The return on your notes is linked, in part, to the performance of the PowerShares QQQ Trust
SM
, Series 1 (ETF), and not to that of the NASDAQ-100 Index
®
(underlying index) on which the ETF is based. The performance of the ETF may significantly diverge from that of the underlying index.
At maturity, for each $1,000 face amount of your notes, you will receive an amount in cash equal to:
The estimated value of your notes at the time the terms of your notes are set on the trade date is expected to be between $910 and $950 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.
* See “Summary Information — Key Terms — Supplemental plan of distribution; conflicts of interest” on page PS-5 for additional information regarding the fees comprising the underwriting discount.
Goldman Sachs & Co. LLC
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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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 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 S&P 500
®
Index (Bloomberg symbol, “SPX Index”), the EURO STOXX 50
®
Index (Bloomberg symbol, “SX5E Index”) and the PowerShares QQQ Trust
SM
, Series 1 (Bloomberg symbol, “QQQ UP”); see “The Underliers” on page PS-19
Underlying index of the PowerShares QQQ Trust
SM
, Series 1:
the
NASDAQ-100 Index
®
Specified currency:
U.S. dollars (“$”)
Face amount:
each note will have a face amount equal to $1,000; $ in the aggregate for all the offered notes; the aggregate face amount of the offered notes may be increased if the issuer, at its sole option, decides to sell an additional amount of the offered notes on a date subsequent to the date of this pricing supplement
Purchase at amount other than face amount:
the amount we will pay you for your notes on a call payment date or the stated maturity
date, as the case may be, 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 a call payment date or the stated maturity
date, 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-13 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 a pre-paid derivative contract in respect of the underliers, as described under “Supplemental Discussion of U.S. Federal Income Tax Consequences” herein. Pursuant to this approach, it is the opinion of Sidley Austin
llp
that
u
pon 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 and your tax basis in your notes.
Cash settlement amount (on any call payment date):
if your notes are automatically called on a call observation date because the closing level of each underlier is
greater than
or
equal to
its initial underlier
level
,
for each $1,000 face amount of your notes, we will pay you on the corresponding call payment date an amount in cash equal to the
sum
of (i) $1,000
plus
(ii) the
product
of $1,000
times
the call premium amount applicable to the call observation date.
Cash settlement amount (on the stated maturity date):
if your notes are not automatically called,
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 final underlier level of
each
underlier is
greater than or equal to
its initial underlier level, (i) $1,000
plus
(ii) the
product
of $1,000
times
the maturity date premium amount;
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·
|
if the final underlier level of
each
underlier is
greater than or equal to
70% of its initial underlier level but the final underlier level of
any
underlier is
less than
its initial underlier level, $1,000; or
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·
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if the final underlier level of
any
underlier is
less than
70% of its initial underlier 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 70% of the face amount of your note
|
Automatic call feature:
if, as measured on any call observation date, the closing level of
each
underlier is
greater than
or
equal to
its initial underlier level
,
your notes will be automatically called; if your notes are automatically called on any call observation date, on the corresponding call payment date, you will receive an amount in cash equal to the
sum
of (i) $1,000
plus
(ii) the
product
of $1,000
times
the call premium amount applicable to the corresponding call observation date
Lesser performing underlier return:
the underlier return of the lesser performing underlier
Lesser performing underlier:
the underlier with the lowest underlier return
Call premium amount:
with respect to any call observation date, the applicable call premium amount specified in the table set forth under “Call observation dates” below; as shown in such table, the call premium amount increases the longer the notes are outstanding
Maturity date premium amount:
45%
Initial underlier level (to be set on the trade date):
with respect to each underlier,
the closing level of such underlier on the trade date
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 PowerShares QQQ Trust
SM
, Series 1 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 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 PowerShares QQQ Trust
SM
, Series 1 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
Underlier return:
with respect to each underlier, 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
Defeasance:
not applicable
No Interest:
the offered notes will not bear interest
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:
expected to be January 18, 2018
Original issue date (settlement date) (to be set on the trade date):
expected to be January 23, 2018
Stated maturity date (to be set on the trade date):
expected to be October 25, 2021, 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 (to be set on the trade date):
expected to be October 18, 2021, subject to adjustment as described under “Supplemental Terms of the Notes — Determination Date” on page S-17 of the accompanying general terms supplement no. 1,734
Call observation dates (to be set on the trade date):
expected to be the dates specified as such in the table below, commencing July 2018 and ending July 2021, subject to adjustment as described under “Supplemental Terms of the Notes — Call Observation Dates” on page S-20 of the accompanying general terms supplement no. 1,734
|
Call Observation Date
|
Call Premium Amount
|
|
July 18, 2018
|
6%
|
|
October 18, 2018
|
9%
|
|
January 18, 2019
|
12%
|
|
April 18, 2019
|
15%
|
|
July 18, 2019
|
18%
|
|
October 18, 2019
|
21%
|
|
January 21, 2020
|
24%
|
|
April 20, 2020
|
27%
|
|
July 20, 2020
|
30%
|
|
October 19, 2020
|
33%
|
|
January 19, 2021
|
36%
|
|
April 19, 2021
|
39%
|
|
July 19, 2021
|
42%
|
Call payment dates (to be set on the trade date):
expected to be the fifth business day after each call observation date, subject to adjustment as described under “Supplemental Terms of the Notes — Call Payment Dates” on page S-16 of the accompanying general terms supplement no. 1,734
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 $ .
GS Finance Corp. expects to agree to sell to Goldman Sachs & Co. LLC (“GS&Co.”), and GS&Co. expects to agree to purchase from GS Finance Corp., the aggregate face amount of the offered notes specified on the front cover of this pricing supplement. GS&Co. proposes initially to offer the notes to the public at the original issue prices set forth on the cover page of this pricing supplement, and to certain securities dealers at such prices less a concession not in excess of % of the face amount. The original issue price for notes purchased by certain retirement accounts and certain fee-based advisory accounts will be % of the face amount of the notes, which will reduce the underwriting discount specified on the cover of this pricing supplement with respect to such notes to %. GS&Co. is an affiliate of GS Finance Corp. and The Goldman Sachs Group, Inc. and, as such, will have a “conflict of interest” in this offering of notes within the meaning of Financial Industry Regulatory Authority, Inc. (FINRA) Rule 5121. Consequently, this offering of notes will be conducted in compliance with the provisions of FINRA Rule 5121. GS&Co. will not be permitted to sell notes in this offering to an account over which it exercises discretionary authority without the prior specific written approval of the account holder.
We expect to deliver the notes against payment therefor in New York, New York on January 23, 2018
,
which is expected to be the third scheduled business day following the date of this pricing supplement and of the pricing of the notes. 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, by virtue of the fact that the notes are initially expected to settle in three business days (T + 3), 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.:
40055AFH5
ISIN no.:
US40055AFH59
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 call observation date or the determination date could have on the cash settlement amount on a call payment date or on the stated maturity date, as the case may be, 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 call 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 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 a call payment date or the stated maturity date, as the case may be. If you sell your notes in a secondary market prior to a call payment date or the stated maturity date, 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-11 of this pricing supplement. The information in the examples also reflects the key terms and assumptions in the box below.
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Key Terms and Assumptions
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Face amount
|
$1,000
|
|
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The notes are not automatically called, unless otherwise indicated below
Neither a market disruption event nor a non-trading day occurs on any originally scheduled call observation date or the originally scheduled determination date
No change in or affecting (i) the underliers, (ii) any of the underlier stocks, (iii) the methods by which the applicable underlier sponsor calculates the S&P 500
®
Index, the EURO STOXX 50
®
Index or the underlying index of the Powershares QQQ Trust
SM
, Series 1 or (iv) the policies of the Powershares QQQ Trust
SM
, Series 1 investment advisor
Notes purchased on original issue date at the face amount and held to a call payment date or the stated maturity date
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Moreover, we have not yet set the initial underlier levels that will serve as the baseline for determining the amount that we will pay on your notes, if any, on a call payment date or at maturity. We will not do so until the trade date. As a result, the actual initial underlier levels may differ substantially from the underlier levels prior to the trade date. They may also differ substantially from the underlier levels at the time you purchase your notes.
For these reasons, the actual performance of the underliers over the life of your notes, as well as the amount payable on a call payment date or at maturity, if any, may bear little relation to the hypothetical examples shown below or to the historical underlier levels shown elsewhere in this pricing supplement. For information about the underlier levels during recent periods, see “The Underliers — Historical Closing Levels of the Underliers” on page PS-33. 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 Payment on a Call Payment Date
The following examples reflect hypothetical cash settlement amounts that you could receive on the applicable call payment dates. While there are thirteen potential call payment dates with respect to your notes, the examples below only illustrate the amount you will receive, if any, on the first, second, third and fourth call payment dates.
If your notes are automatically called on the first call observation date
(i.e., on the first call observation date the closing level of each underlier is
greater than
or
equal to
its initial underlier level), the cash settlement amount that we would deliver for each $1,000 face amount of your notes on the applicable call payment date would be the
sum
of $1,000
plus
the
product
of the applicable call premium amount
times
$1,000. If, for example, the closing level of each underlier was determined to be 120.000% of its initial underlier level, your notes would be automatically called and the cash settlement amount that we would deliver on your notes on the corresponding call payment date would be 106.000% of the face amount of your notes or $1,060 for each $1,000 of the face amount of your notes.
