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Filed pursuant to Rule 424(b)(2)

Registration Statement No. 333-219206

 

The information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated February 23, 2018.

GS Finance Corp.

$

 

Leveraged Buffered Basket-Linked Notes due

 

guaranteed by

The Goldman Sachs Group, Inc.


 

 

The notes will not bear interest. The amount that you will be paid on your notes on the stated maturity date (expected to be March 3, 2022) is based on the performance of a weighted basket comprised of the EURO STOXX 50 ®  Index (30% weighting), the S&P 500 ®  Index (30% weighting), the FTSE ®  100 Index (20% weighting) and the Russell 2000 ®  Index (20% weighting) as measured from the trade date (expected to be February 26, 2018) to and including the determination date (expected to be February 28, 2022). The initial basket level is 100 and the final basket level will equal the sum of the products, as calculated for each basket index, of: (i) the final index level divided by the initial index level (set on the trade date) multiplied by (ii) the applicable initial weighted value for each basket index. If the final basket level on the determination date is greater than the initial basket level, the return on your notes will be positive and will equal the participation rate of 1.39 times the basket return. If the final basket level declines by up to 20% from the initial basket level, you will receive the face amount of your notes.

 

If the final basket level declines by more than 20% from the initial basket level, the return on your notes will be negative and you will lose 1.25% of the face amount of your notes for every 1% that the final index level has declined below 80% of the initial index level . See page PS-5. You could lose a significant portion of the face amount of your notes.

 

To determine your payment at maturity, we will calculate the basket return, which is the percentage increase or decrease in the final basket level from the initial basket level. At maturity, for each $1,000 face amount of your notes, you will receive an amount in cash equal to:

 

·                 if the basket return is positive (the final basket level is greater than the initial basket level), the sum of (i) $1,000 plus (ii) the product of (a) $1,000 times (b) the 1.39 times (c) the basket return;

 

·                 if the basket return is zero or negative but not below -20% (the final basket level is equal to or less than the initial basket level but not by more than 20%), $1,000; or

 

·                 if the basket return is negative and is below -20% (the final basket level is less than the initial basket level by more than 20%), the sum of (i) $1,000 plus (ii) the product of (a) the buffer rate of 125% (see page PS-5) times (b) the sum of the basket return plus 20% times (c) $1,000. You will receive less than the face amount of your notes.

 

Declines in one basket index may offset increases in the other basket indices. Due to the unequal weighting of each basket index, the performances of the EURO STOXX 50 ®  Index and the S&P 500 ®  Index will have a significantly larger impact on your return on the notes than the performance of the FTSE ®  100 Index or the Russell 2000 ®  Index .

 

You should read the disclosure herein to better understand the terms and risks of your investment, including the credit risk of GS Finance Corp. and The Goldman Sachs Group, Inc. See page PS-12.

 

The estimated value of your notes at the time the terms of your notes are set on the trade date is expected to be between $930 and $960 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.

 

Original issue date:

expected to be February 28, 2018

Original issue price:

100% of the face amount*

Underwriting discount:

    % of the face amount*

Net proceeds to the issuer:

    % of the face amount

 

*The original issue price will be        % for certain investors; see “Summary Information — Key Terms — Supplemental plan of distribution; conflicts of interest” on page PS-6.

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. The notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.

 

Goldman Sachs & Co. LLC

Pricing Supplement No.           dated         , 2018.

 


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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.

 

Estimated Value of Your Notes

 

The estimated value of your notes at the time the terms of your notes are set on the trade date (as determined by reference to pricing models used by Goldman Sachs & Co. LLC (GS&Co.) and taking into account our credit spreads) is expected to be between $930 and $960 per $1,000 face amount, which is less than the original issue price. The value of your notes at any time will reflect many factors and cannot be predicted; however, the price (not including GS&Co. s customary bid and ask spreads) at which GS&Co. would initially buy or sell notes (if it makes a market, which it is not obligated to do) and the value that GS&Co. will initially use for account statements and otherwise is equal to approximately the estimated value of your notes at the time of pricing, plus an additional amount (initially equal to $      per $1,000 face amount).

 

Prior to              , the price (not including GS&Co.’s customary bid and ask spreads) at which GS&Co. would buy or sell your notes (if it makes a market, which it is not obligated to do) will equal approximately the sum of (a) the then-current estimated value of your notes (as determined by reference to GS&Co.’s pricing models) plus (b) any remaining additional amount (the additional amount will decline to zero on a straight-line basis from the time of pricing through               ). On and after              , the price (not including GS&Co.’s customary bid and ask spreads) at which GS&Co. would buy or sell your notes (if it makes a market) will equal approximately the then-current estimated value of your notes determined by reference to such pricing models.

 

 

About Your Prospectus

 

The notes are part of the Medium-Term Notes, Series E program of GS Finance Corp. and are fully and unconditionally guaranteed by The Goldman Sachs Group, Inc. This prospectus includes this pricing supplement and the accompanying documents listed below. This pricing supplement constitutes a supplement to the documents listed below and should be read in conjunction with such documents:

 

·        Product supplement no. 1,738 dated July 10, 2017

 

·        General terms supplement no. 1,734 dated July 10, 2017

 

·        Prospectus supplement dated July 10, 2017

 

·       Prospectus dated July 10, 2017

 

 

The information in this pricing supplement supersedes any conflicting information in the documents listed above. In addition, some of the terms or features described in the listed documents may not apply to your notes.

 

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SUMMARY INFORMATION

 

 

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, references to the “accompanying general terms supplement no. 1,734” mean the accompanying general terms supplement no. 1,734, dated July 10, 2017, and references to the “accompanying product supplement no. 1,738” mean the accompanying product supplement no. 1,738, 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 “General Terms of the Underlier-Linked Notes” on page S-35 of the accompanying product supplement no. 1,738 and “Supplemental Terms of the Notes” on page S-16 of the accompanying general terms supplement no. 1,734. Please note that certain features, as noted below, described in the accompanying product supplement no. 1,738 and general terms supplement no. 1,734 are not applicable to the notes. This pricing supplement supersedes any conflicting provisions of the accompanying product supplement no. 1,738 or the accompanying general terms supplement no. 1,734 .

 

 

 

Key Terms

 

Issuer: GS Finance Corp.

 

Guarantor: The Goldman Sachs Group, Inc.

