Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-219206
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GS Finance Corp.
$1,421,000
Callable Contingent Coupon Underlier-Linked Notes due 2022
guaranteed by
The Goldman Sachs Group, Inc.
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The notes do not pay a fixed coupon and may pay no coupon on a payment date. The amount
that you will be paid on your notes is based on the performances of the EURO STOXX 50® Index, the iShares® MSCI EAFE ETF and
the SPDR® S&P® Oil & Gas Exploration & Production ETF. The notes will mature on October 12, 2022, unless we redeem them.
The return on your notes is linked, in part, to the performances of the iShares® MSCI EAFE ETF and the SPDR® S&P®
Oil & Gas Exploration & Production ETF (each, an ETF), and not to that of the MSCI EAFE Index or the S&P Oil
& Gas Exploration & Production Select Industry Index, respectively (each, an underlying index), on which the respective ETF is based. The ETFs follow a strategy of "representative sampling", which in each case means an ETF’s holdings
are not the same as those of its underlying index. The performance of any ETF may significantly diverge from that of its underlying index.
We may redeem your notes at 100% of their face amount plus any coupon then
due on the coupon payment dates occurring in January, April, July and October of each year on or after the coupon payment date in October 2019 up to the coupon payment date in July 2022.
Coupon payment dates are the 12th day of each month, commencing in November 2018 and ending on the stated maturity date.
If we do not redeem your notes, on each coupon observation date (the tenth
scheduled trading day for all underliers prior to each coupon payment date), if the closing level of each underlier is greater than or equal to 60% of its initial level (the initial levels are 3,321.79 with respect to the EURO STOXX 50® Index, $65.92 with respect to the iShares® MSCI EAFE ETF and $43.95 with respect to the SPDR® S&P® Oil
& Gas Exploration & Production ETF), you will receive on the applicable coupon payment date a coupon of $6.25 for each $1,000 face amount of your notes. If the closing level of any underlier on a coupon observation date is less than 60% of its initial level, you will not receive a coupon on the applicable coupon payment date.
If we do not redeem your notes, the amount that you will be paid on your notes at
maturity, in addition to the final coupon, if any, is based on the performance of the lesser performing underlier (the underlier with the lowest underlier return). The underlier return for each underlier is the percentage increase or decrease
in the final level (the closing level of the underlier on the determination date) from its initial level.
At maturity, for each $1,000 face amount of your notes you will receive an amount in cash equal to:
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if the underlier return of each underlier is greater than or equal to -40% (the final level of each underlier is greater than or equal to 60% of its initial level), $1,000 plus the
final coupon of $6.25; or
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if the underlier return of any underlier is less than -40% (the final level of any underlier is less than 60%
of its initial level), the sum of (i) $1,000 plus (ii) the product of (a) the lesser performing underlier return times (b) $1,000. You will receive less than 60% of
the face amount of your notes and you will not receive a final coupon.
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You should read the disclosure herein to better understand the terms and
risks of your investment, including the credit risk of GS Finance Corp. and The Goldman Sachs Group, Inc. See page PS-12.
The estimated value of your notes at the time the terms of your notes are set on the trade date is equal to approximately $946 per $1,000 face amount. For a discussion of the estimated value and the
price at which Goldman Sachs & Co. LLC would initially buy or sell your notes, if it makes a market in the notes, see the following page.
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Original issue date:
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October 12, 2018
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Original issue price:
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100% of the face amount
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Underwriting discount:
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4.3% of the face amount
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Net proceeds to the issuer:
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95.7% of the face amount
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Neither the Securities and Exchange Commission nor any
other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. The notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
Goldman Sachs & Co. LLC
Pricing Supplement No. 4,456 dated October 9, 2018.
The issue price, underwriting discount and net proceeds listed above relate to the notes we sell initially. We may decide to sell additional
notes after the date of this pricing supplement, at issue prices and with underwriting discounts and net proceeds that differ from the amounts set forth above. The return (whether positive or negative) on your investment in notes will depend
in part on the issue price you pay for such notes.
GS Finance Corp. may use this prospectus in the initial sale of the notes. In addition, Goldman Sachs & Co. LLC, or any
other affiliate of GS Finance Corp., may use this prospectus in a market-making transaction in a note after its initial sale. Unless GS Finance Corp.
or its agent informs the purchaser otherwise in the confirmation of sale, this prospectus is being used in a market-making transaction.
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Estimated Value of Your Notes
The estimated value of your notes at the time the terms of your notes are set on the trade date (as determined by reference to pricing models used by Goldman Sachs & Co. LLC (GS&Co.) and
taking into account our credit spreads) is equal to approximately $946 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 $14 per $1,000 face amount).
Prior to October 12, 2019, 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 October 11, 2019). On and after October 12, 2019, the price (not including GS&Co.’s
customary bid and ask spreads) at which GS&Co. would buy or sell your notes (if it makes a market) will equal approximately the then-current estimated value of your notes determined by reference to such pricing models.
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About Your Prospectus
The notes are part of the Medium-Term Notes, Series E program of GS Finance Corp., and are fully and unconditionally guaranteed by The
Goldman Sachs Group, Inc. This prospectus includes this pricing supplement and the accompanying documents listed below. This pricing supplement constitutes a supplement to the documents listed below and should be read in conjunction
with such documents:
The information in this pricing supplement supersedes any conflicting information in the documents listed above. In addition, some of the terms or features
described in the listed documents may not apply to your notes.
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We refer to the notes we are offering by this pricing supplement as the “offered notes”
or the “notes”. Each of the offered notes has the terms described below. Please note that in this pricing supplement, references to “GS Finance Corp.”, “we”, “our” and “us” mean only GS Finance Corp. and do not include its
subsidiaries or affiliates, references to “The Goldman Sachs Group, Inc.”, our parent company, mean only The Goldman Sachs Group, Inc. and do not include its subsidiaries or affiliates and references to “Goldman Sachs” mean The
Goldman Sachs Group, Inc. together with its consolidated subsidiaries and affiliates, including us. Also, references to the “accompanying prospectus” mean the accompanying prospectus, dated July 10, 2017, references to the
“accompanying prospectus supplement” mean the accompanying prospectus supplement, dated July 10, 2017, for Medium-Term Notes, Series E, and references to the “accompanying general terms supplement no. 1,734” mean the accompanying
general terms supplement no. 1,734, dated July 10, 2017, in each case of GS Finance Corp. and The Goldman Sachs Group, Inc. The notes will be issued under the senior debt indenture, dated as of October 10, 2008, as supplemented by
the First Supplemental Indenture, dated as of February 20, 2015, each among us, as issuer, The Goldman Sachs Group, Inc., as guarantor, and The Bank of New York Mellon, as trustee. This indenture, as so supplemented and as further
supplemented thereafter, is referred to as the “GSFC 2008 indenture” in the accompanying prospectus supplement.
This section is meant as a summary and should be read in conjunction with the section
entitled “Supplemental Terms of the Notes” on page S-16 of the accompanying general terms supplement no. 1,734. Please note that certain features described in the accompanying general terms supplement no. 1,734 are not applicable
to the notes. This pricing supplement supersedes any conflicting provisions of the accompanying general terms supplement no. 1,734.
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Key Terms
Issuer: GS Finance Corp.
Guarantor: The Goldman Sachs Group, Inc.
Underliers: the EURO STOXX 50® Index (Bloomberg
symbol, “SX5E Index”), as sponsored and maintained by STOXX Limited, the iShares® MSCI EAFE ETF (Bloomberg symbol, “EFA UP Equity”) and
the SPDR® S&P® Oil & Gas Exploration & Production ETF (Bloomberg symbol, “XOP UP”); see “The Underliers” on page PS-20
Underlying indices: with respect to the iShares® MSCI EAFE ETF, the MSCI EAFE Index, as published by
MSCI, Inc. (“MSCI”) and with respect to the SPDR® S&P® Oil & Gas Exploration &
Production ETF, the S&P Oil & Gas Exploration & Production Select Industry Index, as published by S&P Dow Jones Indices LLC
Specified currency: U.S. dollars (“$”)
Face amount: each note will have a face amount equal to $1,000;
$1,421,000 in the aggregate for all the offered notes; the aggregate face amount of the offered notes may be increased if the issuer, at its sole option, decides to sell an additional amount of the offered notes on a date subsequent to the
date of this pricing supplement
Denominations: $1,000 and integral multiples of $1,000 in excess
thereof
Purchase at amount other than face amount: the amount we will pay
you for your notes on the stated maturity date or upon any early redemption of your notes will not be adjusted based on the issue price you pay for your notes, so if you acquire notes at a premium (or discount) to face amount and hold them to the stated maturity date or date of early redemption, it could affect your investment
in a number of ways. The return on your investment in such notes will be lower (or higher) than it would have been had you purchased the notes at face amount. See “Additional Risk
Factors Specific to Your Notes — If You Purchase Your Notes at a Premium to Face Amount,
the Return on Your Investment Will Be Lower Than the Return on Notes Purchased at Face Amount and the Impact of Certain Key Terms of the Notes Will Be Negatively Affected” on
page PS-14 of this pricing supplement
Supplemental discussion of U.S. federal income tax
consequences: you will be obligated pursuant to the terms of the notes — in the absence of a change in law, an administrative determination or a judicial ruling to the contrary — to
characterize each note for all tax purposes as an income-bearing pre-paid derivative contract in respect of the underliers, as described under “Supplemental Discussion of Federal Income Tax Consequences” herein. Pursuant to this approach,
it is the opinion of Sidley Austin llp that it is likely that any coupon payment will be
taxed as ordinary income in accordance with your regular method of accounting for U.S. federal income tax purposes. If you are a United States alien holder of the notes, we intend to withhold on coupon payments made to you at a 30% rate or
at a lower rate specified by an applicable income tax treaty. In addition, upon the sale, exchange, redemption or maturity of your notes, it would be reasonable for you to recognize
capital gain or loss equal to the difference, if any, between the amount of cash you receive at such time (excluding amounts attributable to any coupon payment) and your tax basis in your notes.
Cash settlement amount: subject to our redemption right, for each
$1,000 face amount of your notes, we will pay you on the stated maturity date an amount in cash equal to:
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if the underlier return of each underlier is greater than or equal to -40%, $1,000 plus the final coupon; or
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if the underlier return of any underlier is less than -40%, the sum of (i) $1,000 plus (ii) the product of (a) the lesser performing underlier return times (b) $1,000.
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Early redemption right: we have the right to
redeem your notes, in whole but not in part, at a price equal to 100% of the face amount plus any coupon then due, on the coupon payment dates occurring in
January, April, July and October of each year, commencing in October 2019 and ending in July 2022, subject to at least ten business days’ prior notice
Lesser performing underlier return: the underlier return of the
lesser performing underlier
Lesser performing underlier: the underlier with the lowest
underlier return
Underlier return: with respect to each underlier on the
determination date, the quotient of (i) the final underlier level minus the initial
underlier level divided by (ii) the initial underlier level, expressed as a positive
or negative percentage
Coupon: subject to our redemption right, on each coupon payment
date, for each $1,000 face amount of your notes, we will pay you an amount in cash equal to:
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if the closing level of each underlier on the related coupon observation date is greater than or equal to 60% of its initial underlier level, $6.25; or
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if the closing level of any underlier on the related coupon observation date is less than 60% of its initial underlier level, $0
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Initial underlier level: 3,321.79 with respect to the EURO STOXX 50® Index, $65.92 with respect to the iShares® MSCI EAFE ETF and $43.95 with respect
to the SPDR® S&P® Oil & Gas Exploration & Production ETF
Final underlier level: with respect to each underlier, the closing level of such underlier on the determination date, subject to anti-dilution adjustments (with respect to the iShares® MSCI EAFE ETF and the SPDR® S&P® Oil & Gas Exploration & Production ETF only) as described under “Supplemental Terms of the Notes —
Anti-dilution Adjustments for Exchange-Traded Funds” on page S-28 of the accompanying general terms supplement no. 1,734, except in the limited circumstances described under “Supplemental Terms of the Notes — Consequences of a Market
Disruption Event or a Non-Trading Day” on page S-23 of the accompanying general terms supplement no. 1,734 and subject to adjustment as provided under “Supplemental Terms of the Notes — Discontinuance or Modification of an Underlier” on page
S-27 of the accompanying general terms supplement no. 1,734
Closing level: with respect to each underlier, as further
described under “Supplemental Terms of the Notes — Special Calculation Provisions — Closing Level” on page S-31 of the accompanying general terms supplement no. 1,734, subject to anti-dilution adjustments (with respect to the iShares® MSCI EAFE ETF and the SPDR® S&P® Oil & Gas Exploration & Production ETF only) as described
under “Supplemental Terms of the Notes — Anti-dilution Adjustments for Exchange-Traded Funds” on page S-28 of the accompanying general terms supplement no. 1,734
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 “Supplemental
Terms of the Notes — Special Calculation Provisions — Business Day” on page S-30 of the accompanying general terms supplement no. 1,734
Trading day: as described under “Supplemental Terms of the Notes —
Special Calculation Provisions — Trading Day” on page S-31 of the accompanying general terms supplement no. 1,734
Trade date: October 9, 2018
Original issue date (settlement date): October 12, 2018
Stated maturity date: October 12, 2022, subject to adjustment as
described under “Supplemental Terms of the Notes — Stated Maturity Date” on page S-16 of the accompanying general terms supplement no. 1,734
Determination date: the last coupon observation date, September
28, 2022, subject to adjustment as described under “Supplemental Terms of the Notes — Payment of Principal on Stated Maturity Date — Determination Date” on page S-17 of the accompanying general terms supplement no. 1,734
Coupon observation dates: the tenth scheduled trading day for all
underliers prior to each coupon payment date, subject to adjustment as described under “Supplemental Terms of the Notes — Coupon Payments— Coupon Observation Dates” on page S-25 of the accompanying general terms supplement no. 1,734 (for
purposes of postponement as described in such section, each coupon payment date will be treated as if it were ten scheduled business days following the applicable coupon observation date). For the avoidance of doubt, if a coupon payment date
is postponed due to a non-business day as provided under “Coupon payment dates” below, such postponement of a coupon payment date will not postpone the related coupon observation date.