If the notes
are
not
automatically called on the first call observation date and are automatically called on the second call observation date
(i.e., on the first call observation date the closing level of any underlier is
less than
its initial underlier level, and on the second call observation date the closing level of each underlier is
greater than
or
equal to
its initial underlier level), the cash settlement amount that we would deliver for each $1,000 face amount of your notes on the applicable call payment date would be the
sum
of $1,000
plus
the
product
of the applicable call premium amount
times
$1,000. If, for example, the closing level of each underlier was determined to be 130.000% of its initial underlier level, your notes would be automatically called and the cash settlement amount that we would deliver on your notes on the corresponding call payment date would be 109.000% of the face amount of your notes or $1,090 for each $1,000 of the face amount of your notes.
If the notes
are
not
automatically called on the first or second call observation dates and are automatically called on the third call observation date
(i.e., on each of the first two call observation dates the closing level of any underlier is
less than
its initial underlier level, and on the third call observation date the closing level of each underlier is
greater than
or
equal to
its initial underlier level), the cash settlement amount that we would deliver for each $1,000 face amount of your notes on the applicable call payment date would be the
sum
of $1,000
plus
the
product
of the applicable call premium amount
times
$1,000. If, for example, the closing level of each underlier was determined to be 140.000% of its initial underlier level, your notes would be automatically called and the cash settlement amount that we would deliver on your notes on the corresponding call payment date would be 112.000% of the face amount of your notes or $1,120 for each $1,000 of the face amount of your notes.
If the notes
are
not
automatically called on the first, second or third call observation dates and are automatically called on the fourth call observation date
(i.e., on each of the first three call observation dates the closing level of any underlier is
less than
its initial underlier level, and on the fourth call observation date the closing level of each underlier is
greater than
or
equal to
its initial underlier level), the cash settlement amount that we would deliver for each $1,000 face amount of your notes on the applicable call payment date would be the
sum
of $1,000
plus
the
product
of the applicable call premium amount
times
$1,000. If, for example, the closing level of each underlier was determined to be 150.000% of its initial underlier level, your notes would be automatically called and the cash settlement amount that we would deliver on your notes on the corresponding call payment date would be 115.000% of the face amount of your notes or $1,150 for each $1,000 of the face amount of your notes.
Hypothetical Payment at Maturity
If the notes are
not
automatically called on any call observation date
(i.e., on each call observation date the closing level of any underlier is
less than
its initial underlier level), 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 automatically called on a call observation date
and reflects hypothetical cash settlement amounts that you could receive on the stated maturity date.
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 Automatically Called
|
|
|
|
|
Hypothetical Final Underlier Level of the
Lesser Performing Underlier
|
Hypothetical Cash Settlement Amount
at Maturity if the Notes Have
Not
Been
Automatically Called on a Call
Observation Date
|
|
(as Percentage of Initial Underlier Level)
|
(as Percentage of Face Amount)
|
|
175.000%
|
145.000%
|
|
150.000%
|
145.000%
|
|
125.000%
|
145.000%
|
|
100.000%
|
145.000%
|
|
99.999%
|
100.000%
|
|
80.000%
|
100.000%
|
|
70.000%
|
100.000%
|
|
69.999%
|
69.999%
|
|
50.000%
|
50.000%
|
|
25.000%
|
25.000%
|
|
10.000%
|
10.000%
|
|
0.000%
|
0.000%
|
If, for example, the notes have
not
been automatically called on a call observation date 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). If the notes have
not
been automatically called on a call observation date and the final underlier level of the lesser performing underlier were determined to be 80.000% of its initial underlier level, the cash settlement amount that we would deliver on your notes at maturity would be 100.000% of the face amount of your notes, as shown in the table above. In addition, if 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 145.000% 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, the cash settlement amount will be capped, and 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.
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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 amount that you will receive on a call payment date or the stated maturity date, if any, and the rate of return on the offered notes will depend on whether or not the notes are automatically called and the actual initial underlier levels, which we will set on the trade date, and on the actual closing levels of the underliers on the call observation dates 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 cash amount to be paid in respect of your notes on a call payment date or the stated maturity date, as applicable, may be very different from the information reflected in the examples above.
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ADDITIONAL RISK FACTORS SPECIFIC TO YOUR NOTES
|
|
An investment in your notes is subject to the risks described below, as well as the risks and considerations described in the accompanying prospectus, in the accompanying prospectus supplement and under “Additional Risk Factors Specific to the Notes” in the accompanying general terms supplement no. 1,734. You should carefully review these risks and considerations as well as the terms of the notes described herein and in the accompanying prospectus, the accompanying prospectus supplement and the accompanying general terms supplement no. 1,734. Your notes are a riskier investment than ordinary debt securities. Also, your notes are not equivalent to investing directly in the underlier stocks, i.e., with respect to an underlier to which your notes are linked, the stocks comprising such underlier. You should carefully consider whether the offered notes are suited to your particular circumstances.
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The Estimated Value of Your Notes At the Time the Terms of Your Notes Are Set On the Trade Date (as Determined By Reference to Pricing Models Used By GS&Co.) Is Less Than the Original Issue Price Of Your Notes
The original issue price for your notes exceeds the estimated value of your notes as of the time the terms of your notes are set on the trade date, as determined by reference to GS&Co.’s pricing models and taking into account our credit spreads. Such estimated value on the trade date is set forth above under “Estimated Value of Your Notes”; after the trade date, the estimated value as determined by reference to these models will be affected by changes in market conditions, the creditworthiness of GS Finance Corp., as issuer, the creditworthiness of The Goldman Sachs Group, Inc., as guarantor, and other relevant factors. The price at which GS&Co. would initially buy or sell your notes (if GS&Co. makes a market, which it is not obligated to do), and the value that GS&Co. will initially use for account statements and otherwise, also exceeds the estimated value of your notes as determined by reference to these models. As agreed by GS&Co. and the distribution participants, this excess (i.e., the additional amount described under “Estimated Value of Your Notes”) will decline to zero on a straight line basis over the period from the date hereof through the applicable date set forth above under “Estimated Value of Your Notes”. Thereafter, if GS&Co. buys or sells your notes it will do so at prices that reflect the estimated value determined by reference to such pricing models at that time. The price at which GS&Co. will buy or sell your notes at any time also will reflect its then current bid and ask spread for similar sized trades of structured notes.
In estimating the value of your notes as of the time the terms of your notes are set on the trade date, as disclosed above under “Estimated Value of Your Notes”, GS&Co
.
’s pricing models consider certain variables, including principally our credit spreads, interest rates (forecasted, current and historical rates), volatility, price-sensitivity analysis and the time to maturity of the notes. These pricing models are proprietary and rely in part on certain assumptions about future events, which may prove to be incorrect. As a result, the actual value you would receive if you sold your notes in the secondary market, if any, to others may differ, perhaps materially, from the estimated value of your notes determined by reference to our models due to, among other things, any differences in pricing models or assumptions used by others. See “Additional Risk Factors Specific to the Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” on page S-3 of the accompanying general terms supplement no. 1,734
.
The difference between the estimated value of your notes as of the time the terms of your notes are set on the trade date and the original issue price is a result of certain factors, including principally the underwriting discount and commissions, the expenses incurred in creating, documenting and marketing the notes, and an estimate of the difference between the amounts we pay to GS&Co. and the amounts GS&Co. pays to us in connection with your notes. We pay to GS&Co. amounts based on what we would pay to holders of a non-structured note with a similar maturity. In return for such payment, GS&Co. pays to us the amounts we owe under your notes.
In addition to the factors discussed above, the value and quoted price of your notes at any time will reflect many factors and cannot be predicted. If GS&Co. makes a market in the notes, the price quoted by GS&Co. would reflect any changes in market conditions and other relevant factors, including any deterioration in our creditworthiness or perceived creditworthiness or the creditworthiness or perceived creditworthiness of The Goldman Sachs Group, Inc. These changes may adversely affect the value of your
notes, including the price you may receive for your notes in any market making transaction. To the extent that GS&Co. makes a market in the notes, the quoted price will reflect the estimated value determined by reference to GS&Co
.
’s pricing models at that time, plus or minus its then current bid and ask spread for similar sized trades of structured notes (and subject to the declining excess amount described above).
Furthermore, if you sell your notes, you will likely be charged a commission for secondary market transactions, or the price will likely reflect a dealer discount. This commission or discount will further reduce the proceeds you would receive for your notes in a secondary market sale.
There is no assurance that GS&Co. or any other party will be willing to purchase your notes at any price and, in this regard, GS&Co. is not obligated to make a market in the notes. See “— Your Notes May Not Have an Active Trading Market” below.
The Notes Are Subject to the Credit Risk of the Issuer and the Guarantor
Although the return on the notes will be based on the performance of each underlier, the payment of any amount due on the notes is subject to the credit risk of GS Finance Corp., as issuer of the notes, and the credit risk of The Goldman Sachs Group, Inc., as guarantor of the notes . The notes are our unsecured obligations. Investors are dependent on our ability to pay all amounts due on the notes, and therefore investors are subject to our credit risk and to changes in the market’s view of our creditworthiness. Similarly, investors are dependent on the ability of The Goldman Sachs Group, Inc., as guarantor of the notes, to pay all amounts due on the notes, and therefore are also subject to its credit risk and to changes in the market’s view of its creditworthiness. See “Description of the Notes We May Offer — Information About Our Medium-Term Notes, Series E Program — How the Notes Rank Against Other Debt” on page S-4 of the accompanying prospectus supplement and “Description of Debt Securities We May Offer— Guarantee by The Goldman Sachs Group, Inc.” on page 42 of the accompanying prospectus
.
