File 026944
Investment Strategy Group: US-Iran Military Conflict and Geopolitical Risks (File 026944)
Investment Strategy Group analysis from May 2019 examining US-Iran tensions, the risk of military conflict, and implications for global oil markets following Trump's withdrawal from the JCPOA nuclear agreement.
Summary
This May 23, 2019 Investment Management Division presentation analyzes escalating US-Iran tensions and geopolitical risks to investment strategy. It documents the timeline of events from the 2015 JCPOA agreement through May 2019, including Trump's withdrawal, reimposition of sanctions, and military mobilization. The document examines the differing perspectives of Trump, John Bolton, and Mike Pompeo on Iran policy, discusses recent attacks on Saudi oil infrastructure and threats to close the Strait of Hormuz, and presents analysis of Iran's nuclear program development including enriched uranium stockpiles and breakout time calculations.
Investment Management DivisionRisk of a US-Iran Military Conflict and Other Geopolitical RisksMay 23, 2019Investment Strategy GroupDiscussion TopicsInvestmentManagementDivisionI. US Policy on IranII.Iranian Actions and Current Economic ConditionsIII. Potential for US-Iranian Military ConflictIV. Implications for the Global Oil Market1Risks to Our Views (Presented in our 2019 Outlook)InvestmentManagementDivision• In the near term, the most likely source of a domestic shock is the fallout from one of theinvestigations—by multiple state attorneys general and the House of Representatives—of PresidentTrump.• The ebb and flow of these investigations will inevitably lead to great market volatility. But there isgreater likelihood that exogenous shocks will come from external sources, rather than domestic ones.• External exogenous shocks– Trade War with China (5/17/2019 ISG Client Call) or continued slowing growth in China– Brexit– Auto Tariffs– Russia– Middle East– North Korea– Cyberattacks– TerrorismSource: Investment Strategy Group.2Timeline: US-Iran Tensions RiseInvestmentManagementDivisionRecent Key Events in US-Iran RelationsDate Category Event7/14/2015 JCPOA JCPOA* finalized between Iran and P5+110/13/2017 JCPOA President Trump de-certifies compliance of Iran with JCPOA5/8/2018 JCPOA President Trump withdraws from the nuclear agreement8/6/2018 Sanctions Reimposition of sanctions on Iran (precious metals, currency, sovereign debt)11/4/2018 SanctionsSanctions imposed on Iranian petroleum, shipping sector, energy sector, etc.Six-month waivers issued to eight countries that purchase Iranian oil4/8/2019 Diplomatic Action US announces it will designate the IRGC as a foreign terrorist organization5/2/2019 Sanctions Waivers for Iranian oil purchases not renewed5/3/2019 Military5/5/2019 MilitaryUS intelligence suggests mobilization of Iranian forces, including photos showing IRGC loadingmissiles onto shipsBolton announces US to deploy carrier strike group and bomber task force to the Persian Gulf,promising "any attack on US interests or on those of our allies will be met with unrelenting force"including attacks "by proxy, the Islamic Revolutionary Guard Corps, or regular Iranian forces"5/8/2019 JCPOA Iran announces it will end compliance with parts of the JCPOA, including uranium enrichment5/8/2019 Sanctions US imposes sanctions on Iranian industrial metals sector5/9/2019 MilitaryActing Defense Secretary Shanahan presents updated military plan to send up to 120 thousandtroops to the Middle East if Iran attacks US forces or accelerates work on nuclear weapons5/12/2019 Military 3-4 oil tankers reportedly damaged in a "sabotage" attack off the coast of the UAE5/14/2019 Military Houthi drones attack Saudi cross-country oil pipeline5/15/2019 Diplomatic Action US withdraws embassy staff from Iraq5/19/2019 Military A rocket is fired into Baghdad's Green Zone near the US embassy5/21/2019 Military A Houthi drone attacks an arms depot at the Najran airport in southern Saudi Arabia* JCPOA: “Joint Comprehensive Plan of Action”Source: Investment Strategy Group, White House, US Treasury, New York Times, Bloomberg, Wall Street Journal.3Does the US Have a Clear Strategy?InvestmentManagementDivision“The United States is [sending] a message to the Iranianregime that any attack on US interests or on those of our allieswill be met with unrelenting force. The US is not seeking warwith the Iranian regime, but we are fully prepared to respondto any attack, whether by proxy, the Islamic RevolutionaryGuard Corps, or regular Iranian forces.”— NSA John Bolton announcing the deployment of a carrierstrike group to the Persian Gulf, May 5, 2019“President Trump has sought to put the brakes on a brewingconfrontation with Iran in recent days, telling the actingdefense secretary, Patrick Shanahan, that he does not want togo to war with Iran, administration officials said, while hissenior diplomats began searching for ways to defuse thetensions.”