Coupon payment dates: the 12th day of each month, beginning
November 2018 and ending on the stated maturity date, subject to adjustment as described under “Supplemental Terms of the Notes — Coupon Payments — Coupon Payment Dates” on page S-25 of the accompanying general terms supplement no. 1,734 (for
purposes of postponement as described in such section, each coupon payment date will be treated as if it were ten scheduled business days following the applicable coupon observation date)
Regular record dates: the scheduled business day immediately
preceding the day on which payment is to be made (as such payment date may be adjusted)
Use of proceeds and hedging: as described under
“Use of Proceeds” and “Hedging” on page S-94 of the accompanying general terms supplement no. 1,734
ERISA: as described under “Employee Retirement
Income Security Act” on page S-95 of the accompanying general terms supplement no. 1,734
Supplemental plan of distribution; conflicts of interest:
as described under “Supplemental Plan of Distribution” on page S-96 of the accompanying general terms supplement no. 1,734 and “Plan of Distribution — Conflicts of Interest” on page 94 of the accompanying prospectus; GS Finance Corp.
estimates that its share of the total offering expenses, excluding underwriting discounts and commissions, will be approximately $15,000.
GS Finance Corp. has agreed to sell to Goldman Sachs & Co. LLC (“GS&Co.”), and GS&Co. has agreed to purchase from GS Finance Corp., the aggregate face
amount of the offered notes specified on the front cover of this pricing supplement. GS&Co. proposes initially to offer the notes to the public at the original issue price set forth on the cover page of this pricing supplement, and to
certain securities dealers at such price less a concession not in excess of 4% of the face amount.
GS&Co. is an affiliate of GS Finance Corp. and The Goldman Sachs Group, Inc. and, as such, will have a “conflict of
interest” in this offering of notes within the meaning of Financial Industry Regulatory Authority, Inc. (FINRA) Rule 5121. Consequently, this offering of notes will be conducted in compliance with the provisions of FINRA Rule 5121. GS&Co.
will not be permitted to sell notes in this offering to an account over which it exercises discretionary authority without the prior specific written approval of the account holder.
We will deliver the notes against payment therefor in New York, New York on October 12, 2018. Under Rule 15c6-1 of the
Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade notes on any date
prior to two business days before delivery will be required to specify alternative settlement arrangements to prevent a failed settlement.
We have been advised by GS&Co. that it intends to make a market in the notes. However, neither GS&Co. nor any of our other affiliates
that makes a market is obligated to do so and any of them may stop doing so at any time without notice. No assurance can be given as to the liquidity or trading market for the notes.
Calculation agent: GS&Co.
CUSIP no.: 40056E7J1
ISIN no.: US40056E7J17
FDIC: the notes are not bank deposits and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank
The following examples are provided for purposes of illustration only. They should not be taken as an
indication or prediction of future investment results and are intended merely to illustrate (i) the impact that various hypothetical closing levels of the underliers on a coupon observation date could have on the coupon payable on the related
coupon payment date and (ii) the impact that the various hypothetical closing levels of the lesser performing underlier on the determination date could have on the cash settlement amount at maturity assuming all other variables remain
constant.
The examples below are based on a range of underlier levels that are entirely hypothetical; no one can
predict what the underlier level of any underlier will be on any day throughout the life of your notes, what the closing level of any underlier will be on any coupon observation date and what the final underlier level of the lesser performing
underlier will be on the determination date. The underliers have been highly volatile in the past — meaning that the underlier levels have changed substantially in relatively short periods — and their performance cannot be predicted for any
future period.
The information in the following examples reflects the hypothetical rates of return on the offered notes
assuming that they are purchased on the original issue date at the face amount and held to the stated maturity date or date of early redemption. If you sell your notes in a secondary market prior to the stated maturity date or date of early
redemption, as the case may be, your return will depend upon the market value of your notes at the time of sale, which may be affected by a number of factors that are not reflected in the examples below such as interest rates, the volatility
of the underliers, the creditworthiness of GS Finance Corp., as issuer, and the creditworthiness of The Goldman Sachs Group, Inc., as guarantor. In addition, the estimated value of your notes at the time the terms of your notes are set on
the trade date (as determined by reference to pricing models used by GS&Co.) is less than the original issue price of your notes. For more information on the estimated value of your notes, see “Additional Risk Factors Specific to Your
Notes — The Estimated Value of Your Notes At the Time the Terms of Your Notes Are Set On the Trade Date (as Determined By Reference to Pricing Models Used By GS&Co.) Is Less Than the Original Issue Price Of Your Notes” on page PS-12 of
this pricing supplement. The information in the examples also reflect the key terms and assumptions in the box below.
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Key Terms and Assumptions
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Face amount
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$1,000
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Initial underlier level of the EURO STOXX 50® Index
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3,321.79
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Initial underlier level of iShares® MSCI EAFE ETF
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$65.92
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Initial underlier level of SPDR® S&P® Oil & Gas Exploration &
Production ETF
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$43.95
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Coupon
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$6.25
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Neither a market disruption event nor a non-trading day occurs on the originally scheduled coupon observation date or the originally
scheduled determination date
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No change in or affecting any of the underlier stocks or the method by which the applicable underlier sponsor calculates any underlier
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Notes purchased on original issue date at the face amount and held to the stated maturity date or date of early redemption
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For these reasons, the actual performance of the underliers over the life of your notes, the actual underlier levels on any
coupon observation date, as well as the coupon payable, if any, on each coupon payment date, may bear little relation to the hypothetical examples shown below or to the historical underlier levels shown elsewhere in this pricing supplement.
For information about the underlier levels during recent periods, see “The Underliers — Historical Closing Levels of the Underliers” on page PS-30. Before investing in the notes, you should consult publicly available information to determine
the underlier levels between the date of this pricing supplement and the date of your purchase of the notes.
Also, the hypothetical examples shown below do not take into account the effects of applicable taxes. Because of the U.S.
tax treatment applicable to your notes, tax liabilities could affect the after-tax rate of return on your notes to a comparatively greater extent than the after-tax return on the underlier stocks.
Hypothetical Coupon Payments
The examples below show hypothetical performances of each underlier as well as the hypothetical coupons, if any, that we
would pay on each coupon payment date with respect to each $1,000 face amount of the notes if the closing level of each underlier on the applicable coupon observation date were the hypothetical closing levels shown and 60% of the initial underlier level of the EURO STOXX 50® Index is 1,993.074, 60% of the initial underlier level of the iShares® MSCI EAFE ETF is $39.552, and 60% of the initial underlier
level of the SPDR® S&P® Oil & Gas Exploration & Production ETF is $26.37.
Scenario 1
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Hypothetical
Coupon
Observation Date
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Hypothetical Closing
Level of the EURO
STOXX 50® Index
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Hypothetical Closing
Level
of the iShares® MSCI
EAFE
ETF
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Hypothetical Closing Level
of SPDR® S&P® Oil & Gas
Exploration & Production
ETF
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Hypothetical
Coupon
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First
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3,500
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$80
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$18
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$0
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Second
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3,000
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$65
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$35
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$6.25
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Third
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2,000
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$55
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$18
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$0
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Fourth
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2,100
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$70
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$47
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$6.25
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Fifth
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1,900
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$50
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$16
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$0
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Sixth
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1,800
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$40
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$45
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$0
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Seventh
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1,700
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$60
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$18
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$0
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Eighth
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1,600
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$40
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$25
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$0
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Ninth
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1,650
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$75
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$26
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$0
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Tenth
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1,700
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$60
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$24
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$0
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Eleventh
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2,050
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$55
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$18
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$0
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Twelfth - Forty-Eighth
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1,900
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$60
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$19
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$0
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Total Hypothetical Coupons
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$12.5
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In Scenario 1, the hypothetical closing level of
each underlier increases and decreases by varying amounts on each hypothetical coupon observation date. Because the hypothetical closing level of each underlier on
the second and fourth hypothetical coupon observation dates is greater than or equal to 60% of its initial underlier level, the total of the hypothetical coupons
in Scenario 1 is $12.5. Because the hypothetical closing level of at least one underlier on all
other hypothetical coupon observation dates is less than 60% of its initial underlier level, no further coupons will be paid, including at maturity.
Scenario 2
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Hypothetical
Coupon
Observation Date
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Hypothetical Closing
Level of the EURO
STOXX 50® Index
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Hypothetical Closing
Level of the iShares® MSCI
EAFE ETF
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Hypothetical Closing Level
of SPDR® S&P® Oil & Gas
Exploration & Production
ETF
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Hypothetical
Coupon
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First
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1,500
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$75
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$18
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$0
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Second
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1,550
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$60
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$18
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$0
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Third
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1,525
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$57
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$16
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$0
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Fourth
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1,800
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$58
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$47
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$0
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Fifth
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1,500
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$59
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$18
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$0
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Sixth
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3,450
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$80
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$17
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$0
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Seventh
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1,600
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$65
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$17
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$0
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Eighth
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1,550
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$71
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$16
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$0
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Ninth
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1,600
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$75
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$19
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$0
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Tenth
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1,550
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$60
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$42
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$0
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Eleventh
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1,500
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$55
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$18
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$0
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Twelfth - Forty-Eighth
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1,550
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$70
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$17
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$0
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Total Hypothetical Coupons
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$0
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In Scenario 2, the hypothetical closing level of
each underlier increases and decreases by varying amounts on each hypothetical coupon observation date. Because in each case the hypothetical closing level of at least one of the underliers on the related coupon observation date is
less than 60% of its initial underlier level, you will not receive a coupon payment on the applicable hypothetical coupon payment date. Since this occurs on every
hypothetical coupon observation date, the overall return you earn on your notes will be less than zero. Therefore, the total of the hypothetical coupons in Scenario 2 is $0.
Scenario 3
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Hypothetical
Coupon
Observation
Date
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Hypothetical Closing Level of
the EURO STOXX 50® Index
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Hypothetical Closing
Level of the iShares®
MSCI EAFE ETF
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Hypothetical Closing
Level of SPDR® S&P® Oil &
Gas Exploration &
Production ETF
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Hypothetical Coupon
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First
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1,500
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$40
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$18
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$0
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Second
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1,550
|
$25
|
$18
|
$0
|
|
Third
|
1,525
|
$40
|
$16
|
$0
|
|
Fourth
|
1,800
|
$37
|
$20
|
$0
|
|
Fifth
|
1,500
|
$28
|
$18
|
$0
|
|
Sixth
|
1,500
|
$39
|
$17
|
$0
|
|
Seventh
|
1,550
|
$30
|
$17
|
$0
|
|
Eighth
|
1,525
|
$35
|
$16
|
$0
|
|
Ninth
|
1,800
|
$41
|
$19
|
$0
|
|
Tenth
|
1,500
|
$30
|
$18
|
$0
|
|
Eleventh
|
1,900
|
$25
|
$17
|
$0
|
|
Twelfth
|
2,450
|
$80
|
$40
|
$6.25
|
|
Total Hypothetical
Coupons
|
$6.25
|
|||
In Scenario 3, the hypothetical closing level of
each underlier is less than 60% during the first eleven hypothetical coupon observation dates, but increases to a level that is greater than 60% of its initial underlier level on the twelfth hypothetical coupon observation date. Further,
we also exercise our early redemption right with respect to the twelfth hypothetical coupon payment date (which is also the first hypothetical date with respect to which we could exercise such right). Therefore, on the twelfth coupon
payment date (the redemption date), in addition to the hypothetical coupon of $6.25, you will receive an amount in cash equal to $1,000 for each $1,000 face amount of your notes.
Hypothetical Payment at Maturity
If the notes are not redeemed, the cash settlement amount we would deliver for each $1,000 face amount of your notes on
the stated maturity date will depend on the performance of the lesser performing underlier on the determination date, as shown in the table below. The table below assumes that the notes have not been redeemed, does not include the final
coupon, if any, and reflects hypothetical cash settlement amounts that you could receive on the stated maturity date. If the final underlier level of the lesser performing underlier (as a percentage of the initial underlier level) is less
than 60%, you will not be paid a final coupon at maturity.
