Rule 424(b)(3)
File No. 33-99948
PRICING SUPPLEMENT NO. 1
dated
August 5, 1996
to the
Prospectus
dated
December 28, 1995
and
Prospectus Supplement
dated
January 3, 1996
----------------------
$73,000,000
GS FINANCIAL PRODUCTS U.S., L.P.
MEDIUM-TERM NOTES, SERIES B
S&P ENHANCED STOCK INDEX GROWTH NOTES DUE AUGUST 9, 2002
----------------
This Pricing Supplement, Prospectus and Prospectus Supplement are to be
used by Goldman, Sachs & Co. in connection with offers and sales of the Issuer's
S&P Enhanced Stock Index Growth Notes due August 9, 2002 (the "Notes"), related
to market-making transactions in the Notes, on one or more exchanges or in the
over-the-counter market or otherwise, at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The Issuer will not receive any proceeds from such transactions.
Goldman, Sachs & Co. may act as principal or as agent in such transactions.
GOLDMAN, SACHS & CO.
---------------
<PAGE>
SEE "CERTAIN FACTORS" IN THIS PRICING SUPPLEMENT AND IN THE
ACCOMPANYING PROSPECTUS, DATED DECEMBER 28, 1995 (THE "PROSPECTUS"), FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS
IN THE E-SIGNS, INCLUDING THAT THE PAYMENT AT THE MATURITY OF THE E-SIGNS WILL
DEPEND UPON FLUCTUATIONS IN THE VALUE OF THE S&P 500 COMPOSITE STOCK PRICE
INDEX* (the "Index" or the "S&P 500 Index") (but in no event will be less than
the Principal Amount of the Notes) and that no periodic payments of interest
will be made on the E-SIGNS.
THE FOLLOWING SUMMARY OF CERTAIN TERMS OF THE E-SIGNS IS SUBJECT TO THE
MORE DETAILED TERMS OF THE E-SIGNS INCLUDED ELSEWHERE IN THIS PRICING
SUPPLEMENT.
Medium-Term Notes,
Series B, Offered: S&P 500 Enhanced Stock Index Growth Notes due
August 9, 2002 (the "E-SIGNS")
Principal Amount: $73,000,000
Denominations: $25 and any integral multiple in excess of $25.
Specified Currency: U.S. Dollars
Stated Maturity Date: August 9, 2002
Participation Factor
(%): 113%
Issue Date: August 9, 1996
Calculation Agent: Goldman, Sachs & Co. Goldman, Sachs & Co. is an
affiliate of the Issuer, and will have no liability
to the Issuer or any holder of the E-SIGNS for any
action taken or omitted to be taken by it as
Calculation Agent in good faith. See "Certain
Factors--Certain Relationships and Related
Transactions" for a discussion of certain conflicts
of interest that may arise with respect to Goldman,
Sachs & Co.'s responsibilities as Calculation Agent.
- --------
* "Standard & Poor'sR", "S&PR", "S&P 500R", "Standard & Poor's 500", and
"500" are trademarks of Standard & Poor's Corporation and have been
licensed for use by Goldman, Sachs & Co. and its affiliates (including
the Issuer).
<PAGE>
Form of Note: Global Note.
Interest Payments: No periodic payments of interest will be made with
respect to the E-SIGNS.
Redemption Amount: The amount of any E-SIGN payable on the Stated
Maturity Date will be calculated by the Calculation
Agent and will be determined by the following formula:
[( ) ]
Principal Amount {1 + 113% x [( Final Index Value )-1]}
[( -------------------) ]
[( Initial Index Value) ]
;provided, however, that in no event will such amount
be less than 100% of the Principal Amount of such
E-SIGN or be greater than the product of the Maximum
Return and the Principal Amount of such E-SIGN;
provided further, however, that if the Closing Index
Value on any Business Day prior to the Valuation Period
is greater than or equal to the Threshold Value, then
the Redemption Amount will equal the product of the
Maximum Return and the Principal Amount of such E-SIGN.
"Business Day" means any day on which the New York
Stock Exchange, Inc. (the "NYSE") is open for business.
"Calculation Date" means the fifth Business Day prior
to the Stated Maturity Date.
"Closing Index Value" means the closing value of the
Index (such value as calculated by Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. ("S&P")) at
the close of business on any Business Day.
"Final Index Value" means the unweighted arithmetic
average of the closing values of the Index (such values
as calculated by S&P) at the close of business on the
five Business Days immediately preceding and including
the Calculation Date.
"Initial Index Value" means 660.23.
<PAGE>
"Maximum Return" means 213%.
"Threshold Value" means (200% x Initial Index Value).
"Valuation Period" means the five Business Days
immediately preceding and including the Calculation
Date.
Events of Default and
Acceleration: The amount payable upon an acceleration of the E-SIGNS
prior to the Calculation Date is described under
"Description of E-SIGNS--Events of Default and
Acceleration".
Redemption: The E-SIGNS to which this Pricing Supplement relates
are redeemable, at the option of the Issuer, as
provided under the first paragraph of "Description of
Notes--Redemption" in the Prospectus as supplemented
and superseded by the following sentence. Upon any
such redemption, the E-SIGNS will be redeemable as a
whole and not in part and the amount payable upon any
such redemption will be the greater of (i) 105% of the
average of the Closing Values (as defined under
"Description of E-SIGNS--Redemption of E-SIGNS") of
the E-SIGNS on the 10 trading days immediately
preceding the date of the mailing of the notice of
redemption or (ii) 100% of the Principal Amount of the
E-SIGNS to be redeemed.
Defeasance: The provisions described in the Prospectus under
"Description of Notes--Defeasance and Covenant
Defeasance" do not apply to the E-SIGNS.
Listing: The E-SIGNS are listed on the NYSE. The NYSE
symbol for the E-SIGNS is "GSA".