 

Basket underliers: the EURO STOXX 50 ®  Index (Bloomberg symbol, “SX5E Index”), as published by STOXX Limited; the S&P 500 ®  Index (Bloomberg symbol, “SPX Index”), as published by S&P Dow Jones Indices LLC; the FTSE ®  100 Index (Bloomberg symbol, “UKX Index”), as published by FTSE Russell; and the Russell 2000 ®  Index (Bloomberg symbol, “RTY Index”), as published by FTSE Russell; see “The Basket and the Basket Underliers” on page PS-17

 

Specified currency: U.S. dollars (“$”)

 

Terms to be specified in accordance with the accompanying product supplement no. 1,738:

 

·                   type of notes: notes linked to basket of underliers

 

·                   exchange rates: not applicable

 

·                   buffer level: yes, as described below

 

·                   cap level: not applicable

 

·                   averaging dates: not applicable

 

·                   interest: not applicable

 

·                   redemption right or price dependent redemption right: not applicable

 

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Face amount: each note will have a face amount of $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 at the stated maturity date for your notes will not be adjusted based on the issue price you pay for your notes, so if you acquire notes at a premium (or discount) to face amount and hold them to the stated maturity date, 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. Also, the stated buffer level would not offer the same measure of protection to your investment as would be the case if you had purchased the notes at face amount. See “Additional Risk Factors Specific to Your Notes If You Purchase Your Notes at a Premium to Face Amount, the Return on Your Investment Will Be Lower Than the Return on Notes Purchased at Face Amount and the Impact of Certain Key Terms of the Notes Will Be Negatively Affected” on page PS-14 of this pricing supplement

 

Supplemental discussion of 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 basket underliers, as described under “Supplemental Discussion of Federal Income Tax Consequences” on page S-41 of the accompanying product supplement no. 1,738. Pursuant to this approach, it is the opinion of Sidley Austin LLP that upon the sale, exchange 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. Pursuant to Treasury regulations, Foreign Account Tax Compliance Act (FATCA) withholding (as described in “United States Taxation—Taxation of Debt Securities—Foreign Account Tax Compliance Act (FATCA) Withholding” in the accompanying prospectus) will generally apply to obligations that are issued on or after July 1, 2014; therefore, the notes will generally be subject to FATCA withholding. However, according to published guidance, the withholding tax described above will not apply to payments of gross proceeds from the sale, exchange or other disposition of the notes made before January 1, 2019.

 

Cash settlement amount: for each $1,000 face amount of your notes, we will pay you on the stated maturity date an amount in cash equal to:

 

·                   if the final basket level is greater than the initial basket level, the sum of (1) $1,000 plus (2) the product of (i) $1,000 times (ii) the upside participation rate times (iii) the basket return;

 

·                   if the final basket level is equal to or less than the initial basket level but greater than or equal to the buffer level, $1,000; or

 

·                   if the final basket level is less than the buffer level, the sum of (1) $1,000 plus (2) the product of (i) $1,000 times (ii) the buffer rate times (iii) the sum of the basket return plus the buffer amount

 

Initial basket level: 100

 

Initial weighted value: the initial weighted value for each of the basket underliers is expected to equal the product of the initial weight of such basket underlier times the initial basket level. The initial weight of each basket underlier is shown in the table below:

 

 

Basket Underlier

 

Initial Weight in
Basket

EURO STOXX 50 ®  Index

 

30%

S&P 500 ®  Index

 

30%

FTSE ®  100 Index

 

20%

Russell 2000 ®  Index

 

20%

 

Initial EURO STOXX 50 ®  Index level (to be set on the trade date):

 

Initial S&P 500 ®  Index level ( to be set on the trade date ):

 

Initial FTSE ®  100 Index level ( to be set on the trade date ):

 

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Initial Russell 2000 ®  Index level ( to be set on the trade date ):

 

Final EURO STOXX 50 ®  Index level: the closing level of such basket underlier on the determination date, 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

 

Final S&P 500 ®  Index level: the closing level of such basket underlier on the determination date, 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

 

Final FTSE ®  100 Index level: the closing level of such basket underlier on the determination date, 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

 

Final Russell 2000 ®  Index level: the closing level of such basket underlier on the determination date, 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

 

Final basket level: the sum of the following: (1) the final EURO STOXX 50 ®  Index level divided by the initial EURO STOXX 50 ®  Index level, multiplied by the initial weighted value of the EURO STOXX 50 ®  Index plus (2) the final S&P 500 ®  Index level divided by the initial S&P 500 ®  Index level, multiplied by the initial weighted value of the S&P 500 ®  Index plus (3) the final FTSE ®  100 Index level divided by the initial FTSE ®  100 Index level, multiplied by the initial weighted value of the FTSE ®  100 Index plus (4) the final Russell 2000 ®  Index level divided by the initial Russell 2000 ®  Index level, multiplied by the initial weighted value of the Russell 2000 ®  Index

 

Basket return: the quotient of (1) the final basket level minus the initial basket level divided by (2) the initial basket level, expressed as a percentage

 

Upside participation rate : 139%

 

Buffer level: 80% of the initial basket level

 

Buffer amount: 20%

 

Buffer rate: the quotient of the initial basket level divided by the buffer level, which equals 125%

 

Trade date : expected to be February 26, 2018

 

Original issue date (settlement date) (to be set on the trade date) : expected to be February 28, 2018

 

Stated maturity date (to be set on the trade date): expected to be March 3, 2022, subject to adjustment as described under “Supplemental Terms of the Notes — Stated Maturity Date” on page S-16 of the accompanying general terms supplement no. 1,734

 

Determination date (to be set on the trade date) : expected to be February 28, 2022, 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

 

No interest: the offered notes will not bear interest

 

No listing: the offered notes will not be listed on any securities exchange or interdealer quotation system

 

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No redemption: the offered notes will not be subject to redemption right or price dependent redemption right

 

Closing level: 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

 

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

 

Use of proceeds and hedging: as described under “Use of Proceeds” and “Hedging” on page S-40 of the accompanying product supplement no. 1,738

 

ERISA: as described under “Employee Retirement Income Security Act” on page S-48 of the accompanying product supplement no. 1,738

 

Supplemental plan of distribution; conflicts of interest: as described under “Supplemental Plan of Distribution” on page S-49 of the accompanying product supplement no. 1,738 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 February 28, 2018, which is expected to be the second scheduled business day following the date of this pricing supplement and of the pricing of the notes.

 

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.: 40055ANB9

 

ISIN no.: US40055ANB97

 

FDIC : the notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank

 

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HYPOTHETICAL EXAMPLES

 

The following examples are provided for purposes of illustration only. They should not be taken as an indication or prediction of future investment results and are intended merely to illustrate the impact that the various hypothetical basket closing levels or hypothetical closing levels of the basket underliers, as applicable, on the determination date could have on the cash settlement amount at maturity assuming all other variables remain constant.