The levels in the left column of the table below represent hypothetical final underlier levels of the lesser performing underlier and are
expressed as percentages of the initial underlier level of the lesser performing underlier. The amounts in the right column represent the hypothetical cash settlement amounts, based on the corresponding hypothetical final underlier level of
the lesser performing underlier (expressed as a percentage of the initial underlier level of the lesser performing underlier), and are expressed as percentages of the face amount of a note (rounded to the nearest one-thousandth of a
percent). Thus, a hypothetical cash settlement amount of 100.000% means that the value of the cash payment that we would deliver for each $1,000 of the outstanding face amount of the offered notes on the stated maturity date would equal
100.000% of the face amount of a note, based on the corresponding hypothetical final underlier level of the lesser performing underlier (expressed as a percentage of the initial underlier level of the lesser performing underlier) and the
assumptions noted above.
|
The Notes Have Not Been Redeemed
|
|
|
Hypothetical Final Underlier Level of the
Lesser Performing Underlier
|
Hypothetical Cash Settlement Amount
at Maturity if the Notes Have Not Been
Redeemed
|
|
(as Percentage of Initial Underlier Level)
|
(as Percentage of Face Amount)
|
|
175.000%
|
100.000%*
|
|
150.000%
|
100.000%*
|
|
125.000%
|
100.000%*
|
|
100.000%
|
100.000%*
|
|
90.000%
|
100.000%*
|
|
80.000%
|
100.000%*
|
|
60.000%
|
100.000%*
|
|
59.999%
|
59.999%
|
|
50.000%
|
50.000%
|
|
40.000%
|
40.000%
|
|
35.000%
|
35.000%
|
|
25.000%
|
25.000%
|
|
10.000%
|
10.000%
|
|
0.000%
|
0.000%
|
|
*Does not include the final coupon
|
|
If, for example, the notes have not been redeemed and the final underlier level of the lesser performing underlier were
determined to be 25.000% of its initial underlier level, the cash settlement amount that we would deliver on your notes at maturity would be 25.000% of the face amount of your notes, as shown in the table above. As a result, if you purchased
your notes on the original issue date at the face amount and held them to the stated maturity date, you would lose 75.000% of your investment (if you purchased your notes at a premium to face amount you would lose a correspondingly higher
percentage of your investment). In addition, if the notes have not been redeemed and the final underlier level of the lesser performing underlier were determined to be 175.000% of its initial underlier level, the cash settlement amount that
we would deliver on your notes at maturity would be limited to 100.000% of each $1,000 face amount of your notes, as shown in the table above. As a result, if you held your notes to the stated maturity date, you would not benefit from any
increase in the final underlier level over the initial underlier level.
The cash settlement amounts shown above are entirely hypothetical; they are based on market prices for the
underlier stocks that may not be achieved on the determination date and on assumptions that may prove to be erroneous. The actual market value of your notes on the stated maturity date or at any other time, including any time you may wish to
sell your notes, may bear little relation to the hypothetical cash settlement amounts shown above, and these amounts should not be viewed as an indication of the financial return on an investment in the offered notes. The hypothetical cash
settlement amounts on notes held to the stated maturity date in the examples above assume you purchased your notes at their face amount and have not been adjusted to reflect the actual issue price you pay for your notes. The return on your
investment (whether positive or negative) in your notes will be affected by the amount you pay for your notes. If you purchase your notes for a price other than the face amount, the return on your investment will differ from, and may be
significantly lower than, the hypothetical returns suggested by the above examples. Please read “Additional Risk Factors Specific to Your Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” on page S-3 of
the accompanying general terms supplement no. 1,734.
Payments on the notes are economically equivalent to the amounts that would be paid on a combination of other instruments. For example, payments
on the notes are economically equivalent to a combination of an interest-bearing bond bought by the holder and one or more options entered into between the holder and us (with one or more implicit option premiums paid over time). The
discussion in this paragraph does not modify or affect the terms of the notes or the U.S. federal income tax treatment of the notes, as described elsewhere in this pricing supplement.
|
We cannot predict the actual closing levels of the underliers on any day, the final underlier levels
of the underliers or what the market value of your notes will be on any particular trading day, nor can we predict the relationship between the closing levels of the underliers and the market value of your notes at any time prior to
the stated maturity date. The actual coupon payment, if any, that a holder of the notes will receive on each coupon payment date, the actual amount that you will receive at maturity, if any, and the rate of return on the offered notes
will depend on whether or not the notes are redeemed and the actual closing levels of the underliers and the actual final underlier levels determined by the calculation agent as described above. Moreover, the assumptions on which the
hypothetical examples are based may turn out to be inaccurate. Consequently, the coupon to be paid in respect of your notes, if any, and the cash amount to be paid in respect of your notes on the stated maturity date, if any, may be
very different from the information reflected in the examples above.
|
|
An investment in your notes is subject to the risks described below, as well as the risks and considerations described
in the accompanying prospectus, in the accompanying prospectus supplement and under “Additional Risk Factors Specific to the Notes” in the accompanying general terms supplement no. 1,734. You should carefully review these risks and
considerations as well as the terms of the notes described herein and in the accompanying prospectus, the accompanying prospectus supplement and the accompanying general terms supplement no. 1,734. Your notes are a riskier investment
than ordinary debt securities. Also, your notes are not equivalent to investing directly in the underlier stocks, i.e., with respect to an underlier to which your notes are linked, the stocks comprising such underlier. You should
carefully consider whether the offered notes are suited to your particular circumstances.
|
The Estimated Value of Your Notes At the Time the Terms of Your Notes Are Set On the Trade Date (as
Determined By Reference to Pricing Models Used By GS&Co.) Is Less Than the Original Issue Price Of Your Notes
The original issue price for your notes exceeds the estimated value of your notes as of the time the terms
of your notes are set on the trade date, as determined by reference to GS&Co.’s pricing models and taking into account our credit spreads. Such estimated value on the trade date is set forth above under “Estimated Value of Your Notes”;
after the trade date, the estimated value as determined by reference to these models will be affected by changes in market conditions, the creditworthiness of GS Finance Corp., as issuer, the creditworthiness of The Goldman Sachs Group, Inc.,
as guarantor, and other relevant factors. The price at which GS&Co. would initially buy or sell your notes (if GS&Co. makes a market, which it is not obligated to do), and the value that GS&Co. will initially use for account
statements and otherwise, also exceeds the estimated value of your notes as determined by reference to these models. As agreed by GS&Co. and the distribution participants, this excess (i.e., the additional amount described under
“Estimated Value of Your Notes”) will decline to zero on a straight line basis over the period from the date hereof through the applicable date set forth above under “Estimated Value of Your Notes”. Thereafter, if GS&Co. buys or sells
your notes it will do so at prices that reflect the estimated value determined by reference to such pricing models at that time. The price at which GS&Co. will buy or sell your notes at any time also will reflect its then current bid and
ask spread for similar sized trades of structured notes.
In estimating the value of your notes as of the time the terms of your notes are set on the trade date, as
disclosed above under “Estimated Value of Your Notes”, GS&Co.’s pricing models consider certain variables, including principally our credit spreads, interest rates (forecasted,
current and historical rates), volatility, price-sensitivity analysis and the time to maturity of the notes. These pricing models are proprietary and rely in part on certain assumptions about future events, which may prove to be incorrect. As
a result, the actual value you would receive if you sold your notes in the secondary market, if any, to others may differ, perhaps materially, from the estimated value of your notes determined by reference to our models due to, among other
things, any differences in pricing models or assumptions used by others. See “Additional Risk Factors Specific to the Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” on page S-3 of the accompanying
general terms supplement no. 1,734.
The difference between the estimated value of your notes as of the time the terms of your notes are set on
the trade date and the original issue price is a result of certain factors, including principally the underwriting discount and commissions, the expenses incurred in creating, documenting and marketing the notes, and an estimate of the
difference between the amounts we pay to GS&Co. and the amounts GS&Co. pays to us in connection with your notes. We pay to GS&Co. amounts based on what we would pay to holders of a non-structured note with a similar maturity. In
return for such payment, GS&Co. pays to us the amounts we owe under your notes.
In addition to the factors discussed above, the value and quoted price of your notes at any time will reflect many factors
and cannot be predicted. If GS&Co. makes a market in the notes, the price quoted by GS&Co. would reflect any changes in market conditions and other relevant factors, including any deterioration in our creditworthiness or perceived
creditworthiness or the creditworthiness or perceived creditworthiness of The Goldman Sachs Group, Inc. These changes may adversely affect the value of your notes, including the price you may receive for your notes in any market making
transaction. To the extent
that GS&Co. makes a market in the notes, the quoted price will reflect the estimated value determined by reference to
GS&Co.’s pricing models at that time, plus or minus its then current bid and ask spread for similar sized trades of structured notes (and subject to the declining excess amount
described above).
Furthermore, if you sell your notes, you will likely be charged a commission for secondary market
transactions, or the price will likely reflect a dealer discount. This commission or discount will further reduce the proceeds you would receive for your notes in a secondary market sale.
There is no assurance that GS&Co. or any other party will be willing to purchase your notes at any price
and, in this regard, GS&Co. is not obligated to make a market in the notes. See “— Your Notes May Not Have an Active Trading Market” below.
The Notes Are Subject to the Credit Risk of the Issuer and the Guarantor
Although the coupons (if any) and return on the notes will be based on the performance of each underlier,
the payment of any amount due on the notes is subject to the credit risk of GS Finance Corp., as issuer of the notes, and the credit risk of The Goldman Sachs Group, Inc., as guarantor of the notes. The notes are our unsecured obligations.
Investors are dependent on our ability to pay all amounts due on the notes, and therefore investors are subject to our credit risk and to changes in the market’s view of our creditworthiness. Similarly, investors are dependent on the ability
of The Goldman Sachs Group, Inc., as guarantor of the notes, to pay all amounts due on the notes, and therefore are also subject to its credit risk and to changes in the market’s view of its creditworthiness. See “Description of the Notes We
May Offer — Information About Our Medium-Term Notes, Series E Program — How the Notes Rank Against Other Debt” on page S-4 of the accompanying prospectus supplement and “Description of Debt Securities We May Offer – Guarantee by The Goldman
Sachs Group, Inc.” on page 42 of the accompanying prospectus.
You May Lose Your Entire Investment in the Notes
You can lose your entire investment in the notes. Subject to our redemption right, the cash settlement
amount on your notes, if any, on the stated maturity date will be based on the performance of the lesser performing of the EURO STOXX 50® Index, the iShares®
MSCI EAFE ETF and the SPDR® S&P® Oil & Gas Exploration & Production ETF as measured from their initial underlier levels to their closing levels on the determination date. If the final underlier level of the lesser performing underlier for your notes is less than 60% of its initial underlier level, you will have a
loss for each $1,000 of the face amount of your notes equal to the product of the lesser performing underlier return times $1,000. Thus, you may lose your entire investment in the notes, which would include any premium to face amount you paid when you purchased the notes.
Also, the market price of your notes prior to the
stated maturity date may be significantly lower than the purchase price you pay for your notes. Consequently, if you sell your notes before the stated maturity date, you may receive far less than the amount of your investment in the notes.
You May Not Receive a Coupon on Any Coupon Payment Date
If the closing level of any underlier on the related coupon observation date is less than 60% of its initial underlier level, you will not receive a coupon payment on the applicable coupon payment date. If this occurs on every coupon observation date, the overall return you earn on
your notes will be less than zero and such return will be less than you would have earned by investing in a note that bears interest at the prevailing market rate.
On any coupon payment date, although you will receive a coupon if the closing level of each underlier on the related coupon observation date is
greater than or equal to 60% of its initial underlier level, the coupon paid on the corresponding coupon payment date will be equal to $6.25. You should be aware that, with respect to any prior coupon observation dates that did not result in
the payment of a coupon, you will not be compensated for any opportunity cost implied by inflation and other factors relating to the time value of money. Further, there is no guarantee that you will receive any coupon payment with respect to
the notes at any time and you may lose your entire investment in the notes.
We Are Able to Redeem Your Notes at Our Option
On the coupon payment dates occurring in January, April, July and October of each year, commencing in
October 2019 and ending in July 2022, we will be permitted to redeem your notes at our option. Even if we do not exercise our option to redeem your notes, our ability to do so may adversely affect the value of your notes. It is our sole
option whether to redeem your notes prior to maturity and we may or may not exercise this option for any reason. Because of this redemption option, the term of your notes could be anywhere between one year and four years.
The Coupon Does Not Reflect the Actual Performance of the Underliers from the Trade Date to Any Coupon Observation Date or
from Coupon Observation Date to Coupon Observation Date
The coupon for each monthly coupon payment date is different from, and may be less than, a coupon determined
based on the percentage difference of the closing levels of the underliers between the trade date and any coupon observation date or between two coupon observation dates. Accordingly, the coupons, if any, on the notes may be less than the
return you could earn on another instrument linked to the underliers that pay coupons based on the performance of the underliers from the trade date to any coupon observation date or from coupon observation date to coupon observation date.
The Cash Settlement Amount Will Be Based Solely on the Lesser Performing Underlier
If the notes are not redeemed by us, the cash settlement amount will be based on the lesser performing
underlier without regard to the performance of the other underliers. As a result, you could lose all or some of your initial investment if the lesser performing underlier return is negative, even if there is an increase in the level of the
other underliers. This could be the case even if the other underliers increased by an amount greater than the decrease in the lesser performing underlier.
The Return on Your Notes May Change Significantly Despite Only a Small Change in the Final Underlier Level
of the Lesser Performing Underlier
If the final underlier level of the lesser performing underlier is less than 60% of its initial underlier
level, you will receive less than the face amount of your notes and you could lose all or a substantial portion of your investment in the notes. This means that while a 40% drop between the initial underlier level of the lesser performing
underlier and its final underlier level will not result in a loss of principal on the notes, a decrease in the final underlier level of the lesser performing underlier to less than 60% of its initial underlier level will result in a loss of a
significant portion of your investment in the notes despite only a small change in the final underlier level of the lesser performing underlier.
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.
If You Purchase Your Notes at a Premium to Face Amount, the Return on Your Investment Will Be Lower Than
the Return on Notes Purchased at Face Amount and the Impact of Certain Key Terms of the Notes Will Be Negatively Affected
The cash settlement amount you will be paid for your notes on the stated maturity date or the amount we will pay you upon
any early redemption of your notes will not be adjusted based on the issue price you pay for the notes. If you purchase 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 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 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.
If the Levels of the Underliers Change, the Market Value of Your Notes May Not Change in the Same Manner
The price of your notes may move differently than the performance of the underliers. Changes in the levels
of the underliers may not result in a comparable change in the market value of your notes. Even if the closing level of each underlier is greater than or equal to 60% of its initial underlier level during some portion of the life of the
notes, the market value of your notes may not reflect this. We discuss some of the reasons for this disparity under “Additional Risk Factors Specific to Your Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable
Factors” on page S-3 of the accompanying general terms supplement no. 1,734.