— New York Times, May 16, 2019“Our aim is not war. Our aim is a change in the behavior of theIranian leadership.”— Secretary of State Pompeo, May 12, 2019“The Fake News Media is hurting our Country with itsfraudulent and highly inaccurate coverage of Iran. It isscattershot, poorly sourced (made up), and DANGEROUS. Atleast Iran doesn’t know what to think, which at this point mayvery well be a good thing!”— President Trump, May 17, 2019“Will the president let himself be pushed into a parlous war by John Bolton, who once buoyed the phony case on WMDs in Iraq?”— Maureen Dowd, New York Times, May 18, 2019Source: Investment Strategy Group, Twitter, New York Times, Politico.4Eurasia Group:“The Three Principal Players Have Different Perspectives”InvestmentManagementDivisionNational Security Advisor John Bolton• “Bolton wants a crisis. He hopes to use the pressure as a maximum containment strategy to cripple theIranian economy, increasing domestic opposition to the government, and making regime change morelikely.• … ‘forcing’ the Americans to engage in military intervention for Bolton [is] a useful pretext to bombingkey nuclear facilities that would set the Iranian program back years or more.”Secretary of State Mike Pompeo• “Pompeo wants the band back together. He doesn’t believe the United States can credibly induce theIranians towards a more constructive posture by themselves, and accordingly wants a tougher, commonfront to force better terms from Iran from a position of strength.• Pompeo hopes the Europeans and other allies will be more supportive of broader American pressureagainst Iran, and a multilateral coalition can come back together.”President Trump• “President Trump wants a breakthrough on his terms. He wants to use American power to force theIranians into direct negotiations, and pull off a better agreement than Obama did.”Source: Investment Strategy Group, Ian Bremmer, “EG Update,” Eurasia Group, May 20, 2019. Emphasis added.5What is the Impact of Other Countries’ Interests inthe Region?InvestmentManagementDivisionSource: Investment Strategy Group.6Recent Attacks Put the US on High AlertInvestmentManagementDivision1. Saudi Oil Tanker Al Marzoqah, Damaged in Reported Act of Sabotage 2. Saudi Arabia Major Oil and Natural Gas InfrastructureEast-WestPipeline• May 12: 3-4 oil tankers are reportedly damaged in a “sabotage” attack off the coast of the UAE• May 14: Houthi rebels use drones to attack Saudi oil pumping stations on the East-West Pipeline• May 19: A rocket is fired into Baghdad’s Green Zone less than a mile from the US embassy• May 21: A Houthi drone attacks the Najran airport in southern Saudi ArabiaSource: Investment Strategy Group, Reuters, EIA, New York Times.7Iran Threatens to Close the Strait of HormuzInvestmentManagementDivisionStrait of Hormuz: April 2019 Crude Oil Production Per Country and Export Flows• A third of world’s LNG and a fifth of global oil production goes through the Strait of Hormuz.• “Iran relies on the Strait not only for its oil exports, but also for the imports of some needed food and medical products.” 1(1) Michael Ratner, “Iran’s Threats, the Strait of Hormuz, and Oil Markets: In Brief,” Congressional Research Service, August 6, 2018.Source: Investment Strategy Group, Goldman Sachs Enterprise Risk Management, EIA, Bloomberg.8kgkgIran Set to Restart its Nuclear ProgramInvestmentManagementDivision10,0009,0008,0007,0006,000Iranian Enriched Uranium Stockpiles5% Enriched 20% Enriched (Right)4003503002505,0004,0003,0002,0001,0000200150100500• A key criterion in the development of the Joint Comprehensive Plan of Action (JCPOA) is the time Iran needs toproduce enough weapon-grade uranium for a nuclear weapon, called breakout time. Iran agreed to refine uranium tono more than 3.7% enrichment and eliminated its stocks of weapons-grade 20%-enriched uranium.• On May 8 th , President Rouhani announced a series of steps to resume the production of nuclear centrifuges and theaccumulation of nuclear material within 60 days.Source: Investment Strategy Group, Arms Control Association, International Atomic Energy Agency, JCPOA, Bloomberg.9Annualized %% YoYIranian Economy Hit Hard by SanctionsInvestmentManagementDivision1. Iran Annualized Real GDP Growth and Inflation 1 2. Iranian Rial (Mid) to USD – Unofficial Market Rate15Real GDP GrowthCPI % YoY (Right)60200,00051180,0001040160,000IRR Weaker140,000520120,00000100,00080,0005/8/18US announcesJCPOA withdrawal-5-2060,000-6.0-10-7.7-4040,00020,000-152012 2013 2014 2015 2016 2017 2018 2019E-600Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18• The IMF forecasts that Iranian real GDP growth in 2019 will be the weakest since 2012 at -6%, even as annualized inflationis running at around 50%.• The Iranian rial is trading near its all-time low against the US dollar, according to unofficial market rates. Since the end of2017 the rial has depreciated by roughly -70%, compared to a -45% peak devaluation for the Turkish lira in 2018.