per annum)
The per annum interest rate for the relevant interest period equals (i) 3.00% times (ii) 20.00, subject to the maximum interest rate of 20.00% per annum and the minimum interest rate of 0% per annum. Given that
3.00% times 20.00 equals 60.00%, which is greater than 20.00%, the interest rate for the relevant interest payment date shall be 20.00% (that is, shall be set equal to the
maximum interest rate).
Step 3: Calculate the quarterly interest payment for the relevant interest period
The amount of interest payment for the relevant interest period equals the product of (i)the face amount times (ii) the interest rate times
(iii) the applicable day count convention on a 30/360 (ISDA) basis. No adjustments will be made in the event an interest payment date is not a business day. The interest payment for this interest period with a hypothetical interest rate of 20.00% is $50.00 for every $1,000 face amount of notes, calculated as follows:
$1,000 x 20.00% x 90/360 = $50.00
The payment amounts shown above are entirely hypothetical; they are based on hypothetical interest rates that may not be achieved on any interest
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 payment amounts shown above, and these amounts should not be viewed as an indication of the financial return on an investment in the offered notes. Please read “Additional Risk Factors Specific to Your Notes — The Market Value of
Your Notes May Be Influenced by Many Unpredictable Factors” on page S-10.
|
We cannot predict the actual CMS spread on any interest determination date or the market value of your notes, nor can we
predict the relationship between the CMS spread and the market value of your notes at any time prior to the stated maturity date and after the first four interest periods. The actual interest payment that a holder of the offered notes
will receive at each interest payment date after the first four interest payment dates and the rate of return on the offered notes will depend on the actual CMS spread for each interest period after the first four interest periods,
determined by the calculation agent over the life of your notes. Moreover, the assumptions on which the hypothetical example is based may turn out to be inaccurate. Consequently, the interest amount to be paid in respect of your notes on
each interest payment date and after the first four interest periods may be very different from the information reflected in the examples above. The 30-year CMS rate
and the 2-year CMS rate are based on hypothetical interest rate swaps referencing 3-month USD LIBOR. LIBOR is being modified, see page S-9.
|
The following section supplements the discussion of U.S. federal income taxation in the accompanying prospectus.
The following section is the opinion of Sidley Austin llp, counsel to GS Finance Corp. and The Goldman Sachs Group, Inc. It applies to you only if you hold your notes as a capital asset for tax purposes. This section does not apply to you if you are a member of a class of
holders subject to special rules, such as:
| · |
a dealer in securities or currencies;
|
| · |
a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;
|
| · |
a bank;
|
| · |
a life insurance company;
|
| · |
a tax-exempt organization;
|
| · |
a partnership;
|
| · |
a regulated investment company;
|
| · |
a person that owns the notes as a hedge or that is hedged against interest rate risks;
|
| · |
a person that owns the notes as part of a straddle or conversion transaction for tax purposes; or
|
| · |
a United States holder (as defined below) whose functional currency for tax purposes is not the U.S. dollar.
|
This section is based on the U.S. Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed
regulations under the Internal Revenue Code, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive
basis.
|
You should consult your tax advisor concerning the U.S. federal income tax, and other tax consequences
of your investment in the notes, including the application of state, local or other tax laws and the possible effects of changes in federal or other tax laws.
|
United States Holders
This subsection describes the tax consequences to a United States holder. You are a United States holder if you are a beneficial
owner of notes and you are:
| · |
a citizen or resident of the United States;
|
| · |
a domestic corporation;
|
| · |
an estate whose income is subject to United States federal income tax regardless of its source; or
|
| · |
a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial
decisions of the trust.
|
If you are not a United States holder, this section does not apply to you and you should refer to “— United States Alien Holders”
below.