The Return on Your Notes Will Not Reflect Any Dividends Paid on the Underliers or the Underlier Stocks,
as Applicable
The index sponsor of the EURO STOXX 50® Index calculates the value of the EURO STOXX 50® Index by
reference to the prices of its underlier stocks, without taking account of the value of dividends paid on those stocks. Therefore, the return on your notes will not reflect the return you would realize if you actually owned the underlier
stocks and received the dividends paid on those stocks. In addition, the return on your notes will not reflect the return you would realize if you actually owned the iShares® MSCI EAFE ETF or the SPDR® S&P® Oil & Gas Exploration & Production ETF and received the dividends paid on the shares of such ETFs. You will not receive any dividends
that may be paid on any of the underlier stocks by the underlier stock issuers or on the shares of the iShares® MSCI EAFE ETF or the
SPDR® S&P® Oil & Gas Exploration & Production ETF. See “— You Have No Shareholder Rights or Rights to Receive Any Shares of Any Underlier or Any Underlier Stocks” below for additional information.
You Have No Shareholder Rights or Rights to Receive Any Shares of Any Underlier or Any Underlier Stocks
Investing in your notes will not make you a holder of any shares of any underlier ETF or any underlier
stocks. Neither you nor any other holder or owner of your notes will have any rights with respect to an underlier or its underlier stocks, including any voting rights, any right to receive dividends or other distributions, any right to make a
claim against the underlier or its underlier stocks or any other rights of a holder of any shares of an underlier or its underlier stocks. Your notes will be paid in cash and you will have no right to receive delivery of any shares of any
underlier or any underlier stocks.
We May Sell an Additional Aggregate Face Amount of the Notes at a Different Issue Price
At our sole option, we may decide to sell an additional aggregate face amount of the notes subsequent to the
date of this pricing supplement. The issue price of the notes in the subsequent sale may differ substantially (higher or lower) from the issue price you paid as provided on the cover of this pricing supplement.
The Policies of the Investment Advisor of the SPDR® S&P® Oil & Gas
Exploration & Production ETF, SSGA Funds Management, Inc., the Investment Advisor of the iShares® MSCI EAFE ETF, BlackRock Fund
Advisors, S&P, the Sponsor of the S&P Oil & Gas Exploration & Production Select Industry Index and MSCI, the Sponsor of the MSCI EAFE Index, Could Affect the Amount Payable on Your Notes and Their Market Value
The investment advisor of the SPDR® S&P® Oil & Gas Exploration & Production ETF, SSGA Funds Management, Inc. (“SSGA”) and the investment advisor of the iShares® MSCI EAFE ETF, BlackRock Fund Advisors (“BFA”), may from time to time be called upon to make certain policy decisions or judgments with respect to the implementation of policies of the investment
advisor concerning the calculation of the net asset value of the SPDR® S&P® Oil & Gas Exploration & Production ETF or the iShares® MSCI EAFE ETF, additions, deletions or substitutions of securities
in the SPDR® S&P® Oil & Gas Exploration & Production ETF or the iShares® MSCI EAFE ETF and the manner in which changes affecting the underlying index for the SPDR® S&P®
Oil & Gas Exploration & Production ETF or the iShares® MSCI EAFE ETF are reflected in that underlier that could affect the market price of the shares of that underlier and, therefore, the amount payable on your notes on the
stated maturity date. The amount payable on your notes and their market value could also be affected if the investment advisor of an underlier changes these policies, for example, by changing the manner in which it calculates the net asset
value of such underlier, or if the investment advisor discontinues or suspends calculation or publication of the net asset value of such underlier, in which case it may become difficult or inappropriate to determine the market value of your
notes.
If events such as these occur, the calculation agent — which initially will be GS&Co. — may determine the closing level
of the affected underlier on a coupon determination date or the determination date — and thus the amount payable on a coupon payment date or the stated maturity date, if any — in a manner, in its sole discretion, it considers appropriate. We
describe the discretion that the calculation agent will have in determining the closing levels of the underliers on a coupon observation date or the
determination date, as applicable, and the amount payable on your notes more fully under “Supplemental Terms of the Notes — Discontinuance or Modification of an Underlier” on page S-27 of the accompanying general terms supplement no. 1,734.
In addition, S&P owns the S&P Oil & Gas Exploration & Production Select Industry Index and MSCI owns the
MSCI EAFE Index, and are responsible for the design and maintenance of the respective underlying indices. The policies of an underlying index sponsor concerning the calculation of a particular underlying index, including decisions regarding
the addition, deletion or substitution of the equity securities included in that underlying index, could affect the level of that underlying index and, consequently, could affect the market prices of shares of the related underlier and,
therefore, the amount payable on your notes and their market value.
The SPDR® S&P® Oil & Gas Exploration & Production ETF is Concentrated in Oil & Gas Companies and Does Not Provide Diversified Exposure
The SPDR® S&P® Oil & Gas Exploration & Production ETF is not diversified. The SPDR® S&P® Oil & Gas Exploration
& Production ETF’s assets will be concentrated in oil and gas companies, which means the SPDR® S&P® Oil & Gas Exploration & Production ETF is more
likely to be more adversely affected by any negative performance of oil and gas companies than an underlier that has more diversified holdings across a number of sectors. Oil and gas companies develop and produce crude oil and natural gas and provide drilling and other
energy resources production and distribution related services. Stock prices for these types of companies are affected by supply and demand both for their specific product or service and for energy products in general. The price of oil and gas, exploration and production spending, government regulation, world events and economic
conditions will likewise affect the performance of these companies. Correspondingly, securities of companies in the energy field are subject to swift price and supply fluctuations caused by events relating to international politics, energy conservation, the
success of exploration projects, and tax and other governmental regulatory policies. Weak demand for the companies’ products or services or for energy products and services in general, as well as negative developments in these other areas, would adversely impact the
performance of the SPDR® S&P® Oil & Gas Exploration & Production ETF. For example, the SPDR® S&P® Oil & Gas Exploration &
Production ETF suffered a significant negative performance for each of the years 2014 and 2015 primarily due to negative developments in the oil & gas sector, while the broader S&P® 500 index achieved a positive return for each of the same periods. In addition, oil and gas exploration and production can be significantly affected by natural disasters as well as
changes in exchange rates, interest rates, government regulation, world events and economic conditions. Companies in the oil & gas sector may also be at risk for environmental damage claims.
There Are Risks
Associated with the SPDR® S&P® Oil & Gas Exploration & Production ETF
Although the SPDR® S&P® Oil & Gas Exploration & Production ETF’s shares are listed for trading on NYSE Arca, Inc. (the “NYSE Arca”) and a number of similar products have
been traded on the NYSE Arca or other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of the SPDR® S&P® Oil & Gas Exploration & Production ETF or that there will be liquidity in the trading market.
In addition, the SPDR® S&P® Oil & Gas Exploration & Production ETF is subject to management risk, which is the risk that the ETF investment advisor’s investment strategy, the
implementation of which is subject to a number of constraints, may not produce the intended results. For example, the SPDR® S&P® Oil & Gas Exploration & Production ETF investment advisor may select up to 20% of the SPDR® S&P® Oil & Gas Exploration & Production ETF’s assets to be invested in shares of equity securities that are not included in the underlying index. The SPDR® S&P® Oil & Gas Exploration & Production ETF is also not actively managed and may be affected by a general decline in market segments relating to the underlying index. The SPDR® S&P® Oil & Gas Exploration & Production ETF investment advisor invests in securities
included in, or representative of, the underlying
index regardless of their investment merits. The SPDR® S&P® Oil & Gas Exploration & Production ETF investment advisor does not attempt to take
defensive positions in declining markets.
In addition, the SPDR® S&P® Oil & Gas Exploration & Production ETF is subject to custody risk, which refers to the risks in the process of clearing and settling trades and to the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that
are not subject to independent evaluation. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Further, under continuous listing
standards adopted by the NYSE Arca, the SPDR® S&P® Oil & Gas Exploration & Production ETF will be required to confirm on an ongoing basis that
the components of its underlying index satisfy the applicable listing requirements. In the event that its underlying index does not comply with the applicable listing requirements, the SPDR® S&P® Oil & Gas Exploration & Production ETF would be required to rectify such non-compliance by requesting that the underlying index sponsor modify such underlying index, adopting a new underlying
index or obtaining relief from the Securities and Exchange Commission. There can be no assurance that the underlying index sponsor would so modify the underlying index or that relief would be obtained from the Securities and Exchange
Commission and, therefore, non-compliance with the continuous listing standards may result in the SPDR® S&P® Oil & Gas Exploration & Production ETF being
delisted by the NYSE Arca.
There Are Risks
Associated with the iShares® MSCI EAFE ETF
Although the iShares® MSCI EAFE ETF’s shares are listed for trading on NYSE Arca, Inc. (the “NYSE Arca”) and a number of
similar products have been traded on the NYSE Arca or other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of the iShares® MSCI EAFE ETF or that there will be liquidity in the trading market.
In addition, the iShares® MSCI EAFE ETF is subject to management risk, which is the risk that the ETF investment advisor’s
investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. For example, the
iShares® MSCI EAFE ETF investment advisor may select up to 10% of the iShares® MSCI EAFE ETF’s assets to be invested in shares of equity securities that are not included in the
underlying index. The iShares® MSCI EAFE ETF is also not actively managed and may be
affected by a general decline in market segments relating to the underlying index. The iShares® MSCI EAFE ETF investment advisor invests in securities included in, or representative of, the underlying index regardless of their investment merits. The iShares® MSCI EAFE ETF investment advisor does not attempt to take defensive positions in declining markets.
In addition, the iShares® MSCI EAFE ETF is subject to custody risk, which refers to the risks in the process of clearing and
settling trades and to the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less
developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a
country’s securities market is, the greater the likelihood of custody problems.
Further, under continuous listing standards adopted by
the NYSE Arca, the iShares® MSCI EAFE ETF will be required to confirm on an ongoing
basis that the components of its underlying index satisfy the applicable listing requirements. In the event that its underlying index does not comply with the applicable listing requirements, the iShares® MSCI EAFE ETF would be required to rectify such non-compliance by requesting that the underlying index sponsor modify such underlying index, adopting a new underlying index or obtaining relief from the Securities and Exchange Commission.
There can be no assurance that the underlying index sponsor would so modify the underlying index or that relief would be obtained from the Securities and Exchange Commission and, therefore, non-compliance with the continuous listing
standards may result in the iShares® MSCI EAFE ETF being delisted by the NYSE Arca.
Each of the
iShares® MSCI EAFE ETF and the SPDR® S&P® Oil & Gas Exploration & Production ETF and its Underlying Index are Different and the
Performance of Each ETF May Not Correlate with the Performance of its Underlying Index
Each of the iShares® MSCI EAFE ETF and the SPDR® S&P® Oil & Gas Exploration & Production ETF (each, an “ETF” and together, “ETFs”) uses a representative sampling strategy (more fully described under “The Underliers”) to attempt to track the performance of its underlying index.
Each ETF may not hold all or substantially all of the equity securities included in its underlying index and may hold securities or assets not included in its underlying index. Therefore, while the performance of an ETF is generally linked to the performance of its underlying index, the performance of each ETF is also linked in part to shares of equity
securities not included in its underlying index and to the performance of other assets, such as futures contracts, options and swaps, as well as cash and cash equivalents, including shares of money market funds affiliated with its ETF
investment advisor.
Imperfect
correlation between an ETF’s portfolio securities and those in its underlying index, rounding of prices, changes to its underlying index and regulatory requirements may cause tracking error, which is the divergence of an ETF’s performance
from that of its underlying index.
In addition,
the performance of each ETF will reflect additional transaction costs and fees that are not included in the calculation of the applicable underlying index and this may increase the tracking error of such ETF. Also, corporate actions with
respect to the sample of equity securities (such as mergers and spin-offs) may impact the performance differential between each ETF and its underlying index. Finally, because the shares of each ETF are traded on the NYSE Arca and are
subject to market supply and investor demand, the market value of one share of an ETF may differ from the net asset value per share of that ETF.
For all of the
foregoing reasons, the performance of an ETF may not correlate with the performance of its underlying index. Consequently, the return on the notes will not be the same as investing directly the ETFs or in the underlying indices or in any of
the underlier stocks or in any of the underlying index stocks, and will not be the same as investing in a debt security with payments linked to the performance of each underlying index.
An Investment in the Offered Notes Is Subject to Risks Associated with Foreign Securities Markets
The value of your notes is linked,
in part, to the iShares® MSCI EAFE ETF, which holds stocks issued by foreign companies and, in part, to the EURO STOXX 50® Index, which is comprised of stocks from one or more foreign securities markets. Investments linked
to the value of foreign equity securities involve particular risks. Any foreign securities market may be less liquid, more volatile and affected by global or domestic market developments in a different way than are the U.S. securities
market or other foreign securities markets. Both government intervention in a foreign securities market, either directly or indirectly, and
cross-shareholdings in foreign companies, may affect trading prices and volumes in that market. Also, there is generally less publicly available information about foreign companies than about those U.S. companies that are subject to the
reporting requirements of the U.S. Securities and Exchange Commission. Further, foreign companies are subject to accounting, auditing and financial reporting standards and requirements that differ from those applicable to U.S. reporting
companies.