(1) 2019 inflation as of April 2019.Source: Investment Strategy Group, IMF, Statistical Center of Iran, Haver, Bonbast, Bloomberg.10US Military Signals Readiness to RespondInvestmentManagementDivisionAbraham Lincoln Carrier Strike Group and Kearsarge Amphibious Ready Group – May 17, 2019• The US deployed the USS Abraham Lincoln Carrier Strike Group and a bomber task force to the Middle East in earlyMay in response to intelligence regarding Iranian military activity.Source: Investment Strategy Group, navy.mil, New York Times.11Percent of Respondents1969197119731976198119821983198519861987199019931998199920002001200220032004200520062007200820092010201120122013201420152016201720182019Cost of US WarsInvestmentManagementDivision1. Military Cost and Casualties of Recent US Conflicts2. Gallup Poll: “Do you think the US is spending too little, about the rightamount or too much on national defense and military purposes?”Casualties (Thousand)**60Too little About right Too muchConflictMilitaryCost ($bn)*Years of USInvolvementDeathsNon-MortalWoundingsTotalVietnam 821 17.4 58 153 212Persian Gulf 113 0.6 0 0 1Iraq 822 8.8 4 32 36Afghanistan 975 17.4 2 20 22Syria 54 4.7 0 0 050403020432925100• Total costs of the war on terror for the US (including wars in Iraq, Afghanistan, and Syria), are estimated to be $5.9 trillion.• Over 40% of Americans think the US is spending the right amount on national defense, the highest level in 15 years, butwould there be appetite for yet another costly military incursion into the Middle East?*Costs of military operations only. Iraq & Afghanistan costs based on all overseas contingency operations as of 2018; all other estimates based on 2010 CRS report scaled by US CPIthrough 2018. **Deaths: Battle and other in the theater.Source: Investment Strategy Group, Congressional Research Service, "Costs of Major US Wars," June 29, 2010; Department of Defense Casualty Status; Department of Veterans Affairs;Watson Institute at Brown University, Gallup, New York Times.12Million b/dIranian Oil Production Has PlummetedInvestmentManagementDivisionIranian Oil Production and Exports (Million Barrels/Day)5.0ProductionExports (3-Month Moving Average)4.54.0Jan-12EU agrees to banIranian oil imports3.8May-18US Withdrawsfrom JCPOA3.53.02.5Jul-12Ban imposedby US and alliesgoes into effectJul-15JCPOA SignedNov-18US sanctionsgo into effect2.62.62.01.51.00.5Latest:0.50.90.02011 2012 2013 2014 2015 2016 2017 2018 2019• Since the US withdrew from the JCPOA in May 2018:– Iranian oil production has fallen by 1.2 million b/d– Exports have fallen from 2.6 million b/d to 0.5 million b/d month-to-date in May (0.9 million b/d on a 3-monthmoving average)• Iran will continue to send a few hundred thousand b/d of oil exports despite harsh US secondary sanctions.Source: Investment Strategy Group, Bloomberg, cFlow Data (Platts Global Crude).13Million b/dMillion b/dMillion b/dSpare Oil Production Capacity Looks AdequateInvestmentManagementDivision1. US Crude Oil Production2. Spare Capacity from April 2019 Production Level to 2018 HighestProduction Levels2.5Y/Y US crude production (LHS)US crude production (RHS)131.401.32.0121.201.5111.31.001.0100.800.59-8.6(Sep 2016)80.60(0.5)70.40(1.0)60.200.1 0.10.2(1.5)Jan-13 Aug-13 Mar-14 Oct-14 May-15 Dec-15 Jul-16 Feb-17 Sep-17 Apr-18 Nov-1850.00Iraq Kuwait Saudi UAE• US oil production growth has matched or exceeded global demand growth over the past year, providing ample suppliesto the market.• In fact, OPEC had to cut production in late 2018 in order to reduce oversupply and arrest a fast decline in oil prices.• OPEC production could be increased back to 2018 highs if the market faced a shortage. Doing so would add 1.7 millionb/d from main Middle Eastern OPEC members – more than Iran’s current export levels of around 0.5 million b/d.Source: Investment Strategy Group, EIA, Bloomberg, OPEC.14Days of OECD demandBillion BarrelsBarrels per $1,000 GDPRisks of an Oil Shock Look ContainedInvestmentManagementDivision1. OECD Inventories – Adjusted for Days of Demand2. World Oil Demand and Oil Demand Intensity per Unit of Global GDP69672010-2014 range Actual 2010-1967.040350.9World Oil DemandOil Intensity (RHS)361.0065300.7563256160.3200.50590.457155555.7100.25535512010 2011 2012 2013 2014 2015 2016 2017 2018 201901965 1970 1975 1980 1985 1990 1995 2000 2005 2010 20150.00• Global oil inventories look adequate, with OECD inventories still well above historical norms.• The US could release oil from its Strategic Petroleum Reserve if needed.• Oil consumption represents a much smaller share of the economy than in the late 1970s and early 1980s.Source: Investment Strategy Group, IEA, World Bank, BP Statistical Review.15Key TakeawaysInvestmentManagementDivision• The immediate threat of military engagement between the US and Iran has eased but risk of escalationor miscalculation is high.• US agenda (and the impact of Saudi Arabia and Israel) is unclear, with administration officials offeringcontradictory views.