Warrants

With Warrants you can indirectly invest in stocks, indices and other assets using leverage. This means potential higher gain but also potential higher loss. There is no Knock-out risk, but in the worst case investors may lose the entire capital they invested. There are additional financial risks associated with investing in these products, which can be found below.

The holder of a Warrant has the right (but not the obligation) to buy (Call) or to sell (Put) a certain quantity of an underlying at a predetermined strike price within a specified period or on a specific date. Generally, investors in Call-Warrants are expecting an increasing underlying price, while investors in Put-Warrants are expecting decreasing underlying prices. On the repayment date a Warrant entitles the investor to receive an amount which will be based on the difference between the final price of the underlying on a certain valuation date and the strike (taking into account the relevant ratio).

When buying Warrants investors obtain leveraged exposure to the underlying. Warrants are suitable for experienced and active investors who have knowledge of highly leveraged financial investment products and understand that changes in the underlying prices have an effect on the value of the Warrant, due to the leverage. In the worst case investors may suffer a total loss of the invested capital.

In the secondary market Warrants usually behave as follows: Call-Warrant: Rising underlying prices generally tend to increase the price of a CallWarrant, whereas falling underlying prices generally reduce the price of a Call-Warrant (subject to all other parameters remaining unchanged). Put-Warrant: Falling underlying prices generally increase the price of a Put-Warrant, whereas rising underlying prices generally reduce the price of a Put-Warrant (subject to all other parameters remaining unchanged).

Example: If the price of the Deutsche Aktienindex (DAX®) rises, the value of a DAX®-CallWarrant generally increases as well, whereas falling DAX® prices generally reduce the value of a DAX®-Call-Warrant (subject to other parameters remaining unchanged). Vice versa, falling DAX® prices generally increase the value of a Put-Warrant on the DAX®, whereas rising underlying prices generally reduce the value of the DAX®-Put-Warrant (subject to other parameters remaining unchanged).

The value of the Warrant in the secondary market will not only track the performance of the underlying. The price of the Warrant will also be influenced by the time value and the volatility. The time value of the Warrant diminishes over the term of the Warrant. Declining implied volatility decreases the value of the Warrant and vice versa.

Risks

• Potential total loss: Due to the leverage, high losses are possible. In the worst case, the total loss of the invested capital is possible.

• Dependency on various price-determining factors: Factors that are difficult for investors to assess, such as dividend expectations, implied volatility and interest rate expectations, also influence the Warrant price.

• Time value: Even if the underlying moves in a direction that is favourable to the investor, the value of the Warrant may fall.

• Change of leverage: The change of the underlying price changes the leverage of the Warrant.

• Issuer risk: A total loss is possible if the Issuer of the Warrants and the Guarantor, The Goldman Sachs Group, Inc., become insolvent.

• Liquidity risk: Trading in the secondary market may be limited and investors bear the risk that they cannot buy or sell the products at any time and at a specific price (see information on Secondary Market for products issued by Goldman Sachs also here).