The prices of securities in a foreign country are
subject to political, economic, financial and social factors that are unique to such foreign country's geographical region. These factors include: recent changes, or the possibility of future changes, in the applicable foreign government's
economic and fiscal policies; the possible implementation of, or changes in, currency exchange laws or other laws or restrictions applicable to
foreign companies or investments in foreign equity securities; fluctuations, or the possibility of fluctuations, in currency exchange rates; and the possibility of outbreaks of hostility, political instability, natural disaster or adverse
public health developments. The United Kingdom has voted to leave the European Union (popularly known as “Brexit”). The effect of Brexit is uncertain, and Brexit has and may continue to contribute to volatility in the prices of securities
of companies located in Europe and currency exchange rates, including the valuation of the euro and British pound in particular. Any one of these factors, or the combination of more than one of these factors, could negatively affect such
foreign securities market and the price of securities therein. Further, geographical regions may react to global factors in different ways, which may cause the prices of securities in a foreign securities market to fluctuate in a way that
differs
from those of securities in the U.S. securities market
or other foreign securities markets. Foreign economies may also differ from the U.S. economy in important respects, including growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency, which
may have a positive or negative effect on foreign securities prices.
Because foreign exchanges may be
open on days when the iShares® MSCI EAFE ETF is not traded, the value of the securities underlying the iShares® MSCI EAFE ETF may change on days when
shareholders will not be able to purchase or sell shares of the iShares® MSCI EAFE ETF.
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.
The Tax Consequences of an Investment in Your Notes Are Uncertain
The tax consequences of an investment in your notes are uncertain, both as to the timing and character of
any inclusion in income in respect of your notes.
The Internal Revenue Service announced on December 7, 2007 that it is considering issuing guidance regarding
the tax treatment of an instrument such as your notes, and any such guidance could adversely affect the value and the tax treatment of your notes. Among other things, the Internal Revenue Service may decide to require the holders to accrue
ordinary income on a current basis and recognize ordinary income on payment at maturity, and could subject non-U.S. investors to withholding tax. Furthermore, in 2007, legislation was introduced in Congress that, if enacted, would have
required holders that acquired instruments such as your notes after the bill was enacted to accrue interest income over the term of such instruments. It is not possible to predict whether a similar or identical bill will be enacted in the
future, or whether any such bill would affect the tax treatment of your notes. We describe these developments in more detail under “Supplemental Discussion of Federal Income Tax Consequences – United States Holders – Possible Change in Law”
below. You should consult your tax advisor about this matter. Except to the extent otherwise provided by law, GS Finance Corp. intends to continue treating the notes for U.S. federal income tax purposes in accordance with the treatment
described under “Supplemental Discussion of Federal Income Tax Consequences” on page PS-34 below unless and until such time as Congress, the Treasury Department or the Internal Revenue Service determine that some other treatment is more
appropriate. Please also consult your tax advisor concerning the U.S. federal income tax and any other applicable tax consequences to you of owning your notes in your particular circumstances.
Your Notes May Be Subject to the Constructive Ownership Rules
There exists a risk that the constructive ownership rules of Section 1260 of the Internal Revenue Code could
apply to all or a portion of your notes. If all or a portion of your notes were subject to the constructive ownership rules, then all or a portion of any long-term capital gain that you realize upon the sale, exchange, redemption or maturity
of your notes would be re-characterized as ordinary income (and you would be subject to an interest charge on deferred tax liability with respect to such re-characterized capital gain) to the extent that such capital gain exceeds the amount
of “net underlying long-term capital gain” (as defined in Section 1260 of the Internal Revenue Code). Because the application of the constructive ownership rules is unclear you are strongly urged to consult your tax advisor with respect to
the possible application of the constructive ownership rules to your investment in the notes.
Foreign Account Tax Compliance Act (FATCA) Withholding May Apply to Payments on Your Notes, Including as a
Result of the Failure of the Bank or Broker Through Which You Hold the Notes to Provide Information to Tax Authorities
Please see the discussion under “United States Taxation — Taxation of Debt Securities — Foreign Account Tax Compliance Act
(FATCA) Withholding” in the accompanying prospectus for a description of the applicability of FATCA to payments made on your notes.
The EURO STOXX 50® Index
The EURO STOXX 50® Index is a free-float market capitalization-weighted index of 50 European blue-chip stocks and
was created by and is sponsored and maintained by STOXX Limited. Publication of the EURO STOXX 50® Index began on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The level of the EURO STOXX 50®
Index is disseminated on the STOXX Limited website. STOXX Limited is under no obligation to continue to publish the index and may discontinue publication of it at any time. Additional information regarding the EURO STOXX 50® Index
may be obtained from the STOXX Limited website: stoxx.com. We are not incorporating by reference the website or any material it includes in this pricing supplement.
The top ten constituent stocks of the EURO STOXX 50® Index as of October 1, 2018, by weight, are: Total S.A.
(6.24%), SAP SE (4.79%), Siemens AG (3.90%), Sanofi (3.65%), Allianz SE (3.46%), LVMH Moët Hennessy Louis Vuitton SE (3.41%), Unilever N.V. (3.03%), ASML Holding N.V. (2.96%), Bayer AG (2.94%) and BASF SE (2.93%); constituent weights may be
found at stoxx.com/download/indices/factsheets/SX5GT.pdf under “Factsheets and Methodologies” and are updated periodically.
As of October 1, 2018, the sixteen industry sectors which comprise the EURO STOXX 50® Index represent the
following weights in the index: Automobiles & Parts (4.24%), Banks (11.37%), Chemicals (6.49%), Construction & Materials (2.89%), Food & Beverage (4.49%), Health Care (10.50%), Industrial Goods & Services (11.04%), Insurance
(6.64%), Media (0.90%), Oil & Gas (7.97%), Personal & Household Goods (10.15%), Real Estate (0.99%), Retail (3.68%), Technology (10.37%), Telecommunications (4.36%) and Utilities (3.93%); industry weightings may be found at
stoxx.com/download/indices/factsheets/SX5GT.pdf under “Factsheets and Methodologies” and are updated periodically. Percentages may not sum to 100% due to rounding. Sector designations are determined by the underlier sponsor using criteria it
has selected or developed. Index sponsors may use very different standards for determining sector designations. In addition, many companies operate in a number of sectors, but are listed in only one sector and the basis on which that sector
is selected may also differ. As a result, sector comparisons between indices with different index sponsors may reflect differences in methodology as well as actual differences in the sector composition of the indices.
As of October 1, 2018, the eight countries which comprise the EURO STOXX 50® Index represent the following weights in the index: Belgium (2.65%), Finland (1.13%), France (39.44%), Germany (30.85%), Ireland (1.00%), Italy (4.57%), Netherlands (10.37%) and
Spain (10.00%); country weightings may be found at stoxx.com/download/indices/factsheets/SX5GT.pdf under “Factsheets and Methodologies” and are updated periodically.
The above information supplements the description of the EURO STOXX 50® Index found in the accompanying general
terms supplement no. 1,734. This information was derived from information prepared by the underlier sponsor, however, the percentages we have
listed above are approximate and may not match the information available on the underlier sponsor's website due to subsequent corporate actions or other activity relating to a particular stock. For more details about the EURO STOXX 50®
Index, the underlier sponsor and license agreement between the underlier sponsor and the issuer, see “The Underliers — EURO STOXX 50® Index” on page S-75 of the accompanying general terms supplement no. 1,734.
The EURO STOXX 50® is the intellectual property of STOXX Limited, Zurich, Switzerland and/or its licensors
(“Licensors“), which is used under license. The securities or other financial instruments based on the index are in no way sponsored, endorsed, sold or promoted by STOXX and its Licensors and neither STOXX nor its Licensors shall have any
liability with respect thereto.
The iShares® MSCI EAFE ETF
The shares of the iShares® MSCI EAFE ETF (the “ETF”) are issued by iShares® Trust, a registered investment company.
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The ETF is a tracking ETF that seeks investment results which correspond generally to the
price and yield performance, before fees and expenses, of its underlying index.
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The index it tracks is the MSCI EAFE Index (the “underlying index”).
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Investment Advisor: BlackRock Fund Advisors (“BFA”).
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The ETF’s shares trade on the NYSE Arca under the ticker symbol “EFA”.
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The iShares® Trust’s SEC CIK Number is 0001100663.
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The ETF’s inception date was August 14, 2001.
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The ETF’s shares are issued or redeemed only in creation units of 600,000 shares or
multiples thereof.
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We obtained the following fee information from the iShares® website without independent verification. The
investment advisor is paid a management fee from the ETF based on the ETF’s allocable portion of an aggregate management fee based on the aggregate average daily net assets of the ETF and a set of other specified iShares® funds
(the “funds”) as follows: 0.35% per annum of the aggregate net assets of the funds less than or equal to $30.0 billion, plus 0.32% per annum of the aggregate net
assets of the funds on amounts in excess of $30.0 billion, up to and including $60.0 billion, plus 0.28% per annum of the aggregate net assets of the funds on
amounts in excess of $60.0 billion, up to and including $90.0 billion, plus 0.252% per annum of the aggregate net assets of the funds on amounts in excess of $90.0
billion, up to and including $120.0 billion, plus 0.227% per annum of the aggregate net assets of the funds on amounts in excess of $120.0 billion, up to and
including $150.0 billion, plus 0.204% per annum of the aggregate net assets of the funds on amounts in excess of $150.00 billion. As of June 30, 2018, the
aggregate expense ratio of the ETF was 0.32% per annum.
For additional information regarding iShares® Trust or BFA, please consult the reports (including
the Semi-Annual Report to Shareholders on Form N-CSRS for the period ended January 31, 2018) and other information iShares® Trust files with the SEC. In addition, information regarding the ETF, including its top portfolio holdings,
may be obtained from other sources including, but not limited to, press releases, newspaper articles, other publicly available documents, and the iShares® website at us.ishares.com/product_info/fund/overview/EFA.htm. We are not
incorporating by reference the website, the sources listed above or any material they include in this pricing supplement.
Investment
Objective
The ETF seeks to
provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the underlying index. The ETF’s investment objective and the underlying index may be changed without the approval of BFA’s
shareholders.
The following table displays the top
holdings and weightings by industry sector of the ETF. (Sector designations are determined by the ETF sponsor using criteria it has selected or developed. Index and ETF sponsors may use very different standards for determining sector
designations. In addition, many companies operate in a number of sectors, but are listed in only one sector and the basis on which that sector is selected may also differ. As a result, sector comparisons between indices or ETFs with
different sponsors may reflect differences in methodology as well as actual differences in the sector composition of the indices or ETFs.) We obtained the information in the tables below from the ETF website without independent
verification.
Notwithstanding the ETF’s
investment objective, the return on your notes will not reflect any dividends paid on the ETF shares, on the securities purchased by the ETF or on the securities that comprise the underlying index.
iShares® MSCI EAFE ETF Top Ten Holdings as of September 12, 2018
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ETF Stock Issuer
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Percentage (%)
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NESTLE SA
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1.84%
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NOVARTIS AG
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1.29%
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ROCHE HOLDING PAR AG
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1.22%
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HSBC HOLDINGS PLC
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1.20%
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TOTAL SA
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1.06%
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ROYAL DUTCH SHELL PLC CLASS A
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1.05%
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BP PLC
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1.01%
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TOYOTA MOTOR CORP
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0.96%
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ROYAL DUTCH SHELL PLC CLASS B
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0.86%
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SAP
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0.84%
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Total
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11.33%
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iShares® MSCI EAFE ETF Weighting by Sector as of September 12, 2018*ǂ
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Sector
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Percentage (%)
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Financials
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19.43%
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Consumer Discretionary
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12.02%
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Industrials
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14.44%
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Consumer Staples
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11.30%
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Health Care
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11.14%
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Materials
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7.77%
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Information Technology
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6.72%
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Telecommunications
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3.71%
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Energy
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5.96%
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Real Estate
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3.40%
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Utilities
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3.29%
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Cash and/or Derivatives
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0.82%
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Total
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100.00%
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* Percentages may not sum to 100% due to rounding.
ǂ The Global Industry Classification Structure, which MSCI utilizes to classify the constituents of the index was updated in
September 2018. Please see “ ― The MSCI® EAFE Index” below for additional information about these updates.
iShares® MSCI EAFE ETF Weighting by Country as of September 12, 2018*
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Country
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Percentage (%)
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Japan
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23.81%
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United Kingdom
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17.30%
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France
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11.13%
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Germany
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9.48%
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Switzerland
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8.35%
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Australia
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6.74%
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Hong Kong
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3.42%
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Netherlands
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3.39%
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Spain
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2.98%
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Sweden
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2.68%
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Italy
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2.37%
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Denmark
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1.74%
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Singapore
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1.23%
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Finland
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1.05%
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Belgium
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1.03%
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Cash and/or Derivatives
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0.82%
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Other
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2.46%
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Total
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100.00%
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* Percentages may not sum to 100% due to rounding.
Representative Sampling
BFA uses a
representative sampling indexing strategy to manage the ETF. This strategy involves investing in a representative sample of securities that collectively has an investment profile similar to that of the underlying index. The securities
selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures
similar to those of the underlying index.
The ETF generally
invests at least 90% of its assets in the securities of the underlying index and in depositary receipts representing securities of the underlying index. The ETF may invest the remainder of its assets in certain futures, options and swap
contracts, cash and cash equivalents, including shares of money market funds advised by BFA or its affiliates, as well as in securities not included in the underlying index, but which BFA believes will help the ETF track the underlying
index. Also, the ETF may lend securities representing up to one-third of the value of the ETF’s total assets (including the value of the collateral received).
Tracking Error
The performance of the ETF and the
underlying index may vary due to a variety of factors, including differences between the securities and other instruments held in the ETF’s portfolio and those included in the underlying index, pricing differences (including differences
between a security’s price at the local market close and the ETF’s valuation of a security at the time of calculation of the ETF’s net asset value), differences in transaction costs, the ETF’s holding of uninvested cash, differences in
timing of the accrual of or the valuation of dividends or interest, tax gains or losses, changes to the underlying index or the costs to the ETF of complying with various new or existing regulatory requirements. Tracking error also may
result because the ETF incurs fees and expenses, while the underlying index does not. BFA expects that, over time, the ETF’s tracking error will not exceed 5%. The ETF’s use of a representative sampling indexing strategy can be expected to
produce a larger tracking error than would result if the ETF used a replication indexing strategy in which an ETF invests in substantially all of the securities in its index in approximately the same proportions as in the underlying index.