• Iran is set to resume its nuclear program with the intent of gaining leverage for future negotiationswhich it previously relinquished as part of the JCPOA.• There is further potential downside for Iranian oil production and exports, but ample OECDinventories, growing US production, and OPEC spare capacity would help contain any short-term oilprice shock.• We continue to recommend that clients stay invested at their full strategic asset allocation giventoday’s macroeconomic backdrop and low odds of a recession, but we remain vigilant about the risksto our outlook.Source: Investment Strategy Group.16Investment Management DivisionDisclosuresImportant Information – Investment RisksInvestmentManagementDivisionRisks vary by the type of investment. 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If the issuer or guarantor defaults, you may lose your entire investment, even if you hold the product to maturity. Structured investments often perform differently from the asset(s) theyreference. Credit ratings may pertain to the credit rating of the issuer and are not indicative of the market risk associated with the structured investment or the reference asset. Each structuredinvestment is different, and for each investment you should consider 1) the possibility that at expiration you may be forced to own the reference asset at a depressed price; 2) limits on the ability toshare in upside appreciation; 3) the potential for increased losses if the reference asset declines; and 4) potential inability to sell given the lack of a public trading market.• Tactical Tilts. Tactical tilts may involve a high degree of risk. No assurance can be made that profits will be achieved or that substantial losses will not be incurred. Prior to investing, you mustdetermine whether a particular tactical tilt is suitable for them.• U.S. Registered Mutual Funds / Exchange Traded Funds (“ETFs”) or Exchange Traded Notes (“ETNs”). You should consider a fund’s investment objectives, risks, charges and expenses,and read the summary prospectus and/or the Prospectus (which may be obtained from your PWM Team) carefully before investing, as they contain this and other relevant information. You mayobtain documents for ETFs or ETNs for free by 1) visiting EDGAR on the SEC website at http://www.sec.gov/; 2) contacting your PWM team; or 3) calling toll-free at 1-866-471-2526. Unliketraditional mutual funds, ETFs can trade at a discount or premium to the net asset value and are not directly redeemable by the fund. Leveraged or inverse ETFs, ETNs, or commodities futureslinkedETFs may experience greater price movements than traditional ETFs and may not be appropriate for all investors. Most leveraged and inverse ETFs or ETNs seek to deliver multiples of theperformance (or the inverse of the performance) of the underlying index or benchmark on a daily basis. Their performance over a longer period of time can vary significantly from the stated dailyperformance objectives or the underlying benchmark or index due to the effects of compounding. Performance differences may be magnified in a volatile market. ETFs are redeemable only inCreation Unit size aggregations and may not be individually redeemed; are redeemable only through Authorized Participants; and are redeemable on an "in-kind" basis. The public trading price ofa redeemable lot of the ETFs may be different from its net asset value. These ETFs can trade at a discount or premium to the net asset value. There is always a fundamental risk of decliningstock prices, which can cause losses to your investment. Commodities futures-linked ETFs may perform differently than the spot price for the commodity itself, including due to the entering intoand liquidating of futures or swap contracts on a continuous basis to maintain exposure (i.e., “rolling”) and disparities between near term future prices and long term future prices for the underlyingcommodity. ETFs and ETNs linked to commodity futures do not offer direct exposure to the commodity’s spot price and may perform differently than the spot price for the commodity itself.Performance differential can be magnified if a specific condition persists in the market for a commodity that creates a disparity between near-term future prices and long-term future prices andmay lead to unexpected performance results. Other factors, such as roll yield, transaction costs, management fees, and taxes may cause deviation in performance between the spot price of acommodity and commodity futures. You should not assume that a commodity-futures linked ETF will provide an effective hedge against other risks in your portfolio.Security-Specific References. Any reference to a specific company or security is not intended to form the basis for an investment decision and is included solely to provide examples or provideadditional context. This information should not be construed as