Tax Treatment. The tax treatment of your notes is uncertain. The tax
treatment of your notes will depend upon whether the notes are properly treated as variable rate debt instruments or contingent payment debt instruments. This in turn depends, in part, upon whether (a) either (i) the initial fixed interest rate
and the floating interest rate have values on the issue date of the notes that do not differ by more than 0.25 percentage points, or (ii) the value of the floating interest rate is intended to approximate the initial fixed rate and (b) it is
reasonably expected that the return on the notes during the first half of the
notes’ term will be significantly greater or less than the return on the notes during the second half of the notes’ term. We currently expect to
take the position that neither (i) the initial fixed interest rate and the floating interest rate will have values on the issue date of the notes that do not differ by more than 0.25 percentage points, nor (ii) the value of the floating interest
rate is intended to approximate the initial fixed rate. We accordingly currently expect to treat your notes as contingent payment debt instruments for U.S. federal income tax purposes.
Based on market conditions on the trade date, we may take the position that (a) either (i) the initial fixed interest rate and
the floating interest rate have values on the issue date of the notes that do not differ by more than 0.25 percentage points, or (ii) the value of the floating interest rate is intended to approximate the initial fixed rate and (b) it is not
reasonably expected that the return on the notes during the first half of the notes’ term will be significantly greater or less than the return on the notes during the second half of the notes’ term. In this case, we would treat your notes as
variable rate debt instruments, as discussed below under “Alternative Treatments”. We will make a final determination as to the manner in which we intend to treat the notes on the trade date based on market conditions in effect at such time.
The final prospectus supplement will set forth the manner in which we intend to treat the notes for tax purposes. Except as otherwise noted below under “Alternative Treatments”, the discussion below assumes that the notes will be treated as
contingent payment debt instruments for tax purposes.
Under the rules governing contingent payment debt instruments, the amount of interest you are required to take into account for
each accrual period will be determined by constructing a projected payment schedule for your notes and applying rules similar to those for accruing original issue discount on a hypothetical non-contingent debt instrument with that projected
payment schedule. This method is applied by first determining the yield at which we would issue a non-contingent fixed rate debt instrument with terms and conditions similar to your notes (the “comparable yield”) and then determining as of the
issue date a payment schedule that would produce the comparable yield. Under these rules, you will only accrue interest based on the comparable yield. You will not have to separately include the amount of interest that you receive, except to the
extent of any positive or negative adjustments discussed below.
It is not entirely clear how, under the rules governing contingent payment debt instruments, the maturity date for debt
instruments (such as your notes) that provide for an early redemption right should be determined for purposes of computing the comparable yield and projected payment schedule. It would be reasonable, however, to compute the comparable yield and
projected payment schedule for your notes (and we intend to make the computation in such a manner) based on the assumption that your notes will remain outstanding until the stated maturity date.
We have determined that the comparable yield for the notes is equal to % per annum, compounded quarterly. Based on this comparable yield, if you are an initial holder that holds a note until maturity and you pay your taxes on a calendar year basis, we have determined that you would be required to report the
following amounts as ordinary income, not taking into account any positive or negative adjustments you may be required to take into account based on the actual payments on the notes, from the note each year:
|
Accrual Period
|
Interest Deemed to Accrue
During Accrual Period (per
$1,000 note)
|
Total Interest Deemed to
Have Accrued from Original
Issue Date (per $1,000 note)
as of End of Accrual Period
|
||
|
through December 31, 2018
|
||||
|
January 1, 2019 through December 31, 2019
|
||||
|
January 1, 2020 through December 31, 2020
|
||||
|