You May Lose Your Entire Investment in the Notes
You can lose your entire investment in the notes. Assuming your notes are not automatically called, 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
S&P 500
®
Index, the EURO STOXX 50
®
Index
and
the PowerShares QQQ Trust
SM
, Series 1
, in each case as measured from their initial underlier levels (
set on the trade date)
to their closing levels on the determination date.
If the underlier return of any underlier is
less than
-30%
, 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 a call payment date or the stated maturity date, as the case may be, may be significantly lower than the purchase price you pay for your notes. Consequently, if you sell your notes before the stated maturity date, you may receive far less than the amount of your investment in the notes.
The Cash Settlement Amount You Will Receive on a Call Payment Date or on the Stated Maturity Date, as the Case May Be, Will Be Capped
Regardless of the closing levels of the underliers on each of the call observation dates, the cash settlement amount you may receive on a call payment date is capped. Even if the closing level of each underlier on a call observation date exceeds its initial underlier level, causing the notes to be automatically called on such day, you will not benefit from any increase in the closing level of any underlier above the initial underlier level on the call observation date and the maximum payment you will receive for each $1,000 face amount of your notes will depend on the applicable call premium amount, which will be set on the trade date. In addition, if the final underlier level of each underlier is greater than its initial underlier level, the cash settlement amount you will receive on the stated maturity date is capped and your return will be limited to the maturity date premium amount regardless of the amount of appreciation of any final underlier level above the initial underlier level.
Your Notes Are Subject to Automatic Redemption
We will automatically call and redeem all, but not part, of your notes on the corresponding call payment date if, as measured on any call observation date, the closing level of each underlier is greater than or equal to its initial underlier level. Therefore, the term for your notes may be reduced to approximately six months
after the original issue date. You may not be able to reinvest the proceeds from an investment in the notes at a comparable return for a similar level of risk in the event the notes are automatically called prior to maturity.
The Cash Settlement Amount You Will Receive on a Call Payment Date or on the Stated Maturity Date is Not Linked to the Closing Level of the Underliers at Any Time Other Than on the Applicable Call Observation Date or on the Determination Date, as the Case May Be
The cash settlement amount you will receive on a call payment date, if any, will be paid only if the closing level of each underlier on the applicable call observation date is equal to or greater than its initial underlier level
.
Therefore, the closing levels of the underliers on dates other than the call observation dates will have no effect on any cash settlement amount paid in respect of your notes on the call payment date. In addition, the cash settlement amount you will receive on the stated maturity date, if any, will be based on the closing level of the underliers on the determination date (which is subject to postponement in case of market disruption events or non-trading days), and therefore not the simple performance of the underliers over the life of your notes. Therefore, if the closing level of one underlier dropped precipitously on the determination date, the cash settlement amount for your notes may be significantly less than it would have been had the cash settlement amount been linked to the closing level of the underlier prior to such drop.
The Cash Settlement Amount Will Be Based Solely on the Lesser Performing Underlier
If the notes are not automatically called, 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 either (or both) of the other underliers. This could be the case even if the other underlier increased by an amount greater than the decrease in the lesser performing underlier.
Your Notes Will Not Bear Interest
You will not receive any interest payments on your notes. As a result, even if the cash settlement amount payable for your notes on a call payment date or the stated maturity date, as applicable, exceeds the face amount of your notes, the overall return you earn on your notes may be less than you would have earned by investing in a non-indexed debt security of comparable maturity that bears interest at a prevailing market rate.
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 70% 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 30% 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 70% 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.
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, if any, or the amount you will be paid on a call payment date will not be adjusted based on the issue price you pay for the notes. If you purchase notes at a price that differs from the face amount of the notes, then the return on your investment in such notes held to a call payment date or the stated maturity date will differ from, and may be substantially less than, the return on notes purchased at face amount. If you purchase your notes at a premium to face amount and hold them to a call payment date or the stated maturity date, the return on your investment in the notes will be lower than it would have been had you purchased the notes at face amount or a discount to face amount.
Your Notes May Not Have an Active Trading Market
Your notes will not be listed or displayed on any securities exchange or included in any interdealer market quotation system, and there may be little or no secondary market for your notes. Even if a secondary market for your notes develops, it may not provide significant liquidity and we expect that transaction costs in any secondary market would be high. As a result, the difference between bid and asked prices for your notes in any secondary market could be substantial.
We May Sell an Additional Aggregate Face Amount of the Notes at a Different Issue Price
At our sole option, we may decide to sell an additional aggregate face amount of the notes subsequent to the date of this pricing supplement. The issue price of the notes in the subsequent sale may differ substantially (higher or lower) from the issue price you paid as provided on the cover of this pricing supplement.
The Re
turn on Your Notes Will Not
Reflect Any Dividends Paid on the PowerShares QQQ Trust
SM
, Series 1
Underliers or the Underlier Stocks, as Applicable
The index sponsors of the S&P 500
®
Index and the EURO STOXX 50
®
Index calculate the value of the applicable 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
PowerShares QQQ Trust
SM
, Series 1
and received the distributions paid on the shares of such ETF. 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
PowerShares QQQ Trust
SM
, Series 1
. See “— You Have No Shareholder Rights or Rights to Receive Any Shares of the
PowerShares QQQ Trust
SM
, Series 1
or Any Underlier Stock” below for additional information.
You Have No Shareholder Rights or Rights to Receive Any Shares of the
PowerShares QQQ Trust
SM
, Series 1
or Any
Underlier Stock
Investing in your notes will not make you a holder of any shares of the
PowerShares QQQ Trust
SM
, Series 1
or any underlier stocks. Neither you nor any other holder or owner of your notes will have any rights with respect to the
PowerShares QQQ Trust
SM
, Series 1
or the
underlier stocks, including any voting rights, any right to receive dividends or other distributions, any right to make a claim against the
PowerShares QQQ Trust
SM
, Series 1
or the underlier stocks or any other rights of a holder of any shares of
the
PowerShares QQQ Trust
SM
, Series 1
or the underlier stocks. Your notes will be paid in cash and you will have no right to receive delivery of any shares of the
PowerShares QQQ Trust
SM
, Series 1
or any underlier stocks.
The Policies of the Trustee of the PowerShares QQQ Trust
SM
, Series 1, The Bank of New York Mellon, and the sponsor of the NASDAQ-100 Index
®
, Nasdaq, Inc., Could Affect the Amount Payable on Your Notes and Their Market Value
The trustee of the PowerShares QQQ Trust
SM
, Series 1, The Bank of New York Mellon (“BNY”), may from time to time be called upon to make certain policy decisions or judgments with respect to the implementation of policies of BNY concerning the calculation of the net asset value of the PowerShares QQQ Trust
SM
, Series 1, additions, deletions or substitutions of securities in the PowerShares QQQ Trust
SM
, Series 1 and the manner in which changes affecting the underlying index are reflected in the PowerShares QQQ Trust
SM
, Series 1 that could affect the market price of the shares of the PowerShares QQQ Trust
SM
, Series 1, 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 BNY changes these policies, for example, by changing the manner in which it calculates the net asset value of the PowerShares QQQ Trust
SM
, Series 1, or if BNY discontinues or suspends calculation or publication of the net asset value of the PowerShares QQQ Trust
SM
, Series 1, 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 PowerShares QQQ Trust
SM
, Series 1 on a call observation date or the determination date, as applicable — and thus the amount payable on a call 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 level of the PowerShares QQQ Trust
SM
, Series 1 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, Nasdaq, Inc. owns the NASDAQ-100 Index
®
,
and is responsible for the design and maintenance of the underlying index. The policies of the underlying index sponsor concerning the calculation of the underlying index, including decisions regarding the addition, deletion or substitution of the equity securities included in the underlying index, could affect the level of the underlying index and, consequently, could affect the market prices of shares of the PowerShares QQQ Trust
SM
, Series 1 and, therefore, the amount payable on your notes and their market value.
There Are Risks Associated with the PowerShares QQQ Trust
SM
, Series 1
Although the PowerShares QQQ Trust
SM
, Series 1’s shares are listed for trading on
The NASDAQ Stock Market, Inc. (the “NASDAQ”)
and a number of similar products have been traded on the NASDAQ 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 PowerShares QQQ Trust
SM
, Series 1 or that there will be liquidity in the trading market.
In addition, the PowerShares QQQ Trust
SM
, Series 1 is subject to management risk, which is the risk that the PowerShares QQQ Trust
SM
, Series 1 trustee’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. The PowerShares QQQ Trust
SM
, Series 1 is also not actively managed and may be affected by a general decline in market segments relating to its underlying index. The trustee of the PowerShares QQQ Trust
SM
, Series 1 invests in securities included in, or representative of, its underlying index regardless of their investment merits. The trustee of the PowerShares QQQ Trust
SM
, Series 1 does not attempt to take defensive positions in declining markets. In addition, the PowerShares QQQ Trust
SM
, Series 1 is subject to custody risk, which refers to the risks in the process of clearing and settling trades and to the holding of securities by local banks, agent and depositories.
The PowerShares QQQ Trust
SM
, Series 1 and its Underlying Index are Different and the Performance of the PowerShares QQQ Trust
SM
, Series 1 May Not Correlate with the Performance of its Underlying Index
Although the PowerShares QQQ Trust
SM
, Series 1 generally invests in all of the securities included in its underlying index, the PowerShares QQQ Trust
SM
, Series 1 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. For example, it is possible that the PowerShares QQQ Trust
SM
, Series 1 may not always fully replicate the performance of the underlying index due to unavailability of certain underlying index securities in the secondary market or due to other extraordinary circumstances (e.g., if trading in a security has been halted). Further, although the PowerShares QQQ Trust
SM
, Series 1 seeks to track the performance of the underlying index as closely as possible, the PowerShares QQQ Trust
SM
, Series 1’s return may not match or achieve a high degree of correlation with the return of the underlying index due to, among other things, transaction costs.