<PAGE>
Use of Proceeds: The net proceeds from the original issuance of the
Notes were added to the Issuer's working capital to
support its Derivative Transactions activities. A
portion of the net proceeds from the sale of the
E-SIGNS may be used by the Issuer or one or more of
its affiliates in connection with hedging the
obligations represented by the E-SIGNS.
See "Use of Proceeds" in the accompanying Prospectus.
<PAGE>
THE E-SIGNS OFFERED HEREBY ARE NOT AN APPROPRIATE INVESTMENT
FOR INVESTORS WHO ARE NOT SOPHISTICATED WITH RESPECT TO EQUITY
INDICES, OPTIONS AND OPTION TRANSACTIONS
CERTAIN FACTORS
PRIOR TO MAKING AN INVESTMENT DECISION WITH RESPECT TO THE E-SIGNS,
POTENTIAL INVESTORS ARE URGED TO CONSIDER THOSE FACTORS PRESENTED BELOW AND IN
THE PROSPECTUS UNDER "CERTAIN FACTORS" AND "RISKS RELATING TO INDEXED
SECURITIES".
PAYMENT AT MATURITY
REDEMPTION AMOUNT OF E-SIGNS
If the Final Index Value is equal to or less than the Initial Index
Value (unless the Closing Index Value exceeded the Threshold Value prior to the
Valuation Period), the holders of the E-SIGNS will be entitled to receive only
the Principal Amount of the E-SIGNS at the Stated Maturity Date. This will be
true even though the value of the Index as of some interim date or dates prior
to the Calculation Date may have exceeded the Initial Index Value because the
Redemption Amount payable on the E-SIGNS is calculated based on only the Final
Index Value. However, if the Closing Index Value on any Business Day prior to
the Valuation Period exceeds the Threshold Value, the Redemption Amount of the
E-SIGNS will be fixed at the product of the Maximum Return and the Principal
Amount of the E-SIGNS regardless of the subsequent performance of the Index.
CAPPED REDEMPTION AMOUNT
Because the maximum Redemption Amount of the E-SIGNS is capped at the
product of the Maximum Return and the Principal Amount of the E-SIGNS, the yield
to maturity on the E-SIGNS may be lower than the yield provided by investing
directly in the stocks underlying the Index over an identical period of time,
particularly in the event that the Final Index Value exceeds the Threshold
Value. This maximum Redemption Amount is $53.25.
TIME VALUE OF MONEY
No interest payments will be made on the E-SIGNS. The minimum
Redemption Amount to be received by holders of the E-SIGNS at the Stated
Maturity Date does not reflect any opportunity cost implied by inflation and
other factors relating to the time value of money.
<PAGE>
REDEMPTION AMOUNT OF THE E-SIGNS DOES NOT REFLECT DIVIDENDS PAID ON THE INDEX
The Redemption Amount is calculated based only on the price
appreciation, if any, of the Index. Because the Redemption Amount calculation
does not account for the payment of dividends on the individual stocks
comprising the Index, the yield to maturity of the E-SIGNS may produce a lower
yield than if such stocks underlying the Index were purchased and held for a
similar period.
TRADING
The E-SIGNS are listed on the NYSE. The NYSE symbol for the E-SIGNS is
GSA. It is expected that the secondary market for the E-SIGNS will be affected
by the creditworthiness of the Issuer and by a number of other factors.
The trading values of the E-SIGNS may be affected by a number of
interrelated factors, including, but not limited to, those listed below. The
relationship among these factors is complex. Accordingly, investors should be
aware that factors other than the level of the Index are likely to affect their
trading value. The likely effect on the trading value of the E-SIGNS of each of
the factors listed below, assuming in each case that all other factors are held
constant, is as follows:
PRICE APPRECIATION OF INDEX
The trading value of the E-SIGNS is expected to depend primarily on the
extent of the appreciation, if any, of the Index over the Initial Index Value.
If, however, E-SIGNS are sold prior to the Stated Maturity Date at a time when
the Index exceeds the Initial Index Value, the sale price may be at a discount
from the amount expected to be payable to the holder if such excess of the Index
over the Initial Index Value were to prevail until the Stated Maturity Date of
the E-SIGNS because of the possible fluctuation of the Index between the time of
such sale and the Stated Maturity Date. The Index has on occasion been highly
volatile. (See "The Standard & Poor's 500 Composite Stock Price
Index--Historical Data on the S&P 500 Index".) Furthermore, the price at which a
holder will be able to sell E-SIGNS prior to the Stated Maturity Date may be at
a discount, which could be substantial, from the Principal Amount thereof if, at
such time, the Index is below, equal to or not sufficiently above the Initial
Index Value. A discount could also result from rising interest rates in the U.S.
REDEMPTION AMOUNT CAP
The trading performance of the E-SIGNS will be influenced by the
maximum Redemption Amount of the E-SIGNS, which is capped at the product of the
Maximum Return and the Principal Amount of the E-SIGNS. The value of the E-SIGNS
should never exceed this cap. In the event the Closing Index Value on any
Business Day prior to the Valuation Period
<PAGE>
exceeds the Threshold Amount, the Redemption Amount will be fixed at the product
of the Maximum Return and the Principal Amount of the E-SIGNS, and at that time
the E-SIGNS will be the economic equivalent of a zero coupon bond. As such, the
price at which a holder will be able to sell the E-SIGNS prior to the Stated
Maturity Date would likely be at a discount, which could be substantial, from
that fixed Redemption Amount to reflect the time value of money.
VOLATILITY OF THE INDEX
If the volatility of the Index increases, the trading value of the
E-SIGNS would likely increase. If the volatility of the Index decreases, the
trading value of the E-SIGNS would likely decrease.
U.S. DOLLAR INTEREST RATES
If U.S. interest rates increase, the value of the E-SIGNS would likely
decrease. If U.S. interest rates decrease, the value of the E-SIGNS would likely
increase. Interest rates may also affect the U.S. economy, and, in turn, the
value of the Index.
DIVIDEND RATES IN THE U.S.