As of August 31, 2018, iShares® reported the following average annual returns on the market price
of the ETF’s shares and the underlying index. The market price of the ETF’s shares takes into account distributions on the shares and the returns shown account for changes in the mid-point of the bid and ask prices at 4:00 p.m., Eastern time
on the relevant date. ETF shares: 1 year, 3.78%; 3 years, 6.98%; 5 years, 5.62%; 10 years, 3.64%; since inception, 5.36%; underlying index: 1 year, 4.39%; 3 years, 7.04%; 5 years, 5.73%; 10 years, 3.66%; since ETF inception, 5.44%.
Industry
Concentration Policy
The ETF will concentrate its
investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that the underlying index is concentrated.
The MSCI EAFE
Index
The MSCI EAFE Index
(the underlying index) is a stock index calculated, published and disseminated daily by MSCI Inc., which we refer to as “MSCI”, through numerous data vendors, on the MSCI website and in real time on Bloomberg Financial Markets and Reuters
Limited.
Net Total Return Methodology
The ETF tracks the
net total return version of the underlying index. A net total return index represents the total return earned in a portfolio that tracks the price return version of the index and reinvests dividend income, net of certain withholding taxes,
in the overall index, not in the specific stock paying the dividend. The difference between the price return calculation and the net total return calculation of an index is that, with respect to the price return calculation, changes in the
index level reflect changes in stock prices, whereas with respect to the net total return calculation of the index, changes in the index level reflect both movements in stock prices and the reinvestment of dividend income net of certain
withholding taxes.
MSCI’s net total
return methodology reinvests net cash dividends in the index the day the security is quoted ex-dividend, or on the ex-date (converted to U.S. dollars, as applicable). Certain dividends, including special/extraordinary dividends and
commemorative dividends, are reinvested in the index if, a day prior to the ex-date, the dividend impact on price is less than 5%. If the impact is 5% or more, the dividend will be reflected in the index through a price adjustment. A
specific price adjustment is always applied for stock dividends that are issued at no cost to the shareholders, an extraordinary capital repayment or a dividend paid in the shares of another company. Cash payments related to corporate
events, such as mergers and acquisitions, are considered on a case-by-case basis.
Notwithstanding the
ETF’s investment objective, the return on your notes will not reflect any dividends paid on the ETF shares, on the securities purchased by the ETF or on the securities that comprise the underlying index.
MSCI divides the companies included in the index into eleven Global Industry Classification Sectors: Consumer Discretionary,
Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Real Estate, Telecommunication Services and Utilities. As of the close of business on September 21, 2018, MSCI and S&P Dow Jones Indices
LLC updated the Global Industry Classification Sector structure. Among other things, the update broadened the Telecommunications Services sector and renamed it the Communication Services sector. The renamed sector includes the previously
existing Telecommunication Services Industry group, as well as the Media Industry group, which was moved from the Consumer Discretionary sector and renamed the Media & Entertainment Industry group. The Media & Entertainment Industry
group contains three industries: Media, Entertainment and Interactive Media & Services. The Media industry continues to consist of the Advertising, Broadcasting, Cable & Satellite and Publishing sub-industries. The Entertainment
industry contains the Movies & Entertainment sub-industry (which includes online entertainment streaming companies in addition to companies previously classified in such industry prior to September 21, 2018) and the Interactive Home
Entertainment sub-industry (which includes companies previously classified in the Home Entertainment Software sub-industry prior to September 21, 2018 (when the Home Entertainment Software sub-industry was a sub-industry in the Information
Technology sector)), as well as producers of interactive gaming products, including mobile gaming applications). The Interactive Media & Services industry and sub-industry includes companies engaged in content and information creation or
distribution through proprietary platforms, where revenues are derived primarily through pay-per-click advertisements, and includes search engines, social media and networking platforms, online classifieds and online review companies. The
Global Classification Sector structure changes will be implemented in the MSCI EAFE Index in connection with the November 2018 semi-annual index review.
The above
information supplements the description of the underlying index found in the accompanying general terms supplement no. 1,734. For more details about the underlying index, the underlying index sponsor and license agreement between the
underlying index sponsor and the issuer, see “The Underliers — MSCI Indices” on page S-46 of the accompanying general terms supplement no. 1,734. Additional information about the underlying index is available on the following website:
msci.com/index-methodology. We are not incorporating by reference the website or any material it includes in this pricing supplement.
The MSCI indices are the exclusive
property of MSCI Inc. (“MSCI”). MSCI and the MSCI index names are service mark(s) of MSCI or its affiliates and are licensed for use for certain purposes by GS Finance Corp. and its affiliates. These securities, based on such index, have
not been passed on by MSCI as to their legality or suitability, and are not issued, sponsored, endorsed, sold or promoted by MSCI, and MSCI bears no liability with respect to any such securities. No purchaser, seller or holder of the
securities, or any other person or entity, should use or refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote the securities without first contacting MSCI to determine whether MSCI’s permission is
required. Under no circumstances may any person or entity claim any affiliation with MSCI without the prior written permission of MSCI. The general terms supplement contains a more detailed description of the limited relationship MSCI has
with GS Finance Corp. and any related securities.
SPDR® S&P® Oil & Gas Exploration & Production ETF
The shares of the SPDR® S&P® Oil & Gas Exploration & Production ETF (the
“ETF”) are issued by the SPDR® Series Trust (the “trust”), a registered investment company. The ETF seeks investment results that correspond generally to the total return performance, before fees and expenses, of the S&P Oil
& Gas Exploration & Production Select Industry Index. The ETF trades on the NYSE Arca under the ticker symbol “XOP”. SSGA funds management, Inc. (“SSGA”) currently serves as the investment advisor to the ETF.
We obtained the following fee information from the SPDR® website, without independent verification. SSGA is
entitled to receive a management fee from the ETF based on a percentage of the ETF’s average daily net assets at an annual rate of 0.35% of the average daily net assets of the ETF. From time to time, SSGA may waive all or a portion of its
fee, although it does not currently intend to do so. SSGA pays all expenses of the ETF other than the management fee, brokerage expenses, taxes, interest, fees and expenses of the independent trustees (including any trustee’s counsel fees),
litigation expenses, acquired ETF fees and expenses and other extraordinary expenses. As of June 30, 2018, the gross expense ratio of the ETF was 0.35% per annum.
For additional information regarding the trust or SSGA, please consult the reports (including the Annual Report to
Shareholders on Form N−CSR for the fiscal year ended June 30, 2018) and other information the trust files with the SEC. Information provided to or filed with the SEC can be inspected and copied at the public reference facilities maintained by
the SEC or through the SEC’s website at sec.gov. In addition, information regarding the ETF, including its top portfolio holdings, may be obtained from other sources including, but not limited to, press releases, newspaper articles, other
publicly available documents, and the SPDR® website at spdrs.com/product/fund.seam?ticker=XOP. We are not incorporating by reference the website, the sources listed above or any material they include in this pricing supplement.
Investment Objective and Strategy
The ETF seeks to provide investment results that correspond generally to the total return performance, before fees and expenses, of the S&P
Oil & Gas Exploration & Production Select Industry Index (the “index”). The ETF uses a representative sampling strategy to try to achieve its investment objective, which means that the ETF is not required to purchase all of the
securities represented in the index. Instead, the ETF may purchase a subset of the securities in the index in an effort to hold a portfolio of securities with generally the same risk and return characteristics of the index. Under normal
market conditions, the ETF generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The ETF will provide shareholders with at least 60 days’ notice prior to any material change in this
80% investment policy. In addition, the ETF may invest in equity securities not included in the index, cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds (including money market funds
advised by SSGA).
In certain situations or market conditions, the ETF may temporarily depart from its normal investment policies and strategies
provided that the alternative is consistent with the ETF’s investment objective and is in the best interest of the ETF. For example, the ETF may make larger than normal investments in derivatives to maintain exposure to the index if it is
unable to invest directly in a component security.
The board may change the ETF’s investment strategy, index and other policies without shareholder approval. The board may also
change the ETF’s investment objective without shareholder approval.
Notwithstanding the ETF’s investment objective, the return on your notes will not reflect any dividends paid on the ETF
shares, on the securities purchased by the ETF or on the securities that comprise the index.
The ETF’s Holdings and Industrial Sector Classifications
The ETF holds stocks of companies in the oil and gas exploration and production segment of the S&P Total
Market Index. As of September 12, 2018, the ETF held stocks of companies in the following sub-industries (with their corresponding weights in the ETF): oil & gas exploration & production (79.10%); oil & gas refining &
marketing (15.79%) and integrated oil & gas (5.11%).
As of September 12, 2018, the top ten constituents of the ETF and their relative weights in the ETF were as
follows: SM Energy Company (2.40%), Matador Resources Company (2.35%), Centennial Resource Development Inc. Class A (2.27%), Energen Corporation (2.21%), Callon Petroleum Company (2.11%), Concho Resources Inc. (2.00%), PBF Energy Inc. Class A
(1.98%), Andeavor (1.97%), Denbury Resources Inc. (1.97%) and Apache Corporation (1.95%).
Correlation
Although SSGA seeks to track the performance of the index (i.e., achieve a high degree of correlation with the index), the ETF’s return may not
match the return of the index. The ETF incurs a number of operating expenses not applicable to the index, and incurs costs in buying and selling securities. In addition, the ETF may not be fully invested at times, generally as a result of
cash flows into or out of the ETF or reserves of cash held by the ETF to meet redemptions. SSGA may attempt to replicate the index return by investing in fewer than all of the securities in the index, or in some securities not included in the
index, potentially increasing the risk of divergence between the ETF’s return and that of the index.
As of August 31, 2018, the SPDR® website gave the following performance figures for the market
value return of the ETF’s shares (which is based on the midpoint between the highest bid and the lowest offer on the exchange on which the shares of the ETF are listed for trading, as of the time that the ETF's NAV is calculated, and is
before tax) and the index return (in each case on an annualized basis):
|
Period
|
1 year
|
3 years
|
5 years
|
Since inception*
|
|||||
|
ETF’s shares
|
41.37%
|
4.55%
|
-6.37%
|
-1.61%
|
|||||
|
Index
|
41.85%
|
4.75%
|
-6.30%
|
-1.47%
|
*June 19, 2006.
Industry Concentration Policy
The ETF’s assets will generally be concentrated in an industry or group of industries to the
extent that the index concentrates in a particular industry or group of industries.By focusing its investments in a particular industry or sector, financial, economic, business, and other developments affecting issuers in that
industry, market, or economic sector will have a greater effect on the ETF than if it had not focused its assets in that industry, market, or economic sector, which may increase the volatility of the ETF.
Share Prices and the Secondary Market
The trading prices of shares of the ETF will fluctuate continuously throughout trading hours based on market supply and demand rather than the
ETF’s net asset value, which is calculated at the end of each business day. The trading prices of the ETF’s shares may differ (and may deviate significantly during periods of market volatility) from the ETF’s daily net asset value. The
indicative optimized portfolio value (“IOPV”) of the shares of the ETF is disseminated every fifteen seconds throughout the trading day by NYSE Arca. The IOPV calculations are based on estimates of the value of the ETF’s net asset value per
share using market data converted into U.S. dollars at the current currency rates and is based on quotes and closing prices from the securities’
local market and may not reflect events that occur subsequent to the local market’s close. Premiums and discounts between the IOPV and the market price may occur. This should not be viewed as a “real-time” update of the net asset value per
share of the ETF, which is calculated only once a day. In addition, the issuance or redemption of ETF shares to or from certain institutional investors, which are done only in large blocks of at least 50,000, may cause temporary dislocations
in the market price of the shares.
The Underlying Index
The S&P Oil & Gas Exploration & Production Select Industry Index (Bloomberg ticker SPSIOPTR) is managed by
S&P Dow Jones Indices LLC (“S&P”) and is a modified equal-weighted index that is designed to measure the performance of stocks in the S&P Total Market Index that are classified under the Global Industry Classification Standard
(“GICS®”) in the integrated oil & gas, oil & gas exploration & production and oil & gas refining & marketing sub-industries. The S&P Total Market Index tracks all eligible U.S. common stocks listed on the
NYSE, NYSE Arca, NYSE American (formerly NYSE MKT), NASDAQ Global Select Market, NASDAQ Select Market, NASDAQ Capital Market, Bats BZX, Bats BYX, Bats EDGA, Bats EDGX and IEX. The index is one of the 21 sub-industry sector indices S&P
maintains that are derived from a portion of the stocks comprising the S&P Total Market Index. An equal-weighted index is one where every stock or company has the same weight in the index. As such, the index must be rebalanced from time
to time to re-establish the proper weighting.
The ETF tracks the performance of the total return version of the index. A total return index represents the total return
earned in a portfolio that tracks the price index and reinvests dividend income in the overall index, not in the specific stock paying the dividend. The difference between the price return calculation and the total return calculation is that,
with respect to the price return calculation, changes in the index level reflect changes in stock prices, whereas with respect to the total return calculation of the index, changes in the index level reflect both movements in stock prices and
the reinvestment of dividend income. Notwithstanding that the ETF tracks the performance of the total return version of the index, the return on your notes will not reflect any dividends paid on the ETF shares, on the securities purchased by
the ETF or on the securities that comprise the index.
Eligibility for Inclusion in the Index
Selection for the index is based on a company’s GICS® classification, as well as liquidity and market
capitalization requirements. In addition, only U.S. companies are eligible for inclusion in the index. GICS® classifications are determined by S&P using criteria it has selected or developed. Index and classification system
sponsors may use very different standards for determining sector designations. In addition, many companies operate in a number of sectors, but are listed only in one sector. As a result, sector comparisons between indices with different
sponsors may reflect differences in methodology as well as actual differences in the sector composition of the indices.