 

The examples below are based on a range of final basket levels and closing levels of the basket underliers that are entirely hypothetical; no one can predict what the level of the basket will be on any day throughout the life of your notes, and no one can predict what the final basket level will be on the determination date. The basket underliers have been highly volatile in the past — meaning that the levels of the basket underliers have changed considerably in relatively short periods — and their performances 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 the stated maturity date. If you sell your notes in a secondary market prior to the stated maturity date, your return will depend upon the market value of your notes at the time of sale, which may be affected by a number of factors that are not reflected in the examples below such as interest rates, the volatility of the basket underliers, the creditworthiness of GS Finance Corp., as issuer, and the creditworthiness of The Goldman Sachs Group, Inc., as guarantor. In addition, the estimated value of your notes at the time the terms of your notes are set on the trade date (as determined by reference to pricing models used by GS&Co.) is less than the original issue price of your notes. For more information on the estimated value of your notes, see “Additional Risk Factors Specific to Your Notes — The Estimated Value of Your Notes At the Time the Terms of Your Notes Are Set On the Trade Date (as Determined By Reference to Pricing Models Used By GS&Co.) Is Less Than the Original Issue Price Of Your Notes” on page PS-12 of this pricing supplement. The information in the examples also reflects the key terms and assumptions in the box below.

 

 

 

Key Terms and Assumptions

 

Face amount

$1,000

Upside participation rate

139%

Initial basket level

100

Buffer level

80% of the initial basket level

Buffer rate

125%

Buffer amount

20%

 

 

Neither a market disruption event nor a non-trading day occurs with respect to any basket underlier on the originally scheduled determination date

 

No change in or affecting any of the basket underlier indices or the methods by which any of the basket underlier sponsors calculates the EURO STOXX 50 ®  Index, the S&P 500 ®  Index, the FTSE ®  100 Index or the Russell 2000 ®  Index , respectively

 

Notes purchased on original issue date at the face amount and held to the stated maturity date

 

 

Moreover, we have not yet set the initial EURO STOXX 50 ®  Index level, the initial S&P 500 ®  Index level, the initial FTSE ®  100 Index level or the initial Russell 2000 ®  Index level that will serve as the baselines for determining the basket return and the amount, if any, that we will pay on your notes at maturity. We will not do so until the trade date. As a result, the actual initial EURO STOXX 50 ®  Index level, the initial S&P 500 ®  Index level, the initial FTSE ®  100 Index level and the initial Russell 2000 ®  Index level may differ substantially from the current level of such basket underlier prior to the trade date and may be higher or lower than the actual closing level of each basket underlier on the trade date. They may also differ substantially from the level of such basket underlier at the time you purchase your notes.

 

For these reasons, the actual performance of the basket over the life of your notes, as well as the amount payable at maturity, if any, may bear little relation to the hypothetical examples shown below or to

 

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the historical level of each basket underlier shown elsewhere in this pricing supplement. For information about the historical level of each basket underlier during recent periods, see “The Basket and the Basket Underliers — Historical Closing Levels of the Basket Underliers” below. Before investing in the offered notes, you should consult publicly available information to determine the level of the basket underliers between the date of this pricing supplement and the date of your purchase of the offered 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 basket underliers.

 

The levels in the left column of the table below represent hypothetical final basket levels and are expressed as percentages of the initial basket level. The amounts in the right column represent the hypothetical cash settlement amounts, based on the corresponding hypothetical final basket level (expressed as a percentage of the initial basket level), 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 basket level (expressed as a percentage of the initial basket level) and the assumptions noted above.

 

Hypothetical Final Basket Level

Hypothetical Cash Settlement
Amount

 

 

(as Percentage of Initial Basket Level)

(as Percentage of Face Amount)

200.000%

239.000%

175.000%

204.250%

150.000%

169.500%

125.000%

134.750%

110.000%

113.900%

100.000%

100.000%

95.000%

100.000%

90.000%

100.000%

80.000%

100.000%

75.000%

93.750%

50.000%

62.500%

25.000%

31.250%

0.000%

0.000%

 

If, for example, the final basket level were determined to be 25.000% of the initial basket level, the cash settlement amount that we would deliver on your notes at maturity would be 31.250% 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 68.750% of your investment (if you purchased your notes at a premium to face amount you would lose a correspondingly higher percentage of your investment).

 

The following chart also shows a graphical illustration of the hypothetical cash settlement amounts (expressed as a percentage of the face amount of your notes) that we would pay on your notes on the stated maturity date, if the final basket level (expressed as a percentage of the initial basket level) were any of the hypothetical levels shown on the horizontal axis. The chart shows that any hypothetical final basket level (expressed as a percentage of the initial basket level) of less than 80.000% (the section left of the 80.000% marker on the horizontal axis) would result in a hypothetical cash settlement amount of less than 100.000% of the face amount of your notes (the section below the 100.000% marker on the vertical axis) and, accordingly, in a loss of principal to the holder of the notes.

 

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The following examples illustrate the hypothetical cash settlement amount at maturity for each note based on hypothetical final levels of the basket underliers, calculated based on the key terms and assumptions above. The levels in Column A represent hypothetical initial levels for each basket underlier, and the levels in Column B represent hypothetical final levels for each basket underlier. The percentages in Column C represent hypothetical final levels for each basket underlier in Column B expressed as percentages of the corresponding hypothetical initial levels in Column A. The amounts in Column D represent the applicable initial weighted value for each basket underlier, and the amounts in Column E represent the products of the percentages in Column C times the corresponding amounts in Column D. The final basket level for each example is shown beneath each example, and will equal the sum of the products shown in Column E. The basket return for each example is shown beneath the final basket level for such example, and will equal the quotient of (i) the final basket level for such example minus the initial basket level divided by (ii) the initial basket level, expressed as a percentage. The values below have been rounded for ease of analysis.

 

Example 1: The final basket level is greater than the initial basket level.