research or investment advice and should not be relied upon in whole or in part in making an investment decision. GS, or personsinvolved in the preparation or issuance of these materials, may from time to time have long or short positions in, buy or sell (on a principal basis or otherwise), and act as market makers in thesecurities or options, or serve as a director of any companies mentioned herein. In addition, GS may have served as manager or co-manager of a public offering of securities by any such companywithin the past 12 months. Further information on any securities mentioned in this material may be obtained upon request.Assets Held at a Third Party Custodian. Any information (including valuation) regarding holdings and activity in accounts held by third party custodians is for your convenience and has beensupplied by third parties or by you. GS assumes no responsibility for the accuracy of such information. Information may vary from that reflected by your custodian and is as of the date of the materialsprovided to us. As an accommodation to you, we may also reflect certain investments unrelated to services provided by GS, for which GS does not perform any due diligence, verify the accuracy ofinformation, or provide advice. Unless otherwise agreed in writing, we have not assessed whether those investments fit within your investment objective and the asset classification shown may not beaccurate.Off-Platform Investments. To the extent you ask us for guidance in connection with investment opportunities not offered by GS, such as investments in private funds, private debt or equity, realestate or other opportunities you source away from us, any such guidance, views, or other information we may provide is on an accommodation basis only and we will not be acting as your advisor.We assume no obligation to determine whether the opportunity is suitable for you in connection with such investment decisions and will not assume any liability for such investment decisions. Pleasereview our Form ADV for information on conflicts of interest we may have in connection with any such requests.ISG/GIR Forecasts. Economic and market forecasts presented (“forecasts”) reflect either ISG’s or GIR’s views and are subject to change without notice. Forecasts do not take into account specificinvestment objectives, restrictions, tax and financial situation or other needs of any specific client. Forecasts are subject to high levels of uncertainty that may affect actual performance and should beviewed as merely representative of a broad range of possible outcomes. Forecasts and any return expectations are as of the date of this material, and should not be taken as an indication orprojection of returns of any given investment or strategy. Forecasts are estimated, based on capital market assumptions, and are subject to significant revision and may change materially aseconomic and market conditions change. Any case studies and examples are for illustrative purposes only. If applicable, a copy of the GIR Report used for GIR forecasts is available upon request.Forecasts do not reflect advisory fees, transaction costs, and other expenses a client would have paid, which would reduce return.23Client Specific Markets. Investments held in your name with a subcustodian in the local market where traded in order to comply with local law will be indicated on your statements.Important InformationInvestmentManagementDivisionPerformance / Estimated Income / Estimated Cash Flow. Past performance is not a guide of future results and may include investments no longer owned in current or closed accounts. Currentperformance may be lower or higher than the performance data quoted. To request the most current or historical performance data, or asset classification schema information, please contact yourPWM team at the number provided on your monthly statement or toll-free in the U.S. at 1-800-323-5678. Performance reports, where shown, generally present the relevant time weightedperformance, which is a combination of daily returns compounded over a specified time period with the removal of the deposit and withdrawal impacts, and may show internal rate of returncalculations where requested. Aggregate performance may not equal the sum of returns at an investment level. Performance for advisory accounts is currently calculated net of any management feesand might include investments for which actual market prices are not currently available, and does not include private equity positions. Performance for alternative investments is calculated using thevalue of the last available partnership capital statement or NAV. If included, estimated income figures and estimated private equity future cash flows are estimates of future activity, and actual resultsmay vary substantially. GS&Co. has adjusted performance calculations for certain asset classes or strategies and may do so in the future. Performance of net cash (i.e., cash