January 1, 2021 through December 31, 2021
|
||||
|
January 1, 2022 through December 31, 2022
|
||||
|
January 1, 2023 through December 31, 2023
|
||||
|
January 1, 2024 through December 31, 2024
|
||||
|
January 1, 2025 through December 31, 2025
|
||||
|
January 1, 2026 through December 31, 2026
|
||||
|
January 1, 2027 through December 31, 2027
|
||||
|
January 1, 2028 through December 31, 2028
|
||||
|
January 1, 2029 through December 31, 2029
|
||||
|
January 1, 2030 through
|
In addition, we have determined the projected payments for your notes are as follows:
|
Taxable Year:
|
Payment on
January
|
Payment on
April
|
Payment on
July
|
Payment on
October
|
||||
|
2019
|
$
|
$
|
$
|
$
|
||||
|
2020
|
$
|
$
|
$
|
$
|
||||
|
2021
|
$
|
$
|
$
|
$
|
||||
|
2022
|
$
|
$
|
$
|
$
|
||||
|
2023
|
$
|
$
|
$
|
$
|
||||
|
2024
|
$
|
$
|
$
|
$
|
||||
|
2025
|
$
|
$
|
$
|
$
|
||||
|
2026
|
$
|
$
|
$
|
$
|
||||
|
2027
|
$
|
$
|
$
|
$
|
||||
|
2028
|
$
|
$
|
$
|
$
|
||||
|
2029
|
$
|
$
|
$
|
$
|
||||
|
2030
|
$
|
$
|
$
|
N/A
|
||||
|
The comparable yield and projected payment schedule are not provided to you for any purpose other than
the determination of your interest accruals in respect of your notes, and we make no representation regarding the amount of interest payments with respect to your notes.
|
If, during any taxable year, the actual payments with respect to the notes exceed the projected payments for that taxable year,
you will incur a “net positive adjustment” under the contingent debt regulations equal to the amount of such excess. You will treat a net positive adjustment as additional interest income in that taxable year.
If, during any taxable year, the actual payments with respect to the notes are less than the amount of projected payments for that taxable year, you
will incur a “net negative adjustment” under the contingent debt regulations equal to the amount of such deficit. This net negative adjustment will (a) reduce your interest income on the notes for that taxable year, and (b) to the extent of any
excess after the application of (a), give rise to an ordinary loss to the extent of your interest income on the notes during prior taxable years, reduced to the extent such interest was offset by prior net negative adjustments. Any net negative
adjustment in excess of the amounts described in (a) and (b) will be carried forward as a negative adjustment to offset future interest income with respect to the notes or to reduce the amount realized on a sale, exchange, redemption or maturity
of the notes. A net negative adjustment is not subject to the two percent floor limitation on miscellaneous itemized deductions.
You are required to use the comparable yield and projected payment schedule that we compute in determining your interest accruals
in respect of your notes, unless you timely disclose and justify on your U.S. federal income tax return the use of a different comparable yield and projected payment schedule.
Furthermore, it is possible that any Form 1099-OID you receive in respect of the notes may not take net negative or positive
adjustments into account and therefore may overstate or understate your interest inclusions. You should consult your tax advisor as to whether and how adjustments should be made to the amounts reported on any Form 1099-OID.
If you purchase your notes at a price other than their adjusted issue price as determined for tax purposes, you must determine
the extent to which the difference between the price you paid for your notes and their adjusted issue price is attributable to a change in expectations as to the projected payment schedule, a change in interest rates, or both, and reasonably
allocate the difference accordingly. If the adjusted issue price of your notes is greater than the price you paid for your notes, you must make positive adjustments increasing (i) the amount of interest that you would otherwise accrue and include
in income each year, and (ii) the amount of ordinary income (or decreasing the amount of ordinary loss) recognized upon sale, exchange, redemption or maturity, by the amounts allocated to each of interest and projected payment schedule; if the
adjusted issue price of your notes is less than the price you paid for your notes, you must make negative adjustments, decreasing (i) the amount of interest that you must include in income each year, and (ii) the amount of ordinary income (or
increasing the amount of ordinary loss) recognized upon sale, exchange, redemption or maturity by the amounts allocated to each of interest and projected payment schedule. Adjustments allocated to the interest amount are not made until the date
the daily portion of interest accrues.