In addition, the performance of the PowerShares QQQ Trust
SM
, Series 1 will reflect additional transaction costs and fees that are not included in the calculation of its underlying index and this may increase the tracking error of the PowerShares QQQ Trust
SM
, Series 1. Also, corporate actions with respect to the sample of equity securities (such as mergers and spin-offs) may impact the performance differential between the PowerShares QQQ Trust
SM
, Series 1 and its underlying index. Finally, because the shares of the PowerShares QQQ Trust
SM
, Series 1 are traded on NASDAQ and are subject to market supply and investor demand, the market value of one share of the PowerShares QQQ Trust
SM
, Series 1 may differ from the net asset value per share of the PowerShares QQQ Trust
SM
, Series 1
.
For all of the foregoing reasons, the performance of the PowerShares QQQ Trust
SM
, Series 1 may not correlate with the performance of its underlying index. Consequently, the return on the notes will not be the same as investing directly in the PowerShares QQQ Trust
SM
, Series 1 or in its underlying index or in the underlying index stocks, and will not be the same as investing in a debt security with a payment at maturity linked to the performance of the underlying index
.
As Compared to Other Index Sponsors, Nasdaq, Inc. Retains Significant Control and Discretionary Decision-Making Over the NASDAQ-100 Index
®
,
Which May Have an Adverse Effect on the Level of the NASDAQ-100 Index
®
,
on the Performance of the PowerShares QQQ Trust
SM
, Series 1 and on Your Notes
Pursuant to the NASDAQ-100 Index
®
methodology, Nasdaq, Inc. retains the right, from time to time, to exercise reasonable discretion as it deems appropriate in order to ensure NASDAQ-100 Index
®
integrity, including, but not limited to, changes to quantitative inclusion criteria. Nasdaq, Inc. may also, due to special circumstances, apply discretionary adjustments to ensure and maintain quality of the NASDAQ-100 Index
®
. Although it is unclear how and to what extent this discretion could or would be exercised, it is possible that it could be exercised by Nasdaq, Inc. in a manner that materially and adversely affects the level of the NASDAQ-100 Index
®
and, consequently, the market prices of shares of the PowerShares QQQ Trust
SM
, Series 1, which may therefore affect the return on your notes and their market value. Nasdaq, Inc. is not obligated to, and will not, take account of your interests in exercising the discretion described above.
Your Notes Are Linked, in Part, to the EURO STOXX 50
®
Index, Which Is Comprised of Index Stocks That Are Traded in a Foreign Currency But Not Adjusted to Reflect Their U.S. Dollar Value, And, Therefore, the Return on Your Notes Will Not Be Adjusted for Changes in the Foreign Currency Exchange Rate
Your notes are linked, in part, to the EURO STOXX 50
®
Index whose index stocks are traded in a foreign currency but not adjusted to reflect their U.S. dollar value. The amount payable on your notes will not be adjusted for changes in the euro/U.S. dollar exchange rate. The amount payable will be based solely upon the overall change in the level of the EURO STOXX 50
®
Index. Changes in foreign currency exchange rates, however, may reflect changes in the economy of the foreign countries in which the index’s component stocks are listed that, in turn, may affect the level of the EURO STOXX 50
®
Index.
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 EURO STOXX 50
®
Index, which is comprised of stocks from one or more foreign securities markets, and, in part, to the
iShares
®
MSCI EAFE ETF, which
holds stocks issued by foreign companies. 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 Investment in the Notes Will Be Subject to Foreign Currency Exchange Rate Risk
The ETF holds assets that are denominated in non-U.S. dollar currencies. The value of the assets held by the ETF that are denominated in non-U.S. dollar currencies will be adjusted to reflect their U.S. dollar value by converting the price of such assets from the non-U.S. dollar currency to U.S. dollars. Consequently, if the value of the U.S. dollar strengthens against the non-U.S. dollar currency in which an asset is denominated, the level of the ETF may not increase even if the non-dollar value of the asset held by the ETF increases.
Foreign currency exchange rates vary over time, and may vary considerably during the term of your notes. Changes in a particular exchange rate result from the interaction of many factors directly or indirectly affecting economic and political conditions. Of particular importance are:
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existing and expected rates of inflation;
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existing and expected interest rate levels;
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the balance of payments among countries;
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the extent of government surpluses or deficits in the relevant foreign country and the United States; and
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other financial, economic, military and political factors.
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All of these factors are, in turn, sensitive to the monetary, fiscal and trade policies pursued by the governments of the relevant foreign countries and the United States and other countries important to international trade and finance.
The market price of the notes and level of the ETF could also be adversely affected by delays in, or refusals to grant, any required governmental approval for conversions of a local currency and remittances abroad or other de facto restrictions on the repatriation of U.S. dollars.
It has been reported that the U.K. Financial Conduct Authority and regulators from other countries are in the process of investigating the potential manipulation of published currency exchange rates. If such manipulation has occurred or is continuing, certain published exchange rates may have been, or may be in the future, artificially lower (or higher) than they would otherwise have been. Any such manipulation could have an adverse impact on any payments on, and the value of, your notes and the trading market for your notes. In addition, we cannot predict whether any changes or reforms affecting the determination or publication of exchange rates or the supervision of currency trading will be implemented in connection with these investigations. Any such changes or reforms could also adversely impact your notes.
The Tax Consequences of an Investment in Your Notes Are Uncertain
The tax consequences of an investment in your notes are uncertain, both as to the timing and character of any inclusion in income in respect of your notes.
The Internal Revenue Service announced on December 7, 2007 that it is considering issuing guidance regarding the tax treatment of an instrument such as your notes, and any such guidance could adversely affect the value and the tax treatment of your notes. Among other things, the Internal Revenue Service may decide to require the holders to accrue ordinary income on a current basis and recognize ordinary income on payment at maturity, and could subject non-U.S. investors to withholding tax. Furthermore, in 2007, legislation was introduced in Congress that, if enacted, would have required holders that acquired instruments such as your notes after the bill was enacted to accrue interest income over the term of such instruments even though there will be no interest payments over the term of such instruments. It is not possible to predict whether a similar or identical bill will be enacted in the future, or whether any such bill would affect the tax treatment of your notes. We describe these developments in more detail under “Supplemental Discussion of U.S. Federal Income Tax Consequences – United States Holders – Possible Change in Law” below. You should consult your tax advisor about this matter. Except to the extent otherwise provided by law, GS Finance Corp. intends to continue treating the notes for U.S. federal income
tax purposes in accordance with the treatment described under “Supplemental Discussion of U.S. Federal Income Tax Consequences” on page PS-36 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 (or the relevant portion 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 S&P 500
®
Index
The S&P 500
®
Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The S&P 500
®
Index is calculated, maintained and published by S&P Dow Jones Indices LLC (“S&P”).
As of July 31, 2017, companies with multiple share class lines are no longer eligible for inclusion in the S&P 500
®
Index. Constituents of the S&P 500
®
Index prior to July 31, 2017 with multiple share class lines will be grandfathered in and continue to be included in the S&P 500
®
Index. If a constituent company of the S&P 500
®
Index reorganizes into a multiple share class line structure, that company will remain in the S&P 500
®
Index at the discretion of the S&P Index Committee in order to minimize turnover. Also as of July 31, 2017, the criteria employed by S&P for purposes of making additions to the S&P 500
®
Index were changed as follows:
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with respect to the “U.S. company” criterion, (i) the IEX was added as an “eligible exchange” for the primary listing of the relevant company’s common stock and (ii) the former “corporate governance structure consistent with U.S. practice” requirement was removed; and
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with respect to constituents of the S&P MidCap 400
®
Index and the S&P SmallCap 600
®
Index that are being considered for addition to the S&P 500
®
Index, the financial viability, public float and/or liquidity eligibility criteria no longer need to be met if the S&P Index Committee decides that such an addition will enhance the representativeness of the S&P 500
®
Index as a market benchmark.
|
As of January 2, 2018, the 500 companies included in the S&P 500
®
Index were divided into eleven Global Industry Classification Sectors. The Global Industry Classification Sectors include (with the approximate percentage currently included in such sectors indicated in parentheses): Consumer Discretionary (12.29%), Consumer Staples (8.09%), Energy (6.13%), Financials (14.65%), Health Care (13.79%), Industrials (10.25%), Information Technology (23.90%), Materials (3.01%), Real Estate (2.85%), Telecommunication Services (2.05%) and Utilities (2.78%). (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.) S&P and MSCI, Inc. have announced that the Global Industry Classification Sector structure is expected to be updated after the close of business on September 28, 2018. Among other things, the update is expected to broaden the current Telecommunications Services sector and rename it the Communication Services sector. The renamed sector is expected to include the existing telecommunication companies, as well as companies selected from the Consumer Discretionary sector currently classified under the Media Industry group and the Internet & Direct Marketing Retail sub-industry, along with select companies currently classified in the Information Technology sector. Further, companies that operate online marketplaces for consumer products and services are expected to be included under the Internet & Direct Marketing sub-industry of the Consumer Discretionary sector, regardless of whether they hold inventory.
The above information supplements the description of the underlier 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 corporation actions or other activity relating to a particular stock. For more details about the underlier, the underlier sponsor and license agreement between the underlier sponsor and the issuer, see “The Underliers - S&P 500
®
Index
” on page S-40 of the accompanying general terms supplement no. 1,734.