If dividend rates on the stocks comprising the Index increase, the
value of the E-SIGNS would likely decrease. If dividend rates on the stocks
comprising the Index decrease, the value of the E-SIGNS would likely increase.
General U.S. corporate dividend rates may also affect the Index, and, in turn,
the value of the E-SIGNS.
TIME REMAINING TO MATURITY
The E-SIGNS may trade at a value above that which may be inferred from
the level of interest rates and the Index. The difference would reflect a "time
premium" due to expectations concerning the value of the Index during the period
prior to the Calculation Date. As the time remaining to the Calculation Date
decreases, however, this time premium will likely decrease, thus decreasing the
trading value of the E-SIGNS.
UNCERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The United States federal income tax treatment of the E-SIGNS is
uncertain. See "Certain United States Federal Income Tax Considerations" in this
Pricing Supplement. Investors should consult their own tax advisors as to the
consequences, in their particular circumstances, of ownership of the E-SIGNS.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under certain circumstances, conflicts of interest may arise with
respect to Goldman, Sachs & Co.'s responsibilities as Calculation Agent.
Goldman, Sachs & Co., an affiliate of the Issuer, in its capacity as Calculation
Agent, has been granted certain discretionary powers to determine the value of
the Index in the event of a Market Disruption Event or in the event that the
Index Sponsor ceases to publish the Index or in the event of certain material
changes in the Index. As such, the decisions of the Calculation Agent may
influence the Redemption Amount of the E-SIGNS, but in no event will the
Redemption Amount be less than 100% of the Principal Amount of the E-SIGNS.
Goldman, Sachs & Co., in its capacity as Calculation Agent, is under no
obligation to take the interests of the holders of the E-SIGNS into
consideration in the event it determines the Final Index Value.
Goldman, Sachs & Co., as Calculation Agent, is also responsible for
calculating the amounts payable upon a redemption of the E-SIGNS as described
under "Description of E-SIGNS--Redemption". The discretion exercised by Goldman,
Sachs & Co. in determining the amount payable upon such a redemption may
adversely affect the amount payable to holders upon a redemption of the E-SIGNS.
Goldman, Sachs & Co. will have no liability to the Issuer or any holder
of E-SIGNS for any action taken or omitted to be taken by it as Calculation
Agent in good faith.
Goldman Sachs Capital Markets, L.P., an affiliate of Goldman, Sachs &
Co. and the Issuer, has provided a hedge to the Issuer against its exposure to
price movements in the Index. Goldman, Sachs & Co. and its affiliates may from
time to time engage in transactions involving the underlying stocks of, and
options and futures on, the Index for their proprietary accounts and for other
accounts under their management, which may influence the value of such
underlying stocks and therefore the value of the E-SIGNS.
DESCRIPTION OF E-SIGNS
SEE "CERTAIN FACTORS" IN THIS PRICING SUPPLEMENT AND "CERTAIN FACTORS"
AND "RISKS RELATING TO INDEXED SECURITIES" IN THE PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE
E-SIGNS.
The following description of E-SIGNS offered hereby supplements and, to
the extent inconsistent therewith, supersedes the general terms and provisions
of the Notes set forth in the accompanying Prospectus, dated December 28, 1995
(the "Prospectus"), and the Prospectus Supplement, dated January 3, 1996 (the
"Prospectus Supplement"). For purposes of the general description of Notes set
forth in the Prospectus and the Prospectus Supplement, the
<PAGE>
E-SIGNS offered hereby constitute "Indexed Notes". All capitalized and undefined
terms used herein have the meanings assigned to them in the Prospectus or the
Prospectus Supplement.
GENERAL
The S&P 500 Enhanced Stock Index Growth Notes due August 9, 2002 (the
"E-SIGNS") were offered at an initial public offering price of $25 per E-SIGN,
for persons purchasing less than 200,000 E-SIGNS, and $24.625 per E-SIGN, for
persons purchasing an aggregate of 200,000 or more E-SIGNS (representing a face
minimum aggregate amount of at least $5,000,000), will provide for no periodic
payments of interest and will mature on August 9, 2002 (the "Stated Maturity
Date"). The Redemption Amount (as defined below under "--Redemption Amount")
payable on the Stated Maturity Date will be determined by reference to the S&P
500 Composite Stock Price Index (the "Index" or the "S&P 500 Index").
The E-SIGNS will be issued in the form of one or more Global Notes as
described under "Description of Notes--Book-Entry Notes" in the Prospectus
Supplement.
Settlement for the E-SIGNS will be made in immediately available funds.
The E-SIGNS will trade in the Depositary's Same Day Funds Settlement System and
secondary market trading activity for the E-SIGNS will settle in immediately
available funds.
The E-SIGNS will be redeemable, at the option of the Issuer, as
described below under "--Redemption of E-SIGNS". The E-SIGNS are not repayable
at the option of the holder thereof and are not entitled to the benefits of a
sinking fund.
Solely for purposes of determining whether holders of the aggregate
principal amount of E-SIGNS required for any consent, waiver, authorization or
other action to be taken by holders of E-SIGNS pursuant to the E-SIGNS and the
Indenture have taken such action, the principal amount of the E-SIGNS offered
hereby will equal, with respect to any such determination prior to the
Calculation Date, the Principal Amount of the E-SIGNS and, with respect to any
such determination on or after the Calculation Date, the Redemption Amount.
The Specified Currency for the E-SIGNS is U.S. dollars.
Goldman, Sachs & Co. will act as Calculation Agent with respect to the
E-SIGNS. See "Certain Factors--Certain Relationships and Related Transactions"
in this Pricing Supplement.