The adjusted issue price of your notes will equal your notes’ original issue price plus any interest deemed to be accrued on your
notes (under the rules governing contingent payment debt instruments) as of the time you purchase your notes, decreased by the amount of the fixed interest payments and the projected amount of any contingent payment previously made with respect
to the notes. The original issue price of your notes is equal to the first price at which a substantial amount of the notes is sold to persons other than bond houses, brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents, or wholesalers.
Because any Form 1099-OID that you receive will not reflect the effects of positive or negative adjustments resulting from your
purchase of notes at a price other than the adjusted issue price determined for tax purposes, you are urged to consult with your tax advisor as to whether and how adjustments should be made to the amounts reported on any Form 1099-OID.
You will recognize income or loss upon the sale, exchange, redemption or maturity of your notes in an amount equal to the
difference, if any, between the amount of cash you receive at such time and your adjusted basis in your notes. In general, your adjusted basis in your notes will equal the amount you paid for your notes, increased by the amount of interest you
previously accrued with respect to your notes (in accordance with the comparable yield for your notes), decreased by the amount of the fixed interest payments and the projected amount of any contingent payment previously made to you with respect
to your notes and increased or decreased by the amount of any positive or negative adjustment, respectively, that you are required to make if you purchase your notes at a price other than the adjusted issue price determined for tax purposes.
Pursuant to recently enacted legislation, for taxable years beginning after December 31, 2018, with respect to a debt instrument issued with original
issue discount, such as the notes, an accrual method taxpayer that reports revenues on an applicable financial statement generally must recognize income for U.S. federal income tax purposes no later than the taxable year in which such income is
taken into account as revenue in an applicable financial statement of the taxpayer. For this purpose, an “applicable financial statement” generally means a financial statement certified as having been prepared in accordance with generally
accepted accounting principles or that is made on the basis of international financial reporting standards and which is used by the taxpayer for various specified purposes. This rule could potentially require such a taxpayer to recognize income
for U.S. federal income tax purposes with respect to the notes prior to the time such income would be recognized pursuant to the rules described above. Potential investors in the notes should consult their tax advisors regarding the potential
applicability of these rules to their investment in the notes.
Any income you recognize upon the sale, exchange, redemption or maturity of your notes will be ordinary interest income. Any loss
you recognize at such time will be ordinary loss to the extent of interest you included as income in the current or previous taxable years in respect of your notes, and, thereafter, capital loss. If you are a non-corporate holder, you would
generally be able to use an ordinary loss to offset your income only in the taxable year in which you recognize the ordinary loss and would generally not be able to carry such ordinary loss forward or back to offset income in other taxable years.
Alternative Treatments. It is possible that the IRS
could successfully assert that the notes should be treated as variable rate debt instruments for U.S. federal income tax purposes. If the notes are so treated, you will be subject to tax on interest payments, if any, as ordinary income at the
time you receive or accrue such payments, depending on your method of accounting for tax purposes and any gain or loss you recognize upon the sale, exchange, redemption or maturity of your notes will be capital gain or loss. Please see the
discussion under “United States Taxation — Taxation of Debt Securities — United States Holders — Variable Rate Debt Securities” in the accompanying prospectus for a detailed description of the tax consequences of owning a variable rate debt
instrument.
United States Alien Holders
If you are a United States alien holder, please see the discussion under “United States Taxation — Taxation of Debt Securities —
United States Alien Holders” in the accompanying prospectus for a description of the tax consequences relevant to you. You are a United States alien holder if you are the beneficial owner of the notes and are, for United States federal income tax
purposes:
| · |
a nonresident alien individual;
|
| · |
a foreign corporation; or
|
| · |
an estate or trust that in either case is not subject to United States federal income tax on a net income basis on income or gain from the notes.
|
Backup Withholding and Information Reporting
Please see the discussion under “United States Taxation — Taxation of Debt Securities — Backup Withholding and Information
Reporting” in the accompanying prospectus for a description of the applicability of the backup withholding and information reporting rules to payments made on your notes.