less margin debit) isgenerally included in the total performance calculation but not displayed separately. Option performance is included in the performance of the asset class of the underlier. Margin loans are generallyexcluded from advisory performance but included in brokerage performance calculations. Mutual fund and ETF investment returns and the principal value of your investment will fluctuate. As a result,your shares when redeemed may be worth more or less than their original cost. The performance data for ETFs does not reflect a deduction for commissions that would reduce the displayedperformance. You are not subject to a sales charge for mutual funds purchased through PWM. If a sales charge were applicable, the sales charge would reduce the mutual fund’s performance.Information on our asset classification schema is available upon request. Generally, total returns are pre-tax and are calculated using daily time-weighted returns in which cash and securitiesdeposits are attributed to the beginning of the day and cash and securities withdrawals are attributed to the end of the day.Indices / Benchmarks. Any references to indices, benchmarks, or other measure of relative market performance over a specified period of time are provided for your information only and is notindicative of future results. In addition to the benchmark assigned to a specific investment strategy, other benchmarks (“Comparative Benchmarks”) may be displayed, including ones displayed at yourrequest. Managers may not review the performance of your account against the performance of Comparative Benchmarks. There is no guarantee that performance will equal or exceed anybenchmark displayed. Where a benchmark for a strategy has changed, the historical benchmark(s) are available upon request. Inception to date (“ITD”) returns and benchmark / reference portfolioreturns may reflect different periods. ITD returns for accounts or asset classes only reflect performance during periods in which your account(s) held assets and / or were invested in the asset class.The benchmark or reference portfolio returns shown reflect the benchmark / portfolio performance from the date of inception of your account or your initial investment in the asset class. If displayed,estimated income figures are estimates of future activity obtained from third party sources.Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reducereturns. Investors cannot invest directly in indices. Where appropriate, relevant index trademarks or index information has been licensed or sub-licensed for use. Inclusion of index information is notintended to imply that the relevant index or its affiliated entities sponsor, endorse, sell, or promote the referenced securities, or that they Period Gross Return Net Return Differentialmake any representation or warranty regarding either the advisability of investing in securities (generally or specifically) or regarding the1 year 6.17% 4.61% 1.56%ability of the index to track market performance. Contact your PWM team for more information.The following table provides an example of the effect of management and incentive fees on returns. The magnitude of the difference 2 years 12.72% 9.43% 3.29%between gross-of fee and net-of-fee returns will depend on a variety of factors, and the example has been simplified.10 years 81.94% 56.89% 25.05%Pricing and Valuations. Prices do not necessarily reflect realizable values and are based on information considered to be reliable but are not guaranteed for accuracy, currency, or as realizablevalues. Certain positions may be provided by third parties or may appear without a price if GS is unable to obtain a price and/or the security is not actively traded for a certain amount of time. Pricingsources and methods are available upon request and are subject to change. The stated price/value is as of the date indicated. It is not an offer to buy or sell and is not represent at that anytransaction can be effected at this price. In the event of any discrepancy between the information contained herein and the information contained in your monthly account statements at GoldmanSachs or another institution, the latter shall govern. Please immediately notify your Private Wealth Advisor of any discrepancies.Fees and Charges. We have two pricing models for advisory relationships: a comprehensive fee model and a product based model. You should consider factors, including, but not limited to, yourfinancial needs and circumstances, investment objectives, services provided under the model, your preferences, and the size of your account. Certain account fees and expenses may be more orless expensive depending on the model chosen. Actual fees may differ from estimated fees due to differences in strategies and amounts invested in particular strategies or overall. Charges applied toyour accounts and transactions may include execution charges (including commissions, commission