 

 

 

Column A

 

Column B

 

Column C

 

Column D

 

Column E

 

 

 

 

 

 

 

 

 

 

 

 

 

Basket Underlier

 

Hypothetical
Initial Level

 

Hypothetical
Final Level

 

Column B /
Column A

 

Initial
Weighted
Value

 

Column C x
Column D

 

EURO STOXX 50 ®  Index

 

3,400.00

 

3,434.00

 

101.00%

 

30.00

 

30.30

 

S&P 500 ®  Index

 

2,700.00

 

2,781.00

 

103.00%

 

30.00

 

30.90

 

FTSE ®  100 Index

 

7,300.00

 

7,446.00

 

102.00%

 

20.00

 

20.40

 

Russell 2000 ®  Index

 

1,500.000

 

1,620.000

 

108.00%

 

20.00

 

21.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Final Basket Level:

 

103.20

 

 

 

 

 

 

 

Basket Return:

 

3.20%

 

 

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In this example, all of the hypothetical final levels for the basket underliers are greater than the applicable hypothetical initial levels, which results in the hypothetical final basket level being greater than the initial basket level of 100. Since the hypothetical final basket level was determined to be 103.20, the hypothetical cash settlement amount for each $1,000 face amount of your notes will equal:

 

Cash settlement amount = $1,000 + ($1,000 × 139% × 3.20%) = $1,044.48

 

Example 2: The final basket level is less than the initial basket level, but greater than the buffer level. The cash settlement amount equals the $1,000 face amount.

 

 

 

Column A

 

Column B

 

Column C

 

Column D

 

Column E

 

 

 

 

 

 

 

 

 

 

 

 

 

Basket Underlier

 

Hypothetical
Initial Level

 

Hypothetical
Final Level

 

Column B /
Column A

 

Initial
Weighted
Value

 

Column C x
Column D

 

EURO STOXX 50 ®  Index

 

3,400.00

 

3,230.00

 

95.00%

 

30.00

 

28.50

 

S&P 500 ®  Index

 

2,700.00

 

2,565.00

 

95.00%

 

30.00

 

28.50

 

FTSE ®  100 Index

 

7,300.00

 

6,935.00

 

95.00%

 

20.00

 

19.00

 

Russell 2000 ®  Index

 

1,500.000

 

1,425.000

 

95.00%

 

20.00

 

19.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Final Basket Level:

 

95.00

 

 

 

 

 

 

 

Basket Return:

 

-5.00%

 

 

In this example, all of the hypothetical final levels for the basket underliers are less than the applicable initial levels, which results in the hypothetical final basket level being less than the initial basket level of 100. Since the hypothetical final basket level of 95.00 is greater than the buffer level of 80% of the initial basket level but less than the initial basket level of 100, the hypothetical cash settlement amount for each $1,000 face amount of your notes will equal the face amount of the note, or $1,000.

 

Example 3: The final basket level is less than the buffer level. The cash settlement amount is less than the $1,000 face amount.

 

 

 

Column A

 

Column B

 

Column C

 

Column D

 

Column E

 

 

 

 

 

 

 

 

 

 

 

 

 

Basket Underlier

 

Hypothetical
Initial Level

 

Hypothetical
Final Level

 

Column B /
Column A

 

Initial
Weighted
Value

 

Column C x
Column D

 

EURO STOXX 50 ®  Index

 

3,400.00

 

1,700.00

 

50.00%

 

30.00

 

15.00

 

S&P 500 ®  Index

 

2,700.00

 

1,350.00

 

50.00%

 

30.00

 

15.00

 

FTSE ®  100 Index

 

7,300.00

 

8,760.00

 

120.00%

 

20.00

 

24.00

 

Russell 2000 ®  Index

 

1,500.000

 

1,800.00

 

120.00%

 

20.00

 

24.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Final Basket Level:

 

78.00

 

 

 

 

 

 

 

Basket Return:

 

-22.00%

 

 

In this example, the hypothetical final levels of the EURO STOXX 50 ®  Index and the S&P 500 ®  Index are less than their applicable hypothetical initial levels, while the hypothetical final levels of the FTSE ®  100 Index and the Russell 2000 ®  Index are greater than their applicable initial levels.

 

Because the basket is unequally weighted, increases in the lower weighted basket underliers will be offset by decreases in the more heavily weighted basket underliers . In this example, the large declines in the EURO STOXX 50 ®  Index and the S&P 500 ®  Index result in the hypothetical final basket level being less than the buffer level of 80% of the initial basket level even though the FTSE ®  100 Index and the Russell 2000 ®  Index increased.

 

Since the hypothetical final basket level of 78.00 is less than the buffer level of 80% of the initial basket level, the hypothetical cash settlement amount for each $1,000 face amount of your notes will equal:

 

Cash settlement amount = $1,000 + ($1,000 × 125% × (- 22 % + 20% )) = $ 975.00

 

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Example 4: The final basket level is less than the buffer level. The cash settlement amount is less than the $1,000 face amount.

 

 

 

Column A

 

Column B

 

Column C

 

Column D

 

Column E

 

 

 

 

 

 

 

 

 

 

 

 

 

Basket Underlier

 

Hypothetical
Initial Level

 

Hypothetical
Final Level

 

Column B /
Column A

 

Initial
Weighted
Value

 

Column C x
Column D

 

EURO STOXX 50 ®  Index

 

3,400.00

 

1,700.00

 

50.00%

 

30.00

 

15.00

 

S&P 500 ®  Index

 

2,700.00

 

1,620.00

 

60.00%

 

30.00

 

18.00

 

FTSE ®  100 Index

 

7,300.00

 

4,380.00

 

60.00%

 

20.00

 

12.00

 

Russell 2000 ®  Index

 

1,500.000

 

975.000

 

65.00%

 

20.00

 

13.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Final Basket Level:

 

58.00

 

 

 

 

 

 

 

Basket Return:

 

-42.00%

 

 

In this example, the hypothetical final levels for all of the basket underliers are less than the applicable hypothetical initial levels, which results in the hypothetical final basket level being less than the initial basket level of 100. Since the hypothetical final basket level of 58.00 is less than the buffer level of 80% of the initial basket level, the hypothetical cash settlement amount for each $1,000 face amount of your notes will equal:

 

Cash settlement amount = $1,000 + ($1,000 × 125% × (- 42.00 % + 20% )) = $725.00

 

The cash settlement amounts shown above are entirely hypothetical; they are based on levels of the basket underliers 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 the Underlier-Linked Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” on page S-32 of the accompanying product supplement no. 1,738.

 

Payments on the notes are economically equivalent to the amounts that would be paid on a combination of other instruments. For example, payments on the notes are economically equivalent to a combination of an interest-bearing bond bought by the holder and one or more options entered into between the holder and us (with one or more implicit option premiums paid over time). The discussion in this paragraph does not modify or affect the terms of the notes or the U.S. federal income tax treatment of the notes, as described elsewhere in this pricing supplement.