Foreign Account Tax Compliance Act (FATCA) Withholding
Pursuant to Treasury regulations, Foreign Account Tax Compliance Act (FATCA) withholding (as described in “United States
Taxation—Taxation of Debt Securities—Foreign Account Tax Compliance Act (FATCA) Withholding” in the accompanying prospectus) will generally apply to obligations that are issued on or after July 1, 2014; therefore, the notes will generally be
subject to 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.
In addition, your notes may also be subject to other U.S. withholding tax as described in “United States Taxation” in the accompanying prospectus.
This section is only relevant to you if you are an insurance company or the fiduciary of a pension plan or an
employee benefit plan (including a governmental plan, an IRA or a Keogh Plan) proposing to invest in the notes.
The U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the U.S. Internal Revenue Code of 1986, as
amended (the “Code”), prohibit certain transactions (“prohibited transactions”) involving the assets of an employee benefit plan that is subject to the fiduciary responsibility provisions of ERISA or Section 4975 of the Code (including individual
retirement accounts, Keogh plans and other plans described in Section 4975(e)(1)of the Code) (a “Plan”) and certain persons who are “parties in interest” (within the meaning of ERISA) or “disqualified persons” (within the meaning of the Code)
with respect to the Plan; governmental plans may be subject to similar prohibitions unless an exemption applies to the transaction. The assets of a Plan may include assets held in the general account of an insurance company that are deemed “plan
assets” under ERISA or assets of certain investment vehicles in which the Plan invests. Each of The Goldman Sachs Group,Inc. and certain of its affiliates may be considered a “party in interest” or a “disqualified person” with respect to many
Plans, and, accordingly, prohibited transactions may arise if the notes are acquired by or on behalf of a Plan unless those notes are acquired and held pursuant to an available exemption. In general, available exemptions are: transactions
effected on behalf of that Plan by a “qualified professional asset manager” (prohibited transaction exemption 84-14) or an “in-house asset manager” (prohibited transaction exemption 96-23), transactions involving insurance company general
accounts (prohibited transaction exemption 95-60), transactions involving insurance company pooled separate accounts (prohibited transaction exemption 90-1), transactions involving bank collective investment funds (prohibited transaction
exemption 91-38) and transactions with service providers under Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code where the Plan receives no less and pays no more than “adequate consideration” (within the meaning of Section
408(b)(17) of ERISA and Section 4975(f)(10)of the Code). The person making the decision on behalf of a Plan or a governmental plan shall be deemed, on behalf of itself and the plan, by purchasing and holding the notes, or exercising any rights
related thereto, to represent that (a)the plan will receive no less and pay no more than “adequate consideration” (within the meaning of Section 408(b)(17) of ERISA and Section 4975(f)(10)of the Code) in connection with the purchase and holding
of the notes, (b)none of the purchase, holding or disposition of the notes or the exercise of any rights related to the notes will result in a nonexempt prohibited transaction under ERISA or the Code (or, with respect to a governmental plan,
under any similar applicable law or regulation), and (c)neither The Goldman Sachs Group,Inc. nor any of its affiliates is a “fiduciary” (within the meaning of Section 3(21) of ERISA) or, with respect to a governmental plan, under any similar
applicable law or regulation) with respect to the purchaser or holder in connection with such person’s acquisition, disposition or holding of the notes, or as a result of any exercise by The Goldman Sachs Group, Inc. or any of its affiliates of
any rights in connection with the notes, and neither The Goldman Sachs Group, Inc. nor any of its affiliates has provided investment advice in connection with such person’s acquisition, disposition or holding of the notes.
|
If you are an insurance company or the fiduciary of a pension plan or an employee benefit plan
(including a government plan, an IRA or a Keogh plan), and propose to invest in the notes, you should consult your legal counsel.
|
GS Finance Corp. expects to agree to sell to GS&Co., and GS&Co. expects to agree to purchase from GS Finance Corp., the
aggregate face amount of the offered notes specified on the front cover of this prospectus 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 prospectus
supplement, and to certain securities dealers at such price less a concession not in excess of % of the face amount. GS&Co. will pay a fee of % from the concession to Axio Financial LLC in connection with its marketing efforts
related to the offered notes.