equivalents, mark-ups, mark-downs and dealer spreads), investment advisory fees, and custodyfees. When we act as broker, we are generally compensated by an execution charge on a trade by trade basis. When we act as advisor, we generally earn a fee based on assets under managementand may also be earning execution charges. More information about fees and charges is included in our account agreements, fee schedules and trade confirmations. If estimated fees are shownherein, we have included a description of our fee calculation methodology.24Important InformationInvestmentManagementDivisionTax Information. GS does not provide legal, tax or accounting advice, unless explicitly agreed in writing between you and GS, and does not offer the sale of insurance products. You should obtainyour own independent tax advice based on your particular circumstances. The information included in this presentation, including, if shown, in the Tax Summary section, does not constitute taxadvice, has not been audited, should not be used for tax reporting, and is not a substitute for the applicable tax documents, including your Form 1099, Schedule K-1 for private investments, which wewill provide to you annually, or your monthly GS account statement(s). The cost basis included in this presentation may differ from your cost basis for tax purposes. Information regarding youralternative investments and transactions for retirement accounts are not included in the Tax Summary section. Any statement contained in this presentation concerning U.S. tax matters is notintended or written to be used and cannot be used for the purpose of avoiding penalties imposed on the relevant taxpayer. Realized and unrealized gains and loss values do not include securities forwhich cost basis is unavailable. Losses reflected may be disallowed or deferred by the application of capital loss limitations, wash sale rules or other special tax rules.Asset Classification. We display holdings and provide market value and performance by asset class. A description of our asset classification schema is available upon request. When you haveseparately managed accounts, the value of all assets invested in the strategy is displayed in the asset class of the strategy. In those instances, the market value and performance displayed for eachasset class may also include cash that is not separately reflected under Cash, Deposits and Money Market Funds.Other Services. Any provided financial planning services, including cash flow analyses based on information you provide, are a hypothetical illustration of mathematical principles and are not aprediction or projection of performance of an investment or investment strategy. Such services may not address every aspect of a client’s financial life; topics that were not discussed with you may stillbe relevant to your financial situation. In providing financial services, GS will rely on information provided by, or on behalf of, clients and is not responsible for the accuracy or completeness of anysuch information, nor for any consequences related to the use of any inaccurate or incomplete information. Where materials and/or analyses are provided to you, they are based on the assumptionsstated therein, which are likely to vary substantially from the examples shown if they do not prove to be true. These examples are for illustrative purposes only and do not guarantee that any client willor is likely to achieve the results shown. Assumed growth rates are subject to high levels of uncertainty and do not represent actual trading and may not reflect material economic and market factorsthat may have an impact on actual performance. GS has no obligation to provide updates to these rates.Not a Municipal Advisor. Except in circumstances where GS expressly agrees otherwise, GS is not acting as a municipal advisor and the opinions or views contained in this presentation are notintended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934.Additional Information for Ayco Clients. References in this presentation to “PWM team” shall include your Ayco team. Ayco may provide tax advice, accounting advice, bill pay, and bookkeepingservices to certain clients. Ayco does not provide brokerage services. As part of its financial counseling services, Ayco may provide you with certain reports where similar information contained hereinis presented differently or in more or less detail. You should view each report independently and raise any questions with your Ayco team.No Distribution; No Offer or Solicitation. This material may not, without GS’ prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any personthat is not an employee, officer, director, or authorized agent of the recipient. This material is not an offer or solicitation with respect to the purchase or sale of any security in any jurisdiction in whichsuch offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation.© 2019 Goldman Sachs. All rights reserved.25