The S&P 500
®
Index is a product of S&P Dow Jones Indices LLC, and has been licensed for use by GS Finance Corp. (“Goldman”). Standard & Poor’s
®
and S&P
®
are registered trademarks of Standard & Poor’s Financial Services LLC; Dow Jones
®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and these trademarks have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by Goldman. Goldman’s notes are not sponsored, endorsed, sold or
promoted by S&P Dow Jones Indices LLC, Dow Jones, Standard & Poor’s Financial Services LLC or any of their respective affiliates and neither S&P Dow Jones Indices LLC, Dow Jones, Standard & Poor’s Financial Services LLC or any of their respective affiliates make any representation regarding the advisability of investing in such 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 50 stocks included in the EURO STOXX 50
®
Index trade in Euros, and are allocated, based on their country of incorporation, primary listing and largest trading volume, to one of the following countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain, which we refer to collectively as the Eurozone. 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: http://www.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 January 8, 2018, by weight, are: Total S.A. (4.92%), Siemens AG (4.17%), SAP SE (3.91%), Banco Santander S.A. (3.73%), Bayer AG (3.62%), Allianz SE (3.60%), BASF SE (3.54%), Sanofi (3.45%), Unilever N.V. (3.01%) and BNP Paribas S.A. (3.01%); constituent weights may be found at stoxx.com/download/indices/factsheets/SX5GT.pdf under “Factsheets and Methodologies” and are updated periodically.
As of January 8, 2018, the sixteen industry sectors which comprise the EURO STOXX 50
®
Index represent the following weights in the index: Automobiles & Parts (5.49%), Banks (15.49%), Chemicals (5.45%), Construction & Materials (4.15%), Food & Beverage (4.70%), Health Care (10.47%), Industrial Goods & Services (10.73%), Insurance (6.95%), Media (0.99%), Oil & Gas (6.42%), Personal & Household Goods (8.84%), Real Estate (0.86%), Retail (2.24%), Technology (7.29%), Telecommunications (4.76%) and Utilities (5.17%); 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 January 8, 2018, the eight countries which comprise the EURO STOXX 50
®
Index represent the following weights in the index: Belgium (2.86%), Finland (0.96%), France (36.59%), Germany (33.44%), Ireland (1.06%), Italy (4.83%), Netherlands (10.12%) and Spain (10.14%); 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 underlier 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 corporation actions or other activity relating to a particular stock. For more details about the underlier , 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 PowerShares QQQ Trust
SM
, Series 1
The shares of the PowerShares QQQ Trust
SM
, Series 1 (the “shares”) are issued by PowerShares QQQ Trust
SM
(the “trust”), a unit investment trust that is a registered investment company.
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The trust is like a tracking ETF in that it seeks investment results which correspond generally to the price and yield performance, before fees and expenses, of the underlying index.
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The index it tracks is the NASDAQ‑100 Index
®
.
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The trust does not have an investment advisor. Its investments are adjusted by the trustee.
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The trustee for the trust is Bank of New York Mellon.
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The trust sponsor is Invesco PowerShares Capital Management, LLC.
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The shares trade on the NASDAQ under the ticker symbol “QQQ”.
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The trust’s SEC CIK Number is 0001067839.
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The inception date for purposes of the shares was March 10, 1999.
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The trust’s shares are issued or redeemed only in creation units of 50,000 shares.
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We obtained the following fee information from the trust’s publicly available information without independent verification. The trustee is entitled to receive a fee for services performed for the trust corresponding to the net asset value of the trust, at an annual rate of 0.01% per annum for the first $499,999,999 of assets, 0.08% per annum for assets of $500,000,000 or more up to $2,499,999,999, 0.06% per annum for assets of $2,500,000,000 or more up to $24,999,999,999, 0.05% per annum for assets of $25,000,000,000 or more up to $49,999,999,999 and 0.04% per annum for assets of $50,000,000,000 or more. In addition, the trust pays a licensing fee to NASDAQ OMX to license the NASDAQ-100 Index
®
for use in connection with the trust shares, which is not to exceed 0.09% of the trust’s net asset value. The trust also pays marketing fees to the trust sponsor in connection with marketing the trust’s shares. The trust sponsor has agreed that it will assume the trust’s annual operating expenses to the extent they exceed 0.20% per annum, although the sponsor can discontinue this agreement at any time. Transaction costs the trust incurs as a result of adjustments to the portfolio are not considered annual operating expenses. As of August 29, 2017, the trust’s total expense ratio is 0.20% per annum.
For additional information regarding the trust, please consult the reports (including the Semi-Annual Report of Registered Investment Companies on Form NSAR-U for the period year ended December 31, 2016) and other information the trust
files with the SEC. Additional information regarding the trust, 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 PowerShares website at invesco.com/portal/site/us/investors/etfs/product-detail?productId=QQQ. 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 trust seeks investment results that, before expenses, correspond generally to the price and yield performance of the NASDAQ-100 Index
®
. The trust strives to achieve its investment objective by holding a portfolio of all of the common stocks that are included in the NASDAQ-100 Index
®
, with the weight of each stock in the trust’s portfolio substantially corresponding to the weight of such stock in the NASDAQ-100 Index
®
. The trust may also generally hold cash or cash items that will not consist of a substantial part of the trust’s net assets. Although the trust may fail to own certain securities included in the NASDAQ-100 Index
®
at any particular time, the trust generally will be substantially invested in NASDAQ-100 Index
®
securities and the trust intends for such investments to result in a close correspondence between the performance of the NASDAQ-100 Index
®
and the performance of the shares of the trust
.
To maintain the correspondence between the composition and weightings of the common stocks that are actually held by the trust and the common stocks that are included in the NASDAQ-100 Index
®
, the trustee adjusts the trust portfolio from time to time to conform to periodic changes made by the NASDAQ-100 Index
®
sponsor to the identity and/or relative weightings of the common stocks that are included in the NASDAQ-100 Index
®
. The trustee aggregates certain of these adjustments and makes changes to the trust’s portfolio at least monthly, or more frequently in the case of significant changes to the
NASDAQ-100 Index
®
. The trustee must adjust the portfolio within three business days if a constituent is added or removed from the NASDAQ-100 Index
®
or the weighting of the stock in the NASDAQ-100 Index
®
and the trust differ by more than 150% of specified misweighting tolerances that decrease as the net asset value of the trust increases. The trustee examines the weighting of the portfolio, and compares the weighting of each stock in the portfolio to its weight in the NASDAQ‑100 Index
®
, on each business day. The trustee is permitted to, and does from time to time, sell portfolio securities in order to pay the trust’s expenses.
Notwithstanding the trust’s investment objective, the return on your notes will not reflect any dividends paid on the shares of the trust, on the securities purchased by the trust or on the securities that comprise the NASDAQ-100 Index
®
.
The following table displays the top ten holdings and the weightings by industry sector of the trust. (Sector designations are determined by the trust sponsor using criteria it has selected or developed. Trust 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 trusts with different sponsors may reflect differences in methodology as well as actual differences in the sector composition of the trusts.) We obtained the information in the tables below from the trust website without independent verification.
Top Ten Holdings of the Trust as of January 10, 2018
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Issuer
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Percentage of Trust (%)
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Apple Inc.
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11.74%
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Microsoft Corp.
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8.89%
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Amazon.com Inc.
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7.93%
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Facebook, Inc.
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5.88%
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Alphabet Inc
.
Class C
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5.05%
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Alphabet Inc. Class A
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4.34%
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Intel Corp.
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2.61%
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Cisco Systems Inc.
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2.59%
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Comcast Corp.
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2.52%
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NVIDIA Corp.
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1.78%
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Weighting by Sector of the Trust as of January 10, 2018*
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Sector
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Percentage of Trust (%)
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Information Technology
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60.93%
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Consumer Discretionary
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21.07%
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Health Care
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10.37%
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Consumer Staples
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4.57%
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Industrials
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2.17%
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Telecommunication Services
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0.89%
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* Percentages may not sum to 100% due to rounding
Holdings With Weights in Excess of 5% of the Trust as of January 10, 2018
Apple Inc., Microsoft Corporation, Amazon.com Inc.
,
Facebook Inc. and Alphabet Inc
.
Class C are registered under the Exchange Act. Companies with stocks registered under the Exchange Act are required to file financial and other information specified by the U.S. Securities and Exchange Commission (“SEC”) periodically. Information filed with the SEC can be inspected and copied at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. In addition, information filed by the applicable stock issuer with the SEC electronically can be reviewed through a web site maintained by the SEC. The address of the SEC’s web site is sec.gov. Information filed with the SEC by the applicable stock issuer under the Exchange Act can be located by referencing its SEC file number specified below.
The graphs below, except where otherwise indicated, show the daily historical closing prices of Apple Inc., Microsoft Corporation, Amazon.com Inc.
,
Facebook Inc. and Alphabet Inc
.
Class C, the holdings of which each comprise more than 5% of the trust, from January 10, 2008 through January 10, 2018. We obtained the prices in the graphs below using data from Bloomberg Financial Services, without independent verification. We have taken the descriptions of the stock issuers set forth below from publicly available information without independent verification.
According to publicly available information, Apple Inc. designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. Information filed with the SEC by Apple Inc. under the Exchange Act can be located by referencing SEC file number 001-36743.
According to publicly available information, Microsoft Corporation develops, licenses and supports software products, services and devices and designs and sells hardware devices. Information filed with the SEC by Microsoft Corporation under the Exchange Act can be located by referencing SEC file number 001-37845.
According
to publicly available information, Amazon.com Inc. is an e-commerce company. Information filed with the SEC by Amazon.com Inc. under the Exchange Act can be located by referencing SEC file number 000-22513.