In the future, GS&Co. or other affiliates of GS Finance Corp. may repurchase and resell the offered notes in market-making
transactions, with resales being made at prices related to prevailing market prices at the time of resale or at negotiated prices. GS Finance Corp. estimates that its share of the total offering expenses, excluding underwriting discounts and
commissions, will be approximately $. For more information about the plan of distribution and possible market-making activities, see “Plan of Distribution” in the accompanying prospectus.
We expect to deliver the notes against payment therefor in New York, New York on October , 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.
Any notes which
are the subject of the offering contemplated by this prospectus supplement, the accompanying prospectus and the accompanying prospectus supplement may not be offered, sold or otherwise made available to any retail investor in the European
Economic Area. Consequently no key information document required by Regulation (EU) No 1286/2014 (the “PRIIPs Regulation”) for offering or selling the notes or otherwise making them available to retail investors in the EEA has been prepared and
therefore offering or selling the notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation. For the purposes of this provision:
| a) |
the expression “retail investor” means a person who is one (or more) of the following:
|
| (i) |
a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended,
“MiFID II”); or
|
| (ii) |
a customer within the meaning of Directive 2002/92/EC (as amended, the “Insurance Mediation
Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or
|
| (iii) |
not a qualified investor as defined in Directive 2003/71/EC (as amended, the “Prospectus
Directive”); and
|
| b) |
the expression an “offer” includes the communication in any form and by any means of
sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe for the notes.
|
In relation to each Member State of the European Economic
Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), GS&Co. has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member
State (the “Relevant Implementation Date”) it has not made and will not make an offer of notes which are the subject of the offering contemplated by this prospectus supplement, the accompanying prospectus and the accompanying prospectus
supplement to the public in that Relevant Member State except that, with effect from and including the Relevant Implementation Date, an offer of such notes may be made to the public in that Relevant Member State:
| a) |
at any time to any legal entity which is a qualified investor as defined in the Prospectus
Directive;
|
| b) |
at any time to fewer than 150 natural or legal persons (other than qualified investors as
defined in the Prospectus Directive), subject to obtaining the prior consent of the relevant dealer or dealers nominated by the issuer for any such offer; or
|
| c) |
at any time in any other circumstances falling within Article 3(2) of the Prospectus
Directive,
|
provided that no such offer of notes referred to above
shall require us or any dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the
expression an “offer of notes to the public” in relation to any notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as to
enable an investor to decide to purchase or subscribe for the notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means
Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State.
Any invitation or inducement to engage
in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of the notes may only be communicated or caused to be communicated in circumstances in which Section 21(1) of the FSMA does not apply to
GS Finance Corp. or The Goldman Sachs Group, Inc.
All applicable provisions of the FSMA
must be complied with in respect to anything done by any person in relation to the notes in, from or otherwise involving the United Kingdom.
The notes may not be offered or sold in
Hong Kong by means of any document other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and any rules made thereunder, or (ii) in other circumstances which do not
result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) or which do not constitute an offer to the public within the meaning of that
Ordinance; and no advertisement, invitation or document relating to the notes may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere) which is directed at, or the
contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the notes which are or are intended to be disposed of only to
persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder.
This prospectus supplement, along with
the accompanying prospectus supplement and the accompanying prospectus have not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement, along with the accompanying prospectus supplement
and the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be
made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act, Chapter 289 of
Singapore (the “SFA”)) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the
conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where the notes are subscribed or purchased under Section
275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or
more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for six months after that corporation has acquired the notes under Section 275 of
the SFA except: (1) to an institutional investor under Section 274 of the SFA
or to a relevant person (as defined in Section 275(2) of
the SFA), (2) where such transfer arises from an offer in that corporation’s securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5)
as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore (“Regulation 32”).
