Any investment in securities carries certain risks. In terms of leverage products, the following special risks apply in particular:

• Leverage: Due to the leverage afforded by warrants, heavy losses can be incurred within a short period of time and even result in a total loss of the invested capital.

• Knock-out level: If a knock-out event were to occur, the product would become valueless even before its original expiration date.

• Limited term: The lifespan of a warrant or knock-out product is usually limited. The rights you acquire through the purchase of these products can lose value during the term or even lapse entirely. The shorter the remaining term to expiration, the greater the risk of a loss in value because there’s not much time left for the speculation to pay off.

• Other price-influencing factors: Changes in implied volatility have an impact on the value of knock-out warrants, although to a lesser extent than is the case with normal warrants. In addition, their value is influenced by changing interest rates, altered expectations for dividends on the underlying instrument, as well as attrition of the remaining term to expiration.

• Underlying instruments denominated in foreign currency: If the underlying instrument is traded in a currency other than the Swiss franc, investors bear an additional foreign exchange risk because the intrinsic value of the product is calculated in that foreign currency.

• From a legal standpoint, almost all structured products are considered to be unsecured debentures of the given issuer. If the issuer were to have difficulty meeting its payments or become insolvent, the invested capital is not protected. Hence the investor also bears a creditworthiness risk.