<PAGE>
REDEMPTION AMOUNT
The amount payable on an E-SIGN on the Stated Maturity Date (the
"Redemption Amount") will be calculated by the Calculation Agent on the
Calculation Date and will be determined in accordance with the following
formula:
[( ) ]
Principal Amount {1 + 113% x [( Final Index Value ) -1]}
[( ----------------- ) ]
[( Initial Index Value) ]
; provided, however, that in no event will the Redemption Amount of any E-SIGN
be less than 100% of its Principal Amount or be greater than the product of the
Maximum Return and the Principal Amount of such E-SIGN; provided further,
however, that if the Closing Index Value on any Business Day prior to the
Valuation Period is greater than or equal to the Threshold Value, then the
Redemption Amount shall be equal to the product of the Maximum Return and the
Principal Amount of such E-SIGN (the "Capped Redemption Amount").
"Calculation Date" means the fifth Business Day prior to the Stated
Maturity Date.
"Closing Index Value" means the closing value of the Index (such value
as calculated by the Index Sponsor) at the close of business on any
Business Day.
"Final Index Value" means the unweighted arithmetic average of the
closing values of the Index (such values as calculated by the Index
Sponsor) at the close of business on the five Business Days immediately
preceding and including the Calculation Date (the "Valuation Period").
"Business Day" means any day on which the NYSE is open for business.
"Index Sponsor" or "S&P" means Standard & Poor's, a division of the
McGraw-Hill Companies, Inc.
"Initial Index Value" means 660.23.
"Maximum Return" means 213%.
"Threshold Value" means (200% x Initial Index Value).
The Final Index Value of the Index shall be determined by Goldman,
Sachs & Co. (the "Calculation Agent"), by the following method: (i) the
Calculation Agent shall add the closing values of the Index as calculated by S&P
on and for the five Business Days during the Valuation Period and then divide
such sum by five; or (ii) if S&P discontinues publication of
<PAGE>
the Index and S&P or another entity publishes a successor or substitute index
that the Calculation Agent determines, in its sole discretion, to be comparable
to the Index (any such index being referred to hereinafter as a "Successor
Index"), then, upon the Calculation Agent's notification of such determination
to the Issuer, the Calculation Agent shall add the closing values of the
Successor Index as calculated by S&P or such other entity for the Valuation
Period and shall divide such sum by the applicable number of Business Days.
Notwithstanding the foregoing, if the Calculation Agent determines on
any day during the Valuation Period that a Market Disruption Event (as
hereinafter defined) has occurred, then the Redemption Amount shall be
calculated by omitting the Closing Index Value of the Index for such day and
dividing the sum of the remaining Closing Index Values during the Valuation
Period by the remaining number of Business Days during the Valuation Period;
provided, however, that if there are no Business Days during the Valuation
Period on which there is not a Market Disruption Event occuring or continuing
(i) the Valuation Period shall be deemed to be the Calculation Date,
notwithstanding the Market Disruption Event, and (ii) the Calculation Agent
shall determine the Final Index Value as the closing value of the Index on the
Calculation Date in accordance with the method for calculating the Index last in
effect prior to the commencement of the Market Disruption Event using the
closing value (or, if trading in any relevant security has been materially
suspended or materially limited, its good faith estimate of the closing value
that would have prevailed but for that suspension or limitation) on the
Calculation Date of each security comprising the Index.
MARKET DISRUPTION EVENT
Market Disruption Event means the occurrence or existence on any
Business Day of:
(i) a suspension, absence or material limitation of trading of 100 or
more of the securities included in the Index on the primary
market for such securities for more than two hours of trading or
during the one-half hour period preceding the close of trading in
such market; or the suspension, absence or material limitation of
trading on the primary market for trading in futures or options
contracts related to the Index during the one-half hour period
preceding the close of trading in the applicable market, in each
case as determined by the Calculation Agent in its sole
discretion; and
(ii) a determination by the Calculation Agent in its sole discretion
that the event described in clause (i) above materially
interfered with the ability of the Issuer or any of its
affiliates to unwind all or a material portion of the hedge with
respect to the E-SIGNS.
For purposes of determining whether a Market Disruption Event has
occurred: (1) a limitation on the hours or number of days of trading will not
constitute a Market Disruption
<PAGE>
Event if it results from an announced change in the regular business hours of
the relevant exchange or market, (2) a decision to permanently discontinue
trading in the relevant futures or options contract will not constitute a Market
Disruption Event, (3) limitations pursuant to NYSE Rule 80A (or any applicable
rule or regulation enacted or promulgated by the NYSE, any other self-regulatory
organization or the Securities and Exchange Commission of similar scope, as
determined by the Calculation Agent) on trading during significant market
fluctuations shall constitute a Market Disruption Event, (4) a suspension of
trading in a futures or options contract on the Index by the primary securities
market related to such contract by reason of (x) a price change exceeding limits
set by such exchange or market, (y) an imbalance of orders relating to such
contracts or (z) a disparity in bid and ask quotes relating to such contracts
will constitute a suspension or material limitation of trading in futures or
options contracts related to the Index and (5) "a suspension, absence or
material limitation on trading" on the primary market on which futures or
options contracts relating to the Index are traded will not include any time
when such market is itself closed for trading under ordinary circumstances.
All determinations made by the Calculation Agent shall, in the absence
of manifest error, be conclusive for all purposes and binding on the Issuer and
holders of the E-SIGNS.
UNDER CERTAIN CIRCUMSTANCES, THE DUTIES OF GOLDMAN, SACHS & CO. AS
CALCULATION AGENT IN DETERMINING THE EXISTENCE OF MARKET DISRUPTION EVENTS COULD
CONFLICT WITH THE INTERESTS OF GOLDMAN, SACHS & CO. AS AN AFFILIATE OF THE
ISSUER. SEE "CERTAIN FACTORS--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" IN
THIS PRICING SUPPLEMENT.
<PAGE>
HYPOTHETICAL REDEMPTION AMOUNTS
The following table illustrates, for a range of hypothetical Final
Index Values, the Redemption Amount that would be payable on the E-SIGNS and the
pre-tax annualized rate of return, assuming that the E-SIGNS are held to the
Stated Maturity Date, that the Initial Index Value is 660.23 (the Closing Index
Value on August 5, 1996), that the Participation Factor is 113%, that the
Maximum Return is 213% and that at no time prior to the Valuation Period does
the Closing Index Value of the Index exceed the Threshold Value.