Where the notes are subscribed or
purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is
an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for six months after that trust has acquired the notes under Section 275 of the SFA except: (1) to an institutional
investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less
than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4)
where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.
The notes have not been and will not be
registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. The notes may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan
(including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except
pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
The notes are not offered, sold or
advertised, directly or indirectly, in, into or from Switzerland on the basis of a public offering and will not be listed on the SIX Swiss Exchange or any other offering or regulated trading facility in Switzerland. Accordingly, neither this
prospectus supplement nor any accompanying prospectus supplement, prospectus or other marketing material constitute a prospectus as defined in article 652a or article 1156 of the Swiss Code of Obligations or a listing prospectus as defined in
article 32 of the Listing Rules of the SIX Swiss Exchange or any other regulated trading facility in Switzerland. Any resales of the notes by the underwriters thereof may only be undertaken on a private basis to selected individual investors in
compliance with Swiss law. This prospectus supplement and accompanying prospectus and prospectus supplement may not be copied, reproduced, distributed or passed on to others or otherwise made available in Switzerland without our prior written
consent. By accepting this prospectus supplement and accompanying prospectus and prospectus supplement or by subscribing to the notes, investors are deemed to have acknowledged and agreed to abide by these restrictions. Investors are advised to
consult with their financial, legal or tax advisers before investing in the notes.
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.
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We have not authorized anyone to provide any information or to make any representations other than those contained or incorporated by reference in this prospectus
supplement, 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 prospectus
supplement, the accompanying prospectus supplement and the accompanying prospectus is an offer to sell only the notes offered hereby, but only under the circumstances and in jurisdictions where it is lawful to do so. The information contained
in this prospectus supplement, the accompanying prospectus supplement and the accompanying prospectus is current only as of the respective dates of such documents.
Prospectus Supplement
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S-3
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S-6
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S-13
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S-17
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S-17
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S-18
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S-23
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S-28
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S-29
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S-31
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Prospectus Supplement dated July 10, 2017
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Use of Proceeds
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S-2
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Description of Notes We May Offer
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S-3
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Considerations Relating to Indexed Notes
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S-16
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United States Taxation
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S-17
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Employee Retirement Income Security Act
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S-18
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Supplemental Plan of Distribution
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S-19
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Validity of the Notes and Guarantees
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S-19
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Prospectus dated July 10, 2017
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Available Information
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2
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Prospectus Summary
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3
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Risks Relating to Regulatory Resolution Strategies and Long-Term Debt Requirements
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6
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Use of Proceeds
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7
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Description of Debt Securities We May Offer
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8
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Description of Warrants We May Offer
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35
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Description of Units We May Offer
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47
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GS Finance Corp.
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51
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Legal Ownership and Book-Entry Issuance
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53
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Considerations Relating to Floating Rate Debt Securities
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57
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Considerations Relating to Indexed Securities
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58
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Considerations Relating to Securities Denominated or Payable in or Linked to a Non-U.S. Dollar Currency
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61
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United States Taxation
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64
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Plan of Distribution
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76
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Conflicts of Interest
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78
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Employee Retirement Income Security Act
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78
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Validity of the Securities and Guarantees
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79
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Experts
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79
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Review of Unaudited Condensed Consolidated Financial Statements by Independent Registered Public Accounting Firm
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79
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Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995
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79
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$
GS Finance Corp.
Callable Quarterly CMS Spread-Linked Notes due
Callable Quarterly CMS Spread-Linked Notes due
guaranteed by
The Goldman Sachs Group, Inc.
The Goldman Sachs Group, Inc.
Goldman Sachs & Co. LLC
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