 

We cannot predict the actual final basket level on the determination date, nor can we predict the relationship between the level of each basket underlier and the market value of your notes at any time prior to the stated maturity date. The actual amount that a holder of the offered notes will receive, if any, on the stated maturity date and the rate of return on the offered notes will depend on the initial level of each basket underlier, which we will set on the trade date, and the actual basket return determined by the calculation agent as described above. Moreover, the assumptions on which the hypothetical returns are based may turn out to be inaccurate. Consequently, the amount of cash to be paid in respect of your notes, if any, on the stated maturity date may be very different from the hypothetical cash settlement amounts shown 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 , under “Additional Risk Factors Specific to the Notes” in the accompanying general terms supplement no. 1,734 and under “Additional Risk Factors Specific to the Underlier-Linked Notes” in the accompanying product supplement no. 1,738. 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, the accompanying general terms supplement no. 1,734 and the accompanying product supplement no. 1,738. Your notes are a riskier investment than ordinary debt securities. Also, your notes are not equivalent to investing directly in the basket underlier stocks, i.e., with respect to a basket underlier to which your notes are linked, the stocks comprising such basket underlier. You should carefully consider whether the offered notes are suited to your particular circumstances .

 

 

The Estimated Value of Your Notes At the Time the Terms of Your Notes Are Set On the Trade Date (as Determined By Reference to Pricing Models Used By GS&Co.) Is Less Than the Original Issue Price Of Your Notes

 

The original issue price for your notes exceeds the estimated value of your notes as of the time the terms of your notes are set on the trade date, as determined by reference to GS&Co.’s pricing models and taking into account our credit spreads. Such estimated value on the trade date is set forth above under “Estimated Value of Your Notes ; after the trade date, the estimated value as determined by reference to these models will be affected by changes in market conditions, the creditworthiness of GS Finance Corp., as issuer, the creditworthiness of The Goldman Sachs Group, Inc., as guarantor, and other relevant factors.  The price at which GS&Co. would initially buy or sell your notes (if GS&Co. makes a market, which it is not obligated to do), and the value that GS&Co. will initially use for account statements and otherwise, also exceeds the estimated value of your notes as determined by reference to these models. As agreed by GS&Co. and the distribution participants, this excess (i.e., the additional amount described under “Estimated Value of Your Notes”) will decline to zero on a straight line basis over the period from the date hereof through the applicable date set forth above under “Estimated Value of Your Notes”. Thereafter, if GS&Co. buys or sells your notes it will do so at prices that reflect the estimated value determined by reference to such pricing models at that time. The price at which GS&Co. will buy or sell your notes at any time also will reflect its then current bid and ask spread for similar sized trades of structured notes.

 

In estimating the value of your notes as of the time the terms of your notes are set on the trade date, as disclosed above under “Estimated Value of Your Notes , GS&Co.’s pricing models consider certain variables, including principally our credit spreads, interest rates (forecasted, current and historical rates), volatility, price-sensitivity analysis and the time to maturity of the notes.  These pricing models are proprietary and rely in part on certain assumptions about future events, which may prove to be incorrect. As a result, the actual value you would receive if you sold your notes in the secondary market, if any, to others may differ, perhaps materially, from the estimated value of your notes determined by reference to our models due to, among other things, any differences in pricing models or assumptions used by others.  See “Additional Risk Factors Specific to the Underlier-Linked Notes — The Market Value of Your Notes May Be Influenced by Many Unpredictable Factors” on page S-32 of the accompanying product supplement no. 1,738.

 

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

 

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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 “Additional Risk Factors Specific to the Underlier-Linked Notes — Your Notes May Not Have an Active Trading Market” on page S-31 of the accompanying product supplement no. 1,738.

 

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 the basket underliers, 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.

 

The Amount Payable on Your Notes Is Not Linked to the Level of Each Basket Underlier at Any Time Other than the Determination Date

 

The final basket level will be based on the closing levels of the basket underliers on the determination date (subject to adjustment as described elsewhere in this pricing supplement). Therefore, if the closing levels of the basket underliers 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 levels of the basket underliers prior to such drop in the levels of the basket underliers. Although the actual levels of the basket underliers on the stated maturity date or at other times during the life of your notes may be higher than the closing levels of the basket underliers on the determination date, you will not benefit from the closing levels of the basket underliers at any time other than on the determination date.

 

You May Lose Your Entire Investment in the Notes

 

You can lose your entire investment in the notes. The cash payment on your notes, if any, on the stated maturity date will be based on the performance of a weighted basket comprised of the EURO STOXX 50 ®  Index, the S&P 500 ®  Index, the FTSE ®  100 Index and the Russell 2000 ®  Index as measured from the initial basket level of 100 to the final basket level on the determination date. If the final basket level for your notes is less than the buffer level, you will have a loss for each $1,000 of the face amount of your notes equal to the product of (i) the buffer rate times (ii) the sum of the basket return plus the buffer amount times (iii) $1,000. Thus, you may lose your entire investment in the notes, which would include any premium to face amount you paid when you purchased the notes.

 

Also, the market price of your notes prior to the stated maturity date may be significantly lower than the purchase price you pay for your notes. Consequently, if you sell your notes before the stated maturity date, you may receive far less than the amount of your investment in the notes.

 

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Your Notes Do 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 the stated maturity date 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 Lower Performance of One Basket Underlier May Offset an Increase in the Other Basket Underliers

 

Declines in the level of one basket underlier may offset increases in the levels of the other basket underliers. As a result, any return on the basket — and thus on your notes — may be reduced or eliminated, which will have the effect of reducing the amount payable in respect of your notes at maturity. In addition, because the basket underliers are not equally weighted, increases in the lower weighted basket underliers may be offset by even small decreases in the more heavily weighted basket underliers.

 

You Have No Shareholder Rights or Rights to Receive Any Basket Underlier Stock

 

Investing in your notes will not make you a holder of any of the basket underlier stocks. Neither you nor any other holder or owner of your notes will have any rights with respect to the basket underlier stocks, including any voting rights, any right to receive dividends or other distributions, any rights to make a claim against the basket underlier stocks or any other rights of a holder of the basket underlier stocks. Your notes will be paid in cash and you will have no right to receive delivery of any basket underlier stocks.

 

We May Sell an Additional Aggregate Face Amount of the Notes at a Different Issue Price

 

At our sole option, we may decide to sell an additional aggregate face amount of the notes subsequent to the date of this pricing supplement. The issue price of the notes in the subsequent sale may differ substantially (higher or lower) from the issue price you paid as provided on the cover of this pricing supplement.