<TABLE>
<CAPTION>
VALUE OF
E-SIGN 6 YEAR 6 YEAR
FINAL S&P FINAL S&P 500 VALUE AT MATURITY AS ANNUALIZED ANNUALIZED
500 AS % OF OF E-SIGN AT % OF $25 ISSUE RETURN OF S&P PRICE
INDEX VALUE INITIAL INDEX MATURITY PRICE E-SIGN (1) RETURN
- ------------------ -------------------- ------------------ -------------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C>
528.18 80% $25.00 100.00% 0.00% -3.65%
594.21 90% $25.00 100.00% 0.00% -1.74%
660.23 100% $25.00 100.00% 0.00% 0.00%
726.25 110% $27.83 111.30% 1.80% 1.60%
792.28 120% $30.65 122.60% 3.45% 3.09%
858.30 130% $33.48 133.90% 4.99% 4.47%
924.32 140% $36.30 145.20% 6.41% 5.77%
990.35 150% $39.13 156.50% 7.75% 6.99%
1056.37 160% $41.95 167.80% 9.01% 8.15%
1122.39 170% $44.78 179.10% 10.20% 9.25%
1188.41 180% $47.60 190.40% 11.33% 10.29%
1254.44 190% $50.43 201.70% 12.40% 11.29%
1320.46 200% $53.25 213.00% 13.43% 12.25%
1386.48 210% $53.25 213.00% 13.43% 13.16%
1452.51 220% $53.25 213.00% 13.43% 14.04%
</TABLE>
- --------------
(1) Annualized rate of return from the Issue Date (assumed to be August 9,
1996 for purposes of this calculation) to the Stated Maturity Date,
assuming annual compounding, calculated on the basis of a 360 day year
consisting of twelve 30 day months.
<PAGE>
THE ABOVE FIGURES ARE FOR PURPOSES OF ILLUSTRATION ONLY. THE ACTUAL
REDEMPTION AMOUNT PAYABLE ON THE E-SIGNS AND THE PRE-TAX ANNUALIZED RATE OF
RETURN REPRESENTED THEREBY WILL DEPEND ENTIRELY (UNLESS THE CLOSING INDEX VALUE
EXCEEDS THE THRESHOLD VALUE PRIOR TO THE CALCULATION DATE) UPON THE ACTUAL FINAL
INDEX VALUE DETERMINED BY THE CALCULATION AGENT AS DESCRIBED UNDER "REDEMPTION
AMOUNT". SEE "CERTAIN FACTORS--PAYMENT AT MATURITY" IN THIS PRICING SUPPLEMENT.
HISTORICAL DATA REGARDING THE INDEX IS INCLUDED IN THIS PRICING SUPPLEMENT UNDER
"THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX".
DISCONTINUANCE OF THE INDEX
If S&P discontinues publication of the Index and a Successor Index is
available, then the Redemption Amount will be determined by reference to the
Successor Index as provided above.
If the publication of the Index is discontinued and S&P or another
entity does not publish a Successor Index on any of the five Business Days
during the Valuation Period of the E-SIGNS, the Redemption Amount at maturity,
if any, will be computed by the Calculation Agent by reference to the following:
(1) determining the component stocks of the Index or any Successor
Index as of the last date on which either of such indices was calculated by
S&P or another entity and quoted on any publicly available information
source (each such component stock a "Last Component Stock");
(2) for each Last Component Stock, calculating as of each Business Day
the product of the market price per share and the number of the then
outstanding shares (such product referred to as the "Market Value" of such
stock), by reference to (a) the closing market price per share of such Last
Component Stock as quoted by the NYSE or the American Stock Exchange or any
other nationally recognized stock exchange, or if no such quotation is
available, then the closing market price as quoted by any major regional
stock exchange or the Nasdaq National Market System ("NASDAQ")
(collectively the "Exchanges") and (b) the most recent publicly available
statement of the number of outstanding shares of such Last Component Stock;
(3) aggregating the Market Values obtained in clause (2) of all Last
Component Stocks;
<PAGE>
(4) determining the S&P Base Value (as defined below under "The
Standard & Poor's 500 Composite Stock Price Index--Computation of the
Index") as of the last day on which either the Index or any Successor Index
was published by S&P or another entity, as adjusted thereafter as described
below;
(5) dividing the aggregate Market Value of all Last Component Stocks by
the S&P Base Value (adjusted as aforesaid); and
(6) multiplying the resulting quotient (expressed in decimals) by ten.
If any Last Component Stock is no longer publicly traded on any
Exchange, the last available market price per share for such Last Component
Stock as quoted by any Exchange, and the number of outstanding shares thereof at
such time, will be used in computing the last available Market Value of such
Last Component Stock. Such Market Value will be used in all computations of the
Index thereafter.
If a company that has issued a Last Component Stock and another company
that has issued a Last Component Stock are consolidated to form a new company,
the common stock of such new company will be considered a Last Component Stock
and the common stocks of the constituent companies will no longer be considered
Last Component Stocks. If any company that has issued a Last Component Stock
merges with, or acquires, a company that has not issued a Last Component Stock,
the common stock of the surviving corporation will, upon the effectiveness of
such merger or acquisition, be considered a Last Component Stock. However, in
each case, the S&P Base Value will be adjusted (in accordance with the formula
set forth in the last paragraph under "The Standard & Poor's 500 Composite Stock
Price Index-- Computation of the Index"). As a result of this adjustment, the
S&P Base Value immediately after such consolidation, merger or acquisition will
equal (a) the S&P Base Value immediately prior to such event, multiplied by (b)
the quotient of the aggregate Market Value of all Last Component Stocks
immediately after such event, divided by the aggregate Market Value for all Last
Component Stocks immediately prior to such event.