To be eligible for inclusion in the index, stocks must be in the S&P Total Market Index and satisfy the following
combined size and liquidity criteria: (i) a float-adjusted market capitalization above $500 million with a float-adjusted liquidity ratio above 90% or (ii) a float-adjusted market capitalization above $400 million with a float-adjusted
liquidity ratio above 150%. The float-adjusted liquidity ratio is defined as the dollar value traded over the previous 12 months divided by the float-adjusted market capitalization as of the index’s rebalancing reference date.
All stocks in the related GICS® sub-industries satisfying the above requirements are included in the index and,
the total number of stocks in the index should be at least 35. If there are fewer than 35 stocks in the index, the market capitalization requirements may be relaxed to reach at least 22 stocks.
With respect to liquidity, the length of time to evaluate liquidity is reduced to the available trading period for companies that recently became
public or companies that were spun-off from other companies, the stocks of which therefore do not have 12 months of trading history.
Current Composition of the Index
As of September 12, 2018, the index held stocks of companies in the following sub-industries (with their
corresponding weights in the ETF): oil & gas exploration & production (79.10%), oil & gas refining & marketing (15.79%) and integrated oil & gas (5.11%).
As of September 12, 2018, the top ten constituents of the index and their relative weights in the index were
as follows: SM Energy Company (2.40%), Matador Resources Company (2.36%), Centennial Resource Development Inc. Class A (2.27%), Energen Corporation (2.21%), Callon Petroleum Company (2.11%), Concho Resources Inc. (2.00%), PBF Energy Inc.
Class A (1.98%), Andeavor (1.97%), Denbury Resources Inc. (1.97%) and Apache Corporation (1.95%).
Calculation of the Total Return of the Index
The total return calculation begins with the price return of the index. The price return index is calculated as the index
market value divided by the divisor. Given the index is an equal-weighted index, the market capitalization of each stock used in the calculation of the index market value is redefined so that each stock has an equal weight in the index on
each rebalancing date. The adjusted market capitalization for each stock in the index is calculated as the product of the stock price, the number of shares outstanding, the stock’s float factor and the adjustment factor.
A stock’s float factor refers to the number of shares outstanding that are available to investors. S&P indices exclude
shares closely held by control groups from the index calculation because such shares are not available to investors. For each stock, S&P calculates an Investable Weight Factor (IWF) which is the percentage of total shares outstanding that
are included in the index calculation.
The adjustment factor for each stock is assigned at each rebalancing date and is calculated by dividing a specific constant
set for the purpose of deriving the adjustment factor (often referred to as modified index shares) by the number of stocks in the index multiplied by the float adjusted market value of such stock on such rebalancing date.
Adjustments are also made to ensure that no stocks in the index will have a weight that exceeds the value that can be traded
in a single day for a theoretical portfolio of $2 billion. The maximum basket liquidity weight for each stock in the index will be calculated using the ratio of its three-month mean daily value traded to a theoretical portfolio value of $2
billion. Each stock’s weight in the index is then compared to its maximum basket liquidity weight and is set to the lesser of (1) its maximum basket liquidity weight or (2) its initial equal weight. All excess weight is redistributed across
the index to the uncapped stocks. If necessary, a final adjustment is made to ensure that no stock in the index has a weight greater than 4.5%. No further adjustments are made if the latter step would force the weight of those stocks limited
to their maximum basket liquidity weight to exceed that weight. If the index contains exactly 22 companies as of the rebalancing effective date, the index will be equally weighted without basket liquidity constraints.
If a company has more than one share class line in the S&P Total Market Index, such company will be represented once by
the primary listing (generally the most liquid share line). In the event that a company issues a secondary share class to the index share class holders by means of a mandatory distribution, the newly issued share class line will be added to
the index on the distribution ex-date, provided that the distributed class is not considered to be de minimis. Both share class lines will then remain in the index until the next rebalancing, at which time only the primary share class line
will be considered for continued inclusion.
The index is calculated by using the divisor methodology used in all S&P’s equity indices. The initial divisor was set to
have a base value of 1,000 on December 17, 1999. The index level is the index market value divided by the index divisor. In order to maintain index series continuity, it is also necessary to adjust the divisor at each rebalancing. Therefore,
the divisor (after rebalancing) equals the index market value (after rebalancing) divided by the index value before rebalancing. The divisor keeps the index comparable over time and is one manipulation point for adjustments to the index,
which we refer to as maintenance of the index.
Once the price return index has been calculated, the total return index is calculated. First, the total daily dividend for each stock in the
index is calculated by multiplying the per share dividend by the number of shares included in the index. Dividends are reinvested in the index after the close on the ex-date for such
dividend. Then the index dividend is calculated by aggregating the total daily dividends for each of the index stocks (which may be zero for
some stocks) and dividing by the divisor for that day. Next, the daily total return of the index is calculated as a fraction minus 1, the numerator of which is the
sum of the index level plus the index dividend and the denominator of which is the index level on the previous day. Finally, the total return index for that day is
calculated as the product of the value of the total return index on the previous day times
the sum of 1 plus the index daily total return for that day.
Maintenance of the Index
The composition of the index is reviewed quarterly. Rebalancing occurs after the closing of the relevant U.S. trading markets
on the third Friday of the month ending that quarter. The reference date for float-adjusted market capitalization and float-adjusted liquidity ratio is the last trading day of the previous month. The reference date for GICS®
classification is as of the rebalancing effective date. Existing stocks in the index are removed at the quarterly rebalancing if either their float-adjusted capitalization falls below $300 million or their float-adjusted liquidity ratio falls
below 50%. A stock will also be deleted from the index if the S&P Total Market Index deletes that stock. Stocks are added between rebalancings only if a company deletion causes the number of stocks in the index to fall below 22. The newly
added stock will be added to the index at the weight of the deleted stock. If the stock was deleted at $0.00, the newly added stock will be added at the deleted stock’s previous day’s closing value (or the most immediate prior business day
that the deleted stock was not valued at $0.00) and an adjustment to the divisor will be made. At the next rebalancing, the index will be rebalanced based on the eligibility requirements and equal-weight methodology discussed above. In the
case of GICS® changes, where a stock does not belong to the oil & gas exploration & production sub-industry or another qualifying sub-industry after the classification change, it is removed from the index on the next
rebalancing date. In the case of a merger involving two index constituents, the merged entity will remain in the index provided that it meets all general eligibility requirements. The merged entity will be added to the index at the weight of
the stock deemed to be the surviving stock in the transaction (i.e. the surviving stock will not experience a weight change and its subsequent weight will not be equal to that of the pre-merger weight of the merged entities).
Adjustments are made to the index in the event of certain corporate actions relating to the stocks included in the index,
such as spin-offs, rights offerings, stock splits and special dividends, as specified below.
The table below summarizes the types of index maintenance adjustments:
|
Type of Corporate
Action
|
Adjustment Factor
|
Divisor Adjustment
Required
|
||
|
Spin-Off
|
The spin-off company is added to the index on the ex-date at a price of zero. In general and subject to certain exceptions, both the parent company and
spin-off companies will remain in the index until the next index rebalancing, regardless of whether they conform to the theme of the index.
|
No
|
||
|
Rights Offering
|
Price is adjusted to equal (i) price of parent company minus (ii) price of rights subscription divided by the rights ratio. Index shares change so that the
company’s weight remains the same as its weight before the rights offering.
|
No
|
||
|
Stock split (e.g., 2-for-1), stock dividend or reverse stock split
|
Index shares multiplied by split factor (i.e., 2); stock price divided by split factor (i.e., 2)
|
No
|
||
|
Share issuance or share repurchase
|
None.
|
No
|
||
|
Special dividends
|
Price of the stock making the special dividend payment is reduced by the per share special dividend amount after the close of trading on the day before the
dividend ex-date.
|
Yes
|
Unexpected Exchange Closures
An unexpected market/exchange closure occurs when a market/exchange fully or partially fails to open or
trading is temporarily halted. This can apply to a single exchange or to a market as a whole, when all of the primary exchanges are closed and/or not trading. Unexpected market/exchange closures are usually due to unforeseen circumstances,
such as natural disasters, inclement weather, outages, or other events.
To a large degree, S&P is dependent on the exchanges to provide guidance in the event of an unexpected
exchange closure. S&P’s decision making is dependent on exchange guidance regarding pricing and mandatory corporate actions.
NYSE Rule 123C provides closing contingency procedures for determining an official closing price for listed
securities if the exchange is unable to conduct a closing transaction in one or more securities due to a system or technical issue.
3:00 PM ET is the deadline for an exchange to determine its plan of action regarding an outage scenario. As
such, S&P also uses 3:00 PM ET as the cutoff.
If all major exchanges fail to open or unexpectedly halt trading intraday due to unforeseen circumstances,
S&P will take the following actions:
Market Disruption Prior to Open of Trading:
(i) If all exchanges indicate that trading will not open for a given day, S&P will treat the day as an unscheduled market holiday. The decision will be communicated to clients as soon as possible through the normal
channels. Indices containing multiple markets will be calculated as normal, provided that at least one market is open that day. Indices which only contain closed markets will not be calculated.
(ii) If exchanges indicate that trading, although delayed, will open for a given day, S&P will begin index calculation when the exchanges open.
Market Disruption Intraday:
(i) If exchanges indicate that trading will not resume for a given day, the index level will be calculated using prices determined by the exchanges based on NYSE Rule 123C. Intraday index values will continue to use the
last traded composite price until the primary exchange publishes official closing prices.
Historical Closing Levels of the Underliers
The closing levels of the underliers have fluctuated in the past and may, in the future, experience significant
fluctuations. Any historical upward or downward trend in the closing level of any underlier during the period shown below is not an indication that such underlier is more or less likely to increase or decrease at any time during the life of
your notes.
You should not take the historical closing levels of an
underlier as an indication of the future performance of an underlier. We cannot give you any assurance that the future performance of any underlier or the underlier stocks will result in you receiving any coupon payments or
receiving the outstanding face amount of your notes on the stated maturity date.
Neither we nor any of our affiliates make any representation to you as to the performance of the underliers. Before
investing in the offered notes, you should consult publicly available information to determine the relevant underlier levels between the date of this pricing supplement and the date of your purchase of the offered notes. The actual
performance of an underlier over the life of the offered notes, as well as the cash settlement amount at maturity may bear little relation to the historical levels shown below.
The graphs below show the daily historical closing levels of each underlier from October 9, 2008 through October 9, 2018. We obtained the levels
in the graphs below from Bloomberg Financial Services, without independent verification.
Historical Performance of the EURO STOXX 50® Index
Historical Performance of the iShares® MSCI EAFE ETF
Historical Performance of the SPDR® S&P® Oil & Gas Exploration &
Production ETF
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. In addition, it is the opinion of Sidley Austin llp that the
characterization of the notes for U.S. federal income tax purposes that will be required under the terms of the notes, as discussed below, is a reasonable interpretation of current law.
This section does not apply to you if you are a member of a class of holders subject to special rules, such as:
| · |
a dealer in securities or currencies;
|
| · |
a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;
|
| · |
a bank;
|
| · |
a life insurance company;
|
| · |
a regulated investment company;
|
| · |
an accrual method taxpayer subject to special tax accounting rules as a result of its use of financial statements;
|
| · |
a tax exempt organization;
|
| · |
a partnership;
|
| · |
a person that owns a note as a hedge or that is hedged against interest rate risks;
|
| · |
a person that owns a note as part of a straddle or conversion transaction for tax purposes; or
|
| · |
a United States holder (as defined below) whose functional currency for tax purposes is not the U.S. dollar.
|
Although this section is based on the U.S. Internal Revenue Code of 1986, as amended, its legislative history, existing and
proposed regulations under the Internal Revenue Code, published rulings and court decisions, all as currently in effect, no statutory, judicial or administrative authority directly discusses how your notes should be treated for U.S. federal
income tax purposes, and as a result, the U.S. federal income tax consequences of your investment in your notes are uncertain. Moreover, these laws are subject to change, possibly on a retroactive basis.
|
You should consult your tax advisor concerning the U.S. federal income tax and 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 section applies to you only if you are a United States holder that holds your notes as a capital asset for tax
purposes. You are a United States holder if you are a beneficial owner of a note and you are:
| · |
a citizen or resident of the United States;
|
| · |
a domestic corporation;
|
| · |
an estate whose income is subject to U.S. federal income tax regardless of its source; or
|
| · |
a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial
decisions of the trust.
|
Tax Treatment. You will be obligated pursuant
to the terms of the notes — in the absence of a change in law, an administrative determination or a judicial ruling to the contrary — to characterize your notes for all tax purposes as income-bearing pre-paid derivative contracts in respect
of the underliers. Except as otherwise stated below, the discussion below assumes that the notes will be so treated.
Coupon payments that you receive should be included in ordinary income at the time you receive the payment or when the
payment accrues, in accordance with your regular method of accounting for U.S. federal income tax purposes.
Upon the sale, exchange, redemption or maturity of your notes, you should recognize capital gain or loss equal to the
difference between the amount realized on the sale, exchange, redemption or maturity (excluding any amounts attributable to accrued and unpaid coupon payments, which will be taxable as described above) and your tax basis in your notes. Your
tax basis in your notes will generally be equal to the amount that you paid for the notes. Such capital gain or loss should generally be short-term capital gain or loss if you hold the notes for one year or less, and should be long-term
capital gain or loss if you hold the notes for more than one year. Short-term capital gains are generally subject to tax at the marginal tax rates applicable to ordinary income.