 

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 will not be adjusted based on the issue price you pay for the notes. If you purchase notes at a price that differs from the face amount of the notes, then the return on your investment in such notes held to the stated maturity date will differ from, and may be substantially less than, the return on notes purchased at face amount. If you purchase your notes at a premium to face amount and hold them to the stated maturity date 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. In addition, the impact of the buffer level on the return on your investment will depend upon the price you pay for your notes relative to face amount. For example, if you purchase your notes at a premium to face amount, the buffer level, while still providing some protection for the return on the notes, will allow a greater percentage decrease in your investment in the notes than would have been the case for notes purchased at face amount or a discount to face amount.

 

An Investment in the Offered Notes Is Subject to Risks Associated with Foreign Securities

 

The value of your notes is linked, in part, to the EURO STOXX 50 ®  Index and the FTSE 100 ®  Index, which are each comprised of stocks from one or more foreign securities markets. Investments linked to the value of foreign equity securities involve particular risks. Any foreign securities market may be less liquid, more volatile and affected by global or domestic market developments in a different way than are the U.S. securities market or other foreign securities markets. Both government intervention in a foreign securities market, either directly or indirectly, and cross-shareholdings in foreign companies, may affect trading prices and volumes in that market. Also, there is generally less publicly available information about foreign companies than about those U.S. companies that are subject to the reporting requirements of the U.S. Securities and Exchange Commission. Further, foreign companies are subject to accounting, auditing and financial reporting standards and requirements that differ from those applicable to U.S. reporting companies.

 

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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.

 

Your Notes May Be Subject to an Adverse Change in Tax Treatment in the Future

 

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 proper U.S. federal income tax treatment of an instrument such as your notes, and any such guidance could adversely affect the tax treatment and the value 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 Federal Income Tax Consequences” on page S-41 of the accompanying product supplement no. 1,738. You should consult your tax advisor about this matter. Except to the extent otherwise provided by law, GS Finance Corp. intends to continue treating the notes for U.S. federal income tax purposes in accordance with the treatment described under “Supplemental Discussion of Federal Income Tax Consequences” on page S-41 of the accompanying product supplement no. 1,738 unless and until such time as Congress, the Treasury Department or the Internal Revenue Service determine that some other treatment is more appropriate.

 

United States Alien Holders Should Consider the Withholding Tax Implications of Owning the Notes

 

The Treasury Department has issued regulations under which amounts paid or deemed paid on certain financial instruments (“871(m) financial instruments”) that are treated as attributable to U.S.-source dividends could be treated, in whole or in part depending on the circumstances, as a “dividend equivalent” payment that is subject to tax at a rate of 30% (or a lower rate under an applicable treaty), which in the case of any amounts a United States alien holder receives upon the sale, exchange or maturity of the notes, could be collected via withholding. If these regulations were to apply to the notes, we may be required to withhold such taxes if any U.S.-source dividends are paid on any of the stocks included in the basket underliers during the term of the notes. We could also require a United States alien holder to make certifications (e.g., an applicable Internal Revenue Service Form W-8) prior to the maturity of the notes in order to avoid or minimize withholding obligations, and we could withhold accordingly (subject to the United States alien holder’s potential right to claim a refund from the Internal Revenue Service) if such certifications were not received or were not satisfactory. If withholding was required, we would not be required to pay any additional amounts with respect to amounts so withheld. These regulations generally will apply to 871(m) financial instruments (or a combination of financial instruments treated as having been entered into in connection with each other) issued (or significantly modified and treated as retired and

 

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reissued) on or after January 1, 2019, but will also apply to certain 871(m) financial instruments (or a combination of financial instruments treated as having been entered into in connection with each other) that have a delta (as defined in the applicable Treasury regulations) of one and are issued (or significantly modified and treated as retired and reissued) on or after January 1, 2017.  In addition, these regulations will not apply to financial instruments that reference a “qualified index” (as defined in the regulations).  We have determined that, as of the issue date of your notes, your notes will not be subject to withholding under these rules.  In certain limited circumstances, however, you should be aware that it is possible for United States alien holders to be liable for tax under these rules with respect to a combination of transactions treated as having been entered into in connection with each other even when no withholding is required.  You should consult your tax advisor concerning these regulations, subsequent official guidance and regarding any other possible alternative characterizations of your notes for U.S. federal income tax purposes.

 

Foreign Account Tax Compliance Act (FATCA) Withholding 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.

 

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THE BASKET AND THE BASKET UNDERLIERS

 

The Basket

 

The basket is comprised of six basket underliers with the following initial weights within the basket: the EURO STOXX 50 ®  Index (30% weighting), the S&P 500 ®  Index (30% weighting), the FTSE ®  100 Index (20% weighting) and the Russell 2000 ®  Index (20% weighting) .

 

The EURO STOXX 50 ®  Index

 

The EURO STOXX 50 ®  Index is a free-float market capitalization-weighted index of 50 European blue-chip stocks and was created by and is sponsored and maintained by STOXX Limited. Publication of the EURO STOXX 50 Index began on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The level of the EURO STOXX 50 ®  Index is disseminated on the STOXX Limited website. STOXX Limited is under no obligation to continue to publish the index and may discontinue publication of it at any time. Additional information regarding the EURO STOXX 50 ®  Index may be obtained from the STOXX Limited website: stoxx.com. We are not incorporating by reference the website or any material it includes in this pricing supplement.

 

The top ten constituent stocks of the EURO STOXX 50 ®  Index as of February 19, 2018, by weight, are: Total S.A. (4.99%), Siemens AG (4.06%), Banco Santander S.A. (3.88%), Allianz SE (3.65%), SAP SE (3.61%), Bayer AG (3.48%), BASF SE (3.41%), BNP Paribas S.A. (3.20%), Sanofi (3.17%) and Daimler AG (3.05%); constituent weights may be found at stoxx.com/download/indices/factsheets/SX5GT.pdf under “Factsheets and Methodologies” and are updated periodically.

 

As of February 19, 2018, the sixteen industry sectors which comprise the EURO STOXX 50 ®  Index represent the following weights in the index: Automobiles & Parts (5.56%), Banks (16.17%), Chemicals (5.29%), Construction & Materials (4.02%), Food & Beverage (4.49%), Health Care (10.05%), Industrial Goods & Services (11.02%), Insurance (7.15%), Media (0.93%), Oil & Gas (6.48%), Personal & Household Goods (9.04%), Real Estate (0.81%), Retail (2.21%), Technology (7.35%), Telecommunications (4.54%) and Utilities (4.89%); 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 basket 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 February 19, 2018, the eight countries which comprise the EURO STOXX 50 ®  Index represent the following weights in the index: Belgium (2.72%), Finland (1.16%), France (37.00%), Germany (32.73%), Ireland (1.00%), Italy (5.04%), Netherlands (10.15%) and Spain (10.20%); country weightings may be found at stoxx.com/download/indices/factsheets/SX5GT.pdf under “Factsheets and Methodologies” and are updated periodically .