If a company that has issued a Last Component Stock issues a stock
dividend, declares a stock split or issues new shares pursuant to the
acquisition of another company, then, in each case, the S&P Base Value will be
adjusted (in accordance with the formula described below) so that the S&P Base
Value immediately after the time the particular Last Component Stock commences
trading ex-dividend, the effectiveness of the stock split or the time new shares
of such Last Component Stock commence trading equals (a) the S&P Base Value
immediately prior to such event, multiplied by (b) the quotient of the aggregate
Market Value for all Last Component Stocks immediately after such event, divided
by the aggregate Market Value of all Last Component Stocks immediately prior to
such event. The S&P Base Value will not be adjusted in all cases in which S&P,
in its discretion, might adjust the S&P Base Value (as
<PAGE>
described below under "The Standard & Poor's 500 Composite Stock Price Index--
Computation of the Index").
If at any time the method of calculating the Index or a Successor
Index, or the value thereof, is changed in a material respect, or if the Index
or a Successor Index is in any other way modified so that such Index does not,
in the opinion of the Calculation Agent, fairly represent the value of the Index
or such Successor Index had such changes or modifications not been made, then,
from and after such time, the Calculation Agent shall, at the close of business
in New York, New York, on each Business Day, make such adjustments as, in the
good faith judgment of the Calculation Agent, may be necessary in order to
arrive at a calculation of a value of a stock index comparable to the Index or
such Successor Index, as the case may be, as if such changes or modifications
had not been made, and calculate the Closing Index Value with reference to the
Index or such Successor Index, as adjusted. Accordingly, if the method of
calculating the Index or a Successor Index is modified so that the value of such
Index is a fraction of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index or such Successor Index as
if it had not been modified (e.g., as if such split had not occurred).
Upon any adoption by the Calculation Agent of a Successor Index, it
shall cause notice thereof to be published in The Wall Street Journal (or
another newspaper of general circulation) within three Business Days of such
determination. If S&P discontinues publication of the Index prior to the
Valuation Period and the Calculation Agent determines that no Successor Index is
available at such time, then on each Business Day until the earlier to occur of
(i) the commencement of the Valuation Period and (ii) a determination by the
Calculation Agent that a Successor Index is available, the Calculation Agent
shall determine the value that would be used in computing the Redemption Amount
by reference to the method set forth in clauses (1) through (6) above as if such
day were one of the five Business Days used in calculating the Redemption
Amount. The Calculation Agent shall cause notice of each such value to be
published on each succeeding Business Day in The Wall Street Journal (or another
newspaper of general circulation). Notwithstanding these alternative
arrangements, discontinuance of the publication of the Index may adversely
affect trading in the E-SIGNS.
REDEMPTION OF E-SIGNS
The E-SIGNS to which this Pricing Supplement relates are redeemable, at
the option of the Issuer, under the circumstances and in the manner described in
the first paragraph of "Description of Notes--Redemption" in the Prospectus as
supplemented and superseded by the following discussion. Any such redemption of
the E-SIGNS will be made as a whole and not in part, and the E-SIGNS will be
redeemed at a redemption price equal to the greater of (i) 105% of the average
of the Closing Values of the E-SIGNS on the 10 trading days immediately
preceding the date of the mailing of the notice of redemption (the "Mailing
Date")
<PAGE>
or (ii) 100% of the Principal Amount of the E-SIGNS to be redeemed. Closing
Value means, with respect to any trading day, the closing price of the E-SIGNS,
regular way, as reported by the NYSE on such trading day or, if there is no such
closing price on such trading day, the average of the bid and ask prices as
reported by the NYSE on such trading day or, if the E-SIGNS are not then listed
on the NYSE, the Issuer will select a broker-dealer (which may be the
Calculation Agent) to determine the Closing Value.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to the E-SIGNS shall have
occurred and be continuing prior to the Calculation Date, the amount payable to
a holder of an E-SIGN upon any acceleration permitted by the E-SIGNS will be
equal to the amount that would be payable as though the Stated Maturity Date of
the E-SIGNS was the date on which early repayment is due, and the Final Index
Value was calculated based on the Closing Index Value of the Index on the date
of early repayment, or the first succeeding Business Day in the event that the
date of early repayment is not a Business Day. If prior to the date of such
early repayment, the Closing Index Value exceeds the Threshold Value, the amount
payable to a holder of an E-SIGN upon acceleration will be equal to the sum of
(x) 100% of the Principal Amount of such E-SIGN, plus (y) 113% of the Principal
Amount of such E-SIGN. In either event, the amount in excess of the Principal
Amount of such E-SIGN determined pursuant to either of the preceding two
sentences will be discounted from the Stated Maturity Date to the date of early
repayment in accordance with generally accepted financial practice on a
semi-annual basis at a discount rate equal to the LIBOR rate, determined by the
Calculation Agent in accordance with the procedures set forth in the
accompanying Prospectus Supplement for LIBOR Notes using the rate for an Index
Maturity similar to the period from the date of early repayment to the Stated
Maturity Date. If an Event of Default occurs on or after the Calculation Date,
the amount payable upon acceleration shall equal the Redemption Amount as
calculated as described under "Redemption Amount".
If a bankruptcy proceeding is commenced in respect of the Issuer, the
claim of the holder of an E-SIGN may be limited, under Section 502(b)(2) of
Title 11 of the United States Code, to the amount of the E-SIGN that would be
due if the Stated Maturity Date of the E-SIGNS were the date of the commencement
of the proceeding.