According to publicly available information, Facebook, Inc. is an online social networking service. Information filed with the SEC by Facebook, Inc. under the Exchange Act can be located by referencing SEC file number 001-35551. The graph below shows the daily historical prices of Facebook, Inc. from the completion of its initial public offering on May 18, 2012 through January 10, 2018.
According to publicly available information, Alphabet Inc. is a holding company for a collection of businesses, the largest of which is Google Inc. On October 2, 2015, Alphabet Inc. became the successor SEC registrant to, and parent holding company of, Google Inc. in connection with a holding company reorganization. Information filed with the SEC by this company under the Exchange Act can be located by referencing its SEC file number 001-37580.
In the graph, the vertical solid line marker reflects the date Alphabet Inc. became the successor SEC registrant to Google Inc. The historical closing prices to the left of the vertical solid line marker reflect the Class C capital stock of Google Inc. and the historical closing prices to the right of the vertical solid line marker reflect the Class C capital stock of Alphabet Inc.
Correlation
Although the trust intends to track the performance of the NASDAQ-100 Index
®
as closely as possible, the trust will not be able to replicate exactly the performance of the index because the total return generated by the stocks held in the trust’s portfolio will be reduced by transaction costs incurred in adjusting the actual balance of the stocks and other trust expenses, whereas such transaction costs and expenses are not included in the calculation of the index. In addition, it is possible that the trust may not always fully replicate the performance of the NASDAQ-100 Index
®
due to unavailability of certain NASDAQ-100 Index
®
securities in the secondary market or due to other extraordinary circumstances (e.g., if trading in a security has been halted).
For the period ended December 31, 2017, the PowerShares website gave the following performance figures for market price of the shares of the trust and the index: trust shares— 1 year on an annualized basis, 32.73%; 3 years on an annualized basis, 15.85%, 5 years on an annualized basis, 20.48%, 10 years on an annualized basis, 12.83%, since inception on an annualized basis, 6.75%; index— 1 year on an annualized basis, 32.99%; 3 years on an annualized basis, 16.12%, 5 years on an annualized basis, 20.68%, 10 years on an annualized basis, 13.05%, since inception on an annualized basis, 6.98%.
Trust Structure and Termination
The trust is organized under New York law. Under an agency agreement with the trust sponsor, the sponsor performs certain functions for the trustee, including evaluation of the securities for purposes of calculating the net asset value and with respect to rebalancing and adjusting the trust’s portfolio. The trust has a finite lifetime and will terminate on the first to occur of March 4, 2124 or 20 years following the death of the last surviving member of a group of 15 named people, the oldest of which was born in 1986 and the youngest of which was born in 1996.
The NASDAQ-100 Index
®
The NASDAQ-100 Index
®
includes 100 of the largest domestic and international non-financial stocks listed on The Nasdaq Stock Market based on market capitalization. The NASDAQ-100 Index
®
is calculated using a modified market capitalization-weighted methodology. The NASDAQ-100 Index
®
is calculated, maintained and published by Nasdaq, Inc. The base date for the NASDAQ-100 Index
®
is January 31, 1985, with a base value of 125.00, as adjusted. The total return version of the NASDAQ-100 Index
®
was synchronized to the value of the price return version of the index at the close on March 4, 1999. We have
derived all information contained in this document regarding the NASDAQ-100 Index
®
from publicly available information. Additional information about the NASDAQ-100 Index
®
is available on the following website: indexes.nasdaqomx.com/Index/Overview/NDX. We are not incorporating by reference the website or any material it includes in this pricing supplement.
As of December 29, 2017, the 106 stocks included in the NASDAQ-100 Index
®
were classified into ten industry sectors (with the approximate percentage currently included in such sectors indicated in parentheses): Oil & Gas (0.00%), Basic Materials (0.00%), Industrials (4.47%), Consumer Goods (4.79%), Health Care (9.94%), Consumer Services (23.10%), Telecommunications (0.92%), Utilities (0.00%), Financials (0.00%) and Technology (56.78%). (Sector designations are determined by the index 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.)
The top ten constituent stocks of the NASDAQ-100 Index
®
as of January 10, 2018, by weight, are: Apple Inc. (11.73%), Microsoft Corporation (8.88%), Amazon.com Inc. (7.93%), Facebook Inc. (5.87%), Alphabet Inc. Class C (5.05%), Alphabet Inc. Class A (4.34%), Intel Corporation (2.61%), Cisco Systems Inc. (2.59%), Comcast Corp A (2.51%) and NVIDIA Corp. (1.78%).
The trust tracks the performance of the total return version of the NASDAQ-100 Index
®
, which reinvests ordinary cash dividends on the ex-date. Notwithstanding the trust’s investment objective, the return on your notes will not reflect any dividends paid on the shares, on the securities purchased by the trust or on the securities that comprise the NASDAQ-100 Index
®
.
Construction of the NASDAQ-100 Index
®
The NASDAQ-100 Index
®
is a modified market capitalization-weighted index. Except under extraordinary circumstances that may result in an interim evaluation, NASDAQ-100 Index
®
composition is reviewed on an annual basis in December. First, Nasdaq, Inc. determines which stocks meet the applicable eligibility criteria.
Selection Criteria for Initial Inclusion in the NASDAQ-100 Index
®
To be eligible for initial inclusion in the NASDAQ-100 Index
®
, a stock must meet the following criteria:
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the issuer of the stock’s primary U.S. listing must be exclusively listed on the NASDAQ Global Select Market or the NASDAQ Global Market (unless the stock was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained such listing);
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the stock must be issued by a non-financial company. Non-financial companies are those companies that are classified under any Industry Code except 8000 according to the Industry Classification Benchmark (ICB), a product of FTSE International Limited;
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the stock may not be issued by an issuer currently in bankruptcy proceedings;
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the stock must have a minimum three-month average daily trading volume (“ADTV”) of 200,000 shares (measured annually during the ranking review process). The ADTV is determined by calculating the average of the sum product of the stock’s daily trading volume for each day during the previous three month period;
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if the issuer of the stock is organized under the laws of a jurisdiction outside the U.S., then such stock must have listed options on a recognized options market in the U.S. or be eligible for listed-options trading on a recognized options market in the U.S. (measured annually during the ranking review process);
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the issuer of the stock may not have entered into a definitive agreement or other arrangement which would likely result in the stock no longer being eligible for inclusion in the NASDAQ-100 Index
®
;
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the issuer of the stock may not have annual financial statements with an audit opinion that is currently withdrawn. This will be determined based upon a stock issuer’s public filings with the SEC; and
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the stock must have “seasoned” on Nasdaq, NYSE or NYSE Amex. Generally, a company is considered to be seasoned if it has been listed on a market for at least three full months (excluding the first month of initial listing).
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Stock types generally eligible for inclusion in the NASDAQ-100 Index
®
are common stocks, ordinary shares, ADRs and tracking stocks. Closed-end funds, convertible debentures, exchange traded funds, limited liability companies, limited partnership interests, preferred stocks, rights, shares or units of beneficial interest, warrants, units and other derivative stocks are not eligible for inclusion in the NASDAQ-100 Index
®
. For purposes of NASDAQ-100 Index
®
eligibility criteria, if the stock is a depositary receipt representing a stock of a non-U.S. issuer, then references to the “issuer” are references to the issuer of the underlying stock. The NASDAQ-100 Index
®
does not contain securities of investment companies.
Continued Eligibility Criteria
To be eligible for continued inclusion in the NASDAQ-100 Index
®
, a NASDAQ-100 Index
®
stock must meet the following criteria:
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the issuer of the stock’s primary U.S. listing must be exclusively listed on the Nasdaq Global Select Market or the Nasdaq Global Market;
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the stock must be issued by a non-financial company;
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the stock may not be issued by an issuer currently in bankruptcy proceedings;
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the stock must have an ADTV of at least 200,000 shares (measured annually during the ranking review process);
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if the issuer of the stock is organized under the laws of a jurisdiction outside the U.S., then such stock must have listed options on a recognized options market in the U.S. or be eligible for listed-options trading on a recognized options market in the U.S.;
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the issuer must have an adjusted market capitalization equal to or exceeding 0.10% of the aggregate adjusted market capitalization of the NASDAQ-100 Index
®
at each month-end. In the event a company does not meet this criterion for two consecutive month-ends, it is removed from the NASDAQ-100 Index
®
effective after the close of trading on the third Friday of the following month; and
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the issuer of the stock may not have annual financial statements with an audit opinion that is currently withdrawn.
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All stocks meeting the above criteria will be considered eligible for inclusion in the NASDAQ-100 Index
®
. Those stocks which are found to meet the applicable eligibility criteria during the annual review are then ranked by market capitalization. While there is no minimum market capitalization requirement, inclusion will be determined based on the top 100 issuers with the largest market capitalization meeting all other eligibility requirements. Market capitalization is determined by multiplying a stock’s last sale price by its total number of shares outstanding. The last sale price refers to the price at which a stock last traded during regular market hours as reported on such stock’s index market, which may be the Nasdaq Official Closing Price (NOCP). The index market is the index eligible stock market for which the NASDAQ-100 Index
®
stock’s prices are received and used by Nasdaq, Inc. for purposes of calculating the NASDAQ-100 Index
®
.