 

The above information supplements the description of the EURO STOXX 50 ®  Index found in the accompanying general terms supplement no. 1,734. This information was derived from information prepared by the basket underlier sponsor, however, the percentages we have listed above are approximate and may not match the information available on the basket underlier sponsor’s website due to subsequent corporation actions or other activity relating to a particular stock. For more details about the EURO STOXX 50 ®  Index, the basket underlier sponsor and license agreement between the basket 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.

 

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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:

 

·                   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

 

·                   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 February 21, 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 (12.79%), Consumer Staples (7.62%), Energy (5.52%), Financials (15.11%), Health Care (13.85%), Industrials (10.23%), Information Technology (24.73%), Materials (2.94%), Real Estate (2.59%), Telecommunication Services (1.89%) and Utilities (2.68%) . (Sector designations are determined by the basket 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 S&P 500 ®  Index found in the accompanying general terms supplement no. 1,734. This information was derived from information prepared by the underlier sponsor, however, the percentages we have listed above are approximate and may not match the information available on the basket underlier sponsor’s website due to subsequent corporate actions or other activity relating to a particular stock. For more details about the S&P 500 ®  Index , the basket underlier sponsor and the license agreement between the basket 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.

 

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The FTSE ®  100 Index

 

The FTSE ®  100 Index is a market capitalization-weighted index of the 100 most highly capitalized U.K.-listed blue chip companies traded on the London Stock Exchange. The FTSE ®  100 Index is sponsored, calculated, published and disseminated by FTSE Russell, a company owned by the London Stock Exchange Group companies that we refer to as FTSE. The FTSE ®  100 Index was first launched with a base level of 1,000 as of December 30, 1983. Additional information on the FTSE ®  100 Index is available from the following website: ftse.com/products/indices/uk. We are not incorporating by reference the website or any material it includes in this prospectus supplement.

 

FTSE divides the 100 companies included in the FTSE ®  100 Index into the 10 Industry Classification Benchmark industries: Oil & Gas, Basic Materials, Industrials, Consumer Goods, Health Care, Consumer Services, Telecommunications, Utilities, Financials and Technology. FTSE Russell announced that it expects to add an 11th industry, Real Estate, to the Industry Classification Benchmark after the market close on December 31, 2018.

 

FTSE ®  100 Index

 

Index Stock Weighting by Sector as of January 16, 2018

 

Industry:*

Percentage (%)**

Oil & Gas

14.64%

Basic Materials

10.43%

Industrials

7.12%

Consumer Goods

17.73%

Health Care

8.60%

Consumer Services

9.89%

Telecommunications

4.13%

Utilities

2.81%

Financials

23.81%

Technology

0.86%

 

*                    Sector designations are determined by the basket 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 may reflect differences in sector designation methodology as well as actual differences in the sector composition of the indices.

 

**               Information provided by FTSE. Percentages may not sum to 100% due to rounding.

 

The top ten constituent stocks of the FTSE ®  100 Index as of January 16, 2018, by weight, are: HSBC Holdings PLC (7.97%); Royal Dutch Shell PLC (5.79%); British American Tobacco PLC (5.77%); BP PLC (5.00%); Royal Dutch Shell PLC Class B (4.86%); GlaxoSmithKline PLC (3.28%); Diageo PLC (3.22%); AstraZeneca PLC (3.20%); Vodafone Group PLC (3.08%); and Prudential PLC (2.55%).

 

In addition to the eligibility criteria discussed under “The Underliers — FTSE ®  100 Index” on page S-69 of the accompanying general terms supplement no. 1,734, in order to be included in the FTSE ®  100 Index, a company is required to have greater than 5% of its voting rights (aggregated across all of its equity securities, including, where identifiable, those that are not listed or trading) in the hands of unrestricted shareholders. Current constituents of the FTSE ®  100 Index who do not meet this requirement will have until the September 2022 review to meet the requirement or they will be removed from the FTSE ®  100 Index.

 

The above information supplements the description of the basket underlier found in the accompanying general terms supplement no. 1,734. This information was derived from information prepared by the basket

 

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underlier sponsor, however, the percentages we have listed above are approximate and may not match the information available on the basket underlier sponsor’s website due to subsequent corporation actions or other activity relating to a particular stock. For more details about the FTSE ®  100 Index, the basket underlier sponsor and license agreement between the basket underlier sponsor and the issuer, see “The Underliers — FTSE ®  100 Index” on page S-69 of the accompanying general terms supplement no. 1,734.

 

“FTSE ® ”, “FT-SE ® ”, “Footsie ® ”, “FTSE4Good ® ” and “techMARK” are trademarks owned by the Exchange and are used by FTSE under license. “All-World ® ”, “All-Share ® ” and “All-Small ® ” are trademarks of FTSE.

 

The FTSE ®  100 Index is calculated by FTSE. FTSE does not sponsor, endorse or promote this product and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading.

 

All copyright and database rights in the index values and constituent list vest in FTSE. GS Finance Corp. has obtained full license from FTSE to use such copyrights and database rights in the creation of this product.

 

The Russell 2000 ®  Index

 

The Russell 2000 ®  Index measures the composite price performance of stocks of 2,000 companies incorporated in the U.S., its territories and certain “benefit-driven incorporation countries.”

 

As of February 21, 2018, the 2,000 companies included in the Russell 2000 ®  Index were divided into nine Russell Global Sectors. The Russell Global Sectors include (with the approximate percentage currently included in such sectors indicated in parentheses): Consumer Discretionary (13.73%), Consumer Staples (2.23%), Financial Services (24.93%), Health Care (16.01%), Materials & Processing (7.32%), Other Energy (3.47%), Producer Durables (14.04%), Technology (14.13%) and Utilities (4.14%) . (Sector designations are determined by the basket 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.)

 

The above information supplements the description of the basket underlier found in the accompanying general terms supplement no. 1,734. This information was derived from information prepared by the basket underlier sponsor, however, the percentages we have listed above are approximate and may not match the information available on the basket underlier sponsor’s website due to subsequent corporate actions or other activity relating to a particular stock.  For more details about the Russell 2000 ®  Index, the basket underlier sponsor and license agreement between the basket underlier sponsor and the issuer, see “The Underliers - Russell 2000 ®  Index” on page S-61 of the accompanying general terms supplement no. 1,734.

 

The Russell 2000 ®  Index is a trademark of Russell Investment Group (“Russell”) and has been licensed for use by GS Finance Corp. The notes are not sponsored, endorsed, sold or promoted by Russell, and Russell makes no representation regarding the advisability of investing in the notes.