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
This summary of the principal United States federal income tax
consequences of ownership of the E-SIGNS deals only with a E-SIGN held as a
capital asset by an initial purchaser who purchases an E-SIGN prior to August
13, 1996 without more than "de minimis original issue discount" (as defined
under "Taxation-United States Taxation" in the Prospectus Supplement), and not
with special classes of holders, such as dealers in securities or currencies,
banks, tax-exempt organizations, life insurance companies, persons that hold an
E-SIGN as a hedge or hedged against currency risks or as part of a straddle or
conversion transaction, persons that are not "United States Holders", as defined
below, persons whose functional currency is not the U.S. dollar or persons that
have previously adopted accounting methods for contingent interest that differ
from those described below. For purposes of this discussion, a "United States
Holder" is a beneficial owner who or that is (i) a citizen or resident of the
United States, (ii) a domestic corporation or (iii) otherwise subject to United
States federal income taxation on a net income basis in respect of an E-SIGN.
This discussion supplements the general discussion of the United States federal
income tax consequences of the ownership of the Notes contained under
"Taxation--United States Taxation" in the Prospectus Supplement.
The United States federal income tax treatment of the E-SIGNS is
uncertain. In June 1996, the Internal Revenue Service issued final regulations
under the original issue discount ("OID") provisions of the Code dealing with
contingent payment debt instruments. The final regulations are not currently in
effect and they will only apply to debt instruments issued on or after August
13, 1996. In the absence of specifically applicable regulatory provisions, the
principles of tax accounting generally applicable to the accrual of income
should apply. Although the matter is not free from doubt, except as discussed
below United States Holders should not be required to include amounts in income
prior to maturity, or if the E-SIGNS are redeemed or sold, prior to the date of
redemption or sale. The difference between the purchase price of an E-SIGN and
the total payments made at maturity or upon redemption should be ordinary income
or loss to a United States Holder.
It is unclear under existing law what the result would be if a Payment
Fixing Date (as defined below) were to occur and the amount payable at maturity
thus became fixed. It is likely, however, that United States Holders using an
accrual method of accounting for United States federal income tax purposes (an
"accrual basis taxpayer") would be required to include some amount in income at
such time. Under the circumstances, it would be reasonable for such United
States Holders to include in income the present value of the future right to
receive income on the Payment Fixing Date and thereafter to include in income
for each subsequent taxable year the amount of the difference between such
present value and the Capped Redemption Amount that accretes during such taxable
year on a constant yield-to-maturity basis. Alternatively, accrual basis
taxpayers might include amounts in income over the remaining life of the E-SIGN
on a constant yield-to-maturity basis. For these purposes, the
<PAGE>
Payment Fixing Date would be treated as the issue date, the Principal Amount
would be treated as the issue price and the Capped Redemption Amount would be
treated as the amount payable at maturity for purposes of determining inclusions
in income. There can be no assurance, however, that the Internal Revenue Service
could not successfully contend that another method of accrual is proper. Such
alternative methods could include the inclusion in income of an amount equal to
the difference between the Capped Redemption Amount and the Principal Amount of
an E-SIGN on the date that is a Payment Fixing Date.
Based in part on existing statutory provisions and regulations
governing original issue discount, it would be reasonable for United States
Holders using the cash receipts and disbursement method of accounting for United
States federal income tax purposes (a "cash basis taxpayer") to report income in
respect of an E-SIGN in the same manner as accrual basis taxpayers. Cash basis
United States Holders should consult their own tax advisors as to whether any
amount must be included in income prior to retirement, redemption or sale under
existing law and regulations.
On the sale of an E-SIGN, a United States Holder will recognize gain or
loss equal to the difference between the amount received for the E-SIGN and the
United States Holder's adjusted federal income tax basis (determined as
discussed below) therefor. In the absence of authority under existing law as to
whether gain on the sale of an E-SIGN will be treated as capital gain, it would
be reasonable to treat gains (except with respect to gains attributable to the
Capped Redemption Amount, if any, which becomes payable at maturity because the
Closing Index Value equals or exceeds the Threshold Value on any Business Day
prior to the Valuation Period (the date, if any, on which the Issuer becomes
obligated to pay such Capped Redemption Amount at maturity, the "Payment Fixing
Date")) as capital gains. There can be no assurance, however, that the Internal
Revenue Service will not successfully challenge this treatment. Losses on the
sale of an E-SIGN will be treated as capital losses.
For the purpose of determining gain or loss on the sale, redemption or
retirement of an E-SIGN, a United States Holder's adjusted basis in an E-SIGN
will generally be equal to such United States Holder's initial investment in an
E-SIGN plus any amounts included in income with respect to such E-SIGN prior to
the sale, redemption or retirement thereof.
Prospective purchasers of an E-SIGN should consult their own tax
advisors concerning the consequences, in their particular circumstances, of
ownership of the E-SIGNS.
<PAGE>
THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
All disclosure contained in this Pricing Supplement regarding the
Index, including, without limitation, its make-up, method of calculation and
changes in its components, are derived from publicly-available information
prepared by S&P. The Issuer takes no responsibility for the accuracy or
completeness of such information.
GENERAL
The Index is published by S&P and is intended to provide an indication
of the pattern of common stock price movement. The calculation of the value of
the Index (discussed below in further detail) is based on the relative value of
the aggregate Market Value (as defined above under "Description of
E-SIGNS--Discontinuance of the Index") of the common stocks of 500 companies as
compared to the aggregate average Market Value of the common stocks of 500
similar companies during the base period of the years 1941 through 1943. As of
July 31, 1996, the 500 companies included in the Index represented approximately
76% of the aggregate Market Value of common stocks traded on the NYSE; however,
the 500 companies are not the 500 largest companies listed on the NYSE and not
all 500 companies are listed on the NYSE. S&P chooses companies for inclusion in
the Index with the aim of achieving a distribution by broad industry groupings
that approximates the distribution of these groupings in the common stock
population of the NYSE, which S&P uses as an assumed model for the composition
of the total market. Relevant criteria employed by S&P include: the viability of
the particular company, the extent to which that company represents the industry
group to which it is assigned, the extent to which the market price of that
company's common stock is generally responsive to changes in the affairs of the
respective industry and the Market Value and trading activity of the common
stock of that company. S&P may from time to time, in its sole discretion, add
companies to, or delete companies from, the Index to achieve the objectives
stated above.