NASDAQ-100 Index
®
eligible stocks which are already in the NASDAQ-100 Index
®
and whose issuer is ranked in the top 100 eligible companies based on market capitalization are retained in the NASDAQ-100 Index
®
. A NASDAQ-100 Index
®
stock issuer ranking 101 to 125 based on market capitalization will also be retained for inclusion in the NASDAQ-100 Index
®
if such issuer was previously ranked in the top 100 issuers as of the last annual ranking review or was added to the NASDAQ-100 Index
®
subsequent to the previous ranking review and continues to meet all eligibility criteria. NASDAQ-100 Index
®
stock issuers not meeting
such criteria are replaced. The replacement stocks are those eligible stocks not currently in the NASDAQ-100 Index
®
whose issuers have the next largest market capitalization.
The data used in the process of ranking by market capitalization includes end of October market data and is updated for total shares outstanding submitted in a NASDAQ-100 Index
®
stock issuer’s publicly filed SEC document via the Electronic Data Gathering, Analysis and Retrieval system (EDGAR) through the end of November. If a stock is a depositary receipt, the total shares outstanding is the actual depositary shares outstanding as reported by the depositary banks.
The final list of constituents included in the NASDAQ-100 Index
®
, including any replacements made during the annual review, is made effective after the close of trading on the third Friday in December. Generally, the list of annual additions and deletions as a result of the annual review is publicly announced by Nasdaq, Inc. via a press release in the early part of December, in conjunction with an announcement on Nasdaq, Inc.’s website.
Calculation of the Total Return of the NASDAQ-100 Index
®
The discussion below describes the “total return” calculation of the NASDAQ-100 Index
®
. As compared to the price return version of the NASDAQ-100 Index
®
, the total return version of the NASDAQ-100 Index
®
reinvests ordinary cash dividends on the ex-date while the price return version is ordinarily calculated without regard to cash dividends on the index stocks. However, all NASDAQ-100 Index
®
calculations reflect extraordinary cash distributions and special dividends.
The NASDAQ-100 Index
®
is a modified market capitalization-weighted index. The total return calculation begins with the price return calculation of the index. The value of the NASDAQ-100 Index
®
equals the NASDAQ-100 Index
®
market value
divided
by the NASDAQ-100 Index
®
divisor. The overall NASDAQ-100 Index
®
market value is the aggregate of each NASDAQ-100 Index
®
stock’s market value, as may be adjusted for any corporate actions. A NASDAQ-100 Index
®
stock’s market value is determined by multiplying the last sale price by its index share weight, also known as “index shares”. Index shares are equal to the total number of shares outstanding for a NASDAQ-100 Index
®
stock. In other words, the value of the NASDAQ-100 Index
®
is equal to (i) the
sum
of the
products
of (a) the index shares of each of the NASDAQ-100 Index
®
stocks
multiplied
by (b) each such stock’s last sale price (adjusted for corporate actions, if any),
divided
by (ii) the divisor of the NASDAQ-100 Index
®
.
The price return NASDAQ-100 Index
®
divisor is calculated as the ratio of (i) the start of day market value of the NASDAQ-100 Index
®
divided
by (ii) the previous day NASDAQ-100 Index
®
value.
Once the price return index has been calculated, the total return index is calculated. First, the index dividend market value is calculated as the aggregate of, for each applicable stock with an ex-dividend date on such day, the
product
of (i) the dividends per share for the stock on such day
times
(ii) the index shares for such stock. Next, an index dividend points value is determined as the
quotient
of (i) the index dividend market value calculated for that day
divided
by (ii) the price return index divisor for such day. Finally, the total return index value is calculated as the
product
of (i) the closing value of the total return index on the previous day
times
(ii) the
quotient
of (a) the
sum
of the price return index value on such day
plus
the index dividend points value for such day
divided
by (b) the closing value of the price return index on the previous day.
If trading in a NASDAQ-100 Index
®
stock is halted on its primary listing market, the most recent last sale price for that stock is used for all NASDAQ-100 Index
®
computations until trading on such market resumes. Similarly, the most recent last sale price is used if trading in a NASDAQ-100 Index
®
stock is halted on its primary listing market before the market opens.
The NASDAQ-100 Index
®
is calculated in U.S. dollars during the U.S. market trading day based on the last sale price and are disseminated once per second from 09:30:01 until 17:16:00 ET. The closing value of the NASDAQ-100 Index
®
may change up until 17:15:00 ET due to corrections to the last sale price of the NASDAQ-100 Index
®
stocks. The official closing value of the NASDAQ-100 Index
®
is ordinarily disseminated at 17:16:00 ET.
NASDAQ-100 Index
®
Maintenance
Changes to NASDAQ-100 Index
®
Constituents
Changes to the NASDAQ-100 Index
®
constituents may be made during the annual ranking review. In addition, if at any time during the year other than the annual review, it is determined that a NASDAQ-100 Index
®
stock issuer no longer meets the criteria for continued inclusion in the NASDAQ-100 Index
®
, or is otherwise determined to have become ineligible for continued inclusion in the NASDAQ-100 Index
®
, it is replaced with the largest market capitalization issuer not currently in the NASDAQ-100 Index
®
that meets the applicable eligibility criteria for initial inclusion in the NASDAQ-100 Index
®
.
Ordinarily, a stock will be removed from the NASDAQ-100 Index
®
at its last sale price. However, if at the time of its removal the NASDAQ-100 Index
®
stock is halted from trading on its primary listing market and an official closing price cannot readily be determined, the NASDAQ-100 Index
®
stock may, in Nasdaq, Inc.s discretion, be removed at a price of $0.00000001 (“zero price”). This zero price will be applied to the NASDAQ-100 Index
®
stock after the close of the market but prior to the time the official closing value of the NASDAQ-100 Index
®
is disseminated.
Divisor Adjustments
The divisor is adjusted to ensure that changes in NASDAQ-100 Index
®
constituents either by corporate actions (that adjust either the price or shares of a NASDAQ-100 Index
®
stock) or NASDAQ-100 Index
®
participation outside of trading hours do not affect the value of the NASDAQ-100 Index
®
. All divisor changes occur after the close of the applicable index stock markets.
Quarterly NASDAQ-100 Index
®
Rebalancing
On a quarterly basis coinciding with the quarterly scheduled index shares adjustment procedures, as discussed below, the NASDAQ-100 Index
®
will be rebalanced if it is determined that (1) the current weight of the single NASDAQ-100 Index
®
stock with the largest market capitalization is greater than 24.0% of the NASDAQ-100 Index
®
or
(2) the collective weight of those stocks whose individual current weights are in excess of 4.5% exceeds 48.0% of the NASDAQ-100 Index
®
. In addition, a “special rebalancing” of the NASDAQ-100 Index
®
may be conducted at any time if Nasdaq, Inc. determines it necessary to maintain the integrity and continuity of the NASDAQ-100 Index
®
. If either one or both of the above weight distribution conditions are met upon quarterly review, or Nasdaq, Inc. determines that a special rebalancing is necessary, a weight rebalancing will be performed.
If the first weight distribution condition is met and the current weight of the single NASDAQ-100 Index
®
stock with the largest market capitalization is greater than 24.0%, then the weights of all stocks with current weights greater than 1.0% (“large stocks”) will be scaled down proportionately toward 1.0% until the adjusted weight of the single largest NASDAQ-100 Index
®
stock reaches 20.0%.
If the second weight distribution condition is met and the collective weight of those stocks whose individual current weights are in excess of 4.5% (or adjusted weights in accordance with the previous step, if applicable) exceeds 48.0% of the NASDAQ-100 Index
®
, then the weights of all such large stocks in that group will be scaled down proportionately toward 1.0% until their collective weight, so adjusted, is equal to 40.0%.
The aggregate weight reduction among the large stocks resulting from either or both of the rebalancing steps above will then be redistributed to those stocks with weightings of less than 1.0% (“small stocks”) in the following manner. In the first iteration, the weight of the largest small stock will be scaled upwards by a factor which sets it equal to the average NASDAQ-100 Index
®
weight of 1.0%. The weights of each of the smaller remaining small stocks will be scaled up by the same factor reduced in relation to each stock’s relative ranking among the small stocks such that the smaller the NASDAQ-100 Index
®
stock in the ranking, the less its weight will be scaled upward. This is intended to reduce the market impact of the weight rebalancing on the smallest component stocks in the NASDAQ-100 Index
®
.
In the second iteration of the small stock rebalancing, the weight of the second largest small stock, already adjusted in the first iteration, will be scaled upwards by a factor which sets it equal to the average NASDAQ-100 Index
®
weight of 1.0%. The weights of each of the smaller remaining small stocks will be scaled up by this same factor reduced in relation to each stock’s relative ranking among the small stocks
such that, once again, the smaller the stock in the ranking, the less its weight will be scaled upward. Additional iterations will be performed until the accumulated increase in weight among the small stocks equals the aggregate weight reduction among the large stocks that resulted from the rebalancing in accordance with the two weight distribution conditions discussed above.
Finally, to complete the rebalancing process, once the final weighting percentages for each NASDAQ-100 Index
®
stock have been set, the index share weights (or index shares) will be determined anew based upon the last sale prices and aggregate capitalization of the NASDAQ-100 Index
®
at the close of trading on the last day in February, May, August and November. Changes to the index shares will be made effective after the close of trading on the third Friday in March, June, September and December, and an adjustment to the divisor is made to ensure continuity of the NASDAQ-100 Index
®
. Ordinarily, new rebalanced index share weights will be determined by applying the above procedures to the current index share weights. However, Nasdaq, Inc. may, from time to time, determine rebalanced weights, if necessary, by applying the above procedure to the actual current market capitalization of the NASDAQ-100 Index
®
components. In such instances, Nasdaq, Inc. would announce the different basis for rebalancing prior to its implementation.