In addition, the constructive ownership rules of Section 1260 of the Internal Revenue Code could possibly apply to all or a
portion of your notes. If all or a portion of your notes were subject to the constructive ownership rules, then all or a portion of any long-term capital gain that you realize upon the sale, exchange, redemption or maturity of your notes
would be re-characterized as ordinary income (and you would be subject to an interest charge on deferred tax liability with respect to such re-characterized capital gain) to the extent that such capital gain exceeds the amount of “net
underlying long-term capital gain” (as defined in Section 1260 of the Internal Revenue Code). Because the application of the constructive ownership rules is unclear you are strongly urged to consult your tax advisor with respect to the
possible application of the constructive ownership rules to your investment in the notes.
No statutory, judicial or administrative authority directly discusses how your notes should be treated
for U.S. federal income tax purposes. As a result, the U.S. federal income tax consequences of your investment in the notes are uncertain and alternative characterizations are possible. Accordingly, we urge you to consult your tax advisor in
determining the tax consequences of an investment in your notes in your particular circumstances, including the application of state, local or other tax laws and the possible effects of changes in federal or other tax laws.
Alternative Treatments. There is no judicial
or administrative authority discussing how your notes should be treated for U.S. federal income tax purposes. Therefore, the Internal Revenue Service might assert that a treatment other than that described above is more appropriate. For
example, the Internal Revenue Service could treat your notes as a single debt instrument subject to special rules governing contingent payment debt instruments.
Under those rules, the amount of interest you are required to take into account for each accrual period would be determined by constructing a
projected payment schedule for the notes and applying rules similar to those for accruing original issue discount on a hypothetical noncontingent debt instrument with that projected payment schedule. This method is applied by first
determining the comparable yield — i.e., the yield at which we would issue a noncontingent fixed rate debt instrument with terms and conditions similar to your notes — and then determining a payment schedule as of the applicable original
issue date that would produce the comparable yield. These rules may have the effect of requiring you to include interest in income in respect of your notes prior to your receipt of cash attributable to that income.
If the rules governing contingent payment debt instruments apply, any income you recognize upon the sale, exchange,
redemption or maturity of your notes would be treated as ordinary interest income. Any loss you recognize at that time would be treated as 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, as capital loss.
If the rules governing contingent payment debt instruments apply, special rules would apply to persons who purchase a note
at other than the adjusted issue price as determined for tax purposes.
It is possible that the Internal Revenue Service could assert that your notes should generally be characterized as described
above, except that (1) the gain you recognize upon the sale, exchange, redemption or maturity of your notes should be treated as ordinary income or (2) you should not include the coupon payments in income as you receive them but instead you
should reduce your basis in your notes by the amount of coupon payments that you receive. It is also possible that the Internal Revenue Service could seek to characterize your notes in a manner that results in tax consequences to you
different from those described above.
It is also possible that the Internal Revenue Service could seek to characterize your notes as notional principal
contracts. It is also possible that the coupon payments would not be treated as either ordinary income or interest for U.S. federal income tax purposes, but instead would be treated in some other manner.
You should consult your tax advisor as to possible alternative characterizations of your notes for U.S. federal income tax
purposes.
Possible Change in Law
In 2007, legislation was introduced in Congress that, if enacted, would have required holders that
acquired instruments such as your notes after the bill was enacted to accrue interest income over the term of such instruments. It is not possible to predict whether a similar or identical bill will be enacted in the future, or whether any
such bill would affect the tax treatment of your notes.
In addition, on December 7, 2007, the Internal Revenue Service released a notice stating that the Internal Revenue Service
and the Treasury Department are actively considering issuing guidance regarding the proper U.S. federal income tax treatment of an instrument such as the offered notes including whether the holders should be required to accrue ordinary income
on a current basis and whether gain or loss should be ordinary or capital. It is not possible to determine what guidance they will ultimately issue, if any. It is possible, however, that under such guidance, holders of the notes will
ultimately be required to accrue income currently and this could be applied on a retroactive basis. The Internal Revenue Service and the Treasury Department are also considering other relevant issues, including whether foreign holders of
such instruments should be subject to withholding tax on any deemed income accruals, and whether the special “constructive ownership rules” of Section 1260 of the Internal Revenue Code might be applied to such instruments. Except to the
extent otherwise provided by law, GS Finance Corp. intends to continue treating the notes for U.S. federal income tax purposes in accordance with the treatment described above unless and until such time as Congress, the Treasury Department or
the Internal Revenue Service determine that some other treatment is more appropriate.
It is impossible to predict what any such legislation or administrative or regulatory guidance might provide, and whether
the effective date of any legislation or guidance will affect notes that were issued before the date that such legislation or guidance is issued. You are urged to consult your tax advisor as to the possibility that any legislative or
administrative action may adversely affect the tax treatment of your notes.
United States Alien Holders
This section applies to you only if you are a United States alien holder. You are a United States alien holder if you are the beneficial owner
of the notes and are, for U.S. federal income tax purposes:
| · |
a nonresident alien individual;
|
| · |
a foreign corporation; or
|
| · |
an estate or trust that in either case is not subject to U.S. federal income tax on a net income basis on income or gain from the notes.
|
Because the U.S. federal income tax treatment (including the applicability of withholding) of the coupon payments on the
notes is uncertain, in the absence of further guidance, we intend to withhold on the coupon payments made to you at a 30% rate or at a lower rate specified by an applicable income tax treaty under an “other income” or similar provision. We
will not make payments of any additional amounts. To claim a reduced treaty rate for withholding, you generally must provide a valid Internal Revenue Service Form W-8BEN, Internal Revenue Service Form W-8BEN-E, or an acceptable substitute
form upon which you certify, under penalty of perjury, your status as a U.S. alien holder and your entitlement to the lower treaty rate. Payments will be made to you at a reduced treaty rate of withholding only if such reduced treaty rate
would apply to any possible characterization of the payments (including, for example, if the coupon payments were characterized as contract fees). Withholding also may not apply to coupon payments made to you if: (i) the coupon payments are
“effectively connected” with your conduct of a trade or business in the United States and are includable in your gross income for U.S. federal income tax purposes, (ii) the coupon payments are attributable to a permanent establishment that
you maintain in the United States, if required by an applicable tax treaty, and (iii) you comply with the requisite certification requirements (generally, by providing an Internal Revenue Service Form W-8ECI). If you are eligible for a
reduced rate of United States withholding tax, you may obtain a refund of any amounts withheld in excess of that rate by filing a refund claim with the Internal Revenue Service.
“Effectively connected” payments includable in your United States gross income are generally taxed at rates applicable to
United States citizens, resident aliens, and domestic corporations; if you are a corporate United States alien holder, “effectively connected” payments may be subject to an additional “branch profits tax” under certain circumstances.
You will also be subject to generally applicable information reporting and backup withholding requirements with respect to
payments on your notes and, notwithstanding that we do not intend to treat the notes as debt for tax purposes, we intend to backup withhold on such payments with respect to your notes unless you comply with the requirements necessary to avoid
backup withholding on debt instruments (in which case you will not be subject to such backup withholding) as set forth under “United States Taxation – Taxation of Debt Securities – United States Alien Holders” in the accompanying prospectus.
Furthermore, on December 7, 2007, the Internal Revenue Service released Notice 2008-2 soliciting comments from the public on
various issues, including whether instruments such as your notes should be subject to withholding. It is therefore possible that rules will be issued in the future, possibly with retroactive effects, that would cause payments on your notes to
be subject to withholding, even if you comply with certification requirements as to your foreign status.
As discussed above, alternative characterizations of the notes for U.S. federal income tax purposes are possible. Should an
alternative characterization of the notes, by reason of a change or clarification of the law, by regulation or otherwise, cause payments with respect to the notes to become subject to withholding tax, we will withhold tax at the applicable
statutory rate and we will not make payments of any additional amounts. Prospective United States alien holders of the notes should consult their tax advisors in this regard.
In addition, the Treasury Department has issued regulations under which amounts paid or deemed paid on certain financial instruments (“871(m)
financial instruments”) that are treated as attributable to U.S.-source dividends could be treated, in whole or in part depending on the circumstances, as a “dividend equivalent” payment that is subject to tax at a rate of 30% (or a lower
rate under an applicable treaty), which in the case of any coupon payments and any amounts you receive upon the sale, exchange, redemption or maturity of your notes, could be collected via withholding. If these regulations were to apply to
the notes, we may be required to withhold such taxes if any U.S.-source dividends are paid on the stocks included in the
EURO STOXX 50® Index or on either of the ETFs during the term of the notes. We could also require you to make certifications (e.g.,
an applicable Internal Revenue Service Form W-8) prior to any coupon payment or the maturity of the notes in order to avoid or minimize withholding obligations, and
we could withhold accordingly (subject to your potential right to claim a refund from the Internal Revenue Service) if such certifications were not received or were not satisfactory. If withholding was required, we would not be required to
pay any additional amounts with respect to amounts so withheld. These regulations generally will apply to 871(m) financial instruments (or a combination of financial instruments treated as having been entered into in connection with each
other) issued (or significantly modified and treated as retired and reissued) on or after January 1, 2021, but will also apply to certain 871(m) financial instruments (or a combination of financial instruments treated as having been entered
into in connection with each other) that have a delta (as defined in the applicable Treasury regulations) of one and are issued (or significantly modified and treated as retired and reissued) on or after January 1, 2017. In addition, these
regulations will not apply to financial instruments that reference a “qualified index” (as defined in the regulations). We have determined that, as of the issue date of your notes, your notes will not be subject to withholding under these
rules. In certain limited circumstances, however, you should be aware that it is possible for United States alien holders to be liable for tax under these rules with respect to a combination of transactions treated as having been entered
into in connection with each other even when no withholding is required. You should consult your tax advisor concerning these regulations, subsequent official guidance and regarding any other possible alternative characterizations of your
notes for U.S. federal income tax purposes.
Foreign Account Tax Compliance Act (FATCA) Withholding
Pursuant to Treasury regulations, Foreign Account Tax Compliance Act (FATCA) withholding (as described in “United States Taxation—Taxation of
Debt Securities—Foreign Account Tax Compliance Act (FATCA) Withholding” in the accompanying prospectus) will generally apply to obligations that are issued on or after July 1, 2014; therefore, the notes will generally be subject to 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 the opinion
of Sidley Austin llp,
as counsel to GS Finance Corp. and The Goldman Sachs Group, Inc., when the notes offered by this pricing supplement have been executed and issued by GS Finance Corp., the related guarantee offered by this pricing supplement has been
executed and issued by The Goldman Sachs Group, Inc., and such notes have been authenticated by the trustee pursuant to the indenture, and such notes and the guarantee have been delivered against payment as contemplated herein, (a) such
notes will be valid and binding obligations of GS Finance Corp., enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and
equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to the effect of fraudulent conveyance,
fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (b) such related guarantee will be a valid and binding obligation of The Goldman Sachs Group, Inc., enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair
dealing and the lack of bad faith), provided that such counsel expresses no opinion as to the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above. This opinion is
given as of the date hereof and is limited to the laws of the State of New York and the General Corporation Law of the State of Delaware as in effect on the date hereof. In addition, this opinion is subject to customary assumptions about
the trustee’s authorization, execution and delivery of the indenture and the genuineness of signatures and certain factual matters, all as stated in the letter of such counsel dated July 10, 2017, which has been filed as Exhibit 5.6 to the
registration statement on Form S-3 filed with the Securities and Exchange Commission by GS Finance Corp. and The Goldman Sachs Group, Inc. on July 10, 2017.
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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 pricing 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 pricing supplement, the accompanying prospectus supplement and the accompanying prospectus is an offer to sell only the notes offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The
information contained in this pricing supplement, the accompanying prospectus supplement and the accompanying prospectus is current only as of the respective dates of such documents.
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PS-3
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PS-7
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PS-12
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PS-20
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PS-34
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PS-39
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General Terms Supplement No. 1,734 dated July 10, 2017
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Additional Risk Factors Specific to the Notes
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S-1
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Supplemental Terms of the Notes
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S-16
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The Underliers
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S-36
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S&P 500® Index
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S-40
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MSCI Indices
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S-46
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Hang Seng China Enterprises Index
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S-55
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Russell 2000® Index
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S-61
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FTSE® 100 Index
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S-69
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EURO STOXX 50® Index
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S-75
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TOPIX
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S-82
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The Dow Jones Industrial Average®
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S-87
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The iShares® MSCI Emerging Markets ETF
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S-91
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Use of Proceeds
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S-94
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Hedging
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S-94
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Employee Retirement Income Security Act
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S-95
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Supplemental Plan of Distribution
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S-96
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Conflicts of Interest
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S-98
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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-15
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United States Taxation
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S-18
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Employee Retirement Income Security Act
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S-19
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Supplemental Plan of Distribution
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S-20
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Validity of the Notes and Guarantees
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S-21
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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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4
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Risks Relating to Regulatory Resolution Strategies and Long-Term Debt Requirements
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8
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Use of Proceeds
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11
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Description of Debt Securities We May Offer
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12
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Description of Warrants We May Offer
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45
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Description of Units We May Offer
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60
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GS Finance Corp
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65
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Legal Ownership and Book-Entry Issuance
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67
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Considerations Relating to Floating Rate Debt Securities
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72
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Considerations Relating to Indexed Securities
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73
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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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74
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United States Taxation
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77
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Plan of Distribution
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92
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Conflicts of Interest
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94
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Employee Retirement Income Security Act
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95
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Validity of the Securities and Guarantees
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95
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Experts
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96
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Review of Unaudited Condensed Consolidated Financial Statements by Independent Registered Public Accounting Firm
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96
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Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995
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96
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$1,421,000
GS Finance Corp.
Callable Contingent Coupon Underlier-Linked Notes due 2022
guaranteed by
The Goldman Sachs Group, Inc.
Goldman Sachs & Co. LLC