COMPUTATION OF THE INDEX
S&P currently computes the S&P 500 Index as of a particular time as
follows:
(1) the Market Value of all component stocks as of such time;
(2) the Market Value of all component stocks as of such time (as
determined under clause (1) above) are aggregated;
(3) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company
in a group of 500 similar companies is determined;
<PAGE>
(4) the mean average Market Values of all such common stocks over such
base period (as determined under clause (3) above) are aggregated (such
aggregate amount, as adjusted by S&P from time to time in the manner
described below, being hereinafter referred to as the "S&P Base Value");
(5) the aggregate Market Value of all component stocks as of such time
(as determined under clause (2) above) is divided by the S&P Base Value;
and
(6) the resulting quotient (expressed in decimals) is multiplied by
ten.
While S&P currently employs the above methodology to calculate the Index, no
assurance can be given that S&P will not modify or change such methodology in a
manner that may affect the Redemption Amount, if any, payable to holders of
E-SIGNS at the Stated Maturity Date or otherwise.
S&P adjusts the foregoing formula to negate the effect of changes in
the Market Value of a component stock that are determined by S&P to be arbitrary
or not due to true market fluctuations. These changes may result from such
causes as the issuance of stock dividends, stock splits, the granting to
shareholders of rights to purchase additional shares of such stock, the purchase
of such stock by employees pursuant to employee benefit plans, certain
consolidations and acquisitions, the granting to shareholders of rights to
purchase other securities of the company, the substitution by S&P of particular
component stocks in the Index and other reasons. In all such cases, S&P first
recalculates the aggregate Market Value of all component stocks (after taking
account of the new market price per share of the particular component stock or
the new number of outstanding shares thereof or both, as the case may be) and
then adjusts the S&P Base Value in accordance with the following formula:
New Market Value
Old S&P Base Value X ----------------- = New S&P Base Value
Old MarketValue
The result is that the S&P Base Value will be adjusted in proportion to any
change in the aggregate Market Value of all component stocks resulting from the
causes referred to above to the extent necessary to negate the effect of such
causes upon the Index.
HISTORICAL DATA ON THE S&P 500 INDEX
The following table sets forth the high, low and closing values of the
Index for each quarter in the period from January 1990 through June 30, 1996, as
published by S&P. The recent historical experience of the S&P 500 Index should
not be taken as an indication of future performance and no assurance can be
given that the value of the S&P 500 Index will not decline and thereby reduce
the Redemption Amount which may be payable to holders of E-SIGNS at the Stated
Maturity Date or otherwise.
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------
Highest Lowest Closing
Level Level Level
----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1990:
1st Quarter 360.59 319.83 339.94
2nd Quarter 368.78 327.76 358.02
3rd Quarter 369.78 295.98 306.05
4th Quarter 333.98 294.51 330.22
1991:
1st Quarter 379.66 309.35 375.22
2nd Quarter 391.26 365.83 371.16
3rd Quarter 397.62 370.92 387.86
4th Quarter 418.32 371.36 417.09
1992:
1st Quarter 421.18 401.94 403.69
2nd Quarter 418.75 392.41 408.14
3rd Quarter 425.27 407.20 417.80
4th Quarter 442.65 396.80 435.71
1993:
1st Quarter 456.76 426.88 451.67
2nd Quarter 455.63 432.30 450.53
3rd Quarter 463.80 441.40 458.93
4th Quarter 471.29 454.36 466.45
1994:
1st Quarter 482.85 436.16 445.77
2nd Quarter 463.23 435.86 444.27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
3rd Quarter 477.59 443.58 462.69
4th Quarter 474.74 442.88 459.27
1995:
1st Quarter 508.15 457.20 500.71
2nd Quarter 551.07 500.20 544.75
3rd Quarter 587.61 542.51 584.41
4th Quarter 622.88 571.55 615.93
1996:
1st Quarter 664.23 597.29 645.60
2nd Quarter 681.10 658.75 670.63
</TABLE>
The official closing value of the S&P 500 Index on August 5, 1996 was
660.23, as quoted by S&P.
LICENSE AGREEMENT
S&P and Goldman, Sachs & Co. have entered into a non-exclusive license
agreement providing for the license to Goldman, Sachs & Co. and its affiliates
(including the Issuer), in exchange for a fee, of the right to use indices owned
and published by S&P in connection with certain securities, including the
E-SIGNS.
The E-SIGNS are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the holders of the
E-SIGNS or any member of the public regarding the advisability of investing in
securities generally or in the E-SIGNS particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
Goldman, Sachs & Co. and the Issuer is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to the Issuer or the E-SIGNS. S&P has no
obligation to take the needs of the Issuer or the holders of the E-SIGNS into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the timing
of, prices at, or quantities of the E-SIGNS to be issued or in the determination
or calculation of the equation by which the E-SIGNS are to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the E-SIGNS.
<PAGE>
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER, GOLDMAN, SACHS & CO.,
HOLDERS OF THE E-SIGNS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
VALIDITY OF E-SIGNS
The validity of the E-SIGNS offered hereby have been passed upon by
Maples and Calder, George Town, Grand Cayman, Cayman Islands, British West
Indies, and by Sullivan & Cromwell, New York, New York. Sullivan & Cromwell has
relied as to all matters of Cayman Islands law upon the opinion of Maples and
Calder. See "Validity of Notes" in the Prospectus.
-----------------
The Issuer's Medium-Term Notes, Series B will be offered for sale in
the aggregate principal amount of up to $500,000,000 (or the equivalent thereof
in any foreign currencies or currency units) (provided that the Issuer reserves
the right to increase such aggregate principal amount from time to time). After
giving effect to the issuance of the E-SIGNS to which this Pricing Supplement
relates, $73,000,000 principal amount of Medium-Term Notes, Series B have been
issued by the Issuer.
-----------------
Goldman, Sachs & Co.
The date of this Pricing Supplement is August 5, 1996.