During the quarterly rebalancing, data is cutoff as of the previous month end and no changes are made to the NASDAQ-100 Index
®
from that cutoff until the quarterly index share change effective date, except in the case of changes due to corporate actions with an ex-date.
Corporate Actions and NASDAQ-100 Index
®
Adjustments
Aside from changes resulting from quarterly rebalancing, intra-quarter changes in index shares driven by corporate events can also result from a change in a NASDAQ-100 Index
®
stock’s total shares outstanding that is greater than 10.0%. If a stock is a depositary receipt, the total shares outstanding is the actual depositary shares outstanding as reported by the depositary banks. Changes in the price and/or index shares driven by corporate events such as stock dividends, stock splits and certain spin-offs and rights issuances are adjusted on the ex-date. Changes in total shares outstanding are determined by a NASDAQ-100 Index
®
stock issuer’s public filings with the SEC. If the change in total shares outstanding arising from other corporate actions is greater than or equal to 10.0%, the change is made as soon as practicable. Otherwise, if the change in total shares outstanding is less than 10.0%, then all such changes are accumulated and made effective at one time on a quarterly basis after the close of trading on the third Friday in each of March, June, September and December. The index shares are derived from the stock’s total shares outstanding. The index shares are then adjusted by the same percentage amount by which the total shares outstanding have changed.
The following corporate actions will be made effective on the ex-date. If there is no ex-date announced by the index exchange, there will be no adjustment to the NASDAQ-100 Index
®
as a result of a corporate action.
Stock Split and Stock Dividend
. A stock split and stock dividend is the action of a NASDAQ-100 Index
®
stock in increasing its index shares and decreasing the par value proportionately. There is no flow of capital into or out of the company. The number of index shares in the NASDAQ-100 Index
®
increases but the market capitalization of the stock remains unchanged. The price of the NASDAQ-100 Index
®
stock is adjusted to reflect the ratio of a stock split and stock dividend and a corresponding inverse adjustment to the index shares is made.
Reverse Stock Split
. A reverse stock split is the action of a NASDAQ-100 Index
®
stock in decreasing its index shares and decreasing the par value in proportion. There is no flow of capital into or out of the company. The number of index shares in the NASDAQ-100 Index
®
decreases but the market capitalization of the stock remains unchanged. The price of the NASDAQ-100 Index
®
stock is adjusted to reflect the ratio of the reverse stock split and a corresponding inverse adjustment to the index shares is made.
Special Cash Dividends
. A dividend is considered “special” if the information provided by the listing exchange in their announcement of the ex-date indicates that the dividend is special. Other nomenclature for a special dividend may include, but is not limited to, “extra”, “extraordinary”, “non-recurring”, “one-time” and “unusual”. The price of the NASDAQ-100 Index
®
stock in the NASDAQ-100 Index
®
is adjusted for the amount of the special cash dividend.
Cash and Stock Dividends
. If a NASDAQ-100 Index
®
stock is paying a cash and stock dividend on the same date, the cash dividend is applied
before
the stock dividend unless otherwise indicated in the information provided by the index exchange. Additionally, in the case of an optional dividend which allows the holder to choose between receiving cash or stock, the adjustment will be made in the manner in which the dividend has been announced by the index exchange. As described above, ordinary cash dividends are reinvested in the index on the ex-date.
Stock Distribution of Another Stock
. If a NASDAQ-100 Index
®
stock is distributing shares of a different stock, the value of the NASDAQ-100 Index
®
stock will be adjusted downward to reflect the ratio of the distribution. There is no adjustment to index shares. If the stock being distributed is another class of common shares of the same issuer, the value of the existing NASDAQ-100 Index
®
stock will be adjusted downward to reflect the ratio of the distribution with no adjustment to index shares, and the new class of shares may be added to the NASDAQ-100 Index
®
on a pro-rata basis.
Spin-offs
. If a NASDAQ-100 Index
®
stock is spinning off a stock, the value of the NASDAQ-100 Index
®
stock will be adjusted downward to reflect the ratio of the distribution. There is no adjustment to index shares. If a when-issued market is established for the spin-off company, the price of the NASDAQ-100 Index
®
stock is adjusted downward by the value of the spinoff. The value of the spin-off is determined by multiplying the spin-off ratio by the when-issued price. In the event the value of the spinoff has not been established as indicated above then no price adjustment is made to the NASDAQ-100 Index
®
stock. The new stock resulting from the spin-off transaction is not added to the NASDAQ-100 Index
®
.
Rights Offerings
. The price of a NASDAQ-100 Index
®
stock is adjusted on the ex-date for rights offerings if the rights are transferable and the offering has a subscription price on an equivalent per share basis that is less than the closing price of the underlying stock (the NASDAQ-100 Index
®
stock the right entitles a holder to purchase) on the day prior to the ex-date. The price of the NASDAQ-100 Index
®
stock is adjusted downward for the value of the right. The value of the right is equal to (1) (i) the previous last sale price of the underlying stock
minus
(ii) the
sum
of (a) the subscription price of the right
plus
(b) the cash dividend of the underlying stock, if any,
divided
by (2) the number of rights required to purchase one share
plus
one.
Corporate actions are implemented in the NASDAQ-100 Index
®
in accordance with the NASDAQ-100 Index
®
maintenance rules discussed above. The divisor will also be adjusted as a result of corporate actions that adjust either the price or shares of a NASDAQ-100 Index
®
stock. Nasdaq, Inc. will make announcements prior to the effective date of any corporate actions.
In the case of mergers and acquisitions, the NASDAQ-100 Index
®
stock issuer may be removed the day following the shareholder vote or the expected expiration of the tender offer, provided the acquisition is not contested. In the event the acquisition is contested, the removal of the NASDAQ-100 Index
®
stock will occur as soon as reasonably practicable, once results have been received indicating that the acquisition will likely be successful.
If a company files for bankruptcy, the NASDAQ-100 Index
®
stock or stocks of the issuer will be removed from the NASDAQ-100 Index
®
as soon as practicable thereafter. The value of the NASDAQ-100 Index
®
stock will be considered $0.00000001 if no other applicable price can be observed on the Nasdaq Global Select Market or the Nasdaq Global Market.
Discretionary Adjustments
In addition to the above, Nasdaq, Inc. may, from time to time, exercise reasonable discretion as it deems appropriate in order to ensure NASDAQ-100 Index
®
integrity, including, but not limited to, changes to quantitative inclusion criteria. Nasdaq, Inc. may also, due to special circumstances, if deemed essential, apply discretionary adjustments to ensure and maintain the quality of the NASDAQ-100 Index
®
construction and calculation.
Market Disruption Events
If a NASDAQ-100 Index
®
stock does not trade on its primary listing market on a given day or such index market has not opened for trading, the most recent last sale price from the index market (adjusted for corporate actions, if any) is used. If a NASDAQ-100 Index
®
stock is halted from trading on its index market during the trading day, the most recent last sale price is used until trading resumes.
Corrections and Calculations
The closing value of the NASDAQ-100 Index
®
may change up until 17:15:00 ET due to corrections to the last sale price of the NASDAQ-100 Index
®
stocks. In the event that a change has been made to the NASDAQ-100 Index
®
intraday, Nasdaq, Inc. will make an announcement describing such change. In the event a NASDAQ-100 Index
®
calculation has been corrected retroactively, an announcement will be provided.
License Agreement between Nasdaq, Inc. and GS Finance Corp.
The Product(s) is not sponsored, endorsed, sold or promoted by NASDAQ, Inc. or its affiliates (NASDAQ, with its affiliates, are referred to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Product(s). The Corporations make no representation or warranty, express or implied to the owners of the Product(s) or any member of the public regarding the advisability of investing in securities generally or in the Product(s) particularly, or the ability of the NASDAQ-100
®
Index to track general stock market performance. The Corporations’ only relationship to GS Finance Corp. (“Licensee”) is in the licensing of the Nasdaq
®
, NASDAQ-100 Index
®
, and certain trade names of the Corporations and the use of the NASDAQ-100 Index
®
which is determined, composed and calculated by NASDAQ without regard to Licensee or the Product(s). NASDAQ has no obligation to take the needs of the Licensee or the owners of the Product(s) into consideration in determining, composing or calculating the NASDAQ-100 Index
®
.
The Corporations are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the Product(s) to be issued or in the determination or calculation of the equation by which the Product(s) is to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the Product(s).
The Corporations do not guarantee the accuracy and/or uninterrupted calculation of Nasdaq-100 Index
®
or any data included therein. The Corporations make no warranty, express or implied, as to results to be obtained by Licensee, owners of the product(s), or any other person or entity from the use of the Nasdaq-100 Index
®
or any data included therein. The Corporations make no express or implied warranties, and expressly disclaim all warranties of merchantability or fitness for a particular purpose or use with respect to the Nasdaq-100 Index
®
or any data included therein. Without limiting any of the foregoing, in no event shall the Corporations have any liability for any lost profits or special, incidental, punitive, indirect, or consequential damages, even if notified of the possibility of such damages.
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 either underlier during the period shown below is not an indication that such underlier is more or less likely to increase or decrease at any time during the life of your notes.
You should not take the historical closing levels of an underlier as an indication of the future performance of an underlier.
We cannot give you any assurance that the future performance of any underlier or the underlier stocks will result in you receiving the outstanding face amount of your notes on the stated maturity date.
Neither we nor any of our affiliates make any representation to you as to the performance of the underliers. Before investing in the 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. 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 index from January 10, 2008 through January 10, 2018. We obtained the levels in the graphs below from Bloomberg Financial Services, without independent verification.