 

Historical Closing Levels of the Basket Underliers

 

The respective closing level of the basket underliers have fluctuated in the past and may, in the future, experience significant fluctuations. Any historical upward or downward trend in the level of any of the basket underliers during the period shown below is not an indication that the basket underliers are more or less likely to increase or decrease at any time during the life of your notes.

 

You should not take the historical levels of the basket or the basket underliers as an indication of the future performances of the basket underliers. Before investing in the offered notes, you should consult publicly available information to determine the level of the basket underliers between the date of this pricing supplement and the date of your purchase of the offered notes. We cannot give you any assurance that the future performance of the basket, basket underliers or the basket underlier stocks will result in your receiving an amount greater than the outstanding face amount of your notes on the stated maturity date.

 

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Neither we nor any of our affiliates make any representation to you as to the performance of the basket or the basket underliers. The actual performance of the basket and the basket underliers 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 the EURO STOXX 50 ®  Index, the S&P 500 ®  Index, the FTSE ®  100 Index and the Russell 2000 ®  Index from February 21, 2008 through February 21, 2018. The graphs are for illustrative purposes only. We obtained the closing levels in the graphs below from Bloomberg Financial Services, without independent verification. Although the official closing levels of the Russell 2000 ®  Index are published to six decimal places by its underlier sponsor, Bloomberg Financial Services reports the levels of the Russell 2000 ®  Index to fewer decimal places.

 

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PS- 22


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Historical Basket Levels

 

The following graph is based on the basket closing level for the period from February 21, 2008 through February 21, 2018 assuming that the basket closing level was 100 on February 21, 2008. We derived the basket closing levels based on the method to calculate the basket closing level as described in this pricing supplement and on actual closing levels of the relevant basket underliers on the relevant date. The basket closing level has been normalized such that its hypothetical level on February 21, 2008 was 100. As noted in this pricing supplement, the initial basket level will be set at 100 on the trade date. The basket closing level can increase or decrease due to changes in the levels of the basket underliers.

 

 

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Table of Contents

 

 

 

 

 

 

 

We have not authorized anyone to provide any information or to make any representations other than those contained or incorporated by reference in this pricing supplement, the accompanying product supplement no. 1,738, the accompanying general terms supplement no. 1,734, the accompanying prospectus supplement or the accompanying prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This pricing supplement, the accompanying product supplement no. 1,738, the accompanying general terms supplement no. 1,734, the accompanying prospectus supplement and the accompanying prospectus is an offer to sell only the notes offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this pricing supplement, the accompanying product supplement no. 1,738, the accompanying general terms supplement no. 1,734, the accompanying prospectus supplement and the accompanying prospectus is current only as of the respective dates of such documents.

 

 

 

 

 

 

$

 

 

GS Finance Corp.

 

 

Leveraged Buffered Basket-Linked Notes due

guaranteed by

The Goldman Sachs Group, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goldman Sachs & Co. LLC

 

 

TABLE OF CONTENTS

 

 

 

Pricing Supplement

 

 

 

 

 

Page

 

Summary Information

 

PS-3

 

Hypothetical Examples

 

PS-7

 

Additional Risk Factors Specific to Your Notes

 

PS-12

 

The Basket and the Basket Underliers

 

PS-17

 

 

 

 

 

Product Supplement No. 1,738 dated July 10, 2017

 

 

 

Summary Information

 

S-1

 

Hypothetical Returns on the Underlier-Linked Notes

 

S-10

 

Additional Risk Factors Specific to the Underlier-Linked Notes

 

S-30

 

General Terms of the Underlier-Linked Notes

 

S-35

 

Use of Proceeds

 

S-40

 

Hedging

 

S-40

 

Supplemental Discussion of Federal Income Tax Consequences

 

S-41

 

Employee Retirement Income Security Act

 

S-48

 

Supplemental Plan of Distribution

 

S-49

 

Conflicts of Interest

 

S-52

 

 

 

 

 

General Terms Supplement No. 1,734 dated July 10, 2017

 

 

 

Additional Risk Factors Specific to the Notes

 

S-1

 

Supplemental Terms of the Notes

 

S-16

 

The Underliers

 

S-36

 

S&P 500 ®  Index

 

S-40

 

MSCI Indices

 

S-46

 

Hang Seng China Enterprises Index

 

S-55

 

Russell 2000 ®  Index

 

S-61

 

FTSE ®  100 Index

 

S-69

 

EURO STOXX 50 ®  Index

 

S-75

 

TOPIX

 

S-82

 

The Dow Jones Industrial Average ®

 

S-87

 

The iShares ®  MSCI Emerging Markets ETF

 

S-91

 

Use of Proceeds

 

S-94

 

Hedging

 

S-94

 

Employee Retirement Income Security Act

 

S-95

 

Supplemental Plan of Distribution

 

S-96

 

Conflicts of Interest

 

S-98

 

 

 

 

 

Prospectus Supplement dated July 10, 2017

 

 

 

Use of Proceeds

 

S-2

 

Description of Notes We May Offer

 

S-3

 

Considerations Relating to Indexed Notes

 

S-15

 

United States Taxation

 

S-18

 

Employee Retirement Income Security Act

 

S-19

 

Supplemental Plan of Distribution

 

S-20

 

Validity of the Notes and Guarantees

 

S-21

 

 

 

 

 

Prospectus dated July 10, 2017

 

 

 

Available Information

 

2

 

Prospectus Summary

 

4

 

Risks Relating to Regulatory Resolution Strategies and Long-Term Debt Requirements

 

8

 

Use of Proceeds

 

11

 

Description of Debt Securities We May Offer

 

12

 

Description of Warrants We May Offer

 

45

 

Description of Units We May Offer

 

60

 

GS Finance Corp.

 

65

 

Legal Ownership and Book-Entry Issuance

 

67

 

Considerations Relating to Floating Rate Debt Securities

 

72

 

Considerations Relating to Indexed Securities

 

73

 

Considerations Relating to Securities Denominated or Payable in or Linked to a Non-U.S. Dollar Currency

 

74

 

United States Taxation

 

77

 

Plan of Distribution

 

92

 

Conflicts of Interest

 

94

 

Employee Retirement Income Security Act

 

95

 

Validity of the Securities and Guarantees

 

95

 

Experts

 

96

 

Review of Unaudited Condensed Consolidated Financial Statements by Independent Registered Public Accounting Firm

 

96

 

Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995

 

96

 

 

 

 

 

 

 

 

 

 

 

 

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